<PAGE>
As Filed with the Securities and Exchange Commission on February 26, 1999.
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Registration Nos. 33-28888
811-5816
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Securities and Exchange Commission
Washington, D.C. 20549
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FORM N-1A
Registration Statement Under the Securities Act of 1933
Post-Effective Amendment No. 12
and/or
Registration Statement Under The Investment Company Act of 1940
Amendment No. 13
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CANADA LIFE OF AMERICA SERIES FUND, INC.
(Exact Name of Registrant)
330 UNIVERSITY AVENUE
TORONTO, CANADA M5G 1R8
(Address of Principal Executive Office)
Registrant's Telephone Number. (416) 597-1456
Roy W. Linden
330 University Avenue
Toronto, Canada M5G 1R8
(Name and Address of Agent for Services)
Copy to:
Stephen E. Roth, Esquire
Sutherland, Asbill, & Brennan, LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 2004-2404
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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X on April 30, 1999 pursuant to paragraph (a)(1)
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60 days after filing pursuant to paragraph (a)(1)
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on pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on pursuant to paragraph (a)(2) of Rule 485
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If appropriate check the following box:
this Post-Effective Amendment designates a new effective date for a new
- ---
effective date for a previously filed Post-Effective Amendment.
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CANADA LIFE OF AMERICA SERIES FUND, INC.
Money Market Portfolio
Bond Portfolio
Value Equity Portfolio
Managed Portfolio
Capital Portfolio
International Equity Portfolio
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Canada Life of America Series Fund, Inc. (the "Fund"), is an open-end management
investment company, commonly known as a mutual fund. Fund shares are not
offered directly to the public but are sold only to insurance companies and
their separate accounts. The Fund is intended to meet a wide range of
investment objectives offering six different portfolios: Money Market; Bond;
Value Equity; Managed; Capital; and International Equity Portfolios (each, a
"Portfolio"). Each Portfolio generally operates as a separate fund and issues
its own shares.
6201 Powers Ferry Road, NW
Atlanta, GA 30339
PHONE: 1-800-905-1959
Prospectus
May 1, 1999
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The Securities and Exchange Commission has not approved Fund shares as an
investment and has not determined that this Prospectus is complete or accurate.
It is against the law for anyone to tell you otherwise.
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TABLE OF CONTENTS
Each Portfolio In Brief............................................... 1
Money Market Portfolio............................................ 2
Bond Portfolio.................................................... 4
Value Equity Portfolio............................................ 6
Managed Portfolio................................................. 7
Capital Portfolio................................................. 8
International Equity Portfolio.................................... 9
Investment Objectives, Policies, Practices And Risks.................. 11
Management............................................................ 13
Legal Proceedings..................................................... 15
Year 2000 Compliance.................................................. 15
Euro Conversion....................................................... 16
Shareholder Transactions And Pricing.................................. 16
Valuation Of Shares................................................... 17
Tax Consequences Of Dividends And Distributions....................... 18
Financial Highlights.................................................. 18
Appendix.............................................................. 25
Additional Information About The Fund................................. 27
No dealer, salesperson, or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus, and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund or the Investment Adviser. This
Prospectus does not constitute an offering in any state in which such offering
may not lawfully be made.
ii
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EACH PORTFOLIO IN BRIEF
The following are important definitions and common disclosures that will help
you understand the types of investments described in this Prospectus and their
related risks:
Debt securities (sometimes referred to as fixed-income securities) are bonds and
other securities that are used by issuers to borrow money from investors.
Holders of debt securities have a higher priority claim to assets than do equity
holders. Typically, the debt issuer pays the investor a fixed, variable or
floating rate of interest and must repay the borrowed amount at maturity. Some
debt securities, such as zero coupon bonds, are sold at a discount from their
face values instead of paying interest.
Common stocks (equities) represent generally ownership of a corporation. Over
time, equities have provided the greatest long-term growth potential but, over
short periods, can be subject to great fluctuations in stock market prices.
Stock funds are subject to market risk: specifically, stock market values are
more volatile generally than are bond or money market values. Volatility means
that prices will go down as well as up, which in turn, means that investors may
lose money on an investment in the Fund. Market risks are affected by many
factors, including business conditions, investor confidence in the economy,
current conditions in a particular industry or company. Equities are subject to
financial risks relating to an issuer's earnings stability and overall
soundness.
Convertible securities may be debt or equity securities that pay interest or
dividends and that may be converted on specified terms into the stock of the
issuer.
Preferred securities are classes of stock that pay dividends at a specified
rate. Dividends are paid on preferred stocks before they are paid on common
stocks. In addition, preferred stockholders have priority over common
stockholders as to the proceeds from the liquidation of a company's assets.
Foreign securities include interests in or obligations of entities located
outside of the United States. The determination of where an issuer of a
security is located will be made by reference to the country in which the
issuer: (a) is organized; (b) derives at least 50% of its revenues or profits
from goods produced or sold, investments made or services performed; (c) has at
least 50% of its asserts situated; or (d) has the principal trading market for
its securities. Foreign securities may be denominated in non-U.S. currencies
and traded outside the United States or may be in the form of depositary
receipts.
Depositary receipts represent interests in an account at a bank or trust
company, which holds equity securities. These interests may include American
Depositary Receipts (held at U.S. banks and traded in the United States),
European Depositary Receipts, Global Depositary Receipts or other similar
instruments.
Growth investing involves seeking to buy stocks with above-average growth rates.
Typically, growth stocks are the stocks of faster growing companies in more
rapidly growing sectors of the economy. Generally, growth stock valuation
levels are higher than for value stocks and the market averages.
Value investing involves seeking to buy stocks that are out of favor and/or
undervalued in comparison to their peers and/or their prospects for growth.
Generally, value stock valuation levels are lower than for growth stocks.
The Company is Canada Life Insurance Company of America.
CLNY is Canada Life Insurance Company of New York.
Each Portfolio is a diversified pool of investments. The different investment
objectives and policies affect the investment return of each Portfolio. There
is no guarantee that a Portfolio will achieve its investment objective.
Each Portfolio is subject to a different degree of market and financial risk.
The above definitions and information should be read together with the Portfolio
summaries on the following pages to the extent applicable.
When a Portfolio sells its securities, they may be worth more or less than what
the Portfolio paid for them.
An investment in a Portfolio is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
1
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Money Market Portfolio
Goals and Investments
Investment Adviser: CL Capital
Management, Inc.
Portfolio Manager: Henry A.
Rachfalowski
Portfolio's Objective: The highest level of current income as is
consistent with preservation of capital
and liquidity
Key Investments: Money market instruments with maturities
of thirteen months or less
Selection Process: The Portfolio is a "money market" fund. It invests primarily
in high-quality U.S. dollar-denominated market instruments and generally have
remaining maturities of thirteen months or less. High-quality instruments
generally are rated in the highest two categories by nationally recognized
statistical rating organizations ("rating agencies") or are deemed comparable.
In buying and selling securities for the Portfolio, the adviser complies with
industry-standard requirements for money market funds regarding the quality,
maturity and diversification of the fund's investments. The adviser stresses
maintaining a stable $10.00 share price, liquidity and income. The portfolio
manager selects from the following types of investments:
. U.S. government securities, which include obligations issued or
guaranteed by the U.S. government and its agencies, instrumentalities and
government-sponsored enterprises;
. Commercial paper and bankers' acceptances of FDIC-insured banks,
including U.S. banks, U.S. branches of foreign banks, and foreign
branches of U.S. banks;
. Prime commercial paper, including variable rate master demand notes; and
. Repurchase agreements backed by U.S. government securities.
Additional Investments, Investment Strategies and Techniques: The Portfolio may
enter into other investments and strategies. For a complete list of all the
investments available to this Portfolio, please refer to the Appendix to this
prospectus.
Principal Risk Factors: An investment in the Money Market Portfolio is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment at $10.00 per share, it is possible to lose money by investing in the
Portfolio. There is a risk that the Portfolio could underperform other short-
term investments or money market funds if interest rates rise sharply, or if an
issuer of the Portfolio's securities defaults or has its credit rating
downgraded and fails to perform as expected. For a complete description of
these types of risk, please refer to "Investments Objective, Policies, Practices
and Risks" in this prospectus.
----------------------------------------------
Portfolio Performance
The table below shows how an investment in the Portfolio has varied over time.
The returns shown assume that any dividends and distributions have been
reinvested in the Portfolio. The returns are not reduced to reflect any
variable insurance contract charges or fees that may be assessed by the Company,
CLNY or their separate accounts. [The table compares the Portfolio's
performance with [Prime Money Market Fund average for high-quality money market
funds].] Past performance can give some indication of the Portfolio's risk but
is not an indication of how the Portfolio will perform in the future.
2
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Year-By-Year % Total Returns as of 12/31
[CHART APPEARS HERE]
- --------------------------------------------
Best Quarter: Q# [2 digit year] %
------
Worst Quarter: Q# [2 digit year] %
------
- ---------------------------------------------------------
Average Annual Total Returns as of 12/31/1998
1 year 3 year 5 year Life of Fund
------ ------ ------ ------------
Money Market
Portfolio 4.77 4.78 6.57 4.77
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3
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Bond Portfolio
Goals and Investments
------------------------------
Investment Adviser: CL Capital
Management, Inc.
Portfolio Manager: Henry A.
Rachfalowski
------------------------------
Portfolio's Objective: As high a level of current income and capital
appreciation as is consistent with preservation
of principal
Key Investments: Debt securities
Selection Process: The Portfolio normally invests at least 80% of its total
assets in:
. U.S. government securities, which include obligations issued or guaranteed by
the U.S. government and its agencies, instrumentalities and government
sponsored enterprises;
. publicly traded debt instruments rated within the four highest categories by
a rating agency; and
. Canadian government obligations, which include obligations issued or
guaranteed as to principal and interest by the Government of Canada, the
government of any province of Canada, or any Canadian or provincial Crown
agency.
The Portfolio only invests in U.S dollar-denominated debt instruments.
Additional Investments, Investment Strategies and Techniques: The Portfolio may
invest up to 20% of its total assets in lower-quality debt instruments (also
called high-risk, high-yield debt instruments or junk bonds). The Portfolio may
also invest in or use other instruments and techniques. For a complete list of
all the investments available to this Portfolio, please refer to the Appendix to
this prospectus.
Principal Risk Factors: The Portfolio is primarily subject to risks associated
with investing in debt securities, including interest-rate risk and credit or
financial risk. To the extent the Portfolio invests in lower-quality debt
instruments, it is subject to the risks associated with investing in such
instruments. For a complete description of these types of risk, please refer to
"Investments Objective, Policies, Practices and Risks" in this prospectus. As
with any investment in a mutual fund, you could lose money by investing in the
Portfolio.
----------------------------------------------
Portfolio Performance
The table below shows how an investment in the Portfolio has varied over time.
The returns shown assume that any dividends and distributions have been
reinvested in the Portfolio. The returns are not reduced to reflect any
variable insurance contract charges or fees that may be assessed by the Company,
CLNY or their separate accounts. The table compares the Portfolio's performance
with [the _____________ Index]. Past performance can give some indication of
the Portfolio's risk but is not an indication of how the Portfolio will perform
in the future.
4
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Year-By-Year % Total Returns as of 12/31
[CHART APPEARS HERE]
- --------------------------------------------
Best Quarter: Q# [2 digit year] %
------
Worst Quarter: Q# [2 digit year] %
------
- ----------------------------------------------------------
Average Annual Total Returns as of 12/31/1998
1 year 3 year 5 year Life of Fund
------ ------ ------ ------------
Bond Portfolio 9.00 7.23 6.70 7.89
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5
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Value Equity Portfolio
Goals and Investments
----------------------------------
Investment Adviser: CL Capital
Management, Inc.
Subadviser: INDAGO Capital
Management Inc.
Portfolio Manager: Diane Haflidson
----------------------------------
Portfolio's Objective: Long-term growth of capital and income by
and investing in equity securities which are
Key Investments: believed to have appreciation potential
Selection Process: The adviser selects equity securities that it believes
have appreciation potential. The adviser's principal
approach is to seek to invest in common stocks having
depressed values based on poor current market perception
and appearing undervalued relative to normal earnings
power. The adviser chooses investments emphasizing
companies with:
. Good financial resources . Good industry position
. Satisfactory rate of return on capital . Superior management skills
Additional Investments, Investment Strategies and Techniques: The Portfolio may
invest in various other types of securities and engage
in other investment techniques. For a complete list of
all the investments and techniques available to this
Portfolio, please refer to the Appendix to this
prospectus.
Principal Risk Factors: The Portfolio is primarily subject to risks associated
investing in equities, including market risk. For a
complete description of these risks, please refer to
"Investments Objective, Policies, Practices and Risks"
in this prospectus. As with any investment in a mutual
fund, you could lose money by investing in the
Portfolio.
----------------------------------------------
Portfolio Performance
The table below shows how an investment in the Portfolio has varied over time.
The returns shown assume that any dividends and distributions have been
reinvested in the Portfolio. The returns are not reduced to reflect any
variable insurance contract charges or fees that may be assessed by the Company,
CLNY or their separate accounts. The table compares the Portfolio's performance
with [the _____________ Index]. Past performance can give some indication of
the Portfolio's risk but is not an indication of how the Portfolio will perform
in the future.
Year-By-Year % Total Returns as of 12/31
[CHART APPEARS HERE]
- --------------------------------------------
Best Quarter: Q# [2 digit year] %
------
Worst Quarter: Q# [2 digit year] %
------
- ---------------------------------------------------------
Average Annual Total Returns as of 12/31/1998
1 year 3 year 5 year Life of Fund
------ ------ ------ ------------
Value Equity
Portfolio 2.81 11.75 11.98 11.16
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6
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Managed Portfolio
Goals and Investments
-----------------------------------
Investment Adviser: CL Capital
Management, Inc.
Subadviser: (equity portion)
INDAGO Capital Management Inc.
Portfolio Manager: Diane Haflidson
(equity) and George N. Isaac (bond)
-----------------------------------
Portfolio's Objective: As high a level of return as possible, through capital
appreciation and income, consistent with prudent
investment risk and preservation of capital
Key Investments: Equities, debt instruments and money market instruments
Selection Process: The Portfolio follows a fully managed investment policy
by investing in three types of investments ("sectors"):
equities, debt instruments, and money market
instruments. There are no maximum or minimum percentages
as to the amount of the Portfolio's assets that may be
invested in any one sector. The adviser determines the
asset mix based on its overall analysis of the political
and economic outlook over the next six to eighteen
months, taking into account such factors as:
. Inflation . Commodity prices
. Growth . Relative values of stocks and bonds
. Trends in currency values
Additional Investments, Investment Strategies and Techniques: The Portfolio may
invest in various other types of securities and engage
in other investment techniques. For a complete list of
all the investments available to this Portfolio, please
refer to the Appendix to this prospectus.
Principal Risk Factors: The Portfolio's investments in equity securities are
primarily subject to risks associated investing in
equities, including market risk. The Portfolio's
investments in debt securities are primarily subject to
risks associated with investing in debt securities,
including interest rate risk and credit risk. For a
complete description of these types of risk, please
refer to "Investments Objective, Policies, Practices and
Risks" in this prospectus. As with any investment in a
mutual fund, you could lose money by investing in the
Portfolio.
---------------------------------------------
Portfolio Performance
The table below shows how an investment in the Portfolio has varied over time.
The returns shown assume that any dividends and distributions have been
reinvested in the Portfolio. The returns are not reduced to reflect any
variable insurance contract charges or fees that may be assessed by the Company,
CLNY or their separate accounts. The table compares the Portfolio's performance
with [the [stock] Index] and [the [debt instruments] Index]. Past performance
can give some indication of the Portfolio's risk but is not necessarily an
indication of how the Portfolio will perform in the future.
Year-By-Year % Total Returns as of 12/31
[CHART APPEARS HERE]
- --------------------------------------------
Best Quarter: Q# [2 digit year] %
------
Worst Quarter: Q# [2 digit year] %
------
- ----------------------------------------------------------
Average Annual Total Returns as of 12/31/1998
1 year 3 year 5 year Life of Fund
------ ------ ------ ------------
Managed
Portfolio 5.15 9.35 9.72 9.8
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7
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Capital Portfolio
Goals and Investments
Investment Adviser: CL Capital
Management, Inc.
Subadviser: J. & W. Seligman & Co.
Incorporated
Portfolio Manager: Marion S.
Schultheis
Portfolio's Objective: Capital appreciation, not current income by
And investing in common stocks and securities
Key Investments: 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
Selection Process: The subadviser selects common stocks based on their
near-or intermediate-term prospects. The portfolio
manager selects stocks believed to be underpriced or
stocks of growth companies, cyclical companies, or
companies believed to be undergoing a basic change for
the better. The principal factor in choosing
investments is potential for capital appreciation. The
Portfolio may invest in stocks of:
. Established, well-known companies
. Newer less-seasoned companies believed to have better-than-average
prospects
Additional Investments, Investment Strategies and Techniques: The Portfolio may
hold cash and invest without limits in short-term
money market instruments (see investments for the
Money Market Portfolio) for temporary defensive
purposes or pending investment. The Portfolio also may
invest in various other types of securities and engage
in other investment techniques. For a complete list of
all the investments available to this Portfolio,
please refer to the Appendix to this prospectus.
Principal Risk Factors: The Portfolio is primarily subject to risks associated
investing in equities, including market risk. For a
complete description of these types of risk, please
refer to "Investments Objective, Policies, Practices
and Risks" in this prospectus. As with any investment
in a mutual fund, you could lose money by investing in
the Portfolio.
---------------------------------------------
Portfolio Performance
The table below shows how an investment in the Portfolio has varied over time.
The returns shown assume that any dividends and distributions have been
reinvested in the Portfolio. The returns are not reduced to reflect any
variable insurance contract charges or fees that may be assessed by the Company,
CLNY or their separate accounts. The table compares the Portfolio's performance
with [the S&P 500 Stock Index]. Past performance can give some indication of
the Portfolio's risk but is not necessarily an indication of how the Portfolio
will perform in the future.
Year-By-Year % Total Returns as of 12/31
[CHART APPEARS HERE]
- --------------------------------------------
Best Quarter: Q# [2 digit year] %
------
Worst Quarter: Q# [2 digit year] %
------
- ------------------------------------------------------------
Average Annual Total Returns as of 12/31/1998
1 year 3 year 5 year Life of Fund
------ ------ ------ ------------
Capital
Portfolio 20.23 17.95 16.82 16.36
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8
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International Equity Portfolio
Goals and Investments
---------------------------------
Investment Adviser: CL Capital
Management, Inc.
Subadviser: INDAGO
Portfolio Manager: Thomas Tibbles
---------------------------------
Portfolio's Objective: Long-term capital appreciation by
and investing in equity or equity type securities of
Key Investments: companies located outside the United States
Selection Process: The Portfolio seeks foreign securities that offer
long-term capital appreciation potential. The
subadviser's seeks diversification by purchasing
securities of at least four different countries that
offer varying investment opportunities and are
affected by different economic trends. The Portfolio
may invest in developed countries, in American
Depositary Receipts, European Depositary Receipts and
other similar instruments, and up to 30% of its total
assets in emerging markets countries. The subadviser's
analysis focuses on the fundamental value of an
enterprise, and it purchases securities for the
Portfolio when the market price appears to be less
than the fundamental value. In selecting specific
investments, the subadviser seeks to identify
securities with strong potential for appreciation
relative to their downside exposure. In seeking to
limit risks, the Portfolio will limit its exposure to:
. to a single industry group to 25% of its total
assets
. to a single country[, excluding The United
Kingdom and Japan] to 25% of its total assets
. by holding normally a minimum of 40 different
companies
. by investing in a minimum of at least 5 to 8
different industry groups
Additional Investments, Investment Strategies and Techniques: The Portfolio may
hold cash and invest without limits in U.S. and
foreign short-term money market for temporary
defensive purposes or pending investment. For
temporary defensive purposes, the Portfolio also may
hedge the portfolio currency exposure through the use
of futures, options, or currency contracts. The
Portfolio also may invest in various other types of
securities and engage in other investment techniques.
For a complete list of all the investments available
to this Portfolio, please refer to the Appendix to
this prospectus.
Principal Risk Factors: The Portfolio is primarily subject to risks associated
investing in equities, including market risk, and the
risks associated with foreign securities investments.
For a complete description of these types of risk,
please refer to "Investments Objective, Policies,
Practices and Risks" in this prospectus. As with any
investment in a mutual fund, you could lose money by
investing in the Portfolio.
---------------------------------------------
Portfolio Performance
The table below shows how an investment in the Portfolio has varied over time.
The returns shown assume that any dividends and distributions have been
reinvested in the Portfolio. The returns are not reduced to reflect any
variable insurance contract charges or fees that may be assessed by the Company,
CLNY or their separate accounts. The table compares the Portfolio's performance
with [the _____________ Index]. Past performance can give some indication of
the Portfolio's risk but is not necessarily an indication of how the Portfolio
will perform in the future.
9
<PAGE>
Year-By-Year % Total Returns as of 12/31
[CHART APPEARS HERE]
- --------------------------------------------------
Best Quarter: Q# [2 digit year] %
------
Worst Quarter: Q# [2 digit year] %
------
- --------------------------------------------------
Average Annual Total Returns as of 12/31/1998
1 year 3 year Life of Fund
------ ------ ------------
International
Equity Portfolio 13.37 12.20 11.50
- --------------------------------------------------
10
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INVESTMENT OBJECTIVES, POLICIES, PRACTICES AND RISKS
Each Portfolio invests in various instruments subject to its particular
investment objective and policies. The Portfolios may invest in some or all of
the following, as described in the overview for each Portfolio, and in the
Statement of Additional Information. For a free copy of the Statement of
Additional Information, please see the back cover of this prospectus.
