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As Filed with the Securities and Exchange Commission on April 29, 1997.
Registration No. 33--28889
811-5817
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Securities and Exchange Commission
Washington, D.C. 20549
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FORM N-4
Registration Statement Under the Securities Act of 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 13
and/or
Registration Statement Under the Investment Company Act of 1940
Amendment No. 14
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
(Exact Name of Registrant)
CANADA LIFE INSURANCE COMPANY OF AMERICA
(Name of Depositor)
330 University Avenue
Toronto, Canada M5G 1R8
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number: (416) 597-1456
Roy W. Linden
330 University Avenue
Toronto, Canada M5G 1R8
(Name and Address of Agent for Service)
Copy to:
Stephen E. Roth, Esquire
Sutherland, Asbill, & Brennan, L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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X on May 1, 1997 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(i)
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on pursuant to paragraph (a)(i)
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75 days after filing pursuant to paragraph (a)(ii)
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on pursuant to paragraph (a)(ii) of Rule 485
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If appropriate check the following box:
this Post-Effective Amendment designates a
--- new effective date for a new effective date for a
previously filed Post-Effective Amendment.
Pursuant to Rule 24f-2(a)(1) under the Investment Company Act of 1940, the
Registrant has registered an indefinite number of shares. The Registrant will
file a Rule 24f-2 Notice before June 30, 1997 for its most recent fiscal year
ended December 31, 1996.
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CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
Showing Location in Part A (Prospectus) and
Part B (Statement of Additional Information) of Registration
Statement of Information Required By Form N-4
PART A
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ITEM OF FORM N-4 PROSPECTUS CAPTION
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1. Cover Page Cover Page
2. Definitions DEFINITIONS
3. Synopsis SUMMARY
4. Condensed Financial Information CONDENSED FINANCIAL INFORMATION
5. General Description of Registrant,
Depositor and Portfolio Companies
a. Depositor THE COMPANY
b. Registrant The Variable Account
c. Portfolio Company The Fund
d. Fund Prospectus The Fund
e. Voting Rights VOTING RIGHTS
f. Administrators N/A
6. Deductions and Expenses Charges Against the Policy, Variable Account, & Fund
a. General Charges Against the Policy, Variable Account, & Fund
b. Sales Load % Charges Against the Policy, Variable Account, & Fund -
Surrender Charge
c. Special Purchase Plan N/A
d. Commissions DISTRIBUTION OF POLICIES
e. Expenses - Registrant Charges Against the Policy, Variable Account, & Fund
f. Fund Expenses Charges Against the Policy, Variable Account, & Fund -
Other Charges Including Investment Management Fees
g. Organizational Expenses N/A
7. General Description of Variable
Annuity Contracts
a. Persons With Rights DEFINITIONS - Owner, Joint Owner; Payment of Proceeds; Payment
Options; Partial Withdrawals; Other Policy Provisions;
VOTING RIGHTS
b. (i) Allocation of Premium Payments Premiums
(ii) Transfers Transfers; Payment of Benefits, Partial Withdrawals, Cash
Surrenders, &
Transfers - Postponement
(iii) Exchanges N/A
c. Changes Reserved Rights
d. Inquiries SUMMARY - Questions
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8. Annuity Period Payment Options
9. Death Benefit Payment of Proceeds; Payment of Benefits, Partial Withdrawals, Cash
Surrenders, & Transfers - Postponement; Payment Options
10. Purchases and Contract Value
a. Purchases Premiums
b. Valuation Variable Account Value
c. Daily Calculation Variable Account Value
d. Underwriter DISTRIBUTION OF POLICIES
11. Redemptions
a. - By Owners Payment of Proceeds - Proceeds on Surrender; Partial Withdrawals;
Payment of Benefits, Partial Withdrawals, Cash Surrenders, &
Transfers - Postponement
- By Annuitant Payment of Proceeds - Proceeds on Death of Last Surviving Annuitant
Before Annuity Date or Maturity Date; Payment Options
b. Texas ORP RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
c. Check Delay Payment of Benefits, Partial Withdrawals, Cash Surrenders, &
Transfers - Postponement
d. Lapse Premiums - Termination
e. Free Look Ten Day Right to Examine the Policy
12. Taxes Charges Against the Policy, Variable Account, & Fund - Taxes;
FEDERAL TAX STATUS
13. Legal Proceedings LEGAL PROCEEDINGS
14. Table of Contents of the Statement of STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
Additional Information
PART B
ITEM OF FORM N-4 STATEMENT OF ADDITIONAL INFORMATION CAPTION
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15. Cover Page Cover Page
16. Table of Contents STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
17. General Information and History See Prospectus - THE COMPANY; THE VARIABLE ACCOUNT AND THE FUND
18. Services
a. Fees and Expenses of Registrant N/A
b. Management Contract N/A
c. Custodian SAFEKEEPING OF ACCOUNT ASSETS
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d. Independent Public Accountant EXPERTS
e. Assets of Registrant SAFEKEEPING OF ACCOUNT ASSETS
f. Affiliated Persons N/A
g. Principal Underwriter See Prospectus - DISTRIBUTION OF POLICIES
19. Purchase of Securities Being Offered See Prospectus - DISTRIBUTION OF POLICIES
20. Underwriter See Prospectus - DISTRIBUTION OF POLICIES
21. Calculation of Performance Data CALCULATION OF YIELDS AND TOTAL RETURNS
22. Annuity Payments See Prospectus - Payment Options
23. Financial Statements FINANCIAL STATEMENTS
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PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
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CANADA LIFE INSURANCE COMPANY OF AMERICA
ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD, NW, ATLANTA, GEORGIA 30339
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PHONE: 1-800-905-1959
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PROSPECTUS
VARIABLE ANNUITY ACCOUNT 1
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY POLICY
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This Prospectus describes the flexible premium variable deferred annuity policy
(the "policy") offered by Canada Life Insurance Company of America ("we," "our,"
or "us"), a stock life insurance company domiciled in Michigan which is a
wholly-owned subsidiary of The Canada Life Assurance Company. The policy is
designed for use in connection with retirement plans which may or may not
qualify for special federal income tax treatment. The owner ("you") may allocate
net premiums when paid and policy value among the twenty-two sub-accounts of the
Canada Life of America Variable Annuity Account 1 (the "Variable Account") and
the Fixed Account or both. The Fixed Account guarantees a minimum fixed rate of
interest for specified periods of time, currently one year, three years, five
years, seven years and ten years (each a "Guarantee Period"). The Fixed Account
is part of our general account and may not be available in all states.
Assets of each sub-account are invested in a corresponding portfolio of Canada
Life of America Series Fund, Inc. ("CLASF"); Fidelity Investments Variable
Insurance Products Fund ("Fidelity VIP"); Fidelity Investments Variable
Insurance Products Fund II ("Fidelity VIP II"); Seligman Portfolios, Inc.
("Seligman"); Dreyfus Variable Investment Fund ("Dreyfus"); The Dreyfus Socially
Responsible Growth Fund, Inc. ("Dreyfus Socially Responsible"); The Alger
American Fund ("Alger American"); The Montgomery Funds III ("Montgomery"); or
Berger Institutional Products Trust ("Berger Trust"). The policy value prior to
the annuity date, except for amounts in the Fixed Account, will vary according
to the investment performance of the portfolio of the Funds in which your
elected sub-accounts are invested. You bear the entire investment risk on
amounts allocated to the Variable Account. Except in the case of the one year
Guarantee Period, policy value and other values provided by this policy, when
based on the Fixed Account, are subject to a Market Value Adjustment, the
operation of which may result in downward adjustments of amounts withdrawn,
surrendered, or transferred, but net premiums and policy value allocated to the
Fixed Account are guaranteed to earn interest at an annual rate of at least
three percent.
This Prospectus sets forth basic information about the policy, the Variable
Account, and the Fixed Account that a prospective investor ought to know before
investing. Additional information about the policy and the Variable Account is
contained in the Statement of Additional Information, which has been filed with
the Securities and Exchange Commission. The Statement of Additional Information
is dated the same date as this Prospectus and is incorporated herein by
reference. The Table of Contents for the Statement of Additional Information is
included in this Prospectus. You may obtain a copy of the Statement of
Additional Information free of charge by writing or calling us at the address or
phone number shown above.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. THIS
PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE POLICIES AND SHARES OF THE FUNDS ARE NOT INSURED BY THE FDIC OR ANY OTHER
AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE
NOT BANK GUARANTEED. THEY ARE SUBJECT TO MARKET FLUCTUATION,
REINVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
The date of this Prospectus is May 1, 1997.
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TABLE OF CONTENTS
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DEFINITIONS..................................................5
SUMMARY......................................................8
TABLE OF EXPENSES...........................................12
CONDENSED FINANCIAL INFORMATION.............................16
THE COMPANY.................................................20
THE VARIABLE ACCOUNT AND THE FUNDS..........................20
The Variable Account...................................20
The Funds..............................................21
Money Market.......................................21
Managed............................................22
Bond...............................................22
Value Equity.......................................22
International Equity...............................22
Capital............................................22
Fidelity VIP Growth................................22
Fidelity VIP High Income...........................23
Fidelity VIP Overseas..............................23
Fidelity VIP II Asset Manager.....................23
Fidelity VIP II Index 500..........................23
Seligman Communications and Information............23
Seligman Frontier..................................24
Dreyfus Growth and Income..........................24
Dreyfus Socially Responsible.......................24
Alger American Small Capitalization................25
Alger American Growth..............................25
Alger American MidCap Growth.......................25
Alger American Leveraged AllCap....................25
Montgomery Variable Series Emerging Markets........26
Berger Institutional Products Trust................26
Reserved Rights........................................26
Change in Investment Policy............................26
The Fixed Account......................................27
Guarantee Amount.............................27
Guarantee Periods............................27
Market Value Adjustment......................28
DESCRIPTION OF ANNUITY POLICY...............................29
Ten Day Right To Examine Policy........................29
Premiums...............................................29
Initial Premium....................................29
Additional Premiums................................30
Wire Transmittal Privilege.........................30
Electronic Data Transmission
of Application Information.......................30
Net Premium Allocation
Termination........................................31
Variable Account Value.................................31
Units..............................................31
Unit Value.........................................32
Net Investment Factor..............................32
Transfers..............................................32
Transfer Privilege.................................32
Telephone Transfer Privilege.......................32
Dollar Cost Averaging Privilege....................33
Restrictions on Transfers from Fixed Account.......33
Transfer Processing Fee............................33
Payment of Proceeds....................................34
Proceeds...........................................34
Proceeds on Annuity Date or Maturity Date..........34
Proceeds on Surrender..............................34
Proceeds on Death of Last Surviving Annuitant Before
Annuity Date or Maturity Date(The Death Benefit).35
Proceeds on Death of Any Owner Before
or After Annuity Date or Maturity Date...........36
Interest on Proceeds ..............................36
Partial Withdrawals....................................37
Systematic Withdrawal Privilege....................37
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Portfolio Rebalancing..................................38
Loans..................................................38
Payment of Benefits, Partial Withdrawals,
Cash Surrenders and Transfers - Postponement.......39
Charges Against the Policy, Variable
Account, and Funds..................................40
Surrender Charge...................................40
Policy Administration Charge.......................40
Transfer Processing Fee.............................41
Annualized Mortality and Expense Risk Charge........41
Waiver of Surrender Charges.........................42
Reduction or Elimination of Surrender Charges.......42
Reduction or Elimination of Policy
Administration Charge .............................43
Taxes .............................................43
Other Charges Including Investment Advisory Fees....43
Payment Options........................................43
Election of Options.................................43
Description of Payment Options......................44
Payment Dates.......................................44
Age and Survival of Payee...........................44
Death of Payee......................................44
Other Policy Provisions................................44
Owner or Joint Owner................................44
Beneficiary.........................................45
Written Notice......................................45
Periodic Reports....................................45
Assignment..........................................45
Modification........................................46
YIELDS AND TOTAL RETURNS....................................46
TAX DEFERRAL................................................47
FEDERAL TAX STATUS..........................................48
Introduction...........................................48
The Company's Tax Status...............................48
Tax Status of the Policy...............................49
Diversification Requirements........................49
Required Distributions..............................49
Taxation of Annuities..................................50
In General..........................................50
Withdrawals/Distributions...........................50
Annuity Payments....................................50
Taxation of Death Benefit Proceeds..................51
Penalty Tax on Certain Withdrawals..................51
Transfers, Assignments, or Exchanges of a Policy.......51
Withholding............................................52
Multiple Policies......................................52
Possible Tax Changes...................................52
Taxation of Qualified Plans............................52
Individual Retirement Annuities and
Simplified Employee Pensions (SEP/IRAs).........53
Minimum Distribution Requirements ("MDR") for IRA's.53
Corporate and Self-Employed (H.R.10 and
Keogh) Pension and Profit-Sharing Plans.........54
Deferred Compensation Plans.........................54
Tax-Sheltered Annuity Plans.........................54
Other Tax Consequences.................................54
RESTRICTIONS UNDER THE TEXAS OPTIONAL
RETIREMENT PROGRAM..........................................55
DISTRIBUTION OF POLICIES....................................55
LEGAL PROCEEDINGS...........................................55
VOTING RIGHTS...............................................55
FINANCIAL STATEMENTS........................................56
STATEMENT OF ADDITIONAL INFORMATION - TABLE OF CONTENTS.....57
APPENDIX A: STATE PREMIUM TAXES.............................58
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DEFINITIONS
ADMINISTRATIVE OFFICE: Our office at the address shown on page 1 of the
Prospectus.
ANNUITANT: Any natural person whose life is used to determine the duration of
any payments made under a payment option involving life contingencies. The term
annuitant also includes any co-annuitant, a term used to refer to more than one
annuitant.
ANNUITY DATE: The date when the policy value will be applied under an annuity
payment option.
BENEFICIARY: The person to whom we will pay the proceeds payable on your death
or the death of the last surviving annuitant..
CASH SURRENDER VALUE: The policy value less: 1) any applicable surrender charge;
2) the policy administration charge; and 3) any applicable market value
adjustment.
CO-ANNUITANT: A term used solely for the purpose of referring to more than one
annuitant. There is no other distinction between the terms annuitant and
co-annuitant. A co-annuitant: 1) is allowed but not required under a
non-qualified policy and 2) is not allowed under a qualified policy and any
designation of a co-annuitant under a qualified policy will be of no effect .
COMPANY: Canada Life Insurance Company of America.
DUE PROOF OF DEATH: Proof of death that is satisfactory to us. Such proof may
consist of: 1) a certified copy of the death certificate; and/or 2) a certified
copy of the decree of a court of competent jurisdiction as to the finding of
death.
EFFECTIVE DATE: The date we accept your application and apply your initial
premium.
FIXED ACCOUNT: Part of our general account that provides a Guaranteed Interest
Rate for a specified Guarantee Period. This account is not part of and does not
depend on the investment performance of the Variable Account.
FUNDS: The Canada Life of America Series Fund, Inc.; Fidelity Investments
Variable Insurance Products Fund; Fidelity Investments Variable Insurance
Products Fund II; Seligman Portfolios, Inc.; Dreyfus Variable Investment Fund;
The Dreyfus Socially Responsible Growth Fund, Inc.; The Alger American Fund; The
Montgomery Funds III,; and the Berger Trust.
GUARANTEE AMOUNT: Before the Annuity Date, the amount equal to that part of any
net premium allocated to or policy value transferred to the Fixed Account for a
designated Guarantee Period with a particular expiration date (including
interest thereon) less any withdrawals (including any applicable surrender
charges, any applicable Market Value Adjustment and any applicable premium tax
charge) or transfers (including any applicable Market Value Adjustments)
therefrom.
GUARANTEE PERIOD: A specific number of years for which we agree to credit a
particular effective annual rate of interest. We currently offer Guarantee
Periods of one, three, five, seven and ten years.
GUARANTEED INTEREST RATE: The applicable effective annual rate of interest that
we will pay on a Guarantee Amount. The Guaranteed Interest Rate will be at least
three percent per year.
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JOINT OWNER: A term used solely for the purpose of referring to more than one
owner. There is no other distinction between the terms owner and joint owner.
LAST SURVIVING ANNUITANT: The annuitant or co-annuitant that survives
the other.
MARKET VALUE ADJUSTMENT: A positive or negative adjustment that may apply to any
portion of a Guarantee Amount upon the surrender, withdrawal, or transfer of
such portion of the Guarantee Amount before the expiration of the Guarantee
Period applicable to that Guarantee Amount.
MATURITY DATE: The first day of the month after last surviving annuitant's 100th
birthday.
NET PREMIUMS: The premium paid less any premium tax deducted in the year the
premium is paid.
NONQUALIFIED POLICY: A policy that is not a "qualified" policy under the
Internal Revenue Code of 1986, as amended (the "Code").See "FEDERAL TAX STATUS".
OWNER: The owner is entitled to exercise all rights and privileges provided the
owner in the policy. The term owner also includes any joint owner.
PAC: Pre-authorized check, including electronic fund transfers.
POLICY: One of the flexible premium variable deferred annuity policies offered
by this Prospectus.
POLICY VALUE: The sum of the Variable Account value and the Fixed Account value.
POLICY DATE, YEARS, MONTHS, and ANNIVERSARIES: Are measured from the policy date
shown in the "Policy Details" of the policy.
QUALIFIED POLICY: A policy that is issued in connection with plans that receive
special federal income tax treatment under sections 401, 403(a), 403(b), 408 or
457 of the Code. See "FEDERAL TAX STATUS" .
SUB-ACCOUNT(S): The Variable Account is divided into twenty-two sub-accounts.
The assets of the sub-accounts are invested in the corresponding portfolios of
the Funds.
UNIT: A unit is a measurement used in the determination of the policy's Variable
Account value before the annuity date or maturity date.
VALUATION DAY: Each day the New York Stock Exchange is open for trading.
VALUATION PERIOD: The period beginning at the close of business on a valuation
day and ending at the close of business on the next succeeding valuation day.
The close of business is when the New York Stock Exchange closes (usually at
4:00 p.m. Eastern Time).
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VARIABLE ACCOUNT: The Canada Life of America Variable Annuity Account 1.
WE, OUR, and US: Canada Life Insurance Company of America.
WRITTEN NOTICE: See the "Written Notice" provision in the "Other Policy
Provisions" section of this Prospectus.
YOU or YOUR: The owner. See the definitions of "Owner" and "Joint Owner" above.
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SUMMARY
TEN DAY RIGHT TO EXAMINE POLICY
You have ten days after you receive the policy to decide if the policy meets
your needs (except in California you have 30 days if you are over age 60, and in
Idaho and North Dakota you have 20 days), and if the policy does not meet your
needs to return the policy to our Administrative Office. We will promptly return
either the policy value (where allowed by law); or in states which do not allow
return policy value, we will return the full premium paid, without interest and
less the amount of any partial withdrawals, within seven days. When the policy
is issued as an Individual Retirement Annuity, during the first seven days of
the ten day period, we will return all premiums if this is greater than the
amount otherwise payable.
PREMIUMS
The minimum initial premium is $5,000 ($2,000 if the policy is an Individual
Retirement Annuity, but we reserve the right to lower or raise the minimum
premium for IRA's). However, the minimum initial premium is $100 ($50 if the
policy is an Individual Retirement Annuity) if submitted with a pre-authorized
check ("PAC") agreement. You may make additional premium payments during any
annuitant's lifetime and before the annuity date or maturity date. The minimum
additional premium is $1,000, or $100 per month if paid by PAC (or $50 per month
if paid by PAC if the policy is an Individual Retirement Annuity). Our prior
approval is required before your total premiums paid exceed $1,000,000. You may
allocate your net premiums among the sub-accounts of the Variable Account and
the Fixed Account. See "Premiums".
THE VARIABLE ACCOUNT
The Variable Account is a separate investment account consisting of twenty two
sub-accounts. The policy value before the annuity date or maturity date, except
for amounts in the Fixed Account, will vary according to the investment
performance of the portfolios of the Fund in which your elected sub-accounts are
invested. See "The Variable Account".
THE FUNDS
The assets of each sub-account are invested in the corresponding portfolio of
the Funds. The Funds currently offer twenty-two portfolios available for
investment under the policy: Money Market; Managed; Bond; Value Equity (formerly
known as Equity); International Equity; Capital; Fidelity VIP Growth; Fidelity
VIP High Income; Fidelity VIP Overseas; Fidelity VIP II Asset Manager; Fidelity
VIP II Index 500; Seligman Communications and Information; Seligman Frontier;
Dreyfus Growth and Income; Dreyfus Socially Responsible; Alger American Small
Capitalization; Alger American Growth; Alger American MidCap Growth; Alger
American Leveraged AllCap; Montgomery Variable Series Emerging Markets;
Montgomery Variable Series Growth Fund; and Berger/BIAM IPT - International
Fund. The Funds are diversified, open-end investment companies. See "The Funds".
THE FIXED ACCOUNT
The Fixed Account is not part of and does not depend on the investment
performance of the Variable Account. Under the Fixed Account you may allocate
all or a portion of net premium payments and transfer policy
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value among several Guarantee Periods selected by you. We currently offer
Guarantee Periods with durations of one, three, five, seven, and ten years. If
the amount allocated or transferred remains in a Guarantee Period until the
expiration date of a Guarantee Period, its value will be equal to the amount
originally allocated or transferred, multiplied on an annually compounded basis,
by its Guaranteed Interest Rate. Except for the one year guarantee period any
surrender, withdrawal, or transfer made before the expiration of a Guarantee
Period will be subject to a Market Value Adjustment that may increase or
decrease the Guarantee Amount (or portion thereof) being surrendered, withdrawn
or transferred. Because of this adjustment and for other reasons, the amount
payable upon surrender, withdrawal, or transfer may be more or less than the
Guarantee Amount at the time of the transaction. However, the Market Value
Adjustment will never reduce the earnings on amounts allocated to the Fixed
Account to less than three percent per year. The Market Value Adjustment does
not apply to amounts surrendered, withdrawn, or transferred from the one year
Guarantee Period (See "THE FIXED ACCOUNT - Market Value Adjustment").
TRANSFERS
You may transfer all or part of an amount in a sub-account or the Fixed Account
to another sub-account(s) or the Fixed Account, subject to certain restrictions.
See "Transfers".
DEATH BENEFIT
If we receive due proof of death of the last surviving annuitant before the
annuity date or maturity date ("such due proof"), we will pay the beneficiary a
death benefit.
THE FOLLOWING APPLIES ONLY TO POLICIES ISSUED ON OR AFTER MAY 1, 1996 OR
SUCH LATER DATE AS APPLICABLE REGULATORY APPROVALS ARE OBTAINED IN THE
JURISDICTION IN WHICH THE POLICIES ARE OFFERED:
If we receive such due proof during the first five years, the death
benefit is the greater of:
1. the premiums paid, less: a) any partial withdrawals,
including applicable surrender charges; and b) any
incurred taxes; or
2. the policy value on the date we receive due proof of
the last surviving annuitant's death.
If we receive such due proof after the first five policy years, the
death benefit is the greatest of:
1. item "1" above; or
2. item "2" above; or
3. the policy value at the end of the most recent 5
policy year period preceding the date we receive due
proof of the last surviving annuitant's death,
adjusted for any of the following items that occur
after such last 5 policy year period: a) less any
partial withdrawals, including applicable surrender
charges; b) less any incurred taxes; and c) plus any
premiums paid. The 5 policy year periods are measured
from the policy date (i.e., 5, 10, 15, 20, etc.).
If on the date the policy was issued, all annuitants were attained age
80 or less, then after any annuitant attains age 81, the death benefit
is the greater of items "1" or "2" above. However, if on the date the
policy was issued, any annuitant was attained age 81 or more, then the
death benefit is the policy value.
THE FOLLOWING APPLIES ONLY TO POLICIES ISSUED FROM MAY 1, 1995 THROUGH
APRIL 30, 1996, OR SUCH LATER DATE AS APPLICABLE REGULATORY APPROVALS
ARE OBTAINED IN THE JURISDICTIONS IN WHICH THE CONTRACTS ARE OFFERED.
If we receive such due proof during the first seven policy
years, the death benefit is the greater of:
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1. the premiums paid, less: a) any partial withdrawals,
including applicable surrender charges; and b) any
incurred taxes; or
2. the policy value on the date we receive due proof of
the last surviving annuitant's death.
If we receive such due proof after the first seven policy years, the
death benefit is the greatest of:
1. item "1." above; or
2. item "2." above; or
3. the policy value at the end of the most recent 7
policy year period preceding the date we receive due
proof of the last surviving annuitant's death,
adjusted for any of the following items that occur
after such last 7 policy year period: a) less any
partial withdrawals, including applicable surrender
charges; b) less any incurred taxes; and c) plus any
premiums paid. The 7 policy year periods are measured
from the policy date (i.e., 7, 14, 21, 28, etc.).
No further step-ups in Death Benefit will occur
after the age of 80.
THE FOLLOWING APPLIES ONLY TO CONTRACTS ISSUED PRIOR TO MAY 1, 1995 OR
SUCH LATER DATE AS APPLICABLE REGULATORY APPROVALS ARE OBTAINED IN THE
JURISDICTION IN WHICH THE CONTRACTS ARE OFFERED.
If we receive such due proof during the first five policy years, the
death benefit is the greater of:
1. the premiums paid, less: a) any partial withdrawals,
including applicable surrender charges; and b) any
incurred taxes; or
2. the policy value on the date we receive due proof of
the last surviving annuitant's death.
If we receive such due proof after the first five policy years, the
death benefit is the greatest of:
1. item "1" above; or
2. item "2" above; or
3. the policy value at the end of the most recent 5 year
policy period preceding the date we receive due proof
of the last surviving annuitant's death, adjusted for
any of the following items that occur after such last
5 year policy period: a) less any partial
withdrawals, including applicable surrender charges;
b) less any incurred taxes; and c) plus any premiums
paid. The 5 year policy periods are measured from the
policy date (i.e., 5, 10, 15, 20, etc.).
No death benefit is payable if the policy is surrendered before the last
surviving annuitant's death.
See "Proceeds on Death of Last Surviving Annuitant Before Annuity Date or
Maturity Date".
PARTIAL WITHDRAWALS AND CASH SURRENDERS
You may withdraw part or all of the cash surrender value at any time before the
earlier of the death of the last surviving annuitant, the annuity date or
maturity date, subject to certain limitations. See "The Fixed Account", "Partial
Withdrawals" and "Proceeds on Surrender". Partial withdrawals and cash
surrenders may be subject to federal income tax, including a penalty tax.
See "FEDERAL TAX STATUS".
POLICY CHARGES
No deduction for a sales charge is made when premiums are paid. However, a
surrender charge (contingent deferred sales charge) will be deducted when
certain partial withdrawals and cash surrenders are made. For the purpose
of determining if any surrender charge applies and the amount of such
charge, partial withdrawals and surrenders are taken according to these
rules from policy value attributable to premiums or investment earnings in
the following order:
10
<PAGE> 15
<TABLE>
<CAPTION>
SURRENDER CHARGE
<S> <C>
1. Up to 100% of positive investment earnings of each variable sub-account available at
the time the request is made, once a policy year, PLUS.........................................................None
2. Up to 100% of current policy year's interest on the FIXED ACCOUNT at the time the
request for surrender/withdrawal is made, once a policy year, PLUS............................................ None
3. Up to 10% of total premiums STILL SUBJECT TO A SURRENDER CHARGE, once
a policy year, PLUS......................................................................................... None
4. Up to 100% of those premiums NOT SUBJECT TO A SURRENDER CHARGE, available
at any time....................................................................................................None
5. Premiums subject to a surrender charge:
For policies issued prior to May 1, 1995 or such later date as
applicable regulatory approvals are obtained in the jurisdiction in
which the contracts are offered: (For 5 years from the date of
payment, each premium is subject to a 6% surrender
charge. After the 5th year, no surrender charge will apply to such payment)..................................6%
For policies issued after April 30, 1995 or such later date as applicable regulatory
approvals are obtained in the jurisdiction in which the contracts are offered:
Policy Years Since Premium Was Paid
-----------------------------------
Less than 1...........................................................................................6%
At least 1, but less than 2...........................................................................6%
At least 2, but less than 3...........................................................................5%
At least 3, but less than 4...........................................................................5%
At least 4, but less than 5...........................................................................4%
At least 5, but less than 6...........................................................................3%
At least 6, but less than 7...........................................................................2%
At least 7..........................................................................................None
</TABLE>
See "Surrender Charge".
We deduct a policy administration charge of $30 for the prior policy year on
each policy anniversary. If the policy value on the policy anniversary is
$75,000 or more, we will waive the policy administration charge for the prior
policy year. We will also deduct this charge for the current policy year if the
policy is surrendered for its cash surrender value, unless the surrender occurs
on the policy anniversary. See "Policy Administration Charge".
At each valuation period, we also deduct a daily administration fee at an
effective annual rate of 0.15% from the assets of the Variable Account. See
"Daily Administration Fee".
The first 12 transfers during each policy year are free under our current
Company policy, which we reserve the right to change. Although the Company
currently does not assess a transfer fee for the 13th and each additional
transfer in a policy year, we reserve the right to assess a $25 transfer fee.
See "Transfer Processing Fee".
We deduct a mortality and expense risk charge at each valuation period from the
assets of the Variable Account at an effective annual rate of 1.25%. This charge
is not made after the annuity date or maturity date, or against any amounts in
the Fixed Account. See "Annualized Mortality and Expense Risk Charge".
We will incur premium taxes in some jurisdictions relating to the policies.
Depending on the jurisdiction, we deduct any such taxes from either: a) the
premium when paid; or b) the policy value when it is applied under a payment
option, cash surrender value or partial withdrawal. See "Taxes".
11
<PAGE> 16
Each portfolio of the Funds in which the Variable Account invests is responsible
for its own expenses. In addition, charges for investment advisory services are
charged daily from each portfolio of each fund. See "Other Charges Including
Investment Advisory Fees" and the attached "PROSPECTUSES FOR THE FUNDS."
LOANS
The Company may offer a loan privilege to owners of policies issued in
connection with Section 403(b) qualified plans that are not subject to Title I
of ERISA (Employee Retirement Income Security Act of 1974, as amended). If
offered, owners of such policies may obtain loans using the policy as the only
security for the loan, and the effective cost of a policy loan would be 2% per
year of the amount borrowed. See "Loans".
ANNUITY DATE, MATURITY DATE AND PAYMENT OPTIONS
On the annuity date, we will apply the policy value under a Payment Option 1,
unless you have elected to receive the cash surrender value in a lump sum, or
pursuant to a mutually agreed upon payment option, Payment Option 2. Payments
under these payment options do not depend on the Variable Account's investment
performance. The proceeds we will pay on the maturity date is the policy value.
The payment options are: 1) Life Income; and 2) Mutual Agreement. See "Payment
Options".
OTHER POLICY PROVISIONS
For information concerning the owner, beneficiary, written notice, periodic
policy reports, assignment, and modification see "Other Policy Provisions".
FEDERAL TAX STATUS
For a brief discussion of our current understanding of the federal tax laws
concerning us and the annuity policies we issue see "Federal Tax Status".
QUESTIONS
We will be happy to answer your questions about the policy or our procedures.
Call or write to us at the phone number or address on page 1. All inquiries
should include the policy number, and the names of the owner and the annuitant.
TABLE OF EXPENSES
EXPENSE DATA
The following information regarding expenses assumes that the entire policy
value is in the Variable Account:
<TABLE>
<S> <C>
POLICYOWNER TRANSACTION EXPENSES*
Sales load on premiums ................................................................................................None
</TABLE>
Maximum contingent deferred sales charge as a percentage of amount
surrendered (10% of total premiums still subject to a surrender charge are
free of any sales load
<TABLE>
<C> <C>
See "Policy Charges").................................................................................................6%
</TABLE>
12
<PAGE> 17
<TABLE>
<S> <C>
Transfer fee
Current Policy - First 12 transfers each policy year.........................................................No fee
Each transfer thereafter....................................................................................No fee**
POLICY ADMINISTRATION CHARGE............................................................................$30 per policy
(waived for the prior policy year if the policy value is $75,000 or more on the policy anniversary)
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of account value)
Mortality and expense risk charges................................................................................1.25%
Daily Administration Fee***.......................................................................................0.15%
Total Variable Account annual expenses............................................................................1.40%
</TABLE>
FUND'S ANNUAL EXPENSES****
(as a percentage of average net assets)
<TABLE>
<CAPTION>
TOTAL
SUB-ACCOUNT MANAGEMENT OTHER EXPENSES ANNUAL
FEES AFTER EXPENSE EXPENSES
REIMBURSEMENT****
<S> <C> <C> <C>
Bond 0.50% 0.40% 0.90%
Capital 0.50% 0.40% 0.90%
International Equity 0.80% 0.40% 1.20%
Managed 0.50% 0.40% 0.90%
Money Market 0.50% 0.25% 0.75%
Value Equity 0.50% 0.40% 0.90%
Alger American Growth 0.75% 0.04% 0.79%
Alger American Leveraged AllCap 0.85% 0.24% 1.09%
Alger American MidCap Growth 0.80% 0.04% 0.84%
Alger American Small Capitalization 0.85% 0.03% 0.88%
Berger/BIAM IPT-International***** 0.00% 1.20% 1.20%
Dreyfus Growth and Income 0.75% 0.08% 0.83%
Dreyfus Socially Responsible 0.72% 0.24% 0.96%
Fidelity VIP Growth 0.61% 0.08% 0.69%
Fidelity VIP High Income 0.59% 0.12% 0.71%
Fidelity VIP Overseas 0.76% 0.17% 0.93%
Fidelity VIP II Asset Manager 0.64% 0.10% 0.74%
Fidelity VIP II Index 500 0.13% 0.15% 0.28%
Montgomery Variable Series Emerging Markets 0.23% 1.22% 1.45%
Montgomery Variable Series Growth 0.00% 0.01% 0.01%
Seligman Communications and Information 0.75% 0.12% 0.87%
Seligman Frontier 0.75% 0.17% 0.92%
</TABLE>
* In addition to the policyowner transaction expenses reflected
in the table, a Market Value Adjustment applies to the
Guarantee Amount subject to surrender, withdrawal, or transfer
except during the 30 days following the expiration of a
Guarantee Period. Because of this adjustment and for other
reasons, the amount payable upon surrender, withdrawal, or
transfer may be greater or less than the Guarantee Amount at
the time of the transaction. The Market Value Adjustment,
however, will never reduce the earnings on amounts allocated
to the Fixed Account to less than three percent per year and
does not apply to amounts surrendered, withdrawn, or
transferred from the one year Guarantee Period.
** Although, the Company currently does not assess a transfer fee
for the 13th and each additional transfer in a policy year, we
reserve the right to assess a $25 transfer fee.
13
<PAGE> 18
*** The Daily Administration Fee is imposed only under policies
issued after May 1, 1994, or such later date as applicable
regulatory approvals are obtained in the jurisdiction in which
the policies are offered. We do not assess the Daily
Administration Fee under policies issued prior to May 1, 1994.
**** We currently reimburse CLASF for expenses that exceed 0.40% of
the average daily net assets of Managed, Bond, Value Equity,
Capital and International Equity Portfolios, and 0.25% of the
Money Market Portfolio. Absent such reimbursement, the "Other
Expenses" for the Money Market Portfolio would have been
0.59%, for the Bond Portfolio 0.57% and for the International
Equity Portfolio 0.76%. "Other Expenses" for the Managed,
Value Equity, and Capital Portfolios did not exceed the
reimbursement level of 0.40%.
A portion of the brokerage commissions that certain Fidelity
VIP and Fidelity VIP II funds pay was used to reduce fund
expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby
interest earned on uninvested cash balances was used to reduce
custodian and transfer agent expenses. Including these
reductions, the total operating expenses presented in the
table would have been 0.67% for Growth Portfolio, 0.92% for
Overseas Portfolio, and 0.73% for Asset Manager Portfolio.
Fidelity VIP II Index 500 fund expenses were voluntarily
reduced by the fund's investment adviser. Absent
reimbursement, the management fee, other expenses, and total
expenses would have been 0.28%, 0.15%, and 0.43% respectively.
Management of Dreyfus Growth and Income and Dreyfus Socially
Responsible, in their sole discretion, may waive some or all
of their fees and/or voluntarily assume certain expenses for
these Funds. For the fiscal year ended December 31, 1996, a
portion of the management fee for Dreyfus Socially Responsible
was waived. Without such fee waivers, the Management Fees,
Other Expenses and Total Annual Expenses would have been
0.75%, 0.24% and 0.99%, respectively. There is no guarantee
that any fee waivers or expense reimbursements will continue
in the future.
The Manager of the Montgomery Variable Series Growth Fund has
agreed to reduce some or all of its management fees if
necessary to keep total annual operating expenses, expressed
on an annualized basis, for the Growth Fund at or below 1.50%
of average net assets. The Manager also may voluntarily reduce
additional amounts to increase the return to policyowners
investing in the Montgomery Variable Series Growth Fund. The
Manager may terminate these voluntary reductions at any time.
Any reductions made by the Manager in its fees are subject to
reimbursement by the Montgomery Variable Series Growth Fund
within the following three years, provided the Portfolio is
able to effect such reimbursement and remain in compliance
with applicable expense limitations. The Management Fees,
Other Expenses and Total Annual Expenses absent voluntary
waivers for the Montgomery Variable Series Growth Fund were
1.0%, 5.98%, and 6.98%; and 1.25%, 1.22%, and 2.47% for the
Montgomery Variable Series Emerging Markets Fund.
***** Berger/BIAM IPT-International management fees and expenses are
anticipated numbers as the fund was not in existence as of
12/31/96. Management has voluntarily agreed to wave its
management fee, and expects to voluntarily reimburse the fund
for additional expenses in excess of 1.20%.
See "Charges Against The Policy, Variable Account, And Funds,", and the
Funds Prospectus. In addition to the expenses listed above, premium taxes
may be applicable, which currently range between 0.5% to 3.5%, according to
the jurisdiction. In many jurisdictions, there is no tax at all. See
Appendix A, State Premium Taxes.
14
<PAGE> 19
EXAMPLES
A policyowner would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
1. If the policy is surrendered at the end of the applicable time period:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Bond $ 79 $ 121 $ 166 $ 278
Capital $ 79 $ 121 $ 166 $ 278
International Equity $ 82 $ 130 $ 181 $ 307
Managed $ 79 $ 121 $ 166 $ 278
Money Market $ 77 $ 117 $ 159 $ 263
Value Equity $ 79 $ 121 $ 166 $ 278
Alger American Growth $ 78 $ 118 $ 161 $ 267
Alger American Leveraged AllCap $ 81 $ 127 $ 176 $ 296
Alger American MidCap Growth $ 78 $ 119 $ 163 $ 272
Alger American Small Capitalization $ 79 $ 120 $ 165 $ 276
Berger/BIAM IPT - International $ 82 $ 130 $ 181 $ 307
Dreyfus Growth and Income $ 78 $ 119 $ 163 $ 271
Dreyfus Socially Responsible $ 79 $ 123 $ 169 $ 284
Fidelity VIP Growth $ 77 $ 115 $ 156 $ 257
Fidelity VIP High Income $ 77 $ 115 $ 157 $ 259
Fidelity VIP Overseas $ 79 $ 122 $ 168 $ 281
Fidelity VIP II Asset Manager $ 77 $ 116 $ 158 $ 262
Fidelity VIP II Index 500 $ 72 $ 102 $ 135 $ 214
Montgomery Variable Series Emerging Markets $ 84 $ 137 $ 193 $ 331
Montgomery Variable Series Growth $ 70 $ 94 $ 120 $ 185
Seligman Communications and Information $ 78 $ 120 $ 165 $ 275
Seligman Frontier $ 79 $ 122 $ 167 $ 280
</TABLE>
15
<PAGE> 20
2. If the policy is annuitized or not surrendered at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Bond $ 25 $ 76 $ 130 $ 278
Capital $ 25 $ 76 $ 130 $ 278
International Equity $ 28 $ 85 $ 145 $ 307
Managed $ 25 $ 76 $ 130 $ 278
Money Market $ 23 $ 72 $ 123 $ 263
Value Equity $ 25 $ 76 $ 130 $ 278
Alger American Growth $ 24 $ 73 $ 125 $ 267
Alger American Leveraged AllCap $ 27 $ 82 $ 140 $ 296
Alger American MidCap Growth $ 24 $ 74 $ 127 $ 272
Alger American Small Capitalization $ 25 $ 75 $ 129 $ 276
Berger/BIAM IPT - International $ 28 $ 85 $ 145 $ 307
Dreyfus Growth and Income $ 24 $ 74 $ 127 $ 271
Dreyfus Socially Responsible $ 25 $ 76 $ 130 $ 278
Fidelity VIP Growth $ 23 $ 70 $ 120 $ 257
Fidelity VIP High Income $ 23 $ 70 $ 121 $ 259
Fidelity VIP Overseas $ 25 $ 77 $ 132 $ 281
Fidelity VIP II Asset Manager $ 23 $ 71 $ 122 $ 262
Fidelity VIP II Index 500 $ 18 $ 57 $ 99 $ 214
Montgomery Variable Series Emerging Markets $ 30 $ 92 $ 157 $ 331
Montgomery Variable Series Growth $ 16 $ 49 $ 84 $ 185
Seligman Communications and Information $ 24 $ 75 $ 129 $ 275
Seligman Frontier $ 25 $ 77 $ 131 $ 280
</TABLE>
The examples represent expenses incurred in connection with a 7 year surrender
charge period. Policies issued with a 5 year maximum surrender charge period
would be subject to lower expenses.
The examples provided above assume that no transfer charges have been assessed.
The examples also reflect a policy administration charge of .14% of assets,
determined by dividing the total policy administration charges collected by the
total average net assets of the sub-accounts of the Variable Account.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE
ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESSER
THAN THE ASSUMED AMOUNT.
CONDENSED FINANCIAL INFORMATION
The following condensed financial information is derived from the financial
statements of the Variable Account. The data should be read in conjunction with
the financial statements, related notes and other financial information included
in the Statement of Additional Information. See the "FINANCIAL STATEMENTS"
section concerning financial statements contained in the Statement of Additional
Information.
The table below sets forth certain information regarding the sub-accounts for a
policy for the period from December 31, 1989 through December 31, 1996.
Accumulation Unit Values will not be provided for any date prior to the
inception of
16
<PAGE> 21
the Variable Account. As of December 31, 1996, the Montgomery Variable Series
Growth and Berger/BIAM IPT - International sub-accounts had not commenced
operations. Accordingly, condensed financial information is not available for
those sub-accounts.
17
<PAGE> 22
ACCUMULATION
UNIT VALUE*
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF AS OF AS OF AS OF
SUB ACCOUNT 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
----------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bond** $15.47 $14.98 $12.98 $13.69 $12.57 $11.93 $10.39 $ 9.97
Capital*** $15.51 $13.95 $10.54 $11.14 -- -- -- --
International Equity***** $12.35 $10.48 -- -- -- -- -- --
Managed** $17.29 $16.56 $13.75 $13.97 $13.07 $12.25 $10.05 $10.01
Money Market** $12.30 $11.94 $11.50 $11.27 $11.16 $10.99 $10.61 $10.04
Value Equity** $18.32 $17.34 $14.21 $14.11 $13.56 $12.66 $ 9.50 $10.06
Alger American Small Capitalization****** $41.09 -- -- -- -- -- -- --
Alger American Growth****** $35.15 -- -- -- -- -- -- --
Alger American Leveraged All Cap****** $19.04 -- -- -- -- -- -- --
Alger American Mid Cap Growth****** $21.05 -- -- -- -- -- -- --
Dreyfus Growth & Income****** $22.62 -- -- -- -- -- -- --
Dreyfus Socially Responsible****** $21.26 -- -- -- -- -- -- --
Fidelity VIP Growth**** $35.88 $31.75 $23.62 -- -- -- -- --
Fidelity VIP High Income**** $31.01 $27.64 $22.97 -- -- -- -- --
Fidelity VIP Overseas*** $18.65 $16.70 $15.33 -- -- -- -- --
Fidelity VIP II Asset Manager**** $20.39 $18.07 $15.56 -- -- -- -- --
Fidelity VIP II Index 500****** $93.70 -- -- -- -- -- -- --
Montgomery Variable Series Emerging Markets****** $10.55 -- -- -- -- -- -- --
Seligman Communications and Information***** $15.27 $14.22 -- -- -- -- -- --
Seligman Frontier ***** $16.97 $13.87 -- -- -- -- -- --
</TABLE>
* Accumulation Unit Values prior to 1994 do not reflect the .15% Daily
Administration Fee imposed after May 1, 1994. Accumulation Unit Values
for year ended 12/31/94 reflect the .15% Daily Administration Fee.
** Commended operations December 4, 1989.
*** Commenced operations on May 1, 1993.
**** Commenced operations on May 1, 1994.
***** Commenced operations on May 1, 1995.
****** Commenced operations on May 1, 1996.
18
<PAGE> 23
NUMBER OF UNITS
OUTSTANDING AT
END OF PERIOD
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF
SUB ACCOUNT 12/31/96 12/31/95 12/31/94 12/31/93
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Bond 114,245 106,916 100,443 122,984
Capital 213,607 229,347 147,095 59,901
International Equity 64,082 5,684 -- --
Managed 647,793 731,425 726,809 816,591
Money Market 245,769 113,559 233,129 191,369
Value Equity 253,116 345,788 278,147 273,813
Alger American Growth 13,900 -- -- --
Alger American Leveraged All Cap 12,535 -- -- --
Alger American MidCap Growth 32,967 -- -- --
Alger American Small Capitalization 8,816 -- -- --
Dreyfus Growth & Income 109,413 -- -- --
Dreyfus Socially Responsible 5,194 -- -- --
Fidelity VIP Growth 180,057 118,920 30,356 --
Fidelity VIP High Income 124,114 63,205 29,537 --
Fidelity VIP Overseas 72,861 77,840 76,731 --
Fidelity VIP II Asset Manager 204,163 124,510 112,511 --
Fidelity VIP II Index 500* 11,515 -- -- --
Montgomery Variable Series Emerging 34,261 -- -- --
Markets
Seligman Communications and Information 209,155 147,867 -- --
Seligman Frontier 207,377 36,784 -- --
<CAPTION>
*AS OF *AS OF AS OF AS OF
12/31/92 12/31/91 12/31/90 12/31/89
------- ------- ------- -------
<S> <C> <C> <C> <C>
Bond 73,332 6,027 82,380 200,000
Capital -- -- -- --
International Equity -- -- -- --
Managed 531,327 312,712 173,916 400,000
Money Market 38,210 5,268 80,808 200,000
Value Equity 147,334 32,775 83,381 200,000
Alger American Growth -- -- -- --
Alger American Leveraged All Cap -- -- -- --
Alger American MidCap Growth -- -- -- --
Alger American Small Capitalization -- -- -- --
Dreyfus Growth & Income -- -- -- --
Dreyfus Socially Responsible -- -- -- --
Fidelity VIP Growth -- -- -- --
Fidelity VIP High Income -- -- -- --
Fidelity VIP Overseas -- -- -- --
Fidelity VIP II Asset Manager -- -- -- --
Fidelity VIP II Index 500* -- -- -- --
Montgomery Variable Series Emerging -- -- -- --
Markets
Seligman Communications and Information -- -- -- --
Seligman Frontier -- -- -- --
</TABLE>
* The number of accumulation units for CLASF decreased in 1991 and 1990
due to the transfer of seed money from the Variable Account to our
general account to meet California's insurance regulations. This did
not affect the seed money in the underlying Portfolio.
19
<PAGE> 24
THE COMPANY
Canada Life Insurance Company of America ("we," "our," and "us") is a stock life
insurance company with assets as of December 31, 1996 of approximately $2.7
billion. We were incorporated under Michigan law on April 12, 1988, and our
Administrative Office is located at 6201 Powers Ferry Road, NW, Atlanta, Georgia
30339. We currently are principally engaged in issuing and reinsuring annuity
policies.
We share our A.M. Best Company rating with our parent company, The Canada Life
Assurance Company. From time to time, we will quote this rating, our rating from
Standard & Poor's Corporation, Duff & Phelps Inc., and/or Moody's Investors
Service for claims paying ability. These ratings address the financial ability
of these companies to meet their contractual obligations in accordance with the
terms of their insurance contracts. They do not take into account deductibles,
surrender or cancellation penalties, or timeliness of claim payment, nor do they
address the suitability of the policy for a particular purchaser. Also, these
evaluations do not refer to the ability of these companies to meet non-policy
obligations.
We are a wholly-owned subsidiary of The Canada Life Assurance Company, a
Canadian life insurance company headquartered in Toronto, Ontario, Canada, with
a U.S. home office in Atlanta, Georgia. The Canada Life Assurance Company:
commenced insurance operations in 1847, and has been actively operating in the
United States since 1889; and is one of the largest life insurance companies in
North America with consolidated assets as of December 31, 1996 of approximately
$23.2 billion (U.S. dollars).
Obligations under the policies are obligations of Canada Life Insurance Company
of America.
We are subject to regulation and supervision by the Michigan Insurance Bureau,
as well as the applicable laws and regulations of all jurisdictions in which we
are authorized to do business.
THE VARIABLE ACCOUNT, THE FUNDS
AND FIXED ACCOUNT
THE VARIABLE ACCOUNT
We established the Canada Life of America Variable Annuity Account 1 (the
"Variable Account") as a separate investment account on July 22, 1988 under
Michigan law. Although we own the assets in the Variable Account, these assets
are held separately from our other assets and are not part of our general
account. The income, gains or losses, whether or not realized, from the assets
of the Variable Account are credited to or charged against the Variable Account
in accordance with the policies without regard to our other income, gains or
losses.
The portion of the assets of the Variable Account equal to the reserves and
other contract liabilities of the Variable Account will not be charged with
liabilities that arise from any other business that we conduct and will be held
in the Variable Account. We have the right to transfer to our general account
any assets of the Variable Account which are in excess of such reserves and
other liabilities.
The Variable Account is registered with the Securities and Exchange Commission
(the "SEC") as a unit investment trust under the Investment Company Act of 1940
(the "1940 Act") and meets the definition of a "separate account" under the
federal securities laws. However, registration under the 1940 Act does not
involve the supervision by the SEC of the management or investment policies or
practices of the Variable Account.
20
<PAGE> 25
The Variable Account currently is divided into twenty-two sub-accounts with the
assets of each sub-account invested in shares of the corresponding portfolios of
the Funds described below.
THE FUNDS
The Variable Account invests in shares of CLASF, Fidelity VIP, Fidelity VIP II,
Seligman, Dreyfus, The Dreyfus Socially Responsible, Alger American, Montgomery
and Berger Trust. The Funds are management investment companies of the series
type with one or more investment portfolios. Each Fund is registered with the
SEC as an open-end, management investment company. Such registration does not
involve supervision of the management or investment practices or policies of the
Company or the portfolios by the SEC.
The Funds may, in the future, create additional portfolios that may or may not
be available as investment options under the policies. Each portfolio has its
own investment objectives and the income and losses for each portfolio are
determined separately for that portfolio.
The investment objectives and policies of each portfolio are summarized below.
THERE IS NO ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVES.
More detailed information, including a description of risks and expenses, may be
found in the prospectuses for the Funds which must accompany or precede this
prospectus and which should be read carefully and retained for future reference.
CANADA LIFE OF AMERICA SERIES FUND, INC.
The Canada Life of America Series Fund, Inc., ("CLASF") currently has six
portfolios: Money Market; Managed; Bond; Value Equity; International Equity; and
Capital.
CLASF is a diversified open-end investment company incorporated in Maryland.
CLASF has four portfolios which use the investment advisory services of CL
Capital Management, Inc., a Georgia corporation: Money Market; Managed; Bond;
and Value Equity. CLASF has one portfolio, the International Equity Portfolio,
which uses the sub-investment advisory services of Canada Life Investment
Management Limited of Toronto, Ontario, Canada, a SEC-registered investment
adviser. CLASF also has one portfolio, the Capital Portfolio, which uses the
sub-investment advisory services of J. & W. Seligman & Co. Incorporated, an
unaffiliated investment manager that is a Delaware Corporation. CL Capital
Management, Inc. is a wholly owned subsidiary of our Company. Canada Life
Investment Management Limited is a subsidiary of The Canada Life Assurance
Company. The following is a brief description of the investment objectives of
each of the current portfolios of CLASF.
MONEY MARKET PORTFOLIO
The Money Market Portfolio seeks the highest possible level of current income
consistent with preservation of capital and liquidity by investing in money
market instruments maturing in thirteen months or less.
21
<PAGE> 26
MANAGED PORTFOLIO
The Managed Portfolio seeks as high a level of return as possible through
capital appreciation and income consistent with prudent investment risk and
preservation of capital, by investing in equities, fixed income debt instruments
and money market instruments.
BOND PORTFOLIO
The Bond Portfolio seeks as high a level of current income and capital
appreciation as is consistent with preservation of principal, by investing
primarily in fixed income debt instruments.
VALUE EQUITY PORTFOLIO
The Value Equity Portfolio seeks long-term growth and income by investing in
common stocks and other equity securities which are believed to have
appreciation potential.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio seeks long-term capital appreciation by
investing in equity or equity-type securities of companies located outside of
the United States.
CAPITAL PORTFOLIO
The Capital Portfolio seeks capital appreciation, not current income, by
investing in common stocks and securities convertible into or exchangeable for
common stocks, in common stock purchase warrants, in debt securities and in
preferred stocks believed to provide capital appreciation opportunities.
Since CLASF may be available to other separate accounts, including registered
separate accounts for variable annuity and variable life products, and
non-registered separate accounts for group annuity products of the Company,
Canada Life Insurance Company of New York, and The Canada Life Assurance
Company, it is possible that material conflicts may arise between the interests
of the Variable Account and one or more other separate accounts investing in
CLASF. CLASF's board of directors will monitor events to identify any
irreconcilable material conflict. Upon being advised of such a conflict, we will
take any steps we believe necessary to resolve the matter, including removing
the assets of the Variable Account from one or more portfolios.
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Investments Variable Insurance Products Fund ("Fidelity VIP") acts
as one of the funding vehicles for the policy with three Portfolios available
under the policy: Fidelity VIP Growth; Fidelity VIP High Income; and Fidelity
VIP Overseas. Fidelity VIP is managed by Fidelity Management & Research Company
("Investment Manager").
FIDELITY VIP GROWTH PORTFOLIO
The Fidelity VIP Growth Portfolio seeks to achieve capital appreciation. The
Portfolio normally purchases common stocks, although its investments are not
restricted to any one type of security.
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FIDELITY VIP HIGH INCOME PORTFOLIO
The Fidelity VIP High Income Portfolio seeks to obtain a high level of current
income by investment primarily in high yielding, lower-rated, fixed income
securities, while also considering growth of capital. Please refer to the
accompanying Fidelity prospectus for a description and explanation of the unique
risks associated with investing in high risk, high yielding, lower rated fixed
income securities.
FIDELITY VIP OVERSEAS PORTFOLIO
The Fidelity VIP Overseas Portfolio seeks long-term growth of capital primarily
through investments in foreign securities. This portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND II
The Fidelity Investments Variable Insurance Products Fund II ("Fidelity VIP II")
acts as one of the funding vehicles for the policy with the VIP II Asset Manager
and VIP II Index 500 Portfolios available under the policy. Fidelity VIP II is
managed by Fidelity Management & Research Company ("Investment Manager").
FIDELITY VIP II ASSET MANAGER PORTFOLIO
The Fidelity VIP II Asset Manager Portfolio seeks high total return with reduced
risk over the long-term by allocating its assets among domestic and foreign
stocks, bonds and short-term fixed-income instruments.
FIDELITY VIP II INDEX 500 PORTFOLIO
The Fidelity VIP II Index 500 Portfolio seeks a total return which corresponds
to that of the Standard & Poor's Composite Index of 500 Stocks.
SELIGMAN PORTFOLIOS, INC.
Seligman Portfolios, Inc. ("Seligman") currently has twelve portfolios, two of
which are available under the policy: Communications and Information; and
Frontier. Seligman is a diversified open-ended investment company incorporated
in Maryland which uses the investment management services of J. & W. Seligman &
Co. Incorporated, a Delaware corporation.
SELIGMAN COMMUNICATIONS AND INFORMATION PORTFOLIO
The investment objective of this Portfolio is to produce capital gain, not
income, by investing primarily in securities of companies operating in the
communications, information and related industries.
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SELIGMAN FRONTIER PORTFOLIO
The investment objective of this Portfolio is to produce growth in capital
value; income may be considered but will be only incidental to the Portfolio's
investment objective. In general, securities owned are likely to be those issued
by small-to- medium-sized companies selected for their growth potential.
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund is an open-end, management investment company,
that is intended to be a funding vehicle for variable annuity and variable life
insurance contracts. One of the Fund's portfolios is available under this
policy, the Dreyfus Growth and Income Portfolio.
DREYFUS GROWTH AND INCOME PORTFOLIO
The Growth and Income Portfolio seeks long-term capital growth, current income
and growth of income, consistent with reasonable investment risk. The Portfolio
invests primarily in equity and debt securities and money market instruments of
domestic and foreign issuers. The proportion of the Portfolio's assets invested
in each type of security will vary from time to time in accordance with The
Dreyfus Corporation's assessment of economic conditions and investment
opportunities.
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. ("Dreyfus Socially
Responsible") is an open-end, diversified, management investment company fund,
that is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies to be offered by the separate accounts of
various life insurance companies.
Dreyfus Socially Responsible seeks to provide capital growth by investing
principally in common stocks, or securities convertible into common stock, of
companies which, in the opinion of the Fund's management, not only meet
traditional investment standards, but also show evidence that they conduct their
business in a manner that contributes to the enhancement of the quality of life
in America. Current income is a secondary goal.
THE ALGER AMERICAN FUND
The Alger American Fund ("Alger American") is intended to be a funding vehicle
for variable annuity contracts and variable life insurance policies to be
offered by the separate accounts of certain life insurance companies; and its
shares may also be offered to qualified pension and retirement plans. Each
Portfolio has distinct investment objectives and policies. Further information
regarding the investment practices of each of the Portfolios is set forth below.
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ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
The investment objective of the Alger American Small Capitalization Portfolio is
long-term capital appreciation. Except during temporary defensive periods, the
Portfolio invests at least 65% of its total assets in equity securities of
companies that, at the time of purchase of the securities, have total market
capitalization within the range of companies included within the Russell 2000
Growth Index or the S&P SmallCap 600 Index, updated quarterly. Both indexes are
broad indexes of small capitalization stocks. The Portfolio may invest up to 35%
of its total assets in equity securities of companies that, at the time of
purchase, have total market capitalization outside this combined range, and in
excess of that amount (up to 100% of its assets) during temporary defensive
periods.
ALGER AMERICAN GROWTH PORTFOLIO
The Alger American Growth Portfolio seeks long-term capital appreciation by
investing, except during temporary defensive periods, in a diversified, actively
managed portfolio of equity securities, primarily of companies, that, at the
time of purchase, have total market capitalization of $1 billion or greater.
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
The investment objective of the Portfolio is long-term capital appreciation.
Except during temporary defensive periods, the Portfolio invests at least 65% of
its total assets in equity securities of companies that, at the time of purchase
of the securities, have total market capitalization within the range of
companies included in the S&P MidCap 400 Index, updated quarterly. The Portfolio
may invest up to 35% of its total assets in equity securities of companies that,
at the time of purchase, have total market capitalization outside the range of
companies included in the S&P MidCap 400 Index and in excess of that amount (up
to 100% of its assets) during temporary defensive periods.
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
The Alger American Leveraged AllCap Portfolio seeks long-term capital
appreciation by investing, except during temporary defensive periods, primarily
in a diversified, actively managed portfolio of equity securities. The Portfolio
may engage in leveraging (up to 33 1/3% of its assets) and options and futures
transactions, which are deemed to be speculative and which may cause the
Portfolio's net asset value to be more volatile than the net asset value of a
fund that does not engage in these activities.
THE MONTGOMERY FUNDS III
Shares of Montgomery Variable Series Emerging Markets Fund and Montgomery
Variable Series Growth Fund, portfolios of The Montgomery Funds III
("Montgomery"), an open-end investment company, are available under this policy.
MONTGOMERY VARIABLE SERIES EMERGING MARKETS FUND
The investment objective of this portfolio is capital appreciation, which under
normal conditions it seeks by investing at least 65% of its total assets in
equity securities of companies in countries having emerging markets. For these
purposes, the portfolio defines an emerging market country as having an economy
that is or would be considered by the World Bank or the United Nations to be
emerging or developing.
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MONTGOMERY VARIABLE SERIES GROWTH FUND
The investment objective of this portfolio is capital appreciation, which under
normal conditions it seeks by investing at least 65% of its total assets in the
equity securities of domestic companies. In addition to capital appreciation,
the Montgomery Variable Series Growth Fund emphasizes value.
BERGER INSTITUTIONAL PRODUCTS TRUST
Shares of the Berger/BIAM IPT-International Fund, a portfolio of Berger
Institutional Products Trust, an open-end investment company, are available
under this policy. The portfolio is advised by BBOI Worldwide LLC, which has
delegated daily management of the portfolio to Bank of Ireland Asset Management
(U.S.) Limited. The investment objective of the Berger/BIAM IPT-International
Fund is long-term capital appreciation. The portfolio seeks to achieve this
objective by investing primarily in common stocks of well established companies
located outside the United States. The portfolio intends to diversify its
holdings among several countries and to have, under normal market conditions, at
least 65% of the portfolio's total assets invested in the securities of
companies located in at least five countries, not including the United States.
RESERVED RIGHTS
We reserve the right to substitute shares of another portfolio of CLASF,
Fidelity VIP, Fidelity VIP II, Seligman, Dreyfus, Dreyfus Socially Responsible,
Alger American, Montgomery, or Berger Trust or shares of another registered
open-end investment company if, in the judgment of our management, investment in
shares of one or more portfolios is no longer appropriate for any legitimate
reason, including: a change in investment policy; or a change in the tax laws;
or the shares are no longer available for investment. We will obtain the
approval of the SEC before we make a substitution of shares, if such approval is
required by law.
When permitted by law, we also reserve the right to: create new variable
accounts; combine variable accounts, including the Canada Life of America
Variable Annuity Account 1; remove, combine or add sub-accounts and make the new
sub-accounts available to policyowners at our discretion; add new portfolios to
CLASF; deregister the Variable Account under the 1940 Act if registration is no
longer required; make any changes required by the 1940 Act; and operate the
Variable Account as a managed investment company under the 1940 Act or any other
form permitted by law.
If a change is made, we will send you a revised Prospectus and any notice
required by law.
CHANGE IN INVESTMENT POLICY
The investment policy of a sub-account of the Variable Account may not be
changed unless: the change is approved, if required, by the Michigan Insurance
Bureau; and a statement of such approval is filed, if required, with the
insurance department of the state in which the policy is delivered.
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THE FIXED ACCOUNT
An owner may allocate some or all of the net premium payments and transfer some
or all of the policy value to the Fixed Account, which is part of our general
account and pays interest at declared rates (Guaranteed Interest Rates)
guaranteed for selected periods of time from one to ten years (Guarantee
Periods). The principal, after deductions, is also guaranteed. Since the Fixed
Account is part of the general account, we assume the risk of investment gain or
loss on this amount. All assets in the general account are subject to our
general liabilities from business operations. The Fixed Account may not be
available in all states.
Due to certain exemptive and exclusionary provisions, interests issued by us in
connection with the Fixed Account have not been registered under the Securities
Act of 1933 (the "1933 Act"), and neither the Fixed Account nor the general
account has been registered as an investment company under the 1940 Act.
Accordingly, neither the Fixed Account, nor the general account are generally
subject to regulation under the 1933 Act and the 1940 Act. Disclosures relating
to the interests in the Fixed Account, the Fixed Account, and the general
account, however, may be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy of statements made in a
registration statement.
GUARANTEE AMOUNT
The portion of the policy value allocated to the Fixed Account is the Guarantee
Amount which is credited with interest, as described below. The Guarantee Amount
reflects interest credited to the policy value in the Guarantee Periods, net
premium payments allocated to or policy value transferred to Guarantee Periods
and charges assessed in connection with the policy. The Guarantee Amount is
guaranteed to accumulate at a minimum effective annual interest rate of 3%.
GUARANTEE PERIODS
From time to time we will offer to credit Guarantee Amount with interest at
specific guaranteed rates for specific periods of time. These periods of time
are known as Guarantee Periods. We may offer one or more Guarantee Periods of
one to ten years' duration at any time but will always offer a Guarantee Period
of one year. We currently offer Guarantee Periods of one, three, five, seven and
ten years. The interest rates available at any time will vary with the number of
years in the Guarantee Period but will always be equal to or greater than an
effective annual interest rate of 3%.
Guarantee Periods begin on the date as of which a net premium payment is
allocated to or a portion of the policy value is transferred to the Guarantee
Period, and end on the last calendar day of the month when the number of years
in the Guarantee Period elected (measured from the end of the calendar month in
which the amount was allocated or transferred to the Guarantee Period) has
elapsed.
Allocations of net premium payments and transfers of policy value to the Fixed
Account for a Guarantee Period may have different applicable Guaranteed Interest
Rates depending on the timing of such allocations or transfers. The applicable
Guaranteed Interest Rate does not change during a Guarantee Period. If the
allocated or transferred amount remains in the fixed rate interest option until
the end of the applicable Guarantee Period, its value will be equal to the
amount originally allocated or transferred, multiplied, on an annually
compounded basis, by its Guaranteed Interest Rate. If a Guarantee Amount is
surrendered, withdrawn, or transferred prior to the expiration of the Guarantee
Period, the Guaranteed Amount is subject to a Market Value Adjustment, as
described below, the application of which may result in the payment of an amount
greater or less than the Guarantee Amount at the time of the transaction. The
Market Value Adjustment, however, will never reduce the earnings on amounts
allocated to the fixed interest rate option to less than three percent per year
and does not apply to amounts surrendered, withdrawn, or transferred from the
one year Guarantee Period or to provide death, nursing home, terminal illness
benefits, and annuitization.
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During the 30 day period following the expiration of a Guarantee Period ("30 day
window"), a policyowner may transfer the Guarantee Amount from the expiring
Guaranteed Period to another fixed interest rate option with a new Guarantee
Period or to a sub-account(s). A Market Value Adjustment will not apply if the
Guarantee Amount from the expired Guarantee Period is surrendered, withdrawn, or
transferred during the 30 day window. During the 30 day window, the Guarantee
Amount will accrue interest at an annual effective rate of 3% unless the
Guarantee Amount remains in the Fixed Account in which case you will receive the
interest rate in accordance with the Guarantee Period chosen.
Prior to the expiration date of any Guarantee Period, we will notify you of the
then currently available Guarantee Periods and the Guaranteed Interest Rates
applicable to such Guarantee Periods. A new Guarantee Period of the same
duration as the previous Guarantee Period will commence automatically on the
first day following the expired Guarantee Period, unless we receive Written
Notice prior to the expiration of the 30 day window of the owner's election of a
different Guarantee Period from among those being offered by us at that time, or
instructions to transfer all or a portion of the expiring Guarantee Amount to a
sub-account. If we do not receive such Written Notice and are not offering a
Guarantee Period of the same duration as the expiring Guarantee Period or if the
duration of the expiring Guarantee Period would, if renewed, extend beyond the
annuity date (if known) or maturity date, then a new Guarantee Period of one
year will commence automatically on the first day following the expiration of
the expired Guarantee Period.
To the extent permitted by law, we reserve the right at any time to offer
Guarantee Periods that differ from those available when an owner's policy was
issued. We also reserve the right, at any time, to stop accepting net premium
payment allocations or transfers of policy value to a particular Guarantee
Period. Since the specific Guarantee Periods available may change periodically,
please contact our Administrative Office to determine the Guarantee Periods
currently being offered.
Owners allocating net premium payments and/or policy value to the Fixed Account
do not participate in the investment performance of assets of the Fixed Account,
and this performance does not determine the policy value attributable to the
Fixed Account or benefits relating thereto. The Fixed Account provides values
and benefits based only upon the net purchase payments and policy values
allocated thereto, the Guaranteed Interest Rate credited on such amounts, and
any charges or Market Value Adjustments imposed on such amounts in accordance
with the terms of the policy.
MARKET VALUE ADJUSTMENT
A Market Value Adjustment reflects the relationship between: (i) the Guaranteed
Interest Rate being applied to the Guarantee Period from which the Guarantee
Amount is requested to be surrendered, withdrawn, or transferred; and (ii) the
current Guaranteed Interest Rate that we credit for a Guarantee Period equal in
duration to the Guarantee Period from which the Guarantee Amount will be
surrendered, withdrawn, or transferred. If a Guarantee Period of such duration
is not being offered, we will use the linear interpolation of the Guaranteed
Interest Rates for the Guarantee Periods closest in duration that are available.
Any surrender, withdrawal, or transfer of a Guarantee Amount is subject to a
Market Value Adjustment, unless the effective date of the surrender, withdrawal,
or transfer is within 30 days after the end of a Guarantee Period or the
surrender, withdrawal or transfer of a Guarantee Amount is from the one year
Guarantee Period. The Market Value Adjustment will be applied after the
deduction of any applicable policy administration charge or transfer fee, and
before the deduction of any applicable surrender charge or charge for taxes on
premium payments. The Market Value Adjustment, however, will never invade
principal nor reduce the earnings on amounts allocated to the Fixed Account to
less than 3% per year.
Generally, if the Guaranteed Interest Rate for the selected Guarantee Period is
lower than the Guaranteed Interest Rate currently being offered for new
Guarantee Periods of duration equal to the selected Guarantee Period as of the
date that the Market Value Adjustment is applied, then the application of the
Market Value Adjustment will result in the payment, upon surrender, withdrawal,
or transfer, of an amount less than the Guarantee Amount (or portion thereof)
being surrendered, withdrawn, or transferred. Conversely, if the Guaranteed
Interest Rate for the selected Guarantee Period is higher than the Guaranteed
Interest Rate currently being offered for new Guarantee Periods of a duration
equal to the selected Guarantee Period as of the date that the Market Value
Adjustment is applied, then the application of the Market Value Adjustment will
result in the payment, upon
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surrender, withdrawal, or transfer of an amount greater than the Guarantee
Amount (or portion thereof) being surrendered, withdrawn, or transferred.
The Market Value Adjustment is computed by multiplying the amount being
surrendered, withdrawn, or transferred (the "Amount"), by the Market Value
Adjustment Factor. The Market Value Adjustment Factor is calculated as follows:
n/12
Market Value Adjustment Factor = Lesser of (a) (1 + i)
------------------ - 1
n/12
(1 + r+.005)
or (b) .05
where:
"i" is the Guaranteed Interest Rate currently being credited to the
"Amount";
"r" is the Guaranteed Interest Rate that is currently being offered for
a Guarantee Period of a duration equal to the Guarantee Period for the
Guarantee Amount from which the "Amount" is taken; and
"n" is the number of months remaining to the expiration of the
Guarantee Period for the Guarantee Amount from which the "Amount" is
taken.
The Market Value Adjustment, however, will never invade principal nor reduce the
earnings on amounts allocated to the Fixed Account to less than 3% per year.
DESCRIPTION OF ANNUITY POLICY
TEN DAY RIGHT TO EXAMINE POLICY
You have ten days after you receive the policy to decide if the policy meets
your needs (except in California, if you are over age 60, you have 30 days, and
in Idaho and North Dakota you have 20 days), and if the policy does not meet
your needs to return the policy to our Administrative Office. We will promptly
return either the policy value (where allowed by law); or in states which do not
allow return of policy value, we will return the full premium paid, without
interest and less the amount of any partial withdrawals, within seven days. When
the policy is issued as an Individual Retirement Annuity, during the first seven
days of the ten day period, we will return all premiums if this is greater than
the amount otherwise payable.
PREMIUMS
INITIAL PREMIUM
A prospective owner must submit a properly completed application along with a
check made payable to us for the initial premium. The minimum initial premium is
$5,000 ($2,000 if the Policy is an Individual Retirement Annuity, but we reserve
the right to lower or raise the minimum premium for IRAs). However, the minimum
initial premium is $100 ($50 if the Policy is an Individual Retirement Annuity)
when a prospective owner has enclosed a completed pre-authorized check ("PAC")
agreement for additional premiums to be automatically withdrawn monthly from the
owner's bank account.
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The application is subject to our underwriting standards. If the application is
properly completed and is accompanied by all the information necessary to
process it, including the initial premium, we will normally accept the
application and apply the initial net premium within two valuation days of
receipt at our Administrative Office. However, we may retain the premium for up
to five valuation days while we attempt to complete the processing of an
incomplete application. If this cannot be achieved within five valuation days,
we will inform the prospective owner of the reasons for the delay and
immediately return the premium, unless the prospective owner specifically
consents to our retaining the premium until the application is made complete. If
the prospective owner consents to our retaining the premium, we will apply the
initial net premium within two valuation days of when the application is
complete.
ADDITIONAL PREMIUMS
The minimum additional premium is $1,000. However, the minimum additional
premium paid by PAC is $100 per month ($50 per month if the policy is an
Individual Retirement Annuity). We will apply additional net premiums as of
receipt at our Administrative Office.
You may make additional premium payments at any time during any annuitant's
lifetime and before the earlier of the annuity date or maturity date. Our prior
approval is required before we will accept an additional premium which, together
with the total of other premiums paid, would exceed $1,000,000. We will give you
a receipt for each additional premium payment.
WIRE TRANSMITTAL PRIVILEGE
If a written agreement between us and broker/dealers who use wire transmittals
is in effect, as a privilege to you we will accept transmittal of the initial
and/or additional premiums by wire order from the broker/dealer to our
designated financial institution. A copy of such transmittal must be
simultaneously sent to our Administrative Office via a telephone facsimile
transmission that also contains the essential information we require to begin
application processing and/or to allocate the net premium. We will normally
apply the initial net premium within two valuation days of receipt at our
Administrative Office of the facsimile transmission that contains a copy of the
wire order and such required essential information. We may retain such wire
orders for up to five valuation days while an attempt is made to obtain such
required information that we do not receive via such facsimile transmission. If
such required information is not obtained within five valuation days, we will
inform the broker/dealer, on behalf of the prospective owner, of the reasons for
the delay and immediately return the premium wired to us to the broker/dealer
who will return the full premium paid to the prospective owner, unless we
receive within such five valuation days the prospective owner's specific written
consent to our retaining the premium until we receive such required information
via facsimile transmission.
Our acceptance of the wire order and facsimile does not create a contractual
obligation with us until we receive and accept a properly completed original
application. If we do not receive a properly completed original application
within ten valuation days of receipt of the initial premium via wire order, we
will return the premium wired to us to the broker/dealer who will return the
full premium paid to the prospective owner. If the allocation instructions in
the properly completed original application are inconsistent with such
instructions contained in the facsimile transmission, the policy value will be
reallocated in accordance with the allocation instructions in the application at
the price which was next determined after receipt of the wire order.
ELECTRONIC DATA TRANSMISSION OF APPLICATION INFORMATION
In certain states, we will also accept, by agreement with broker/dealers who use
electronic data transmissions of application information, wire transmittals of
initial premium payments from the broker-dealer to the Company for purchase of
the policy. Contact us to find out about state availability.
Upon receipt of the electronic data and wire transmittal, we will process the
information and allocate the premium payment according to the policyowner's
instructions. Based on the information provided, we will generate a policy and a
verification letter to be forwarded to the policyowner for signature.
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<PAGE> 35
During the period from receipt of the initial premium until the signed
verification letter is received, the policyowner may not execute any financial
transactions with respect to the policy unless such transactions are requested
in writing by the owner and signature guaranteed.
NET PREMIUM ALLOCATION
You elect in your application how you want your initial net premium to be
allocated among the sub-accounts and the Fixed Account. Any additional net
premiums will be allocated in the same manner, unless at the time of payment we
have received your written notice to the contrary. The total allocation must
equal 100%.
We cannot guarantee that a sub-account or shares of a portfolio will always be
available. If an owner requests that all or part of a premium be allocated to a
sub-account at a time when the sub-account or underlying portfolio is not
available, we will immediately return that portion of the premium to you, unless
you specify otherwise.
TERMINATION
We may pay you the cash surrender value and terminate the policy if before the
annuity date or maturity date all of these events simultaneously exist:
1. you have not paid any premiums for at least two years;
2. the policy value is less than $2,000; and
3. the total premiums paid, less any partial withdrawals, is less
than $2,000.
We will mail you a notice of our intention to terminate this policy at least six
months in advance. The policy will automatically terminate on the date specified
in the notice, unless we receive an additional premium before the termination
date specified in the notice. This additional premium must be at least the
minimum amount specified in "Additional Premiums."
VARIABLE ACCOUNT VALUE
The Variable Account value before the annuity date or maturity date is
determined by multiplying the number of units credited to this policy for each
sub-account by the current unit value of these units.
UNITS
We credit net premiums in the form of units. The number of units credited to the
policy for each sub-account is determined by dividing the net premium allocated
to that sub-account by the unit value for that sub-account at the end of the
valuation period during which we receive the premium at our Administrative
Office.
We will credit units for the initial net premium on the effective date
of the policy. We will adjust the units for any transfers in or out of a
sub-account, including any transfer processing fee.
