<PAGE>
As Filed with the Securities and Exchange Commission on May 1, 2000
Registration No. 811-5816
Securities and Exchange Commission
Washington, D.C. 20549
FORM N-1A
Registration Statement under the Investment Company Act Of 1940
Amendment No. 15
Canada Life Of America Series Fund, Inc.
(Exact Name of Registrant)
6201 Powers Ferry Road
Atlanta, GA 30339
(Address of Principal Executive Office)
Registrant's Telephone Number: (800) 905-1959
Roy W. Linden
330 University Avenue
Toronto, Canada M5G 1R8
(Name and Address of Agent for Service)
Copy to:
Stephen E. Roth, Esquire
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
<PAGE>
PURPOSE STATEMENT
This amendment No. 15 to the Registrant's registration statement on Form N-1A,
as amended (the "Registration Statement") is being made for the sole purpose to
update the financial information in the Canada Life of America Series Fund,
Inc.'s (the "Series Fund") Registration Statement, pursuant to the requirements
of rule 8b-16 of the Investment Company Act of 1940, as amended (the "Act").
This filing incorporates Amendment No. 14 in its entirety, excluding the audited
financial statements for the year ended December 31, 1998, the opinion of the
auditors dated January 27, 1999, and the consent of the auditors dated April __,
1999, and this amendment supplements Amendment No. 14 of the Act. Effective May
1, 2000 no offers or sales of shares of Series Fund's portfolios are being made,
and the Series Fund's registration statement is not being amended pursuant to
the requirements of the Securities Act of 1933.
<PAGE>
Supplement dated May 1, 2000 to the Prospectus dated May 1, 1999
On April 18, 2000, Canada Life Insurance Company of America ("CLICA") and Canada
Life Insurance Company of New York ("CLNY") obtained a substitution order (I.C.
Rel. No. 812-11862), granted by the United States Securities and Exchange
Commission. Pursuant to that order, on April 28, 2000, CLICA and CLNY
substituted certain funds for portfolios of the Series Fund as follows: shares
of the Money Market Portfolio of the Fidelity Variable Insurance Products Fund
for shares of the Money Market Portfolio of the Series Fund; (2) shares of the
Investment Grade Bond Portfolio of the Fidelity Variable Insurance Products Fund
II for shares of the Series Fund's Bond Portfolio; (3) shares of the Fidelity
VIP's Overseas Portfolio for shares of the Series Fund's International Equity
Portfolio; (4) shares of the American MidCap Growth Portfolio of The Alger
American Fund for shares of the Series Fund's Capital Portfolio; (5) shares of
the Fidelity VIP II's Asset Manager Portfolio for shares of the Series Fund's
Managed Portfolio; and (6) shares of the Fidelity VIP II's Contrafund Portfolio
for shares of the Series Fund's Value Equity Portfolio. After the substitution
was effected, the Series Fund has no investors other than the seed money of
CLICA and CLNY.
Further, CLICA and CLNY have informed the Board of Directors of the Series Fund
that CLICA and CLNY intend to cease investment operations, cease marketing the
Fund, and withdraw any seed money now that the separate accounts have redeemed
their shares of the Portfolios. The Board has made a preliminary determination
that it would be unlikely and impractical for the Series Fund to continue as a
viable entity after substitution and redeem of the seed money and will consider
whether it would likely be in the best interests of the Series Fund and its
shareholders to liquidate the assets of the Fund's Portfolios and dissolve the
corporation. Accordingly, currently no offers or sales of shares of the
portfolios of Series Fund are being made, and the Series Fund's registration
statement is not being amended pursuant to the requirements of the Securities
Act of 1933.
<PAGE>
CANADA LIFE OF AMERICA SERIES FUND, INC.
Money Market Portfolio
Bond Portfolio
Value Equity Portfolio
Managed Portfolio
Capital Portfolio
International Equity Portfolio
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 by dividing its assets and liabilities into six different portfolios:
Money Market, Bond; Value Equity; Managed; Capital; and International Equity
Portfolios (the "Portfolios"). Each Portfolio generally operates as a separate
investment fund and issues its own shares.
6201 Powers Ferry Road, NW
Atlanta, GA 30339
PHONE: 1-800-905-1959
Prospectus
May 1, 1999
The Securities and Exchange Commission has not approved the 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.
<PAGE>
TABLE OF CONTENTS
Money Market Portfolio 3
Bond Portfolio 5
Value Equity Portfolio 7
Managed Portfolio 9
Capital Portfolio 11
International Equity Portfolio 13
Investment Objectives, Policies, Practices And Risks 15
Legal Proceedings 19
Year 2000 Compliance 19
Euro Conversion 20
Shareholder Transactions And Purchases 20
Valuation Of Shares And Pricing 21
Tax Consequences Of Dividends And Distributions 21
Financial Highlights 22
Appendix A A-1
Appendix B B-1
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
<PAGE>
Money Market Portfolio
GOALS AND INVESTMENTS
Portfolio's Objective: As high a 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 money market instruments of U.S. and
foreign issuers that 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:
o U.S. government securities, which include obligations issued or
guaranteed by the U.S. government and its agencies,
instrumentalities and government-sponsored enterprises;
o obligations issued or guaranteed as to principal and interest by the
Government of Canada, the government of any Canadian province, or
any Canadian or provincial Crown agency;
o obligations such as certificates of deposits and bankers'
acceptances of banks, including U.S. and Canadian banks, U.S.
branches of foreign banks, and foreign branches of U.S. banks, with
at least capital, surplus and undistributed profits of $500,000,000;
o prime commercial paper, including variable rate master demand notes;
and
o repurchase agreements backed by U.S. government securities.
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, if
an issuer of the Portfolio's securities defaults, or has its credit rating
downgraded and fails to perform as expected. For more information on these
investments and related risks, please refer to "Investments Objective, Policies,
Practices and Risks" in this prospectus and the statement of additional
information.
================================================================================
PORTFOLIO PERFORMANCE
The table below shows the risk of an investment in the Portfolio by showing how
its performance 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 Canada Life Insurance Company of America (the "Company"),
Canada Life Insurance Company of New York ("CLNY") or their separate accounts,
which would reduce the returns. 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.
3
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Year-By-Year % Total Returns as of 12/31
-----------------------------------------------------------------------------
[GRAPHIC OMITTED]
[The following table was represented as a bar graph in the printed material.]
'90 '91 '92 '93 '94 '95 '96 '97 '98
---- ---- ---- ---- ---- ---- ---- ---- ----
6.76 5.25 2.71 2.29 3 4.95 4.58 4.95 4.77
The Portfolio commenced operations on 12/4/89.
Best Quarter: 3rd-1990 1.80%
Worst Quarter: 2nd-1993 0.56%
7-Day Yield and % Average Annual Total Returns as of 12/31/1998
7-Day
Yield 1 year 5 year Life of Fund
----- ------ ------ ------------
Money Market
Portfolio 4.38 4.77 4.57 4.77
Investment Adviser: CL Capital
Management, Inc.
Portfolio Manager: George N. Isaac
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 Appendix A to this
prospectus.
4
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Bond Portfolio
GOALS AND INVESTMENTS
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:
o U.S. government securities, which include obligations issued or
guaranteed by the U.S. government and its agencies,
instrumentalities and government sponsored enterprises;
o publicly traded debt instruments rated within the four highest
categories by a rating agency; and
o 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.
Principal Risk Factors: The Portfolio is primarily subject to risks associated
with investing in debt securities, where market values move in the opposite
direction of interest rates. To the extent the Portfolio invests in
lower-quality debt instruments, it is subject to the credit risks of issuer who
may default or otherwise fail to make timely debt payments. Another principal
risk is foreign securities risks, where market values may be impacted by
different accounting treatments, limited trading, political or regulatory
differences, or other factors. For more information on these investments and
related risks, please refer to "Investments Objective, Policies, Practices and
Risks" in this prospectus and the statement of additional information.
================================================================================
PORTFOLIO PERFORMANCE
The table below shows the risk of an investment in the Portfolio by showing how
its performance 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, which would
reduce the returns. The table compares the Portfolio's performance with the
Lehman Brothers G/C Bond 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.
5
<PAGE>
Year-By-Year % Total Returns as of 12/31
-----------------------------------------------------------------------------
[GRAPHIC OMITTED]
[The following table was represented as a bar graph in the printed material.]
'90 '91 '92 '93 '94 '95 '96 '97 '98
---- ---- ---- ---- ---- ----- ---- ----- ----
5.48 16.21 6.65 10.35 -3.94 16.77 4.66 8.09 9.00
The Portfolio commenced operations on 12/4/89.
Best Quarter: 4th-1990 5.92%
Worst Quarter: 1st-1994 (3.02)%
% Average Annual Total Returns as of 12/31/1998
1 year 5 year Life of Fund
------ ------ ------------
Bond Portfolio 9.00 6.70 7.89
Lehman Brothers
G/C Bond Index 9.47 7.30 8.74
Investment Adviser: CL Capital
Management, Inc.
Portfolio Manager: George N. Isaac
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 also
may invest in or use other instruments and techniques. For a complete list of
all the investments available to this Portfolio, please refer to Appendix A to
this prospectus.
6
<PAGE>
Value Equity Portfolio
GOALS AND INVESTMENTS
Portfolio's Objective and Key Investments: Long-term growth of capital and
income by investing in equity securities which are believed to have appreciation
potential
Selection Process: The portfolio manager selects equity securities that it
believes have appreciation potential. The portfolio manager?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 portfolio manager chooses investments emphasizing companies with:
o Good financial resources o Satisfactory rate of return on capital
o Good industry position o Superior management skills
Principal Risk Factors: The Portfolio is primarily subject to risks associated
with investing in equities, where market values may change abruptly, sometimes
unpredictably, and style or selection risk, where undervalued stock may not
achieve the market values predicted by the portfolio manager. For a complete
description of these investments and related risks, please refer to "Investments
Objective, Policies, Practices and Risks" in this prospectus and the statement
of additional information.
================================================================================
PORTFOLIO PERFORMANCE
The table below shows the risk of an investment in the Portfolio by showing how
its performance 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, which would
reduce the returns. The table compares the Portfolio's performance with the S&P
500 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.
7
<PAGE>
Year-By-Year % Total Returns as of 12/31
-----------------------------------------------------------------------------
[GRAPHIC OMITTED]
[The following table was represented as a bar graph in the printed material.]
'90 '91 '92 '93 '94 '95 '96 '97 '98
---- ---- ---- ---- ---- ----- ---- ----- ----
-4.45 34.95 8.37 5.44 2.03 23.66 6.94 26.99 2.81
The Portfolio commenced operations on 12/4/89.
Best Quarter: 4th-1998 21.76%
Worst Quarter: 3rd-1998 (20.54)%
% Average Annual Total Returns as of 12/31/1998
1 year 5 year Life of Fund
------ ------ ------------
Value Equity
Portfolio 2.81 11.98 11.16
S&P 500 Index 28.52 24.10 17.84
Investment Adviser: CL Capital
Management, Inc.
Subadviser: Laketon Investment
Management Ltd.
Portfolio Manager: Lance Speck
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 Appendix A to this prospectus.
8
<PAGE>
Managed Portfolio
GOALS AND INVESTMENTS
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 obligations and money market instruments
Selection Process: The Portfolio follows a fully managed investment policy by
investing in three types of investments ("sectors"): equities, debt obligations,
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:
o Inflation o Commodity prices
o Growth o Relative values of stocks and bonds
o Trends in currency values
Principal Risk Factors: The Portfolio's investments in equity securities are
primarily subject to risks associated with investing in equities, where market
values may change abruptly, sometimes unpredictably, and style or selection
risk, where undervalued stocks may not achieve the market values predicted by
the portfolio manager. The Portfolio's investments in debt securities are
primarily subject to risks associated with investing in debt securities, where
market values move in the opposite direction of interest rates, and
lower-quality debt risks, where it is subject to the credit risks of issuer who
may default or otherwise fail to make timely debt payments. Another principal
risk is foreign securities risks, where market values may be impacted by
different accounting treatments, limited trading, political or regulatory
differences, or other factors. For a complete description of these investments
and related risks, please refer to "Investments Objective, Policies, Practices
and Risks" in this prospectus and the statement of additional information.
================================================================================
Portfolio Performance: The table below shows the risk of an investment in the
Portfolio by showing how its performance 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, which would reduce the returns. The table compares the
Portfolio's performance with the S&P 500 Index and the Lehman Brothers
Government/Corporate Bond 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
-----------------------------------------------------------------------------
[GRAPHIC OMITTED]
[The following table was represented as a bar graph in the printed material.]
'90 '91 '92 '93 '94 '95 '96 '97 '98
---- ---- ---- ---- ---- ----- ---- ----- ----
1.63 23.4 8.02 8.24 -0.25 21.92 5.75 17.61 5.15
The Portfolio commenced operations on 12/4/89.
Best Quarter: 4th-1998 12.49%
Worst Quarter: 3rd-1998 (10.43)%
% Average Annual Total Returns as of 12/31/1998
1 year 5 year Life of Fund
------ ------ ------------
Managed
Portfolio 5.15 9.72 9.80
S&P 500 Index 28.52 24.10 17.84
Lehman Brothers
G/C Bond Index 9.47 7.30 8.74
Investment Adviser: (debt and
money market portions)
CL Capital Management, Inc.
Subadviser: (equity portion) Laketon Investment
Management Ltd.
Portfolio Managers: George N. Isaac
(debt and money market portions) and
Lance Speck (equity portion)
Additional Investments, Investment Strategies and Techniques: Up to 25% of the
Portfolio's assets may be invested in U.S. dollar-denominated Canadian debt
securities (see Bond Portfolio). 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
Appendix A to this prospectus.
10
<PAGE>
Capital Portfolio
GOALS AND INVESTMENTS
Portfolio's Objective and Key Investments: 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
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:
o Companies showing earnings growth and predictability
o Newer less-seasoned companies believed to have better-than-average
prospects
Principal Risk Factors: The Portfolio is primarily subject to risks associated
with investing in equities, where market values may change abruptly, sometimes
unpredictably, and style or selection risk, where stocks may not achieve growth
predicted by the portfolio manager. For more information on these investments
and related risks, please refer to "Investments Objective, Policies, Practices
and Risks" in this prospectus and the statement of additional information.
================================================================================
PORTFOLIO PERFORMANCE
The table below shows the risk of an investment in the Portfolio by showing how
its performance 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, which would
reduce the returns. The table compares the Portfolio's performance with the S&P
500 Stock Index and the Russell 2000 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.
11
<PAGE>
Year-By-Year % Total Returns as of 12/31
-----------------------------------------------------------------------------
[GRAPHIC OMITTED]
[The following table was represented as a bar graph in the printed material.]
'94 '95 '96 '97 '98
---- ---- ---- ----- ----
-4.11 33.99 12.65 21.14 20.23
The Portfolio commenced operations on 5/1/93.
Best Quarter: 4th-98 30.82%
Worst Quarter: 3rd-98 -20.69%
% Average Annual Total Returns as of 12/31/1998
1 year 5 year Life of Fund
------ ------ ------------
Capital
Portfolio 20.23 16.82 16.36
S&P 500
Index 28.52 24.10 18.59
Russell
2000
Index -2.60 11.90 13.23
Investment Adviser: CL Capital
Management, Inc.
Subadviser: J. & W. Seligman & Co.
Incorporated
Portfolio Manager: Marion S.
Schultheis
Additional Investments, Investment Strategies and Techniques: The Portfolio may
hold cash and invest without limits in short-term money market instruments (see
Money Market Portfolio) for temporary defensive purposes or pending investment.
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 Appendix A to this
prospectus.
12
<PAGE>
International Equity Portfolio
GOALS AND INVESTMENTS
Portfolio's Objective and Key Investments: Long-term capital appreciation by
investing in equity or equity type securities of companies located outside the
United States
Selection Process: The Portfolio seeks foreign securities that offer long-term
capital appreciation potential. The subadviser 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's exposure is limited as follows:
o to a single industry group to 25% of its total assets
o to a single country, excluding the United Kingdom and Japan,
to 25% of its total assets
o by normally holding investments in at least 4 countries and at
least 40 different companies
o by investing in a minimum of at least 5 to 8 different
industry groups as defined by Morgan Stanley
Principal Risk Factors: The Portfolio is primarily subject to risks associated
with investing in equities, where market values may change abruptly, sometimes
unpredictably, and foreign and emerging markets securities risks, where market
values may be impacted by limited trading, currency exchange, political or
economic instability, or other factors. For more information on these
investments and related risks, please refer to "Investments Objective, Policies,
Practices and Risks" in this prospectus and the statement of additional
information.
================================================================================
PORTFOLIO PERFORMANCE
The table below shows the risk of an investment in the Portfolio by showing how
its performance 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, which would
reduce the returns. The table compares the Portfolio's performance with the MSCI
EAFE 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.
13
<PAGE>
Year-By-Year % Total Returns as of 12/31
-----------------------------------------------------------------------------
[GRAPHIC OMITTED]
[The following table was represented as a bar graph in the printed material.]
