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As Filed with the Securities and Exchange Commission on April 28, 1999.
Registration No. 33-32199
811-5961
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Securities and Exchange Commission
Washington, D.C. 20549
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FORM N-4
Registration Statement Under the Securities Act of 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. . 13 [x]
--------
and/or
Registration Statement Under the Investment Company Act of 1940
Amendment No. 16 [x]
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CANADA LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT 1
(Exact Name of Registrant)
CANADA LIFE INSURANCE COMPANY OF NEW YORK
(Name of Depositor)
500 Mamaroneck Avenue
Harrison, New York 10528
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number: (416) 597-1456
Paul R. McCadam
500 Mamaroneck Avenue
Harrison, New York 10528
(Name and Address of Agent for Service)
Copy to:
Stephen E. Roth, Esquire
Sutherland, Asbill, & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
-- of Rule 485
x on May 1, 1999 pursuant to paragraph (b) of Rule 485
--
60 days after filing pursuant to paragraph (a)(i)
-- of Rule 485
on pursuant to paragraph (a)(i) of Rule 485
--
75 days after filing pursuant to paragraph (a)(ii)
-- of Rule 485
on __________ pursuant to paragraph (a)(ii) of Rule 485
--
If appropriate check the following box:
__ this Post-Effective Amendment designates a new
effective date for a new effective date for a
previously filed Post-Effective Amendment.
Title of Securities Being Registered: Flexible Premium Variable Deferred Annuity
Policies
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PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
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CANADA LIFE INSURANCE COMPANY OF NEW YORK
HOME OFFICE: 410 SAW MILL RIVER ROAD, ARDSLEY, NEW YORK 10502
PHONE: (914) 693-2300
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VARIFUND(R) PROSPECTUS
VARIABLE ANNUITY ACCOUNT 1
SINGLE PREMIUM VARIABLE DEFERRED ANNUITY POLICY*
This Prospectus describes the single premium variable deferred annuity policy
(the Policy) offered by Canada Life Insurance Company of New York (We, Our, Us
or the Company).
The Owner (Policyowner or You) may choose among the 30 divisions (the
Sub-Accounts) of the Canada Life of New York Variable Annuity Account 1 (the
Variable Account) and/or the Fixed Account. Assets in each Sub-Account are
invested in corresponding Portfolios of the following fund companies (the
Funds):
The Alger American Fund (Alger American)
Berger Institutional Products Trust (Berger Trust)
Canada Life of America Series Fund, Inc. (CLASF)
The Dreyfus Socially Responsible Growth Fund, Inc. (Dreyfus Socially
Responsible)
Dreyfus Variable Investment Fund (Dreyfus)
Fidelity Variable Insurance Products Fund (Fidelity VIP)
Fidelity Variable Insurance Products Fund II (Fidelity VIP II)
Fidelity Variable Insurance Products Fund III (Fidelity VIP III)
Goldman Sachs Variable Insurance Trust (Goldman Sachs VIT)
The Montgomery Funds III (Montgomery)
Seligman Portfolios, Inc. (Seligman)
The Policy Value will vary according to the investment performance of the
Portfolio(s) in which the Sub-Accounts you choose are invested, until the Policy
Value is applied to a payment option. You bear the entire investment risk on
amounts allocated to the Variable Account.
This Prospectus provides basic information that a prospective Policyowner ought
to know before investing. Additional information is contained in the Statement
of Additional Information, which has been filed with the Securities and Exchange
Commission. The Statement of Additional Information is dated the same date as
this Prospectus and is incorporated herein by reference. The Table of Contents
for the Statement of Additional Information is included on the last page of this
Prospectus. You may obtain a free copy of the Statement of Additional
Information by writing or calling Us at the address or phone number shown above.
PLEASE READ THIS PROSPECTUS CAREFULLY BEFORE BUYING A POLICY AND KEEP IT FOR
FUTURE REFERENCE. THIS PROSPECTUS MUST BE ACCOMPANIED BY CURRENT PROSPECTUSES
FOR THE FUNDS. THE FUNDS' PROSPECTUSES ARE ATTACHED TO THIS PROSPECTUS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE POLICIES AND THE FUNDS ARE NOT INSURED BY THE FDIC NOR ANY OTHER AGENCY.
THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK
GUARANTEED. THE POLICY DESCRIBED IN THIS PROSPECTUS IS SUBJECT TO MARKET
FLUCTUATION, INVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL.
*Policies issued prior to January 26, 1996 were issued as flexible premium
variable deferred annuity policies. Additional premium payments may be made
under such policies. Any reference to additional or multiple premium
payments refer to such policies only.
The date of this Prospectus is May 1, 1999.
1
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY......................................................................................... 3
TABLE OF EXPENSES............................................................................... 10
THE COMPANY..................................................................................... 14
THE VARIABLE ACCOUNT, THE FUNDS AND THE
FIXED ACCOUNT................................................................................... 17
The Variable Account........................................................................ 17
The Funds................................................................................... 18
Bond Portfolio......................................................................... 19
Capital Portfolio...................................................................... 19
International Equity Portfolio......................................................... 19
Managed Portfolio...................................................................... 19
Alger American Growth Portfolio........................................................ 20
Alger American Leveraged AllCap Portfolio.............................................. 20
Alger American MidCap Growth Portfolio................................................. 20
Alger American Small Capitalization Portfolio.......................................... 20
Berger/BIAM IPT-International Fund..................................................... 21
Berger IPT-Small Company Growth Fund................................................... 21
Dreyfus Capital Appreciation Portfolio................................................. 22
Dreyfus Growth and Income Portfolio.................................................... 22
Fidelity VIP Growth Portfolio.......................................................... 22
Fidelity VIP High Income Portfolio..................................................... 22
Fidelity VIP Overseas Portfolio........................................................ 22
Fidelity VIP II Asset Manager Portfolio................................................ 23
Fidelity VIP II Contrafund Portfolio................................................... 23
Fidelity VIP II Index 500 Portfolio.................................................... 23
Fidelity Investments Variable Insurance Products Fund III................................... 23
Fidelity VIP III Growth Opportunities Portfolio........................................ 23
Goldman Sachs Variable Insurance Trust...................................................... 24
Goldman Sachs Capital Growth Portfolio................................................. 24
Goldman Sachs CORE U.S. Equity Portfolio............................................... 24
Goldman Sachs Global Income Portfolio.................................................. 24
Goldman Sachs Growth and Income Portfolio.............................................. 24
Montgomery Variable Series: Emerging Markets Fund...................................... 24
Montgomery Variable Series: Growth Fund................................................ 24
Seligman Portfolios, Inc............................................................... 25
Seligman Communications and Information Portfolio...................................... 25
Seligman Frontier Portfolio............................................................ 25
Reserved Rights........................................................................ 25
Change in Investment Objective......................................................... 26
The Fixed Account........................................................................... 26
Guarantee Amount....................................................................... 26
Guarantee Periods...................................................................... 26
Market Value Adjustment................................................................ 26
DESCRIPTION OF ANNUITY POLICY................................................................... 27
Ten Day Right to Examine Policy............................................................. 27
Premium..................................................................................... 27
Initial Premium........................................................................ 27
Additional Premium..................................................................... 27
Premium Enhancement.................................................................... 27
Pre-Authorized Check Agreement Plan.................................................... 28
Electronic Data Transmission of Application Information................................ 28
Wire Transmittal Privilege............................................................. 28
Net Premium Allocation................................................................. 28
Cash Surrender Value........................................................................ 29
Policy Value................................................................................ 29
Variable Account Value...................................................................... 29
Units.................................................................................. 29
Unit Value............................................................................. 29
Net Investment Factor.................................................................. 29
Transfers................................................................................... 30
Transfer Privilege..................................................................... 30
Telephone Transfer Privilege........................................................... 30
Intouch(R)Voice Response System........................................................ 30
Dollar Cost Averaging Privilege........................................................ 31
Transfer Processing Fee................................................................ 31
Payment of Proceeds......................................................................... 32
Proceeds............................................................................... 32
Proceeds on Annuity Date............................................................... 32
Proceeds on Surrender.................................................................. 33
Proceeds on Death of Last Surviving Annuitant Before
Annuity Date (The Death Benefit)...................................................... 34
Proceeds on Death of Any Policyowner................................................... 35
Interest on Proceeds................................................................... 35
Partial Withdrawals......................................................................... 35
Systematic Withdrawal Privilege........................................................ 36
Portfolio Rebalancing....................................................................... 37
Postponement of Payment..................................................................... 37
Charges Against the Policy, Variable Account, and Funds..................................... 38
Surrender Charge....................................................................... 38
Annual Administration Charge........................................................... 39
Daily Administration Fee............................................................... 39
Transfer Processing Fee................................................................ 39
Mortality and Expense Risk Charge...................................................... 39
Waiver of Surrender Charge............................................................. 40
Reduction or Elimination of Surrender Charges and
Annual Administration Charges......................................................... 40
Taxes.................................................................................. 41
Other Charges Including Investment Advisory Fees....................................... 41
Payment Options............................................................................. 42
Election of Options.................................................................... 42
Description of Payment Options......................................................... 42
Payment Dates.......................................................................... 43
Age and Survival of Annuitant.......................................................... 43
Other Policy Provisions..................................................................... 43
Policyowner............................................................................ 43
Beneficiary............................................................................ 44
Termination............................................................................ 44
Written Notice......................................................................... 44
Periodic Reports....................................................................... 44
Assignment............................................................................. 45
Modification........................................................................... 45
Notification of Death.................................................................. 45
YIELDS AND TOTAL RETURNS........................................................................ 45
TAX DEFERRAL.................................................................................... 47
FEDERAL TAX STATUS.............................................................................. 48
Introduction................................................................................ 48
The Company's Tax Status.................................................................... 48
Tax Status of the Policy.................................................................... 48
Diversification Requirements........................................................... 48
Policyowner Control.................................................................... 49
Required Distributions................................................................. 49
Taxation of Annuities....................................................................... 50
In General............................................................................. 50
Withdrawals/Distributions.............................................................. 50
Annuity Payments....................................................................... 50
Taxation of Death Benefit Proceeds..................................................... 51
Penalty Tax on Certain Withdrawals..................................................... 51
Transfers, Assignments, or Exchanges of a Policy............................................ 51
Withholding................................................................................. 52
Multiple Policies........................................................................... 52
Possible Tax Changes........................................................................ 52
Taxation of Qualified Plans................................................................. 52
Individual Retirement Annuities and Simplified
Employee Pensions (SEP/IRAs).......................................................... 53
SIMPLE Individual Retirement Annuities................................................. 53
ROTH Individual Retirement Annuities................................................... 53
Minimum Distribution Requirements...................................................... 53
Corporate And Self-Employed (H.R.10 and Keogh)
Pension And Profit-Sharing Plans...................................................... 54
Deferred Compensation Plans............................................................ 55
Tax-Sheltered Annuity Plans............................................................ 55
Other Tax Consequences...................................................................... 55
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM........................................ 55
DISTRIBUTION OF POLICIES........................................................................ 55
LEGAL PROCEEDINGS............................................................................... 56
VOTING RIGHTS................................................................................... 56
INSURANCE MARKETPLACE STANDARDS ASSOCIATION..................................................... 57
PREPARING FOR YEAR 2000......................................................................... 57
FINANCIAL STATEMENTS............................................................................ 58
DEFINITIONS..................................................................................... 58
STATEMENT OF ADDITIONAL INFORMATION - TABLE OF CONTENTS......................................... 59
APPENDIX A: STATE PREMIUM TAXES................................................................. 59
</TABLE>
2
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SUMMARY
This summary provides a brief description of some of the features and charges of
the Policy offered by Us. You will find more detailed information in the rest of
this Prospectus, the Statement of Additional Information and the Policy. Please
keep the Policy and its riders or endorsements, if any, together with the
application. Together they are the entire agreement between You and Us.