We will cancel the appropriate number of units based on the unit value at the
end of the valuation period in which any of the following events occur: the
policy administration charge of $30 is assessed; the date we receive and file
your written notice for a partial withdrawal or a cash surrender; the date of a
systematic withdrawal; the earlier of the annuity date or maturity date; or the
date we receive due proof of your death or the annuitant's death.
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UNIT VALUE
The unit value for each sub-account's first valuation period is set at a fixed
amount, generally $10. The unit value for each subsequent valuation period is
determined by multiplying the unit value at the end of the immediately preceding
valuation period by the net investment factor for the valuation period for which
the value is being determined.
The unit value for a valuation period applies to each day in that period. The
unit value may increase or decrease from one valuation period to the next.
NET INVESTMENT FACTOR
The net investment factor is an index that measures the investment performance
of a sub-account from one valuation period to the next. Each sub-account has a
net investment factor, which may be greater than or less than one.
The net investment factor for each sub-account for a valuation period equals 1
plus the rate of return earned by the relevant portfolio, adjusted for the
effect of taxes charged or credited to the sub-account and the mortality and
expense risk charge.
The rate of return of the relevant portfolio is equal to the fraction obtained
by dividing (a) by (b) where:
(a) is the net investment income and net gains, realized and
unrealized, credited during the current valuation period; and
(b) is the value of the net assets of the relevant portfolio at
the end of the preceding valuation period, adjusted for the
net capital transactions and dividends declared during the
current valuation period.
TRANSFERS
TRANSFER PRIVILEGE
You may transfer all or a part of an amount in the sub-account(s) to another
sub-account(s) or to the Fixed Account, or transfer a part of an amount in the
Fixed Account to the sub-account(s), subject to these general restrictions and
the additional restrictions in "Restrictions on Transfers from Fixed Account":
1. the Company's minimum transfer amount, currently $250;
2. a transfer request that would reduce the amount in that
sub-account or the Fixed Account below $500 will be treated as
a transfer request for the entire amount in that sub-account
or the Fixed Account; and
3. transfers from the Fixed Account except from the one year
Guarantee Period may be subject to a Market Value Adjustment..
We cannot guarantee that a sub-account or shares of a portfolio will always be
available. If you request an amount in a sub-account or Fixed Account be
transferred to a sub-account at a time when the sub-account or underlying
portfolio is unavailable, we will not process your transfer request, and this
request will not be counted as a transfer for purposes of determining the number
of free transfers executed. The Company reserves the rights to change its
minimum transfer amount requirements.
TELEPHONE TRANSFER PRIVILEGE
You may direct us to act on transfer instructions given by telephone, subject to
our procedures, by initialing the authorization on the application or by
subsequently completing our administrative form. The authorization will continue
in effect until we receive
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your written revocation or we discontinue this privilege. We reserve the right
to change our procedures and to discontinue this privilege.
We will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. If we do not employ such reasonable procedures, we may
be liable for any losses due to unauthorized or fraudulent instructions. These
procedures may include, but are not limited to, possible recording of telephone
calls and obtaining appropriate personal security codes and contract number
before effecting any transfers.
DOLLAR COST AVERAGING PRIVILEGE ("DCA")
You may elect to have us automatically transfer specified amounts FROM ANY ONE
variable sub-account or the one year Guarantee Period under the Fixed Account
(either one a "disbursement" account) TO ANY OTHER variable sub-account(s) or
Guarantee Period under the Fixed Account on a periodic basis, subject to our
administrative procedures and the restrictions in "Transfer Privilege" above.
This privilege is intended to allow you to utilize "Dollar Cost Averaging," a
long-term investment method which provides for regular, level, investments over
time. We make no representation or guarantee that DCA will result in a profit or
protect against loss.
To initiate DCA, we must receive your written notice on our form. Once elected,
such transfers will be processed until the entire value of the sub-account or
the one year Guarantee Period under the Fixed Account is completely depleted; or
we receive your written revocation of such monthly transfers; or we discontinue
this privilege. We reserve the right to change our procedures or to discontinue
the DCA privilege upon 30 days written notice to you.
RESTRICTIONS ON TRANSFERS FROM FIXED ACCOUNT
Other than transfers made pursuant to DCA, you may transfer an amount from a
Guarantee Period under the Fixed Account subject to these additional
restrictions:
1. Transfers from a Guarantee Period other than the one year
Guarantee Period may be subject to a Market Value Adjustment.
2. Transfers from one Guarantee Period to another are prohibited
other than within the 30 day window.
UNDER OUR CURRENT PROCEDURES, THE TRANSFER WILL BE MADE ON THE VALUATION DATE
THAT OCCURS ON OR NEXT FOLLOWING THE DATE WE RECEIVE YOUR TRANSFER REQUEST AT
OUR ADMINISTRATIVE OFFICE.
TRANSFER PROCESSING FEE
There is no limit to the number of transfers that you can make between
sub-accounts or to the Fixed Account. However, other than transfers made
pursuant to DCA, we only allow one transfer each year from the Guarantee Periods
under the Fixed Account (see "Restrictions on Transfers from Fixed Account"
above). The first 12 transfers during each policy year are free under our
current policy, which we reserve the right to change.
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<PAGE> 38
Although the Company currently does not assess a transfer fee for the 13th and
each additional transfer in a policy year, we reserve the right to assess a $25
transfer fee. For the purposes of assessing the fee, each transfer request
(which includes a written notice or telephone call, but does not include dollar
cost averaging automatic transfers) is considered to be one transfer, regardless
of the number of sub-accounts or the Fixed Account affected by the transfer. The
processing fee will be charged proportionately to the receiving sub-account(s)
and/or the Fixed Account.
PAYMENT OF PROCEEDS
PROCEEDS
Proceeds means the amount we will pay under your policy when the first of the
following events occurs: the annuity date or maturity date; or the policy is
surrendered; or we receive due proof of death of the last surviving annuitant or
any owner. We will pay any proceeds in a single sum that may be payable due to
death before the annuity date or maturity date, unless an election is made for a
payment option. See "Election of Options". The policy ends when we pay the
proceeds.
We will deduct any applicable premium tax from the proceeds described below,
unless we already deducted the tax from the premiums when paid.
PROCEEDS ON ANNUITY DATE OR MATURITY DATE
If Payment Option 1 is in effect on the annuity date, the proceeds we will pay
is the policy value. See "Payment Options" . If the proceeds are paid in a lump
sum on the annuity date, we will pay the cash surrender value.
You may change the annuity date, subject to these limitations:
1. we must receive your written notice at our Administrative
Office at least 30 days before the current annuity date;
2. the requested annuity date must be a date that is at least 30
days after we receive your written notice; and
3. the requested annuity date should be no later than the first
day of the month following any annuitant's 100th birthday or
any earlier date required by law.
The proceeds on the Maturity Date will be the policy value. The Maturity Date is
the first day of the month after any annuitant's 100th birthday.
PROCEEDS ON SURRENDER
If you surrender the policy before the annuity date, the proceeds we will pay is
the cash surrender value. The cash surrender value is the policy value, less any
applicable surrender charge, the policy administration charge and any applicable
Market Value Adjustment. The cash surrender value will be determined on the date
we receive your written notice for surrender and this policy at our
Administrative Office.
You may surrender the policy for its cash surrender value at any time before the
earlier of the death of the last surviving annuitant, the annuity date or
maturity date. However, the surrender proceeds may be subject to a federal
income tax, including a penalty tax. See "Federal Tax Status".
You may elect to have the cash surrender value paid in a single sum or under a
payment option. See "Payment Options". The policy ends when we pay the cash
surrender value. You may avoid a surrender charge by electing to apply the
policy values under Payment Option 1. See "Proceeds on Annuity Date or Maturity
Date".
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<PAGE> 39
PROCEEDS ON DEATH OF LAST SURVIVING ANNUITANT BEFORE ANNUITY DATE OR MATURITY
DATE (THE DEATH BENEFIT)
If we receive due proof of death of the last surviving annuitant before the
annuity date or maturity date ("such due proof"), the proceeds we will pay to
the beneficiary is the death benefit.
THE FOLLOWING APPLIES ONLY TO POLICIES ISSUED ON OR AFTER MAY 1, 1996 OR
SUCH LATER DATE AS APPLICABLE REGULATORY APPROVALS ARE OBTAINED IN THE
JURISDICTION IN WHICH THE POLICIES ARE OFFERED:
If we receive such due proof during the first five years, the death benefit
is the greater of:
1. the premiums paid, less: a) any partial withdrawals, including
applicable surrender charges; and b) any incurred taxes; or
2. the policy value on the date we receive due proof of the last
surviving annuitant's death.
If we receive such due proof after the first five policy years, the death
benefit is the greatest of:
1. item "1" above; or
2. item "2" above; or
3. the policy value at the end of the most recent 5 policy year
period preceding the date we receive due proof of the last
surviving annuitant's death, adjusted for any of the following
items that occur after such last 5 policy year period: a) less
any partial withdrawals, including applicable surrender
charges; b) less any incurred taxes; and c) plus any premiums
paid. The 5 policy year periods are measured from the policy
date (i.e., 5, 10, 15, 20, etc.).
If on the date the policy was issued, all annuitants were attained age 80
or less, then after any annuitant attains age 81, the death benefit is the
greater of items "1" or "2" above. However, if on the date the policy was
issued, any annuitant was attained age 81 or more, then the death benefit
is the policy value.
THE FOLLOWING APPLIES ONLY TO POLICIES ISSUED FROM MAY 1, 1995 THROUGH
APRIL 30, 1996, OR SUCH LATER DATE AS APPLICABLE REGULATORY APPROVALS ARE
OBTAINED IN THE JURISDICTIONS IN WHICH THE CONTRACTS ARE OFFERED.
If we receive such due proof during the first seven policy years, the death
benefit is the greater of:
1. the premiums paid, less: a) any partial withdrawals, including
applicable surrender charges; and b) any incurred taxes; or
2. the policy value on the date we receive due proof of the last
surviving annuitant's death.
If we receive such due proof after the first seven policy years, the death
benefit is the greatest of:
1. item "1." above; or
2. item "2." above; or
3. the policy value at the end of the most recent 7 policy year
period preceding the date we receive due proof of the last
surviving annuitant's death, adjusted for any of the following
items that occur after such last 7 policy year period: a) less
any partial withdrawals, including applicable surrender
charges; b) less any incurred taxes; and c) plus any premiums
paid. The 7 policy year periods are measured from the policy
date (i.e., 7, 14, 21, 28, etc.). No further step-ups in Death
Benefits will occur after the age of 80.
THE FOLLOWING APPLIES ONLY TO CONTRACTS ISSUED PRIOR TO MAY 1, 1995 OR SUCH
LATER DATE AS APPLICABLE REGULATORY APPROVALS ARE OBTAINED IN THE
JURISDICTION IN WHICH THE CONTRACTS ARE OFFERED.
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<PAGE> 40
If we receive such due proof during the first five policy years, the death
benefit is the greater of:
1. the premiums paid, less: a) any partial withdrawals, including
applicable surrender charges; and b) any incurred taxes; or
2. the policy value on the date we receive due proof of the last
surviving annuitant's death.
If we receive such due proof after the first five policy years, the death
benefit is the greatest of:
1. item "1" above; or
2. item "2" above; or
3. the policy value at the end of the most recent 5 policy year
period preceding the date we receive due proof of the last
surviving annuitant's death, adjusted for any of the following
items that occur after such last 5 policy year period: a) less
any partial withdrawals, including applicable surrender
charges; b) less any incurred taxes; and c) plus any premiums
paid. The 5 policy year periods are measured from the policy
date (i.e., 5, 10, 15, 20, etc.).
No death benefit is payable if the policy is surrendered before the last
surviving annuitant's death.
PROCEEDS ON DEATH OF ANY OWNER BEFORE OR AFTER ANNUITY DATE OR MATURITY DATE
If you are not the annuitant, and we receive due proof of your death before the
annuity date or maturity date we will pay the beneficiary the policy value as of
the date we receive due proof of your death. If you are the annuitant, and we
receive due proof of your death before the annuity date or maturity date we will
pay the beneficiary the death benefit described in "Proceeds on Death of
Annuitant Before Annuity Date or Maturity Date." If any owner dies before the
annuity date, Federal tax law requires the policy value be distributed within
five years after the date of such owner's death regardless of whether such owner
is or is not an annuitant, unless such owner's spouse is the designated
beneficiary, in which case the policy may be continued with the surviving spouse
as the new owner. All such distributions will be made in accordance with the
requirements of the Investment Company Act of 1940.
A "designated beneficiary" is the person designated by you as a beneficiary and
to whom the benefits of the policy pass by reason of an owner's death and must
be a natural person.
If any owner dies on or after the earlier of the annuity date, any remaining
payments must be distributed at least as rapidly as under the payment option in
effect on the date of such owner's death.
The distribution requirements described above will be considered satisfied as to
any portion of the proceeds:
1. payable to or for the benefit of a designated beneficiary; and
2. which is distributed over the life (or period not exceeding the life
expectancy) of that beneficiary, provided that the beneficiary is a
natural person and such distributions begin within one year of the
owner's death.
If you are not a natural person, the primary annuitant as determined in
accordance with Section 72(s) of the Code (i.e., the individual the events in
the life of whom are of primary importance in effecting the timing or amount of
the payout under the policy) will be treated as an owner for purposes of these
distribution requirements, and any change in the primary annuitant will be
treated as the death of an owner.
INTEREST ON PROCEEDS
We will pay interest on proceeds if we do not pay the proceeds in a single sum
or begin paying the proceeds under a payment option:
1. within 30 days after the proceeds become payable; or
2. within the time required by the applicable jurisdiction, if less than
30 days.
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<PAGE> 41
This interest will accrue from the date the proceeds become payable to the date
of payment, but not for more than one year, at an annual rate of 3%, or the rate
and time required by law, if greater.
PARTIAL WITHDRAWALS
You may withdraw part of the cash surrender value at any time before the earlier
of the death of the last surviving annuitant, the annuity date or maturity date,
subject to these limits:
1. the Company's minimum partial withdrawal, currently $250;
2. the maximum partial withdrawal is the amount that would leave a cash
surrender value of $5,000;
3. a partial withdrawal request which would reduce the amount in a
sub-account or a Guarantee Period under the Fixed Account below $500
will be treated as a request for a full withdrawal of the amount in
that sub-account or a Guarantee Period; and
4. a partial withdrawal request for an amount exceeding $10,000 must be
accompanied by a guarantee of the owner's signature by a commercial
bank, trust company, or savings and loan.
On the date we receive your written notice for a partial withdrawal at our
Administrative Office, we will withdraw the amount of the partial withdrawal
from the policy value, and we will then deduct any applicable surrender charge
from the remaining policy value. The Company reserves the right to change its
minimum partial withdrawal amount requirements.
You may specify the amount to be withdrawn from certain sub-accounts or
Guarantee Periods under the Fixed Account. If you do not provide this
information to us, we will withdraw proportionately from the sub-accounts and
the Guarantee Periods under the Fixed Account in which you are invested. If you
do provide this information to us, but the amount in the designated sub-accounts
and Guarantee Periods is inadequate to comply with your withdrawal request, we
will first withdraw from the specified sub-accounts and the Guarantee Periods
under the Fixed Account. The remaining balance will be withdrawn proportionately
from the other sub-accounts and the Guarantee Periods in which you are invested.
Any partial or systematic withdrawal may be included in the owner's gross income
in the year in which the withdrawal occurs, and may be subject to federal income
tax, including a penalty tax equal to 10% of the amount treated as taxable
income, and the Code restricts certain distributions under Tax-Sheltered Annuity
Plans and other qualified plans. See "Federal Tax Status".
SYSTEMATIC WITHDRAWAL PRIVILEGE ("SWP")
You may elect to withdraw a fixed-level amount from the sub-account(s) and the
Guarantee Period(s) under the Fixed Account on a monthly, quarterly, or
semi-annual basis beginning 30 days after the Effective Date, if we receive your
written notice on our form and the policy meets the Company's minimum premium,
currently $25,000, and in accordance with "Partial Withdrawals" above (when
surrender charges are applicable). No minimum is necessary when Surrender
Charges are not applicable. While Surrender Charges are applicable, each year
you may withdraw as follows:
1. Up to 100% of positive investment earnings of each variable
sub-account available at the time the SWP is executed/processed; PLUS
2. Up to 100% of current policy year's interest on the FIXED ACCOUNT
available at the time the SWP is executed/processed; PLUS
3. Up to 10% of total premiums still subject to a surrender charge; PLUS
4. Up to 100% of total premiums NOT SUBJECT TO A SURRENDER CHARGE.
NOTE: Withdrawals other than from the one year Guarantee Period will be
subject to a Market Value Adjustment.
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<PAGE> 42
When no Surrender Charges are applicable, the entire policy is available for
systematic withdrawal. The Systematic Withdrawal Privilege will end at the
earliest of the date: when the sub-account(s) and Guarantee Period(s) you
specified for these withdrawals has no remaining amount to withdraw; or the cash
surrender value is reduced to $5,000; or you elect to pay premiums by
pre-authorized check; or we receive your written notice to end this privilege;
or we elect to discontinue this privilege upon 30 days written notice to you.
Use of this privilege during a policy year counts as your first 10% free
withdrawal of total premiums under the "Surrender Charge" provision. References
to partial withdrawals in other provisions of this Prospectus include systematic
withdrawals. If applicable, a charge for premium taxes may be deducted from each
systematic withdrawal payment. The Company reserves the right to change its
minimum systematic withdrawal amount requirements.
PORTFOLIO REBALANCING ("REBALANCING")
Portfolio Rebalancing is an investment strategy in which, on a quarterly,
semi-annual or annual basis, your policy value in the sub-accounts only is
reallocated back to its original portfolio allocation, regardless of changes in
individual portfolio values from the time of the last Rebalancing. We make no
representation or guarantee that Rebalancing will result in a profit, protect
you against loss or ensure that you meet your financial goals.
To initiate Rebalancing, we must receive your written notice on our form.
Participation in Rebalancing is voluntary and can be modified or discontinued at
any time by you in writing on our form. Portfolio Rebalancing is not available
for amounts invested and earnings thereon in the Fixed Account.
Once elected, we will continue to perform Rebalancing until we are instructed
otherwise. We reserve the right to change our procedures or discontinue offering
Rebalancing upon 30 days written notice to you.
LOANS
The Company may offer a loan privilege to owners of policies issued in
connection with Section 403(b) qualified plans that are not subject to Title I
of ERISA. If offered, owners of such policies may obtain loans using the policy
as the only security for the loan. Loans are subject to provisions of the Code
and to applicable retirement program rules (collectively, "loan rules"). Tax
advisers and retirement plan fiduciaries should be consulted prior to exercising
loan privileges. Policy loans that satisfy certain requirements with respect to
loan amount and repayment are not treated as taxable distributions. If these
requirements are not satisfied, or if the policy terminates while a loan is
loan balance will be treated as a taxable distribution and may be subject to
penalty tax, and the treatment of the policy under Section 403(b) may be
adversely affected.
If loans are offered, the following will apply:
Under the terms of the policy, qualified policies have a maximum loan
value equal to 80% of the policy value, although loan rules may serve to
reduce such maximum loan value in some cases. The amount available for a
loan at any given time is the loan value less any outstanding debt. Debt
equals the amount of any loans plus accrued interest. Loans will be made
only upon written request from the owner. The Company will make loans
within seven days of receiving a properly completed loan application
(applications are available from the Company), subject to postponement
under the same circumstances that payment of withdrawals may be
postponed. See "Partial Withdrawals".
When an owner requests a loan, the Company will reduce the owner's
investment in the investment accounts and transfer the amount of the
loan to the loan account, a part of the Company's general account. The
owner may designate the investment accounts from which the loan is to be
withdrawn. Absent such a designation, the amount of
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<PAGE> 43
the loan will be withdrawn from the investment accounts in accordance
with the rules for making partial withdrawals. See "Partial
Withdrawals". The policy provides that owners may repay policy debt at
any time. Under applicable loan rules, loans generally must be repaid
within five years, repayments must be made at least quarterly and
repayments must be made in substantially equal amounts. When a loan is
repaid, the amount of the repayment will be transferred from the loan
account to the investment accounts. The owner may designate the
investment accounts to which a repayment is to be allocated. Otherwise,
the repayment will be allocated in the same manner as the owner's most
recent premium. On each policy anniversary, the Company will transfer
from the investment accounts to the loan account the amount by which the
debt on the policy exceeds the balance in the loan account.
The Company charges interest of 6% per year on policy loans. Loan
interest is payable in arrears and, unless paid in cash, the accrued
loan interest is added to the amount of the debt and bears interest at
6% as well. The Company credits interest with respect to amounts held in
the loan account at a rate of 4% per year. Consequently, the net cost of
loans under the policy is 2%. If on any date debt under a policy exceeds
the policy value, the policy will be in default. In such case the owner
will receive a notice indicating the payment needed to bring the policy
out of default and will have a thirty-one day grace period within which
to pay the default amount. If the required payment is not made within
the grace period, the policy will be foreclosed (terminated without
value).
The amount of any debt will be deducted from the minimum death benefit.
See "Proceeds on Death of Last Surviving Annuitant Before Annuity Date
or Maturity Date". In addition, debt, whether or not repaid, will have a
permanent effect on the policy value because the investment results of
the investments accounts will apply only to the unborrowed portion of
the policy value. The longer debt is outstanding, the greater the effect
is likely to be. The effect could be favorable or unfavorable. If the
investment results are greater than the rate being credited on amounts
held in the loan account while the debt is outstanding, the policy value
will not increase as rapidly as it would have if no debt were
outstanding. If investment results are below that rate, the policy value
will be higher than it would have been had no debt been outstanding.
PAYMENT OF BENEFITS, PARTIAL WITHDRAWALS, CASH SURRENDERS AND TRANSFERS -
POSTPONEMENT
We will usually pay any proceeds payable, amounts partially withdrawn, or the
cash surrender value within seven calendar days after:
1. we receive your written notice for a partial withdrawal or a cash
surrender; or
2. the date chosen for any systematic withdrawal; or
3. we receive due proof of your death or the death of the last surviving
annuitant.
However, we can postpone the payment of proceeds, amounts withdrawn, the cash
surrender value, or the transfer of amounts between sub-accounts if:
1. the New York Stock Exchange is closed, other than customary weekend
and holiday closings, or trading on the exchange is restricted as
determined by the SEC; or
2. the SEC permits by an order the postponement for the protection of
policyowners; or
3. the SEC determines that an emergency exists that would make the
disposal of securities held in the Variable Account or the
determination of the value of the Variable Account's net assets not
reasonably practicable.
We have the right to defer payment of any partial withdrawal, cash surrender, or
transfer from the Fixed Account for up to six months from the date we receive
your written notice for a withdrawal, surrender or transfer.
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<PAGE> 44
CHARGES AGAINST THE POLICY, VARIABLE ACCOUNT, AND FUNDS
SURRENDER CHARGE
No deduction for a sales charge is made when premiums are paid. However, a
surrender charge (contingent deferred sales charge) will be deducted when
certain partial withdrawals and cash surrenders are made to at least
partially reimburse us for certain expenses relating to the sale of the
policy, including commissions to registered representatives and other
promotional expenses. A surrender charge may also be applied to the
proceeds paid on the annuity date, unless the proceeds are applied under
Payment Option 1.
For the purpose of determining if any surrender charge applies and the
amount of such charge, partial withdrawals and surrenders are taken
according to these rules from policy value attributable to premiums or
investment earnings in the following order: SURRENDER CHARGE
<TABLE>
<CAPTION>
<S> <C>
1. Up to 100% of positive investment earnings of each variable sub-account available at
the time the request is made, once a policy year, PLUS..........................................................None
2. Up to 100% of current policy year's interest on the FIXED ACCOUNT at the time the
request for surrender/withdrawal is made, once a policy year, PLUS..............................................None
3. Up to 10% of total premiums STILL SUBJECT TO A SURRENDER CHARGE, once a policy
year, PLUS......................................................................................................None
4. Up to 100% of those premiums NOT SUBJECT TO A SURRENDER CHARGE, available
at any time.....................................................................................................None
5. Premiums subject to a surrender charge:
For policies issued prior to May 1, 1995 or such later date as
applicable regulatory approvals are obtained in the jurisdiction
in which the contracts are offered (For 5 years from the date of
payment, each premium is subject to a 6% surrender
charge. After the 5th year, no surrender charge will apply to such payment)...................................6%
For policies issued after April 30, 1995 or such later date as
applicable regulatory approvals are obtained in the jurisdiction
in which the contracts are offered:
Policy Years Since Premium Was Paid
-----------------------------------
Less than 1.........................................................................................6%
At least 1, but less than 2.........................................................................6%
At least 2, but less than 3.........................................................................5%
At least 3, but less than 4.........................................................................5%
At least 4, but less than 5.........................................................................4%
At least 5, but less than 6.........................................................................3%
At least 6, but less than 7.........................................................................2%
At least 7........................................................................................None
</TABLE>
Any surrender charge will be deducted proportionately from the
sub-account(s) or the Guarantee Periods under the Fixed Account being
surrendered or partially withdrawn in relation to the amount(s) withdrawn.
If the amount remaining in a sub-account or a Guarantee Period after the
withdrawal is insufficient to cover the proportionate surrender charge
deduction, the balance of the surrender charge will be assessed
proportionately from any other sub-account and Guarantee Period in which you
are invested.
POLICY ADMINISTRATION CHARGE
To cover the costs of providing certain administrative services attributable
to the policies and the operations of the Variable Account, including policy
records, communicating with policyowners, and processing transactions, we
deduct a policy administration charge of $30 for the prior policy year on
each policy anniversary. If the policy value on the policy anniversary
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<PAGE> 45
is $75,000 or more, we will waive the policy administration charge for the prior
policy year. We will also deduct this charge for the current policy year if the
policy is surrendered for its cash surrender value, unless the policy is
surrendered on a policy anniversary.
The charge will be assessed proportionately from any sub-accounts and the
Guarantee Periods under the Fixed Account in which you are invested. If the
charge is obtained from one of the sub-accounts, we will cancel the appropriate
number of units credited to this policy based on the unit value at the end of
the valuation period when the charge is assessed.
DAILY ADMINISTRATION FEE
At each valuation period, we deduct a daily administration fee at an effective
annual rate of 0.15% from the net assets of each sub-account of the Variable
Account. This daily administration fee is intended to reimburse us for other
administrative costs under the policies.
TRANSFER PROCESSING FEE
The first 12 transfers during each policy year are free under our current
policy, which we reserve the right to change. Although, the Company currently
does not assess a transfer fee for the 13th and each additional transfer in a
policy year, we reserve the right to assess a $25 transfer fee. For the purposes
of assessing the fee, each transfer request (which includes a written notice or
telephone call, but does not include dollar cost averaging automatic transfers)
is considered to be one transfer, regardless of the number of sub-accounts or
Guarantee Periods under the Fixed Account affected by the transfer. The
processing fee will be charged proportionately to the receiving sub-account(s)
and/or the Fixed Account. See "Transfers" for the rules concerning transfers.
ANNUALIZED MORTALITY AND EXPENSE RISK CHARGE
The mortality risk we assume is the risk that annuitants may live for a longer
period of time than we estimated when we established our guarantees in the
policy. Because of these guarantees, each annuitant is assured that their
longevity will not have an adverse effect on the annuity payments they receive.
The mortality risk we assume also includes our guarantee to pay a death benefit
if the last surviving annuitant dies before the annuity date or maturity date.
The expense risk we assume is the risk that the surrender charges, policy
administration charges, daily administration fee, and transfer fees may be
insufficient to cover our actual future expenses.
The annual mortality and expense risk charge is deducted at each valuation
period from the assets of the Variable Account at an effective annual rate of
1.25% of the value of the net assets in the Variable Account. We guarantee that
the rate of this charge will never increase. This charge is not made after the
earlier of the annuity date or maturity date, and this charge is not made
against any Fixed Account value. This charge consists of approximately 0.85% to
cover the mortality risk, and approximately 0.40% to cover the expense risk.
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<PAGE> 46
WAIVER OF SURRENDER CHARGE
When the policy has been in effect for 1 year, upon written notice from you, the
Surrender Charge and any applicable Market Value Adjustment will be waived on
any partial withdrawal or surrender after you provide us evidence that satisfies
us in a written statement signed by a qualified physician that:
1. a) you are terminally ill; and
b) your life expectancy is not more than 12 months due to the
severity and nature of the terminal illness; and
c) the diagnosis of the terminal illness was made after the
effective date of this policy.
2. you are or have been confined to a hospital, nursing home or
long-term care facility for at least 90 consecutive days,
provided:
a) confinement is for medically necessary reasons at the
recommendation of a physician;
b) the hospital, nursing home or long-term care facility is
licensed or otherwise recognized and operating as such by
the proper authority in the state where it is located, the
Joint Commission on Accreditation of Hospitals or Medicare
and satisfactory evidence of such status is provided to us;
and
c) the withdrawal or surrender request is received by us no
later than 91 days after the last day of your confinement.
For policies issued on or after May 1, 1996, this provision is not available if
any owner was attained age 81 or older on the Effective Date.
REDUCTION OR ELIMINATION OF SURRENDER CHARGES
The amount of the surrender charge on a policy may be reduced or eliminated when
some or all of the policies are to be sold to a group of individuals in such a
manner that results in savings of sales expenses. In determining whether to
reduce the surrender charge, the Company will consider certain factors including
the following:
1. The size and type of group to which the sales are to be made
will be considered. Generally, sales expenses for a larger group
are smaller than for a smaller group because of the ability to
implement large numbers of sales with fewer sales contacts.
2. The total amount of premiums to be received will be considered.
Per dollar sales expenses are likely to be less on larger
premiums than on smaller ones.
3. Any prior or existing relationship with the Company will be
considered. Policy sales expenses are likely to be less when
there is a prior or existing relationship because of the
likelihood of implementing more sales with fewer sales contacts.
4. The level of commissions paid to selling broker/dealers will be
considered. Certain broker/dealers may offer policies in
connection with financial planning programs offered on a fee for
service basis. In view of the financial planning fees, such
broker/dealers may elect to receive lower commissions for sales
of the policies, thereby reducing the Company's sales expenses.
If, after consideration of the foregoing factors, it is determined that there
will be a reduction in sales expenses, the Company will provide a reduction in
the surrender charge. The surrender charge will be eliminated when a policy is
issued to an officer, director, employee, or relative thereof of: the Company;
The Canada Life Assurance Company; J. & W. Seligman Co. Incorporated; or any of
their affiliates. In no event will reduction or elimination of the surrender
charge be permitted where such reduction or elimination will be discriminatory
to any person.
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REDUCTION OR ELIMINATION OF POLICY ADMINISTRATION CHARGE
The amount of the policy administration charge on a policy may be reduced or
eliminated when some or all of the policies are to be sold to a group of
individuals in such a manner that results in savings of administration expenses.
In addition, if the policy value on the policy anniversary is $75,000 or more,
we will waive the policy administration charge for the prior policy year. In
determining whether to reduce or eliminate the administration charges, the
Company will consider certain factors including the following:
1. The size and type of group to which administrative services are
to be provided will be considered.
2. The total amount of premiums to be received will be considered.
If, after consideration of the foregoing factors, it is determined that there
will be a reduction or elimination of administration expenses, the Company will
provide a reduction in the policy administration charge. In no event will
reduction or elimination of the administration charge be permitted where such
reduction or elimination will be discriminatory to any person.
TAXES
We will incur premium taxes in some jurisdictions relating to the policies.
Depending on the jurisdiction, we deduct any such taxes from either: a) the
premium when paid; or b) the policy value when it is applied under a payment
option, cash surrender or partial withdrawal. A summary of current state premium
tax rates is contained in Appendix A.
When any tax is deducted from the policy value, it will be deducted
proportionately from the sub-accounts and the Guarantee Periods under the Fixed
Account in which you are invested.
We reserve the right to charge or provide for any taxes levied by any
governmental entity, including:
1. taxes that are against or attributable to premiums, policy
values or annuity payments; or
2. taxes that we incur which are attributable to investment income
or capital gains retained as part of our reserves under the
policies or from the establishment or maintenance of the
Variable Account.
OTHER CHARGES INCLUDING INVESTMENT ADVISORY FEES
Each portfolio is responsible for all of its operating expenses. In addition,
fees for investment advisory services are charged monthly from each portfolio at
an annual rate of the monthly net assets of the portfolio. The Prospectus and
Statement of Additional Information for each Fund provides more information
concerning the investment advisory fee, other charges assessed against the
portfolio(s) each Fund offers, and the investment advisory services provided to
such portfolio(s).
PAYMENT OPTIONS
The policy ends when we pay the proceeds on the earlier of the annuity date or
maturity date. On the annuity date, we will apply the policy value under Payment
Option 1, unless you have an election of a payment option on file at our
Administrative Office to receive the cash surrender value in a single sum, or to
receive a mutually agreed upon payment option (Payment Option 2). See "Proceeds
on Annuity Date or Maturity Date" . We require the surrender of your policy so
that we may pay the cash surrender value or issue a supplemental contract for
the applicable payment option. The term "payee" means a person who is entitled
to receive payment under this section.
ELECTION OF OPTIONS
You may elect an option or revoke or change your election at any time before the
annuity date or maturity date while any annuitant is living. If an election is
not in effect at the last surviving annuitant's death or if payment is to be
made in one sum
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under an existing election, the beneficiary may elect one of the options. This
election must be made within one year after the last surviving annuitant's death
and before any payment has been made.
An election of an option and any revocation or change must be made in a written
notice. It must be filed with our Administrative Office with the written consent
of any irrevocable beneficiary or assignee.
An option may not be elected and we will pay the proceeds in one sum if either
of the following conditions exist:
1. the amount to be applied under the option is less than $1,000;
or
2. any periodic payment under the election would be less than $50.
DESCRIPTION OF PAYMENT OPTIONS
Payment Option 1: Life Income
We will pay the proceeds in equal amounts at the beginning of each month, during
the payee's lifetime.
The amount of each payment will be determined from the tables in the policy
which apply to Payment Option 1, using the payee's age. Age will be determined
from the nearest birthday at the due date of the first payment.
Payment Option 2: Mutual Agreement
We will pay the proceeds according to other terms, if those terms are mutually
agreed upon.
PAYMENT DATES
The payment dates of the options will be calculated from the date on which the
proceeds become payable.
AGE AND SURVIVAL OF PAYEE
We have the right to require proof of age of the payee(s) before making any
payment. When any payment depends on the payee's survival, we will have the
right, before making the payment, to require proof satisfactory to us that the
payee is alive.
DEATH OF PAYEE
At the death of the payee, or the last survivor of the payees, any amount
remaining to be paid under this section will become payable in one sum, unless
specified otherwise.
OTHER POLICY PROVISIONS
OWNER OR JOINT OWNER
During any annuitant's lifetime and before the earlier of the annuity date or
maturity date, you have all the rights and privileges granted by the policy. If
you appoint an irrevocable beneficiary or assignee, then your rights will be
subject to those of that beneficiary or assignee.
During any annuitant's lifetime and before the earlier of the annuity date or
maturity date, you may name a new owner, joint owner or annuitant by giving us
written notice.
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With respect to Qualified Policies generally, however, the contract may not be
assigned (other than to us), joint ownership is not permitted, and the Owner
must be the annuitant.
BENEFICIARY
We will pay the beneficiary any proceeds payable on your death or the death of
the last surviving annuitant. During any annuitant's lifetime and before the
earlier of the annuity date or maturity date, you may name and change one or
more beneficiaries by giving us written notice. However, we will require written
notice from any irrevocable beneficiary or assignee specifying their consent to
the change.
We will pay the proceeds under the beneficiary appointment in effect at the date
of death. If you have not designated otherwise in your appointment, the proceeds
will be paid to the surviving beneficiary(ies) equally. If no beneficiary is
living when you die or the last surviving annuitant dies, or if none has been
appointed, the proceeds will be paid to you or to your estate.
WRITTEN NOTICE
Written Notice must be signed by you, dated, and of a form and content
acceptable to us. Your written notice will not be effective until we receive it
at our Administrative Office. However, the change provided in your written
notice to name or change the owner or beneficiary will then be effective as of
the date you signed the written notice:
1. subject to any payments made or other action we take before we
receive and file your written notice; and
2. whether or not you or the last surviving annuitant are alive
when we receive and file your written notice.
PERIODIC REPORTS
We will mail you a report showing the following items about your policy:
1. the number of units credited to the policy and the dollar value
of a unit;
2. the policy value;
3. any premiums paid, withdrawals, and charges made since the last
report; and
4. any other information required by law.
The information in the report will be as of a date not more than two months
before the date of the mailing. We will mail the report to you:
1. at least annually, or more often as required by law; and
2. to your last address known to us.
ASSIGNMENT
You may assign a nonqualified policy or an interest in it at any time before the
earlier of the annuity date or maturity date during any annuitant's lifetime. An
assignment must be in a written notice acceptable to us. It will not be binding
on us until we receive and file it at our Administrative Office. We are not
responsible for the validity of any assignment. Your rights and the rights of
any beneficiary will be affected by an assignment.
An assignment of a nonqualified policy may result in certain tax consequences to
the owner. See "Transfers, Assignment or Exchanges of a Policy".
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MODIFICATION
Upon notice to you, we may modify the policy, but only if such modification:
1. is necessary to make the policy or the Variable Account comply
with any law or regulation issued by a governmental agency to
which we are subject; or
2. is necessary to assure continued qualification of the policy
under the Code or other federal or state laws relating to
retirement annuities or variable annuity policies; or
3. is necessary to reflect a change in the operation of the
Variable Accounts; or
4. provides additional variable account and/or fixed accumulation
options.
In the event of any such modification, we may make any appropriate endorsement
to the policy.
YIELDS AND TOTAL RETURNS
From time to time, we may advertise yields, effective yields, and total returns
for the sub-accounts. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND DO NOT
INDICATE OR PROJECT FUTURE PERFORMANCE. Each sub-account may, from time to time,
advertise performance relative to certain performance rankings and indices
compiled by independent organizations. More detailed information as to the
calculation of performance information, as well as comparisons with unmanaged
market indices, appears in the Statement of Additional Information.
Effective yields and total returns for the sub-accounts are based on the
investment performance of the corresponding portfolio of the Funds. The Funds'
performance in part reflects the Funds' expenses including any expense
reimbursement or fee waiver arrangements as previously described.
The yield of the Money Market Sub-Account refers to the annualized income
generated by an investment in the Sub-Account over a specified 7 day period. The
yield is calculated by assuming that the income generated for that 7 day period
is generated each 7 day period over a 52 week period and is shown as a
percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment in the Sub-Account is
assumed to be reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment.
The yield of a sub-account (except the Money Market Sub-Account) refers to the
annualized income generated by an investment in the sub-account over a specified
30 day or one month period. The yield is calculated by assuming that the income
generated by the investment during that 30 day or one month period is generated
each period over a 12 month period and is shown as a percentage of the
investment.
The total return of a sub-account refers to return quotations assuming an
investment under a policy has been held in the sub-account for various periods
of time including, but not limited to, a period measured from the date the
sub-account commenced operations. When a sub-account has been in operation for
1, 5, and 10 years, respectively, the total return for these periods will be
provided.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a policy to the redemption value of that investment as of the last day of
each of the periods for which total return quotations are provided. Average
annual total return information shows the average percentage change
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in the value of an investment in the sub-account from the beginning date of the
measuring period to the end of that period. This standardized version of average
annual total return reflects all historical investment results, less all charges
and deductions applied against the sub-account (including any surrender charge
that would apply if an Owner terminated the policy at the end of each period
indicated, but excluding any deductions for premium taxes).
We may, in addition, advertise total return performance information computed on
a different basis. We may present total return information computed on the same
basis as described above, except deductions will not include the surrender
charge. This presentation assumes that the investment in the policy persists
beyond the period when the surrender charge applies, consistent with the
long-term investment and retirement objectives of the policy.
We may compare the performance of each sub-account in advertising and sales
literature to the performance of other variable annuity issuers in general or to
the performance of particular types of variable annuities investing in mutual
funds, or investment portfolios of mutual funds with investment objectives
similar to each of the sub-accounts. Lipper Analytical Services, Inc. ("Lipper")
and the Variable Annuity Research Data Service ("VARDS") are independent
services which monitor and rank the performances of variable annuity issuers in
each of the major categories of investment objectives on an industry-wide basis.
Other services or publications may also be cited in our advertising and sales
literature.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS rankings compare only variable annuity issuers. The performance
analysis prepared by Lipper and VARDS each rank such issuers on the basis of
total return, assuming reinvestment of distributions, but do not take sales
charges, redemption fees or certain expense deductions at the separate account
level into consideration. In addition, VARDS prepares risk adjusted rankings,
which consider the effects of market risk on total return performance. This type
of ranking provides data as to which funds provide the highest total return
within various categories of funds defined by the degree of risk inherent in
their investment objectives.
We may also compare the performance of each sub-account in advertising and sales
literature to the Standard & Poor's composite index of 500 common stocks, a
widely used index to measure stock market performance. This unmanaged index does
not reflect any "deduction" for the expense of operating or managing an
investment portfolio. We may also make comparison to Lehman Brothers
Government/Corporate Bond Index, an index that includes the Lehman Brothers
Government Bond and Corporate Bond Indices. These indices are total rate of
return indices. The Government Bond Index includes the Treasury Bond Index
(public obligations of the U.S. Treasury) and the Agency Bond Index (publicly
issued debt of U.S. Government agencies, quasi-federal corporations, and
corporate debt guaranteed by the U.S. Government). The Corporate Bond Index
includes publicly issued, fixed rate, nonconvertible investment grade
dollar-denominated, SEC registered corporate debt. All issues have at least a
one-year maturity, and all returns are at market value inclusive of accrued
interest. Other independent indices such as those prepared by Lehman Brothers
Bond Indices may also be used as a source of performance comparison.
We may also compare the performance of each sub-account in advertising and sales
literature to the Dow Jones Industrial Average, a stock average of 30 blue chip
stock companies that does not represent all new industries. Other independent
averages such as those prepared by Dow Jones & Company, Inc. may also be used as
a source of performance comparison. Day-to-day changes may not be reflective of
the overall market when an average is composed of a small number of companies.
TAX DEFERRAL
Under current tax laws any increase in policy value is generally not taxable to
you or any annuitant until received, subject to certain exceptions. See "FEDERAL
TAX STATUS". This deferred tax treatment may be beneficial to you in building
assets in a long-range investment program.
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We may also distribute sales literature or other information including the
effect of tax-deferred compounding on a sub-account's investment returns, or
returns in general, which may be illustrated by tables, graphs, charts or
otherwise, and which may include a comparison, at various points in time, of the
return from an investment in a policy (or returns in general) on a tax-deferred
basis (assuming one or more tax rates) with the return on a currently taxable
basis where allowed by state laws. All income and capital gains derived from
sub-account investments are reinvested and compound tax-deferred until
distributed. Such tax-deferred compounding can result in substantial long-term
accumulation of assets, provided that the investment experience of the
underlying portfolios of the Funds is positive.
FEDERAL TAX STATUS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
INTRODUCTION
This discussion is not intended to address the tax consequences resulting from
all of the situations in which a person may be entitled to or may receive a
distribution under the annuity policy we issue. Any person concerned about these
tax implications should consult a tax adviser before initiating any transaction.
This discussion is based upon general understanding of the present Federal
income tax laws. No representation is made as to the likelihood of the
continuation of the present Federal income tax laws or of the current
interpretation by the Internal Revenue Service. Moreover, no attempt has been
made to consider any applicable state or other tax laws.
The policy may be purchased on a nonqualified tax basis ("Nonqualified Policy")
or purchased and used in connection with plans qualifying for favorable tax
treatment ("Qualified Policy"). The Qualified Policy was designed for use by
individuals whose premium payments are comprised of proceeds from and/or
contributions under retirement plans which are intended to qualify as plans
entitled to special income tax treatment under Sections 401(a), 401(k), 403(a),
403(b), 408 or 457 of the Code. The ultimate effect of Federal income tax on the
amounts held under a policy, or annuity payments, and on the economic benefit to
the owner, any annuitant, or the beneficiary depends on the type of retirement
plan, on the tax and employment status of the individual concerned and on our
tax status. In addition, certain requirements must be satisfied in purchasing a
Qualified Policy with proceeds from a tax-qualified plan and receiving
distributions from a Qualified Policy in order to continue receiving favorable
tax treatment. Therefore, purchasers of Qualified Policies should seek legal and
tax advice regarding the suitability of a policy for their situation, the
applicable requirements, and the tax treatment of the rights and benefits of a
policy. The following discussion assumes that Qualified Policies are purchased
with proceeds from and/or contributions under retirement plans that receive the
intended special Federal income tax treatment.
THE COMPANY'S TAX STATUS
The Variable Account is not separately taxed as a "regulated investment company"
under Subchapter M of the Code. The operations of the Variable Account are a
part of and taxed with our operations. We are taxed as a life insurance company
under Subchapter L of the Code.
At the present time, we make no charge for any Federal, state or local taxes
(other than premium taxes) that we incur which may be attributable to the
Variable Account or to the policies. However, we do reserve the right to make a
charge in the future for any such tax or other economic burden resulting from
the application of the tax laws that we determine to be properly attributable to
the Variable Account or to the policies.
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TAX STATUS OF THE POLICY
DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code provides that separate account investments underlying
a policy must be "adequately diversified" in accordance with Treasury
regulations in order for the policy to qualify as an annuity policy under
Section 72 of the Code. The Variable Account, through each portfolio of CLASF,
Fidelity VIP, Fidelity VIP II, Seligman, Dreyfus, Dreyfus Socially Responsible,
Alger American, Montgomery, and Berger Trust intends to comply with the
diversification requirements prescribed in regulations under Section 817(h) of
the Code, which affect how the assets in the various divisions of the Accounts
may be invested. Although we do not have control over CLASF, Fidelity VIP,
Fidelity VIP II, Seligman, Dreyfus, Dreyfus Socially Responsible, Alger
American, Montgomery, or Berger Trust in which the Variable Account invests, we
believe that each portfolio in which the Variable Account owns shares will meet
the diversification requirements and that therefore the Policy will be treated
as an annuity under the Code.
In certain circumstances, variable annuity policyowners may be considered the
owners, for Federal income tax purposes, of the assets of the separate account
used to support their policies. In those circumstances, income and gains from
the separate account assets would be includable in the variable annuity
policyowner's gross income. Several years ago, the IRS stated in published
rulings that a variable policyowner will be considered the owner of separate
account assets if the policyowner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. More
recently, the Treasury Department announced, in connection with the issuance of
regulations concerning investment diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets."
The ownership rights under the policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets. For example, the
owner of the policy has the choice of more subdivisions to which to allocate
premiums and policy values than such rulings, has a choice of investment
strategies different from such rulings, and may be able to transfer among
subdivisions more frequently than in such rulings. These differences could
result in the policyowner being treated as the owner of the assets of the
Variable Account. In addition, we do not know what standards will be set forth
in the regulations or rulings which the Treasury Department has stated it
expects to issue. We therefore reserve the right to modify the policy as
necessary to attempt to prevent the policyowner from being considered the owner
of the assets of the Variable Account.
REQUIRED DISTRIBUTIONS
In addition to the requirements of Section 817(h) of the Code, in order to be
treated as an annuity policy for Federal income tax purposes, Section 72(s) of
the Code requires any Nonqualified Policy to provide that (a) if any owner dies
on or after the annuity commencement date but prior to the time the entire
interest in the Policy has been distributed, the remaining portion of such
interest will be distributed at least as rapidly as under the method of
distribution being used as of the date of that owner's death; and (b) if any
owner dies prior to the annuity commencement date, the entire interest in the
Policy will be distributed within five years after the date of the owner's
death. These requirements will be considered satisfied as to any portion of the
owner's interest which is payable to or for the benefit of a "designated
beneficiary" and which is distributed over the life of such "designated
beneficiary" or over a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin within one year of that
owner's death. The owner's "designated beneficiary" is the person designated by
such owner as a beneficiary and to whom proceeds of the Policy passes by reason
of death and must be a natural person. However, if the owner's "designated
beneficiary" is the surviving spouse of the owner, the Policy may be continued
with the surviving spouse as the new owner.
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The Nonqualified Policies contain provisions which are intended to comply with
the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. We intend to review such
provisions and modify them if necessary to assure that they comply with the
requirements of Code Section 72(s) when clarified by regulation or otherwise.
Other rules may apply to Qualified Policies [see "Minimum Distribution
Requirements ("MDR") for IRA's].
The following discussion assumes that the policies will qualify as annuity
contracts for Federal income tax purposes.
TAXATION OF ANNUITIES
IN GENERAL
Section 72 of the Code governs taxation of annuities in general. We believe that
an owner who is a natural person generally is not taxed on increases in the
value of a policy until distribution occurs by withdrawing all or part of the
accumulation value (e.g., partial withdrawal or surrenders) or as annuity
payments under the annuity option elected. For this purpose, the assignment,
pledge, or agreement to assign or pledge any portion of the accumulation value
(and in the case of a Qualified Policy, any portion of an interest in the
qualified plan) generally will be treated as a distribution. The taxable portion
of a distribution (in the form of a single sum payment or an annuity) is taxable
as ordinary income.
The owner of any annuity policy who is not a natural person generally must
include in income any increase in the excess of the policy's accumulation value
over the policy's "investment in the contract" during the taxable year. There
are some exceptions to this rule and a prospective owner that is not a natural
person may wish to discuss these with a tax adviser.
The following discussion generally applies to policies owned by natural persons.
WITHDRAWALS/DISTRIBUTIONS
In the case of a distribution under a Qualified Policy (other than a Section 457
plan), under Section 72(e) of the Code a ratable portion of the amount received
is taxable, generally based on the ratio of the "investment in the contract" to
the participant's total accrued benefit or balance under the retirement plan.
The "investment in the contract" generally equals the portion, if any, of any
premium payments paid by or on behalf of any individual under a Policy which was
not excluded from the individual's gross income. For policies issued in
connection with qualified plans, the "investment in the contract" can be zero.
Special tax rules may be available for certain distributions from Qualified
Policies.
In the case of a withdrawal/distribution (e.g. surrender, partial withdrawal of
systematic withdrawal) under a Nonqualified Policy before the annuity date,
under Code Section 72(e) amounts received are generally first treated as taxable
income to the extent that the accumulation value immediately before the
withdrawal exceeds the "investment in the contract" at that time. Any additional
amount withdrawn is not taxable.
ANNUITY PAYMENTS
Although tax consequences may vary depending on the annuity option elected under
an annuity policy, under Code Section 72(b), generally gross income does not
include that part of any amount received as an annuity under an annuity policy
that bears the same ratio to such amount as the investment in the contract bears
to the expected return at the annuity starting date. For variable income
payments, in general, the taxable portion (prior to recovery of the investment
in the contract) is determined by a formula which establishes the specific
dollar amount of each annuity payment that is not taxed. The dollar
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amount is determined by dividing the "investment in the contract" by the total
number of expected periodic payments. For fixed income payments (prior to
recovery of the investment in the contract), in general, there is no tax on the
amount of each payment which represents the same ratio that the "investment in
the contract" bears to the total expected value of the annuity payments for the
term of the payments; however, the remainder of each income payment is taxable.
In all cases, after the "investment in the contract" is recovered, the full
amount of any additional annuity payments is taxable.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a policy because of the death of an owner or the
last surviving annuitant. Generally, such amounts are includable in the income
of the recipient as follows:
1. if distributed in a lump sum, they are taxed in the same manner
as a full surrender of the policy; or
2. if distributed under a payment option, they are taxed in the
same manner as annuity payments.
For these purposes, the investment in the policy is not affected by an owner or
annuitant's death. That is the investment in the policy remains the amount of
any purchase payments paid which were not excluded from gross income.
PENALTY TAX ON CERTAIN WITHDRAWALS
In the case of a distribution pursuant to a Nonqualified Policy, there may be
imposed a Federal penalty tax equal to 10% of the amount treated as taxable
income. In general, however, there is no penalty tax on distributions:
1. made on or after the taxpayer reaches age 59 1/2;
2. made on or after the death of an owner (or if the owner is not
an individual, the death of the primary annuitant);
3. attributable to the owner becoming disabled;
4. as part of a series of substantially equal periodic payments
(not less frequently than annually) for the life (or life
expectancy) of the taxpayer or the joint lives (or joint life
expectancies) of the taxpayer and beneficiary;
5. made under an annuity policy that is purchased with a single
premium when the annuity starting date is no later than a year
from purchase of the annuity and substantially equal periodic
payments are made, not less frequently than annually, during the
annuity period; and
6. made under certain annuities issued in connection with
structured settlement agreements.
Other tax penalties may apply to certain distributions under a Qualified Policy,
as well as to certain contributions, loans and other circumstances.
TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF A POLICY
A transfer of ownership, the designation of an annuitant or other beneficiary
who is not also the owner, the designation of certain annuity starting dates, or
the exchange of a policy may result in certain tax consequences to the owner
that are not discussed herein. An owner contemplating any such transfer,
assignment, designation, or exchange of a policy should contact a tax adviser
with respect to the potential tax effects of such a transaction.
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WITHHOLDING
Pension and annuity distributions generally are subject to withholding for the
recipient's Federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. Effective January 1, 1993, withholding is mandatory for certain
distributions from Qualified contracts.
MULTIPLE POLICIES
Section 72(e)(11) of the Code treats all nonqualified deferred annuity policies
entered into after October 21, 1988, that are issued by us (or our affiliates)
to the same owner during any calendar year as one annuity policy for purposes of
determining the amount includable in gross income under Code Section 72(e). The
effects of this rule are not yet clear; however, it could affect the time when
income is taxable and the amount that might be subject to the 10% penalty tax
described above. In addition, the Treasury Department has specific authority to
issue regulations that prevent the avoidance of Section 72(e) through the serial
purchase of annuity contracts or otherwise. There may also be other situations
in which the Treasury may conclude that it would be appropriate to aggregate two
or more annuity contracts purchased by the same owner. Accordingly, a
policyowner should consult a tax adviser before purchasing more than one annuity
contract.
POSSIBLE TAX CHANGES
In recent years, legislation has been proposed that would have adversely
modified the federal taxation of certain annuities. For example, one such
proposal would have changed the tax treatment of non-qualified annuities that
did not have "substantial life contingencies" by taxing income as it is credited
to the annuity. Although as of the date of this prospectus Congress is not
considering any legislation regarding the taxation of annuities, there is always
the possibility that the tax treatment of annuities could change by legislation
or other means (such as IRS regulations, revenue rulings, and judicial
decisions). Moreover, it is also possible that any legislative change could be
retroactive (that is, effective prior to the date of such change).
TAXATION OF QUALIFIED PLANS
The policies are designed for use with several types of qualified plans. The tax
rules applicable to participants in these qualified plans vary according to the
type of plan and the terms and conditions of the plan itself. Special favorable
tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits, distributions prior to age 59 1/2 (subject to certain
exceptions), distributions that do not conform to specified commencement and
minimum distribution rules, aggregate distributions in excess of a specified
annual amount, and in certain other circumstances. Therefore, no attempt is made
to provide more than general information about the use of the policies with the
various types of qualified retirement plans. Policyowners, annuitants, and
beneficiaries are cautioned that the rights of any person to any benefits under
these qualified retirement plans may be subject to the terms and conditions of
the plans themselves, regardless of the terms and conditions of the policy, but
we shall not be bound by the terms and conditions of such plans to the extent
such terms contradict the policy, unless we consent. Some retirement plans are
subject to distribution and other requirements that are not incorporated in the
administration of the policies. Owners are responsible for determining that
contributions, distributions and other transactions with respect to the policies
satisfy applicable law. Brief descriptions follow of the various types of
qualified retirement plans in connection with which we will issue a policy. We
will amend the policy as instructed to conform it to the applicable legal
requirements for such plan.
52
<PAGE> 57
INDIVIDUAL RETIREMENT ANNUITIES AND SIMPLIFIED EMPLOYEE PENSIONS (SEP/IRAS)
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity" or
"IRA". These IRAs are subject to limits on the amount that may be contributed,
the persons who may be eligible and on the time when distributions may commence.
Also, distributions from certain other types of qualified retirement plans may
be "rolled over" on a tax-deferred basis into an IRA. Sales of the policy for
use with IRAs may be subject to special requirements of the Internal Revenue
Service.
Section 408(k) of the Code allows employers to establish simplified employee
pension plans for their employees, using an IRA for such purpose, if certain
criteria are met. Under these plans the employer may, within specified limits,
make deductible contributions on behalf of the employee to an IRA. Employers
intending to use the policy in connection with such plans should seek advice.
Purchasers of a policy for use with IRAs will be provided with supplemental
information required by the Internal Revenue Service or other appropriate
agency. Such purchasers will have the right to revoke their purchase within
seven days of the earlier of the establishment of the IRA or their purchase.
Purchasers should seek competent advice as to the suitability of the policy for
use with IRAs. The Internal Revenue Service has not reviewed the Policy for
qualification as an IRA, and has not addressed in a ruling of general
applicability whether a death benefit provision such as the provision in the
policy comports with IRA qualification requirements.
MINIMUM DISTRIBUTION REQUIREMENTS ("MDR") FOR IRAS
The Code requires that minimum distribution from an IRA begin no later than
April 1 of the year following the year in which the owner attains age
701/2(Failure to do so results in a penalty of 50% of the amount not withdrawn.
This penalty is in addition to normal income tax. We will calculate the MDR only
for funds invested in this Policy and subject to our administrative guidelines,
including but not limited to: 1) minimum withdrawal amount of $250; 2) while
surrender charges are applicable, up to 10% of total premium plus 100% of any
sub-account earnings and 100% of current policy year's Fixed Account interest
may be withdrawn; and 3) use of MDR counts as the once a policy year free
withdrawal.
As an administrative practice, we will calculate and distribute an amount from
an IRA using the method contained in the Code's minimum distribution
requirements. The annual distribution is determined by dividing the prior
December 31st value for the policy by a life expectancy factor. The factor will
be based on either your life or the life expectancies of your life and your
designated beneficiary, as directed by you, and based on tables found in the
IRS' regulations. Factors are redetermined for each year's distribution. The
value of the policy to be used in this calculation is the policy value on the
December 31st prior to the year for which each subsequent payment is made. The
life expectancy factor is determined by using the appropriate IRS chart based on
one of the following circumstances:
1. Your life expectancy (Single Life Expectancy);
2. Joint life expectancy between you and your designated
beneficiary (Joint Life and Last Survivor Expectancy); or
3. Your life expectancy and a non-spouse beneficiary more than 10
years younger than you (Minimum Distribution Incident Benefit
Requirement).
The Code Minimum Distribution Requirements also apply to distribution from
qualified plans other than IRA's. For qualified plans under section 401(a),
401(k), 403(a), 403(b), and 457, the code requires that distributions generally
must commence no later than the later of (i) April 1 of the calender year
following the calender year in which the owner (or plan participant) reaches age
70 1/2 or (ii) retirement, and must be made in a specified form or manner. If
the plan participant is a "5% owner" (as defined in the code), distributions
generally must begin no later than the date described in (i). You are
responsible for ensuring that distributions from such plans satisfy the Code
minimum distribution requirements.
53
<PAGE> 58
CORPORATE AND SELF-EMPLOYED (H.R.10 AND KEOGH) PENSION AND PROFIT-SHARING PLANS
Sections 401(a), 401(k) and 403(a) of the Code permit corporate employers to
establish various types of tax-favored retirement plans for employees. The
Self-Employed Individual 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 policies in order to
accumulate retirement savings under the plans. Adverse tax consequences to the
plan, to the participant or to both may result if this policy is assigned or
transferred to any individual as a means to provide benefit payments. Employers
intending to use the policy in connection with such plans should seek advice.
DEFERRED COMPENSATION PLANS
Section 457 of the Code provides for certain deferred compensation plans. These
plans may be offered with respect to service for state governments, local
governments, political subdivisions, agencies, instrumentalities and certain
affiliates of such entities, and tax exempt organizations. The plans may permit
participants to specify the form of investment for their deferred compensation
account. All distributions are taxable as ordinary income. Except for certain
governmental plans, all investments are owned by the sponsoring employer and are
subject to the claims of the general creditors of the employer.
TAX-SHELTERED ANNUITY PLANS
Section 403(b) of the Code permits public school systems and certain tax-exempt
organizations specified in Section 501(c)(3) to make payments to purchase
annuity policies for their employees. Such payments are excludable from the
employee's gross income (subject to certain limitations), but may be subject to
FICA (Social Security) taxes. Under Code requirements, Section 403(b) annuities
generally may not permit distribution of: 1) elective contributions made in
years beginning after December 31, 1988; 2) earnings on those contributions; and
3) earnings on amounts attributed to elective contributions held as of the end
of the last year beginning before January 1, 1989. Under Code requirements,
distributions of such amounts will be allowed only: 1) upon the death of the
employee; or 2) on or after attainment of age 59 1/2; or 3) separation from
service; or 4) disability; or 5) financial hardship, except that income
attributable to elective contributions may not be distributed in the case of
hardship. With respect to these restrictions, the Company is relying upon a
no-action letter dated November 28, 1988, from the staff of the SEC to the
American Council of Life Insurance, the requirements for which have been or will
be complied with by the Company.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the Federal tax consequences under
these policies are not exhaustive and special rules are provided with respect to
other tax situations not discussed in this Prospectus. Further, the Federal
income tax consequences discussed herein reflect our understanding of current
law and the law may change. Federal estate and state and local estate,
inheritance, and other tax consequences of ownership or receipt of distributions
under a Policy depend on the individual circumstances of each owner or recipient
of the distribution. A tax adviser should be consulted for further information.
54
<PAGE> 59
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Section 36.105 of the Texas Educational Code permits participants in the Texas
Optional Retirement Program ("ORP") to withdraw their interest in a variable
annuity policy issued under the ORP only upon: 1) termination of employment in
the Texas public institutions of higher education; 2) retirement; or 3) death.
Accordingly, a participant in the ORP, or the participant's estate if the
participant has died, will be required to obtain a certificate of termination
from the employer or a certificate of death before policy values can be
withdrawn or surrendered.
Other restrictions with respect to the election, commencement, or distribution
of benefits may apply under Qualified Policies or under the terms of the plans
in respect of which Qualified Policies are issued.
DISTRIBUTION OF POLICIES
The policies will be offered to the public on a continuous basis, and we do not
anticipate discontinuing the offering of the policies. However, we reserve the
right to discontinue the offering. Applications for policies are solicited by
agents who are licensed by applicable state insurance authorities to sell our
variable annuity policies and who are also registered representatives of Canada
Life of America Financial Services, Inc. ("CLAFS"). CLAFS is a wholly owned
subsidiary of our Company. CLAFS, a Georgia corporation organized on January 18,
1988, is registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. The policies may also be sold through other broker/dealers registered under
the Securities Exchange Act of 1934 whose representatives are authorized by
applicable law to sell variable annuity policies. CLAFS will pay distribution
compensation to selling broker/dealers in varying amounts which, under normal
circumstances, is not expected to exceed 6.5% of premium payments under the
policies. We may from time to time pay additional compensation pursuant to
promotional contracts. In some circumstances, we may provide reimbursement of
certain sales and marketing expenses. CLAFS will pay a promotional agent fee for
providing marketing support for the distribution of the contracts.
CLAFS acts as the principal underwriter, as defined in the Investment Company
Act of 1940, of the policies for the Variable Account pursuant to a distribution
agreement involving CLAFS and us. CLAFS is not obligated to sell any specific
number of policies. CLAFS principal business address is 6201 Powers Ferry Road,
NW, Atlanta, Georgia.
LEGAL PROCEEDINGS
There are at present no legal proceedings to which the Variable Account is a
party or the assets of the Variable Account are subject. We are not involved in
any litigation that is of material importance in relation to our total assets or
that relates to the Variable Account.
VOTING RIGHTS
To the extent deemed to be required by law and as described in the Prospectuses
for the Funds, shares held in the Variable Account and in our general account
will be voted by us at regular and special shareholder meetings in accordance
with instructions received from persons having voting interests in the
corresponding sub-accounts. If however, the Investment Company Act of 1940 or
any regulation thereunder should be amended, or if the present interpretation
thereof should change, or if we determine that we are allowed to vote the shares
in our own right, we may elect to do so.
55
<PAGE> 60
The number of votes which are available to you will be calculated separately for
each sub-account of the Variable Account, and may include fractional votes. The
number of votes attributable to a sub-account will be determined by applying
your percentage interest, if any, in a particular sub-account to the total
number of votes attributable to that sub-account. You hold a voting interest in
each sub-account to which the Variable Account value is allocated. You only have
voting interest prior to the annuity date or maturity date.
The number of votes which are available to you will be determined as of the date
coincident with the date established for determining shareholders eligible to
vote at the relevant meeting. Voting instructions will be solicited by written
communication prior to such meeting in accordance with established procedures.
Shares as to which no timely instructions are received and shares held by us in
a sub-account as to which you have no beneficial interest will be voted in
proportion to the voting instructions which are received with respect to all
policies participating in that sub-account. Voting instructions to abstain on
any item to be voted upon will be applied to reduce the total number of votes
cast on such item.
Each person having a voting interest in a sub-account will receive proxy
materials, reports, and other material relating to the appropriate portfolio.
FINANCIAL STATEMENTS
Our balance sheets as of December 31, 1996 and 1995, and the related statements
of operations, accumulated deficit, and cash flows for each of the three years
in the period ended December 31, 1996, as well as the Report of Independent
Auditors, are contained in the Statement of Additional Information. The Variable
Account's statement of net assets as of December 31, 1996, and the related
statement of operations and the statements of changes in net assets for the
periods indicated therein, as well as the Report of Independent Auditors, are
contained in the Statement of Additional Information.
The financial statements of the Company included in the Statement of Additional
Information should be considered only as bearing on the ability of the Company
to meet its obligations under the policies. They should not be considered as
bearing on the investment performance of the assets held in the Variable
Account.
56
<PAGE> 61
STATEMENT OF ADDITIONAL INFORMATION - TABLE OF CONTENTS
<TABLE>
<S> <C>
ADDITIONAL POLICY PROVISIONS
Contract.............................................................................................................
Incontestability .....................................................................................................2
Misstatement of Age ..................................................................................................2
Currency .............................................................................................................3
Place of Payment .....................................................................................................3
Non-Participation ....................................................................................................3
Our Consent ..........................................................................................................3
CALCULATION OF YIELDS AND TOTAL RETURNS
Money Market Yields...................................................................................................3
Other Sub-Account Yields............................................................................................. 4
Total Returns........................................................................................................ 4
Effect of the Policy Administration Charge on Performance Data....................................................... 8
SAFEKEEPING OF ACCOUNT ASSETS
STATE REGULATION..............................................................................................................8
RECORDS AND REPORTS...........................................................................................................8
LEGAL MATTERS.................................................................................................................8
EXPERTS.......................................................................................................................9
OTHER INFORMATION.............................................................................................................9
FINANCIAL STATEMENTS..........................................................................................................9
</TABLE>
57
<PAGE> 62
APPENDIX A: STATE PREMIUM TAXES
Premium taxes vary according to the state and are subject to change. In many
jurisdictions there is no tax at all. For current information, a tax adviser
should be consulted.
<TABLE>
<CAPTION>
TAX RATE
QUALIFIED NONQUALIFIED
STATE CONTRACTS CONTRACTS
<S> <C> <C>
California ................................... .50% 2.35%
District of .................................. 2.25 2.25
Columbia
Kansas ....................................... .00 2.00
Kentucky ..................................... 2.00 2.00
Maine ........................................ .00 2.00
Nevada ....................................... .00 3.50
South Dakota ................................. .00 1.25
West Virginia ................................ 1.00 1.00
Wyoming ...................................... .00 1.00
</TABLE>
<PAGE> 63
PART B
INFORMATION REQUIRED TO BE IN THE
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 64
CANADA LIFE INSURANCE COMPANY OF AMERICA
ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD, NW, ATLANTA, GEORGIA 30339
PHONE: (800) 333-2542
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY ACCOUNT 1
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY POLICY
- --------------------------------------------------------------------------------
This Statement of Additional Information contains information in addition to the
information described in the Prospectus for the flexible premium variable
deferred annuity policy (the "policy") offered by Canada Life Insurance Company
of America. This Statement of Additional Information is not a Prospectus, and it
should be read only in conjunction with the Prospectuses for the policy; Canada
Life of America Series Fund, Inc.; Fidelity Investments Variable Insurance
Products Fund; Fidelity Investments Variable Insurance Products Fund II;
Seligman Portfolios, Inc.; Dreyfus Variable Investment Fund; The Dreyfus
Socially Responsible Growth Fund, Inc.; The Alger American Fund; The Montgomery
Funds III, and Berger Institutional Products Trust. The Prospectuses are dated
the same date as this Statement of Additional Information. You may obtain copies
of the Prospectuses by writing or calling us at our address or phone number
shown above.
The date of this Statement of Additional Information is May 1, 1997.
<PAGE> 65
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ADDITIONAL POLICY PROVISIONS
Contract ............................................................................................................... 2
Incontestability ....................................................................................................... 2
Misstatement Of Age .................................................................................................... 2
Currency
Place Of Payment ....................................................................................................... 3
Non-Participation ...................................................................................................... 3
Our Consent ............................................................................................................ 3
CALCULATION OF YIELDS AND TOTAL RETURNS
Money Market Yields .................................................................................................... 3
Other Sub-account Yields ................................................................................................ 4
Total Returns .......................................................................................................... 5
Effect Of The Policy Administration Charge On Performance Data ......................................................... 8
SAFEKEEPING OF ACCOUNT ASSETS ................................................................................................... 8
STATE REGULATION ................................................................................................................ 8
RECORDS AND REPORTS ............................................................................................................. 8
LEGAL MATTERS ................................................................................................................... 8
EXPERTS ......................................................................................................................... 9
OTHER INFORMATION ............................................................................................................... 9
FINANCIAL STATEMENTS ............................................................................................................ 9
</TABLE>
ADDITIONAL POLICY PROVISIONS
CONTRACT
The entire contract is made up of the policy and the application for the policy.
The statements made in the application are deemed representations and not
warranties. We cannot use any statement in defense of a claim or to void the
policy unless it is contained in the application and a copy of the application
is attached to the policy at issue.
2
<PAGE> 66
INCONTESTABILITY
We will not contest the policy after it has been in force during any annuitant's
lifetime for two years from the date of issue of the policy.
MISSTATEMENT OF AGE
If the age of any annuitant has been misstated, we will pay the amount which the
proceeds would have purchased at the correct age.
If we make an overpayment because of an error in age, the overpayment plus
interest at 3% compounded annually will be a debt against the policy. If the
debt is not repaid, future payments will be reduced accordingly.
If we make an underpayment because of an error in age, any annuity payments will
be recalculated at the correct age, and future payments will be adjusted. The
underpayment with interest at 3% compounded annually will be paid in a single
sum.
CURRENCY
All amounts payable under the policy will be paid in United States currency.
PLACE OF PAYMENT
All amounts payable by us will be payable at our Administrative Office at the
address shown on page one of this Statement of Additional Information.
NON-PARTICIPATION
The policy is not eligible for dividends and will not participate in our
divisible surplus.
OUR CONSENT
If our consent is required, it must be given in writing. It must bear the
signature, or a reproduction of the signature, of our President, Secretary or
Actuary.
CALCULATION OF YIELDS AND TOTAL RETURNS
MONEY MARKET YIELDS
We may, from time to time, quote in advertisements and sales literature the
current annualized yield of the Money Market Sub-account for a 7 day period in a
manner which does not take into consideration any realized or unrealized gains
or losses on shares of the Money Market Portfolio or on its portfolio
securities. This current annualized yield is computed by determining the net
change (exclusive of realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) at the end of the 7 day period in the
value of a hypothetical account under a policy having a balance of 1 unit of the
Money Market Sub-account at the beginning of the period, dividing such net
change in account value by the value of the account at the beginning of the
period to determine the base period return, and annualizing this quotient on a
365 day basis. The net change in account value reflects: 1) net income from the
Portfolio attributable to the hypothetical account; and 2) charges and
deductions imposed under the policy which are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the
hypothetical account for: 1) the policy administration charge; 2) the daily
administration fee; and 3) the mortality and expense risk charge. The yield
calculation reflects an average per unit policy administration charge of $30 per
year per policy deducted at the end of each policy year. Current Yield will be
calculated according to the following formula:
3
<PAGE> 67
Current Yield = ((NCS-ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Portfolio
(exclusive of realized gains and losses on the sale
of securities and unrealized appreciation and
depreciation) for the 7 day period attributable to a
hypothetical account having a balance of 1
Sub-account unit.
ES = per unit expenses of the Sub-account for the 7 day
period.
UV = the unit value on the first day of the 7 day period.
The current yield for the 7 day period ended December 31, 1996 was 3.61%.
We may also quote the effective yield of the Money Market Sub-account for the
same 7 day period, determined on a compounded basis. The effective yield is
calculated by compounding the unannualized base period return according to the
following formula:
365/7
Effective Yield = (1+((NCS-ES)/UV)) - 1
Where:
NCS = the net change in the value of the Portfolio
(exclusive of realized gains and losses on the sale
of securities and unrealized appreciation and
depreciation) for the 7 day period attributable to a
hypothetical account having a balance of 1
Sub-account unit.
ES = per unit expenses of the Sub-account for the 7 day
period.
UV = the unit value for the first day of the 7 day period.
The effective yield for the 7 day period ended December 31, 1996 was 3.68%.
Because of the charges and deductions imposed under the policy, the yield for
the Money Market Sub-account will be lower than the yield for the Money Market
Portfolio.
The yields on amounts held in th Money Market Sub-account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Money Market Sub-Account's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Money Market Portfolio, the types and quality of portfolio securities held by
the Money Market Portfolio of the Fund, and the Money Market Portfolio's
operating expenses.
OTHER SUB-ACCOUNT YIELDS
We may, from time to time, quote in sales literature and advertisements the
current annualized yield of one or more of the (except the Money Market
Sub-account) for a policy for 30 day or one month periods. The annualized yield
of a sub-account refers to income generated by the sub-account over a specific
30 day or one month period. Because the yield is annualized, the yield generated
by a sub-account during the 30 day or one month period is assumed to be
generated each period over a 12 month period. The yield is computed by: 1)
dividing the net investment income of the portfolio attributable to the
sub-account units less sub-account expenses for the period; by 2) the maximum
offering price per unit on the last day of the period multiplied by the daily
average number of units outstanding for the period; by 3) compounding that yield
for a 6 month period; and by 4) multiplying that result by 2.
4
<PAGE> 68
Expenses attributable to the sub-account include 1) the policy administration
charge, 2) the daily administration fee, and 3) the mortality and expense risk
charge. The yield calculation reflects a policy administration charge of $30 per
year per policy deducted at the end of each policy year. For purposes of
calculating the 30 day or one month yield, an average policy administration
charge per dollar of policy value in the Variable Account is used to determine
the amount of the charge attributable to the sub-account for the 30 day or one
month period as described below. The 30 day or one month yield is calculated
according to the following formula:
6
Yield = 2 x ((((NI-ES)/(U x UV)) + 1) - 1)
Where:
NI = net income of the portfolio for the 30 day or one
month period attributable to the sub-account's
units.
ES = expenses of the sub-account for the 30 day or one
month period.
U = the average number of units outstanding.
UV = the unit value at the close (highest) of the last
day in the 30 day or one month period.
Because of the charges and deductions imposed under the policies, the yield for
the sub-account will be lower than the yield for the corresponding portfolio.
The yield on the amounts held in the sub-accounts normally will fluctuate over
time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. The
sub-account's actual yield is affected by the types and quality of portfolio
securities held by the portfolio, and its operating expenses.
Yield calculations do not take into account the surrender charge under the
policy. The surrender charge is equal to 6% of premiums paid during that current
policy year and the previous 4 policy years on certain amounts surrendered or
withdrawn under the policy as described in the Prospectus. A surrender charge
will not be imposed on the first withdrawal in any policy year on an amount up
to 10% of the premiums paid during that current policy year and the previous 4
policy years, if the systematic withdrawal privilege is not elected in that
policy year.
TOTAL RETURNS
We may, from time to time, also quote in sales literature or advertisements
total returns, including average annual total returns for one or more of the
sub-accounts for various periods of time. We will always include quotes of
average annual total return for the period measured from the date the
sub-account commenced operations. When a sub-account has been in operation for
1, 5, and 10 years, respectively, the average annual total return for these
periods will be provided.
Average annual total returns for other periods of time may, from time to time,
also be disclosed. Average annual total returns represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a policy to the redemption value of that investment as of the last day of
each of the periods. The ending date for each period for which total return
quotations are provided will be for the most recent month-end practicable,
considering the type and media of the communication and will be stated in the
communication.
Average annual total returns will be calculated using sub-account unit values
which we calculate on each valuation day based on the performance of the
sub-account's underlying portfolio, and the deductions for the mortality and
expense risk charge, daily administration fee and the policy administration
charge of $30 per year per policy deducted at the end of each policy year. For
purposes of calculating total return, an average per dollar policy
administration charge attributable to the hypothetical account for the period is
used. The total return will then be calculated according to the following
formula:
5
<PAGE> 69
1/N
TR = ((ERV/P)) - 1
Where:
TR = the average annual total return net of sub-account
recurring charges.