'96 '97 '98
---- ---- -----
19.44 4.32 13.37
Best Quarter: 4th-1998 22.04%
Worst Quarter: 3rd-1998 -17.90%
% Average Annual Total Returns as of 12/31/1998
1 year Life of Fund
------ ------------
International
Equity Portfolio 13.37 11.50
MSCI EAFE
Index 20.33 8.76
Investment Adviser: CL Capital
Management, Inc.
Subadviser: Laketon Investment
Management Ltd.
Portfolio Manager: Lance Speck
Additional Investments, Investment Strategies and Techniques: The Portfolio may
hold cash and invest without limits in U.S. and foreign short-term money market
instruments 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 Appendix A to this prospectus.
Appendix B includes a list of the industry groups as defined by Morgan Stanley.
14
<PAGE>
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 ("SAI"). For a free copy of the SAI, see the
back cover of this prospectus. Each Portfolio is a diversified pool of
investments. The investment objective of each Portfolio is not fundamental, and,
accordingly, the Board of Directors ("Board") may change the objective without
shareholder approval. 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.
When a Portfolio sells its securities, they may be worth more or less than what
the Portfolio paid for them. You could lose money by investing in a Portfolio.
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.
Equities Each Portfolio may invest in equity
securities. Equity securities
Each Portfolio except include common and preferred stock,
Bond and Money Market Portfolios warrants, rights, depositary
receipts and shares, trust
certificates, and real estate
instruments.
Common stocks (or 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 a
Portfolio. Equities are subject to
financial risks relating to an
issuer's earnings stability and
overall soundness.
Equities are subject to market
risk. Many factors affect the stock
market prices and dividend payouts
of equity investments. These
factors include investor confidence
in the economy, investor
perceptions of value in a
particular company, general
business conditions, 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
(All Portfolios) U.S. and Canadian government
securities, certificates of
deposit, and 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 by
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
15
<PAGE>
securities generally experience
higher prepayments, and a portfolio
manager may be forced to invest
proceeds from prepayments at lower
rates, which results in a lower
yield for the Portfolio. In
addition, yields from short-term
debt securities normally are lower
than yields from longer-term
securities.
Convertible securities These may be debt or equity
securities that pay interest or
dividends may be converted on
specified terms into the stock of
the issuer.
(Bond, Value Equity, Managed,
Capital, and International Equity Portfolios)
Preferred securities These are classes of stock that pay
dividends at a specified rate.
(Bond, Value Equity, Managed, Dividends are paid on preferred
Capital, and International Equity stocks before they are paid on
Portfolios) common stocks. In addition,
preferred stockholders have
priority over common stockholders
as to the proceeds from the
liquidation of a company's assets.
Lower Rated Fixed-Income High-yield securities, commonly
Securities referred to as "junk bonds," are
considered speculative. While
(Bond and Managed Portfolios) generally providing 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 Foreign securities include
interests in or obligations of
(All Portfolios) entities located outside of the
United States. The determination of
where an issuer of a security is
located is 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 assets
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, may be registered and
issued in the U.S. and denominated
in U.S. dollars, or may be in the
form of depositary receipts.
An investment in foreign securities
involves risk in addition to those
of U.S. securities, including
possible political and 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, changes
in foreign currency rates relative
to the U.S. dollar affect the U.S.
dollar value of the Portfolio's
assets. No Portfolio, except
International Equity Portfolio, may
invest more than 25% of its total
assets in the securities of any
foreign issuer.
Emerging Market Emerging markets investments offer
Investments potential of significant gains but
also offer greater risks than
(International Equity Portfolio) investing in more developed
countries. Political or economic
instability, lack of market
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 Sectors, or asset classes, are of
three types: equities, debt
(Managed Portfolio) securities and money market
instruments (sometimes referred to
as "cash"). Each sector generally
reacts differently to various
market conditions, including
interest-rate changes and other
factors. Sector risk is the risk
that a sector
16
<PAGE>
fails to perform as expected.
Temporary Defensive Positions Each of Capital and International
Equity Portfolio may depart from
(Capital and International Equity its principal investments and
Portfolios) strategies in response to adverse
market, economic or political
conditions and take a temporary
defensive position. When in a
temporary defensive position, a
Portfolio may be unable to achieve
its investment goal. It is not
investing in accordance with its
investment objective and policies
and may not take advantage of
market increases.
Portfolio Turnover Each Portfolio may actively trade
portfolio securities in seeking to
achieve its investment objective.
Active trading causes a Portfolio
to have a higher portfolio turnover
rate, which generates shorter-term
gains (losses) for its shareholders
that are taxed at higher rates than
longer-term gains (losses).
Actively trading portfolio
securities increases trading costs,
which has an adverse impact on
performance.
17
<PAGE>
MANAGEMENT
Investment Adviser
CL Capital Management, Inc. provides investment advisory services to the Fund
for the Money Market, Bond, Value Equity, and Managed (debt and money market
portions) 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 l989. 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 6201 Powers Ferry Road, N.W.,
Atlanta, Georgia 30339.
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%*
- ----------
* The investment advisory fee for the International Equity Portfolio may
exceed the industry average of investment advisory fees for domestic funds
but does not exceed the industry average for international funds.
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 for at least the past five years.
- --------------------------------------------------------------------------------
Portfolio Portfolio Manager and Subadviser Business Experience
- --------------------------------------------------------------------------------
Money Market George N. Isaac (since July 1998) Senior Portfolio
Portfolio CL Capital Management, Inc. Manager, CL Capital
Management, Inc.,
since 1980
- --------------------------------------------------------------------------------
Bond Portfolio George N. Isaac (since July 1998) See above
CL Capital Management, Inc.
- --------------------------------------------------------------------------------
Value Equity Henry A. Rachfalowski (since July President, CL Capital
Portfolio 1998) CL Capital Management, Inc. Management Inc., 1996
- present; prior
thereto, Vice
President and
Portfolio Manager,
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
Ontario Municipal
Employees Retirement
Board
Lance Speck (since April 1999) Vice President and
Portfolio Manager,
Laketon Investment
Management Ltd., since
1996; prior thereto,
Vice President, Canada
Life Investment
Management Limited
- --------------------------------------------------------------------------------
Managed Portfolio Henry A. Rachfalowski (since See above
July 1998)
(debt and money market portion)
George N. Isaac (since July 1998) See above
(subadviser of equity portion)
Lance Speck (since April 1999) See above
- --------------------------------------------------------------------------------
Capital Portfolio Henry A. Rachfalowski (since See above
July 1998)
Marion S. Schultheis (since Managing Director,
June 1998) J.W. Seligman & Co.
J. & W. Seligman & Co. Incorporated since May
Incorporated 1998; Vice President
100 Park Avenue and Portfolio Manager,
New York, New York 10017 two other open-end
management investment
companies in the
Seligman Group of
investment companies;
Managing Director,
Chancellor LGT, from
October 1997 to May
1998; and Senior
Portfolio Manager, IDS
Advisory Group Inc.,
from August 1987 to
October 1997.
- --------------------------------------------------------------------------------
International Equity Henry A. Rachfalowski (since See above
Portfolio July 1998)
Lance Speck (since April 1999) See above
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
There are no material pending legal proceedings affecting the Fund. It has been
advised by CL Capital Management, CLICA, CLNY, Laketon Investment Management
Ltd. And J. & W. Seligman & Co. that none of them has 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.
19
<PAGE>
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 are confirming with
their service providers, the Fund's subadvisers and other service providers, and
with issuers of existing and prospective portfolio investments, 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 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.
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 I, 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 PURCHASES
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.)
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
20
<PAGE>
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 AND PRICING
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 at 4:00 p.m. Eastern Time) on
each day that the Exchange is open for trading. The net asset value of each
Portfolio's shares is computed by dividing the value of the net assets of the
portfolio by the total number of shares outstanding.
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.
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.
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 maintain a dollar-weighted average
portfolio maturity that does not exceed 90 days.
The International Equity Portfolio holds securities that are primarily listed on
foreign exchanges that trade on weekends or other days when the Portfolio does
not price its shares. The NAV of the Portfolio's shares may change on days when
shareholders will not be able to purchase or redeem the Portfolio's shares.
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 investment 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.
21
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
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, whose report, along with the Fund's financial
statements, are included in the annual report, which is available free upon
request.
Money Market Portfolio1
<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 $10.00
----------- ---------- ---------- ---------- ----------
Income from Investment Operations
Net Investment Income 0.46 0.48 0.45 0.49 0.34
----------- ---------- ---------- ---------- ----------
Total From Investment Operations 0.46 0.48 0.45 0.49 0.34
Less Distributions
Dividends (from net investment income) (0.46) (0.48) (0.45) (0.49) (0.34)
----------- ---------- ---------- ---------- ----------
Total Distributions (0.46) (0.48) (0.45) (0.49) (0.34)
Net Asset Value, End of Period $10.00 $10.00 $10.00 $10.00 $10.00
=========== ========== ========== ========== ==========
Total Return 4.77% 4.95% 4.58% 4.95% 3.40%
Ratios/Supplemental Data
Net Assets, End of Period $12,309,897 $9,149,393 $7,599,213 $4,608,718 $5,057,319
Ratio of Expenses to Average Net Assets
Before Expense Reimbursement 0.95% 1.16% 1.09% 1.14% 1.11%
Ratio of Expenses to Average Net Assets
After Expense Reimbursement 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of Net Investment Income to
Average Net Assets 4.64% 4.78% 4.54% 4.98% 3.43%
</TABLE>
- ----------
/1/ The Portfolio commenced operations on December 4, 1989.
22
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
Bond Portfolio /1/
<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 $10.59 $10.36 $10.45 $9.75 $10.74
-------- -------- -------- -------- --------
Income from Investment Operations
Net Investment Income 0.55 0.60 0.60 0.65 0.51
Net Gains or Losses on Securities
(both realized and unrealized) 0.67 0.23 (0.09) 1.09 (0.99)
-------- -------- -------- -------- --------
Total From Investment Operations 1.22 0.83 0.51 1.74 (0.48)
Less Distributions
Dividends (from net investment income) (0.55) (0.60) (0.60) (0.64) (0.51)
Distributions (from capital gains) (0.27) 0.00 0.00 (0.15) 0.00
Return of Capital 0.00 0.00 0.00 (0.25) 0.00
-------- -------- -------- -------- --------
Total Distributions (0.82) (0.60) (0.60) (1.04) (0.51)
Net Asset Value, End of Period $10.99 $10.59 $10.36 $10.45 $9.75
======== ======== ======== ======== ========
Total Return 9.00% 8.09% 4.66% 16.77% (3.94%)
Ratios/Supplemental Data
Net Assets, End of Period $16,705,618 $7,065,818 $6,712,914 $5,493,594 $3,985,744
Ratio of Expenses to Average Net Assets 0.92% 1.02% 1.08% 1.09% 1.10%
Before Expense Reimbursement
Ratio of Expenses to Average Net Assets 0.90% 0.90% 0.90% 0.88% 0.96%
After Expense Reimbursement
Ratio of Net Investment Income to Average 5.04% 5.70% 5.73% 6.06% 5.01%
Net Assets
Portfolio Turnover Rate 105.90% 127.63% 284.11% 245.32% 43.89%
</TABLE>
- ----------
/1/ The Portfolio commenced operations on December 4, 1989.
23
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
Value Equity Portfolio /1/
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98/2/ 12/31/97 12/31/96 12/31/95 12/31/94
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $14.71 $13.00 $13.51 $13.46 $13.60
--------- -------- -------- -------- --------
Income from Investment Operations
Net Investment Income 0.03 0.04 0.20 0.12 0.14
Net Gains or Losses on Securities
(both realized and unrealized) 0.49 3.44 0.80 3.17 0.13
--------- -------- -------- -------- --------
Total From Investment Operations 0.52 3.48 0.82 3.29 0.27
Less Distributions
Dividends (from net investment income) (0.03) (0.04) (0.02) (0.12) (0.14)
Distributions (from capital gains) (0.75) (1.73) (1.31) (3.12) (0.27)
--------- -------- -------- -------- --------
Total Distributions (0.78) (1.77) (1.33) (3.24) (0.41)
Net Asset Value, End of Period $14.45 $14.71 $13.00 $13.51 $13.46
========= ======== ======== ======== ========
Total Return 2.81% 26.93% 6.94% 23.66% 2.03%
Ratios/Supplemental Data
Net Assets, End of Period $16,829,336 $10,146,856 $8,519,192 $8,244,957 $7,379,295
Ratio of Expenses to Average Net Assets 0.97% 1.01% 0.99% 1.07% 0.97%
Before Expense Reimbursement
Ratio of Expenses to Average Net Assets 0.90% 0.90% 0.90% 0.90% 0.96%
After Expense Reimbursement
Ratio of Net Investment Income to Average 0.22% 0.28% 0.17% 0.81% 1.03%
Net Assets
Portfolio Turnover Rate 189.28% 50.97% 46.78% 103.07% 35.99%
</TABLE>
- ----------
/1/ The Portfolio commenced operations on December 4, 1989.
/2/ On July 27, 1998 the investment adviser changed from CL Capital
Management, Inc. to INDAGO Capital Management, Inc. ("INDAGO"); on April
15,1999 the investment subadviser changed from INDAGO to Laketon
Investment Management Ltd.
24
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
Managed Portfolio /1/
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/98/2/ 12/31/97 12/31/96 12/31/95 12/31/94
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $12.45 $11.80 $12.37 $12.01 $12.77
--------- -------- -------- -------- --------
Income from Investment Operations
Net Investment Income 0.29 0.34 0.32 0.40 0.32
Net Gains or Losses on Securities
(both realized and unrealized) 0.23 1.66 0.27 2.38 (0.39)
--------- -------- -------- -------- --------
Total From Investment Operations 0.52 2.00 0.59 2.78 (0.07)
Less Distributions
Dividends (from net investment income) (0.29) (0.34) (0.32) (0.41) (0.32)
Distributions (from capital gains) (0.83) (1.01) (0.84) (2.01) (0.37)
--------- -------- -------- -------- --------
Total Distributions (1.12) (1.35) (1.16) (2.42) (0.69)
Net Asset Value, End of Period $11.85 $12.45 $11.80 $12.37 $12.01
========= ======== ======== ======== ========
Total Return 5.15% 17.61% 5.75% 21.92% (0.25)%
Ratios/Supplemental Data
Net Assets, End of Period $13,308,554 $15,277,567 $15,972,639 $17,033,045 $15,192,354
Ratio of Expenses to Average Net Assets
Before Expense Reimbursement 0.96% 0.95% 0.95% 1.03% 0.98%
Ratio of Expenses to Average Net Assets
After Expense Reimbursement 0.90% 0.90% 0.90% 0.90% 0.97%
Ratio of Net Investment Income to Average
Net Assets 2.35% 2.74% 2.53% 3.06% 2.51%
Portfolio Turnover Rate 167.95% 82.80% 144.67% 145.14% 27.31%
</TABLE>
- ----------
/1/ The Portfolio commenced operations on December 4, 1989.
/2/ On July 27, 1998 the investment adviser changed from CL Capital
Management, Inc. to INDAGO Capital Management, Inc. ("INDAGO") for the
equity portion of the fund; on April 15, 1999 the investment subadviser
changed from INDAGO to Laketon Investment Management Ltd.
25
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
Capital Portfolio /1/
<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 $14.15 $13.96 $13.55 $10.48 $11.06
-------- -------- -------- -------- --------
Income from Investment Operations
Net Investment Income (0.06) 0.00 0.03 0.02 0.01
Net Gains or Losses on Securities
(both realized and unrealized) 2.87 2.75 1.68 3.56 (0.46)
-------- -------- -------- -------- --------
Total From Investment Operations 2.81 2.75 1.71 3.58 (0.45)
Less Distributions
Dividends (from net investment income) 0.00 0.00 (0.03) (0.01) (0.01)
Distributions (from capital gains) (1.07) (2.56) (1.27) (0.50) (0.12)
-------- -------- -------- -------- --------
Total Distributions (1.07) (2.56) (1.30) (0.51) (0.13)
Net Asset Value, End of Period $15.89 $14.15 $13.96 $13.55 $10.48
======== ======== ======== ======== ========
Total Return 20.23% 21.14% 12.65% 33.99% (4.11)%
Ratios/Supplemental Data
Net Assets, End of Period $8,407,733 $6,494,058 $6,676,516 $6,366,302 $3,847,365
Ratio of Expenses to Average Net Assets
Before Expense Reimbursement 0.99% 0.99% 0.99% 1.09% 1.03%
Ratio of Expenses to Average Net Assets
After Expense Reimbursement 0.90% 0.90% 0.90% 0.88% 0.92%
Ratio of Net Investment Income to Average
Net Assets (0.43)% 0.03% 0.19% 0.11% 0.09%
Portfolio Turnover Rate 123.69% 84.39% 54.11% 33.42% 55.99%
</TABLE>
- ----------
/1/ The Portfolio commenced operations on May 1, 1993.
