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As Filed with the Securities and Exchange Commission on April 30, 1998.
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. 14
and/or
Registration Statement Under the Investment Company Act of 1940
Amendment No. 15
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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 LLP
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)
_x_ on May 1, 1998 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(i)
___ on __________ pursuant to paragraph (a)(i)
___ 75 days after filing pursuant to paragraph (a)(ii)
___ on __________ pursuant to paragraph (a)(ii) of Rule 485
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.
Title of Securities Being Registered: Flexible Premium Variable Deferred
Annuity Policies
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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
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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 PRINCIPAL UNDERWRITER; See Prospectus - DISTRIBUTION OF POLICIES
19. Purchase of Securities Being Offered See Prospectus - DISTRIBUTION OF POLICIES
20. Underwriter PRINCIPAL 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
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-six 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. Assets of
each Sub-Account are invested in the corresponding portfolios of The Alger
American Fund ("Alger American"); Berger Institutional Products Trust ("Berger
Trust"); Canada Life of America Series Fund, Inc. ("CLASF"); The Dreyfus
Socially Responsible Growth Fund, Inc. ("Dreyfus Socially Responsible"); Dreyfus
Variable Investment Fund ("Dreyfus"); Fidelity Investments Variable Insurance
Products Fund ("Fidelity VIP"); Fidelity Investments Variable Insurance Products
Fund II ("Fidelity VIP II"); Fidelity Investments Variable Insurance Products
Fund III ("Fidelity VIP III"); The Montgomery Funds III ("Montgomery"); or
Seligman Portfolios, Inc. ("Seligman") (each, individually, "a Fund," and
collectively, "the Funds"). The Policy Value prior to the Annuity Date or
Maturity 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 upward or 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. The
Fixed Account, Market Value Adjustment and certain Guarantee Periods may not be
available in all states.
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 NOR HAS THE SECURITIES AND EXCHANGE 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,
INVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
The date of this Prospectus is May 1, 1998.
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TABLE OF CONTENTS
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DEFINITIONS........................................................................3
SUMMARY............................................................................5
TABLE OF EXPENSES..................................................................9
CONDENSED FINANCIAL INFORMATION...................................................14
THE COMPANY.......................................................................17
THE VARIABLE ACCOUNT, THE FUNDS AND FIXED ACCOUNT.................................17
The Variable Account.........................................................17
The Funds....................................................................17
Bond Portfolio..........................................................18
Capital Portfolio.......................................................18
International Equity Portfolio..........................................18
Managed Portfolio.......................................................18
Alger American Growth Portfolio.........................................19
Alger American Leveraged AllCap Portfolio...............................19
Alger American MidCap Growth Portfolio..................................19
Alger American Small Capitalization Portfolio...........................19
Berger/BIAM IPT-International Fund......................................20
Berger IPT-Small Company Growth Fund....................................20
Dreyfus Capital Appreciation Portfolio..................................20
Dreyfus Growth and Income Portfolio.....................................20
Fidelity VIP Growth Portfolio...........................................21
Fidelity VIP High Income Portfolio......................................21
Fidelity VIP Overseas Portfolio.........................................21
Fidelity VIP II Asset Manager Portfolio.................................21
Fidelity VIP II Contrafund Portfolio....................................21
Fidelity VIP II Index 500 Portfolio.....................................21
Fidelity Investments Variable Insurance Products Fund III....................21
Fidelity VIP III Growth Opportunities Portfolio.........................21
Montgomery Variable Series: Emerging Markets Fund.......................22
Montgomery Variable Series: Growth Fund.................................22
Seligman Portfolios, Inc................................................22
Seligman Communications and Information Portfolio.......................22
Seligman Frontier Portfolio.............................................22
Reserved Rights..............................................................22
Change In Investment Objective...............................................22
The Fixed Account............................................................23
Guarantee Amount.............................................................23
Guarantee Periods............................................................23
Market Value Adjustment......................................................24
DESCRIPTION OF ANNUITY POLICY.....................................................25
Ten Day Right to Examine Policy..............................................25
Premiums.....................................................................25
Initial Premium.........................................................25
Additional Premiums.....................................................26
Pre-Authorized Check Plan...............................................26
Wire Transmittal Privilege..............................................26
Electronic Data Transmission of Application Information.................26
Net Premium Allocation..................................................26
Termination..................................................................27
Variable Account Value.......................................................27
Units...................................................................27
Unit Value..............................................................27
Net Investment Factor...................................................27
Transfers....................................................................28
Transfer Privilege......................................................28
Telephone Transfer Privilege............................................28
Intouch(TM) Voice Response System.......................................28
Dollar Cost Averaging Privilege.........................................29
Restrictions on Transfers from Fixed Account............................29
Transfer Processing Fee.................................................29
Payment of Proceeds..........................................................29
Proceeds................................................................29
Proceeds on Annuity Date or Maturity Date...............................29
Proceeds on Surrender...................................................30
Proceeds on Death of Last Surviving Annuitant Before
Annuity Date or Maturity Date (The Death Benefit).....................30
Proceeds on Death of Any Owner Before or After Annuity
Date or Maturity Date.................................................31
Interest on Proceeds....................................................32
Partial Withdrawals..........................................................32
Systematic Withdrawal Privilege ("SWP").................................33
Portfolio Rebalancing ("Rebalancing")........................................33
Loans........................................................................33
Payment of Benefits, Partial Withdrawals, Cash Surrenders and
Transfers - Postponement....................................................34
Charges Against the Policy, Variable Account, and Funds......................34
Surrender Charge........................................................34
Policy Administration Charge............................................35
Daily Administration Fee................................................35
Transfer Processing Fee.................................................35
Annualized Mortality and Expense Risk Charge............................36
Waiver of Surrender Charge..............................................36
Reduction or Elimination of Surrender Charges and Policy
Administration Charges.................................................37
Taxes...................................................................37
Other Charges Including Investment Advisory Fees........................37
Payment Options..............................................................38
Election of Options.....................................................38
Description of Payment Options..........................................38
Payment Dates...........................................................38
Age and Survival of Payee...............................................38
Death of Payee..........................................................39
Other Policy Provisions......................................................39
Owner or Joint Owner....................................................39
Beneficiary.............................................................39
Written Notice..........................................................39
Periodic Reports........................................................39
Assignment..............................................................40
Modification............................................................40
YIELDS AND TOTAL RETURNS..........................................................40
TAX DEFERRAL......................................................................41
FEDERAL TAX STATUS................................................................42
Introduction.................................................................42
The Company's Tax Status.....................................................42
Tax Status of the Policy.....................................................42
Diversification Requirements............................................42
Owner Control...........................................................42
Required Distributions..................................................43
Taxation of Annuities........................................................43
In General..............................................................43
Withdrawals/Distributions...............................................44
Annuity Payments........................................................44
Taxation of Death Benefit Proceeds......................................44
Penalty Tax on Certain Withdrawals......................................44
Transfers, Assignments, or Exchanges of a Policy.............................45
Withholding..................................................................45
Multiple Policies............................................................45
Possible Tax Changes.........................................................45
Taxation of Qualified Plans..................................................45
Individual Retirement Annuities and Simplified Employee Pensions
(SEP/IRAs).............................................................46
SIMPLE Individual Retirement Annuities..................................46
ROTH Individual Retirement Annuities....................................46
Minimum Distribution Requirements ("MDR")...............................46
Corporate and Self-Employed (H.R.10 and Keogh) Pension and
Profit-Sharing Plans...................................................47
Deferred Compensation Plans.............................................47
Tax-Sheltered Annuity Plans.............................................47
Other Tax Consequences.......................................................48
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM..........................48
DISTRIBUTION OF POLICIES..........................................................48
LEGAL PROCEEDINGS.................................................................48
VOTING RIGHTS.....................................................................49
INSURANCE MARKETPLACE STANDARDS ASSOCIATION.......................................49
PREPARING FOR YEAR 2000...........................................................49
FINANCIAL STATEMENTS..............................................................49
STATEMENT OF ADDITIONAL INFORMATION - TABLE OF CONTENTS...........................50
APPENDIX A: STATE PREMIUM TAXES...................................................51
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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 Joint-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.
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; Fidelity Investments Variable Insurance Products Fund III;
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.
JOINT-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
Joint-Annuitant. A Joint-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 Joint-Annuitant under a Qualified Policy will be of no effect .
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 Joint-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.
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MATURITY DATE: The first day of the month after the 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,
408A, or 457 of the Code. See "FEDERAL TAX STATUS" .
SUB-ACCOUNT(S): The Variable Account is divided into twenty-six Sub-Accounts.
The assets of the Sub-Accounts are invested in the corresponding portfolios of
the Funds.
UNIT: 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).
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 the Owner is age 60 or
over, in Colorado you have 15 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 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-six
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 portfolios of
the Funds. The Funds currently offer twenty-six portfolios available for
investment under the Policy: Bond; Capital; Managed; Money Market; International
Equity; Value Equity (formerly known as Equity); Alger American Growth; Alger
American MidCap Growth; Alger American Leveraged AllCap; Alger American Small
Capitalization; Berger/BIAM IPT - International; Berger IPT-Small Company
Growth; Dreyfus Capital Appreciation; Dreyfus Growth and Income; Dreyfus
Socially Responsible; Fidelity VIP Growth; Fidelity VIP High Income; Fidelity
VIP Overseas; Fidelity VIP II Asset Manager; Fidelity VIP II Contrafund;
Fidelity VIP II Index 500; Fidelity VIP III Growth Opportunities; Montgomery
Variable Series: Emerging Markets; Montgomery Variable Series: Growth; Seligman
Communications and Information; and Seligman Frontier. 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 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 greater 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").
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The Fixed Account, Market Value Adjustment and certain Guarantee Periods may not
be available in all jurisdictions.
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 ("Due Proof") of the Last Surviving Annuitant
before the Annuity Date or Maturity Date, 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 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 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 WERE
OBTAINED IN THE JURISDICTIONS IN WHICH THE CONTRACTS ARE OFFERED.
If we receive 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 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.
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THE FOLLOWING APPLIES ONLY TO CONTRACTS ISSUED PRIOR TO MAY 1, 1995 OR SUCH
LATER DATE AS APPLICABLE REGULATORY APPROVALS WERE OBTAINED IN THE
JURISDICTION IN WHICH THE CONTRACTS ARE OFFERED.
If we receive 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 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 in the following order:
<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, PLUS...............................................None
2. Up to 100% of interest on the FIXED ACCOUNT at the
time the request for surrender/withdrawal is made,
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 were
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%
</TABLE>
7
<PAGE> 13
<TABLE>
<S> <C>
For policies issued after April 30, 1995 or such later
date as applicable regulatory approvals were 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. The Company currently
assesses a $25 transfer fee for the 13th and each additional transfer in a
Policy Year. 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
premiums when paid; or b) the Policy Value when it is applied under a payment
option, at Cash Surrender Value or upon partial withdrawal. See "Taxes".
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. 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".
8
<PAGE> 14
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 one. 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>
<CAPTION>
POLICYOWNER TRANSACTION EXPENSES*
<S> <C>
Sales load on premiums ...................................................................None
Maximum contingent deferred sales charge as a percentage of amount
surrendered (10% of total premiums still subject to a surrender charge
and 100% of earnings are free of any sales load. See "Policy Charges")..................6%
Transfer fee
Current Policy - First 12 transfers each Policy Year..............................No fee
Each transfer thereafter................................................$25 per transfer
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 average account value)
Mortality and expense risk charges...................................................1.25%
Daily Administration Fee**...........................................................0.15%
----
Total Variable Account annual expenses...............................................1.40%
====
</TABLE>
9
<PAGE> 15
PORTFOLIOS' ANNUAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997***
(as a percentage of average net assets)
OTHER EXPENSES TOTAL
<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL
MANAGEMENT AFTER EXPENSE ANNUAL
PORTFOLIO FEES REIMBURSEMENT*** EXPENSES
--------- ---- ------------- --------
<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% 0.15% 1.00%
Alger American MidCap Growth 0.80% 0.04% 0.84%
Alger American Small Capitalization 0.85% 0.04% 0.89%
Berger/BIAM IPT-International 0.00% 1.20% 1.20%
Berger IPT-Small Company Growth 0.00% 1.15% 1.15%
Dreyfus Capital Appreciation 0.75% 0.05% 0.80%
Dreyfus Growth and Income 0.75% 0.05% 0.80%
Dreyfus Socially Responsible 0.75% 0.07% 0.82%
Fidelity VIP Growth 0.60% 0.09% 0.69%
Fidelity VIP High Income 0.59% 0.12% 0.71%
Fidelity VIP Overseas 0.75% 0.17% 0.92%
Fidelity VIP II Asset Manager 0.55% 0.10% 0.65%
Fidelity VIP II Contrafund 0.60% 0.11% 0.71%
Fidelity VIP II Index 500 0.24% 0.04% 0.28%
Fidelity VIP III Growth Opportunities 0.60% 0.14% 0.74%
Montgomery Variable Series: Emerging Markets 1.25% 0.50% 1.75%
Montgomery Variable Series: Growth 0.00% 0.34% 0.34%
Seligman Communications and Information 0.75% 0.12% 0.87%
Seligman Frontier 0.75% 0.14% 0.89%
</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. The Fixed Account, Market Value Adjustment
and certain Guarantee Periods may not be available in all jurisdictions.
10
<PAGE> 16
** 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 Growth
Portfolio, Fidelity VIP Overseas Portfolio and Fidelity VIP II Asset
Manager Portfolio 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 Fidelity VIP Growth Portfolio, 0.92% for Fidelity VIP
Overseas Portfolio, and 0.73% for Fidelity VIP II Asset Manager Portfolio.
Fidelity VIP II Index 500 fund expenses were voluntarily reduced by the
Funds' investment adviser. Absent reimbursement, the management fee, other
expenses, and total expenses would have been 0.28%, 0.15%, and 0.43%
respectively.
The Manager of the Montgomery Variable Series: Emerging Markets Fund and
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 Emerging Markets Fund
and the Growth Fund at or below 1.75% and 1.25%, respectively, of average
net assets. The Manager also may voluntarily reduce additional amounts to
increase the return to policyowners investing in the Montgomery Variable
Series: Emerging Markets Fund and/or 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: Emerging Markets Fund and the Montgomery
Variable Series: Growth Fund within the following three years, provided the
Portfolios are able to effect such reimbursement and remain in compliance
with applicable expense limitations. The Management Fees, Other Expenses
and Total Annual Expenses absent voluntary reimbursements for the
Montgomery Variable Series: Growth Fund were 1.0%, 0.97% and 1.97%; and
1.25%, 0.56%, and 1.81% for the Montgomery Variable Series: Emerging
Markets Fund. For the Montgomery Variable Series: Emerging Markets Fund and
Montgomery Variable Series: Growth Fund, the applicable expense limitation
for the current fiscal year is 1.75% and 1.25%, respectively, and total
expenses for the Montgomery Variable Series: Emerging Markets Fund and
Montgomery Variable Series: Growth Fund are expected to be 1.75% and 1.25%,
respectively.
The Managers of the Berger/BIAM IPT-International Fund and Berger IPT-Small
Company Growth Fund have voluntarily agreed to waive their management fees
and expect to voluntarily reimburse the Funds for additional expenses to
the extent that the Funds' total annual expenses exceed 1.20% and 1.15%,
respectively.
As the Berger IPT-Small Company Growth, Dreyfus Capital Appreciation,
Fidelity VIP II Contrafund and Fidelity VIP III Growth Opportunities
Sub-Accounts did not commence operations until May 1, 1998, the "Other
Expenses" for these Sub-Accounts are based on estimated amounts for the
current fiscal year.
There is no assurance that these waiver or reimbursement policies will be
continued in the future. In the event that any of these waivers or
reimbursements are discontinued, they will be reflected in an updated
prospectus.
The data with respect to the Portfolios' annual expenses have been provided to
us by the Funds and we have not independently verified such data.
The purpose of the above Table of Expenses is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly. The Table
of Expenses reflects expenses of the separate account as well as the Funds.
For a more complete description of the various costs and expenses, see "Charges
Against The Policy, Variable Account, And Funds," and the Funds' Prospectuses.
In addition to the expenses listed above, premium taxes may
11
<PAGE> 17
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.
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 $78 $119 $163 $272
Capital $78 $119 $163 $272
International Equity $81 $128 $178 $302
Managed $78 $119 $163 $272
Money Market $77 $115 $156 $257
Value Equity $78 $119 $163 $272
Alger American Growth $77 $116 $158 $261
Alger American Leveraged AllCap $79 $122 $168 $282
Alger American MidCap Growth $78 $118 $160 $266
Alger American Small Capitalization $78 $119 $163 $271
Berger/BIAM IPT - International $81 $128 $178 $302
Berger IPT-Small Company Growth $81 $127 * *
Dreyfus Capital Appreciation $77 $116 * *
Dreyfus Growth and Income $77 $116 $158 $262
Dreyfus Socially Responsible $77 $117 $159 $264
Fidelity VIP Growth $76 $113 $153 $251
Fidelity VIP High Income $76 $114 $154 $253
Fidelity VIP Overseas $78 $120 $164 $274
Fidelity VIP II Asset Manager $76 $112 $151 $247
Fidelity VIP II Contrafund $76 $114 * *
Fidelity VIP II Index 500 $72 $101 $132 $208
Fidelity VIP III Growth Opportunities $77 $115 * *
Montgomery Variable Series: Emerging Markets $87 $145 $205 $354
Montgomery Variable Series: Growth $73 $102 $135 $214
Seligman Communications and Information $78 $119 $162 $269
Seligman Frontier $78 $119 $163 $271
</TABLE>
* Pursuant to regulations set forth by the Securities and Exchange Commission,
examples for 5 and 10 Year periods have not been provided for Sub-Accounts
commencing operations on or after May 1, 1998.
12
<PAGE> 18
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 $24 $ 74 $127 $272
Capital $24 $ 74 $127 $272
International Equity $27 $ 83 $142 $302
Managed $24 $ 74 $127 $272
Money Market $23 $ 70 $120 $257
Value Equity $24 $ 74 $127 $272
Alger American Growth $23 $ 71 $122 $261
Alger American Leveraged AllCap $25 $ 77 $132 $282
Alger American MidCap Growth $24 $ 73 $124 $266
Alger American Small Capitalization $24 $ 74 $127 $271
Berger/BIAM IPT - International $27 $ 83 $142 $302
Berger IPT-Small Company Growth $27 $ 82 * *
Dreyfus Capital Appreciation $23 $ 71 * *
Dreyfus Growth and Income $23 $ 71 $122 $262
Dreyfus Socially Responsible $23 $ 72 $123 $264
Fidelity VIP Growth $22 $ 68 $117 $251
Fidelity VIP High Income $22 $ 69 $118 $253
Fidelity VIP Overseas $24 $ 75 $128 $274
Fidelity VIP II Asset Manager $22 $ 67 $115 $247
Fidelity VIP II Contrafund $22 $ 69 * *
Fidelity VIP II Index 500 $18 $ 56 $ 96 $208
Fidelity VIP III Growth Opportunities $23 $ 70 * *
Montgomery Variable Series: Emerging Markets $33 $100 $169 $354
Montgomery Variable Series: Growth $19 $ 57 $ 99 $214
Seligman Communications and Information $24 $ 74 $126 $269
Seligman Frontier $24 $ 74 $127 $271
</TABLE>
* Pursuant to regulations set forth by the Securities and Exchange Commission,
examples for 5 and 10 Year periods have not been provided for Sub-Accounts
commencing operations on or after May 1, 1998.
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 charge or Market Value
Adjustment has been assessed. The examples also reflect a policy administration
charge of 0.09% 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.
13
<PAGE> 19
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, 1997.
Accumulation Unit Values will not be provided for any date prior to the
inception of the Variable Account.
As of December 31, 1997, the Berger IPT-Small Company Growth Fund, Dreyfus
Capital Appreciation, Fidelity VIP II Contrafund and Fidelity VIP III Growth
Opportunities Sub-Accounts had not commenced operations. Accordingly, condensed
financial information is not available for these Sub-Accounts.
14
<PAGE> 20
ACCUMULATION
UNIT VALUE*
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF AS OF AS OF AS OF AS OF
SUB ACCOUNT 12/31/97 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> <C>
Bond** $ 16.49 $15.47 $14.98 $12.98 $13.69 $12.57 $11.93 $10.39 $ 9.97
Capital*** $ 18.52 $15.51 $13.95 $10.54 $11.14 -- -- -- --
International Equity***** $ 12.69 $12.35 $10.48 -- -- -- -- -- --
Managed** $ 20.08 $17.29 $16.56 $13.75 $13.97 $13.07 $12.25 $10.05 $10.01
Money Market** $ 12.73 $12.30 $11.94 $11.50 $11.27 $11.16 $10.99 $10.61 $10.04
Value Equity** $ 22.96 $18.32 $17.34 $14.21 $14.11 $13.56 $12.66 $ 9.50 $10.06
Alger American Small Capitalization****** $ 45.13 $41.09 -- -- -- -- -- -- --
Alger American Growth****** $ 43.55 $35.15 -- -- -- -- -- -- --
Alger American Leveraged All Cap****** $ 22.46 $19.04 -- -- -- -- -- -- --
Alger American Mid Cap Growth****** $ 23.82 $21.05 -- -- -- -- -- -- --
Berger/BIAM IPT-International******* $ 9.71 -- -- -- -- -- -- -- --
Dreyfus Growth & Income****** $ 25.90 $22.62 -- -- -- -- -- -- --
Dreyfus Socially Responsible****** $ 26.93 $21.26 -- -- -- -- -- -- --
Fidelity VIP Growth**** $ 43.68 $35.88 $31.75 $23.62 -- -- -- -- --
Fidelity VIP High Income**** $ 35.86 $31.01 $27.64 $22.97 -- -- -- -- --
Fidelity VIP Overseas*** $ 20.45 $18.65 $16.70 $15.33 -- -- -- -- --
Fidelity VIP II Asset Manager**** $ 24.24 $20.39 $18.07 $15.56 -- -- -- -- --
Fidelity VIP II Index 500****** $122.52 $93.70 -- -- -- -- -- -- --
Montgomery Variable Series: Emerging
Markets****** $ 10.34 $10.55 -- -- -- -- -- -- --
Montgomery Variable Series: Growth******* $ 16.07 -- -- -- -- -- -- -- --
Seligman Communications and
Information***** $ 18.39 $15.27 $14.22 -- -- -- -- -- --
Seligman Frontier ***** $ 19.46 $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.
******* Commenced operations on May 1, 1997.
15
<PAGE> 21
NUMBER OF UNITS
OUTSTANDING AT
END OF PERIOD
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF *AS OF *AS OF AS OF AS OF
SUB ACCOUNT 12/31/97 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> <C>
Bond 127,519 114,245 106,916 100,443 122,984 73,332 6,027 82,380 200,000
Capital 192,179 213,607 229,347 147,095 59,901 -- -- -- --
International Equity 201,007 64,082 5,684 -- -- -- -- -- --
Managed 510,901 647,793 731,425 726,809 816,591 531,327 312,712 173,916 400,000
Money Market 302,362 245,769 113,559 233,129 191,369 38,210 5,268 80,808 200,000
Value Equity 244,827 253,116 345,788 278,147 273,813 147,334 32,775 83,381 200,000
Alger American Growth 77,256 13,900 -- -- -- -- -- -- --
Alger American Leveraged All Cap 29,563 12,535 -- -- -- -- -- -- --
Alger American MidCap Growth 63,533 32,967 -- -- -- -- -- -- --
Alger American Small Capitalization 36,315 8,816 -- -- -- -- -- -- --
Berger/BIAM IPT-International 74,629 -- -- -- -- -- -- -- --
Dreyfus Growth & Income 230,531 109,413 -- -- -- -- -- -- --
Dreyfus Socially Responsible 43,739 5,194 -- -- -- -- -- -- --
Fidelity VIP Growth 236,003 180,057 118,920 30,356 -- -- -- -- --
Fidelity VIP High Income 213,974 124,114 63,205 29,537 -- -- -- -- --
Fidelity VIP Overseas 108,953 72,861 77,840 76,731 -- -- -- -- --
Fidelity VIP II Asset Manager 325,637 204,163 124,510 112,511 -- -- -- -- --
Fidelity VIP II Index 500 81,275 11,515 -- -- -- -- -- -- --
Montgomery Variable Series:
Emerging Markets 250,799 34,261 -- -- -- -- -- -- --
Montgomery Variable Series: Growth 31,387 -- -- -- -- -- -- -- --
Seligman Communications and
Information 390,340 209,155 147,867 -- -- -- -- -- --
Seligman Frontier 262,598 207,377 36,784 -- -- -- -- -- --
</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.
16
<PAGE> 22
THE COMPANY
Canada Life Insurance Company of America ("we," "our," and "us") is a stock life
insurance company with assets as of December 31, 1997 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. It is one of the largest life insurance companies in
North America with consolidated assets as of December 31, 1997 of approximately
$27.7 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.
The Variable Account currently is divided into twenty-six 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,
Fidelity VIP III, 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.
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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 certain Funds are similar to the
investment objectives and policies of other portfolios that may be managed by
the same investment adviser or manager. The investment results of the Funds,
however, may differ from the results of such other portfolios. There can be no
assurance, and no representation is made, that the investment results of any of
the Funds will be comparable to the investment results of any other portfolio,
even if the other portfolios have the same investment adviser or manager.