HOW DO I PURCHASE A POLICY?
You may purchase a Policy with a premium payment of at least $5,000 (generally
$2,000 if the Policy is an Individual Retirement Annuity (IRA)). You may
purchase a Policy with a premium of $100 (generally $50 if the Policy is an
IRA), if the premium payment is submitted with a pre-authorized check (PAC)
agreement. See "Premium" and "Pre-Authorized Check Agreement Plan."
CAN I MAKE ADDITIONAL PREMIUM PAYMENTS?
Policies issued on or after January 26, 1996 are single premium variable
deferred annuity policies. Additional premium payments may not be made under
such policies.
For Policies issued prior to January 26, 1996, additional premium payments may
be made during any Annuitant's lifetime and before the Annuity Date. Additional
premium payments must be at least $1,000 or $100 per month if paid by PAC (or
$50 per month if paid by PAC and the Policy is an IRA). Prior approval must be
obtained before total premiums paid can exceed $1,000,000. See "Premiums."
HOW DOES THE TEN DAY RIGHT TO EXAMINE THE POLICY WORK?
You have ten days after You receive the Policy to decide if You would like to
cancel the Policy. We will return the Policy Value (without interest and less
the amount of any partial withdrawals). If the Policy is issued as an IRA and
canceled within 7 days, We will return all premiums if the premiums are greater
than the amount otherwise payable. See "Ten Day Right to Examine Policy."
WHAT IS THE PURPOSE OF THE VARIABLE ACCOUNT?
The Variable Account is a separate investment account that consists of 30
Sub-Accounts. Before the Policy Value is applied to a payment option, amounts in
the Variable Account will vary according to the investment performance of the
Portfolios of the Fund(s) in which Your elected Sub-Accounts are invested. You
may allocate Your Net Premium among the Fixed Account and the 30 Sub-Accounts of
the Variable Account. The assets of each Sub-Account are invested in the
corresponding Portfolios of the Funds that are listed on the cover page of this
Prospectus. See "The Variable Account" and "The Funds."
HOW DOES THE FIXED ACCOUNT WORK?
You may allocate all or part of Net Premium or make transfers from the Variable
Account to the Fixed Account. The Fixed Account is not affected by the
investment performance of the Variable Account. See "The Fixed Account."
WHEN WILL I RECEIVE PAYMENTS?
After the Policy Value is transferred to a payment option, We will pay proceeds
in equal amounts monthly, quarterly or annually during the Annuitant's lifetime
or for 10 years, whichever is longer, unless You have elected another payment
option. See "Proceeds on Annuity Date."
5
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WHAT HAPPENS IF THE OWNER DIES?
If any Owner dies before the Policy Value is transferred to a payment option, We
will pay the Beneficiary the Policy Value as of the date we receive proof of the
Owner's death. See "Proceeds on Death of Any Owner."
WHAT HAPPENS IF THE LAST SURVIVING ANNUITANT DIES?
If the Last Surviving Annuitant dies before the Policy Value is transferred to a
payment option, We will pay the Beneficiary a Death Benefit.
THE FOLLOWING APPLIES ONLY TO POLICIES ISSUED AFTER APPLICABLE REGULATORY
APPROVAL IS OBTAINED.
If we receive Due Proof of Death during the first five Policy Years, the
Death Benefit is the greater of:
1. the premiums paid, less any partial withdrawals, surrender
charges, and incurred taxes; or
2. the Policy Value on the date we receive Due Proof of Death.
If we receive Due Proof of Death after the first five Policy Years, the
Death Benefit is the greatest of:
1. item "1" above;
2. item "2" above; or
3. the Policy Value at the end of the most recent 5 Policy Year
period occurring before the date we receive Due Proof Death. This
value will be adjusted for any partial withdrawals, surrender
charges, incurred taxes, and premiums paid. The 5 Policy Year
periods are measured from the Policy Date (i.e., 5, 10, 15, 20,
etc.).
If on the date the Policy was issued, all Annuitants were attained age 80
or less, then after any Annuitant attains age 81, the Death Benefit is the
greater of items "1" or "2" above. However, if on the date the Policy was
issued, any Annuitant was attained age 81 or more, then the Death Benefit
is the Policy Value.
THE FOLLOWING APPLIES ONLY TO POLICIES ISSUED FROM JANUARY 26, 1996 THOUGH
SUCH DATE AS THE ABOVE DEATH BENEFIT IS APPROVED.
If we receive Due Proof of Death during the first seven Policy Years, the
Death Benefit is the greater of:
1. the premiums paid, less any partial withdrawals, surrender
charges, and incurred taxes; or
2. the Policy Value on the date we receive Due Proof of Death.
If we receive Due Proof of Death after the first seven Policy Years, the
Death Benefit is the greatest of:
1. item "1" above;
2. item "2" above; or
3. the Policy Value at the end of the most recent 7 Policy Year
period occurring before the date we receive Due Proof of Death.
This value will be adjusted for any partial withdrawals, surrender
charges, incurred taxes, and premiums paid. The 7 Policy Year
periods are measured from the Policy Date (i.e., 7, 14, 21, 28,
etc.). No further step-ups in Death Benefit will occur after the
age of 80.
THE FOLLOWING APPLIES ONLY TO POLICIES ISSUED PRIOR TO JANUARY 26, 1996.
6
<PAGE>
If we receive Due Proof of Death during the first five Policy Years, the
Death Benefit is the greater of:
1. the premiums paid, less any partial withdrawals, surrender
charges, and incurred taxes; or
2. the Policy Value on the date we receive Due Proof of Death.
If we receive Due Proof of Death after the first five Policy Years, the
Death Benefit is the greatest of:
1. item "1" above;
2. item "2" above; or
3. the Policy Value at the end of the most recent 5 Policy Year
period occurring before the date we receive Due Proof of Death.
This value will be adjusted for any partial withdrawals, surrender
charges, incurred taxes, and premiums paid. The 5 Policy Year
periods are measured from the Policy Date (i.e., 5, 10, 15, 20,
etc.).
See "Proceeds on Death of Last Surviving Annuitant Before Annuity Date (The
Death Benefit)."
CAN I GET MONEY OUT OF MY POLICY?
You may withdraw part or all of the Cash Surrender Value at any time before the
earlier of the death of the Last Surviving Annuitant, the death of any Owner, or
the date when the value in the Policy is transferred to a payment option,
subject to certain limitations. See "The Fixed Account," "Partial Withdrawals"
and "Proceeds on Surrender." A partial withdrawal or a surrender may incur
federal income tax, including a federal penalty tax. See "FEDERAL TAX STATUS."
WHAT CHARGES WILL I PAY?
Surrender Charge: A surrender charge may be deducted when a partial withdrawal
or cash surrender is made.
The amount withdrawn is first taken from any investment earnings in the Variable
Account and interest earned in the Fixed Account available at the time the
request is made. Then, further amounts withdrawn will be taken from premiums
starting with the oldest premium paid.
Withdrawal or surrender of the following will not incur a surrender charge:
. 100% of investment earnings in the Variable Account
. 100% of interest earned in the Fixed Account
. 100% of premiums paid 7 years or more (5 years for Policies issued
prior to January 26, 1996) from the date of withdrawal or surrender
. 10% of total premiums withdrawn during a Policy Year and paid less than
7 years (5 years for Policies issued prior to January 26, 1996) from
the date of withdrawal or surrender*
. Amounts required to be withdrawn, only as they apply to the Policy and
independent of all other qualified retirement assets, pursuant to the
minimum required distribution rules under federal tax laws (see
"Minimum Distribution Requirements")
* 10% is not cumulative and is first withdrawn from the oldest premium paid.
If a surrender charge does apply, the following percentages will be used to
calculate the amount of the charge:
For Policies issued prior to January 26, 1996:
(For 5 years from the date of payment, each premium
is subject to a 6% surrender charge. After the 5th
year, no surrender charge will apply to such payment)...................6%
For Policies issued on or after January 26, 1996:
Policy Years Since Premium Was Paid
7
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Less than 1.......................................................... 6%
At least 1, but less than 2.......................................... 6%
At least 2, but less than 3.......................................... 5%
At least 3, but less than 4.......................................... 5%
At least 4, but less than 5.......................................... 4%
At least 5, but less than 6.......................................... 3%
At least 6, but less than 7.......................................... 2%
At least 7........................................................... None
Any surrender charge will be deducted from the amount requested for withdrawal
or surrender.
See "Surrender Charge."
Annual Administration Charge: We deduct an Annual Administration Charge of $30
for the prior Policy Year on each Policy Anniversary. We will also deduct this
charge for the current Policy Year if the Policy is surrendered for its Cash
Surrender Value, unless the surrender occurs on the Policy Anniversary. If the
Policy Value on the Policy Anniversary is $75,000 or more, We will waive the
Annual Administration Charge for the prior Policy Year. We will also waive the
Annual Administration Charge if the Policy is a Tax-Sheltered Annuity. See
"Annual Administration Charge."