26
<PAGE>
FINANCIAL HIGHLIGHTS
(Continued)
International Equity Portfolio/1/
<TABLE>
<CAPTION>
Period
Year Ended Year Ended Year Ended 4/24/95 to
12/31/982 12/31/97 12/31/96 12/31/95
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.64 $11.82 $10.09 $10.00
------ ------ ------ ------
Income from Investment Operations
Net Investment Income 0.06 0.07 0.16 0.10
Net Gains or Losses on Securities
(both realized and unrealized) 1.62 0.56 1.83 0.49
---- ---- ---- ----
Total From Investment Operations 1.68 0.63 1.99 0.59
Less Distributions
Dividends (from net investment income) (0.06) (0.07) (0.16) (0.10)
Distributions (from capital gains) (0.99) (0.74) (0.10) (0.40)
----- ----- ----- -----
Total Distributions (1.05) (0.81) (0.26) (0.50)
Net Asset Value, End of Period $12.27 $11.64 $11.82 $10.09
====== ====== ====== ======
Total Return 13.37% 4.32% 19.44% 5.79%/3/
Ratios/Supplemental Data
Net Assets, End of Period $6,259,057 $4,771,122 $3,305,190 $2,085,588
Ratio of Expenses to Average Net Assets
Before Expense Reimbursement 1.47% 1.32% 1.56% 1.06%/4/
Ratio of Expenses to Average Net Assets
After Expense Reimbursement 1.20% 1.20% 1.20% 1.20%/5/
Ratio of Net Investment Income to Average
Net Assets 0.48% 0.57% 1.44% 1.43%/5/
Portfolio Turnover Rate 119.77% 37.73% 56.28% 33.56%
</TABLE>
- ----------
1 The Portfolio commenced operations on April 24, 1995.
2 On July 27, 1998 the investment advisory services changed from CL Capital
Management, Inc. to INDAGO Capital Management, Inc. ("INDAGO"); on April
15, 1999 the investment subadvisory services changed from INDAGO to
Laketon Investment Management Ltd.
3 Not annualized: unaudited.
4 Not annualized; if annualized, the ratio of expenses to average net assets
before reimbursements would be 1.54% (unaudited).
5 Annualized for the period April 24,1995 to December 31, 1995.
27
<PAGE>
APPENDIX A
The following table identifies investments, techniques and strategies that each
Portfolio may use in connection with its investment objective, policies and
limitations. Permissible investments, techniques and strategies are checked.
Percentages show a limit on a Portfolio's assets that may be invested in
accordance with the indicated investment, instrument or technique.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Investment Technique Money Bond Value Equity Managed Capital International
Market Equity
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
American Depositary Receipts X X X
- ------------------------------------------------------------------------------------------------------------------------
Asset-Backed Mortgage Securities X X
- ------------------------------------------------------------------------------------------------------------------------
Bankers' Acceptances X X X X
- ------------------------------------------------------------------------------------------------------------------------
Canadian Government Securities X X X
- ------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit X X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Commercial Paper X X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Convertible Securities 20% X X X X
- ------------------------------------------------------------------------------------------------------------------------
Corporate Asset-Backed Securities X X X
- ------------------------------------------------------------------------------------------------------------------------
Debt Securities X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Emerging Market Securities 30%
- ------------------------------------------------------------------------------------------------------------------------
Equity Securities X X X X
- ------------------------------------------------------------------------------------------------------------------------
European Depositary Receipts X
- ------------------------------------------------------------------------------------------------------------------------
Floating & Variable Rate Instruments X X X
- ------------------------------------------------------------------------------------------------------------------------
Foreign Securities X X 25%* X X X
- ------------------------------------------------------------------------------------------------------------------------
Forward Contracts on Foreign Currency X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Futures Contracts X X X X X
- ------------------------------------------------------------------------------------------------------------------------
High-Yield, High-Risk Bonds 20% X X
- ------------------------------------------------------------------------------------------------------------------------
Illiquid Securities X X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Indexed Securities X X X X
- ------------------------------------------------------------------------------------------------------------------------
Index Futures Contracts X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Investment Company Securities X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Investment in Unseasoned Issuers X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Lending Portfolio Securities
- ------------------------------------------------------------------------------------------------------------------------
Letters of Credit X X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Loan Participations X X X
- ------------------------------------------------------------------------------------------------------------------------
Money Market Instruments X X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities X X X
- ------------------------------------------------------------------------------------------------------------------------
Options on Foreign Currencies X
- ------------------------------------------------------------------------------------------------------------------------
Options on Index Futures Contracts X X X X
- ------------------------------------------------------------------------------------------------------------------------
Options on Stock Indices X X X X
- ------------------------------------------------------------------------------------------------------------------------
Preferred Stock 20% X X X X
- ------------------------------------------------------------------------------------------------------------------------
Private Debt Instruments 10% X
- ------------------------------------------------------------------------------------------------------------------------
Put and Call Options X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Real Estate-Related Instruments X X X X X X
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Investment Technique Money Bond Value Equity Managed Capital International
Market Equity
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements X X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Swap Agreements X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Temporary Bank Borrowing X X X X X X
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities X X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Variable Amount Master Demand Notes X X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Warrants X X X X
- ------------------------------------------------------------------------------------------------------------------------
When-Issued & Delayed-Delivery
Securities X X X X X
- ------------------------------------------------------------------------------------------------------------------------
Writing Covered Call Options 25% 25% 25% 25% 25%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes up to 20% in equities listed on Canadian or other foreign exchanges.
A-2
<PAGE>
APPENDIX B
Morgan Stanley Industry Sectors
Capital Equipment
Consumer Goods
Energy
Finance
Gold Mines
Materials
Multi-Industry
Services
B-1
<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 selling 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. 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 18009051959 or by writing to the
Fund at 6201 Powers Ferry Road, NW, Atlanta, Georgia 30330.
Investment Company Act File No.: 811-5816
<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.
- -------------------
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 for the periods
indicated therein, as well as the Report of Independent Auditors, are
incorporated by reference in this SAI.
Terms not defined in this SAI have the meanings given them in the prospectus.
3
<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS 4
INVESTMENT OBJECTIVES, POLICIES, PRACTICES, AND RISKS 5
INVESTMENT OBJECTIVES AND POLICIES 5
INVESTMENT PRACTICES 10
INVESTMENT RESTRICTIONS 23
PORTFOLIO TURNOVER 24
DIVIDENDS 26
INVESTMENT EXPERIENCE INFORMATION 26
AVERAGE ANNUAL COMPOUNDED RATES OF RETURNS AS OF 12/31 28
MANAGEMENT OF THE FUND 28
PURCHASE AND REDEMPTION OF SHARES 37
DETERMINATION OF NET ASSET VALUE 38
TAXES 39
GENERAL INFORMATION 40
APPENDIX A-1
ii
<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 $31 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 holds 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
<PAGE>
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.
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:
rated in one of the two highest rating categories by at least two nationally
recognized statistical rating organizations ("Rating Agency"); or
by one Rating Agency if that Rating Agency is the only Rating Agency that has
rated the instrument or issuer; or
if the instrument is not rated, is of comparable quality as determined by the
Board; or
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
"Determination of Net Asset Value."
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:
<PAGE>
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;
publicly-traded debt instruments which are rated within the four highest
categories by Rating Agencies;
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 or 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.
Bond Portfolio may invest in cash and money market instruments of the type in
which Money Market Portfolio may invest (described above), 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, if the fundamental loan policy permits securities
lending, 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." See the Appendix to this SAI for a description of
Rating Agency ratings.
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 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
<PAGE>
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 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 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, if the fundamental loan policy permits securities lending,
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 "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.
<PAGE>
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 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
differences in securities regulations. See "International Investments".
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:
limits its exposure to developing markets to a maximum of 30% of its net assets;
limits its exposure to a single industry group to 25% of its total assets;
limits its exposure to a single country, excluding the United Kingdom and Japan,
to 25% of its total assets;
normally maintains investments in at least 4 different countries and a minimum
of 40 individual company holdings;
<PAGE>
maintains exposure to a minimum of 5 of the 8 industry groups as defined by
Morgan Stanley (see Appendix B to the prospectus);
may, for defensive purposes only, hedge International Equity Portfolio currency
exposure through the use of futures, options, or currency contracts (see
"Currency Hedging" ); and
may, for short-term investment or defensive purposes only, invest in short-term
instruments of U.S. or foreign issuers.
INVESTMENT PRACTICES
Money Market Instruments. Certain money market instruments are described above.
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 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.
<PAGE>
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 Portfolio are with banks, brokers or
dealers. All repurchase agreements entered into by a Portfolio are subject to
the Adviser or Subadviser 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 Portfolio 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
<PAGE>
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.
ADRs and EDRs. Value Equity, Managed and International Equity Portfolios may
invest in American depositary receipts ("ADRs"). ADRs are receipts typically
issued by a U.S. financial institution or trust company that represent the right
to receive securities of foreign issuers deposited in a domestic bank or a
foreign correspondent bank. Prices of ADRs are quoted in U.S. dollars, and ADRs
are traded in the U.S. on exchanges or over-the-counter and are sponsored and
issued by domestic banks. In general, there is a large, liquid market in the
U.S. for ADRs quoted on a national securities exchange or the National
Association of Securities Dealers' national market system. The information
available for ADRs is subject to the accounting, auditing and financial
reporting standards of the domestic market or exchange on which they are traded,
which standards are more uniform and more exacting than those to which many
foreign issuers may be subject.
International Portfolio may invest in European depositary receipts ("EDRs").
EDRs are receipts evidencing an arrangement with a non-U.S. bank similar to that
for ADRs and are designed for use in non-U.S. securities markets. EDRs are
typically issued in bearer form and are designed for trading in the European
markets. EDRs are not necessarily quoted in the same currency as the underlying
security.
Depositary receipts do not eliminate all the risk inherent in investing in the
securities of foreign issuers. To the extent that a Portfolio acquires
depositary receipts through banks that do not have a contractual relationship
with the foreign issuer of the security underlying the receipts to issue and
service such depositary receipts, there may be an increased possibility that the
Portfolio would not become aware of, and be able to respond to, corporate
actions such as stock splits or rights offerings involving the foreign issuer in
a timely manner. The market value of depositary receipts is dependent upon the
market value of the underlying securities and fluctuations in the relative value
of the currencies in which the receipts and the underlying are quoted. In
addition, lack of information may result in inefficiencies in the valuation of
such instruments. However, by investing in depositary receipts rather than
directly in the stock of foreign issuers, a Portfolio may avoid currency risks
during the settlement period for either purchases or sales.
Borrowing. Each of the Portfolios may borrow money as a temporary measure for
extraordinary or emergency purposes (but not for investment or leveraging). 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. As required by
the 1940 Act, each Portfolio will maintain continuous asset coverage of at least
300% of the amount borrowed. In the event that a Portfolio's asset coverage
falls below 300%, the Portfolio may be required to sell securities within three
days to reduce the amount of its borrowing and restore the 300% asset coverage.
Such sales of securities may occur at a time that is disadvantageous for a
Portfolio.
Convertible Securities. Each Portfolio, except the Money Market Portfolio, may
invest in convertible securities, subject to its investment policies and
restrictions. Convertible securities may include corporate notes or preferred
stock, but ordinarily are long-term debt obligations of an issuer that are
convertible at a stated conversion rate into common stock of that issuer. As
with all debt and income-bearing securities, the market value of convertible
securities tends to decline as interest rates increase and, conversely, to
increase as interest rates decline. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar quality.
However, when the market price of the common stock underlying a convertible
security exceeds the conversion price, the price of the convertible security
tends to reflect the value of the underlying common stock. As the market price
of the underlying common stock declines, the convertible security tends to trade
increasingly on a yield basis, and thus may not decline in price to the same
extent as the underlying common stock. Convertible securities rank
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senior to common stocks in an issuer's capital structure and are consequently of
higher quality and generally entail less risk than the issuer's common stock.
Corporate Asset-Backed Securities. The Money Market, Bond and Managed Portfolios
may invest in corporate asset-backed securities, which represent participation
in, or are secured by and payable from, a stream of payments generated by
particular assets, such as credit card receivables or auto loans. Payments or
distributions of principal and interest may be guaranteed up to certain amounts
and for a certain time period by a letter of credit or a pool insurance policy
issued by a credit union or other financial institution unaffiliated with the
Portfolio, or other credit enhancements may be present.
Asset-backed securities often are subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying loans. A Portfolio's ability to
maintain positions in such securities will be affected by reductions in the
principal amount of such securities resulting from prepayments, and its ability
to reinvest the returns of principal at comparable yields is subject to
generally prevailing interest rates at that time. To the extent that a Portfolio
invests in asset-backed securities, the values of its portfolio securities will
vary with changes in market interest rates generally and the differentials in
yields among various kinds of U.S. Government securities and other asset-backed
securities.
Asset-backed securities present certain additional risks that are not presented
by mortgage-backed securities because asset-backed securities generally do not
have the benefit of a security interest in collateral that is comparable to
mortgage assets. Credit card receivables are generally unsecured and the debtors
on such receivables are entitled to the protection of a number of state and
federal consumer credit laws, many of which give such debtors the right to
set-off certain amounts owed on the credit cards, thereby reducing the balance
due. Most issuers of automobile receivables permit loan servicers to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would secure an
interest superior to that of the holders of the asset-backed securities. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in the underlying
automobiles. Therefore, there is the possibility that, in some cases, recoveries
on repossessed collateral may not be available to support payments on these
securities.
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).
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.
Debt Securities. Debt 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.
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Equity Securities. Equity securities include common stocks, preferred stocks,
depositary receipts, convertible preferred stocks, convertible bonds,
convertible debentures, convertible notes, and rights and warrants of U.S. and
foreign companies. Stocks represent an ownership interest in a corporation.
Equity funds have more potential for capital growth than other funds, but
generally have greater risk.
Floating and Variable Rate Instruments. Certain Portfolios may invest in
floating and variable rate instruments. The floating or variable rate may be
determined by reference to a known lending rate, such as a bank's prime rate, a
certificate of deposit rate or the London InterBank Offered Rate (LIBOR).
Alternatively, the rate may be determined through an auction or remarketing
process. The rate also may be indexed to changes in the values of interest rate
or securities indexes, currency exchange rate or other commodities. Variable and
floating rate securities tend to be less sensitive than fixed rate securities to
interest rate changes and to have higher yields when interest rates increase.
However, during periods of rising interest rates, changes in the interest rate
of an adjustable rate security may lag changes in market rates.
Foreign Securities. Each Portfolio may invest in foreign securities, which are
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 assets 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.
GNMA Certificates. Bond, Managed, and Capital Portfolios each may 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.
Forward Contracts on Foreign Currency. Forward contracts on foreign currency
foreign involve the right or obligation to buy or sell a given amount of foreign
currency at a specified price on a future date
A Portfolio may enter into forward contracts on foreign currency to protect
against an anticipated rise in the U.S. dollar price of securities it intends to
purchase. It also may enter into such contracts to protect against the decline
in value of its foreign currency denominated or quoted portfolio securities, or
a decline in the value of anticipated dividends from such securities, due to a
decline in the value of foreign currencies against the U.S. dollar. Contracts to
sell foreign currency could limit any potential gain that might be realized by a
Portfolio if the value of the hedged currency increased.
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If a Portfolio enters into a forward contract to buy foreign currency for any
purpose, it will be required to place cash or liquid high grade debt securities
in a segregated account with the Portfolio's custodian in an amount equal to the
value of the Portfolio's total assets committed to the consummation of the
forward contract. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the segregated
account so that the value of the account will equal the amount of the
Portfolio's commitment with respect to the contract.
Forward contracts are subject to the risk that the counterparty to such contract
will default on its obligations. Since a forward foreign currency exchange
contract is not guaranteed by an exchange or clearinghouse, a default on the
contract would deprive a Portfolio of unrealized profits, transaction costs or
the benefits of a currency hedge or force the Portfolio cover its purchase or
sale commitments, if any, at the current market price. A Portfolio will not
enter into such transactions unless the credit quality of the unsecured senior
debt or the claims-paying ability of the counterparty is considered to be
investment grade by the Portfolio's Adviser or Subadviser.
International Investments. The following information is of particular importance
to International Equity Portfolio. International investments can involve
significant risks in addition to those inherent 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 or contractual obligations 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. It may take more time for
transactions to clear and settle.
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,
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.
Illiquid Securities. Subject to the relevant investment limits, each fund may
purchase illiquid securities. Illiquid securities are securities that cannot be
disposed of by a Portfolio within seven days in the ordinary course of business
at approximately the amount at which the Portfolio has valued the securities.
Illiquid
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securities that a Portfolio holds may take the form of options traded
over-the-counter, repurchase agreements maturing in more than seven days,
certain mortgage related securities and securities subject to restrictions on
resale that the Adviser or Subadviser has determined are not liquid under
guidelines established by the Board.
Non-publicly traded securities may be less liquid than publicly traded
securities. Although these securities may be resold in privately negotiated
transactions, the prices realized from these sales could be less than those
originally paid by a Portfolio. In addition, companies whose securities are not
publicly traded are not subject to the disclosure and other investor protection
requirements that may be applicable if their securities were publicly traded. A
Portfolio's investments in illiquid securities are subject to the risk that
should the Portfolio desire to sell any of these securities when a ready buyer
is not available at a price that the Adviser or Subadviser deems representative
of their value, the value of the Portfolio's assets could be adversely affected.