<TABLE>
<S> <C>
Equities Each Portfolio may invest in equity securities. Equity securities
include common and preferred stock, warrants, rights, depositary
Each Portfolio except the receipts and shares, trust certificates, and real estate
Bond Portfolio instruments.
Equities are subject to market risk. Many factors affect stock
market prices and dividend payouts of equity investments. These
factors include general business conditions, investor confidence
in the economy, and current conditions in a particular industry or
company. Smaller companies are particularly sensitive to these
factors.
Debt Securities Each Portfolio may invest in debt securities. Debt securities
include U.S. government securities, certificates of deposit, and
(All Portfolios) short-term money market instruments. Debt securities may have all
types of interest rate payment and reset terms, including fixed,
adjustable, zero-coupon, contingent, deferred, payment-in-kind and
auction-rate features.
Debt securities are subject to interest-rate risk because the
value of debt securities varies inversely with interest rates.
This means generally that the value of these investments increases
as short-term interest rates fall and decreases as short-term
interest rates rise.
Debt securities also are subject to credit risk, which is the risk
that a bond's price may be affected its issuer's credit quality.
An issuer may not always make payments on a debt security when
due. Some debt securities, such as mortgage-backed securities,
are subject to prepayment risk, which occurs when an issuer can
prepay the principal owed on a security before its maturity. When
interest rates decline, asset-backed securities may experience
higher prepayments, and a portfolio manager may be forced to
invest proceeds from prepayments at lower rates, resulting in a
lower yield for the Portfolio. In addition, yields from
short-term debt securities normally may be lower than yields from
longer-term securities.
</TABLE>
11
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<TABLE>
<S> <C>
Lower-Quality Fixed-Income Securities High-risk, high-yield securities, commonly referred to as "junk
bonds," are considered speculative. While generally providing
(Bond Portfolio) greater income than investments in higher-quality securities,
these securities involve greater risk of principal and income
(including the possibility of default or bankruptcy of the issuers
of the security).
Foreign Securities Investments An investment in foreign securities involves risk in addition to
those of U.S. securities, including possible political and
(All Portfolios) economic instability and the possible imposition of exchange
controls or other restrictions on investments. A Portfolio also
bears an "information" risk associated with different accounting,
auditing and financial reporting standards in many foreign
countries. If a Portfolio invests in securities denominated or
quoted in currencies other than the U.S. dollar (for example,
Canadian government obligations), changes in foreign currency
rates relative to the U.S. dollar affect the U.S. dollar value of
the Portfolio's assets.
Emerging Market Emerging markets investments offer potential of significant gains
Investments but also offer greater risks than investing in more developed
countries. Political or economic instability, lack of market
(International Equity Portfolio) liquidity and government actions, such as currency controls or
seizure of private business or property may be more likely in
emerging markets than in more established markets.
Sectors
(Managed Portfolio)
Temporary Defensive Positions Each of Capital and International Equity Portfolio may depart from
its principal investments and strategies in response to adverse
(Capital and International Equity market, economic or political conditions and take a temporary
Portfolios) defensive position. If a Portfolio takes a temporary defensive
position, it may be unable to achieve its investment goal. It is
not investing in accordance with its investment objective and
policies and may not take advances of market increases.
Portfolio Turnover Each Portfolio (except ____) may actively trade its portfolio
securities in an attempt to achieve its investment objective.
(?? Portfolios) Active trading causes a Portfolio to have a higher portfolio
turnover rate, which is likely to generate shorter-term gains
[Verify if any Portfolios may (losses) for its shareholders. Short-term gains are taxed at a
higher rate than
</TABLE>
12
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<TABLE>
<S> <C>
actively trade] longer-term gains. Actively trading
portfolio securities increases trading
costs and may have an adverse impact on
performance.
</TABLE>
Management
Investment Adviser
CL Capital Management, Inc. provides investment advisory services to the Fund
for the Money Market, Bond, Value Equity, and Managed Portfolios, and, in
general, supervises the management and investment program for all the
Portfolios. CL Capital Management is a registered investment adviser that was
incorporated in 1989. It is a wholly owned subsidiary of the Company, which in
turn is a wholly-owned subsidiary of Canada Life. CL Capital Management's
principal offices are located at 6151 Powers Ferry Road, N.W., Atlanta, Georgia
30339. [CL Capital Management also acts as an investment adviser or subadviser
for:
. [other investment companies used to fund variable products]
. [individual and pooled pension and profit-sharing accounts]
. [domestic insurance companies affiliated with Canada Life]
. [nonaffiliated insurance companies ]
[Verify any other entities for which CL Capital serves as adviser/subadviser]
For the year ended December 31, 1998, the Portfolios paid advisory fees to CL
Capital Management at the following annual rates:
Portfolio Annual management fee
(as a percentage of the Portfolio's
average daily net assets)
Money Market Portfolio 0.50%
Bond Portfolio 0.50%
Value Equity Portfolio 0.50%
Managed Portfolio 0.50%
Capital Portfolio 0.50%
International Equity Portfolio 0.80%*
* [I don't think this is true - can someone check Lipper?] The investment
advisory fee for the International Equity Portfolio exceeds the industry
average of investment advisory fees for domestic funds but does not exceed
the industry average for international funds.
13
<PAGE>
[Verify Rates paid in 1998.]
The Subadvisers and Portfolio Managers
The investments of Money Market and Bond Portfolios and the debt-instrument
portion of Managed Portfolio are managed solely by CL Capital Management. The
investments of Capital, Value Equity, Portfolio, and International Equity
Portfolios and the equity portion of the Managed Portfolio are managed by
subadvisers that are supervised by CL Capital Management. The table below sets
forth the name of each subadviser and portfolio manager, including the business
experience of each portfolio manager.
<TABLE>
<CAPTION>
Portfolio Portfolio Manager and Subadviser Business Experience
(since 1994)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market Portfolio Henry A. Rachfalowski (since July 1998) President, CL Capital
CL Capital Management, Inc. Management, Inc. [need 5 years]
- -------------------------------------------------------------------------------------------------------------
Bond Portfolio George N. Isaac, CFA (since July 1998) Senior Portfolio Manager, CL
CL Capital Management, Inc. Capital Management, Inc. [need 5
years]
- -------------------------------------------------------------------------------------------------------------
Value Equity Portfolio Henry A. Rachfalowski (since July 1998) President, CL Capital
CL Capital Management, Inc. Management, Inc. [need 5 years]
[Diane Haflidson (since July 1998) [Vice President and Portfolio
INDAGO Capital Management, Inc.] Manager, INDAGO]
- -------------------------------------------------------------------------------------------------------------
Managed Portfolio Henry A. Rachfalowski (since July 1998) President, CL Capital
CL Capital Management, Inc. Management, Inc. [need 5 years]
(bond portion) Senior Portfolio Manager, CL
George N. Isaac (since July 1998) Capital Management, Inc.[need 5
CL Capital Management, Inc. years]
(subadviser of equity portion)
[Diane Haflidson (since July 1998) [Vice President and Portfolio
INDAGO Capital Management, Inc.] Manager, INDAGO]
- -------------------------------------------------------------------------------------------------------------
Capital Portfolio Henry A. Rachfalowski (since July 1998) President, CL Capital
- -------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C>
CL Capital Management, Inc. Management, Inc. [need 5 years]
Marion S. Schultheis (since June 1998) Managing Director, J.W. Seligman &
J. & W. Seligman & Co. Incorporated Co. Incorporated; prior thereto,
100 Park Avenue Managing Director, Chancellor LGT;
New York, New York 10017 Senior Portfolio Manager, IDS
Advisory Group Inc. [need dates]
- -------------------------------------------------------------------------------------------------------------
International Equity Henry A. Rachfalowski (since July 1998) President, CL Capital Management
Portfolio CL Capital Management, Inc. [need 5 years]
[Thomas Tibbles [Vice President, Foreign Equities,
INDAGO Capital Management, Inc.] INDAGO; Vice President,
International Equities, Sun Life
Investment Management]
- -------------------------------------------------------------------------------------------------------------
</TABLE>
LEGAL PROCEEDINGS
There are no material pending legal proceedings affecting the Fund, and it has
been advised by CL Capital Management, CLNY, [INDAGO Capital Management Inc.,]
and J. & W. Seligman & Co. Incorporated [Verify whether other entities have
advised the Fund that there are no legal proceedings] and the Fund's principal
underwriter that none of them have any material pending legal proceedings
affecting them.
YEAR 2000 COMPLIANCE
[Generally computer programs were designed without considering the impact of the
upcoming change in the century. As a result software and computer systems may
need to be upgraded or replaced in order to comply with "Year 2000"
requirements. If not corrected, these computer applications could fail or
create erroneous results by or at the Year 2000. The business financial
condition and results of operations of a company, investment adviser separate
account and/or a mutual fund could be materially and adversely affected by the
failure of its systems and applications (or those either provided or operated by
third-parties) to properly operate or manage dates beyond the year 1999.
Canada Life and its affiliates have investigated the nature and extent of the
work required for its computer system to process beyond the turn of the century
and have made progress toward achieving this goal, including upgrading and/or
replacing existing systems. Canada Life and its affiliates is confirming with
its service providers and the Fund's subadvisers and other service providers
that they are also in the process of replacing or modifying their systems with
the same goal. Canada Life expects that its principal systems will be Year 2000
compliant by early 1999. While these efforts involve substantial costs, Canada
Life closely monitors associated costs and continues to evaluate associated
risks based on actual expenses. While it is likely that these efforts
15
<PAGE>
will be successful, if necessary modifications and conversions are not completed
in a timely manner, the Year 2000 requirements could have a material adverse
effect on certain operations of the Fund or its Portfolios.]
[please verify this disclosure]
EURO CONVERSION
On January 1, 1999, 11 participating countries in the European Economic Monetary
Union (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, and Spain) adopted the Euro as their official
currency. As of January 1, 1999, governments in participating countries issued
new debt and redenominated existing debt in Euros, although corporations may
choose whether to issue stocks or bonds in Euros or the national currency. The
new European Central Bank (the "ECB") has assumed responsibility for a uniform
monetary policy in participating countries. Currency conversion occurs through
a "triangulation" process whereby an amount denominated in one national currency
is converted into Euros, which are then converted into the second national
currency. The Euro conversion presents investors with unique risks and
uncertainties, including: (1) the readiness of Euro payment, clearing, and other
operational systems; (2) the legal treatment of debt instruments and financial
contracts denominated in or referring to existing national currencies rather
than the Euro; (3) exchange-rate fluctuations between the Euro and non-Euro
currencies during the transition period of January 1, 1999 through December 31,
2001 and beyond; (4) potential U.S. tax issues with respect to Portfolio
securities; and (5) the ECB's abilities to manage monetary policies among the
participating countries. Three other EU member countries (Denmark, Greece, and
the United Kingdom) may convert to the Euro at a later date. These and other
factors could adversely affect the value of or income from Portfolio securities.
SHAREHOLDER TRANSACTIONS AND PRICING
The term "shareholder" as used in this prospectus refers to any insurance
company separate account that may use Fund shares as a funding option now or in
the future. Fund shares are not sold to the general public. Fund shares are
sold on a continuing basis without a sales charge at the net asset value next
computed after the Fund's custodian receives payment. The separate accounts to
which shares are sold, however, may impose sales and other charges, as described
in the appropriate contract prospectus.
The Fund issues shares in six separate portfolios each with only one class. The
shares of each Portfolio participate equally with all other shares of that
Portfolio in dividends and distributions and have equal voting, liquidation and
other rights. When issued for the consideration described in the prospectus,
shares are fully paid and nonassessable by the Fund. Shares are redeemable,
transferable and freely assignable as collateral. (See the accompanying
separate account prospectus for a discussion of voting rights applicable to
purchasers of variable annuity and variable life insurance contracts.)
16
<PAGE>
Pricing of Portfolio Shares
The offering price of Portfolio shares is the net asset value or NAV of a single
share. Normally NAV is computed as of the close of trading (usually 4:00 p.m.
Eastern time) each day the New York Stock Exchange ("Exchange") is open. NAV is
calculated by adding the value of a Portfolio's investments, cash and other
assets, subtracting its liabilities, and dividing the result by the number of
shares outstanding.
The net asset value of a share is computed by dividing the value of the
Portfolio's net assets by the total number of shares outstanding. Securities
held by the Bond, Value Equity, Managed, Capital, and International Equity
Portfolios, except for money market instruments maturing in 60 days or less, are
valued at their market value if market quotations for the securities are readily
available. Otherwise, such securities are valued at fair value as determined in
good faith by or under procedures approved by the Board of Directors.
Securities held by the Money Market Portfolio, and money market instruments
maturing in 60 days or less that are held by the other Portfolios, are valued on
an amortized cost basis. The amortized cost method of valuation involves
valuing a security at cost on the date of acquisition and thereafter assuming a
constant accretion of a discount or amortization of a premium to maturity. The
Money Market Portfolio seeks to maintain a constant net asset value of $10.00
per share. The Money Market Portfolio will not maintain a dollar-weighted
average portfolio maturity that exceeds 90 days.
Purchase and Redemptions
The Fund currently offers its shares, without sales charge, only for purchase by
the Company, CLNY, and their separate accounts. Shares may also be sold to
Canada Life, its affiliates and their separate accounts. The Fund continuously
offers shares in each of its portfolios at prices equal to their respective net
asset values per share next determined after the request is deemed received by
the Fund.
The Fund redeems all full and fractional shares of the Fund for cash. No
redemption fee is charged, although there may be a contingent deferred sales
charge applicable to surrenders or withdrawals under the policies, as described
in the Policy Prospectus. The redemption price is the net asset value per share
of the respective portfolio next determined after the request for redemption is
deemed received. Payment for shares redeemed will generally be made within
seven days after receipt of a proper notice of redemption. The right to redeem
shares or to receive payment with respect to any redemption may be suspended or
postponed for any period during which: 1) trading on the New York Stock Exchange
is restricted, as determined by the Securities and Exchange Commission, or such
Exchange is closed for other than weekends and holidays; 2) an emergency exists,
as determined by the Commission, as a result of which disposal of securities
owned by the Fund is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets; or 3)
the Commission by order so permits for the protection of shareholders of the
Fund.
VALUATION OF SHARES
The net asset value of each portfolio's shares is determined once daily as of
the close of the New York Stock Exchange (usually at 4:00 p.m. Eastern Time) on
each day on which the Exchange is open for trading.
The net asset value of a share is computed by dividing the value of the net
assets of the portfolio by the total number of shares outstanding. Securities
held by the Bond, Value Equity, Managed, Capital, and International Equity
Portfolios, except for money market instruments maturing in 60 days or less, are
valued at their market value if market quotations for the securities are readily
available.
17
<PAGE>
Otherwise, such securities are valued at fair value as determined in good faith
by or under procedures approved by the Board of Directors. Actual calculations
of fair value may be made by persons acting under the direction of the Board of
Directors. Securities held by the Money Market Portfolio, and money market
instruments maturing in 60 days or less that are held by the other portfolios of
the Fund, are valued on an amortized cost basis. The amortized-cost method of
valuation involves valuing a security at cost on the date of acquisition and
thereafter assuming a constant accretion of a discount or amortization of a
premium to maturity. The Money Market Portfolio seeks to maintain a constant net
asset value of $10 per share. The Money Market Portfolio will not maintain a
dollar-weighted average portfolio maturity that exceeds 90 days.
For additional information on the valuation of securities, refer to the
Statement of Additional Information.
TAX CONSEQUENCES OF DIVIDENDS AND DISTRIBUTIONS
Capital gains and dividends are distributed in cash or reinvested in additional
Portfolio shares, without a sales charge. The Fund expects that Portfolio
shares will be held under a variable annuity or variable life insurance
contract. Under current tax law, distributions that are left to accumulate in
the variable annuity or life insurance contract are not subject to federal
income tax until they are withdrawn from the contract. Contract purchasers
should review the accompanying contract prospectus for a discussion of the tax
treatment applicable to variable annuity or variable life insurance contracts.
Each Portfolio intends to make distributions of income and capital gains in
order to qualify each year as a regulated company under Subchapter M of the
Internal Revenue Code. Further, each Portfolio intends to meet certain
diversification requirements applicable to mutual funds underlying variable
insurance products. For more information about the tax status of the
Portfolios, see "Tax Status" in the Statement of Additional Information.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Portfolios' financial performance for the past 5 years (or for its period of
operations, if shorter than 5 years). Certain information reflects financial
results for a single Portfolio share. The total returns in the table represent
the rate that an investor would have earned on an investment in the Portfolio
(assuming reinvestment of all dividends and distributions). This information
has been audited by Ernst & Young LLP, 600 Peachtree Street, Atlanta, Georgia,
30308, whose report, along the Fund's financial statements, are included in the
[statement of additional information/annual report], which is available free
upon request.
[Note that these financial highlights tables will probably need to be revised to
add the "before waivers" numbers we can wait to see if we draw an SEC comment
on this]
18
<PAGE>
Money Market Portfolio
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from Investment Operations
Net Investment Income 0.48 0.45 0.49 0.34
Net Gains or Losses on Securities
(both realized and unrealized) 0.00 0.00 0.00 0.00
Total From Investment Operations 0.48 0.45 0.49 0.34
Less Distributions
Dividends (from net investment income) (0.48) (0.45) (0.49) (0.34)
Distributions (from capital gains) 0.00 0.00 0.00 0.00
Returns of Capital 0.00 0.00 0.00 0.00
Total Distributions (0.48) (0.45) (0.49) (0.34)
Net Asset Value, End of Period $ 10.00 $ 10.00 $ 10.00 $ 10.00
Total Return 4.95% 4.58% 4.95% 3.40%
Ratios/Supplemental Data
Net Assets, End of Period $9,149,393 $7,599,213 $4,608,718 $5,057,319
Ratio of Expenses to Average Net Assets* 0.75%** 0.75% 0.75% 0.75%
Ratio of Net Investment Income to Average Net 4.78% 4.54% 4.98% 3.43%
Assets*
Portfolio Turnover Rate ----
</TABLE>
* The Portfolio commenced operations on December 4, 1989.
** Before expense reimbursements, Money Market Portfolio's expenses would have
been 1.16 %.
*** Annualized for the period December 4 to December 31, 1989.
19
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
Managed Portfolio
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.80 $ 12.37 $ 12.01 $ 12.77
Income from Investment Operations
Net Investment Income 0.34 0.32 0.40 0.32
Net Gains or Losses on Securities 1.66 0.27 2.38 (0.39)
(realized and unrealized)
Total From Investment Operations 2.00 0.59 2.78 (0.07)
Less Distributions
Dividends (from net investment income) (0.34) (0.32) (0.41) (0.32)
Distributions (from capital gains) (1.01) (0.84) (2.01) (0.37)
Returns of Capital 0.00 0.00 0.00 0.00
Total Distributions (1.35) (1.16) (2.42) (0.69)
Net Asset Value, End of Period $ 12.45 $ 11.80 $ 12.37 $ 12.01
Total Return 17.61% 5.75% 21.92% -0.25%
Ratios/Supplemental Data
Net Assets, End of Period $15,277,567 $15,972,639 $17,033,045 $15,192,354
Ratio of Expenses to Average Net Assets* 0.90%** 0.90% 0.90% 0.97%
Ratio of Net Investment Income to Average Net 2.74% 2.53% 3.06% 2.51%
Assets*
Portfolio Turnover Rate 82.80% 144.67% 145.14% 27.31%
Average Commission Rate Paid $ 0.0570 $ 0.0600 $ 0.0611 $ 0.0735
</TABLE>
* The Portfolio commenced operations on December 4, 1989.
** Before expense reimbursements, Managed Portfolio's expenses would have been
0.95%.
*** Annualized for the period December 4 to December 31, 1989.
20
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
Bond Portfolio
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.36 $ 10.45 $ 9.75 $ 10.74
Income from Investment Operations
Net Investment Income 0.60 0.60 0.65 0.51
Net Gains or Losses on Securities
(both realized and unrealized) 0.23 (0.09) 1.09 (0.99)
Total From Investment Operations 0.83 0.51 1.74 (0.48)
Less Distributions
Dividends (from net investment
income) (0.60) (0.60) (0.64) (0.51)
Distributions (from capital gains) 0.00 0.00 (0.15) 0.00
Returns of Capital 0.00 0.00 (0.25) 0.00
Total Distributions (0.60) (0.60) (1.04) (0.51)
Net Asset Value, End of Period $ 10.59 $ 10.36 $ 10.45 $ 9.75
Total Return 8.09% 4.66% 16.77% -3.94%
Ratios/Supplemental Data
Net Assets, End of Period $7,065,818 $6,712,914 $5,493,594 $3,985,744
Ratio of Expenses to Average Net Assets* 0.90%** 0.90% 0.88% 0.96%
Ratio of Net Investment Income to Average Net 5.70% 5.73% 6.06% 5.01%
Assets*
Portfolio Turnover Rate 127.63% 284.11% 245.32% 43.89%
</TABLE>
* The Portfolio commenced operations on December 4, 1989.
** Before expense reimbursements, Bond Portfolio's expenses would have been
1.02%.