Daily Administration Fee: We also deduct a daily administration fee each day at
an annual rate of 0.15% from the assets of the Variable Account. See "Daily
Administration Fee."
Transfer Processing Fee: The first 12 transfers during each Policy Year are
free. We currently assess a $25 transfer fee for the 13th and each additional
transfer in a Policy Year. See "Transfer Processing Fee."
Mortality and Expense Risk Charge: We deduct a mortality and expense risk charge
each day from the assets of the Variable Account at an annual rate of 1.25%. See
"Annualized Mortality and Expense Risk."
Premium Taxes: There are currently no premium taxes payable under New York law.
Investment Advisory Fees: Each Portfolio is responsible for all of its operating
expenses. In addition, fees for investment advisory services and operating
expenses are deducted and paid daily at an annual rate from each Portfolio as a
percentage of the daily net assets of the Portfolios. See "Other Charges
Including Investment Advisory Fees" and the attached Funds' prospectuses.
ARE THERE ANY OTHER POLICY PROVISIONS?
For information concerning the Owner, Beneficiary, Written Notice, periodic
reports, assignment, modification and other important Policy provisions, see
"Other Policy Provisions."
HOW WILL THE POLICY BE TAXED?
For a brief discussion of Our current understanding of the federal tax laws
concerning Us and the Policy, see "FEDERAL TAX STATUS."
DOES CANADA LIFE OFFER OTHER POLICIES?
We offer other variable annuity policies which also invest in the same
Portfolios of the Fund. These policies may have different charges that could
affect the value of the Sub-Accounts and may offer different benefits more
suitable for Your needs. For more information about these policies, please
contact Us at the phone number or address on page 1.
8
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WHAT IF I HAVE QUESTIONS?
We will be happy to answer Your questions about the Policy or Our procedures.
Call or write to Us at the phone number or address on page 1. All inquiries
should include the Policy number and the names of the Owner and the Annuitant.
If You have questions concerning Your investment strategies, please contact Your
registered representative.
9
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TABLE OF EXPENSES
This table is intended to assist You in understanding the various costs and
expenses that You will bear directly or indirectly. It reflects expenses of the
Variable Account as well as the Funds.
EXPENSE DATA
The following information regarding expenses assumes that the entire Policy
Value is in the Variable Account.
POLICYOWNER TRANSACTION EXPENSES
--------------------------------
Sales load on purchase payments........................................None
Maximum surrender charge as a percentage of amount surrendered
(10% of total premiums withdrawn during a Policy Year and paid less than
7 years (5 years for Policies issued prior to January 26, 1996) from the
date of withdrawal or surrender and 100% of earnings are free of any
sales load.
See "Charges Against the Policy, Variable Account, and Funds.")....6.00%
Transfer fee
Current Policy - First 12 transfers each Policy Year..............No fee
Each transfer thereafter ...............................$25 per transfer
Transfer fee when using the Intouch(R) Voice Response System.....No fee
ANNUAL ADMINISTRATION CHARGE
----------------------------
Per Policy per Policy Year..............................................$30
(waived for the prior Policy Year if the Policy Value is $75,000 or more
on the Policy Anniversary or if the Policy is a Tax-Sheltered Annuity)
VARIABLE ACCOUNT ANNUAL EXPENSES
--------------------------------
(as a percentage of average account value)
Mortality and expense risk charges....................................1.25%
Annual rate of daily administration fee*..............................0.15%
Total Variable Account annual expenses................................1.40%
* The daily administration fee is imposed only under Policies issued on
or after January 26, 1996.
FUNDS' ANNUAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------
(after Expense Reimbursement, as indicated, and as a percentage of average
net assets)
<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL
MANAGEMENT (AFTER EXPENSE ANNUAL
PORTFOLIO FEES REIMBURSEMENT)** EXPENSES
--------- ---- -------------- --------
<S> <C> <C> <C>
Bond 0.50% 0.40% 0.90%
Capital 0.50% 0.40% 0.90%
International Equity 0.80% 0.40% 1.20%
Managed 0.50% 0.40% 0.90%
Money Market 0.50% 0.25% 0.75%
Value Equity 0.50% 0.40% 0.90%
Alger American Growth 0.75% 0.04% 0.79%
Alger American Leveraged AllCap 0.85% 0.11% 0.96%
Alger American MidCap Growth 0.80% 0.04% 0.84%
Alger American Small Capitalization 0.85% 0.04% 0.89%
</TABLE>
10
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<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL
MANAGEMENT (AFTER EXPENSE ANNUAL
PORTFOLIO FEES REIMBURSEMENT)* EXPENSES
--------- ---- -------------- --------
<S> <C> <C> <C>
Alger American Small Capitalization 0.85% 0.04% 0.89%
Berger/BIAM IPT-International 0.00% 1.20% 1.20%
Berger IPT-Small Company Growth 0.00% 1.15% 1.15%
Dreyfus-Capital Appreciation 0.75% 0.06% 0.81%
Dreyfus-Growth and Income 0.75% 0.03% 0.78%
Dreyfus Socially Responsible 0.75% 0.05% 0.80%
Fidelity VIP Growth 0.59% 0.07% 0.66%
Fidelity VIP High Income 0.58% 0.12% 0.70%
Fidelity VIP Overseas 0.74% 0.15% 0.89%
Fidelity VIP II Asset Manager 0.54% 0.09% 0.63%
Fidelity VIP II Contrafund 0.59% 0.07% 0.66%
Fidelity VIP II Index 500 0.24% 0.04% 0.28%
Fidelity VIP III Growth Opportunities 0.59% 0.11% 0.70%
Goldman Sachs VIT Capital Growth 0.75% 0.15% 0.90%
Goldman Sachs VIT CORE U.S. Equity 0.70% 0.10% 0.80%
Goldman Sachs VIT Global Income 0.90% 0.15% 1.05%
Goldman Sachs VIT Growth and Income 0.75% 0.15% 0.90%
Montgomery Variable Series: Emerging Markets 1.25% 0.50% 1.75%
Montgomery Variable Series: Growth 1.00% 0.25% 1.25%
Seligman Communications and Information 0.75% 0.12% 0.87%
Seligman Frontier 0.75% 0.17% 0.92%
</TABLE>
* We currently reimburse CLASF for expenses that exceed 0.40% of the average
daily net assets of Managed, Bond, Value Equity, Capital and International
Equity Portfolios, and 0.25% of the Money Market Portfolio. Absent such
reimbursement, the "Other Expenses" for the Capital Portfolio would have
been 0.49%, for the Managed Portfolio 0.46%, for the Money Market
Portfolio, 0.45%, for the Value Equity 0.47%, for the Bond Portfolio 0.42%,
and for the International Equity Portfolio 0.67%.
The Goldman Sachs VIT Capital Growth Fund's expenses are estimated due to
the Fund being in existence for less than 10 months. The Goldman Sachs VIT
CORE U.S. Equity, Global Income and Growth and Income Funds' expenses are
based on actual expenses for fiscal year ended December 31, 1998. The
Investment Advisers to the Goldman Sachs VIT Capital Growth, CORE U.S.
Equity, Global Income and Growth and Income Funds have voluntarily agreed
to reduce or limit certain "Other Expenses" of such Funds (excluding
management fees, taxes, interest and brokerage fees and litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed 0.15%, 0.10%, 0.15% and 0.15% per annum of such Funds'
average daily net assets, respectively. The expenses shown include this
reimbursement. If not included, the "Other Expenses" and "Total Expenses"
for the Goldman Sachs VIT Capital Growth, CORE U.S. Equity, Global Income
and Growth and Income Funds would be 1.03% and 1.78%, 2.13% and 2.83%,
2.40% and 3.30%, and 1.94% and 2.69%, respectively. The reductions or
limits may be discontinued or modified by the investment advisers in their
discretion at any time.
A portion of the brokerage commissions that certain Fidelity Portfolios pay
was used to reduce Fund expenses. In addition, certain Portfolios have
entered into arrangements with their custodian and transfer agent whereby
interest earned on uninvested cash balances
11
<PAGE>
was used to reduce custodian and transfer agent expenses. Fidelity VIP II
Index 500 Portfolio expenses were voluntarily reduced by the Funds'
investment adviser. Absent reimbursement, the management fee, other
expenses, and total expenses would have been 0.24%, 0.11%, and 0.35%
respectively.
The Manager of the Montgomery Variable Series: Emerging Markets Fund and
the Montgomery Variable Series: Growth Fund has contractually agreed to
reduce some or all of its management fees if necessary to keep total annual
operating expenses, expressed on an annualized basis at or below 1.75% and
1.25%, respectively, of average net assets. This contract has a one year
term renewable at the end of each fiscal year. The Manager also may
voluntarily reduce additional amounts to increase the return to
policyowners investing in the Montgomery Variable Series: Emerging Markets
Fund and/or the Montgomery Variable Series: Growth Fund. Any reductions
made by the Manager in its fees are subject to reimbursement by the
Montgomery Variable Series: Emerging Markets Fund and the Montgomery
Variable Series: Growth Fund within the following three years, provided the
Portfolios are able to effect such reimbursement and remain in compliance
with applicable expense limitations. The Management Fees, Other Expenses
and Total Annual Expenses absent voluntary reimbursements for the
Montgomery Variable Series: Growth Fund were 1.00%, 0.40% and 1.40%.
The Managers of the Berger/BIAM IPT-International Fund and Berger IPT-Small
Company Growth Fund have agreed to waive their management fees and
reimburse the Funds for additional expenses to the extent that the Funds'
total annual expenses exceed 1.20% and 1.15%, respectively.
There is no assurance that these waiver or reimbursement policies will be
continued in the future. If any of these policies are discontinued, it will
be reflected in an updated prospectus.
The data with respect to the Funds' annual expenses have been provided to Us by
the Funds and We have not independently verified such data.
For a more complete description of the various costs and expenses, see "Charges
Against the Policy, Variable Account, And Funds" and the Funds' prospectuses. In
addition to the expenses listed above, premium taxes may be applicable, although
no premium tax is currently payable under New York law.