Indexed Securities. Certain Portfolios may invest in indexed securities, the
value of which is linked to currencies, interest rates, commodities, indexes or
other financial indicators ("reference instruments"). The interest rate or the
principal amount payable at maturity or redemption may be increased or decreased
depending on changes in the value of the reference instrument. Indexed
securities may be positively or negatively indexed, so that appreciation of the
reference instrument may produce an increase or a decrease in interest rate or
value at maturity of the security. In addition, the change in the interest rate
or value at maturity of the security may be some multiple of the change in value
of the reference instrument. Thus, in addition to the credit risk of the
security's issuer, the Portfolios will bear the market risk of the reference
instrument.
Letters of Credit. Each Portfolio may purchase letters of credit. A letter of
credit is an instrument or document issued by a bank guaranteeing the payment of
a customer's drafts up to a stated amount for a specified period. It substitutes
the bank's credit for the buyer's credit, and mitigates the seller's risk.
Loan Participations. Money Market, Bond and Managed Portfolios may purchase
interests in loan participations. Loan participations are interests in loans
that are administered by a lending bank or agent for a syndicate of lending
banks, and sold by the lending bank or syndicate member. Because the
intermediary bank generally does not guarantee a loan participation, the loan
participation is subject to the credit risk generally associated with the
underlying corporate borrower. If the underlying corporate borrower defaults, a
Portfolio may be subject to delays, expenses and risks that are greater than
those that would have been involved if the Portfolio had purchased a direct
obligation (such as commercial paper) of the borrower. Under the terms of a loan
participation the purchasing Portfolio may be regarded as a creditor of the
intermediary bank so that the Portfolio may also be subject to the risk that the
issuing bank may become insolvent.
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.
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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 ("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. See the Appendix in this SAI for a description of bond ratings.
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
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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.
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
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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. A futures contract is an agreement between two parties to buy and sell
particular financial instruments for an agreed price during a designated period.
Futures contracts also include agreements to deliver the final cash settlement
price in the case of contracts relating to an index or otherwise not calling for
physical delivery at the end of trading in the contract.
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
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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 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
<PAGE>
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.
Securities of Other Investment Companies. Each Portfolio, except the Money
Market Portfolio, may invest in investment funds that invest principally in
securities in which the Portfolio is authorized to invest. Currently, under the
1940 Act, a Portfolio may hold securities of another investment company in
amounts which (a) do not exceed 3% of the total outstanding voting stock of such
company, (b) do not exceed 5% of the value of the Portfolio's total assets and
(c) when added to all other investment company securities held by the Portfolio,
do not exceed 10% of the value of the Portfolio's total assets. To the extent a
Portfolio invests in other investment companies, its shareholders will incur
certain duplicative fees and expenses, including investment advisory fees.
Investment in Unseasoned Issuers. Certain Portfolios may invest in the
securities of companies that have a record of less than three years continuous
operation, including predecessor companies (i.e. unseasoned issuers).
Investments in unseasoned issuers involve considerations that are not applicable
to investing in securities of established, larger-capitalization issuers,
including reduced and less reliable information about issuers and markets, less
stringent financial disclosure requirements and accounting standards,
illiquidity of securities and markets, higher brokerage commissions and fees and
greater market risk in general. In addition, securities of unseasoned issuers
may involve greater risks since these securities may have limited marketability
and, thus, may be more volatile than securities of more established issuers.
Unseasoned issuers normally have fewer shares outstanding than larger companies,
and thus it may be more difficult for a Portfolio to buy or sell significant
amounts of such shares without an unfavorable impact on prevailing prices.
Unseasoned issuers may have limited product lines, markets or financial
resources and may lack management depth. In addition, these companies are
typically subject to a greater degree of changes in earnings and business
prospects than are larger, more established companies.
There is typically less publicly available information concerning these
companies than for larger, more established ones.
Preferred Stock. Preferred stock is a class of stock that pays 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.
Private Debt Instruments. Debt instruments issued by private corporations. As
creditors, bondholders have a prior legal claim over common and preferred
stockholders of the corporation as to both income and assets for the principal
and interest due to the bondholder. A Portfolio purchases corporate bonds
subject to quality restraints. Commercial paper, notes and other obligations of
U.S. and foreign corporate issuers must meet the Portfolio's credit quality
standards (including medium-term and variable rate notes). A Portfolio may
retain a downgraded corporate debt security if the Adviser or Subadviser
determines retention of such security to be in the Portfolio's best interests.
Real-Estate Related Assets. The Portfolios may invest in shares of real estate
investment trusts ("REITs"). REITs are pooled investment vehicles that invest
primarily in income producing real estate or real estate related loans or
interests. REITs generally are classified as equity REITs, mortgage REITs or a
combination of equity and mortgage
<PAGE>
REITs. Equity REITs invest the majority of their assets directly in real
property and derive income primarily from the collection of rents. Equity REITs
can also realize capital gains by selling properties that have appreciated in
value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments. REITs are
not taxed on income distributed to shareholders provided they comply with
several requirements of the Code. A Portfolio will indirectly bear its
proportionate share of any expenses paid by REITs in which it invests in
addition to the expenses paid by the Portfolio.
Investing in REITs involves certain unique risks. Equity REITs may be affected
by changes in the value of the underlying property owned by such REITs, while
mortgage REITs may be affected by the quality of any credit extended. REITs are
dependent upon management skills, are not diversified (except to the extent the
Code requires), and are subject to the risks of financing projects. REITs are
subject to heavy cash flow dependency, default by borrowers, self-liquidation,
and the possibilities of failing to qualify for the exemption from tax for
distributed income under the Code and failing to maintain their exemptions from
the 1940 Act. REITs (especially mortgage REITs) are also subject to interest
rate risk.
When-issued Securities. Each Portfolio, except the Money Market Portfolio, may
purchase securities on a when-issued or delayed delivery basis in an amount up
to 10% of such Portfolio's net assets. When-issued securities transactions arise
when securities are purchased by a Portfolio with payment and delivery taking
place on a future date determined at the time of entering into the transaction
(transaction date) in order to secure what is considered to be an advantageous
price and yield to the Portfolio on the transaction date. Once a Portfolio
commits to purchase securities on a when-issued or delayed delivery basis, it
records the transaction and thereafter reflects the daily value of such
securities in determining its net asset value. Although a Portfolio will
generally purchase when-issued securities with the intention of acquiring those
securities for its portfolio, the Portfolio may dispose of a when-issued
security prior to settlement if the Adviser or Subadviser deems it advantageous
to do so. For all when-issued securities transactions, the Fund's custodian bank
will hold and maintain in a segregated account until the settlement date, cash
or fully liquid securities of the Portfolio with a market value, determined
daily, equal to or greater than such commitments. If a Portfolio elects to
dispose of the right to acquire a when-issued security prior to its acquisition,
it could experience a gain or loss on the security due to market fluctuation.
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.
<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
<PAGE>
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.
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;
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 a 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 a Portfolio. The rate of portfolio turnover is not a limiting factor
when it is deemed appropriate to purchase or sell securities for a Portfolio.
<PAGE>
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:
- --------------------------------------------------------------------------------
Turnover
Portfolio 1997 1998 1999
(Anticipated)
- --------------------------------------------------------------------------------
Capital Portfolio 84.39% 123.69%/1/ N/A
- --------------------------------------------------------------------------------
Managed Portfolio 82.80% 167.95%/2/ 90%5
- --------------------------------------------------------------------------------
Value Equity Portfolio 50.97% 189.28%/3/ 100%5
- --------------------------------------------------------------------------------
International Equity Portfolio 37.73% 119.77%/4/ N/A
- --------------------------------------------------------------------------------
N/A = no significant variation is expected for 1999.
- ----------
1 In 1998 the Portfolio changed portfolio managers. High turnover in 1998
compared to 1997 was due to the new portfolio manager's adjustment of the
Portfolio's investment strategy to conform to his investment philosophy.
2 On July 27, 1998 the investment adviser services changed from CL Capital
Management Inc. to INDAGO Capital Management, Inc. for the equity portion of the
Portfolio, and the portfolio manager changed for the bond portion of the
Portfolio. High turnover in 1998 compared to 1997 is due to the new subadviser's
and portfolio manager's adjustment of the Portfolio's investments to conform to
their investment philosophies.
3 On July 27, 1998 the investment adviser changed from CL Capital Management
Inc. to INDAGO Capital Management, Inc., and the portfolio manager changed. High
turnover in 1998 compared to 1997 is due to the new subadviser's and portfolio
manager's adjustment of the Portfolio's investments to conform to their
investment philosophies.
4 The turnover increased in 1998 from 1997 because a large number of stocks had
become overvalued in the heated markets. To counteract this phenomenon, one of
the portfolio. Manager's strategies was to switch out of companies that had
reached or exceeded their target prices into similar companies with more
attractive valuations. Some transaction activity was also focused into moving
into more defensive and more liquid stocks, given the market uncertainty.
5 On April 15, 1999 the investment subadviser services changed from INDAGO to
Laketon Investment Management Ltd. ("Laketon"). Laketon's investment strategy
includes a lower volume of trading.
<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.
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. The Money Market Portfolio's yield and effective yield for the
7 days ended 12/31/98 were 4.38% and 4.48%, respectively.
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
<PAGE>
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 and bond portion of Managed 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.
<PAGE>
Average Annual Compounded Rates of Return as of 12/31
(Inception)
Fund Portfolio One Year Five Years to 12/31/98
-------------- -------- ---------- -----------
Value Equity 2.81% 11.98% 11.16%
Bond 9.00% 6.70% 7.89%
Managed 5.15% 9.72% 9.80%
Money Market 4.77% 4.57% 4.77%
Capital 20.23% 16.82% 16.36%/1/
International Equity 13.37% NA/2/ 11.50%/3/
/1/ Calculated from May 1, 1993 to December 31, 1998.
/2/ Five-Year Average Annual Total Return information is not available for
the International Equity Portfolio.
/3/ Calculated from May 1, 1995 to December 31, 1998.
The total returns 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.
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.
Name, Age and Address Position(s) With Principal Occupation(s) During
The Fund Past Five Years
R. W. Morrison,157 Director and Chairman Vice-President and Treasurer,
Canada Life.
<PAGE>
Name, Age and Position(s) With Principal Occupation(s) During
Address The Fund Past Five Years
R. E. Beettam,/1/41/2/ Director and President Vice-President and Director,
U.S. Division, Canada Life.
E. Y. Baker, 64 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, 61 Director Associate Treasurer for
Investments, Cornell
University. Formerly Senior
Investment Officer, Cornell
University.
D. H. Harris, 74 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, 52 Treasurer Associate Treasurer,
Investment Services, Canada
Life.
/1/ 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.
/2/ The business address is 6201 Powers Ferry Road, N.W., 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 Portfolios. 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/1/
====================================================================================================================
Aggregate Pension or Retirement Estimated Annual Total Compensation
Compensation Benefits Accrued as Part Benefits Upon from Series Fund to
Name/Title from Series Fund of Fund Expenses Retirement Directors
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
E. Y. Baker, Director $ 10,000 N/A N/A $ 10,000
- ---------------------------------------------------------------------------------------------------------------
J. S. Clarke, Director $ 10,000 N/A N/A $ 10,000
- ---------------------------------------------------------------------------------------------------------------
D. H. Harris, Director $ 10,000 N/A N/A $ 10,000
====================================================================================================================
</TABLE>
/1/ There are no direct employees of the Fund and the only people compensated
directly by the Fund are the non-affiliated directors.
<PAGE>
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:
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 $31
billion (U.S. dollars), of which in excess of $5.5 billion is managed by U.S.
operations.
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,
Laketon Investment Management Ltd. ("Laketon"), 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. Mr. Rachfalowski joined
Canada Life in 1996; he has fifteen years of investment management and portfolio
management experience, most recently as Investment Vice President, U.S.
Investments.
<PAGE>
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 $ 21.5 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 $9.4 billion).
William C. Morris owns a majority of Capital Portfolio Subadviser's outstanding
voting securities.
Subadviser Portfolio Manager
Marion S. Schultheis, Managing Director of the Subadviser since May of 1998, is
responsible for the Subadviser's day-to-day investment management of Capital
Portfolio. She is also responsible for the management of Seligman Growth Fund,
Inc. and Seligman Capital Portfolio of Seligman Portfolios, Inc. Additionally,
she is responsible for directing and overseeing the domestic investments of
Seligman Henderson Global Growth Opportunities Fund, a series of Seligman
Henderson Global Fund Series, Inc., and Seligman Henderson Global Growth
Opportunities Portfolio of Seligman Portfolios, Inc. Prior to joining the
Subadviser, Ms Schultheis was a Managing Director at Chancellor LGT from October
1997 to May 1998. Prior thereto she was a Senior Portfolio Manager at IDS
Advisory Group 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 Laketon Investment
Management Ltd. 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").
<PAGE>
Effective March 5, 1999, Laketon Investment Management Ltd. merged with INDAGO
Capital Management Inc. On April 29, 1999, shareholders approved the subadvisory
agreements for each Equity Portfolio. From that date, Laketon is entitled to
advisory fees at the effective annual rates of 0.25% of the average daily net
assets of Value Equity Portfolio and the equity portion of Managed Portfolio and
0.30% of the average daily net assets of International Equity.
Laketon Investment Management Ltd. is owned 35% by Canada Life, located at 330
University Avenue, Toronto, Canada M5G 1R8, and 65% by certain employees of
Laketon Investment Management Ltd. through an employee-owned holding company,
INDAGO holdings, located at 130 Adelaide Street West, Suite 3000, Toronto,
Ontario, Canada, M5H 3P5. Laketon does not have any additional shareholders, nor
are there any other persons with a material direct interest in Laketon. Laketon
provides investment advisory services to CLICA and Canada Life in connection
with the insurers' institutional and qualified retirement plan business.
Laketon was incorporated on September 14, 1979. Laketon also serves as manager
of assets of The Canada Life Assurance Company, the aggregate assets of which
were approximately US $3.9 billion as of December 31, 1998. Laketon also
provides investment management to individual and institutional accounts having a
December 31, 1998 value of approximately US $1.9 billion.
Subadviser Portfolio Manager
Lance Speck, CFA, is a principal and portfolio manager of Laketon. In his
position as Global Equity Team Leader, Mr. Speck is responsible for the
day-to-day investment management of Value Equity, International Equity and the
equity portion of Managed Portfolios, as well as other global equity specialist
accounts and the global equities managed on behalf of balanced accounts managed
by Laketon. Other portfolio managers on the Global Equity Team include Mary
Throop, CFA and Peter Walter, CFA.
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, the Company (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.
<PAGE>
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 $363,467, $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, 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
<PAGE>
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 Laketon, on February 24, 1999. On April 29,
1999, 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.
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
<PAGE>
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 Laketon, on February 24, 1999. On April 29, 1999,
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 February
24, 1999. On April 29, 1999, 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
<PAGE>
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.
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 Portfolios other 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
<PAGE>
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 $200,439,
$67,604, and $48,793 for the fiscal years ended December 31, 1998, 1997 and 1996
respectively.
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.
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:
<PAGE>
(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
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 that 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 can be expected to increase; when yields increase, the market value of
a Portfolio 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
<PAGE>
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 a value based on a yield equivalent
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. Debt 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 affect
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.
<PAGE>
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, with a
total of 90,000,000 shares of the authorized capital stock currently classified
as follows:
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 authorized shares of any Portfolio, but it may not
decrease the number of shares then outstanding.
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 affect 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 affecting only one Portfolio,
such as a change in its fundamental policies, are voted on separately by that
Portfolio.
<PAGE>
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).
As of April 15, 1999, the Company, CLNY and certain separate accounts are the
only shareholders of the Fund's Portfolios. The Company, CLNY and certain
separate accounts control the Fund and its Portfolios. For purposes of voting on
matters submitted to shareholders, any person who controls a mutual fund may be
able to significantly influence the outcome of any shareholder vote. Each of the
Company and CLNY generally votes the relevant shares at the shareholders'
meetings in accord with timely instructions received from beneficial owners of
the contracts having values allocated to the applicable separate accounts.
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 for the periods
indicated therein, as well as the Report of Independent Auditors, are
incorporated by reference in this SAI. Ernst & Young LLP, 600 Peachtree Street,
Atlanta, Georgia, 30308, serves as independent auditors for the Fund.
<PAGE>
APPENDIX
Standard & Poor's Corporation ("S&P")
S&P Commercial Paper Ratings
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.
S&P Corporate Bond Ratings
An S&P corporate bond rating is a current assessment of the creditworthiness of
an obligor, including obligors outside the United States, with respect to a
specific obligation. This assessment may take into consideration obligors such
as guarantors, insurers, or lessees. Ratings of foreign obligors do not take
into account currency exchange and related uncertainties. The ratings are based
on current information furnished by the issuer or obtained by S&P from other
sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
a. Likelihood of default capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
b. Nature of and provisions of the obligation; and
c. Protection afforded by and relative position of the obligation in the event
of bankruptcy, reorganization or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit quality,
ratings from AA to A may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
Bond ratings are as follows:
AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Although it normally exhibits adequate protection
parameters, adverse economic conditions or changing
1
<PAGE>
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
BB, B, CCC, CC and C - Debt rated BB, B, CCC, CC and C is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation, and C the highest degree of speculation. While
such debt likely will have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Moody's Investment Service, Inc. ("Moody's")
Moody's Commercial Paper Ratings
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, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more effected by
external conditions. Ample alternate liquidity is maintained.