*** Annualized for the period December 4 to December 31, 1989.
21
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
Value Equity Portfolio
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.00 $ 13.51 $ 13.46 $ 13.60
Income from Investment Operations
Net Investment Income 0.04 0.02 0.12 0.14
Net Gains or Losses on Securities
(both realized and unrealized) 3.44 0.80 3.17 0.13
Total From Investment Operations 3.48 0.82 3.29 0.27
Less Distributions
Dividends (from net investment income) (0.04) (0.02) (0.12) (0.14)
Distributions (from capital gains) (1.73) (1.31) (3.12) (0.27)
Returns of Capital 0.00 0.00 0.00 0.00
Total Distributions (1.77) (1.33) (3.24) (0.41)
Net Asset Value, End of Period $ 14.71 $ 13.00 $ 13.51 $ 13.46
Total Return 26.93% 6.94% 23.66% 2.03%
Ratios/Supplemental Data
Net Assets, End of Period $10,146,856 $8,518,192 $8,244,957 $7,379,295
Ratio of Expenses to Average Net Assets* 0.90%** 0.90% 0.90% 0.96%
Ratio of Net Investment Income to Average Net 0.28% 0.17% 0.81% 1.03%
Assets*
Portfolio Turnover Rate 50.97% 46.78% 103.07% 35.99%
Average Commission Rate Paid $ 0.0560 $ 0.0600 $ 0.0608 $ 0.0738
</TABLE>
* The Portfolio commenced operations on December 4, 1989.
** Annualized for the period December 4 to December 31, 1989.
22
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
Capital Portfolio
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 13.96 $ 13.55 $ 10.48 $ 11.06
Income from Investment Operations
Net Investment Income 0.00 0.03 0.02 0.01
Net Gains or Losses on Securities
(both realized and unrealized) 2.75 1.68 3.56 (0.46)
Total From Investment Operations 2.75 1.71 3.58 (0.45)
Less Distributions
Dividends (from net investment income) 0.00 (0.03) (0.01) (0.01)
Distributions (from capital gains) (2.56) (1.27) (0.50) (0.12)
Returns of Capital 0.00 0.00 0.00 0.00
Total Distributions (2.56) (1.30) (0.51) (0.13)
Net Asset Value, End of Period $ 14.15 $ 13.96 $ 13.55 $ 10.48
Total Return 21.14% 12.65% 33.99% -4.11%
Ratios/Supplemental Data
Net Assets, End of Period $6,494,058 $6,676,516 $6,366,302 $3,847,365
Ratio of Expenses to Average Net Assets* 0.90%** 0.90% 0.88% 0.92%
Ratio of Net Investment Income to Average Net 0.03% 0.19% 0.11% 0.09%
Assets*
Portfolio Turnover Rate 84.39% 54.11% 33.42% 55.99%
Average Commission Rate Paid $ 0.0490 $ 0.0564 $ 0.0562 $ 0.0568
</TABLE>
* The Portfolio commenced operations on May 1, 1993.
** Annualized for the period May 1 to December 31, 1993.
23
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
International Equity Portfolio
<TABLE>
<CAPTION>
Period
Year Ended Year Ended Year Ended 5/1/95 to
12/31/98 12/31/97 12/31/96 12/31/95
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 11.82 $ 10.09 $ 10.00 *
Income from Investment Operations
Net Investment Income 0.07 0.16 0.10
Net Gains or Losses on Securities
(both realized and unrealized) 0.56 1.83 0.49
Total From Investment Operations 0.63 1.99 0.59
Less Distributions
Dividends (from net investment income) (0.07) (0.16) (0.10)
Distributions (from capital gains) (0.74) (0.10) (0.40)
Returns of Capital 0.00 0.00 0.00
Total Distributions (0.81) (0.26) (0.50)
Net Asset Value, End of Period $ 11.64 $ 11.82 $ 10.09
Total Return 4.32% 19.44% 8.53% ***
Ratios/Supplemental Data
Net Assets, End of Period $4,771,122 $3,305,190 $2,085,588
Ratio of Expenses to Average Net Assets* 1.20%** 1.20% 1.20% ***
Ratio of Net Investment Income to Average Net Assets* 0.57% 1.44% 1.43% ***
Portfolio Turnover Rate 37.73% 56.28% 33.56%
Average Commission Rate Paid $ 0.0380 $ 0.1961 $ 0.1951
</TABLE>
* The Portfolio commenced operations on May 1, 1995.
** Before expense reimbursements, International Equity Portfolio's expenses
would have been 1.32%.
*** Annualized for the period May 1 to December 31, 1995.
24
<PAGE>
APPENDIX
The following Morgan Stanley industry sectors are used as representative of a
reasonable cross-section of economic activity:
Energy
Materials
Capital Equipment
Consumer Goods
Services
Finance
Multi-Industry
Gold Mines
The following table summarizes each Portfolio's investment policies and
limitations. Permissible investments are checked. Percentages show a limit on
a Portfolio's assets that may be invested in accordance with the indicated
investment, instrument or technique.
[Note: I think this would be more readable to structure it with the Portfolios
across the top and investment, instrument, or technique down in a list.]
<TABLE>
<CAPTION>
Money Bond Value Managed Capital International
Market Portfolio Equity Portfolio Portfolio Equity
Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Repurchase Agreements
- -----------------------------------------------------------------------------------------------------------------
Reverse Repurchase
Agreements
- -----------------------------------------------------------------------------------------------------------------
Restricted Securities
- -----------------------------------------------------------------------------------------------------------------
Structured and Indexed
Securities
- -----------------------------------------------------------------------------------------------------------------
Purchasing/Writing Options
- -----------------------------------------------------------------------------------------------------------------
Futures and Options on
Futures
- -----------------------------------------------------------------------------------------------------------------
Forward Currency
Transactions
- -----------------------------------------------------------------------------------------------------------------
Options on Foreign
Currencies
- -----------------------------------------------------------------------------------------------------------------
Maximum Investment in Debt
Securities
- -----------------------------------------------------------------------------------------------------------------
Maximum Investment in
Lower-quality Debt
Securities
- -----------------------------------------------------------------------------------------------------------------
Maximum Investment in
Foreign Securities
- -----------------------------------------------------------------------------------------------------------------
When-Issued & Delayed
Delivery
- -----------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities
- -----------------------------------------------------------------------------------------------------------------
Debt Obligations of
Supra-National Agencies
- -----------------------------------------------------------------------------------------------------------------
Depositary Receipts
- -----------------------------------------------------------------------------------------------------------------
Securities of Other
Investment Funds
- -----------------------------------------------------------------------------------------------------------------
Municipal Leases
- -----------------------------------------------------------------------------------------------------------------
Floating & Variable Rate
Instruments
- -----------------------------------------------------------------------------------------------------------------
Zero Coupon Obligations
- -----------------------------------------------------------------------------------------------------------------
Municipal Obligation Components
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Custodial Receipts
- -----------------------------------------------------------------------------------------------------------------
Mortgage Related Securities,
Including CMOs
- -----------------------------------------------------------------------------------------------------------------
Government Stripped Mortgage
Related Securities
- -----------------------------------------------------------------------------------------------------------------
Mortgage Dollar Rolls
- -----------------------------------------------------------------------------------------------------------------
Short Sales Against the Box
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
[Fill in Chart with "Yes"/ "No" or a percentage, as appropriate. Delete any
inapplicable items; add any items missing.]
26
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUND
Annual/Semi-Annual Shareholder Reports:
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its last fiscal year.
Statement of Additional Information ("SAI"):
The SAI, which contains additional information about the Fund, has been filed
with the SEC and is included in this prospectus by reference. Information about
the Fund (including the shareholder reports and the SAI) can be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Information on
the operation of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330.
Reports and other information about the Fund are available on the SEC's Internet
site at http://www.sec.gov and copies of this information may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC, Washington, D.C. 20549-6009.
A free copy of the Fund's SAI and annual report may be obtained, and further
inquiries can be made, by calling the Fund at 1-800-[______] or by writing to
the Fund at [______________]. The Fund's website is [_________].
Investment Company Act File No.: 811-5816
27
<PAGE>
_______________________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
_______________________________________________________________________________
CANADA LIFE OF AMERICA SERIES FUND, INC.
May 1, 1999
This Statement of Additional Information ("SAI") is not a prospectus. Investors
should read this SAI with Canada Life of America Series Fund, Inc.'s (the
"Fund's") prospectus dated May 1, 1999 and 1998 annual shareholder report.
Investors may obtain a free copy of the prospectus and annual shareholder report
by writing or calling us at:
Canada Life of America Series Fund, Inc.
6201 Powers Ferry Road, NW,
Atlanta, Georgia, 30339
phone number (800) 905-1959 (toll free)
or by accessing the Securities and Exchange Commission's website at
http://www.sec.gov.
<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS........................................................... 1
INVESTMENT OBJECTIVES, POLICIES, PRACTICES, AND RISKS....................... 2
INVESTMENT OBJECTIVES AND POLICIES.......................................... 2
INVESTMENT PRACTICES........................................................ 6
INVESTMENT RESTRICTIONS..................................................... 11
PORTFOLIO TURNOVER.......................................................... 12
DIVIDENDS................................................................... 13
INVESTMENT EXPERIENCE INFORMATION........................................... 13
Average Annual Compounded Rates of Return as of 12/31....................... 13
MANAGEMENT OF THE FUND...................................................... 14
PURCHASE AND REDEMPTION OF SHARES........................................... 21
DETERMINATION OF NET ASSET VALUE............................................ 21
TAXES....................................................................... 22
GENERAL INFORMATION......................................................... 22
<PAGE>
INVESTMENT OBJECTIVES, POLICIES, PRACTICES, AND RISKS
Canada Life of America Series Fund, Inc. is registered with the Securities and
Exchange Commission ("SEC") as an open-end management investment company and was
organized on February 23, 1989 as a Maryland corporation.
Fund shares are not offered directly to the public but are currently sold only
to Canada Life Insurance Company of America (the "Company"), Canada Life
Insurance Company of New York ("CLNY"), and to certain of their separate
accounts to fund the benefits under certain variable policies (the "policies")
issued by the respective insurance companies. The separate accounts invest in
Fund shares in accordance with instructions received from policy owners. Fund
shares also may be sold to The Canada Life Assurance Company ("Canada Life"),
its affiliates and their separate accounts. The Company and CLNY are wholly
owned subsidiaries of Canada Life. Canada Life commenced operations in 1847 and
has been actively operating in the United States since 1889. Canada Life is one
of the largest life insurance companies in North America with consolidated
assets as of December 31, 1998 of approximately $_________ billion (U.S.
dollars).
A policy owner's beneficial interest in the Fund is limited to the assets of the
particular Portfolios in which the policy hold's shares.
The Fund currently offers six series (each, a "Portfolio"). These Portfolios
are Bond, Capital, International Equity, Managed, Money Market, and Value Equity
Portfolios. Each Portfolio has its own investment objective, policies and
restrictions that determine its investment return. There is no assurance that
any Portfolio will achieve its investment objective. The investment objective
of each Portfolio is not fundamental and, accordingly, the Board of Directors
("Board") may change the objective without shareholder approval. If the Board
were to change an objective, it would notify the shareholders promptly.
Each Portfolio is subject to a different degree of market and credit or
financial risk. Market risk refers to the volatility of security prices due to
changes in securities market conditions in general and, particularly in the case
of debt securities, changes in the overall level of interest rates. Credit or
financial risk refers to the ability of an issuer of a debt security to pay
principal and interest on such security and to the earnings stability and
overall financial soundness of an issuer of an equity security. Current income
volatility refers to the degree and rapidity with which changes in the overall
level of interest rates become reflected in the level of current income of the
Portfolios. This factor depends upon the overall maturity of the securities in
a Portfolio, since changing interest rates do not affect the current income
levels of a pre-existing portfolio of fixed-rate securities.
The following section explains more about the investments and investment
techniques in which the Portfolios invest. It also includes a brief discussion
about the specific risks associated with a particular investment or technique.
Any investments, policies and restrictions generally are considered at the time
of purchase; the sale of instruments is not required in the event of a
subsequent change in circumstances.
The following supplements the Fund's "Investment Objectives, Policies,
Practices, and Risks" set forth in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
Money Market Portfolio
The investment objective of Money Market Portfolio is to provide the highest
possible level of current income, consistent with preservation of capital and
liquidity. Money Market Portfolio seeks to achieve its objective by investing
in high quality money market instruments, including:
1. obligations issued or guaranteed as to principal and interest by the
United States Government or any agency or authority controlled or
supervised by and acting as an instrumentality of the U.S. Government
pursuant to authority granted by Congress;
2. obligations, such as certificates of deposit and banker's acceptances,
of U.S. or Canadian banks, U.S. savings and loans associations, and
Canadian trust companies which at the date of investment have capital,
surplus and undistributed profits as of the date of their most recent
published financial statements of $500,000,000 or greater;
3. commercial paper or bank loan participations;
4. corporate obligations;
5. obligations issued or guaranteed as to principal and interest by the
Government of Canada, the government of any province of Canada, or any
Canadian or provincial Crown agency; and
6. repurchase agreements that mature within seven days.
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All investments of Money Market Portfolio will be denominated in U.S. currency,
and the Portfolio will limit its investments to instruments that the Board
determines present minimal risks and which generally are, at the time of
acquisition, either:
1. rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations ("Rating
Agency"); or
2. by one Rating Agency if that Rating Agency is the only Rating
Agency that has rated the instrument or issuer; or
3. if the instrument is not rated, is of comparable quality as determined
by the Board; or
4. issued by an issuer that has received a rating of the type described in
"1" or "2" above on other securities that are comparable in priority and
security to the instrument.
All of the money market investments mature in thirteen months or less. Money
Market Portfolio uses the amortized cost method of securities valuation. See
"Valuation of Shares."
Because of the short-term nature of the Money Market Portfolio's investments, a
portfolio turnover rate is not applicable. Investment in shares of Money Market
Portfolio should be subject to relatively little market risk and financial risk
but a high level of current income volatility.
Bond Portfolio
As stated in the prospectus, Bond Portfolio's investment objective is to provide
as high a level of current income and capital appreciation, as is consistent
with preservation of principal. Bond Portfolio seeks to achieve its objective
by investing primarily in U.S. dollar-denominated debt instruments. At least
80% of Bond Portfolio's assets are invested in the following:
1. obligations issued or guaranteed as to principal and interest by the
United States Government or any agency or authority controlled or
supervised by and acting as an instrumentality of the U.S. Government
pursuant to authority granted by Congress;
2. publicly-traded debt instruments which are rated within the four highest
categories by Moody's Investors Service or Standard & Poor's
Corporation, or Duff & Phelps;
3. obligations issued or guaranteed as to principal and interest by the
Government of Canada, the government of any province of Canada, or any
Canadian or provincial Crown agency.
The remaining 20% of total assets of Bond Portfolio may be invested in lower
quality debt instruments of high yield debt instruments. Generally, these
provide higher yields but are subject to greater market fluctuations and risk of
loss of income and principal than higher quality debt instruments. Bond
Portfolio does not invest in any instruments that are rated lower than B. Bond
Portfolio will not directly purchase common stocks. However, it may retain up
to 20% of the value of its total assets in debt instruments or preferred shares
which are convertible into common shares. Bond Portfolio may also invest up to
10% of its total assets in privately placed debt instruments that carry
registration rights exercisable within twelve months of the date of investment.
Cash and money market instruments of the type in which Money Market Portfolio
may invest (described below), pending investment in accordance with Bond
Portfolio's investment policies and to provide for expenses and anticipated
redemption payments. Bond Portfolio also may enter into repurchase agreements,
engage in options trading to the extent described under "Put And Call Options",
and, subject to its fundamental policies, may make loans of portfolio
securities.
Investment in shares of Bond Portfolio generally should be subject to relatively
low financial risk, moderately high market risk and moderately low current
income volatility. However, to the extent Bond Portfolio invests up to 20% of
its assets in lower quality debt instruments, these instruments could increase
financial risk and income volatility. Bond Portfolio may have more than 20% of
its assets in lower quality debt instruments if debt instruments rated in the
fourth highest category when purchased are subsequently downgraded. See "Lower
Quality Debt Instruments."
Value Equity Portfolio
As described in the prospectus, Value Equity Portfolio's investment objective is
to provide long-term growth and income by investing in equity securities that
are believed to have appreciation potential. The Adviser's equity investment
philosophy is based upon a fundamental value approach to security evaluation,
designed to preserve capital over a long-term investment horizon. The Adviser
seeks to accomplish this objective through the purchase of stocks with poor
current market psychology that are undervalued relative to normal earnings
power. Value Equity Portfolio pursues its objective by investing primarily in
common stocks. It may invest in other securities, including rights, warrants,
preferred stock and debt securities convertible into or carrying rights or
warrants to purchase common stock or to participate in earnings. Value Equity
Portfolio's investments are not limited to any particular type or size of
company. Investments are made primarily in equity securities of companies that
are publicly traded on a U.S. stock exchange or in the
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over-the-counter market of the National Association of Securities Dealers. Up to
20% of Value Equity Portfolio, by market value, may be invested from time to
time in equity securities listed on Canadian or other foreign stock exchanges.
For prudent diversification, Value Equity Portfolio maintains at all times
investments in at least 30 individual companies, in each case limited to 5% of
the Portfolio's total assets. Value Equity Portfolio also may maintain up to
25% of its total market value in cash or money market instruments, either
pending selection of particular equity investments, or for defensive purposes.
Money market instruments are those eligible for investment by the Money Market
Portfolio. Value Equity Portfolio may enter into repurchase agreements, engage
in options trading to the extent described under "Put And Call Options", and,
subject to its fundamental policies, may make loans of portfolio securities. In
addition, Value Equity Portfolio may invest in stock index futures, options on
stock index futures, and stock index options. See "Description of Certain
Investment Practices."
Investment in shares of Value Equity Portfolio should be subject to moderate
levels of both market and financial risk.
Managed Portfolio
As stated in the prospectus, Managed Portfolio's investment objective is to
achieve as high a level of return as possible, through capital appreciation and
income, consistent with prudent investment risk and preservation of capital.
This Portfolio seeks to achieve its objective by following a fully managed
investment policy through investment in three sectors:
1. the Money Market Sector, which consists of money market instruments and
other debt instruments, of the type eligible for investment by the Money
Market Portfolio, with maturities not exceeding one year;
2. the Bond Sector, which consists of bonds and other debt securities, of
the type eligible for investment by the Bond Portfolio, with maturities
exceeding one year; and
3. the Equity Sector, which consists of common stocks, securities
convertible into common stocks and warrants, of the type eligible for
investment by Value Equity Portfolio.
There are no minimum or maximum percentages as to the amount of the Managed
Portfolio's assets that may be invested in each sector. The asset mix of
Managed Portfolio is adjusted based on the Adviser's analysis of the political
and economic outlook over the next six to eighteen months, taking into account
such factors as inflation, growth, trends in currency values, commodity prices
and relative values of stocks and bonds. Managed Portfolio may enter into
repurchase agreements, engage in options trading to the extent described under
"Put and Call Options", and, subject to its fundamental policies, may make loans
of portfolio securities. In addition, Managed Portfolio may invest in stock
index futures, options on stock index futures, and stock index options. See
"Description of Certain Investment Practices."
Investment in shares of Managed Portfolio should generally be subject to
moderate levels of both market and financial risk and relatively high levels of
current income volatility. However, should Managed Portfolio invest a
substantial portion of its assets in lower quality debt instruments, market and
financial risk could increase. See "Lower Quality Debt Instruments."
Capital Portfolio
As stated in the prospectus, Capital Portfolio's investment objective is to
provide 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. The adviser selects common stocks
principally for the near or intermediate-term prospects of capital appreciation
potential. Stocks selected may be those believed to be underpriced or stocks of
growth companies, cyclical companies, or companies believed to be undergoing a
basic change for the better. They may be stocks of established, well-known
companies or of newer, less-seasoned companies believed to have better-than-
average prospects.
Capital Portfolio may, pending investment and for temporary defensive purposes,
hold cash and invest without limitation in high-grade, short-term money market
instruments, including repurchase agreements, of the types in which Money Market
Portfolio may invest.
Investment in shares of Capital Portfolio should generally be subject to
moderate levels of both market and financial risk.
International Equity Portfolio
As stated in the prospectus, International Equity Portfolio's investment
objective is to provide long-term capital appreciation by investing in equity or
equity type securities of companies located outside of the United States.
International Equity Portfolio seeks diversification by purchasing securities
from various countries that offer different investment opportunities and are
affected by different economic trends. Although International Equity Portfolio
normally invests in issuers in developed countries, it also may invest in
developing countries. Investments in developing markets provide greater
opportunities for growth although they are
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expected to be more volatile than securities in developed markets. Investing in
foreign securities may involve greater risk than investing in domestic
securities because of the possibilities of exchange rate fluctuations, currency
exchange controls, lack of uniformity of accounting, auditing and financial
reporting standards, war, expropriation, and less securities regulations. See
"Developing Countries".
International Equity Portfolio is intended for investors who can accept the
risks involved in investments in equity and equity-related securities of issuers
located outside the United States, as well as in foreign currencies and in the
active management techniques that International Equity Portfolio generally
employs.
The equity and equity-related securities in which International Equity Portfolio
primarily invests are common stock, preferred stock, convertible preferred stock
and warrants or other rights to acquire stock that the Subadviser believes offer
the potential for long-term capital appreciation. International Equity
Portfolio also may invest in securities of foreign issuers in the form of
sponsored and unsponsored American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") or other similar instruments representing
securities of foreign issuers. EDRs are receipts issued by a European financial
institution evidencing an arrangement similar to ADRs. Generally, ADRs, in
registered form, are designed for trading in U.S. securities markets and EDRs,
in bearer form, are designed for trading in European securities markets.
Investment in International Equity Portfolio involves the greatest degree of
market and financial risk of any of the Portfolios.
As nonfundamental policies, International Equity Portfolio:
1. limits its exposure to developing markets to a maximum of 30% of its net
assets;
2. limits its exposure to a single industry group to 25% of its net assets;
3. limits its exposure to a single country, excluding [England and ]Japan, to
[25]% of its total assets;
4. normally maintains investments in [at least 4 different countries and ]a
minimum of 40 individual company holdings;
5. maintains exposure to a minimum of 5 of the 8 industry groups as defined by
Morgan Stanley (see the Appendix to the prospectus);
6. may, for defensive purposes only, hedge International Equity Portfolio
currency exposure through the use of futures, options, or currency contracts
(see "Currency Hedging" ); and
7. may, for short-term investment or defensive purposes only, invest in short-
term instruments of U.S. or foreign issuers.