EXAMPLES
A Policyowner would pay the following expenses on a $1,000 investment, assuming
a 5% annual return on assets:
1. If the Policy is surrendered at the end of the applicable time period:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Bond 78 119 163 271
Capital 78 119 163 271
International Equity 81 128 178 301
Managed 78 119 163 271
Money Market 77 115 155 256
Value Equity 78 119 163 271
Alger American Growth 77 116 157 260
Alger American Leveraged AllCap 79 121 166 277
Alger American MidCap Growth 77 117 160 265
Alger American Small Capitalization 78 119 162 270
Berger/BIAM IPT - International 81 128 178 301
Berger IPT-Small Company Growth 81 127 175 296
Dreyfus Capital Appreciation 77 116 158 262
Dreyfus Growth and Income 77 116 157 259
Dreyfus Socially Responsible 77 116 158 261
Fidelity VIP Growth 76 112 151 247
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Fidelity VIP High Income 76 113 153 251
Fidelity VIP Overseas 78 119 162 270
Fidelity VIP II Asset Manager 75 111 149 244
Fidelity VIP II Contrafund 76 112 151 247
Fidelity VIP II Index 500 72 100 131 207
Fidelity VIP III Growth Opportunities 76 113 153 251
Goldman Sachs VIT Capital Growth 78 119 * *
Goldman Sachs VIT CORE U.S. Equity 77 116 * *
Goldman Sachs VIT Global Income 80 124 * *
Goldman Sachs VIT Growth and Income 78 119 * *
Montgomery Variable Series: Emerging Markets 87 144 205 353
Montgomery Variable Series: Growth 82 130 180 306
Seligman Communications and Information 78 118 161 268
Seligman Frontier 78 120 164 273
</TABLE>
* Pursuant to regulations set forth by the Securities and Exchange Commission,
examples for 5 and 10 Year periods have not been provided for Sub-Accounts
commencing operations on or after May 1, 1999.
2. If the Policy is annuitized or not surrendered at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Bond 24 74 127 271
Capital 24 74 127 271
International Equity 27 83 142 301
Managed 24 74 127 271
Money Market 23 70 119 256
Value Equity 24 74 127 271
Alger American Growth 23 71 121 260
Alger American Leveraged AllCap 25 76 130 277
Alger American MidCap Growth 23 72 124 265
Alger American Small Capitalization 24 74 126 270
Berger/BIAM IPT - International 27 83 142 301
Berger IPT-Small Company Growth 27 82 139 296
Dreyfus-Capital Appreciation 23 71 122 262
Dreyfus-Growth and Income 23 71 121 259
Dreyfus Socially Responsible 23 71 122 261
Fidelity VIP Growth 22 67 115 247
Fidelity VIP High Income 22 68 117 251
Fidelity VIP Overseas 24 74 126 270
Fidelity VIP II Asset Manager 21 66 113 244
Fidelity VIP II Contrafund 22 67 115 247
Fidelity VIP II Index 500 18 55 95 207
Fidelity VIP III Growth Opportunities 22 68 117 251
Goldman Sachs VIT Capital Growth 24 74 * *
Goldman Sachs VIT CORE U.S. Equity 23 71 * *
Goldman Sachs VIT Global Income 26 79 * *
Goldman Sachs VIT Growth and Income 24 74 * *
Montgomery Variable Series: Emerging Markets 33 99 169 353
Montgomery Variable Series: Growth 28 85 144 306
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Seligman Communications and Information 24 73 125 268
Seligman Frontier 24 75 128 273
</TABLE>
* Pursuant to regulations set forth by the Securities and Exchange Commission,
examples for 5 and 10 Year periods have not been provided for Sub-Accounts
commencing operations on or after May 1, 1999.
These Examples are based, with respect to all of the Portfolios, on an estimated
average account value of $ . The Examples assume that no transfer charge has
been assessed. The Examples also reflect an Annual Administration Charge of
% of assets, determined by dividing the total Annual Administration Charge
collected by the total average net assets of the Sub-Accounts of the Variable
Account. The Examples represent expenses incurred in connection with a 7 year
surrender charge period. Policies issued with a 5 year maximum surrender charge
period would be subject to lower expenses.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE
ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESSER
THAN THE ASSUMED AMOUNT.
CONDENSED FINANCIAL INFORMATION
The following condensed financial information is derived from the financial
statements of the Variable Account. The data should be read in conjunction with
the financial statements, related notes and other financial information included
in the "Financial Statements" section of the Statement of Additional
Information.
The table on the following page sets forth certain information for the period
from December 31, 1992 through December 31, 1998. We do not provide
Accumulation Unit Values for any date prior to the inception of the Variable
Account.
As of December 31, 1998, the Goldman Sachs VIT Capital Growth, Goldman Sachs VIT
CORE U.S. Equity, Goldman Sachs VIT Global Income, and Goldman Sachs VIT Growth
and Income Sub-Accounts had not commenced operations. Accordingly, condensed
financial information is not available for these Sub-Accounts.
14
<PAGE>
ACCUMULATION UNIT VALUE/1/
<TABLE>
<CAPTION>
As of AS OF AS OF AS OF AS OF AS OF AS OF
Sub Account 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Bond/2/ $ 17.67 $ 16.49 $ 15.49 $ 14.98 $ 12.98 $ 13.69 $ 12.57
Capital/3/ $ 21.94 $ 18.51 $ 15.53 $ 13.96 $ 10.54 $ 11.14 -
International Equity/5/ $ 14.18 $ 12.69 - - - - -
Managed/2/ $ 20.81 $ 20.05 $ 17.30 $ 16.56 $ 13.75 $ 13.97 $ 13.07
Money Market/2/ $ 13.15 $ 12.72 $ 12.30 $ 11.93 $ 11.50 $ 11.27
Value Equity/2/ $ 23.25 $ 22.97 $ 18.33 $ 17.34 $ 14.21 $ 14.11 $ 13.56
Alger American Small Capitalization/6/ $ 51.24 $ 45.00 $ 40.97 - - - -
Alger American Growth/6/ $ 63.52 $ 43.53 $ 36.02 - - - -
Alger American Leveraged All Cap/6/ $ 34.94 $ 22.45 $ 19.01 - - - -
Alger American MidCap Growth/6/ $ 30.57 $ 23.79 $ 20.97 - - - -
Berger BIAM IPT-International/7/ $ 11.12 $ 9.71 - - - - -
Berger IPT-Small Company Growth/8/ - - - - - - -
Dreyfus Capital Appreciation/8/ - - - - - - -
Dreyfus Growth and Income/6/ $ 28.52 $ 25.87 $ 22.59 - - - -
Dreyfus Socially Responsible/6/ $ 34.33 $ 26.91 - - - - -
Fidelity VIP Growth/4/ $ 60.00 $ 43.67 $ 35.98 $ 31.96 $ 23.62 - -
Fidelity VIP High Income/4/ $ 33.62 $ 35.64 $ 30.71 $ 0.00 $ 22.97 - -
Fidelity VIP Overseas/4/ $ 22.63 $ 20.35 $ 18.52 $ 16.68 $ 15.33 - -
Fidelity VIP II Asset Manager/4/ $ 27.46 $ 24.23 $ 20.42 $ 18.12 $ 15.56 - -
Fidelity VIP II Contra Fund/8/ $ 25.82 $ 16.06 - - - - -
Fidelity VIP II Index 500/6/ $ 154.48 $ 122.54 - - - - -
Fidelity VIP III Growth Opportunities/8/ $ 23.98 - - - - - -
Montgomery Variable Series: - - - -
Emerging Markets/6/ $ 6.37 $ 10.34 - - - - -
Montgomery Variable Series: Growth/7/ $ 16.30 $ 16.06 - - - - -
Seligman Communications and Information/5/ $ 24.77 $ 18.41 $ 15.28 $ 14.23 - - -
Seligman Frontier/5/ $ 18.90 $ 19.45 $ 16.96 $ 13.89 - - -
</TABLE>
1 Accumulation Unit Values prior to 1996 do not reflect the .15% daily
administration fee imposed on or after January 26, 1996. Accumulation Unit
Values for year ended 12/31/96 reflect the .15% daily administration fee.
2 Commended operations December 4, 1989.
3 Commenced operations on May 1, 1993.
4 Commenced operations on May 1, 1994.
5 Commenced operations on May 1, 1995.
6 Commenced operations on May 1, 1996.
7 Commenced operations on May 1, 1997.
8 Commenced operations on May 1, 1998.
15
<PAGE>
NUMBER OF UNITS
OUTSTANDING AT
END OF PERIOD
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF AS OF AS OF
Sub Account 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
----------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Bond 10,630 961 517 517 517 1,203 403
Capital 4,334 6,260 9,043 9,744 10,013 7,094 -
International Equity 10,775 10,280 - - - - -
Managed 9,949 11,078 7,213 9,125 13,982 12,645 4,766
Money Market 32,340 11,830 9,097 193 195 4,393
Value Equity 4,981 5,090 5,790 5,798 6,262 8,387 1,017
Alger American Growth 8,966 4,005 336 - - - -
Alger American Leveraged All Cap 3,445 965 150 - - - -
Alger American MidCap Growth 2,394 1,508 500 - - - -
Alger American Small Capitalization 3,026 1,105 1,030 - - - -
Berger BIAM IPT-International 1,525 - - - - - -
Berger IPT-Small Company Growth* - - - -
Dreyfus Capital Appreciation* - - - - - - -
Dreyfus Growth and Income 7,983 3,658 127 - - - -
Dreyfus Socially Responsible 4,879 2,356 - - - - -
Fidelity VIP Growth 9,177 10,293 5,368 3,259 1,752 - -
Fidelity VIP High Income 141 8,696 1,506 0 1,206 - -
Fidelity VIP Overseas 2,947 3,918 2,014 63 594 - -
Fidelity VIP II Asset Manager 24,513 17,918 10,818 6,880 7,647 - -
Fidelity VIP II Contra Fund 2,278 - - - - - -
Fidelity VIP II Index 500 3,693 1,311 - - - - -
Fidelity VIP III Growth Opportunities 2,456 - - - - - -
Montgomery Variable Series: Emerging
Markets 789 1,763 - - - - -
Montgomery Variable Series: Growth 7,000 6,254 - - - - -
Seligman Communications and Information 27,600 23,607 25,672 18,611 - - -
Seligman Frontier 14,716 13,818 6,155 2,237 - - -
</TABLE>
* As of 12/31/98 there was no activity in these Sub-Accounts.