Moody's Corporate Bond Ratings
Moody's ratings are as follows:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "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 not likely to impair the
fundamentally strong position of such issues.
Aa - Bonds that are rated Aa 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. Aa bonds are rated lower than Aaa bonds because margins of protection may
not be as large as in Aaa securities, fluctuation of protective elements may be
of greater amplitude, or there may be other elements present that make the long
term risks appear somewhat larger than in Aaa securities.
A - Bonds that are rated A 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 that are rated Baa are considered as 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
2
<PAGE>
time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds that are rated Ba are judged to have speculative elements. Their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B 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.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Fitch Investors Service, Inc. ("Fitch")
Fitch Corporate Bond Ratings
AAA - Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA - Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-l+".
A - Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB - Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
BB - Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified that could assist the
obligor in satisfying its debt service requirements.
B - Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflect the obligor's limited margin of safety
and the need for reasonable business and economic activity through out the life
of the issue.
CCC - Bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
3
<PAGE>
CC - Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C - Bonds are in imminent default in payment of interest or principal.
DDD, DD and D - Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
Plus (+) Minus (-) - Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA", "DDD", "DD", or "D" categories.
Duff & Phelps (D&P) Fixed Income Rating Scale
D&P Corporate Bond Ratings
AAA - Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- - High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A- - Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- - Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- - Below investment grade, but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B- - Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely 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.
4
<PAGE>
Item 22. Financial Statements and Report of Independent Auditors
<PAGE>
Canada Life of America Series Fund, Inc.
Report of Independent Auditors,
Audited Financial Statements
and Schedules
December 31, 1999
Contents
<TABLE>
<S> <C>
Report of Independent Auditors............................................ 1
Audited Financial Statements
Statements of Assets and Liabilities...................................... 2
Statements of Operations.................................................. 3
Statement of Changes in Net Assets........................................ 4
Notes to Financial Statements............................................. 10
Schedules
Financial Highlights - Money Market Series................................ 15
Financial Highlights - Managed Series..................................... 16
Financial Highlights - Bond Series........................................ 17
Financial Highlights - Value Equity Series................................ 18
Financial Highlights - Capital Series..................................... 19
Financial Highlights - International Equity Series........................ 20
Schedule of Investments - Money Market Series Portfolio................... 21
Schedule of Investments - Managed Series Portfolio........................ 22
Schedule of Investments - Bond Series Portfolio........................... 26
Schedule of Investments - Value Equity Series Portfolio................... 28
Schedule of Investments - Capital Series Portfolio........................ 31
Schedule of Investments - International Equity Series Portfolio........... 35
</TABLE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG APPEARS HERE]
Report of Independent Auditors
Board of Directors and Shareholders
Canada Life of America Series Fund, Inc.
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments of Canada Life of America Series Fund, Inc.
(comprising, respectively, the Money Market, Managed, Bond, Value Equity,
Capital and International Equity Series) as of December 31, 1999, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1999, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective series constituting the Canada Life of America Series Fund,
Inc. at December 31, 1999, the results of their operations for the year then
ended, the changes in their net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Atlanta, Georgia
January 27, 2000
<PAGE>
Canada Life of America Series Fund, Inc.
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
December 31, 1999
Money Value
Market Managed Bond Equity
Series Series Series Series
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Investments in securities, at market value
(Identified cost - See accompanying Schedules of
Investments - Series Portfolios) $19,733,789 $11,801,409 $16,964,436 $20,575,250
Cash 849,866 269,785 15,113 8,014
Receivables:
Dividends and interest 27,819 85,874 218,067 15,771
Due from brokers for investments sold - - - -
-----------------------------------------------------------
Total assets 20,611,474 12,157,068 17,197,616 20,599,035
-----------------------------------------------------------
Liabilities
Payables:
Investment advisory fees [Note 2] 9,284 5,045 7,474 8,354
Other accrued expenses 7,123 56,991 51,703 70,785
Directors' fees and expenses payable 6,416 8,343 7,703 9,047
Dividends declared 91,771 1,521,949 871,700 2,552,539
Due to brokers for investments purchased - - - -
-----------------------------------------------------------
Total liabilities 114,594 1,592,328 938,580 2,640,725
-----------------------------------------------------------
Net assets $20,496,880 $10,564,740 $16,259,036 $17,958,310
===========================================================
Net assets consist of:
Capital shares $ 20,497 $ 9,322 $ 16,202 $ 11,821
Additional paid-in capital 20,476,383 10,116,618 17,428,166 15,321,276
Undistributed net investment income (loss) - 114 1,238 (440)
Undistributed net realized gain (loss) on investments - 340 (40,406) (2,185)
Net unrealized appreciation (depreciation) on
investments and foreign currencies - 438,346 (1,146,164) 2,627,838
-----------------------------------------------------------
Total net assets $20,496,880 $10,564,740 $16,259,036 $17,958,310
===========================================================
Shares authorized ($.01 par value) 20,000,000 20,000,000 10,000,000 10,000,000
===========================================================
Shares outstanding 2,049,688 932,258 1,620,220 1,182,141
===========================================================
Net asset value per share $ 10.00 $ 11.33 $ 10.04 $ 15.19
===========================================================
<CAPTION>
International
Capital Equity
Series Series
-------------------------------
<S> <C> <C>
Assets
Investments in securities, at market value
(Identified cost - See accompanying Schedules of
Investments - Series Portfolios) $12,322,209 $ 8,406,784
Cash 397,209 656,946
Receivables:
Dividends and interest 3,652 8,412
Due from brokers for investments sold 174,358 2,056
-------------------------------
Total assets 12,897,428 9,074,198
-------------------------------
Liabilities
Payables:
Investment advisory fees [Note 2] 4,867 5,709
Other accrued expenses 54,040 3,950
Directors' fees and expenses payable 6,817 3,003
Dividends declared 3,519,923 1,382,313
Due to brokers for investments purchased 253,159 -
-------------------------------
Total liabilities 3,838,806 1,394,975
-------------------------------
Net assets $ 9,058,622 $ 7,679,223
===============================
Net assets consist of:
Capital shares $ 4,930 $ 5,121
Additional paid-in capital 5,067,939 5,822,854
Undistributed net investment income (loss) (80,512) (281)
Undistributed net realized gain (loss) on investments 32,125 (40,074)
Net unrealized appreciation (depreciation) on
investments and foreign currencies 4,034,140 1,891,603
-------------------------------
Total net assets $ 9,058,622 $ 7,679,223
===============================
Shares authorized ($.01 par value) 20,000,000 10,000,000
===============================
Shares outstanding 493,051 512,081
===============================
Net asset value per share $ 18.37 $ 15.00
===============================
</TABLE>
See accompanying notes.
2
<PAGE>
Canada Life of America Series Fund, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31, 1999
----------------------------
Money Value International
Market Managed Bond Equity Capital Equity
Series Series Series Series Series Series
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest $ 1,019,978 $ 382,467 $ 1,033,270 $ 13,756 $ - $ 13,442
Dividends - 78,296 - 219,202 35,616 124,362
----------------------------------------------------------------------------
Total investment income 1,019,978 460,763 1,033,270 232,958 35,616 137,804
----------------------------------------------------------------------------
Expenses:
Investment advisory fees [note 2] 100,755 64,228 89,073 91,099 45,200 56,648
Directors' fees and expenses 5,874 4,437 6,184 8,594 3,133 1,778
Custodian fees and expenses 20,224 19,626 10,433 8,124 8,523 18,652
Audit and legal fees 7,884 9,293 12,953 15,683 6,562 2,625
Accounting and administrative services [note 2] 15,947 13,744 35,719 34,404 14,918 5,268
Miscellaneous 448 4,283 5,969 6,075 3,024 -
----------------------------------------------------------------------------
Total expenses 151,132 115,611 160,331 163,979 81,360 84,971
----------------------------------------------------------------------------
Net investment income (loss) 868,846 345,152 872,939 68,979 (45,744) 52,833
----------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) on investments and
foreign currencies - 1,177,250 (40,406) 2,483,119 3,566,065 1,326,502
Net change in unrealized appreciation (depreciation)
on investments and foreign currencies - (429,605) (1,514,158) 943,233 1,336,981 1,404,296
----------------------------------------------------------------------------
Net gain (loss) on investments - 747,645 (1,554,564) 3,426,352 4,903,046 2,730,798
----------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations $ 868,846 $1,092,797 $ (681,625) $ 3,495,331 $ 4,857,302 $ 2,783,631
============================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
Canada Life of America Series Fund, Inc.
Statement of Changes in Net Assets
Money Market Series
<TABLE>
<CAPTION>
Year ended December 31
1999 1998
--------------------------------
Operations:
<S> <C> <C>
Net investment income $ 868,846 $ 655,619
------------ -------------
Net increase in net assets resulting from operations 868,846 655,619
Dividends to shareholders from:
Net investment income (868,846) (655,619)
Fund share transactions [note 5]: 8,186,983 3,160,504
------------ -------------
Total increase in net assets 8,186,983 3,160,504
Net assets:
Beginning of year 12,309,897 9,149,393
------------ -------------
End of year $ 20,496,880 $ 12,309,897
============ =============
</TABLE>
See accompanying notes.
4
<PAGE>
Canada Life of America Series Fund, Inc.
Statement of Changes in Net Assets
Managed Series
<TABLE>
<CAPTION>
Year ended December 31
1999 1998
--------------------------------
<S> <C> <C>
Operations:
Net investment income $ 345,152 $ 363,610
Net realized gain on investments 1,177,250 1,028,316
Net change in unrealized depreciation
on investments (429,605) (635,803)
------------ ---------------
Net increase in net assets resulting from operations 1,092,797 756,123
Dividends to shareholders from:
Net investment income (345,038) (363,610)
Net realized gain on investments (1,176,910) (1,028,316)
Fund share transactions [note 5]: (2,314,663) (1,333,210)
------------ --------------
Total decrease in net assets (2,743,814) (1,969,013)
Net assets:
Beginning of year 13,308,554 15,277,567
------------ --------------
End of year $ 10,564,740 $ 13,308,554
============ ==============
</TABLE>
See accompanying notes.
5
<PAGE>
Canada Life of America Series Fund, Inc.
Statement of Changes in Net Assets
Bond Series
<TABLE>
<CAPTION>
Year ended December 31
1999 1998
--------------------------------
<S> <C> <C>
Operations:
Net investment income $ 872,939 $ 556,038
Net realized gain (loss) on investments (40,406) 271,448
Net change in unrealized appreciation (depreciation)
on investments (1,514,158) 181,674
--------------- ------------
Net increase (decrease) in net assets resulting from operations (681,625) 1,009,160
Dividends to shareholders from:
Net investment income (871,701) (556,038)
Net realized gain on investments - (271,448)
Fund share transactions [note 5]: 1,106,744 9,458,126
---------------- ------------
Total increase (decrease) in net assets (446,582) 9,639,800
Net assets:
Beginning of year 16,705,618 7,065,818
---------------- ------------
End of year $ 16,259,036 $ 16,705,618
================ ============
</TABLE>
See accompanying notes.
6
<PAGE>
Canada Life of America Series Fund, Inc.
Statement of Changes in Net Assets
Value Equity Series
<TABLE>
<CAPTION>
Year ended December 31
1999 1998
--------------------------------
<S> <C> <C>
Operations:
Net investment income $ 68,979 $ 31,138
Net realized gain on investments 2,483,119 743,726
Net change in unrealized appreciation (depreciation)
on investments 943,233 (106,535)
--------------- --------------
Net increase in net assets resulting from operations 3,495,331 668,329
Dividends to shareholders from:
Net investment income (69,419) (31,138)
Net realized gain on investments (2,485,304) (743,726)
Fund share transactions [note 5]: 188,366 6,789,015
--------------- --------------
Total increase in net assets 1,128,974 6,682,480
Net assets:
Beginning of year 16,829,336 10,146,856
--------------- --------------
End of year $ 17,958,310 $ 16,829,336
=============== ==============
</TABLE>
See accompanying notes.
7
<PAGE>
Canada Life of America Series Fund, Inc.
Statement of Changes in Net Assets
Capital Series
<TABLE>
<CAPTION>
Year ended December 31
1999 1998
--------------------------------
<S> <C> <C>
Operations:
Net investment loss $ (45,744) $ (34,768)
Net realized gain on investments 3,566,065 595,585
Net change in unrealized appreciation
on investments 1,336,981 968,103
--------------- -----------
Net increase in net assets resulting from operations 4,857,302 1,528,920
Dividends to shareholders from:
Net investment income - -
Net realized gain on investments (3,533,940) (595,585)
Fund share transactions [note 5]: (672,473) 980,340
--------------- -----------
Total increase in net assets 650,889 1,913,675
Net assets:
Beginning of year 8,407,733 6,494,058
--------------- -----------
End of year $ 9,058,622 $ 8,407,733
=============== ===========
</TABLE>
See accompanying notes
8
<PAGE>
Canada Life of America Series Fund, Inc.
Statement of Changes in Net Assets
International Equity Series
<TABLE>
<CAPTION>
Year ended December 31
1999 1998
------------------------------------
<S> <C> <C>
Operations:
Net investment income $ 52,833 $ 26,094
Net realized gain on investments and foreign currencies 1,326,502 444,889
Net change in unrealized appreciation
on investments and foreign currencies 1,404,296 299,042
--------------- --------------
Net increase in net assets resulting from operations 2,783,631 770,025
Dividends to shareholders from:
Net investment income (53,114) (26,094)
Net realized gain on investments and foreign currencies (1,366,576) (444,889)
Fund share transactions [note 5]: 56,225 1,188,893
--------------- --------------
Total increase in net assets 1,420,166 1,487,935
Net assets:
Beginning of year 6,259,057 4,771,122
--------------- --------------
End of year $ 7,679,223 $ 6,259,057
=============== ==============
</TABLE>
See accompanying notes.
9
<PAGE>
Canada Life of America Series Fund, Inc.
Notes to Financial Statements
December 31, 1999
1. Organization and Accounting Policies
Canada Life of America Series Fund, Inc. ("the Fund") is registered under the
Investment Company Act of 1940, as amended, as a no-load, diversified, open-end
management investment company. The Fund was incorporated on February 23, 1989
and commenced operations on December 4, 1989, with the exception of the Capital
Series and International Equity Series which commenced operations on April 23,
1993 and April 24, 1995, respectively. The shares of the Fund are sold only to
Canada Life Insurance Company of America and Canada Life Insurance Company of
New York to certain of their separate accounts to fund the benefits under
variable annuity contracts. The Fund's shares are offered in six different
Series - Money Market Series, Managed Series, Bond Series, Value Equity Series,
Capital Series and International Equity Series.
Securities Valuation
Securities listed or traded on the New York or American Stock Exchanges are
valued at the last sale price on that Exchange, or if there were no sales, at
the closing bid price. Securities traded only in the over-the-counter market
are valued at the last bid price. Money market instruments with a remaining
maturity of 60 days or less held by the Managed, Bond, Value Equity, Capital and
International Equity Series and all instruments held by the Money Market Series
are valued at amortized cost, which approximates market.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Investment
securities and other assets and liabilities denominated in foreign currency are
translated into U.S. dollars at the prevailing rates of exchange at end of
period. Purchases and sales of investment securities, income and expenses are
translated into U.S. dollars at the rate of exchange prevailing on the
respective dates of such transactions.
Net realized gains and losses on foreign currency transactions represent net
gains and losses from sales and maturities of investments denominated in foreign
currencies, currency gains and losses realized between the trade and settlement
dates on securities transactions, and the difference between foreign investment
income accrued and the U.S. dollar amount actually received. The effects of
changes in foreign currency exchange rates on investments in securities are
included with the net realized and unrealized gain or loss on investment
securities.
Securities Transactions and Investment Income
Securities transactions are recorded on the trade date (the date the order to
buy or sell is executed), and dividend income is recorded on the ex-dividend
date. Interest income is recorded on the accrual basis. Gains and losses on
sales of investments are calculated on the identified cost basis for financial
reporting and tax purposes. Bond premiums and discounts are amortized for both
financial and tax reporting purposes.
10
<PAGE>
Federal Income Taxes
The Fund is a regulated investment company as defined in Subchapter M of the
Internal Revenue Code, as amended. It is the policy of the Fund to comply with
the requirements of the Code and to distribute all of its taxable income.
Therefore, no provision for income taxes has been recorded.
Distribution of Income and Gains
Dividends from net investment income and any net realized capital gains in the
Money Market Series are declared daily and paid monthly. Dividends from net
investment income and any net realized capital gains in the Managed, Bond, Value
Equity, Capital, and International Equity Series are declared and paid annually.
Dividends from net investment income and capital gains distributions are
recorded on the ex-dividend date. All dividends and distributions are
reinvested in additional shares of the respective Series at the net asset value
per share.
Expenses
Allocable expenses of the Fund are charged to each Series based on the ratio of
the net assets of each Series to the combined net assets of the Fund. Non-
allocable expenses are charged to each Series based on specific identification.
All expenses are accrued daily.
Canada Life Insurance Company of America has agreed to reimburse the Managed,
Bond, Value Equity, Capital and International Equity Series for operating
expenses that exceed .40% of the average daily net assets. With respect to the
Money Market Series, Canada Life Insurance Company of America has agreed to
reimburse operating expenses, exclusive of the advisory fee, that exceed .25% of
its average daily net assets. No reimbursement was received in the current year
as expenses did not exceed the established reimbursement levels.