Money Market Instruments. Certain money market instruments are described below.
The Money Market Portfolio may use them extensively and other Portfolios also
may use them, as outlined in the Prospectus and described above.
Banker's Acceptances. A banker's acceptance is a short-term credit instrument
evidencing the obligation of a bank to pay a draft that has been drawn on it by
a customer. These instruments reflect the obligation of both the bank and the
drawer to pay the face amount of the instrument upon maturity. They are
primarily used to finance the import, export, transfer or storage of goods.
They are termed "accepted" when a bank guarantees their payment at maturity.
Canadian And Provincial Government And Crown Agency Obligations. Canadian
Government obligations are debt securities issued or guaranteed as to principal
and interest by the Government of Canada pursuant to authority granted by the
Parliament of Canada and approved by the Governor in Council where necessary.
These securities include treasury bills, notes, bonds, debentures and marketable
Government of Canada loans. Canadian Crown agency obligations are debt
securities issued or guaranteed by a Crown corporation, company or agency
("Crown agencies") pursuant to authority granted by the Parliament of Canada and
approved by the governor in Council, where necessary.
Provincial Government obligations are debt securities issued or guaranteed as to
principal and interest by the government of any province of Canada pursuant to
authority granted by the Legislature of any such province and approved by the
Lieutenant Governor in Council of any such province, where necessary. These
securities include treasury bills, notes, bonds and debentures.
Provincial Crown agency obligations are debt securities issued or guaranteed by
a provincial Crown corporation, company or agency pursuant to authority granted
by a provincial Legislature and approved by the Lieutenant Governor in Council
of such province, where necessary. Certain provincial Crown agencies are by
statute agents of Her Majesty in right of a particular province of Canada, and
their obligations, when properly authorized, constitute direct obligations of
such province. Other provincial Crown agencies, which are not by law agents of
Her Majesty in right of a particular province of Canada, may issue obligations
which by statute the Lieutenant Governor in Council of such province may
guarantee, or may authorize the Treasurer thereof to guarantee, on behalf of the
government of such province.
Finally, other provincial Crown agencies that are not by law agencies of Her
Majesty may issue or guarantee obligations not entitled to be guaranteed by a
provincial government. No assurance can be given that the government of any
province of Canada would support
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the obligations of provincial Crown agencies that are not agents of Her Majesty
or which it has not guaranteed, as it is not obligated to do so by law.
Provincial Crown agency obligations described above include, but are not limited
to, those issued or guaranteed by a provincial railway corporation, a provincial
hydroelectric or power commission or authority, a provincial municipal financing
corporation or agency and a provincial telephone commission or authority.
Any Canadian or Provincial government or Crown Agency obligation acquired by a
Fund Portfolio is denominated in U.S. currency.
Certificates Of Deposit. A certificate of deposit is a short-term, interest
bearing, negotiable certificate issued by a bank or a savings and loan
association against funds deposited in the issuing institution.
Commercial Paper. Commercial paper consists of unsecured promissory notes
issued by corporations to finance short-term credit needs. Commercial paper is
issued in bearer form, is usually sold on a discount basis, and has a maturity
at the time of issuance not exceeding nine months.
Corporate Obligations. Corporate obligations include bonds and notes issued by
corporations, generally to finance long-term credit needs.
Repurchase Agreements. A repurchase agreement is a transaction where a
Portfolio buys a security at one price and simultaneously agrees to sell that
same security back to the original owner at a specified price and date.
Generally, repurchase agreements are of short duration, often less than one week
but on occasion may be for longer periods. The repurchase price reflects an
agreed upon interest rate unrelated to the coupon rate on the underlying
obligation. Repurchase agreements entered into by the Fund are with banks,
brokers or dealers. All repurchase agreements entered into by a Portfolio are
subject to the Adviser evaluating the creditworthiness and financial
responsibility of the bank, broker or dealer with whom the agreement was entered
into. The Board establishes the standards utilized by the Adviser and
Subadvisers in evaluating the credit worthiness of the issuer. Repurchase
agreements will be fully collateralized at all times. Should an issuer of a
repurchase agreement fail to repurchase the underlying obligation, the loss to
the Portfolio, if any, would be the difference between the repurchase price and
the underlying obligation's market value. A Portfolio might also incur certain
costs in liquidating the underlying obligation. Moreover, if bankruptcy or
other insolvency proceedings should be commenced with respect to the seller,
realization upon the underlying obligation by the Fund might be delayed or
limited.
U.S. Government Securities. As used in this SAI, "U.S. government securities"
include securities issued by the U.S. Government, its agencies,
instrumentalities and government-sponsored enterprises. U.S. government
securities include a variety of Treasury securities that differ only in their
interest rates, initial maturities and dates of issuance. Treasury bills have
initial maturities of one year or less; Treasury notes have initial maturities
of one to ten years; and Treasury bonds generally have initial maturities of
greater than ten years at the date of issuance.
U.S. government securities include direct obligations of the U.S. Treasury and
securities issued or guaranteed by the Federal Housing Administration, Export-
Import Bank of the U.S., Small Business Administration, Government National
Mortgage Association, Federal Home Loan Mortgage Corporation, The Tennessee
Valley Authority, Student Loan Marketing Association and Federal National
Mortgage Association.
Some U.S. government securities, such as Treasury bills and Government National
Mortgage Association pass-through certificates, are supported by the full faith
and credit of the U.S.; others, such as securities of Federal Home Loan Banks,
are supported by the right of the issuer to borrow from the Treasury; still
others, such as bonds issued by the Federal National Mortgage Association, a
private corporation, are supported only by the credit of the instrumentality.
Because the U.S. Government is not obligated by law to provide support to an
instrumentality or government-sponsored enterprise, a Fund will invest in those
U.S. government securities only when the Fund's investment adviser, Travelers
Asset Management International Corporation ("TAMIC"), determines that the credit
risk with respect to the instrumentality or enterprise does not make its
securities unsuitable investments. U.S. government securities do not include
international agencies or instrumentalities in which the U.S. Government, its
agencies, instrumentalities or government-sponsored enterprises participate,
such as the World Bank, the Asian Development Bank or the Inter-American
Development Bank, or issues insured by the Federal Deposit Insurance
Corporation.
INVESTMENT PRACTICES
Currency Hedging. Because investment in foreign securities usually involves
currencies of foreign countries, the value of International Equity Portfolio's
assets as measured in U.S. dollars is affected by changes in foreign currency
exchange rates. To manage exposure to currency fluctuations, International
Equity Portfolio may buy and sell options and futures relating to foreign
currencies or enter into forward currency contracts (agreements to exchange one
currency for another at a future date).
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Successful hedging depends on International Equity Portfolio Subadviser's skill
in analyzing and predicting exchange rates, and could result in an opportunity
loss to International Equity Portfolio if currencies do not perform as the
Subadviser expects. For example, if a currency rises in value against the U.S.
dollar at a time when the currency had been hedged by selling that currency for
dollars, the Portfolio will not have an opportunity to benefit from the
currency's appreciation.
GNMA Certificates. Bond, Managed, and Capital Portfolios may each invest in
securities of the Government National Mortgage Agency ("GNMA"), a government
corporation within the U.S. Department of Housing and Urban Development. GNMA
Certificates are mortgage-backed securities representing part ownership in a
pool of mortgage loans. These loans, which are issued by lenders such as
mortgage bankers, commercial banks, and savings and loan associations, are
either insured by the Federal Housing Administration or guaranteed by the
Veterans Administration. A pool of these mortgages is assembled and, after
being approved by GNMA, is offered to investors through securities dealers. The
timely payment of interest and principal on each mortgage is guaranteed by GNMA
and backed by the full faith and credit of the U.S. Government.
GNMAs are called "pass-through" securities because both interest and principal
payments, including prepayments, are passed through to the holder of the
security. The payment of principal on the underlying mortgages may exceed the
minimum required by the schedule of payments for the mortgages. Such
prepayments are made at the option of the mortgagors for a wide variety of
reasons reflecting their individual circumstances. A Portfolio, when such
prepayments are passed through to it, may be able to reinvest them only at a
lower rate of interest. The Adviser or Subadvisers, in determining the
attractiveness of GNMA Certificates in comparison to alternative fixed-income
securities, and in choosing specific GNMA Certificates issues, make assumptions
as to the likely speed of prepayment. Actual experience may vary from these
assumptions, resulting in a higher or lower investment return than anticipated.
International Investments. The following information is of particular
importance to International Equity Portfolio. International investments can
involve significant risks in addition to those inherited in U.S. investments.
The value of assets denominated in foreign currencies can fluctuate
significantly as a result of changes in value of foreign currencies against the
U.S. dollar. Many international markets have less trading volume and liquidity
than U.S. markets, which may result in volatile security prices. Accounting and
disclosure standards in many international markets are neither uniform nor
comparable to U.S. standards, and it may be difficult to obtain reliable
information about a company's operations and financial condition. The costs of
investing in international markets (brokerage commissions, custodian fees,
withholding taxes, etc.) are higher than similar costs of investing in the U.S.
International markets and may offer less investor protection than U.S. markets.
It may be difficult to enforce legal rights in foreign countries. There may be
less government supervision and regulation of companies, brokers, and markets.
Trading and settlement practices may result in increased risk because of failed
trades or broker insolvency.
Investing in developing countries entails even greater risk. International
Equity Portfolio may invest in securities of companies located in countries with
developing economies or securities markets. These countries are located in the
Asia-Pacific region, Eastern Europe, Central and South America and Africa.
Political and economic structures in many of these countries may be undergoing
significant evolution and rapid development, and such countries may lack the
social, political and economic stability characteristic of more developed
countries. Certain of these countries may have in the past failed to recognize
private property rights and have at times nationalized or expropriated the
assets of private companies. As a result, the risks of foreign investment
generally including the risks of nationalization or expropriation of assets, may
be heightened.
The small size and inexperience of the securities markets in certain of these
countries and the limited volume of trading in securities in those countries may
also make International Equity Portfolio's investments in such countries
illiquid and more volatile than investments in developed countries, and this
Portfolio may be required to establish special custody arrangements before
making certain investments in those countries. There may be little financial or
accounting information available with respect to issuers located in such
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers. The laws of some foreign countries may limit
the availability of International Equity Portfolio to invest in securities of
certain issuers located in those countries.
Loans Of Portfolio Securities. Subject to its fundamental policies, for the
purpose of realizing additional income, each Portfolio may lend securities from
its Portfolio (but not in excess of 30% of its total assets), to brokers,
dealers, and financial institutions. Any such loans are continuously secured by
collateral at least equal to the current market value of the securities loaned
plus accrued interest. The Portfolio may, at any time, call the loan and regain
the securities loaned. Prior to making a loan, the Adviser or Subadvisers must
determine that each borrower shows satisfactory creditworthiness. The Board
establishes the standards utilized by the Adviser and Subadvisers in evaluating
the borrower's creditworthiness. The risk involved in loans of portfolio
securities is minimized because, if the borrower were to default, the collateral
held by the Portfolio should satisfy the obligation.
A Portfolio retains all rights of beneficial ownership in the loaned securities,
including voting rights and rights to interest or other distributions, and has
the right to regain record ownership of loaned securities to exercise such
beneficial rights.
Lower Quality Debt Instruments. Up to 20% of Bond Portfolio's total assets may
be invested in lower quality debt instruments (i.e. BB or B as rated by Standard
& Poors ("S&P") and Duff & Phelps ("D&P") or Ba or B as rated by Moody's
Investors Service
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("Moody's")). Managed Portfolio also may invest a substantial portion of its
assets in such instruments. These instruments also are referred to as high-
yield, high-risk or junk bonds. Debt instruments with higher ratings, and
especially those rated as investment grade but not high quality (i.e., rated BBB
by S&P or D&P or Baa by Moody's) may, after purchase by either Portfolio, have
their ratings lowered due to the deterioration of an issuer's financial
position. Bond and Managed Portfolios both may invest without limit in
investment-grade debt instruments that are not "high quality" debt instruments
and that may be downgraded to lower quality at any time after being purchased by
a Portfolio.
Lower quality debt instruments entail certain risks. These lower-rated fixed-
income securities are considered, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation and generally involve more credit risk than securities
in the higher rating categories. The market values of such securities tend to
reflect individual corporate developments to a greater extent than do higher-
rated securities, which react primarily to fluctuations in the general level of
interest rates. Such lower-rated securities also tend to be more sensitive to
economic conditions than higher-rated securities. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, regarding
lower-rated bonds may depress prices and liquidity for such securities. To the
extent a Portfolio invests in these securities, factors adversely affecting the
market value of high-yielding securities will adversely affect a Portfolio's net
asset value. In addition, a Portfolio may incur additional expenses to the
extent it is required to seek recovery upon a default in the payment of
principal or interest on its portfolio holdings. Although some risk is inherent
in all securities ownership, holders of fixed-income securities have a claim on
the assets of the issuer prior to the holders of common stock. Therefore, an
investment in fixed-income securities generally entails less risk than an
investment in common stock of the same issuer.
Corporations may issue high-yielding securities in the growth stage of their
development. They may also be issued in connection with a corporate
reorganization or as part of a corporate takeover. Companies that issue such
high-yielding securities are often highly leveraged and may not have more
traditional methods of financing available to them. Therefore, the risk
associated with acquiring the securities of such issuers generally is greater
than is the case with higher-rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, highly leveraged
issuers of high-yielding securities may experience financial stress. During
such periods, such issuers may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific corporate developments,
the issuer's inability to meet specific projected business forecasts, or the
unavailability of additional financing. The risk of loss due to default by the
issuer is significantly greater for the holders of high-yielding securities
because such securities are generally unsecured and are often subordinated to
other creditors of the issuers.
High-yielding securities frequently have call or buy-back features that would
permit an issuer to call or repurchase the security from a portfolio. If an
issuer were to exercise a call during a period of declining interest rates, a
Portfolio would likely have to replace such called security with a lower
yielding security, thus decreasing the net investment income to the Portfolio.
A Portfolio may have difficulty disposing of certain high-yielding securities
that are thinly traded. Because not all dealers maintain markets in all high-
yielding securities, there is no established retail secondary market for many of
these securities, and the Adviser and Subadvisers anticipate that they could be
sold only to a limited number of dealers or institutional investors. To the
extent there is a secondary trading market for high-yielding securities, it is
generally not as liquid as that for higher-rated securities. The lack of a
liquid secondary market for certain securities may make it more difficult to
obtain accurate market quotations for purposes of valuing a Portfolio's assets.
Market quotations are generally available on many high-yield issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
The market for high-yielding securities has not weathered a major economic
recession, and it is not known how one might affect that market. It is likely,
however, that any such recession could severely affect the market for and the
values of such securities, as well as the ability of the issuers of such
securities to repay principal and pay interest thereon.
A Portfolio may acquire high-yielding securities that are sold without
registration under the federal securities laws and therefore carry restrictions
on resale. A Portfolio may incur special costs in disposing of such securities
but will generally incur no costs when the issuer is responsible for registering
the securities.
A Portfolio also may acquire high-yielding securities during an initial
underwriting. Such securities involve special risks because they are new
issues. The Fund has no arrangement with any person concerning the acquisition
of such securities, and the Adviser will carefully review the credit and other
characteristics pertinent to such new issues.
From time to time, there have been proposals for legislation designed to limit
the use of certain high-yielding securities in connection with leveraged buy-
outs, mergers and acquisitions, or to limit the deductibility of interest
payments on such securities. Such proposals, if enacted into law, could
generally reduce the market for such securities, could negatively affect the
financial condition of issuers of high-yielding securities by removing or
reducing a source of future financing, and could negatively affect the value of
specific high-yield issues. However, the likelihood of any such legislation or
the effect thereof is uncertain.
7
<PAGE>
Put And Call Options. Each Portfolio, except the Money Market Portfolio, may
invest up to 5% of its assets in premiums on put options, provided that the
Portfolio owns the securities underlying the puts or securities substantially
similar to such underlying securities. Each Portfolio, except the Money Market
Portfolio, may also write call options on securities held by it, or that can be
readily acquired by exercise of conversion privileges on convertible securities,
provided that not more than 25% of the total assets of a Portfolio would be
subject to call options. The Portfolios do not sell put options or purchase
call options unless the transaction is for the purpose of closing out existing
options positions. Put options purchased by a Portfolio and call options
written by a Portfolio, and the securities underlying such options, are listed
on national securities exchanges or traded in the over-the-counter market. A
Portfolio may enter into closing transactions, exercise its options or permit
them to expire.
A put option gives the holder (buyer) the right to sell a security at a
specified price (the "exercise" price) at any time until a certain date (the
expiration date). In effect, the buyer of a put who also owns the related
security is protected by ownership of a put option against any decline in that
security's price below the exercise price less the amount paid for the option.
The ability to purchase put options allows a Portfolio to protect capital gains
in an appreciated security it owns, without being required to actually sell that
security.
In writing "covered" call options, a Portfolio gives the holder (purchaser) the
right to purchase the underlying security at a specified price (the "exercise"
price) at any time prior to the expiration of the option, normally within nine
months. Immediately upon writing the option, the Portfolio receives a payment
from the purchaser of the option known as a "premium." If the option is not
exercised, the premium generates additional revenues for the Portfolio or, if
the market price of the underlying security declines, it reduces the amount of
loss the Portfolio would otherwise incur. However, if the market price of the
underlying security rises above the exercise price and the option is exercised,
the Portfolio loses the opportunity to profit from that portion of the rise
which is in excess of the exercise price plus the premium for the call.
Therefore, a Portfolio writes call options only when the Adviser believes that
the option premium will yield a greater return to the Portfolio than any capital
appreciation that might occur on the underlying security during the life of the
option, or when the Adviser believes that the option will reduce the risk
involved in owning the underlying security. For information regarding
investment by Value Equity, Managed, Capital and International Equity Portfolios
in stock index futures, options on stock index futures, and stock index options,
see below.
Stock Index Futures, Options On Stock Index Futures, And Stock Index Options.
Purchase or sales of stock index futures contracts may be used by Value Equity,
Managed, Capital, and International Equity Portfolios to attempt to protect the
Portfolio's current or intended investments from fluctuations in securities
prices. By establishing an appropriate "short" position in index futures, a
Portfolio may seek to protect the value of its investments against an overall
decline in the market for such securities. Alternatively, in anticipation of a
generally rising market, a Portfolio can seek to avoid losing the benefit of
apparently low current prices by establishing a "long" position in stock index
futures and later liquidating that position as particular securities are in fact
acquired. To the extent that these hedging strategies are successful, the
Portfolio is effected to a lesser degree by adverse overall market price
movements than would otherwise be the case.
A Portfolio incurs brokerage fees when it purchases and sells futures contracts,
and it is required to maintain margin deposits. Initially, when purchasing or
selling futures contracts, a Portfolio is required to deposit with the broker an
amount of cash or U.S. government securities equal to approximately 5% to 10% of
the contract amount. This amount is subject to change by the exchange or board
of trade on which the contract is traded, and members of such exchange or board
of trade may impose their own higher requirements. This amount is known as
"initial margin" and is in the nature of a performance bond or good faith
deposit on the contract. It is returned to the Portfolio upon termination of
the futures position, assuming all contractual obligations have been satisfied.
Subsequent payments, known as "variation margin" to and from the broker are made
daily as the price of the index of securities underlying the futures contract
fluctuates, making the long and short positions in the futures contract more or
less valuable, a process known as "mark-to-market." At any time prior to the
expiration of a futures contract, a Portfolio may elect to close the position by
taking an opposite position at the then prevailing price, which operates to
terminate the Portfolio's existing position in the contract.
Value Equity, Managed, Capital, and International Equity Portfolios also may
purchase and write call and put options on stock index futures contracts to
hedge their investments. A call option on a futures contract gives the
purchaser the right, in return for the premiums paid, to purchase a futures
contract (assume a "long" position) at a specified exercise price at any time
before the option expires. A put option gives the purchaser the right, in
return for the premium paid, to sell a futures contract (assume a "short"
position), for a specified exercise price, at any time before the option
expires.
Value Equity, Managed, Capital, and International Equity Portfolios also may
purchase and sell options on stock indices. Options on stock indices are
similar to options on stock except that: (a) the expiration cycles of stock
index options are monthly, while those of stock options are currently quarterly;
and (b) the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a stock index
gives the holder the right to receive a cash "exercise settlement amount" equal
to: (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise; multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount depends upon the
closing level of the stock index upon which the option is based being greater
than (in the case of a call) or less than (in the case of a put) the exercise
price of the option. The amount of cash received is equal to such
8
<PAGE>
difference between the closing price of the index and the exercise price of the
option expressed in dollars times a specified multiple. The writer of the option
is obligated, in return for the premium received, to make delivery of this
amount. The writer may offset its position in stock index options prior to
expiration by entering into a closing transaction on an exchange or, in the case
of options owned by the Portfolio, it may let the option expire unexercised.
When a Portfolio has a long position in a futures contract, the Portfolio either
covers the position or establishes a segregated asset account containing cash,
U.S. government securities, or other appropriate highly liquid securities equal
in value to the purchase price of the contract (less any margin on deposit).
When a Portfolio has a short position in a futures contract, the Portfolio
either covers the position or establishes a segregated asset account with cash,
U.S. government securities, or other appropriate high-grade debt obligations
equal to the market value of the instruments underlying the futures contract
(less any margin on deposit). Call options sold by a Portfolio with respect to
futures contracts are covered by, among other things: entering into a long
position in the same contract at a price no higher than the strike price of the
call option or by ownership of the underlying instruments or other instruments,
the prices of which are expected to move relatively consistently with the
instruments underlying, the futures contracts. Call options sold by a Portfolio
on a stock index are covered by the Portfolio's holding a portfolio of stocks
substantially replicating the movement of the index underlying the call option.