16
<PAGE>
THE COMPANY
We are a stock life insurance company with assets as of December 31, 1998 of
approximately $293 million (U.S. dollars). We were incorporated under New York
law on June 7, 1971, and Our Home Office is located at 410 Saw Mill River Road,
Ardsley, New York 10502. We are principally engaged in issuing and reinsuring
annuity and life insurance policies in the state of New York.
We share Our A.M. Best rating with Our parent company, The Canada Life Assurance
Company. From time to time, We will quote this rating and Our ratings from
Standard & Poor's Corporation, Duff & Phelps Inc., and/or Moody's Investors
Service for claims paying ability. These ratings relate to Our financial ability
to meet Our contractual obligations under Our insurance contracts. They do not
take into account deductibles, surrender or cancellation penalties, or
timeliness of claim payment. They also do not address the suitability of a
Policy for a particular purchaser, or relate to Our ability to meet non-policy
obligations.
We are a wholly-owned subsidiary of The Canada Life Assurance Company, a
Canadian life insurance company headquartered in Toronto, Ontario, Canada. The
Canada Life Assurance Company commenced insurance operations in 1847 and has
been actively operating in the United States since 1889. It is one of the
largest life insurance companies in North America with consolidated assets as of
December 31, 1998 of approximately $29.4 billion (U.S. dollars).
Obligations under the Policies are obligations of Canada Life Insurance Company
of New York.
We are subject to regulation and supervision by the New York Insurance Bureau,
as well as the laws and regulations of all jurisdictions in which We are
authorized to do business.
THE VARIABLE ACCOUNT, THE FUNDS AND THE FIXED ACCOUNT
THE VARIABLE ACCOUNT
We established the Canada Life of New York Variable Annuity Account 1 (the
Variable Account) as a separate investment account on September 23, 1989, under
New York law. Although We own the assets in the Variable Account, these assets
are held separately from Our other assets and are not part of Our general
account. The income, gains or losses, whether or not realized, from the assets
of the Variable Account are credited to or charged against the Variable Account
in accordance with the policies without regard to Our other income, gains or
losses.
The portion of the assets of the Variable Account equal to the reserves and
other contract liabilities of the Variable Account will not be charged with
liabilities that arise from any other business that We conduct. We have the
right to transfer to Our general account any assets of the Variable Account
which are in excess of such reserves and other liabilities.
The Variable Account is registered with the Securities and Exchange Commission
(the SEC) as a unit investment trust under the Investment Company Act of 1940
(the 1940 Act) and meets the definition of a "separate account" under the
federal securities laws. However, the SEC does not supervise the management,
investment policies or practices of the Variable Account.
The Variable Account currently is divided into 30 Sub-Accounts. Each Sub-Account
invests its assets in shares of the corresponding Portfolio of the Funds
described below.
17
<PAGE>
THE FUNDS
The Variable Account invests in shares of:
The Alger American Fund (Alger American)
Berger Institutional Products Trust (Berger Trust)
Canada Life of America Series Fund, Inc. (CLASF)
The Dreyfus Socially Responsible Growth Fund, Inc. (Dreyfus Socially
Responsible)
Dreyfus Variable Investment Fund (Dreyfus)
Fidelity Variable Insurance Products Fund (Fidelity VIP)
Fidelity Variable Insurance Products Fund II (Fidelity VIP II)
Fidelity Variable Insurance Products Fund III (Fidelity VIP III)
Goldman Sachs Variable Insurance Trust (Goldman Sachs VIT)
The Montgomery Funds III (Montgomery)
Seligman Portfolios, Inc. (Seligman)
Shares of a Portfolio of the above listed Funds are purchased and redeemed for a
corresponding Sub-Account at their net asset value. Any amounts of income,
dividends and gains distributed from the shares of a Portfolio are reinvested in
additional shares of that Portfolio at their net asset value. The Funds'
prospectuses defines the net asset value of Portfolio shares.
The Funds are management investment companies with one or more investment
Portfolios. Each Fund is registered with the SEC as an open-end, management
investment company. Such registration does not involve supervision of the
management or investment practices or policies of the company or the Portfolios
by the SEC.
The Funds may, in the future, create additional portfolios that may or may not
be available as investment options under the Policies. Each Portfolio has its
own investment objectives and the income and losses for each Portfolio are
determined separately for that Portfolio.
The investment objectives and policies of certain Portfolios of the Funds are
similar to the investment objectives and policies of other portfolios that may
be managed by the same investment adviser or manager. The investment results of
the Portfolios of the Funds, however, may differ from the results of such other
portfolios. There can be no assurance, and no representation is made, that the
investment results of any of the Portfolios of the Funds will be comparable to
the investment results of any other portfolio, even if the other portfolios have
the same investment adviser or manager.
The following is a brief description of the investment objectives of each of the
Funds' Portfolios. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY
PORTFOLIO WILL BE ACHIEVED. PLEASE SEE THE ATTACHED PROSPECTUSES FOR THE FUNDS
FOR MORE DETAILED INFORMATION, INCLUDING A DESCRIPTION OF RISKS AND EXPENSES.
CANADA LIFE OF AMERICA SERIES FUND, INC.
CLASF is a diversified open-end investment company incorporated in Maryland.
CLASF has six Portfolios which use the investment advisory services of CL
Capital Management, Inc., a Georgia corporation: Bond, Capital, International
Equity, Managed, Money Market; and Value Equity. Three Portfolios,
International Equity, the equity portion of Managed and Value Equity, use the
sub-investment advisory services of Laketon Investment Management Ltd. of
Toronto, Ontario, Canada, an SEC-registered investment adviser. The Capital
Portfolio uses the sub-investment advisory services of J. & W. Seligman & Co.
Incorporated, an
18
<PAGE>
unaffiliated Delaware investment manager. CL Capital Management, Inc. is a
wholly owned subsidiary of our Company.
The Canada Life of America Series Fund, Inc., (CLASF) currently has six
Portfolios: Bond; Capital; International Equity; Managed; Money Market; and
Value Equity. The following is a brief description of the investment objectives
of each of the current Portfolios of CLASF.
BOND PORTFOLIO
The Bond Portfolio seeks as high a level of current income and capital
appreciation as is consistent with preservation of principal, by investing
primarily in debt securities.
CAPITAL PORTFOLIO
The Capital Portfolio seeks capital appreciation, not current income, by
investing in common stocks and securities convertible into or exchangeable for
common stocks, in common stock purchase warrants, in debt securities and in
preferred stocks believed to provide capital appreciation opportunities.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio seeks long-term capital appreciation by
investing in equity or equity-type securities of companies located outside the
United States.
MANAGED PORTFOLIO
The Managed Portfolio seeks as high a level of return as possible, through
capital appreciation and income, consistent with prudent investment risk and
preservation of capital, by investing in equities, debt obligations and money
market instruments.
MONEY MARKET PORTFOLIO
The Money Market Portfolio seeks as high a level of current income consistent
with preservation of capital and liquidity by investing in money market
instruments maturities of thirteen months or less.
VALUE EQUITY PORTFOLIO
The Value Equity Portfolio seeks long-term growth of capital and income by
investing in equity securities which are believed to have appreciation
potential.
Since CLASF may be available to other separate accounts, including registered
separate accounts for variable annuity and variable life products, and non-
registered separate accounts for group annuity products of Canada Life Insurance
Company of America, Canada Life Insurance Company of New York, and The Canada
Life Assurance Company, it is possible that material conflicts may arise between
the interests of the Variable Account and one or more other separate accounts
investing in CLASF. CLASF's board of directors will monitor events to identify
any irreconcilable material conflict. Upon being advised of such a conflict, we
will take any steps we believe necessary to resolve the matter, including
removing the assets of the Variable Account from one or more Portfolios.
19
<PAGE>
THE ALGER AMERICAN FUND
The Alger American Fund (Alger American) is intended to be a funding vehicle for
variable annuity contracts and variable life insurance policies to be offered by
the separate accounts of certain life insurance companies; its shares also may
be offered to qualified pension and retirement plans. Each of its Portfolios has
distinct investment objectives and policies. Further information regarding the
investment practices of each of the Portfolios is set forth below.
ALGER AMERICAN GROWTH PORTFOLIO
The Alger American Growth Portfolio seeks long-term capital appreciation by
focusing on growing companies that generally have broad product lines, markets,
financial resources and depth of management. Under normal circumstances, the
Portfolio invests primarily in the equity securities of large companies. The
Portfolio considers a large company to have a market capitalization of $1
billion or greater.
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
The Alger American Leveraged AllCap Portfolio seeks long-term capital
appreciation. Under normal circumstances, the Portfolio invests in the equity
securities of companies of any size which demonstrate promising growth
potential. The Portfolio can leverage, that is, borrow money, up to one-third of
its total assets to buy additional securities. By borrowing money, the Portfolio
has the potential to increase its returns if the increase in the value of the
securities purchased exceeds the cost of borrowing, including interest paid on
the money borrowed.
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
The investment objective of the Portfolio is long-term capital appreciation. It
focuses on midsize companies with promising growth potential. Under normal
circumstances, the Portfolio invest primarily in the equity securities of
companies having a market capitalization within the range of companies in the
S&P MidCap 400 Index.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
20
<PAGE>
The investment objective of the Alger American Small Capitalization Portfolio is
long-term capital appreciation. It focuses on small, fast-growing companies that
offer innovative products, services or technologies to a rapidly expanding
marketplace. Under normal circumstances, the Portfolio invests primarily in the
equity securities of small capitalization companies. A small capitalization
company is one that has a market capitalization within the range of the Russell
2000 Growth Index or the S&P SmallCap 600 Index.
BERGER INSTITUTIONAL PRODUCTS TRUST
The Berger Institutional Products Trust (Berger Trust) is intended to be a
funding vehicle for variable annuity contracts and variable life insurance
policies offered by the separate accounts of certain life insurance companies;
and its shares may also be offered to qualified pension and retirement plans.
The Berger Trust is an open-end investment company and each of its Portfolios
has distinct investment objectives and policies. Further information regarding
the investment practices of the Portfolios available under this Policy is set
forth below.
BERGER/BIAM IPT-INTERNATIONAL FUND
The Portfolio is advised by BBOI Worldwide LLC, which has delegated daily
management of the Portfolio to Bank of Ireland Asset Management (U.S.) Limited.