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 before investing and retained for
future reference.
CANADA LIFE OF AMERICA SERIES FUND, INC.
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 INDAGO Capital Management
Inc. 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.
INDAGO Capital Management Inc. is a subsidiary of The Canada Life Assurance
Company.
The Canada Life of America Series Fund, Inc., ("CLASF") currently has six
portfolios: Bond; Capital; International Equity; Managed; Money Market; and
Value Equity. The following is a brief description of the investment objectives
of each of the current portfolios of CLASF.
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.
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.
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.
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.
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.
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<PAGE> 24
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.
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.
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; its shares
also may 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.
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 LEVERAGED ALLCAP PORTFOLIO
The Alger American Leveraged AllCap Portfolio seeks long-term capital
appreciation by investing primarily in a diversified, actively managed portfolio
of equity securities, except during temporary defensive periods. 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.
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 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 in 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.
BERGER INSTITUTIONAL PRODUCTS TRUST
The Berger Institutional Products Trust ("Berger Trust") is intended to be a
funding vehicle for variable annuity contracts and variable life insurance
policies offered by the separate accounts of certain life insurance companies;
and its shares may also be offered to qualified pension and retirement plans.
The Berger Trust is an open-end investment company and each of its portfolios
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<PAGE> 25
has distinct investment objectives and policies. Further information regarding
the investment practices of the portfolios available under this Policy is set
forth below.
BERGER/BIAM IPT-INTERNATIONAL FUND
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.
BERGER IPT-SMALL COMPANY GROWTH FUND
The portfolio is advised by Berger Associates, Inc. The investment objective of
the Berger IPT-Small Company Growth Fund is capital appreciation. The portfolio
seeks to achieve this objective by investing primarily in common stocks of small
companies and other securities with equity features. Under normal circumstances,
the portfolio invests at least 65% of its assets in equity securities of
companies with market capitalizations of less than $1 billion a the time of
initial purchase.
The balance of the portfolio may be invested in larger companies, government
securities or other short-term investments.
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.
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. Two of the Fund's portfolios are available under this
Policy, the Dreyfus Growth and Income Portfolio and Dreyfus Capital Appreciation
Portfolio.
DREYFUS CAPITAL APPRECIATION PORTFOLIO
The Capital Appreciation Portfolio seeks to provide long-term capital growth
consistent with the preservation of capital; current income is a secondary goal.
The Portfolio invests in common stocks of domestic and foreign companies. The
Portfolio generally will seek investment opportunities in large capitalization
companies.
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.
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").
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<PAGE> 26
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.
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, VIP II Contrafund 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 money market instruments.
FIDELITY VIP II CONTRAFUND PORTFOLIO
The Fidelity VIP II Contrafund Portfolio seeks capital appreciation by investing
in securities of companies whose value the Investment Manager believes is not
fully recognized by the public.
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.
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND III
The Fidelity Investments Variable Insurance Products Fund III ("Fidelity VIP
III") acts as one of the funding vehicles for the Policy with the VIP III Growth
Opportunities Portfolio available under the Policy. Fidelity VIP III is managed
by Fidelity Management & Research Company ("Investment Manager").
FIDELITY VIP III GROWTH OPPORTUNITIES PORTFOLIO
The Fidelity VIP III Growth Opportunities Portfolio seeks capital growth by
investing primarily in common stocks and securities convertible into common
stocks.
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.
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<PAGE> 27
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.
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.
SELIGMAN PORTFOLIOS, INC.
Seligman Portfolios, Inc. ("Seligman") currently has fourteen portfolios, two of
which are available under the Policy: Communications and Information; and
Frontier. Seligman is a diversified open-end 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. Income is
not an objective. The Portfolio seeks to achieve its objective by investing
primarily in securities of companies operating in the communications,
information and related industries.
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. The Portfolio invests primarily in equity securities of
companies selected for their growth prospects.
RESERVED RIGHTS
We reserve the right to substitute shares of another portfolio of CLASF,
Fidelity VIP, Fidelity VIP II, Fidelity VIP III, 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
objective; 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 OBJECTIVE
The investment objective 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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<PAGE> 28
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, Market Value
Adjustment and certain Guarantee Periods 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 is 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.
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
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<PAGE> 29
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.
From time to time we may offer an additional one year Guarantee Period whereby
you may elect to automatically transfer specified additional premium from this
account to any variable Sub-Account(s) and/or any Guarantee Period(s) under the
Fixed Account on a periodic basis, for a period not to exceed twelve months,
subject to our administrative procedures and the restrictions disclosed in the
"Transfer Privilege" section. A special interest rate may be offered for this
Guarantee Period which may differ from that offered for any other one year
Guarantee Period. The available interest rate will always be equal to or greater
than an effective annual interest rate of 3%. This Guarantee Period is used
solely in connection with the "Dollar Cost Averaging" privilege (see "Dollar
Cost Averaging Privilege").
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, the
surrender, withdrawal or transfer of a Guarantee Amount is from the one year
Guarantee Period, or the surrender, withdrawal or transfer is to provide Death
Benefits, nursing home benefits, terminal illness benefits or annuitization. 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 surrender, withdrawal, or transfer of an amount
greater than the Guarantee Amount (or portion thereof) being surrendered,
withdrawn, or transferred.
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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:
Market Value Adjustment Factor = Lesser of (a) (1 + i)n/12
------------ - 1
(1 + r+.005)n/12
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 you have 30 days if the Owner is age 60 or
over, in Colorado you have 15 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
An applicant 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.
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.
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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.
PRE-AUTHORIZED CHECK PLAN
YOU may elect, in writing, to have monthly premiums automatically collected from
your checking account or savings account pursuant to a Pre-Authorized Check Plan
("PAC"). This plan may be terminated by you or us after 30 days Written Notice,
or at any time by us if a payment has not been paid by your bank. This option is
not available on the 29th, 30th or 31st day of each month. There is no charge
for this feature.
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.
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%.
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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 Last Surviving Annuitant's death.
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.
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<PAGE> 33
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.
Excessive trading (including short-term "market timing" trading) may adversely
affect the performance of the variable Sub-Accounts. If a pattern of excessive
trading by a policyholder or the policyholder's agent develops and the Funds
inform us that they are unwilling to issue shares of the relevant Fund in
connection with a particular transaction because of excessive trading, we
reserve the right not to process your transfer request. Accordingly, if your
request is not processed, it will not be counted as a transfer for purposes of
determining the number of free transfers executed.
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 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. In addition, we cannot accept or process
transfer requests left on our voice mail system, although transfers through our
IntouchTM Voice Response System are acceptable.
INTOUCH(TM) VOICE RESPONSE SYSTEM
You may obtain current account information, including Sub-Account balances,
policy and unit values, and the current Fixed Account interest rate, through an
interactive voice response system accessed by your touch tone telephone (the
"Intouch Voice Response System"). In addition, you may change your Sub-Account
allocation and effect transfers between Sub-Accounts or to the Fixed Account.
Transfers from the Fixed Account, other than from the one-year Guarantee Period,
are not permitted under the Intouch Voice Response System. Your Policy number
and Personal Identification Number, issued by us to ensure security, are
required for any transfers and/or allocation changes.
When using the Intouch Voice Response System, you will not be assessed a
transfer processing fee regardless of the number of transfers made per Policy
Year.
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<PAGE> 34
DOLLAR COST AVERAGING PRIVILEGE
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(s) 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"
("DCA"), 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, 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. This option is not
available on the 29th, 30th or 31st day of each month. There is no charge for
this feature.
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. The first 12 transfers during each Policy
Year are free under our current policy, which we reserve the right to change.
The Company currently assesses a $25 transfer fee for the 13th and each
additional transfer in a Policy Year. For the purposes of assessing the fee,
each transfer request (which includes a Written Notice or telephone call, but
does not include automatic transfers, including 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. The $25 transfer fee is waived when using the IntouchTM Voice Response
System.
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.
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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".
PROCEEDS ON DEATH OF LAST SURVIVING ANNUITANT BEFORE ANNUITY DATE OR MATURITY
DATE (THE DEATH BENEFIT)
If we receive Due Proof of Death ("Due Proof") of the Last Surviving Annuitant
before the Annuity Date or Maturity Date, 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 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 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.
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THE FOLLOWING APPLIES ONLY TO POLICIES ISSUED FROM MAY 1, 1995 THROUGH APRIL
30, 1996, OR SUCH LATER DATE AS APPLICABLE REGULATORY APPROVALS WERE OBTAINED
IN THE JURISDICTIONS IN WHICH THE CONTRACTS ARE OFFERED.
If we receive 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 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 WERE OBTAINED IN THE
JURISDICTION IN WHICH THE CONTRACTS ARE OFFERED.
If we receive 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 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.
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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.
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".
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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, semi-annual
or 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 to
elect the Systematic Withdrawal Privilege, 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 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 from a Guarantee Period other than from the one year
Guarantee Period under the Fixed Account may be subject to a Market Value
Adjustment.
When no Surrender Charges are applicable, the entire Policy is available for
systematic withdrawal. Once an amount has been selected for withdrawal, it will
remain fixed until the earlier of the next Policy Anniversary or termination of
the privilege. A written request to change the withdrawal amount for the
following Policy Year must be received no later than 7 days prior to the Policy
Anniversary date. 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 $2,000*; 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 to withdraw premium counts as your annual free
withdrawal of up to 10% 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. This option is
not available on the 29th, 30th or 31st day of each month. The Company reserves
the right to change its minimum systematic withdrawal amount requirements.
In certain circumstances, amounts withdrawn pursuant to a systematic withdrawal
option may be included in a policyowner's gross income and may be subject to
penalty taxes.
* If the Cash Surrender Value is reduced to $2,000, your Policy may terminate.
See "Termination."
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. This option is not available on
the 29th, 30th or 31st day of each month. There is no charge for this feature.
LOANS
If loans are offered, the Company will make a loan on the sole security of the
Policy within seven days of receiving the Owner's properly completed loan
application, subject to postponement under the same circumstances that payment
of withdrawals may be postponed. The maximum loan value is determined under the
Code but is no more than 80% of Policy Value, less outstanding loans and accrued
interest. The amount of the loan is withdrawn from the Owner's investment in the
investment accounts, in accordance with the rules for making partial withdrawals
unless the Owner designates otherwise. (See "Partial Withdrawals"). The loan
amount is transferred to the loan account, which is part of the Company's
general account, and is credited with interest
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at the rate of 4% per year. The Company charges interest on policy loans of 6%
per year payable in arrears, and if not paid the interest is added to the amount
of the loan, is transferred from the investment accounts to the loan account on
the Policy Anniversary, and bears interest at 6% as well. If on any date the
loan amount plus accrued interest exceeds the Policy Value, the Policy will be
in default, the Owner will receive a notice from the Company, and if the default
amount is not repaid within a thirty-one day grace period, the Policy will be
foreclosed (terminated without value). Loans generally must be repaid within
five years, in substantially equal quarterly installments, although additional
repayment in whole or in part will be accepted at any time during the repayment
period. The amount repaid is transferred from the loan account and allocated to
the investment accounts in the same manner as the Owner's most recent premium,
unless the Owner designates otherwise.
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.
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 in the following order:
<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, PLUS..........................................................None
2. Up to 100% of interest on the FIXED ACCOUNT at the time
the request for surrender/withdrawal is made, 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
</TABLE>
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<PAGE> 40
<TABLE>
<S> <C>
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 premium(s) withdrawn. If the premium 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 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. The Company currently assesses a
$25 transfer fee for the 13th and each additional transfer in a Policy Year. For
the purposes of assessing the fee, each transfer request (which includes a
Written Notice or telephone call, but does not include automatic transfers,
including 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.
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<PAGE> 41
ANNUALIZED MORTALITY AND EXPENSE RISK CHARGE
We assess an annual mortality and expense risk charge, deducted at each
Valuation Period from the assets of the Variable Account, at an effective annual
rate of 1.25% of the average daily value of the net assets in the Variable
Account. This charge is assessed during the Accumulation Period, but 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
0.75% to cover the mortality risk, and approximately 0.50% to cover the expense
risk. We guarantee not to increase this charge for the duration of the Policy.
This charge is assessed daily when determining the value of an Accumulation
Unit.
The mortality risk we assume arises from our obligation to make annuity payments
(determined in accordance with the annuity tables and other provisions contained
in the Policy) for the full life of all Annuitants regardless of how long all
Annuitants or any individual Annuitant might live. Accordingly, 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 neither his or her longevity,
nor an improvement in life expectancy generally, will have any adverse effect on
the annuity payments received under the Policy. This, therefore, relieves the
Annuitant from the risk that he or she will outlive the funds accumulated for
retirement. 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. No surrender charge is assessed against the payment of the Death
Benefit, which also increases the mortality risk.
The expense risk we assume is the risk that the surrender charges, policy
administration charge, daily administration fee, and transfer fees may be
insufficient to cover our actual future expenses. If the mortality and expense
charges are sufficient to cover such costs and risks, any excess will be profit
to the Company, and a portion of such profit, if any, may be used to finance
distribution expenses. However, if the amounts deducted prove to be
insufficient, the loss will be borne by us.
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. This provision may
not be available in all jurisdictions.
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<PAGE> 42
REDUCTION OR ELIMINATION OF SURRENDER CHARGES AND POLICY ADMINISTRATION CHARGES
The amount of the surrender charge and/or policy administration charge on a
Policy may be reduced or eliminated when some or all of the policies are to be
sold to an individual or a group of individuals in such a manner that results in
savings of sales and/or administrative expenses. In determining whether to
reduce or eliminate such expenses, the Company will consider certain factors
including the following:
1. the size and type of group to which the administrative services are to
be provided and the sales are to be made will be considered.
Generally, sales and administrative 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. For example, 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 or elimination in sales expenses and/or administration
expenses, the Company will provide a reduction in the surrender charge and/or
the policy administration charge. Such charges may also be eliminated when a
Policy is issued to an officer, director, employee, registered representative or
relative thereof of: the Company; The Canada Life Assurance Company; J. & W.
Seligman Co. Incorporated; any selling Broker/Dealer; or any of their
affiliates. In no event will reduction or elimination of the surrender charge
and/or policy administration charge be permitted where such reduction or
elimination will be discriminatory to any person.
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.
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
premiums when paid; or b) the Policy Value when it is applied under a payment
option, at cash surrender or upon 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).
37
<PAGE> 43
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). The proceeds
we will pay on the Maturity Date is the Policy Value. 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 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.
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<PAGE> 44
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.
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.
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<PAGE> 45
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".
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 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
40
<PAGE> 46
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.
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.
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<PAGE> 47
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, 408A 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.
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, Fidelity VIP III, 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, Fidelity VIP III, 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.
OWNER CONTROL
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
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<PAGE> 48
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.
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 IRAs).
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.
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<PAGE> 49
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. The treatment of Market Value Adjustments for
purposes of these rules is unclear. A tax adviser should be consulted if a
distribution occurs to which a Market Value Adjustment applies.
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 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.
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<PAGE> 50
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.
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 "Eligible rollover distributions" from section 401(a) plans and
section 403(b) tax-sheltered annuities are subject to a mandatory federal income
tax withholding of 20%. An eligible rollover distribution is the taxable portion
of any distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity form.
The 20% withholding does not apply, however, if the Owner chooses a "direct
rollover" from the plan to another tax-qualified plan or IRA.
MULTIPLE POLICIES
Section 72(e)(11) of the Code treats all nonqualified deferred annuity policies
entered into after June 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
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the polices could change by legislation or
other means. For instance, the President's 1999 Budget Proposal recommended
legislation that, if enacted, would adversely modify the federal taxation of the
policies. It is also possible that any change could be retroactive (that is,
effective prior to the date of the change). A tax adviser should be consulted
with respect to legislative developments and their effect on the policy.
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, 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.
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<PAGE> 51
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 disclosure 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.
SIMPLE INDIVIDUAL RETIREMENT ANNUITIES
Beginning January 1, 1997, certain small employers may establish SIMPLE plans as
provided by Section 408(p) of the Code, under which employees may elect to defer
a percentage of compensation up to $6,000 (as increased for cost of living
adjustments). The sponsoring employer is required to make matching or
non-elective contributions on behalf of employees. Distributions from SIMPLE
IRAs are subject to the same restrictions that apply to IRA distributions and
are taxed as ordinary income. Subject to certain exceptions, premature
distributions prior to age 59 1/2 are subject to a 10 percent penalty tax, which
is increased to 25 percent if the distribution occurs within the first two years
after the commencement of the employee's participation in the plan.
ROTH INDIVIDUAL RETIREMENT ANNUITIES
Effective January 1, 1998, section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which are
subject to certain limitations, are not deductible and must be made in cash or
as a rollover or transfer from another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax and other special rules
may apply. Distributions from a Roth IRA generally are not taxed, except that,
once aggregate distributions exceed contributions to the Roth IRA, income tax
and a 10 percent penalty tax may apply to distributions made (1) before age 59
1/2 (subject to certain exceptions) and/or (2) during the five taxable years
starting with the year in which the first contribution is made to the Roth IRA.
MINIMUM DISTRIBUTION REQUIREMENTS ("MDR")
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 70<K189>.
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 Fixed Account interest may be withdrawn; and 3)
use of MDR counts as the once a Policy Year free withdrawal.
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<PAGE> 52
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).
No minimum distribution is required from a Roth IRA during your life, although
upon your death certain distribution requirements apply.
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 April 1 of the calendar year following
the calendar year in which the Owner (or plan participant) (i) reaches age
70<K189> or (ii) retires, 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.
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.
The Policy includes a Death Benefit that in some cases may exceed the greater of
the premium payments or the Policy Value. The Death Benefit could be
characterized as an incidental benefit, the amount of which is limited in any
pension or profit-sharing plan. Because the Death Benefit may exceed this
limitation, employers using the Policy in connection with such plans should
consult their tax adviser.
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. The Policy includes a Death Benefit that in some
cases may exceed the greater of the premium payments or the Policy Value. The
Death Benefit could be characterized as an incidental benefit, the amount of
which is limited in any tax-sheltered annuity under section 403(b). Because the
Death Benefit may exceed this limitation, employers using the Policy in
connection with such plans should consult their tax adviser. 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
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<PAGE> 53
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.
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
Certain affiliates of the Company, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, the Company believes that at the
present time there are no pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on the Separate Account or the Company.
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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.
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 of a portfolio 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.
INSURANCE MARKETPLACE STANDARDS ASSOCIATION
Canada Life Insurance Company of America is a member of the Insurance
Marketplace Standards Association ("IMSA") and as such may include the IMSA logo
and information about IMSA membership in its advertisements. Companies that
belong to IMSA subscribe to a set of ethical standards covering the various
aspects of sales and service for individually sold life insurance and annuity
products.
PREPARING FOR YEAR 2000
Like all financial services providers, the Company utilizes systems that may be
affected by Year 2000 transition issues and it relies on service providers,
including the Funds, that also may be affected. The Company and its affiliates
have developed, and are in the process of implementing, a Year 2000 transition
plan, and are confirming that its service providers are also so engaged. The
resources that are being devoted to this effort are substantial. It is difficult
to predict with precision whether the amount of resources ultimately devoted, or
the outcome of these efforts, will have any negative impact on the Company.
However, as of the date of this Prospectus, it is not anticipated that
Policyholders will experience negative effects on their investment, or on the
services provided in connection therewith, as a result of Year 2000 transition
implementation. The Company currently anticipates that its systems will be Year
2000 compliant prior to the end of 1999, but there can be no assurance that the
Company will be successful, or that interaction with other service providers
will not impair the Company's services at that time.
FINANCIAL STATEMENTS
Our balance sheets as of December 31, 1997 and 1996, and the related statements
of operations, accumulated surplus (deficit), and cash flows for each of the
three years in the period ended December 31, 1997, 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, 1997, 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
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.
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STATEMENT OF ADDITIONAL INFORMATION - TABLE OF CONTENTS
<TABLE>
ADDITIONAL POLICY PROVISIONS
<S> <C>
Contract.................................................................2
Incontestability.........................................................2
Misstatement of Age......................................................2
Currency.................................................................2
Place of Payment.........................................................3
Non-Participation........................................................3
our Consent..............................................................3
PRINCIPAL UNDERWRITER..........................................................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............................................................9
LEGAL MATTERS..................................................................9
EXPERTS........................................................................9
OTHER INFORMATION..............................................................9
FINANCIAL STATEMENTS...........................................................9
</TABLE>
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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 ............................. 0.50% 2.35%
District of Columbia ................... 2.25 2.25
Kentucky ............................... 2.00 2.00
Maine .................................. 0.00 2.00
Nevada ................................. 0.00 3.50
South Dakota ........................... 0.00 1.25
West Virginia .......................... 1.00 1.00
Wyoming ................................ 0.00 1.00
</TABLE>
<PAGE> 57
PART B
INFORMATION REQUIRED TO BE IN THE
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 58
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;
Fidelity Investments Variable Insurance Products Fund III; 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
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, 1998.
<PAGE> 59
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
ADDITIONAL POLICY PROVISIONS .............................................. 2
Contract ......................................................... 2
Incontestability ................................................. 2
Misstatement Of Age .............................................. 2
Currency ......................................................... 3
Place Of Payment ................................................. 3
Non-Participation ................................................ 3
Our Consent ...................................................... 3
PRINCIPAL UNDERWRITER ..................................................... 3
CALCULATION OF YIELDS AND TOTAL RETURNS ................................... 3
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.
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.
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<PAGE> 60
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.
PRINCIPAL UNDERWRITER
Canada Life of America Financial Services, Inc. ("CLAFS"), an affiliate of
Canada Life Insurance Company of America ("CLICA"), is the principal underwriter
of the variable annuity policies described herein. The offering of the policies
is continuous, and CLICA does not anticipate discontinuing the offering of the
policies. However, CLICA does reserve the right to discontinue the offering of
the policies.
CLAFS received and retained $574,425 in 1997, $625,905 in 1996, and $914,390 in
1995 as commissions for serving as principal underwriter of the variable annuity
policies.
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, or income other than investment income, 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, and
exclusive of income other than investment income) 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:
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, and exclusive of
income other than investment income) 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.
3
<PAGE> 61
UV = the unit value on the first day of the 7 day period.
The current yield for the 7 day period ended December 31, 1997 was 4.08%.
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, and exclusive of income other than
investment income) 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, 1997 was 4.16%.
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 the 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. 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.
4
<PAGE> 62
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:
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.
5
<PAGE> 63
Average annual total returns for the periods ending December 31, 1997 as shown
below for the Sub-Accounts were:
<TABLE>
<CAPTION>
SUB-ACCOUNT* FUND
1 YEAR RETURN 5 YEAR 10 YEAR FROM FUND INCEPTION
RETURN RETURN INCEPTION DATE
<S> <C> <C> <C> <C> <C>
Bond 1.09% 4.99% **** 6.27% 12/04/89
Capital 13.83% *** **** 13.39% 04/23/93
International Equity (2.62)% *** **** 7.71% 04/24/95
Managed 10.52% 8.40% **** 8.88% 12/04/89
Money Market (1.98)% 2.08% **** 2.94% 12/04/89
Value Equity 19.73% 10.59% **** 10.71% 12/04/89
Alger American Growth 18.50% 17.28% **** 17.71% 01/08/89
Alger American Leveraged AllCap 12.52% *** **** 30.74% 01/25/95
Alger American MidCap Growth 7.91% *** **** 19.95% 05/03/93
Alger American Small Capitalization 4.35% 10.66% **** 17.52% 09/20/88
Berger/BIAM IPT-International ** *** **** (8.37)% 05/01/97
Dreyfus Growth and Income 9.10% *** **** 21.12% 05/02/94
Dreyfus Socially Responsible 21.15% *** **** 19.29% 10/07/93
Fidelity VIP Growth 16.27% 16.00% 15.49% 13.90% 10/09/86
Fidelity VIP High Income 10.54% 11.91% 11.18% 10.83% 09/19/85
Fidelity VIP Overseas 4.51% 12.10% 8.02% 6.64% 01/28/87
Fidelity VIP II Asset Manager 13.48% 10.97% **** 11.00% 09/06/89
Fidelity VIP II Index 500 25.35% 17.91% **** 17.90% 08/27/92
Montgomery Variable Series: Emerging Markets (7.45)% *** **** (1.16)% 02/02/96
Montgomery Variable Series: Growth 21.28% *** **** 26.05% 02/09/96
Seligman Communications and Information 15.03% *** **** 19.63% 10/11/94
Seligman Frontier 9.22% *** **** 21.76% 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; and
Berger/BIAM IPT-International and Montgomery Variable Series: Growth,
5/1/97. These dates may not coincide with the Fund inception dates.
** These Sub-Accounts invest in portfolios that have not been in operation
one year as of December 31, 1997, and accordingly, no one year average
annual total return is available.
*** These Sub-Accounts invest in portfolios that have not been in operation
five years as of December 31, 1997, 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, 1997, and accordingly, no ten year average
annual return is available.