Put options sold by the Portfolio with respect to futures contracts or stock
indices are written only to close out existing positions.
There can be no assurance that the Adviser or Subadvisers of Value Equity,
Managed, Capital, or International Equity Portfolio will be successful in using
stock index futures, options on stock index futures, or stock index options as
hedging devices. For example, if the Portfolio has hedged against the
possibility of a decline in the market adversely affecting stocks held in its
portfolio and stock prices increase instead, the Portfolio will lose part or all
of the benefit of the increased value of its stocks that it has hedged because
it will have offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to sell
securities to meet daily variation margin requirements. Such sales of
securities may or may not be at increased prices that reflect the rising market.
The Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
Additional risks arise because of the imperfect correlation between movements in
the price of the stock index option or stock index future and movements in the
price of the securities that are the subject of the hedge. In addition to the
possibility that there may be an imperfect correlation, or no correlation at
all, between movements in the index and the portion of the portfolio being
hedged, the price of stock index options or futures may not correlate perfectly
with the movement in the stock index due to certain market distortions. First,
all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions that would distort the normal relationship between the index and
futures markets. Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market also may cause temporary price distortions. Due to the
possibility of price distortions in the futures market and because of the
imperfect correlation between movements in the stock index and movements in the
price of stock index futures, a correct forecast of general market trends still
may not result in a successful hedging transaction.
In addition, there can be no assurance that a liquid secondary market will exist
for any contract purchased or sold, and a Portfolio may be required to maintain
a position until exercise or expiration, which could result in losses. Most
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. Once the daily limit
has been reached in a particular contract, no trades may be made that day at a
price beyond that limit. Futures contract prices could move to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions. If a futures market were to
become unavailable, in the event of an adverse movement, the Portfolio would be
required to continue to make daily cash payments of variation margin if it could
not close a futures position. If an options market were to become unavailable
and a closing transaction could not be entered into, an option holder would be
able to realize profits or limit losses only by exercising an option, and an
option writer would remain obligated until exercise or expiration. Finally, if
a broker or clearing member of an options or futures clearing corporation were
to become insolvent, the Portfolio could experience delays or might not be able
to trade or exercise options or futures purchased through that broker. In
addition, the Portfolio could have some or all of its positions closed out
without its consent. If substantial and widespread, these insolvencies could
ultimately impair the ability of the clearing corporations to effect the
Portfolio's futures transactions. While the principal purpose of hedging is to
limit the affects of adverse market movements, the attendant expense may cause a
Portfolio's returns to be less than if hedging had not taken place. The overall
effectiveness of hedging therefore depends on the accuracy of the Portfolio's
Adviser or Subadviser in predicting future changes in interest rate levels or
securities price movements, as well as on the expense of hedging.
Warrants. Value Equity, Managed, Capital, and International Equity Portfolios
may invest in warrants. A warrant is a right to buy a certain security at a set
price during a certain time period. These Portfolios intend to purchase
warrants that are traded on a national securities exchange or in the over-the-
counter markets.
9
<PAGE>
INVESTMENT RESTRICTIONS
Each Portfolio is subject to the following two kinds of investment policies,
fundamental and nonfundamental, that also restrict it in implementing its
investment objective. Fundamental restrictions may be changed only with the
affirmative vote of a majority of a Portfolio's outstanding voting securities.
The Board may change nonfundamental restrictions without shareholder approval.
Shareholders will be notified promptly of any such changes.
The Fund's fundamental restrictions provide that no Portfolio will:
1. issue senior securities, except to the extent that the borrowing of
money, as permitted in restriction 6, may constitute the issuance of a
senior security;
2. invest more than 25% of its total assets in securities of issuers
primarily engaged in any one industry, excluding obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
obligations of banks or savings and loan associations, and instruments
secured by these instruments, such as repurchase agreements for U.S.
government securities. For purposes of this restriction, neither finance
companies nor utilities, as a group, are considered to be a single
industry. Such companies will be grouped instead according to their
services; for example, gas, electric and telephone utilities will each
be considered a separate industry;
3. invest more than 5% of its total assets in securities of any one issuer
or purchase more than 10% of the outstanding voting securities of an
issuer, excluding obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;
4. purchase or sell commodities, commodity contracts, real estate or real
estate mortgages, interests in oil, gas or other mineral exploration or
development programs, except that each portfolio may purchase securities
of issuers which invest or deal in any of the above, and except that
each portfolio may invest in securities secured by real estate or real
estate mortgages. This restriction does not apply to purchases and sales
of covered call options and put options to the extent described in
restriction 9; moreover, Value Equity, Managed, Capital, and
International Equity Portfolios may purchase and sell stock index
futures contracts, options on stock index futures contracts, and stock
index options as described in the prospectus and in the SAI. This
restriction also does not apply to obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities;
5. underwrite securities of other issuers except insofar as the Fund may be
deemed an underwriter under the Securities Act of 1933 in selling shares
of each portfolio;
6. borrow money, except from banks as a temporary measure for extraordinary
or emergency purposes (but not for investment or leveraging), or pledge
or mortgage more than 15% of total assets as security for such
indebtedness. The aggregate amount of any such indebtedness may not
exceed 10% of total assets at the time a loan is made, and a portfolio
may not make additional investments during any period that its
borrowings exceed 5% of total assets. Borrowings in relation to the
entry into stock index futures contracts, options on stock index futures
contracts, and stock index options shall not be deemed to be a violation
of this restriction, and Value Equity, Managed, Capital, and
International Equity Portfolios entry into collateral arrangements with
respect to stock index futures contracts, options on stock index futures
contracts, and stock index options with respect to initial or variation
margins will not be deemed to be pledges of these portfolio's assets;
7. purchase securities on margin, make short sales of securities, or
maintain a short position, except that the Fund may obtain short term
credit as may be necessary for the clearance of securities transactions,
and except that Value Equity, Managed, Capital, and International Equity
Portfolios may purchase or sell stock index futures contracts and may
make initial and variation margin payments in connection with purchases
or sales of stock index futures contracts, options on stock index
futures contracts, and stock index options;
8. lend money, except through the purchase of obligations in which a
Portfolio is authorized to invest or by entering into repurchase
agreements; and
9. write call options if more than 25% of the value of a Portfolio's total
assets would be subject to call options. Call options may only be
written on securities held, or which can be readily acquired by exercise
of conversion privileges on convertible securities or, in the case of
options written on stock indices, written on an index the movement of
which is substantially replicated by a portfolio of stocks held by the
Portfolio. Put options may only be purchased if 5% or less of total
assets would be invested in premiums on put options. Value Equity,
Managed, Capital, and International Equity Portfolios may purchase or
sell options on stock index futures contracts and stock index options as
described in the prospectus and SAI. Call options may be purchased and
put options may be sold only for the purpose of closing out existing
options positions.
10
<PAGE>
The Fund's nonfundamental restrictions provide that no Portfolio will:
1. invest more than [15]% of total assets in securities or other
investments, including repurchase agreements, that are subject to legal
or contractual restrictions upon resale or are otherwise not readily
marketable;
2. invest more than 5% of total assets in securities of other investment
companies, or purchase more than 3% of the total outstanding voting
stock of any single investment company, or invest more than 10% of total
assets in securities issued by investment companies, other than in
connection with a merger, consolidation, acquisition or reorganization;
3. lend portfolio securities in an amount greater than 30% of total assets;
or [can't lend securities until loan policy, #8 above, is amended to
exclude securities loans from loan prohibition]
4. invest more than 20% of total assets in securities of foreign issuers
with the exception of International Equity Portfolio, which may invest
100% of total assets in foreign securities.
If a percentage restriction (for either a fundamental or nonfundamental
restriction) is adhered to at the time of investment, a later increase or
decrease in percentage beyond the specified limit resulting from a change in
values of assets or amount of total assets generally is not considered a
violation of the restriction.
In addition to the investment restrictions described above, the Fund's
Portfolios comply with restrictions contained in any current insurance laws in
order that the assets of the separate accounts of the Company, CLNY and their
affiliates may be invested in Fund shares.
PORTFOLIO TURNOVER
Although the Funds do not intend to invest for the purpose of seeking short-term
profits, a Fund's investment adviser or subadviser may sell its securities
whenever the adviser or subadviser believes it is appropriate to do so in light
of the Fund's investment objective, without regard to the length of time a
particular security may have been held.
Normally, the annual rate of portfolio turnover differs for each Portfolio and
varies from year to year. Portfolio turnover is calculated by dividing the
lesser of purchases or sales of Portfolio securities during the fiscal year by
the monthly average of the value of the Portfolio's securities, excluding from
the computation all securities, including options, with maturities at the time
of acquisition of one year or less. A high rate of portfolio turnover generally
involves correspondingly greater brokerage commission expenses, which are borne
directly by the Portfolios. The rate of portfolio turnover is not a limiting
factor when it is deemed appropriate to purchase or sell securities for a
Portfolio.
No portfolio turnover rate can be calculated for Money Market Portfolio due to
the short maturities of its instruments. Portfolio turnover should not affect
the income or net asset value of Money Market Portfolio because brokerage
commissions are not normally charged on the purchase or sale of money market
instruments.
The following table shows significant variations in the portfolio turnover rates
for the Portfolios for the past two years and/or between the calendar year 1998
and the rate anticipated for the calendar year 1999:
[If there was no significant variation in a turnover rate between 1997 and 1998
and if no significant variation is expected between 1998 and 1999, mark out the
Portfolio. If there was significant variation between 1997 and 1998 but none is
expected between 1998 and 1999, mark N/A in the 1999 column. Need brief
explanation for each Portfolio reporting and/or estimating significant
variations.]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Turnover
Portfolio 1997 1998 1999
(Anticipated)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bond Portfolio
- ----------------------------------------------------------------------------------------
Capital Portfolio
- ----------------------------------------------------------------------------------------
Managed Portfolio
- ----------------------------------------------------------------------------------------
Value Equity Portfolio
- ----------------------------------------------------------------------------------------
International Equity Portfolio
- ----------------------------------------------------------------------------------------
</TABLE>
N/A = no significant variation is expected for 1999.
11
<PAGE>
DIVIDENDS
Dividends from net investment income and any net realized capital gains of Money
Market Portfolio are declared daily and reinvested monthly in additional shares
of the Money Market Portfolio at net asset value. Dividends from net investment
income and any net realized capital gains of Value Equity, Bond, Managed,
Capital, and International Equity Portfolios are declared and reinvested
annually in additional shares of the respective Portfolio at its net asset
value.
INVESTMENT EXPERIENCE INFORMATION
The information provided in this section shows the historical investment
experience of the Fund's Portfolios. It does not represent or project future
investment performance.
Four Portfolios of the Fund commenced operations on December 4, 1989. The rates
of return shown below depict the actual investment experience of each Portfolio
for the periods shown. Capital Portfolio commenced operations on May 1, 1993
and International Equity Portfolio commenced operations on May 1, 1995.
Performance Quotations
The rates of return shown below are based on actual investment performance,
after the deduction of investment advisory fees and direct Fund expenses of the
Portfolios of the Fund. The rates are average annual compounded rates of return
for the period ending on December 31, 1998.
These rates of return figures do not reflect charges or deductions against the
separate accounts of the Company or CLNY or charges and deductions against the
policies. Accordingly, these rates of return do not illustrate how actual
investment performance will affect benefits or Policy values. Where relevant,
the prospectuses for the Policies also contain performance information.
Moreover, these rates of return are not an estimate, projection or guarantee of
future performance.
Average Annual Compounded Rates of Return as of 12/31
<TABLE>
<CAPTION>
(Inception)
Fund Portfolio OneYear Five Years to 12/31/98
- -------------------------- -------- ----------- ------------
<S> <C> <C> <C>
Value Equity % % %
Bond % % %
Managed % % %
Money Market % % %
Capital % *** %*
International Equity % *** %**
</TABLE>
* Calculated from May 1, 1993 to December 31, 1998.
** Calculated from May 1, 1995 to December 31, 1998.
*** Five-Year Average Annual Total Return information is not available for the
Capital and International Equity Portfolios.
Additional information regarding the investment performance of the Portfolios
appears below. The total returns shown above are in part based on each
Portfolio's expenses, [which have been reduced by expense reimbursements]. If
not for these reimbursements, the returns shown above would have been smaller.
Money Market Portfolio Yield Quotations
The Fund may make current yield and effective yield quotations available for the
Money Market Portfolio. Current annualized yield quotations for Money Market
Portfolio are based on the Portfolio's net investment income per share for a
seven day period and exclude any realized or unrealized gains or losses on
Portfolio securities. The yield is computed by determining the net change in
value for a hypothetical account having a balance of one share at the beginning
of the period, excluding any realized or unrealized gains or losses, and
dividing by the price per share at the beginning of the period (expected to
remain constant at $10). The net change is then annualized by multiplying it by
365/7, with the current yield figure carried to the nearest one-hundredth of one
percent. The effective yield of Money Market Portfolio for a seven-day period
is computed by expressing the unannualized return for that period on a
compounded, annualized basis.
12
<PAGE>
The Money Market Portfolio's actual yields fluctuate and are not necessarily
indicative of future actual yields. Actual yields are dependent on such
variables as portfolio quality, average portfolio maturity, the type of
instruments in which investments are made, changes in interest rates on money
market instruments, portfolio expenses and other factors. In addition, the
yield quotation does not reflect the charges deducted from the Separate Account
(see the Prospectus for the policy). If these charges were deducted to reflect
the effective yield to a policyowner, that yield would be lower than the yield
calculated for the Money Market Portfolio.
Other Portfolio Yield Quotations
The yield quotations of the Bond, Managed, Value Equity, Capital, and
International Equity Portfolios are based on a specified 30 day or one month
period and are computed by dividing the net investment income per share earned
during the period by the maximum offering price per share on the last date of
the period, according to the following equation:
6
YIELD = 2((a-b/cd+1) -1)
Where:
a = dividends and interest earned during the period by the Portfolio.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Total Return Quotations
Total return quotations are computed by finding the average annual compounded
rates of return over the relevant periods that would equate the initial amount
invested to the ending redeemable value, according to the following equation:
N
P(1+T) = ERV
Where:
P = a hypothetical initial payment of $1,000.
T = average annual total return.
N = number of years.
ERV = ending redeemable value (at the end of the applicable period
of a hypothetical $1,000 payment made at the beginning of
the applicable period).
The total return quotation calculations reflect the deduction of a proportional
share of Portfolio expenses and assume that all dividends and capital gains
during the period are invested in the Portfolio when made. The calculations
also assume a complete redemption as of the end of the particular period.
MANAGEMENT OF THE FUND
Directors and Officers
The Fund's directors and executive officers and their principal occupations for
at least the last five years are set forth below. Unless otherwise noted below,
the address of each director and executive officer is 330 University Avenue,
Toronto, Canada, M5G 1R8.
The Directors and executive officers of the Fund and their principal occupations
for at least the last five years are set forth below. Unless otherwise noted
below, the address of each director and executive officer is 330 University
Avenue, Toronto, Canada, M5G 1R8.
<TABLE>
<CAPTION>
Name, Age and Address Position(s) With The Fund Principal Occupation(s) During Past Five Years
<S> <C> <C>
R. W. Morrison,* 56 Director and Chairman Vice-President and Treasurer, Canada Life.
R. E. Beettam,* 40 ** Director and President Vice-President and Director, U.S. Division, Canada Life.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Position(s) With The Fund Principal Occupation(s) During Past Five Years
<S> <C> <C>
E. Y. Baker, 63 Director President, OHA Investment Management Limited; Senior
Vice-President, Finance, Ontario Hospital Association.
Formerly Vice-President, Investments, Ontario Hospital
Association, Trustee Rogers Sugar Income Fund.
J. S. Clarke, 60 Director Associate Treasurer for Investments, Cornell University.
Formerly Senior Investment Officer, Cornell University.
D. H. Harris, 73 Director Formerly, Director, Chairman and CEO, The Equitable
Foundation; Executive Vice-President and Chief of Staff, and
Director, The Equitable Life Assurance Society of the U.S.
D. V. Rough, 51 Treasurer Associate Treasurer, Investment Services, Canada Life.
</TABLE>
* Director who is an "interested person", as defined in the Investment Company
Act of 1940, as amended, because of the Director's affiliation with the
Company or the Adviser.
** The business address is 6201 Powers Ferry Road, N.W., Atlanta,
Georgia 30339.
*** The business address is 6151 Powers Ferry Road, N.W., Suite 550, Atlanta,
Georgia 30339.
As of the date of this SAI, officers and directors of the Fund do not own any of
the outstanding shares of the Fund. Directors who are not officers or employees
of the Company or the Adviser are paid a fee plus actual out-of-pocket expenses
by the Fund for each meeting of the Board attended.
<TABLE>
<CAPTION>
=================================================================================================================================
COMPENSATION TABLE *
=================================================================================================================================
Name/Title Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation
from Series Fund Benefits Accrued as Part Benefits Upon Retirement from Series Fund to
of Fund Expenses Directors
=================================================================================================================================
<S> <C> <C> <C> <C>
E. Y. Baker, Director $10,000 N/A N/A N/A $10,000
J. S. Clarke, Director $10,000 N/A N/A N/A $10,000
D. H. Harris, Director $10,000 N/A N/A N/A $10,000
=================================================================================================================================
</TABLE>
* There are no direct employees of the Fund and the only people compensated
directly by the Fund are the non-affiliated directors.
Custodian
The Chase Manhattan Bank, N.A., Chase Manhattan Plaza, New York, NY, 10081, acts
as custodian of the Fund's assets. The Chase Manhattan Bank, N.A. is authorized
to use the facilities of the Depositary Trust Company, the book-entry system of
the Federal Reserve Banks, sub-custodians, and other depositories as necessary
in domestic and foreign markets.
Accounting Services
The Fund has entered into an accounting services agreement with the Company,
whereby it provides certain accounting and record keeping services to the Fund.
Adviser
The Fund has entered into an Investment Advisory Agreement ("the Agreement")
with CL Capital Management, Inc., (the "Adviser"). The Adviser's principal
business address is 6151 Powers Ferry Road, N.W., Suite 550, Atlanta, Georgia
30339. The Adviser is a wholly owned subsidiary of the Company, which is a
wholly owned subsidiary of Canada Life. The Adviser's principal executive
officers are:
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Name Position With Adviser
---- ---------------------
R. W. Morrison Chairman
H.A. Rachfalowski President
D. V. Rough Treasurer
The Adviser was incorporated on March 1, 1989 and began rendering investment
advisory services on behalf of the Fund on May 1, 1995. Personnel providing
investment advisory services for the Adviser also manage the U.S. assets of
Canada Life. Canada Life is one of the largest life insurance companies in
North America, with consolidated assets as of December 31, 1998 of approximately
$____ billion (U.S. dollars), of which in excess of $____ billion is in U.S.
assets.
Under the Agreement, the Fund has retained the Adviser to provide management and
investment advisory services to the Fund for its Money Market, Bond, Value
Equity and Managed Portfolios, and management services for Capital and
International Equity Portfolios. As part of the investment advisory services
provided to the Fund, the Adviser directs the investment of the Portfolio's
assets, including placing orders for the purchase and sale of securities. The
Adviser also continuously furnishes an investment program for each Portfolio
(except Capital and International Equity Portfolios), and has responsibility for
making decisions to buy, sell or hold any particular security. The Adviser
obtains and evaluates such information and advice relating to the economy,
securities markets, and specific securities as it considers necessary or useful
to continuously manage the assets of the Portfolios in a manner consistent with
their investment objectives, policies and restrictions. The Adviser considers
analysis from various sources, makes necessary investment decisions and effects
transactions accordingly. The Subadviser, J. & W. Seligman & Co. Incorporated,
provides investment advisory services for Capital Portfolio, and the Subadviser,
[INDAGO Capital Management Inc.,] provides investment advisory services for
Value Equity and International Equity Portfolios and the equity portion of
Managed Portfolio. The Adviser also determines the manner in which voting
rights and any other rights pertaining to portfolio securities will be
exercised. The Adviser also performs certain management services for the Fund,
including processing shareholder orders, administering shareholder accounts,
handling shareholder relations, conducting relations with custodians,
depositories, transfer agents, dividend disbursing agents, accountants,
attorneys, brokers and dealers, insurers, and other persons. The Adviser is, at
all times, subject to the direction and supervision of the Board.
Money Market, Value Equity, Managed, Capital and International Equity Portfolios
Portfolio Manager
Henry A. Rachfalowski, LLB, MBA, President of CL Capital Management, Inc.
("CLCM"), is responsible for setting overall investment policies, client
communication, and determination of the asset mix and the day-to-day investment
management of Money Market, Value Equity, Managed, Capital and International
Equity Portfolios. Mr. Rachfalowski joined The Canada Life Assurance Company in
1996; he has fifteen years of investment management and portfolio management
experience, most recently as Investment Vice President, U.S. Investments.
Bond Portfolio -- Portfolio Manager
George N. Isaac, CFA, Senior Portfolio Manager of CLCM, is responsible for the
day-to-day investment management and trading activities of Bond and Managed
Portfolios. Mr. Isaac has been the portfolio manager for the Fixed Income
Portfolio of the General Funds of The Canada Life Assurance Company, U.S.
Division, since 1980.
Capital Portfolio Subadviser
The Subadviser of Capital Portfolio (the "Capital Portfolio Subadviser") is J. &
W. Seligman & Co. Incorporated. Their address is 100 Park Avenue, New York, New
York, 10017. Under a Subadvisory Agreement with the Adviser, the Capital
Portfolio Subadviser provides investment advisory services to Capital Portfolio.