The investment objective of the Berger/BIAM IPT-International Fund is long-term
capital appreciation. The Portfolio seeks to achieve this objective by investing
primarily in common stocks of well established companies located outside the
United States. The Portfolio intends to diversify its holdings among several
countries and to have, under normal market conditions, at least 65% of the
Portfolio's total assets invested in the securities of companies located in at
least five countries, not including the United States.
BERGER IPT-SMALL COMPANY GROWTH FUND
The Portfolio is advised by Berger Associates, Inc. The investment objective of
the Berger IPT-Small Company Growth Fund is capital appreciation. The Portfolio
seeks to achieve this objective by investing primarily in common stocks of small
companies and other securities with equity features. Under normal circumstances,
the Portfolio invests at least 65% of its assets in equity securities of
companies whose market capitalizations, at the time of initial purchase, is less
than the 12-month average of the maximum market capitalization for companies
included in the Russell 2000. This average is updated monthly. The balance of
the Portfolio may be invested in larger companies, government securities or
other short-term investments.
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
The Dreyfus Socially Responsible Growth Fund, Inc. (Dreyfus Socially
Responsible) seeks to provide capital growth by investing principally in common
stocks, or securities convertible into common stock, of companies which, in the
opinion of the Fund's management, not only meet traditional investment
standards, but also show evidence that they conduct their business in
21
<PAGE>
a manner that contributes to the enhancement of the quality of life in America.
Current income is a secondary goal.
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund is an open-end, management investment company,
that is intended to be a funding vehicle for variable annuity and variable life
insurance contracts. Two of the Fund's Portfolios are available under this
Policy, the Dreyfus-Growth and Income Portfolio and Dreyfus-Capital Appreciation
Portfolio.
DREYFUS-CAPITAL APPRECIATION PORTFOLIO
The Capital Appreciation Portfolio seeks to provide long-term capital growth
consistent with the preservation of capital; current income is a secondary goal.
The Portfolio invests principally in common stocks of domestic and foreign
companies. The Portfolio generally will seek investment opportunities in large
capitalization companies.
DREYFUS-GROWTH AND INCOME PORTFOLIO
The Growth and Income Portfolio seeks long-term capital growth, current income
and growth of income, consistent with reasonable investment risk. The Portfolio
invests primarily in equity and debt securities and money market instruments of
domestic and foreign issuers. The proportion of the Portfolio's assets invested
in each type of security will vary from time to time in accordance with The
Dreyfus Corporation's assessment of economic conditions and investment
opportunities.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
The Fidelity Variable Insurance Products Fund (Fidelity VIP) acts as one of the
funding vehicles for the Policy with three Portfolios available under the
Policy: Fidelity VIP Growth; Fidelity VIP High Income; and Fidelity VIP
Overseas. Fidelity VIP is managed by Fidelity Management & Research Company
(Investment Manager).
FIDELITY VIP GROWTH PORTFOLIO
The Fidelity VIP Growth Portfolio seeks to achieve capital appreciation. The
Portfolio invests primarily in common stocks.
FIDELITY VIP HIGH INCOME PORTFOLIO
The Fidelity VIP High Income Portfolio seeks to obtain a high level of current
income by investing at least 65% of total assets in income-producing debt
securities, preferred stocks and convertible securities, with an emphasis on
lower-quality debt securities, while also considering growth of capital. Please
refer to the accompanying Fidelity prospectus for a description and explanation
of the unique risks associated with investing in high risk, high yielding, lower
rated fixed income securities.
FIDELITY VIP OVERSEAS PORTFOLIO
The Fidelity VIP Overseas Portfolio seeks long-term growth of capital primarily
through investments in foreign securities. This Portfolio provides a means for
investors to diversify their own Portfolios by participating in companies and
economies outside of the United States.
22
<PAGE>
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Fidelity Variable Insurance Products Fund II (Fidelity VIP II) acts as one
of the funding vehicles for the Policy with the VIP II Asset Manager, VIP II
Contrafund and VIP II Index 500 Portfolios available under the Policy. Fidelity
VIP II is managed by Fidelity Management & Research Company (Investment
Manager).
FIDELITY VIP II ASSET MANAGER PORTFOLIO
The Fidelity VIP II Asset Manager Portfolio seeks high total return with reduced
risk over the long-term by allocating its assets among domestic and foreign
stocks, bonds and short-term money market instruments.
FIDELITY VIP II CONTRAFUND PORTFOLIO
The Fidelity VIP II Contrafund Portfolio seeks capital appreciation by investing
in securities of companies whose value the Investment Manager believes is not
fully recognized by the public.
FIDELITY VIP II INDEX 500 PORTFOLIO
The Fidelity VIP II Index 500 Portfolio seeks a total return which corresponds
to that of the Standard & Poor's Composite Index of 500 Stocks.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
The Fidelity Variable Insurance Products Fund III (Fidelity VIP III) acts as one
of the funding vehicles for the Policy with the VIP III Growth Opportunities
Portfolio available under the Policy. Fidelity VIP III is managed by Fidelity
Management & Research Company (Investment Manager).
FIDELITY VIP III GROWTH OPPORTUNITIES PORTFOLIO
The Fidelity VIP III Growth Opportunities Portfolio seeks capital growth by
investing primarily in common stocks.
23
<PAGE>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
The Goldman Sachs Variable Insurance Trust is an open-end, management investment
company offering the following Portfolios: Goldman Sachs VIT Capital Growth
Portfolio, Goldman Sachs VIT CORE U.S. Equity Portfolio, Goldman Sachs VIT
Global Income Portfolio and Goldman Sachs VIT Growth and Income Portfolio.
GOLDMAN SACHS VIT CAPITAL GROWTH PORTFOLIO*
This Portfolio seeks long-term growth of capital through diversified investments
in equity securities of companies that are considered to have long-term capital
appreciation potential.
GOLDMAN SACHS VIT CORE U.S. EQUITY PORTFOLIO*
This Portfolio seeks long-term growth of capital and dividend income through a
broadly diversified Portfolio of large cap and blue chip equity securities
representing all major sectors of the U.S. economy.
GOLDMAN SACHS VIT GLOBAL INCOME PORTFOLIO*
This Portfolio seeks a high total return, emphasizing current income and, to a
lessor extent, providing opportunities for capital appreciation. The Fund
invests primarily in a portfolio of high quality fixed-income securities of U.S.
foreign issuers and foreign currencies.
GOLDMAN SACHS VIT GROWTH AND INCOME PORTFOLIO*
This Portfolio seeks long-term growth of capital and growth of income through
investments in equity securities that are considered to have favorable prospects
for capital appreciation and/or dividend paying ability.
* Available subject to approval by the New York Insurance Department. Please
check with Your registered representative or Our Home Office for availability.
THE MONTGOMERY FUNDS III
Shares of Montgomery Variable Series: Emerging Markets Fund and Montgomery
Variable Series: Growth Fund, Portfolios of The Montgomery Funds III
(Montgomery), an open-end investment company, are available under this Policy.
MONTGOMERY VARIABLE SERIES: EMERGING MARKETS FUND
The investment objective of this Portfolio is capital appreciation, which under
normal conditions it seeks by investing at least 65% of its total assets in
equity securities of companies in countries having emerging markets. For these
purposes, the Portfolio defines an emerging market country as having an economy
that is or would be considered by the World Bank or the United Nations to be
emerging or developing.
MONTGOMERY VARIABLE SERIES: GROWTH FUND
The investment objective of this Portfolio is capital appreciation, which under
normal conditions it seeks by investing at least 65% of its total assets in the
equity securities, usually common stock of domestic companies of all sizes and
emphasizes companies having market capitalizations of $1 billion
24
<PAGE>
or more.
SELIGMAN PORTFOLIOS, INC.
Seligman Portfolios, Inc. (Seligman) currently has fifteen Portfolios, two of
which are available under the Policy: Communications and Information; and
Frontier. Seligman is a diversified open-end investment company incorporated in
Maryland which uses the investment advisory services of J. & W. Seligman & Co.
Incorporated, a Delaware corporation.
SELIGMAN COMMUNICATIONS AND INFORMATION PORTFOLIO
The investment objective of this Portfolio is to produce capital gain. Income is
not an objective. The Portfolio seeks to achieve its objective by investing
primarily in securities of companies operating in the communications,
information and related industries.
SELIGMAN FRONTIER PORTFOLIO
The investment objective of this Portfolio is to produce growth in capital
value; income may be considered but will be only incidental to the Portfolio's
investment objective. The Portfolio invests primarily in equity securities of
smaller companies selected for their growth prospects.
A FULL DESCRIPTION OF THE FUNDS, THEIR INVESTMENT OBJECTIVES, THEIR POLICIES AND
RESTRICTIONS, THEIR EXPENSES AND OTHER ASPECTS OF THEIR OPERATION, AS WELL AS A
DESCRIPTION OF THE RISKS RELATED TO INVESTMENT IN THE FUNDS, IS CONTAINED IN THE
ATTACHED PROSPECTUSES FOR THE FUNDS. THE PROSPECTUSES FOR THE FUNDS SHOULD BE
READ CAREFULLY BY A PROSPECTIVE PURCHASER ALONG WITH THIS PROSPECTUS BEFORE
INVESTING.
RESERVED RIGHTS
We reserve the right to substitute shares of another portfolio of the Funds or
shares of another registered open-end investment company if, in our judgment,
investment in shares of a current Portfolio(s) is no longer appropriate. This
decision will be based on a legitimate reason, such as a change in investment
objective, a change in the tax laws, or the shares are no longer available for
investment. We will first obtain SEC approval, if such approval is required by
law.
When permitted by law, We also reserve the right to:
. create new separate accounts;
. combine separate accounts, including the Canada Life of New York
Variable Annuity Account 2;
. remove, combine or add Sub-Accounts and make the new Sub-Accounts
available to Policyowners at Our discretion;
. add new portfolios of the Funds or of other registered investment
companies;
. deregister the Variable Account under the 1940 Act if registration is
no longer required;
. make any changes required by the 1940 Act; and
. operate the Variable Account as a managed investment company under the
1940 Act or any other form permitted by law.
If a change is made, We will send You a revised prospectus and any notice
required by law.