6
<PAGE> 64
As of December 31, 1997, the Berger IPT-Small Company Growth Fund, Dreyfus
Capital Appreciation Fund, Fidelity VIP II Contrafund and Fidelity VIP III
Growth Opportunities Sub-Accounts had not commenced operations. Accordingly, we
have not provided average annual total return information for these
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, 1997 as shown below for the Sub-Accounts were:
<TABLE>
<CAPTION>
FUND
SUB-ACCOUNT* 1 YEAR RETURN 5 YEAR 10 YEAR FROM FUND INCEPTION
RETURN RETURN INCEPTION DATE
<S> <C> <C> <C> <C> <C>
Bond 6.49% 5.43% **** 6.27% 12/04/89
Capital 19.23% *** **** 13.87% 04/23/93
International Equity 2.78% *** **** 9.17% 04/24/95
Managed 15.92% 8.79% **** 8.88% 12/04/89
Money Market 3.42% 2.58 **** 2.94% 12/04/89
Value Equity 25.13% 10.95% **** 10.71% 12/04/89
Alger American Growth 23.90% 17.57% **** 17.71% 01/08/89
Alger American MidCap Growth 13.31% *** **** 20.34% 05/03/93
Alger American Leveraged AllCap 17.92% *** **** 31.65% 01/25/95
Alger American Small Capitalization 9.75% 11.02% **** 17.52% 09/20/88
Berger/BIAM IPT-International ** *** **** (2.97)% 05/01/97
Dreyfus Growth and Income 14.50% *** **** 21.85% 05/02/94
Dreyfus Socially Responsible 26.55% *** **** 19.77% 10/07/93
Fidelity VIP Growth 21.67% 16.29% 15.49 13.90% 10/09/86
Fidelity VIP High Income 15.94% 12.26% 11.18% 10.83% 09/19/85
Fidelity VIP Overseas 9.91% 12.44% 8.02% 6.64% 01/28/87
Fidelity VIP II Asset Manager 18.88% 11.32% **** 11.10% 09/06/89
Fidelity VIP II Index 500 30.75% 18.18% **** 18.14% 08/27/92
Montgomery Variable Series: Emerging Markets
(2.05)% *** **** 1.66% 02/02/96
Montgomery Variable Series: Growth 26.68% *** **** 28.35% 02/09/96
Seligman Communications and Information 20.43% *** **** 20.55% 10/11/94
Seligman Frontier 14.62% *** **** 22.65% 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; and
Berger/BIAM IPT-International and Montgomery Variable Series: Growth,
5/1/97. These dates may not coincide with the Fund inception dates.
** These Sub-Accounts invest in portfolios that have not been in operation
one year as of December 31, 1997, and accordingly, no one year average
annual total return is available.
7
<PAGE> 65
*** These Sub-Accounts invest in portfolios that have not been in operation
five years as of December 31, 1997, 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, 1997, and accordingly, no ten year average
annual return is available.
As of December 31, 1997, the Berger IPT-Small Company Growth Fund, Dreyfus
Capital Appreciation Fund, Fidelity VIP II Contrafund and Fidelity VIP III
Growth Opportunities Sub-Accounts had not commenced operations. Accordingly, we
have not provided average annual total return information for these
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.
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 Charles MacPhaul. Sutherland, Asbill & Brennan LLP of Washington,
DC, has provided advice on certain matters relating to the federal securities
laws.
8
<PAGE> 66
EXPERTS
Our balance sheets as of December 31, 1997 and 1996, and the related statements
of operations, accumulated surplus (deficit), and cash flows for each of the
three years in the period ended December 31, 1997, 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, 1997, 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, 1997, 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, 1997 and 1996, and the related statements
of operations, accumulated surplus (deficit), and cash flows for each of the
three years in the period ended December 31, 1997, 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.
9
<PAGE> 67
INDEX TO FINANCIAL STATEMENTS
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors....................................................................... 1
Audited Financial Statements
Statement of Net Assets as at December 31, 1997...................................................... 2
Statements of Operations for the
year ended December 31, 1997................................................................... 9
Statements of Changes in Net Assets for the
year ended December 31, 1997................................................................... 16
Notes to Financial Statements ....................................................................... 29
</TABLE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors....................................................................... 1
Audited Financial Statements
Balance Sheets as at December 31, 1997............................................................... 3
Statements of Operations for the
years ended December 31, 1997, 1996 and 1995................................................... 4
Statements of Accumulated Surplus (Deficit) for the
years ended December 31, 1997, 1996 and 1995................................................... 5
Statements of Cash Flows for the
years ended December 31, 1997, 1996 and 1995 ................................................. 6
Notes to Financial Statements........................................................................ 8
</TABLE>
<PAGE> 68
FINANCIAL STATEMENTS
CANADA LIFE OF AMERICA
VARIABLE
ANNUITY ACCOUNT 1
DECEMBER 31, 1997
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE> 69
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
FINANCIAL STATEMENTS
DECEMBER 31, 1997
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................................................. 1
Audited Financial Statements
Statement of Net Assets.................................................................................... 2
Statement of Operations.................................................................................... 9
Statements of Changes in Net Assets........................................................................ 16
Notes to Financial Statements.............................................................................. 29
</TABLE>
<PAGE> 70
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 (comprising, respectively, the Money Market,
Managed, Bond, Equity, Capital, International Equity, Asset Manager, Growth,
High Income, Overseas, Index 500, Communications and Information, Frontier,
Small Capitalization, Growth, MidCap, Leveraged AllCap, Growth and Income,
Socially Responsible, Emerging Markets, Variable Series Growth and Berger IPT
International Sub-Accounts) as of December 31, 1997, and the related statements
of operations and 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, 1997, 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 each of the respective
sub-accounts constituting the Canada Life of America Variable Annuity Account 1
at December 31, 1997, and the results of their operations and the changes in
their net assets for each of the periods indicated therein in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 6, 1998
<PAGE> 71
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
CLASF SERIES
------------
MANAGED BOND INTERNATIONAL
MONEY MARKET SUB- SUB- EQUITY CAPITAL EQUITY
SUB-ACCOUNT ACCOUNT ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-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) $ 4,652,490 $ 9,712,096 $1,983,147 $ 4,921,863 $ 2,985,409 $ 2,364,573
Dividends receivable 33,348 1,114,770 114,751 598,812 580,848 141,804
Due from (to) Canada Life
Insurance Company of
America (Note 6) (836,551) (566,867) 4,901 99,971 (7,939) 45,155
Receivable (payable) for
investments sold
(purchased) - - - - - -
------------- ----------- ---------- ----------- ----------- -------------
Net assets $ 3,849,287 $10,259,999 $2,102,799 $ 5,620,646 $ 3,558,318 $ 2,551,532
============= =========== ========== =========== =========== =============
NET ASSETS ATTRIBUTABLE TO:
Policyholders' liability
reserve $ 3,849,287 $10,259,999 $2,102,799 $ 5,620,646 $ 3,558,318 $ 2,551,532
------------- ----------- ---------- ----------- ----------- -------------
Net assets $ 3,849,287 $10,259,999 $2,102,799 $ 5,620,646 $ 3,558,318 $ 2,551,532
============= =========== ========== =========== =========== =============
NUMBER OF UNITS
OUTSTANDING 302,362 510,901 127,519 244,827 192,179 201,007
------------- ----------- ---------- ----------- ----------- -------------
NET ASSET VALUE PER UNIT $ 12.7307 $ 20.0822 $ 16.4901 $ 22.9576 $ 18.5156 $ 12.6937
============= =========== ========== =========== =========== =============
</TABLE>
See accompanying notes.
2
<PAGE> 72
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIDELITY VIP SERIES
-------------------
ASSET MANAGER GROWTH HIGH INCOME OVERSEAS INDEX 500
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSETS
Investment in Fidelity VIP at market
(See Note 3 for cost values) $ 8,415,911 $ 10,268,501 $ 7,560,271 $ 2,241,658 $ 5,599,276
Dividends receivable - - - - -
Due from (to) Canada Life Insurance Company
of America (Note 6) (521,889) 41,263 113,242 (13,582) 4,358,309
Receivable (payable) for investments sold
(purchased) - - - - -
------------- ------------- ------------- ------------- -------------
Net assets $ 7,894,022 $ 10,309,764 $ 7,673,513 $ 2,228,076 $ 9,957,585
============= ============= ============= ============= =============
NET ASSETS ATTRIBUTABLE TO:
Policyholders' liability reserve $ 7,894,022 $ 10,309,764 $ 7,673,513 $ 2,228,076 $ 9,957,585
------------- ------------- ------------- ------------- -------------
Net assets $ 7,894,022 $ 10,309,764 $ 7,673,513 $ 2,228,076 $ 9,957,585
============= ============= ============= ============= =============
NUMBER OF UNITS OUTSTANDING 325,637 236,003 213,974 108,953 81,275
============= ============= ============= ============= =============
NET ASSET VALUE PER UNIT $ 24.2418 $ 43.6849 $ 35.8619 $ 20.4499 $ 122.5172
============= ============= ============= ============= =============
</TABLE>
See accompanying notes.
3
<PAGE> 73
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1997
<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) $ 7,453,223 $ 4,526,004
Dividends receivable - -
Due from (to) Canada Life Insurance Company
of America (Note 6) 96,720 596,868
Receivable (payable) for investments sold
(purchased) (371,009) (13,859)
--------------- ---------------
Net assets $ 7,178,934 $ 5,109,013
=============== ===============
NET ASSETS ATTRIBUTABLE TO:
Policyholders' liability reserve $ 7,178,934 $ 5,109,013
--------------- ---------------
Net assets $ 7,178,934 $ 5,109,013
=============== ===============
NUMBER OF UNITS OUTSTANDING 390,340 262,598
=============== ===============
NET ASSET VALUE PER UNIT $ 18.3915 $ 19.4556
=============== ===============
</TABLE>
See accompanying notes.
4
<PAGE> 74
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1997
<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 American at market (See
Note 3 for cost values) $ 1,436,313 $ 3,123,447 $ 1,388,125 $ 664,608
Dividends receivable - - - -
Due from (to) Canada Life Insurance Company
of America (Note 6) 202,400 241,350 125,028 (617)
Receivable (payable) for investments sold
(purchased) - - - -
-------------- ----------- ----------- -----------
Net assets $ 1,638,713 $ 3,364,797 $ 1,513,153 $ 663,991
============== =========== =========== ===========
NET ASSETS ATTRIBUTABLE TO:
Policyholders' liability reserve $ 1,638,713 $ 3,364,797 $ 1,513,153 $ 663,991
-------------- ----------- ----------- -----------
Net assets $ 1,638,713 $ 3,364,797 $ 1,513,153 $ 663,991
============== =========== =========== ===========
NUMBER OF UNITS OUTSTANDING 36,315 77,256 63,533 29,563
============== =========== =========== ===========
NET ASSET VALUE PER UNIT $ 45.1250 $ 43.5539 $ 23.8168 $ 22.4602
============== =========== =========== ===========
</TABLE>
5
See accompanying notes.
<PAGE> 75
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1997
<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) $ 5,856,095 $ 1,179,857
Dividends receivable - 35,737
Due from (to) Canada Life Insurance Company
of America (Note 6) 130,167 (37,505)
Receivable (payable) for investments sold
(purchased) (15,022) -
--------------- ---------------
Net assets $ 5,971,240 $ 1,178,089
=============== ===============
NET ASSETS ATTRIBUTABLE TO:
Policyholders' liability reserve $ 5,971,240 $ 1,178,089
--------------- ---------------
Net assets $ 5,971,240 $ 1,178,089
=============== ===============
NUMBER OF UNITS OUTSTANDING 230,531 43,739
=============== ===============
NET ASSET VALUE PER UNIT $ 25.9021 $ 26.9345
=============== ===============
</TABLE>
See accompanying notes.
6
<PAGE> 76
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONTGOMERY SERIES
-----------------------------------
EMERGING VARIABLE SERIES
MARKETS GROWTH
SUB-ACCOUNT SUB-ACCOUNT*
--------------- ---------------
<S> <C> <C>
NET ASSETS
Investment in Montgomery at market
(See Note 3 for cost values) $ 2,621,138 $ 501,984
Dividends receivable - -
Due from (to) Canada Life Insurance
Company of America (Note 6) (28,058) 2,542
Receivable (payable) for investments sold
(purchased) - -
--------------- ---------------
Net assets $ 2,593,080 $ 504,526
=============== ===============
NET ASSETS ATTRIBUTABLE TO:
Policyholders' liability reserve $ 2,593,080 $ 504,526
--------------- ---------------
Net assets $ 2,593,080 $ 504,526
=============== ===============
NUMBER OF UNITS OUTSTANDING 250,799 31,387
=============== ===============
NET ASSET VALUE PER UNIT $ 10.3393 $ 16.0744
=============== ===============
</TABLE>
See accompanying notes.
*For the period May 1, 1997 (commencement of operations) to December 31, 1997
7
<PAGE> 77
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF NET ASSETS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
BERGER SERIES
------------
BERGER IPT
INTERNATIONAL 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
American, Dreyfus, Montgomery, &
Berger at market (See Note 3 for cost
values) $ 726,927 $ 90,182,916
Dividends receivable - 2,620,070
Due from (to) Canada Life Insurance
Company of America (Note 6) (2,347) 4,042,561
Receivable (payable) for investments
sold (purchased) - (399,890)
--------------- ---------------
Net assets $ 724,580 $ 96,445,657
=============== ===============
NET ASSETS ATTRIBUTABLE TO:
Policyholders' liability reserve $ 724,580 $ 96,445,657
--------------- ---------------
Net assets $ 724,580 $ 96,445,657
=============== ===============
NUMBER OF UNITS OUTSTANDING 74,629 4,035,327
=============== ===============
NET ASSET VALUE PER UNIT $ 9.7091
=============== ===============
</TABLE>
See accompanying notes.
*For the period May 1, 1997 (commencement of operations) to December 31, 1997
8
<PAGE> 78
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CLASF SERIES
--------------------------------------------------------------------------------
MONEY INTERNATIONAL
MARKET MANAGED BOND EQUITY CAPITAL EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Dividend income $ 288,461 $ 1,114,770 $ 114,751 $ 598,812 $ 580,848 $ 141,804
Less mortality & expense risk
charges (Note 6) 83,529 131,585 23,699 61,073 44,621 23,958
----------- ----------- ----------- ----------- ----------- -----------
Net investment income 204,932 983,185 91,052 537,739 536,227 117,846
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net unrealized appreciation
(depreciation) from
investments - 504,476 35,821 424,433 (152,146) (211,342)
Net realized gain (loss)
from investments - 37,772 (4,650) 103,221 226,603 57,528
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized
gain (loss) from investments - 542,248 31,171 527,654 74,457 (153,814)
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ 204,932 $ 1,525,433 $ 122,223 $ 1,065,393 $ 610,684 $ (35,968)
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
9
<PAGE> 79
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIDELITY VIP SERIES
---------------------------------------------------------------------
ASSET
MANAGER GROWTH HIGH INCOME OVERSEAS INDEX 500
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Dividend income $ 514,113 $ 240,050 $ 338,687 $ 127,869 $ 47,633
Less mortality and expense
risk charges (Note 6) 90,603 114,737 79,890 26,183 51,353
----------- ----------- ----------- ----------- -----------
Net investment income 423,510 125,313 258,797 101,686 (3,720)
NET REALIZED AND
UNREALIZED GAIN (LOSS)ON
INVESTMENTS:
Net unrealized appreciation
(depreciation)from
investments 646,763 1,287,038 514,872 (20,166) 278,031
Net realized gain (loss)from
investments 71,712 237,790 143,099 79,211 502,456
----------- ----------- ----------- ----------- -----------
Net realized and unrealized
gain (loss)from
investments
718,475 1,524,828 657,971 59,045 780,487
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE)IN
NET ASSETS RESULTING FROM
OPERATIONS $ 1,141,985 $ 1,650,141 $ 916,768 $ 160,731 $ 776,767
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
10
<PAGE> 80
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SELIGMAN PORTFOLIO SERIES
-----------------------------------
COMMUNICATIONS
AND INFORMATION FRONTIER
SUB-ACCOUNT SUB-ACCOUNT
--------------- ---------------
<S> <C> <C>
NET INVESTMENT INCOME:
Dividend income $ 1,735,385 $ 410,109
Less mortality and expense
risk charges (Note 6) 73,822 59,374
--------------- ---------------
Net investment income 1,661,563 350,735
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation
(depreciation) from investments (2,078,986) 53,142
Net realized gain (loss) from
investments 1,730,199 300,804
--------------- ---------------
Net realized and unrealized
gain (loss) from
investments (348,787) 353,946
--------------- ---------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS $ 1,312,776 $ 704,681
=============== ===============
</TABLE>
See accompanying notes.
11
<PAGE> 81
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<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 $ 41,127 $ 9,598 $ 11,270 $ -
Less mortality and expense
risk charges (Note 6) 22,369 18,357 16,514 6,582
-------------- ----------- ----------- -----------
Net investment income 18,758 (8,759) (5,244) (6,582)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation
(depreciation) from
investments 82,353 (35,142) (70,512) 65,120
Net realized gain (loss) from
investments 370,112 238,832 222,816 9,545
-------------- ----------- ----------- -----------
Net realized and unrealized
gain (loss) from
investments 452,465 203,690 152,304 74,665
-------------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS $ 471,223 $ 194,931 $ 147,060 $ 68,083
============== =========== =========== ===========
</TABLE>
See accompanying notes.
12
<PAGE> 82
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DREYFUS SERIES
-----------------------------
GROWTH SOCIALLY
AND INCOME RESPONSIBLE
SUB-ACCOUNT SUB-ACCOUNT
----------- -----------
<S> <C> <C>
NET INVESTMENT INCOME:
Dividend income $ 462,242 $ 38,071
Less mortality and expense risk
charges (Note 6) 59,563 10,027
----------- -----------
Net investment income 402,679 28,044
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation
(depreciation) from
investments 142,760 65,973
Net realized gain (loss) from
investments 21,747 43,295
----------- -----------
Net realized and unrealized
gain (loss) from
investments 164,507 109,268
----------- -----------
NET INCREASE (DECREASE)IN
NET ASSETS RESULTING FROM
OPERATIONS $ 567,186 $ 137,312
=========== ===========
</TABLE>
See accompanying notes.
13
<PAGE> 83
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONTGOMERY SERIES
-------------------------------
EMERGING VARIABLE SERIES
MARKETS GROWTH
SUB-ACCOUNT SUB-ACCOUNT*
----------- ---------------
<S> <C> <C>
NET INVESTMENT INCOME:
Dividend income $ 4,331 $ 19,963
Less mortality and expense risk
charges (Note 6) 21,398 1,458
----------- ---------------
Net investment income (17,067) 18,505
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation
(depreciation) from
investments (244,963) (20,618)
Net realized gain (loss) from
investments 32,897 789
----------- ---------------
Net realized and unrealized gain
(loss) from investments (212,066) (19,829)
----------- ---------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS $ (229,133) $ (1,324)
=========== ===============
</TABLE>
See accompanying notes.
*For the period May 1, 1997 (commencement of operations) to December 31, 1997
14
<PAGE> 84
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
BERGER SERIES
-------------
BERGER IPT
INTERNATIONAL ALL SERIES
SUB-ACCOUNT* COMBINED
------------- -----------
<S> <C> <C>
NET INVESTMENT INCOME:
Dividend income $ - $ 6,839,894
Less mortality and expense
risk charges (Note 6) 2,298 1,022,993
----------- -----------
Net investment income (2,298) 5,816,901
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net unrealized appreciation
(depreciation) from investments 789 1,267,696
Net realized gain (loss) from
investments 263 4,426,041
----------- -----------
Net realized and unrealized
gain (loss)from
investments 1,052 5,693,737
----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING FROM
OPERATIONS $ (1,246) $11,510,638
=========== ===========
</TABLE>
See accompanying notes.
*For the period May 1, 1997 (commencement of operations) to December 31, 1997
15
<PAGE> 85
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CLASF SERIES
----------------------------------------------------------------------------------
INTERNATIONAL
MONEY MARKET MANAGED BOND EQUITY CAPITAL EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 204,932 $ 983,185 $ 91,052 $ 537,739 $ 536,227 $ 117,846
Unrealized appreciation
(depreciation) from
investments - 504,476 35,821 424,433 (152,146) (211,342)
Net realized gain (loss)
from investments - 37,772 (4,650) 103,221 226,603 57,528
----------- ---------- ---------- ----------- ----------- -------------
Net increase (decrease) in
net assets resulting
from operations 204,932 1,525,433 122,223 1,065,393 610,684 (35,968)
CAPITAL TRANSACTIONS:
Net increase (decrease)
from unit transactions
(Note 5) 620,650 (2,467,522) 213,270 (81,554) (364,365) 1,796,346
----------- ---------- ---------- ----------- ----------- -------------
Net increase (decrease) in
net assets arising from
capital transactions 620,650 (2,467,522) 213,270 (81,554) (364,365) 1,796,346
----------- ---------- ---------- ----------- ----------- -------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS 825,582 (942,089) 335,493 983,839 246,319 1,760,378
NET ASSETS, BEGINNING OF
YEAR 3,023,705 11,202,088 1,767,306 4,636,807 3,311,999 791,154
----------- ----------- ---------- ----------- ----------- -------------
NET ASSETS, END OF YEAR $ 3,849,287 $10,259,999 $2,102,799 $ 5,620,646 $ 3,558,318 $ 2,551,532
=========== =========== ========== =========== =========== =============
</TABLE>
See accompanying notes.
16
<PAGE> 86
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIDELITY VIP SERIES
---------------------------------------------------------------------
ASSET
MANAGER GROWTH HIGH INCOME OVERSEAS INDEX 500
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 423,510 $ 125,313 $ 258,797 $ 101,686 $ (3,720)
Unrealized appreciation
(depreciation) from
investments 646,763 1,287,038 514,872 (20,166) 278,031
Net realized gain (loss) from
investments 71,712 237,790 143,099 79,211 502,456
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations 1,141,985 1,650,141 916,768 160,731 776,767
CAPITAL TRANSACTIONS:
Net increase (decrease)
from unit transactions
(Note 5) 2,588,524 2,199,144 2,908,354 708,552 8,101,837
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets arising from
capital transactions 2,588,524 2,199,144 2,908,354 708,552 8,101,837
----------- ----------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 3,730,509 3,849,285 3,825,122 869,283 8,878,604
NET ASSETS, BEGINNING OF
YEAR 4,163,513 6,460,479 3,848,391 1,358,793 1,078,981
----------- ----------- ----------- ----------- -----------
NET ASSETS, END OF YEAR $ 7,894,022 $10,309,764 $ 7,673,513 $ 2,228,076 $ 9,957,585
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
17
<PAGE> 87
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SELIGMAN PORTFOLIOS SERIES
---------------------------------
COMMUNICATIONS
AND INFORMATION FRONTIER
SUB-ACCOUNT SUB-ACCOUNT
--------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 1,661,563 $ 350,735
Unrealized appreciation
(depreciation) from
investments (2,078,986) 53,142
Net realized gain (loss) from
investments 1,730,199 300,804
--------------- ------------
Net increase (decrease) in
net assets resulting from
operations 1,312,776 704,681
CAPITAL TRANSACTIONS:
Net increase (decrease)
from unit transactions
(Note 5) 2,673,127 885,644
--------------- ------------
Net increase (decrease) in
net assets arising from
capital transactions 2,673,127 885,644
--------------- ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 3,985,903 1,590,325
NET ASSETS, BEGINNING OF
YEAR 3,193,031 3,518,688
--------------- ------------
NET ASSETS, END OF YEAR $ 7,178,934 $ 5,109,013
=============== ============
</TABLE>
See accompanying notes.
18
<PAGE> 88
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<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) $ 18,758 $ (8,759) $ (5,244) $ (6,582)
Unrealized appreciation
(depreciation) from
investments 82,353 (35,142) (70,512) 65,120
Net realized gain (loss)
from investments 370,112 238,832 222,816 9,545
-------------- ----------- ----------- -----------
Net increase (decrease) in
net assets resulting from
operations 471,223 194,931 147,060 68,083
CAPITAL TRANSACTIONS:
Net increase (decrease)
from unit transactions
(Note 5) 805,206 2,681,231 672,189 357,274
-------------- ----------- ----------- -----------
Net increase (decrease) in net
assets arising from capital
transactions 805,206 2,681,231 672,189 357,274
-------------- ----------- ----------- -----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 1,276,429 2,876,162 819,249 425,357
NET ASSETS, BEGINNING OF
YEAR 362,284 488,635 693,904 238,634
-------------- ----------- ----------- -----------
NET ASSETS, END OF YEAR $ 1,638,713 $ 3,364,797 $ 1,513,153 $ 663,991
============== =========== =========== ===========
</TABLE>
See accompanying notes.
19
<PAGE> 89
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DREYFUS SERIES
---------------------------------
GROWTH AND SOCIALLY
INCOME RESPONSIBLE
SUB-ACCOUNT SUB-ACCOUNT
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 402,679 $ 28,044
Unrealized appreciation
(depreciation) from
investments 142,760 65,973
Net realized gain (loss)
from investments 21,747 43,295
------------ ------------
Net increase (decrease) in
net assets resulting from
operations 567,186 137,312
CAPITAL TRANSACTIONS:
Net increase (decrease)
from unit transactions
(Note 5) 2,929,309 930,371
------------ ------------
Net increase (decrease) in net
assets arising from capital
transactions 2,929,309 930,371
------------ ------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 3,496,495 1,067,683
NET ASSETS, BEGINNING OF
YEAR 2,474,745 110,406
------------ ------------
NET ASSETS, END OF YEAR $ 5,971,240 $ 1,178,089
============ ============
</TABLE>
See accompanying notes.