These services include providing investment research, advice and supervision,
continuously furnishing an investment program, and determining from time to time
which securities shall be purchased, sold or exchanged.
The Capital Portfolio Subadviser was incorporated on April 20, 1978. It also
serves as manager of eighteen investment companies in the Seligman Group (the
aggregate assets of which were approximately $________ billion as of December
31, 1998) and provides investment management or advice to institutional and
other accounts (having a December 31, 1998 value of approximately $_______
billion). William C. Morris owns a majority of Capital Portfolio Subadviser's
outstanding voting securities.
Subadviser Portfolio Manager
Richard R. Schmaltz, Director and Managing Director, Director of Investments of
the Subadviser, is responsible for the Subadviser's day-to-day investment
management of Capital Portfolio, which position he has held since January of
1998. He is also responsible for the management of Seligman Growth Fund, Inc.
and Seligman Capital Portfolio of Seligman Portfolios, Inc. Additionally, he is
responsible for directing and overseeing the domestic investments of Seligman
Henderson Global Growth Opportunities Fund, a series
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of Seligman Henderson Global Fund Series, Inc., and Seligman Henderson Global
Growth Opportunities Portfolio of Seligman Portfolios, Inc.
Value Equity, International Equity, and Equity Portion of Managed Portfolios
Subadviser
The Subadviser of Value Equity, International Equity and the equity portion of
Managed Portfolios (the "Equity Portfolios Subadviser") is [INDAGO Capital
Management Inc. Its address is 130 Adelaide Street West, Suite 3000, Toronto,
Ontario, Canada, M5H 3P5. ]Under a Subadvisory Agreement with the Adviser, the
Equity Portfolios Subadviser provides investment advisory services to Value
Equity and International Equity Portfolios and the equity portion of Managed
Portfolio. These services include providing investment research, advice and
supervision, continuously furnishing an investment program, and determining from
time to time which securities shall be purchased, sold, or exchanged. The
Adviser pays the subadvisory fee to the Equity Portfolios Subadviser.
[Effective July 15, 1997, Equity Portfolio Subadviser changed its name from CLCM
to INDAGO. The name change was executed in connection with the sale of fifty
percent of the Equity Portfolio Subadviser's outstanding common stock to certain
of its executive employees (the "Executive Employees"). The Equity Portfolio
Subadviser is jointly owned by the Executive Employees and Canada Life.
The Equity Portfolio Subadviser was incorporated on February 24, 1977. It also
serves as manager of assets of Canada Life (the aggregate assets of which were
approximately Canadian $_______ billion at December 31, 1998) and provides
investment management to individual and institutional accounts (having a
December 31, 1998 value of approximately Canadian $_________ billion). The
principal executive officers of the Equity Portfolio Subadviser are: J.K. S.
Fleming, President; and G.V. Kondrat, CFA, Vice-President and Chief Investment
Officer.]
[Subadviser Portfolio Manager
Thomas Tibbles, CFA, joined INDAGO Capital Management Inc. (INDAGO) as Vice
President, Foreign Equities on August 1, 1996. Mr. Tibbles has 10 years of
investment experience, most recently as Vice President, International Equities
at Sun Life Investment Management. For most of his career, he has focused on
research and portfolio management activities related to the international
capital markets. Mr. Tibbles is responsible for the Subadviser's day-to-day
investment management of the International Equity Portfolio.]
Advisory Fees and Expenses
The Fund pays the Adviser, as full compensation for all services and facilities
provided by the Adviser to the Fund and expenses of the Fund assumed by the
Adviser, a monthly fee computed for each Portfolio on a daily basis, at an
annual rate of 0.50% of each Portfolio's net assets, except International Equity
Portfolio, which has an annual rate of 0.80%. For Capital, Value Equity and
International Equity Portfolios and the equity portion of Managed Portfolio, the
Adviser in turn pays the Subadvisers, as full compensation for investment
advisory services to the respective Portfolio, a monthly fee computed on a daily
basis, at an annual rate of 0.25% of each such Portfolio's (equity portion for
Managed Portfolio's) net assets, and 0.30% of the net assets of International
Equity Portfolio. The Fund incurs certain operating and general administrative
expenses in addition to the Adviser's fee. These expenses, which are accrued
daily, include but are not limited to: taxes; expenses for legal and auditing
services; costs of printing; charges for custodial services; transfer agent
fees, if any; expenses of redemption of shares; Securities and Exchange
Commission fees; expenses of registering shares under federal and state
securities laws; accounting costs; insurance; interest; brokerage costs; and
other expenses properly payable by the Fund. Certain expenses are paid by the
particular portfolio that incurs them, while other expenses are allocated among
the portfolios on the basis of the asset size of the respective portfolio, or by
the Board of Directors as appropriate. At the current time, Canada Life
Insurance Company of America (CLICA) is reimbursing the Fund for expenses (other
than advisory fees) that exceed 0.40% of the Managed, Bond, Value Equity,
Capital, and International Equity Portfolio, and 0.25% of the Money Market
Portfolio. However, CLICA reserves the right to discontinue this reimbursement
at any time.
* The investment advisory fee for the International Equity Portfolio may
exceed the industry average of investment advisory fees for domestic equity
funds but does not exceed the industry average of advisory fees for
international funds.
The Fund paid the following aggregate total advisory fees of $____________,
$297,589, and $262,822, for the years ended December 31, 1998, 1997, and 1996,
respectively.
Each Portfolio is charged for the expenses it incurs in its operations as well
as for a portion of the Fund's general administrative expenses, allocated on the
basis of the asset size of the respective Portfolio or otherwise by the Board as
appropriate. Expenses other than the Adviser's fee that are borne directly and
payable individually by a Portfolio include, but are not limited to, brokerage
commissions, dealer markups, taxes, custody fees, and other costs properly
payable by the Portfolio. Expenses that are allocated among the Portfolios
include, but are not limited to, directors' fees and expenses, independent
auditor's fees, transfer agent fees,
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<PAGE>
expenses of redemption, Securities and Exchange Commission fees, registration
costs, insurance costs, legal fees, and all other costs of the Fund's operation
properly payable by the Fund and allocable among the Portfolios.
Investment Advisory Agreement
The Board, including a majority of the directors who are not interested persons
of the Adviser, initially approved the Agreement on February 23, 1995. On April
13, 1995, the Agreement was approved by an affirmative vote of a majority of
outstanding securities, with the Company voting Fund shares attributable to
policies participating in its registered separate accounts in accordance with
instructions received from policy owners, as required by law. Unless terminated
earlier, as described below, the Agreement thereafter continues in effect from
year to year if approved annually by the Board or by a majority of the
outstanding shares of each Portfolio, and, in either case, by a majority of the
directors who are not parties to the Agreement or interested persons, as defined
by the Investment Company Act of 1940, as amended, of any such party. The
Agreement is not assignable, may be terminated without penalty by the Fund or
the Adviser on 60 days notice, and terminates automatically in the event of its
assignment. The Agreement may be terminated by the Fund for cause at any time.
The Agreement in no way restricts the Adviser from acting as investment manager
or adviser to others. If the question of continuance of the Agreement (or
adoption of any new agreement) is presented to shareholders, continuance (or
adoption) with respect to a Portfolio shall be effective only if approved by an
affirmative vote of a majority of the outstanding voting securities of that
Portfolio. If the shareholders of any one or more of the series should fail to
approve the Agreement, the Adviser may nonetheless serve as Adviser with respect
to any Portfolio whose shareholders approved the Agreement.
The Agreement provides that the Adviser shall not be liable to the Fund or to
any shareholder of the Fund for any error of judgment or mistake of law or for
any act or omission in the management of the Fund, except for willful
misfeasance, bad faith, gross negligence, or reckless disregard on the part of
the Adviser in the performance of its duties thereunder, and except for
negligence or misconduct in connection with management services.
Capital Portfolio Subadvisory Agreement
The Capital Portfolio Subadvisory Agreement was initially approved by the Board,
including a majority of the directors who are not interested persons of the
Fund, the Adviser, or the Capital Portfolio Subadviser on February 23, 1995. On
April 13, 1995, the Agreement was approved by an affirmative vote of a majority
of outstanding shares of the Capital Portfolio, with the Company voting Fund
shares attributable to policies participating in its registered separate
accounts in accordance with instructions received from policy owners, as
required by law. Unless terminated earlier, as described below, the Agreement
continues in effect from year to year if approved annually by the Board
including a majority of the directors who are not parties to the Agreement or
interested persons, as defined by the Investment Company Act of 1940, as
amended, of any such parties or by a majority of the outstanding shares of
Capital Portfolio. The Agreement is not assignable, may be terminated at any
time without penalty by the Board or by vote of a majority of the outstanding
shares of Capital Portfolio, or by the Adviser or the Capital Portfolio
Subadviser on 60 days notice to the other party, and terminates automatically in
the event of its assignment. The Agreement may be terminated by the Fund for
cause at any time.
The services of the Capital Portfolio Subadviser to Capital Portfolio are not
deemed to be exclusive, and they are free to render services to others.
Securities held by Capital Portfolio may also be held by separate investment
accounts or other mutual funds for which the Capital Portfolio Subadviser may
act as an adviser or by the Capital Portfolio Subadviser or its affiliates.
The Agreement provides that the Capital Portfolio Subadviser shall not be liable
for any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the management of the Fund, and the
performance of its duties under the Agreement except for willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the Agreement.
Value Equity Portfolio Subadvisory Agreement
Value Equity Portfolio's Subadvisory Agreement was approved by the Fund's Board
of Directors, including a majority of the directors who are not interested
persons of the Fund, the Adviser, or INDAGO on May 21, 1998. On July 27, 1998,
the Agreement was approved by an affirmative vote of a majority of outstanding
shares of Value Equity Portfolio, with the Company voting Fund shares
attributable to policies participating in its registered separate accounts in
accordance with instructions received from policy owners, as required by law.
Unless terminated earlier, as described below, the Agreement continues in effect
from year to year if approved annually by the Board of Directors of the Fund
including a majority of the directors who are not parties to the Agreement or
interested persons, as defined by the Investment Company Act of 1940, as
amended, of any such parties or by a majority of the outstanding shares of Value
Equity Portfolio. The Agreement is not assignable, may be terminated at any
time without penalty by the Board of Directors of the Fund or by vote of a
majority of the outstanding shares of Value Equity Portfolio, or by the Adviser
or Value Equity Portfolio Subadviser on 60 days notice to the other party, and
terminates automatically in the event of its assignment. The Agreement may be
terminated by the Fund for cause at any time.
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The services of Value Equity Portfolio's Subadviser to the Value Equity
Portfolio are not deemed to be exclusive, and it is free to render services to
others. Securities held by Value Equity Portfolio may also be held by separate
investment accounts or other mutual funds for which the Value Equity Portfolio
Subadviser may act as an adviser or by the Value Equity Portfolio Subadviser or
its affiliates.
The Agreement provides that the Value Equity Portfolio Subadviser shall not be
liable for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in the management of the Fund, and
the performance of its duties under the Agreement except for willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under the
Agreement.
Managed Portfolio Subadvisory Agreement
Managed Portfolio Subadvisory Agreement was approved by the Fund's Board of
Directors, including a majority of the directors who are not interested persons
of the Fund, the Adviser, or INDAGO on May 21, 1998. On July 27, 1998, the
Agreement was approved by an affirmative vote of a majority of outstanding
shares of Managed Portfolio, with the Company voting Fund shares attributable to
policies participating in its registered separate accounts in accordance with
instructions received from policy owners, as required by law. Unless terminated
earlier, as described below, the Agreement continues in effect from year to year
if approved annually by the Board of Directors of the Fund including a majority
of the Directors who are not parties to the Agreement or interested persons, as
defined by the Investment Company Act of 1940, as amended, of any such parties
or by a majority of the outstanding shares of the Managed Portfolio. The
Agreement is not assignable and may be terminated at any time without penalty by
the Board of Directors of the Fund or by vote of a majority of the outstanding
shares of the Managed Portfolio, or by the Adviser or Managed Portfolio
Subadviser on 60 days notice to the other party. The Agreement may be
terminated by the Fund for cause at any time.
The services of the Managed Portfolio Subadviser to Managed Portfolio are not
deemed to be exclusive, and it is free to render services to others. Securities
held by Managed Portfolio may also be held by separate investment accounts or
other mutual funds for which the Managed Portfolio Subadviser may act as an
adviser or by the Managed Portfolio Subadviser or its affiliates.
The Agreement provides that the Managed Portfolio Subadviser shall not be liable
for any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the management of the Fund, and the
performance of its duties under the Agreement except for willful misfeasance,
bad faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties under the Agreement.
International Equity Portfolio Subadvisory Agreement
International Equity Portfolio's Subadvisory Agreement was approved by the
Board, including a majority of the directors who are not interested persons of
the Fund, the Adviser, or International Equity Portfolio Subadviser on May 21,
1997. On July 16, 1997, the Agreement was approved by an affirmative vote of a
majority of outstanding shares of International Equity Portfolio, with the
Company voting Fund shares attributable to policies participating in its
registered separate accounts in accordance with instructions received from
policy owners, as required by law. Unless terminated earlier, as described
below, the Agreement continues in effect from year to year if approved annually
by the Board including a majority of the directors who are not parties to the
Agreement or interested persons, as defined by the Investment Company Act of
1940, as amended, of any such parties or by a majority of the outstanding shares
of International Equity Portfolio. The Agreement is not assignable, may be
terminated at any time without penalty by the Board or by vote of a majority of
the outstanding shares of International Equity Portfolio, or by the Adviser or
the International Equity Portfolio Subadviser on 60 days notice to the other
party, and terminates automatically in the event of its assignment. The
Agreement may be terminated by the Fund for cause at any time.
The services of the International Equity Portfolio Subadviser to International
Equity Portfolio are not deemed to be exclusive, and they are free to render
services to others. Securities held by International Equity Portfolio may also
be held by separate investment accounts or other mutual funds for which
International Equity Portfolio Subadviser may act as an adviser or by the
International Equity Portfolio Subadviser or its affiliates.
The Agreement provides that the International Equity Portfolio Subadviser shall
not be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the management of
the Fund, and the performance of its duties under the Agreement except for
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties under
the Agreement.
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Securities Activities Of The Adviser And Subadvisers
The Company, CLNY, their affiliates and separate accounts may also hold
securities held by the Fund, or by other separate accounts or mutual funds for
which the Adviser or Subadvisers act as an adviser. Because of different
investment objectives or other factors, the Company, the Adviser, or the
Subadvisers for one or more of their clients may buy a particular security when
one or more other clients are selling the same security. For any of the Fund's
Portfolios or for other entities for which the Adviser, Subadvisers, or their
affiliates act as an investment adviser, transactions in securities made at or
about the same time will be made for the Fund's Portfolios, the Company, and
other clients in a manner deemed equitable to all, if feasible. To the extent
that transactions on behalf of more than one client of the Adviser or
Subadvisers during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
The Adviser or Subadvisers may manage other Portfolios than the Fund's.
Although the Adviser or Subadvisers make investment recommendations or
determinations for the Fund's Portfolios independently from the investment
recommendations and determinations made by it for any other Portfolio,
investments deemed appropriate for the Fund's Portfolios may also be deemed
appropriate for other Portfolios. This may result in the same security being
purchased or sold at or about the same time for both the Fund and such other
Portfolios.
On occasions when the Adviser or Subadvisers deem the purchase or sale of a
security to be in the best interests of the Fund as well as other accounts or
companies, it may determine that orders for the purchase or sale of the same
security for the Fund's Portfolios and one or more other portfolios should be
combined, in which event, the transactions will be priced and allocated, and
expenses will be allocated, in a manner deemed by them to be equitable and in
the best interests of the Fund's Portfolios and such other portfolios. While in
some instances, combined orders could adversely impact the price or the volume
of a security obtainable for a Portfolio of the Fund, the Fund believes that its
participation in such transactions on balance will produce better overall
results for the Fund.
Portfolio Transactions And Brokerage
The Adviser or Subadvisers are responsible for placing all orders for the
purchase and sale of Portfolio securities of the Fund. The Adviser or
Subadvisers have no formula for the distribution of the Fund's brokerage
business, their intention being to place orders for the purchase and sale of
securities with the primary objective of obtaining the most favorable net
results for the Fund. The cost of securities transactions for each Portfolio
will consist primarily of brokerage commissions or dealer or underwriter
spreads. Bonds and money market instruments are generally traded on a net basis
and do not normally involve either brokerage commissions or transfer taxes.
In placing orders, consistent with obtaining the most favorable net results, the
Adviser or Subadvisers will take into account various factors, including price,
dealers spread or commission, if any, size of the transaction and difficulty of
execution. While the Adviser or Subadvisers generally seek reasonably
competitive spreads or commissions, the Portfolio will not necessarily be paying
the lowest spread or commission available.
Although the Adviser or Subadvisers seek to obtain the most favorable net
results in effecting transactions for each Portfolio, brokers who provide
supplemental investment research to them may receive orders for transactions by
the Fund. Such supplemental research ordinarily consists of assessments and
analyses of the business or prospects of a company, industry, or economic
sector. If, in the judgment of the Adviser or Subadvisers, the Fund will be
benefited by such supplemental research services, they are authorized to pay
commissions to brokers furnishing such services which are in excess of
commissions which another broker may charge for the same transaction. However,
the Adviser or Subadvisers shall only select brokers whose commissions are
believed to be reasonable. Information so received will be in addition to and
not in lieu of the services required to be performed by the Adviser or
Subadvisers under the Agreement. The expenses of the Adviser or Subadviser will
not necessarily be reduced as a result of the receipt of such supplemental
information. In some cases, the Adviser or Subadvisers may use such
supplemental research in providing investment advice to other advisory accounts
and they will periodically evaluate the statistical data, research and other
investment services provided by brokers.
Occasionally, securities may be purchased directly from the issuer. For
securities traded primarily in the over-the-counter market, the Adviser or
Subadvisers will, where possible, deal directly with dealers who make a market
in the securities unless better prices and execution are available elsewhere.
Such dealers usually act as principals for their own account.
The total aggregate brokerage commissions paid by the Fund were
$___________________, $67,604, and $48,793 for the fiscal years ended December
31, 1998, 1997 and 1996 respectively.
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PURCHASE AND REDEMPTION OF SHARES
The Fund currently offers its shares, without sales charge, only for purchase by
the Company, CLNY, and their separate accounts. The Fund may also offer its
shares to Canada Life, its affiliates and their separate accounts. It is
possible that, subject to obtaining any required regulatory approvals, at some
later date the Fund may offer shares to other investors. The Fund continuously
offers shares in each of the Portfolios at prices equal to the net asset value
of the respective Portfolio. The Fund does not have a principal underwriter.
The Fund will redeem all full and fractional shares of the Fund for cash. No
redemption fee is charged, although there may be a contingent deferred sales
charge applicable to surrenders or withdrawals under the policies, as described
in the Policy Prospectus. The redemption price is the net asset value of the
respective Portfolio next determined after the request is deemed to be received.
Payment for shares redeemed is generally made within seven days after receipt of
a proper notice of redemption. However, the Fund may suspend the right of
redemption or postpone the date of payment beyond seven days during any period
when:
(a) trading on the New York Stock Exchange is restricted, as determined by
the Securities and Exchange Commission, or such Exchange is closed for
other than weekends and holidays;
(b) an emergency exists, as determined by the Commission, as a result of
which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund to fairly
determine the value of its net assets; or
(c) the Commission by order so permits for the protection of security
holders of the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Portfolio's shares is determined once daily as of
the close of the New York Stock Exchange (usually 4:00 p.m. Eastern Time) on
each day on which the Exchange is open for trading. The net asset value of a
share is computed by dividing the value of the net assets of the Portfolio by
the total number of shares outstanding.
Money Market Portfolio
The net asset value per share of Money Market Portfolio is computed by dividing
the total value of the Portfolio's securities and other assets, less liabilities
(including dividends payable), by the number of shares outstanding. The value
of the assets is determined by valuing the Portfolio securities at amortized
cost, under Rule 2a-7 under the Investment Company Act. The amortized-cost
method of valuation involves valuing a security at cost at the time of purchase
and thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument so long as the amortized-cost price per share
approximates the net asset value per share.
The purpose of the amortized cost method of valuation is to seek to maintain a
constant net asset value per share of $10. While this method provides certainty
in valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would receive if
it sold its portfolio securities. Under the direction of the Board, certain
procedures have been adopted to monitor and stabilize the price per share.
Calculations are made to compare the value of the portfolio securities, valued
at amortized cost, with market values. Market valuations are obtained by using
actual quotations provided by market makers, estimates of market value, or
values obtained from yield data relating to classes of money market instruments
published by reputable sources at the bid prices for those instruments. If a
deviation of 1/2 of 1% or more between the Portfolio's $10 per share net asset
value and the net asset value calculated by reference to market valuations has
occurred, or if there are any other deviations which the Board believes will
result in dilution or other unfair results material to shareholders, the Board
will consider what action, if any, should be initiated.
The market value of debt securities usually reflects yields generally available
on securities of similar quality. When yields decline, the market value of a
portfolio holding higher yielding securities can be expected to increase; when
yields increase, the market value of a portfolio invested at lower yields can be
expected to decline. In addition, if a portfolio has net redemptions at a time
when interest rates have increased, the portfolio may be forced to sell
portfolio securities prior to maturity at a price below its carrying value.
Also, because the Portfolio generally is valued at amortized cost rather than
market value, any yield quoted may be different from the yield that would result
if the entire portfolio were valued at market value, since the amortized cost
method does not take market fluctuations into consideration.