Use of Estimates
The preparation of Financial Statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
Financial Statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
2. Investment Advisory and Other Transactions with Affiliates
Investment Advisory Fees
CL Capital Management Inc. ("Advisor") receives from the Fund a fee for each of
the Series at an annual rate of .50% of the net assets of each series except for
the International Equity Series which is at an annual rate of .80% of net
assets.
With respect to the Managed Series, the Advisor pays Laketon Investment
Management Ltd., 35% owned by Canada Life Assurance Company, formerly "INDAGO
Capital Management Inc.", a fee at an annual effective rate of .25% of the
equity portion of the Series average net assets.
With respect to the Value Equity Series, the Advisor pays Laketon Investment
Management Ltd. a fee at an annual effective rate of .25% of average net assets.
11
<PAGE>
With respect to the Capital Series, the Advisor pays J. & W. Seligman & Co. a
fee at an annual effective rate of .25% of average net assets.
With respect to the International Equity Series, the Advisor pays Laketon
Investment Management Ltd. a fee at an annual effective rate of .30% of average
net assets.
Accounting and Administrative
Under an accounting services agreement, Canada Life Insurance Company of America
provides accounting and administrative services to the Fund.
Directors' Fees
Each director, who is not an affiliated person, received a base remuneration of
$6,000 and an additional $1,000 for each meeting attended during 1999.
Other
In 1999, the General Account of Canada Life Insurance Company of America
withdrew a portion of its initial investment in the Money Market Series, Bond
Series, Value Equity Series, Capital Series and International Equity Series in
the amount of $300,000 in each fund for a total amount of $1,500,000. These
capital share transactions are reflected in shares redeemed.
3. Dissolution and Liquidation of Fund (Unaudited)
On November 19, 1999, Canada Life Insurance Company of America and Canada Life
Insurance Company of New York filed individual applications with the Securities
and Exchange Commission seeking orders to approve the replacement of the Funds'
portfolios with other investment companies' portfolios. Management of the Fund
intends to recommend to the Funds' board of directors that the Fund cease
operations, liquidate the assets of the Series and dissolve the Fund. Closing of
the Fund is expected to occur during 2000, subject to the approval of the
Securities and Exchange Commission.
12
<PAGE>
4. Investment Transactions
The aggregate cost of purchases and proceeds from sales (excluding short term
investments) of investments for all Series, for the year ended December 31, 1999
are presented below:
Proceeds
Cost of from
Securities Securities
Purchased Sold
--------- ----
Managed Series $ 14,273,676 $ 16,196,514
============ ============
Bond Series $ 2,500,561 $ 2,398,650
============ ============
Value Equity Series $ 37,015,225 $ 37,517,777
============ ============
Capital Series $ 17,151,556 $ 19,073,327
============ ============
International Equity Series $ 11,098,856 $ 11,670,727
============ ============
The information in the following table is presented on the basis of cost for
federal income tax purposes as of December 31, 1999.
<TABLE>
<CAPTION>
Identified Net
Cost of Gross Gross Unrealized
Securities Unrealized Unrealized Appreciation
Owned Appreciation (Depreciation) (Depreciation)
----- ------------ -------------- --------------
<S> <C> <C> <C>
Money Market Series $19,733,789 $ - $ - $ -
Managed Series 11,363,063 943,422 (505,076) 438,346
Bond Series 18,110,600 - (1,146,164) (1,146,164)
Value Equity Series 17,947,411 3,103,649 (475,810) 2,627,839
Capital Series 8,288,069 4,156,500 (122,359) 4,034,141
International Equity Series 6,515,182 2,100,014 (208,411) 1,891,603
</TABLE>
13
<PAGE>
5. Capital Share Transactions
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1999 1999 1998 1998
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Money Market Series
Shares sold 48,273,166 $ 482,731,661 24,707,682 $247,076,818
Shares issued in reinvestment
of dividends 83,046 830,465 66,033 660,325
------------ ------------- ------------ -------------
48,356,212 483,562,126 24,773,715 247,737,143
Shares redeemed (47,537,514) (475,375,143) (24,457,664) (244,576,639)
------------ ------------- ------------ -------------
Net increase 818,698 $ 8,186,983 316,051 $ 3,160,504
============ ============= ============ =============
Managed Series
Shares sold 67,537 $ 812,783 112,168 $ 1,426,456
Shares issued in reinvestment
of dividends 117,477 1,391,926 140,924 1,754,044
------------ ------------- ------------ -------------
185,014 2,204,709 253,092 3,180,500
Shares redeemed (375,982) (4,519,372) (357,305) (4,513,710)
------------ ------------- ------------ -------------
Net (decrease) (190,968) $ (2,314,663) (104,213) $ (1,333,210)
============ ============= ============ =============
Bonds Series
Shares sold 862,992 $ 9,269,073 1,136,864 $ 12,695,548
Shares issued in reinvestment
of dividends 75,267 827,486 38,639 409,020
------------ ------------- ------------ -------------
938,259 10,096,559 1,175,503 13,104,568
Shares redeemed (837,569) (8,989,815) (323,468) (3,646,442)
------------ ------------- ------------ ------------
Net increase 100,690 $ 1,106,744 852,035 $ 9,458,126
============ ============= ============ ============
Value Equity Series
Shares sold 333,620 $ 5,005,604 808,855 $ 11,378,457
Shares issued in reinvestment
of dividends 53,750 777,050 83,955 1,234,740
------------ ------------- ------------ ------------
387,370 5,782,654 892,810 12,613,197
Shares redeemed (369,491) (5,594,288) (418,472) (5,824,182)
------------ ------------- ------------ ------------
Net increase 17,879 $ 188,366 474,338 $ 6,789,015
============ ============= ============ ============
Capital Series
Shares sold 296,331 $ 5,213,489 144,582 $ 2,149,583
Shares issued in reinvestment
of dividends 38,240 609,603 89,255 1,263,229
------------ ------------- ------------ ------------
334,571 5,823,092 233,837 3,412,812
Shares redeemed (370,600) (6,495,565) (163,601) (2,432,472)
------------ ------------- ------------ ------------
Net increase (decrease) (36,029) $ (672,473) 70,236 $ 980,340
============ ============= ============ ============
International Equity Series
Shares sold 136,610 $ 1,902,850 1,788,949 $ 21,110,448
Shares issued in reinvestment
of dividends 40,925 508,358 24,601 286,240
------------ ------------- ------------ ------------
177,535 2,411,208 1,813,550 21,396,688
Shares redeemed (175,657) (2,354,983) (1,713,403) (20,207,795)
------------ ------------- ------------ ------------
Net increase 1,878 $ 56,225 100,147 $ 1,188,893
============ ============= ============ ============
</TABLE>
14
<PAGE>
Canada Life of America Series Fund, Inc.
Financial Highlights
Money Market Series
The following financial highlights are computed on the basis of a share
outstanding throughout the period.
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997 1996 1995
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- ----------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.43 0.46 0.48 0.45 0.49
----------- ----------- ---------- ---------- ----------
Total from investment operations 0.43 0.46 0.48 0.45 0.49
----------- ----------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income (0.43) (0.46) (0.48) (0.45) (0.49)
----------- ----------- ---------- ---------- ----------
Total distributions (0.43) (0.46) (0.48) (0.45) (0.49)
----------- ----------- ---------- ---------- ----------
Net asset value, end of period $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
=========== =========== ========== ========== ==========
Total return 4.44% 4.77% 4.95% 4.58% 4.95%
Ratios to average net assets/supplemental data:
Net assets, end of period $20,496,880 $12,309,897 $9,149,393 $7,599,213 $4,608,718
Ratio of expenses to average net assets before
expense reimbursement 0.75% 0.95% 1.16% 1.09% 1.14%
Ratio of expenses to average net assets after
expense reimbursement 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of net investment income to average net
assets 4.33% 4.64% 4.78% 4.54% 4.98%
</TABLE>
See accompanying notes.
15
<PAGE>
Canada Life of America Series Fund, Inc.
Financial Highlights
Managed Series
The following financial highlights are computed on the basis of a share
outstanding throughout the period.
<TABLE>
<CAPTION>
Year ended December 31
1999* 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.85 $ 12.45 $ 11.80 $ 12.37 $ 12.01
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income 0.32 0.29 0.34 0.32 0.40
Net realized and unrealized
gain on investments 0.59 0.23 1.66 0.27 2.38
----------- ----------- ----------- ----------- -----------
Total from investment operations 0.91 0.52 2.00 0.59 2.78
----------- ----------- ----------- ----------- -----------
Less distributions:
Dividends from net investment income (0.32) (0.29) (0.34) (0.32) (0.41)
Distributions from net realized gains (1.11) (0.83) (1.01) (0.84) (2.01)
----------- ----------- ----------- ----------- -----------
Total distributions (1.43) (1.12) (1.35) (1.16) (2.42)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 11.33 $ 11.85 $ 12.45 $ 11.80 $ 12.37
=========== =========== =========== =========== ===========
Total return 9.49% 5.15% 17.61% 5.75% 21.92%
Ratios to average net assets/supplemental data:
Net assets, end of period $10,564,740 $13,308,554 $15,277,567 $15,972,639 $17,033,045
Ratio of expenses to average net assets before
expense reimbursement 0.90% 0.96% 0.95% 0.95% 1.03%
Ratio of expenses to average net assets after
expense reimbursement 0.90% 0.90% 0.90% 0.90% 0.90%
Ratio of net investment income to average net
assets 2.73% 2.35% 2.74% 2.53% 3.06%
Portfolio turnover rate 122.01% 167.95% 82.80% 144.67% 145.14%
</TABLE>
________________________________________________________________________________
* Effective March 5, 1999, Laketon Investment Management Ltd. merged with
INDAGO Capital Management Inc. On April 29, 1999 shareholders approved
the subadvisory agreement to provide investment subadvisory services
for the equity portion of Managed Portfolio. From that date, Laketon is
entitled to advisory fees at the effective annual rate of 0.25% of the
average daily net assets of the equity portion of Managed Portoflio.
See accompanying notes.
16
<PAGE>
Canada Life of America Series Fund, Inc.
Financial Highlights
Bond Series
The following financial highlights are computed on the basis of a share
outstanding throughout the period.
<TABLE>
<CAPTION> Year ended December 31
1999 1998 1997 1996 1995
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.99 $ 10.59 $ 10.36 $ 10.45 $ 9.75
----------- ----------- ---------- ---------- ----------
Income from investment operations:
Net investment income 0.52 0.55 0.60 0.60 0.65
Net realized and unrealized
gain on investments (0.95) 0.67 0.23 (0.09) 1.09
----------- ----------- ---------- ---------- ----------
Total from investment operations (0.43) 1.22 0.83 0.51 1.74
----------- ----------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income (0.52) (0.55) (0.60) (0.60) (0.64)
Distributions from net realized gains - (0.27) - - (0.15)
Distributions from paid-in capital - - - - (0.25)
----------- ----------- ---------- ---------- ----------
Total distributions (0.52) (0.82) (0.60) (0.60) (1.04)
----------- ----------- ---------- ---------- ----------
Net asset value, end of period $ 10.04 $ 10.99 $ 10.59 $ 10.36 $ 10.45
=========== =========== ========== ========== ==========
Total return -3.85% 9.00% 8.09% 4.66% 16.77%
Ratios to average net assets/supplemental data:
Net assets, end of period $16,259,036 $16,705,618 $7,065,818 $6,712,914 $5,493,594
Ratio of expenses to average net assets before
expense reimbursement 0.90% 0.92% 1.02% 1.08% 1.09%
Ratio of expenses to average net assets after
expense reimbursement 0.90% 0.90% 0.90% 0.90% 0.88%
Ratio of net investment income to average net
assets 4.96% 5.04% 5.70% 5.73% 6.06%
Portfolio turnover rate 15.85% 105.90% 127.63% 284.11% 245.32%
</TABLE>
See accompanying notes.
17
<PAGE>
Canada Life of America Series Fund, Inc.
Financial Highlights
Value Equity Series
The following financial highlights are computed on the basis of a share
outstanding throughout the period.
<TABLE>
<CAPTION>
Year ended December 31
1999* 1998 1997 1996 1995
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.45 $ 14.71 $ 13.00 $ 13.51 $ 13.46
----------- ----------- ----------- ---------- ----------
Income from investment operations:
Net investment income 0.06 0.03 0.04 0.02 0.12
Net realized and unrealized
gain on investments 2.80 0.49 3.44 0.80 3.17
----------- ----------- ----------- ---------- ----------
Total from investment operations 2.86 0.52 3.48 0.82 3.29
----------- ----------- ----------- ---------- ----------
Less distributions:
Dividends from net investment income (0.06) (0.03) (0.04) (0.02) (0.12)
Distributions from net realized gains (2.06) (0.75) (1.73) (1.31) (3.12)
----------- ----------- ----------- ---------- ----------
Total distributions (2.12) (0.78) (1.77) (1.33) (3.24)
----------- ----------- ----------- ---------- ----------
Net asset value, end of period $ 15.19 $ 14.45 $ 14.71 $ 13.00 $ 13.51
=========== =========== =========== ========== ==========
Total return 20.14% 2.81% 26.93% 6.94% 23.66%
Ratios to average net assets/supplemental data:
Net assets, end of period $17,958,310 $16,829,336 $10,146,856 $8,518,192 $8,244,957
Ratio of expenses to average net assets before
expense reimbursement 0.90% 0.97% 1.01% 0.99% 1.07%
Ratio of expenses to average net assets after
expense reimbursement 0.90% 0.90% 0.90% 0.90% 0.90%
Ratio of net investment income to average net
assets 0.38% 0.22% 0.28% 0.17% 0.81%
Portfolio turnover rate 208.33% 189.28% 50.97% 46.78% 103.07%
</TABLE>
* Effective March 5, 1999, Laketon Investment Management Ltd. merged with
INDAGO Capital Management Inc. On April 29, 1999 shareholders approved the
subadvisory agreement to provide investment subadvisory services for Value
Equity Portfolio. From that date, Laketon is entitled to advisory fees at
the effective annual rate of 0.25% of the average daily net assets of the
equity portion of Value Equity Portfolio.
See accompanying notes.
18
<PAGE>
Canada Life of America Series Fund, Inc.
Financial Highlights
Capital Series
The following financial highlights are computed on the basis of a share
outstanding throughout the period.
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997 1996 1995
--------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.89 $14.15 $13.96 $13.55 $10.48
------- --------- -------- ------ ------
Income from investment operations:
Net investment income (loss) 0.09) (0.06) - 0.03 0.02
Net realized and unrealized
gain on investments 9.39 2.87 2.75 1.68 3.56
------- --------- -------- ------ ------
Total from investment operations 9.30 2.81 2.75 1.71 3.58
------- --------- -------- ------ ------
Less distributions:
Dividends from net investment income - - - (0.03) (0.01)
Distributions from net realized gains (6.82) (1.07) (2.56) (1.27) (0.50)
------- --------- -------- ------ ------
Total distributions (6.82) (1.07) (2.56) (1.30) (0.51)
------- --------- -------- ------ ------
Net asset value, end of period $18.37 $15.89 $14.15 $13.96 $13.55
======= ========= ======== ====== ======
Total return 61.64% 20.23% 21.14% 12.65% 33.99%
Ratios to average net assets/supplemental
data:
Net assets, end of period $9,058,622 $8,407,733 $6,494,058 $6,676,516 $6,366,302
Ratio of expenses to average net assets 0.90% 0.99% 0.99% 0.99% 1.09%
before expense reimbursement
Ratio of expenses to average net assets after
expense reimbursement 0.90% 0.90% 0.90% 0.90% 0.88%
Ratio of net investment income to average net
assets -0.51% -0.43% 0.03% 0.19% 0.11%
Portfolio turnover rate 193.23% 123.69% 84.39% 54.11% 33.42%
</TABLE>
_________________________________________________________________________
See accompanying notes.
19
<PAGE>
Canada Life of America Series Fund, Inc.
Financial Highlights
International Equity Series
The following financial highlights are computed on the basis of a share
outstanding throughout the period.
<TABLE>
<CAPTION>
For the Period
April 24, 1995
(commencement
operations) to
Year ended December 31 December 31
1999* 1998 1997 1996 1995
--------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.27 $11.64 $11.82 $10.09 $10.00
-------- --------- -------- --------- --------
Income from investment operations:
Net investment income 0.10 0.06 0.07 0.16 0.10
Net realized and unrealized gain on investments 5.41 1.62 0.56 1.83 0.49
-------- --------- -------- --------- --------
Total from investment operations 5.51 1.68 0.63 1.99 0.59
-------- --------- -------- --------- --------
Less distributions:
Dividends from net investment income (0.10) (0.06) (0.07) (0.16) (0.10)
Distributions from net realized gains (2.68) (0.99) (0.74) (0.10) (0.40)
-------- --------- -------- --------- --------
Total distributions (2.78) (1.05) (0.81) (0.26) (0.50)
-------- --------- -------- --------- --------
Net asset value, end of period $15.00 $12.27 $11.64 $11.82 $10.09
======== ========= ======== ========= ========
Total return 45.10% 13.37% 4.32% 19.44% 8.53%**
Ratios to average net assets/supplemental data:
Net assets, end of period $7,679,223 $6,259,057 $4,771,122 $3,305,190 $2,085,588
Ratio of expenses to average net assets before
expense reimbursement 1.20% 1.47% 1.32% 1.56% 1.06%
Ratio of expenses to average net assets after
expense reimbursement 1.20% 1.20% 1.20% 1.20% 1.20%**
Ratio of net investment income to average net
assets 0.76% 0.48% 0.57% 1.44% 1.43%**
Portfolio turnover rate 164.66% 119.77% 37.73% 56.28% 33.56%
</TABLE>
_____________________________________________________________________________
* Effective March 5, 1999, Laketon Investment Management Ltd. merged with
INDAGO Capital Management Inc. On April 29, 1999 shareholders approved
the subadvisory agreement to provide investment subadvisory services
for International Equity Portfolio. From that date, Laketon is
entitled to advisory fees at the effective annual rate of 0.30% of the
average daily net assets of the International Equity Portfolio.