20
<PAGE> 90
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONTGOMERY SERIES
-----------------------------------
EMERGING VARIABLE SERIES
MARKETS GROWTH
SUB-ACCOUNT SUB-ACCOUNT*
------------ ---------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss) $ (17,067) $ 18,505
Unrealized appreciation
(depreciation) from
investments (244,963) (20,618)
Net realized gain (loss) from
investments 32,897 789
------------ ---------------
Net increase (decrease) in
net assets resulting from
operations (229,133) (1,324)
CAPITAL TRANSACTIONS:
Net increase (decrease)
from unit transactions
(Note 5) 2,460,911 505,850
------------ ---------------
Net increase (decrease) in
net assets arising from
capital transactions 2,460,911 505,850
------------ ---------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 2,231,778 504,526
NET ASSETS, BEGINNING OF
YEAR 361,302 -
------------ ---------------
NET ASSETS, END OF YEAR $ 2,593,080 $ 504,526
============ ===============
</TABLE>
See accompanying notes.
*For the period May 1, 1997 (commencement of operations) to December 31, 1997
21
<PAGE> 91
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
BERGER SERIES
--------------
BERGER IPT
INTERNATIONAL ALL SERIES
SUB-ACCOUNT* COMBINED
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income
(loss) $ (2,298) $ 5,816,901
Unrealized appreciation
(depreciation) from
investments 789 1,267,696
Net realized gain (loss)
from investments 263 4,426,041
-------------- ------------
Net increase (decrease) in
net assets resulting from
operations (1,246) 11,510,638
CAPITAL TRANSACTIONS:
Net increase (decrease)
from unit transactions
(Note 5) 725,826 31,850,174
-------------- ------------
Net increase (decrease) in net
assets arising from capital
transactions 725,826 31,850,174
-------------- ------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS 724,580 43,360,812
NET ASSETS, BEGINNING OF
YEAR - 53,084,845
-------------- ------------
NET ASSETS, END OF YEAR $ 724,580 $ 96,445,657
============== ============
</TABLE>
See accompanying notes.
*For the period May 1, 1997 (commencement of operations) to December 31, 1997
22
<PAGE> 92
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CLASF SERIES
----------------------------------------------------------------------------------
MONEY INTERNATIONAL
MARKET MANAGED BOND EQUITY CAPITAL EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-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) on investments - (515,315) (9,943) (168,351) (168,958) 32,218
Net realized gain (loss) on
investments - 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.
23
<PAGE> 93
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
FIDELITY VIP SERIES
---------------------------------------------------------------------
ASSET
MANAGER GROWTH HIGH INCOME OVERSEAS INDEX 500
SUB-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) on investments 193,158 301,397 138,386 76,833 80,386
Net realized gain (loss) on
investments 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> 94
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
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 395,402 (128,043)
Net realized gain (loss)
from investments (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.
25
<PAGE> 95
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 4,065 17,023 42,324 5,353
Net realized gain (loss)
from investments 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
26
<PAGE> 96
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 (191,136) (1,876)
Net realized gain (loss) from
investments 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
27
<PAGE> 97
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 5,094 108,017
Net realized gain (loss)
from investments (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
28
<PAGE> 98
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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, in the Montgomery Funds III ("Montgomery"), a Delaware
Business Trust organized as a diversified, open-ended, management investment
company, or in Berger Institutional Products Trust ("Berger Trust"). 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 sub-account which commenced operations on April 24, 1995,
the Seligman Portfolios Series which commenced operations on May 1, 1995, the
Alger American Series, the Dreyfus Series, and the Montgomery Series which
commenced operations on May 1, 1996, with the exception of the Montgomery
Variable Series Growth sub-account which commenced operations on May 1, 1997,
and the Berger Series which commenced operations on May 1, 1997.
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,
Montgomery and Berger Trust are valued at the reported net asset values of the
respective 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.
DIVIDENDS
Dividends are recorded on the ex-dividend date and reflect the dividends
declared by CLASF, Fidelity, Seligman, Dreyfus, Alger American, Montgomery and
Berger Trust 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.
29
<PAGE> 99
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
3. INVESTMENTS
The investments held by Variable Annuity Account 1 as at December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
NUMBER OF MARKET MARKET
SHARES PRICE VALUE COST
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Money Market Sub-account 465,249 $10.00 $ 4,652,490 $ 4,652,490
Managed Sub-account 780,088 12.45 9,712,096 9,578,151
Bond Sub-account 187,266 10.59 1,983,147 2,012,458
Equity Sub-account 334,593 14.71 4,921,863 4,632,223
Capital Sub-account 210,983 14.15 2,985,409 2,775,224
International Equity Sub-account 203,142 11.64 2,364,573 2,544,211
Asset Manager Sub-account 467,291 18.01 8,415,911 7,371,494
Growth Sub-account 276,779 37.10 10,268,501 8,209,377
High Income Sub-account 556,721 13.58 7,560,271 6,790,391
Overseas Sub-account 116,753 19.20 2,241,658 2,116,082
Index 500 Sub-account 48,949 114.39 5,599,276 5,240,859
Communications and Information Sub-account 569,383 13.09 7,453,223 9,453,831
Frontier Sub-account 286,819 15.78 4,526,004 4,592,286
Small Capitalization Sub-account 32,830 43.75 1,436,313 1,349,895
Growth Sub-account 73,046 42.76 3,123,447 3,141,566
MidCap Sub-account 57,408 24.18 1,388,125 1,416,313
Leveraged AllCap Sub-account 28,684 23.17 664,608 594,135
Growth and Income Sub-account 281,814 20.78 5,856,095 5,904,471
Socially Responsible Sub-account 47,251 24.97 1,179,857 1,115,760
Emerging Markets Sub-account 247,979 10.57 2,621,138 2,861,007
Variable Series Growth Sub-account 33,266 15.09 501,984 522,602
Berger IPT International Sub-account 74,252 9.79 726,927 726,138
----------------------------
$90,182,916 $87,600,964
=========== ===========
</TABLE>
30
<PAGE> 100
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
4. SECURITY PURCHASES AND SALES
The aggregate cost of purchases of investments are presented below:
AGGREGATE COST
OF PURCHASES
---------------------
<S> <C>
Money Market Sub-account $127,754,653
Managed Sub-account 3,175,899
Bond Sub-account 1,003,910
Equity Sub-account 1,770,585
Capital Sub-account 1,344,555
International Equity Sub-account 17,712,787
Asset Manager Sub-account 4,962,840
Growth Sub-account 3,814,692
High Income Sub-account 5,557,331
Overseas Sub-account 2,031,202
Index 500 Sub-account 20,494,729
Communications and Information Sub-account 32,344,822
Frontier Sub-account 7,863,630
Small Capitalization Sub-account 64,314,445
Growth Sub-account 19,330,622
MidCap Sub-account 15,124,198
Leveraged AllCap Sub-account 446,058
Growth and Income Sub-account 4,839,702
Socially Responsible Sub-account 1,564,616
Emerging Markets Sub-account 3,341,241
Variable Series Growth Sub-account 549,338
Berger IPT International Sub-account 793,899
---------------------
$340,135,754
=====================
</TABLE>
31
<PAGE> 101
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. SECURITY PURCHASES AND SALES (CONTINUED)
The proceeds from sales of investments are presented below:
<TABLE>
<CAPTION>
PROCEEDS
FROM SALES
-------------------
<S> <C>
Money Market Sub-account $126,011,967
Managed Sub-account 4,093,854
Bond Sub-account 730,923
Equity Sub-account 1,501,711
Capital Sub-account 1,468,438
International Equity Sub-account 15,973,262
Asset Manager Sub-account 1,398,135
Growth Sub-account 1,480,125
High Income Sub-account 2,492,315
Overseas Sub-account 1,240,825
Index 500 Sub-account 16,750,897
Communications and Information Sub-account 27,738,379
Frontier Sub-account 7,212,006
Small Capitalization Sub-account 63,658,982
Growth Sub-account 16,891,246
MidCap Sub-account 14,577,828
Leveraged AllCap Sub-account 94,540
Growth and Income Sub-account 1,594,713
Socially Responsible Sub-account 602,804
Emerging Markets Sub-account 837,745
Variable Series Growth Sub-account 27,525
Berger IPT International Sub-account 68,024
-------------------
$306,446,244
===================
</TABLE>
32
<PAGE> 102
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 Montgomery
Variable Series Growth and Berger IPT International portfolios commenced
operations on May 1, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
UNITS AMOUNT
------------ ------------
<S> <C> <C>
CLASF SERIES
- ------------
MONEY MARKET SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 12,840,597 $161,830,735
Terminated contracts and net transfers out (12,784,004) (161,210,085)
------------ ------------
56,593 620,650
MANAGED SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 131,754 2,648,169
Terminated contracts and net transfers out (268,646) (5,115,691)
------------ ------------
(136,892) (2,467,522)
BOND SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 77,433 1,216,504
Terminated contracts and net transfers out (64,159) (1,003,234)
------------ ------------
13,274 213,270
EQUITY SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 76,348 1,566,685
Terminated contracts and net transfers out (84,637) (1,648,239)
------------ ------------
(8,289) (81,554)
CAPITAL SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 63,918 1,086,612
Terminated contracts and net transfers out (85,346) (1,450,977)
------------ ------------
(21,428) (364,365)
INTERNATIONAL EQUITY SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 1,464,911 19,301,369
Terminated contracts and net transfers out (1,327,986) (17,505,023)
------------ ------------
136,925 1,796,346
FIDELITY VIP SERIES
- -------------------
ASSET MANAGER SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 197,989 4,369,418
Terminated contracts and net transfers out (76,515) (1,780,894)
------------ ------------
121,474 2,588,524
</TABLE>
33
<PAGE> 103
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
UNITS AMOUNT
------------ ------------
<S> <C> <C>
FIDELITY VIP SERIES (CONTINUED)
GROWTH SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 97,535 3,991,622
Terminated contracts and net transfers out (41,589) (1,792,478)
------------ ------------
55,946 2,199,144
HIGH INCOME SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 172,518 5,819,055
Terminated contracts and net transfers out (82,658) (2,910,701)
------------ ------------
89,860 2,908,354
OVERSEAS SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 147,586 7,112,083
Terminated contracts and net transfers out (111,494) (6,403,531)
------------ ------------
36,092 708,552
INDEX 500 SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 221,141 25,801,706
Terminated contracts and net transfers out (151,381) (17,699,869)
------------ ------------
69,760 8,101,837
SELIGMAN PORTFOLIO SERIES
COMMUNICATIONS AND INFORMATION SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 1,212,011 35,229,176
Terminated contracts and net transfers out (1,030,826) (32,556,049)
------------ ------------
181,185 2,673,127
FRONTIER SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 137,771 10,008,926
Terminated contracts and net transfers out (82,550) (9,123,282)
------------ ------------
55,221 885,644
ALGER AMERICAN SERIES
SMALL CAPITALIZATION SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 1,485,540 67,271,563
Terminated contracts and net transfers out (1,458,041) (66,466,357)
------------ ------------
27,499 805,206
GROWTH SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 467,202 20,006,810
Terminated contracts and net transfers out (403,846) (17,325,579)
------------ ------------
63,356 2,681,231
</TABLE>
34
<PAGE> 104
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
UNITS AMOUNT
------------ ------------
<S> <C> <C>
ALGER AMERICAN SERIES (CONTINUED)
- --------------------------------
MIDCAP SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 657,599 15,682,415
Terminated contracts and net transfers out (627,033) (15,010,226)
------------ ------------
30,566 672,189
LEVERAGED ALLCAP SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 27,393 583,207
Terminated contracts and net transfers out (10,365) (225,933)
------------ ------------
17,028 357,274
DREYFUS SERIES
- --------------
GROWTH AND INCOME SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 172,715 7,057,160
Terminated contracts and net transfers out (51,597) (4,127,851)
------------ ------------
121,118 2,929,309
SOCIALLY RESPONSIBLE SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 74,815 1,785,432
Terminated contracts and net transfers out (36,270) (855,061)
------------ ------------
38,545 930,371
MONTGOMERY SERIES
- -----------------
EMERGING MARKETS SUB-ACCOUNT
Accumulation Units:
Contract purchases and net transfers in 334,439 3,834,815
Terminated contracts and net transfers out (117,901) (1,373,904)
------------ ------------
216,538 2,460,911
VARIABLE SERIES GROWTH SUB-ACCOUNT (FROM MAY 1, 1997)
Accumulation Units:
Contract purchases and net transfers in 32,151 520,405
Terminated contracts and net transfers out (764) (14,555)
------------ ------------
31,387 505,850
BERGER SERIES
- -------------
BERGER IPT INTERNATIONAL SUB-ACCOUNT (FROM MAY 1, 1997)
Accumulation Units:
Contract purchases and net transfers in 78,503 785,098
Terminated contracts and net transfers out (3,874) (59,272)
------------ ------------
74,629 725,826
------------
Net increase from unit transactions $ 31,850,174
============
</TABLE>
<PAGE> 105
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
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
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
</TABLE>
36
<PAGE> 106
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
UNITS AMOUNT
------------ ------------
<S> <C> <C>
FIDELITY VIP SERIES (CONTINUED)
- -------------------------------
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
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
</TABLE>
37
<PAGE> 107
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
UNITS AMOUNT
------------ ------------
<S> <C> <C>
ALGER AMERICAN SERIES (CONTINUED)
- ---------------------------------
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>
38
<PAGE> 108
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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, 1997 consisted of the
following:
<TABLE>
<CAPTION>
NET
REALIZED NET UNREALIZED
ACCUMULATED ACCUMULATED GAIN (LOSS) APPRECIATION
UNIT M AND E INVESTMENT ON (DEPRECIATION)
SUB-ACCOUNT TRANSACTIONS CHARGES INCOME INVESTMENTS ON INVESTMENTS COMBINED
- ----------------------- ---------------- ---------------- ---------------- --------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Money Market $ 3,318,680 $ (228,442) $ 759,049 - - $ 3,849,287
Managed 4,962,067 (854,435) 5,386,411 $ 632,011 $ 133,945 10,259,999
Bond 1,543,810 (163,950) 684,802 67,448 (29,311) 2,102,799
Equity 2,832,411 (283,841) 2,473,746 308,690 289,640 5,620,646
Capital 1,991,479 (123,193) 1,004,774 475,073 210,185 3,558,318
International Equity 2,546,413 (33,907) 159,702 58,962 (179,638) 2,551,532
Asset Manager 6,069,932 (150,234) 742,907 187,000 1,044,417 7,894,022
Growth 7,536,503 (225,586) 514,512 425,211 2,059,124 10,309,764
High Income 6,292,827 (157,012) 561,912 205,906 769,880 7,673,513
Overseas 1,888,626 (106,236) 171,751 148,359 125,576 2,228,076
Index 500 9,100,954 (57,989) 47,633 508,570 358,417 9,957,585
Communications
and Information 5,828,365 (132,702) 1,890,453 1,593,426 (2,000,608) 7,178,934
Frontier 4,112,337 (69,709) 804,312 328,355 (66,282) 5,109,013
Small Capitalization 1,131,181 (23,601) 73,422 371,293 86,418 1,638,713
Growth 3,153,684 (20,522) 9,598 240,156 (18,119) 3,364,797
MidCap 1,326,198 (20,631) 11,270 224,504 (28,188) 1,513,153
Leveraged AllCap 590,988 (8,344) - 10,874 70,473 663,991
Growth and Income 5,343,594 (68,225) 717,367 26,880 (48,376) 5,971,240
Socially Responsible 1,037,417 (10,204) 43,479 43,300 64,097 1,178,089
Emerging Markets 2,823,341 (22,879) 7,444 25,043 (239,869) 2,593,080
Variable Series Growth 505,850 (1,458) 19,963 789 (20,618) 504,526
IPT International 725,826 (2,298) - 263 789 724,580
--------------- ------------- --------------- ------------- --------------- -------------
$74,662,483 $(2,765,398) $16,084,507 $5,882,113 $2,581,952 $96,445,657
=============== ============= =============== ============= =============== =============
</TABLE>
8. UNIT VALUE
Unit Values as reported are calculated as total net assets divided by total
units for each Sub-account.
39
<PAGE> 109
FINANCIAL STATEMENTS
CANADA LIFE INSURANCE COMPANY OF
AMERICA
December 31, 1997
With Report of Independent Auditors
<PAGE> 110
CANADA LIFE INSURANCE COMPANY OF AMERICA
FINANCIAL STATEMENTS - STATUTORY BASIS
December 31, 1997
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 Surplus (Deficit) - Statutory Basis..........................5
Statements of Cash Flows - Statutory Basis.............................................6
Notes to Financial Statements - Statutory Basis........................................8
</TABLE>
<PAGE> 111
<TABLE>
<S> <C> <C>
ERNST & YOUNG LLP - Suite 2800 - Phone: 404 874 8300
600 Peachtree Street
Atlanta, Georgia 30308-2215
</TABLE>
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, 1997 and 1996, and the related
statutory-basis statements of operations, accumulated surplus (deficit), and
cash flows for each of the three years in the period ended December 31, 1997.
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.
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
<PAGE> 112
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,
1997 and 1996, or the results of its operations or its cash flows for each of
the three years in the period ended December 31, 1997.
However, 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, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with accounting practices prescribed or
permitted by the Michigan Insurance Department.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 6, 1998
2
<PAGE> 113
CANADA LIFE INSURANCE COMPANY OF AMERICA
BALANCE SHEETS - STATUTORY BASIS
[in thousands of dollars]
except per share values
<TABLE>
<CAPTION>
AS AT DECEMBER 31 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
INVESTMENTS [ note 3 ]
Bonds, at amortized cost less write-downs
(fair value - 1997-$1,333,050; 1996-$1,313,400) $1,268,324 $1,276,783
Mortgage loans, at amortized cost less write-downs 882,964 881,189
Real estate, at depreciated cost less write-downs 8,271 20,613
Common stocks, at fair value (cost-1997-$12,611; 1996 - $9,879) 15,168 12,294
Investment in partnerships -- 1,773
Policy loans 10,290 11,461
Short-term investments, at cost 11,200 59,321
Cash and interest-bearing deposits 6 485 682
- -----------------------------------------------------------------------------------------------------------------
TOTAL CASH AND INVESTMENTS 2,202,702 2,264,116
Deferred premiums and premiums in the course of collection 81 216
Investment income due and accrued 28,929 30,034
Investment in subsidiaries and affiliates, at equity (cost - 1997 - $14,723;
1996 - $15,118) 16,944 16,899
Preferred stocks of subsidiary at cost (market value - 1997 and 1996 - $1) 1 1
Other assets [including federal tax recoverable] 3,981 5,424
Assets held in separate accounts [note 7] 474,058 361,253
- -----------------------------------------------------------------------------------------------------------------
Total assets $2,726,696 $2,677,943
=================================================================================================================
LIABILITIES AND CAPITAL AND SURPLUS
LIABILITIES
Actuarial reserves $2,081,605 $2,160,593
Benefits in course of payment and provision for unreported claims 369 681
Policyholders' amounts left on deposit at interest 79 92
Provisions for future policy dividends 1,729 2,067
Transfers to separate accounts due or accrued (net) (2,601) (1,589)
- -----------------------------------------------------------------------------------------------------------------
POLICY BENEFIT LIABILITIES 2,081,181 2,161,844
Interest maintenance reserve 4,611 225
Amounts owing to parent company [note 7] 2,779 18,677
Unallocated amounts 1,913 384
Miscellaneous liabilities
[including provision for outstanding taxes and expenses] 16,642 5,342
Asset valuation reserve 24,808 21,447
Liabilities from separate accounts 465,232 353,863
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,597,166 2,561,782
- -----------------------------------------------------------------------------------------------------------------
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 surplus (deficit) 7,530 (5,839)
- -----------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS 129,530 116,161
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND CAPITAL AND SURPLUS $2,726,696 $2,677,943
=================================================================================================================
</TABLE>
See accompanying notes.
3
<PAGE> 114
CANADA LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS - STATUTORY BASIS
[in thousands of dollars]
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES [note 7]
Premiums for insurance and annuity considerations $326,559 $295,540 $326,196
Considerations for supplementary contracts
and dividends left on deposit 2,905 2,452 3,946
Net investment income [note 3] 184,549 188,794 187,899
Other income -- -- 1
- -----------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 514,013 486,786 518,042
- -----------------------------------------------------------------------------------------------------------------
EXPENDITURES [note 7]
Death benefits and matured endowments 2,080 1,917 1,618
Annuity benefits 211,825 201,807 184,836
Surrender benefits 239,619 119,530 104,786
Payments on supplementary contracts and dividends
left on deposit 2,570 2,211 2,087
Dividends to policyholders 1,682 2,064 2,237
- -----------------------------------------------------------------------------------------------------------------
TOTAL PAYMENTS TO POLICYHOLDERS AND BENEFICIARIES 457,776 327,529 295,564
(Decrease) increase in actuarial reserves (79,003) 15,448 73,737
Commissions to agents 7,386 7,175 6,406
Allowances on reinsurance assumed 13,418 12,304 14,322
General insurance expenses 8,628 8,005 6,348
Taxes, licenses and fees 1,497 311 128
Transfers to separate accounts 78,556 97,113 98,967
- -----------------------------------------------------------------------------------------------------------------
TOTAL EXPENDITURES 488,258 467,885 495,472
- -----------------------------------------------------------------------------------------------------------------
Income from operations before net realized capital
gains (losses) and federal income taxes (benefit) 25,755 18,901 22,570
Federal income taxes (benefit)[note 4] 6,823 (1,990) 3,835
- -----------------------------------------------------------------------------------------------------------------
Income from operations before
net realized capital gains (losses) 18,932 20,891 18,735
Net realized capital gains (losses) [note 3[b]] 1,682 (11,339) (2,586)
- -----------------------------------------------------------------------------------------------------------------
NET INCOME $ 20,614 $ 9,552 $ 16,149
=================================================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 115
CANADA LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF ACCUMULATED SURPLUS (DEFICIT) - STATUTORY BASIS
[in thousands of dollars]
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ACCUMULATED DEFICIT, BEGINNING OF YEAR $ (5,839) $ (20,866) $(23,527)
Net income 20,614 9,552 16,149
Change in net unrealized capital gain (loss) 1,253 10,253 (1,441)
Change in surplus (deficit) on account of:
Non-admitted assets -- 612 (612)
Actuarial valuation basis -- -- (6,523)
Asset valuation reserve (3,361) (5,664) (4,699)
Change in surplus of separate account 1,436 669 6,722
Seed money transfer to separate account -- -- (6,614)
Cost of business acquired -- (377) (321)
Adjustment for (loss) in currency exchange (378) (18) --
Prior year federal income tax adjustment (6,195) -- --
- ---------------------------------------------------------------------------------------------------------------
ACCUMULATED SURPLUS (DEFICIT), END OF YEAR $ 7,530 $ (5,839) $(20,866)
===============================================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 116
CANADA LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CASH FLOWS - STATUTORY BASIS
[IN THOUSANDS OF DOLLARS]
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Premiums, policy proceeds, and other considerations
received $ 329,344 $ 298,324 $ 330,077
Net investment income received 178,329 185,038 177,349
Benefits paid (456,151) (325,182) (293,366)
Insurance expenses paid (31,296) (27,825) (27,014)
Dividends paid to policyholders (2,021) (2,248) (2,341)
Federal income taxes paid, net (7,281) (6,465) (4,225)
Net decrease in policy loans 1,171 824 884
Net transfers to Separate Accounts (79,567) (98,702) (98,967)
Other income received net of other expenses (paid) -- -- (5,467)
- -----------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY OPERATIONS (67,472) 23,764 76,930
PROCEEDS FROM SALES, MATURITIES, OR
REPAYMENTS OF INVESTMENTS
Bonds 477,542 321,755 287,100
Common stocks 12,891 10,499 18,180
Subsidiaries 5
Mortgage loans 57,340 52,510 37,876
Real estate 12,716 2,082 9,775
Other invested assets 2,277 684 796
Net gains on cash and short-term investments -- -- 48
Miscellaneous proceeds 3,693 5,288 603
- -----------------------------------------------------------------------------------------------------------------
PROCEEDS FROM SALES, MATURITIES, OR
REPAYMENTS OF INVESTMENTS 566,459 392,818 354,383
OTHER CASH PROVIDED
Other sources 1,529 12,544 3,380
- -----------------------------------------------------------------------------------------------------------------
Total other cash provided 1,529 12,544 3,380
- -----------------------------------------------------------------------------------------------------------------
TOTAL CASH PROVIDED 500,516 429,126 434,693
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 117
CANADA LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CASH FLOWS - STATUTORY BASIS (CONTINUED)
[in thousands of dollars]
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COST OF INVESTMENTS ACQUIRED
Bonds $449,592 $351,242 $ 309,767
Common stocks 11,752 10,215 5,702
Subsidiaries -- -- 69
Mortgage loans 58,808 54,197 122,407
Real estate 680 -- 606
Miscellaneous applications 4,620 -- 10,750
- -----------------------------------------------------------------------------------------------------------------
TOTAL COST OF INVESTMENTS ACQUIRED 525,452 415,654 449,301
OTHER CASH APPLIED
Other applications, net 17,382 347 --
- -----------------------------------------------------------------------------------------------------------------
Total other cash applied 17,382 347
- -----------------------------------------------------------------------------------------------------------------
TOTAL CASH USED 542,834 416,001 449,301
- -----------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND SHORT-TERM
investments (42,318) 13,125 (14,608)
CASH AND SHORT-TERM INVESTMENTS
Beginning of year 60,003 46,878 61,486
- -----------------------------------------------------------------------------------------------------------------
END OF YEAR $ 17,685 $ 60,003 $ 46,878
=================================================================================================================
</TABLE>
See accompanying notes.