ERV = the ending redeemable value of the hypothetical
account at the end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
The total returns assume that the maximum fees and charges are imposed for
calculations.
6
<PAGE> 70
Average annual total returns for the periods ending December 31, 1996 as shown
below for the sub-accounts were:
<TABLE>
<CAPTION>
Fund
SUB-ACCOUNT* 1 Year 5 Year 10 Year From Fund Inception
Return Return Return Inception Date
------ ------ ------ --------- ----
<S> <C> <C> <C> <C> <C>
Bond (2.27)% 4.75% *** 6.23% 12/04/89
Capital 5.55% ** *** 11.55% 04/23/93
International Equity 12.19% ** *** 10.17% 04/24/95
Managed (1.19)% 6.57% *** 7.91% 12/04/89
Money Market (2.33)% 1.68% *** 2.88% 12/04/89
Value Equity 0.05% 7.11% *** 8.81% 12/04/89
Alger American Growth 6.29% 14.64% *** 16.95% 01/08/89
Alger American Leveraged AllCap 5.00% ** *** 37.28% 01/25/95
Alger American MidCap Growth 4.86% ** *** 21.60% 05/03/93
Alger American Small (2.74)% 9.03% *** 18.49% 09/20/88
Capitalization
Dreyfus Growth and Income 13.10% ** *** 23.53% 05/02/94
Dreyfus Socially Responsible 14.07% ** *** 16.76% 10/07/93
Fidelity VIP Growth 7.61% 13.17% 13.48% 13.11% 10/09/86
Fidelity VIP High Income 6.94% 12.96% 9.52% 10.33% 09/19/85
Fidelity VIP Overseas 6.14% 7.12% *** 6.20% 01/28/87
Fidelity VIP II Asset Manager 7.50% 9.25% *** 9.93% 09/06/89
Fidelity VIP II Index 500 15.63% ** *** 14.89% 08/27/92
Montgomery Variable Series (0.86)% ** *** (0.04)% 02/02/96
Emerging Markets
Seligman Communications and 1.80% ** *** 18.98% 10/11/94
Information
Seligman Frontier 16.71% ** *** 24.88% 10/11/94
</TABLE>
* The Inception Dates of the Sub-accounts are as follows: Money Market,
Managed, Bond and Value Equity, 12/4/89; Capital 5/1/93; Fidelity VIP
Growth, Fidelity VIP High Income, Fidelity VIP Overseas, and Fidelity
VIP II Asset Manager, 5/1/94; International Equity, Seligman
Communications and Information, and Seligman Frontier 5/1/95 ; Fidelity
VIP II Index 500, Dreyfus Growth and Income, Dreyfus Socially
Responsible, Alger American Small Capitalization, Alger American Growth,
Alger American MidCap Growth, Alger American Leveraged AllCap and
Montgomery Variable Series Emerging Markets, 5/1/96. These dates may not
coincide with the fund inception dates.
** These Sub-accounts invest in portfolios that have not been in operation
five years as of December 31, 1996, and accordingly, no five year
average annual total return is available.
7
<PAGE> 71
*** These Sub-Accounts invest in portfolios that have not been in operation
ten years as of December 31, 1996, and accordingly, no ten year average
annual return is available.
As of December 31, 1996, the Montgomery Variable Series Growth Fund and the
Berger/BIAM IPT-International Fund sub-accounts had not commenced operations.
Accordingly, we have not provided average annual total return information for
those sub-accounts.
We may, from time to time, also quote in sales literature or advertisements,
total returns that do not reflect the surrender charge. These are calculated in
exactly the same way as average annual total returns described above, except
that the ending redeemable value of the hypothetical account for the period is
replaced with an ending value for the period that does not take into account any
charge on amounts surrendered or withdrawn.
Average annual total returns without a surrender charge for the periods ending
December 31, 1996 as shown below for the sub-accounts were:
<TABLE>
<CAPTION>
Fund
SUB-ACCOUNT* 1 Year 5 Year 10 Year From Fund Inception
Return Return Return Inception Date
------ ------ ------ --------- ----
<S> <C> <C> <C> <C> <C>
Bond 3.13% 5.20% *** 6.23% 12/04/89
Capital 10.95% ** *** 12.45% 04/23/93
International Equity 17.59% ** *** 13.13% 04/24/95
Managed 4.21% 6.98% *** 7.91% 12/04/89
Money Market 3.07% 2.18% *** 2.88% 12/04/89
Value Equity 5.45% 7.52% *** 8.81% 12/04/89
Alger American Growth 11.69% 14.95% *** 16.95% 01/08/89
Alger American MidCap Growth 10.26% ** *** 22.32% 05/03/93
Alger American Leveraged AllCap 10.40% ** *** 39.34% 01/25/95
Alger American Small Capitalization 2.66% 9.41% *** 18.49% 09/20/88
Dreyfus Growth and Income 18.50% ** *** 24.71% 05/02/94
Dreyfus Socially Responsible 19.47% ** *** 17.73% 10/07/93
Fidelity VIP Growth 13.01% 13.49% 13.48% 13.16% 10/09/86
Fidelity VIP High Income 12.34% 13.29% 9.52% 10.39% 09/19/85
Fidelity VIP Overseas 11.54% 7.53% *** 6.31% 01/28/87
Fidelity VIP II Asset Manager 12.90% 9.62% *** 10.07% 09/06/89
Fidelity VIP II Index 500 21.03% ** *** 15.41% 08/27/92
Montgomery Variable Series 4.54% ** *** 5.36% 02/02/96
Emerging Markets
Seligman Communications and 7.20% ** *** 20.58% 10/11/94
Information
Seligman Frontier 22.11% ** *** 26.39% 10/11/94
</TABLE>
8
<PAGE> 72
* The Inception Dates of the Sub-accounts are as follows: Money Market,
Managed, Bond and Value Equity, 12/4/89; Capital 5/1/93; Fidelity VIP
Growth, Fidelity VIP High Income, Fidelity VIP Overseas, and Fidelity
VIP II Asset Manager, 5/1/94; International Equity, Seligman
Communications and Information, and Seligman Frontier 5/1/95 ; Fidelity
VIP II Index 500, Dreyfus Growth and Income, Dreyfus Socially
Responsible, Alger American Small Capitalization, Alger American Growth,
Alger American MidCap Growth, Alger American Leveraged AllCap and
Montgomery Variable Series Emerging Markets, 5/1/96. These dates may not
coincide with the fund inception dates.
** These Sub-accounts invest in portfolios that have not been in operation
five years as of December 31, 1996, and accordingly, no five year
average annual total return is available.
*** These Sub-Accounts invest in portfolios that have not been in operation
ten years as of December 31, 1996, and accordingly, no ten year average
annual return is available.
As of December 31, 1996, the Montgomery Variable Series Growth Fund and the
Berger/BIAM IPT-International Fund sub-accounts had not commenced operations.
Accordingly, we have not provided average annual total return information for
those sub-accounts.
EFFECT OF THE POLICY ADMINISTRATION CHARGE ON PERFORMANCE DATA
The policy provides for a $30 policy administration charge to be assessed
annually on each policy anniversary proportionately from any sub-accounts or
Fixed Account in which you are invested. If the policy value on the policy
anniversary is $75,000 or more, we will waive the policy administration charge
for the prior policy year. For purposes of reflecting the policy administration
charge in yield and total return quotations, we will convert the annual charge
into a per-dollar per-day charge based on the average policy value in the
Variable Account of all policies on the last day of the period for which
quotations are provided. The per-dollar per-day average charge will then be
adjusted to reflect the basis upon which the particular quotation is calculated.
SAFEKEEPING OF ACCOUNT ASSETS
We hold the title to the assets of the Variable Account. The assets are kept
physically segregated and held separate and apart from our general account
assets and from the assets in any other separate account we have.
Records are maintained of all purchases and redemptions of portfolio shares held
by each of the sub-accounts.
Our officers and employees are covered by an insurance company blanket bond
issued by America Home Assurance Company to The Canada Life Assurance Company,
our parent Company, in the amount of $25 million. The bond insures against
dishonest and fraudulent acts of officers and employees.
STATE REGULATION
We are subject to the insurance laws and regulations of all the jurisdictions
where we are licensed to operate. The availability of certain policy rights and
provisions depends on state approval and/or filing and review processes. The
policies will be modified to comply with the requirements of each applicable
jurisdiction.
9
<PAGE> 73
RECORDS AND REPORTS
We will maintain all records and accounts relating to the Variable Account. As
presently required by the Investment Company Act of 1940 and regulations
promulgated thereunder, reports containing such information as may be required
under the Act or by any other applicable law or regulation will be sent to you
semi-annually at your last address known to us.
LEGAL MATTERS
All matters relating to Michigan law pertaining to the policies, including the
validity of the policies and our authority to issue the policies, have been
passed upon by David A. Hopkins. Sutherland, Asbill & Brennan, L.L.P. of
Washington, DC, has provided advice on certain matters relating to the federal
securities laws.
EXPERTS
Our balance sheets as of December 31, 1996 and 1995, and the related statements
of operations, accumulated deficit, and cash flows for each of the three years
in the period ended December 31, 1996, included in this Statement of Additional
Information and Registration Statement as well as the Variable Account's
statement of net assets as of December 31, 1996, and the related statements of
operations and changes in net assets for the periods indicated therein included
in this Statement of Additional Information and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, of Atlanta, Georgia, as set
forth in their reports thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933 as amended, with respect to the policies discussed in this Statement of
Additional Information. Not all of the information set forth in the registration
statement, amendments and exhibits thereto has been included in this Statement
of Additional Information. Statements contained in this Statement of Additional
Information concerning the content of the policies and other legal instruments
are intended to be summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the SEC.
FINANCIAL STATEMENTS
The Variable Account's statement of net assets as of December 31, 1996, and the
related statements of operations and changes in net assets for the periods
indicated therein, as well as the Report of Independent Auditors, are contained
herein. Ernst & Young LLP, independent auditors, serves as independent auditors
for the Variable Account.
Our balance sheets as of December 31, 1996 and 1995, and the related statements
of operations, accumulated deficit, and cash flows for each of the three years
in the period ended December 31, 1996, as well as the Report of Independent
Auditors, are contained herein. The financial statements of the Company should
be considered only as bearing on our ability to meet our obligations under the
policies. They should not be considered as bearing on the investment performance
of the assets held in the Variable Account.
10
<PAGE> 74
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
Report of Independent Auditors.......................................... 1
Statement of Net Assets
as of December 31, 1996............................................. 2
Statement of Operations for the
year ended December 31, 1996........................................ 8
Statements of Changes in Net Assets for the
years ended December 31, 1996 and 1995.............................. 14
Notes to Financial Statements........................................... 23
CANADA LIFE INSURANCE COMPANY OF AMERICA
Report of Independent Auditors.......................................... 1
Balance Sheets as of December 31, 1996 and 1995......................... 3
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994.................................... 4
Statements of Accumulated Deficit for the years ended
December 31, 1996, 1995 and 1994.................................... 5
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994.................................... 6
Notes to Financial Statements........................................... 8
</TABLE>
<PAGE> 75
FINANCIAL STATEMENTS
CANADA LIFE OF AMERICA
VARIABLE
ANNUITY ACCOUNT 1
DECEMBER 31, 1996
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE> 76
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
FINANCIAL STATEMENTS
December 31, 1996
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors..................................................................................... 1
Audited Financial Statements
Statement of Net Assets............................................................................................ 2
Statement of Operations............................................................................................ 8
Statements of Changes in Net Assets................................................................................ 14
Notes to Financial Statements...................................................................................... 23
</TABLE>
<PAGE> 77
[ERNST & YOUNG LLP LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Canada Life Insurance Company of America
We have audited the accompanying statement of net assets of CANADA LIFE OF
AMERICA VARIABLE ANNUITY ACCOUNT 1 ("Variable Annuity Account 1") as of
December 31, 1996, and the related statement of operations and the statements
of changes in net assets for the periods indicated therein. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1996,
by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Variable Annuity Account 1 at
December 31, 1996, and the results of its operations and the changes in its net
assets for each of the periods indicated therein in conformity with generally
accepted accounting principles.
Atlanta, Georgia
February 10, 1997
/s/ Ernst & Young LLP
1
<PAGE> 78
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
CLASF SERIES
------------
MONEY INTERNATIONAL
MARKET MANAGED BOND EQUITY CAPITAL EQUITY
SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS
Investment in Canada Life
of America Series Fund,
Inc., at market (See
Note 3 for cost values) $2,909,804 $10,087,803 $1,678,989 $4,125,335 $3,034,835 $778,862
Dividends receivable 22,341 1,094,904 94,078 460,023 285,333 15,122
Due from (to) Canada Life
Insurance Company of
America (Note 6) 9,218 (49,118) (9,308) 91,201 10,802 (5,347)
Receivable (payable) for
investments sold
(purchased) 82,342 68,499 3,547 (39,752) (18,971) 2,517
-------------------------------------------------------------------------------------
Net assets $3,023,705 $11,202,088 $1,767,306 $4,636,807 $3,311,999 $791,154
=====================================================================================
NET ASSETS ATTRIBUTABLE TO:
Policyholders' liability
reserve $3,023,705 $11,202,088 $1,767,306 $4,636,807 $3,311,999 $791,154
-------------------------------------------------------------------------------------
Net assets $3,023,705 $11,202,088 $1,767,306 $4,636,807 $3,311,999 $791,154
=====================================================================================
NUMBER OF UNITS
OUTSTANDING 245,769 647,793 114,245 253,116 213,607 64,082
=====================================================================================
NET ASSET VALUE PER UNIT $ 12.3030 $ 17.2927 $ 15.4694 $ 18.3189 $ 15.5051 $12.3460
=====================================================================================
</TABLE>
See accompanying notes
2
<PAGE> 79
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF NET ASSETS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
FIDELITY VIP SERIES
-------------------
ASSET HIGH INDEX
MANAGER GROWTH INCOME OVERSEAS 500
SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS
Investment in Fidelity VIP at market (See
Note 3 for cost values) $4,132,731 $6,409,106 $3,837,284 $1,392,236 $1,074,957
Dividends receivable - - - - -
Due from (to) Canada Life Insurance
Company of America (Note 6) 41,137 3,777 12,907 (35,614) (3,390)
Receivable (payable) for investments sold
(purchased) (10,355) 47,596 (1,800) 2,171 7,414
-------------------------------------------------------------------
Net assets $4,163,513 $6,460,479 $3,848,391 $1,358,793 $1,078,981
===================================================================
NET ASSETS ATTRIBUTABLE TO:
Policyholders' liability reserve $4,163,513 $6,460,479 $3,848,391 $1,358,793 $1,078,981
-------------------------------------------------------------------
Net assets $4,163,513 $6,460,479 $3,848,391 $1,358,793 $1,078,981
===================================================================
NUMBER OF UNITS OUTSTANDING 204,163 180,057 124,114 72,861 11,515
===================================================================
NET ASSET VALUE PER UNIT $ 20.3931 $ 35.8802 $ 31.0069 $ 18.6491 $ 93.7022
===================================================================
</TABLE>
See accompanying notes
3
<PAGE> 80
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF NET ASSETS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
SELIGMAN PORTFOLIOS SERIES
--------------------------
COMMUNICATIONS
AND INFORMATION FRONTIER
SUB-ACCOUNT SUB-ACCOUNT
---------------------------------
<S> <C> <C>
NET ASSETS
Investment in Seligman Portfolios,
Inc. at market (See Note 3 for cost
values) $3,195,567 $3,520,434
Dividends receivable - -
Due from (to) Canada Life Insurance
Company of America (Note 6) 3,399 16,140
Receivable (payable) for investments sold
(purchased) (5,935) (17,886)
-----------------------------------
Net assets $3,193,031 $3,518,688
===================================
NET ASSETS ATTRIBUTABLE TO:
Policyholders' liability reserve $3,193,031 $3,518,688
-----------------------------------
Net assets $3,193,031 $3,518,688
===================================
NUMBER OF UNITS OUTSTANDING 209,155 207,377
===================================
NET ASSET VALUE PER UNIT $ 15.2663 $ 16.9676
===================================
</TABLE>
See accompanying notes
4
<PAGE> 81
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF NET ASSETS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
ALGER AMERICAN SERIES
---------------------
SMALL LEVERAGED
CAPITALIZATION GROWTH MIDCAP ALLCAP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSETS
Investment in Alger at market (See
Note 3 for cost values) $328,385 $480,381 $689,451 $238,425
Dividends receivable - - - -
Due from (to) Canada Life Insurance
Company of America (Note 6) 32,121 (830) (1,582) (1,067)
Receivable (payable) for investments
sold (purchased) 1,778 9,084 6,035 1,276
-------------------------------------------------------------------
Net assets $362,284 $488,635 $693,904 $238,634
==================================================================
NET ASSETS ATTRIBUTABLE TO:
Policyholders' liability reserve $362,284 $488,635 $693,904 $238,634
-------------------------------------------------------------------
Net assets $362,284 $488,635 $693,904 $238,634
==================================================================
NUMBER OF UNITS OUTSTANDING 8,816 13,900 32,967 12,535
==================================================================
NET ASSET VALUE PER UNIT $41.0939 $35.1536 $21.0484 $19.0374
==================================================================
</TABLE>
See accompanying notes
5
<PAGE> 82
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF NET ASSETS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
DREYFUS SERIES
--------------
GROWTH SOCIALLY
AND INCOME RESPONSIBLE
SUB-ACCOUNT SUB-ACCOUNT
-------------------------------
<S> <C> <C>
NET ASSETS
Investment in Dreyfus at market (See
Note 3 for cost values) $2,446,599 $108,777
Dividends receivable - -
Due from (to) Canada Life Insurance
Company of America (Note 6) 12,961 1,484
Receivable (payable) for investments
sold (purchased) 15,185 145
------------------------------
Net assets $2,474,745 $110,406
==============================
NET ASSETS ATTRIBUTABLE TO:
Policyholders' liability reserve $2,474,745 $110,406
------------------------------
Net assets $2,474,745 $110,406
==============================
NUMBER OF UNITS OUTSTANDING 109,413 5,194
==============================
NET ASSET VALUE PER UNIT $ 22.6184 $21.2564
==============================
</TABLE>
See accompanying notes
6
<PAGE> 83
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF NET ASSETS (CONTINUED)
December 31, 1996
<TABLE>
<CAPTION>
MONTGOMERY
----------
SERIES
------
EMERGING
MARKETS ALL SERIES
SUB-ACCOUNT COMBINED
---------------------------------
<S> <C> <C>
NET ASSETS
Investment in Canada Life of America
Series Fund, Inc., Fidelity VIP, Seligman
Portfolios, Inc., Alger, Dreyfus, &
Montgomery at market (See Note 3 for cost
values) $329,708 $50,799,669
Dividends receivable - 1,971,801
Due from (to) Canada Life Insurance
Company of America (Note 6) 2,154 131,045
Receivable (payable) for investments
sold (purchased) 29,440 182,330
---------------------------------
Net assets $361,302 $53,084,845
=================================
NET ASSETS ATTRIBUTABLE TO:
Policyholders' liability reserve $361,302 $53,084,845
---------------------------------
Net assets $361,302 $53,084,845
=================================
NUMBER OF UNITS OUTSTANDING 34,261 2,764,940
=================================
NET ASSET VALUE PER UNIT $10.5456
=================================
</TABLE>
See accompanying notes
7
<PAGE> 84
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CLASF SERIES
------------
MONEY INTERNATIONAL
MARKET MANAGED BOND EQUITY CAPITAL EQUITY
SUB- SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Dividend income $102,640 $1,094,905 $ 94,078 $ 508,984 $ 285,333 $15,122
Less mortality & expense risk
charges (Note 6) 38,363 203,273 24,871 23,572 30,238 9,655
----------------------------------------------------------------------------------
Net investment income 64,277 891,632 69,207 485,412 255,095 5,467
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net unrealized appreciation
(depreciation) from
investments and
foreign currency - (515,315) (9,943) (168,351) (168,958) 32,218
Net realized gain (loss)
from investments and foreign
currency - 115,260 (1,964) (4,370) 222,029 1,368
----------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) from investments and
foreign currency - (400,055) (11,907) (172,721) 53,071 33,586
----------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS $ 64,277 $ 491,577 $ 57,300 $ 312,691 $ 308,166 $39,053
==================================================================================
</TABLE>
See accompanying notes
8
<PAGE> 85
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
FIDELITY VIP SERIES
-------------------
ASSET HIGH INDEX
MANAGER GROWTH INCOME OVERSEAS 500
SUB- SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT*
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Dividend income $181,928 $270,154 $164,143 $ 32,515 $ -
Less mortality and expense
risk charges (Note 6) 10,579 89,838 41,162 49,603 6,636
----------------------------------------------------------------
Net investment income 171,349 180,316 122,981 (17,088) (6,636)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation
(depreciation) from
investments and foreign
currency 193,158 301,397 138,386 76,833 80,386
Net realized gain (loss) from
investments and foreign
currency 65,634 102,206 23,138 74,161 6,114
----------------------------------------------------------------
Net realized and unrealized
gain (loss) from investments
and foreign currency 258,792 403,603 161,524 150,994 86,500
----------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS $430,141 $583,919 $284,505 $133,906 $79,864
===============================================================
</TABLE>
See accompanying notes
*For the period May 1, 1996 (commencement of operations) to December 31, 1996.
9
<PAGE> 86
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SELIGMAN PORTFOLIO SERIES
-------------------------
COMMUNICATIONS
AND INFORMATION FRONTIER
SUB-ACCOUNT SUB-ACCOUNT
------------------------------------
<S> <C> <C>
NET INVESTMENT INCOME:
Dividend income $ - $376,433
Less mortality and expense
risk charges (Note 6) 50,116 9,166
-------------------------------
Net investment income (50,116) 367,267
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation
(depreciation) from investments
and foreign currency 395,402 (128,043)
Net realized gain (loss) from
investments and foreign
currency (134,342) 27,022
-------------------------------
Net realized and unrealized
gain (loss) from investments
and foreign currency 261,060 (101,021)
-------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $210,944 $266,246
===============================
</TABLE>
See accompanying notes
10
<PAGE> 87
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ALGER AMERICAN SERIES*
----------------------
SMALL LEVERAGED
CAPITALIZATION GROWTH MIDCAP ALLCAP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Dividend income $32,295 $ - $ - $ -
Less mortality and expense
risk charges (Note 6) 1,232 2,165 4,117 1,762
---------------------------------------------------------------------
Net investment income 31,063 (2,165) (4,117) (1,762)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation
(depreciation) from investments
and foreign
currency 4,065 17,023 42,324 5,353
Net realized gain (loss) from
investments
and foreign
currency 1,181 1,324 1,688 1,329
---------------------------------------------------------------------
Net realized and unrealized
gain (loss) from
investments and foreign
currency 5,246 18,347 44,012 6,682
---------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $36,309 $16, 182 $ 39,895 $ 4,920
=====================================================================
</TABLE>
See accompanying notes
*For the period May 1, 1996 (commencement of operations) to December 31, 1996.
11
<PAGE> 88
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
DREYFUS SERIES*
---------------
GROWTH SOCIALLY
AND INCOME RESPONSIBLE
SUB-ACCOUNT SUB-ACCOUNT
--------------------------------
<S> <C> <C>
NET INVESTMENT INCOME:
Dividend income $ 255,125 $ 5,408
Less mortality and expense
risk charges (Note 6) 8,662 177
--------------------------------
Net investment income 246,463 5,231
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation
(depreciation) from investments
and foreign currency (191,136) (1,876)
Net realized gain (loss) from
investments and foreign
currency 5,133 5
--------------------------------
Net realized and unrealized
gain (loss) from investments
and foreign currency (186,003) (1,871)
--------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ 60,460 $ 3,360
================================
</TABLE>
See accompanying notes
*For the period May 1, 1996 (commencement of operations) to December 31, 1996.
12
<PAGE> 89
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONTGOMERY
----------
SERIES*
-------
EMERGING
MARKETS ALL SERIES
SUB-ACCOUNT COMBINED
------------------------------
<S> <C> <C>
NET INVESTMENT INCOME:
Dividend income $ 3,113 $3,422,176
Less mortality and expense
risk charges (Note 6) 1,481 606,668
------------------------------
Net investment income 1,632 2,815,508
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation
(depreciation) from investments
and foreign currency 5,094 108,017
Net realized gain (loss) from
investments and foreign
currency (7,854) 499,062
Net realized and unrealized ------------------------------
gain (loss) from investments
and foreign currency (2,760) 607,079
------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ (1,128) $3,422,587
==============================
</TABLE>
See accompanying notes
*For the period May 1, 1996 (commencement of operations) to December 31, 1996.
13
<PAGE> 90
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CLASF SERIES
------------
INTER-
NATIONAL
MONEY CAPITAL EQUITY
MARKET MANAGED BOND EQUITY SUB- SUB-
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ACCOUNT ACCOUNT
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 64,277 $ 891,632 $ 69,207 $ 485,412 $ 255,095 $ 5,467
Unrealized appreciation
(depreciation) from
investments and foreign
currency - (515,315) (9,943) (168,351) (168,958) 32,218
Net realized gain (loss)
from investments and
foreign currency - 115,260 (1,964) (4,370) 222,029 1,368
Net increase (decrease) in -----------------------------------------------------------------------------
net assets resulting from
operations 64,277 491,577 57,300 312,691 308,166 39,053
CAPITAL TRANSACTIONS:
Net increase (decrease)
from unit transactions
(Note 5) 1,603,783 (1,400,424) 108,811 (1,671,537) (196,177) 692,523
-----------------------------------------------------------------------------
Net increase (decrease) in
net assets arising from
capital transactions 1,603,783 (1,400,424) 108,811 (1,671,537) (196,177) 692,523
-----------------------------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 1,668,060 (908,847) 166,111 (1,358,846) 111,989 731,576
NET ASSETS, BEGINNING OF
YEAR 1,355,645 12,110,935 1,601,195 5,995,653 3,200,010 59,578
-----------------------------------------------------------------------------
NET ASSETS, END OF YEAR $3,023,705 $11,202,088 $1,767,306 $ 4,636,807 $3,311,999 $ 791,154
=============================================================================
</TABLE>
See accompanying notes
14
<PAGE> 91
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
FIDELITY VIP SERIES
-------------------
ASSET INDEX
MANAGER SUB- GROWTH HIGH INCOME OVERSEAS 500
ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT*
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 171,349 $ 180,316 $ 122,981 $ (17,088) $ (6,636)
Unrealized appreciation
(depreciation) from
investments and foreign
currency 193,158 301,397 138,386 76,833 80,386
Net realized gain (loss)
from investments and foreign
currency 65,634 102,206 23,138 74,161 6,114
-----------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 430,141 583,919 284,505 133,906 79,864
CAPITAL TRANSACTIONS:
Net increase (decrease)
from unit transactions
Note 5) 1,483,539 2,100,826 1,816,963 (75,275) 999,117
-----------------------------------------------------------------------
Net increase (decrease) in
net assets arising from
capital transactions 1,483,539 2,100,826 1,816,963 (75,275) 999,117
-----------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS 1,913,680 2,684,745 2,101,468 58,631 1,078,981
NET ASSETS, BEGINNING OF
YEAR 2,249,833 3,775,734 1,746,923 1,300,162 -
-----------------------------------------------------------------------
NET ASSETS, END OF YEAR $4,163,513 $6,460,479 $3,848,391 $1,358,793 $1,078,981
=======================================================================
</TABLE>
See accompanying notes
*For the period May 1, 1996 (commencement of operations) to December 31,
1996.
<PAGE> 92
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SELIGMAN PORTFOLIOS SERIES
-----------------------------
COMMUNICATIONS
AND INFORMATION FRONTIER
SUB-ACCOUNT SUB-ACCOUNT
-----------------------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss) $ (50,116) $ 367,267
Unrealized appreciation
(depreciation) from
investments and foreign
currency 395,402 (128,043)
Net realized gain (loss)
from investments and foreign
currency (134,342) 27,022
----------------------------
Net increase (decrease) in
net assets resulting from
operations 210,944 266,246
CAPITAL TRANSACTIONS:
Net increase (decrease)
from unit transactions
(Note 5) 878,930 2,742,207
----------------------------
Net increase (decrease) in
net assets arising from
capital transactions 878,930 2,742,207
----------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS 1,089,874 3,008,453
NET ASSETS, BEGINNING OF
YEAR 2,103,157 510,235
----------------------------
NET ASSETS, END OF YEAR $3,193,031 $3,518,688
============================
</TABLE>
See accompanying notes
16
<PAGE> 93
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ALGER AMERICAN SERIES*
----------------------
SMALL LEVERAGED
CAPITALIZATION GROWTH MIDCAP ALLCAP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 31,063 $ (2,165) $ (4,117) $ (1,762)
Unrealized appreciation
(depreciation) from
investments and foreign
currency 4,065 17,023 42,324 5,353
Net realized gain (loss)
from investments and foreign
currency 1,181 1,324 1,688 1,329
----------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 36,309 16,182 39,895 4,920
CAPITAL TRANSACTIONS:
Net increase (decrease)
from unit transactions (Note 5)
325,975 472,453 654,009 233,714
----------------------------------------------------------------------
Net increase (decrease) in
net assets arising from
capital transactions 325,975 472,453 654,009 233,714
----------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS 362,284 488,635 693,904 238,634
NET ASSETS, BEGINNING OF
YEAR - - - -
----------------------------------------------------------------------
NET ASSETS, END OF YEAR $362,284 $488,635 $693,904 $238,634
======================================================================
</TABLE>
See accompanying notes
*For the period May 1, 1996 (commencement of operations) to December 31,
1996.
17
<PAGE> 94
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
DREYFUS SERIES*
---------------
GROWTH AND SOCIALLY
INCOME RESPONSIBLE
SUB-ACCOUNT SUB-ACCOUNT
--------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 246,463 $ 5,231
Unrealized appreciation
(depreciation) from
investments and foreign
currency (191,136) (1,876)
Net realized gain (loss)
from investments and foreign
currency 5,133 5
---------------------------------
Net increase (decrease) in
net assets resulting from
operations 60,460 3,360
CAPITAL TRANSACTIONS:
Net increase (decrease)
from unit transactions
(Note 5) 2,414,285 107,046
---------------------------------
Net increase (decrease) in
net assets arising from
capital transactions 2,414,285 107,046
---------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS 2,474,745 110,406
NET ASSETS, BEGINNING OF
YEAR - -
---------------------------------
NET ASSETS, END OF YEAR $2,474,745 $110,406
=================================
</TABLE>
See accompanying notes
*For the period May 1, 1996 (commencement of operations) to December 31, 1996.
18
<PAGE> 95
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONTGOMERY
SERIES*
EMERGING
MARKETS ALL SERIES
SUB-ACCOUNT COMBINED
--------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 1,632 $ 2,815,508
Unrealized appreciation
(depreciation) from
investments and foreign
currency 5,094 108,017
Net realized gain (loss)
from investments and
foreign currency (7,854) 499,062
-------------------------------------
Net increase (decrease) in
net assets resulting from
operations (1,128) 3,422,587
CAPITAL TRANSACTIONS:
Net increase (decrease)
from unit transactions
(Note 5) 362,430 13,653,198
-------------------------------------
Net increase (decrease) in
net assets arising from
capital transactions 362,430 13,653,198
-------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS 361,302 17,075,785
NET ASSETS, BEGINNING OF
YEAR - 36,009,060
-------------------------------------
NET ASSETS, END OF YEAR $361,302 $53,084,845
=====================================
</TABLE>
See accompanying notes
*For the period May 1, 1996 (commencement of operations) to December 31,
1996.
19
<PAGE> 96
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
CLASF SERIES
------------
INTER-
MONEY BOND EQUITY CAPITAL NATIONAL
MARKET MANAGED SUB- SUB- SUB- EQUITY*
SUB-ACCOUNT SUB-ACCOUNT ACCOUNT ACCOUNT ACCOUNT SUB-ACCOUNT
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 54,316 $ 1,731,354 $ 108,790 $1,057,423 $ 79,645 $ 2,482
Unrealized appreciation
(depreciation) on investments
and foreign currency - 108,278 98,889 (120,893) 581,706 (514)
Net realized gain (loss) on
investments and foreign currency - 110,813 (6,620) 72,115 43,800 66
Net increase (decrease) in net ------------------------------------------------------------------------------------------
assets resulting from
operations 54,316 1,950,445 201,059 1,008,645 705,151 2,034
CAPITAL TRANSACTIONS:
Net increase (decrease) from
unit transactions (Note 5) (1,382,592) 159,607 95,504 1,031,237 943,344 57,544
-------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets arising from capital
transactions (1,382,592) 159,607 95,504 1,031,237 943,344 57,544
-------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS (1,328,276) 2,110,052 296,563 2,039,882 1,648,495 59,578
NET ASSETS, BEGINNING OF YEAR 2,683,921 10,000,883 1,304,632 3,955,771 1,551,515 -
------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR $1,355,645 $12,110,935 $1,601,195 $5,995,653 $3,200,010 $59,578
==========================================================================================
</TABLE>
See accompanying notes
*For the period April 24, 1995 (commencement of operations) to December 31,
1995.
20
<PAGE> 97
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
FIDELITY VIP SERIES
-------------------
ASSET HIGH
MANAGER GROWTH INCOME OVERSEAS
SUB- SUB- SUB- SUB-
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
-------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 7,014 $ (14,058) $ 28,209 $ (10,656)
Unrealized appreciation
(depreciation) on investments
and foreign currency 260,104 436,994 118,666 106,936
Net realized gain (loss) on
investments and foreign currency 63,208 86,193 41,178 3,652
-------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations 330,326 509,129 188,053 99,932
CAPITAL TRANSACTIONS:
Net increase (decrease) from unit
transactions (Note 5) 155,183 2,542,816 871,597 11,207
-------------------------------------------------------
Net increase (decrease) in net
assets arising from capital
transactions 155,183 2,542,816 871,597 11,207
-------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET
ASSETS 485,509 3,051,945 1,059,650 111,139
NET ASSETS, BEGINNING OF YEAR 1,764,324 723,789 687,273 1,189,023
-------------------------------------------------------
NET ASSETS, END OF YEAR $2,249,833 $3,775,734 $1,746,923 $1,300,162
=======================================================
</TABLE>
See accompanying notes
<PAGE> 98
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SELIGMAN PORTFOLIOS SERIES*
---------------------------
COMMUNICATIONS
AND INFORMATION FRONTIER ALL SERIES
SUB-ACCOUNT SUB-ACCOUNT COMBINED
---------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 146,304 $ 16,601 $ 3,207,424
Unrealized appreciation
(depreciation) from
investments and foreign
currency (317,024) 8,619 1,281,761
Net realized gain (loss)
from investments and foreign
currency (2,431) 529 412,503
--------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations (173,151) 25,749 4,901,688
CAPITAL TRANSACTIONS:
Net increase (decrease)
from unit transactions
(Note 5) 2,276,308 484,486 7,246,241
---------------------------------------------------------
Net increase (decrease) in
net assets arising from
capital transactions 2,276,308 484,486 7,246,241
---------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 2,103,157 510,235 12,147,929
NET ASSETS, BEGINNING OF
YEAR - - 23,861,131
--------------------------------------------------------
NET ASSETS, END OF YEAR $2,103,157 $510,235 $36,009,060
========================================================
</TABLE>
See accompanying notes
*For the period May 1, 1995 (commencement of operations) to December 31,
1995.
22
<PAGE> 99
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION
Canada Life of America Variable Annuity Account 1 ("Variable Annuity Account
1") was established on July 22, 1988 as a separate investment account of Canada
Life Insurance Company of America ("CLICA") to receive and invest premium
payments under variable annuity policies issued by CLICA. Variable Annuity
Account 1 is registered as a unit investment trust under the Investment Company
Act of 1940, as amended. The assets of Variable Annuity Account 1 are invested
in either the shares of Canada Life of America Series Fund, Inc. ("CLASF"), a
diversified, open-end, management investment company, in Fidelity Investments
Variable Insurance Products Fund ("Fidelity"), a Massachusetts Business Trust
organized as an open-end, diversified management investment company, in
Seligman Portfolios, Inc. ("Seligman"), a diversified, open-end, management
investment company, in Dreyfus Variable Investment Fund ("Dreyfus"), a
Massachusetts Business Trust organized as an open-ended, non-diversified,
management investment company, in the Alger American Fund ("Alger American"), a
Massachusetts Business Trust organized as a diversified, open-ended, management
investment company, or in the Montgomery Funds III ("Montgomery"), a Delaware
Business Trust organized as a diversified, open-ended, management investment
company. Variable Annuity Account 1 commenced operations on December 4, 1989,
with the exception of the CLASF Capital Series which commenced operations on
April 23, 1993, the Fidelity Series which commenced operations on May 1, 1994,
with the exception of the Index 500 sub-account which commenced operations on
May 1, 1996, the CLASF International Equity Series which commenced operations
on April 24, 1995, the Seligman Portfolios Series which commenced operations on
May 1, 1995, and the Alger American Series, the Dreyfus Series, and the
Montgomery Series which commenced operations on May 1, 1996.
The assets of Variable Annuity Account 1 are the property of CLICA. The
portion of Variable Annuity Account 1 assets applicable to the policies will
not be charged with liabilities arising out of any other business CLICA may
conduct.
2. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Investments in shares of CLASF, Fidelity, Seligman, Dreyfus, Alger American,
and Montgomery are valued at the reported net asset values of the respective
Sub-account portfolios. Realized gains and losses are computed on the basis of
average cost. The difference between cost and current market value of
investments owned is recorded as an unrealized gain or loss on investments.
FOREIGN CURRENCY TRANSLATION
The accounting records of Variable Annuity Account 1 are maintained in U.S.
dollars. The CLASF International Equity Series, Fidelity VIP Overseas Series,
Dreyfus Growth and Income Series and Montgomery Emerging Markets Series contain
investment securities and other assets and liabilities denominated in foreign
currency that are translated into U.S. dollars at the prevailing rates of
exchange at the end of the period. Purchases and sales of investment
securities, income and expenses are translated into U.S. dollars at the rate of
exchange prevailing on the respective dates of such transactions.
23
<PAGE> 100
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION (CONTINUED)
Net realized gains and losses on foreign currency transactions represent net
gains and losses from sales and maturities of investments in foreign securities
usually denominated in foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions, and the
difference between the amount of net investment income accrued and the U.S.
dollar amount actually received. The effects of changes in foreign currency
exchange rates on investments in securities are included with the net realized
and unrealized gain or loss on investment securities.
DIVIDENDS
Dividends are recorded on the ex-dividend date and reflect the dividends
declared by CLASF, Fidelity, Seligman, Dreyfus, Alger American and Montgomery
from their accumulated net investment income and net realized investment gains.
Dividends in the Money Market Sub-account are declared daily and paid
quarterly. Dividends in all other Sub-accounts are declared and paid annually.
Dividends paid to Variable Annuity Account 1 are reinvested in additional
shares of the respective sub-accounts at the net asset value per share.
FEDERAL INCOME TAXES
Variable Annuity Account 1 is not taxed separately because the operations of
Variable Annuity Account 1 will be included in the Federal income tax return of
CLICA, which is taxed as a "life insurance company" under the provisions of the
Internal Revenue Code.
24
<PAGE> 101
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
3. INVESTMENTS
The investments held by Variable Annuity Account 1 as at December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
NUMBER OF MARKET MARKET
SHARES PRICE VALUE COST
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Sub-account 290,980.4000 $10.0000 $ 2,909,804 $ 2,909,804
Managed Sub-account 855,007.2467 11.7985 10,087,803 10,458,334
Bond Sub-account 162,056.7540 10.3605 1,678,989 1,744,121
Equity Sub-account 317,421.3628 12.9964 4,125,335 4,260,128
Capital Sub-account 217,454.2497 13.9562 3,034,835 2,672,504
International Equity Sub-account 65,879.0791 11.8226 778,862 747,158
Asset Manager Sub-account 244,106.9699 16.9300 4,132,731 3,735,077
Growth Sub-account 205,815.8638 31.1400 6,409,106 5,637,020
High Income Sub-account 306,492.3323 12.5200 3,837,284 3,582,276
Overseas Sub-account 73,897.8769 18.8400 1,392,236 1,246,494
Index 500 Sub-account 12,060.9986 89.1267 1,074,957 994,571
Communications and Information Sub-account 217,533.4922 14.6900 3,195,567 3,117,189
Frontier Sub-account 235,008.9453 14.9800 3,520,434 3,639,858
Small Capitalization Sub-account 8,027.0106 40.9100 328,385 324,320
Growth Sub-account 13,993.0382 34.3300 480,381 463,358
MidCap Sub-account 32,292.9381 21.3499 689,451 647,127
Leveraged AllCap Sub-account 12,315.0229 19.3605 238,425 233,072
Growth and Income Sub-account 125,145.0888 19.5501 2,446,599 2,637,735
Socially Responsible Sub-account 5,414.9969 20.0881 108,777 110,653
Emerging Markets Sub-account 30,959.0790 10.6498 329,708 324,614
-----------------------------
$50,799,669 $49,485,413
=============================
</TABLE>
<PAGE> 102
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
4. SECURITY PURCHASES AND SALES
The aggregate cost of purchases of investments are presented below:
<TABLE>
<CAPTION>
AGGREGATE COST
OF PURCHASES
--------------
<S> <C>
Money Market Sub-account $12,032,383
Managed Sub-account 4,789,089
Bond Sub-account 559,977
Equity Sub-account 2,196,170
Capital Sub-account 1,299,020
International Equity Sub-account 1,038,538
Asset Manager Sub-account 2,756,417
Growth Sub-account 3,446,897
High Income Sub-account 2,908,045
Overseas Sub-account 937,634
Index 500 Sub-account 1,130,866
Communications and Information Sub-account 2,117,673
Frontier Sub-account 3,698,536
Small Capitalization Sub-account 367,211
Growth Sub-Account 490,429
MidCap Sub-account 697,314
Leveraged AllCap Sub-account 278,741
Growth and Income Sub-account 2,921,473
Socially Responsible Sub-account 111,021
Emerging Markets Sub-account 612,000
---------------
$44,389,434
===============
</TABLE>
26
<PAGE> 103
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
4. SECURITY PURCHASES AND SALES (CONTINUED)
The proceeds from sales of investments are presented below:
<TABLE>
<CAPTION>
PROCEEDS
OF SALES
-----------------
<S> <C>
Money Market Sub-account $10,441,102
Managed Sub-account 4,534,357
Bond Sub-account 341,313
Equity Sub-account 2,769,554
Capital Sub-account 1,401,464
International Equity Sub-account 350,190
Asset Manager Sub-account 1,119,585
Growth Sub-account 1,187,825
High Income Sub-account 955,487
Overseas Sub-account 999,856
Index 500 Sub-account 142,409
Communications and Information Sub-account 1,266,718
Frontier Sub-account 583,506
Small Capitalization Sub-account 44,072
Growth Sub-account 28,395
MidCap Sub-account 51,875
Leveraged AllCap Sub-account 46,998
Growth and Income Sub-account 288,871
Socially Responsible Sub-account 373
Emerging Markets Sub-account 279,532
-----------------
$26,833,482
=================
</TABLE>
<PAGE> 104
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
The following table represents a summary of changes from unit transactions
attributable to contract holders for the periods indicated. The Index 500,
Small Capitalization, Growth, MidCap, Leveraged AllCap, Growth and Income,
Socially Responsible and Emerging Markets portfolios commenced operations May
1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
UNITS AMOUNT
-------------------------------
<S> <C> <C>
CLASF SERIES
- ------------
MONEY MARKET SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 702,155 $11,318,506
Terminated contracts and net transfers out (194,391) (9,714,723)
-------------------------------
507,764 1,603,783
MANAGED SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 169,604 2,824,252
Terminated contracts and net transfers out (52,136) (4,224,676)
-------------------------------
117,468 (1,400,424)
BOND SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 28,020 419,414
Terminated contracts and net transfers out (20,543) (310,603)
-------------------------------
7,477 108,811
EQUITY SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 55,685 939,424
Terminated contracts and net transfers out (150,585) (2,610,961)
-------------------------------
(94,900) (1,671,537)
CAPITAL SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 79,750 1,182,201
Terminated contracts and net transfers out (94,965) (1,378,378)
-------------------------------
(15,215) (196,177)
INTERNATIONAL EQUITY SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in (318,822) 946,188
Terminated contracts and net transfers out 377,250 (253,665)
-------------------------------
58,428 692,523
FIDELITY VIP SERIES
- -------------------
ASSET MANAGER SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 140,627 2,608,504
Terminated contracts and net transfers out (58,629) (1,124,965)
-------------------------------
81,998 1,483,539
</TABLE>
28
<PAGE> 105
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
UNITS AMOUNT
---------------------------------
<S> <C> <C>
FIDELITY VIP SERIES (CONTINUED)
- -------------------------------
GROWTH SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 99,272 3,330,853
Terminated contracts and net transfers out (36,989) (1,230,027)
------------------------------
62,283 2,100,826
HIGH INCOME SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 93,944 2,728,767
Terminated contracts and net transfers out (32,864) (911,804)
------------------------------
61,080 1,816,963
OVERSEAS SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 53,181 929,278
Terminated contracts and net transfers out (55,447) (1,004,553)
------------------------------
(2,266) (75,275)
INDEX 500 SUB-ACCOUNT (FROM MAY 1, 1996)
Accumulation Units:
Contract purchases and net transfers in 13,713 1,171,224
Terminated contracts and net transfers out (2,067) (172,107)
------------------------------
11,646 999,117
SELIGMAN PORTFOLIO SERIES
- -------------------------
COMMUNICATIONS AND INFORMATION SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 153,776 2,174,264
Terminated contracts and net transfers out 7,461 (1,295,334)
------------------------------
161,237 878,930
FRONTIER SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 220,398 3,540,193
Terminated contracts and net transfers out (49,414) (797,986)
------------------------------
170,984 2,742,207
ALGER AMERICAN SERIES
- ---------------------
SMALL CAPITALIZATION SUB-ACCOUNT (FROM MAY 1, 1996)
Accumulation Units:
Contract purchases and net transfers in 9,196 376,961
Terminated contracts and net transfers out (1,210) (50,986)
------------------------------
7,986 325,975
GROWTH SUB-ACCOUNT (FROM MAY 1, 1996)
Accumulation Units:
Contract purchases and net transfers in 17,152 577,365
Terminated contracts and net transfers out (3,252) (104,912)
------------------------------
13,900 472,453
</TABLE>
29
<PAGE> 106
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
UNITS AMOUNT
-------------------------------
<S> <C> <C>
ALGER AMERICAN SERIES (CONTINUED)
- ---------------------------------
MIDCAP SUB-ACCOUNT (FROM MAY 1, 1996)
Accumulation Units:
Contract purchases and net transfers in 35,175 699,644
Terminated contracts and net transfers out (2,208) (45,635)
------------------------------
32,967 654,009
LEVERAGED ALLCAP SUB-ACCOUNT (FROM MAY 1, 1996)
Accumulation Units:
Contract purchases and net transfers in 13,417 250,378
Terminated contracts and net transfers out (882) (16,664)
------------------------------
12,535 233,714
DREYFUS SERIES
- --------------
GROWTH AND INCOME SUB-ACCOUNT (FROM MAY 1, 1996)
Accumulation Units:
Contract purchases and net transfers in 126,163 2,787,864
Terminated contracts and net transfers out (16,439) (373,579)
------------------------------
109,724 2,414,285
SOCIALLY RESPONSIBLE SUB-ACCOUNT (FROM MAY 1, 1996)
Accumulation Units:
Contract purchases and net transfers in 5,113 107,046
Terminated contracts and net transfers out - -
------------------------------
5,113 107,046
MONTGOMERY SERIES
- -----------------
EMERGING MARKETS SUB-ACCOUNT (FROM MAY 1, 1996)
Accumulation Units:
Contract purchases and net transfers in 54,802 573,638
Terminated contracts and net transfers out (20,541) (211,208)
------------------------------
34,261 362,430
-------------
Net increase from unit transactions $13,653,198
=============
</TABLE>
30
<PAGE> 107
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
UNITS AMOUNT
--------------------------
<S> <C> <C>
CLASF SERIES
- ------------
MONEY MARKET SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 295,416 $3,456,365
Terminated contracts and net transfers out (414,987) (4,838,957)
--------------------------
(119,571) (1,382,592)
MANAGED SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 98,631 1,533,100
Terminated contracts and net transfers out (94,013) (1,373,493)
--------------------------
4,618 159,607
BOND SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 20,724 289,015
Terminated contracts and net transfers out (14,251) (193,511)
--------------------------
6,473 95,504
EQUITY SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 102,340 1,580,427
Terminated contracts and net transfers out (34,698) (549,190)
--------------------------
67,642 1,031,237
CAPITAL SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 109,898 1,279,836
Terminated contracts and net transfers out (27,646) (336,492)
--------------------------
82,252 943,344
INTERNATIONAL EQUITY SUB-ACCOUNT (FROM APRIL 24, 1995)
Accumulation Units:
Contract purchases and net transfers in 5,873 59,469
Terminated contracts and net transfers out (189) (1,925)
--------------------------
5,684 57,544
FIDELITY VIP SERIES
-------------------
ASSET MANAGER SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 84,349 1,391,582
Terminated contracts and net transfers out (72,351) (1,236,399)
--------------------------
11,998 155,183
GROWTH SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 109,241 3,130,409
Terminated contracts and net transfers out (20,678) (587,593)
--------------------------
88,563 2,542,816
</TABLE>
31
<PAGE> 108
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
UNITS AMOUNT
---------------------------
<S> <C> <C>
FIDELITY VIP SERIES (CONTINUED)
-------------------------------
HIGH INCOME SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 81,444 2,090,095
Terminated contracts and net transfers out (47,776) (1,218,498)
-------------------------
33,668 871,597
OVERSEAS SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 61,177 962,667
Terminated contracts and net transfers out (60,069) (951,460)
-------------------------
1,108 11,207
SELIGMAN PORTFOLIOS SERIES
--------------------------
COMMUNICATIONS AND INFORMATION SUB-ACCOUNT (FROM MAY 1, 1995)
Accumulation Units:
Contract purchases and net transfers in 156,292 2,407,596
Terminated contracts and net transfers out (8,425) (131,288)
-------------------------
147,867 2,276,308
FRONTIER SUB-ACCOUNT (FROM MAY 1, 1995)
Accumulation Units:
Contract purchases and net transfers in 37,360 491,826
Terminated contracts and net transfers out (576) (7,340)
-------------------------
36,784 484,486
----------
Net increase from unit transactions $7,246,241
==========
</TABLE>
32
<PAGE> 109
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
6. MORTALITY AND EXPENSE RISK (M AND E) CHARGES
CLICA assumes mortality and expense risks related to the operations of Variable
Annuity Account 1 and deducts a charge equal to an effective annual rate of
either 1.25% or 1.40% of the net asset value of each of the Sub-accounts at
each valuation period.
7. NET ASSETS
Net assets in each Sub-account as at December 31, 1996 consisted of the
following:
<TABLE>
<CAPTION>
NET REALIZED NET UNREALIZED
ACCUMULATED GAIN (LOSS) APPRECIATION
UNIT M AND E ACCUMULATEDINV ON (DEPRECIATION)
SUB-ACCOUNT TRANSACTIONS CHARGES ESTMENT INCOME INVESTMENTS ON INVESTMENTS COMBINED
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Money Market $ 2,698,030 $ (144,913) $ 470,588 - - $ 3,023,705
Managed 7,429,589 (722,850) 4,271,641 $ 594,239 $ (370,531) 11,202,088
Bond 1,330,540 (140,251) 570,051 72,098 (65,132) 1,767,306
Equity 2,913,965 (222,768) 1,874,934 205,469 (134,793) 4,636,807
Capital 2,355,844 (78,572) 423,926 248,470 362,331 3,311,999
International Equity 750,067 (9,949) 17,898 1,434 31,704 791,154
Asset Manager 3,481,408 (59,631) 228,794 115,288 397,654 4,163,513
Growth 5,337,359 (110,849) 274,462 187,421 772,086 6,460,479
High Income 3,384,473 (77,122) 223,225 62,807 255,008 3,848,391
Overseas 1,180,074 (80,053) 43,882 69,148 145,742 1,358,793
Index 500 999,117 (6,636) - 6,114 80,386 1,078,981
Communications
and Information 3,155,238 (58,880) 155,068 (136,773) 78,378 3,193,031
Frontier 3,226,693 (10,335) 394,203 27,551 (119,424) 3,518,688
Small Capitalization 325,975 (1,232) 32,295 1,181 4,065 362,284
Growth 472,453 (2,165) - 1,324 17,023 488,635
MidCap 654,009 (4,117) - 1,688 42,324 693,904
Leveraged AllCap 233,714 (1,762) - 1,329 5,353 238,634
Growth and Income 2,414,285 (8,662) 255,125 5,133 (191,136) 2,474,745
Socially Responsible 107,046 (177) 5,408 5 (1,876) 110,406
Emerging Markets 362,430 (1,481) 3,113 (7,854) 5,094 361,302
---------------------------------------------------------------------------------------------
$42,812,309 $(1,742,405) $9,244,613 $1,456,072 $1,314,256 $53,084,845
=============================================================================================
</TABLE>
8. UNIT VALUE
Unit Values as reported are calculated as total net assets divided by total
units for each Sub-account.
33
<PAGE> 110
FINANCIAL STATEMENTS
CANADA LIFE INSURANCE COMPANY OF
AMERICA
December 31, 1996
With Report of Independent Auditors
<PAGE> 111
CANADA LIFE INSURANCE COMPANY OF AMERICA
FINANCIAL STATEMENTS - STATUTORY BASIS
December 31, 1996
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................... 1
Audited Financial Statements
Balance Sheets - Statutory Basis............................................. 3
Statements of Operations - Statutory Basis................................... 4
Statements of Accumulated Deficit - Statutory Basis.......................... 5
Statements of Cash Flows - Statutory Basis................................... 6
Notes to Financial Statements - Statutory Basis.............................. 8
</TABLE>
<PAGE> 112
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Board of Directors
Canada Life Insurance Company of America
We have audited the accompanying statutory-basis balance sheets of CANADA LIFE
INSURANCE COMPANY OF AMERICA as of December 31, 1996 and 1995, and the related
statutory-basis statements of operations, accumulated deficit, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 2 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Michigan Insurance Department, which practices differ from
generally accepted accounting principles. The variances between such practices
and generally accepted accounting principles are also described in Note 2. The
effects on the financial statements of these variances are not reasonably
determinable but are presumed to be material.
In our report dated February 9, 1996, we expressed an opinion that the 1995
financial statements of the Company fairly present, in all material respects,
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles. As described in Note 2, the
accompanying statutory-basis financial statements are no longer considered to
be prepared in conformity with generally accepted accounting principles.
Accordingly, our present opinion on the 1995 financial statements, as presented
in the following paragraph, is different from that expressed in our previous
report.
1
<PAGE> 113
REPORT OF INDEPENDENT AUDITORS (CONTINUED)
- --------------------------------------------------------------------------------
In our opinion, because of the effects of the matter described in the second
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of Canada Life Insurance Company of America at December 31,
1996 and 1995, or the results of its operations or its cash flows for each of
the three years in the period ended December 31, 1996.
Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Canada Life
Insurance Company of America at December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996 in conformity with accounting practices prescribed or
permitted by the Michigan Insurance Department.
Atlanta, Georgia
February 10, 1997
/s/ Ernst & Young LLP
2
<PAGE> 114
CANADA LIFE INSURANCE COMPANY OF AMERICA
BALANCE SHEETS - STATUTORY BASIS
[in thousands of dollars]
except per share values
<TABLE>
<CAPTION>
AS AT DECEMBER 31 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
INVESTMENTS [ note 3 ]
Bonds, at amortized cost less write-downs
[fair value - 1996-$1,313,400; 1995 - $1,308,040] $1,276,783 $1,237,848
Mortgage loans, at amortized cost less write-downs 881,189 899,501
Real estate, at depreciated cost less write-downs 20,613 8,308
Common stocks, at fair value [cost-1996-$9,879; 1995 - $7,580] 12,294 9,950
Investment in partnerships 1,773 2,457
Policy loans 11,461 12,285
Short-term investments, at cost 59,321 45,985
Cash and interest-bearing deposits 682 893
- ----------------------------------------------------------------------------------------------------------------
TOTAL CASH AND INVESTMENTS 2,264,116 2,217,227
Deferred premiums and premiums in the course of collection 216 169
Investment income due and accrued 30,034 31,444
Investment in subsidiaries and affiliates, at equity [cost - 1996 - $15,118;
1995 - $14,982] 16,899 16,818
Preferred stocks of subsidiary at cost (market value - 1996 - $1; 1995 - $6) 1 6
Other assets [including federal tax recoverable] 5,424 5,051
Assets held in separate accounts [ note 7 ] 361,253 273,195
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,677,943 $2,543,910
================================================================================================================
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES
Actuarial reserves $2,159,004 $2,145,140
Benefits in course of payment and provision for unreported claims 681 15
Policyholders' amounts left on deposit at interest 92 92
Provisions for future policy dividends 2,067 2,251
- ----------------------------------------------------------------------------------------------------------------
POLICY BENEFIT LIABILITIES 2,161,844 2,147,498
Interest maintenance reserve 225 -
Amounts owing to parent company [ note 7 ] 18,677 6,320
Unallocated amounts 384 1,607
Miscellaneous liabilities
[including provision for outstanding taxes and expenses] 5,342 5,094
Asset valuation reserve 21,447 15,783
Liabilities from separate accounts 353,863 266,474
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,561,782 2,442,776
- ----------------------------------------------------------------------------------------------------------------
CAPITAL AND SURPLUS [notes 8 and 9]
Authorized:
25,000,000 common shares at a par value of $10 per share
25,000,000 redeemable preferred shares at a par value of $10 per share
Issued and outstanding:
500,000 common shares 5,000 5,000
4,100,000 redeemable preferred shares 41,000 41,000
Paid-in surplus 76,000 76,000
Accumulated deficit (5,839) (20,866)
- ----------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS 116,161 101,134
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND CAPITAL AND SURPLUS $2,677,943 $2,543,910
================================================================================================================
</TABLE>
See accompanying notes
3
<PAGE> 115
CANADA LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS - STATUTORY BASIS
[in thousands of dollars]
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES [ note 7 ]
Premiums for insurance and annuity considerations $295,540 $326,196 $296,195
Considerations for supplementary contracts
and dividends left on deposit 2,452 3,946 2,117
Net investment income [ note 3 ] 188,794 187,899 173,556
Other income - 1 3
- ---------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 486,786 518,042 471,871
- ---------------------------------------------------------------------------------------------------------------
EXPENDITURES [ note 7 ]
Death benefits and matured endowments 1,917 1,618 1,657
Annuity benefits 201,807 184,836 160,031
Surrender benefits 119,530 104,786 74,453
Payments on supplementary contracts and dividends
left on deposit 2,211 2,087 1,636
Dividends to policyholders 2,064 2,237 2,350
- ---------------------------------------------------------------------------------------------------------------
TOTAL PAYMENTS TO POLICYHOLDERS AND BENEFICIARIES 327,529 295,564 240,127
Increase in actuarial reserves 13,859 73,737 181,391
Commissions to agents 7,175 6,406 1,332
Allowances on reinsurance assumed 12,304 14,322 15,666
General insurance expenses 8,005 6,348 3,902
Taxes, licenses and fees 311 128 181
Transfers to separate accounts 98,702 98,967 13,360
- ---------------------------------------------------------------------------------------------------------------
TOTAL EXPENDITURES 467,885 495,472 455,959
- ---------------------------------------------------------------------------------------------------------------
Income from operations before net realized
capital (losses) and federal income taxes (benefit) 18,901 22,570 15,912
Federal income taxes (benefit)[ note 4 ] (1,990) 3,835 2,637
- ---------------------------------------------------------------------------------------------------------------
Income from operations before
net realized capital (losses) 20,891 18,735 13,275
Net realized capital (losses) [ note 3[b] ] (11,339) (2,586) (10,523)
- ---------------------------------------------------------------------------------------------------------------
NET INCOME $ 9,552 $ 16,149 $ 2,752
===============================================================================================================
</TABLE>
See accompanying notes
4
<PAGE> 116
CANADA LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF ACCUMULATED DEFICIT - STATUTORY BASIS
[in thousands of dollars]
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ACCUMULATED DEFICIT, BEGINNING OF YEAR $(20,866) $(23,527) $(26,854)
Net income 9,552 16,149 2,752
Change in net unrealized capital gain (loss) 10,253 (1,441) 2,135
Change in deficit on account of:
Non-admitted assets 612 (612) -
Actuarial valuation basis - (6,523) (3,457)
Asset valuation reserve (5,664) (4,699) 1,897
Change in surplus of separate account 669 6,722 -
Seed money transfer to separate account - (6,614) -
Cost of business acquired (377) (321) -
Adjustment for (loss) in currency exchange (18) - -
- ---------------------------------------------------------------------------------------------
ACCUMULATED DEFICIT, END OF YEAR $ (5,839) $(20,866) $(23,527)
=============================================================================================
</TABLE>
See accompanying notes
5
<PAGE> 117
CANADA LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CASH FLOW - STATUTORY BASIS
[IN THOUSANDS OF DOLLARS]
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Premiums, policy proceeds, and other considerations
received $ 298,324 $ 330,077 $ 298,325
Net investment income received 185,038 177,349 165,551
Benefits paid (325,182) (293,366) (237,762)
Insurance expenses paid (27,825) (27,014) (21,305)
Dividends paid to policyholders (2,248) (2,341) (2,693)
Federal income taxes paid, net (6,465) (4,225) (4,802)
Net decrease in policy loans 824 884 977
Net transfers to Separate Accounts (98,702) (98,967) (13,351)
Other income received net of other expenses (paid) 12,431 (5,467) 7,632
- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATIONS 36,195 76,930 192,572
PROCEEDS FROM SALES, MATURITIES, OR REPAYMENTS OF
INVESTMENTS
Bonds 321,755 287,100 372,374
Common stocks 10,499 18,180 10,538
Subsidiaries - 5 -
Mortgage loans 52,510 37,876 48,338
Real estate 2,082 9,775 4,725
Other invested assets 684 796 674
Net gains (losses) on cash and short-term investments - 48 (2)
Miscellaneous proceeds 5,288 603 4,368
- ---------------------------------------------------------------------------------------------------------
PROCEEDS FROM SALES, MATURITIES, OR REPAYMENTS OF
INVESTMENTS 392,818 354,383 441,015
OTHER CASH PROVIDED
Other sources 113 3,380 621
- ---------------------------------------------------------------------------------------------------------
Total other cash provided 113 3,380 621
- ---------------------------------------------------------------------------------------------------------
TOTAL CASH PROVIDED 429,126 434,693 634,208
- ---------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 118
CANADA LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CASH FLOW - STATUTORY BASIS (CONTINUED)
[IN THOUSANDS OF DOLLARS]
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COST OF INVESTMENTS ACQUIRED
Bonds $351,242 $309,767 $491,330
Common stocks 10,215 5,702 6,365
Subsidiaries - 69 -
Mortgage loans 54,197 122,407 98,732
Real estate - 606 1,377
Miscellaneous applications - 10,750 579
- ---------------------------------------------------------------------------------------------------------
TOTAL COST OF INVESTMENTS ACQUIRED 415,654 449,301 598,383
OTHER CASH APPLIED
Other applications, net 347 - -
- ---------------------------------------------------------------------------------------------------------
Total other cash applied 347 - -
- ---------------------------------------------------------------------------------------------------------
TOTAL CASH USED 416,001 449,301 598,383
- ---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS 13,125 (14,608) 35,825
CASH AND SHORT-TERM INVESTMENTS
Beginning of year 46,878 61,486 25,661
- ---------------------------------------------------------------------------------------------------------
END OF YEAR $ 60,003 $ 46,878 $ 61,486
=========================================================================================================
</TABLE>
See accompanying notes
7
<PAGE> 119
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. ORGANIZATION
Canada Life Insurance Company of America (the "Company") was incorporated on
April 12, 1988 in the State of Michigan and is a wholly-owned subsidiary of The
Canada Life Assurance Company (the "Parent"), a mutual life and accident and
health insurance company. The Company commenced operations on July 29, 1988.
NATURE OF OPERATIONS
The Company's business consists primarily of group and individual annuity
policies assumed from its Parent. The Company's direct business consists of
individual variable annuity and institutional investment products. The Company
is licensed to sell its products in 47 states and the District of Columbia;
however, its primary markets are California, Ohio and Missouri. The Company's
variable annuity products are sold by agents who are licensed and registered
representatives of the Company's subsidiary, Canada Life of America Financial
Services, Inc. as well as other independent agents.
2. BASIS OF ACCOUNTING
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Michigan Insurance
Department, which practices differ from generally accepted accounting
principles ("GAAP"). Prescribed statutory accounting practices include state
laws, regulations, and general administrative rules, as well as a variety of
publications of the National Association of Insurance Commissioners ("NAIC").
Permitted statutory accounting practices encompass all accounting practices
that are not prescribed; such practices may differ from state to state, may
differ from company to company within a state, and may change in the future.
The NAIC is currently in the process of recodifying statutory accounting
practices, the result of which is expected to constitute the only source of
"prescribed" statutory accounting practices. Accordingly, that project, which
is expected to be completed in 1997, will likely change, to some extent,
prescribed statutory accounting practices, and may result in changes to the
accounting practices that the Company uses to prepare its statutory financial
statements. The impact of any such changes on the Company's statutory surplus
cannot be determined at this time and could be material. The Company currently
does not follow any permitted accounting practices which would have a material
impact on net income or capital and surplus.
The 1995 financial statements presented for comparative purposes were
previously described as also being prepared in accordance with GAAP. 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 based on statutory accounting practices can no longer be described
as prepared in conformity with GAAP. Furthermore, financial statements
prepared in conformity with statutory accounting practices for periods prior to
the effective date of FIN 40 are not considered GAAP presentations when
presented in comparative form with financial statements for periods subsequent
to the effective date. Accordingly, the 1995 financial statements are no
longer considered to be presented in conformity with GAAP.
8
<PAGE> 120
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
2. BASIS OF ACCOUNTING (CONT'D)
In January 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 120, Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts. This Statement extends the requirements of FASB
Statements No. 60, Accounting and Reporting by Insurance Enterprises; No. 97,
Accounting and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses from the Sale of Investments; and
No. 113, Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts, to mutual life insurance enterprises. Also, in
January 1995, the AICPA issued Statement of Position 95-1, Accounting for
Certain Insurance Activities of Mutual Life Insurance Enterprises. This
Statement of Position (SOP) provides accounting guidance for certain
participating insurance contracts of mutual life insurance enterprises. Both
Statement No. 120 and SOP 95-1 are effective for financial statements issued
for fiscal years beginning after December 15, 1995. The Company has not
implemented these pronouncements which are required for financial statements
prepared in accordance with GAAP.
The more significant variances from GAAP are as follows:
Investments: Investments in bonds are reported at amortized cost based on
their National Association of Insurance Commissioners ("NAIC") rating; for
GAAP, such fixed maturity investments would be designated at purchase as
held-to-maturity, trading, or available-for-sale. Held-to-maturity fixed
investments would be reported at amortized cost, and the remaining fixed
maturity investments are reported at fair value with unrealized holding gains
and losses reported in operations for those designated as trading and as a
separate component of shareholders' equity for those designated as
available-for-sale.
Changes between cost and admitted asset amounts of investment real estate are
credited or charged directly to unassigned surplus rather than to a separate
surplus account.
Valuation allowances, if necessary, are established for mortgage loans based
on (1) the difference between the unpaid loan balance and the estimated fair
value of the underlying real estate when such loans are determined to be in
default as to scheduled payments and (2) a reduction of the maximum percentage
of any loan to the value of the security at the time of the loan, exclusive of
insured, guaranteed or purchase money mortgages, to 75%, where necessary.
Under GAAP, valuation allowances would be established when the Company
determines it is probable that it will be unable to collect all amounts (both
principal and interest) due according to the contractual terms of the loan
agreement. The initial valuation allowance and subsequent changes in the
allowance for mortgage loans are charged or credited directly to unassigned
surplus, rather than being included as a component of earnings as would be
required for GAAP.
9
<PAGE> 121
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
2. BASIS OF ACCOUNTING (CONT'D)
Under a formula prescribed by the NAIC, the Company defers the portion of
realized capital gains and losses on sales of fixed income investments,
principally bonds and mortgage loans, attributable to changes in the general
level of interest rates and amortizes those deferrals into income on a
straight-line basis over the remaining period to maturity based on groupings
of individual securities sold in five-year bands. That net deferral is
reported as the "Interest Maintenance Reserve" in the accompanying balance
sheets. Realized capital gains and losses are reported in income net of
federal income tax and transfers to the interest maintenance reserve. The
"Asset Valuation Reserve" is determined by an NAIC prescribed formula and is
reported as a liability rather than unassigned surplus. Under GAAP, realized
capital gains and losses would be reported in the income statement on a pretax
basis in the period that the asset giving rise to the gain or loss is sold and
valuation allowances would be provided when there has been a decline in value
deemed other than temporary, in which case, the provision for such declines
would be charged to earnings.
Subsidiaries: The accounts and operations of the Company's subsidiaries are
not consolidated with the accounts and operations of the Company as would be
required under GAAP.
Policy Acquisition Costs: The costs of acquiring and renewing business are
expensed when incurred. Under GAAP, acquisition costs related to traditional
life insurance, to the extent recoverable from future policy revenues, would
be deferred and amortized over the premium-paying period of the related
policies using assumptions consistent with those used in computing policy
benefit reserves. For investment products, to the extent recoverable from
future gross profits, deferred policy acquisition costs are amortized
generally in proportion to the present value of expected gross profits from
surrender charges and investment, mortality, and expense margins.
Nonadmitted Assets: Certain assets designated as "nonadmitted" as defined by
regulatory authorities, such as negative IMR, are excluded from the
accompanying balance sheets and are charged directly to unassigned surplus.
Benefit Reserves: Certain policy reserves are calculated based on statutorily
required interest and mortality assumptions rather than on estimated expected
experience or actual account balances as would be required under GAAP.
Federal Income Taxes: Deferred federal income taxes are not provided for
differences between the financial statement amounts and tax bases of assets
and liabilities.
Policyholder Dividends: Policyholder dividends are recognized when declared
rather than over the term of the related policies.
The effects of the foregoing variances from GAAP on the accompanying
statutory-basis financial statements have not been determined, but are presumed
to be material.
10
<PAGE> 122
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
2. BASIS OF ACCOUNTING (CONT'D)
A summary of other significant accounting practices employed by the Company is
as follows:
[a] Bonds are stated at values prescribed by the NAIC, as follows. Bonds
not backed by other loans are principally stated at amortized cost.
Loan-backed bonds and structured securities are valued at amortized cost
using the interest method including anticipated prepayments. Prepayment
assumptions are obtained from dealer surveys or internal estimates and are
based on the current interest rate and economic environment. The
retrospective adjustment method is used to value all such securities.
Mortgage loans are carried at amortized cost less principal repayments.
Real estate is carried at the lower of current market value or cost less
depreciation, which is computed on the straight line basis over the
estimated useful lives of the properties. Common stocks are carried at
fair value. Gains and losses resulting from sales of investment securities
are recognized using an average cost basis. Unrealized capital gains and
losses are reflected as a direct credit or charge to the surplus or
deficit of the Company. Investments in subsidiaries, affiliates and
partnerships are accounted for using the equity method.
[b] Policy loans are carried at their unpaid balance and are fully secured by
the cash surrender value of the policies on which the respective loans
are made.
[c] Actuarial reserves represent the amount required, in addition to future
premiums, annuity considerations and interest, to provide for future
payments under insurance and annuity contracts.
Reserves for life insurance contracts are determined on a CRVM basis using
primarily the 1941 and 1958 CSO mortality table, with assumed interest
rates ranging from 2% to 4 1/2%.
Reserves for annuity contracts are determined on the net level premium
method using primarily the Group Annuity Mortality tables for 1971 and 1983
and the 1971 Individual Annuity Mortality and the 1983"A" mortality tables
with interest rates ranging from 5% to 11 1/4%.
Reserves for individual accumulation annuities are calculated in accordance
with the Commissioners Annuity Valuation Reserve Method (CARVM) with
interest rates ranging from 3.5% to 6.75%.
Reserves for deposit administration funds are based on accepted actuarial
methods at various interest rates ranging from 7% to 10%.
Changes in actuarial reserves due to changes in valuation assumptions are
charged or credited directly to unassigned surplus.
11
<PAGE> 123
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
2. BASIS OF ACCOUNTING (CONT'D)
[d] Premiums and annuity considerations paid annually are recorded as
income on the policy anniversary date. Premiums and annuity
considerations collected on other than an annual basis are included in
income as they become receivable.
[e] Income taxes are provided based on an estimate of the amount
currently payable which may not bear a normal relationship to pre-tax
income because of timing and other differences in the calculation of
taxable income.
[f] Separate accounts are maintained to receive and invest premium payments
under both individual and group variable annuity policies issued by the
Company. The assets and liabilities of the separate accounts are clearly
identifiable and distinguishable from other assets and liabilities of the
Company, and the contract holder bears the investment risk. Separate
account assets are reported at fair value. The operations of the separate
accounts are not included in the accompanying financial statements.
[g] For the purposes of the statements of cash flows, cash refers to
demand deposits with banks and other financial institutions.
[h] The Company utilizes derivative instruments where appropriate in the
management of its asset/liability matching and to hedge against
fluctuations in interest rates. Gains and losses resulting from these
instruments are included in income on a basis consistent with the
underlying assets or liabilities that have been hedged. Futures are
valued at initial margin deposit adjusted by changes in market value and
are reported as other assets. Interest rate swaps are an off-balance
sheet item with income being reported as other income.
[i] The preparation of statutory-basis financial statements requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
[j] Certain amounts in the accompanying financial statements for 1994
have been reclassified to conform with the 1995 and 1996 financial
statement presentation.
[k] The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
12
<PAGE> 124
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
2. BASIS OF ACCOUNTING (CONT'D)
Cash and interest-bearing deposits, short-term investments and policy
loans: The carrying amounts reported in the balance sheets for these items
approximate their fair values.
Investment securities: Fair values for investment securities are based on
values published by the NAIC Securities Valuation Office. For securities
not actively traded, fair values are estimated using values obtained from
independent pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a current market
rate applicable to the yield, credit quality, and maturity of the
investments.
Mortgage loans: The fair values for mortgage loans are estimated based on
discounted cash flow analyses, using interest rates currently being offered
for similar loans to borrowers.
Derivative Instruments: Fair values for the Company's interest rate
futures contracts and swaps are based on current settlement values.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted
liability calculations, adjusted to approximate the effect of current
market interest rates for the assets supporting the liabilities.
Policy loans: The fair values for policy loans approximate their carrying
values.
3. INVESTMENTS
[a] Additional information with respect to net investment income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
- ------------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C> <C>
Interest and dividends on fixed maturities $ 97,995 $ 97,097 $ 91,310
Interest on derivatives 608 522 1,118
Income on real estate 1,228 572 99
Dividends on equity securities 1,483 2,091 1,158
Amortization of IMR 878 980 1,293
Interest on:
Mortgage loans 87,092 86,540 79,701
Policy loans 843 370 674
Short-term investments 2,007 3,362 1,410
Other income 752 (14) 292
- ------------------------------------------------------------------------------------------
192,886 191,520 177,055
Less: investment expenses 3,501 3,445 3,364
Less: depreciation on real estate 591 176 135
- ------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $188,794 $187,899 $173,556
==========================================================================================
</TABLE>
13
<PAGE> 125
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
3. INVESTMENTS (CONT'D)
[b] Summary of realized capital gains (losses):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
- ------------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C> <C>
Realized capital gains (losses):
Fixed maturities $ (520) $ 4,915 $ (9,074)
Short-term investments - 48 (2)
Equity securities 2,715 3,865 1,005
Mortgage loans (13,018) (1,965) (8,728)
Real estate 758 (828) (1,793)
Derivative instruments 1,118 (7,812) -
- ------------------------------------------------------------------------------------------
(8,947) (1,777) (18,592)
Income tax (expense) benefit (677) (2,661) 3,006
Transfer to interest maintenance reserve (1,715) 1,852 5,063
- ------------------------------------------------------------------------------------------
NET REALIZED CAPITAL (LOSSES) $(11,339) $(2,586) $(10,523)
==========================================================================================
</TABLE>
Proceeds from sales and maturities of fixed maturity investments for the years
ended December 31, 1996, 1995, and 1994 were $321,755,000, $287,100,000 and
$372,374,000, respectively. Gross gains of $3,345,000, $5,626,000 and
$5,923,000, and gross losses of $3,865,000, $711,000 and $14,997,000,
respectively, were realized on those sales for the years ended December 31,
1996, 1995 and 1994. Gross gains of $2,896,000, $4,150,000 and $1,756,000, and
gross losses of $181,000, $285,000 and $751,000, respectively, were realized on
sales of equity securities for the years ended December 31, 1996, 1995 and
1994.