** 1995 amounts annualized from April 24, 1995.
See accompanying notes.
20
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - Money Market Series Portfolio
December 31, 1999
<TABLE>
<CAPTION>
Principal Market
Amount Value
------------ -----------
U.S. Government & its Agencies - 67.0%
<S> <C> <C>
Federal Farm Credit Banks (5.530% due 01/18/00) $ 3,000,000 $ 2,992,049
Federal Home Loan Banks (5.450% due 01/24/00) 1,300,000 1,295,289
Federal Home Loan Banks (4.800% due 01/18/00) 500,000 498,866
Federal Home Loan Mortgage Corporation (5.780% due 02/15/00) 1,200,000 1,191,315
Federal Home Loan Mortgage Corporation (5.700% due 02/08/00) 2,350,000 2,335,825
Federal Home Loan Mortgage Corporation (5.700% due 01/27/00) 850,000 846,487
Federal National Mortgage Association (5.600% due 02/17/00) 200,000 198,530
Federal National Mortgage Association (5.660% due 02/09/00) 2,100,000 2,087,095
Federal National Mortgage Association (5.450% due 01/26/00) 1,200,000 1,195,293
Federal National Mortgage Association (5.700% due 01/14/00) 1,100,000 1,097,722
-----------
13,738,471
-----------
Promissory Note - 5.9%
Export Development Corporation (5.850% due 01/25/00) 1,200,000 1,195,318
-----------
Commercial Paper - 23.4%
Associates Corporation of N.A. (5.833% due 01/18/00) 800,000 800,000
Ford Motor Credit Company (5.802% due 01/20/00) 800,000 800,000
General Electric Capital Corporation (5.866% due 02/02/00) 800,000 800,000
IBM Credit Corporation (5.969% due 02/08/00) 800,000 800,000
John Deere Capital Corporation (5.705% due 01/25/00) 800,000 800,000
Norwest Financial Inc. (5.815% due 02/02/00) 800,000 800,000
-----------
4,800,000
-----------
Total Securities (identified cost - $19,733,789) 19,733,789
Other net assets - 3.7% 763,091
----------
Total net assets $ 20,496,880
==========
</TABLE>
21
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - Managed Series Portfolio
December 31, 1999
<TABLE>
<CAPTION>
Principal Market
Amount Value
---------------------------------
<S> <C> <C>
SHORT TERM NOTES - 6.6%
Canadian Wheat Board ( 5.870% due 02/01/00 ) $ 50,000 $ 49,743
Export Development Corporation ( 5.550% due 02/07/00 ) 150,000 149,139
Export Development Corporation ( 5.830% due 01/18/00 ) 50,000 49,856
Federal Home Loan Mortgage Corporation ( 5.530% due 01/27/00 ) 200,000 199,190
Federal Home Loan Mortgage Corporation ( 5.580% due 01/25/00 ) 200,000 199,253
Province Of Ontario ( 5.830% due 01/12/00 ) 50,000 49,910
-------------
Total Short Term Notes 697,091
-------------
BONDS - 47.6%
U.S. Government & its Agencies - 32.3%
U.S. Treasury Bonds ( 5.500% due 08/15/28 ) 1,125,000 960,469
U.S. Treasury Bonds ( 5.250% due 08/15/03 ) 700,000 674,844
Federal Home Loan Banks ( 6.810% due 08/20/07 ) 50,000 47,905
Federal Home Loan Mortgage Corporation ( 7.500% due 02/01/28 ) 48,983 48,591
Federal Home Loan Mortgage Corporation ( 6.500% due 12/01/27 ) 341,408 322,118
Federal Home Loan Mortgage Corporation ( 6.500% due 02/01/18 ) 79,736 76,179
Federal Home Loan Mortgage Corporation ( 7.500% due 12/01/16 ) 50,673 50,691
Federal Home Loan Mortgage Corporation ( 7.585% due 09/19/06 ) 150,000 149,012
Federal National Mortgage Association ( 6.500% due 01/01/28 ) 225,865 212,963
Federal National Mortgage Association ( 6.500% due 03/01/18 ) 83,391 79,856
Federal National Mortgage Association ( 6.500% due 02/01/18 ) 79,275 75,914
Federal National Mortgage Association ( 7.000% due 02/25/13 ) 48,000 46,267
Federal National Mortgage Association ( 7.070% due 10/24/06 ) 100,000 98,000
Government National Mortgage Association ( 7.000% due 09/15/27) 78,744 76,119
Government National Mortgage Association ( 7.000% due 10/15/25) 286,986 277,420
Government National Mortgage Association ( 8.000% due 06/15/24 ) 56,643 57,268
Government National Mortgage Association ( 8.000% due 05/15/24 ) 92,050 93,067
Government National Mortgage Association ( 8.000% due 05/15/24 ) 67,400 68,144
-------------
3,414,827
-------------
Corporate - 15.3%
American General Finance Corporation ( 5.750% due 11/01/03 ) 250,000 237,353
Coca-Cola Enterprises Inc. ( 6.950% due 11/15/26 ) 150,000 136,397
Comdisco Inc. ( 6.130% due 08/01/01 ) 250,000 244,004
GTE North Inc. ( 6.375% due 02/15/10 ) 250,000 231,834
Johnson & Johnson Inc. ( 8.720% due 11/01/24 ) 225,000 242,289
Lafarge Corporation ( 6.375% due 07/15/05 ) 250,000 236,410
Pacific Bell ( 6.125% due 02/15/08 ) 150,000 138,681
Virginia Electric & Power ( 7.625% due 07/01/07 ) 150,000 150,236
-------------
1,617,204
-------------
Total Bonds 5,032,031
-------------
</TABLE>
See accompanying notes.
22
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - Managed Series Portfolio (Continued)
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
-----------------------
<S> <C> <C>
COMMON STOCKS - 57.5%
Aerospace & Defence - 1.0%
Aerospace & Defence - 1.0%
Honeywell International Inc. 1,890 $ 109,029
----------
Broadcasting & Publishing - 0.9%
Advertising - 0.9%
Omnicom Group Inc. 940 94,000
----------
Energy - 3.9%
Oil & Gas - 3.9%
Atlantic Richfield Company 1,100 95,150
Exxon Mobil Corporation 1,730 139,373
Royal Dutch Petroleum Company - sponsored ADR 2,900 175,269
----------
409,792
----------
Finance - 9.5%
Banks - 3.4%
Bank Of America Corporation 2,690 135,004
Chase Manhattan Corporation 1,620 125,854
Firstar Corporation 4,720 99,710
----------
360,568
----------
Credit & Other Finance - 3.1%
Citigroup Inc. 3,440 191,135
MBNA Corporation 4,970 135,433
----------
326,568
----------
Investment Service - 3.0%
Merrill Lynch & Company Inc. 1,120 93,520
Morgan Stanley Dean Witter & Company 960 137,040
J.P. Morgan & Company Inc. 650 82,306
----------
312,866
----------
Total Finance 1,000,002
----------
Health - 2.3%
Drugs & Pharmaceuticals - 2.3%
Pfizer Inc. 4,220 136,886
Schering-Plough Corporation 2,470 104,203
----------
241,089
----------
</TABLE>
See accompanying notes.
23
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - Managed Series Portfolio (Continued)
December 31, 1999
Market
Shares Value
---------------------
Manufacturing - 10.9%
Auto Cars - 1.0%
Ford Motor Company. 1,890 $ 100,997
----------
Chemicals & Plastics - 1.1%
Dow Chemical Company 850 113,581
----------
Cosmetics & Toiletries - 0.9%
Kimberly-Clark Corporation 1,410 92,002
----------
Electronic Products - 2.2%
Applied Materials Inc. 1,050 133,022
LSI logic Corporation 1,510 101,925
----------
234,947
----------
Miscellenous - 3.8%
Anheuser-Busch Companies Inc. 1,410 99,933
Guidant Corporation 1,880 88,360
Minnesota Mining & Manufacturing Company 1,040 101,790
Tyco International Ltd. 2,820 109,628
----------
399,711
----------
Paper & Related Products - 1.9%
Georgia Pacific Corporation 2,180 110,635
Weyerhaeuser Company 1,310 94,074
----------
204,709
----------
Total Manufacturing 1,145,947
----------
Media & Leisure - 3.6%
Entertainment - 3.6%
Carnival Corporation 2,270 108,534
Time Warner Inc. 1,910 138,356
Viacom Inc. 2,200 132,963
----------
379,853
----------
Pipelines - 1.1%
Enron Corporation 2,650 117,594
----------
Retail & Wholesale - 4.7%
Apparel Stores - 1.0%
The Gap Inc. 2,260 103,960
----------
General Merchandising - 2.9%
Bestfoods 1,690 88,830
Home Depot Inc. 2,460 168,664
Sysco Corporation 1,200 47,475
----------
304,969
----------
Retail & Wholesale, Miscellaneous - 0.8%
CVS Corporation 2,130 85,066
----------
Total Retail & Wholesale 493,995
----------
See accompanying notes.
24
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - Managed Series Portfolio (Continued)
December 31, 1999
Market
Shares Value
----------------------
Services - 5.9%
Internet - 1.4%
America Online Inc. 2,130 $ 160,682
------------
Networking - 2.2%
Cisco Systems Inc. 2,140 229,248
------------
Telecommunication - 2.3%
Nextel Communications Inc. 1,140 117,563
Voicestream Wireless Corporation 850 120,966
------------
238,529
------------
Total Services 628,459
------------
Technology - 13.7%
Communication Equipment - 5.3%
AT&T Corporation 2,790 141,593
Comcast Corporation 2,090 105,675
Motorola Inc. 1,060 156,085
MCI Worldcom Inc. 3,033 160,939
------------
564,292
------------
Computer Services & Software - 5.6%
Ariba Inc. 200 35,475
Microsoft Corporation 3,450 402,788
Sun Microsystem Inc. 1,920 148,680
------------
586,943
------------
Electronic Products - 2.8%
Broadcom Corporation 200 54,475
Solectron Corporation 1,230 117,004
Texas Instruments Inc. 1,340 129,813
------------
301,292
------------
Total Technology 1,452,527
------------
Total Common Stocks 6,072,287
------------
Total Securities ( identified cost - $11,363,063 ) 11,801,409
Other net liabilities - (11.7)% (1,236,669)
------------
Total net assets $ 10,564,740
============
See accompanying notes.
25
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - Bond Series Portfolio
December 31, 1999
<TABLE>
<CAPTION>
Principal Market
Amount Value
---------------------------
<S> <C> <C>
SHORT TERM NOTES - 18.0%
Canadian Treasury ( 5.520% due 01/24/00 ) $ 50,000 $ 49,823
Canadian Treasury ( 5.300% due 01/19/00 ) 100,000 99,731
Canadian Wheat Board ( 5.870% due 02/01/00 ) 200,000 198,974
Export Development Corporation ( 5.700% due 02/07/00 ) 200,000 198,823
Export Development Corporation ( 5.500% due 02/01/00 ) 50,000 49,761
Export Development Corporation ( 5.850% due 01/25/00 ) 50,000 49,804
Export Development Corporation ( 5.830% due 01/18/00 ) 100,000 99,713
Federal Farm Credit Banks ( 5.530% due 01/27/00 ) 750,000 746,970
Federal National Mortgage Association ( 5.600% due 02/17/00 ) 800,000 794,120
Federal National Mortgage Association ( 5.450% due 01/25/00 ) 650,000 647,538
------------
Total Short Term Notes 2,935,257
------------
BONDS - 86.3%
U.S. Government & its Agencies - 64.9%
United States of America ( 5.500% due 08/15/28 ) 950,000 811,063
United States of America ( 6.000% due 02/15/26 ) 1,400,000 1,281,000
United States of America ( 6.125% due 08/15/07 ) 2,440,000 2,379,000
United States of America ( 6.500% due 05/15/05 ) 2,400,000 2,401,500
United States of America ( 5.875% due 02/15/04 ) 500,000 491,875
Federal Home Loan Banks ( 6.810% due 08/20/07 ) 50,000 47,905
Federal Home Loan Mortgage Corporation ( 7.500% due 02/01/28 ) 48,983 48,591
Federal Home Loan Mortgage Corporation ( 6.500% due 12/01/27 ) 341,408 322,118
Federal Home Loan Mortgage Corporation ( 6.500% due 02/01/18 ) 79,736 76,179
Federal Home Loan Mortgage Corporation ( 7.500% due 12/01/16 ) 58,460 58,481
Federal Home Loan Mortgage Corporation ( 7.585% due 09/19/06 ) 150,000 149,012
Federal National Mortgage Association ( 6.500% due 01/01/28 ) 225,865 212,963
Federal National Mortgage Association ( 6.500% due 03/01/18 ) 83,392 79,856
Federal National Mortgage Association ( 6.500% due 02/01/18 ) 79,275 75,914
Federal National Mortgage Association ( 7.000% due 02/25/13 ) 48,000 46,267
Federal National Mortgage Association ( 7.070% due 10/24/06 ) 100,000 98,000
Federal National Mortgage Association ( 5.750% due 06/15/05 ) 749,000 711,850
Federal National Mortgage Association ( 5.750% due 04/15/03 ) 807,000 784,095
Government National Mortgage Association ( 7.000% due 09/15/27 ) 78,744 76,119
Government National Mortgage Association ( 7.000% due 10/15/25 ) 179,366 173,387
Government National Mortgage Association ( 8.000% due 06/15/24 ) 56,643 57,268
Government National Mortgage Association ( 8.000% due 05/15/24 ) 92,050 93,067
Government National Mortgage Association ( 8.000% due 05/15/24 ) 67,400 68,144
------------
10,543,654
------------
</TABLE>
See accompanying notes.
26
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - Bond Series Portfolio (Continued)
December 31, 1999
<TABLE>
<CAPTION>
Principal Market
Amount Value
---------------------------
<S> <C> <C>
Corporate - 21.4%
American General Finance Corporation ( 5.750% due 11/01/03 $ 250,000 $ 237,353
CIT Group Inc. ( 5.500% due 02/15/04 ) 250,000 234,270
Coca-Cola Enterprises Inc. ( 6.950% due 11/15/26 ) 150,000 136,397
Comdisco Inc. ( 6.130% due 08/01/01 ) 250,000 244,004
Comed Transitional Funding Trust ( 5.440% due 03/25/07 ) 250,000 235,441
Corning Inc. ( 6.850% due 03/01/29 ) 250,000 221,789
GE Capital Mortgage Services Inc. ( 6.500% due 04/25/08 ) 59,319 57,910
GTE North Inc. ( 6.375% due 02/15/10 ) 250,000 231,834
Johnson & Johnson Inc. ( 8.720% due 11/01/24 ) 225,000 242,289
Lafarge Corporation ( 6.375% due 07/15/05 ) 250,000 236,410
Pacific Bell ( 6.125% due 02/15/08 ) 150,000 138,681
Puget Sound Energy Inc. ( 7.000% due 03/09/29 ) 250,000 218,926
Ralston Purina Company ( 7.875% due 06/15/25 ) 250,000 243,471
Service Corporation International ( 6.000% due 12/15/05 ) 250,000 186,014
Universal Foods Corporation ( 6.500% due 04/01/09 ) 250,000 227,083
Virginia Electric & Power Company ( 7.625% due 07/01/07 ) 150,000 150,236
Walt Disney Company ( 4.200% due 03/15/01 ) 250,000 243,417
------------
3,485,525
------------
Total Bonds 14,029,179
------------
Total Securities ( identified cost - $18,110,600 ) 16,964,436
Other net liabilities - (4.3)% (705,400)
------------
Total net assets $ 16,259,036
============
</TABLE>
See accompanying notes.