7
<PAGE> 118
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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 48 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 in the process of codifying statutory accounting practices ("Codification").
Codification 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-basis financial statements. Codification, which is
expected to be approved by the NAIC in 1998, will require adoption by the
various states before it becomes the prescribed statutory basis of accounting
for insurance companies domesticated within those states. Accordingly, before
Codification becomes effective for the Company, the Michigan Insurance
Department must adopt Codification as the prescribed basis of accounting on
which domestic insurers must report their statutory-basis results to the
Insurance Department. At this time it is unclear whether the Michigan Insurance
Department will adopt Codification. The impact of Codification 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 was
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
8
<PAGE> 119
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
2. BASIS OF ACCOUNTING (CONT'D)
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.
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 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> 120
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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> 121
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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> 122
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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 and short-term
investments refer 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 1996 have been
reclassified to conform with the 1997 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> 123
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL
December 31, 1997
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.
3. INVESTMENTS
[a] Additional information with respect to net investment income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C> <C>
Interest and dividends on fixed maturities $ 97,506 $ 97,995 $ 97,097
Interest on derivatives 552 608 522
Income on real estate 833 1,228 572
Dividends on equity securities 1,956 1,483 2,091
Amortization of IMR 883 878 980
Interest on:
Mortgage loans 85,952 87,092 86,540
Policy loans 530 843 370
Short-term investments 2,408 2,007 3,362
Other (losses) income (875) 752 (14)
- ------------------------------------------------------------------------------------------------------------
189,745 192,886 191,520
Less: investment expenses 4,714 3,501 3,445
Less: depreciation on real estate 482 591 176
- ------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 184,549 $188,794 $187,899
============================================================================================================
</TABLE>
13
<PAGE> 124
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
3. INVESTMENTS (CONT'D)
[b] Summary of realized capital gains (losses):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C> <C>
Realized capital gains (losses):
Fixed maturities $10,007 $ (520) $ 4,915
Short-term investments -- -- 48
Equity securities 3,475 2,715 3,865
Mortgage loans (198) (13,018) (1,965)
Real estate 1,584 758 (828)
Derivative instruments (2,970) 1,118 (7,812)
Other invested assets 503 -- --
----------------------------------------------------------------------------------------------------------
12,401 (8,947) (1,777)
Income tax expense (5,449) (677) (2,661)
Transfer to interest maintenance reserve (5,270) (1,715) 1,852
- ------------------------------------------------------------------------------------------------------------
NET REALIZED CAPITAL GAINS (LOSSES) $ 1,682 $(11,339) $(2,586)
============================================================================================================
</TABLE>
Proceeds from sales and maturities of fixed maturity investments for the years
ended December 31, 1997, 1996, and 1995 were $477,542,000, $321,755,000 and
$287,100,000, respectively. Gross gains of $11,727,000, $3,345,000 and
$5,626,000, and gross losses of $1,720,000, $3,865,000 and $711,000,
respectively, were realized on those sales for the years ended December 31,
1997, 1996 and 1995. Gross gains of $3,569,000, $2,896,000 and $4,150,000, and
gross losses of $94,000, $181,000 and $285,000, respectively, were realized on
sales of equity securities for the years ended December 31, 1997, 1996 and 1995.
14
<PAGE> 125
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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, 1997
---------------------------------------------------------------------
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 end authorities $ 366,518 $ 366,518 $ 54,474 $ (65) $ 420,927
Foreign governments 262 262 -- -- 262
Public utilities 85,335 85,335 1,714 -- 87,049
Mortgage-backed securities 127,972 127,972 -- -- 127,972
All other corporate bonds 688,237 688,237 8,678 (75) 696,840
- ------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITIES $ 1,268,324 1,268,324 $ 64,866 $ (140) $ 1,333,050
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------------------------
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>
15
<PAGE> 126
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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, 1997, 1996 and 1995, there were changes
in net unrealized gains and (losses) on fixed maturities of $28,109,000,
$(33,575,000) and $88,640,000, 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, 1997
-------------------------
CARRYING FAIR
VALUE VALUE
- ---------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
1 year or less $ 57,410 $ 57,534
Over 1 year through 5 years 329,401 331,226
Over 5 years through 10 years 285,133 288,921
Over 10 years 596,380 655,369
- ---------------------------------------------------------------------------------------
$1,268,324 $1,333,050
=======================================================================================
</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 $142,000, $45,000 and
$(397,000) for the years ended December 31, 1997, 1996 and 1995,
respectively. The accumulated gross unrealized gains and accumulated gross
unrealized losses on marketable equity securities were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C> <C>
Gross unrealized gains $3,015 $2,594 $2,607
Gross unrealized losses (458) (179) (237)
- ------------------------------------------------------------------------------------------
Net unrealized gains $2,557 $2,415 $2,370
==========================================================================================
</TABLE>
16
<PAGE> 127
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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, 1997.
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
- --------------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
Commercial mortgages $ 886,143 $ 991,165
Write-downs on mortgage loans (3,179) --
- --------------------------------------------------------------------------------------------
$ 882,964 $ 991,165
- --------------------------------------------------------------------------------------------
Policy loans $ 10,290 $ 10,290
============================================================================================
</TABLE>
The Company's distribution of mortgage loans by property type and by the ten
most significant states follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------
AMOUNT PERCENT
- --------------------------------------------------------------------------------------------
<S> <C> <C>
[in thousands of dollars]
PROPERTY TYPE
Apartments and townhomes $ 390,363 44.3%
Retail 247,160 28.0%
General office buildings 102,596 11.6%
Industrial and warehouse 105,905 12.0%
Other 40,119 4.5%
Write-downs on mortgage loans (3,179) (0.4)%
- --------------------------------------------------------------------------------------------
Total $ 882,964 100.0%
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------
AMOUNT PERCENT
- --------------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
STATE
California $ 160,351 18.2%
Ohio 99,738 11.3%
Pennsylvania 95,734 10.8%
New York 85,855 9.7%
Michigan 83,454 9.5%
Illinois 59,321 6.7%
Oregon 43,531 4.9%
New Jersey 42,385 4.8%
Nevada 34,562 3.9%
Virginia 30,061 3.4%
Other 151,151 17.2%
Write-downs on mortgage loans (3,179) (0.4)%
- --------------------------------------------------------------------------------------------
Total $ 882,964 100.0%
============================================================================================
</TABLE>
17
<PAGE> 128
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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 $0,
$5,342,000 and $7,119,000, and decreases to the mortgage loan loss reserve were
$1,757,000, $12,139,000 and $3,906,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
Accumulated depreciation on investment real estate was $571,000 and $545,000 as
of December 31, 1997 and 1996, respectively. No investment in any persons or
their affiliates exceeded 10% of capital and surplus as of December 31, 1997 and
1996.
The maximum and minimum lending rates for new mortgage loans in 1997 were 9.00%
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, 1997 the Company held one mortgage loan with a carrying value of
$4,507,156 on which interest of $1,547,018 was more than one year overdue. At
December 31, 1996 the Company held mortgages with a carrying value of $4,531,156
on which interest of $1,058,397 was more than one year overdue. During 1997, the
Company did not reduce interest rates on any outstanding mortgage loans. At
December 31, 1997 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, 1997 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, 1997 was $1,547,018.
At December 31, 1997 and 1996 the Company held $496,991 and $869,201,
respectively, in mortgages with prior outstanding liens.
18
<PAGE> 129
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
3. INVESTMENTS (CONT'D)
[g] The following tables represent a summary of investments held as of December
31, 1997 and 1996.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------
COST OR
AMORTIZE FAIR CARRYING
COST VALUE VALUE
- ----------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C> <C>
Fixed maturities [note 3 [c]] $1,268,324 $1,333,050 $1,268,324
Common stocks 12,611 15,168 15,168
Real estate 11,029 8,350 8,271
Mortgage loans on real estate 886,143 991,165 882,964
Policy loans 10,290 10,290 10,290
Short-term investments 11,200 11,200 11,200
- ----------------------------------------------------------------------------------------
TOTAL INVESTMENTS $2,199,597 $2,369,223 $2,196,217
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------
COST OR
AMORTIZE 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>
[h] The following table presents the fair values and carrying amounts for the
Company's derivative instruments:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------
FAIR CARRYING
VALUE VALUE
- --------------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
Interest rate futures $ 777 $ 777
Interest rate swaps 4,013 --
============================================================================================
</TABLE>
19
<PAGE> 130
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------
FAIR CARRYING
VALUE VALUE
- --------------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
Interest rate futures $ 377 $ 377
Interest rate swaps 21,998 --
============================================================================================
</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, 1997
----------------------------------
FAIR CARRYING
VALUE VALUE
- --------------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
Investment contracts $ 467,005 $ 432,820
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------
FAIR CARRYING
VALUE VALUE
- --------------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
Investment contracts $ 547,142 $ 531,508
</TABLE>
20
<PAGE> 131
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
4. FEDERAL INCOME TAXES
As of December 31, 1997 and 1996, federal income taxes (payable) receivable were
$(7,830,000) and $4,656,000, respectively.
During 1997, 1996 and 1995, the Company made cash payments (net of refunds
received) on behalf of federal income taxes of $7,228,000, $6,465,000 and
$4,225,000, respectively.
The statutory federal income tax provision amount at the statutory rate of 35%
for 1997, 1996 and 1995 differs from the effective tax provision amount as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C> <C>
Computed income taxes at statutory rate $ 9,014 $ 6,615 $ 7,899
Increase (decrease) in income taxes resulting from:
Policyholder dividends (119) (64) 5
Deferred reinsurance commissions net of amortization -- -- (46)
Amortization of interest maintenance reserve (309) (307) (343)
Income tax over provision -- (2,350) (1,257)
Amortization of prior year change in reserves (624) (591) (206)
Discount accrual (557) (1,519) (700)
Reserve differences 684 82 2,278
Deferred acquisition cost tax (165) (3) (14)
Bad debt on mortgages (69) (3,857) (688)
Losses on options -- -- (25)
Futures gains (losses) (1,040) 391 (2,640)
Mortgage prepayment penalties -- (722) (556)
Other 8 335 128
- ---------------------------------------------------------------------------------------------------------
Federal income taxes (benefit) $ 6,823 $(1,990) $ 3,835
=========================================================================================================
</TABLE>
21
<PAGE> 132
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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 1997 and 1996 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> 133
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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, 1997 are as follows:
<TABLE>
<CAPTION>
AMOUNT % OF TOTAL
------------- ----------
<S> <C> <C>
Subject to discretionary withdrawal with adjustment
-with market value adjustment $ 109,125,810 5.3%
-at book value less surrender charge 213,943,051 10.4%
------------- -----
Subtotal 323,068,861 15.7%
Subject to discretionary withdrawal without adjustment
-at book value (minimal or no charge adjustment) 97,096,668 4.7%
Not subject to discretionary withdrawal provision 1,630,512,008 79.6%
------------- -----
Total annuity actuarial reserves and deposit fund liabilities (gross) 2,050,677,537 100.0%
-----
Less: reinsurance --
--------------
Total annuity actuarial reserves and deposit fund liabilities (net) $2,050,677,537
==============
</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> 134
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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, 1997
and 1996. 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, 1997, 1996, and 1995 were the result of the coinsurance
agreements. As of December 31, 1997, 1996, and 1995, $649,101, $(16,596,053) and
$3,342,280, 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
1997 Premiums 1996 Premiums 1995 Premiums
-------- ---------- --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Direct premiums $124,318 38.1% $124,862 42.2% $123,170 37.8%
Assumed
premiums 202,241 61.9% 170,678 57.8% 203,026 62.2%
-------------------------------------------------------------------------------
Total premiums
for insurance and
annuity contracts $326,559 100.0% $295,540 100.0% $326,196 100.0%
===============================================================================
</TABLE>
Direct premiums above represent premiums earned from variable annuity products
and institutional investment products issued.
24
<PAGE> 135
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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 PERCENTAGE
OF TOTAL OF TOTAL
1997 IN-FORCE 1996 IN-FORCE
---- -------- ---- ----------
<S> <C> <C> <C> <C>
Direct life insurance in-force -- -- -- --
Assumed life insurance in-force
$45,936 100.0% $49,354 100.0%
------------------------------------------------------------
Total life insurance in-force $45,936 100.0% $49,354 100.0%
============================================================
</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, 1997, 1996 and 1995, the cost of these services
amounted to $8,859,678, $6,378,851, and $7,686,114, respectively.
25
<PAGE> 136
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
7. RELATED PARTY TRANSACTIONS (CONT'D)
As of December 31, 1997 and 1996, 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
1997 1996
- ---------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
Payable:
Canada Life Assurance Company $ 2,734 $18,629
Canada Life Insurance Company of New York 45 48
Receivable:
Canada Life Assurance Company 1,606 --
CL Capital Management, Inc. 27 92
Canada Life of America Series Fund, Inc. 22 --
- --------------------------------------------------------------------------
$ 1,124 $18,585
- --------------------------------------------------------------------------
</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 six 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
1997 1996
- -----------------------------------------------------------------------------------
[in thousands of dollars]
<S> <C> <C>
Premiums, considerations, or deposits received $135,571 $129,475
Reserves, subject to discretionary withdrawal - at
market with current surrender charges $459,602 $349,297
</TABLE>
26
<PAGE> 137
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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]
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Transfers as reported in the Summary
of Operations of the Separate
Accounts Statement:
Transfers to Separate Accounts $135,571 $129,475 $ 253,914
Transfers from Separate Accounts 93,073 81,607 30,998
-----------------------------------------------------
Net transfers to Separate Accounts 42,498 47,868 222,916
Reconciling adjustments:
(a) Gains/losses transferred 187 303 (192)
(b) Separate Account liability
assumed on acquisition -- -- (123,757)
(c) Transfers to Managed Accounts 35,871 48,942 --
-----------------------------------------------------
Transfers as reported in the
Summary of Operations of the
Life, Accident & Health Annual
Statement $ 78,556 $ 97,113 $ 98,967
=====================================================
</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> 138
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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 1997. 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
$4,535,804 and $4,562,418 were on deposit with insurance regulatory authorities
at December 31, 1997 and 1996, 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
1997 1996 1997 1996
--------------------------------------------------------------
[in thousands of dollars] [in thousands of dollars]
<S> <C> <C> <C> <C>
Interest rate swaps $21,503 $21,998 -- --
Futures (government bonds) 46,800 52,400 $777 $377
--------------------------------------------------------------
Total $68,303 $74,398 $777 $377
==============================================================
</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> 139
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
11. IMPACT OF YEAR 2000 COMPUTER SOFTWARE MODIFICATION COSTS (UNAUDITED)
Year 2000 concerns revolve around some computer programs using two digits,
rather than four, to denote years. The Company has analyzed its computer systems
and formulated an action plan to ensure all systems will be able to process date
data correctly in the year 2000 and beyond. Modification costs are born by the
systems' providers and the cost to the Company is inherent in the data
processing charges for using these systems.
29
<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*
(b)(a) Amendment to 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-Laws of CLICA*
(7) Not applicable
(8) (a)(a) Participation Agreement Between Canada Life Series
Fund and Canada Life Insurance Company of America*
(a)(b) Participation Agreement Between Dreyfus Corporation
and Canada Life Insurance Company of America*
(a)(c) Participation Agreement Between Montgomery Asset
Management, L.P. and Canada Life Insurance Company of
America*
(a)(d) Participation Agreement Between Fred Alger and
Company, Inc. and Canada Life Insurance Company of
America*
(a)(e) Participation Agreement Among Variable Insurance
Products Fund, Fidelity Distributors Corporation and
Canada Life Insurance Company of America
(a)(f) Participation Agreement Among Berger Institutional
Products Trust and Canada Life Insurance Company of
America*
(a)(g) Participation Agreement Among Variable Insurance
Products Fund II, Fidelity Distributors Corporation
and Canada Life Insurance Company of America
(a)(h) Participation Agreement Among Variable Insurance
Products Fund III, Fidelity Distributors Corporation
and Canada Life Insurance Company of America
(a)(i) Participation Agreement Among Berger Institutional
Products Trust, Berger Associates, Inc. and Canada
Life Insurance Company of America
- ----------------------------------
* Incorporated herein by reference to exhibits filed with the
Post-Effective Amendment No. 13 to this Registration Statement on Form
N-4 (File No. 33--28889), filed on April 20, 1997.
-2-
<PAGE> 142
(a)(j) Participation Agreement Between Canada Life Insurance
Company of America and The Dreyfus Socially
Responsible Growth Fund, Inc.
(a)(k) Participation Agreement Between Canada Life Insurance
Company of America and Dreyfus Variable Investment
Fund
(a)(l) Amendment to Participation Agreement Among Variable
Insurance Products Fund, Fidelity Distributors
Corporation and Canada Life Insurance Company of
America
(a)(m) Amendment to Participation Agreement Among Variable
Insurance Products Fund II, Fidelity Distributors
Corporation and Canada Life Insurance Company of
America
(a)(n) Amendment to Participation Agreement By and Among
Canada Life Insurance Company of America and
Montgomery Funds III and Montgomery Asset Management,
L.P.
(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
- ----------------------------------
* Incorporated herein by reference to exhibits filed with the
Post-Effective Amendment No. 13 to this Registration Statement on Form
N-4 (File No. 33--28889), filed on April 20, 1997.
-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
R. E. Beettam (2) President & Director
G. E. Hughes (2) Agency Vice President
W. S. McIlwaine (2) Group Sales Vice-President
D. D. Myers (2) Accounting Officer
P. D. Cochrane (1) Administrative Officer
A. W. Bard(2) Administrative Officer
K. T. Ledwos (2) Actuary & Director
S. Benedetti (2) Marketing Actuary
J. G. Deskins(2) Illustration Actuary
J. W. Elliott(2) Internal Auditor
R. W. Linden (1) Secretary
G. N. Isaac (1) Treasurer
D. V. Rough (1) Assistant Treasurer
E. P. Ovsenny (1) Assistant Treasurer
D. N. Rattray (1) Assistant Treasurer
B. J. Lynch (1) Assistant Treasurer
M. V. Sim (1) Assistant Treasurer
K. J. J. Fillman (2) Product Manager Investment Management Services
D. A. Loney (2) Director
H.A. Rachfalowski (1) Director
T. C. Scott (2) Director
S. H. Zimmerman (3) 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 Canada Mutual Company Life and Health
Company Insurance
Canada Life Insurance Company New York Ownership of voting securities through Life and Health
of New York Canada Life Insurance
Adason Properties Limited Canada Ownership of all voting securities Property
through Canada Life Management
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 Operations Management
Canada Life Mortgage Services Canada Ownership of all voting securities Mortgage
Ltd. through Canada Life Portfolios
The CLGB Property Company England Ownership of all voting securities Real Estate
Limited through Canada Life Irish Operations Investment
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
INDAGO Capital Management Inc. Canada Ownership of 50% of voting securities Investment
through INDAGO Capital Management Inc. Counseling
and 50% by the executive employees
Sherway Centre Limited Canada Ownership of all voting securities Real Estate
through Canada Life Broker
The Canada Life Assurance Rep. of Ireland Ownership of all voting securities Life and Health
Company of Ireland Limited through Canada Life Irish Operations Insurance
Canlife - IBI Investment Rep. of Ireland Ownership of 50% of voting securities Unit Trust
Services Limited through Canada Life Ass. ( Ireland) Management
Limited and 50% by the Investment Bank
of Ireland
Canada Life Financial Services England Ownership of all voting securities Life Insurance
Company Limited through Canada Life Irish Operations
</TABLE>
-5-
<PAGE> 145
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NAME JURISDICTION VOTING SECURITIES OWNED BUSINESS
- ---- ------------ ----------------------- --------
<S> <C> <C> <C>
F.S.D. Investments Ltd. Rep. of Ireland Ownership of all voting securities Unit Fund Sales
through Canada Life Assurance (Ireland) and Management
Limited
Canada Life Insurance Company US Canada Life Life and Health
of America Insurance
Canada Life of America Georgia Ownership of all voting securities Broker Dealer
Financial 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% of the Realtor
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,
through Canada Life Ireland Holdings Service,
Limited Management, and
Investment
Company
The Canada Life Assurance Rep. of Ireland Ownership of all voting securities Life Insurance,
(Ireland) Limited through CLAI Limited and the Canada Life Pension, and
Assurance Company of Ireland Annuity
CL Capital Management, Inc. Georgia Ownership of all voting securities Investment
through CLICA Advisor
Canada Life Capital Corporation Canada Ownership of all voting securities External
Inc. through Canada Life Sources of
Capital
Canada Life Securing Canada Ownership of all voting securities Holding Company
Corporation Inc. through Canada Life
The Canada Life Group (UK) England Ownership of all voting securities Holding Company
Limited through Canada life
Canada Life Holdings (UK) England The Canada Life Group (UK) Limited Holding Company
Limited
The Canada Life Assurance England The Canada Life Group (UK) Limited Life and Health
Company of Great Britain Limited Insurance
</TABLE>
-6-
<PAGE> 146
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NAME JURISDICTION VOTING SECURITIES OWNED BUSINESS
- ---- ------------ ----------------------- --------
<S> <C> <C> <C>
Canada Life Management (UK) England The Canada Life Group (UK) Limited Unit Trust
Limited Sales &
Management
Canada Life Group Services (UK) England The Canada Life Group (UK) Limited Administrative
Limited Services
Canada Life Trustee Services England The Canada Life Group (UK) Limited Trustee Services
(UK) Limited
Canada Life Ireland Holdings Ireland Canada Life Irish Operations Limited Holding Company
Limited
MetLife (UK) Limited England Ownership of all voting securities Holding Company
through Canada Life
MetLife Group Services Limited England Ownership of all voting securities Administrative Services
through MetLife (UK) Limited
Metropolitan Unit Trust England Ownership of all voting securities Unit Trust Services
Managers Limited through MetLife (UK) Limited
Albany International Assurance England Ownership of all voting securities Unit Investment Products
Limited through MetLife (UK) Limited
Albany Life Assurance Company England Ownership of all voting securities Unit Life and Pension
Limited through MetLife (UK) Limited Insurance
Albany Pension Managers and England Ownership of all voting securities Trustee Services
Trustees Limited through Albany Life Assurance Company
Limited
</TABLE>
-7-
<PAGE> 147
Item 27. Number of Policy Owners
As of April 15, 1998, there were 1072 owners of Nonqualified Policies and 1519
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
indemnify 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 opinion 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.
-8-
<PAGE> 148
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>
R. E. Beettam** Chairman and Director
D.V. Rough* Treasurer
R.W. Linden* Assistant Secretary
K.T. Ledwos** Administrative Officer and Director
G. E. Hughes** President and Director
K.J. Fillman** Administrative Officer
D.D. Myers** Accounting 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.
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 Statement 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.
-9-
<PAGE> 149
(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;
(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
imposed 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
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
3(b)(a) Amendment to Form of Selling Agreement
4(b) Riders and Endorsements
5 Form of Application
8(a)(e) Participation Agreement Among Variable Insurance Products Fund,
Fidelity Distributors Corporation and Canada Life Insurance Company of
America
8(a)(g) Participation Agreement Among Variable Insurance Products Fund II,
Fidelity Distributors Corporation and Canada Life Insurance Company of
America
8(a)(h) Participation Agreement Among Variable Insurance Products Fund III,
Fidelity Distributors Corporation and Canada Life Insurance Company of
America
8(a)(i) Participation Agreement Among Berger Institutional Products Trust,
Berger Associates, Inc. and Canada Life Insurance Company of America
8(a)(j) Participation Agreement Between Canada Life Insurance Company of
America and The Dreyfus Socially Responsible Growth Fund, Inc.
8(a)(k) Participation Agreement Between Canada Life Insurance Company of
America and Dreyfus Variable Investment Fund
8(a)(l) Amendment to Participation Agreement Among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Canada Life Insurance
Company of America
8(a)(m) Amendment to Participation Agreement Among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and Canada Life Insurance
Company of America
8(a)(n) Amendment to Participation Agreement By and Among Canada Life Insurance
Company of America and Montgomery Funds III and Montgomery Asset
Management, L.P.
10(a) Consent of Counsel
10(b) Consent of Independent Counsel
10(c) Consent of Independent Auditors
13 Sample Performance Data Calculation
</TABLE>
-11-
<PAGE> 151
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 14
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Toronto, and the Province of Ontario on the 24 day of April 1998.