Other Portfolios
The net asset value per share of the Portfolios other than Money Market
Portfolio is computed by dividing the total value of the Portfolio's securities
and other assets, less liabilities, by the number of portfolio shares then
outstanding. Securities other than money market instruments maturing in 60 days
or less that are traded on a national exchange are valued at the last sale price
as of the close of business on the day the securities are being valued, or,
lacking any sales, at the last bid price. Securities (other than money market
instruments maturing in 60 days or less) traded in the over-the-counter markets
are valued at the last bid price or at yield equivalent as
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obtained from one or more dealers that make markets in the securities.
Securities that are traded both in the over-the-counter market and on a national
exchange are valued according to the broadest and most representative market,
and it is expected that for debt securities this ordinarily will be the
over-the-counter market. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under procedures approved by the Board. Money market instruments with maturities
of 60 days or less are valued using the amortized cost method of valuation.
TAXES
Each Portfolio intends to qualify as a "regulated investment company" under the
provisions of Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). Under such provisions, a regulated investment company will not be
subject to federal income tax on such part of its net investment income and net
realized capital gains that it distributes to shareholders. Each Portfolio
intends to distribute to shareholders substantially all such net investment
income and capital gains.
To qualify for treatment as a regulated investment company, each Portfolio must,
among other things: (a) derive in each taxable year at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock, securities, or foreign
currencies, and other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the close
of each quarter of its taxable year, (i) at least 50% of the value of its total
assets consists of cash, cash items, U.S. government securities, and other
securities limited generally with respect to any one issuer to not more than 5%
of the total assets of the Portfolio and not more than 10% of the outstanding
voting securities of such issuer and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other than U.S.
government securities). Moreover, in order to receive the favorable tax
treatment accorded regulated investment companies and their shareholders, a
Portfolio must in general distribute to its shareholders at least 90% of its
interest, dividends, net short-term capital gain, and certain other income each
year.
To ensure that the Fund is not subject to a nondeductible 4% excise tax, each
Portfolio intends to distribute at least 98% of ordinary income for any year by
the end of that calendar year and at least 98% of capital gain net income for
the one year period ending October 31 of such year, unless an election is made
to use the company's taxable year, plus certain other amounts. A regulated
investment company will be considered to have paid dividends for purposes of
these rules if the company pays the dividends by the end of any January and if
such dividends were declared in the preceding December and were payable to
shareholders of record on a date in December.
Section 817(h) of the Code and regulations of the Code issued by the Treasury
Department impose additional diversification requirements upon each Portfolio.
These requirements are in addition to the diversification requirements under
Subchapter M of the Code and the Investment Company Act of 1940, and effect
federal tax treatment at the shareholder level. Since the only shareholders of
the Fund are insurance companies and their separate accounts, no discussion is
included herein regarding federal income tax consequences to shareholders. Each
Portfolio intends to comply with the requirements of Section 817(h). For
information concerning the consequences of failure to meet the requirements of
Section 817(h), see the Prospectus for the policy.
Tax related discussions in the Prospectus and the foregoing are general and
abbreviated summaries of the applicable provisions of the Code and Treasury
Regulations currently in effect, as interpreted by the courts and the Internal
Revenue Service. Neither is intended as a complete explanation or as a
substitute for consultation with individual tax advisers.
GENERAL INFORMATION
Capital Stock
The Fund was incorporated on February 23, 1989 under Maryland law with four
portfolios: Money Market; Managed; Bond; and Value Equity. The Board authorized
Capital Portfolio on February 25, 1993 and International Equity Portfolio on
February 23, 1995. The authorized stock of the Fund consists of one billion
(1,000,000,000) shares of common stock, with a par value of one cent. A total
of 90,000,000 shares of the authorized capital stock is currently divided into
the following classes:
Portfolio Shares
--------- ------
Money Market 20,000,000
Managed 20,000,000
Bond 10,000,000
Value Equity 10,000,000
Capital 20,000,000
International Equity 10,000,000
The Board may change the designation of any Portfolio and may increase or
decrease the number of shares of any Portfolio, but it may not decrease the
number of shares then outstanding.
21
<PAGE>
Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared by the respective Portfolio and, upon
liquidation or dissolution, in the net assets of such Portfolio remaining after
satisfaction of outstanding liabilities.
All shares of common stock have equal voting rights (regardless of the net asset
value per share), except that on matters effecting only one Portfolio only
shares of the respective Portfolio are entitled to vote. Fund shares do not
have cumulative voting rights. Accordingly, the holders of more than 50% of the
Fund's shares voting for the election of directors can elect all of the
directors of the Fund if they choose to do so, and in such event the holders of
the remaining shares would not be able to elect any directors.
Matters in which the interests of all Portfolios are substantially identical
(such as the election of directors or the approval of independent auditors) are
voted on by all shareholders without regard to the separate Portfolio. Matters
that effect all the Portfolios but where the interests of the Portfolios are not
substantially identical (such as approval of the investment advisory agreement)
are voted on separately by each Portfolio. Matters effecting only one
Portfolio, such as a change in its fundamental policies, are voted on separately
by that Portfolio.
Matters requiring separate shareholder voting by a Portfolio shall have been
effectively acted upon with respect to any Portfolio if a majority of the
outstanding voting securities of that Portfolio votes for approval of the
matter, notwithstanding that: 1) the matter has not been approved by a majority
of the outstanding voting securities of any other Portfolio; or 2) the matter
has not been approved by a majority of the outstanding voting securities of the
Fund.
The phrase "a majority of the outstanding voting securities" of a Portfolio (or
of the Fund) means the vote of the lesser of: 1) 67% of the shares of a
Portfolio (or of the Fund) present at a meeting if the holders of more than 50%
of the outstanding shares are present in person or by proxy; or 2) more than 50%
of the outstanding shares of a Portfolio (or the Fund).
Additional Information
This SAI and the Prospectus do not contain all the information set forth in the
registration statement and exhibits relating thereto, which the Fund has filed
with the Securities and Exchange Commission, Washington, DC, under the
Securities Act of 1933 and the Investment Company Act of 1940, to which
reference is hereby made.
Financial Statements
The Fund's statement of assets and liabilities, including the schedules of
investments, as of December 31, 1998, and the related statement of operations
for the year then ended, the statements of changes in net assets and the
financial highlights for the periods indicated therein, as well as the Report of
Independent Auditors, are contained herein. Ernst & Young LLP, 600 Peachtree
Street, Atlanta, Georgia, 30308, serves as independent auditors for the Fund.
22
<PAGE>
APPENDIX
DEBT INSTRUMENT RATINGS
The Fund's Portfolios may invest in certain instruments that are rated by
investment rating services. Definitions of such ratings appear below.
Standard & Poor's Corporation ("S&P")
Commercial Paper
A-1 The rating A-1 is the highest rating assigned by S&P to commercial paper
which is considered by S&P to have the following characteristics:
Liquidity ratios of the issuer are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better. The issuer has access to
at least two additional channels of borrowing. Basic earnings and cash
flow have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has
a strong position within the industry. The reliability and quality of
management are unquestioned.
A-2 This designation indicates that capacity for timely payment of debt
having an original maturity of no more than 365 days is strong; however,
the relative degree of safety is not as high as for issues designated
A-1.
Bonds
AAA This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interests is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay principal and interest
for bonds in this category than for bonds in the A category.
BB Bonds rated BB, B, CCC, and CC are regarded, on balance,as predominantly
B speculative with respect to the issuer's capacity to pay interest and
CCC repay principal in accordance with the terms of the obligations. BB
CC indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
NR Not rated by the indicated rating agency.
Moody's Investment Service, Inc. ("Moody's")
Commercial Paper
P-1 The rating P-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings
are the following: 1) evaluation of the management of the issuer; 2)
economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain
areas; 3) evaluation of the issuer's products in relation to competition
and customer acceptance; 4) liquidity; 5) amount and quality of long-
term debt; 6) trend of earnings over a period of ten years; 7) financial
strength of a parent company and the relationships which exist with the
issuer; and 8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and
preparations to meet such obligations.
P-2 The rating P-2 indicates that, in Moody's opinion, the issuer or
supporting institution has a strong ability for repayment of senior
short-term debt obligations. Strong ability for repayment will normally
be evidenced by many of the characteristics listed under the description
of P-1. Earnings trends and coverage ratios, while sound, any be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more effected by external conditions. Ample
alternate liquidity is maintained.
23
<PAGE>
Bonds
Aaa Bonds rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to a "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds rated Aa by Moody's are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
A Bonds rated A by Moody's possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds rated Baa by Moody's are considered a medium grade obligations,
that is, they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics as well.
B Bonds rated B by Moody's generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa Bonds rated Caa by Moody's are of poor standing.Such issues may be in
default or three may be present elements of danger with respect to
principal or interest.
Ca Bonds rated Ca by Moody's represent obligations that are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds rated C by Moody's are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Duff & Phelps (D&P) Fixed Income Rating Scale
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S.Treasury debt.
AA+AA High credit quality. Protection factors are strong. Risk is modest but
AA- may vary slightly from time to time because of economic conditions.
A+ Protection factors are average but adequate. However, risk factors are
A more variable and grater in periods of economic stress.
A-
BBB+ Below average protection factors, but still considered sufficient for
BBB prudent investment. Considerable variability in risk during economic
BBB- cycles.
BB+ Below investment grade, but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate according
BB- to industry conditions or company fortunes. Overall quality may move up
or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will not be
B met when due. Financial protection factors will fluctuate widely
B- according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in quality rating within
this category or into a higher or lower quality rating grade.
CCC Well below investment grade securities. May be in default or have
considerable uncertainty as to timely payment of interest, preferred
dividends and/or principal. Protection factors are narrow and risk can
be substantial with unfavorable economic/industry conditions, and/or
with unfavorable company developments.
<PAGE>
PART C
OTHER INFORMATION
CANADA LIFE OF AMERICA SERIES FUND, INC.
----------------------------------------
Item 23. Exhibits
(a) Articles of Incorporation of Canada Life of America Series Fund, Inc. *
(1) Form of Articles Supplementary*
(2) Amendment to the Articles Supplementary**
(b) By-Laws of Canada Life of America Series Fund, Inc*
(c) See Items 23(a) and (b).
(d) Investment Advisory Contracts*
(1) Investment Advisory Agreement with CL Capital Management, Inc.
(CLCM) and the Series Fund, dated May 1, 1995, attached hereto.
(2) Sub-Investment Advisory Agreement between CL Capital Management,
Inc. (CLCM) and J. & W. Seligman & Co., Incorporated (Seligman),
dated May 1, 1995, attached hereto.
(e) Not applicable.
(f) Not applicable.
(g) Form of Custodian Agreement*
(h) Other Material Contracts
(1) Form of Accounting Services Agreement*
(2) Form of Dividend Disbursing and Transfer Agent Agreement*
(3) Form of Participation Agreement*
(i) Not applicable.
(j) Not applicable.
(k) Consent of Independent Auditors to be filed by amendment.
(l) Form of Subscription Agreement*
(1) Form of Subscription Agreement for the Capital Series*
(2) Form of Subscription Agreement for the International Series*
(m) Not applicable.
(n) Financial Data Schedules to be filed by amendment.
(o) Not applicable.
- ------------
* Incorporated herein by reference to exhibits filed with the Post-Effective
Amendment No. 10 to this Registration Statement on Form N-1A (File No. 33-
28888), filed on April 24, 1997, accession number 0000950144-97-004617.
** Incorporated herein by reference to exhibits filed with the Post-Effective
Amendment No 5. to this Registration Statement on Form N-1A (File No. 33-
28888), filed on March 5, 1993.
C-1
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant.***
Item 25. Indemnification
Under Section 2-418 of the Maryland General Corporation Law, with respect to any
proceedings against a present or former director, officer, agent or employee
("corporate representative") of the registrant, except a proceeding brought by
or on the behalf of the registrant, the registrant may indemnify the corporate
representative against expenses, including attorneys' fees and judgments, fines,
and amounts paid in settlement actually and reasonably incurred by the corporate
representative in connection with the proceeding, if: (1) he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the registrant; and (ii) with respect to any criminal proceeding,
he had no reasonable cause to believe his conduct was unlawful. The registrant
is also authorized under Section 2-418 of the Maryland General Corporation Law
to indemnify a corporate representative under certain circumstances against
expenses incurred in connection with the defense of a suit or action by or in
the right of the registrant.
Article 11.01 of the Registrant's By-Laws (Exhibit (b) to this registration
statement) provides that Registrant shall indemnify its corporate
representatives, in a manner that is consistent with Maryland law. Article
11.02 precludes indemnification for "disabling conduct" (willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of office) and sets forth reasonable and fair means for determining
whether indemnification shall be made. In addition, Section 10 of the By-Laws of
Canada Life Insurance Company of America provides indemnification for directors,
officers, and employees of the Company serving at the request of the Canada Life
Assurance Company, including directors, officers and employees of the
Registrant, and Section 16 of the By-Laws of the Canada Life Assurance Company
provides indemnification for directors, officers and employees serving at the
request of the Canada Life Assurance Company, including directors, officers and
employees of the Registrant. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to provisions discussed in this
Item 25 above, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
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 of the registrant in the successful defense of any such
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 26. Business and other Connections of Investment Adviser and Subadvisers
Incorporated herein by reference to Schedules A and D of Form ADV (File
No. 801-34509) filed for CL Capital Management, Inc., filed on
September 30, 1998, as amended from time to time.
[Incorporated herein by reference to Schedules A and D of form ADV
(File No. 801-15798) filed for J. & W. Seligman & Co., Incorporated,
filed on March 25, 1998, as amended from time to time.
Item 27. Principal Underwriters
Not Applicable.
Item 28. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules thereunder are maintained
at the offices of the Fund at 330 University Avenue, Toronto, Ontario
M5G 1R8 and at 6201 Powers Ferry Road, N.W., Suite 600, Atlanta,
Georgia 30339.
- ------------
*** Incorporated herein by reference to Part C of the post-effective amendment
to the registration statement for Canada Life of America Variable Annuity
Account 2 on Form N-4 (File No. 33-55890), filed February 1, 1999,
Accession Number 0000931763-99-000410.
C-2
<PAGE>
Item 29. Management Services
All management-related service contracts are discussed in Part A or B
of this Registration Statement.
Item 30. Undertaking
Not Applicable.
C-3
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Post-Effective Amendment Number 12 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, and the State of New York, on this 24 day of February, 1999.
CANADA LIFE OF AMERICA SERIES FUND, INC.
<TABLE>
<CAPTION>
Attest: By:
<S> <C>
/s/ Charles MacPhaul /s/ R. E. Beettam
- --------------------------------------- ----------------------------------------
Charles MacPhaul, Assistant Secretary R. E. Beettam, President
Canada Life of America Series Fund, Inc. Canada Life of America Series Fund, Inc.
</TABLE>
As required by the Securities Act of 1933, this Post-Effective Amendment Number
12 has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ R. W. Morrison Chairman and Director February 24, 1999
- ----------------------------
R. W. Morrison
/s/ R. E. Beettam President and Director February 24, 1999
- ----------------------------
R. E. Beettam
/s/ E. Y. Baker Director February 24, 1999
- ----------------------------
E. Y. Baker
/s/ J. S. Clarke Director February 24, 1999
- ----------------------------
J. S. Clarke
/s/ D. H. Harris Director February 24, 1999
- ----------------------------
D. H. Harris
/s/ D. V. Rough Treasurer February 24, 1999
- ----------------------------
D. V. Rough
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Description of Exhibit
- ------- ----------------------
EX-99.(d)(1) Investment Advisory Agreement with CL Capital Management, Inc.
and the Series Fund, dated May 1, 1995
EX-99.(d)(2) Sub-Investment Advisory Agreement between CL Capital
Management, Inc. and J. & W. Seligman & Co., Incorporated, dated
May 1, 1995
<PAGE>
EXHIBIT (d)(1)
Investment Advisory Agreement Between CL Capital Management, Inc.
(CLCM) and Canada Life of America Series Fund, Inc.
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 1st day of May, 1995, between CL CAPITAL MANAGEMENT,
INC., a Georgia corporation (hereafter referred to as the "Investment Advisor"),
and CANADA LIFE OF AMERICA SERIES FUND, INC., a Maryland corporation
(hereinafter referred to as the "Fund").
WITNESSETH
WHEREAS, the Fund engages in business as a diversified, open-end, management
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act") and currently
has six classes of stock, designated the Equity Series, the Bond
Series, the Money Market Series, Capital Series, International Equity Series and
the Managed Series (each a "Series"; together, the "Series"); and
WHEREAS, the Investment Adviser engages principally in rendering management
and investment advisory services and is registered as an investment adviser
under the Investment Advisers Act of 1940; and
WHEREAS, the Investment Adviser is willing to provide management and
investment advisory services to the aforementioned Series, on the terms and
conditions set forth in this Investment Advisory Agreement (the "Agreement").
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Investment Adviser hereby agree to this
Agreement as follows:
ARTICLE I
DUTIES OF THE INVESTMENT ADVISER
The Fund hereby employs the Investment Adviser to act as the manager and
investment adviser of each Series of the Fund now established and, upon written
notice thereof to the Investment Adviser, of each Series established hereafter,
and to furnish (or in connection with management services, arrange for
affiliates to furnish), the management and investment advisory services
described below, subject to the supervision of the Board of Directors of the
Fund, for the period and on the terms and conditions set forth in this
Agreement. The Investment Adviser hereby accepts such employment and agrees
during such period, at its own expense, to render, or arrange for the rendering
of, such services and to assume the obligations herein set forth for the
compensation provided for herein. In connection therewith, the Investment
Adviser may retain subadvisers with respect to one or more Series to render such
services and to assume the obligations herein set forth, subject to the
provisions of the Investment Company Act. The Investment Adviser and its
affiliates shall for all purposes herein be deemed to be independent contractors
and shall, unless otherwise expressly provided or authorized, have no authority
to act for or represent the Fund in any way or otherwise be deemed agents of the
Fund.
(a) Management Services. The Investment Adviser shall perform (or arrange
for the performance by its affiliates of) the management and administrative
services necessary for the operation of the Fund, including processing
shareholder orders, administering shareholder accounts and handling shareholder
relations. The Investment Adviser shall provide the Fund with office space,
equipment, facilities and such other services as the Investment Adviser, subject
to review by the Board of Directors of the Fund, shall from time to time
determine to be necessary or useful to perform its obligations under this
Agreement. The
1
<PAGE>
Investment Adviser shall also, on behalf of the Fund, conduct relations with
custodians, depositories, transfer agents, dividend disbursing agents, other
shareholder service agents, accountants, attorneys, underwriters, brokers and
dealers, corporate fiduciaries, insurers, banks and such other persons in any
such other capacity deemed to be necessary or desirable. The Investment Adviser
shall make reports to the Board of Directors of the Fund of its performance of
obligations hereunder and furnish advice and recommendations with respect to
such other aspects of the business and affairs of the Fund as it shall determine
to be desirable.
(b) Investment Advisory Services. The Investment Adviser shall provide the
Fund with such investment research, advice and supervision as the latter may
from time to time consider necessary for the proper supervision of the assets of
each Series of the Fund, shall furnish continuously an investment program for
each Series, shall determine from time to time which securities shall be
purchased, sold or exchanged and what portions of the Series shall be held in
the various securities in which the Series invests or cash, and shall take such
steps as are necessary to implement any overall investment plan for each Series,
including providing or obtaining such services as may be necessary in managing,
acquiring or disposing of investments. The Investment Adviser's services shall
be subject always to the control and supervision of the Board of Directors, the
restrictions of the Articles of Incorporation and By-Laws of the Fund, as
amended from time to time, the provisions of the Investment Company Act, the
statements relating to the Series' investment objectives, investment policies
and investment restrictions as the same are set forth in the currently effective
prospectus relating to the shares of the Fund under the Securities Act of 1933,
as amended (the "Prospectus"), appropriate state insurance laws, and any
applicable provisions of the Internal Revenue Code of 1986. The Investment
Adviser shall also make decisions for the Fund as to the manner in which voting
rights, rights to consent to corporate action and any other rights pertaining to
the Fund's portfolio securities shall be exercised. Should the Board of
Directors of the Fund at any time make any definite determination as to
investment policy and notify the Investment Adviser thereof in writing, the
Investment Adviser shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked.
The Investment Adviser shall take, on behalf of the Fund, all actions which
it deems necessary to implement the investment policies determined as provided
above, and in particular to place all orders for the purchase or sale of
portfolio securities for the Fund's account with brokers or dealers selected
by it, and to that end, the Investment Adviser is authorized as the agent of the
Fund to give instructions to the Custodian of the Fund as to deliveries of
securities and payments of cash for the account of the Fund. In connection with
the selection of such brokers or dealers and the placing of such orders with
respect to assets of the Fund, the Investment Adviser is directed at all times
to seek to obtain best execution and price within the policy guidelines
determined by the Board of Directors of the Fund and set forth in the
Prospectus. Subject to this requirement and the provisions of the Investment
Company Act, the Securities Exchange Act of 1934, as amended, and other
applicable provisions of law, the Investment Adviser may select brokers or
dealers with which it or the Fund is affiliated.
In addition to seeking the best price and execution, the Investment Adviser
may also take into consideration research and statistical information and wire
and other quotation services provided to the Investment Adviser. However, the
Investment Adviser shall select only brokers whose commissions it
believes are reasonable. The Investment Adviser will periodically evaluate the
statistical data, research and other investment services provided to it by
brokers and dealers. Such services may be used by the Investment Adviser in
connection with the performance of its obligations under this Agreement or in
connection with other advisory or investment operations.