27
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - Value Equity Series Portfolio
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
-------------------------
<S> <C> <C>
COMMON STOCKS - 114.6%
Aerospace & Defence - 2.1%
Aerospace & Defence - 2.1%
Honeywell International Inc. 6,500 $ 374,969
-----------
Broadcasting & Publishing - 1.7%
Advertising - 1.7%
Omnicom Group Inc. 3,200 320,000
-----------
Energy - 7.3%
Oil & Gas - 7.3%
Atlantic Richfield Company 3,700 320,050
Exxon Mobil Corporation 5,900 475,319
Royal Dutch Petroleum Company - sponsored ADR 8,600 519,763
-----------
1,315,132
-----------
Finance - 18.9%
Banks - 6.9%
Bank Of America Corporation 9,120 457,710
Chase Manhattan Corporation 5,400 419,513
Firstar Corporation 17,100 361,238
-----------
1,238,461
-----------
Credit & Other Finance - 6.0%
Citigroup Inc. 11,400 633,413
MBNA Corporation 16,200 441,450
-----------
1,074,863
-----------
Investment Service - 6.0%
Merrill Lynch & Company Inc. 4,000 334,000
Morgan Stanley Dean Witter & Company 3,200 456,800
J.P. Morgan & Company Inc. 2,300 291,237
-----------
1,082,037
-----------
Total Finance 3,395,361
-----------
Health - 4.6%
Drugs & Pharmaceuticals - 4.6%
Pfizer Inc. 14,300 463,856
Schering-Plough Corporation 8,700 367,031
-----------
830,887
-----------
</TABLE>
See accompanying notes.
28
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - Value Equity Series Portfolio (Continued)
December 31, 1999
<TABLE>
<CAPTION> Market
Shares Value
------------------------
<S> <C> <C>
Manufacturing - 22.4%
Auto Cars - 2.3%
Ford Motor Company 7,800 $ 416,813
-----------
Chemicals & Plastics - 2.1%
Dow Chemical Company 2,800 374,150
-----------
Cosmetics & Toiletries - 1.9%
Kimberly-Clark Corporation 5,200 339,300
-----------
Electronic Products- 4.4%
Applied Materials Inc. 3,500 443,406
LSI logic Corporation 5,200 351,000
-----------
794,406
-----------
Miscellenous - 7.6%
Anheuser-Busch Companies Inc. 4,700 333,112
Guidant Corporation 6,600 310,200
Minnesota Mining & Manufacturing Company 3,700 362,138
Tyco International Ltd. 9,300 361,538
-----------
1,366,988
-----------
Paper & Related Products - 4.1%
Georgia Pacific Corporation 7,600 385,700
Weyerhaeuser Company 4,800 344,700
-----------
730,400
-----------
Total Manufacturing 4,022,057
-----------
Media & Leisure - 7.0%
Entertainment - 7.0%
Carnival Corporation 7,000 334,687
Time Warner Inc. 6,700 485,331
Viacom Inc. 7,100 429,106
-----------
1,249,124
-----------
Pipelines - 2.3%
Enron Corporation 9,200 408,250
-----------
Retail & Wholesale - 9.5%
Apparel Stores - 2.1%
The Gap Inc. 8,200 377,200
-----------
General Merchandising - 5.7%
Bestfoods 5,800 304,863
Home Depot Inc. 8,250 565,641
Sysco Corporation 3,700 146,381
-----------
1,016,885
-----------
Retail & Wholesale, Miscellaneous - 1.7%
CVS Corporation 7,800 311,512
-----------
Total Retail & Wholesale 1,705,597
-----------
</TABLE>
See accompanying notes.
29
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - Value Equity Series Portfolio (Continued)
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
------------------------
<S> <C> <C>
Services - 12.1%
Internet - 3.1%
America Online Inc. 7,300 550,694
-----------
Networking - 4.4%
Cisco Systems Inc. 7,400 792,725
-----------
Telecommunications - 4.6%
Nextel Communications Inc. 3,700 381,563
Voicestream Wireless Corporation 3,100 441,169
-----------
822,732
-----------
Total Services 2,166,151
-----------
Technology - 26.7%
Communication Equipment - 10.5%
AT&T Corporation 9,200 466,900
Comcast Corporation 7,200 364,050
Motorola Inc. 3,400 500,650
MCI Worldcom Inc. 10,267 544,792
-----------
1,876,392
-----------
Computer Services & Software - 10.9%
Ariba Inc. 800 141,900
Microsoft Corporation 11,300 1,319,275
Sun Microsystem Inc. 6,500 503,343
-----------
1,964,518
-----------
Electronic Products - 5.3%
Broadcom Corporation 500 136,187
Solectron Corporation 4,000 380,500
Texas Instruments Inc. 4,440 430,125
-----------
946,812
-----------
Total Technology 4,787,722
-----------
Total Common Stocks 20,575,250
-----------
Total Securities ( identified cost - $17,947,411 ) 20,575,250
-----------
Other net liabilities - (14.6)% (2,616,940)
-----------
Total net assets $17,958,310
===========
</TABLE>
30
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - Capital Series Portfolio
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
--------------------------
<S> <C> <C>
COMMON STOCKS - 136.0%
Energy - 6.4%
Electricity - 4.8%
AES Corporation 5,800 $ 433,550
----------
Oil & Gas - 1.6%
EOG Resources Inc. 8,350 146,647
----------
Total Energy 580,197
----------
Finance - 7.3%
Credit & Other Finance - 2.2%
Capital One Financial Corporation 2,100 101,193
Southtrust Corporation 2,550 96,421
----------
197,614
----------
Insurance - 3.8%
ACE Ltd. 7,000 116,813
Aflac Inc. 4,900 231,219
----------
348,032
----------
Investments - 1.3%
Allied Capital Corporation 6,200 113,538
----------
Total Finance 659,184
----------
Health - 10.9%
Drugs & Pharmaceuticals - 8.8%
Alza Corporation 3,800 131,575
Biogen Inc. 1,800 152,100
Elan Corporation PLC - sponsored ADR 6,900 203,550
Forest Laboratories Inc. 3,000 184,313
Watson Pharmaceuticals Inc. 3,500 125,344
----------
796,882
----------
Medical Instruments - 2.1%
Biomet Inc. 1,800 72,000
Guidant Corporation 2,500 117,500
----------
189,500
----------
Total Health 986,382
----------
Manufacturing - 31.2%
Chemicals & Plastics - 1.4%
Praxair Inc. 2,600 130,813
----------
Electric Products - 3.9%
American Power Conversion Co. 7,500 197,813
Molex Inc. 2,700 153,056
----------
350,869
----------
</TABLE>
See accompanying notes
31
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - Capital Series Portfolio (Continued)
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
--------------------------
<S> <C> <C>
Electronic Products - 12.6%
Applied Micro Circuits Corporation 500 $ 63,625
Ciena Corporation 4,200 241,500
Corning Inc. 2,000 257,875
Gentex Corporation 7,700 213,675
Symbol Technologies Inc. 5,750 365,484
----------
1,142,159
----------
Miscellaneous - 5.3%
Avery Dennison Corporation 3,400 247,775
Danaher Corporation 1,550 74,787
PE Corp-PE Biosystems Group 1,300 156,406
----------
478,968
----------
Networking Products - 1.7%
Foundry Networks Inc. 500 150,844
----------
Telecommunications Equipment - 2.3%
Vitesse Semiconductor Corporation 3,900 204,506
----------
Retail & Wholesale, Miscellaneous - 1.5%
Newell Rubbermaid Inc. 4,800 139,200
----------
Steel - 2.5%
Nucor Corporation 4,150 227,472
----------
Total Manufacturing 2,824,831
----------
Media & Leisure - 6.3%
Entertainment - 2.2%
Royal Caribbean Cruises Ltd. 3,950 194,784
----------
Leisure Durables & Toys - 2.0%
Harley Davidson Inc. 2,900 185,781
----------
Publishing - 2.1%
Reader's Digest Assn. 6,600 193,050
----------
Total Media & Leisure 573,615
----------
Non-durables - 1.3%
Household Products - 1.3%
Clorox Company 2,400 120,900
----------
Retail & Wholesale - 9.8%
Apparel Stores - 2.9%
The Limited Inc. 6,100 264,206
----------
Building Products - 1.6%
Fastenal Company 3,200 143,800
----------
General Merchandising - 1.2%
BJ's Wholesale Club Inc. 3,100 113,150
----------
</TABLE>
See accompanying notes
32
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - Capital Series Portfolio (Continued)
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
--------------------------
<S> <C> <C>
Retail - Consumer Electronics - 3.0%
Circuit City Stores Inc. 6,000 $ 270,375
----------
Retail & Wholesale, Miscellaneous - 1.1%
Williams-Sonoma Inc. 2,100 96,600
----------
Total Retail & Wholesale 888,131
----------
Services - 26.2%
Advertising - 2.4%
Interpublic Group of Companies Inc. 1,300 74,993
Young & Rubicam Inc. 2,000 141,500
----------
216,493
----------
Commercial - 5.6%
Cintas Corporation 4,100 217,813
Concord EFS Inc. 7,600 195,700
Quintiles Transnational Corporation 4,900 91,568
----------
505,081
----------
Data Processing - 1.1%
CSG Systems International Inc. 2,700 107,663
----------
Engineering & Construction - 2.4%
Fluor Corporation 4,700 215,613
----------
Internet - 9.2%
Commerce One Inc. 500 98,250
Doubleclick Inc. 700 177,144
NBC Internet Inc. 2,300 177,675
Verisign Inc. 800 152,750
Vignette Corporation 1,400 228,200
----------
834,019
----------
Networking - 3.2%
Finisar Corporation 1,600 143,800
Network Appliance Inc. 600 49,837
PMC-Sierra Inc. 600 96,187
----------
289,824
----------
Oil - Field Services - 2.3%
Weatherford International Inc. 5,200 207,675
----------
Total Services 2,376,368
----------
</TABLE>
See accompanying notes
33
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - Capital Series Portfolio (Continued)
December 31, 1999
<TABLE>
<CAPTION>
Market
Shares Value
-----------------------------
<S> <C> <C>
Technology - 36.6%
Communications Equipment - 4.4%
Ariba Inc. 800 $ 141,900
JDS Uniphase Corp. 1,600 258,100
------------
400,000
------------
Computer & Office Equipment - 2.2%
Fiserv Inc. 2,100 80,456
Gateway Inc. 1,600 115,300
------------
195,756
------------
Computer Services & Software - 25.4%
BMC Software Inc. 2,500 199,844
Cadence Design Systems Inc. 14,500 348,000
Compuware Corporation 6,200 230,950
I2 Technologies Inc. 600 117,000
ISS Group Inc. 5,900 419,638
Rational Software Corp. 3,600 176,850
Siebel Systems Inc. 3,200 268,800
Software.Com Inc. 1,500 144,000
Veritas Software Company 1,400 200,375
Xilinx Inc. 4,300 195,516
------------
2,300,973
------------
Electronics - 3.4%
Broadcom Corporation 900 245,138
Maxim Integrated Products Inc. 1,400 66,062
------------
311,200
------------
Medical Information System - 1.2%
IMS Health Inc. 3,850 104,672
------------
Total Technology 3,312,601
------------
Total Common Stocks 12,322,209
------------
Total Securities ( identified cost - $8,288,069 ) 12,322,209
Other net liabilities - (36.0)% (3,263,587)
------------
Total net assets $ 9,058,622
============
</TABLE>
See accompanying notes
34
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - International Equity Series Portfolio
December 31, 1999
Market
Shares Value
-------------------
COMMON STOCKS - 109.5%
Australia - 1.8%
News Corporation Ltd. - sponsored ADR 4,100 $ 137,094
----------
Finland - 5.0%
Nokia OYJ 1,000 181,557
Stora Enso OYJ 5,800 101,266
Upm-kymmene OYJ 2,500 100,865
----------
383,688
----------
France - 14.1%
Banque National De Paris 2,400 221,742
Dexia France 30 4,978
Dexia 1,025 10
France Telecom SA 900 119,192
Groupe Danone 600 141,614
L'Oreal SA 121 97,210
Pechiney SA 2,000 143,127
STMicroelectronics N.V. - sponsored ADR 920 139,323
Total Fina SA 1,607 214,769
----------
1,081,965
----------
Germany - 4.1%
Mannesmann AG 400 96,992
Prosieben Media AG - preferred shares 1,600 93,441
SAP AG - preferred shares 200 122,148
----------
312,581
----------
Hong Kong - 3.3%
HSBC Holdings PLC 18,300 256,601
----------
Italy - 4.4%
Telecom Italia Mobile SPA 20,100 224,837
Telecom Italia SPA 7,900 111,557
----------
336,394
----------
Japan - 28.1%
Dai-Tokyo Fire & Marine Ins. 31,000 126,296
DDI Corporation 110 150,456
Fuji Machine MFG 1,900 152,957
Fujitsu Ltd. 2,000 91,055
Futaba Industrial Company Ltd. 7,000 82,067
Kyocera Corporation 600 155,341
Minebea Company Ltd. 5,000 85,633
NTT Mobile Communications 50 191,979
Rohm Company Ltd. 800 328,269
Sangetsu Company Ltd. 4,500 94,524
Sankyo Company Ltd. 6,600 135,411
Shohkoh Fund & Company Ltd. 300 118,558
Sony Corporation 1,500 444,042
----------
2,156,588
----------
See accompanying notes.
35
<PAGE>
Canada Life of America Series Fund, Inc.
Schedule of Investments - International Equity Series Portfolio (Continued)
December 31, 1999
Market
Shares Value
-------------------
Netherlands - 13.9%
DSM N.V. 3,300 $ 132,476
ING Groep N.V. 3,028 183,068
Koninklijke Philips Electronics N.V. - sponsored ADR 1,532 206,820
Royal Dutch Petroleum Company - sponsored ADR 4,200 253,838
TNT Post Group N.V. 4,600 132,002
Wolters Kluwer N.V. 4,800 162,675
----------
1,070,879
----------
Spain - 5.3%
Argentaria Caja Postal Y Banco - sponsored ADR 2,860 132,990
Telefonica SA 10,884 272,258
----------
405,248
----------
Sweden - 1.2%
Ericsson (LM) Tel - sponsored ADR 1,400 91,963
----------
Switzerland - 4.7%
Nestle SA 35 63,780
Novartis AG 55 80,332
Swisscom AG 200 80,463
United Bank Of Switzerland AG 500 134,314
----------
358,889
----------
United Kingdom - 23.6%
Astrazeneca PLC - sponsored ADR 3,800 158,650
Bank of Ireland 16,900 134,665
Barclays PLC 3,500 100,522
Billiton PLC 15,800 93,010
Boots Company PLC (THE) 3,914 37,975
BP Amoco PLC 7,300 73,240
British Telecommunications PLC 9,700 236,535
Diageo PLC 8,800 70,631
Elan Corporation PLC - sponsored ADR 3,500 103,250
Invensys PLC 19,400 105,370
Lloyds TSB Group 15,800 197,225
Marconi PLC 9,600 169,499
Next PLC 5,400 51,697
WPP Group PLC - sponsored ADR 3,400 282,625
----------
1,814,894
----------
Total Common Stocks 8,406,784
----------
Total Securities ( identified cost - $6,515,182 ) 8,406,784
Other net assets - (9.5)% (727,561)
----------
Total net assets $7,679,223
==========
See accompanying notes.
36
<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/
(1) Form of Articles Supplementary/1/
(2) Amendment to the Articles Supplementary/2/
(b) By-Laws of Canada Life of America Series Fund, Inc./1/
(c) See Items 23(a) and (b).
(d) Investment Advisory Contracts/1/
(1) Investment Advisory Agreement with CL Capital Management, Inc.
(CLCM) and the Series Fund, dated May 1, 1995./3/
(2) Sub-Investment Advisory Agreement between CL Capital
Management, Inc. (CLCM) and J. & W. Seligman & Co.,
Incorporated (Seligman), dated May 1./3/
(e) Not applicable.
(f) Not applicable.
(g) Form of Custodian Agreement/1/
(h) Other Material Contracts
(1) Form of Accounting Services Agreement/1/
(2) Form of Dividend Disbursing and Transfer Agent Agreement/1/
(3) Form of Participation Agreement/1/
(i) Not applicable.
(j) Not applicable.
(k) Consent of Independent Auditors, attached hereto.
(l) Form of Subscription Agreement/1/
(1) Form of Subscription Agreement for the Capital Series/1/
(2) Form of Subscription Agreement for the International Series/1/
(m) Not applicable.
(o) Not applicable.
- ----------
/1/ Incorporated herein by reference to the exhibits filed with 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.
/2/ Incorporated herein by reference to the exhibits filed with Post-Effective
Amendment No. 5 to this Registration Statement on Form N-1A (File No.
33-28888), filed on March 5, 1993.
/3/ Incorporated herein by reference to the exhibits filed with the
Post-Effective Amendment No 12. to this Registration Statement on Form
N-1A (File No. 33-28888), filed on February 26, 1999, accession number
0000931763-99-000613.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant./4/
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.
Incorporated herein by reference to Schedules A and D of Form ADV
(File No. 801-47923) filed for Laketon Investment Management Ltd. on
December 4, 1998, as amended from time to time.
Item 27. Principal Underwriters
Not Applicable.
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/4/ Incorporated herein by reference to Part C of the Post-Effective Amendment
the Registration Statement for Canada Life of America Variable Annuity
Account 2 on Form N-4 (File No. 33-55890), filed on February 1, 1999,
accession number 0000931763-99-00410.
<PAGE>
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.
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, this
Amendment No. 15 to the Registrant's Registration Statement has been signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Atlanta, and the State of Georgia, on the 28th day of April, 2000.
CANADA LIFE OF AMERICA SERIES FUND, INC.
By:
/s/ R. E. Beetam
-----------------------------
R. E. Beettam, President
Canada Life of America Series
Fund, Inc.