14
<PAGE> 126
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
3. INVESTMENTS (CONT'D)
[c] The amortized cost, carrying value, gross unrealized gains, gross
unrealized losses and fair values of fixed maturity investments by
security type are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------------------
GROSS GROSS
AMORTIZED CARRYING UNREALIZED UNREALIZED
COST VALUE GAINS LOSSES FAIR VALUE
- -----------------------------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C> <C> <C> <C>
United States Government
agencies and authorities $ 446,845 $ 446,845 $31,369 $(1,693) $ 476,521
States, municipalities, and
other political subdivisions 2,073 2,073 126 - 2,199
Foreign governments 826 826 - - 826
Public utilities 95,228 93,707 1,746 (1,184) 94,269
Mortgage-backed securities 132,547 132,547 - - 132,547
All other corporate bonds 600,786 600,785 6,490 (237) 607,038
- -----------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $1,278,305 $1,276,783 $39,731 $(3,114) $1,313,400
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------------------
GROSS GROSS
AMORTIZED CARRYING UNREALIZED UNREALIZED
COST VALUE GAINS LOSSES FAIR VALUE
- -----------------------------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C> <C> <C> <C>
United States Government
agencies and authorities $ 476,868 $ 476,868 $61,672 $ (640) $ 537,900
States, municipalities, and
other political subdivisions 2,568 2,568 207 - 2,775
Foreign governments 1,375 1,375 - - 1,375
Public utilities 102,300 100,758 2,687 (827) 102,618
Mortgage-backed securities 136,954 136,954 - - 136,954
All other corporate bonds 522,322 519,325 7,318 (225) 526,418
- -----------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $1,242,387 $1,237,848 $71,884 $(1,692) $1,308,040
===========================================================================================================
</TABLE>
15
<PAGE> 127
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
3. INVESTMENTS (CONT'D)
Differences between the amortized cost and carrying value for fixed maturity
securities are due to the NAIC statutory requirement for fixed maturity
securities in default that the carrying value be set at the lower of amortized
cost or fair value.
Unrealized gains and losses on fixed maturities are based on NAIC required fair
values. For the years ended December 31, 1996, 1995 and 1994, there were
changes in net unrealized gains and (losses) on fixed maturities of
$(33,575,000), $88,640,000 and $(63,074,000), respectively. These unrealized
gains and losses are not reflected in the accompanying financial statements.
The Company's investment policy, generally, is to hold fixed maturity
investments until maturity. However, under certain circumstances where there
are changes in the business or financial fundamentals, individual securities
may be liquidated prior to maturity.
[d] The carrying value and the NAIC fair value of fixed maturity investments
by maturity date are shown below. Mortgage-backed securities were
included in the various categories in accordance with their scheduled
maturity table.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------
CARRYING FAIR
VALUE VALUE
- ------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
1 year or less $ 107,051 $ 107,024
Over 1 year through 5 years 289,727 291,058
Over 5 years through 10 years 278,115 281,367
Over 10 years 601,890 633,951
- ------------------------------------------------------------------------------
$1,276,783 $1,313,400
==============================================================================
</TABLE>
[e] Unrealized capital gains and losses, resulting from carrying marketable
equity securities at fair value in the accompanying financial statements,
are recorded directly in surplus. The changes in the unrealized gains
(losses) on marketable equity securities were $45,000, $(397,000) and
$(902,000) for the years ended December 31, 1996, 1995 and 1994,
respectively. The accumulated gross unrealized gains and accumulated
gross unrealized losses on marketable equity securities were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C> <C>
Gross unrealized gains $2,594 $2,607 $3,505
Gross unrealized losses (179) (237) (738)
- ------------------------------------------------------------------------------
Net unrealized gains $2,415 $2,370 $2,767
==============================================================================
</TABLE>
16
<PAGE> 128
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
3. INVESTMENTS (CONT'D)
[f] The carrying value and fair value of the Company's investments in
mortgage loans and policy loans were as follows at December 31, 1996.
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
- -----------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
Commercial mortgages $886,124 $958,599
Write-downs on mortgage loans (4,935) -
- -----------------------------------------------------------------------------
$881,189 $958,599
- -----------------------------------------------------------------------------
Policy loans $ 11,461 $ 11,461
=============================================================================
</TABLE>
The Company's distribution of mortgage loans by property type and by the ten
most significant states follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
- -----------------------------------------------------------------------------
AMOUNT PERCENT
- -----------------------------------------------------------------------------
[thousands of dollars]
<S> <C> <C>
PROPERTY TYPE
Apartments and townhomes $398,163 45.2%
Retail 240,489 27.3%
General office buildings 92,477 10.5%
Industrial and warehouse 107,146 12.2%
Other 47,849 5.4%
Write-downs on mortgage loans (4,935) (0.6)%
- -----------------------------------------------------------------------------
Total $881,189 100.0%
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
- -----------------------------------------------------------------------------
AMOUNT PERCENT
- -----------------------------------------------------------------------------
<S> <C> <C>
STATE
California $169,937 19.3%
Pennsylvania 96,195 10.9%
Ohio 95,399 10.8%
Michigan 87,731 10.0%
New York 86,262 9.8%
Illinois 62,513 7.1%
Oregon 45,212 5.1%
New Jersey 42,112 4.8%
Nevada 34,830 4.0%
Maryland 27,913 3.2%
Other 138,020 15.6%
Write-downs on mortgage loans (4,935) (0.6)%
- -----------------------------------------------------------------------------
Total $881,189 100.0%
=============================================================================
</TABLE>
17
<PAGE> 129
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
3. INVESTMENTS (CONT'D)
The mortgage loans are typically collateralized by the related properties, and
the loan-to-value ratios at the date of loan origination generally do not
exceed 75%. The Company's exposure to credit loss in the event of
non-performance by the borrowers, assuming that the associated collateral
proved to be of no value, is represented by the outstanding principal and
accrued interest balances of the respective loans. Increases to the mortgage
loan loss reserve were $5,342,000, $7,119,000 and $3,817,000, and decreases to
the mortgage loan loss reserve were $12,139,000, $3,906,000 and $8,635,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
Accumulated depreciation on investment real estate was $545,000 and $392,000 as
of December 31, 1996 and 1995, respectively. No investment in any persons or
their affiliates exceeded 10% of capital and surplus as of December 31, 1996
and 1995.
The maximum and minimum lending rates for new mortgage loans in 1996 were
8.875% and 7.375%, respectively.
Fire insurance is required on all properties covered by mortgage loans at least
equal to the excess of the loan over the maximum loan which would be permitted
by law without the buildings.
At December 31, 1996 the Company held one mortgage loan with a carrying value
of $4,531,156 on which interest of $1,058,397 was more than one year overdue.
At December 31, 1995 the Company held mortgages with a carrying value of
$17,875,002 on which interest of $1,361,140 was more than one year overdue.
During 1996, the Company did not reduce interest rates on any outstanding
mortgage loans. At December 31, 1996 the Company had no mortgage loans that
were converted to loans that require payments of principal or interest be made
based upon the cash flows generated by the property serving as collateral for
the loans or that have a diminutive payment requirement. At December 31, 1996
the Company had no outstanding amounts which had been advanced for mortgage
loans.
Due and accrued income was excluded from investment income on mortgage loans
where due and unpaid was more than three months. The total amount excluded as
of December 31, 1996 was $1,168,467. There was no amount excluded for 1995.
At December 31, 1996 and 1995 the Company held $869,201 and $3,472,786,
respectively, in mortgages with prior outstanding liens.
18
<PAGE> 130
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
3. INVESTMENTS (CONT'D)
[g] The following tables represent a summary of investments held as of
December 31, 1996 and 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------
COST OR
AMORTIZED FAIR CARRYING
COST VALUE VALUE
- ------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C> <C>
Fixed maturities [ note 3[c] ] $1,278,305 $1,313,400 $1,276,783
Common stocks 9,879 12,294 12,294
Real estate 20,763 22,150 20,613
Mortgage loans on real estate 886,124 958,978 881,189
Policy loans 11,461 11,461 11,461
Other long-term investments 1,773 1,773 1,773
Short-term investments 59,321 59,321 59,321
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS $2,267,626 $2,379,377 $2,263,434
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------
COST OR
AMORTIZED FAIR CARRYING
COST VALUE VALUE
- ------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C> <C>
Fixed maturities [note 3[c]] $1,242,387 $1,308,040 $1,237,848
Common stocks 7,580 9,950 9,950
Real estate 8,908 8,308 8,308
Mortgage loans on real estate 911,232 1,024,761 899,501
Policy loans 12,285 12,285 12,285
Other long-term investments 2,457 2,457 2,457
Short-term investments 45,985 45,985 45,985
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS $2,230,834 $2,411,786 $2,216,334
==============================================================================
</TABLE>
[h] The following table presents the fair values and carrying amounts for the
Company's derivative instruments:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------
FAIR CARRYING
VALUE VALUE
- ------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
Interest rate futures $ 377 $ 377
Interest rate swaps 7,744 -
</TABLE>
19
<PAGE> 131
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
3. INVESTMENTS (CONT'D)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------
FAIR CARRYING
VALUE VALUE
------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
Interest rate futures $ 609 $ 609
Interest rate swaps 5,025 -
</TABLE>
[i] The carrying amounts and fair values of the Company's liabilities for
investment-type insurance contracts (included with actuarial reserves
liability in the balance sheet) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------
FAIR VALUE CARRYING VALUE
------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
Investment contracts $547,142 $531,508
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------
FAIR VALUE CARRYING VALUE
------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
Investment contracts $584,696 $529,124
</TABLE>
20
<PAGE> 132
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
4. FEDERAL INCOME TAXES
As of December 31, 1996 and 1995, federal income taxes receivable (payable)
were $4,656,000 and $(3,470,000), respectively.
During 1996, 1995 and 1994, the Company made cash payments (net of refunds
received) on behalf of federal income taxes of $6,465,000, $4,225,000 and
$4,802,000, respectively.
The statutory federal income tax provision amount at the statutory rate of 35%
for 1994, 1995 and 1996 differs from the effective tax provision amount as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1996 1995 1994
- --------------------------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C> <C>
Computed income taxes at statutory rate $ 6,615 $ 7,899 $ 5,569
Increase (decrease) in income taxes resulting from:
Policyholder dividends (64) 5 (120)
Deferred reinsurance commissions net of amortization - (46) (247)
Amortization of interest maintenance reserve (307) (343) (453)
Income tax (over) provision (2,350) (1,257) (1,932)
Amortization of prior year change in reserves (591) (206) (207)
Discount accrual (1,519) (700) (889)
Reserve differences 82 2,278 4,305
Deferred acquisition cost tax (3) (14) 158
Bad debt on mortgages (3,857) (688) (3,055)
Losses on options - (25) -
Futures losses 391 (2,640) -
Mortgage prepayment penalties (722) (556) -
Other 335 128 (492)
- --------------------------------------------------------------------------------------------------------
Federal income taxes (benefit) $(1,990) $ 3,835 $ 2,637
========================================================================================================
</TABLE>
21
<PAGE> 133
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
5. ACTUARIAL RESERVES
All policies, except variable annuities and institutional investment products,
were acquired through coinsurance reinsurance agreements with the Parent. The
reserves established meet the requirements of the Insurance Law and regulations
of the State of Michigan and are consistent with the reserving practices of the
Parent.
Certain reserving practices for life and annuity reserves are as follows:
[a] The Company waives deduction of deferred fractional premium upon death of
the insured for all issues and returns any portion of the final premium
beyond the date of death from 1980 and later issues. For 1980 and later
issues, the Company's reserves are calculated on a continuous basis to
reflect the above practice. For issues prior to 1980, annual premium is
assumed in the reserve calculation and for policies with premium frequency
other than annual, the Company holds a separate NDDFP reserve which is the
present value of a death benefit of half of the gross premium for the
balance of the policy premium paying period.
Some policies promise a surrender value in excess of the reserve as
legally computed. This excess is calculated on a policy by policy basis.
[b] Policies issued at premium corresponding to ages higher than the true ages
are valued at the rated-up ages. Policies providing for payment at
death during certain periods of an amount less than the full amount of
insurance, being policies subject to liens, are valued as if the full
amount is payable without any deduction. For policies, issued with, or
subsequently subject to, an extra premium payable annually, an extra
reserve is held. The extra premium reserve is 45% of the gross extra
premium payable during the year if the policies are rated for reasons other
than medical impairments. For medical impairments, the extra premium
reserve is calculated at the excess of the reserve on rated mortality over
that on standard mortality.
[c] At the end of 1996 and 1995 respectively, the Company had $0 of insurance
in-force for which the gross premiums are less than the net premiums
according to the standard of valuation set by the State of Michigan.
[d] The Tabular Interest has been determined from the basic data for the
calculation of policy reserves.
The Tabular Less Actual Reserve Released has been determined by formula.
The Tabular Cost has been determined from the basic data for the
calculation of policy reserves.
[e] The Tabular Interest on funds not involving life contingencies was
determined by formula.
22
<PAGE> 134
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
5. ACTUARIAL RESERVES (CONT'D)
[f] There were no significant "Other Increases."
Withdrawal characteristics of annuity actuarial reserves and deposit
liabilities as at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
AMOUNT % OF TOTAL
------ ----------
<S> <C> <C>
Subject to discretionary withdrawal with adjustment
-with market value adjustment $ 120,931,028 5.7%
-at book value less surrender charge 192,824,778 9.1%
-------------- -----
Subtotal 313,755,806 14.8%
Subject to discretionary withdrawal without adjustment
-at book value (minimal or no charge adjustment) 194,479,020 9.1%
Not subject to discretionary withdrawal provision 1,618,150,093 76.1%
-------------- -----
Total annuity actuarial reserves and deposit fund liabilities (gross) 2,126,384,919 100.0%
-------------- -----
Less: reinsurance -
--------------
Total annuity actuarial reserves and deposit fund liabilities (net) $2,126,384,919
==============
</TABLE>
In March 1995 the NAIC adopted Actuarial Guideline 33 (AG 33) which codified
the basic interpretation of CARVM and applies to all individual annuities
issued on or after January 1, 1981. The effective date of AG 33 was December
31, 1995. AG 33 required that the reserve held be the greatest actuarial
present value of any possible future cash value or other benefit. A three year
phase-in period was allowed to recognize any reserve increase as a result of
implementation of AG 33. The Company implemented AG 33 effective December 31,
1995, and recognized in 1995 an expense of $4,477,000 for additional current
reserves and a decrease in surplus of $6,523,000 for the cumulative effect on
reserves for prior years. The Company recognized an additional expense of
$1,430,000 in 1996 to complete the phase in of AG 33.
23
<PAGE> 135
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
6. POLICYHOLDER DIVIDENDS
Participating insurance accounts for 100% of the ordinary life insurance
in-force and premium income from ordinary life insurance as of December 31,
1996 and 1995. Policyholder dividends represent amounts reimbursed to the
Parent on behalf of the participating business reinsured by the Company.
7. RELATED PARTY TRANSACTIONS
REINSURANCE
The Company has entered into coinsurance agreements with its Parent. The
effect of the agreements is to have the Company assume certain existing and
future insurance and annuity business of the Parent. Except for variable
annuity contracts and institutional investment products issued, all premiums
for insurance and annuity considerations and benefit expenses recorded for the
years ended December 31, 1996, 1995, and 1994 were the result of the
coinsurance agreements. As of December 31, 1996, 1995, and 1994,
$(16,596,053), $3,342,280, and $(4,466,448) respectively, were receivable
(payable) from (to) the Parent under the agreements.
Information regarding premiums is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
[in thousands of dollars]
Percentage Percentage Percentage
of Total of Total of Total
1996 Premiums 1995 Premiums 1994 Premiums
---- -------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Direct premiums $124,862 42.2% $123,170 37.8% $ 26,676 9.0%
Assumed
premiums 170,678 57.8% 203,026 62.2% 269,519 91.0%
-------------------------------------------------------------------------------------
Total premiums
for insurance and
annuity contracts $295,540 100.0% $326,196 100.0% $296,195 100.0%
=====================================================================================
</TABLE>
Direct premiums above represent premiums earned from variable annuity products
and institutional investment products issued.
24
<PAGE> 136
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
7. RELATED PARTY TRANSACTIONS (CONT'D)
Information regarding ordinary life insurance in-force is as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31
-----------------
[in thousands of dollars]
Percentage of Percentage
Total of Total
1996 In-Force 1995 In-Force
---- -------- ---- ---------
<S> <C> <C> <C> <C>
Direct life insurance in-force - - - -
Assumed life insurance in-
force $49,354,000 100.0% $52,721,000 100.0%
------------------------------------------------------------
Total life insurance in-force $49,354,000 100.0% $52,721,000 100.0%
============================================================
</TABLE>
OTHER
In addition to the coinsurance agreements mentioned above, the Company has a
service agreement with its Parent. This agreement requires the Parent to
perform various administrative and other services for the Company and its
subsidiaries. For the years ended December 31, 1996, 1995 and 1994, the cost
of these services amounted to $6,378,851, $7,686,114, and $4,519,609,
respectively.
25
<PAGE> 137
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
7. RELATED PARTY TRANSACTIONS (CONT'D)
As of December 31, 1996 and 1995, the amounts receivable and payable to its
Parent and affiliates, which include the above reinsurance amounts as well as
outstanding administrative expenses, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
- --------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
Payable:
Canada Life Assurance Company $18,629 $6,320
Canada Life of America Series Fund, Inc. 48 -
Receivable:
CL Capital Management, Inc. 92 156
Canada Life of America Series Fund, Inc. - 49
- --------------------------------------------------------------------------------------
$18,585 $6,115
- --------------------------------------------------------------------------------------
</TABLE>
SEPARATE ACCOUNTS
The Company's non-guaranteed separate variable accounts represent primarily
funds invested in variable annuity policies issued by the Company. The assets
of these funds are invested in either shares of Canada Life of America Series
Fund, Inc., an affiliated, diversified, open-ended management investment
company, shares of five unaffiliated management investment companies, or in
funds managed by CL Capital Management, Inc., an investment management
subsidiary.
Information regarding the Separate Accounts of the Company is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1996 1995
------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
Premiums, considerations, or deposits received $129,475 $111,252
Reserves, subject to discretionary withdrawal - at
market with current surrender charges $350,886 $264,143
</TABLE>
26
<PAGE> 138
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
7. RELATED PARTY TRANSACTIONS (CONT'D)
A reconciliation of the amounts transferred to and from the Separate Accounts
is presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------
[in thousands of dollars]
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Transfers as reported in the Summary
of Operations of the Separate
Accounts Statement:
Transfers to Separate Accounts $129,475 $ 253,914 $17,877
Transfers from Separate Accounts 80,018 30,998 4,551
-----------------------------------------------
Net transfers to Separate Accounts 49,457 222,916 13,326
Reconciling adjustments:
(a) Gains/losses transferred 303 (192) 34
(b) Separate Account liability
assumed on acquisition - (123,757) -
(c) Transfers to Managed Accounts 48,942 - -
-----------------------------------------------
Transfers as reported in the
Summary of Operations of the
Life, Accident & Health Annual
Statement $ 98,702 $ 98,967 $13,360
===============================================
</TABLE>
ACQUISITIONS
The Company acquired on January 1, 1995 all of the outstanding stock of CL
Capital Management, Inc., (CLCM) for an adjusted purchase price of $187,649.
The acquisition was accounted for using the equity method and the Company
recognized a $124,934 charge to surplus for the premium over the fair value of
the stock acquired. On April 30, 1995 the Company contributed its wholly-owned
investment management subsidiary, Canada Life of America Investment Management,
Inc., to CLCM in exchange for 5,000 shares of CLCM preferred stock. On
September 1, 1995, the Company acquired a block of separate account business
containing assets and liabilities of $142,661,940 for $100,000. As part of the
transaction, the Company invested $6,613,851 in seed money in the separate
account funds acquired.
27
<PAGE> 139
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
8. CAPITAL STOCK
The Company has two classes of capital stock: redeemable preferred stock
($10.00 par value) and common stock ($10.00 par value), ranked in order of
liquidation preference. The preferred shares have no interest rate assigned,
are non-voting and are redeemable by the Company at any time at a redemption
price of $10.00 per share.
9. MINIMUM CAPITAL AND SURPLUS AND OTHER REGULATORY
REQUIREMENTS
Under applicable Michigan Insurance Law, the Company is required to maintain a
minimum capital of $1,000,000 and initial surplus of $500,000. The Company's
capital and surplus exceeds the NAIC's "Risk Based Capital" requirement at the
end of 1996. Also, the Company is subject to insurance regulatory restrictions
that stipulate that shareholder dividends may only be paid from its surplus
earnings unless the Commissioner approves the dividend prior to payment.
In accordance with statutory requirements, bonds carried at a value of
$4,562,418 and $4,587,000 were on deposit with insurance regulatory authorities
at December 31, 1996 and 1995, respectively.
10. DERIVATIVE INSTRUMENTS
The Company is party to various derivative instruments used to hedge specific
asset and liability interest rate risks. Management actively monitors the use
and level of these instruments to ensure that credit and liquidity risks are
maintained within pre-approved levels. Interest rate swaps are an off-balance
sheet item. Futures are valued at initial margin deposit adjusted for
unrealized gains and losses.
The notional amounts and the carrying amounts of outstanding derivative
instruments are as follows:
<TABLE>
<CAPTION>
NOTIONAL CARRYING
AMOUNT AMOUNT
DECEMBER 31 DECEMBER 31
1996 1995 1996 1995
---------------------------------------------------------
[in thousands of dollars] [in thousands of dollars]
<S> <C> <C> <C> <C>
Interest rate swaps $ 7,744 $15,000 - -
Futures (government bonds) 52,400 27,200 $377 $609
---------------------------------------------------------
Total $60,144 $42,200 $377 $609
=========================================================
</TABLE>
The Company's involvement in derivative instruments may also subject it to
market risk which is associated with adverse movements in the underlying
interest rates, equity prices and commodity prices. Since the Company's
investment in derivative instruments is confined to hedging activities, market
risk is minimal.
28
<PAGE> 140
PART C
OTHER INFORMATION
<PAGE> 141
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B of this
registration statement.
(b) Exhibits
(1) Resolution of the Board of Directors of Canada Life Insurance
Company of America (CLICA) authorizing establishment of the Variable
Account
(2) Not applicable.
(3) (a) Form of Distribution Agreement
(b) Form of Selling Agreement
(4) (a) Form of Annuity Policy
(b) Riders and Endorsements
(5) Form of Application
(6) (a) Certificate of Incorporation of CLICA
(b) By
(7) Not applicable
(8) (a)(a) Participation Agreement Between Canada Life Series Fund and
Canada Life of America
(a)(b) Participation Agreement Between Dreyfus Corporation and Canada
Life of America
(a)(c) Participation Agreement Between Montgomery Asset Management,
L.P. and Canada Life of America
(a)(d) Participation Agreement Between Fred Alger and Company, Inc. and
Canada Life of America
(a)(e) Participation Agreement Between Fidelity Distributors
Corporation and Canada Life of America
- 2 -
<PAGE> 142
(a)(f) Participation Agreement Among Berger Institutional Products
Trust and Canada Life Insurance Company of America
(b) Service Agreement
(9) Opinion and Consent of Counsel
(10) (a) Consent of Counsel
(b) Consent of Independent Counsel
(c) Consent of Independent Auditors
(11) No items are omitted from Item 23.
(12) Subscription Agreement
(13) Sample Performance Data Calculation
- 3 -
<PAGE> 143
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Name and Principal
Business Address Positions and Offices with Depositor
------------------ ------------------------------------
<S> <C>
D. A. Nield (1) Chairman & Director
D. A. Loney (2) President & Director
G. E. Hughes (2) Agency Vice President
W. S. McIlwaine (2) Group Sales Vice-President
F. D'Ambra (2) Annuity & Investment Products Vice-President
D. D. Myers (2) Accounting Officer
P. D. Cochrane (1) Administrative Officer
M. L. Craft (2) Administrative Officer
K. T. Ledwos (2) Actuary & Director
S. Benedetti (2) Marketing Actuary
J. G. Deskins(2) Marketing Actuary
M. G. Libenson(1) Internal Auditor
R. W. Linden (1) Secretary
D. A. Hopkins (2) Assistant Secretary
D. V. Rough (1) Assistant Treasurer
E. P. Ovsenny (1) Assistant Treasurer
D. N. Rattray (1) Assistant Treasurer
G. N. Isaac (1) Treasurer
B. J. Lynch (1) Assistant Treasurer
M. V. Sim (1) Assistant Treasurer
K. J. J. Fillman (2) Product Manager Investment Management Services
S. H. Zimmerman (3) Director
H.A. Rachfalowski (1) Director
K.A. Phelan (2) Assistant Treasurer
</TABLE>
(1) The business address is 330 University Avenue, Toronto,
Ontario, Canada M5G 1R8.
(2) The business address is 6201 Powers Ferry Road, NW, Suite
600, Atlanta, Georgia 30339.
(3) The business address is 800 Michigan National Tower, Lansing,
Michigan 48933.
- 4 -
<PAGE> 144
Item 26. Persons Controlled by or Under Common Control With the Depositor or
Registrant
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NAME JURISDICTION VOTING SECURITIES OWNED BUSINESS
- ---- --------------- ----------------------- --------
<S> <C> <C> <C>
The Canada Life Assurance Company Canada Mutual Company Life and Health
Insurance
Canada Life Insurance Company of New York Ownership of voting securities Life and Health
New York through Canada Life Insurance
Adason Properties Limited Canada Ownership of all voting securities Property Management
through Canada Life
Canada Life Irish Operations England Ownership of all voting securities Life and Health
Limited through Canada Life Insurance
Canada Life Unit Trust Managers England Ownership of all voting securities Unit Trust
Limited through Canada Life Irish Management
Operations
Canada Life Mortgage Services Ltd. Canada Ownership of all voting securities Mortgage Portfolios
through Canada Life
The CLGB Property Company Limited England Ownership of all voting securities Real Estate
through Canada Life Irish Investment
Operations
CLASSCO Benefit Services Limited Canada Ownership of all voting securities Administrative
through Canada Life Services
Canada Life Casualty Insurance Canada Ownership of all voting securities Property and
Company through Canada Life Insurance Casualty Insurance
Canada Life Investment Management Canada Ownership of all voting securities Investment
Limited through Canada Life Counseling
Sherway Centre Limited Canada Ownership of all voting securities Real Estate Broker
through Canada Life
The Canada Life Assurance Company Rep. of Ireland Ownership of all voting securities Life and Health
of Ireland Limited through Canada Life Irish Insurance
Operations
Canlife - IBI Investment Services Rep. of Ireland Ownership of 50% of voting Unit Trust
Limited securities through Canada Life Ass. Management
(Ireland) Limited and 50% by the
Investment Bank of Ireland
Canada Life Financial Services England Ownership of all voting securities
Company Limited through Canada Life Irish Life Insurance
Operations
F.S.D. Investments Ltd. Rep. of Ireland Ownership of all voting securities Unit Fund Sales and
through Canada Life Assurance Management
(Ireland) Limited
</TABLE>
- 5 -
<PAGE> 145
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NAME JURISDICTION VOTING SECURITIES OWNED BUSINESS
- ---- --------------- ----------------------- --------
<S> <C> <C> <C>
Canada Life Insurance Company of US Canada Life Life and Health
America Insurance
Canada Life of America Financial Georgia Ownership of all voting securities Broker Dealer
Services Inc. through CLICA
Canada Life of America Series Maryland Ownership of all voting securities Mutual Fund
Fund, Inc. through CLICA
CLMS Realty Ltd. Canada 99% of the common shares and 100% Realtor
of the convertible preference
shares are owned by Canada Life
Canada Life Pension & Annuities Rep. of Ireland Ownership of all voting securities Life Assurance
(Ireland) Limited through Canada Life Assurance
(Ireland) Limited
CLAI Limited Rep. of Ireland Ownership of all voting securities Holding, Service,
through Canada Life Ireland Management, and
Holdings Limited Investment Company
The Canada Life Assurance Rep. of Ireland Ownership of all voting securities Life Insurance,
(Ireland) Limited through CLAI Limited and the Canada Pension, and
Life Assurance Company of Ireland Annuity
CL Capital Management, Inc. Georgia Ownership of all voting securities Investment Advisor
through CLICA
Canada Life Capital Corporation Canada Ownership of all voting securities External Sources of
Inc. through Canada Life Capital
Canada Life Securing Corporation Canada Ownership of all voting securities Holding Company
Inc. through Canada Life
The Canada Life Group (UK) Limited England Ownership of all voting securities Holding Company
through Canada life
Canada Life Holdings (UK) Limited England The Canada Life Group (UK) Limited Holding Company
The Canada Life Assurance Company England The Canada Life Group (UK) Limited Life and Health
of Great Britain Limited Insurance
Canada Life Management (UK) England The Canada Life Group (UK) Limited Unit Trust Sales &
Limited Management
Canada Life Group Services (UK) England The Canada Life Group (UK) Limited Administrative
Limited Services
Canada Life Trustee Services (UK) England The Canada Life Group (UK) Limited Trustee Services
Limited
Canada Life Ireland Holdings Ireland Canada Life Irish Operations Limited Holding Company
Limited
</TABLE>
- 6 -
<PAGE> 146
Item 27. Number of Policy Owners
As of December 31, 1996, there are 730 owners of Nonqualified Policies
and 1,213 owners of Qualified Policies.
Item 28. Indemnification
Canada Life Insurance Company of America's By-Laws provide in Article II,
Section 10 as follows:
In addition to any indemnification to which a person may be entitled to
under common law or otherwise, each person who is or was a director, an
officer, or an employee of this Corporation, or is or was serving at the
request of the Corporation as a director, an officer, a partner, a trustee, or
an employee of another foreign or domestic corporation, partnership, joint
venture, trust, or other enterprises, whether profit or not, shall be
indemnified by the Corporation to the fullest extent permitted by the laws of
the State of Michigan as they may be in effect from time to time. This
Corporation may purchase and maintain insurance on behalf of any such person
against any liability asserted against and incurred by such person in any such
capacity or arising out of his or her status as such, whether or not the
corporation would have power to indenmify such person against such liability
under the laws of the State of Michigan.
In addition, Sections 5241 and 5242 of the Michigan Insurance Code generally
provides that a corporation has the power (and in some instances the
obligation) to indemnify a director, officer, employee or agent of the
corporation, or a person serving at the request of the corporation as a
director, officer, partner, trustee, employee or agent of another corporation or
other entity (the "indemnities") against reasonably incurred expenses in a
civil, administrative, criminal or investigative action, suit or proceeding if
the indemnitee acted in good faith in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation or its
shareholders or policyholders (or, in the case of a criminal action, if the
indemnitee had no reasonable cause to believe his or her conduct was unlawful).
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 1933 Act and
is, therefore, unenforceable. In the event that 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 in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinon of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
- 7 -
<PAGE> 147
Item 29. Principal Underwriter
Canada Life of America Financial Services, Inc. (CLAFS) is the principal
underwriter of the Policies as defined in the Investment Company act of 1940.
The following table provides certain information with respect to each director
and officer of CLAFS.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
------------------ -----------------------------------
<S> <C>
D.A. Loney** Chairman and Director
D.A. Hopkins** Secretary
D.V. Rough* Treasurer
R.W. Linden* Assistant Secretary
K.T. Ledwos* Administrative Officer and Director
F. D'Ambra** President and Director
K.J. Fillman** Administrative Officer
D.D. Myers** Accounting Officer
B. Smith** Administrative Officer
</TABLE>
- -----------------
* The business address is 330 University Avenue, Toronto, Ontario, Canada
M5G1RS.
** The business address is 6201 Powers Ferry Road, N.W., Suite 600, Atlanta,
Georgia 30339.
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a)
of the 1940 Act and the rules under it are maintained by CLICA at
its Executive Office at 330 university Avenue, Toronto, Canada
M5G1R8 and at 6201 Powers Ferry Rd., N.W., Atlanta, Georgia 30339.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
- 8 -
<PAGE> 148
Item 32
Undertakings
(a) Registrant undertakes that it will file a post effective amendment to
this registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that
an applicant can check to request a Statement of Additional Information,
or (2) a post card or similar written communication affixed to or included
in the Prospectus that the applicant can remove to send for a Statment of
Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to CLICA at the address or phone
number listed in the Prospectus.
(d) Depositor undertakes to preserve on behalf of itself and Registrant the
books and records required to be preserved by such companies pursuant to
Rule 31a-2 under the Investment Company Act of 1940 and to permit
examination of such books and records at any time or from time to time
during business hours by examiners or other representatives of the
Securities and Exchange Commission, and to furnish to said Commission at
its principal office in Washington, D.C., or at any regional office of
said Commission specified in a demand made by or on behalf of said
Commission for copies of books and records, true, correct, complete, and
current copies of any or all, or any part, of such books and records.
(e) The Registrant is relying on a letter issued by the staff of the
Securities and Exchange Commission to the American Council of Life
Insurance on November 28, 1988 (Ref. No. IP-6-88) stating that it would
not recommend to the Commission that enforcement action be taken under
Section 22(e), 27(c)(1), or 27(d) of the Investment Company Act of 1940 if
the Registrant, in effect, permits restrictions on cash distributions from
elective contributions to the extent necessary to comply with Section
403(b)(11) of the Internal Revenue Code of 1986 in accordance with the
following conditions:
(1) include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including
the prospectus, used in connection with the offer of the policy;
- 9 -
<PAGE> 149
(2) include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection
with the offer of the policy;
(3) instruct sales representatives who may solicit individuals to
purchase the policies specifically to bring the redemption restrictions
inmposed by Section 403(b)(11) to the attention of such individuals;
(4) Obtain from each owner who purchases a Section 403(b) policy, prior
to or at the time of such purchase, a signed statement acknowledging the
owner's understanding of (i) the redemption restrictions imposed by
Section 403(b)(11), and (ii) the investment alternatives available under
the employer's Section 403(b) arrangement, to which the owner may elect to
transfer his or her policy value.
The Registrant is complying, and shall comply, with the provisions of
paragraphs (1) - (4) above.
(f) "Canada Life Insurance Company of America hereby represents that the fees
and changes deducted under the Policy, in the aggregate, are reasonable
in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by Canada Life Insurance Company of
America."
STATEMENT PURSUANT TO RULE 6c-7
CLICA and the Variable Account rely on 17 C.F.R., Section 270.6c-7 and
represent that the provisions of that Rule have been or will be complied with.
Accordingly, CLICA and the Variable Account are exempt from the provisions of
Section 22(e), 27(c)(1) and 27(d) of the Investment Company Act of 1940 with
respect to any variable annuity contract participating in such account to the
extent necessary to permit compliance with the Texas Optional Retirement
Program.
- 10 -
<PAGE> 150
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets all the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933, and has caused this Post-Effective Amendment Number 13
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Toronto, and the Province of Ontario on the 24th day of April,
1997.
CANADA LIFE INSURANCE COMPANY OF AMERICA
VARIABLE ANNUITY ACCOUNT 1
By /s/ D. A. Loney
----------------------------------------
D. A. Loney, President
Canada Life Insurance Company of America
CANADA LIFE INSURANCE COMPANY OF AMERICA
By /s/ D. A. Loney
----------------------------------------
D. A. Loney, President
As required by the Securities Act of 1933, this Post-Effective Amendment Number
13 has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------- --------------------- --------
<S> <C> <C>
/s/ D. A. Nield Chairman and Director 04/24/97
- ---------------------
D. A. Nield
/s/ D. A. Loney President and Director 04/24/97
- ---------------------
D. A. Loney
/s/ K. T. Ledwos Director 04/24/97
- ---------------------
K. T. Ledwos
/s/ S. H. Zimmerman Director 04/24/97
- ---------------------
S. H. Zimmerman
/s/ D. D. Myers Accounting Officer 04/24/97
- ---------------------
D. D. Myers
</TABLE>
- 11 -
<PAGE> 151
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
1 Resolution of the Board of Directors of Canada Life Insurance Company of
America (CLICA) Authorizing Establishment of the Variable Account 1
3 (a) Form of Distribution Agreement
3 (b) Form of Selling Agreement
4 (a) Form of Annuity Policy
4 (b) Riders and Endorsements
5 Form of Application
6 (a) Certificate of Incorporation of Canada Life Insurance Company of America.
6 (b) By-Laws of Canada Life Insurance Company of America
8 (a)(a) Participation Agreement Between Canada Life Series Fund and Canada
Life of America
8 (a)(b) Participation Agreement Between Dreyfus Corporation and Canada
Life of America
8 (a)(c) Participation Agreement Between montgomery Asset Management, L.P.
and Canada Life of America
8 (a)(d) Participation Agreement Between Fred Alger and Company, Inc. and
Canada Life of America
8 (a)(e) Participation Agreement Between Fidelity Distributors Corporation
and Canada Life of America
8 (a)(f) Participation Agreement Among Berger Institutional Products Trust and Canada
Life Insurance Company of America.
8 (b) Service Agreement
9 Opinion and Consent of Counsel
10 (a) Consent of Counsel
</TABLE>
- 12 -
<PAGE> 152
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
10 (b) Consent of Independent Counsel
10 (c) Consent of Independent Auditors
12 Subscription Agreement
13 Sample Performance Data Calculation
</TABLE>
- 13 -
<PAGE> 1
EXHIBIT 1
RESOLUTION OF THE BOARD OF DIRECTORS OF CANADA LIFE INSURANCE COMPANY OF
AMERICA (CLICA) AUTHORIZING ESTABLISHMENT OF THE VARIABLE ACCOUNT.
<PAGE> 2
EXHIBIT 1
CANADA LIFE INSURANCE COMPANY OF AMERICA
CERTIFICATE OF ASSISTANT SECRETARY
I, DAVID A. HOPKINS, Assistant Secretary of CANADA LIFE INSURANCE COMPANY OF
AMERICA, a Michigan insurer ("CLICA"), HEREBY CERTIFY THAT:
1. Attached hereto is a true and correct copy of the Resolution of CLICA as
in force and effect on the date hereof.
WITNESS THE DUE EXECUTION HEREOF this 26 day of May, 1989.
[CORPORATE SEAL] /s/ David A. Hopkins
-----------------------
David A. Hopkins
Assistant Secretary
<PAGE> 3
EXHIBIT 1
21. VARIABLE ANNUITY ACCOUNT #1
RESOLVED, that the Board of Directors of Canada Life Insurance Company of
America ("Company"), pursuant to the provisions of Section 925 of the Michigan
Insurance Code, MCLA 500.925, hereby establishes a separate account designated
"Canada Life of America Variable Annuity Account 1" (hereinafter "Variable
Annuity Account 1") for the following use and purposes, and subject to such
conditions as hereinafter set forth;
FURTHER RESOLVED, that Variable Annuity Account 1, is established for the
purpose of providing for the issuance by the Company of variable annuity
contracts ("Contracts") and shall constitute a separate account into which are
allocated amounts paid to or held by the Company under such Contracts. The form
of such Contracts shall be kept on file in the Secretary's Office;
FURTHER RESOLVED, that the income, gains, and losses, whether or not
realized, from assets allocated to Variable Annuity Account 1 shall, in
accordance with the Contracts, be credited to or charged against such account
without regard to other income, gains, or losses of the Company;
FURTHER RESOLVED, that the portion of the assets of Variable Annuity
Account 1 equal to the reserves and other contract liabilities with respect to
Variable Annuity Account 1 shall not be chargeable with liabilities arising out
of any other business the Company may conduct;
- 8 -
<PAGE> 4
FURTHER RESOLVED, that Variable Annuity Account 1 shall be divided into
Investment Subaccounts, each of which shall invest in the shares or units of a
designated Investment Company Portfolio, and net premiums under the Contracts
shall be allocated to the eligible portfolios set forth in the Contracts in
accordance with instructions from owners of the Contracts.
FURTHER RESOLVED, that the Board of Directors expressly reserves the
right to add, combine, or remove any Investment Subaccount of Variable Annuity
Account 1 as it may hereafter deem necessary or appropriate;
FURTHER RESOLVED, that any two of the Officers and those Directors of the
Company who are also Officers of The Canada Life Assurance Company, are hereby
authorized to invest such amount or amounts of the Company's cash in Variable
Annuity Account 1 or in any Investment Subaccount thereof as may be deemed
necessary or appropriate to facilitate the commencement of Variable Annuity
Account 1's operations and/or to meet any minimum capital requirements under the
Investment Company Act of 1940;
FURTHER RESOLVED, that any two of the Officers and those Directors of the
Company who are also Officers of the Canada Life Assurance Company are hereby
authorized to transfer cash from time to time between the Company's general
account and Variable Annuity Account 1 as deemed necessary or appropriate and
consistent with the terms of the Contracts;
FURTHER RESOLVED, that the Board of Director of the Company reserves the
right to change the designation of Variable Annuity Account 1 hereafter to such
other designation as it may deem necessary or appropriate;
FURTHER RESOLVED, that any two of the Officers and those Directors of the
Company who are also Officers of the Canada Life Assurance Company, with such
assistance from the Company's independent certified public accountants,
chartered accountants, legal counsel and independent consultants or others as
they may require, are hereby authorized and directed to take all action
necessary to: (a) register Variable Annuity Account 1 as a unit investment trust
under the Investment Company Act of 1940 as amended; (b) register the Contracts
in such amounts, which may be an indefinite amount as the said officers of the
Company shall from time to time deem, appropriate under the Securities Act of
1933; and {c) take all other actions which are necessary in connection with the
offering of said Contracts for sale and the operation of Variable Annuity
Account 1 in order to comply with the Securities Act of 1933, the Securities
Exchange Act of 1934, the Investment Company Act of 1940, and other applicable
federal laws, including the filing of any amendments to registration statements
any supplements, any undertakings, and any applications for exemptions, and any
amendments thereto, from the Investment Company Act of 1940 or other applicable
federal laws as the said officers of the Company shall deem necessary or
appropriate;
FURTHER RESOLVED, that any two of the Officers and those Directors of the
Company who are also Officers of The Canada Life Assurance Company, are hereby
authorized and empowered to prepare, execute, and cause to be filed with the
Securities and Exchange Commission on behalf of Variable Annuity Account 1 and
by the Company as sponsor and depositor a Notification of
- 9 -
<PAGE> 5
Registration under the Investment Company Act of 1940, on Form N-8A and a
Registration Statement on Form N-4 under the Securities Act of 1933 and the
Investment Company Act of 1940, and any other forms as may be designated from
time to time for such purposes, and any and all amendments to the foregoing on
behalf of Variable Annuity Account 1 and the Company and on behalf of and as
attorneys-in-fact for the principal executive officer, the principal financial
officer, the principal accounting officer, and/or any other officer of the
Company;
FURTHER RESOLVED, that Alex J. Sywak, Director of Corporate Development,
and Roy Linden, Secretary, are duly appointed as agents for service under any
such registration statement, duly authorized to receive communications and
notices from the Securities and Exchange Commission with respect thereto;
FURTHER RESOLVED, that any two of the Officers and those Directors of the
Company who are also Officers of The Canada Life Assurance Company, are hereby
authorized on behalf of Variable Annuity Account 1 and on behalf of the Company
to take any and all action that each of them may deem necessary or advisable in
order to offer and sell the Contracts, including any registrations, filings, and
qualifications both of the Company, its officers, agents and employees, and of
the Contracts, under the insurance and securities laws of any of the states of
the United States of America and other jurisdictions, and in connection
therewith to prepare, execute, deliver, and file all such applications, reports,
covenants, resolutions, applications for exemptions, consents to service of
process, and other papers and instruments as may be required under such laws,
and to take any and all further action which the said officers or legal counsel
of the Company may deem necessary or desirable (including entering into whatever
agreements and contracts may be necessary) in order to maintain such
registrations or qualifications for as long as the said officers or legal
counsel deem it to be in the best interests of Variable Annuity Account 1 and
the Company;
FURTHER RESOLVED, that any two of the Officers and those Directors of the
Company who are also Officers of The Canada Life Assurance Company, are hereby
authorized in the names and on behalf of Variable Annuity Account 1 and the
company to execute and file irrevocable written consents on the part of Variable
Annuity Account 1 and of the Company to be used in such states wherein such
consents to service of process may be requisite under the insurance or
securities laws therein in connection with said registration or qualification of
the Contracts and to appoint the appropriate state official, or such other
person as may be allowed by said insurance or securities laws, agent of Variable
Annuity Account 1 and of the Company for the purpose of receiving and accepting
process;
FURTHER RESOLVED, that any two of the Officers and those Directors of the
Company who are also Officers of the Canada Life Assurance Company, are hereby
authorized to establish procedures under which the Company will provide voting
rights for owners of the Contracts with respect to securities owned by variable
Annuity Account 1 insofar as such rights are required by any applicable law;
FURTHER RESOLVED, that any two of the Officers and those Directors of the
Company who are also Officers of The Canada Life Assurance Company, are hereby
authorized to execute such
- 10 -
<PAGE> 6
agreement or agreements as deemed necessary and appropriate (i) with any
qualified entity under which such entity will be appointed principal underwriter
and distributor of the Contracts and (ii) with one or more qualified banks or
other qualified entities to provide administrative and/or custodial services in
connection with the establishment and maintenance Variable Annuity Account 1 and
the design, issuance, and administration of the Contracts;
FURTHER RESOLVED, that because it is expected that Variable Annuity
Account 1 will invest solely in the securities issued by one or more investment
companies registered under the Investment Company Act of 194O, any two of the
Officers and those Directors of the Company who are also Officers of The Canada
Life Assurance Company, are hereby authorized to execute whatever agreement or
agreements may be necessary or appropriate to enable such investments to be
made;
FURTHER RESOLVED, that the signature of any Director or Officer of the
Company required by law to affix his or her signature to a registration
statement under the Investment Company Act of 1940 or Securities Act of 1933, or
any amendment thereof, may be affixed by said Director or Officer personally or
by an attorney-in-fact duly constituted in writing by said Director or Officer
to sign his or her name thereto; and
FURTHER RESOLVED, that any two of the Officers and those Directors of the
Company who are also Officers of The Canada Life Assurance Company, are hereby
authorized to execute and deliver such agreements and other documents and do
such acts and things as may be deemed necessary or desirable to carry out the
foregoing resolutions and the intent and purposes thereof.
<PAGE> 1
EXHIBIT 3(a)
FORM OF DISTRIBUTION AGREEMENT
<PAGE> 2
DISTRIBUTION AGREEMENT
AGREEMENT made this____ day of____, 1989 by and between Canada Life of America
Financial Services, Inc., a Georgia corporation (the "Distributor") and Canada
Life Insurance Company of America, a Michigan corporation (the "Company").
WITNESSETH:
WHEREAS, the Company and the Canada Life of America Variable Annuity Account 1
(the "Account"), a separate investment account established pursuant to Section
925 of the Michigan Insurance Code, MCLA 500.925, and a registered investment
company under the Investment Company Act of 1940 (the "1940 Act"), propose to
offer for sale certain variable annuity policies (the "Policies") which may be
deemed to be securities under the Securities Act of 1933 (the "Act") and the
laws of some states;
WHEREAS, the Distributor, a wholly-owned subsidiary of the Company, is
registered as a broker-dealer with the Securities and Exchange Commission (the
"SEC") under the Securities Exchange Act of 1934 (the "1934 Act) and is a
member of the National Association of Securities Dealers, Inc. (the "NASD");
<PAGE> 3
WHEREAS, the parties desire to have the Distributor act as principal underwriter
for the Account and assume full responsibility for the securities activities of
any "person associated" (as that term is defined is Section 39a)(18) of the 1934
Act) with the Distributor and engaged directly or indirectly in the variable
annuity operation (the "associated persons");
WHEREAS, the parties desire to have the Company perform certain services in
connection with the sale of the policies;
NOW THEREFORE, in consideration of the covenants and mutual promises herein
contained, the Distributor and the Company agree as follows:
1. The Distributor will act as the principal underwriter during the term of
this Agreement for the sale of Policies in each state or other jurisdiction
where the Policies may legally be sold. The Distributor will be under no
obligation to effectuate any particular amount of sales of Policies or to
promote or make sales, except to the extent the Distributor deems advisable.
2. The distributor will assume full responsibility for the securities
activities of, and for securities law compliance by, the associated persons,
including, as applicable, compliance with the NASD Rules of Fair Practice and
Federal and state laws and regulations. The Distributor, directly or through the
Company as its agent, will (a)
<PAGE> 4
make timely filings with the SEC, NASD, and any other regulatory authorities of
any sales literature or materials relating to the Account, as required by law to
be filed, (b) make available to the Company copies of any agreements or plans
intended for use in connection with the sale of the Policies in sufficient
number and in adequate time for clearance by the appropriate regulatory
authorities before they are used, and it is agreed that the parties will use
their best efforts to obtain such clearance by the appropriate regulatory
authorities before they are used, and it is agreed that the parties will use
their best efforts to obtain such clearance as expeditiously as reasonably
possible, and (c) train the associated persons, use its best efforts to prepare
them to complete satisfactorily any and all applicable NASD and state
qualification examinations, register the associated persons as its registered
representative before they engage in securities activities, and supervise and
control them in the performance of such activities.
3. The Company retains the right to accept or reject policy applications.
The Company shall review and approve all advertising pertaining to the
Policies. The Distributor shall not give any information or make any
representations concerning the Policies unless such information or
representations are contained in the registration statement and the pertinent
prospectus filed with the Securities and
<PAGE> 5
Exchange Commission, or are contained in sales or promotional materials approved
by the Company.
4. As between the Company and the Distributor, the Company will except as
otherwise provided in this Agreement, bear the cost of all services and
expenses, including but not restricted to legal services and expenses and
registration, filing of other fees, in connection with (a) registering and
qualifying the Account, the Policies, and (to the extent requested by the
Distributor) the associated persons with Federal and state regulatory
authorities and the NASD and (b) printing and distributing all registration
statements and prospectuses (including amendments), Policies, notices, periodic
reports, proxy solicitation material, sales literature and advertising filed Or
distributed in connection with the sale of the Policies.
5. The Company will, in connection with the sale of the Policies, pay all
amounts (including the sales commissions described in the prospectus for the
Policies) due to the sales representatives or to those broker-dea1ers who have
entered into sales agreements with the Distributor, and the Distributor shall
have no interest whatsoever in, nor any obligation to pay such amounts.
6. The Distributor, directly or through the Company as its agent, will (a)
maintain and preserve in accordance with Rules 17a-3 and 17a-4 under the 1934
Act, all books and records required to be maintained in
<PAGE> 6
connection with the officer and sale of the Policies being distributed pursuant
to this Agreement, which books and records shall remain the property of the
Distributor and shall be subject to inspection by the Securities and Exchange
Commission in accordance with Section 17(a) of the Act, and by the National
Association of Securities Dealers, and (b) upon or prior to completion of each
transaction for which a confirmation is legally required, send a written
confirmation for each such transaction reflecting the facts of the transaction.
All books and records maintained by or on behalf of the Account pursuant to
Section 31 of the 1940 Act and Rules 31a-1 and 31a-2 thereunder are the property
of the Account. In the event of termination, all such records shall be returned
to the Account free from any claims or retention of rights by the Distributor.
Such books and records shall be available to properly constituted governmental
authorities as required by state law and/or regulation. The Distributor shall
keep confidential and shall not disclose any such books or records obtained
pursuant to this Agreement except as expressly required by state or Federal law
and/or regulations.
7. The Distributor will execute such papers and do such acts and things as
shall from time to time be reasonably requested by the Company for the purpose
of (a) maintaining the registration of the Policies under the 1933 Act and the
Account under the 1940 Act, and (b) qualifying and maintaining qualification of
the Policies for sale under the applicable laws of any state.
<PAGE> 7
8. The Company undertakes to guarantee the performance of all of the
Distributor's obligations, imposed by Section 27(f) of the 1940 Act and
paragraph (b) of Rule 27d-2 adopted by the SEC under that Act, to make refunds
of charges required of the principal underwriter of Policies issued in
connection with the Account.
9. Each party hereto shall advise the other promptly of (a) any action of the
SEC or any authorities of any state or territory, of which it has knowledge,
affecting registration or qualification of the Account or the Policies, or the
right to offer the Policies for sale, and (b) the happening of any event which
makes untrue any statement, or which requires the making of any change, in the
registration statement or prospectus in order to make the statements therein not
misleading.
10. The Company shall not be liable to the Distributor for any action taken or
omitted by it, or any of its officers, agents or employees, in performing their
responsibilities under this Agreement in good faith and without gross
negligence, willful misfeasance or reckless disregard of such responsibilities.
11. The Distributor shall not be liable to the Company for any action taken or
omitted by it, or any of its officers, agents or employees, in performing their
responsibilities under this Agreement in good faith and without negligence.
<PAGE> 8
12. As compensation for the Distributor's assuming the expenses and performing
the services to be assumed and performed by it pursuant to this Agreement, the
Distributor shall receive from the Company such amounts and at such times as may
from time to time be agreed upon by the Distributor and the Company.
13. As compensation for its services performed and expenses incurred under this
Agreement, the Company will receive all amounts charged as "Sales Charges" under
the Policies. It is understood that the Company assumes the risk that the above
compensation for its services may not prove sufficient to cover its actual
expenses in connection therewith.
14. The Distributor and the Company shall be free to render similar services to
others, including, without implied limitations, such other separate investment
accounts as are now or hereafter established by the Company, so long as the
services of the Distributor and Company hereunder are not impaired or interfered
with thereby.
15. It is understood that any Policyholder or agent of the Account may be a
policyholder, shareholder, director, officer, employee or agent of, or be
otherwise interested in, the Distributor, any affiliated person of the
Distributor, any organization in which the Distributor may have an interest or
any organization which may have an interest in the Distributor; that the
Distributor, any such affiliated person or any such organization may have an
interest in the Account;
<PAGE> 9
and that the existence of any such dual interest shall not affect the validity
hereof or of any transaction hereunder except as may otherwise be provided in
the articles of incorporation or by-laws of the Distributor or by specific
provisions of applicable law.
16. This Agreement shall become effective as of the date of its execution,
shall continue in full force and effect until terminated, may be amended at any
time by mutual agreement of the parties hereto, and may be terminated at any
time without penalty on sixty days written notice by either party to the other.
In the event of termination of this Agreement the Distributor is responsible for
notifying the NASD.
17. Notwithstanding any provision herein, the Company retains ultimate
responsibility and authority for the direction and control of the services
provided herein. This Agreement shall not relieve the Company from any
responsibilities or obligations imposed upon its variable life insurance
business by law or regulation.
18. The Distributor will not assign its responsibilities under the Agreement,
except with the written consent of the Company.
19. For the purpose of this Agreement, the term "affiliated persons" shall
have its respective meaning defined in the 1940 Act subject, however, to
such exemptions as may be governed by and construed in accordance with the
laws of the State of Michigan.
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
CANADA LIFE OF AMERICA
FINANCIAL SERVICES, INC.
By:______________________________
President
CANADA LIFE INSURANCE COMPANY
OF AMERICA
By:______________________________
President
<PAGE> 1
EXHIBIT 3(b)
FORM OF SELLING AGREEMENT
<PAGE> 2
CANADA LIFE INSURANCE COMPANY OF AMERICA
A wholly-owned subsidiary of
The Canada Life Assurance Company
Annuity Service Office
6201 Powers Ferry Road
Atlanta, Georgia 30339
(800)333-2542
SELLING AGREEMENT
AGREEMENT by and between Canada Life Insurance Company of America
(CLICA), a Michigan Corporation, a wholly-owned subsidiary of The Canada
Assurance Company of Canada; Canada Life of America Financial Services, Inc.
(CLAFS), a registered broker-dealer with the Securities and Exchange Commission
under the Securities Act of 1934 (the 1934 Act), and a member of the National
Association of Securities Dealers, Inc. (NASD);
________________________________________________________________________________
________________________________________________________________________________
(Selling Broker-Dealer), also a registered broker-dealer and member of the NASD;
and
________________________________________________________________________________
________________________________________________________________________________
(General Agent).
I. INTRODUCTION
WHEREAS, CLICA has issued certain annuity contracts, and these Contracts
are registered under the Securities Act of 1933 (the 1933 Act)(Contracts or
Contracts collectively); and
WHEREAS, Selling Broker-Dealer and General Agent wish to participate in
the distribution of the Contracts;
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
II. APPOINTMENT
Subject to the terms and conditions of this Agreement, CLICA and CLAFS
hereby appoint ________________ as Selling Broker-Dealer and __________________
as General Agent for the solicitation of applications for the purchase of the
Contracts, and Selling Broker-Dealer and General Agent accept such appointment.
<PAGE> 3
III. AUTHORITY AND DUTIES OF GENERAL AGENT
A. LICENSING AND APPOINTMENT OF PRODUCERS
General Agent is authorized to appoint Producers to solicit sales of the
Contracts. General Agent warrants that ail Producers appointed by General Agent
pursuant to this Agreement shall not solicit nor aid, directly or indirectly, in
the solicitation of any application for any Contract until that Producer is
fully licensed under the applicable insurance laws and, in connection with
securities regulated Contracts, is a fully registered representative of Selling
Broker-Dealer. General Agent shall prepare and transmit the appropriate
licensing and appointment forms to CLICA. General Agent shall pay all fees to
state insurance regulatory authorities in connection with obtaining necessary
licenses and appointments for Producers. All fees payable to regulatory
authorities in connection with the initial CLICA appointment of Producers who
already possess necessary insurance licenses shall be paid by CLICA. Any renewal
license fees due after the initial appointment shall be paid by General Agent.
General Agent shall periodically provide CLICA with a list of all Producers
appointed by General Agent and the jurisdictions where such Producers are
licensed to solicit sales of the contracts. CLICA shall periodically provide
General Agent with a list which shows: 1) the jurisdictions where CLICA is
authorized to do business; and 2) any limitations on the availability of the
Contracts in any of such jurisdictions. General Agent agrees to fulfill all
requirements set forth in the General Letter of Recommendation attached as
Exhibit A in conjunction with the submission of licensing and appointment papers
for all applicants as Producers submitted by General Agent.
B. REJECTION OF PRODUCER
CLAFS, or CLICA may, by written notice to General Agent, refuse to permit
any Producer the right to solicit applications for the sale of any of the
Contracts, require General Agent to cause any Producer to cease such
solicitations or sales and cancel the appointment of any Producer.
C. SUPERVISION OF PRODUCERS
General Agent shall supervise any Producers appointed pursuant to this
Agreement to solicit sales of the Contracts and bear responsibility for all acts
and omissions of each Producer. General Agent shall comply with and exercise all
responsibilities required by applicable federal and state law and regulations.
General Agent shall not be responsible for those supervisory responsibilities
belonging to Selling Broker-Dealer under applicable securities laws which
include, but are not limited to, supervising and training Producers in their
capacity as registered representatives. Nothing contained in this Agreement or
otherwise shall be deemed to make any Producer appointed by General Agent an
employee or agent of CLICA or CLAFS. If the act or omission of a Producer or any
other employee of General Agent is the proximate cause of any claim, damage or
liability (including reasonable attorneys' fees) to CLICA or CLAFS, General
Agent shall be responsible and liable therefor.
Before a Producer is permitted to sell the Contracts, General Agent,
Selling Broker-Dealer and Producer shall have entered into a written agreement
pursuant to which: 1) Producer is appointed a Producer of General Agent and a
registered representative of Selling Broker-Dealer, 2) Producer agrees that his
or her selling activities relating to securities regulated contracts shall be
under the supervision and control of Selling Broker-Dealer and his or her
selling activities relating to insurance regulated Contracts shall be under the
supervision and control of General Agent; and 3) that Produce's right to
continue to sell such Contracts is subject to his or her continued compliance
with such agreement and any procedures, rules or regulations implemented by
Selling Broker-Dealer or General Agent.
IV. AUTHORITY AND DUTIES OF SELLING BROKER-DEALER
A. SUPERVISION OF REGISTERED REPRESENTATIVES
Selling Broker-Dealer agrees that it has full responsibility for the
training and supervision of all persons, including Producers of General Agent,
associated with Selling Broker-Dealer who are engaged directly or indirectly in
the offer or
2
<PAGE> 4
sale of securities regulated Contracts. All such persons shall be subject to the
control of Selling Broker-Dealer with respect to their securities regulated
activities. Broker-Dealer shall: 1) train and supervise Producers, in their
capacity as registered representatives, in the sale of securities regulated
Contracts; 2) use its best efforts to cause such Producers to qualify under
applicable federal and state laws to engage in the sale of securities regulated
Contracts when required; 3) provide CLICA and CLAFS, to their satisfaction, with
evidence of Producers' qualifications to sell securities regulated Contracts;
and 4) notify CLICA if any of such Producers ceases to be a registered
representative of Selling Broker-Dealer. Selling Broker-Dealer agrees that a
Producer must be a registered representative of Selling Broker-Dealer before
engaging in the solicitation of any securities regulated Contracts and have
entered into the written agreement more fully described in Section III,
Paragraph C. CLICA and CLAFS shall not have any responsibility for the
supervision of any registered representative or any other employee or affiliate
of Selling Broker-Dealer. If the act or omission of a registered representative
or any other employee or affiliate of Selling Broker-Dealer is the proximate
cause of any claim, damage or liability (including reasonable attorneys' fees)
to CLICA or CLAFS, Selling Broker-Dealer shall be responsible and liable
therefore.
Selling Broker-Dealer shall fully comply with the requirements of the
National Association of Securities Dealers, Inc. and of the Securities Exchange
Act of 1934 and all other applicable federal or state laws. Selling
Broker-Dealer shall establish such rules and procedures as may be necessary to
cause diligent supervision of the securities activities of the Producers. Upon
request by CLICA or CLAFS, Broker-Dealer shall furnish such records as may be
necessary to establish diligent supervision.
V. AUTHORITY AND DUTIES OF GENERAL AGENT
AND SELLING BROKER-DEALER
A. CONTRACTS
The securities and insurance regulated Contracts issued by CLICA to which this
Agreement applies are listed in Schedule I which may be amended from time to
time by CLICA. CLICA, in its sole discretion, with prior or concurrent written
notice to Selling Broker-Dealer and General Agent, may suspend distribution on
any Contracts. CLICA also has the right to amend any Contracts at any time.
B. SECURING APPLICATION
Each application for a Contract shall be made on an application form
provided by CLICA, and all payments collected by Selling Broker-Dealer, General
Agent or any registered representative and Producer shall be remitted promptly
in full, together with such application form and any other required
documentation, directly to CLICA at the address indicated on such application or
to such other address as may be designated. Selling Broker-Dealer and General
Agent shall review all such applications for completeness. Check or money order
in payment of such Contracts should be made payable to the order of "CANADA LIFE
INSURANCE COMPANY OF AMERICA". All applications are subject to acceptance or
rejection by CLICA in its sole discretion.
C. RECEIPT OF MONEY
All money payable in connection with any of the Contracts, whether as
premium, purchase payment or otherwise and whether paid by or on behalf of any
contract owner or anyone else having an interest in the Contracts, is the
property of CLICA and shall be transmitted immediately in accordance with the
administrative procedures of CLICA without any deduction or offset for any
reason including, but not limited to, any deduction or offset for compensation
claimed by Selling Broker-Dealer or General Agent, unless there has been a prior
arrangement for net wire transmissions between CLICA and Selling Broker-Dealer
or General Agent.
3
<PAGE> 5
D. NOTICE OF PRODUCER'S NONCOMPLIANCE
Selling Broker-Dealer shall notify CLAFS and General Agent in the event a
Producer fails or refuses to submit to the supervision of Selling Broker-dealer
or General Agent in accordance with this Agreement, the agreement between
Selling Broker-Dealer, General Agent and Producer referred to in Section III,
Paragraph C and Section IV, Paragraph A, or otherwise fails to meet the rules
and standards imposed by Selling Broker-Dealer or its registered representatives
or General Agent or its Producers. Selling Broker-Dealer or General Agent shall
also immediately notify such Producer that he or she is no longer authorized to
sell the Contracts, and both Selling Broker-Dealer and General Agent shall take
whatever additional action may be necessary to terminate the sales activities of
such Producer relating to the Contracts.
E. SALES PROMOTION, ADVERTISING AND PROSPECTUSES
No sales promotion materials, circulars, documents or any advertising
relating to any of the Contracts shall be used by Selling Broker-Dealer, General
Agent or any Producers unless the specific item has been approved in writing by
CLAFS and CLICA prior to use. Selling Broker-Dealer shall be provided, without
any expense to Selling Broker-Dealer, with prospectuses and other material
determined to be necessary for use relating to securities regulated Contracts.
Nothing in these provisions shall prohibit Selling Broker-Dealer or General
Agent from advertising life insurance and annuities on a generic basis.
VI. COMPENSATION
A. COMMISSIONS AND FEES
Commissions and fees payable to Selling Broker Dealer or General Agent in
connection with the securities regulated Contracts shall be paid on behalf of
CLAFS by CLICA to Selling Broker-Dealer or General Agent, or as otherwise
directed or required by law. Commissions and fees payable to Selling
Broker-Dealer, General Agent or Producer in connection with the insurance
regulated Contracts shall be paid by CLICA to Selling Broker-Dealer or General
Agent, or as otherwise directed or required by law. Selling Broker-Dealer or
General Agent, as applicable, shall pay Producer. CLAFS will provide Selling
Broker-Dealer and General Agent with a copy of CLICA's current Contracts,
Commissions and Fee Schedule. Unless otherwise provided in the Contracts,
Commissions and Fee Schedule, commissions will be paid as a percentage of
premiums or purchase payments (collectively, Payments) received in cash or other
legal tender and accepted by CLICA on applications obtained by the various
Producers appointed by General Agent hereunder. Upon termination of this
Agreement, all compensation to the Selling Broker-Dealer and General Agent
hereunder shall cease. However, Selling Broker-Dealer and General Agent shall be
entitled to receive compensation for all new and additional premium payments
which are in process at the time of termination, and shall continue to be liable
for any chargebacks pursuant to the provisions of said Contracts, Commissions
and Fee Schedule, or for any other amounts advanced by or otherwise due CLAFS or
CLICA hereunder.
B. TIME OF PAYMENT
CLICA will pay any commissions due General Agent hereunder no later than
within fifteen (15) days after the end of the calendar month in which Payments
upon which such commission is based are accepted by CLICA. Any commission
payable by CLICA based upon Fund Value (defined as The sum of the Variable
Account Value and the Fixed Account Value) will be paid on or about the date of
the policy anniversary.
C. AMENDMENT OF SCHEDULES
CLAFS and CLICA may, upon at least ten (10 ) days' prior written notice
to Selling Broker-Dealer and General Agent, change the Contracts, Commissions
and Fee Schedule by written amendment of such Schedule. Any such change shall
apply to compensation due on applications received by CLICA after the effective
date of such notice.
4
<PAGE> 6
D. PROHIBITION AGAINST REBATES
CLAFS or CLICA may terminate this Agreement if Selling Broker-Dealer,
General Agent or any Producer of General Agent rebates, offers to rebate or
withholds any part of any Payments on the Contracts. If Selling Broker-Dealer,
General Agent or any Producer of General Agent shall at any time induce or
endeavor to induce any owner of any Contract issued hereunder to discontinue
payments or to relinquish any such Contract, except under circumstances where
there is reasonable grounds for believing the Contract is not suitable for such
person, any and all compensation due Selling Broker-Dealer or General Agent
hereunder shall cease and terminate.
E. INDEBTEDNESS AND RIGHT OF SET OFF
Nothing contained in this Agreement shall be construed as giving Selling
Broker-Dealer or General Agent the right to issue any indebtedness on behalf of
CLICA or CLAFS. Selling Broker Dealer and General Agent hereby authorize CLICA
as agent of CLAFS to set off liabilities of Selling Broker-Dealer and General
Agent to CLICA or CLAFS against any and all amounts otherwise payable to Selling
Broker-Dealer as General Agent.
VII. GENERAL PROVISIONS
A. WAIVER
Failure of any party to insist upon strict compliance with any of the
conditions of this Agreement shall not be construed as a waiver of any of the
conditions, but the same shall remain in full force and effect. No waiver of any
of the provisions of this Agreement shall be deemed to be, or shall constitute,
a waiver of any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver.
B. LIMITATIONS
No party other that CLICA shall have the authority to: 1) make, alter, or
discharge any Contract issued by CLICA; 2) waive any forfeiture or extend the
time of making any Payments; or 3) enter into any proceeding in a court of law
or before a regulatory agency in the name of or on behalf of CLICA. No party
other than CLAFS, shall have the authority to: 1) alter the forms or substitute
other forms in place of those prescribed by CLAFS; or 2) enter into any
proceeding in a court of law or before a regulatory agency in the name of or on
behalf of CLAFS.
C. FIDELITY BOND AND OTHER LIABILITY COVERAGE
Selling Broker-Dealer and General Agent hereby assign any proceeds
received from a fidelity bonding company, error and omissions or other liability
coverage to CLICA or CLAFS as their interest may appear, to the extent of their
loss due to activities covered by the bond, policy or other liability coverage.
If there is any deficiency amount, whether due to a deductible or otherwise,
Selling Broker-Dealer or General Agent shall promptly pay such amount on demand.
Selling Broker-Dealer and General Agent hereby indemnify and hold harmless CLICA
and CLAFS from any such deficiency and from the costs of collection thereof
(including reasonable attorneys' fees).
D. BINDING EFFECT
This Agreement shall be binding on and shall inure to the benefit of the
parties to it and their respective successors and assigns provided that neither
Selling Broker-Dealer nor General Agent may assign this Agreement or any, rights
or obligations hereunder without the prior written consent of CLICA and CLAFS.
5
<PAGE> 7
E. REGULATIONS
All parties agree to observe and comply with the existing laws and rules
or regulations of applicable local, state, or federal regulatory authorities and
with those which may be enacted or adopted during the term of this Agreement
regulating the business contemplated hereby in any jurisdiction in which the
business described herein is to be transacted.
F. INDEMNIFICATION
1) CLAFS agrees to indemnify and hold harmless Selling Broker-Dealer and
General Agent, their officers, directors and employees, against any and all
losses, claims, damages or liabilities to which they may become subject under
the 1933 Act, the 1934 Act, or other federal or state statutory law or
regulations, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact or any
omission or alleged omission to state a material fact required to be stated or
necessary to make the statements made not misleading in the registration
statement for the Contracts or for the shares of Canada Life of America Series
Fund, Inc. (Fund) filed pursuant to the 1933 Act, or any prospectus included as
a part thereof, as from time to time amended and supplemented. CLAFS agrees to
indemnify and hold harmless Selling Broker-Dealer and General Agent, their
officers, directors and employees, against any and all losses, claims, damages
or liabilities to which they may become subject under the 1933 Act, the 1934
Act, or other federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities or actions in
respect thereof arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact or any omission or alleged omission to state
a material fact required to be stated or necessary to make the statements made
not misleading in any advertisement or sales literature approved in writing by
CLICA and CLAFS pursuant to Section V, Paragraph E, of this Agreement.
2) Selling Broker-Dealer and General Agent agree to indemnify and hold
harmless CLAFS, CLICA and any wholesaling organization, their officers,
directors, and employees, against any and all losses, claims, damages or
liabilities to which they may become subject under the 1933 Act, the 1934 Act or
other federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon: a) any oral or written
misrepresentation by Selling Broker-Dealer or General Agent or their officers,
directors, employees or agents unless such misrepresentation is contained in the
registration statement for the Contracts or Fund Shares, any prospectus included
as a part thereof, as from time to time amended and supplemented, or any
advertisement or sales literature approved in writing by CLICA and CLAFS
pursuant to Section V, Paragraph E, of this Agreement, or b) the failure of
Selling Broker-Dealer or General Agent or their officers, directors, employees
or agents to comply with arty applicable provisions of this Agreement.
G. NOTICES
All notices or communications shall be sent to the address shown in this
Agreement or to such other address as the party may request, by giving written
notice to the other parties.
H. GOVERNING LAW
This Agreement shall be construed in accordance with and governed by the
laws of the State of Georgia.
I. AMENDMENT OF AGREEMENT
CLICA reserves the right to amend this Agreement in writing at any time.
The submission of an application for the Contracts by Selling Broker-Dealer or
General Agent five or more business days after notice of any such amendment has
been sent to the other parties shall constitute agreement to such amendment.
6
<PAGE> 8
J. GENERAL AGENT AS BROKER-DEALER
If Selling Broker-Dealer and General Agent are the same person or legal
entity, such person or legal entity shall have the rights and obligations
hereunder of both Selling Broker-Dealer and General Agent and this Agreement
shall be binding and enforceable by and against such person or legal entity in
both capacities.
K. COMPLAINTS AND INVESTIGATIONS
General Agent, Selling Broker-Dealer, CLICA and CLAFS agree to cooperate
fully in the event of any regulator investigation, inquiry or proceeding,
judicial proceeding or customer complaint involving the Contracts. In
furtherance the foregoing: 1) each party will notify all other parties of any
such investigation, inquiry, proceeding or complaint involving the Contracts or
affecting the ability of a party to perform pursuant to this Agreement within 10
days of obtaining knowledge of the same; and 2) in the case of a customer
complaint, the involved parties will consult with each other prior to sending
any written response with respect to such complaint.
L. TERMINATION
This Agreement may be terminated, without cause, by any party upon thirty
(30) days' prior written notice; and may be terminated, for cause, by any party
immediately; and shall be terminated if CLAFS or Selling Broker-Dealer shall
cease to be a registered broker-dealer under the Securities Exchange Act of 1934
and a member of the NASD.
M. ADDRESS FOR NOTICES
Address For Canada Life Insurance Company of America and
Canada Life of America Financial Services, Inc.
6201 Powers Ferry Road, N.W., Suite 600
Atlanta, Georgia 30339
7
<PAGE> 9
Address for Selling Broker-Dealer Address for General Agent
_________________________________ _________________________
_________________________________ _________________________
_________________________________ _________________________
This Agreement shall be effective upon execution by General Agent and
Selling Broker-Dealer, and delivery of the Agreement to CLICA or CLAFS.
Dated: __________________________________
Canada Life of America Financial Canada Life Insurance Company of
Services, Inc. America
By: /s/ Frank D'Ambra III /s/ D. Allen Loney
----------------------------------- ------------------------------------
Frank D'Ambra III D. Allen Loney
General Agent, Please Print
- --------------------------------------
By: Name and Title
----------------------------------- ---------------------
Please Print Signature
Selling Broker-Dealer, Please Print
- --------------------------------------
By: Name and Title
----------------------------------- ---------------------
Please Print Signature
Please complete the following.
1) CLICA is directed to mail issued policies to ________________ (select one
- -POLICYOWNER, BROKER OR HOME OFFICE.) (Important Note: If not completed, CLICA
will automatically send issued policies to the Policyowner.)
2) We DO/DO NOT (select one) want to allow our broker the opportunity to
select commission options ON A CASE BY CASE BASIS. (Important Note: Please mark
all options, below, if you will allow this opportunity. If this question isn't
answered but all boxes below are checked, or if this question is answered in the
affirmative but all boxes below are not checked, CLICA will still allow the case
by case selection. If this question is not answered and only one option below is
selected, then CLICA will not allow the case by case selection.)
COMMISSION SCHEDULE SELECTION: Default to "A" if none selected. See
Schedule I for commission at issue ages 80-90 and additional premiums
after age 86.
______ Option A - 6.5% with no trails for issue ages 0-80
______ Option B - 5% up front with trails of .25% per year beginning in the 5th
quarter after receipt of premium
______ Option C - 1% up front with trails of 1% per year beginning in the 5th
quarter after receipt of premium
<PAGE> 10
EXHIBIT A
GENERAL LETTER OF RECOMMENDATION
General Agent hereby certifies to Canada Life Insurance Company of
America (CLICA) that all of the following requirements will be fulfilled in
conjunction with the submission of licensing/appointment papers for all
applicants as Producers submitted by General Agent. General Agent will, upon
request, forward proof of compliance with the same to CLICA in a timely manner.
1. We have made a thorough and diligent inquiry and investigation relative
to each applicant's identity, residence and business reputation and
declare that each applicant is personally known to us, has been examined
by us, is known to be of good moral character, has a good business
reputation, is reliable, is financially responsible and is worthy of a
license. Each individual is trustworthy, competent and qualified to act
as an agent for CLICA to hold himself out in good faith to the general
public. We vouch for each applicant.
2. We have on file a U-4 Form which was completed by each applicant. We have
fulfilled all the necessary investigative requirements for the
registration of each applicant as a registered representative through our
NASD member firm, and each applicant is presently registered as an NASD
registered representative.
The above information in our files indicates no fact or condition which
would disqualify the applicant from receiving a license and all the
findings of all investigative information is favorable.
3. We certify that all educational requirements have been met for the
specific state in which each applicant is requesting a license, and that
all such persons have fulfilled the appropriate examination, education
and training requirements.
4. If the applicant is required to submit his or her picture and signature
in the state in which he or she is applying for a license, we certify
that those items forwarded to CLICA are those of the applicant.
5. We hereby warrant that the applicant is not applying for a license with
CLICA in order to place insurance chiefly and solely on his or life or
property, lives or property of his or her relatives, or property or
liability of his or her associates.
6. We certify that each applicant will receive close and adequate
supervision, and that we will make inspection when needed of any or all
risks written by these applicants, to the end that the insurance interest
of the public will be properly protected.
7. We will not permit any applicant to transact insurance as an agent until
duly licensed therefor. No applicants have been given a contract or
furnished supplies, nor have any applicants been permitted to write,
solicit business, or act as an agent in any capacity, and they will not
be so permitted until the certificate of authority or license applied for
is received.