2
<PAGE>
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
(a) The Investment Adviser. The Investment Adviser assumes the expense of
and shall pay for maintaining the staff and personnel necessary to perform its
obligations under this Agreement, and shall at its own expense provide the
office space, equipment and facilities which it is obligated to provide under
Article I hereof, and shall pay all compensation of officers of the Fund and all
Directors of the Fund who are affiliated persons of the Investment Adviser.
(b) The Fund. The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation, the following: taxes,
expenses for legal and auditing services, costs of printing proxies, stock
certificates, shareholder reports and prospectuses (except to the extent such
prospectuses are used in connection with the sale and distribution of investment
company securities), charges of the Custodian and Transfer Agent, expenses of
redemption of shares, Securities and Exchange Commission fees, expenses of
registering the shares under federal and state securities laws, fees and actual
out-of-pocket expenses of Directors who are not affiliated persons of the
Investment Adviser, accounting and pricing costs (including the daily
calculation of the net asset value), insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, and other expenses
properly payable by the Fund.
ARTICLE III
COMPENSATION OF THE INVESTMENT ADVISER
For the services rendered, the facilities furnished and expenses assumed by
the Investment Adviser, each Series of the Fund shall pay to the Investment
Adviser at the end of each calender month a fee based upon the average daily
value of the net assets of the Series, as determined and computed in accordance
with the description of the determination of the net asset value contained in
the Prospectus, at the annual rate specified below:
Equity Series .50%
- ------------------------------------------------------------------------------
Bond Series .50%
- ------------------------------------------------------------------------------
Managed Series .50%
- ------------------------------------------------------------------------------
Capital Series .50%
- ------------------------------------------------------------------------------
Money Market Series .50%
- ------------------------------------------------------------------------------
International Equity Series .80%
- ------------------------------------------------------------------------------
commencing with respect to each Series on the day following the effectiveness
hereof with respect to such Series. During any period when the determination of
net asset value is suspended by the Board of Directors of the Fund, the net
asset value of a Series as of the last business day prior to such suspension
shall for this purpose be deemed to be the net asset value at the close of each
succeeding business day until net asset value is again determined.
ARTICLE IV
LIMITATION OF LIABILITY OF THE INVESTMENT ADVISOR
The Investment Adviser shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the management of the Fund, except for (i) willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of
reckless disregard of its obligations and duties hereunder, and (ii) negligence
or misconduct in connection with management services. As used in this Article
IV, the term "Investment Adviser" shall include any affiliates of the Investment
Adviser performing services for the Fund contemplated hereby and Directors,
officers, and employees of the Investment Adviser and such affiliates.
3
<PAGE>
ARTICLE V
ACTIVITIES OF THE INVESTMENT ADVISER
The services of the Investment Adviser to the Fund are not deemed to be
exclusive, and the Investment Adviser is free to render services to others, so
long as the Investment Adviser's services under this Agreement are not impaired.
It is understood that Directors, officers, employees, and shareholders of the
Fund are or may become interested in the Investment Adviser, as Directors,
officers, employees, and shareholders or otherwise, and the Investment Adviser
may become interested in the Fund as a shareholder or otherwise. It is agreed
that the Investment Adviser may use any supplemental investment research
obtained for the benefit of the Fund in providing investment advice to its other
investment advisory accounts. The Investment Adviser or its affiliates may use
such information in managing their own accounts. Conversely, such supplemental
information obtained by the placement of business for the Investment Adviser or
other entities advised by the Investment Adviser will be considered by and may
be useful to the Investment Adviser in carrying out its obligations to the Fund.
Securities held by the Fund may also be held by separate investment
accounts or other mutual funds for which the Investment Adviser may act as an
adviser or by the Investment Adviser or its affiliates. Because of different
investment objectives or other factors, a particular security may be bought by
the Investment Adviser or its affiliates or for one or more clients when one or
more clients are selling the same security. If purchases or sales of securities
for the Fund or other entities for which the Investment Adviser or its
affiliates act as investment adviser or for their advisory clients arise for
consideration at or about the same time, the Fund agrees that the Investment
Adviser may make transactions in such securities, insofar as feasible, for the
respective entities and clients in a manner deemed equitable to all. To the
extent that transactions on behalf of more than one client of the Investment
Adviser during the same period may increase the demand for securities being
purchased or the supply of securities being sold, the Fund recognizes that there
may be an adverse effect on price.
It is agreed that, on occasions when the Investment Adviser deems the
purchase or sale of a security to be in the best interest of the Fund as well as
other accounts or companies, it may, to the extent permitted by applicable laws
or regulations, but will not be obligated to, aggregate the securities to be
sold or purchased for other accounts or companies in order to obtain favourable
execution and lower brokerage commissions. In that event, allocation of the
securities purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Investment Adviser in the manner it considers
to be most equitable and consistent with its fiduciary obligations to the Fund
and to such other accounts or companies. The Fund recognizes that in some cases
this procedure may adversely affect the size of the position obtainable for a
Series of the Fund.
ARTICLE VI
BOOKS AND RECORDS
The Investment Adviser agrees that all books and records which it
maintains for the Fund are the property of the Fund and further agrees to
surrender promptly to the Fund any such books, records or information upon the
Fund's request. All such books and records shall be made available, within five
business days of a written request, to the Fund's accountants or auditors during
regular business hours at the Investment Adviser's offices. The Fund or its
authorized representative shall have the right to copy any records in the
possession of the Investment Adviser which pertain to the Fund. Such books,
records, information or reports shall be available to properly constituted
governmental authorities consistent with state and federal law and/or
regulations. The Investment Adviser shall keep confidential and shall not
disclose or use any records or information obtained pursuant to this Agreement
except as expressly required by state or federal law and/or regulations. In the
event of the termination of this Agreement, all such books, records, or other
information shall be returned to the Fund free from any claim or assertion of
rights by the Investment Adviser.
4
<PAGE>
ARTICLE VII
DURATION AND TERMINATION OF THIS AGREEMENT
As to the Equity Series, Bond Series, Managed Series, Money Market
Series, Capital Series and International Series of the Fund, this Agreement
shall become effective as of the date first above written. As to each Series of
the Fund created subsequent to the effective date of this Agreement, this
Agreement shall not become effective unless and until it is approved by the
Fund's Board of Directors, including a majority of Directors who are not parties
to this Agreement or interested persons of any such party to this Agreement, and
shall continue in effect until the date of the first annual or special meeting
of shareholders of such Series. This Agreement shall continue in effect from
year to year with respect to each Series of the Fund so long as such continuance
is specifically approved at least annually by (i) the Board of Directors of the
Fund, or by the vote of a majority of the outstanding voting securities of such
Series of the Fund and (ii) a majority of those Directors of the Fund who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time as to any Series or all
Series, without the payment of any penalty, by the Board of Directors of the
Fund, or by vote of a majority of the outstanding voting securities of such
Series, or by the Investment Adviser, on sixty days written notice to the other
party. This Agreement may be terminated for "cause" at any time by the Board of
Directors of the Fund. "Cause" is defined and limited for this purpose to mean
willful misfeasance, bad faith, or gross negligence by the Investment Adviser in
the performance of its duties or reckless disregard by it of its obligations and
duties under this Agreement. If this Agreement is terminated only with respect
to one or more, but less than all, of the Series, the Agreement shall remain in
effect with respect to the remaining Series. This Agreement shall Automatically
terminate in the event of its assignment.
ARTICLE VIII
AMENDMENTS OF THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the vote of a majority of outstanding voting
securities of each Series of the Fund affected by such amendment, and (ii) a
majority of those Directors of the Fund who are not parties to this Agreement or
interested persons of any such party cast in person at a meeting called for the
purpose of voting on such approval.
ARTICLE IX
DEFINITIONS OF CERTAIN TERMS
The term "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person," and "interested person," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
5
<PAGE>
ARTICLE X
GOVERNING LAW
This Agreement shall be construed in accordance with laws of the State of
Georgia, and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of Georgia, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
CL CAPITAL MANAGEMENT, INC.
By: /s/ Hubert Atkinson
-----------------------
Hubert Atkinson
---------------
Its: Vice President
--------------------
CANADA LIFE OF AMERICA SERIES FUND, INC.
By: /s/ D.V. Rough
------------------
D.V. Rough
----------
Its: Treasurer
---------------
6
<PAGE>
EXHIBIT (D)(2)
Sub-Investment Advisory Agreement between CL Capital Management, Inc.
(CLCM) and J. & W. Seligman & Co., Incorporated (Seligman), dated May 1, 1995
SUB-INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 1st day of May, 1995 between CL Capital Management,
Inc. (the "Investment Advisor"), a Georgia corporation, and J&W Seligman &
Company Incorporated (the "Sub-Investment Adviser"), a Delaware Corporation:
WITNESSETH:
WHEREAS, Canada Life of America Series Fund, Inc., a Maryland Corporation
(the "Fund") is engaged in business as a diversified open-end management
investment company and is registered as such under the Investment Company Act of
1940 (the "Investment Company Acts); and
WHEREAS, the Fund, a series type of investment company, issues separate
classes (or series) of stock, each of which represents a separate portfolio of
investments; and
WHEREAS, the Fund is currently comprised of six classes of stock
(together with any classes subsequently added, the "Series"), each of which
pursues its investment objectives through separate investment policies; and
WHEREAS, the Sub-Investment Adviser is engaged principally in the
business of rendering advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940; and
WHEREAS, the Fund has employed the Investment Adviser to act as
investment manager of the Fund as set forth in the Investment Advisory Agreement
between the Fund and the Investment Adviser dated May 1, 1995 (the "Investment
Advisory Agreement"); and
WHEREAS, the Fund and the Investment Adviser desire to retain the
Sub-Investment Adviser to render certain investment advisory services to the
International Series in the manner and on the terms hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Investment Adviser and the Sub-Investment Adviser
hereby agree as follows:
ARTICLE I
DUTIES OF THE SUB-INVESTMENT ADVISOR
The Investment Adviser hereby employs the Sub-Investment Adviser to act
as the investment adviser of the Capital Series of the Fund, and to furnish the
investment advisory services described below, subject to the supervision of the
Board of Directors of the Fund and the Investment Adviser, for the period and on
the terms and conditions set forth in this Agreement. The Sub-Investment Adviser
herby accepts such employment and agrees during such period, at its own expense,
to render, or arrange for the rendering of, such services and to assume the
obligations herein set forth for the compensation provided for herein. The
Sub-Investment Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in any way or
shall in no way be deemed an agent of the Fund.
1
<PAGE>
The Sub-Investment Adviser, shall provide the Capital Series with such
investment research, advice and supervision as the latter may from time to time
consider necessary for the proper supervision of the assets of such Series,
shall furnish continuously an investment program for such Series, shall
determine from time to time which securities shall be purchased, sold or
exchanged, determine how voting and other rights with respect to the securities
of the Series shall be exercised, and what portions of the Series shall be held
in the various securities in which the Series invests or cash, and shall take
such steps as are necessary to implement any overall investment plan for such
Series, including providing or obtaining such services as may be necessary in
managing, acquiring or disposing of investments. The Sub-Investment Adviser's
services shall be subject always to the control and supervision of the Board of
Directors of the Fund and the Investment Adviser, the restrictions of the
Articles of Incorporation and By-Laws of the Fund, as amended from time to time,
the provisions of the Investment Company Act, the statements relating to the
investment objectives of the International Series, investment policies and
investment restrictions as the same are set forth in the currently effective
registration statement relating to the shares of the Fund under the Securities
Act of 1933, as amended and the Investment Company Act of 1940, as amended (the
"Registration Statement"), appropriate state insurance laws, and any applicable
provisions of the Internal Revenue Code of 1986. Should the Board of Directors
of the Fund at any time make any definite determination as to investment policy
and notify the Sub-Investment Adviser thereof in writing, the Sub-Investment
Adviser shall be bound by such determination for the period, if any, specified
in such notice or until similarly notified that such determination has been
revoked.
Investment Adviser acknowledges and agrees that it has sole
responsibility to ensure that Sub-Investment Adviser is properly informed of
such policies and restrictions applicable to the Series including without
limitation as are, (i) contained in the Fund's Prospectus, (ii) set forth in the
Internal Revenue Code of 1986, as amended, (iii) set forth pursuant to state
insurance laws.
Investment Adviser also acknowledges and agrees that it will be
responsible to provide Sub-Investment Adviser with all necessary compliance
reports to enable Sub-Investment Adviser to make purchases and sales for the
Series in accordance with the policies and restrictions to which the Series is
subject. Investment Adviser also agrees that it or the Fund is responsible to
provide or contract to provide accounting, custodial and any other
administrative services necessary to administer the business and other affairs
of the Fund.
The Sub-Investment Adviser shall take, on behalf of the International
Equity Series, all actions which it deems necessary to implement the investment
policies determined as provided above, and in particular to place all orders for
the purchase or sale of portfolio securities for the Series' account with
brokers or dealers selected by it, and to that end, the Sub-Investment Adviser
is authorized as the agent of the Fund to give instructions to the Custodian of
the Fund as to deliveries of securities and payments of cash for the account of
the International Series. In connection with the selection of such brokers or
dealers and the placing of such orders with respect to assets of the
International Series, the Sub-Investment Adviser is directed at all times to
seek to obtain best execution and price within the policy guidelines determined
2
<PAGE>
by the Board of Directors of the Fund and set forth in the Registration
Statement. Subject to this requirement and the provisions of the Investment
Company Act, the Securities Exchange Act of 1934, as amended, and other
applicable provisions of law, the Sub-Investment Adviser may select brokers or
dealers with which it or the Fund is affiliated.
In addition to seeking the best price and execution, the Sub-Investment
Adviser may also take into consideration research and statistical information
and wire and other quotation services provided to the Sub-Investment Adviser
which may justify brokerage commissions at a higher cost to the Series then may
result when allocating brokerages to other brokers on the basis of seeking best
price and execution. However, the Sub-Investment Adviser shall select only
brokers whose commissions it believes are reasonable. The Sub-Investment Adviser
will periodically evaluate the statistical data, research and other investment
services provided to it by brokers and dealers. Such services may be used by the
Sub-Investment Adviser in connection with the performance of its obligations
under this Agreement or in connection with other advisory or investment
operations.
ARTICLE II
SUB-INVESTMENT ADVISORY FEE
The payment of investment advisory fees and the allocation of charges and
expenses between the Fund and the Investment Adviser are set forth in the
Investment Advisory Agreement, and nothing in this Sub-Investment Advisory
Agreement shall change or affect that arrangement. The payment of investment
advisory fees and the apportionment of any expenses related to the services of
the Sub-Investment Adviser shall be the sole concern of the Investment Adviser
and the Sub-Investment Adviser and shall not be the responsibility of the Fund.
For the services rendered pursuant to this Agreement, Investment Adviser
will pay the Sub-Investment Adviser at the end of each calendar month, a fee,
calculated daily based upon the average daily value of the net assets of the
International Series of the Fund, as determined and computed in accordance with
the description of the determination of the net asset value contained in the
Registration Statement for the Fund, at the annual rate of 0.25%.
ARTICLE III
LIMITATION OF LIABILITY
Subject to Section 36 of the Investment Company Act of 1940, as amended,
the Sub-Investment Adviser shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the management of the Fund, and the performance of its duties
hereunder except for (i) wilful misfeasance, bad faith or gross negligence in
the performance of its duties or by reason of reckless disregard of its
obligations and duties hereunder.
3
<PAGE>
ARTICLE IV
ACTIVITIES OF THE SUB-INVESTMENT ADVISER
The services of the Sub-Investment Adviser to the Capital Series are not
deemed to be exclusive, and the Sub-Investment Adviser is free to render
services to others.
It is agreed that the Sub-Investment Adviser may use any supplemental
investment research obtained for the benefit of the Capital Series in providing
investment advice to its other investment advisory accounts. The Sub-Investment
Adviser or its affiliates may use such information in managing their own
accounts. Conversely, such supplemental information obtained by the placement of
business for the Sub-Investment Adviser or other entities advised by the
Sub-Investment Adviser will be considered by and may be useful to the
Sub-Investment Adviser in carrying out its obligations to the International
Series.
Securities held by the Capital Series may also be held by separate
investment accounts or other mutual funds for which the Sub-Investment Adviser
may act as an adviser or by the Sub-Investment Adviser or its affiliates.
Because of different investment objectives or other factors, a particular
security may be bought by the Sub-Investment Adviser or its affiliates or for
one or more clients when one or more clients are selling the same security. If
purchases or sales of securities for the Capital Series or other entities for
which the Sub-Investment Adviser or its affiliates act as investment adviser or
for their advisory clients arise for consideration at or about the same time,
the Sub-Investment Adviser may make transactions in such securities, insofar as
feasible, for the respective entities and clients in a manner deemed equitable
to all. To the extent that transactions on behalf of more than one client of the
Sub-Investment Adviser during the same period may increase the demand for
securities being purchased or the supply of securities being sold, it is
recognized that there may be an adverse effect on price.
It is agreed that, on occasions when the Sub-Investment Adviser deems the
purchase or sale of a security to be in the best interest of the Capital Series
as well as other accounts or companies, it may, to the extent permitted by
applicable laws or regulations, but will not be obligated to, aggregate the
securities to be sold or purchased for other accounts or companies in order to
obtain favourable execution and lower brokerage commissions. In that event,
allocation of the securities purchased or sold, as well as the expenses incurred
in the transaction, will be made by the Sub-Investment Adviser in the manner it
considers to be most equitable and consistent with its fiduciary obligations to
the Capital Series and to such other accounts or companies. It is recognized
that in some cases this procedure may adversely affect the size of the position
obtainable for the Capital Series.
4
<PAGE>
ARTICLE V
BOOKS AND RECORDS
The Sub-Investment Adviser agrees that all books and records which it
maintains for the Capital Series shall be made available, within five business
days of a written request, to the Fund's accountants or auditors during regular
business hours at the Sub-Investment Adviser's offices. The Fund or its
authorized representative shall have the right to copy any records in the
possession of the Sub-Investment Adviser which pertain to the Fund and as the
Fund shall require in accordance with applicable law. Such books, records,
information or reports shall be available to properly constitute governmental
authorities consistent with state and federal law and/or regulations. The
Sub-Investment Adviser shall keep confidential and shall not disclose or use any
records or information obtained pursuant to this Agreement except as expressly
required by state or federal law and/or regulations.
In the event of the termination of this Agreement, all such books, records, or
other information shall be returned to the Fund free from any claim or assertion
of rights by the Sub-Investment Adviser. The Fund shall make available to the
Sub-Investment Adviser on a reasonable basis all books and records which it
maintains for the International Series.
ARTICLE VI
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective as of the date first above written,
and shall continue in effect until the date of the first annual or special
meeting of shareholders of the Capital Series, but not later than sixteen months
after the effective date of the Securities Act of 1933 Registration Statement
for the International Series. Thereafter, this Agreement shall continue in
effect from year to year with respect to the International Series so long as
such continuance is specifically approved at least annually by (i) the Board of
Directors of the Fund, or by the vote of a majority of the outstanding voting
securities of the International Series, and (ii) a majority of those Directors
of the Fund who are not parties to this Agree or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Board of Directors of the Fund, or by vote of a majority of the
outstanding voting securities of the Capital Series, or by the Investment
Adviser, on sixty days written notice to the other party. This Agreement may be
terminated for "cause" at any time by the Board of Directors of the Fund.
"Cause" is defined and limited for this purpose to mean wilful misfeasance, bad
faith, or gross negligence by the Sub-Investment Adviser in the performance of
its duties or reckless disregard by it of its obligations and duties under this
Agreement. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Investment Advisory
Agreement between the Fund and the Investment Adviser. This Agreement may be
terminated without penalty, by Sub-Investment Adviser on sixty days notice.
5
<PAGE>
ARTICLE VII
DEFINITIONS
The terms "assignment," "interested person," and "majority of the
outstanding voting securities," when used in this Agreement, shall have the
respective meanings specified under the Investment Company Act.
ARTICLE VIII
AMENDMENTS OF THIS AGREEMENT
When required by applicable law, this Agreement may be amended by the
parties only if such amendment is specifically approved by (i) the vote of a
majority of the outstanding voting securities shares of the International
Series, and (ii) a majority of those Directors of the Fund who are not parties
to this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.
The Investment Adviser agrees to advise Sub-Investment Adviser
immediately:
(a) of any request by the SEC for amendments to the Prospectus or for
additional information.
(b) of the issuance by the SEC of any stop order suspending the
effectiveness of the Fund's Prospectus or the initiation of any proceedings for
that purpose.
(c) of the happening of any material event which makes untrue any
statement made in the Fund's Prospectus or which requires the making of a change
in either of them in order to make the statements therein not misleading, and
(d) of all action of the SEC with respect to any amendments to the
Fund's Prospectus.
(e) of the happening of any event relating to Investment Adviser which
would have a material effect on its business.
The Sub-Investment Adviser agrees to advise Investment Adviser
immediately:
(a) of the happening of any material event which makes untrue any
statement made in the Fund's Prospectus or which requires the making of a change
in either of them in order to make the statements therein not misleading, and
(b) of the happening of any event relating to Investment Adviser which
would have a material effect on its business.
6
<PAGE>
ARTICLE IX
GOVERNING LAW
This Agreement shall be construed and interpreted in accordance with the
laws of the State of New York, and the applicable provisions of the Investment
Company Act.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
CL CAPITAL MANAGEMENT, INC.
By: /s/ Hubert Atkinson
-----------------------
Hubert Atkinson
---------------
Its: Vice President
--------------
By: /s/ D.V. Rough
-------------------
D.V. Rough
----------
Its: Treasurer
---------
J & W SELIGMAN & COMPANY INCORPORATED
By: /s/ David Stein
-------------------
David Stein
-----------
Its: Managing Director
-----------------
By: /s/ Brian T. Zino
----------------------
Brian T. Zino
-------------
Its: Managing Director
-----------------
7