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<PAGE>
CHANGE IN INVESTMENT OBJECTIVE
The investment objective of a Sub-Account may not be changed unless the change
is approved, if required, by the New York Insurance Bureau. A statement of such
approval will be filed, if required, with the insurance department of the state
in which the Policy is delivered.
THE FIXED ACCOUNT
You may allocate some or all of the Net Premium and/or make transfers from the
Variable Account to the Fixed Account. The Fixed Account pays interest at a
guaranteed rate declared subject to Our sole discretion and without any formula
(Guaranteed Interest Rate). The principal, after deductions, is also guaranteed.
Policyowners allocating Net Premium and/or Policy Value to the Fixed Account do
not participate in the investment performance of assets of the Fixed Account.
The Fixed Account value is calculated by:
. adding the Net Premium and/or Policy Value allocated to it;
. adding the Guaranteed Interest Rate credited on amounts in it; and
. subtracting any charges imposed on amounts in it in accordance with
the terms of the Policy
The following also applies to the Fixed Account:
. The Fixed Account is part of Our general account. We assume the risk
of investment gain or loss on this amount. All assets in the general
account are subject to Our general liabilities from business
operations. The Fixed Account is not affected by the investment
performance of the Variable Account.
. Interests issued by Us in connection with the Fixed Account have not
been registered under the Securities Act of 1933 (the 1933 Act). Also,
neither the Fixed Account nor the general account has been registered
as an investment company under the 1940 Act. So, neither the Fixed
Account nor the general account is generally subject to regulation
under either Act. However, certain disclosures may be subject to
generally applicable provisions of the federal securities laws
regarding the accuracy of statements made in a registration statement.
GUARANTEE AMOUNT
The Guarantee Amount is the portion of the Policy Value allocated to the Fixed
Account. The Guarantee Amount includes:
. Net Premium allocated to the Fixed Account;
. Policy Value transferred to the Fixed Account;
. interest credited to the Policy Value in the Fixed Account; and
. the deduction of charges assessed in connection with the Policy.
The Guarantee Amount is guaranteed to accumulate at a minimum effective annual
interest rate of 3%.
Dollar Cost Averaging. For Policies issued prior to January 26, 1996, from time
to time We may offer a special Fixed Account option, not to exceed one year,
whereby You may elect to automatically transfer specified additional premium
from this account to any Sub-Account(s) and/or the Fixed Account on a periodic
basis, for a period not to exceed twelve months. This special Fixed Account
option is subject to Our administrative procedures and the restrictions
disclosed in the "Transfer
26
<PAGE>
Privilege" section. A special interest rate may be offered for this Fixed
Account option, which may differ from that offered for the Fixed Account. The
available interest rate will always be an effective annual interest rate of at
least 3%. This Fixed Account option is used solely in connection with the
"dollar cost averaging" privilege (see "Dollar Cost Averaging Privilege").
DESCRIPTION OF ANNUITY POLICY
TEN DAY RIGHT TO EXAMINE POLICY
You have ten days after You receive the Policy to decide if You would like to
cancel the Policy.
If the Policy does not meet Your needs, return it to Our Home Office. Within
seven days of receipt of the Policy, We will return the Policy Value. When the
Policy is issued as an IRA and canceled within seven days, We will return all
premiums if the premiums are greater than the amount otherwise payable.
PREMIUM
INITIAL PREMIUM
You must submit a complete application and check made payable to Us for the
initial premium. The following chart outlines the minimum initial premium
accepted.
<TABLE>
<CAPTION>
MINIMUM INITIAL
TYPE OF POLICY PREMIUM ACCEPTED*
<S> <C>
Policy is an IRA................................................................ $2,000
Policy is not an IRA............................................................ $5,000
For Policies issued prior to January 26, 1996:
Policy is IRA and PAC agreement** for additional premiums submitted............. $ 50
Policy is not an IRA and PAC agreement for additional premiums submitted........ $ 100
</TABLE>
* We reserve the right to lower or raise the minimum initial premium.
** For more information on PAC agreements, see "Pre-Authorized Check Agreement
Plan."
The application must meet Our underwriting standards. The application must be
properly completed and accompanied by all the information necessary to process
it, including the initial premium. We will normally accept the application and
apply the initial Net Premium within two Valuation Days of receipt at Our Home
Office. However, We may hold the premium for up to five Valuation Days while We
attempt to complete the processing of an incomplete application. If this cannot
be done within five Valuation Days, We will inform You of the reasons for the
delay and immediately return the premium, unless You specifically consent to Our
keeping the premium until the application is made complete. We will then apply
the initial Net Premium within two Valuation Days of when the application is
correctly completed.
ADDITIONAL PREMIUM
For Policies issued on or after January 26, 1996, additional premium payments
may not be made.
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<PAGE>
For Policies issued prior to January 26, 1996, You may make additional premium
payments at any time during any Annuitant's lifetime and before the Annuity
Date. Our prior approval is required before We will accept an additional premium
which, together with the total of other premiums paid, would exceed $1,000,000.
We will apply additional Net Premium as of receipt at Our Home Office. We will
give You a receipt for each additional premium payment.
The following chart outlines the minimum additional premium accepted.
<TABLE>
<CAPTION>
MINIMUM ADDITIONAL
TYPE OF POLICY PREMIUM ACCEPTED*
<S> <C>
Policy is an IRA............................................................... $1,000
Policy is not an IRA........................................................... $1,000
Policy is IRA and PAC agreement** for additional premiums submitted............ $ 50
Policy is not an IRA and PAC agreement for additional premiums submitted....... $ 100
</TABLE>
* We reserve the right to lower or raise the minimum additional premium.
** For more information on PAC agreements, see "Pre-Authorized Check Agreement
Plan."
PRE-AUTHORIZED CHECK AGREEMENT PLAN
For Policies issued prior to January 26, 1996, You may choose to have monthly
premiums automatically collected from Your checking or savings account pursuant
to a pre-authorized check agreement plan (PAC). This plan may be terminated by
You or Us after 30 days Written Notice, or at any time by Us if a payment has
not been paid by Your bank. This option is not available on the 29th, 30th or
31st day of each month. There is no charge for this feature.
ELECTRONIC DATA TRANSMISSION OF APPLICATION INFORMATION
Subject to regulatory approval, We may accept electronic data transmission of
application information accompanied by a wire transfer of the initial premium.
Contact Us to find out about availability.
Upon receipt of the electronic data and wire transmittal, We will process the
information and allocate the premium payment according to Your instructions. We
will then send a Policy and verification letter to You to sign.
During the period from receipt of the initial premium until the signed
verification letter is received, no financial transactions may be executed under
the Policy, unless You request such transactions in writing and provide a
signature guarantee.
NET PREMIUM ALLOCATION
You elect in Your application how You want Your initial Net Premium to be
allocated among the Sub-Accounts and the Fixed Account. Any additional Net
Premium (for Policies issued prior to January 26, 1996) will be allocated in the
same manner unless, at the time of payment, We have received Your Written Notice
to the contrary.
We cannot guarantee that a Sub-Account or shares of a Portfolio will always be
available. If You request that all or part of a premium be allocated to a Sub-
Account or underlying Portfolio that is not available, We will immediately
return that portion of the premium to You, unless You specify otherwise.
28
<PAGE>
CASH SURRENDER VALUE
The Cash Surrender Value is the Policy Value less any applicable surrender
charge and Annual Administration Charge.
POLICY VALUE
The Policy Value is the sum of the Variable Account value and the Fixed Account
value.
VARIABLE ACCOUNT VALUE
To calculate the Variable Account value before the Annuity Date, multiply (a) by
(b), where:
a) is the number of Units credited to the Policy for each Sub-Account; and
b) is the current Unit Value of these Units.
UNITS
We credit Net Premium in the form of Units. The number of Units credited to the
Policy for each Sub-Account is (a) divided by (b), where:
a) is the Net Premium allocated to that Sub-Account; and
b) is the Unit Value for that Sub-Account (at the end of the Valuation
Period during which We receive the premium).
We will credit Units for the single Net Premium on the Effective Date of the
Policy. We will adjust the Units for any transfers in or out of a Sub-Account,
including any transfer processing fee.
We will cancel the appropriate number of Units based on the Unit Value at the
end of the Valuation Period in which any of the following occurs:
. the Annual Administration Charge is assessed;
. the date We receive and file Your Written Notice for a partial
withdrawal or surrender;
. the date of a systematic withdrawal;
. the Annuity Date; or
. the date We receive Due Proof of Your death or the Last Surviving
Annuitant's death.
UNIT VALUE
The Unit Value for each Sub-Account's first Valuation Period is generally set at
$10. After that, the Unit Value is determined by multiplying the Unit Value at
the end of the immediately preceding Valuation Period by the Net Investment
Factor for the current Valuation Period.
The Unit Value for a Valuation Period applies to each day in that period. The
Unit Value may increase or decrease from one Valuation Period to the next.
NET INVESTMENT FACTOR
The Net Investment Factor is an index that measures the investment performance
of a Sub-Account from one Valuation Period to the next. Each Sub-Account has a
Net Investment Factor, which may be greater than or less than 1.
29
<PAGE>
The Net Investment Factor for each Sub-Account for a Valuation Period equals 1
plus the rate of return earned by the Portfolio in which the Sub-Account You
selected invests, adjusted for taxes charged or credited to the Sub-Account, the
mortality and expense risk charge, and the daily administration fee.
To find the rate of return of each Portfolio in which the Sub-Accounts invest,
divide (a) by (b) where:
(a) is the net investment income and net gains, realized and unrealized,
credited during the current Valuation Period; and
(b) is the value of the net assets of the relevant Portfolio at the end of
the preceding Valuation Period, adjusted for the net capital
transactions and dividends declared during the current Valuation
Period.
TRANSFERS
TRANSFER PRIVILEGE
You may transfer all or a part of an amount in a Sub-Account(s) to another Sub-
Account(s) or to the Fixed Account. You also can transfer an amount in the
Fixed Account to a Sub-Account(s). Transfers are subject to the following
restrictions:
1. the Company's minimum transfer amount, currently $250; and
2. a transfer request that would reduce the amount in that Sub-Account or
the Fixed Account below $500 will be treated as a transfer request for
the entire amount in that Sub-Account or the Fixed Account.