8. We certify that General Agent, Selling Broker-Dealer and applicant shall
have entered into a written agreement pursuant to which a) applicant is
appointed a Producer of General Agent and a registered representative of
Selling Broker-Dealer; b) applicant agrees that his or her selling
activities relating to securities regulated contracts shall be under the
supervision and control of Selling Broker-Dealer and his or her selling
activities relating to insurance regulated Contracts shall be under the
supervision and control of General Agent; and c) that applicant's right
to continue to sell such Contracts is subject to his or her continued
compliance with such agreement and any procedures, rules or regulations
implemented by Selling Broker-Dealer or General Agent.
<PAGE> 11
SCHEDULE I
CANADA LIFE INSURANCE COMPANY OF AMERICA
AS OF FEBRUARY 1, 1997
Commissions will be paid to General Agent or to Broker/Dealer, as required by
law, in the percentages shown below.
OWNER'S ISSUE AGE 0-80 OWNER'S ISSUE AGE 81-85
OPTION A: 6.5% of premium OPTION A: 3.25% of premium
OPTION B: 5% of premium plus .25% OPTION B: 2.5% of premium plus .25%
annual trail based on account value. annual trail based on account value.
Such trail first payable and Such trail first payable and
calculated at the end of the fifth calculated at the end of the fifth
quarter of the associated premium. quarter of the associated premium.
OPTION C: 1% of premium plus 1%
annual trail based on account value.
Such trail first payable and
calculated at the end of the fifth
quarter of the associated premium.
OWNER'S ISSUE AGE 86-90 & ADDITIONAL PREMIUM ON ISSUED POLICIES, OWNER'S AGE
86-90:
At issue ages 86-90, only one commission option is available. Also regardless of
commission option under which a policy had been issued to an owner under age 86,
any additional premium after owner's attained age 86 will be paid at 1% plus
.50% trail to the broker/dealer.
ADDITIONAL PREMIUM AFTER OWNER'S ATTAINED AGE 90:
Similar to previous scenario, in that regardless of commission option under
which a policy had been issued, additional premium received after owner's
attained age 91 will be paid at .50% plus .25% trail to the broker/dealer.
SERVICE FEE AT ANNUITIZATION
(Assumes "internal" annuity rates are used. Service Fee is only paid on
annuitized proceeds that are past any applicable Surrender Charge period.)
I. 3% if payout = or > 10 years, or a life annuity, and the amount is $0 -
$1 million;
II. 1.25% on amounts over $1 million with same payout duration as I;
III. 2% if payout = or < 10 years and not a life annuity, and the amount is $0
- $1 million:
IV. 1.25% on amounts over $1 million with same payout duration as III.
CHARGEBACKS
(i) In the event a policy is returned to CLICA pursuant to a "Free Look"
provision, the full B/D Concession paid thereon or retained by Selling Firm
pursuant to net submission of premium or purchase payment shall be charged back
to the Selling Firm. (ii) Should any premium or purchase payment on any policy
issued by CLICA be refunded for any reason, Selling Firm shall repay or return
B/D Concession received by it with respect to such premium or purchase payment.
(iii) If a policy was not issued as a reset of failure of Selling Firm to submit
to CLICA an application sufficient to satisfy state insurance laws or CLICA's
eligibility requirements, then amounts paid to Selling Firm shall be returned or
repaid. (iv) If a policy was tendered to CLICA for redemption within 10 business
days of the date of activity, then amounts paid to Selling Firm shall be
returned or repaid. (v) For full or partial withdrawals from the policies, other
than those pursuant to Systematic and/or Free Withdrawals: 100% of all B/D
Concession paid to Selling Firm on amount(s) within 6 months of such amount(s)
being paid to CLICA and 50% of all B/D Concession paid to Selling Firm on
amount(s) withdrawn from 7-12 months of such amount(s) being paid to CLICA,
shall be returned or repaid. (vi) For Annuitizations occurring during the first
policy year, B/D Concessions will be charged back to the extent that they exceed
the amount of the Service Fees referenced above. OVER
<PAGE> 12
For any premium or purchase payment that has been in the Policy for more than 12
months, there shall be no chargeback on B/D Concession. To the extent permitted
by law, the amount so charged back may, at the option of CLICA, be set off
against B/D Concession Concession otherwise due Selling Firm. In Addition, such
other compensation will be payable as are from time to time agreed by the
parties to the foregoing Agreement and which is in accordance with applicable
law, and will be added to the schedule. The rates of concession specified above
and any rates of concession otherwise determined by the company will be subject
to change at any time by the Company but no charge will affect the rates of
concession in connection with any policy effected herein for which the initial
premium was due prior to the effective date of such change. Any such changes of
concession will be binding upon the General Agent and/or Broker/Dealer when the
Company sends notice thereof in writing to him/her and will take effect from the
date specified in such notice.
NOTE: If there is more than one owner of a policy the age of the oldest owner
determines the level of compensation.
<PAGE> 1
EXHIBIT 4(a)
FORM OF ANNUITY POLICY
<PAGE> 2
EXHIBIT 4(a)
POLICY NUMBER: E1XXXXX
INSURED: JOHN DOE
CANADA LIFE INSURANCE COMPANY OF AMERICA
LANSING, MICHIGAN
ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD, N.W. ATLANTA, GA 30339
MAILING ADDRESS: P.O. BOX 105662 ATLANTA, GA 30348-5662
If you have any questions or complaints about this policy, you may call us toll
free at 1-800-905-1959.
We are pleased to issue this policy to you.
We agree to pay the proceeds as described in this policy, subject to its
provisions.
PLEASE READ THIS POLICY CAREFULLY, SINCE IT IS A LEGAL CONTRACT BETWEEN YOU AND
US.
THE DOLLAR AMOUNTS OF ACCUMULATION BENEFITS AND VALUES OF THIS POLICY PROVIDED
BY THE VARIABLE ACCOUNT MAY INCREASE OR DECREASE DAILY, DEPENDING ON THE
INVESTMENT PERFORMANCE OF THE PORTFOLIO OF THE FUND IN WHICH YOUR ELECTED
SUB-ACCOUNTS ARE INVESTED, AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNTS.
NO MINIMUM AMOUNT OF POLICY VALUE IS GUARANTEED, EXCEPT FOR ANY AMOUNTS IN THE
FIXED ACCOUNT.
REGARDING THE FIXED ACCOUNT, AMOUNTS TRANSFERRED, WITHDRAWN OR SURRENDERED
UNDER THIS POLICY FROM A GUARANTEE PERIOD WHOSE SPECIFIED DURATION IS GREATER
THAN ONE YEAR, MAY INCREASE OR DECREASE IN ACCORDANCE WITH A MARKET VALUE
ADJUSTMENT DURING THE GUARANTEE PERIOD TERM SPECIFIED, SUBJECT TO THE MINIMUM
VALUES DEFINED IN THIS POLICY.
TEN DAY RIGHT TO EXAMINE POLICY
YOU HAVE TEN DAYS AFTER YOU RECEIVE THIS POLICY TO DECIDE IF IT MEETS YOUR
NEEDS. IF IT DOES NOT, YOU MAY RETURN IT TO OUR ADMINISTRATIVE OFFICE OR TO
THE AGENT FROM WHOM YOU BOUGHT IT. WE SHALL CANCEL THE POLICY AND PROMPTLY
REFUND THE POLICY VALUE, INCLUDING ANY FEES AND OR CHARGES THAT WERE DEDUCTED
FROM THAT POLICY VALUE, LESS ANY PARTIAL WITHDRAWALS. THE POLICY WILL BE VOID
FROM THE BEGINNING.
/s/ /s/
- ---------------------------------- -----------------------------------
Secretary President
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY
Flexible premiums as stated in the Additional Premiums Provision.
Accumulation benefits and values are variable, except for amounts in the Fixed
Account.
Guarantee Periods under the Fixed Account may be subject to a Market
Value Adjustment After the Annuity Date or Maturity Date, payment options
are on a guaranteed basis.
Death Benefit payable upon death of the last surviving annuitant before the
Annuity Date or Maturity Date.
Nonparticipating - Not eligible for dividends
Page 1
<PAGE> 3
E1XXXXX
TABLE OF CONTENTS
<TABLE>
<S> <C>
POLICY DETAILS 3
DEFINITIONS 4
PAYMENT OF PROCEEDS
Proceeds 4
Proceeds On Annuity Date 4
Proceeds On Maturity Date 5
Proceeds On Surrender 5
Proceeds On Death Of The Last Surviving Annuitant Before
Annuity Date Or Maturity Date (The Death Benefit) 5
Proceeds On Death Of Any Owner Before or After Annuity Date
Or Before Maturity Date 5
Interest On Proceeds 6
Conformity With Laws 6
PREMIUMS
Initial Premium 6
Additional Premiums 6
Net Premium 7
Net Premium Allocation Among Sub-Accounts And
Fixed Account 7
THE VARIABLE ACCOUNT
Variable Account 7
Sub-Accounts 7
Variable Account Value 8
Units 8
Unit Value 8
Net Investment Factor 8
Reserved Rights 9
Change in Investment Policy 9
Valuation Periods and Valuation Days 9
THE FIXED ACCOUNT
Fixed Account 10
Market Value Adjustment 11
Fixed Account Value 12
TRANSFERS
Transfer Privilege 13
Restrictions on Transfers From Fixed Account 13
Transfer Processing Fee 13
POLICY VALUES
Policy Value 13
Cash Surrender Value 13
Partial Withdrawals 14
Surrender Charge 14
Waiver of Surrender Charge 15
</TABLE>
Page 2
<PAGE> 4
E1XXXXX
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<S> <C>
Policy Administration Charge 15
Annuity Date 16
Termination 16
Basis of Values 16
PAYMENT OF BENEFITS, PARTIAL WITHDRAWALS,
CASH SURRENDERS & TRANSFERS - POSTPONEMENT 16
GENERAL PROVISIONS
Contract 17
Incontestability 17
Owner 17
Beneficiary 17
Written Notice 18
Misstatement of Age 18
Periodic Reports 18
Assignment 18
Our Consent 19
Policy Date 19
Effective Date 19
Currency 19
Place of Payment 19
Modification 19
Nonparticipation 19
PAYMENT OPTIONS
Election of Payment Options 20
Payment Dates 20
Age and Survival of Payee 20
Death of Payee 20
Table of Payments on Basis of $1,000 Net Proceeds 21
</TABLE>
Page 2A
<PAGE> 5
POLICY DETAILS
<TABLE>
<S> <C>
POLICY NUMBER E1XXXXX
ANNUITANT JOHN DOE
AGE 35
POLICY DATE APRIL 1, 1997
EFFECTIVE DATE APRIL 1, 1997
ANNUITY DATE APRIL 1, 2027
MATURITY DATE APRIL 1, 2062
OWNER JOHN DOE
INITIAL PREMIUM $5,000.00
ANNUALIZED MORTALITY AND
EXPENSE CHARGE 1.25%
ANNUALIZED RATE OF DAILY
ADMINISTRATIVE FEE 0.15%
ANNUAL ADMINISTRATION CHARGE $30.00*
</TABLE>
* If the policy value on the policy anniversary is $75,000 or more, we will
waive the policy administration charge for the prior policy year.
Page 3
<PAGE> 6
E1XXXXX
DEFINITIONS
"You" and "your" means the owner(s) of the policy.
"We", "our" and "us" means Canada Life Insurance Company of America.
"Written notice" is defined in the "WRITTEN NOTICE" provision.
"Annuitant" means any natural person whose life is used to determine the
duration of any payments made under a payment option involving life
contingencies.
"Annuity Date" means the date when the policy value will be applied under
Payment Option 1, unless you have elected to receive a lump sum payment of the
cash surrender value. The Annuity Date is shown in the Policy Details unless
later changed.
"Maturity Date" means the first day of the month after the last surviving
annuitant's 100th birthday or any earlier date required by law.
PAYMENT OF PROCEEDS
PROCEEDS
Proceeds means the amount we will pay when the first of the following occurs:
1. the policy reaches the annuity date; or
2. the policy reaches the maturity date; or
3. the policy is surrendered; or
4. when we receive due proof of death of the annuitant or any owner.
We will pay any proceeds in a single sum that may be payable due to death
before the annuity date or maturity date, unless an election is made for a
payment option. See "Election of Options". This policy ends when we pay the
proceeds.
"Due proof of death" is proof of death that is satisfactory to us. Such proof
may consist of: 1) a certified copy of the death certificate; and/or 2) a
certified copy of the decree of a court of competent jurisdiction as to the
finding of death.
We will deduct any applicable premium tax from the proceeds described below,
unless we already deducted the tax from the premiums when paid. See the "Net
Premium" provision.
PROCEEDS ON ANNUITY DATE
If you have elected to receive the proceeds under Payment Option 1, no
surrender charges will be assessed. If proceeds are to be paid in a lump sum,
we will pay the cash surrender value as described in the "Cash Surrender Value"
provision.
Page 4
<PAGE> 7
E1XXXXX
PROCEEDS ON MATURITY DATE
The proceeds we will pay is the policy value.
PROCEEDS ON SURRENDER
If you surrender this policy before the annuity date or the maturity date, the
proceeds we will pay is the cash surrender value. No death benefit is payable
if the policy is surrendered before the last surviving annuitant's death or any
owner's death.
PROCEEDS ON DEATH OF THE LAST SURVIVING ANNUITANT BEFORE ANNUITY DATE OR
MATURITY DATE (THE DEATH BENEFIT)
If we receive due proof of death of the last surviving annuitant before the
annuity date or maturity date, (such "due proof"), the proceeds we will pay to
the beneficiary is the death benefit.
If we receive due proof during the first 5 years, the death benefit is the
greater of:
1. the premiums paid, less: a) any partial withdrawals, including
applicable surrender charges; and b) any incurred taxes; or
2. the policy value on the date we receive such due proof.
If we receive such due proof after the first 5 policy years, the death benefit
is the greater of:
1. item "1" above; or
2. item "2" above; or
3. the policy value at the end of the most recent 5 policy year
period preceding the date we receive due proof, adjusted for any of
the following items that occur after such last 5 policy year period:
a) less any partial withdrawals, including applicable surrender
charges; b) less any incurred taxes; and c) plus any premiums paid.
The 5 policy year periods are measured from the policy date (i.e. 5,
10, 15, 20, 25, etc.)
If on the date the policy was issued, all annuitants had attained age 80 or
less, then after any annuitant attains age 81, the death benefit is then the
greater of "1" or "2" above.
However, if on the date the policy was issued, any annuitant was attained age
81 or more, then the death benefit is the policy value.
PROCEEDS ON DEATH OF ANY OWNER BEFORE OR AFTER THE ANNUITY DATE OR BEFORE THE
MATURITY DATE
If you are not the annuitant and we receive due proof of your death before the
annuity date or maturity date, we will pay the beneficiary the policy value as
of the date we receive due proof of your death. If you are the annuitant and
we receive due proof of your death before the annuity date or maturity date, we
will pay the beneficiary the death benefit described in "Proceeds on Death of
the Last Surviving Annuitant Before Annuity Date or Maturity Date". If you die
before the annuity date or maturity date, Federal tax law requires the policy
value be distributed within five years after the date of your death regardless
of whether or not you are an annuitant, unless your spouse is the designated
beneficiary, in which case the policy may be continued with your surviving
spouse as the new owner.
Page 5
<PAGE> 8
E1XXXXX
Your "designated beneficiary" is designated by you as a beneficiary and to whom
the benefits of the policy pass by reason of your death.
If you die on or after the annuity date or before the maturity date, any
remaining payments must be distributed at least as rapidly under the payment
option in effect on the date of your death.
The distribution requirements described above will be considered satisfied as
to any portion of the proceeds:
1. payable to or for the benefit of a designated beneficiary; and
2. which is distributed over the life (or period not exceeding the
life expectancy) of that beneficiary, provided that the beneficiary is
a natural person and such distributions begin within one year of your
death.
If you are not a natural person, the annuitant as determined in accordance with
Section 72(s) of the Internal Revenue Code will be treated as owner for
purposes of these distribution requirements, and any change in the annuitant
will be treated as the death of the owner except that surrender charges will
apply.
INTEREST ON PROCEEDS
We will pay interest on proceeds if we do not pay the proceeds in a single sum
or begin paying the proceeds under a payment option:
1. within 30 days after the proceeds become payable; or
2. within the time required by the applicable jurisdiction, if less
than 30 days.
This interest will accrue from the date the proceeds become payable to the date
of payment, but not for more than one year, at an annual rate of 3%, or the
rate and time required by law, if greater.
CONFORMITY WITH LAWS
To the extent this policy conflicts with any applicable laws or the
requirements of the Internal Revenue Service concerning distributions on death,
this policy shall be considered to be amended to conform.
PREMIUMS
INITIAL PREMIUM
The initial premium is shown in the Policy Details and is payable on or before
the effective date.
ADDITIONAL PREMIUMS
You may make additional premium payments at any time during any annuitant's
lifetime and before the annuity date or maturity date. The amount of
additional premium payments may vary, but is subject to these rules:
1. the minimum additional premium that we will accept is $1,000.
However, we will accept premium payments under a pre-authorized
check agreement with a minimum premium payment of $100 per month
($50 per month if an Individual Retirement Annuity); and
Page 6
<PAGE> 9
E1XXXXX
2. our prior approval is required before we will accept an additional
premium which together with the total of other premiums paid would
exceed $1,000,000.
A confirmation statement will be issued to you for financial transactions.
NET PREMIUM
The net premium is the premium paid less any premium tax, if applicable.
NET PREMIUM ALLOCATION AMONG SUB-ACCOUNTS AND FIXED ACCOUNT
You elected in your application how you wanted your initial net premium to be
allocated among the sub-accounts and Guarantee Periods under the Fixed Account.
Any additional net premiums will be allocated in the same manner unless at the
time of payment we have received your written notice to the contrary. The
total allocation must equal 100%.
THE VARIABLE ACCOUNT
VARIABLE ACCOUNT
We established the Canada Life Insurance Company of America Variable Annuity
Account 1 (called "the Variable Account") as a separate investment account on
July 22, 1988, under Michigan law. The Variable Account is registered with the
Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. The Variable Account is also subject to the
laws of the State of Michigan.
Although we own the assets in the Variable Account, these assets are held
separately from our other assets and are not part of our general account. The
assets in the Variable Account are used to support the operation of and provide
the variable values and benefits for this policy and similar policies.
The portion of the assets of the Variable Account equal to the reserves and
other contract liabilities of the Variable Account will not be charged with
liabilities that arise from any other business that we conduct. We have the
right to transfer to our general account any assets of the Variable Account
which are in excess of such reserves and other liabilities.
SUB-ACCOUNTS
The Variable Account currently consists of the sub-accounts shown in the
current prospectus you received. Each sub-account invests in shares of various
Funds offered as investment choices (the "Funds"). You may refer, at any time,
to the prospectus for detailed fund information. Shares of a portfolio are
purchased and redeemed for a sub-account at their net asset value. Any amounts
of income, dividends and gains distributed from the shares of a portfolio will
be reinvested in additional shares of that portfolio at its net asset value.
The Fund prospectus you received defines the net asset value and describes the
portfolios of the Fund.
The dollar amounts of accumulation values and benefits of this policy provided
by the Variable Account depend on the investment performance of the portfolio
of the Fund in which your elected sub-accounts are invested. We do not
guarantee the investment performance of the portfolios. You bear the full
investment risk for amounts applied to the elected sub-accounts.
Page 7
<PAGE> 10
E1XXXXX
VARIABLE ACCOUNT VALUE
The policy's Variable Account value before the annuity date or maturity date is
determined by multiplying the number of units credited to this policy for each
sub-account by the current unit value of these units.
UNITS
We will credit net premiums in the form of units. The number of units credited
to the policy for each sub-account is determined by dividing the net premium
allocated to that sub-account by the unit value for that sub-account at the end
of the valuation period during which we receive the premium at our
Administrative Office.
We will credit units for the initial net premium on the effective date of the
policy. We will adjust the units for any transfers in or out of a sub-account,
including any transfer processing fee.
We will cancel the appropriate number of units based on the unit value at the
end of the valuation period in which any of the following events occur:
1. the policy administration charge shown in the Policy Details is
assessed;
2. the date we receive and process your written notice for a partial
withdrawal or surrender;
3. the annuity date or maturity date; or
4. the date we receive due proof of your death or the last surviving
annuitant's death.
UNIT VALUE
The unit value of each sub-account for the first valuation period is set at a
fixed amount, generally $10. The unit value for each subsequent valuation
period is determined by multiplying the unit value at the end of the
immediately preceding valuation period by the net investment factor for the
valuation period for which the value is being determined.
The unit value for a valuation period applies to each day in that period. The
unit value may increase or decrease from one valuation period to the next.
NET INVESTMENT FACTOR
The net investment factor is an index that measures the investment performance
of a sub-account from one valuation period to the next. Each sub-account has a
net investment factor which may be greater than or less than 1.
The net investment factor for each sub-account for a valuation period equals 1
plus the rate of return earned by the relevant portfolio of the Fund adjusted
for the effect of taxes charged or credited to the sub-account, the mortality
and expense risk charge and the daily administration fee. The annualized rate
of the daily administration fee is shown on the Policy Details.
The rate of return of the relevant portfolio is equal to the fraction obtained
by dividing (a) by (b) where:
(a) is the next investment income and net gains, realized and
unrealized, credited during the current valuation period; and
(b) is the value of the net assets of the relevant series at the end
of the preceding valuation period, adjusted for the net capital
transactions and dividends declared during the current valuation
period.
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RESERVED RIGHTS
When permitted by law, we reserve the right to:
1. create new variable accounts;
2. combine variable accounts, including the Canada Life Insurance
Company of America Variable Annuity Account 1;
3. remove, combine or add sub-accounts and make the new sub-accounts
available to policyowners at our discretion;
4. add new portfolios of the Funds or of other registered investment
companies;
5. deregister the Variable Account under the Investment Company Act
of 1940 if registration is no longer required;
6. make any changes required by the Investment Company Act of 1940;
7. operate the Variable Account as a managed investment company
under the Investment Company Act of 1940 or any other form permitted
by law; and
8. substitute shares of another portfolio of the Fund or shares of
another registered open-end investment company or any other reserved
rights as detailed in the prospectus.
If a change is made, we will send you a revised prospectus and any notice
required by law.
CHANGE IN INVESTMENT POLICY
The investment policy for a sub-account in the Variable Account may not be
changed unless:
1. the change is approved, if required, by the Michigan Insurance
Bureau; and
2. a statement of such approval is filed, if required, with the
insurance department of the state in which this policy is delivered.
VALUATION PERIODS AND VALUATION DAYS
A valuation period for each sub-account is the period that starts at the close
of business on one valuation day and ends at the close of business on the next
succeeding valuation day. The close of business is when the New York Stock
Exchange closes, usually at 4:00 p.m. Eastern Time.
A valuation day is each day on which valuation of the assets is required by
applicable law, which currently is each day the New York Stock Exchange is open
for trading.
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THE FIXED ACCOUNT
FIXED ACCOUNT
The Fixed Account provides values and benefits based only upon the net premium
payments and policy values allocated to the Fixed Account, the Guaranteed
Interest Rate credited on such amounts, and any charges or Market Value
Adjustments imposed on such amounts in accordance with the terms of the policy.
Amounts in the Fixed Account are part of our general account. The Fixed
Account is not part of and does not depend on the investment performance of the
Variable Account.
From time to time we will offer to credit each Guarantee Amount with interest
at specific guaranteed rates for specific periods of time. These periods of
time are known as Guarantee Periods. We may offer one or more Guarantee
Periods of one to ten years' duration at any time but will always offer a
Guarantee Period of one year. The Guarantee Periods we offer on the Date of
Issue are shown in your application. The Guaranteed Interest Rates available
at any time will vary with the number of years in the Guarantee Period.
Guarantee Periods begin on the date as of which a net premium payment is
allocated to or a portion of the policy value is transferred to the Guarantee
Period, and end on the last calendar day of the month when the number of years
in the Guarantee Period elected (measured from the end of the calendar month in
which the amount was allocated or transferred to the Guarantee Period) has
elapsed. The last day of the Guarantee Period is the expiration date for that
Guarantee Period.
Allocations of net premium payments and transfers of policy value to the Fixed
Account for a Guarantee Period may have different applicable Guaranteed
Interest Rates depending on the timing of such allocations or transfers. The
applicable Guaranteed Interest Rate does not change during a Guarantee Period.
If the allocated or transferred amount remains in the Guarantee Period until
such Guarantee Period ends, its value will be equal to the amount originally
allocated or transferred, multiplied, on an annually compounded basis, by its
Guaranteed Interest Rate. If a Guarantee Amount is surrendered, withdrawn or
transferred prior to the expiration of the Guarantee Period, the Guarantee
Amount is subject to a Market Value Adjustment, as described below, the
application of which may result in the payment of an amount greater or less
than the Guarantee Amount at the time of the transaction.
The Guaranteed Interest Rate is the applicable effective annual rate of
interest we determine that we will pay on a Guarantee Amount. The Guaranteed
Interest Rate will not be less than 3%.
The Guarantee Amount during a Guarantee Period is equal to:
1. an amount equal to that part of any net premium allocated to or
policy value transferred to the Fixed Account for a designated
Guarantee Period with a particular expiration date;
2. any policy value transferred to the Fixed Account for such
Guarantee Period; plus
3. interest at the Guaranteed Interest Rate on 1 and 2 above; minus
4. any cash surrender value withdrawn from the Fixed Account for such
designated Guarantee Period, including any Market Value Adjustment;
minus
5. any amount transferred from the Fixed Account for such designated
Guarantee Period, including any Market Value Adjustment; minus
6. any applicable premium tax charge; minus
7. any policy administration charge deducted from the Guarantee
Period; minus
8. any applicable surrender charges.
During the 30 day period following the expiration of a Guarantee Period (30 day
window), you may transfer the Guarantee Amount from the expiring Guarantee
Period to a new Guarantee Period with a new
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Guaranteed Interest Rate or to a subaccount(s). A Market Value Adjustment will
not apply if the Guarantee Amount from the expired Guarantee Period is
surrendered, withdrawn or transferred during the 30 day window. During the 30
day window, the Guarantee Amount will accrue interest at an annual effective
rate of 3% unless the Guarantee Amount remains in the Fixed Account in which
case you will receive the interest rate in accordance with the Guarantee Period
chosen.
Prior to the expiration date of any Guarantee Period, we will mail you a notice
of the Guarantee Periods then available and their applicable Guaranteed
Interest Rates. A new Guarantee Period will begin on the first business day
following the expiration of the prior Guarantee Period. The Guarantee Amount
of such expiring Guarantee Period will be:
1. transferred to such new Guarantee Period you elect from those
then available by sending us Written Notice prior to the end of the
30 day window; or
2. transferred to a new Guarantee Period of the same duration as
the expiring Guarantee Period if you have not made an election; or
3. will be allocated, on your instructions, to one or more
subaccount(s) and/or Guarantee Period(s).
However, a new Guarantee Period of one year will begin automatically on the
first business day following the expiration of the prior Guarantee Period if:
1. we do not receive a Written Notice from you and we are not offering
a Guarantee Period of the same duration as the expiring Guarantee
Period; or
2. the duration of the expiring Guarantee Period would, if renewed,
extend beyond the annuity date, if known, or maturity date.
To the extent permitted by law, we reserve the right, at any time, to offer
Guarantee Periods that differ from those available when your policy was issued.
We also reserve the right, at any time, to stop accepting net premium payment
allocations or transfers of policy value to a particular Guarantee Period.
Since the specific Guarantee Periods available may change periodically, please
contact our Administrative Office to determine the Guarantee Periods currently
being offered.
MARKET VALUE ADJUSTMENT
A Market Value Adjustment applies to any surrender, withdrawal or transfer of a
Guarantee Amount unless:
1. the effective date of the surrender, withdrawal or transfer is
within 30 days after the end of a Guarantee Period; or
2. the surrender, withdrawal or transfer is from the one year
Guarantee Period; or
3. the surrender, withdrawal or transfer is to provide death, nursing
home, or terminal illness benefits; or
4. the Guarantee Amount is applied to an annuity payment option.
The Market Value Adjustment will be applied after the deduction of any
applicable policy administration charge or transfer fee, and before the
deduction of any applicable surrender charge or charge for any applicable taxes
on premium payments.
A Market Value Adjustment reflects the relationship between:
1. the Guaranteed Interest Rate being applied to the Guarantee Period
from which the Guarantee Amount is requested to be surrendered,
withdrawn or transferred; and
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E1XXXXX
2. the current Guaranteed Interest Rate that we credit for a Guarantee
Period equal in duration to the Guarantee Period from which the
Guarantee Amount will be surrendered, withdrawn or transferred.
If a Guarantee Period of such equal duration is not being offered at such time,
we will use the linear interpolation of the Guaranteed Interest Rates for the
Guarantee Periods closest in duration that are available.
Generally, if the Guaranteed Interest Rate for the selected Guarantee Period is
lower than the Guaranteed Interest Rate currently being offered for new
Guarantee Periods of equal duration, as of the date that the Market Value
Adjustment is applied, then the application of the Market Value Adjustment will
result in a reduction in the Guarantee Amount then surrendered, withdrawn or
transferred. Conversely, if the Guaranteed Interest Rate for the selected
Guarantee Period is higher than the Guaranteed Interest Rate currently being
offered for new Guarantee Periods of equal duration, as of the date that the
Market Value Adjustment is applied, then the application of the Market Value
Adjustment will result in an increase in the Guarantee Amount then surrendered,
withdrawn or transferred.
The Market Value Adjustment is calculated by multiplying the amount being
surrendered, withdrawn or transferred, (less any applicable policy
administration charge or transfer fees), by the Market Value Adjustment Factor.
The Market Value Adjustment Factor is calculated as the lesser of:
a) [(1 + i)n/12 divided by (1 + r + .005)n/12 ] - 1; or
b) .05
where:
"i" is the Guaranteed Interest Rate credited to the specific Guarantee
Period;
"r" is the Guaranteed Interest Rate that is currently being offered
for a Guarantee Period of duration equal to such Guarantee Period; and
"n" is the number of months remaining to the expiration of such
Guarantee Period.
The Market Value Adjustment, however, will never invade principal nor reduce
the earnings on amounts allocated to the Fixed Account for a Guarantee Period
to less than 3% a year.
FIXED ACCOUNT VALUE
This policy's Fixed Account value before the annuity date or maturity date is
the sum of the Guarantee Amounts in the Guarantee Periods.
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TRANSFERS
TRANSFER PRIVILEGE
You may transfer all or part of an amount in the sub-account(s) to another
sub-account(s) or to the Fixed Account, or transfer a part of an amount in the
Fixed Account to the sub-account(s), subject to the availability of a
sub-account or shares of a portfolio and subject to these general restrictions
and the additional restrictions below in "Restrictions on Transfers from Fixed
Account":
1. the minimum transfer amount is $250;
2. a transfer request that would reduce the amount in that sub-account
or the Fixed Account below $500 will be treated as a transfer request
for the entire amount in that sub-account or the Fixed Account; and
3. transfers from the Fixed Account except from the one year Guarantee
Period may be subject to a Market Value Adjustment.
RESTRICTIONS ON TRANSFERS FROM THE FIXED ACCOUNT
You may transfer an amount from a Guarantee Period under the Fixed Account
subject to these additional restrictions:
1. transfers from a Guarantee Period other than the one year Guarantee
Period may be subject to a Market Value Adjustment.
2. transfers from one Guarantee Period to another are prohibited other
than within the 30 day window.
TRANSFER PROCESSING FEE
There is no limit to the number of transfers that you can make between
sub-accounts or to the Fixed Account. The first twelve transfers during each
policy year are free. We may assess a $25 processing fee for each additional
transfer. For the purposes of assessing the fee, each written notice of
transfer is considered to be one transfer, regardless of the number of
sub-accounts or the Guarantee Periods effected by the transfer. The processing
fee will be charged proportionately to the receiving sub-account(s) and/or
Guarantee Periods.
POLICY VALUES
POLICY VALUE
The policy value is the sum of the Variable Account value and the Fixed Account
value.
CASH SURRENDER VALUE
The cash surrender value is the policy value less: a) any applicable surrender
charge; and b) the policy administration charge. The cash surrender value will
be determined on the date we receive and file your written notice for surrender
and this policy at our Administrative Office.
You may surrender this policy for its cash surrender value at any time before
the death of the last surviving annuitant, the annuity date or the maturity
date. You may elect to have the cash surrender value paid in a single sum or
under a payment option. This policy ends when we pay the cash surrender value.
You may avoid a surrender charge by electing to apply the policy value under
Payment Option 1.
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PARTIAL WITHDRAWALS
You may withdraw part of the cash surrender value at any time before the death
of the last surviving annuitant, the annuity date or the maturity date subject
to these limits:
1. the minimum partial withdrawal is $250;
2. the maximum partial withdrawal is the amount that would leave a
cash surrender value of $5,000;
3. a partial withdrawal request which would reduce the amount in a
sub-account or a Guarantee Period under the Fixed Account below $500
will be treated as a request for a full withdrawal of the amount in
that subaccount or Guarantee Period; and
4. a partial withdrawal request for an amount exceeding $10,000 must
be accompanied by a guarantee of the owner's signature by a commercial
bank, trust company or a savings and loan.
On the date we receive and process your written notice for a partial withdrawal
at our Administrative Office, we will withdraw the amount of the partial
withdrawal from the policy value and we will then deduct any applicable
surrender charge from the remaining policy value.
You may specify the amount to be withdrawn from certain sub-accounts or
Guarantee Periods under the Fixed Account. If you do not provide this
information to us, we will withdraw proportionately from the sub-accounts and
Guarantee Periods under the Fixed Account in which you are invested. If you do
provide this information to us, but the amount in the designated sub-accounts
and Guarantee Periods is inadequate to comply with your withdrawal request, we
will first withdraw from the specified sub-accounts and Guarantee Periods. The
remaining balance will be withdrawn proportionately from the other sub-accounts
and Guarantee Periods in which you are invested.
SURRENDER CHARGE
For the purposes of determining if any surrender charge applies and the amount
of such charge, partial withdrawals and surrenders are taken according to these
rules from policy value attributable to premiums or investment earnings in the
following order:
<TABLE>
<CAPTION>
Surrender Charge
----------------
<S> <C> <C>
1. Up to 100% of positive investment earnings for each
variable sub-account available at the time the request
is made, once a policy year; plus None
2. Up to 100% of the current policy year's interest on the
Fixed Account at the time the request for the withdrawal
or surrender is made, once a policy year; plus None
3. Up to 10% of total premiums still subject to a surrender
charge, once a policy year; plus None
4. Up to 100% of those premiums not subject to a surrender
charge, available at any time; plus None
5. Premium subject to a surrender charge:
Policy Years Since Premiums Were Paid:
-------------------------------------- 6%
Less than 1 6%
At least 1, but less than 2 5%
At least 2, but less than 3 5%
At least 3, but less than 4 4%
At least 4, but less than 5 3%
At least 5, but less than 6 2%
At least 6, but less than 7 None
At least 7
</TABLE>
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E1XXXXX
Any surrender charge will be deducted proportionately from the sub-account(s)
and the Guarantee Periods under the Fixed Account being surrendered or
partially withdrawn in relation to the amount(s) withdrawn. If the amount
remaining in a sub-account or Guarantee Period after the withdrawal is
insufficient to cover the proportionate surrender charge deduction, the balance
of the surrender charge will be assessed proportionately from any other
sub-account and the Guarantee Period in which you are invested.
WAIVER OF SURRENDER CHARGE
When this policy has been in effect for one year, upon written notice from you,
the Surrender Charge will be waived on any partial withdrawal or surrender
after you provide us with evidence that satisfies us in a written statement
signed by a qualified physician that:
1. you are terminally ill and:
a) your life expectancy is not more than 12 months due to the
severity and nature of the illness; and
b) the diagnosis of the terminal illness was made after the
Effective Date of this policy; or
2. you are confined to a hospital, nursing home or long-term care
facility for at least 90 consecutive days, provided:
a) confinement is for medically necessary reasons at the
recommendation of a physician;
b) the hospital, nursing home or long-term care facility is
licensed or otherwise recognized and operating as such by proper
authority in the state where it is located, the Joint Commission on
Accreditation of Hospitals or Medicare and satisfactory evidence of
such status is provided to us; and
c) the withdrawal or surrender request is received no later
than 91 days after the last day of your confinement.
This provision is not available if on the Effective Date of this policy any
owner is attained age 81 or more.
POLICY ADMINISTRATION CHARGE
We will assess the policy administration charge shown in the Policy Details:
1. for the prior policy year on the policy anniversary; and
2. for the current policy year on the date this policy is
surrendered for its cash surrender value, unless the policy is
surrendered on a policy anniversary.
If the policy value on the policy anniversary is $75,000 or more, we will waive
the policy administration charge for the prior policy year.
The charge will be assessed proportionately from any sub-accounts and Guarantee
Periods under the Fixed Account in which you are invested. If the charge is
obtained from a sub-account(s), we will cancel the appropriate number of units
from the applicable sub-account based on the unit value at the end of the
valuation period when the charge is assessed. If the charge is obtained from
the Fixed Account, we will reduce this policy's Fixed Account by the amount of
the charge.
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ANNUITY DATE
You may change the annuity date, subject to these limitations
1. we must receive your written notice at our Administrative Office
at least 30 days before the current annuity date;
2. the requested annuity date must be a date that is at least 30
days after we receive your written request; and
3. the requested annuity date cannot be any later than the maturity
date.
TERMINATION
We may pay you the cash surrender value and end this policy if before the
annuity date or maturity date all of these events simultaneously exists:
1. you have not paid any premiums for at least two years; and
2. the policy value is less than $2,000; and
3. the total premiums paid, less any partial withdrawals, is less
than $2,000.
We will mail you a notice of our intention to terminate this policy at least
six months in advance. This policy will automatically terminate on the date
specified in the notice, unless we receive an additional premium before the
termination date specified in the notice. The additional premium must be at
least the minimum amount specified in the Additional Premiums provision.
BASIS OF VALUES
Any paid up annuity cash surrender or death benefits that may be available are
at least equal to the minimum required by law in the state in which this policy
is delivered. A detailed statement of the method used to compute the minimum
values has been filed, where required, with the insurance officials of the
jurisdiction in which this policy is delivered.
PAYMENT OF BENEFITS, PARTIAL WITHDRAWALS, CASH SURRENDERS &
TRANSFERS - POSTPONEMENT
We will usually pay any proceeds, partial withdrawals, or cash surrenders
within seven calendar days after:
1. we receive and process your written notice for a partial
withdrawal or a cash surrender; or
2. the date chosen for any systematic withdrawal; or
3. we receive due proof of your death or the death of the last
surviving annuitant.
However, we can postpone the payment of proceeds, amounts withdrawn, cash
surrender value or the transfer of amounts between sub-accounts if:
1. the New York Stock Exchange is closed, other than customary
weekend and holiday closings, or trading on the exchange is restricted
as determined by the Securities and Exchange Commission (SEC); or
2. the SEC permits by an order the postponement for the protection
of policyowners; or
3. the SEC determines that an emergency exists that would make the
disposal of securities held in the Variable Account or the
determination of their value not reasonably practicable.
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E1XXXXX
We have the right to defer payment of any partial withdrawal, cash surrender,
or transfer from the Fixed Account for up to six months from the date we
receive your written notice for a withdrawal, surrender or transfer.
GENERAL PROVISIONS
CONTRACT
We have issued this policy in consideration of your application and your
payment of the initial premium. The entire contract is made up of this policy
and the attached copy of the application. The statements made in the
application are deemed representations and not warranties. We cannot use any
statement in defense to a claim or to void this policy unless it is contained
in the application and a copy of the application is attached to the policy at
issue.
Only our President, Secretary or Actuary may modify this policy or waive any of
our rights or requirements.
Any change in this policy must be in writing. The change must bear the
signature or a reproduction of the signature of one or more of the above
officers.
INCONTESTABILITY
We will not contest this policy after it has been in force during any
annuitant's lifetime for two years from the date of issue of this policy.
OWNER
During any annuitant's lifetime and before the earlier of the annuity date or
maturity date, you have all the rights and privileges granted by this policy.
If you appoint an irrevocable beneficiary, then your rights will be subject to
those of that beneficiary.
During any annuitant's lifetime and before the earlier of the annuity date or
maturity date, you may name a new owner, joint owner or annuitant by giving us
written notice.
BENEFICIARY
We will pay the beneficiary any proceeds payable on your death or the death of
the last surviving annuitant. During any annuitant's lifetime and before the
earlier of the annuity date or maturity date, you may name and change one or
more beneficiaries by giving us written notice. However, we will require
written notice from any irrevocable beneficiary specifying their consent to the
change.
We will pay the proceeds under the beneficiary appointment in effect at the
date of death. If you have not designated otherwise in your appointment, the
proceeds will be paid to the surviving beneficiary(ies) equally. If no
beneficiary is living when the last surviving annuitant dies, or if none has
been appointed, the proceeds will be paid to you. If no beneficiary is living
when you die, any proceeds will be paid to your estate.
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WRITTEN NOTICE
Written notice must be signed by you, dated, and of a form and content
acceptable to us. Your written notice will not be effective until we receive
and file it at our Administrative Office. However, the change provided in your
written notice to name or change the owner or beneficiary will then be
effective as of the date you signed the written notice:
1. subject to any payments made or other action we take before we
receive and file your written notice; and
2. whether or not the last surviving owner or annuitant are alive
when we receive and file your written notice.
MISSTATEMENT OF AGE
If the age of any annuitant has been misstated, we will pay the amount which
the proceeds would have purchased at the correct age.
If we make an overpayment because of an error in age, the overpayment plus
interest at 3% compounded annually will be a debt against the policy. If the
debt is not repaid, future payments will be reduced accordingly.
If we make an underpayment because of an error in age, any unpaid payments will
be recalculated at the correct age and future payments will be adjusted. The
underpayment with interest at 3% compounded annually will be paid in a single
sum.
PERIODIC REPORTS
We will mail you a report showing the following items:
1. the number of units credited to this policy and the dollar value
of those units;
2. the policy value;
3. any premiums paid, withdrawals and charges made since the last
report; and
4. any information required by law.
The information in the report will be as of a date not more than two months
before the date of the mailing. We will mail the report to you:
1. at least annually or more often as required by law; and
2. to your last address known to us.
ASSIGNMENT
You may assign a nonqualified policy or an interest in it at any time before
the earlier of the annuity date or maturity date during any annuitant's
lifetime. An assignment must be in written notice acceptable to us. It will
not be binding on us until we receive and file it at our Administrative Office.
We are not responsible for the validity of any assignment. Your rights and
the rights of any beneficiary will be affected by an assignment.
An assignment of a nonqualified policy may result in tax consequences for you.
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OUR CONSENT
If our consent is required, it must be given in writing. It must bear the
signature, or a reproduction of the signature, of our President, Secretary or
Actuary.
POLICY DATE
Policy years, months and anniversaries are measured from the policy date shown
in the Policy Details.
EFFECTIVE DATE
The effective date is the date this policy goes into effect and your initial
premium is invested.
CURRENCY
All amounts payable under this policy will be paid in United States currency.
PLACE OF PAYMENT
All amounts payable by us will be payable at our Administrative Office.
MODIFICATION
Upon notice to you, we may modify the policy, but only if such modification:
1. is necessary to make the policy or the Variable Account comply
with any law or regulation issued by a governmental agency to which we
are subject; or
2. is necessary to assure continued qualification of the policy
under the Internal Revenue Code or other federal or state laws
relating to retirement annuities or variable annuity policies; or
3. is necessary to reflect a change in the operation of the Variable
Accounts; or
4. provides additional variable account and/or fixed accumulation
options.
In event of such modification, we may make appropriate endorsement to the
policy.
NON-PARTICIPATION
This policy is not eligible for dividends and will not participate in our
divisible surplus.
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PAYMENT OPTIONS
The term "payee" means a person who is entitled to receive payment under this
section.
ELECTION OF PAYMENT OPTIONS
You may elect a payment option or revoke or change your election while any
annuitant is living and before the annuity date or maturity date. If an
election is not in effect at your death or the last surviving annuitant's
death, whichever applies, or if payment is to be made in a lump sum under an
existing payment option, the beneficiary may elect one of the payment options.
This election must be made within one year after the last surviving annuitant's
death and before any payment has been made.
An election of a payment option and any revocation or change must be made in a
written notice. It must be filed with our Administrative Office with the
written consent of any irrevocable beneficiary.
A payment option may not be elected and we will pay the proceeds in a lump sum
if either of the following conditions exist:
1. the amount to be applied under the payment option is less than
$1,000; or
2. any periodic payment under the election would be less than $50.
PAYMENT OPTION 1: LIFE INCOME
We will pay the proceeds in equal amounts at the beginning of each month,
during the payee's lifetime.
The amount of each payment will be determined from the Table of Payment on
Basis of $1,000 Net Proceeds, using the payee's age. Age will be determined
from the nearest birthday at the due date of the first payment.
PAYMENT OPTION 2: MUTUAL AGREEMENT
We will pay the proceeds according to other terms, if those terms are mutually
agreed upon.
PAYMENT DATES
The payment dates of the payment options will be calculated from the date on
which the proceeds become payable.
AGE AND SURVIVAL OF PAYEE
We have the right to require proof of age of the payee(s) before making any
payment. When any payment depends on the payee's survival, we will have the
right, before making the payment to require satisfactory proof that the payee
is alive.
DEATH OF PAYEE
At the death of the payee or the last surviving payee, any amount remaining to
be paid under this section will become payable in one sum, unless specified
otherwise.
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TABLE OF PAYMENTS ON BASIS OF $1,000 NET PROCEEDS
OPTION 1 - LIFE INCOME
<TABLE>
<CAPTION>
AGE MONTHLY AGE MONTHLY
<S> <C> <C> <C>
25 2.80 64 4.61
30 2.88 65 4.73
35 2.99 66 4.86
40 3.12 67 5.00
45 3.29 68 5.15
46 3.33 69 5.31
47 3.37 70 5.49
48 3.42 71 5.68
49 3.47 72 5.88
50 3.52 73 6.10
51 3.57 74 6.35
52 3.62 75 6.61
53 3.68 76 6.89
54 3.74 77 7.20
55 3.81 78 7.53
56 3.87 79 7.89
57 3.95 80 8.28
58 4.03 81 8.71
59 4.11 82 9.18
60 4.20 83 9.68
61 4.29 84 10.24
62 4.39 85 10.84
63 4.49
</TABLE>
The Table is based on the following assumptions: 1983(a) Projection G, 100%
female, YOP = 1995, Interest = 3%, and 3% Load. The monthly payment for ages
not shown in the Table will be calculated on the same basis as these shown and
will be quoted on request.
Page 21
<PAGE> 24
E1XXXXX
CANADA LIFE INSURANCE COMPANY OF AMERICA
LANSING, MICHIGAN
ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD N.W. ATLANTA, GA 30339
MAILING ADDRESS: P.O. BOX 105662 ATLANTA, GA 30348-5662
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY
Flexible premiums as stated in the Additional Premiums Provision.
Accumulation benefits and values are variable, except for amounts in the Fixed
Account.
Guarantee Periods under the Fixed Account may be subject to a Market
Value Adjustment After the Annuity Date or Maturity Date, payment options are
on a guaranteed basis.
Death Benefit payable upon death of the last surviving annuitant before the
Annuity Date or Maturity Date.
Nonparticipating - Not eligible for dividends
Page 22
<PAGE> 1
EXHIBIT 4(b)
RIDERS AND ENDORSEMENTS
<PAGE> 2
CANADA LIFE INSURANCE COMPANY OF AMERICA
ADMINISTRATIVE OFFICE:
6201 POWERS FERRY ROAD, NW, ATLANTA, GEORGIA 30339
PHONE (800) 905-1959
INDIVIDUAL RETIREMENT ANNUITY RIDER
This Rider is part of the Policy. The Policy is intended to qualify as an
individual retirement annuity under Section 408(b) and may be purchased
pursuant to a simplified employee pension intended to qualify under Section
408(k) of the Code. The following provisions apply and replace any contrary
Policy provisions:
1. You shall be the owner.
2. The Policy is not transferable or assignable (other than pursuant to a
divorce decree) and is established for the exclusive benefit of you and your
beneficiaries. It may not be sold, assigned, alienated, or pledged as
collateral for a loan or as security.
3. Your entire interest in the Policy shall be nonforfeitable.
4. Premium payments shall be in cash and, except in the case of rollover
contributions described in Sections 402(a)(5), 402(a)(6)(F), 402(a)(7),
403(a)(4), 403(b)(8) and 408(d)(3) of the Code, shall not exceed: a) $2,000
for any taxable year; or b) if a premium payment is made by your employer to
the Policy in accordance with the terms of a simplified employee pension plan
described in Section 408(d) of the Code, $30,000 for any taxable year, or c) if
the policy is part of a SIMPLE retirement plan described in Section 408(p) of
the Code, the amount allowable by law to be contributed to a SIMPLE plan for
that taxable year. You shall have the sole responsibility for determining
whether any premium payment qualifies as a rollover or simplified employee
pension contributions and whether it is deductible for income tax purposes.
5. The Policy does not require fixed premium payments. We will accept
additional premium payments. The minimum additional premium payment paid by
pre-authorized check is $50.00. Any refund of premiums (other than those
attributable to excess contributions) will be applied before the close of the
calendar year following the year of the refund toward the payment of additional
premiums or the purchase of additional benefits.
6. The Annuity Date is the date your entire Policy value will be distributed or
commence to be distributed to you. Your Annuity Date shall be no later than
April 1 of the calendar year following the calendar year in which you attain
age 70 1/2.
7. With respect to any amount which becomes payable under the Policy during
your lifetime, such payment shall commence on or before the Annuity Date and
shall be payable in substantially equal amounts, no less frequently than
annually. Payments shall be made in the manner as follows:
(a) in a lump sum; or
(b) over your life; or
(c) over the lives of you and your designated beneficiary; or
(d) over a period certain not exceeding your life expectancy; or
(e) over a period certain not exceeding the joint and last survivor
expectancy of you and your designated beneficiary.
PAGE1
<PAGE> 3
If your entire interest is to be distributed in other than a lump sum,
then the amount to be distributed each year (commencing with the calendar year
following the calendar year in which you attain age 70 1/2 and each year
thereafter) shall be determined in accordance with Code Section 408(b)(3) and
the regulations thereunder, including the incidental death benefit requirements
of section 401(a)(9)(G) of the Code, the regulations thereunder, and the
minimum distribution incidental benefit requirement of Proposed Income Income
Tax Regulation section 1.401(a)(9)-2. Payment must either nonincreasing or may
increase only as provided in Proposed Income Tax Regulation section
1.40(a)(9)-1, Q&A F-3.
8. If you die after distribution of your interest has commenced, the remaining
portion of such interest will continue to be distributed at least as rapidly as
under the method of distribution being used prior to your death.
If you die before distribution has begun, the entire interest must be
distributed no later than December 31 of the calendar year in which the fifth
anniversary of your death occurs. However, proceeds which are payable to a
named beneficiary who is a natural person may be distributed in substantially
equal installments over the lifetime of the beneficiary or a period certain not
exceeding the life expectancy of the beneficiary provided such distributions
begin not later than December 31 of the calendar year following the calendar
year in which your death occurred. If the beneficiary is your surviving
spouse, the beneficiary may elect not later than December 31 of the calendar
year in which the fifth anniversary of your death occurs to receive equal or
substantially equal payments over the life or life expectancy of the surviving
spouse commencing at any date prior to the date on which you would have
attained age 70 1/2. Payments will be calculated in accordance with Code
Section 408(b)(3) and the regulations thereunder.
For the purposes of this requirement, any amount paid to any of your
children will be treated as if it had been paid to your surviving spouse if the
remainder of the interest becomes payable to the surviving spouse when the
child reaches the age of majority.
If you die before your entire interest has been distributed, no additional
cash premiums or rollover contributions will be accepted under the Policy after
your death unless the beneficiary is your surviving spouse.
9. If your spouse is not the named beneficiary, the method of distribution
selected will assure that at least 50% of the present value of the amount
available for distribution is paid within your life expectancy and that such
method of distribution complies with the requirements of Code Section 408(b)(3)
and the regulations thereunder.
10. For purposes of the foregoing provisions, life expectancy and joint and
last survivor expectancy shall be determined by use of the expected return
multiples in Tables V and VI of Treasury Regulation Section 1.72-9 in
accordance with Code Section 408(b)(3) and the regulations thereunder. In the
case of distributions under paragraph 7 of this Rider, your life expectancy or,
if applicable, the joint and last survivor expectancy of you and your
beneficiary will be initially determined on the basis of your attained ages in
the year you reach age 70 1/2. In the case of a distribution under paragraph
(8) of this Rider, life expectancy will be initially determined on the basis of
your beneficiary's attained age in the year distributions are required to
commence. Unless you (or your spouse) elect otherwise prior to the date
distributions are required to commence, your life expectancy and, if
applicable, your spouse's life expectancy will be recalculated annually based
on your attained ages in the year for which the required distribution is being
determined. The life expectancy of a nonspouse beneficiary will not be
recalculated.
In the case of a distribution other than as life income or joint life
income, the annual distribution required to be made by your Annuity Date is for
the calendar year in which you reached age 70 1/2. Annual payments for
subsequent years, including the year in which your Annuity Date occurs, must be
made by December 31 of that year. The amount distributed for each year shall
equal or exceed the annuity value as of the close of business on December 31 of
the preceding year, divided by the applicable life expectancy or joint and last
survivor expectancy.
PAGE 2
<PAGE> 4
You may satisfy the minimum distribution requirements under section
408(b)(3) of the Code by receiving a distribution from one IRA that is equal to
the amount required to satisfy the minimum distribution requirement for two or
more IRAs. For this purpose, if you own two or more IRAs, you may use the
alternative method described in Notice 88-38, 1988-1 C.B. 524, to satisfy the
minimum distribution requirements.
11. Under the Policy, you may not elect any variable account or sub-account
that directly or indirectly invests in collectibles within the meaning of
Section 408(m) of the Code. No part of the Policy value shall be invested in
or used to provide life insurance.
12. We reserve the right to amend the Policy or this Rider to the extent
necessary to qualify as an individual retirement annuity for federal income tax
purposes.
Secretary President
PAGE 3
<PAGE> 5
CANADA LIFE INSURANCE COMPANY OF AMERICA
FIXED ACCOUNT ENDORSEMENT
This endorsement is part of the policy to which it is attached. This
endorsement changes the policy as provided below.
REGARDING THE FIXED ACCOUNT, AMOUNTS TRANSFERRED, WITHDRAWN OR SURRENDERED
UNDER THIS POLICY FROM A GUARANTEE PERIOD WHOSE SPECIFIED DURATION IS GREATER
THAN ONE YEAR, MAY INCREASE OR DECREASE IN ACCORDANCE WITH A MARKET VALUE
ADJUSTMENT DURING THE GUARANTEE PERIOD TERM SPECIFIED, SUBJECT TO THE MINIMUM
VALUES DEFINED IN THIS POLICY.
FIXED ACCOUNT
The Fixed Account provides values and benefits based only upon the net premium
payments and policy values allocated to the Fixed Account, the Guaranteed
Interest Rate credited on such amounts, and any charges or Market Value
Adjustments imposed on such amounts in accordance with the terms of the policy.
Amounts in the Fixed Account are part of our general account. The Fixed
Account is not part of and does not depend on the investment performance of the
Variable Account.
From time to time we will offer to credit each Guarantee Amount with interest
at specific guaranteed rates for specific periods of time. These periods of
time are known as Guarantee Periods. We may offer one or more Guarantee
Periods of one to ten years' duration at any time but will always offer a
Guarantee Period of one year. The Guarantee Periods we offer on the Date of
Issue are shown in your application. The Guaranteed Interest Rates available
at any time will vary with the number of years in the Guarantee Period.
Guarantee Periods begin on the date as of which a net premium payment is
allocated to or a portion of the policy value is transferred to the Guarantee
Period, and end on the last calendar day of the month when the number of years
in the Guarantee Period elected (measured from the end of the calendar month in
which the amount was allocated or transferred to the Guarantee Period) has
elapsed. The last day of the Guarantee Period is the expiration date for that
Guarantee Period.
Allocations of net premium payments and transfers of policy value to the Fixed
Account for a Guarantee Period may have different applicable Guaranteed
Interest Rates depending on the timing of such allocations or transfers. The
applicable Guaranteed Interest Rate does not change during a Guarantee Period.
If the allocated or transferred amount remains in the Guarantee Period until
such Guarantee Period ends, its value will be equal to the amount originally
allocated or transferred, multiplied, on an annually compounded basis, by its
Guaranteed Interest Rate. If a Guarantee Amount is surrendered, withdrawn or
transferred prior to the expiration of the Guarantee Period, the Guarantee
Amount is subject to a Market Value Adjustment, as described below, the
application of which may result in the payment of an amount greater or less
than the Guarantee Amount at the time of the transaction.
The Guaranteed Interest Rate is the applicable effective annual rate of
interest we determine that we will pay on a Guarantee Amount. The Guaranteed
Interest Rate will not be less than 3%.
The Guarantee Amount during a Guarantee Period is equal to:
1. an amount equal to that part of any net premium allocated to
or policy value transferred to the Fixed Account for a designated
Guarantee Period with a particular expiration date;
2. any policy value transferred to the Fixed Account for such
Guarantee Period; plus
3. interest at the Guaranteed Interest Rate on 1 and 2 above;
minus
4. any cash surrender value withdrawn from the Fixed Account for
such designated Guarantee Period, including any Market Value
Adjustment; minus
Page 1
<PAGE> 6
5. any amount transferred from the Fixed Account for such
designated Guarantee Period, including any Market Value Adjustment;
minus
6. any applicable premium tax charge; minus
7. any policy administration charge deducted from the Guarantee
Period; minus
8. any applicable surrender charges.
During the 30 day period following the expiration of a Guarantee Period (30 day
window), you may transfer the Guarantee Amount from the expiring Guarantee
Period to a new Guarantee Period with a new Guaranteed Interest Rate or to a
subaccount(s). A Market Value Adjustment will not apply if the Guarantee
Amount from the expired Guarantee Period is surrendered, withdrawn or
transferred during the 30 day window. During the 30 day window, the Guarantee
Amount will accrue interest at an annual effective rate of 3% unless the
Guarantee Amount remains in the Fixed Account in which case you will receive
the interest rate in accordance with the Guarantee Period chosen.
Prior to the expiration date of any Guarantee Period, we will mail you a notice
of the Guarantee Periods then available and their applicable Guaranteed
Interest Rates. A new Guarantee Period will begin on the first business day
following the expiration of the prior Guarantee Period. The Guarantee Amount
of such expiring Guarantee Period will be:
1. transferred to such new Guarantee Period you elect from those
then available by sending us Written Notice prior to the end of the
30 day window; or
2. transferred to a new Guarantee Period of the same duration as
the expiring Guarantee Period if you have not made an election; or
3. will be allocated, on your instructions, to one or more
subaccount(s) and/or Guarantee Period(s).
However, a new Guarantee Period of one year will begin automatically on the
first business day following the expiration of the prior Guarantee Period if:
1. we do not receive a Written Notice from you and we are not
offering a Guarantee Period of the same duration as the expiring
Guarantee Period; or
2. the duration of the expiring Guarantee Period would, if
renewed, extend beyond the annuity date, if known, or maturity date.
To the extent permitted by law, we reserve the right, at any time, to offer
Guarantee Periods that differ from those available when your policy was issued.
We also reserve the right, at any time, to stop accepting net premium payment
allocations or transfers of policy value to a particular Guarantee Period.
Since the specific Guarantee Periods available may change periodically, please
contact our Administrative Office to determine the Guarantee Periods currently
being offered.
MARKET VALUE ADJUSTMENT
A Market Value Adjustment applies to any surrender, withdrawal or transfer of a
Guarantee Amount unless:
1. the effective date of the surrender, withdrawal or transfer
is within 30 days after the end of a Guarantee Period; or
2. the surrender, withdrawal or transfer is from the one year
Guarantee Period; or
3. the surrender, withdrawal or transfer is to provide death,
nursing home, or terminal illness benefits; or
4. the Guarantee Amount is applied to an annuity payment option.
Page 2
<PAGE> 7
The Market Value Adjustment will be applied after the deduction of any
applicable policy administration charge or transfer fee, and before the
deduction of any applicable surrender charge or charge for any applicable taxes
on premium payments.
A Market Value Adjustment reflects the relationship between:
1. the Guaranteed Interest Rate being applied to the Guarantee
Period from which the Guarantee Amount is requested to be
surrendered, withdrawn or transferred; and
2. the current Guaranteed Interest Rate that we credit for a
Guarantee Period equal in duration to the Guarantee Period from
which the Guarantee Amount will be surrendered, withdrawn or
transferred.
If a Guarantee Period of such equal duration is not being offered at such time,
we will use the linear interpolation of the Guaranteed Interest Rates for the
Guarantee Periods closest in duration that are available.
Generally, if the Guaranteed Interest Rate for the selected Guarantee Period is
lower than the Guaranteed Interest Rate currently being offered for new
Guarantee Periods of equal duration, as of the date that the Market Value
Adjustment is applied, then the application of the Market Value Adjustment will
result in a reduction in the Guarantee Amount then surrendered, withdrawn or
transferred. Conversely, if the Guaranteed Interest Rate for the selected
Guarantee Period is higher than the Guaranteed Interest Rate currently being
offered for new Guarantee Periods of equal duration, as of the date that the
Market Value Adjustment is applied, then the application of the Market Value
Adjustment will result in an increase in the Guarantee Amount then surrendered,
withdrawn or transferred.
The Market Value Adjustment is calculated by multiplying the amount being
surrendered, withdrawn or transferred, (less any applicable policy
administration charge or transfer fees), by the Market Value Adjustment Factor.
The Market Value Adjustment Factor is calculated as the lesser of:
a) [(1 + i)n/12 (1 + r + .005)n/12 ] 1; or
b) .05
where:
"i" is the Guaranteed Interest Rate credited to the specific Guarantee
Period;
"r" is the Guaranteed Interest Rate that is currently being offered for a
Guarantee Period of duration equal to such Guarantee Period ; and
"n" is the number of months remaining to the expiration of such Guarantee
Period.
The Market Value Adjustment, however, will never invade principal nor reduce
the earnings on amounts allocated to the Fixed Account for a Guarantee Period
to less than 3% a year.
FIXED ACCOUNT VALUE
This policy's Fixed Account value before the annuity date or maturity date is
the sum of the Guarantee Amounts in the Guarantee Periods.
Page 3
<PAGE> 8
RESTRICTIONS ON TRANSFERS FROM THE FIXED ACCOUNT
You may transfer an amount from a Guarantee Period under the Fixed Account
subject to these additional restrictions:
1. transfers from a Guarantee Period other than the one year Guarantee
Period may be subject to a Market Value Adjustment.
2. Transfers from one Guarantee Period to another are prohibited other
than within the 30 day window.
/s/ /s/
Secretary President
Page 4
<PAGE> 1
EXHIBIT 5
FORM OF APPLICATION
<PAGE> 2
EXHIBIT 5
<TABLE>
<CAPTION>
CANADA LIFE VARIFUND (TM)
INSURANCE COMPANY OF AMERICA APPLICATION FOR
P.O. BOX 105662 FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY
ATLANTA, GA 30348-5662 (FOR ALL STATES EXCEPT CO, FL, KY, NJ, NY, OH AND PA)
(800) 905-1959
<S> <C>
PLEASE PRINT IN BLACK INK
- ------------------------------------------------------------- ---------------------------------------------------------------
1. OWNERS (APPLICANTS) 2. ANNUITANTS (IF DIFFERENT FROM OWNER)
- ------------------------------------------------------------- ---------------------------------------------------------------
Name* Name*
-------------------------------------------------------- ----------------------------------------------------------
First Middle Last First Middle Last
ADDRESS ADDRESS
------------------------------------------------------ --------------------------------------------------------
Street Street
---------------------------------------------------------- ------------------------------------------------------------
City State Zip City State Zip
Sex [ ] M [ ] F Date of Birth | | | | Sex [ ] M [ ] F Date of Birth | | | |
[ ] Other Month Day Year Month Day Year
Daytime Phone Number ( ) [ ][ ][ ][ ][ ][ ][ ][ ][ ]
------------------------------------ Social Security Number
[ ][ ][ ][ ][ ][ ][ ][ ][ ] OR [ ][ ][ ][ ][ ][ ][ ][ ][ ] ===============================================================
Social Security Number Tax ID Number CO-ANNUITANT (Optional)
Client Brokerage Acct. # (if applicable) Name*
--------------------- ----------------------------------------------------------
============================================================= First Middle Last
JOINT OWNER (Optional)
Sex [ ] M [ ] F Date of Birth | | | |
Name* Month Day Year
--------------------------------------------------------
First Middle Last [ ][ ][ ][ ][ ][ ][ ][ ][ ]
Social Security Number
Sex [ ] M [ ] F Date of Birth | | | |
[ ] Other Month Day Year ---------------------------------------------------------------
4. MY INVESTMENT
[ ][ ][ ][ ][ ][ ][ ][ ][ ] OR [ ][ ][ ][ ][ ][ ][ ][ ][ ] ---------------------------------------------------------------
Social Security Number Tax ID Number Allocate payment with application of $ ______ as indicated
below (MUST TOTAL 100%):
- -------------------------------------------------------------
3. BENEFICIARIES __% International Equity 10/30 __% Seligman Comm & Info 50/70
- ------------------------------------------------------------- __% Money Market 11/31 __% Seligman Frontier 51/71
Enclose signed letter if more information is required. __% Managed 12/32 __% Dreyfus Growth & Income 80/90
__% Bond 13/33 __% Dreyfus Socially
__% Value Equity 14/34 __% Responsible 81/91
Name* __% Capital 15/35 __% Alger Small Cap 82/92
-------------------------------------------------------- __% Fidelity Asset Mgr 16/36 __% Alger Growth 82/93
First Middle Last Relationship __% Fidelity Growth 17/37 __% Alger MidCap 84/94
__% Fidelity High Income 18/38 __% Alger Leveraged AllCap 85/95
Percentage [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ] __% Fidelity Overseas 19/39 __% Montgomery Emerg. Mkts. 86/96
Social Security Number __% Fidelity Index 500 20/40 __% Montgomery Growth 87/97
Name* __% Berger/BIAM IPT Intern'l 88/98
--------------------------------------------------------
First Middle Last Relationship FIXED ACCOUNT OPTIONS (MAY NOT BE AVAILABLE IN ALL STATES)
Percentage [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ] ________% 1 Yr. (301) ________% 7 Yr. (307)
Social Security Number ________% 3 Yr. (303) ________% 10 Yr. (310)
============================================================= ________% 5 Yr. (305)
CONTINGENT BENEFICIARY
---------------------------------------------------------------
Name* 6. PRE-AUTHORIZED CHECK (PAC)**
-------------------------------------------------------- ---------------------------------------------------------------
First Middle Last Relationship [ ] Please check here if you elect this option.
Percentage [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ] I authorize the Company to collect $________(MINIMUM $100/$50-
Social Security Number IRA) starting on____by initiating electronic debit entries to my
account.
- ------------------------------------------------------------- Select One: [ ] Checking [ ] Savings
5. FOR CLAFS OFFICE USE ONLY
- ------------------------------------------------------------- (PLEASE ATTACH A VOIDED CHECK FOR CHECKING OR DEPOSIT SLIP
To be completed by CLAFS Office/Office of Supervisory FOR SAVINGS)
Jurisdiction. -------------------------------------------------------------
Has this application been reviewed by the Office of 7. REPLACEMENT
Supervisory Jurisdiction? -------------------------------------------------------------
[ ] Yes [ ] No Will this Annuity replace or change any other insurance or
annuity?
- ------------------------------------------------------------- [ ] No [ ] Yes (State company and Policy number in "Remarks"
Authorized Signature Date and attach replacement forms.)
-------------------------------------------------------------
- ------------------------------------------------------------- 9. TYPE OF PLAN (MUST BE COMPLETED)
8. FOR AGENTS ONLY -------------------------------------------------------------
- ------------------------------------------------------------- [ ] Non-Qualified [ ] IRA Tax Year______
Questions? Contact either your broker/dealer or Investment [ ] IRA Rollover [ ] 401(k) [ ] SEP IRA Tax Year__
Products at (800) 905-1959, ext. 259. [ ] Qualified Other [ ] Keogh (HR-10) [ ] 403(b) If ERISA [ ]
[ ] IRA Transfer [ ] 457 [ ] Other_____________
[ ] Option A [ ] Option B [ ] Option C [ ] Option D
* Unless subsequently changed in accordance with terms of Policy issued.
** Unless indicated, will commence on the earliest possible business day.
</TABLE>
<PAGE> 3
10. SERVICE OPTIONS
BY INITIALING THE BOX(ES) IN THIS SECTION, I/WE HEREBY AUTHORIZE THE COMPANY TO
INITIATE THE OPTION(S) INDICATED. I/WE UNDERSTAND AND AGREE ANY AUTHORIZATION
AS FOLLOWS: 1) ONLY APPLIES TO THE POLICY APPLIED FOR AND SEPARATE
AUTHORIZATION MUST BE COMPLETED FOR ANY OTHER POLICIES. 2) WILL CONTINUE IN
EFFECT UNTIL THE COMPANY RECEIVES WRITTEN REVOCATION FROM ME/US OR THE COMPANY
DISCONTINUES THE OPTION(S).
I/WE WILL CONSULT THE CURRENT PROSPECTUS FOR MORE DETAILS ON THE SERVICE OPTIONS
BELOW, SUCH AS THE MINIMUMS AND MAXIMUMS.
/ / TELEPHONE TRANSFER AUTHORIZATION**
I/We authorize the Company to act on transfer instructions given by telephone
from any person who can furnish identification. Neither the Company nor any
person authorized by the Company will be responsible for any claim, loss,
liability or expense in connection with a telephone transfer if the Company or
such other person acted on telephone transfer instructions in good faith in
reliance on this authorization. I/We accept and will comply with the
procedures established by the Company from time to time.
/ / DOLLAR COST AVERAGING**
I/We hereby authorize the Company to automatically transfer, on a periodic
basis, amounts for regular level investments over time, from one sub-account or
the 1 year Fixed Account shown on this form, to any of the other sub-accounts
or Fixed Accounts specified on this form.
Transfer $__________ From ____________ Start Date ______________
Stop Date __________ or Number of Transfers ___________ on a
/ / Monthly / / Quarterly / / Semi-Annual / / Annual basis.
Transfer above amount to:
- -------------- --------------- -------------- --------------
- -------------- --------------- -------------- --------------
- -------------- --------------- -------------- --------------
- -------------- --------------- -------------- --------------
11. REMARKS
/ / SYSTEMATIC WITHDRAWAL PRIVILEGE (SWP)**
Do you have a checking or savings account? / / Yes / / No
I/We hereby authorize the Company to initiate withdrawals from my Policy, via
Electronic Funds Transfer, as indicated below.
Withdraw $ _________ or / / Maximum amount allowed without incurring a Surrender
Charge, to Start on ______________.
Stop Date: _______________ or Number of Withdrawals _____________.
Withdraw From:
- -------------- --------------- -------------- --------------
- -------------- --------------- -------------- --------------
- -------------- --------------- -------------- --------------
- -------------- --------------- -------------- --------------
Frequency of Withdrawal: / / Monthly / / Quarterly / / Semi-Annually
Please / / Withhold / / Do Not Withhold Federal Income Taxes.
NOTE: WITHDRAWALS FROM THE 3,5,7 AND 10 YEAR FIXED ACCOUNTS WILL BE SUBJECT TO
A MARKET VALUE ADJUSTMENT.
===============================================================================
/ / PORTFOLIO REBALANCING**
I/We hereby authorize the Company to provide portfolio rebalancing services as
indicated below:
Frequency of Rebalancing: / / Quarterly / / Semi-Annually / / Annually
12. SIGNATURES
STATEMENT OF APPLICANT: To the best of the knowledge and belief of the
person(s) signing below, all statements in this Application are true and
correctly worded. Each person signing below adopts all statements made in this
Application and agrees to be bound by them. IT IS AGREED THAT THE POLICY WILL
NOT TAKE EFFECT UNTIL THE LATER OF: 1) THE POLICY IS ISSUED; OR 2) WE RECEIVE
AT OUR ADMINISTRATIVE OFFICE THE FIRST PREMIUM REQUIRED UNDER THE POLICY. No
agent or registered representative can modify this agreement or waive any of
the Company's rights or requirements. I/WE ACKNOWLEDGE RECEIPT OF THE
EFFECTIVE PROSPECTUS(ES) FOR THE POLICY. 3) I/WE CERTIFY THAT THE NUMBER SHOWN
ON THIS FORM IS MY/OUR SOCIAL SECURITY # OR TAXPAYER ID #. 4) THE POLICY I/WE
HAVE APPLIED FOR IS SUITABLE FOR MY/OUR INSURANCE INVESTMENT OBJECTIVES,
FINANCIAL SITUATION, AND NEEDS.
I/WE UNDERSTAND THAT ALL ACCUMULATION BENEFITS AND VALUES PROVIDED BY THE
VARIABLE ACCOUNT MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT
PERFORMANCE, AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNTS.
I/WE FURTHER UNDERSTAND THAT AMOUNTS TRANSFERRED, WITHDRAWN OR SURRENDERED
UNDER THIS POLICY FROM THE 3,5,7 & 10 YEAR FIXED ACCOUNTS MAY INCREASE OR
DECREASE IN ACCORDANCE WITH A MARKET VALUE ADJUSTMENT DURING THE TERM PERIOD
SPECIFIED IN THIS POLICY, SUBJECT TO THE MINIMUM VALUES DEFINED IN THE POLICY.
/ / I/We request the Statement of Additional Information.
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Signed in (State) Date Signed Signature of Owner/Applicant Signature of Joint Owner
- -----------------------------------------------------------------------------------------------------------------------------------
Signature of Annuitant Signature of Co-Annuitant Signature of Irrevocable Beneficiary
(if different from Owner) (if different from Owner) (if designated)
STATEMENT OF AGENT: I certify that 1) the applicant signed this Application; 2) I am authorized and qualified to discuss the
Policy herein applied for; and 3) to the best of my knowledge replacement / / is / / is not involved.
FOR CLAFS AGENTS ONLY: You MUST enclose a signed copy of the new CLIENT ACCOUNT WORKSHEET along with this application.
- -----------------------------------------------------------------------------------------------------------------------------
Print Registered Representative/Agent Name Name of Firm Date Signed
- -----------------------------------------------------------------------------------------------------------------------------
Signature of Agent Branch Address
- -----------------------------------------------------------------------------------------------------------------------------
Agent Number State License ID Number Agent Phone Number
</TABLE>
** Unless indicated, will commence on the earliest possible business day.
<PAGE> 1
EXHIBIT 6(a)
CERTIFICATE OF INCORPORATION OF CANADA LIFE INSURANCE COMPANY OF AMERICA
<PAGE> 2
EXHIBIT 6(a)
[LOGO]
STATE OF MICHIGAN, }
DEPARTMENT OF LICENSING }ss.
AND REGULATION }
INSURANCE BUREAU }
IT IS HEREBY CERTIFIED THAT THE ANNEXED copy of the Articles of Incorporation
of CANADA LIFE INSURANCE COMPANY OF AMERICA HAS BEEN DUPLICATED FROM THE
ORIGINAL ON FILE IN THIS BUREAU AND THAT THE SAME IS A TRUE AND CORRECT
TRANSCRIPT THEREFROM AND OF THE WHOLE OF SUCH ORIGINAL.
IN WITNESS WHEREOF, I HAVE HEREUNTO
SET MY HAND AND AFFIXED THE OFFICIAL SEAL
OF THE BUREAU AT LANSING, THIS 16TH
DAY OF _____ MARCH, A.D.1989
/s/ L. Caroline Smalley
SPECIAL DEPUTY COMMISSIONER OF INSURANCE.
<PAGE> 3
STATE OF MICHIGAN
DEPARTMENT OF LICENSING & REGULATION
INSURANCE BUREAU
[LOGO]
LANSING
I HEREBY CERTIFY, THAT I HAVE EXAMINED THE
ARTICLES OF INCORPORATION OF CANADA LIFE INSURANCE COMPANY OF AMERICA
_______________________________________________________________________________
_______________________________________________________________________________
AND FIND THE SAME IN ACCORDANCE WITH THE REQUIREMENTS OF THE ACT UNDER WHICH
SAID COMPANY IS ORGANIZED.
DATED, JUNE 10 1988
-------- ----
/s/ Herman W. Coleman
-------------------------------------
COMMISSIONER OF INSURANCE.
<PAGE> 4
[LOGO]
STATE OF MICHIGAN
ATTORNEY GENERAL's DEPARTMENT
LANSING, MICHIGAN
I HEREBY CERTIFY, That I have examined the
ARTICLES OF INCORPORATION OF
CANADA LIFE INSURANCE COMPANY
OF AMERICA
and find the same in accordance with the requirements of the statutes of the
State of Michigan and not in conflict with the Constitution of this State.
Dated at Lansing, Michigan, this 10th day of June, 1988.
/s/ Harry G. Iwasko, Jr.
---------------------------------
HARRY G. IWASKO, JR.