CANADA LIFE INSURANCE COMPANY OF AMERICA
VARIABLE ANNUITY ACCOUNT 1
By /s/ Ron Beettam
----------------------------------------
R. E. Beettam, President
Canada Life Insurance Company of America
CANADA LIFE INSURANCE COMPANY OF AMERICA
By /s/ Ron Beettam
----------------------------------------
R. E. Beettam, President
As required by the Securities Act of 1933, this Post-Effective Amendment Number
14 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 April 24, 1998
- ----------------------------
D. A. Nield
/s/ Ron Beettam President and Director April 24, 1998
- ----------------------------
R. E. Beettam
/s/ Ken Ledwos Director April 24, 1998
- ----------------------------
K. T. Ledwos
/s/ D. Allen Loney Director April 24, 1998
- ----------------------------
D. A. Loney
/s/ Henry A. Rachfalowski Director April 24, 1998
- ----------------------------
H. A. Rachfalowski
/s/ Tom Scott Director April 24, 1998
- ----------------------------
T. C. Scott
/s/ Steve Zimmerman Director April 24, 1998
- ----------------------------
S. H. Zimmerman
</TABLE>
<PAGE> 152
<TABLE>
<S> <C> <C>
/s/ G. N. Issac Treasurer April 24, 1998
- --------------------------
G. N. Isaac
/s/ Don Myers Accounting Officer April 24, 1998
- --------------------------
D. D. Myers
</TABLE>
<PAGE> 1
EXHIBIT 3(b)(a)
AMENDMENT TO FORM OF SELLING AGREEMENT
<PAGE> 2
VARIFUND(TM)
SCHEDULE I - STATEMENT OF COMPENSATION
CANADA LIFE INSURANCE COMPANY OF AMERICA
AS OF JANUARY 1, 1998
Commissions will be paid to General Agent or to Broker/Dealer, as required by
law, in the percentages shown below:
<TABLE>
<S> <C>
OWNER'S ISSUE AGE 0-80 OWNERS 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
Such trail first payable and calculated trail first payable and calculated at the
at the end of the fifth quarter of the end of the fifth quarter of the associated
associated premium. 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.
</TABLE>
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 result 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> 3
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 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.
ADJUSTMENTS FOR ADVANCE BROKER DEALER CONCESSIONS ON 1035 EXCHANGES &/OR OTHER
TRANSFERS:
CLICA will advance broker dealer concessions on 1035 exchanges &/or other
transfers, subject to our administrative procedures, for amounts of $50,000 or
greater. (Amount subject to change without notice) When the actual premiums are
received, there will be an adjustment, either positive or negative, to the
actual broker dealer concession previously paid. If dollar amounts are
consistently over-estimated, this privilege will be discontinued. CLICA reserves
the right to discontinue this practice at any time.
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(b)
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) of the Internal Revenue Code
of 1986, as amended (the "Code"), 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. The premium payment(s) shall be in cash and, except in the case of
rollover contributions described in Sections 402(c), 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. You shall have the sole responsibility for determining
whether any premium payment qualifies as a rollover or simplified
employee pension contributions, whether it is deductible for income tax
purposes, and whether other applicable income tax requirements are met.
5. The Policy does not require fixed premium payments. 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 (as applicable or
under another IRA) 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, if this
payment option is available under the terms of your Policy; or
(e) over a period certain not exceeding the joint and last survivor
expectancy of you and your designated beneficiary, if this payment
option is available under the terms of your Policy.
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 and the regulations thereunder, and the minimum distribution
incidental benefit requirement of Proposed Income Tax Regulation
Section 1.401(a)(9)-2. Payment must either be nonincreasing or may
increase only as provided in Proposed Income Tax Regulation Section
1.401(a)(9)-1, Q&A F-3.
PAGE 1
<PAGE> 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. 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 6 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 7 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.
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.
You or your beneficiary, as applicable, shall have the sole
responsibility for requesting a distribution that complies with this
Rider and applicable law.
10. 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.
/s/ /s/
Secretary President
PAGE 2
<PAGE> 4
CANADA LIFE INSURANCE COMPANY OF AMERICA
ADMINISTRATIVE OFFICE:
6201 POWERS FERRY ROAD, NW, ATLANTA, GEORGIA 30339
PHONE (800) 905-1959
ROTH INDIVIDUAL RETIREMENT ANNUITY RIDER
This Rider is part of the Policy. The Policy is intended to qualify as a Roth
individual retirement annuity ("Roth IRA") under Section 408A of the Internal
Revenue Code of 1986, as amended (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. The premium payment(s) shall be in cash and, except in the case of
rollover contributions described in Sections 408(d)(3), 408A(c)(3)(B),
408A(c)(6), and 408A(e) of the Code, or transfers from another Roth IRA
or individual retirement account or annuity, shall not exceed $2,000
for any taxable year. You shall have the sole responsibility for
determining whether any premium payment qualifies as a rollover or
meets other applicable income tax requirements.
5. The Policy does not require fixed premium payments. 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 (as applicable or
under another IRA) or the purchase of additional benefits.
6. The entire interest in the Policy 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 Sections 408(b)(3) and 408A(c)(5), 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.
Your beneficiary shall have the sole responsibility for requesting a
distribution that complies with this Rider and applicable law.
PAGE 1
<PAGE> 5
7. For purposes of the foregoing provision, life expectancy shall be
determined by use of the expected return multiples in Table V of
Treasury Regulation Section 1.72-9 in accordance with Code Section
408(b)(3) and the regulations thereunder. Life expectancy will be
initially determined on the basis of your beneficiary's attained age in
the year distributions are required to commence. Unless your spouse
elects otherwise prior to the date distributions are required to
commence, your spouse's life expectancy will be recalculated annually
based on your spouse's attained age in the year for which the required
distribution is being determined. The life expectancy of a nonspouse
beneficiary will not be recalculated.
You may satisfy the minimum distribution requirements under Sections
408(b)(3) and 408A(c)(5) of the Code by receiving a distribution from
one Roth IRA that is equal to the amount required to satisfy the
minimum distribution requirement for two or more Roth IRAs. For this
purpose, if you own two or more Roth IRAs, you may use the alternative
method described in Notice 88-38, 1988-1 C.B. 524, to satisfy the
minimum distribution requirements.
8. 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.
/s/ /s/
Secretary President
PAGE 2
<PAGE> 6
CANADA LIFE INSURANCE COMPANY OF AMERICA
ADMINISTRATIVE OFFICE:
6201 POWERS FERRY ROAD, NW, ATLANTA, GEORGIA 30339
PHONE (800) 905-1959
SIMPLE INDIVIDUAL RETIREMENT ANNUITY RIDER
This Rider is part of the Policy. The Policy is intended to qualify as a SIMPLE
individual retirement annuity ("SIMPLE IRA") under Section 408(p) of the
Internal Revenue Code of 1986, as amended (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. This SIMPLE IRA will accept only cash contributions made on your behalf
pursuant to the terms of a SIMPLE IRA Plan described in Code Section
408(p). A rollover contribution or a transfer of assets from another of
your SIMPLE IRAs will also be accepted.
You shall have the sole responsibility for determining whether any
premium payment, rollover or transfer complies with applicable law.
If contributions made on your behalf pursuant to a SIMPLE IRA Plan
maintained by your employer are received directly by us from the
employer, we will provide the employer with the summary description
required by Code Section 408(1)(2).
5. The Policy does not require fixed premium payments. 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 (as applicable or
under another IRA) 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, if this
payment option is available under the terms of your Policy; or
(e) over a period certain not exceeding the joint and last survivor
expectancy of you and your designated beneficiary, if this payment
option is available under the terms of your Policy.
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 and the regulations thereunder, and the minimum distribution
incidental benefit requirement of Proposed Income Tax Regulation
Section 1.401(a)(9)-2. Payment must either be nonincreasing or may
increase only as provided in Proposed Income Tax Regulation Section
1.401(a)(9)-1, Q&A F-3.
PAGE 1
<PAGE> 7
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. 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 6 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 7 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.
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.
Prior to the expiration of the 2-year period beginning on the date you
first participated in any SIMPLE IRA Plan maintained by your employer,
any rollover or transfer by you of funds from this SIMPLE IRA must be
made to another of your SIMPLE IRAs. Any distribution of funds to you
during this 2-year period may be subject to a 25-percent additional tax
if you do not roll over the amount distributed into a SIMPLE IRA. After
the expiration of this 2-year period, you may roll over or transfer
funds to any of your IRAs that are qualified under Code Section 408(a)
or (b).
You or your beneficiary, as applicable, shall have the sole
responsibility for requesting a distribution that complies with this
Rider and applicable law.
10. 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.
/s/ /s/
Secretary President
PAGE 2
<PAGE> 1
EXHIBIT 5
FORM OF APPLICATION
<PAGE> 2
<TABLE>
<S> <C> <C>
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 AZ, AR, CO, FL, KY, NJ, NY, OH, OR, PA AND WA)
(800) 905-1959
</TABLE>
- --------------------------------------------------------------------------------
1. OWNERS (APPLICANTS)
- --------------------------------------------------------------------------------
Name*
------------------------------------------------------------------------
First Middle Last
Address
-----------------------------------------------------------------------
Street
- --------------------------------------------------------------------------------
City State Zip
Sex [ ] M [ ] F [ ] Other Date of Birth
------- ------ -------
Month Day Year
Daytime Phone Number ( )
--------------------------------------------------
[ ][ ][ ][ ][ ][ ][ ][ ][ ] or [ ][ ][ ][ ][ ][ ][ ][ ][ ]
Social Security Number Tax ID Number
Client Brokerage Acct. # (If applicable)
--------------------------------------
================================================================================
JOINT OWNER (Optional)
Name*
------------------------------------------------------------------------
First Middle Last
Sex [ ] M [ ] F [ ] Other Date of Birth
------- ------ -------
Month Day Year
[ ][ ][ ][ ][ ][ ][ ][ ][ ] or [ ][ ][ ][ ][ ][ ][ ][ ][ ]
Social Security Number Tax ID Number
- --------------------------------------------------------------------------------
2. BENEFICIARIES
- --------------------------------------------------------------------------------
Enclose signed letter if more information is required.
1. Name*
------------------------------------------------------------------------
First Middle Last
[ ][ ][ ][ ][ ][ ][ ][ ][ ] or [ ][ ][ ][ ][ ][ ][ ][ ][ ]
Social Security Number Tax ID Number
Relationship Percentage %
---------------------------- --------------------------
2. Name*
------------------------------------------------------------------------
First Middle Last
[ ][ ][ ][ ][ ][ ][ ][ ][ ] or [ ][ ][ ][ ][ ][ ][ ][ ][ ]
Social Security Number Tax ID Number
Relationship Percentage %
---------------------------- --------------------------
================================================================================
CONTINGENT BENEFICIARY
Name*
------------------------------------------------------------------------
First Middle Last
[ ][ ][ ][ ][ ][ ][ ][ ][ ] or [ ][ ][ ][ ][ ][ ][ ][ ][ ]
Social Security Number Tax ID Number
Relationship Percentage %
---------------------------- --------------------------
- --------------------------------------------------------------------------------
3. TYPE OF ACCOUNT (MUST BE COMPLETED)
- --------------------------------------------------------------------------------
IRA: [ ] Traditional [ ] Roth [ ] Simple [ ] SEP
IRA Transfer/Rollover? [ ] Yes [ ] No IRA Tax Year is
[ ] 401(k) [ ] 457 [ ] Non-Qualified -------
[ ] 403(b) [ ] Keogh (HR-10) [ ] Other
------------
- --------------------------------------------------------------------------------
4. REPLACEMENT
- --------------------------------------------------------------------------------
Will this Annuity replace or change any other insurance or annuity?
[ ] No [ ] Yes - Company
-----------------------------------------------------
Policy No. (Please attach replacement forms.)
-----------------
- --------------------------------------------------------------------------------
5. ANNUITANTS (IF DIFFERENT FROM OWNER)
- --------------------------------------------------------------------------------
Name*
------------------------------------------------------------------------
First Middle Last
Address
-----------------------------------------------------------------------
Street
- --------------------------------------------------------------------------------
City State Zip
Sex [ ] M [ ] F [ ] Date of Birth
------- ------ -------
Month Day Year
[ ][ ][ ][ ][ ][ ][ ][ ][ ]
Social Security Number
================================================================================
JOINT-ANNUITANT (Optional)
Name*
------------------------------------------------------------------------
First Middle Last
Sex [ ] M [ ] F [ ] Date of Birth
------- ------ -------
Month Day Year
[ ][ ][ ][ ][ ][ ][ ][ ][ ]
Social Security Number
- --------------------------------------------------------------------------------
6. MY INVESTMENT
- --------------------------------------------------------------------------------
Allocate payment with application of $ as indicated below (MUST
TOTAL 100%): --------------
<TABLE>
<S> <C> <C>
% CLASF International Equity 10/30 % Alger Growth 83/93
- ------ ------
% CLASF Money Market 11/31 % Alger Leveraged AllCap 85/95
- ------ ------
% CLASF Managed 12/32 % Alger MidCap 84/94
- ------ ------
% CLASF Bond 13/33 % Alger Small Cap 82/92
- ------ ------
% CLASF Value Equity 14/34 % Berger/BIAM IPT Intern'l 88/98
- ------ ------
% CLASF Capital 15/35 % Berger/BIAM Small Co. Gro. 89/99
- ------ ------
% Fidelity Asset Mgr 16/36 % Dreyfus Cap'l Appreciation 46/47
- ------ ------
% Fidelity Contrafund 52/72 % Dreyfus Growth & Income 80/90
- ------ ------
% Fidelity Growth 17/37 % Dreyfus Socially Respon. 81/91
- ------ ------
% Fidelity Growth Opps. 53/73 % Montgomery Emerg. Mkts 86/96
- ------ ------
% Fidelity High Income 18/38 % Montgomery Growth 87/97
- ------ ------
% Fidelity Index 500 20/40 % Seligman Comm & Info 50/70
- ------ ------
% Fidelity Overseas 19/39 % Seligman Frontier 51/71
- ------ ------
</TABLE>
- --------------------------------------------------------------------------------
FIXED ACCOUNT OPTIONS (MAY NOT BE AVAILABLE IN ALL STATES)
% 1 Yr. (301) % 5 Yr. (305) % 10 Yr. (310)
----- ------- -------
% 3 Yr. (303) % 7 Yr. (307)
----- -------
- --------------------------------------------------------------------------------
7. PRE-AUTHORIZED CHECK (PAC)
- --------------------------------------------------------------------------------
I authorize the Company to collect $______ (MINIMUM $100/$50-IRA) starting on
___________________ by initiating electronic debit entries to my account.
Select One: [ ] Checking (attach voided check) [ ] Savings (attach deposit slip)
If start date is not indicated, this option will commence 30 days from issue
date. This option is not available on the 29th, 30th or 31st day of each month.
- --------------------------------------------------------------------------------
8. FOR CLAFS OFFICE USE ONLY
- --------------------------------------------------------------------------------
To be completed by CLAFS Office/Office of Supervisory Jurisdiction. Has this
application been reviewed by the Office of Supervisory Jurisdiction? [ ] Yes
[ ] No
- --------------------------------------------------------------------------------
Authorized Signature Date
- --------------------------------------------------------------------------------
9. FOR AGENTS ONLY
- --------------------------------------------------------------------------------
Questions? Contact either your broker/dealer or Canada Life at (800) 905-1959.
[ ] Option A (No Trail) [ ] Option B (Trail) [ ] Option C (Trail)
[ ] Option D (Trail)
* Unless subsequently changed in accordance with terms of Policy issued.
<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 TO 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-Annually [ ] Annually
Transfer above amount to (please use numeric codes listed in Section 6):
- -------------- --------------- -------------- ---------------
- -------------- --------------- -------------- ---------------
- -------------- --------------- -------------- ---------------
- --------------------------------------------------------------------------------
11. REMARKS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
[ ] SYSTEMATIC WITHDRAWAL PRIVILEGE (SWP)*
I/We hereby authorize the Company to initiate withdrawals from my Policy, via
Electronic Funds Transfer, as indicated below.
Select One: [ ] Checking (attach voided check) [ ] Savings (attach deposit slip)
Withdraw: [ ] Maximum amount allowed without incurring a Surrender
Charge, or $____________, to start on / /
Month Day Year
Stop Date: _________________ or Number of Withdrawals: __________________.
Withdraw From (please use numeric codes listed in Section 6):
- -------------- --------------- -------------- ---------------
- -------------- --------------- -------------- ---------------
- -------------- --------------- -------------- ---------------
Frequency of Withdrawal: [ ] Monthly [ ] Quarterly [ ] Semi-Annually
[ ] Annually
Please [ ] Withhold [ ] Do Not Withhold Federal Income Taxes. (If left blank,
10% of federal taxes will be automatically withheld).
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>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Signed in (State) Date Signed Signature of Owner/Applicant Signature of Joint Owner
- ---------------------------------------------------------------------------------------------------------------------------
Signature of Annuitant Signature of Joint-Annuitant Signature of Irrevocable Beneficiary
(if different from Owner) (if different from Owner) (if designated)
</TABLE>
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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Print Registered Representative/Agent Name Name of Firm Date Signed
- ---------------------------------------------------------------------------------------------------------------------------------
Signature of Agent Branch Address(if designated)
- ---------------------------------------------------------------------------------------------------------------------------------
Agent Number State License ID Number Agent Phone Number Agent Fax Number
</TABLE>
* If start date is not indicated, this option will commence 30 days from issue
date. This option is not available on the 29th, 30th or 31st day of each month.
<PAGE> 1
EXHIBIT 8(a)(e)
PARTICIPATION AGREEMENT AMONG VARIABLE INSURANCE PRODUCTS FUND, FIDELITY
DISTRIBUTORS CORPORATION AND CANADA LIFE INSURANCE COMPANY OF NEW YORK
<PAGE> 2
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
CANADA LIFE INSURANCE COMPANY OF NEW YORK
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 the laws of the State of New York 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;
6
<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.
7
<PAGE> 9
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, 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, 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
8
<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
9
<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 Account's 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 determined 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.
10
<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.l(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
11
<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.l(b) and 8.l(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
12
<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,
13
<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
14
<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
15
<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
16
<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
(b) 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:
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<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: /s/
-----------------------
Title: President
-----------------------
Date: April 29, 1994
-----------------------
VARIABLE INSURANCE PRODUCTS FUND
By its authorized officer,
By: /s/ J. Gary Burkhead
-----------------------
Title: Senior V.P.
-----------------------
Date: 4/28/94
-----------------------
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By: /s/
-----------------------
Title: President
-----------------------
Date: 4/24/94
-----------------------
20
<PAGE> 22
Schedule A
Separate Accounts and Associated Contracts
<TABLE>
<CAPTION>
Name of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
-------------------------------------- -------------------
<S> <C>
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)
</TABLE>
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.
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<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 401(k)]
2. Seligman Portfolios, Inc. [Trillium and Seligman 401(k)]
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<PAGE> 1
EXHIBIT 8(a)(g)
PARTICIPATION AGREEMENT AMONG VARIABLE INSURANCE PRODUCTS FUND II, FIDELITY
DISTRIBUTORS CORPORATION AND CANADA LIFE INSURANCE COMPANY OF AMERICA
<PAGE> 2
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND II,
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 II, 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 September 17, 1986 (File No. 812-6422), 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
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<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.
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<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 the laws 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 than $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;
6
<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.
7
<PAGE> 9
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, 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, 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
8
<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,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of 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 within the grace
period afforded by Regulation 1.817-5.
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
9
<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 Account's 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 determined 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
11
<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
12
<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,
13
<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
14
<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
15
<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
16
<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: /s/
---------------------------------
Title: President
---------------------------------
Date: April 29, 1994
---------------------------------
VARIABLE INSURANCE PRODUCTS FUND II
By its authorized officer,
By: /s/ J. Gary Burkhead
---------------------------------
Title: Senior V.P.
---------------------------------
Date: April 28, 1994
---------------------------------
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By: /s/
---------------------------------
Title: President
---------------------------------
Date: 4/28/94
---------------------------------
20
<PAGE> 22
Schedule A
Separate Accounts and Associated Contracts
<TABLE>
<CAPTION>
Name of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
- -------------------------------------- -------------------
<S> <C>
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)
</TABLE>
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 & Canada Life 401(k)]
2. Seligman Portfolios, Inc. [Trillium and Seligman 401(k)]
25
<PAGE> 1
EXHIBIT 8(a)(h)
PARTICIPATION AGREEMENT AMONG VARIABLE INSURANCE PRODUCTS FUND III, FIDELITY
DISTRIBUTORS CORPORATION AND CANADA LIFE INSURANCE COMPANY OF AMERICA
<PAGE> 2
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND III,
FIDELITY DISTRIBUTORS CORPORATION
and
CANADA LIFE INSURANCE COMPANY OF AMERICA
THIS AGREEMENT, made and entered into as of the 1st day of May,
1998 by and among CANADA LIFE INSURANCE COMPANY OF AMERICA, (hereinafter the
"Company"), a New York 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 III, 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 September 17, 1986 (File No. 812-6422), 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
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<PAGE> 3
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
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
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<PAGE> 4
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 9:00 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.
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 that purchases and redemptions of
Portfolio shares offered by the then current prospectus of the Fund shall be
made 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
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<PAGE> 5
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 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
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<PAGE> 6
and validly established each Account prior to any issuance or sale thereof as a
segregated asset account under Section 4240 of the New York 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 the laws of the State of New
York 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 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. (a) With respect to Initial Class shares, 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.
(b) With respect to Service Class shares, the Fund has
adopted a Rule 12b-1 Plan under which it makes payments to finance distribution
expenses. The Fund represents and warrants that it has a board of trustees, a
majority of whom are not interested persons of the Fund, which has formulated
and approved the Fund's Rule 12b-1 Plan to finance distribution expenses of the
Fund and that any changes to the Fund's Rule 12b-1 Plan will be approved by a
similarly constituted board of trustees.
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<PAGE> 7
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.
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, and that said bond is issued by a reputable bonding company, includes
coverage for larceny and embezzlement, and is in an amount not less than $5
million. 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.
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<PAGE> 8
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with as many
printed copies of the Fund's current prospectus and Statement of Additional
Information as the Company may reasonably request. If requested by the Company
in lieu thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus for the Contracts and
the Fund's prospectus printed together in one document, and to have the
Statement of Additional Information for the Fund and the Statement of Additional
Information for the Contracts printed together in one document. Alternatively,
the Company may print the Fund's prospectus and/or its Statement of Additional
Information in combination with other fund companies' prospectuses and
statements of additional information. Except as provided in the following three
sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure annually as
required by the 1933 Act and/or the 1940 Act, the cost of printing shall be
borne by the Fund. If the Company chooses to receive camera-ready film in lieu
of receiving printed copies of the Fund's prospectus, the Fund will reimburse
the Company in an amount equal to the product of A and B where A is the number
of such prospectuses distributed to owners of the Contracts, and B is the Fund's
per unit cost of typesetting and printing the Fund's prospectus. The same
procedures shall be followed with respect to the Fund's Statement of Additional
Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with
copies of its proxy statements, reports to shareholders, and other
communications (except for prospectuses and Statements of Additional
Information, which are covered in Section 3.1) 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> 9
(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 a particular separate account in
the same proportion as Fund shares of such
portfolio for which instructions have been received
in that separate account,
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.
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<PAGE> 10
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.
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, 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, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
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<PAGE> 11
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 Underwriter. No such payments shall be made directly
by the Fund.
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,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the
Fund's prospectus, proxy materials and reports to owners of Contracts issued by
the Company.
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 within the grace
period afforded by Regulation 1.817-5.
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
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<PAGE> 12
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 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
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<PAGE> 13
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 Account's 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 determined 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.
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
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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 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
13
<PAGE> 15
(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 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
14
<PAGE> 16
"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, 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
15
<PAGE> 17
(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 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"
16
<PAGE> 18
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 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.
17
<PAGE> 19
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
(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,
18
<PAGE> 20
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
19
<PAGE> 21
state and/or federal laws or regulations or judicial or other legal precedent of
general application (hereinafter referred to as a "Legally Required Redemption")
or (iii) as permitted by an order of the SEC pursuant to Section 26(b) of the
1940 Act. Upon request, the Company will promptly furnish to the Fund and the
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.
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
Atlanta, Georgia
Attention: Chief Counsel
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
20
<PAGE> 22
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.
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.
The Company shall promptly notify the Fund and the Underwriter of any change in
control of the Company.
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
21
<PAGE> 23
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:
(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:
----------------------------------
Name: Sergio Benedetti
Title: Actuary, Annuity & Investment Products
VARIABLE INSURANCE PRODUCTS FUND III
By:
---------------------------------
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By:
---------------------------------
22
<PAGE> 24
Kevin J. Kelly
Vice President
23
<PAGE> 25
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Policy Form Numbers of 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)
24
<PAGE> 26
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 no longer needs to 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)
25
<PAGE> 27
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
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.
26
<PAGE> 28
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.
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.