ASSISTANT ATTORNEY GENERAL.
No. 543
<PAGE> 5
ARTICLES OF INCORPORATION
of
Canada Life Insurance Company of America
We, the undersigned, desiring to become incorporated under the provisions
of Act No. 218 of the Public Acts of l956, as amended, do hereby make, execute,
and adopt the following articles of incorporation, to wit:
ARTICLE I
The names of the incorporators and their respective places of residences
are as follows:
NAME RESIDENCE
---- ---------
1. Richard D. McLellan 1191 Carriageway North
East Lansing, Michigan 48823
2. Stephen H. Zimmerman 308 Chesterfield Parkway
East Lansing, Michigan 48823
3. Gwendolyn Taylor 5157 Wardcliff Drive
East Lansing, Michigan 48823
4. Alan R. Dominick 811 Oakridge
Jackson, Michigan 49203
5. William J. Perrone 5289 Bear Lake Drive
East Lansing, Michigan 48823
6. John B. Curcio 810 Sunset Lane
East Lansing, Michigan 48823
7. Lori M. Silsbury 900 Long Boulevard #405
Lansing, Michigan 48933
8. Frederick J. Hood 319 E. Hillsdale Apt. R
Lansing, Michigan 48933
9. James P. Kiefer 220 Centerlawn
East Lansing, Michigan 48823
10. Margaret A. Morris 2205 Cogswell Street
Lansing, Michigan 48906
<PAGE> 6
11. Cindy M. Wilder 1516 Harding
Lansing, Michigan 48910
12. Timothy Hoffman 902 A Timber Creek Drive
Grand Ledge, Michigan 48837
13. Mark G. Hess 4365 Congdon
Williamston, Michigan 48895
ARTICLE II
The name assumed by this Corporation and by which it shall be known in
law is :
Canada Life Insurance Company of America
and its principal office for the transaction of business shall be 800 Michigan
National Tower, Lansing, Michigan 48933.
ARTICLE III
This Corporation is organized for the following purposes, as authorized
by Chapter 6, Act No. 218 of the Public Acts of 1956, as amended, namely:
1. To insure the lives of individuals under life insurance plans, both
fixed and variable, individual, group and franchise; to grant, purchase and
dispose of annuities, both fixed and variable, individual, group and franchise;
and receive and execute trusts, including the power to hold in trust the
proceeds of any insurance policies issued by it; and to reinsure any part of
said risk; and to accept reinsurance of the same nature of risk. To have all the
powers conferred by the State of Michigan upon corporations organized for the
purpose of insuring the lives of individuals, and to issue all such forms of
insurance contracts as pertain to or may be connected with the business of life
insurance as it now is or may be hereafter carried on in the United States of
America.
2. To have the power to establish either or both general or separate
accounts in connection with the business authorized hereunder; to have the power
to establish any subsidiary authorized by law, including, without limiting the
generality of the foregoing, an investment advisor and a broker/dealer; and to
have the power to act in its own right in any similar capacity authorized by
law.
3. To have the right to buy, hold, sell, and convey personal property and
such real estate, or interest therein, as may be necessary or convenient for the
proper conduct of the affairs of the Corporation, or as permitted by law.
-2-
<PAGE> 7
4. To have all the powers conferred by law on a life insurance company
organized for the purposes above set forth; and in connection therewith to have
all powers conferred by law on all corporations organized and doing business
under and by authority of Chapter 52 of the Insurance Code.
ARTICLE IV
The term of existence of the Corporation shall be perpetual.
ARTICLE V
The annual meeting of the stockholders shall be held on the Friday
immediately following the last Thursday in February of each year at a time and
place designated by the Board of Directors either within or without the State of
Michigan.
ARTICLE VI
The authorized capital stock of the Corporation shall be 25,OOO,OOO
common shares of a par value of $10.00 each and 25,000,000 redeemable preferred
shares of a par value of $10.00 each. All stock shall be issued for cash or
property as provided by law and when issued shall be fully paid and
non-assessable and shall be issued at such times and in such amounts as the
Board of Directors of the Corporation shall from time to time determine, subject
to such approval of the Insurance Commissioner of the State of Michigan as may
be required by law. Two Hundred Fifty Thousand (250,000) shares of common stock
of the Corporation shall be paid in prior to commencing business.
There shall be no preemptive right to acquire additional shares.
ARTICLE VII
The affairs of this Corporation shall be managed by a Board of Directors
of not less than 5 nor more than 21. The initial directors shall serve until the
first annual meeting of the shareholders in 1989, and shall be:
NAME ADDRESS
---- -------
Edward H. Crawford 47 Daneswood Road
Toronto, Ontario M4N 3J7
-3-
<PAGE> 8
David A. Nield 5 Valley Ridge Place
Willowdale, Ontario M2L 1G2
John G. Fleming 3900 Yonge Street
Apartment 604
North York, Ontario MEG 1R8
Donald I. Fraser 95 Glenview Avenue
Toronto, Ontario M4R lP9
David A. Loney 3203-16 Lenox Road, N.E.
Atlanta, Georgia 30324
Alexander P. Symons 822 Huntingwood Drive
Scarborough, Ontario MIT 2L6
Alan R. Dominick 811 Oakridge
Jackson, Michigan 49203
William J. Perrone 5289 Bear Lake Drive
East Lansing, Michigan 48823
Cindy M. Wilder 1516 Harding
Lansing, Michigan 48910
All directors will be elected each year at the meeting of the
shareholders.
The Directors shall elect a Chairman of the Board, a President, a
Secretary, and a Treasurer; and may appoint one or more Vice-Presidents and such
other officers with authority to act for such Board of Directors as they may see
fit or as may be provided for by the Bylaws of the Corporation. The term of
office for such officers shall be for one (1) year.
Directors and officers shall serve until their successors have been
elected and qualified. The Board of Directors shall have the authority to fill
vacancies for the unexpired portion of a term.
ATICLE VIII
Corporate shareholders may vote through a properly designated
representative or through a properly executed proxy. All proxies must be filed
with the Secretary at least one (1) day prior to an election or meeting at which
they are to be used or for such additional time as may be provided by the
Bylaws.
-4-
<PAGE> 9
No proxy shall be valid for more than sixty (60) days from the date of
its execution, and shall not be valid for more than thirty (30) days after the
meeting for which it is executed. It may be revoked at any time by the
shareholder who executed it.
ARTICLE IX
The private property of the shareholders or this Corporation shall be
exempt from corporate liabilities, and this Article shall not be amended.
ARTICLE X
The Board of Directors, at any regular or special meeting, is authorized
to adopt, alter, amend or repeal Bylaws and to adopt new Bylaws not inconsistent
with the law or these Articles of Incorporation. by an affirmative vote of a
majority of a quorum.
A majority of the Board of Directors constitutes a quorum for the
transaction of business, and the acts of a majority of the Directors present at
a meeting at which a quorum is present shall be the acts of the 80ard of
Directors. Upon written notice of the time and place and purpose or purposes of
any special meeting any of the Directors in between regular meetings of the
Board of Directors may consent in writing to any specific action to be taken by
the Corporation; if approved by a majority of the Directors at such special
meeting, including those consenting in writing, such actions shall be as valid a
corporate action as though authorized at a regular meeting of the Directors. The
minutes of such approval and action shall be fully recorded, each written
consent shall be made a part thereof. and such minutes and written consent shall
be reviewed at the next regular meeting of the Board of Directors.
Stockholders of the Corporation may at any regular or special meeting
called for the purpose, repeal, alter or amend any existing Bylaws made by the
Board of Directors or adopt such Bylaws as they deem appropriate by a majority
vote.
ARTICLE XI
Subject to the approval of the Insurance Commissioner of the State of
Michigan, these Articles, except Article X, may be amended at any annual
meeting of the Shareholders or at any special meeting thereof called for that
purpose, and such amendment shall be made by the affirmative vote of a majority
of the shares of common stock in attendance at said meeting, in
-5-
<PAGE> 10
person or by proxy, provided, however, that a quorum in present at said meeting.
For purposes of this Article, as well as all other Articles of these Articles of
Incorporation, the quorum is hereby established to be the stockholders in person
or by proxy representing fifty one (51%) percent of the issued and outstanding
stock of the Corporation. At any meeting of the stockholders to consider or act
upon any proposed amendment to the Articles of Incorporation, the stockholders
may adopt any modification or revision thereof proposed at said meeting.
ARTICLE XII
The personal liability of the directors of the Corporation is eliminated
to the fullest extent permitted by the provisions of the Michigan Insurance
Code, as the same may be amended and supplemented.
IN WITNESS WHEREOF, we, the parties hereby associating, for the purpose
of giving legal effect to these Articles of Incorporation, hereunto sign our
names, on this 12th day of April , A.D., 1988.
/s/ /s/
- ----------------------------------- -----------------------------------
/s/ /s/
- ----------------------------------- -----------------------------------
/s/ /s/
- ----------------------------------- -----------------------------------
/s/ /s/
- ----------------------------------- -----------------------------------
/s/ /s/
- ----------------------------------- -----------------------------------
/s/ /s/
- ----------------------------------- -----------------------------------
/s/ /s/
- ----------------------------------- -----------------------------------
STATE OF MICHIGAN )
) SS
COUNTY OF INGHAM )
On this 12th day of April, 1988, before me a notary public in and for
personally appeared the above incorporators_________________________________
____________________________________________________________________________
_________________________________________________________________known by me
-6-
<PAGE> 11
to be the persons named in and who executed the foregoing instrument, and
severally acknowledged that they executed the same freely and for the intents
and purposes therein mentioned.
---------------------------------
Kathleen E. Marshall
Notary Public
Ingham County, Michigan
Commission expires: 4/17/89
Eaton County, MI acting in
Ingham County, MI
-7-
<PAGE> 1
EXHIBIT 6(b)
BY-LAWS OF CANADA LIFE INSURANCE COMPANY OF AMERICA
<PAGE> 2
EXHIBIT 6(b)
CANADA LIFE INSURANCE
COMPANY OF AMERICA
------------------
BY-LAWS
-------
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I. SHAREHOLDERS ................................................... 1
1. Annual Meeting ................................................. 1
2. Special Meetings ............................................... 1
3. Place of Meetings .............................................. 1
4. Notice of Meetings ............................................. 1
5. Waiver of Notice ............................................... 2
6. Inspectors of Election ......................................... 2
7. List of Shareholders at Meetings ............................... 2
8. Qualification of Voters ........................................ 3
9. Quorum of Shareholders ......................................... 3
10. Proxies ........................................................ 4
11. Vote or Consent of Shareholders ................................ 4
12. Fixing Record Date ............................................. 5
ARTICLE II. BOARD OF DIRECTORS ............................................. 5
1. Power of Board and Qualification
of Directors ................................................. 5
2. Number of Directors ............................................ 6
3. Election and Term of Directors ................................. 6
4. Quorum of the Board;
Action by the Board ............................................ 6
5. Meetings of the Board .......................................... 7
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
6. Resignations ................................................... 8
7. Removal of Directors ........................................... 8
8. Newly Created Directorships and
Vacancies .................................................... 8
9. Compensation of Directors ...................................... 8
10. Indemnification ................................................ 8
ARTICLE III. COMMITTEES ..................................................... 9
1. Committees of the Board of Directors............................ 9
2. Conduct of Business............................................. 9
ARTICLE IV. OFFICERS ....................................................... 9
1. Officers ....................................................... 9
2. Term of Office and Removal ..................................... 10
3. Powers and Duties .............................................. 10
4. Maintenance of Books and Records................................ 10
5. Reliance on Books and Records................................... 11
6. Checks, Notes, Etc. ............................................ 11
7. Compensation of Officers ....................................... 11
ARTICLE V. FORM OF CERTIFICATES AND LOSS AND
TRANSFER OF SHARES ............................................. 11
1. Form of Share Certificates...................................... 11
2. Transfer of Shares ............................................. 12
3. Lost, Stolen or Destroyed Share
Certificates ................................................. 12
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE VI. CONFLICTS ...................................................... 12
ARTICLE VII. NOTICES, WAIVERS, AND MANNER OF
ACTING.......................................................... 13
1. Notices......................................................... 13
2. Waivers......................................................... 13
3. Action Without a Meeting ....................................... 13
4. Participation in Meetings by
Conference Telephone .......................................... 13
ARTICLE VIII. OTHER MATTERS ................................................. 14
1. Corporate Seal ................................................. 14
2. Fiscal Year .................................................... 14
3. Facsimile Signatures ........................................... 14
4. Time Periods ................................................... 14
5. Amendments ..................................................... 14
6. Registered Shareholders ........................................ 15
7. Execution of Documents under Seal .............................. 15
8. Execution of Other Documents ................................... 15
</TABLE>
iii
<PAGE> 6
ARTICLE I
SHAREHOLDERS
SECTION 1. Annual Meeting. A meeting of shareholders for the election
of directors and the transaction of other business shall be held annually on the
Friday immediately following the last Thursday in February of each year at a
time to be designated by the Board of Directors.
SECTION 2. Special Meetings. Special meetings of the shareholders may
be called by the Board of Directors or the President or the holders of record
of a majority of the outstanding shares of the Corporation entitled to vote at
the meeting; and shall be held at such time as may be fixed in the call and
stated in the notice of meeting.
SECTION 3. Place of Meetings. Meetings of shareholders shall be held
at such place, within or without the State of Michigan, as designated by the
Board of Directors.
SECTION 4. Notice of Meetings. Notice of each meeting of shareholders
shall be in writing and shall state the place, date and hour of the meeting and
the purpose or purposes for which the meeting is called. In the ease of special
meetings, the notice shall also state that it is being issued by or at the
direction of the person or persons calling the meeting.
A copy of the notice of any meeting shall be given, personally or by
mail. at least 21 days before the date of the meeting, to each shareholder
entitled to vote at such meeting. If mailed, such notice is given when deposited
in the mail, with postage thereon prepaid, directed to the shareholder at his
address as it appears on the record of shareholders, or, if he shall have filed
with the Secretary of the Corporation a written request that notices to him be
mailed to some other address, then directed to him at such other address.
When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if after the adjournment the Board of Directors fixes a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice under the
preceding paragraphs of this SECTION 4.
1
<PAGE> 7
SECTION 5. Waiver of Notice. Notice of meeting need not be given to
any shareholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting. The attendance of any shareholder at a
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by him.
SECTION 6. Inspectors of Election. The Board of Directors, in advance
of any shareholders' meeting, may appoint one or more inspectors to act at the
meeting or any adjournment thereof. If inspectors are not so appointed, the
person presiding at a shareholders' meeting may, and on the request of any
shareholder entitled to vote thereat shall, appoint two inspectors. In case any
person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board in advance of the meeting or at the meeting by the
person presiding thereat. Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath or affirmation faithfully to execute the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability.
The inspectors shall determine the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the existence of a
quorum, and the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or any shareholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenqe, question or matter
determined by them and execute a certificate of any fact found by them.
Any report or certificate made by them shall be prima facie evidence of the
facts stated and of the vote as certified by them.
SECTION 7. List of Shareholders at Meetings. A list of shareholders
as of the record date. certified by the Secretary or any Assistant Secretary or
by the transfer agent, if any, shall be open to the examination of any such
shareholder at any meeting of shareholders for any purpose germane to the
meeting or upon the request of the shareholder during ordinary business hours
for a period of at least 10 days prior to the meeting. If the right to vote at
any meeting is challenged, the inspectors of election,or person presiding
thereat, shall require such list of shareholders to be produced as evidence of
the right of the persons challenged to vote at such meeting,
2
<PAGE> 8
and all persons who appear from such list to be shareholders entitled to vote
thereat may vote at such meeting.
SECTION 8. Qualification of Voters. Every shareholder of record of
capital stock of the corporation shall be entitled at every meeting of
shareholders to one vote for every one share of capital stock registered in his
name on the stock records of the Corporation.
Shares held by an administrator, executor, guardian, conservator,
committee, or other fiduciary, except a trustee, may be voted by him, either in
person or by proxy, without transfer of such shares into his name. Shares held
by a trustee may be voted by him, either in person or by proxy, only after the
shares have been transferred into his name as trustee or into the name of his
nominee.
Shares standing in the name of another domestic or foreign corporation of
any type or kind may be voted by such officer, agent or proxy as the by-laws of
such corporation may provide, or, in the absence of such provision, as the board
of directors of such corporation may determine.
A shareholder shall not sell his vote or issue a proxy to vote to any
person for any sum of money or anything of value except as permitted by law.
SECTION 9. Quorum of Shareholders. The holders of a majority of the
shares entitled to vote thereat shall constitute a quorum at a meeting of
shareholders for the transaction of any business.
When a quorum is once present to organize a meeting, it is not broken by
the subsequent withdrawal of any shareholders.
If a quorum shall fail to attend any meeting, the chairperson of the
meeting or the holders of a majority of the shares entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
In the event of such adjournment, the meeting may be held as adjourned
without further notice, if a quorum is then present. If a notice of any
adjourned special meeting of shareholders is sent to all shareholders entitled
to vote thereat, stating that it will be held with those present constituting a
quorum, then except as otherwise required by law, those present at such
adjourned meeting shall constitute a quorum, and all matters shall be determined
by a majority of the votes cast at such meeting.
3
<PAGE> 9
SECTION 10. Proxies. Every shareholder entitled to vote at a meeting
of shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy.
Every proxy must be signed by the shareholder or his attorney-in-fact. No
proxy shall be valid after the expiration of eleven months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the shareholder executing it, except as otherwise provided by law.
The authority of the holder of a proxy to act shall not be revoked by the
incompetence or death of the shareholder who executed the proxy unless, before
the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the Secretary or any Assistant
Secretary.
SECTION 11. Vote or Consent of Shareholders. Directors shall, except as
otherwise required by law, be elected by a plurality of the votes cast at a
meeting of shareholders by the holders of shares entitled to vote in the
election.
Whenever any corporate action, other than the election of directors, is
to be taken by vote of the shareholders, it shall, except as otherwise required
by law. be authorized by a majority of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote thereon.
All voting, except on the election of directors and where otherwise
required by law, may be by a voice vote; provided, however, that upon demand
therefor by a shareholder entitled to vote or the shareholder's proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the shareholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairperson of the meeting.
Whenever shareholders are required or permitted to take any action by
vote, such action may be taken without a meeting on written consent, setting
forth the action so taken, signed by the holders of all outstanding shares
entitled to vote thereon. Written consent thus given by the holders of all
outstanding shares entitled to vote shall have the same effect as a unanimous
vote of shareholders.
4
<PAGE> 10
SECTION 12. Fixing Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in advance, a date
as the record date for any such determination of shareholders. Such date shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action.
When a determination of shareholders of record entitled to notice of or
to vote at any meeting of shareholders has been made as provided in this SECTION
12, such determination shall apply to any adjournment thereof, unless the Board
of Directors fixes a new record date for the adjourned meeting.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Power of Board and Qualification of Directors. The
business of the Corporation shall be managed by the Board of Directors, each of
whom shall be at least eighteen years of age. The Board of Directors may, except
as otherwise required by law, exercise all such powers and do all such acts and
things as may be exercised or done by the Corporation, including, without
limiting the generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured. and to do all things
necessary in connection therewith;
(4) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any
officer upon any other person for the time and being;
5
<PAGE> 11
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers and agents;
(6) To adopt from time to time such stock, Option, stock purchase,
bonus or other compensation plans for directors, officers,
employees and agents of the Corporation and its subsidiaries as it
may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(8) To adopt from time to time regulations, not inconsistent with
these By-Laws, for the management of the Corporation's business
and affairs; and
(9) To carry out the purposes of the Corporation as set forth in the
Articles of Incorporation.
SECTION 2. Number of Directors. The number of directors constituting
the whole Board shall not be less than five nor more than twenty-one. Within
such limits, the number of directors may be fixed from time to time by vote of a
majority of the whole Board at any regular or special meeting, except that the
first Board, as appointed in the Articles of Incorporation of the Corporation,
shall consist of nine directors. She term of any incumbent director shall not be
reduced by any decrease in the number of directors.
SECTION 3. Election and Term of Directors. At each annual meeting of
shareholders, directors shall be elected to hold office until the next annual
meeting and until their successors have been elected and qualified. A majority
or more of the directors may elect from among their number a Chairman and a Vice
Chairman of the Board to carry out such duties as the Board may from time to
time assign.
SECTION 4. Quorum of the Board; Action by the Board. The presence of
a majority or more of the directors constituting the entire Board of Directors
shall constitute a quorum for the transaction of business, and the vote of a
majority of the directors present at the time of such vote, if a quorum is then
present, shall be the act of the Board.
Whenever the Board of Directors is required or permitted to take any
action by vote, such action may be taken without a meeting on written consent,
setting forth the action so taken,
6
<PAGE> 12
signed by all of the directors of the Corporation. Written consent thus given
shall have the same effect as a unanimous vote of the Board of Directors.
SECTION 5. Meetings of the Board. An annual meeting of the Board of
Directors shall be held in each year directly after adjournment of the annual
shareholders' meeting. Regular meetings of the Board shall be held at such times
as may from time to time be fixed by resolution of the Board. Special meetings
of the Board may be held at any time upon the call of the Chairman or any two
directors.
Unless otherwise restricted by the Articles of Incorporation or these
By-Laws, members of the Board of Directors may participate in a meeting of the
Board by means of conference telephone or similar communications equipment by
means of which all persons participating in such meeting can hear each other,
and participation in a meeting pursuant to this paragraph shall constitute
presence in person at such meeting.
The Chairman or, in his absence, the Vice Chairman, shall preside at all
meetings of the Board of Directors, provided that if a Chairman or a Vice
Chairman is elected but is absent or unable to preside at meetings of the Board,
or if no Chairman or Vice Chairman is elected, the President shall preside at
such meetings.
Meetings of the Board of Directors shall be held at such place, within or
without the State of Michigan, as from time to time may be fixed by resolution
of the Board for annual and regular meetings and in the notice of meeting for
special meetings.
No notice need be given of annual or regular meetings of the Board of
Directors. Notice of each special meeting of the Board shall be given to each
director by mail at least 48 hours before the time of the meeting or by delivery
personally in writing by means of electronic transmission or by telephone at
least 12 hours before the time of the meeting.
Notice of a meeting of the Board of Directors need not be given to any
director who summits a signed waiver of notice whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him.
A notice, or waiver of notice, need not specify the purpose of any
meeting of the Board of Directors.
7
<PAGE> 13
A majority of the directors present, whether or not a quorum is present,
may adjourn any meeting to another time and place. Notice of any adjournment of
a meeting to another time or place shall be given, in the manner described
above, to the directors who were not present at the time of the adjournment and,
unless such time and place are announced at the meeting, to the other directors.
SECTION 6. Resignations. Any director of the Corporation may resign at
any time by giving written notice to the Board of Directors or to the President
or to the Secretary of the Corporation. Such resignation shall take effect at
the time specified therein; and unless otherwise specified therein the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 7. Removal of Directors. Any or all of the directors may be
removed for cause by action of the Board of Directors. Any or all of the
directors may be removed with or without cause by vote of the shareholders.
SECTION 8. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of Directors for any reason except the removal
of directors by shareholders without cause may be filled by vote of a majority
of the directors then in office, although less than a quorum exists. Vacancies
occurring as a result of the removal of directors by shareholders without cause
shall be filled by the shareholders. A director elected to fill a vacancy shall
be elected to hold office for the unexpired term of his predecessor.
SECTION 9. Compensation of Directors. The Board of Directors shall
have authority to fix the compensation of directors for services in any
capacity.
SECTION 10. Indemnification. In addition to any indemnification to
which a person may be entitled to under common law or otherwise, each person who
is or was a director, an officer, or an employee of this Corporation, or is or
was serving at the request of the Corporation as a director, an officer, a
partner, a trustee, or an employee of another foreign or domestic corporation,
partnership, joint venture, trust, or other enterprise, whether profit or not,
shall be indemnified by the Corporation to the fullest extent permitted by the
laws of the State of Michigan as they may be in effect from time to time. This
Corporation may purchase and maintain insurance on behalf of any such person
against any liability asserted against and incurred by such person in any such
8
<PAGE> 14
capacity or arising out of his or her status as such, whether or not the
corporation would have power to indemnify such person against such liability
under the laws of the State of Michigan.
ARTICLE III
COMMITTEES
SECTION 1. Committees of the Board of Directors. The Board of
Directors, by a vote of a majority of the whole Board, may from time to time
designate committees of the Board of Directors, with such lawfully delegable
powers and duties as it thereby confers, to serve at the pleasure of the Board
of Directors and shall, for those committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating, if
it desires, other directors as alternative members who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of any member of any committee and any alternate member in his
or her place, the member or members of the committee present at the meeting and
not disqualified from voting, whether or not the member or members constitute a
quorum, may by unanimous vote appoint another member of the Board of Directors
to act at the meeting in the place of the absent or disqualified member.
SECTION 2. Conduct of Business. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings; a
majority of the members shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
ARTICLE IV
OFFICERS
SECTION 1. Officers. The Board of Directors, as soon as may be
practicable after the annual election of directors, shall elect or appoint a
President, a Secretary, and a Treasurer provided, however, that the Board may at
any time elect or appoint one or more Vice Presidents, and from time to
9
<PAGE> 15
time may elect or appoint such other officers. agents and employees as it may
determine. Any two or more offices may be held by the same person, except the
offices of President and Secretary.
SECTION 2. Term of Office and Removal. Each officer shall hold office
for the term for which he is elected or appointed, and until his successor has
been elected or appointed and qualified. Unless otherwise provided in the
resolution of the Board of Directors electing or appointing an officer, the term
of office of each officer shall extend to and expire at the meeting of the
Board following the next annual meeting of shareholders. Any officer may be
removed by the Board, with or without cause, at any time. Removal of an officer
without cause shall be without prejudice to his contract rights, if any, but
his election or appointment as an officer shall not of itself create contract
rights.
SECTION 3. Powers and Duties. The officers, agents and employees of
the Corporation shall each have such powers and authority and perform such
duties in the management of the property and affairs of the Corporation as from
time to time may be prescribed by the Board of Directors and, to the extent not
so prescribed. they shall each have such powers and authority and perform such
duties in the management of the property and affairs of the Corporation, subject
to the control of the Board of Directors, as generally pertain to their
respective offices. Securities of other corporations held by the Corporation may
be voted by any officer designated by the Board of Directors and, in the absence
of any such designation, by the President, any Vice President, the Secretary or
the Treasurer. The Board may require any officer, agent or employee to give
security for the faithful performance of his duties.
SECTION 4. Maintenance of Books and Records. The proper officers and
agents of the Corporation shall keep and maintain such books, records and
accounts of the Corporation's business and affairs, minutes of proceedings of
its shareholders, Board and committees, if any, and such stock ledgers and lists
of shareholders, with copies thereof as appropriate, as the Board of Directors
shall deem advisable, and as shall be required by the laws of the State of
Michigan and the Commissioner of Insurance for the State of Michigan and other
states or jurisdictions empowered to impose such requirements.
10
<PAGE> 16
SECTION 5. Reliance on Books and Records. A director or an officer of
the Corporation, when acting in good faith, may rely upon the opinion of counsel
for the Corporation, upon the report of an independent appraiser selected with
reasonable care by the Board, or upon financial statements of the Corporation
represented to be correct by the President or the officer of the Corporation
having charge of its books of account, or stated in a written report of an
independent public, certified, or chartered accountant or firm of such
accountants fairly to reflect the financial condition of the Corporation.
SECTION 6. Checks, Notes, Etc. All checks and drafts on the
Corporation's bank accounts and all bills of exchange and promissory notes and
all acceptances, obligations and other instruments, for the payment of money,
shall be signed on behalf of the Corporation by such officer or officers or
agent or agents as shall be thereunto authorized from time to time by the Board
of Directors.
SECTION 7. Compensation of Officers. Officers shall receive such
salaries as may be fixed from time to time by the Board of Directors.
ARTICLE V
FORM OF CERTIFICATES
AND LOSS AND TRANSFER
OF SHARES
SECTION 1. Form of Share Certificates. The shares of the Corporation
shall be represented by certificates, in such form as the Board of Directors may
from time to time prescribe, signed by the President or a Vice President and the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer,
and may be sealed with the seal of the Corporation or a facsimile thereof. The
signatures of the officers upon a certificate may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the Corporation or its employee. In case any officer who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer before such certificate is issued, it may be issued by
the Corporation with the same effect as if he were such officer at the date of
issue.
11
<PAGE> 17
Each certificate representing shares issued by the Corporation shall set
forth upon the face or back of the certificate, or shall state that the
Corporation will furnish to any shareholder upon request and without charge, a
full statement of the designation, relative rights, preferences and limitations
of the shares of each class of shares authorized to be issued.
SECTION 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the registered holder thereof in
person or by his duly authorized attorney, by delivery for cancellation of a
certificate or certificates for the same number of shares, with proper
endorsement consisting of either a written assignment of the certificate or a
power of attorney to sell, assign or transfer the same or the shares represented
thereby, signed by the person appearing by the certificate to be the owner of
the shares represented thereby, either written thereon or attached thereto, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require. Such endorsement may be either in blank or to a
specified person, and shall have affixed thereto all stock transfer stamps
required by law. Any transfer of shares shall be subject to the holding company
provisions of Chapter 13 of the Michigan Insuance Code. MCLA 500.1301 et seq.
SECTION 3. Lost, Stolen or Destroyed Share Certificates. No certificate
or certificates for shares of the Corporation shall be issued in place of any
certificate alleged to have been lost, stolen or destroyed. except upon
production of such evidence of the loss. theft or destruction, and upon such
indemnification and payment of costs of the Corporation and its agents to such
extent and in such manner as the Board of Directors may from time to time
prescribe.
ARTICLE VI
CONFLICTS
A director or officer of the Corporation shall not knowingly and
intentionally, directly or indirectly. receive any money or valuable thing for
negotiating, procuring, recommending, or aiding in any purchase by or sale to
the Corporation of any property or any loan From the Corporation, or be
pecuniarily interested, either as principal, co-principal, agent, or beneficiary
in any such purchase, sale. Or loan, except as otherwise allowed under Section
5252 of the Michigan Insurance Code of 1954, as amended, being MCLA 500.5252;
MSA 24.15252.
12
<PAGE> 18
ARTICLE VII
NOTICES, WAIVERS AND MANNER OF ACTING
Except as otherwise specifically provided elsewhere in these Bylaws, the
provisions of this Article VII shall apply:
SECTION 1. Notices. Whenever notice is required to be given to any
shareholder, director, officer, or agent, such requirement shall not be
construed to mean personal notice. Such notice may in every instance be
effectively given by depositing a writing in a post office or by letter box, in
a postpaid, sealed wrapper, or by dispatching a prepaid telegram to the extent
and under the circumstances permitted by law, addressed to such shareholder,
director, officer, or agent at his or her address as the same appears on the
books of the Corporation. The time when such notice is dispatched shall be the
time of the giving of the notice.
SECTION 2. Waivers. A written waiver of any notice, signed by a
shareholder, director, officer, or agent, whether before or after the time of
the event for which notice is to be given, shall be deemed equivalent to the
notice required to be given to such shareholder, director, officer, or agent the
extent not prohibited by law. Unless otherwise required by law, neither the
business nor the purpose of any meeting need be specified in such a waiver.
SECTION 3. Action Without a Meeting. Any action required or permitted
at any meeting of shareholders or directors or committee of directors may be
taken without a meeting, without prior notice and without a vote, if all of the
shareholders or directors or committee members entitled to vote thereon consent
thereto in writing.
SECTION 4. Participation in Meetings by Conference Telephone. A
shareholder, director, or committee member may participate in a meeting by a
conference telephone or similar communications equipment by which all persons
participating in the meeting may hear each other. Such participation shall
constitute presence at such meeting.
13
<PAGE> 19
ARTICLE VIII
OTHER MATTERS
SECTION 1. Corporate Seal. The Board of Directors may provide a
suitable seal, which shall have inscribed thereon the name of the Corporation
and such other appropriate legend as the Board of Directors may from time to
time determine. In lieu of the corporate seal, when so authorized by the Board,
or a committee thereof, duplicates of the seal or facsimiles of the seal may be
kept and may be affixed or impressed or reproduced in any other manner by the
Secretary, Treasurer, Assistant Secretary or Assistant Treasurer, or such other
officer designated by the board.
SECTION 2. Fiscal Year. The fiscal year of the Corporation shall be the
calendar year.
SECTION 3. Facsimile Signatures. In addition to the provisions for the
use of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
SECTION 4. Time Periods. In applying any provision of these Bylaws
which require that an act be done or not done a specified number of days prior
to an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded and the day of the event shall be included.
SECTION 5. Amendments. By-Laws of the Corporation may be amended,
repealed or adopted by vote of the holders of the shares at the time entitled to
vote in the election of any directors. By-Laws may also be amended, repealed, or
adopted by the Board of Directors, but any by-law adopted by the Board may be
amended or repealed by the shareholders entitled to vote thereon as hereinabove
provided.
If any by-law regulating an impending election of directors is adopted,
amended or repealed by the Board of Directors, there shall be set forth in the
notice of the next meeting of shareholders for the election of directors the
by-law so adopted, amended or repealed, together with a concise statement of the
changes made.
14
<PAGE> 20
SECTION 6. Registered Shareholders. The Corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to, or interest in, such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, save as
expressly provided by law.
SECTION 7. Execution of Documents under Seal. All documents not
relating to transactions involving real property to which the seal of the
Corporation is attached shall be signed by (1) any two of the Chairman, Vice
Chairman, President, a Vice-President who is a Director or any Director or
officer designated by the Board for that purpose; or by any one of such persons.
and (2) any Vice-President who is not a Director or such other officer as may be
designated by the Board from time to time for that purpose. Any document
relating to transactions involving real property to which the seal of the
Corporation is attached may be signed by any two of such officers as may be
designated by the Board from time to time for that purpose.
SECTION 8. Execution of Other Documents. Contracts, documents or
instruments in writing requiring execution by the Corporation may be signed by
any two of the officers of the Corporation and such other person or persons
designated by any two of the Chairman of the Board, President and
Vice-Presidents of the Corporation and all contracts, documents or instruments
in writing so signed shall be binding upon the Corporation without any further
authorization or formality. The Board of Directors is authorized from time to
time by resolution to appoint any officer or officers or any other person or
persons on behalf of the Corporation to sign and deliver either contracts,
documents or instruments in writing generally or to sign either manually or by
facsimile signature and deliver specific contracts, documents or instruments in
writing. The term "contracts, documents or instruments in writings" as used in
this by-law shall include deeds, mortgages, charges, conveyances, transfers and
assignment of property of all kinds including specifically but without
limitation transfers and assignments of shares, warrants, bonds, debentures or
other securities and all paper writings.
15
<PAGE> 21
SCHEDULE B
COPYRIGHT 1930 BY
DWIGHT & M. H. JACKSON
CHICAGO
PATENT PENDING
INCORPORATED UNDER THE LAWS OF THE STATE OF
_______________________
NUMBER [EMBLEM] SHARES
_____________ ____________
AUTHORIZED CAPITAL _______________ SHARES ______________ PAR VALUE
THIS CERTIFIES THAT ____________________________________________ IS THE OWNER OF
___________________________________________________ FULL PAID AND NON-ASSESSABLE
SHARES OF THE CAPITAL STOCK OF _________________________________________________
TRANSFERABLE ON THE BOOKS OF THE CORPORATION IN PERSON OR BY DULY AUTHORIZED
ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE SIGNED
BY ITS DULY AUTHORIZED OFFICERS AND SEALED WITH THE SEAL OF THE CORPORATION.
THIS ______________________ DAY OF ____________________ A.D. 19___
_______________________________ [SEAL] _________________________________
SECRETARY PRESIDENT
<PAGE> 22
(C)DWIGHT & M. H. JACKSON
CORPORATION SUPPLY CO.
205 W. RANDOLPH ST.
CHICAGO, ILLINOIS 60606
(RESERVE THIS SPACE TO PASTE BACK CANCELLED STOCK CERTIFICATE)
CERTIFICATE NO ____________ FOR __________ SHARES
_______________________________________
DATED ___________________ 19 ___
ISSUED TO _______________________________________
_______________________________________
_______________________________________
_______________________________________
RECEIVED THIS CERTIFICATE ________________ 19 ___
_______________________________________
SURRENDERED THIS CERTIFICATE _____________ 19 ___
_______________________________________
IF NOT AN ORIGINAL ISSUE SHOW DETAILS OF TRANSFER BELOW
TRANSFERRED FROM ORIGINAL CERTIFICATE NO. OF ORIG NO. OF SHARES
NO. DATE SHARES TRANSF'D
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
IF THIS CERTIFICATE IS SURRENDERED FOR TRANSFER SHOW DETAILS
NEW CERTIFICATE ISSUED TO NO. OF NEW NO. OF SHARES
CERTIFICATE TRANSFERRED
___________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
<PAGE> 23
SCHEDULE C
COPYRIGHT 1930 BY
DWIGHT & M. H. JACKSON
CHICAGO
PATENT PENDING
INCORPORATED UNDER THE LAWS OF THE STATE OF
_______________________
NUMBER [EMBLEM] SHARES
_____________ ____________
AUTHORIZED CAPITAL _______________ SHARES ______________ PAR VALUE
THIS CERTIFIES THAT ____________________________________________ IS THE OWNER OF
___________________________________________________ FULL PAID AND NON-ASSESSABLE
SHARES OF THE CAPITAL STOCK OF _________________________________________________
TRANSFERABLE ON THE BOOKS OF THE CORPORATION IN PERSON OR BY DULY AUTHORIZED
ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE SIGNED
BY ITS DULY AUTHORIZED OFFICERS AND SEALED WITH THE SEAL OF THE CORPORATION.
THIS _______________________ DAY OF ____________________ A.D. 19___
________________________________ [SEAL] _________________________________
SECRETARY PRESIDENT
<PAGE> 24
(C)DWIGHT & M. H. JACKSON
CORPORATION SUPPLY CO.
205 W RANDOLPH ST.
CHICAGO, ILLINOIS 60606
(RESERVE THIS SPACE TO PASTE BACK CANCELLED STOCK CERTIFICATE)
CERTIFICATE NO ____________ FOR ___________ SHARES
________________________________________
DATED ___________________, 19 ___
ISSUED TO ________________________________________
________________________________________
________________________________________
________________________________________
RECEIVED THIS CERTIFICATE ________________, 19 ___
________________________________________
SURRENDERED THIS CERTIFICATE _____________, 19 ___
________________________________________
IF NOT AN ORIGINAL ISSUE SHOW DETAILS OF TRANSFER BELOW
TRANSFERRED FROM ORIGINAL CERTIFICATE NO. OF ORIG NO. OF SHARES
NO. DATE SHARES TRANSF'D
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
IF THIS CERTIFICATE IS SURRENDERED FOR TRANSFER SHOW DETAILS
NEW CERTIFICATE ISSUED TO NO. OF NEW NO. OF SHARES
CERTIFICATE TRANSFERRED
___________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
<PAGE> 1
EXHIBIT 8(a)
PARTICIPATION AGREEMENT
<PAGE> 2
Exhibit 8(a)(a)
Participation Agreement Between Canada Life Series Fund and
Canada Life of America
- 23 -
<PAGE> 3
PARTICIPATION AGREEMENT
THIS AGREEMENT, is hereby entered into on this___day of___, 1989,
between Canada Life Insurance Company of America ("CLICA"), a life insurance
company organized under the laws of the State of Michigan, for itself and on
behalf of its Variable Annuity Account 1 ("Separate Account"), a separate
account established by CLICA in accordance with the laws of the State of
Michigan; and the Canada Life of America Series Fund, Inc. ("Fund"), an open-end
management investment company organized under the laws of the State of Maryland.
WITNESSETH:
WHEREAS, the Separate Account has been established by CLICA pursuant
to the Michigan Insurance Code in connection with certain variable annuity
policies ("Policies") proposed to be issued to the public by CLICA; and
WHEREAS, the Separate Account has been registered as a unit investment
trust under the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the income, gains and losses, whether or not realized, from
assets allocated to the Separate Account are, in accordance with the applicable
Policies, to be credited to or charged against such Separate Account without
regard to other income, gains or losses of CLICA; and
WHEREAS, the Separate Account is subdivided into various sub-accounts
("Sub-accounts") under which income, gains and losses, whether or not realized,
from assets allocated to each such Sub-account are, in accordance with the
applicable Policies, to be credited to or charged against such Sub-accounts
without regard to other income, gains or losses of other sub-accounts or of
CLICA; and
WHEREAS, the Fund is registered as an open-end management investment
company organized under the laws of the State of Maryland and will operate in
accordance with the 1940 Act; and
WHEREAS, the Fund is divided into various series ("Series"), each
Series being subject to certain fundamental investment policies and restrictions
which may not be changed without a majority vote of the shareholders of such
Series; and
<PAGE> 4
WHEREAS, certain Series will serve as the underlying investment medium
for certain Sub-accounts; and
WHEREAS, Canada Life of America Financial Series, Inc., the principal
underwriter for the Policies to be funded by the Separate Account, is a
broker-dealer registered as such under the Securities Exchange Act of 1934;
NOW THEREFORE, in consideration of the foregoing and of mutual
covenants and conditions set forth herein and for other good and valuable
consideration, CLICA, the Separate Account, and the Fund hereby agree as
follows:
1. The Policies funded through the Separate Account will provide for
the allocation of premium payments among certain Sub-accounts for investment in
such shares of the Series as may be offered from time to time in the prospectus
of the Policies. The selection of the particular Sub-account is to be made by
the Policy owner and such selection may be changed or the policy value may be
transferred among Sub-accounts in accordance with the terms of the Policies.
2. No representation is made as to the number or amount of such
Policies to be sold; however, CLICA, through Canada Life of America Financial
Services, Inc., will make reasonable efforts to market such Policies.
3. The Fund agrees to sell to CLICA those shares of the Fund which
the Separate Account orders, executing such orders on a daily basis at the net
asset value next computed after receipt by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section, CLICA (or its
designated agent) shall be the designee of the Fund for receipt of such orders
from Policy owners and receipt by such designee shall constitute receipt by the
Fund; provided that the Fund receives notice of such order by 9:30 a.m. New York
time on the next following Business Day. "Business Day shall mean any day on
which the New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
The Fund agrees to make Fund shares available indefinitely for
purchase at the applicable net asset value per share by the CLICA and the
Separate Account on those days on which the Fund calculates its net asset value
pursuant to rules of the Securities and Exchange Commission and the Fund shall
use reasonable efforts to calculate such net asset value on each day which the
New York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Directors of the Fund (hereinafter the "Directors") may refuse to sell
shares of any Series to CLICA, or suspend or terminate the offering of shares of
any
- 2 -
<PAGE> 5
Series if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Directors acting in good faith
and in light of their fiduciary duties under federal and any applicable state
laws, necessary in the best interests of the shareholders of such Series.
CLICA shall pay for the Fund shares on the next Business Day after an
order to purchase shares is made in accordance with the provisions of this
Section. Payment shall be in federal funds transmitted by wire or by a credit
for any shares redeemed.
4. The Fund agrees to redeem for cash, on CLICA's request, any full
or fractional shares of the Fund held by CLICA, executing such requests on a
daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section, CLICA
(or its designated agent) shall be the designee of the Fund for receipt of
requests for redemption from Policy owners and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption by 9:30 a.m. New York time on the next following Business
Day.
The Fund ordinarily shall make payment to CLICA for shares on the day
the Fund receives notice from CLICA, but the Fund may delay payment for up to
seven calendar days after the request is received. Payment shall be in federal
funds transmitted by wire.
5. Transfer of Series shares will be by book entry. No stock
certificates will be issued to the Separate Account unless the Separate Account
so requests. Shares of each Series will be recorded in an appropriate title for
the corresponding Sub-account on the books of CLICA. If, however, state law
requires transfer other than by book entry, then the Series agrees to provide
the required form of transfer.
6. The Fund shal1 make one net asset value per share for each Series
available to CLICA on a daily basis as soon as reasonably practicable after the
net asset value per share is calculated and shall use its best efforts to make
such net asset value per share available by 7 p.m. New York time.
7. The Fund shall furnish notice on the ex-dividend date to CLICA of
any dividend or distribution payable on any shares underlying Sub-accounts. All
of such dividends and distributions as are payable on shares of a Series
recorded in the title for the corresponding Sub-account shall be automatically
reinvested in additional shares of that Series. The Fund shall notify CLICA of
the number of shares so issued.
8. The Fund shall pay all its expenses incidental to its performance
under this Agreement. The Fund shall see to it
- 3 -
<PAGE> 6
that all of its shares are registered and authorized for issue in accordance
with applicable federal and state laws prior to their purchase by CLICA for the
Sub-accounts. The Fund shall bear the expenses for the cost of registration of
its shares, preparation of its prospectus, proxy materials and reports, the
printing and distribution of such items to each Policy owner who has allocated
net amounts to any Sub-account, the preparation of all statements and notices
required by any federal or state law, and taxes imposed upon the Fund on the
issue or transfer of the Fund's shares subject to this Agreement. The parties
shall cooperate in the printing of the prospectuses of the Policies and the
Fund. The Fund shall provide CLICA with a reasonable quantity of Fund
prospectuses and reports to be sent to existing Policy owners.
9. CLICA shall make no representations concerning the Fund or its
shares except those contained in the then-current prospectus of the Fund and in
printed information subsequently issued on behalf of the Fund and approved in
writing by the Fund as supplemental to such prospectus, or otherwise approved by
the Fund in writing.
10. The Fund represents that each Series of the Fund shall comply
with Section 817(h) of the Internal Revenue Code of 1986, and the regulations
issued thereunder (Reg. Section 1.817-5), relating to the diversification
requirements for variable annuity, endowment, and life insurance contracts, and
any amendments or other modifications to such Section or regulations.
The Fund represents that each Portfolio of the Fund is currently
qualified or will be qualified as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code") and
that every effort will be made to maintain such qualification (under Subchapter
M or any successor or similar provision) and that the Fund will notify CLICA
orally (followed by written notice) or by wire immediately upon having a
reasonable basis for believing that any Series of the Fund has ceased to so
qualify or that any Series might not so qualify in the future.
11. It is understood among the parties to this Agreement that,
subject to obtaining any applicable regulatory approvals which may be
conditioned on the parties complying with certain requirements, shares of the
Series may be offered in the future to separate accounts of various insurance
companies in addition to CLICA and in connection with insurance contracts or
policies other than the Policies. It is also understood among the parties that
shares of the Series only may be offered to the other persons identified in
paragraph (f) of Regulation Section 1.817-5, in order that the Separate Account
can rely on the look-through provisions of said paragraph.
- 4 -
<PAGE> 7
12. The Fund represents and warrants that all of its officers,
employees, investment advisers, and other individuals or entities dealing with
the money and/or securities of the Fund are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund in an amount not less than the minimal coverage as required currently
by Section 17(g) and Rule 17g-1 of the 1940 Act or related provisions as may be
promulgated from time to time. The aforesaid bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding company.
13. This Agreement shall terminate:
(a) at any time on six months' written notice by the Fund to CLICA or
on six months' written notice by CLICA to the Fund without the payment of any
penalty (provided, however, if CLICA is not able, acting in good faith, to
obtain suitable substitute investment media within six months, this Agreement
shall terminate one year from the date of the notice of termination); or
(b) at the option of CLICA or of the Fund upon institution of formal
enforcement proceedings against the Fund or the Fund's investment adviser by the
Securities and Exchange Commission, or if CLICA or the Fund is determined by the
CLICA or the Fund to have failed to perform its obligations under this Agreement
in a satisfactory manner; or
(c) upon a vote of the holders of a majority of the shares underlying
the Policies having an interest in a particular Sub-account to substitute the
shares of another investment company for the corresponding Fund shares in
accordance with the terms of the Policies for which those shares had been
selected to serve as the underlying investment medium. CLICA will give 60 days'
prior written notice to the Fund upon the occurrence of the earlier of the
following actions taken for the purpose of substituting shares of the Fund: (1)
an application made to the SEC or (2) a proposed Policy owner vote; or
(d) in the event the shares of the Fund are not registered, issued,
or sold in accordance with applicable state and/or federal law or such law
prohibits the use of such shares as an underlying investment for the Policies
issued or to be issued by CLICA. Prompt notice of such an event shall be given
by each party to the other in the event the conditions of this provision occur;
or
(e) upon assignment of this Agreement, at the option of any party not
assigning this Agreement.
- 5 -
<PAGE> 8
14. Each notice required by this Agreement shall be given in writing
and delivered via certified mail -- return receipt requested to:
David A. Hopkins, Esq.
Canada Life Insurance Company of America
6201 Powers Ferry Road, N.W.
Atlanta, Georgia 30339
Douglas V. Rough
Canada Life of America Series Fund, Inc.
330 University Avenue
Toronto, Ontario Canada M5G 1R8
15. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
The Fund agrees that all records and other data pertaining to the
Policies are the exclusive property of CLICA and that any such records and other
data shall be furnished to CLICA by the Fund upon termination of this Agreement
for any reason whatsoever. CLICA shall have the right to inspect, audit and copy
all pertinent records pertaining to the Policies. This shall not preclude the
Fund from keeping copies of such data or records for its own files subject to
the provisions of this section.
16. CLICA and the Separate Account agree to look solely to the assets
of the Fund for the satisfaction of any liability of the Fund, with respect to
this Agreement and will not seek recourse against the members of the Board of
Directors of the Fund, or its officers, employees, agents, or shareholders, or
any of them, or any of their personal assets for such satisfaction.
17. The Fund agrees to indemnify and hold harmless CLICA, each member
of its Board of Directors, each of its officers, and any person that controls
CLICA within the meaning of section 15 of the Securities Act of 1933 against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which CLICA may become subject under any statute, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements arise as a result of
CLICA's reliance on any information contained in a then-current prospectus,
Statement of Additional Information, or report of the Fund; or any current
information communicated to CLICA in writing by the Fund.
- 6 -
<PAGE> 9
The Fund shall, at all times, have the right, but not the obligation,
to take over and conduct, in the name of CLICA and/or the Separate Account, the
investigation and defense of any claim by a third party for which
indemnification may be sought, and in such event, CLICA and/or the Separate
Account shall cooperate in every way with the Fund.
18. CLICA agrees to indemnify and hold harmless the Fund, each member
of its Boards of Directors, each of its officers, and each person that controls
the Fund within the meaning of the Securities Act of 1933 against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of CLICA) or litigation (including legal and other expenses)
to which the Fund may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements arise as a result of the Fund's
reliance on any information contained in the then-current prospectus, Statement
of Additional Information, or contract of the Separate Account; or any
information communicated to the Fund in writing by CLICA.
CLICA shall, at all times, have the right, but not the obligation, to
take over and conduct, in the name of the Fund, the investigation and defense of
any claim by a third party for which indemnification may be sought, and in such
event, the Fund shall cooperate in every way with CLICA and/or the Separate
Account.
19. This Agreement shall be construed in accordance with the laws of
the State of Maryland.
20. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant and the terms hereof shall be
interpreted and construed in accordance therewith.
- 7 -
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested as of the date first above written.
CANADA LIFE INSURANCE
COMPANY OF AMERICA ON
BEHALF OF ITSELF AND
VARIABLE ANNUITY ACCOUNT 1
Attest:
By:
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
CANADA LIFE OF AMERICA SERIES
FUND, INC.
Attest:
By:
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- 8 -
<PAGE> 1
Exhibit 8(a)(b)
Participation Agreement Between Dreyfus Corporation
and
Canada Life of America
<PAGE> 2
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the _____ day of ____,1993, between_______
("Insurance Company"), a life insurance company organized under the laws of the
______ of ______, and DREYFUS VARIABLE INVESTMENT FUND ("Fund"), an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts.
ARTICLE I
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Trustees of the Fund having the
responsibility for management and control of the Fund.
1.3 "Business Day" shall mean any day for which the Fund calculates net
asset value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange Commission.
1.5 "Contract" shall mean a variable annuity contract that uses the Fund
as an underlying investment medium. Individuals who participate under
a group Contract are "Participants".
1.6 "Contractholder" shall mean any entity that is a party to a Contract
with a Participating Company.
1.7 "Disinterested Board Members, shall mean those members of the Board
that are not deemed to be "interested persons" of the Fund, as defined
by the Act.
1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates,
including Dreyfus Service Corporation.
1.9 "Participating Companies" shall mean any insurance company (including
Insurance Company), which offers variable annuity and/or variable life
insurance contracts to the public and which has entered into an
agreement with the Fund for the purpose of making Fund shares
available to serve as the underlying investment medium for the
aforesaid Contracts.
1.10 "Prospectus" shall mean the Fund's current prospectus and statement
of additional information, as most recently filed with the Commission.
<PAGE> 3
1.11 "Separate Account" shall mean ______ Variable Annuity Separate
Account, a separate account established by Insurance Company in
accordance with the laws of the ______ of _______.
1.12 "Software Program" shall mean the software program used by the Fund
for providing Fund and account balance information including net
asset value per share. Such Program may include the Lion System. In
situations where the Lion System or any other Software Program used by
the Fund is not available, such information may be provided by
telephone. The Lion System shall be provided to Insurance Company at
no charge.
1.13 Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates which invest in the
Fund.
ARTICLE II
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b)
it has legally and validly established the Separate Account pursuant
to the [NAME OF STATE INSURANCE LAWS] for the purpose of offering to
the public certain individual variable annuity contracts; (c) it has
registered the Separate Account as a unit investment trust under the
Act to serve as the segregated investment account for the Contracts;
and (d) each Separate Account is eligible to invest in shares of the
Fund without such investment disqualifying the Fund as an investment
medium for insurance company separate accounts supporting variable
annuity contracts or variable life insurance contracts.
2.2 Insurance Company represents and warrants that (a) the Contracts will
be described in a registration statement filed under the Securities
Act of 1933, as amended ("1933 Act"); (b) the Contracts will be issued
and sold in compliance in all material respects with all applicable
federal and state laws; and (c) the sale of the Contracts shall comply
in all material respects with state insurance law requirements.
Insurance Company agrees to inform the Fund promptly of any investment
restrictions imposed by state insurance law and applicable to the
Fund.
2.3 Insurance Company represents and warrants that the incomes, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be
credited to or charged against such Separate Account without regard to
other
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<PAGE> 4
income, gains or losses from assets allocated to any other accounts of
Insurance Company. Insurance Company represents and warrants that the
assets of the Separate Account are and will be kept separate from
Insurance Company's General Account and any other separate accounts
Insurance Company may have, and will not be charged with liabilities
from any business that Insurance Company may conduct or the
liabilities of any companies affiliated with Insurance Company.
2.4 Fund represents that the Fund is registered with the Commission under
the Act as an open-end, diversified management investment company and
possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for Fund to operate and
offer its shares as an underlying investment medium for Participating
Companies. The Fund has established six series of shares (each, a
"Series") and may in the future establish other series of shares.
2.5 Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), and that it will make every effort to
maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify Insurance Company
immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are
currently, and at the time of issuance will be, treated as life
insurance policies or annuity contracts, whichever is appropriate,
under applicable provisions of the Code, and that it will make every
effort to maintain such treatment and that it will notify the Fund and
Dreyfus immediately upon having a reasonable basis for believing that
the Contracts have ceased to be so treated or that they might not be
so treated in the future. Insurance Company agrees that any prospectus
offering a Contract that is a modified endowment contract, as that
term is defined in Section 7702A of the Code, will identify such
Contract as a modified endowment contract (or policy).
2.7 Fund agrees that the Fund's assets shall be managed and invested in a
manner that complies with the requirements of Section 817(h) of the
Code.
2.8 Insurance Company agrees that the Fund shall be permitted (subject to
the other terms of this Agreement) to make Series' shares available to
other Participating Companies and contractholders.
-3-
<PAGE> 5
2.9 Fund represents and warrants that any of its trustees, officers,
employees, investment advisers, and other individuals/entities who
deal with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less
than that required by Rule 17g-1 under the Act. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
2.10 Insurance Company represents and warrants that all of its employees
and agents who deal with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage in an amount not less than the coverage
required to be maintained by the Fund. The aforesaid Bond shall
include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11 Insurance Company agrees that Dreyfus shall be deemed a third party
beneficiary under this Agreement and may enforce any and all rights
conferred by virtue of this Agreement.
ARTICLE III
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in the Series' shares.
3.2 Fund agrees to make the shares of its Series available for purchase at
the then applicable net asset value per share by Insurance Company and
the Separate Account on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, the Fund may refuse to sell
the shares of any Series to any person, or suspend or terminate the
offering of the shares of any Series if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Board, acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws,
necessary and in the best interests of the shareholders of such
Series.
3.3 Fund agrees that shares of the Fund will be sold only to Participating
Companies and their separate accounts and to the general accounts of
those Participating Companies and their affiliates. No shares of any
Series will be sold to the general public.
3.4 Fund shall use its best efforts to provide closing net asset value,
dividend and capital gain information for each Series
-4-
<PAGE> 6
available on a per-share and Series basis to Insurance Company by 6:00
p.m. Eastern Time on each Business Day. Any material errors in the
calculation of net asset value, dividend and capital gain information
shall be reported immediately upon discovery to Insurance Company.
Nonmaterial errors will be corrected in the next Business Day's net
asset value per share for the Series in question.
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the
Separate Account unit values for the day. Using this unit value,
Insurance Company will process the day's Separate Account transactions
received by it by the close of trading on the floor of the New York
Stock Exchange (currently 4:00 p.m. Eastern time) to determine the net
dollar amount of Series shares which will be purchased or redeemed at
that day's closing not asset value per share for such Series. The net
purchase or redemption orders will be transmitted to the Fund by
Insurance Company by 11:00 a.m. Eastern Time on-the Business Day next
following Insurance Company's receipt of that information. Subject to
Sections 3.6 and 3.8, all purchase and redemption orders for Insurance
Company's General Accounts shall be effected at the net asset value
per share of the relevant Series next calculated after receipt of the
order by the Fund or its Transfer Agent.
3.6 Fund appoints Insurance Company as its agent for the limited purpose
of accepting orders for the purchase and redemption of shares of each
Series for the Separate Account. Fund will execute orders for any
Series at the applicable net asset value per share determined as of
the close of trading on the day of receipt of such orders by Insurance
Company acting as agent ("effective trade date"), provided that the
Fund receives notice of such orders by 11:00 a.m. Eastern Time on the
next following Business Day and, if such orders request the purchase
of Series shares, the conditions specified in Section 3.8, as
applicable, are satisfied. A redemption or purchase request for any
Series that does not satisfy the conditions specified above and in
Section 3.8, as applicable, will be effected at the not asset value
computed for such Series on the Business Day immediately preceding the
next following Business Day upon which such conditions have been
satisfied.
3.7 Insurance Company will make its beat efforts to notify Fund in advance
of any unusually large purchase or redemption orders.
3.8 If Insurance Company's order requests the purchase of Series shares,
Insurance Company will pay for such purchases by wiring Federal Funds
to Fund or its designated custodial
-5-
<PAGE> 7
account on the day the order is transmitted. Insurance Company shall
make all reasonable efforts to transmit to the Fund payment in Federal
Funds by 12:00 noon Eastern Time on the Business Day the Fund receives
the notice of the order pursuant to Section 3.5. Fund will execute
such orders at the applicable net asset value per share determined as
of the close of trading on the effective trade date if Fund receives
payment in Federal Funds by 12:00 midnight Eastern Time on the
Business Day the Fund receives the notice of the order pursuant to
Section 3.5. If payment in Federal Funds for any purchase is not
received or is received by the Fund after 12:00 noon Eastern Time on
such Business Day, Insurance Company shall promptly upon the Fund's
request, reimburse the Fund for any charges, costs, fees, interest or
other expenses incurred by the Fund in connection with any advances
to, or borrowings or overdrafts by, the Fund, or any similar expenses
incurred by the Fund, as a result of portfolio transactions effected
by the Fund based upon such purchase request. If Insurance Company's
order requests the redemption of Series shares valued at or greater
than $1 million dollars, the Fund will wire such amount to Insurance
Company within seven days of the order.
3.9 Fund has the obligation to ensure that Series shares are registered
with applicable federal agencies at all times.
3.10 Fund will confirm each purchase or redemption order made by Insurance
Company. Transfer of Series shares will be by book entry only. No
share certificates will be issued to Insurance Company. Insurance
Company will record shares ordered from Fund in an appropriate title
for the corresponding account.
3.11 Fund shall credit Insurance Company with the appropriate number of
shares.
3.12 On each ex-dividend date of the Fund or, if not a Business Day, on the
first Business Day thereafter, Fund shall communicate to Insurance
Company the amount of dividend and capital gain, if any, per share of
each Series. All dividends and capital gains of any Series shall be
automatically reinvested in additional shares of the relevant Series
at the applicable net asset value per share of such Series on the
payable date. Fund shall, on the day after the payable date or, if not
a Business Day, on the first Business Day thereafter, notify Insurance
Company of the number of shares so issued.
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<PAGE> 8
ARTICLE IV
STATEMENTS AND REPORTS
4.1 Fund shall provide monthly statements of account as of the end of each
month for all of Insurance Company's accounts by the fifteenth (15th)
Business Day of the following month.
4.2 Fund shall distribute to Insurance Company copies of the Fund's
Prospectuses, proxy materials, notices, periodic reports and other
printed materials (which the Fund customarily provides to its
shareholders) in quantities as Insurance Company may reasonably
request for distribution to each Contractholder and Participant.
4.3 Fund will provide to Insurance Company at least one complete copy of
all registration statements, Prospectuses, reports, proxy statements,
sales literature and other promotional materials, applications for
exemptions, requests for noaction letters, and all amendments to any
of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Commission or other
regulatory authorities.
4.4 Insurance Company will provide to the Fund at least one copy of all
registration statements, Prospectuses, reports proxy statements, sales
literature and other promotional materials, applications for
exemptions, requests for noaction letters, and all amendments to any
of the above, that relate to the Contracts or the Separate Account,
contemporaneously with the filing of such document with the
Commission.
ARTICLE V
EXPENSES
5.1 The charge to the Fund for all expenses and costs of the Series,
including but not limited to management fees, administrative expenses
and legal and regulatory costs, will be made in the determination of
the relevant Series' daily net asset value per share so as to
accumulate to an annual charge at the rate set forth in the Fund's
Prospectus. Excluded from the expense limitation described herein
shall be brokerage commissions and transaction fees and extraordinary
expenses.
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of the Fund or expenses relating to the distribution of its
shares. Insurance Company shall pay the following expenses or costs:
-7-
<PAGE> 9
a. Such amount of the production expenses of any Fund materials,
including the cost of printing the Fund's Prospectus, or
marketing materials for prospective Insurance Company
Contractholders and Participants as Dreyfus and Insurance
Company shall agree from time to time.
b. Distribution expenses of any Fund materials or marketing
materials for prospective Insurance Company Contractholders
and Participants.
c. Distribution expenses of Fund materials or marketing
materials for Insurance Company Contractholders and
Participants.
Except as provided herein, all other Fund expenses shall not be borne
by Insurance Company.
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of the order dated December 23,
1987 of the Securities and Exchange Commission under Section 6(c) of
the Act and, in particular, has reviewed the conditions to the relief
set forth in the related Notice. As set forth therein, Insurance
Company agrees to report any potential or existing conflicts promptly
to the Board, and in particular whenever contract voting instructions
are disregarded, and recognizes that it will be responsible for
assisting the Board in carrying out its responsibilities under such
application. Insurance Company agrees to carry out such
responsibilities with a view to the interests of existing
Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists
with regard to Contractholder investments in the Fund, the Board shall
give prompt notice to all Participating Companies. If the Board
determines that Insurance Company is responsible for causing or
creating said conflict, Insurance Company shall at its sole cost and
expense, and to the extent reasonably practicable (as determined by a
majority of the Disinterested Board Members), take such action as is
necessary to remedy or eliminate the irreconcilable material conflict.
Such necessary action may include, but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from
the Series and reinvestinq such assets in a different
investment medium, or submitting the question of whether such
segregation should be
-8-
<PAGE> 10
implemented to a vote or all affected Contractholders; and/or
b. Establishing a new registered management investment company.
6.3 If a material irreconcilable conflict arises as a result of a decision
by Insurance Company to disregard Contractholder voting instructions
and said decision represents a minority position or would preclude a
majority vote by all Contractholders having an interest in the Fund,
Insurance Company may be required, at the Board's election, to withdraw
the Separate Account's investment in the Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will
the Fund be required to bear the expense of establishing a new funding
medium for any Contract. Insurance Company shall not be required by
this Article to establish a new funding medium for any Contract if an
offer to do so has been declined by vote of a majority of the
Contractholders materially adversely affected by the irreconcilable
material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or the Fund taken or omitted as a result of any act
or failure to act by Insurance Company pursuant to this Article VI
shall relieve Insurance Company of its obligations under, or otherwise
affect the operation of, Article V.
ARTICLE VII
VOTING OF FUND SHARES
7.1 Fund shall provide Insurance Company with copies at no cost to
Insurance Company, of the Fund's proxy material, reports to
shareholders and other communications to shareholders in such quantity
as Insurance Company shall reasonably require for distributing to
Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or
Participants on a timely basis and in accordance with
applicable law;
(b) vote the Series shares in accordance with instructions
received from Contractholders or Participants; and
-9-
<PAGE> 11
(c) vote Series shares for which no instructions have been
received in the same proportion as Series shares for which
instructions have been received.
Insurance Company agrees at all times to vote its General Account
shares in the same proportion as Series shares for which instructions
have been received from Contractholders or Participants. Insurance
Company further agrees to be responsible for assuring that voting Fund
shares for the Separate Account is conducted in a manner consistent
with other Participating Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of the Fund and Dreyfus, solicit, induce or encourage
Contractholders to (a) change or supplement the Fund's current
investment adviser or (b) change, modify, substitute, add to or delete
the Fund from the current investment media for the Contracts.
ARTICLE VIII
MARKETING AND REPRESENTATIONS
8.1 The Fund or its underwriter shall periodically furnish Insurance
Company with the following documents, in quantities as Insurance
Company may reasonably request:
a. Current Prospectus and any supplements thereto;
b. other marketing materials.
Expenses for the production of such documents shall be borne by
Insurance Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities which
shall have the requisite licenses to solicit applications for the sale
of Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to
the Fund, each piece of sales literature or other promotional material
in which the Fund, its investment adviser or the administrator is
named, at least fifteen Business Days prior to its use. No such
material shall be used unless the Fund approves such material. Such
approval (if given) must be in writing and shall be presumed not given
if not received within ten Business Days after receipt
-10-
<PAGE> 12
of such material. The Fund shall use all reasonable efforts to respond
within ten days of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the
Fund or any Series in connection with the sale of the Contracts other
than the information or representations contained in the registration
statement or Prospectus, as may be amended or supplemented from time
to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund.
8.5 Fund shall furnish, or shall cause to be furnished, to Insurance
Company, each piece of the Fund's sales literature or other
promotional material in which Insurance Company or the Separate
Account is named, at least fifteen Business Days prior to its use. No
such material shall be used unless Insurance Company approves such
material. Such approval (if given) must be in writing and shall be
presumed not given if not received within ten Business Days after
receipt of such material. Insurance Company shall use all reasonable
efforts to respond within ten days of receipt.
8.6 Fund shall not, in connection with the sale of Series shares, give any
information or make any representations on behalf of Insurance Company
or concerning Insurance Company, the Separate Account, or the
Contracts other than the information or representations contained in a
registration statement or prospectus for the Contracts, as may be
amended or supplemented from time to time, or in published reports for
the Separate Account which are in the public domain or approved by
Insurance Company for distribution to Contractholders or Participants,
or in sales literature or other promotional material approved by
Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed
for use, in a newspaper, magazine or other periodical, radio,
television, telephone or tape recording, videotape display, signs or
billboards, motion pictures or other public media), sales literature
(such as any written communication distributed or made generally
available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or
reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other
communications distributed or made generally available to some or all
agents or employees, registration statements, prospectuses, statements
of additional information, shareholder reports
-11-
<PAGE> 13
and proxy materials, and any other material constituting sales
literature or advertising under National Association of Securities
Dealers, Inc. rules, the Act or the 1933 Act.
ARTICLE IX
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless the Fund,
Dreyfus, any sub-investment adviser of a Series, and their
affiliates, and each of their directors, trustees, officers,
employees, agents and each person, if any, who controls or is
associated with any of the foregoing entities or persons within the
meaning of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of Section 9.1), against any and all losses, claims, damages
or liabilities joint or several (including any investigative, legal
and other expenses reasonably incurred in connection with, and any
amounts paid in settlement of, any action, suit or proceeding or any
claim asserted) for which the Indemnified Parties may become subject,
under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect to thereof) (i) arise
out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in information furnished by
Insurance Company for use in the registration statement or Prospectus
or sales literature or advertisements of the Fund or with respect to
the Separate Account or Contracts, or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading; (ii) arise out of or as a result of conduct,
statements or representations (other than statements or
representations contained in the Prospectus and sales literature or
advertisements of the Fund) of Insurance Company or its agents, with
respect to the sale and distribution of Contracts for which Series'
shares are an underlying investment; (iii) arise out of the wrongful
conduct of Insurance Company or persons under its control with respect
to the sale or distribution of the Contracts or Series' shares; (iv)
arise out of Insurance Company's incorrect calculation and/or untimely
reporting of net purchase or redemption orders; or (v) arise out of
any breach by Insurance Company of a material term of this Agreement
or as a result of any failure by Insurance Company to provide the
services and furnish the materials or to make any payments provided
for in this Agreement. Insurance Company will reimburse any
Indemnified Party in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that
with respect to clauses (i) and (ii) above Insurance Company will not
be liable in any such case to the extent that any such
-12-
<PAGE> 14
loss, claim, damage or liability arises out of or is based upon any
untrue statement or omission or alleged omission made in such
registration statement, prospectus sales literature, or advertisement
in conformity with written information furnished to Insurance Company
by the Fund specifically for use therein. This indemnity agreement
will be in addition to any liability which Insurance Company may
otherwise have.
9.2 The Fund agrees to indemnify and hold harmless Insurance Company and
each of its directors, officers, employees, agents and each person, if
any, who controls Insurance Company within the meaning of the 1933 Act
against any losses, claims, damages or liabilities to which Insurance
Company or any such director, officer, employee agent or controlling
person may become subject, under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) (1) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or
advertisements of the Fund; (2) arise out of or are based upon the
omission to state in the registration statement or Prospectus or sales
literature or advertisements of the Fund any material fact required to
be stated therein or necessary to make the statements therein not
misleading; or (3) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or
advertisements with respect to the Separate Account or the Contracts
and such statements were based on information provided to Insurance
Company by the Fund; and the Fund will reimburse any legal or other
expenses reasonably incurred by Insurance Company or any such
director, officer, employee agent or controlling person in connection
with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Fund will not be
liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement
or omission or alleged omission made in such Registration Statement,
Prospectus, sales literature or advertisements in conformity with
written information furnished to the Fund by Insurance Company
specifically for use therein. This indemnity agreement will be in
addition to any liability which the Fund may otherwise have.
9.3 The Fund shall indemnify and hold Insurance Company harmless against
any and all liability, loss, damages, costs or expenses which
Insurance Company may incur, suffer or be required to pay due to the
Fund's (1) incorrect calculation of the daily net asset value,
dividend rate or capital gain distribution rate of a Series; (2)
incorrect reporting of
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<PAGE> 15
the daily net asset value, dividend rate or capital gain distribution
rate; and (3) untimely reporting of the net asset value, dividend rate
or capital gain distribution rate; provided that the Fund shall have
no obligation to indemnify and hold harmless Insurance Company if the
incorrect calculation or incorrect or untimely reporting was the
result of incorrect information furnished by Insurance Company or
information furnished untimely by Insurance Company or otherwise as a
result of or relating to a breach of this Agreement by Insurance
Company.
9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party under this Article, notify the indemnifying party of the
commencement thereof. The omission to so notify the indemnifying party
will not relieve the indemnifying party from any liability under this
Article IX, except to the extent that the omission results in a
failure of actual notice to the indemnifying party and such
indemnifying party is damaged solely as a result of the failure to
give such notice. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such indemnified party,
and to the extent that the indemnifying party has given notice to such
effect to the indemnified party and is performing its obligations
under this Article, the indemnifying party shall not be liable for any
legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof, other than reasonable
costs of investigation. Notwithstanding the foregoing, in any such
proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party
and the indemnified party shall have mutually agreed to the retention
of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the
same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its
written consent.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article IX.
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<PAGE> 16
9.5 Insurance Company shall indemnify and hold the Fund, Dreyfus and any
sub-investment adviser of a Series harmless against any tax liability
incurred by the Fund under Section 851 of the Code arising from
purchases or redemptions by Insurance Company's General Accounts or
the account of its affiliates.
ARTICLE X
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions
herein.
10.2 This Agreement shall terminate without penalty as to one or more
Series at the option of the terminating party:
a. At the option of Insurance Company or the Fund at any time
from the date hereof upon 180 days' notice, unless a shorter
time is agreed to by the parties;
b. At the option of Insurance Company, if shares of any Series
are not reasonably available to meet the requirements of the
Contracts as determined by Insurance Company. Prompt notice
of election to terminate shall be furnished by Insurance
Company, said termination to be effective ten days after
receipt of notice unless the Fund makes available a
sufficient number of shares to meet the requirements of the
Contracts within said ten-day period;
C. At the option of Insurance Company, upon the institution of
formal proceedings against the Fund by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in Insurance Company's reasonable
judgment, materially impair the Fund's ability to meet and
perform the Fund's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by
Insurance Company with said termination to be effective upon
receipt of notice;
d. At the option of the Fund, upon the institution of formal
proceedings against Insurance Company by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in the Fund's reasonable
judgment, materially impair Insurance Company's ability to
meet and perform Insurance Company's obligations and duties
hereunder. Prompt notice of election to terminate shall be
-15-
<PAGE> 17
furnished by the Fund with said termination to be effective
upon receipt of notice;
e. At the option of the Fund, if the Fund shall determine, in
its sole judgment reasonably exercised in good faith, that
Insurance Company has suffered a material adverse change in
its business or financial condition or is the subject of
material adverse publicity and such material adverse change
or material adverse publicity is likely to have a material
adverse impact upon the business and operation of the Fund or
Dreyfus, the Fund shall notify Insurance Company in writing
of such determination and its intent to terminate this
Agreement, and after considering the actions taken by
Insurance Company and any other changes in circumstances
since the giving of such notice, such determination of the
Fund shall continue to apply on the sixtieth (60th) day
following the giving of such notice, which sixtieth day shall
be the effective date of termination;
f. Upon termination of the Investment Advisory Agreement between
the Fund and Dreyfus or its successors unless Insurance
Company specifically approves the selection of a new Fund
investment adviser. The Fund shall promptly furnish notice of
such termination to Insurance Company;
g. In the event the Fund's shares are not registered, issued or
sold in accordance with applicable federal law, or such law
precludes the use of such shares an the underlying investment
medium of Contracts issued or to be issued by Insurance
Company. Termination shall be effective immediately upon such
occurrence without notice;
h. At the option of the Fund upon a determination by the Board
in good faith that it is no longer advisable and in the best
interests of shareholders for the Fund to continue to operate
pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by the Fund to
Insurance Company of such termination;
i. At the option of the Fund if the Contracts cease to qualify
as annuity contracts or life insurance policies, as
applicable, under the Code, or if the Fund reasonably
believes that the Contracts may fail to so qualify;
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<PAGE> 18
j. At the option of either party to this Agreement, upon another
party's breach of any material provision of this Agreement;
k. At the option of the Fund, if the Contracts are not
registered, issued or sold in accordance with applicable
federal and/or state law; or
l. Upon assignment of this Agreement, unless made with the
written consent of the non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, the Fund and Dreyfus may, at the option of the Fund,
continue to make available additional Series shares for so long as the
Fund desires pursuant to the terms and conditions of this Agreement as
provided below, for all Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, if the Fund or Dreyfus
so elects to make additional Series shares available, the owners of
the Existing Contracts or Insurance Company, whichever shall have
legal authority to do so, shall be permitted to reallocate investments
in the Series, redeem investments in the Fund and/or invest in the
Fund upon the making of additional purchase payments under the
Existing Contracts. In the event of a termination of this Agreement
pursuant to Section 10.2 hereof, the Fund and Dreyfus, as promptly an
is practicable under the circumstances, shall notify Insurance Company
whether Dreyfus and the Fund will continue to make Series shares
available after such termination. If Series shares continue to be made
available after such termination, the provisions of this Agreement
shall remain in effect and thereafter either the Fund or Insurance
company may terminate the Agreement, as so continued pursuant to this
Section 10.3, upon prior written notice to the other party such notice
to be for a period that is reasonable under the circumstances but, if
given by the Fund, need not be for more than six months.
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<PAGE> 19
ARTICLE XI
AMENDMENTS
11.1 Any other changes in the terms of this Agreement shall be
made by agreement in writing between Insurance Company and
Fund.
ARTICLE XII
NOTICE
12.1 Each notice required by this Agreement shall be given by
certified mail, return receipt requested to the appropriate
parties at the following addresses:
Insurance Company:
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
Attn:
----------------------------------
Fund: Dreyfus Variable Investment Fund
200 Park Avenue
New York, New York 10166
Attn: Daniel C. Maclean, Secretary
with copies to: Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004-2696
Attn: Lewis G. Cole, Esq.
Stuart R. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by
the addresses as evidenced by the return receipt.
ARTICLE XIII
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer
of the Fund. The obligations of this Agreement shall only be
binding upon the assets and property of the Fund and shall
not be binding upon any Trustee, officer or shareholder of
the Fund individually.
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<PAGE> 20
ARTICLE XIV
LAW
14.1 This Agreement shall be construed in accordance with the
internal laws of the State of New York, without giving effect
to principles of conflict of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be duly executed and attested as of the date first above written.
[NAME OF INSURANCE COMPANY]
By:
------------------------------------
Its:
------------------------------------
Attest:
-----------------------------
DREYFUS VARIABLE INVESTMENT FUND
By:
------------------------------------
Its:
------------------------------------
Attest:
-----------------------------
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<PAGE> 1
Exhibit 8(a)(c)
Participation Agreement Between Montgomery Asset Management, L.P.
and
Canada Life of America
-25-
<PAGE> 2
PARTICIPATION AGREEMENT
By and Among
CANADA LIFE INSURANCE COMPANY OF AMERICA
And
MONTGOMERY FUNDS III
And
MONTGOMERY ASSET MANAGEMENT, L.P.
THIS AGREEMENT, made and entered into this 1st day of May, 1996 by and among
Canada Life Insurance Company of America, organized under the laws of the
State of Michigan (the "Company"), on its own behalf and on behalf of each
separate account of the Company named in Schedule I to this Agreement, as may
be amended from time to time (each account referred to as the "Account"),
Montgomery Funds III, an open-end management investment company and business
trust organized under the laws of the State of Delaware (the "Fund") and
Montgomery Asset Management, L.P., a limited partnership organized under the
laws of the State of California (the "Adviser").
WHEREAS, the Fund engages in business as an open-end management investment
company and was established for the purpose of serving as the investment
vehicle for separate accounts established for variable life insurance contracts
and variable annuity contracts to be offered by insurance companies which have
entered into participation agreements substantially identical to this Agreement
(the "Participating Insurance Companies"), and
<PAGE> 3
WHEREAS, beneficial interests in the Fund are divided into several series of
shares, each representing the interest in a particular managed portfolio of
securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has received an order from the Securities & Exchange
Commission (alternatively referred to as the "SEC" or the "Commission")
granting Participating Insurance Companies and variable annuity separate
accounts and variable life insurance separate accounts relief from the
provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity separate accounts and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies and qualified pension and retirement plans outside of the
separate account context (the "Mixed and Shared Funding Exemptive Order"). The
parties to this Agreement agree to the conditions or undertakings specified in
the Mixed and Shared Funding Exemptive Order and that may be imposed on the
Company, the Fund and/or the Adviser by virtue of the receipt of such order by
the SEC will be incorporated herein by reference, and such parties agree to
comply with such conditions and undertakings to the extent applicable to each
such party; and
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and its shares are registered under the Securities Act of
1933, as amended (the "1933 Act"); and
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<PAGE> 4
WHEREAS,, the Company has registered or will register certain variable annuity
contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of the Company
under the insurance laws of the State of Michigan, to set aside and invest
assets attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit investment trust
under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the Portfolios named in Schedule 2, as
such schedule may be amended from time to time (the "Designated Portfolios") on
behalf of the Account to fund the Contracts, and the Fund is authorized to sell
such shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Adviser agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Fund agrees to sell to the Company those shares of the
Designated Portfolios which each Account orders, executing such
orders on a daily basis at the net asset value next computed
after receipt and acceptance by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section
1.1, the Company
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<PAGE> 5
will be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee will constitute receipt
by the Fund; provided that the Fund receives notice of such order
by 9:00 a.m. Central Time on the next following business day.
"Business Day" will mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its
net asset value pursuant to the rules of the SEC.
1.2. The Company will pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with
Section 1.1 above. Payment will be in federal funds transmitted
by wire except for amounts less than $500, which may be paid by
check or by another method acceptable to the parties.
1.3. The Fund agrees to make shares of the Designated Portfolios
available indefinitely for purchase at the applicable net asset
value per share by Participating Insurance Companies and their
separate accounts on those days on which the Fund calculates its
Designated Portfolio net asset value pursuant to rules of the
SEC; provided, however, that the Board of Trustees of the Fund
(the "Fund Board") may refuse to sell shares of any Portfolio to
any person, or suspend or terminate the offering of shares of any
Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of
the Fund Board, acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of such
Portfolio.
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<PAGE> 6
1.4. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as
are permitted under applicable provisions of the Internal Revenue
Code of 1986, as amended, (the "Internal Revenue Code"), and
regulations promulgated thereunder, the sale to which will not
impair the tax treatment currently afforded the Contracts. No
shares of any Portfolio will be sold to the general public.
1.5. The Fund will not sell Fund shares to any insurance company or
separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, and VII of this
Agreement are in effect to govern such sales.
1.6. The Fund agrees to redeem for cash, upon the Company's request,
any full or fractional shares of the Fund held by the Company,
executing such requests on a daily basis at the net asset value
next computed after receipt and acceptance by the Fund or its
agent of the request for redemption. For purposes of this
Section 1.6, the Company will be the designee of the Fund for
receipt of requests for redemption from each Account and receipt
by such designee will constitute receipt by the Fund; provided
the Fund receives notice of such requests for redemption by 9:00
a.m. Central Time on the next following Business Day. Payment
will be in federal funds transmitted by wire to the Company's
account as designated by the Company in writing from time to
time, on the same Business Day the Fund receives notice of the
redemption order from the Company, except for amounts less than
$500 which may be paid by check or by another method acceptable
to the
-5-
<PAGE> 7
parties. The Fund reserves the right to delay payment of
redemption proceeds, but in no event may such payment be delayed
longer than the period permitted under Section 22(e) of the 1940
Act. The Fund will not bear any responsibility whatsoever for
the proper disbursement or crediting of redemption proceeds; the
Company alone will be responsible for such action. If
notification of redemption is received after 9:00 a.m. Central
Time, payment for redeemed shares will be made on the next
following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the
Designated Portfolios offered by the then current prospectus of
the Fund in accordance with the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or to
any Account. Purchase and redemption orders for Fund shares will
be recorded in an appropriate tide for each Account or the
appropriate subaccount of each Account.
1.9. The Fund will furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of the
declaration of any income, dividends or capital gain
distributions payable on each Designated Portfolio's shares. The
Company hereby elects to receive all such dividends and
distributions as are payable on the Portfolio shares in the form
of additional shares of that Portfolio. The Company reserves the
right to revoke this election and to receive all such
-6-
<PAGE> 8
dividends and distributions in cash. The Fund will notify the
Company of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Fund will make the net asset value per share for each
Designated Portfolio available to the Company on a daily basis as
soon as reasonably practical after the net asset value per share
is calculated and will use its best efforts to make such net
asset value per share available by 5:00 p.m., Central Time, each
business day.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act and that the Contracts will
be issued and sold in compliance with all applicable federal and
state laws, including state insurance suitability requirements.
The Company further represents and warrants that it is an
insurance company duly organized and in good standing under
applicable law and that it has legally and validly established
each Account as a separate account under applicable state law and
has registered each such account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts, and that it will
maintain such registration for so long as any Contracts are
outstanding. The Company will amend the registration statement
under the 1933 Act for the Contracts and the registration
statement under the 1940 Act for the Account from time to time as
required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The
Company will register and qualify the Contracts for sale in
accordance with the
-7-
<PAGE> 9
securities laws of the various states only if and to the extent
deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently and at
the time of issuance will be treated as annuity contracts under
applicable provisions of the Internal Revenue Code of 1986, as
amended, and that it will make every effort to maintain such
treatment and that it will notify the Fund and the Adviser
immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be
so treated in the future.
2.3. The Company represents and warrants that it will not purchase
shares of the Designated Portfolios with assets derived from
tax-qualified retirement plans except, indirectly, through
Contracts purchased in connection with such plans.
2.4. The Fund represents and warrants that Fund shares of the
Designated Portfolios sold pursuant to this Agreement will be
registered under the 1933 Act and duly authorized for issuance in
accordance with applicable law and that the Fund is and will
remain registered under the 1940 Act for as long as such shares
of the Designated Portfolios are sold. The Fund will amend the
registration statement for its shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Fund will register and
qualify the shares of the Designated Portfolios for sale in
accordance with the laws of the various states only if and to the
extent deemed advisable by the Fund.
-8-
<PAGE> 10
2.5. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue
Code, and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar
provision) and that it will notify the Company immediately upon
having a reasonable basis for believing that it has ceased to so
qualify or that it might not so qualify in the future.
2.6. The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they
may apply to the Fund. The Fund makes no representation as to
whether any aspect of its operations (including, but not limited
to, fees and expenses and investment policies, objectives and
restrictions) complies with the insurance laws and regulations of
any state. The Company alone will be responsible for informing
the Fund of any insurance restrictions imposed by state insurance
laws which are applicable to the Fund. To the extent feasible
and consistent with market conditions, the Fund will adjust its
investments to comply with the aforementioned state insurance
laws upon written notice from the Company of such requirements
and proposed adjustments, it being agreed and understood that in
any such case the Fund will be allowed a reasonable period of
time under the circumstances after receipt of such notice to make
any such adjustment. The Fund and the Adviser agree that they
will furnish the information required by state insurance laws so
that the Company can obtain the authority needed to issue the
Contracts in the various states.
-9-
<PAGE> 11
2.7. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule l2b-1 under the
1940 Act or otherwise, although it reserves the right to make
such payments in the future. To the extent that it decides to
finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have the trustees of its Fund Board, a majority of
whom are not "interested" persons of the Fund, formulate and
approve any plan under Rule 12b-1 to finance distribution
expenses.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does
and will comply in all material respects with applicable
provisions of the 1940 Act.
2.9. The Adviser represents and warrants that it is and will remain
duly registered under all applicable federal and state securities
laws and that it will perform its obligations for the Fund in
accordance in all material respects with the laws of the State
of California and any applicable state and federal securities
laws.
2.10. The Fund represents and warrants that all of its trustees,
officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities
of the Fund are and continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required
currently by Rule 17g-(1) of the 1940 Act or related provisions
as may be promulgated from time to time. The aforesaid
-10-
<PAGE> 12
bond includes coverage for larceny and embezzlement and is issued
by a reputable bonding company.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS: VOTING
3.1. The Fund will provide the Company, at the Fund's expense, with as
many copies of the current Fund prospectus for the Designated
Portfolios as the Company may reasonably request for
distribution, at the Company's expense, to prospective
contractowners and applicants. The Fund will provide, at the
Fund's expense, as many copies of said prospectus as necessary
for distribution, at the Fund's expense, to existing
contractowners. The Fund will provide the copies of said
prospectus to the Company or to its mailing agent. The Company
will distribute the prospectus to existing contractowners and
will bill the Fund for the reasonable cost of such distribution.
If requested by the Company in lieu thereof, the Fund will
provide such documentation, including a final copy of a current
prospectus set in type at the Fund's expense, and other
assistance as is reasonably necessary in order for the Company at
least annually (or more frequently if the Fund prospectus is
amended more frequently) to have the new prospectus for the
Contracts and the Fund's new prospectus printed together, in
which case the Fund will pay its share of reasonable expenses
directly related to the required disclosure of information
concerning the Fund.
3.2. The Fund's prospectus will state that the statement of additional
information for the Fund is available from the Company. The Fund
will provide the Company, at the
-11-
<PAGE> 13
Fund's expense, with as many copies of the statement of
additional information as the Company may reasonably request for
distribution, at the Company's expense, to prospective
contractowners and applicants. The Fund will provide,
at the Fund's expense, as many copies of said statement of
additional information as necessary for distribution, at the
Fund's expense, to any existing contractowner who requests such
statement or whenever state or federal law otherwise requires
that such statement be provided. The Fund will provide the
copies of said statement of additional information to the Company
or to its mailing agent. The Company will distribute the
statement of additional information as requested or required and
will bill the Fund for the reasonable cost of such distribution.
3.3. The Fund, at its expense, will provide the Company or its mailing
agent with copies of its proxy material, if any, reports to
shareholders and other communications to shareholders in such
quantity as the Company will reasonably require. The Company
will distribute this proxy material, reports and other
communications to existing contractowners and will bill the Fund
for the reasonable cost of such distribution.
3.4. If and to the extent required by law the Company will:
(a) solicit voting instructions from contractowners;
(b) vote the shares of the Designated Portfolios held in the
Account in accordance with instructions received from
contractowners; and
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<PAGE> 14
(c) vote shares of the Designated Portfolios held in the
Account for which no timely instructions have been
received, in the same proportion as shares of such
Designated Portfolio for which instructions have been
received from the Company's contractowners;
so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass-through voting privileges for
variable contractowners. The Company reserves the right to
vote Fund shares held in any segregated asset account in its own
right, to the extent permitted by law. Participating Insurance
Companies will be responsible for assuring that each of their
separate accounts participating in the Fund calculates voting
privileges in a manner consistent with all legal requirements,
including the Mixed and Shared Funding Exemptive Order.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular, the Fund
either will provide for annual meetings (except insofar as the
SEC may interpret Section 16 of the 1940 Act not to require such
meetings) or, as the Fund currently intends, to comply with
Section 16(c) of the 1940 Act (although the Fund is not one of
the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further,
the Fund will act in accordance with the SEC's interpretation of
the requirements of Section 16(a) with respect to periodic
elections of directors and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
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<PAGE> 15
4.1. The Company will furnish, or will cause to be furnished, to the
Fund or the Adviser, each piece of sales literature or other
promotional material in which the Fund or the Adviser is named,
at least ten (10) Business Days prior to its use. No such
material will be used if the Fund or the Adviser reasonably
objects to such use within five (5) Business Days after receipt
of such material.
4.2. The Company will not give any information or make any
representations or statements on behalf of the Fund or
concerning the Fund in connection with the sale of the Contracts
other than the information or representations contained in the
registration statement, prospectus or statement of additional
information for Fund shares, as such registration statement,
prospectus and statement of additional information may be amended
or supplemented from time to time, or in reports or proxy
statements for the Fund, or in published reports for the Fund
which are in the public domain or approved by the Fund or the
Adviser for distribution, or in sales literature or other
material provided by the Fund or by the Adviser, except with
permission of the Fund or the Adviser. The Fund and the Adviser
agree to respond to any request for approval on a prompt and
timely basis. Nothing in this Section 4.2 will be construed as
preventing the Company or its employees or agents from giving
advice on investment in the Fund.
4.3. The Fund or the Adviser will furnish, or will cause to be
furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company or
its separate account is named, at least ten (10) Business Days
prior to its use. No such material will be used if the Company
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<PAGE> 16
reasonably objects to such use within five (5) Business Days
after receipt of such material.
4.4. The Fund and the Adviser will not give any information or make
any representations or statements on behalf of the Company or
concerning the Company, each Account, or the Contracts other than
the information or representations contained in a registration
statement, prospectus or statement of additional information for
the Contracts, as such registration statement, prospectus and
statement of additional information may be amended or
supplemented from time to time, or in published reports for each
Account or the Contracts which are in the public domain or
approved by the Company for distribution to contractowners, or
in sales literature or other material provided by the Company,
except with permission of the Company. The Company agrees to
respond to any request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, statements of
additional information, reports, proxy statements, sales
literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to
any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of each such document with the
SEC or the NASD.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, statements of
additional information, reports,
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<PAGE> 17
solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for
no action letters, and all amendments to any of the above, that
relate to the Contracts or each Account, contemporaneously with
the filing of each such document with the SEC or the NASD.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to,
advertisements (such as material published, or designed for use
in, a newspaper, magazine, or other periodical, radio,
television, telephone or tape recording, videotape display, signs
or billboards, motion pictures, or other public media, (i.e.,
on-line networks such as the Internet or other electronic
messages)), sales literature (i.e., any written communication
distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market
letters, form letters, seminar texts, reprints or excerpts of any
other advertisement, sales literature, or published article),
educational or training materials or other communications
distributed or made generally available to some or all agents or
employees, registration statements, prospectuses, statements of
additional information, shareholder reports, and proxy materials
and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.8. The Fund and the Adviser hereby consent to the Company's use of
the names Montgomery, Montgomery Funds III, Montgomery Variable
Series and Montgomery Asset Management, in connection with
marketing the Contracts,
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<PAGE> 18
subject to the terms of Sections 4.1 and 4.2 of this Agreement.
Such consent will terminate with the termination of this
Agreement.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund will pay no fee or other compensation to the Company
under this Agreement, except as provided below: (a) if the Fund
or any Designated Portfolio adopts and implements a plan pursuant
to Rule l2b-1 under the 1940 Act to finance distribution
expenses, then, subject to obtaining any required exemptive
orders or other regulatory approvals, the Fund may make payments
to the Company or to the underwriter for the Contracts if and in
such amounts agreed to by the Fund in writing; (b) the Fund may
pay fees to the Company for services provided to contractowners
that are not primarily intended to result in the sale of shares
of the Designated Portfolio or of underlying Contracts.
5.2. All expenses incident to performance by the Fund of this
Agreement will be paid by the Fund to the extent permitted by
law. All shares of the Designated Portfolios will be duly
authorized for issuance and registered in accordance with
applicable federal law and, to the extent deemed advisable by the
Fund, in accordance with applicable state law, prior to sale.
The Fund will bear the expenses for the cost of registration and
qualification of the Fund's shares; preparation and filing of the
Fund's prospectus, statement of additional information and
registration statement, proxy materials and reports; setting the
Fund's prospectus in type; setting in type and printing proxy
materials and reports to
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<PAGE> 19
contractowners, (including the costs of printing a Fund
prospectus that constitutes an annual report); the preparation of
all statements and notices required by any federal or state law;
all taxes on the issuance or transfer of the Fund's shares; any
expenses permitted to be paid or assumed by the Fund pursuant to
a plan, if any, under Rule l2b-1 under the 1940 Act; and all
other typesetting, printing and distribution expenses as set
forth in Article III of this Agreement.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as
variable annuity contracts under the Internal Revenue Code and
the regulations issued thereunder. Without limiting the scope of
the foregoing, the Fund will comply with Section 817(h) of the
Internal Revenue Code and Treasury Regulation 1.817-5, as amended
from time to time, relating to the diversification requirements
for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or
Regulation in accordance with guidelines provided by the Company
prior to the execution of this Agreement and as necessary
thereafter. In the event of a breach of this Article VI by the
Fund, it will take all reasonable steps: (a) to notify the
Company of such breach; and (b) to adequately diversify the Fund
so as to achieve compliance within the grace period afforded by
Treasury Regulation 1.817-5.
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<PAGE> 20
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Fund Board will monitor the Fund for the existence of any
irreconcilable material conflict among the interests of the
contractowners of all separate accounts investing in the Fund.
An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretative
letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference
in voting instructions given by Participating Insurance Companies
or by variable annuity and variable life insurance
contractowners; or (f) a decision by an insurer to disregard the
voting instructions of contractowners. The Fund Board will
promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications
thereof. A majority of the Fund Board will consist of persons
who are not "interested" persons of the Fund.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Fund Board. The Company agrees to assist
the Fund Board in carrying out its responsibilities, as
delineated in the Mixed and Shared Funding Exemptive Order, by
providing the Fund Board with all information reasonably
necessary for the Fund Board to consider any issues raised. This
includes, but is not limited to, an obligation by the Company to
inform the Fund Board whenever contractowner voting instructions
are to be disregarded. The Fund Board will record in its
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<PAGE> 21
minutes, or other appropriate records, all reports received by it
and all action with regard to a conflict.
7.3. If it is determined by a majority of the Fund Board, or a
majority of its disinterested trustees, that an irreconcilable
material conflict exists, the Company and other Participating
Insurance Companies will, at their expense and to the extent
reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, up to
and including: (a) withdrawing the assets allocable to some or
all of the Accounts from the Fund or any Portfolio and
reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be
implemented to a vote of all affected contractowners and, as
appropriate, segregating the assets of any appropriate group
(i.e., variable annuity contractowners or variable life insurance
contractowners of one or more Participating Insurance Companies)
that votes in favor of such segregation, or offering to the
affected contractowners the option of making such a change; and
(b) establishing a new registered management investment company
or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contractowner voting
instructions, and such disregard of voting instructions could
conflict with the majority of contractowner voting instructions,
and the Company's judgment represents a minority position or
would preclude a
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<PAGE> 22
majority vote, the Company may be required, at the Fund's
election, to withdraw the affected subaccount of the Account's
investment in the Fund and terminate this Agreement with respect
to such subaccount; provided, however, that such withdrawal and
termination will be limited to the extent required by the
foregoing irreconcilable material conflict as determined by a
majority of the disinterested trustees of the Fund Board. No
charge or penalty will be imposed as a result of such withdrawal.
Any such withdrawal and termination must take place within six
(6) months after the Fund gives written notice to the Company
that this provision is being implemented. Until the end of such
six-month period the Adviser and Fund will, to the extent
permitted by law and any exemptive relief previously granted to
the Fund, continue to accept and implement orders by the Company
for the purchase (and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company
conflicts with the majority of other state insurance regulators,
then the Company will withdraw the affected subaccount of the
Account's investment in the Fund and terminate this Agreement
with respect to such subaccount; provided, however, that such
withdrawal and termination will be limited to the extent required
by the foregoing irreconcilable material conflict as determined
by a majority of the disinterested directors of the Fund Board.
No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal and termination must take place
within six (6) months after the Fund gives written notice to the
Company that this provision is being implemented. Until the end
of such six-month period the Advisor and Fund will, to the extent
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<PAGE> 23
permitted by law and any exemptive relief previously granted to
the Fund, continue to accept and implement orders by the Company
for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board will
determine whether any proposed action adequately remedies any
irreconcilable material conflict, but in no event will the Fund
be required to establish a new funding medium for the Contracts.
The Company will not be required by Section 7.3 to establish a
new funding medium for the Contracts if an offer to do so has
been declined by vote of a majority of contractowners affected by
the irreconcilable material conflict.
7.7. The Company will at least annually submit to the Fund Board such
reports, materials or data as the Fund Board may reasonably
request so that the Fund Board may fully carry out the duties
imposed upon it as delineated in the Mixed and Shared Funding
Exemptive Order, and said reports, materials and data will be
submitted more frequently if deemed appropriate by the Fund
Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T), are
amended, or Rule 6e-3 is adopted, to provide exemptive relief
from any provision of the 1940 Act or the rules promulgated
thereunder with respect to mixed or shared funding (as defined
in the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the
Mixed and Shared Funding Exemptive Order, then: (a) the Fund
and/or the Participating Insurance Companies,
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<PAGE> 24
as appropriate, will take such steps as may be necessary to
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as
adopted, to the extent such rules are applicable; and (b)
Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement
will continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained
in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the
Fund, the Adviser, and each person, if any, who
controls or is associated with the Fund or the Adviser
within the meaning of such terms under the federal
securities laws and any director, trustee, officer, employee
or agent of the foregoing (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and
all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written
consent of the Company) or litigation (including reasonable
legal and other expenses), to which the Indemnified Parties
may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or
settlements:
(1) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact
contained in the registration statement,
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<PAGE> 25
prospectus or statement of additional information for
the Contracts or contained in the Contracts or sales
literature or other promotional material for the
Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated or necessary to
make such statements not misleading in light of the
circumstances in which they were made; provided that
this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to the
Company by or on behalf of the Adviser or the Fund for
use in the registration statement, prospectus or
statement of additional information for the Contracts
or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund
shares; or
(2) arise out of or as a result of statements or
representations by or on behalf of the Company
(other than statements or representations contained in
the Fund registration statement, prospectus, statement
of additional information or sales literature or other
promotional material of the Fund, or any amendment or
supplement to the foregoing, not supplied by the
Company or persons under its control) or wrongful
conduct of the Company or persons under its control,
with respect to the sale or distribution of the
Contracts or Fund shares; or
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<PAGE> 26
(3) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the
Fund registration statement, prospectus, statement of
additional information or sales literature or other
promotional material of the Fund (or amendment or
supplement) or the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make such statements not
misleading in light of the circumstances in which they
were made, if such a statement or omission was made in
reliance upon and in conformity with information
furnished to the Fund by or on behalf of the Company or
persons under its control; or
(4) arise as a result of any failure by the Company to
provide the services and furnish the materials
under the terms of this Agreement; or
(5) arise out of any material breach of any representation
and/or warranty made by the Company in this
Agreement or arise out of or result from any other
material breach by the Company of this Agreement;
except to the extent provided in Sections 8.1(b) and 8.4
hereof. This indemnification will be in addition to any
liability that the Company otherwise may have.
(b) No party will be entitled to indemnification under
Section 8.1(a) if such loss, claim, damage, liability or
litigation is due to the willful misfeasance, bad
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<PAGE> 27
faith, or gross negligence in the performance of such party's
duties under this Agreement, or by reason of such party's
reckless disregard of its obligations or duties under this
Agreement.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or
actions by regulatory authorities against them in connection with
the issuance or sale of the Fund shares or the Contracts or the
operation of the Fund.
8.2. INDEMNIFICATION BY THE ADVISER
(a) The Adviser agrees to indemnify and hold harmless the Company and
each person, if any, who controls or is associated with the
Company within the meaning of such terms under the federal
securities laws and any director, officer, employee or agent of
the foregoing (collectively, the "Indemnified Parties" for
purposes of this Section 8.2) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation
(including reasonable legal and other expenses) to which the
Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements:
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<PAGE> 28
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus or statement of additional
information for the Fund or sales literature or other promotional
material of the Fund (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to
be stated or necessary to make such statements not misleading in
light of the circumstances in which they were made; provided that
this agreement to indemnify will not apply as to any Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Adviser or Fund by or on behalf of
the Company for use in the registration statement, prospectus or
statement of additional information for the Fund or in sales
literature of the Fund (or any amendment or supplement thereto)
or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(2) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Contracts or in the Contract or Fund registration statements,
prospectuses or statements of additional information or sales
literature or other promotional material for the Contracts or of
the Fund, or any amendment or supplement to the foregoing, not
supplied by the Adviser or the Fund or persons under the control
of the Adviser or the Fund respectively) or wrongful
-27-
<PAGE> 29
conduct of the Adviser or the Fund or persons under the control
of the Adviser or the Fund respectively, with respect to the sale
or distribution of the Contracts or Fund shares; or
(3) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, statement of additional information or sales
literature or other promotional material covering the Contracts
(or any amendment or supplement thereto), or the omission or
alleged omission to state therein a material fact required to be
stated or necessary to make such statement or statements not
misleading in light of the circumstances in which they were made,
if such statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on
behalf of the Adviser or the Fund or persons under the control of
the Adviser or the Fund; or
(4) arise as a result of any failure by the Fund or the Adviser to
provide the services and furnish the materials under the terms of
this Agreement; or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser or the Fund in
this Agreement, or arise out of or result from any other material
breach of this Agreement by the Adviser or the Fund;
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<PAGE> 30
except to the extent provided in Sections 8.2(b) and 8.4 hereof.
(b) No party will be entitled to indemnification under Section 8.2(a)
if such loss, claim, damage, liability or litigation is due to
the willful misfeasance, bad faith, or gross negligence in the
performance of such party's duties under this Agreement, or by
reason of such party's reckless disregard or its obligations or
duties under this Agreement.
(c) The Indemnified Parties will promptly notify the Adviser and the
Fund of the commencement of any litigation, proceedings,
complaints or actions by regulatory authorities against them in
connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3. INDEMNIFICATION BY THE FUND
(a) The Fund agrees to indemnify and hold harmless the Company and
each person, if any, who controls or is associated with the
Company within the meaning of such terms under the federal
securities laws and any director, officer, employee or agent of
the foregoing (collectively, the "Indemnified Parties" for
purposes of this Section 8.3) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation
(including reasonable legal and other expenses) to which the
Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses,
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<PAGE> 31
claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement; or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund; or
(iii) arise out of or result from the incorrect or untimely
calculation or reporting of the daily net asset value per
share or dividend or capital gain distribution rate;
except to the extent provided in Sections 8.3(b) and 8.4 hereof.
(b) No party will be entitled to indemnification under Section 8.3(a)
if such loss, claim, damage, liability or litigation is due to
the willful misfeasance, bad faith, or gross negligence in the
performance of such party's duties under this Agreement, or by
reason of such party's reckless disregard of its obligations and
duties under this Agreement.
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<PAGE> 32
(c) The Indemnified Parties will promptly notify the Fund of the
commencement of any litigation, proceedings, complaints or
actions by regulatory authorities against them in connection with
the issuance or sale of the Contracts or the operation of the
Account.
8.4. INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this
Article VIII ("Indemnifying Party" for the purpose of this
Section 8.4) will not be liable under the indemnification
provisions of this Article VIII with respect to any claim made
against a party entitled to indemnification under this Article
VIII ("Indemnified Party" for the purpose of this Section 8.4)
unless such Indemnified Party will have notified the Indemnifying
Party in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim will have been served upon such Indemnified Party (or after
such party will have received notice of such service on any
designated agent), but failure to notify the Indemnifying Party
of any such claim will not relieve the Indemnifying Party from
any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of the
indemnification provision of this Article VIII, except to the
extent that the failure to notify results in the failure of
actual notice to the Indemnifying Party and such Indemnifying
Party is damaged solely as a result of failure to give such
notice. In case any such action is brought against the
Indemnified Party, the Indemnifying Party will be entitled to
participate, at its own expense, in the defense thereof. The
Indemnifying Party
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<PAGE> 33
also will be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from
the Indemnifying Party to the Indemnified Party of the
Indemnifying Party's election to assume the defense thereof, the
Indemnified Party will bear the fees and expenses of any
additional counsel retained by it, and the Indemnifying Party
will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation, unless: (a) the Indemnifying
Party and the Indemnified Party will have mutually agreed to the
retention of such counsel; or (b) the named parties to any such
proceeding (including any impleaded parties) include both the
Indemnifying Party and the Indemnified Party and representation
of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. The
Indemnifying Party will not be liable for any settlement of any
proceeding effected without its written consent but if settled
with such consent or if there is a final judgment for the
plaintiff, the Indemnifying Party agrees to indemnify the
Indemnified Party from and against any loss or liability by
reason of such settlement or judgment. A successor by law of the
parties to this Agreement will be entitled to the benefits of the
indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII will
survive any termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
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<PAGE> 34
9.1. This Agreement will be construed and the provisions hereof
interpreted under and in accordance with the laws of the State
of California.
9.2. This Agreement will be subject to the provisions of the 1933 Act,
the 1934 Act and the 1940 Act, and the rules and regulations and
rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant (including,
but not limited to, the Mixed and Shared Funding Exemptive Order)
and the terms hereof will be interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with
respect to some or all of the Portfolios, upon one (1)
year's advance written notice to the other parties or, if
later, upon receipt of any required exemptive relief or
orders from the SEC, unless otherwise agreed in a
separate written agreement among the parties; or
(b) at the option of the Company, upon receipt of written
notice by the other parties, with respect to any
Portfolio if shares of the Portfolio are not reasonably
available to meet the requirements of the Contracts as
determined in good faith by the Company; or
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<PAGE> 35
(c) at the option of the Company, upon receipt of written
notice by the other parties, with respect to any
Portfolio in the event any of the Portfolio's shares are
not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes
the use of such shares as the underlying investment media
of the Contracts issued or to be issued by Company; or
(d) at the option of the Fund, upon receipt of written notice
by the other parties, upon institution of formal
proceedings against the Company by the NASD, the SEC, the
insurance commission of any state or any other regulatory
body regarding the Company's duties under this Agreement
or related to the sale of the Contracts, the
administration of the Contracts, the operation of the
Account, or the purchase of the Fund shares, provided
that the Fund determines in its sole judgment, exercised
in good faith, that any such proceeding would have a
material adverse effect on the Company's ability to
perform its obligations under this Agreement; or
(e) at the option of the Company, upon receipt of written
notice by the other parties, upon institution of formal
proceedings against the Fund or the Adviser by the NASD,
the SEC, or any state securities or insurance department
or any other regulatory body, provided that the Company
determines in its sole judgment, exercised in good faith,
that any such proceeding would have a material adverse
effect on the Fund's or the Adviser's ability to perform
its obligations under this Agreement; or
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<PAGE> 36
(f) at the option of the Company, upon receipt of written
notice by the other parties, if the Fund ceases to
qualify as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code, or under any
successor or similar provision, or if the Company
reasonably and in good faith believes that the Fund may
fail to so qualify; or
(g) at the option of the Company, upon receipt of written
notice by the other parties, with respect to any
Portfolio if the Fund fails to meet the diversification
requirements specified in Article VI hereof or if the
Company reasonably and in good faith believes the Fund
may fail to meet such requirements; or
(h) at the option of any party to this Agreement, upon
written notice to the other parties, upon another party's
material breach of any provision of this Agreement; or
(i) at the option of the Company, if the Company determines
in its sole judgment exercised in good faith, that either
the Fund or the Adviser has suffered a material adverse
change in its business, operations or financial condition
since the date of this Agreement or is the subject of
material adverse publicity which is likely to have a
material adverse impact upon the business and operations
of the Company, such termination to be effective sixty
(60) days' after receipt by the other parties of written
notice of the election to terminate; or
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<PAGE> 37
(j) at the option of the Fund or the Adviser, if the Fund or
Adviser respectively, determines in its sole judgment
exercised in good faith, that the Company has suffered a
material adverse change in its business, operations or
financial condition since the date of this Agreement or
is the subject of material adverse publicity which is
likely to have a material adverse impact upon the
business and operations of the Fund or the Adviser, such
termination to be effective sixty (60) days' after receipt
by the other parties of written notice of the election to
terminate; or
(k) at the option of the Company or the Fund upon receipt of
any necessary regulatory approvals and/or the vote of the
contractowners having an interest in the Account (or any
subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares
of the Fund in accordance with the terms of the Contracts
for which those Portfolio shares had been selected to
serve as the underlying investment media. The Company
will give sixty (60) days' prior written notice to the
Fund of the date of any proposed vote or other action
taken to replace the Fund's shares; or
(l) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a
majority of the disinterested Fund Board members, that an
irreconcilable material conflict exists among the
interests of: (l) all contractowners of variable
insurance products of all separate accounts; or (2) the
interests of the Participating Insurance Companies
investing in the Fund as set forth in Article VII of
this Agreement; or
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<PAGE> 38
(m) at the option of the Fund in the event any of the
Contracts are not issued or sold in accordance with
applicable federal and/or state law. Termination will be
effective immediately upon such occurrence without
notice.
10.2. NOTICE REQUIREMENT
(a) No termination of this Agreement, except a termination
under Section 10.1 (m) of this Agreement, will be
effective unless and until the party terminating this
Agreement gives prior written notice to all other parties
of its intent to terminate, which notice will set forth
the basis for the termination.
(b) In the event that any termination of this Agreement is
based upon the provisions of Article VII, such prior
written notice will be given in advance of the effective
date of termination as required by such provisions.
10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement, the
Fund and the Adviser will, at the option of the Company,
continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement,
for all Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation,
the owners of the Existing Contracts will be permitted to
reallocate investments in the Designated Portfolios (as
in effect on such date), redeem
-37-
<PAGE> 39
investments in the Designated Portfolios and/or invest in
the Designated Portfolios upon the making of additional
purchase payments under the Existing Contracts. The
parties agree that this Section 10.3 will not apply to
any terminations under Article VII and the effect of such
Article VII terminations will be governed by Article VII
of this Agreement.
10.4 SURVIVING PROVISIONS
Notwithstanding any termination of this Agreement, each party's
obligations under Article VIII to indemnify other parties will
survive and not be affected by any termination of this Agreement.
In addition, with respect to Existing Contracts, all provisions
of this Agreement also will survive and not be affected by any
termination of this Agreement.
ARTICLE XI. NOTICES
Any notice will be deemed duly given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other parties.
-38-
<PAGE> 40
If to the Company:
David Hopkins
Canada Life Insurance Company of America
6201 Powers Ferry Road, N.W.
Atlanta, GA 30339
If to the Fund:
Montgomery Funds III
600 Montgomery Street
San Francisco, CA 94111
Attn: John Story
Executive Vice President
If to the Adviser:
Montgomery Asset Management, L.P.
600 Montgomery Street
San Francisco, CA 94111
Attn: John Story
Executive Vice President
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against
the Fund as neither the trustees, officers,
-39-
<PAGE> 41
agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2. The Fund and the Adviser acknowledge that the identities of the
customers of the Company or any of its affiliates (collectively
the "Protected Parties" for purposes of this Section 12.2),
information maintained regarding those customers, and all
computer programs and procedures developed by the Protected
Parties or any of their employees or agents in connection with
the Company's performance of its duties under this Agreement are
the valuable property of the Protected Parties. The Fund and the
Adviser agree that if they come into possession of any list or
compilation of the identities of or other information about the
Protected Parties' customers, or any other property of the
Protected Parties, other than such information as may be
independently developed or compiled by the Fund or the Adviser
from information supplied to them by the Protected Parties'
customers who also maintain, accounts directly with the Fund or
the Adviser, the Fund and the Adviser will hold such information
or property in confidence and refrain from using, disclosing or
distributing any of such information or other property except:
(a) with the Company's prior written consent; or (b) as
required by law or judicial process. The Fund and the Adviser
acknowledge that any breach of the agreements in this Section
12.2 would result in immediate and irreparable harm to the
Protected Parties for which there would be no adequate remedy at
law and agree that in the event of such a breach, the Protected
Parties will be entitled to
-40-
<PAGE> 42
equitable relief by way of temporary and permanent injunctions,
as well as such other relief as any court of competent
jurisdiction deems appropriate.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or
effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one
and the same instrument.
12.5. If any provision of this Agreement will be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of
the Agreement will not be affected thereby.
12.6. This Agreement will not be assigned by any party hereto without
the prior written consent of all the parties.
12.7. Each party to this Agreement will cooperate with each other
party and all appropriate governmental authorities (including
without limitation the SEC, the NASD and state insurance
regulators) and will permit each other and such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
-41-
<PAGE> 43
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated
herein have been duly authorized by all necessary corporate or
board action, as applicable, by such party and when so executed
and delivered this Agreement will be the valid and binding
obligation of such party enforceable in accordance with its
terms.
12.9. The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to
the Contracts, the Accounts or the Portfolios of the Fund or
other applicable terms of this Agreement.
-42-
<PAGE> 44
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the date specified below.
CANADA LIFE INSURANCE COMPANY OF
AMERICA
SEAL By: /s/ David A. Hopkins
-----------------------------
MONTGOMERY FUNDS III
SEAL By: /s/ John Story
-----------------------------
MONTGOMERY ASSET MANAGEMENT,
L.P.
SEAL By: /s/ John Story
-----------------------------
-43-
<PAGE> 45
Schedule 1
PARTICIPATION AGREEMENT
By and Among
CANADA LIFE INSURANCE COMPANY OF AMERICA
And
MONTGOMERY FUNDS III
And
MONTGOMERY ASSET MANAGEMENT, L.P.
The following separate accounts of Canada Life Insurance Company of America
are permitted in accordance with the provisions of this Agreement to invest in
Portfolios of the Fund shown in Schedule 2:
Variable Annuity Account I, established July 22, 1988 under
Michigan law.
May 1, 1996
-44-
<PAGE> 46
Schedule 2
PARTICIPATION AGREEMENT
By and Among
CANADA LIFE INSURANCE COMPANY OF AMERICA
And
MONTGOMERY FUNDS III
And
MONTGOMERY ASSET MANAGEMENT, L.P.
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of the Montgomery Funds III:
Montgomery Variable Series: Emerging Markets Fund
May 1, 1996
-45-
<PAGE> 1
Exhibit 8(a)(d)
Participation Agreement Between Fred Alger & Company, Inc.
and
Canada Life of America
-26-
<PAGE> 2
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 1st day of May, 1996, by and among The Alger
American Fund (the "Trust"), an open-end management investment company
organized as a Massachusetts business trust, Canada Life Insurance Company of
America, a life insurance company organized as a corporation under the laws of
the State of Michigan, (the "Company"), on its own behalf and on behalf of each
segregated asset account of the Company set forth in Schedule A, as may be
amended from time to time (the "Accounts"), and Fred Alger and Company,
Incorporated, a Delaware corporation, the Trust's distributor (the
"Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), and has
an effective registration statement relating to the offer and sale of the
various series of its shares under the Securities Act of 1933, as amended (the
"1933 Act");
WHEREAS, the Trust and the Distributor desire that Trust shares be used as
an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, shares of beneficial interest in the Trust are divided into the
following series which are available for purchase by the Company for the
Accounts: Alger American Small Capitalization Portfolio, Alger American Growth
Portfolio, Alger American Income & Growth Portfolio, Alger American Balanced
Portfolio, Alger American MidCap Growth Portfolio, and Alger American Leveraged
AllCap Portfolio;
WHEREAS, the Trust has received an order from the Commission, dated
February 17, 1989 (File No. 812-7076), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of
Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the Trust to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated life
insurance companies (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and variable annuity contracts to be
issued by the Company under which the Portfolios are to be made available as
investment vehicles (the "Contracts");
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is available and the Trust has been so advised;
<PAGE> 3
WHEREAS, the Company desires to use shares of one or more Portfolios as
investment vehicles for the Accounts;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
1.1. For purposes of this Article I, the Company shall be the Trust's
agent for the receipt from each account of purchase orders and
requests for redemption pursuant to the Contracts relating to
each Portfolio, provided that the Company notifies the Trust of
such purchase orders and requests for redemption by 9:30 a.m.
Eastern time on the next following Business Day, as defined in
Section 1.3.
1.2. The Trust shall make shares of the Portfolios available to the
Accounts at the net asset value next computed after receipt of a
purchase order by the Trust (or its agent), as established in
accordance with the provisions of the then current prospectus of
the Trust describing Portfolio purchase procedures. The Company
will transmit orders from time to time to the Trust for the
purchase and redemption of shares of the Portfolios. The
Trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person, or suspend or terminate the
offering of shares of any Portfolio if such action is required by
law or by regulatory authorities having jurisdiction or if, in
the sole discretion of the Trustees acting in good faith and in
light of their fiduciary duties under federal and any applicable
state laws, such action is deemed in the best interests of the
shareholders of such Portfolio.
1.3. The Company shall pay for the purchase of shares of a Portfolio
on behalf of an Account with federal funds to be transmitted by
wire to the Trust, with the reasonable expectation of receipt by
the Trust by 2:00 p.m. Eastern time on the next Business Day
after the Trust (or its agent) receives the purchase order. Upon
receipt by the Trust of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall
become the responsibility of the Trust for this purpose.
"Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Trust calculates
its net asset value pursuant to the rules of the Commission.
2
<PAGE> 4
1.4. The Trust will redeem for cash any full or fractional shares of
any Portfolio, when requested by the Company on behalf of an
Account, at the net asset value next computed after receipt by
the Trust (or its agent) of the request for redemption, as
established in accordance with the provisions of the then current
prospectus of the Trust describing Portfolio redemption
procedures. The Trust shall make payment for such shares in the
manner established from time to time by the Trust. Proceeds of
redemption with respect to a Portfolio will normally be paid to
the Company for an Account in federal funds transmitted by wire
to the Company by order of the Trust with the reasonable
expectation of receipt by the Company by 2:00 p.m. Eastern time
on the next Business Day after the receipt by the Trust (or its
agent) of the request for redemption. Such payment may be
delayed if, for example, the Portfolio's cash position so
requires or if extraordinary market conditions exist, but in no
event shall payment be delayed for a greater period than is
permitted by the 1940 Act. The Trust reserves the right to
suspend the right of redemption, consistent with Section 22(e) of
the 1940 Act and any rules thereunder.
1.5. Payments for the purchase of shares of the Trust's Portfolios by
the Company under Section 1.3 and payments for the redemption of
shares of the Trust's Portfolios under Section 1.4 on any
Business Day may be netted against one another for the purpose of
determining the amount of any wire transfer.
1.6. Issuance and transfer of the Trust's Portfolio shares will be by
book entry only. Stock certificates will not be issued to the
Company or the Accounts. Portfolio Shares purchased from the
Trust will be recorded in the appropriate title for each Account
or the appropriate subaccount of each Account.
1.7. The Trust shall furnish, on or before the ex-dividend date,
notice to the Company of any income dividends or capital gain
distributions payable on the shares of any Portfolio of the
Trust. The Company hereby elects to receive all such income
dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of that Portfolio. The
Trust shall notify the Company of the number of shares so issued
as payment of such dividends and distributions.
1.8 The Trust shall calculate the net asset value of each Portfolio
on each Business Day, as defined in Section 1.3. The Trust shall
make the net asset value per share for each Portfolio available
to the Company or its designated agent on a daily basis as soon
as reasonably practical after the net asset value per share is
calculated and shall use its best efforts to make such net asset
value per share available to the Company by 6:30 p.m. Eastern
time each Business Day.
3
<PAGE> 5
1.9. The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their segregated asset
accounts, to the Fund Sponsor or its affiliates and to such other
entities as may be permitted by Section 817(h) of the Code, the
regulations hereunder, or judicial or administrative
interpretations thereof. No shares of any Portfolio will be sold
directly to the general public. The Company agrees that it will
use Trust shares only for the purposes of funding the Contracts
through the Accounts listed in Schedule A, as amended from time
to time.
1.10. The Trust agrees that all Participating Insurance Companies
shall have the obligations and responsibilities regarding
pass-through voting and conflicts of interest corresponding
materially to those contained in Section 2.9 and Article IV of
this Agreement.
ARTICLE II.
OBLIGATIONS OF THE PARTIES
2.1. The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all
shareholder reports, notices, proxy materials (or similar
materials such as voting instruction solicitation materials),
prospectuses and statements of additional information of the
Trust. The Trust shall bear the costs of registration and
qualification of shares of the Portfolios, preparation and filing
of the documents listed in this Section 2.1 and all taxes to
which an issuer is subject on the issuance and transfer of its
shares.
2.2. The Company shall distribute such prospectuses, proxy statements
and periodic reports of the Trust to the Contract owners as
required to be distributed to such Contract owners under
applicable federal or state law.
2.3. The Trust shall provide such documentation (including a final
copy of the Trust's prospectus as set in type or in camera-ready
copy) and other assistance as is reasonably necessary in order
for the Company to print together in one document the current
prospectus for the Contracts issued by the Company and the
current prospectus for the Trust. The Trust shall bear the
expense of printing copies of its current prospectus that will be
distributed to existing Contract owners, and the Company shall
bear the expense of printing copies of the Trust's prospectus
that are used in connection with offering the Contracts issued by
the Company.
4
<PAGE> 6
2.4. The Trust and the Distributor shall provide (1) at the Trust's
expense, one copy of the Trust's current Statement of Additional
Information ("SAI") to the Company and to any Contract owner who
requests such SAI, (2) at the Company's expense, such additional
copies of the Trust's current SAI as the Company shall reasonably
request and that the Company shall require in accordance with
applicable law in connection with offering the Contracts issued
by the Company.
2.5. The Trust, at its expense, shall provide the Company with copies
of its proxy material, periodic reports to shareholders and other
communications to shareholders in such quantity as the Company
shall reasonably require for purposes of distributing to Contract
owners. The Trust, at the Company's expense, shall provide the
Company with copies of its periodic reports to shareholders and
other communications to shareholders in such quantity as the
Company shall reasonably request for use in connection with
offering the Contracts issued by the Company. If requested by
the Company in lieu thereof, the Trust shall provide such
documentation (including a final copy of the Trust's proxy
materials, periodic reports to shareholders and other
communications to shareholders, as set in type or in camera-ready
copy) and other assistance as reasonably necessary in order for
the Company to print such shareholder communications for
distribution to Contract owners.
2.6. The Company agrees and acknowledges that the Distributor is the
sole owner of the name and mark "Alger" and that all use of any
designation comprised in whole or part of such name or mark under
this Agreement shall inure to the benefit of the Distributor.
Except as provided in Section 2.5, the Company shall not use any
such name or mark on its own behalf or on behalf of the Accounts
or Contracts in any registration statement, advertisement, sales
literature or other materials relating to the Accounts or
Contracts without the prior written consent of the Distributor.
Upon termination of this Agreement for any reason, the Company
shall cease all use of any such name or mark as soon as
reasonably practicable.
2.7. The Company shall furnish, or cause to be furnished, to the Trust
or its designee a copy of each Contract prospectus and/or
statement of additional information describing the Contracts,
each report to Contract owners, proxy statement, application for
exemption or request for no-action letter in which the Trust or
the Distributor is named contemporaneously with the filing of
such document with the Commission. The Company shall furnish, or
shall cause to be furnished, to the Trust or its designee each
piece of sales literature or other promotional material in which
the Trust or the Distributor is named, at least five Business
Days prior to its use. No such material shall be used if the
Trust or its designee reasonably objects to such use within three
Business Days after receipt of such material.
2.8. The Company shall not give any information or make any
representations or statements on behalf of the Trust or
concerning the Trust or the Distributor in connection with the
sale of the Contracts other than information or representations
contained in and accurately
5
<PAGE> 7
derived from the registration statement or prospectus for the
Trust shares (as such registration statement and prospectus may
be amended or supplemented from time to time), annual and
semi-annual reports of the Trust, Trust-sponsored proxy
statements, or in sales literature or other promotional material
approved by the Trust or its designee, except as required by
legal process or regulatory authorities or with the prior written
permission of the Trust, the Distributor or their respective
designees. The Trust and the Distributor agree to respond to any
request for approval on a prompt and timely basis. The Company
shall adopt and implement procedures reasonably designed to
ensure that "broker only" materials including information therein
about the Trust or the Distributor are not distributed to
existing or prospective Contract owners.
2.9. The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the
Portfolios and the Distributor, in such form as the Company may
reasonably require, as the Company shall reasonably request in
connection with the preparation of registration statements,
prospectuses and annual and semi-annual reports pertaining to the
Contracts.
2.10. The Trust and the Distributor shall not give, and agree that no
affiliate of either of them shall give, any information or make
any representations or statements on behalf of the Company or
concerning the Company, the Accounts or the Contracts other than
information or representations contained in and accurately
derived from the registration statement or prospectus for the
Contracts (as such registration statement and prospectus may be
amended or supplemented from time to time), or in materials
approved by the Company for distribution including sales
literature or other promotional materials, except as required by
legal process or regulatory authorities or with the prior written
permission of the Company. The Company agrees to respond to any
request for approval on a prompt and timely basis.
2.11. So long as, and to the extent that, the Commission interprets the
1940 Act to require pass-through voting privileges for Contract
owners, the Company will provide pass-through voting privileges
to Contract owners whose cash values are invested, through the
registered Accounts, in shares of one or more Portfolios of the
Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and
the Company shall be responsible for assuring that the Accounts
calculate voting privileges in the manner established by the
Trust. With respect to each registered Account, the Company will
vote shares of each Portfolio of the Trust held by a registered
Account and for which no timely voting instructions from Contract
owners are received in the same proportion as those shares for
which voting instructions are received. The Company and its
agents will in no way recommend or oppose or interfere with the
solicitation of proxies for Portfolio shares held to fund the
Contacts without the prior written consent of the Trust, which
consent may be withheld in the Trust's sole discretion. The
Company reserves the right, to the extent permitted by law, to
vote shares held in any Account in its sole discretion.
6
<PAGE> 8
2.12. The Company and the Trust will each provide to the other
information about the results of any regulatory examination
relating to the Contracts or the Trust, including relevant
portions of any "deficiency letter" and any response thereto.
2.13. No compensation shall be paid by the Trust to the Company, or by
the Company to the Trust, under this Agreement (except for
specified expense reimbursements). However, nothing herein shall
prevent the parties hereto from otherwise agreeing to perform,
and arranging for appropriate compensation for, other services
relating to the Trust, the Accounts or both.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1. The Company represents and warrants that it is an insurance
company duly organized and in good standing under the laws of the
State of Michigan and that it has legally and validly established
each Account as a segregated asset account under such law as of
the date set forth in Schedule A, and that Canada Life of America
Financial Services, Inc., the principal underwriter for the
Contracts, is registered as a broker-dealer under the Securities
Exchange Act of 1934 and is a member in good standing of the
National Association of Securities Dealers, Inc.
3.2. The Company represents and warrants that it has registered or,
prior to any issuance or sale of the Contracts, will register
each Account as a unit investment trust in accordance with the
provisions of the 1940 Act and cause each Account to remain so
registered to serve as a segregated asset account for the
Contracts, unless an exemption from registration is available.
3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from
registration is available prior to any issuance or sale of the
Contracts; the Contracts will be issued and sold in compliance in
all materials respects with all applicable federal and state
laws; and the sale of the Contracts shall comply in all material
respects with state insurance law suitability requirements.
3.4. The Trust represents and warrants that it is duly organized and
validly existing under the laws of the Commonwealth of
Massachusetts and that it does and will comply in all material
respects with the 1940 Act and the rules and regulations
thereunder.
7
<PAGE> 9
3.5. The Trust and the Distributor represent and warrant that the
Portfolio shares offered and sold pursuant to this Agreement will
be registered under the 1933 Act and sold in accordance with all
applicable federal and state laws, and the Trust shall be
registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its
registration statement under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous
offering of its shares. The Trust shall register and qualify its
shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Trust.
3.6. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for
variable annuity, endowment or life insurance contracts set forth
in Section 817(h) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the rules and regulations thereunder,
including without limitation Treasury Regulation 1.817-5, and
will notify the Company immediately upon having a reasonable
basis for believing any Portfolio has ceased to comply or might
not so comply and will immediately take all reasonable steps to
adequately diversify the Portfolio to achieve compliance within
the grace period afforded by Regulation 1.817-5.
3.7. The Trust represents and warrants that it is currently qualified
as a "regulated investment company" under Subchapter M of the
Code, that it will make every effort to maintain such
qualification and will notify the Company immediately upon having
a reasonable basis for believing it has ceased to so qualify or
might not so qualify in the future.
3.8. The Trust represents and warrants that it, its directors,
officers, employees and others dealing with the money or
securities, or both, of a Portfolio shall at all times be covered
by a blanket fidelity bond or similar coverage for the benefit of
the Trust in an amount not less than the minimum coverage
required by Rule 17g-1 or other applicable regulations under the
1940 Act. Such bond shall include coverage for larceny and
embezzlement and be issued by a reputable bonding company.
3.9. The Distributor represents that it is duly organized and validly
existing under the laws of the State of Delaware and that it is
registered, and will remain registered, during the term of this
Agreement, as a broker-dealer under the Securities Exchange Act
of 1934 and is a member in good standing of the National
Association of Securities Dealers, Inc.
ARTICLE IV.
POTENTIAL CONFLICTS
4.1. The parties acknowledge that a Portfolio's shares may be made
available for investment to other Participating Insurance
Companies. In such event, the Trustees will monitor the Trust
for the existence of any material irreconcilable conflict between
the interests of the contract owners of all Participating
Insurance Companies. A material irreconcilable conflict may
arise for a variety of reasons, including: (a) an action by any
state insurance
8
<PAGE> 10
regulatory authority; (b) a change in applicable federal or state
insurance, tax or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretative
letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference
in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by an
insurer to disregard the voting instructions of contract owners.
The Trust shall promptly inform the Company of any determination
by the Trustees that a material irreconcilable conflict exists
and of the implications thereof.
4.2. The Company agrees to report promptly any potential or existing
conflicts of which it is aware to the Trustees. The Company will
assist the Trustees in carrying out their responsibilities under
the Shared Funding Exemptive Order by providing the Trustees with
all information reasonably necessary for and requested by the
Trustees to consider any issues raised including, but not limited
to, information as to a decision by the Company to disregard
Contract owner voting instructions. All communications from the
Company to the Trustees may be made in care of the Trust.
4.3. If it is determined by a majority of the Trustees, or a majority
of the disinterested Trustees, that a material irreconcilable
conflict exists that affects the interests of contract owners,
the Company shall, in cooperation with other Participating
Insurance Companies whose contract owners are also affected, at
its own expense and to the extent reasonably practicable (as
determined by the Trustees) take whatever steps are necessary to
remedy or eliminate the material irreconcilable conflict, which
steps could include: (a) withdrawing the assets allocable to some
or all of the Accounts from the Trust or any Portfolio and
reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Trust, or
submitting the question of whether or not such segregation should
be implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group
(i.e., annuity contract owners, life insurance contract owners,
or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or
offering to the affected Contract owners the option of making
such a change; and (b) establishing a new registered management
investment company or managed separate account.
4.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting
instructions and that decision represents a minority position or
would preclude a majority vote, the Company may be required, at
the Trusts election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect
to such Account; provided, however that such withdrawal and
termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a
majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust
gives written notice that this provision is being implemented.
Until the end of such six (6) month period, the
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<PAGE> 11
Trust shall continue to accept and implement orders by the
Company for the purchase and redemption of shares of the Trust.
4.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the
Company will withdraw the affected Account's investment in the
Trust and terminate this Agreement with respect to such Account
within six (6) months after the Trustees inform the Company in
writing that the Trust has determined that such decision has
created a material irreconcilable conflict; provided, however,
that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Until
the end of such six (6) month period, the Trust shall continue to
accept and implement orders by the Company for the purchase and
redemption of shares of the Trust.
4.6. For purposes of Section 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether
any proposed action adequately remedies any material
irreconcilable conflict, but in no event will the Trust be
required to establish a new funding medium for any Contract. The
Company shall not be required to establish a new funding medium
for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by
the material irreconcilable conflict. In the event that the
Trustees determine that any proposed action does not adequately
remedy any material irreconcilable conflict, then the Company
will withdraw the Account's investment in the Trust and terminate
this Agreement within six (6) months after the Trustees inform
the Company in writing of the foregoing determination; provided,
however, that such withdrawal and termination shall be limited to
the extent required by any such material irreconcilable conflict
as determined by a majority of the disinterested Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request
so that the Trustees may fully carry out the duties imposed upon
them by the Shared Funding Exemptive Order, and said reports,
materials and data shall be submitted more frequently if
reasonably deemed appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-3(T) is amended, or Rule 6e-3
is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Shared Funding
Exemptive Order) on terms and conditions materially different
from those contained in the Shared Funding Exemptive Order, then
the Trust and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply
with Rule 6e-3(T), as amended, or Rule 6e-3, as adopted, to the
extent such rules are applicable.
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<PAGE> 12
ARTICLE V.
INDEMNIFICATION
5.1. Indemnification By the Company. The Company agrees to indemnify
and hold harmless the Distributor, the Trust and each of its
Trustees, officers, employees and agents and each person, if any,
who controls the Trust within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of
this Section 5.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of the Company, which consent shall not be
unreasonably withheld) or expenses (including the reasonable
costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees
incurred in connection therewith) (collectively, "Losses"), to
which the Indemnified Parties may become subject under any
statute or regulation, or at common law or otherwise, insofar as
such Losses are related to the sale or acquisition of the
Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in a registration statement or prospectus for the
Contracts or in the Contracts themselves or in sales
literature generated or approved by the Company on behalf
of the Contracts or Accounts (or any amendment or
supplement to any of the foregoing) (collectively,
"Company Documents" for the purposes of this Article V),
or arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately
derived from written information furnished to the Company
by or on behalf of the Trust for use in Company Documents
or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in
and accurately derived from Trust Documents as defined in
Section 5.2(a)) or wrongful conduct of the Company or
persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in
Trust Documents as defined in Section 5.2(a) or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such statement
or omission was made in reliance upon and accurately
derived from written information furnished to the Trust
by or on behalf of the Company; or
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<PAGE> 13
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required
under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company; or
(f) arise out or result from the provision by the Company to
the Trust of insufficient or incorrect information
regarding the purchase or sale of shares of any
Portfolio, or the failure of the Company to provide such
information on a timely basis.
5.2. Indemnification by the Distributor, The Distributor agrees to
indemnify and hold harmless the Company and each of its
directors, officers, employees, and agents and each person, if
any, who controls the Company within the meaning of Section 15 of
the 1933 Act (collectively, the "Indemnified Parties" for the
purposes of this Section 5.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with
the written consent of the Distributor, which consent shall not
be unreasonably withheld) or expenses (including the reasonable
costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees
incurred in connection therewith) (collectively, "Losses"), to
which the Indemnified Parties may become subject under any
statute or regulation, or at common law or otherwise, insofar as
such Losses are related to the sale or acquisition of the
Contracts or Trust shares and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the registration statement or prospectus for the Trust
(or any amendment or supplement thereto) (collectively,
"Trust Documents" for the purposes of this Article V), or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately
derived from written information furnished to the
Distributor or the Trust by or on behalf of the Company
for use in Trust Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares
and; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in
and accurately derived form Company Documents) or
wrongful conduct of the Distributor or persons under its
control, with respect to the sale or acquisition of the
Contracts or Portfolio shares; or
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<PAGE> 14
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in
Company Documents or the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading if such statement or omission was made in
reliance upon and accurately derived from written
information furnished to the Company by or on behalf of
the Trust; or
(d) arise out of or result from any failure by the
Distributor or the Trust to provide the services or
furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor or
the Trust in this Agreement or arise out of or result
from any other material breach of this Agreement by the
Distributor or the Trust.
5.3. None of the Company, the Trust or the Distributor shall be liable
under the indemnification provisions of Sections 5.1 or 5.2, as
applicable, with respect to any Losses incurred or assessed
against an Indemnified Party that arise from such Indemnified
Party's willful misfeasance, bad faith or negligence in the
performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations or
duties under this Agreement.
5.4. None of the Company, the Trust or the Distributor shall be liable
under the indemnification provisions of Sections 5.1 or 5.2, as
applicable, with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the other
party in writing within a reasonable time after the summons, or
other first written notification, giving information of the
nature of the claim shall have been served upon or otherwise
received by such Indemnified Party (or after such Indemnified
Party shall have received notice of service upon or other
notification to any designated agent), but failure to notify the
party against whom indemnification is sought of any such claim
shall not relieve that party from any liability which it may have
to the Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against an Indemnified Party,
the indemnifying party shall be entitled to participate, at its
own expense, in the defense of such action. The indemnifying
party also shall be entitled to assume the defense thereof, with
counsel reasonably satisfactory to the party named in the action.
After notice from the indemnifying party to the Indemnified Party
of an election to assume such defense, the Indemnified Party
shall bear the fees and expenses of any additional counsel
retained by it, and the indemnifying party will not be liable to
the Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs
of investigation.
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<PAGE> 15
ARTICLE VI.
TERMINATION
6.1. This Agreement shall terminate:
(a) at the option of any party upon 60 days advance written notice to
the other parties, unless a shorter time is agreed to by the
parties;
(b) at the option of the Trust or the Distributor if the Contracts
issued by the Company cease to qualify as annuity contracts or
life insurance contracts, as applicable, under the Code or if the
Contracts are not registered, issued or sold in accordance with
applicable state and/or federal law; or
(c) at the option of any party upon a determination by a majority of
the Trustees of the Trust, or a majority of its disinterested
Trustees, that a material irreconcilable conflict exists; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust or the Distributor by the NASD, the
SEC, or any state securities or insurance department or any other
regulatory body regarding the Trust's or the Distributor's duties
under this Agreement or related to the sale of Trust shares or
the operation of the Trust; or
(e) at the option of the Company if the Trust or a Portfolio fails to
meet the diversification requirements specified in Section 3.6
hereof; or.
(f) at the option of the Company if shares of the Series are not
reasonably available to meet the requirements of the Variable
Contracts issued by the Company, as determined by the Company,
and upon prompt notice by the Company to the other parties; or
(g) at the option of the Company in the event any of the shares of
the Portfolio are not registered, issued or sold in accordance
with applicable state and/or federal law, or such law precludes
the use of such shares as the underlying investment media of the
Variable Contracts issued or to be issued by the Company; or
(h) at the option of the Company, if the Portfolio fails to qualify
as a Regulated Investment Company under Subchapter M of the Code;
or
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<PAGE> 16
(i) at the option of the Distributor if it shall determine in
its sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a
material adverse change in its business, operations,
financial condition or prospects since the date of this
Agreement or is the subject of material adverse
publicity.
6.2. Notwithstanding any termination of this Agreement, the Trust
shall, at the option of the Company, continue to make available
additional shares of any Portfolio and redeem shares of any
Portfolio pursuant to the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination
of this Agreement.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.9 shall
survive the termination of this Agreement as long as shares of
the Trust are held on behalf of Contract owners in accordance
with Section 6.2.
ARTICLE VII.
NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Trust or its Distributor:
Fred Alger Management, Inc.
30 Montgomery Street
Jersey City, NJ 07302
Attn: Gregory S. Duch
If to the Company:
Canada Life Insurance Company of America
6201 Powers Ferry Road
Atlanta, GA 30339
Attn: David A. Hopkins
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<PAGE> 17
ARTICLE VIII.
MISCELLANEOUS
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or
effect.
8.2. This Agreement may be executed in two or more counterparts, each
of which taken together shall constitute one and the same
instrument.
8.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of
the Agreement shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of
New York. It shall also be subject to the provisions of the
federal securities laws and the rules and regulations thereunder
and to any orders of the Commission granting exemptive relief
therefrom and the conditions of such orders. Copies of any such
orders shall be promptly forwarded by the Trust to the Company.
8.5. All liabilities of the Trust arising, directly or indirectly,
under this Agreement, of any and every nature whatsoever, shall
be satisfied solely out of the assets of the Trust and no
Trustee, officer, agent or holder of shares of beneficial
interest of the Trust shall be personally liable for any such
liabilities.
8.6. Each party shall cooperate with each other party and all
appropriate governmental authorities (including without
limitation the Commission, the National Association of Securities
Dealers, Inc. and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights,
remedies and obligations, at law or in equity, which the parties
hereto are entitled to under state and federal laws.
8.8. This Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the prior written
approval of the other party.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and
executed by both parties.
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<PAGE> 18
8.11. Each party hereto shall, except as required by law or otherwise
permitted by this Agreement, treat as confidential the names and
addresses of the owners of the Contracts and all information
reasonably identified as confidential in writing by any other
party hereto, and shall not disclose such confidential
information without the written consent of the affected party
unless such information has become publicly available.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
Fred Alger and Company, Incorporated
By: /s/ Gregory Duch
--------------------------------
Name: Gregory S. Duch
Title: Executive Vice President
Alger American Fund
By: /s/ Gregory Duch
--------------------------------
Name: Gregory S. Duch
Title: Treasurer
Canada Life Insurance Company of America
By: /s/ David A. Hopkins
--------------------------------
Name: David A. Hopkins
Title: Assistant Secretary
17
<PAGE> 1
Exhibit 8 (a)(e)
Participation Agreement Between Fidelity Distributors Corporation
and
Canada Life of America
- 27 -
<PAGE> 2
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
CANADA LIFE INSURANCE COMPANY OF AMERICA
THIS AGREEMENT, made and entered into as of the 15th day of April, 1994 by
and among CANADA LIFE INSURANCE COMPANY OF AMERICA, (hereinafter the
"Company"), a Michigan corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may
be amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
the Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated October 15, 1985 (File No. 812-6102), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the
"1940 Act") and Rules 6e-2(b) (15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding
Exemptive Order"); and
1
<PAGE> 3
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act
of 1940 and any applicable state securities law, and
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts;
and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the Fund
which each Account orders, executing such orders on a daily basis at the net
asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 11:00 a.m. Boston time
on the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
2
<PAGE> 4
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value
pursuant to rules of the Securities and Exchange Commission and the Fund shall
use reasonable efforts to calculate such net asset value on each day which the
New York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable annuity contracts with the form number(s) which
are listed on Schedule A attached hereto and incorporated herein by this
reference, as such Schedule A may be amended from time to time hereafter by
mutual written agreement of all the parties hereto, (the "Contracts") shall be
invested in the Fund, in such other Funds advised by the Adviser as may be
mutually agreed to in writing by the parties hereto, or in the Company's
general account, provided that such amounts may also be invested in an
investment company other than the Fund if (a) such other investment company, or
series thereof, has investment objectives or policies that are substantially
different from the investment objectives and policies of all the Portfolios of
the Fund; or (b) the Company gives the Fund and the Underwriter 45 days written
notice of its intention to make such other investment company available as a
funding vehicle for the Contracts; or (c) such other investment company was
available as a funding vehicle for the Contracts prior to the date of this
Agreement and the Company so informs the Fund and Underwriter prior to their
signing this Agreement (a list of
3
<PAGE> 5
such funds appearing on Schedule C to this Agreement); or (d) the Fund or
Underwriter consents to the use of such other investment company.
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 500.925 of the Michigan Insurance Code and has registered or,
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with thelaws of the State of Michigan and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend
4
<PAGE> 6
the Registration Statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that
they might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Michigan and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Michigan to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Michigan and all applicable state
and federal securities laws, including without limitation the 1933 Act, the
1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
5
<PAGE> 7
2.9. The Underwriter represents and warrants that the Adviser is and shall
remain duly registered in all material respects under all applicable federal
and state securities laws and that the Adviser shall perform its obligations
for the Fund in compliance in all material respects with the laws of the State
of Michigan and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
dealing with the money and/or securities of the Fund are covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund, in an amount not
less $5 million. The aforesaid includes coverage for larceny and embezzlement
is issued by a reputable bonding company. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the
Fund's prospectus printed together in one document (such printing to be at the
Company's expense).
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or in the Fund's
discretion, the Prospectus shall state that such Statement is available from
the Fund), and the Underwriter (or the Fund), at its expense, shall print and
provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
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<PAGE> 8
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such portfolio for which
instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right, to vote Fund
shares held in any segregated asset account in its own right. to the extent
permitted by law. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set
forth on Schedule B attached hereto and incorporated herein by this reference,
which standards will also be provided to the other Participating Insurance
Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or
its designee or by the Underwriter, except with the permission of the Fund or
the Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably
objects to such use within fifteen Business Days after receipt of such
material.
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4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public
domain or approved by the Company for distribution to Contract owners, or in
sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, serminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter or other resources
available to the
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<PAGE> 10
Underwriter. No such payments shall be made directly by the Fund. Currently, no
such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and distributing
the Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the
scope of the foregoing, the Fund will at all times comply with Section 817(h)
of the Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance with the grace period afforded by Regulation
817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall
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<PAGE> 11
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a
vote of all affected Contract owners and, as appropriate, segregating the
assets of any appropriate group (i.e., annuity contract owners, life insurance
contract owners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to
the affected contract owners the option of making such a change; and (2),
establishing a new registered management investment company or managed separate
account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Any such withdrawal and termination must take place within six (6) months after
the Fund gives written notice that this provision is being implemented, and
until the end of that six month period the Underwriter and Fund shall continue
to accept and implement orders by the Company for the purchase (and redemption)
of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Accounts investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company
in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as detemined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
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<PAGE> 12
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but
in no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive
Order, then (a) the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5
of this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or contained in
the Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material
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<PAGE> 13
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on behalf of
the Fund for use in the Registration Statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Fund not supplied by
the Company, or persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was
made in reliance upon information furnished to the Fund by or on behalf
of the Company; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Company, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the
Company in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified
Party shall have received notice of such service on any designated
agent), but failure to
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<PAGE> 14
notify the Company of any such claim shall not relieve the Company from
any liability which it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified
Parties, the Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Company to such party
of the Company's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under
this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other
than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company
of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund Shares or the Contracts
or the operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement or prospectus or sales literature of the
Fund (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Underwriter
or Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement,
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<PAGE> 15
prospectus or sales literature for the Contracts not supplied by
the Underwriter or persons under its control) or wrongful conduct
of the Fund, Adviser or Underwriter or persons under their
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on
behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter; as limited by and in
accordance with the provisions of Sections 8.2(b) and 8.2(c)
hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad faith, or gross negligence
in the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Underwriter
of any such claim shall not relieve the Underwriter from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by
it, and the Underwriter will not be liable to such party under this Agreement
for any legal or other expenses
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<PAGE> 16
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements result
from the gross negligence, bad faith or willful misconduct of the Board or any
member thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is
applicable.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
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<PAGE> 17
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities
and Exchange Commission may grant (including, but not limited to, the Shared
Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts;
or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
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<PAGE> 18
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code or under any successor or similar
provision, or if the Company reasonably believes that the Fund
may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgment
exercised in good faith, that the Company and/or its affiliated
companies has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter
has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity;
or
(h) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter
the written notice specified in Section 1.6(b) hereof and at the
time such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section 10.1(h)
shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of
this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated
or approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon request, the
Company will promptly furnish to the Fund and the
17
<PAGE> 19
Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund and the Underwriter) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption, or
(iii) as permitted by an order of the SEC pursuant to Section 26(b) of the 1940
Act.. Furthermore, except in cases where permitted under the terms of the
Contracts, the Company shall not prevent Contract Owners from allocating
payments to a Portfolio that was otherwise available under the Contracts
without first giving the Fund or the Underwriter 90 days notice of its
intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Canada Life Insurance Company of America
6201 Powers Ferry Road Northwest, Suite 600
Atlanta, GA 30339
Attention: David A. Hopkins
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information until such time as it
may come into the public domain without the express written consent of the
affected party.
18
<PAGE> 20
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or
any rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any), as
soon as practical and in any event within 90 days after the end
of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 45 days after
the end of each quarterly period:
19
<PAGE> 21
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as practical
after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
CANADA LIFE INSURANCE COMPANY OF AMERICA
By its authorized officer,
By:
--------------------------
Title: President
--------------------------
Date: April 29, 1994
--------------------------
VARIABLE INSURANCE PRODUCTS FUND
By its authorized officer,
By: /s/ J. Gary Burkhead
--------------------------
Title: Senior Vice President
--------------------------
Date: 4/28/94
--------------------------
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By:
--------------------------
Title: President
--------------------------
Date: 4/26/94
--------------------------
20
<PAGE> 22
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Contracts Funded
- ---------------------------------------- --------------------
Date Established by Board of Directors By Separate Account
Canada Life Insurance Company of America VariFund
Variable Annuity Account 1 (7-22-88)
Canada Life Insurance Company of America Canada Life 401(k)
Annuity Account 2 (9-14-92)
21
<PAGE> 23
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for
the handling of proxies relating to the Fund by the Underwriter, the Fund and
the Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the
steps delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At
this time the Underwriter will inform the Company of the Record, Mailing
and Meeting dates. This will be done verbally approximately two months
before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the
Company pursuant to the terms of Section 3.3 of the Agreement to which
this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company, at its expense,
shall produce and personalize the Voting Instruction Cards. The Legal
Department of the Underwriter or its affiliate ("Fidelity Legal") must
approve the Card before it is printed. Allow approximately 2-4 business
days for printing information on the Cards. Information commonly found
on the Cards includes:
a. name (legal name as found on account registration)
b. address
C. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed by the
Fund)
(This and related steps may occur later in the chronological process due
to possible uncertainties relating to the proposals.)
22
<PAGE> 24
5. During this time, Fidelity Legal will develop, produce, and the
Fund will pay for the Notice of Proxy and the Proxy Statement (one
document). Printed and folded notices and statements will be sent to
Company for insertion into envelopes (envelopes and return envelopes
are provided and paid for by the Insurance Company). Contents of
envelope sent to Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
C. return envelope (postage pre-paid by Company) addressed to
the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is
important. One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed
and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used.
An often used procedure is to sort Cards on arrival by proposal into
vote categories of all yes, no, or mixed replies, and to begin data
entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on the
Card and is the signature needed on the Card.
23
<PAGE> 25
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated, illegible)
of the procedure are "hand verified," i.e., examined as to why they did
not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Fidelity
Legal must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
24
<PAGE> 26
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
1. Canada Life of America Series Fund, Inc. [VariFund and Canada Life 40l(k)]
2. Seligman Portfolios, Inc. [Trillium and Seligman 401(k)]
25
<PAGE> 1
Exhibit 8(a)(f)
Participation Agreement Between Berger Institutional Products Trust
and Canada Life Insurance Company of America
<PAGE> 2
PARTICIPATION AGREEMENT
Among
BERGER INSTITUTIONAL PRODUCTS TRUST
BBOI WORLDWIDE LLC
and
CANADA LIFE INSURANCE COMPANY OF AMERICA
THIS AGREEMENT, made and entered into this 1st day of May, 1997 by and among
CANADA LIFE INSURANCE COMPANY OF AMERICA, (hereinafter the "Insurance
Company"), a Michigan corporation, on its own behalf and on behalf of each
segregated asset account of the Insurance Company set forth on Schedule A hereto
as may be amended from time to time (each such account hereinafter referred to
as the "Account"), BERGER INSTITUTIONAL PRODUCTS TRUST, a Delaware business
trust (the "Trust") and BBOI WORLDWIDE LLC, a Delaware limited liability company
("BBOI Worldwide").