27
<PAGE> 29
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 & Canada Life 401(k))
2. Seligman Portfolios, Inc. (VariFund, Trillium & Seligman 401(k))
3. The Alger American Fund (VariFund)
4. Berger Institutional Products Trust (VariFund)
5. The Dreyfus Socially Responsible Growth Fund, Inc. (VariFund)
6. Dreyfus Variable Investment Fund (VariFund)
7. The Montgomery Funds III (VariFund)
8. Fidelity Investments Variable Insurance Products Fund (VariFund)
9. Fidelity Investments Variable Insurance Products Fund II (VariFund)
28
<PAGE> 1
EXHIBIT 8(a)(i)
PARTICIPATION AGREEMENT AMONG BERGER INSTITUTIONAL PRODUCTS TRUST, BERGER
ASSOCIATES, INC. AND CANADA LIFE INSURANCE COMPANY OF AMERICA
<PAGE> 2
PARTICIPATION AGREEMENT
Among
BERGER INSTITUTIONAL PRODUCTS TRUST
BERGER ASSOCIATES, INC.
and
CANADA LIFE INSURANCE COMPANY OF AMERICA
THIS AGREEMENT, made and entered into this 1st day of May, 1998 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 BERGER ASSOCIATES, INC., a Delaware corporation ("Berger
Associates").
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
1
<PAGE> 3
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 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, Berger Associates 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;
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NOW, THEREFORE, in consideration of their mutual promises, the
Insurance Company, the Trust and Berger Associates agree as follows:
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.
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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 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
Berger Associates prior to their signing this Agreement; or (c) the Trust and
Berger Associates consent in advance in writing to the use of the other
investment company.
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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 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
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<PAGE> 7
errors will be corrected in the next Business Day's net asset value per share
for the Fund in question.
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 per-share 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 and 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
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<PAGE> 8
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 Berger Associates.
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 Berger Associates 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.
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<PAGE> 9
2.8. Berger Associates 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 material respects with the laws
of the State of Colorado and any applicable state and federal securities laws.
2.9. The Trust and Berger Associates 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.
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ARTICLE III. DISCLOSURE DOCUMENTS AND VOTING
3.1. Berger Associates 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 from the Trust,
and Berger Associates (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
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<PAGE> 11
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 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
Berger Associates 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
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<PAGE> 12
for the Trust, or in sales literature or other promotional material approved by
the Trust or its designee or by Berger Associates, except with the permission of
the Trust or Berger Associates.
4.3. The Trust, Berger Associates, 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 Berger Associates shall not give any information or
make any representations on behalf of 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
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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, 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 Berger Associates 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, Berger Associates
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 applica-
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ble federal law and, if and to the extent deemed advisable by the Trust or
Berger Associates, 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.
5.4. The Insurance Company bears the responsibility and correlative
expense for administrative and support services for Contract owners. Berger
Associates recognizes the Insurance Company as the sole shareholder of shares of
the Trust issued under this Agreement. From time to time, Berger Associates 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, Berger
Associates 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 Berger Associates shall not increase
the fees paid by the Trust or its shareholders.
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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.
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 Berger Associates each will report
promptly any potential or existing conflicts of which it is aware to the
trustees of the Trust. The Insurance Company and Berger Associates 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
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<PAGE> 16
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 Berger Associates with a view only to the interests of
Contract holders and Qualified Plan participants.
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 Berger Associates (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
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<PAGE> 17
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.
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.
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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 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
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<PAGE> 19
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 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;
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(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 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
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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 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.
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8.2. INDEMNIFICATION BY BERGER ASSOCIATES
8.2(A). Berger Associates 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 Berger
Associates) 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:
(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 Berger Associates 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;
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(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 Berger Associates
or persons under its control) or wrongful conduct of the
Trust, Berger Associates 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
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 Berger
Associates in this Agreement or arise out of or result from
any other material breach of this Agreement by Berger
Associates;
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as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(B) Berger Associates 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) Berger Associates 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 Berger Associates 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 Berger Associates of its obligations hereunder except to the extent that
Berger Associates has been prejudiced by such failure to give notice. In
addition, any failure by the Indemnified Party to notify Berger Associates of
any such claim shall not relieve Berger Associates 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, Berger Associates will be entitled to
participate, at its own expense, in the defense thereof. Berger Associates 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 Berger Associates, Berger
Associates shall not have the right to assume said defense, but shall pay the
costs and expenses thereof (except that in no event shall Berger Associates be
liable for the fees and expenses of more than one counsel for Indemnified
Parties in connection with any one action or separate
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but similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances). After notice from Berger Associates to
the Indemnified Party of Berger Associates'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 Berger Associates 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 Berger Associates
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.
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
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<PAGE> 26
(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, Berger Associates or the Account, whichever is
applicable.
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
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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.
8.3(D). The Insurance Company and Berger Associates 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:
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(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
Berger; or
(c) at the option of the Trust or Berger Associates, in the
event that formal administrative proceedings are 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 Berger Associates 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 Berger
Associates to perform its obligations under this Agreement; or
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(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
(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 Berger Associates, if
(1) the Trust or Berger Associates, 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 Berger Associates, (2) the Trust or Berger
Associates shall notify the Insurance Company in writing of
that determination and
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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 Berger Associates
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
Berger Associates 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 Company shall notify the Trust and Berger
Associates in writing of the determination and its intent to
terminate the Agreement, and (3) after considering the actions
taken by the Trust and/or Berger Associates 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 l0.l(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 l0.l(a),
l0.l(i), l0.l(j), or l0.l(k) of this Agreement, the prior
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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 l0.l(c) or l0.l(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 Berger Associates 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
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 Berger Associates the opinion of
counsel for the Insurance Company (which counsel shall be reasonably
satisfactory to the Trust and Berger Associates) 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 Berger Associates 90 days notice of its
intention to do so.
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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 Berger Associates:
210 University Boulevard, Suite 900
Denver, Colorado 80206
Attention: Kevin R. Fay, Senior Vice President
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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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.
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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:
-------------------------------
Title:
----------------------------
Date:
-----------------------------
Trust:
BERGER INSTITUTIONAL PRODUCTS TRUST
By its authorized officer,
By:
-------------------------------
Title:
----------------------------
Date:
-----------------------------
Berger Associates:
BERGER ASSOCIATES, INC.
By its authorized officer,
By:
-------------------------------
Title:
----------------------------
Date:
-----------------------------
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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
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SCHEDULE B
CONTRACTS
1. Contract Form - VariFund
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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 Berger Associates, 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
Berger Associates 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 Berger Associates 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 Berger Associates, 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. Berger Associates 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
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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, Berger Associates 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 Berger Associates.
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 Berger Associates.
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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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 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.
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.) Berger Associates must
review and approve tabulation format.
11. Final tabulation in shares is verbally given by the Insurance Company
to Berger Associates on the morning of the meeting not later than 10:00 a.m.
Denver time. Berger Associates 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
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copy of the final vote. Berger Associates 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, or accounting
purposes, Berger Associates 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(a)(j)
PARTICIPATION AGREEMENT BETWEEN CANADA LIFE INSURANCE COMPANY OF AMERICA
AND THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
<PAGE> 2
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the 1st day of May, 1996, between Canada
Life Insurance Company of America ("Insurance Company"), a life insurance
company organized under the laws of the State of Michigan, and THE DREYFUS
SOCIALLY RESPONSIBLE GROWTH FUND, INC., a corporation organized under the laws
of the State of Maryland (the "Fund").
ARTICLE I
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Directors 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 or life insurance 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 Account I, a separate
account established by Insurance Company in accordance with the laws of
the State of Michigan.
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
Michigan Insurance Code for the purpose of offering to the public
certain individual and group variable annuity and life insurance
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) the 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 notify 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 income, 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
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
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<PAGE> 4
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 it 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.
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 Fund shares available to
other Participating Companies and Contractholders.
2.9 Fund represents and warrants that any of its directors, 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
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<PAGE> 5
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 shares of the Fund.
3.2 Fund agrees to make its shares 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
its shares to any person, or suspend or terminate the offering of its
shares 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 Fund's
shareholders.
3.3 Fund agrees that shares of the Fund will be sold only to Participating
Companies and their separate accounts. No shares of the Fund 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 on a per-share and Fund 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. Non-material errors will be corrected in the next
Business Day's net asset value per share.
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 unit
values of the Separate Account for the day. Using this unit value,
Insurance Company will process the day's Separate Account transactions
received by it by
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<PAGE> 6
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
Fund shares which will be purchased or redeemed at that day's closing
net asset value per share. 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 Fund 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 Fund shares for the
Separate Account. Fund will execute orders 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 Fund shares, the conditions specified in
Section 3.8, as applicable, are satisfied. A redemption or purchase
request that does not satisfy the conditions specified above and in
Section 3.8, as applicable, will be effected at the net asset value per
share computed 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 best 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 Fund shares,
Insurance Company will pay for such purchases by wiring Federal Funds to
Fund or its designated custodial 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
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<PAGE> 7
portfolio transactions effected by the Fund based upon such purchase
request. If Insurance Company's order requests the redemption of Fund
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 Fund 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 Fund 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. All
dividends and capital gains shall be automatically reinvested in
additional shares of the Fund at the net asset value per share on the
ex-dividend date. Fund shall, on the day after the ex-dividend date or,
if not a Business Day, on the first Business Day thereafter, notify
Insurance Company of the number of shares so issued.
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 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 Commission or other regulatory authorities.
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<PAGE> 8
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 no-action 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 Fund, including
but not limited to management fees, administrative expenses and legal
and regulatory costs, will be made in the determination of the Fund's
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:
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 The Fund shall furnish Insurance Company with a copy of its application
for an order of the Securities and Exchange Commission under Section
6(c) of the Act for mixed and shared funding relief, and the notice of
such application and order when issued by the SEC. Insurance Company
agrees to comply with the conditions on which such order is issued,
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<PAGE> 9
including reporting any potential or existing conflicts promptly to the
Board, and in particular whenever Contractholder voting instructions are
disregarded, to the extent such conditions are not materially different
from the conditions of the mixed and shared funding relief obtained by
Dreyfus Variable Investment Fund and Dreyfus Life and Annuity Index
Fund, Inc., respectively; and recognizes that it shall be responsible
for assisting the Board in carrying out its responsibilities in
connection with such order. 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 Fund and reinvesting such assets in a different investment
medium, or submitting the question of whether such segregation
should be implemented to a vote of 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 investments of the Separate Account 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.
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<PAGE> 10
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 Fund shares in accordance with instructions received from
Contractholders or Participants; and
(c) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares for which instructions have
been received.
Insurance Company agrees at all times to vote its General Account shares
in the same proportion as Fund 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
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; and
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<PAGE> 11
b. Other marketing materials.
Expenses for the production of such documents may 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 or its designee, 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 or its designee 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. The Fund or its designee, as the case may be,
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 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 Fund 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
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<PAGE> 12
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 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, the Fund's investment adviser and any sub-investment adviser,
the Fund's distributor, and their respective 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
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<PAGE> 13
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 Fund 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 Fund 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 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.
3.2 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
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<PAGE> 14
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; (2) incorrect reporting of 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
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<PAGE> 15
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. The
provisions of this Article IX shall survive termination of this
Agreement.
9.5 Insurance Company shall indemnify and hold the Fund, Dreyfus and
sub-investment adviser of the Fund 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:
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 the Fund 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
-14-
<PAGE> 16
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 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 as 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
-15-
<PAGE> 17
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;
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 Fund 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 and Dreyfus
so elect to make additional Fund 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
Fund, 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 as is practicable under the
circumstances, shall notify Insurance Company whether Dreyfus and the
Fund will continue to make Fund shares available after such termination.
If Fund shares continue to be made available after such termination, the
provisions of this Agreement shall remain in effect and thereafter
either of 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> 18
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: Canada Life Insurance Company of America
6201 Powers Ferry Road
Atlanta, GA 30339
Attn: David Hopkins
Fund: The Dreyfus Socially Responsible
Growth Fund, Inc.
c/o Premier Mutual Fund Services, Inc.
200 Park Avenue, 6th Floor West
New York, New York 10166
Attn: Eric B. Fischman, Esq.
with copies to: The Dreyfus Socially Responsible
Growth Fund, Inc.
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attn: Mark N. Jacobs, Esq.
Lawrence B. Stoller, Esq.
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004-2696
Attn: Lewis G. Cole, Esq.
Stuart H. 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
director, officer or shareholder of the Fund individually.
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<PAGE> 19
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.
CANADA LIFE INSURANCE COMPANY OF AMERICA
By: /s/ David A. Hopkins
--------------------------------
Its: Chief Counsel US Division
-------------------------------
Attest: /s/
--------------------------
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC.
By: /s/ Elizabeth Bachman
--------------------------------
Its: VP & Assistant Secretary
-------------------------------
Attest: /s/
--------------------------
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<PAGE> 1
EXHIBIT 8 (a)(k)
PARTICIPATION AGREEMENT BETWEEN CANADA LIFE INSURANCE COMPANY OF
AMERICA AND DREYFUS VARIABLE INVESTMENT FUND
<PAGE> 2
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the 1st day of May, 1996, between Canada
Life Insurance Company of America ("Insurance Company"), a life insurance
company organized under the laws of the State of Michigan, 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 Account I, a separate
account established by Insurance Company in accordance with the laws of
the State of Michigan.
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
Michigan Insurance Code 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 income, 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
income, gains or losses from assets allocated to any other
-2-
<PAGE> 4
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.
Non-material 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
net 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 net 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 best 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.
-6-
<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 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 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 no-action 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 reinvesting 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
-13-
<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.
-14-
<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 as 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;
-16-
<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
1. 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 as 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.
-17-
<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: Canada Life Insurance Company of America
6201 Powers Ferry Road
Atlanta, Georgia 30339
Attn: David Hopkins
Fund: Dreyfus Variable Investment Fund
200 Park Avenue
New York, New York 10166
Attn: Elizabeth A. Bachman
with copies to: The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attn: Mark N. Jacobs, Esq.
Lawrence B. Stoller, Esq.
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004-2696
Attn: Lewis G. Cole, Esq.
Stuart H. 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.
-18-
<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.
CANADA LIFE INSURANCE COMPANY OF AMERICA
By: /s/ David A. Hopkins
-------------------------------------
Its: Assistant Secretary
-------------------------------------
Attest: /s/
--------------------------
DREYFUS VARIABLE INVESTMENT FUND
By: /s/ Elizabeth Keeley
--------------------------------------
Its: Vice President and Assistant Secretary
--------------------------------------
Attest: /s/
--------------------------
-19-
<PAGE> 1
EXHIBIT 8 (a)(l)
AMENDMENT TO PARTICIPATION AGREEMENT AMONG VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION AND CANADA LIFE INSURANCE COMPANY OF AMERICA
<PAGE> 2
AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND
FIDELITY DISTRIBUTORS CORPORATION
and
CANADA LIFE INSURANCE COMPANY OF AMERICA
WHEREAS, CANADA LIFE INSURANCE COMPANY OF AMERICA (the "Company"),
VARIABLE INSURANCE PRODUCTS FUND (the "Fund") and FIDELITY DISTRIBUTORS
CORPORATION have previously entered into a Participation Agreement (the
"Agreement") containing certain arrangements concerning prospectus costs; and
WHEREAS, the Trustees of the Fund have approved certain changes to the
expense structure of the Fund; and
NOW, THEREFORE, the parties do hereby agree to amend the Agreement by
substituting the following arrangement in place of any inconsistent language in
the Participation Agreement, wherever found:
1. The Fund will provide to the Company each year, at the Fund's cost,
such number of prospectuses and Statements of Additional Information as are
actually distributed to the Company's then-existing variable life and/or
variable annuity contract owners.
2. If the Company takes camera-ready film or computer diskettes
containing the Fund's prospectus and/or Statement of Additional Information in
lieu of receiving hard copies of these documents, the Fund will reimburse the
Company in an amount computed as follows. The number of prospectuses and
Statements of Additional Information actually distributed to existing contract
owners by the Company will be multiplied by the Fund's actual per-unit cost of
printing the documents.
3. The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund in order to verify that
the prospectuses and Statements of Additional Information provided to the
Company, or the reimbursement made to the Company, are or have been used only
for the purposes set forth hereinabove.
IN WITNESS WHEREOF we have set our hand as of the 15th day of December,
1994.
CANADA LIFE INSURANCE COMPANY OF AMERICA
By: /s/ David A. Hopkins
-----------------------------------
Name: David A. Hopkins
-----------------------------------
Title: Assistant Secretary
-----------------------------------
VARIABLE INSURANCE PRODUCTS FUND
By: /s/ J. Gary Burkhead
-----------------------------------
Name: J. Gary Burkhead
-----------------------------------
Title: Senior Vice President
-----------------------------------
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Kurt A. Lange
-----------------------------------
Name: Kurt A. Lange
-----------------------------------
Title: President
-----------------------------------
<PAGE> 1
EXHIBIT 8(a)(m)
AMENDMENT TO PARTICIPATION AGREEMENT AMONG VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION AND CANADA LIFE INSURANCE COMPANY OF AMERICA
<PAGE> 2
AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND II
FIDELITY DISTRIBUTORS CORPORATION
and
CANADA LIFE INSURANCE COMPANY OF AMERICA
WHEREAS, CANADA LIFE INSURANCE COMPANY OF AMERICA (the "Company"),
VARIABLE INSURANCE PRODUCTS FUND II (the "Fund") and FIDELITY DISTRIBUTORS
CORPORATION have previously entered into a Participation Agreement (the
"Agreement") containing certain arrangements concerning prospectus costs; and
WHEREAS, the Trustees of the Fund have approved certain changes to the
expense structure of the Fund; and
NOW, THEREFORE, the parties do hereby agree to amend the Agreement by
substituting the following arrangement in place of any inconsistent language in
the Participation Agreement, wherever found:
1. The Fund will provide to the Company each year, at the Fund's cost,
such number of prospectuses and Statements of Additional Information as are
actually distributed to the Company's then-existing variable life and/or
variable annuity contract owners.
2. If the Company takes camera-ready film or computer diskettes
containing the Fund's prospectus and/or Statement of Additional Information in
lieu of receiving hard copies of these documents, the Fund will reimburse the
Company in an amount computed as follows. The number of prospectuses and
Statements of Additional Information actually distributed to existing contract
owners by the Company will be multiplied by the Fund's actual per-unit cost of
printing the documents.
3. The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund in order to verify that
the prospectuses and Statements of Additional Information provided to the
Company, or the reimbursement made to the Company, are or have been used only
for the purposes set forth hereinabove.
IN WITNESS WHEREOF we have set our hand as of the 15th day of December,
1994.
CANADA LIFE INSURANCE COMPANY OF AMERICA
By: /s/ David A. Hopkins
-----------------------------------
Name: David A. Hopkins
-----------------------------------
Title: Asst. Secretary
-----------------------------------
VARIABLE INSURANCE PRODUCTS FUND II
By: /s/ J. Gary Burkhead
-----------------------------------
Name: J. Gary Burkhead
-----------------------------------
Title: Senior Vice President
-----------------------------------
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Kurt A. Lange
-----------------------------------
Name: Kurt A. Lange
-----------------------------------
Title: President
-----------------------------------
<PAGE> 1
EXHIBIT 8(a)(n)
AMENDMENT TO PARTICIPATION AGREEMENT BY AND AMONG CANADA LIFE INSURANCE COMPANY
OF AMERICA AND MONTGOMERY FUNDS III AND MONTGOMERY ASSET MANAGEMENT, L.P.
<PAGE> 2
AMENDMENT TO
PARTICIPATION AGREEMENT
By and Among
CANADA LIFE INSURANCE COMPANY OF AMERICA
And
MONTGOMERY FUNDS III
And
MONTGOMERY ASSET MANAGEMENT, L.P.
WHEREAS, Canada Life Insurance Company of America, organized under the Laws of
the State of Michigan (the "Company"), 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"),
have previously entered into a Participation Agreement dated May 1, 1996 (the
"Participation Agreement"), and
WHEREAS, the Company, the Fund and the Adviser wish to amend such Participation
Agreement, and
WHEREAS, Section 12.9 of the Participation Agreement allows such amendment to be
made;
<PAGE> 3
NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund
and the Adviser agree as follows:
1. The Fund, the Company and the Adviser agree to amend Schedule 2 to the
Participation Agreement, in the form attached hereto, by adding the
Montgomery Variable Series: Growth Fund, to such Schedule 2.
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
-------------------------------
Date: April 24, 1997
-------------------------------
MONTGOMERY FUNDS III
SEAL By: /s/ John Story
-------------------------------
Date: 4/21/97
-------------------------------
MONTGOMERY ASSET MANAGEMENT, L.P.
SEAL By: /s/ John Story
-------------------------------
Date: 4/21/97
-------------------------------
-2-
<PAGE> 4
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
Montgomery Variable Series: Growth Fund
April 10, 1997
-3-
<PAGE> 1
EXHIBIT 10(a)
CONSENT OF COUNSEL
<PAGE> 2
[CANADA LIFE LETTERHEAD]
April 27, 1998
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. 14
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/ Charles MacPhaul
Charles MacPhaul
Counsel, U.S. Division
<PAGE> 1
EXHIBIT 10(b)
CONSENT OF INDEPENDENT COUNSEL
<PAGE> 2
[TRANSMITTED ON SUTHERLAND, ASBILL & BRENNAN LLP LETTERHEAD]
April 24, 1998
STEPHEN E. ROTH
DIRECT LINE: (202) 383-0158
Internet: [email protected]
Board of Directors
Canada Life Insurance Company of America
330 University Avenue
Toronto, Canada M5G 1R8
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. 14 under the Securities Act of 1933 and Amendment
No. 15 under the Investment Company Act of 1940 to the registration statement on
Form N-4 for the Canada Life of America Variable Annuity Account 1 (File No.
33-28889). 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
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 6, 1998,
in Post-Effective Amendment No. 14 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, 1998).
ERNST & YOUNG LLP
Atlanta, Georgia
April 27, 1998
<PAGE> 1
EXHIBIT 13
SAMPLE PERFORMANCE
DATA CALCULATION
<PAGE> 2
CANADA LIFE INSURANCE COMPANY OF NEW YORK VARIABLE ANNUITY ACCOUNT 1
CLASF MONEY MARKET SUB-ACCOUNT
7-DAY CURRENT YIELD
AS AT DECEMBER 31, 1997
7-Day Current Yield = ((NCS - ES) / UV / 7) x 365)
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, and exclusive of
income other than investment income) 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 & Expenses Risk Charges deducted
for the 7-day period
Admin = per unit administration charges deducted for the
7-day period
= (30 / AAV / 365) x AUV x 7
Where AAV = Average Accumulated Value of Contracts on the last
day of the 7-day period
= $35,000.00
AUV = the sum of the unit values on the first and last
day of the 7-day period divided by 2
= [ 12.7070 + 12.7208] / 2 = 12.7139
UV = the unit value on the first day of the 7 day
period.