WHEREAS, the Trust engages in business as an open-end management investment
company and is available to act as the investment vehicle for variable annuity
and life insurance contracts to be offered by separate accounts of insurance
companies which have entered into participation agreements substantially
identical to this Agreement ("Participating Insurance Companies") and for
qualified retirement and pension plans ("Qualified Plans"); and
WHEREAS, the beneficial interest in the Trust is divided into several series
of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Trust has obtained an order from the Securities and Exchange
Commission (the "Commission"), dated April 24, 1996 (File No. 812-9852),
granting Participating Insurance Companies and their separate accounts
exemptions from the provisions of
<PAGE> 3
Sections 9(a), 13(a), 15 (a), and 15(b) of the Investment Company Act of
1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Trust to be sold to
and held by Qualified Plans and by variable annuity and variable life insurance
separate accounts of life insurance companies that may or may not be affiliated
with one another (the "Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Trust is registered as an open-end management investment company
under the 1940 Act and the offering of its shares is registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, BBOI Worldwide is duly registered as an investment adviser under the
Investment Advisers Act of 1940 and any applicable state securities law; and
WHEREAS, the Insurance Company has registered under the 1933 Act, or will
register under the 1933 Act, certain variable annuity or variable life insurance
contracts identified by the form number(s) listed on Schedule B to this
Agreement, as amended from time to time hereafter by mutual written agreement of
all the parties hereto (the "Contracts"); and
WHEREAS, each Account is a duly organized, validly existing segregated asset
account, established by resolution of the board of directors of the Insurance
Company on the date shown for that Account on Schedule A hereto, to set aside
and invest assets attributable to the Contracts; and
WHEREAS, the Insurance Company has registered or will register each Account
as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in the Funds at
net asset value on behalf of each Account to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the Insurance
Company, the Trust and BBOI Worldwide agree as follows:
2
<PAGE> 4
ARTICLE I. SALE OF TRUST SHARES
1.1. The Trust agrees to sell to the Insurance Company those shares of the
Trust which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Trust or its designee of the
order for the shares of the Trust. For purposes of this Section 1.1, the
Insurance Company shall be the designee of the Trust for receipt of such orders
from the Accounts and receipt by such designee shall constitute receipt by the
Trust; provided that the Trust receives notice of such order by 7:00 a.m.,
Mountain Time, on the next following Business Day. In this Agreement, "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which the Trust calculates its net asset value pursuant to the rules of
the Commission.
1.2. The Trust agrees to make its shares available for purchase at the
applicable net asset value per share by the Insurance Company and its Accounts
on those days on which the Trust calculates its Funds' net asset values
pursuant to rules of the Commission and the Trust shall use reasonable efforts
to calculate its Funds' net asset values on each day on which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the trustees of the
Trust may refuse to sell shares of any Fund to any person, or suspend or
terminate the offering of shares of any Fund if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole discretion
of the trustees of the Trust acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of that Fund.
1.3. The Trust agrees that shares of the Trust will be sold only to Accounts
of Participating Insurance Companies and to Qualified Plans. No shares of any
Fund will be sold to the general public.
1.4. The Trust will not sell its shares to any insurance company or separate
account unless an agreement containing provisions substantially the same as
Sections 2.4, 3.4, 3.5, and
3
<PAGE> 5
Sections 7.1 - 7.7 of this Agreement is in effect to govern such sales.
1.5. The Trust agrees to redeem, on the Insurance Company's request, any full
or fractional shares of the Trust held by the Account, executing such requests
on a daily basis at the net asset value next computed after receipt by the Trust
or its designee of the request for redemption. However, if one or more Funds has
determined to settle redemption transactions for all of its shareholders on a
delayed basis (more than one business day, but in no event more than three
Business Days, after the date on which the redemption order is received, unless
otherwise permitted by an order of the Commission under Section 22(e) of the
1940 Act), the Trust shall be permitted to delay sending redemption proceeds to
the Insurance Company by the same number of days that the Trust is delaying
sending redemption proceeds to the other shareholders of the Fund. For purposes
of this Section 1.5, the Insurance Company shall be the designee of the Trust
for receipt of requests for redemption from each Account and receipt by that
designee shall constitute receipt by the Trust; provided that the Trust receives
notice of the request for redemption by 7:00 a.m., Mountain Time, on the next
following Business Day.
1.6. The Insurance Company agrees to purchase and redeem the shares of each
Fund offered by the then-current prospectus of the Trust in accordance with the
provisions of that prospectus. The Insurance Company agrees that all net amounts
available under the Contracts shall be invested in the Trust, or in the
Insurance Company's general account, provided that such amounts may also be
invested in an investment company other than the Trust if (a) the other
investment company, or series thereof, has investment objectives or policies
that are substantially different from the investment objectives and policies of
any Fund of the Trust in which the Account may invest; or (b) the other
investment company was available as a funding vehicle for the Contracts prior to
the date of this Agreement and the Insurance Company so informs the Trust and
BBOI Worldwide prior to their signing this Agreement; or (c) the Trust and BBOI
Worldwide consent in advance in writing to the use of the other investment
company.
1.7. The Insurance Company shall pay for Trust shares by 1:00 p.m., Mountain
Time, on the next Business Day after an order
4
<PAGE> 6
to purchase Trust shares is made in accordance with the provisions of Section
1.1 hereof. Payment shall be in federal funds transmitted by wire. For the
purpose of Sections 2.9 and 2.10, upon receipt by the Trust of the federal funds
so wired, such funds shall cease to be the responsibility of the Insurance
Company and shall become the responsibility of the Trust. Payment of net
redemption proceeds (aggregate redemptions of a Fund's shares by an Account
minus aggregate purchases of that Fund's shares by that Account) of less than $1
million for a given Business Day will be made by wiring federal funds to the
Insurance Company on the next Business Day after receipt of the redemption
request. Payment of net redemption proceeds of $1 million or more will be by
wiring federal funds within three Business Days after receipt of the redemption
request. However, payment may be postponed under unusual circumstances, such as
when normal trading is not taking place on the New York Stock Exchange, an
emergency as defined by the Securities and Exchange Commission exists, or as
permitted by the Securities and Exchange Commission.
1.8. Issuance and transfer of the Trust's shares will be by book entry only.
Stock certificates will not be issued to the Insurance Company or any Account.
Shares ordered from the Trust will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Trust shall furnish same day notice (by wire or telephone, followed,
by written confirmation) to the Insurance Company of any income, dividends or
capital gain distributions payable on the Funds' shares. The Insurance Company
hereby elects to receive all income dividends and capital gain distributions
payable on a Fund's shares in Additional shares of that Fund. The Insurance
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Trust shall notify
the Insurance Company of the number of shares issued as payment of dividends and
distributions. Any material errors in the calculation of the income dividends
and capital gain distributions shall be reported immediately upon discovery to
the Insurance Company. Non-material errors will be corrected in the next
Business Day's net asset value per share for the Fund in question.
5
<PAGE> 7
1.10. The Trust shall make the net asset value per share for each Fund
available to the Insurance Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make those pershare net asset values available by 4:00 p.m.,
Mountain Time. Any material error in the calculation of the net asset value per
share shall be reported immediately upon discovery to the Insurance Company.
Non-material errors will be corrected in the next Business Day's net asset value
per share for the Fund in question.
ARTICLE II. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
2.1. The Insurance Company represents, warrants an agrees that the offerings
of the Contracts are, or will be, registered under the 1933 Act; that the
Contracts will be issued and sold in compliance in all material respects with
all applicable federal and state laws and that the sale of the Contracts shall
comply in all material respects with applicable state insurance suitability
requirements. The Insurance Company further represents that it is an insurance
company duly organized and in good standing under applicable law and that it has
legally and validly established the Account prior to any issuance or sale
thereof as a segregated asset account under Section 500.925 of the Michigan
Insurance Code and has registered, or warrants and agrees that prior to any
issuance or sale of the Contracts it will register, the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Trust warrants and agrees that Trust shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sale in compliance with the laws of the State of Delaware and all applicable
federal securities laws and that the Trust is and shall remain registered under
the 1940 Act. The Trust warrants and agrees that it shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Trust
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Trust or
BBOI Worldwide.
6
<PAGE> 8
2.3. The Trust represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and warrants and agrees that it will make all reasonable
efforts to maintain its qualification (under Subchapter M or any successor or
similar provision) and that it will notify the Insurance Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify or
that it might not so qualify in the future.
2.4. The Insurance Company represents that the Contracts are currently
treated as annuity or life insurance contracts under applicable provisions of
the Code and warrants and agrees that it will make every effort to maintain such
treatment and that it will notify the Trust and BBOI Worldwide immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5. The Trust may elect to make payments to finance distribution expenses
pursuant to Rule 12b-1 under the 1940 Act. To the extent that it decides to
finance distribution expenses pursuant to Rule 12b-1, the Trust undertakes to
have a board of trustees, a majority of whom are not interested persons of the
Trust, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6. The Trust makes no representation warranties as to whether any aspect of
its operations (including, but not limited to, fees and expenses and investment
policies) complies or will comply with the insurance laws or regulations of the
various states.
2.7. The Trust represents that it is lawfully organized and validly existing
under the laws of the State of Delaware and represents, warrants and agrees that
it does and will comply in all material respects with the 1940 Act.
2.8. BBOI Worldwide represents that it is and warrants that it shall remain
duly registered as an investment adviser under all applicable federal and state
securities laws and agrees that it shall perform its obligations for the Trust
in compliance in all
7
<PAGE> 9
material respects with the laws of the State of Colorado and any applicable
state and federal securities laws.
2.9. The Trust and BBOI Worldwide represent and warrant that all of their
officers, employees, investment advisers, investment sub-advisers, and other
individuals or entities described in Rule 17g-1 under the 1940 Act dealing with
the money and/or securities of the Trust are, and shall continue to be at all
times, covered by a blanket fidelity bond or similar coverage for the benefit
of the Trust in an amount not less than the minimum coverage required currently
by Rule 17g-1 under the 1940 Act or related provisions as may be promulgated
from time to time. That fidelity bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10. The Insurance Company represents and warrants that all of its officers,
employees, investment advisers, and other individuals or entities described in
Rule 17g-1 under the 1940 Act are and shall continue to be at all times covered
by a blanket fidelity bond or similar coverage for the benefit of the Trust, in
an amount not less than the minimum coverage required currently for entities
subject to the requirements of Rule 17g-1 of the 1940 Act or related provisions
or may be promulgated from time to time.
The aforesaid bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company.
ARTICLE III. DISCLOSURE DOCUMENTS AND VOTING
3.1. BBOI Worldwide shall provide the Insurance Company (at the Insurance
Company's expense) with as many copies of the Trust's current prospectus as the
Insurance Company may reasonably request. If requested by the Insurance Company
in lieu thereof, the Trust shall provide such documentation (including a final
copy of the new prospectus as set in type at the Trust'S expense) and other
assistance as is reasonably necessary in order for the Insurance Company once
each year (or more frequently if the prospectus for the Trust is amended) to
have the prospectus for the Contracts and the Trust's prospectus printed
together in one document (at the Insurance Company's expense).
3.2. The Trust's prospectus shall state that the Statement of Additional
Information for the Trust (the "SAI") is available
8
<PAGE> 10
from the Trust, and BBOI Worldwide (or the Trust), at its expense, shall print
and provide the SAI free of charge to the Insurance Company and to any owner of
a Contract or prospective owner who requests the SAI.
3.3. The Trust, at its expense, shall provide the Insurance Company with
copies of its proxy material, reports to shareholders and other communications
to shareholders in such quantity as the Insurance Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law, the Insurance Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Trust shares in accordance with instructions received
from Contract owners; and
(iii) vote Trust shares for which no instructions have been received in
the same proportion as Trust shares of that Fund for which
instructions have been received;
so long as and to the extent that the Commission continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners. The
Insurance Company reserves the right to vote Trust shares held in any segregated
asset account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
separate accounts participating in the Trust calculates voting privileges in a
manner consistent with the standards set forth on Schedule C attached hereto and
incorporated herein by this reference, which standards will also be provided to
the other Participating Insurance Companies. The Insurance Company shall fulfill
its obligation under, and abide by the terms and conditions of, the Mixed and
Shared Funding Exemptive Order.
3.5. The Trust will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Trust will either provide for
annual meetings (except insofar as the Commission may interpret Section 16 of
the 1940 Act not to require
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such meetings) or, as the Trust currently intends, comply with Section 16 (c) of
the 1940 Act (although the Trust is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16 (a) and, if and when applicable,
16 (b). Further, the Trust will act in accordance with the Commission's
interpretation of the requirements of Section 16(a) with respect to periodic
elections of trustees and with whatever rules the Commission may promulgate with
respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Insurance Company shall furnish, or shall cause to be furnished, to
the Trust or its designee, each piece of sales literature or other promotional
material in which the Trust, a sub-adviser of one of the Funds, or BBOI
Worldwide is named, at least fifteen calendar days prior to its use. No such
material shall be used if the Trust or its designee objects to such use within
ten calendar days after receipt of such material.
4.2. The Insurance Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust in
connection with the sale of the Contracts other than the information or
representations contained in the Trust's registration statement, prospectus or
SAI, as that registration statement, prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the
Trust, or in sales literature or other promotional material approved by the
Trust or its designee or by BBOI Worldwide or its designee, except with the
permission of the Trust or BBOI Worldwide or their designees.
4.3. The Trust, BBOI Worldwide, or its designee shall furnish, or shall cause
to be furnished, to the Insurance Company or its designee, each piece of sales
literature or other promotional material in which the Insurance Company or the
Account is named at least fifteen calendar days prior to its use. No such
material shall be used if the Insurance Company or its designee objects to such
use within ten calendar days after receipt of that material.
4.4. The Trust and BBOI Worldwide, or their designees, shall not give any
information or make any representations on behalf of
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the Insurance Company or concerning the Insurance Company, any Account, or the
Contracts other than the information or representations contained in a
registration statement, prospectus or statement of additional information for
the Contracts, as that registration statement, prospectus or statement of
additional information may be amended or supplemented from time to time, or in
published reports for any Account which are in the public domain or approved by
the Insurance Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Insurance Company or
its designee, except with the permission of the Insurance Company.
4.5. The Trust will provide to the Insurance Company at least one complete
copy of each registration statement, prospectus, statement of additional
information, report, proxy statement, piece of sales literature or other
promotional material, application for exemption, request for no-action letter,
and any amendment to any of the above, that relate to the Trust or its shares,
contemporaneously with the filing of the document with the Commission, the
National Association of Securities Dealers, Inc. ("NASD"), or other regulatory
authorities.
4.6. The Insurance Company will provide to the Trust at least one complete
copy of each registration statement, prospectus, statement of additional
information, report, solicitation for voting instructions, piece of sales
literature and other promotional material, application for exemption, request
for no-action letter, and any amendment to any of the above, that relates to the
Contracts or the Account, contemporaneously with the filing of the document with
the Commission, the NASD, or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements,
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, shareholder
newsletters, seminar texts, reprints or excerpts of any other advertisement,
sales literature,
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or published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees, and
registration statements, prospectuses, statements of additional information,
shareholder reports, and proxy materials.
4.8. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust and BBOI Worldwide shall pay no fee or other compensation to
the Insurance Company under this agreement, except as set forth in Section 5.4
and except that if the Trust or any Fund adopts and implements a plan pursuant
to Rule 12b-1 to finance distribution expenses, BBOI Worldwide or the Trust may
make payments to the Insurance Company in amounts consistent with that 12b-1
plan, subject to review by the trustees of the Trust.
5.2. All expenses incident to performance by the Trust under this Agreement
shall be paid by the Trust. The Trust shall see to it that any offering of its
shares is registered and that all of its shares are authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Trust or BBOI Worldwide, in accordance with applicable state
laws prior to their sale. The Trust shall bear the cost of registration and
qualification of the Trust's shares, preparation and filing of the Trust's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders, the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Trust's
shares.
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and of distributing to
Contract owners the Trust's prospectus, proxy materials and reports.
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<PAGE> 14
5.4. The Insurance Company bears the responsibility and correlative expense
for administrative and support services for Contract owners. BBOI Worldwide
recognizes the Insurance Company as the sole shareholder of shares of the Trust
issued under this Agreement. From time to time, BBOI Worldwide may pay amounts
from its past profits to the Insurance Company for providing certain
administrative services for the Trust or for providing other services that
relate to the Trust. In consideration of the savings resulting from such
arrangement, and to compensate the Insurance Company for its costs, BBOI
Worldwide agrees to pay to the Insurance Company an amount equal to 25 basis
points (0.25%) per annum of the average aggregate amount invested by the
Insurance Company in the Trust under this Agreement. Such payments will be made
only when the average aggregate amount invested exceeds $1,000,000. The parties
agree that such payments are for administrative services and investor support
services, and do not constitute payment for investment advisory, distribution or
other services. Payment of such amounts by BBOI Worldwide shall not increase the
fees paid by the Trust or its shareholders. The obligation to pay the amounts
provided for in this Section 5.4 may be assigned by BBOI Worldwide in its
discretion to Berger Associates, Inc., or other entity acceptable to the
Insurance Company.
ARTICLE VI. DIVERSIFICATION
6.1. The Trust will comply with Section 817(h) of the Code and Treasury
Regulation 1.817-5 relating to the diversification requirements for variable
annuity, endowment, modified endowment or life insurance contracts and any
amendments or other modifications to that Section or Regulation at all times
necessary to satisfy those requirements.
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ARTICLE VII. POTENTIAL CONFLICTS
7.1. The trustees of the Trust will monitor the Trust for the existence of
any material irreconcilable conflict between the interests of the variable
Contract owners of all separate accounts investing in the Trust and the
participants of all Qualified Plans investing in the Trust. An irreconcilable
material conflict may arise for a variety of reasons, including: (a) an action
by any state insurance regulatory authority; (b) a change in applicable federal
or state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretive letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Fund are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of variable contract owners. The trustees of
the Trust shall promptly inform the Insurance Company if they determine that an
irreconcilable material conflict exists and the implications thereof. The
trustees of the Trust shall have sole authority to determine whether an
irreconcilable material conflict exists and their determination shall be binding
upon the Insurance Company.
7.2. The Insurance Company and BBOI Worldwide each will report promptly any
potential or existing conflicts of which it is aware to the trustees of the
Trust. The Insurance Company and BBOI Worldwide each will assist the trustees of
the Trust in carrying out their responsibilities under the Mixed and Shared
Funding Exemptive Order, by providing the trustees of the Trust with all
information reasonably necessary for them to consider any issues raised. This
includes, but is not limited to, an obligation by the Insurance Company to
inform the trustees of the Trust whenever Contract owner voting instructions are
to be disregarded. These responsibilities shall be carried out by the Insurance
Company with a view only to the interests of the Contract owners and by BBOI
Worldwide with a view only to the interests of Contract holders and Qualified
Plan participants.
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7.3. If it is determined by a majority of the trustees of the Trust, or a
majority of the trustees who are not interested persons of the Trust, any of its
Funds, or BBOI Worldwide (the "Independent Trustees"), that a material
irreconcilable conflict exists, the Insurance Company and/or other Participating
Insurance Companies or Qualified Plans that have executed participation
agreements shall, at their expense and to the extent reasonably practicable (as
determined by a majority of the Independent Trustees), take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to and
including: (1) withdrawing the assets allocable to some or all of the separate
accounts from the Trust or any Fund and reinvesting those assets in a different
investment medium, including (but not limited to) another Fund of the Trust, or
submitting the question whether such segregation should be implemented to a vote
of all affected variable contract owners and, as appropriate, segregating the
assets of any appropriate group (e.g., annuity contract owners, life insurance
contract owners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the
affected variable contract owners the option of making such a change; and (2)
establishing a new registered management investment company or managed separate
account and obtaining any necessary approvals or orders of the Commission in
connection therewith.
7.4. If a material irreconcilable conflict arises because of a decision by
the Insurance Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Insurance Company may be required, at the Trust's election, to withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to that Account; provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the Independent Trustees. Any such
withdrawal and termination must take place within six (6) months after the Trust
gives written notice that this provision is being implemented, and, until the
end of that six month period, the Trust shall continue to accept and implement
orders by the Insurance Company for the purchase (and redemption) of shares of
the Trust.
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7.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Insurance Company conflicts
with the majority of other state regulators, then the Insurance Company will
withdraw the affected Account's investment in the Trust and terminate this
Agreement with respect to that Account within six months after the trustees of
the Trust inform the Insurance Company in writing that they have determined that
the state insurance regulator's decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the Independent Trustees. Until the end of the
foregoing six month period, the Trust shall continue to accept and implement
orders by the Insurance Company for the purchase (and redemption) of shares of
the Trust.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the Independent Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Trust be required to establish a new funding medium for the Contracts. The
Insurance Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the trustees of the Trust
determine that any proposed action does not adequately remedy any irreconcilable
material conflict, then the Insurance Company will withdraw the Account's
investment in the Trust and terminate this Agreement within six (6) months after
the trustees of the Trust inform the Insurance Company in writing of the
foregoing determination, provided, however, that the withdrawal and termination
shall be limited to the extent required by the material irreconcilable conflict,
as determined by a majority of the Independent Trustees.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then (a) the Trust and/or the
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Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent those rules are applicable; and (b) Sections 3.4, 3.5,
7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to
the extent that terms and conditions substantially identical to those Sections
are contained in the Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE INSURANCE COMPANY
8.1(a). The Insurance Company agrees to indemnify and hold harmless the Trust
and each trustee, officer, employee or agent of the Trust, and each person, if
any, who controls the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Insurance Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale, acquisition, or
redemption of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
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omission was made in reliance upon and in conformity with
information furnished in writing to the Insurance Company by or on
behalf of the Trust for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or shares of the Trust;
ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the Trust
not supplied by the Insurance Company, or persons under its control)
or wrongful conduct of the Insurance Company or persons under its
control, with respect to the sale or distribution of the Contracts
or Trust Shares;
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature of the Trust or any amendment
thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished in writing to the Trust by or on behalf of the Insurance
Company;
(iv) arise as a result of any failure by the Insurance Company to
provide the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation, warranty or agreement made by the Insurance Company
in
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this Agreement or arise out of or result from any other material
breach of this Agreement by the Insurance Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Insurance Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party that may arise from that
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of that Indemnified Party's duties or by reason of that Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Trust, whichever is applicable.
8.1(c). The Insurance Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
that Indemnified Party shall have notified the Insurance Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon that
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent) . Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Insurance Company of its obligations hereunder except to the extent
that the Insurance Company has been prejudiced by such failure to give notice.
In addition, any failure by the Indemnified Party to notify the Insurance
Company of any such claim shall not relieve the Insurance Company from any
liability which it may have to the Indemnified Party against whom the action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Insurance Company
shall be entitled to participate, at its own expense, in the defense of the
action. The Insurance Company also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action; provided,
however, that if the Indemnified Party shall have reasonably concluded that
there may be defenses available to it which are different from or additional to
those available to
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<PAGE> 21
the Insurance Company, the Insurance Company shall not have the right to assume
said defense, but shall pay the costs and expenses thereof (except that in no
event shall the Insurance Company be liable for the fees and expenses of more
than one counsel for Indemnified Parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances). After notice from the Insurance
Company to the Indemnified Party of the Insurance Company's election to assume
the defense thereof, and in the absence of such a reasonable conclusion that
there may be different or additional defenses available to the Indemnified
Party, the Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and the Insurance Company will not be liable to that
party under this Agreement for any legal or other expenses subsequently incurred
by the party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Insurance Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Trust's shares or the Contracts or the
operation of the Trust.
8.2. INDEMNIFICATION BY BBOI WORLDWIDE
8.2(a). BBOI Worldwide agrees to indemnify and hold harmless the Insurance
Company and each of its directors, officers, employees or agents, and each
person, if any, who controls the Insurance Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of BBOI Worldwide) or
litigation (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale, acquisition or redemption of
the Trust's shares or the Contracts and:
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(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Trust (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this agreement
to indemnify shall not apply as to any Indemnified Party if the
statement or omission or alleged statement or omission was made in
reliance upon and in conformity with information furnished in
writing to BBOI Worldwide or the Trust by or on behalf of the
Insurance Company for use in the registration statement or
prospectus for the Trust or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Trust shares;
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by BBOI Worldwide or persons under its
control) or wrongful conduct of the Trust, BBOI Worldwide or persons
under their control, with respect to the sale or distribution of the
Contracts or shares of the Trust;
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material
21
<PAGE> 23
fact required to be stated therein or necessary to make the
statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished in writing
to the Insurance Company by or on behalf of the Trust;
(iv) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation, warranty or agreement made by BBOI Worldwide in this
Agreement or arise out of or result from any other material breach
of this Agreement by BBOI Worldwide;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b) BBOI Worldwide shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party that may arise from the
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of the Indemnified Party's duties or by reason of the Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Insurance Company or the Account, whichever is applicable.
8.2(c) BBOI Worldwide shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified BBOI Worldwide in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Indemnified
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Party (or after the Indemnified Party shall have received notice of such service
on any designated agent). Notwithstanding the foregoing, the failure of any
Indemnified Party to give notice as provided herein shall not relieve BBOI
Worldwide of its obligations hereunder except to the extent that BBOI Worldwide
has been prejudiced by such failure to give notice. In addition, any failure by
the Indemnified Party to notify BBOI Worldwide of any such claim shall not
relieve BBOI Worldwide from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, BBOI Worldwide will be entitled to participate, at its own
expense, in the defense thereof. BBOI Worldwide also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in the action;
provided, however, that if the Indemnified Party shall have reasonably concluded
that there may be defenses available to it which are different from or
additional to those available to BBOI Worldwide, BBOI Worldwide shall not have
the right to assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall BBOI Worldwide be liable for the fees and
expenses of more than one counsel for Indemnified Parties in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice
from BBOI Worldwide to the Indemnified Party of BBOI Worldwide's election to
assume the defense thereof, and in the absence of such a reasonable conclusion
that there may be different or additional defenses available to the Indemnified
Party, the Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and BBOI Worldwide will not be liable to that party
under this Agreement for any legal or other expenses subsequently incurred by
that party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.2(d) The Insurance Company agrees to notify BBOI Worldwide promptly of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
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8.3 INDEMNIFICATION BY THE TRUST
8.3 (a). The Trust agrees to indemnify and hold harmless the Insurance
Company, and each of its directors, officers, employees and agents, and each
person, if any, who controls the Insurance Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.3) against any and all losses, claims, damages, liabilities
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as those losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements result from the gross negligence, bad faith or willful misconduct of
any trustee(s) of the Trust, are related to the operations of the Trust and:
(i) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement
(including a failure to comply with the diversification requirements
specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation, warranty or agreement made by the Trust in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Trust;
as limited by, and in accordance with the provisions of, Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Trust shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party that may arise from the Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of the Indemnified Party's duties or by reason of the Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Insurance Company, the Trust, BBOI Worldwide or the Account, whichever is
applicable.
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8.3(c) The Trust shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified the Trust in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
the Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Trust of its
obligations hereunder except to the extent that the Trust has been prejudiced by
such failure to give notice. In addition, any failure by the Indemnified Party
to notify the Trust of any such claim shall not relieve the Trust from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Trust will be
entitled to participate, at its own expense, in the defense thereof. The Trust
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action; provided, however, that if the Indemnified
Party shall have reasonably concluded that there may be defenses available to it
which are different from or additional to those available to the Trust, the
Trust shall not have the right to assume said defense, but shall pay the costs
and expenses thereof (except that in no event shall the Trust be liable for the
fees and expenses of more than one counsel for Indemnified Parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances).
After notice from the Trust to the Indemnified Party of the Trust's election to
assume the defense thereof, and in the absence of such a reasonable conclusion
that there may be different or additional defenses available to the Indemnified
Party, the Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and the Trust will not be liable to that party under
this Agreement for any legal or other expenses subsequently incurred by that
party independently in connection with the defense thereof other than reasonable
costs of investigation.
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<PAGE> 27
8.3(d). The Insurance Company and BBOI Worldwide agree promptly to notify
the Trust of the commencement of any litigation or proceedings against it or any
of its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Trust.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and provisions hereof interpreted
under and in accordance with the laws of the State of Delaware.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934, and
1940 Acts, and the rules and regulations and rulings thereunder, including any
exemptions from those statutes, rules and regulations the Commission may grant
(including, but not limited to, the Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon one year advance written notice to
the other parties; provided, however, such notice shall not be given
earlier than one year following the date of this Agreement; or
(b) at the option of the Insurance Company to the extent that shares of
Funds are not reasonably available to meet the requirements of the
Contracts as determined by the Insurance Company, provided, however,
that such a termination shall apply only to the Fund(s) not reasonably
available. Prompt written notice of the election to terminate for such
cause shall be furnished by the Insurance Company to the Trust and BBOI
Worldwide; or
(c) at the option of the Trust or BBOI Worldwide, in the event that
formal administrative proceedings are
26
<PAGE> 28
instituted against the Insurance Company by the NASD, the Commission,
an insurance commissioner or any other regulatory body regarding the
Insurance Company's duties under this Agreement or related to the sale
of the Contracts, the operation of any Account, or the purchase of the
Trust's shares, provided, however, that the Trust determines in its
sole judgment exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability of the
Insurance Company to perform its obligations under this Agreement; or
(d) at the option of the Insurance Company in the event that formal
administrative proceedings are instituted against the Trust or BBOI
Worldwide by the NASD, the Commission, or any state securities or
insurance department or any other regulatory body, provided, however,
that the Insurance Company determines in its sole judgement exercised
in good faith, that any such administrative proceedings will have a
material adverse effect upon the ability of the Trust or BBOI Worldwide
to perform its obligations under this Agreement; or
(e) with respect to any Account, upon requisite vote of the Contract
owners having an interest in that Account (or any subaccount) to
substitute the shares of another investment company for the
corresponding Fund shares in accordance with the terms of the Contracts
for which those Fund shares had been selected to serve as the
underlying investment media. The Insurance Company will give at least
30 days' prior written notice to the Trust of the date of any proposed
vote to replace the Trust's shares; or
(f) at the option of the Insurance Company, in the event any of the
Trust's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or exemptions therefrom, or such
law precludes the use of those shares as the underlying investment
media of the Contracts issued or to be issued by the Insurance Company;
or
27
<PAGE> 29
(g) at the option of the Insurance Company, if the Trust ceases to
qualify as a regulated investment company under Subchapter M of the
Code or under any successor or similar provision, or if the Insurance
Company reasonably believes that the Trust may fail to so qualify; or
(h) at the option of the Insurance Company, if the Trust fails to meet
the diversification requirements specified in Article VI hereof; or
(i) at the option of either the Trust or BBOI Worldwide, if (1) the
Trust or BBOI Worldwide, respectively, shall determine, in their sole
judgment reasonably exercised in good faith, that the Insurance Company
has suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity and that
material adverse change or material adverse publicity will have a
material adverse impact upon the business and operations of either the
Trust or BBOI Worldwide, (2) the Trust or BBOI Worldwide shall notify
the Insurance Company in writing of that determination and its intent
to terminate this Agreement, and (3) after considering the actions
taken by the Insurance Company and any other changes in circumstances
since the giving of such a notice, the determination of the Trust or
BBOI Worldwide shall continue to apply on the sixtieth (60th) day
following the giving of that notice, which sixtieth day shall be the
effective date of termination; or
(j) at the option of the Insurance Company, if (1) the Insurance
Company shall determine, in its sole judgment reasonably exercised in
good faith, that either the Trust or BBOI Worldwide has suffered a
material adverse change in its business or financial condition or is
the subject of material adverse publicity and that material adverse
change or material adverse publicity will have a material adverse
impact upon the business and operations of the Insurance Company, (2)
the Insurance
28
<PAGE> 30
Company shall notify the Trust and BBOI Worldwide in writing of the
determination and its intent to terminate the Agreement, and (3) after
considering the actions taken by the Trust and/or BBOI Worldwide and
any other changes in circumstances since the giving of such a notice,
the determination shall continue to apply on the sixtieth (60th) day
following the giving of the notice, which sixtieth day shall be the
effective date of termination.
10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3. No termination of this Agreement shall be effective unless and until
the party terminating this Agreement gives prior written notice to all other
parties to this Agreement of its intent to terminate, which notice shall set
forth the basis for the termination. Furthermore,
(a) In the event that any termination is based upon the provisions of
Article VII, or the provision of Section 10.1(a), 10.1(i), 10.1(j), or 10.1(k)
of this Agreement, the prior written notice shall be given in advance of the
effective date of termination as required by those provisions; and
(b) in the event that any termination is based upon the provisions of
Section 10.1(c) or 10.1(d) of this Agreement, the prior written notice shall be
given at least ninety (90) days before the effective date of termination.
10.4. Notwithstanding any termination of this Agreement, subject to Section
1. 2 of this Agreement and for so long as the Trust continues to exist, the
Trust and BBOI Worldwide shall at the option of the Insurance Company, continue
to make available additional shares of the Trust pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective date
of termination of this Agreement ("Existing Contracts"). Specifically, without
limitation, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Trust, redeem investments in the Trust and/or
invest in the Trust upon the making of additional purchase payments under the
29
<PAGE> 31
Existing Contracts. The parties agree that this Section 10.4 shall not apply to
any terminations under Article VII and the effect of Article VII terminations
shall be governed by Article VII of this Agreement.
10.5. The Insurance Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Insurance Company's
assets held in the Account) except (i) as necessary to implement
Contract-owner-initiated transactions, or (ii) as required by state and/or
federal laws or regulations or judicial or other legal precedent of general
application (a "Legally Required Redemption"). Upon request, the Insurance
Company will promptly furnish to the Trust and BBOI Worldwide the opinion of
counsel for the Insurance Company (which counsel shall be reason satisfactory
to the Trust and BBOI Worldwide) to the effect that any redemption pursuant to
clause (ii) above is a Legally Required Redemption. Furthermore, the Insurance
Company shall not prevent new Contract owners from allocating payments to a
Fund that formerly was available under the Contracts without first giving the
Trust or BBOI Worldwide 90 days notice of its intention to do so.
30
<PAGE> 32
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of that other party set forth below or at
such other address as the other party may from time to time specify in writing.
If to the Trust:
210 University Boulevard, Suite 900
Denver, Colorado 80206
Attention: Kevin R. Fay, Vice President
If to the Insurance Company:
6201 Powers Ferry Road
Atlanta, Georgia 30339
Attention: David Hopkins, Chief Counsel
If to BBOI Worldwide:
210 University Boulevard, Suite 900
Denver, Colorado 80206
Attention: Kevin R. Fay
ARTICLE XII. MISCELLANEOUS
12.1. Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party unless and until that information may come into the public
domain.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
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<PAGE> 33
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and shall permit those
authorities reasonable access to its books and records in connection with any
lawful investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.6. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.7. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns; provided, that no party may
assign this Agreement without the prior written consent of the others.
32
<PAGE> 34
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
as of the date specified below.
Insurance Company:
CANADA LIFE INSURANCE COMPANY OF AMERICA
By its authorized officer,
By: /s/
------------------------------
Title: Vice President
---------------------------
Date: March 31, 1997
---------------------------
Trust:
BERGER INSTITUTIONAL PRODUCTS TRUST
By its authorized officer,
By: /s/
-------------------------------
Title: President
-------------------------------
Date: March 25, 1997
-------------------------------
BBOI Worldwide:
BBOI WORLDWIDE LLC
By its authorized officer,
By: /s/
-------------------------------
Title: Co-Chief Executive Officer
----------------------------
Date: March 25, 1997
----------------------------
33
<PAGE> 35
SCHEDULE A
ACCOUNTS
NAME OF ACCOUNT DATE OF RESOLUTION OF
INSURANCE COMPANY'S BOARD
Variable Annuity Account 1 WHICH ESTABLISHED THE ACCOUNT
July 22, 1988
34
<PAGE> 36
SCHEDULE B
CONTRACTS
1. Contract Form - VariFund
35
<PAGE> 37
SCHEDULE C
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Trust by BBOI Worldwide, the Trust and the
Insurance Company. The defined terms herein shall have the meanings assigned in
the Participation Agreement except that the term "Insurance Company" shall also
include the department or third party assigned by the Insurance Company to
perform the steps delineated below.
1. The number of proxy proposals is given to the Insurance Company by BBOI
Worldwide as early as possible before the date set by the Trust for the
shareholder meeting to facilitate the establishment of tabulation
procedures. At this time BBOI Worldwide will inform the Insurance Company of
the Record, Mailing and Meeting dates. This will be done verbally
approximately two months before meeting.
2. Promptly after the Record Date, the Insurance Company will perform a "tape
run", or other activity, which will generate the names, addresses and number
of units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Insurance Company will use its best efforts to call in
the number of Customers to BBOI Worldwide, as soon as possible, but no later
than one week after the Record Date.
3. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Insurance Company by the Trust.
The Insurance Company, at its expense, shall produce and personalize the
Voting Instruction cards. BBOI Worldwide must approve the Card before it is
printed. Allow approximately 2-4 business days for printing information on
the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
36
<PAGE> 38
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Trust).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
4. During this time, BBOI Worldwide will develop, produce, and the Trust will
pay for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Insurance Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to customers by
Insurance Company will include:
a. Voting Instruction Card(s)
b. one proxy notice and statement (one document)
c. Return envelope (postage pre-paid by Insurance Company) addressed to
the Insurance Company or its tabulation agent
d. "Urge buckslip" - optional, but recommended.
(This is a small, single sheet of paper that requests Customers to vote as
quickly as possible and that their vote is important. One copy will be
supplied by the Trust.)
e. Cover letter - optional, supplied by Insurance Company and reviewed
and approved in advance by BBOI Worldwide.
5. The above contents should be received by the Insurance Company approximately
3-5 business days before mail date. Individual in charge at Insurance Company
reviews and approves the contents of the mailing package to ensure
correctness and completeness. Copy of this approval sent to BBOI Worldwide.
6. Package mailed by the Insurance Company.
* The Trust must allow at least a 15-day solicitation time to the Insurance
Company as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but not including) the meeting,
counting backwards.
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<PAGE> 39
7. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used. An
often used procedure is to sort cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure.
8. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to the Customer with an explanatory letter,
a new Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be not received for purposes of vote tabulation. Such
mutilated or illegible Cards are "hand verified," i.e., examined as to why they
did not complete the system. Any questions on those Cards are usually remedied
individually.
9. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulations. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the initial
estimates and actual vote do not coincide, then an internal audit of that vote
should occur. This may entail a recount.
10. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Trust receives the tabulations
stated in terms of a percentage and the number of shares.) BBOI Worldwide must
review and approve tabulation format.
11. Final tabulation in shares is verbally given by the Insurance Company
to BBOI Worldwide on the morning of the meeting not later than
10:00 a.m. Denver time. BBOI Worldwide may request an earlier deadline
if required to calculate the vote in time for the meeting.
12. A Certificate of Mailing and Authorization to Vote Shares will be
required from the Insurance Company as well as an original
38
<PAGE> 40
copy of the final vote. BBOI Worldwide will provide a standard form for each
Certification.
13. The Insurance Company will be required to box and archive the Cards
received from the Customers. In the event that any vote is
challenged or if otherwise necessary for legal, regulatory, of
accounting purposes, BBOI Worldwide will be permitted reasonable access
to such Cards.
14. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
39
<PAGE> 1
EXHIBIT 8(b)
SERVICE AGREEMENT
<PAGE> 2
SERVICE AGREEMENT
THIS AGREEMENT, dated at Toronto, this 30th day of December, 1988, by and
between:
THE CANADA LIFE ASSURANCE COMPANY, a Company incorporated under the laws of the
late Province of Canada and having its Head Office in the City of Toronto in the
Municipality of Metropolitan Toronto,
(Hereinafter called "CLA")
OF THE FIRST PART;
and
CANADA LIFE INSURANCE COMPANY OF AMERICA, a Company incorporated under the laws
of Michigan having its Principal Office in the City of Lansing in the State of
Michigan,
(Hereinafter called "CLICA")
OF THE SECOND PART;
- 1 -
<PAGE> 3
WHEREAS CLA and CLICA entered into an oral agreement effective January 1,
1988 with respect to fees and expenses incident to the incorporation of CLICA
and with respect to costs of administrative and operating functions to be
performed by CLA on behalf of CLICA;
AND WHEREAS Resolution Number 10 of the Inaugural Resolutions of the Board
of Directors of CLICA, dated July 22, 1988, authorizes officers of the
corporation to pay all reasonable fees and expenses incident to the organization
of the corporation;
AND WHEREAS Resolution Number 11 of the Inaugural Resolutions of the Board
of Directors of CLICA, dated July 22, 1988, authorizes officers of the
corporation to enter into a written service agreement with CLA;
NOW THEREFORE in consideration of the covenants and agreements herein
contained, CLICA and CLA agree as follows:
APPLICATION OF TERMS
1. This agreement documents the terms of an oral agreement entered into by
CLICA and CLA effective January 1, 1988.
- 2 -
<PAGE> 4
2. The terms of this agreement shall apply to the following costs incurred by
CLA:
(a) All costs incurred prior to August 1, 1988 incidental to the
incorporation of CLICA, including legal and organizational costs, and
costs of the Information Systems Department of CLA for the development
of a computer system to assist CLICA in the management of its variable
product business.
(b) All costs of service functions as defined below, performed by CLA, on
and after August 1, 1988 and identifiable as expenses incurred
directly and exclusively for the benefit of CLICA and any of its
subsidiaries.
(c) All costs of service functions defined below, performed by CLA for
CLICA and any of its subsidiaries, on and after August 1, 1988 and not
identifiable as expenses incurred directly and exclusively for the
benefit of CLICA and any of its subsidiaries.
SERVICE FUNCTIONS
3. CLA shall perform such functions for CLICA and any of its subsidiaries as
the parties may from time to time designate in writing and including the
functions listed hereunder, hereinafter referred to as "service functions".
All service functions performed by CLA for CLICA and any of its
subsidiaries shall be governed by the terms of this agreement.
- 3 -
<PAGE> 5
The service functions performed by CLA shall include:
1. Marketing
2. Agency
3. Field Service
4. Underwriting and Policy Issue
5. Actuarial
6. Investment
7. Policyholder Service
8. Policy Accounting
9. General Accounting
10. Claim Payment
11. Information Systems
12. Corporate Services
13. Reinsurance
4. Activities carried out by CLICA which are in the nature of auditing
and verification of service functions performed by CLA shall be at the
sole expense of CLICA.
COST CHARGES FOR SERVICE FUNCTIONS
5. The method of allocating costs hereunder shall be determined in the
following manner:
a) The costs of service functions performed by CLA that are
identifiable as expenses incurred directly and exclusively for
the benefit of CLICA or any of its subsidiaries shall be charged
directly to CLICA.
- 4 -
<PAGE> 6
b) The cost of service functions performed by CLA for the benefit of
CLICA and any of its subsidiaries but that are not identifiable
as expenses incurred directly and exclusively for the benefit of
CLICA or any of its subsidiaries shall be allocated to CLICA by
CLA as follows:
(i) Until CLA notifies CLICA otherwise, the cost of service
functions performed by CLA shall be calculated on a time log
and bill basis, that is, as a percentage of the salary of
CLA personnel attributable to the service functions.
(ii) Upon written notice by CLA to CLICA, the cost of service
functions shall be calculated by CLA in accordance with its
Functional Cost Accounting System whereby departments
performing service functions for CLICA or any of its
subsidiaries shall allocate an appropriate percentage of
their time and other costs to CLICA.
At CLICA's request and expense, CLA shall prepare and make
available to CLICA, all documents necessary to enable CLICA to
verify the accuracy of CLA's calculations.
The manner of calculation of costs of service functions shall be
reviewed and amended by the parties as necessary from time to
time.
- 5 -
<PAGE> 7
6. (a) CLICA shall reimburse CLA no later than December 31, 1988 for
all costs referred to in 2(a) above.
(b) CLICA shall reimburse CLA for all costs of the service
functions referred to in 2(b) and 2(c) above, performed by
CLA, at least quarterly throughout each fiscal year at the
request of CLA. At the end of the period for which CLA
requests payment, CLA shall estimate the total costs for that
period, and CLICA shall promptly pay the amount of the
estimate. Within 30 days after the completion of CLA's annual
cost analysis, CLA shall provide to CLICA, an accurate and
final statement of the costs of service functions performed by
CLA in the fiscal year. Any adjustment resulting from the
final statement shall be made between the parties within 30
days after CLICA receives the final statement.
7. CLICA shall pay an additional fee to CLA if it is determined that the
cost of service functions performed by CLA payable under this
agreement is less than an arm's length charge. Such additional fee
shall be equal to an arm's length charge determined by analysis of
prevailing market conditions relating to charges for similar services
provided to other service recipients less the cost of the service
functions performed by CLA otherwise allocated under this agreement.
- 6 -
<PAGE> 8
ADMINISTRATION AND RECORD-KEEPING
8. CLA shall maintain all internal record-keeping and general office
administration incidental to or necessary for the proper performance
of its service functions in accordance with this Agreement. At CLICA's
expense in accordance with CLA's Functional Cost Accounting System,
CLA shall maintain books and records relating to all CLICA policies,
which shall be available for inspection by CLICA and properly
constituted governmental authorities, and which shall be in such form
that upon termination of this Agreement they can be delivered to CLICA
or to another party at CLICA's request. Any such records required to
be produced for the Securities and Exchange Commission shall be so
delivered within 14 days of request therefor. Such materials shall be
in satisfactory form if they both (i) meet relevant legal requirements
and (ii) are in a form approved by CLICA.
MANAGEMENT OF CLICA AND ACCESS TO RECORDS
9. Notwithstanding any other provision in this agreement, CLICA, through
its Board of Directors and its Officers, shall retain full management
authority over decisions affecting its business and affairs and shall
own and have access to all records of its business that may from time
to time be held by CLA.
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<PAGE> 9
NOTICES
10. In the event that service of any notice(s) is required, such service
shall be sufficiently made if delivered personally to an Officer or
Director of the party upon whom service is required, as follows:
Canada Life Insurance Company of America
330 University Avenue
Toronto, Ontario
M5G 1R8
The Canada Life Assurance Company
330 University Avenue
Toronto, Ontario
M5G 1R8
TERMINATION
11. Either party may terminate this agreement upon 90 days written notice
to the other party.
BINDING NATURE
12. The covenants and agreements contained in this Agreement shall be
binding upon, extend to and enure to the benefit of the parties
hereto, their and each of their successors and assigns respectively.
- 8 -
<PAGE> 10
COMPLIANCE WITH LAW
13. CLICA and CLA mutually covenant and agree to comply with all
municipal, provincial, state and federal government laws and
regulations where applicable including, where required, the
reporting of income to the necessary tax authorities.
GOVERNING LAW
14. The laws of the Province of Ontario shall govern the terms of this
Agreement.
- 9 -
<PAGE> 11
IN WITNESS WHEREOF the parties hereto have set their hands and seals on the
date first above written.
CANADA LIFE INSURANCE COMPANY OF AMERICA
By /s/
---------------------------------------
Secretary
By /s/
---------------------------------------
Assistant Secretary
THE CANADA LIFE ASSURANCE COMPANY
By /s/
---------------------------------------
Executive Vice-President
and Secretary
By /s/
---------------------------------------
Associate Treasurer
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<PAGE> 12
SERVICE AGREEMENT
FIRST AMENDMENT
THIS FIRST AMENDMENT made as of this___ day of___, 1989, by and between THE
CANADA LIFE ASSURANCE COMPANY (CLA), a Canadian Corporation, CANADA LIFE
INSURANCE COMPANY OF AMERICA (CLICA), a Michigan corporation, and CANADA
LIFE OF AMERICA FINANCIAL SERVICES, INC. (CLAFS), a Georgia corporation,
(this "Amendment") to the Service Agreement dated December 30, 1988
(collectively referred to as this "Agreement").
WITNESSETH:
WHEREAS CLICA finds it in the best interest of the corporation to obtain a
person to perform certain administrative and functional services for the
corporation;
WHEREAS by resolutions of the Boards of Directors or otherwise each of the
parties hereto has corporate authority to enter into this Amendment;
<PAGE> 13
WHEREAS CLA has the facilities and experience to provide administrative and
functional services to facilitate the operations of an insurer;
WHEREAS CLAFS has the facilities and experience to provide administrative
and functional services with respect to variable insurance products;
WHEREAS this Agreement is intended to be a limited service agreement and
not to cover reinsurance and appointment and cancellation of agencies; and
WHEREAS the parties to the Service Agreement find it in their best interest
to further define their relationship and make CLAFS a party to this
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and of the mutual expectations of benefit accruing from the activities
contemplated herein, the parties hereto agree as follows:
1. General. Notwithstanding any other provision of this Agreement, it is
understood that the business and affairs of CLICA shall be managed by
its Board of Directors or, as may otherwise be appropriate, by its
officers. CLA in providing
- 2 -
<PAGE> 14
services hereunder shall not have management prerogatives with respect
to such business and affairs of CLICA. CLICA shall own all records of
its business and shall have access to any such records which may, from
time to time, be in custody of CLA. To the extent that this Agreement
relates to services provided with respect to variable annuities, or
with respect to other products registered with the Securities and
Exchange Commission (the "SEC"), the provisions of Section 20 of this
Agreement shall govern.
2. Practices and Procedures. CLA in providing Services hereunder intends
to provide substantially the same services as it provides with respect
to its own plans of insurance, which CLICA has evaluated and found to
be satisfactory. Without prior consent of CLICA, CLA shall not depart
from these practices, work-flow, procedures and services in a way
which materially affects the nature of the services provided under
this Agreement. CLA shall use its best efforts to effect such
reasonable changes in practices, work-flows, procedures and services
hereunder as are requested by CLICA on reasonable notice, with CLICA
agreeing to pay all reasonable costs incurred by CLA with respect to
such changes which individually or in the aggregate materially
increase the cost to CLA of providing services hereunder.
- 3 -
<PAGE> 15
3. Forms, Notices, etc. Subject to Section 20 of this Agreement, CLA in
providing services hereunder shall use such forms, notices, reports,
checks and other similar instruments as CLA and CLICA may agree upon
from time to time. CLICA shall provide reasonable advance notice to
CLA of any changes in such forms, notices, reports, checks or other
similar instruments which it may request, with CLICA agreeing to pay
all reasonable costs incurred by CLA with respect to such changes
which individually or in the aggregate materially increase the cost to
CLA of providing services hereunder.
4. Selling Services; Sales Aids. Subject to Section 20 of this Agreement,
CLA shall provide such selling services for CLICA and provide such
sales aid to such persons as CLA and CLICA may agree upon from time to
time. CLA shall charge the recipient of sales aids provided in
accordance with this Section 4 either (i) such rates as are published
from time to time by CLA in schedules of sales aids which are
generally made available by CLA, or (ii) reasonable rates established
by CLA with respect to sales aids developed and made available
specifically for CLICA.
5. Selection, Issue, Underwriting and Cancellation. CLA shall provide
selection, issue and underwriting services for CLICA
- 4 -
<PAGE> 16
policies. Selection, issue and underwriting decisions made by CLA
shall be in accordance with the standard selection, issue and
underwriting practices of CLICA, provided that CLA personnel shall
consult with CLICA personnel in unusual selection, underwriting issue
or situations or upon request of CLICA personnel. CLICA shall have
final authority over the selection, issue and underwriting of
applications. Furthermore, CLA shall provide cancellation services for
CLICA polices. Cancellation decisions made by CLA shall be in
accordance with the standard cancellation practices by CLICA provided
that CLA personnel shall consult with CLICA personnel in unusual
situations or upon request of CLICA personnel. CLICA shall have final
authority over the cancellation of policies.
6. Premium Billing and Collection. CLA shall provide premium and billing
services utilizing its premium billing and collection system to bill
and collect all premiums on CLICA policies in the name of CLICA, and
shall disburse amounts so collected to or on behalf of CLICA at the
earliest practicable time. CLA shall at all times maintain records
which identify CLICA funds separately from all other funds, shall hold
such funds in an account in the name of CLICA and within twenty (20)
days, or within such lesser period as may be required by law, shall
account for such funds to CLICA.
- 5 -
<PAGE> 17
7. Commissions. To the extent commissions are due and owing to employees
and agents of CLAFS, CLICA, itself or through CLA as its agent, shall
perform calculations and make payment of commissions to such CLAFS
sales personnel.
8. Claims and Other Policy Payments. CLA shall provide all claims and
other policy payment services, including loss adjustment,
investigation, adjustment and defense of claims arising from any CLICA
policy of insurance, and shall make all claims, loss adjustment and
other policy payments with respect to CLICA policies, including
payments representing claims, policy loans, surrenders, and amounts
paid under policy or contract settlement options. In matters involving
claims decisions, CLA claims personnel shall consult with CLICA
personnel in unusual situations involving disputed claims or upon
request of CLICA personnel. Further, officers of CLICA shall monitor
the CLA claims handling service and shall retain ultimate authority
for adjustment and claims payments made on CLICA's behalf. Claims
payments made by CLA following such consultation shall be final and
conclusive.
9. Field Administration. CLA shall provide such field administration
services, product development, advertising
- 6 -
<PAGE> 18
and sales promotion services to CLICA as may be reasonably requested
by CLICA from time to time.
10. Functional Services. CLA shall provide such actuarial, financial,
statistical, and accounting and taxation services as may be reasonably
requested by CLICA from time to time. To the extent CLA does not
provide taxation services, CLICA shall be responsible for calculating
its own taxes. In any event, CLICA will be responsible for payment of
any taxes due and owing.
11. Personnel Services. In addition to other services provided hereunder,
CLA shall provide such executive, clerical and other services as may
be reasonably requested by CLICA FROM time to time. CLA shall be
responsible for the employment and discharge of such personnel after
appropriate consultation with CLICA.
12. Administration and Record-Keeping. CLA shall provide internal
record-keeping and general office administration incidental to or
necessary for the proper rendering of services performed in accordance
with this Agreement. CLA (i) shall maintain books and records relating
to performance under this Agreement, and (ii) shall maintain records
and files relating to CLICA policies, which materials will be
- 7 -
<PAGE> 19
available to CLICA and to properly constituted governmental
authorities, and which shall be in such form that upon termination of
this Agreement they can be delivered to CLICA or to another party at
CLICA's request. Any such records required to be produced for the SEC
shall be so delivered within 1 business day of request therefor. Such
materials shall be in satisfactory form if they both (i) meet relevant
legal requirements and (ii) are in a form approved by CLICA. In
addition, CLICA shall keep such accounts and records as may be
necessary in the conduct of its business as an independent entity and
shall own and have custody of such accounts and records.
13. Investment Services. CLA shall provide to CLICA such investment and
investment accounting services (including summary and detail
accounting, general ledger entry for all investment activity, and
monthly accrual of investment income and expenses, and preparation of
annual statement schedules) as may be requested from time to time.
CLICA nevertheless shall at all times have entire control, ownership
and management of its investable assets.
14. Cost Allocation. In return for the services rendered to CLICA by CLA
in accordance with this Agreement, CLICA shall reimburse CLA in an
amount developed by the cost allocation
- 8 -
<PAGE> 20
system in use by CLA based upon time and expenses spent by CLA
personnel in providing services. The cost allocation system used by
CLA is intended to allocate only the costs associated with the
services CLA provides under this Agreement. In addition, out-of-pocket
expenses (including, for example, printing costs, the costs of
insurance department examinations, travel expenses, direct data
processing charges, etc.) incurred on behalf of CLICA in performing
the services covered by this Agreement shall be charged to CLICA at
their actual cost to CLA.
15. General Overhead. A CLICA will be charged for a portion of CLA's
overhead. CLA will allocate overhead costs to CLICA based on the cost
allocation system referred to in SECTION 14 hereto. In addition, CLICA
will incur certain overhead items in its own right. CLICA will have
complete control over these overhead items and will pay for them
directly.
16. Examinations, Governmental and Trade Association Fees and Expenses.
The expenses of examinations and other governmental expenses as well
as fees and expenses in connection with trade associations and bureaus
shall be paid by CLA. CLA shall be reimbursed by CLICA for such costs
pursuant to Section 14 hereof.
- 9 -
<PAGE> 21
17. General Accounting. CLA shall deliver to CLICA each quarter an
itemized statement of all amounts owed to it by CLICA for services
rendered during the preceding quarter. CLICA shall pay all amounts
owed CLA for the precedinq quarter within 30 days following delivery
of such an itemized account. The itemized statements shall indicate
any amounts which are estimated. Within 60 days after the end of each
fiscal year, CLA shall deliver to CLICA an accurate and final
statement of any costs which were estimated during such year. CLICA
shall pay all amounts in such final statements within 30 days.
18. Office Space and Furniture. CLA shall lease to CLICA such office space
and furniture as may be reasonably required by CLICA at such rates and
on such other terms as may be mutually agreed by CLA and CLICA.
19. Competition. The operations of CLA and CLICA are designed to be
generally complementary to each other and it is therefore understood
that neither is expected to be in any substantial competition with the
other. CLA shall recognize the proprietary nature of CLICA customer
lists and shall not utilize them for its own benefit nor shall it
disclose them to others without CLICA's written consent.
- 10 -
<PAGE> 22
20. Special Provisions Relating to the Servicing of Variable Insurance
Products. To the extent that services rendered under this Agreement
relate to variable annuity contracts or variable life insurance
policies (the "Policies") issued by one or more separate accounts of
CLICA, the following provisions will apply:
a) CLAFS shall assume full responsibility for the securities
activities of, and for securities law compliance by, any "person
associated" (as that term is defined in Section 3(a)(18) of the
Securities Exchange Act of 1934) with CLAFS and engaged directly
or indirectly in the Policy activity (the "associated persons").
This shall include (i) compliance with the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. ("NASD")
and with federal and state laws and regulations, (ii) the
appropriate training of associated persons, and (iii) the filing
with the SEC, NASD and other appropriate regulatory authorities
of any sales literature or materials required to be filed with
respect to sales of Policies.
(b) All books and records maintained in connection with the offer and
sale of the Policies will (i) be maintained and preserved in
conformity with the requirements of Rules 17a-3 and 17a-4 under
the Securities Exchange Act of 1934, (ii) be
- 11 -
<PAGE> 23
maintained and held on behalf of and as agent for CLAFS, whose
property they are and shall remain, and (iii) be at all times subject
to inspection by the SEC (within the United states, within 1 business
day of request therefor) in accordance with Section 17(a) of such Act.
(c) Upon or prior to the completion of each transaction for which a
confirmation is legally required, CLICA shall, on behalf of CLAFS
acting as agent for CLICA, send a written confirmation of such
transaction reflecting the facts of the transaction.
(d) CLICA shall provide prospectuses and statements of additional
information to sales representatives at no cost to such persons.
21. Termination. This Agreement shall be effective as of the date first
above written and shall remain in full force and effect thereafter,
provided, however, that any party may terminate this Agreement without
penalty, with or without cause, on not less than ninety (90) days'
notice to the other parties.
22. Amendment. This Agreement may be amended at any time by a writing
executed by the parties
- 12 -
<PAGE> 24
23. Non-Assiqnment. This Agreement shall not be assigned by any party
without a prior written consent of the other parties.
24. Conflicts. Any provision of this Amendment which conflicts, in whole
or in part, with the initial Service Agreement shall supersede and
replace, to the extent the provisions are in conflict, the provision
in the initial Service Agreement which presents such a conflict.
25. Governing Law. This Agreement shall be interpreted in accordance with
and governed by the laws of the State of Georgia; although the initial
Service Agreement provides that the laws of the Province of Ontario
shall govern, this Section supersedes Section 13 of the initial
Service Agreement in its entirety.
- 13 -
<PAGE> 25
26. By executing this Amendment, CLAFS hereby agrees to be bound by the
terms and conditions set forth in the initial Service Agreement dated
December 30, 1988.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first written above.
THE CANADA LIFE ASSURANCE COMPANY
BY:__________________________________
President
BY:__________________________________
Vice President
CANADA LIFE INSURANCE COMPANY OF
AMERICA
BY:__________________________________
President
BY:__________________________________
Vice President
CANADA LIFE OF AMERICA FINANCIAL
SERVICES, INC.
BY:__________________________________
President
BY:__________________________________
Vice President
- 14 -
<PAGE> 1
EXHIBIT 9
OPINION AND CONSENT OF COUNSEL
<PAGE> 2
[CANADA LIFE LETTERHEAD]
August 31, 1989
Canada Life Insurance Company of America
800 Michigan National Tower
Lansing, MI 48933
Re: Canada Life of America Variable Annuity Account 1 (the "Account")
Registration Statement on Form N-4
File No. 33-28889
Gentlemen:
In my capacity as Counsel, U.S. Division for The Canada Life Assurance Company
(the "Company"), it is my professional opinion that:
1. The Company is a corporation duly organized, validly existing and
qualified as a stock life insurance company to write life and disability
insurance and variable annuities/variable life - separate accounts under
the laws of the State of Michigan;
2. The establishment of the Account as a separate investment account of the
Company is authorized, and when created, shall validly exist under the
laws of the State of Michigan;
3. The offer and sale of individual variable annuity contracts ("contracts")
have been duly authorized by the Company and the contracts, when issued
in accordance with the Registration Statement and in compliance with
applicable local law, will be legal and binding obligations of the
Company in accordance with their terms;
4. If and to the extent the Company so provides under its variable annuity
contracts, that portion of the assets of the Account equal to the
reserves and other contract liabilities with respect to such Account will
not be chargeable with liabilities arising out of any other business the
Company may conduct;
5. Owners of contracts, as such, will not be subject to any deductions,
charges or assessments imposed by the Company other than those provided
in the contracts.
<PAGE> 1
EXHIBIT 10 (a)
CONSENT OF COUNSEL
<PAGE> 2
April 14, 1997
Board Of Directors
Canada Life Insurance Company of America
Canada Life of America Variable Annuity Account 1
330 University Avenue
Toronto, Canada M5G 1R8
Gentlemen:
I hereby consent to the use of my name under the caption "Legal Matters" in the
Statement of Additional Information contained in Post-effective Amendment No.
13 to the Registration Statement on Form N-4 (File No. 33-28889) filed by
Canada Life Insurance Company of America and Canada Life of America Variable
Annuity Account 1 with the Securities and Exchange Commission. In giving this
consent, I do not admit that I am in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
Sincerely,
/s/ David A. Hopkins
David A. Hopkins
Chief Counsel, U.S. Division
DAH/
<PAGE> 1
EXHIBIT 10 (b)
CONSENT OF INDEPENDENT COUNSEL
<PAGE> 2
EXHIBIT 10b
CONSENT OF INDEPENDENT COUNSEL
[TRANSMITTED ON SUTHERLAND, ASBILL & BRENNAN, L.L.P. LETTERHEAD)
April 24, 1997
VIA EDGARLINK
Board of Directors
Canada Life Insurance Company of New York
500 Mamaroneck Avenue
Harrison, New York 10528
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Statement of Additional Information filed as part of
Post-Effective Amendment No. 6 to the registration statement on Form N-4 for the
Canada Life of New York Variable Annuity Account 2 (File No. 33-64240). In
giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By: /s/ Stephen E. Roth
-------------------
Stephen E. Roth
<PAGE> 1
EXHIBIT 10 (c)
CONSENT OF INDEPENDENT AUDITORS
<PAGE> 2
EXHIBIT 10(c)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Statements" and "Experts" and to the use of our reports dated February 10,
1997, in Post-Effective Amendment No. 13 to the Registration Statement (Form
N-4 No. 33-28889) and related Prospectus of Canada Life of America Variable
Annuity Account 1 (dated May 1, 1997).
/s/ Ernst & Young LLP
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
April 17, 1997
<PAGE> 1
EXHIBIT 12
SUBSCRIPTION AGREEMENT
<PAGE> 2
CANADA LIFE OF AMERICA SERIES FUND, INC.
Subscription Agreement
1. SHARE SUBSCRIPTION. Canada Life Insurance Company of America
("CLICA"), on its own behalf and on behalf of Canada Life of America Variable
Annuity Account 1, a separate account of CLICA, hereby agrees to purchase from
Canada Life of America Series Fund, Inc. (the "Fund"), a series-type mutual
fund with four series (the "Series"), the following shares (par value one cent)
of each of the below-named Series at a per-share purchase price indicated below,
on the terms and conditions set forth herein and in the Prospectus described
below:
<TABLE>
<CAPTION>
AMOUNT PRICE SHARES
SERIES PURCHASED SHARE PURCHASED
- ------ --------- ----- ---------
<S> <C> <C> <C>
Money Market Series $2 million $10.00 200,000
Bond Series $2 million $10.00 200,000
Equity Series $2 million $10.00 200,000
Managed Series $4 million $10.00 400,000
</TABLE>
CLICA hereby tenders $2 million per Series for the Money Market Series, the Bond
Series, and the Equity Series, and S4 million for the Managed Series as shown
above for an aggregate purchase price of $10 million.
CLICA understands that the Fund filed a Registration Statement (No.
33-28888) on Form N-1A, which contains the Prospectus describing the Fund and
the Shares, and that the Registration Statement was declared effective on _____,
1989. By its signature hereto, the undersigned hereby acknowledges receipt of a
copy of the Prospectus.
2. REPRESENTATIONS AND WARRANTIES. CLICA hereby represents and
warrants as follows:
(a) It is aware that no Federal or state agency has made any
findings or determination as to the fairness for investment, nor any
recommendations or endorsement, of the Shares;
(b) It has such knowledge and experience of financial and
business matters as will enable it to utilize the information made
available to it in connection with the offering of the Shares, to
evaluate the merits and risks of the prospective investment and to make
an informed investment decision;
(c) It recognizes that the Fund has only recently been
organized and has no financial or operating history and, further, that
investment in the Fund involves certain risks, and it has taken full
cognizance of and
<PAGE> 3
understands all of the risks related to the purchase of the Shares, and
it acknowledges that it has suitable financial resources and anticipated
income to bear the economic risk of such an investment;
(d) It is purchasing the Shares on behalf of Variable Annuity
Account 1 for its own account, for investment, in order to provide seed
money for the fund and not with any intention of distribution or resale
of the Shares, either in whole or in part;
(e) It will not sell the Shares purchased by it without
registration of the Shares under the Securities Act of 1933 or exemption
therefrom;
(f) It has been furnished with, and has carefully read, this
Agreement and the Prospectus and such material documents relating to the
Fund as it has requested and as have been provided to it by the Fund; and
(g) It has also had the opportunity to ask questions of, and
receive answers from, the Fund concerning the Fund and the terms of the
offering.
IN WITNESS WHEREOF, the undersigned have executed this instrument
on _________________, 1989.
CANADA LIFE INSURANCE COMPANY OF AMERICA
By:
-------------------------------------
-------------------------------------
CANADA LIFE OF AMERICA SERIES FUND, INC.
By:
-------------------------------------
-------------------------------------
<PAGE> 1
EXHIBIT 13
SAMPLE PERFORMANCE DATA CALCULATION
<PAGE> 2
Exhibit 13
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
Money Market Sub-Account
7-DAY CURRENT YIELD
Current Yield = (( NCS-ES)/UV /7 ) x 365
where NCS = the net change in the value of the Series (exclusive of
realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) for the 7-day
period attributable to a hypothetical account having a
balance of 1 Sub-Account unit
ES = M&E + ADMIN
where ES = per unit expenses of the Sub-Account for the 7-day period
M&E = per unit Mortality & Expense Risk Charges deducted for the
7-day period
ADMIN = per unit Administration Charges deducted for the 7-day
period
= (45 / AAV / 365 ) x AUV x 7
where AAV = Average Accumulated Value of Contracts on the last day of
the 7-day period
= $12,000
AUV = the sum of the unit values on the first and last day of
the 7-day period divided by 2
= 10.0370 + 10.0414 = 10.0392
UV = the unit value on the first day of the 7-Day period
= 10.0370
<TABLE>
<CAPTION>
Date NCS M&E ADMIN
<S> <C> <C> <C>
Dec 31 .003547750 .000684900 .000206285
Dec 30
Dec 29 .001773900 .000342450 .000103142
Dec 28 .001988400 .000342450 .000103142
Dec 27 .005309450 .001027350 .000309428
Dec 26
Dec 25
---------- ---------- ----------
.012619500 .002397150 .000721997
</TABLE>
(((.012619500 - .00239715 - .000721997)/10.0370)) / 7 x 365 = 4.94%
= 7-Day Current Yield at December 31, 1989
- 1 -
<PAGE> 3
Exhibit 13
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
Money Market Sub-Account
7-DAY EFFECTIVE YIELD
___ ___
| 365/7 |
Effective Yield = |( 1 + (NCS - ES) / UV ) | - 1
|___ ___|
where NCS = NCS as calculated for the Current Yield
ES = ES as calculated for the Current Yield
UV = UV as calculated for the Current Yield
___ ___
| 365/7 |
| ((.009500353/10.0370) + 1) | - 1
|___ ___|
= 5.06% = 7-Day Effective Yield at December 31, 1989
- 2 -
<PAGE> 4
Exhibit 13
CANADA LIFE Of AMERICA VARIABLE ANNUITY ACCOUNT 1
Money Market, Managed, Bond, and Equity Sub-Accounts
TOTAL RETURN
Total Return = ((ERV/P) - 1 )
where ERV = the value, at the end of the applicable period, of a
hypothetical $1,000 investment made at the beginning of
the applicable period. It is assumed that all dividends
and capital gains distributions are reinvested
P = a hypothetical initial investment of $1,000
ERV = (1,000 x ((EUV - BUV) / BUV )) + 1,000 - ADMIN - ( SC x
1,000)
where EUV = Unit value at the end of the period
BUV = Unit value at the beginning of the period
SC = Surrender charge = 6%
ADMIN = Administration Charges attributable to the hypothetical
account for the period
= (45 / AAV / 365 ) x No. of days in the period x ($1,000 +
($1,000 x ((EUV - BUV) / BUV) / 2 ))
where AAV = Average Accumulated Value of Contracts on the last day of
the period
= $12,000
Total Return to December 31. 1989
Money Market Sub-Account
ADMIN = (45/12,000/365) x 27
x (1,000 + (1,000 x (( 10.0414 - 10.0000) / 10.0000 / 2))
= ( .000277397) x ( 1,002.07)
= .277971473
ERV = ( 1,000 x ((10.0414 - 10.0000) / 10.0000 )) + 1,000
- .277971473 - (.06 x 1,000)
= 943.86
- 3 -
<PAGE> 5
Exhibit 13
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
Money Market, Managed, Bond, and Equity Sub-Accounts
Total Return = (943.86 / 1,000) - 1
= -5.61%
Managed Sub-Account
ADMIN = (45/12,000/365) x 27
x (1,000 + (1,000 x (( 10.0126 - 10.0000) / 10.0000 / 2))
= ( .000277397 ) x ( 1,002.52)
= .278096301
ERV = ( 1,000 x ((10.0126 - 10.0000) / 10.0000 )) + 1,000
- .278096301 - (.06 x 1,000)
= 940.98
Total Return = (940.98 / 1,000) - 1
= -5.90%
Bond Sub-Account
ADMIN = (45/12,000/365) x 27
x (1,000 + (1,000 x (( 9.9750 - 10.0000) / 10.0000 / 2))
= ( .000277397 ) x ( 995.00)
= .276010274
ERV = ( 1,000 x ((9.9750 - 10.0000) / 10.0000 )) + 1,000
- .276010274 - (.06 x 1,000)
= 937.22
Total Return = (937.22 / 1,000) - 1
= -6.28%
Equity Sub-Account
ADMIN = (45/12,000/365) x 27
x (1,000 + (1 000 x (( 10.0601 - 10.0000) / 10.0000 / 2))
= ( .000277397) x (1,003.01)
= .278230839
ERV = ( 1,000 x ((10.0601 - 10.0000) / 10.0000 )) + 1,000
- .278230839 - (.06 x 1,000)
= 945.73
Total Return = (945.73 / 1,000) - 1
= -5.43%
- 4 -
<PAGE> 6
Exhibit 13
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
Money Market, Managed, Bond, and Equity Sub-Accounts
AVERAGE ANNUAL TOTAL RETURN
1/n
Total Return = ((ERV/P) - 1 )
where ERV = the value, at the end of the applicable period, of a
hypothetical $1,0OO investment made at the beginning
of the applicable period. It is assumed that all
dividends and capital gains distributions are
reinvested
P = a hypothetical initial investment of $1,000
n = number of years
= 27/365
ERV = (1,000 x ((EUV - BUV) / BUV )) + 1,000 - ADMIN
- (SC x 1,000)
where EUV = Unit value at the end of the period
BUV = Unit value at the beginning of the period
SC = Surrender charge = 6%
ADMIN = Administration Charges attributable to the hypothetical
account for the period
= (45 / AAV / 365 ) x No. of days in the period x ($l,0OO +
($l,0OO x ((EUV - BUV) / BUV) / 2 ))
where AAV = Average Accumulated Value of Contracts on the last day of
the period
= $12,000
Money Market Sub-Account
ADMIN = (45/12,000/365) x 27
x (1,000 + (1 000 x (( 10.0414 - 10.0000) / 10.0000 / 2))
= ( .000277397) x ( 1,002.07)
= .277971473
ERV = ( 1,000 x ((10.0414 - 10.0000) / 10.0000 )) + 1,000
- .277971473 - (.06 x 1,000)
= 943.86
- 5 -
<PAGE> 7
Exhibit 13
CANADA LIfE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
Money Market, Managed, Bond, and Equity Sub-Accounts
(1/(27/365))
Total Return = (943.86 / 1,000) - 1
= -54.21%
Managed Sub-Account
ADMIN = (45/12,000/365) x 27
x (1,000 + (1,000 x (( 10.0126 - 10.0000) / 10.0000 / 2))
= ( .000277397 ) x ( 1,002.52)
= .278096301
ERV = ( 1,000 x ((10.0126 - 10.0000) / 10.0000 )) + 1,000
- .278096301 - (.06 x 1,000)
= 940.98
(1/(27/365))
Total Return = (940.98 / 1,000) - 1
= -56.06%
Bond Sub-Account
ADMIN = (45/12,000/365) x 27
x (1,000 + (1,000 x (( 9.9750 - 10.0000) / 10.0000 / 2))
= ( .000277397 ) x ( 995.00)
= .276010274
ERV = ( 1,000 x ((9.9750 - 10.0000) / 10.0000 )) + 1,000
- .276010274 x (.06 x 1,000)
= 937.22
(1/(27/365))
Total Return = (937.22 / 1,000) - 1
= -58.38%
Equity Sub-Account
ADMIN = (45/12,000/365) x 27
x (1,000 + (1,000 x (( 10.0601 - 10.0000) / 10.0000 / 2))
= ( .000277397) x (1,003.01)
= .278230839
ERV = ( 1,000 x ((10.0601 - 10.0000) / 10.0000 )) + 1,000
- .278230839 - (.06 x 1,000)
= 945.73
(1/(27/365))
Total Return = (945.73 / 1,000) - 1
= -52.97%
- 6 -
<PAGE> 8
Exhibit 13
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
Managed, Bond, and Equity Sub-Accounts
30-DAY YIELD
___ ___
| |
| __ __ 6 |
| | NI - ES | |
Yield = 2| | ------- + 1| - 1 |
| |__U x UV __| |
| |
|__ ___|
where NI = Net income of the portfolio for the 30-day period
attributable to the Sub-Account's units
ES = M&E + ADMIN
where ES = Expenses of the Sub-Account for the 30-day period
M&E = Mortality & Expense Risk charges deducted from the
Sub-Account for the 30-day period
ADMIN = Administration charges deducted from the Sub-Account
for the 30-day period
= (45 / AAV / 365) x (U x AUV) x 30
where AAV = Average Accumulated Value of contracts on the last
day of the 30-day period
= $12,000
U = the average number of units outstanding, which equals
the number of units on the first day of the 30-day
period plus the number of units on the last day of
the 30-day period, the sum of which is divided by 2
AUV = the sum of the unit values on the first and last
days of the 30-day period divided by 2
UV = the unit value at the close (highest) of the last
day in the 30-day period
- 7 -
<PAGE> 9
Exhibit 13
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
Managed, Bond, and Equity Sub-Accounts
Yields for the 30-day period ended January 31, 1990
<TABLE>
<CAPTION>
NI ES U UV Yield
<S> <C> <C> <C> <C> <C>
Managed $13,808.84 $5,255.86 400,000.000 $10.0126 2.58%
-----
Bond 12,240.32 2,630.30 200,000.000 9.9750 5.85%
-----
Equity ( 1,294.53) 2,626.94 200,000.000 10.0601 -2.33%
-----
</TABLE>
-8-
<PAGE> 10
MANAGED SUB-ACCOUNT - 30-Day Yield (Jan/90)
Portfolio
Income 17,972.60
Portfolio
Expenses 4,163.76
M&E 4,022.21
Admin (45/12,000/365) x (400,000.000 x ([10.0126 +
10.0000]/2)) x 30 = 1,233.65
U 400,000.000
UV 10.0126
Yield = [((NI - ES/ U x UV) + 1) - 6 - 1] x 2
= 2.58%
=====
<PAGE> 11
BOND SUB-ACCOUNT - 30-Day Yield (Jan/90)
Portfolio
Income 14,324.21
Portfolio
Expenses 2,083.89
M&E 2,014.73
Admin (45/12,000/365) x (200,000.000 x ([9.975 +
10.0000]/2)) x 30 = 615.57
U 200,000.000
UV 9.9750
Yield = [((NI - ES/ U x UV) + 1) - 6 - 1] x 2
= 5.85%
=====
<PAGE> 12
EQUITY SUB-ACCOUNT - 30-Day Yield (Jan/90)
Portfolio
Income 786.21
Portfolio
Expenses 2,081.37
M&E 2,008.65
Admin (45/12,000/365) x (200,000.000 x ([10.0601 +
10.0000]/2)) x 30 = 618.29
U 200,000.000
UV 10.0601
Yield = [((NI - ES/ U x UV) + 1) - 6 - 1] x 2
= -2.33%
=====