= 12.7070
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DATE NCS M&E ADMIN
<S> <C> <C> <C> <C>
Dec. 25 0.000000000 0.000038356
Dec. 26 0.002928524 0.000038356
Dec. 29 0.004321084 0.000115068
Dec. 30 0.001517144 0.000038356
Dec. 31 0.001650459 0.000038356
-----------------------------------------------------------------------------------------------------
0.010417211 0.000268493 0.000208996 (a) = 0.009939722
UV = 12.7070
7 day current yield = (((.010417211 - .000268493 - .000208996) / 12.7070 )) / 7 x 365
7 DAY CURRENT YIELD = 4.078740194 OR 4.08%
</TABLE>
<PAGE> 3
CANADA LIFE INSURANCE COMPANY OF NEW YORK VARIABLE ANNUITY ACCOUNT 1
CLASF MONEY MARKET SUB-ACCOUNT
7-DAY EFFECTIVE YIELD
AS AT DECEMBER 31, 1997
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
7-day effective yield: [(((.009939722) / 12.7070) + 1) - 1] = 4.16%
<PAGE> 4
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
Average Annual Total Return (Including Surrender Charge)
<TABLE>
<S> <C>
Total 1 / n
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
n = number of years
ERV = (1,000 x ((EUV - BUV) / BUV )) + 1,000 - ADMIN
where EUV = Unit value at the end of the period
BUV = Unit value at the beginning of the period
SC = Surrender charge
= 5.4% for 1997 inception
= 4.5% for 1994, 1995 inception
= 3.6% for 1992, 1993 inception
= 0.0% for 1989 inception
ADMIN = Administration Charges attributable to the hypothetical account for the period
= (30 / 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
= $40,000
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
MONEY MARKET SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 2949 x (1,000 + (1,000 x (12.721 - 10.0000) / 10.0000 / 2))
= 0.00605956 x 1136.04
= 6.88394
ERV = (1,000 x (( 12.7208 - 10.0000)/ 10.0000)+ 1,000 -6.8839355 (0 x 1,000)
= 1265.20
TOTAL (1/ ( 2949 / 365))
RETURN = (1265.1961 / 1,000 ) - 1
= 2.95%
BOND SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 2949 x (1,000 + (1,000 x ( 16.436 - 10.0000) / 10.0000 / 2))
= 0.0060596 x 1032.18
= 6.25460
ERV = (1,000 x (( 16.4363 - 10.0000)/ 10.0000)+ 1,000 - 6.2545957 (0 x 1,000)
= 1637.38
TOTAL (1/ ( 2949 / 365))
RETURN = (1637.3754 / 1,000 ) - 1
= 6.29%
VALUE EQUITY SUB-ACCOUNT
ADMIN = (( 30 / 40,000 / 365 ) x 2949 x (1,000 + (1,000 x (22.867 -10.0000) / 10.0000 / 2))
= 0.0060596 x 1064.335
= 6.44943
ERV = (1,000 x (( 22.867 - 10.0000)/ 10.0000)+ 1,000-6.4494327 (0 x 1,000)
= 2280.25
TOTAL (1/( 2949 / 365))
RETURN = (2280.25067 / 1,000 ) - 1
= 10.74%
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
CAPITAL SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365) x 1713 x (1,000 + (1,000 x ( 18.453 - 10.0000) / 10.0000 / 2))
= 0.0035199 x 1042.265
= 3.66863
ERV = (1,000 x ((18.4529 - 10.0000)/ 10.0000) + 1,000 - 3.6686283 (0.036 x 1,000)
= 1805.62
TOTAL (1/ (1713 / 365))
RETURN = (1805.6214/1,000) - 1
= 13.42%
INTERNATIONAL EQUITY SUB-ACCOUNT
ADMIN = ((30 / 40,000) / 365) x 982 x (1,000 + (1,000 x ( 12.688 - 10.0000) / 10.0000 / 2))
= 0.0020178 x 1013.441
= 2.04493
ERV = (1,000 x ((12.6881 - 10.0000)/ 10.0000) + 1,000 - 2.0449286 (0.045 x 1,000)
= 1,266.77
TOTAL (1/ ( 982 / 365))
RETURN = (1266.7651/1,000) - 1
= 9.19%
MANAGED SUB-ACCOUNT
ADMIN (( 30 / 40,000) / 365) x 2949 x (1,000 + (1,000 x ( 19.988 - 10.0000) / 10.0000 / 2))
= 0.0060596 x 1049.938
= 6.36219
ERV = (1,000 x ((19.9875 - 10.0000)/ 10.0000) + 1,000 - 6.36219 (0 x 1,000)
= 1992.39
TOTAL (1/ (2949 / 365))
RETURN = (1992.3878 /1,000) - 1
= 8.91%
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C>
ALGER AMERICAN GROWTH SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365) x 3279 x (1,000 + (1,000 x (43.478 - 10.0000) / 10.0000 / 2))
= 0.0067377 x 1167.389
= 7.86549
ERV = (1,000 x ((43.4779 - 10.0000) / 10.0000) + 1,000 - 7.865487 (0 x 1,000)
= 4339.92
TOTAL (1/(3279 / 365))
RETURN = (4339.9245 / 1,000) - 1
= 17.75%
ALGER AMERICAN LEVERAGED ALLCAP SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365) x 1071 x (1,000 + (1,000 x (22.448 - 10.0000) / 10.0000 / 2))
= 0.0022007 x 1062.238
= 2.33765
ERV = (1,000 x ((22.4476 - 10.0000/ 10.0000) + 1,0002 - 3376512 (0.045 x 1,000)
= 2197.42
TOTAL (1/(1071 / 365))
RETURN = (2197.4223 / 1,000) - 1
= 30.78%
ALGER AMERICAN MIDCAP GROWTH SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365) x 1703 x (1,000 + (1,000 x (23.792 - 10.0000) / 10.0000 / 2))
= 0.0034993 x 1068.96
= 3.74063
ERV = (1,000 x ((23.7919 - 10.0000/ 10.0000) + 1,000 - 3.7406261 (0.036 x 1,000)
= 2339.45
TOTAL (1/ (1703 / 365))
RETURN = (2339.4494 / 1,000) - 1
= 19.98%
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
ALGER AMERICAN SMALL CAPITALIZATION SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 3389 x (1,000 + (1,000 x (44.988 - 10.0000) / 10.0000 / 2))
= 0.0069637 x 1174.94
= 8.18192
ERV = (1,000 x ((44.9879 - 10.0000) / 10.0000) + 1,000 - 81819246 (0 x 1,000)
= 4490.61
TOTAL (1/(3389 / 365))
RETURN = (4490.60817 / 1,000) - 1
= 17.56%
BERGER/BIAM IPT-INTERNATIONAL FUND
ADMIN = (( 30 / 40,000) / 365 ) x 244 x (1,000 + (1,000 x (9.7087 - 10.0000) / 10.0000 / 2))
= 0.0005014 x 985.435
= 0.49407
ERV = (1,000 x ((9.7087 - 10.0000) / 10.0000) + 1,000 - 0.4940674 (0.054 x 1,000)
= 916.38
TOTAL (1/(244 / 365))
RETURN = (916.37593 / 1,000) - 1
= -8.36%
BERGER IPT-SMALL COMPANY GROWTH FUND
ADMIN = (( 30 / 40,000) / 365 ) x 609 x (1,000 + (1,000 x ( 11.784 - 10.0000) / 10.000 / 2))
= 0.0012514 x 1089.19
= 1.36298
ERV = (1,000 x ((11.7838 - 10.0000) / 10.0000) + 1,000 - 1.3629795 (0.054 x 1,000)
= 1123.02
TOTAL (1/(609 / 365))
RETURN = (1123.017 / 1,000) - 1
= 12.30%
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C>
DREYFUS CAPITAL APPRECIATION SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 1736 x (1,000 + (1,000 x (27.618 - 12.5000) / 12.5000 / 2))
= 0.0035671 x 1604.732
= 5.72428
ERV = (1,000 x ((27.6183 - 12.5000) / 12.5000) + 1,000 - 5.7242769 (0.036 x 1,000)
= 2167.74
TOTAL (1/ (1736 / 365))
RETURN = (2167.7397 / 1,000) - 1
= 17.66%
DREYFUS GROWTH AND INCOME SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 1339 x (1,000 + (1,000 x (25.866 - 12.5000) / 12.5000 / 2))
= 0.0027514 x 1534.648
= 4.22238
ERV = (1,000 x ((25.8662 - 12.5000) / 12.5000) + 1,000 - 4.2223843 (0.045 x 1,000)
= 2020.07
TOTAL (1/ (1339 / 365))
RETURN = (2020.0736 / 1,000) - 1
= 21.13%
DREYFUS SOCIALLY RESPONSIBLE GROWTH SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 1546 x (1,000 + (1,000 x (26.907 - 12.5000) / 12.5000 / 2))
= 0.0031767 x 1576.264
= 5.00734
ERV = (1,000 x ((26.9066 - 12.5000) / 12.5000) + 1,000 - 5.0073373 (0.045 x 1,000)
= 2111.52
TOTAL (1/ (1546 / 365))
RETURN = (2111.5207 / 1,000) - 1
= 19.30%
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C>
FIDELITY VIP GROWTH SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 4101 x (1,000 + (1,000 x (43.415 - 10.0000) / 10.0000 / 2))
= 0.0084267 x 1167.077
= 9.83462
ERV = (1,000 x ((43.4154 - 10.0000)/ 10.0000) + 1,000 - 9.8346221 (0 x 1,000)
= 4331.71
TOTAL (1/ (4101 / 365))
RETURN = (4331.7054 / 1,000) - 1
= 13.94%
FIDELITY VIP HIGH INCOME SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 4486 x (1,000 + (1,000 x ( 35.639 - 10.0000) / 10.0000 / 2))
= 0.0092178 x 1128.193
= 10.39947
ERV = (1,000 x ((35.6386 - 10.0000)/ 10.0000) + 1,000 - 10.399467 (0 x 1,000)
= 3553.46
TOTAL (1/ (4486 / 365))
RETURN = (3553.4605 / 1,000) - 1
= 10.87%
FIDELITY VIP OVERSEAS SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 3990 x (1,000 + (1,000 x (20.331 - 10.0000) / 10.0000 / 2))
= 0.0081986 x 1051.657
= 8.62214
ERV = (1,000 x ((20.3313 - 10.0000) / 10.0000) + 1,000 - 8.6221427 (0 x 1,000)
= 2024.51
TOTAL (1/ (3990 / 365))
RETURN = (2024.5079 / 1,000) - 1
= 6.66%
</TABLE>
<PAGE> 11
<TABLE>
<S> <C> <C>
FIDELITY VIP II ASSET MANAGER SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365) x 3038 x (1,000 + (1,000 x ( 24.131 - 10.0000) / 10.0000 / 2))
= 0.0062425 x 1070.656
= 6.68353
ERV = (1,000 x ((24.1312 - 10.0000) / 10.0000) + 1,000 - 6.6835334 (0 x 1,000)
= 2406.44
TOTAL (1/ (3038 / 365))
RETURN = (2406.4365 / 1,000) - 1
= 11.13%
FIDELITY VIP II CONTRAFUND SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365) x 1093 x (1,000 + (1,000 x (20.185 - 10.0000) / 10.0000 / 2))
= 0.0022459 x 1050.926
= 2.36026
ERV = (1,000 x ((20.1852 - 10.0000)/ 10.0000) + 1,000 - 2.3602646 (0.045 x 1,000)
= 1971.16
TOTAL (1/ (1093 / 365))
RETURN = (1971.1597 / 1,000) - 1
= 25.44%
FIDELITY VIP II INDEX 500 SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365) x 1952 x (1,000 + (1,000 x (122.35 - 50.0000) / 50.0000 / 2))
= 0.004011 x 1723.49
= 6.91285
ERV = (1,000 x ((122.349 - 50.0000)/ 50.0000) + 1,000 - 6.912876 (0.027 x 1,000)
= 2413.07
TOTAL (1/ ( 1952 / 365))
RETURN = (2413.0672 / 1,000) - 1
= 17.91%
</TABLE>
<PAGE> 12
<TABLE>
<S> <C> <C>
FIDELITY VIP III GROWTH OPPORTUNITIES SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365) x 1093 x (1,000 + (1,000 x (19.54 - 10.0000) / 10.0000 / 2))
= 0.0022459 x 1047.699
= 2.35302
ERV = (1,000 x ((19.5398 - 10.0000)/ 10.0000) + 1,000 - 2.3530171 (0.045 x 1,000)
= 1906.63
TOTAL (1/ (1093 / 365))
RETURN = (1906.627 / 1,000) - 1
= 24.05%
MONTGOMERY VARIABLE SERIES: EMERGING MARKETS FUND
ADMIN = (( 30 / 40,000) / 365) x 698 x (1,000 + (1,000 x (10.337 - 10.0000) / 10.0000 / 2))
= 0.0014342 x 1001.685
= 1.43666
ERV = (1,000 x ((10.3369 - 10.0000)/ 10.0000) + 1,000 - 1.4366626 (0.045 x 1,000)
= 978.25
TOTAL (1/ (698 / 365))
RETURN = (978.25334 / 1,000) - 1
= -1.14%
MONTGOMERY VARIABLE SERIES: GROWTH FUND
ADMIN = (( 30 / 40,000) / 365 ) x 691 x (1,000 + (1,000 x (16.061 - 10.0000) / 10.0000 / 2))
= 0.0014199 x 1030.304
= 1.46289
ERV = (1,000 x ((16.0608 - 10.0000)/ 10.0000) + 1,000 - 1.4628905 (0.045 x 1,000)
= 1550.62
TOTAL (1/ (691 / 365))
RETURN = (1550.617 / 1,000) - 1
= 26.07%
</TABLE>
<PAGE> 13
<TABLE>
<S> <C> <C>
SELIGMAN COMMUNICATION & INFORMATION SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365) x 1184 x (1,000 + (1,000 x (18.372 - 10.0000) / 10.0000 / 2))
= 0.0024329 x 1041.863
= 2.53472
ERV = (1,000 x ((18.3725 - 10.0000) / 10.0000) + 1,000 - 2.534723 (0.045 x 1,000)
= 1789.72
TOTAL (1/ (1184 / 365))
RETURN = (1789.7153 / 1,000) - 1
= 19.65%
SELIGMAN FRONTIER SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 1184 x (1,000 + (1,000 x (19.432 - 10.0000) / 10.0000 / 2))
= 0.0024329 x 1047.162
= 2.54761
ERV = (1,000 x ((19.4323 - 10.0000) / 10.0000) + 1,000 - 2.5476148 (0.045 x 1,000)
= 1895.68
TOTAL (1/ (1184 / 365))
RETURN = (1895.6824 / 1,000) - 1
= 21.79%
</TABLE>
<PAGE> 14
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 1
AVERAGE ANNUAL TOTAL RETURN (EXCLUDING SURRENDER CHARGE)
<TABLE>
<S> <C>
Total 1 / n
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
n = number of years
ERV = (1,000 x ((EUV - BUV) / BUV )) + 1,000 - ADMIN
where EUV = Unit value at the end of the period
BUV = Unit value at the beginning of the period
ADMIN = Administration Charges attributable to the hypothetical account for the period
= (30 / 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
= $40,000
MONEY MARKET SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365) x 2949 x (1,000 + (1,000 x (12.721 - 10.0000) / 2))
= 0.0060596 x 1136.04
= 6.88394
ERV = (1,000 x ((12.7208 - 10.0000) / 10.00) + 1,000 - 6.8839355
= 1265.20
TOTAL (1/ (2949 / 365))
RETURN = (1265.196 / 1,000) - 1
= 2.95%
</TABLE>
<PAGE> 15
<TABLE>
<S> <C> <C>
BOND SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365) x 2949 x (1,000 + (1,000 x (16.4363 - 10.0000) / 10.0000 / 2))
= 0.0060596 x 1032.182
= 6.25460
ERV = (1,000 x ((16.4363 - 10.0000) / 10.0000) + 1,000 - 6.2545957
= 1637.38
TOTAL (1/ (2949 / 365))
RETURN = (1637.3754 / 1,000) - 1
= 6.29%
VALUE EQUITY SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365) x 2949 x (1,000 + (1,000 x (22.867 - 10.0000) / 10.0000 / 2))
= 0.0060596 x 1064.335
= 6.44943
ERV = (1,000 x ((22.867 - 10.0000) / 10.0000) + 1,000 - 6.4494327
= 2280.25
TOTAL (1/ (2949 / 365))
RETURN = (2280.2506 / 1,000) - 1
= 10.74%
CAPITAL SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365) x 1713 x (1,000 + (1,000 x (18.453 - 10.0000) / 10.0000 / 2))
= 0.0035199 x 1042.26005
= 3.66863
ERV = (1,000 x ((18.4529 - 10.0000) / 10.0000) + 1,000 - 3.6686283
= 1841.62
TOTAL (1/ (1713 / 365))
RETURN = (1841.6214 / 1,000) - 1
= 13.90%
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C>
INTERNATIONAL EQUITY SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 982 x (1,000+ (1,000 x ( 12.6881 -10.0000) / 10.0000 / 2))
= 0.0020178 x 1134.405
= 2.28901
ERV = (1,000 x (( 12.6881 - 10.0000) / 10.0000)+ 1,000 - 2.2890117
= 1266.52
TOTAL (1/ (982 / 365))
RETURN = (1266.521 / 1,000 ) - 1
= 9.18%
MANAGED SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365) x 2949 x (1,000 + (1,000 x (19.988 - 10.0000) / 10.0000 / 2))
= 0.0060596 x 1049.938
= 6.36219
ERV = (1,000 x ((19.9875 - 10.0000) / 10.0000) + 1,000 - 6.3621898
= 1992.39
TOTAL (1 / (2949 / 365))
RETURN = (1992.3878 / 1,000) - 1
= 8.91%
ALGER AMERICAN GROWTH SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365) x 3279 x (1,000 + (1,000 x (43.478 - 10.0000) / 10.0000 / 2))
= 0.0067377 x 1167.39
= 7.86549
ERV = (1,000 x ((43.4779 - 10.0000) / 10.0000) + 1,000 - 7.8654867
= 4339.92
TOTAL (1/ (3279 / 365))
RETURN = (4339.9245 / 1,000) - 1
= 17.75%
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C>
ALGER AMERICAN LEVERAGED ALLCAP SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 1071 x (1,00+ (1,000 x (22.4476 - 10.0000) / 10.0 / 2))
= 0.00220068493150684932 x 1062.238
= 2.33765
ERV = (1,000 x ((22.4476 - 10.0000) / 10.00)+ 1,000 2.33765116027397262
= 2242.42
TOTAL (1/ (1071 / 365))
RETURN = 2242.42234883972616 / 1,000 ) - 1
= 31.68%
ALGER AMERICAN MIDCAP GROWTH SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 1703 x (1,00+ (1,000 x (( 23.7919 -10.0000) / 10.0 / 2))
= 0.00349931506849315069 x 1068.9595
= 3.74063
ERV = (1,000 x (( 23.7919 - 10.0000) / 10.00)+ 1,000 3.74062608595890408
= 2375.45
TOTAL (1/ (1703 / 365))
RETURN = 2375.44937391404092 / 1,000 ) - 1
= 20.37%
ALGER AMERICAN SMALL CAPITALIZATION SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 3389 x (1,00 + (1,000 x (44.9879 - 10.0000) / 10.0 / 2))
= 0.0069636986301369863 x 1174.9395
= 8.18192
ERV = (1,000 x (( 44.9879 - 10.0000) / 10.00) + 1,000 - 8.18192458664383573
= 4490.61
TOTAL (1/ (3389 / 365))
RETURN = 4490.6080754133565 / 1,000 ) - 1
= 17.56%
</TABLE>
<PAGE> 18
<TABLE>
<S> <C> <C>
BERGER/BIAM IPT - INTERNATIONAL FUND
ADMIN = (( 30 / 40,000) / 365 ) x 244 x (1,0000 + (1,000 x (9.7087 - 10.0000) / 10.0000 / 2))
= 0.00050134 x 985.435
= 0.49407
ERV = (1,000 x (( 9.7087 - 10.0000) / 10.0000)+ 1,000 - .4940674
= 970.38
TOTAL (1/ (244 / 365))
RETURN = (970.37593 / 1,000 ) - 1
= -2.96%
BERGER IPT-SMALL COMPANY GROWTH FUND
ADMIN = (( 30 / 40,000) / 365 ) x 609 x (1,000 + (1,000 x (11.7834 - 10.0000) / 10.0000 / 2))
= 0.0012514 x 1089.19
= 1.36298
ERV = (1,000 x (( 11.7838 - 10.0000) / 10.0000)+ 1,000 - 1.3629795
= 1177.02
TOTAL (1/ (609 / 365))
RETURN = (1177.017 / 1,000 ) - 1
= 17.70%
DREYFUS CAPITAL APPRECIATION SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 1736 x (1,000 + (1,000 x (27.618 - 12.5000) / 12.5000 / 2))
= 0.0035671 x 1604.732
= 5.72428
ERV = (1,000 x (( 27.6183 - 12.5000 / 12.5000)+ 1,000 - 5.7242769
= 2756.11
TOTAL (1/ (1736 / 365))
RETURN = (2756.1057 / 1,000 ) - 1
= 23.76%
</TABLE>
<PAGE> 19
<TABLE>
<S> <C> <C>
DREYFUS GROWTH AND INCOME SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 1339 x (1,000 + (1,000 x (25.866 - 12.5000) / 12.5000 / 2))
= 0.0027514 x 1534.648
= 4.22238
ERV = (1,000 x (( 25.8662 - 12.5000) / 12.5000)+ 1,000 - 4.2223843
= 2582.40
TOTAL (1/ (1339 / 365))
RETURN = (2582.3976/ 1,000 ) - 1
= 29.51%
DREYFUS SOCIALLY RESPONSIBLE GROWTH SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 1546 x (1,000 + (1,000 x (26.907 - 12.5000) / 12.5000 / 2))
= 0.0031767 x 1576.264
= 5.00734
ERV = (1,000 x (( 26.9066 - 12.5000) / 12.5000)+ 1,000 - 5.0073373
= 2685.65
TOTAL (1/ (1546 / 365))
RETURN = (2685.6527 / 1,000 ) - 1
= 26.27%
FIDELITY VIP GROWTH SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 4101 x (1,000+ (1,000 x (43.415 - 10.0000) / 10.0000 / 2))
= 0.0084267 x 1167.077
= 9.83462
ERV = (1,000 x (( 43.4154 - 10.0000) / 10.0000)+ 1,000 - 9.8346221
= 4331.71
TOTAL (1/ (4101 / 365))
RETURN = (4331.7054 / 1,000 ) - 1
= 13.94%
</TABLE>
<PAGE> 20
<TABLE>
<S> <C>
FIDELITY VIP HIGH INCOME SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 4486 x (1,000 + (1,000 x (35.6386 - 10.0000) / 10.0000 / 2))
= 0.0092178 x 1128.193
= 10.39947
ERV = (1,000 x (( 35.6386 - 10.0000) / 10.0000)+ 1,000 - 10.399467
= 3553.46
TOTAL (1/ (4486 / 365))
RETURN = (3553.4605 / 1,000 ) - 1
= 10.87%
FIDELITY VIP OVERSEAS SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 3990 x (1,000 + (1,000 x (20.3313 - 10.0000) / 10.0000 / 2))
= 0.0081986 x 1051.657
= 8.62214
ERV = (1,000 x (( 20.3313 - 10.0000) / 10.0000)+ 1,000 8.6221427
= 2024.51
TOTAL (1/ (3990 / 365))
RETURN = (2024.5079 / 1,000 ) - 1
= 6.66%
FIDELITY VIP II ASSET MANAGER SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 3038 x (1,000 + (1,000 x (24.131 - 10.0000) / 10.0000 / 2))
= 0.00624245 x 1070.656
= 6.68353
ERV = (1,000 x (( 24.1312 - 10.0000) / 10.0000)+ 1,000 6.6835334
= 2406.44
TOTAL (1/ (3038 / 365))
RETURN = (2406.4365 / 1,000 ) - 1
= 11.13%
</TABLE>
<PAGE> 21
<TABLE>
<S> <C>
FIDELITY VIP II CONTRAFUND SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 1093 x (1,000 + (1,000 x (20.185 - 10.0000) / 10.0000 / 2))
= 0.0022459 x 1050.926
= 2.36026
ERV = (1,000 x (( 20.1852 - 10.0000) / 10.0000) + 1,000 - 2.3602646
= 2016.16
TOTAL (1/ (1093 / 365))
RETURN = (2016.1597 / 1,000 ) - 1
= 26.38%
FIDELITY VIP II INDEX 500 SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 1952 x (1,000 + (1,000 x (122.349 - 50.0000) / 50.0000 / 2))
= 0.004011 x 1723.49
= 6.91285
ERV = (1,000 x (( 122.349 - 50.0000) / 50.0000) + 1,000 - 6.9128476
= 12227.99
TOTAL (1/ (1952 / 365))
RETURN = (12227.987 / 1,000 ) - 1
= 59.71%
FIDELITY VIP III GROWTH OPPORTUNITIES SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 1093 x (1,000 + (1,000 x (19.54 - 10.0000) / 10.0000 / 2))
= 0.0022459 x 1047.699
= 2.35302
ERV = (1,000 x (( 19.5398 - 10.0000) / 10.0000) + 1,000 - 2.3530171
= 1951.63
TOTAL (1/ (1093 / 365))
RETURN = (1951.627 / 1,000 ) - 1
= 25.02%
</TABLE>
<PAGE> 22
<TABLE>
<S> <C> <C>
MONTGOMERY VARIABLE SERIES: EMERGING MARKETS FUND
ADMIN = (( 30 / 40,000) / 365 ) x 698 x (1,000 + (1,000 x (10.337 - 10.0000) / 10.0000 / 2))
= 0.0014342 x 1001.685
= 1.43666
ERV = (1,000 x (( 10.3369 - 10.0000) / 10.0000) + 1,000 - 1.4366626
= 1032.25
TOTAL (1/ (698 / 365))
RETURN = (1032.2533 / 1,000 ) - 1
= 1.67%
MONTGOMERY VARIABLE SERIES: GROWTH FUND
ADMIN = (( 30 / 40,000) / 365 ) x 691 x (1,000 + (1,000 x (16.061 - 10.0000) / 10.0000 / 2))
= 0.0014199 x 1030.304
= 1.46289
ERV = (1,000 x (( 16.0608 - 10.0000) / 10.0000) + 1,000 - 1.4628905
= 1604.62
TOTAL (1/ (691 / 365))
RETURN = (1604.6171 / 1,000 ) - 1
= 28.38%
SELIGMAN COMMUNICATION & INFORMATION SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 1184 x (1,000+ (1,000 x (18.373 - 10.0000) / 10.0000 / 2))
= 0.0024329 x 1041.8625
= 2.53472
ERV = (1,000 x (( 18.3725 - 10.0000) / 10.0000) + 1,000 - 2.534723
= 1834.72
TOTAL (1/ (1184 / 365))
RETURN = (1834.7153 / 1,000 ) - 1
= 20.57%
</TABLE>
<PAGE> 23
<TABLE>
<S> <C>
SELIGMAN FRONTIER SUB-ACCOUNT
ADMIN = (( 30 / 40,000) / 365 ) x 1184 x (1,000 + (1,000 x (19.432 - 10.0000) / 10.0000 / 2))
= 0.0024329 x 1047.1615
= 2.54761
ERV = (1,000 x (( 19.4323 - 10.0000) / 10.0000)+ 1,000 - 2.5476148
= 1940.68
TOTAL (1/ (1184 / 365))
RETURN = (1940.6824 / 1,000 ) - 1
= 22.68%
</TABLE>