We cannot guarantee that a Sub-Account or shares of a Portfolio will always be
available. If You request an amount in a Sub-Account or the Fixed Account be
transferred to a Sub-Account at a time when the Sub-Account or underlying
Portfolio is unavailable, We will not process Your transfer request. This
request will not be counted as a transfer for purposes of determining the number
of free transfers executed in a year. The Company reserves the right to change
its minimum transfer amount requirements.
Excessive trading (including short-term "market timing" trading) may adversely
affect the performance of the Sub-Accounts. If a pattern of excessive trading
by a Policyowner or the Policyowner's agent develops, We reserve the right not
to process the transfer request. If Your request is not processed, it will not
be counted as a transfer for purposes of determining the number of free
transfers executed.
TELEPHONE TRANSFER PRIVILEGE
We can process Your transfer request by phone if You have completed Our
administrative form. The authorization will remain effective until We receive
Your written revocation or We discontinue this privilege.
We will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. If We do not employ such reasonable procedures, We may
be liable for any losses due to unauthorized or fraudulent instructions. These
procedures may include recording telephone calls and obtaining personal security
codes and contract number before effecting any transfers.
We can not accept or process transfer requests left on Our voice mail system,
although transfers through Our Intouch(R) Voice Response System are acceptable.
INTOUCH(R) VOICE RESPONSE SYSTEM
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<PAGE>
The Intouch Voice Response System is our interactive voice response system which
You can access through Your touch tone telephone. Use of this service allows
you to:
. obtain current Sub-Account balances;
. obtain current Policy and Unit Values;
. obtain the current Fixed Account interest rate;
. change Your Sub-Account allocation; and
. effect transfers between Sub-Accounts or to the Fixed Account.
Your Policy number and Personal Identification Number, issued by Us to ensure
security, are required for any transfers and/or allocation changes.
When using the Intouch Voice Response System, You will not be assessed a
transfer processing fee regardless of the number of transfers made per Policy
Year.
DOLLAR COST AVERAGING PRIVILEGE
You may choose to automatically transfer specified amounts from any Sub-Account
or the Fixed Account (either one a disbursement account) to any other Sub-
Account(s) or the Fixed Account on a periodic basis. Transfers are subject to
Our administrative procedures and the restrictions in "Transfer Privilege." This
privilege is intended to allow You to utilize "Dollar Cost Averaging" (DCA), a
long-term investment method which provides for regular, level investments over
time. We make no representation or guarantee that DCA will result in a profit or
protect against loss. You should first discuss this (as you would all other
investment strategies) with Your registered representative.
To initiate DCA, We must receive Your Written Notice on Our form. Once elected,
transfers will be processed until one of the following occurs:
. the entire value of the Sub-Account or the Fixed Account is completely
depleted; or
. We receive Your written revocation of such monthly transfers; or
. We discontinue this privilege.
We reserve the right to change Our procedures or to discontinue the DCA
privilege upon 30 days Written Notice to You.
This option is not available on the 29th, 30th or 31st day of each month. There
is no charge for this feature.
TRANSFER PROCESSING FEE
There is no limit to the number of transfers that You can make between Sub-
Accounts or the Fixed Account. The first 12 transfers during each Policy Year
are currently free, although We reserve the right to change this procedure. We
currently assess a $25 transfer fee for the 13th and each additional transfer in
a Policy Year. A transfer request (which includes Written Notices and telephone
calls) is considered to be one transfer, regardless of the number of Sub-
Accounts affected by the request. The processing fee will be deducted
proportionately from the receiving Sub-Account(s) and/or the Fixed Account. The
$25 transfer fee is waived when using the Intouch(R) Voice Response System,
portfolio rebalancing, and dollar cost averaging.
31
<PAGE>
PAYMENT OF PROCEEDS
PROCEEDS
Proceeds means the amount We will pay when the first of the following events
occurs:
. the Annuity Date;
. the Policy is surrendered;
. We receive Due Proof of Death of any Owner;
. We receive Due Proof of Death of the Last Surviving Annuitant.
If death occurs prior to the Annuity Date, proceeds are paid in one of the
following ways:
. lump sum;
. within 5 years of the Owner's death, as required by federal tax laws
(see "Proceeds on Death of Any Owner"); or
. by a mutually agreed upon payment option. See "Election of Options."
The Policy ends when We pay the proceeds.
For any annuity benefit with payments of five years or more, such annuity
benefits at the time the Policy Value is applied under a payment option will not
be less than those that would be provided by the application of an amount to
purchase any single premium immediate annuity policy offered by Us at the time
to the same class of Annuitants. Such amount shall be the greater of the Cash
Surrender Value or 95% of what the Cash Surrender Value would be if there were
no surrender charge.
We will deduct any applicable premium tax from the proceeds, unless We deducted
the tax from the premiums when paid.
PROCEEDS ON ANNUITY DATE
If Payment Option 1 is in effect on the Annuity Date, We will pay the Policy
Value. See "Payment Options."
You may annuitize at any time, and may change the Annuity Date, subject to these
limitations:
1. We must receive Your Written Notice at Our Home Office at least 30 days
before the current Annuity Date;
2. The requested Annuity Date must be a date that is at least 30 days
after We receive Your Written Notice; and
3. The requested Annuity Date may be no later than the first day of the
month after any Annuitant's 100th birthday.
The proceeds paid will be the Policy Value if paid on the first day of the month
after any Annuitant's 100th birthday.
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<PAGE>
PROCEEDS ON SURRENDER
If You surrender the Policy, We will pay the Cash Surrender Value. The Cash
Surrender Value will be determined on the date We receive Your Written Notice
for surrender and Your Policy at Our Home Office.
You may elect to have the Cash Surrender Value paid in a single sum or under a
payment option. See "Payment Options." The Policy ends when We pay the Cash
Surrender Value. You may avoid a surrender charge by electing to apply the
Policy Value under Payment Option 1. See "Proceeds on Annuity Date."
Surrender proceeds may be subject to federal income tax, including a penalty
tax. See "FEDERAL TAX STATUS."
PROCEEDS ON DEATH OF LAST SURVIVING ANNUITANT BEFORE ANNUITY DATE (THE DEATH
BENEFIT)
If the Last Surviving Annuitant dies before the Policy Value is transferred to a
payment option, We will pay the Beneficiary a Death Benefit.
THE FOLLOWING APPLIES ONLY TO POLICIES ISSUED AFTER APPLICABLE REGULATORY
APPROVAL IS OBTAINED.
If we receive Due Proof of Death during the first five Policy Years, the
Death Benefit is the greater of:
1. the premiums paid, less any partial withdrawals, surrender charges,
and incurred taxes; or
2. the Policy Value on the date we receive Due Proof of Death.
If we receive Due Proof of Death after the first five Policy Years, the Death
Benefit is the greatest of:
1. item "1" above;
2. item "2" above; or
3. the Policy Value at the end of the most recent 5 Policy Year period
occurring before the date we receive Due Proof of Death. This value
will be adjusted for any partial withdrawals, surrender charges,
incurred taxes, and premiums paid. The 5 Policy Year periods are
measured from the Policy Date (i.e., 5, 10, 15, 20, etc.).
If on the date the Policy was issued, all Annuitants were attained age 80 or
less, then after any Annuitant attains age 81, the Death Benefit is the
greater of items "1" or "2" above. However, if on the date the Policy was
issued, any Annuitant was attained age 81 or more, then the Death Benefit is
the Policy Value.
THE FOLLOWING APPLIES ONLY TO POLICIES ISSUED FROM JANUARY 26, 1996 THROUGH
SUCH DATE AS THE ABOVE DEATH BENEFIT IS APPROVED.
If we receive Due Proof of Death during the first seven Policy Years, the
Death Benefit is the greater of:
33
<PAGE>
1. the premiums paid, less any partial withdrawals, surrender charges,
and incurred taxes; or
2. the Policy Value on the date we receive Due Proof of Death.
If we receive Due Proof of Death after the first seven Policy Years, the
Death Benefit is the greatest of:
1. item "1" above;
2. item "2" above; or
3. the Policy Value at the end of the most recent 7 Policy Year period
occurring before the date we receive Due Proof of Death. This value
will be adjusted for any partial withdrawals, surrender charges,
incurred taxes, and premiums paid. The 7 Policy Year periods are
measured from the Policy Date (i.e., 7, 14, 21, 28, etc.). No
further step-ups in Death Benefit will occur after the age of 80.
THE FOLLOWING APPLIES ONLY TO POLICIES ISSUED PRIOR TO JANUARY 26, 1996.
If we receive Due Proof of Death during the first five Policy Years, the Death
Benefit is the greater of:
1. the premiums paid, less any partial withdrawals, surrender charges,
and incurred taxes; or
2. the Policy Value on the date we receive Due Proof of Death.
If we receive Due Proof of Death after the first five Policy Years, the Death
Benefit is the greatest of:
1. item "1" above;
2. item "2" above; or
3. the Policy Value at the end of the most recent 5 Policy Year period
occurring before the date we receive Due Proof of Death. This value
will be adjusted for any partial withdrawals, surrender charges,
incurred taxes, and premiums paid. The 5 Policy Year periods are
measured from the Policy Date (i.e., 5, 10, 15, 20, etc.).
34
<PAGE>
PROCEEDS ON DEATH OF ANY OWNER
If any Policyowner dies before the Annuity Date, the following rules apply:
. If You (the deceased Policyowner) were not the Last Surviving
Annuitant and We receive Due Proof of Your death before the Annuity
Date, We will pay the Beneficiary the Policy Value as of the date We
receive Due Proof of Your death.
. If You were the Last Surviving Annuitant and We receive Due Proof of
Your death before the Annuity Date, We will pay the Beneficiary the
Death Benefit described in "Proceeds on the Death of Last Surviving
Annuitant Before Annuity Date."
. As required by federal tax law, regardless of whether You were the
Annuitant, the entire interest in the Policy will be distributed to
the Beneficiary:
a) within five years of Your death; or
b) over the life of the Beneficiary or over a period not
extending beyond the life expectancy of that Beneficiary,
with payments beginning within one year of Your death.
However, if Your spouse is the Beneficiary the Policy may be continued. If this
occurs and You were the only Annuitant, Your spouse will become the Annuitant.
If any Policyowner dies on or after the Annuity Date but before all proceeds
payable under the Policy have been distributed, We will continue payments to the
designated payee under the payment option in effect on the date of the deceased
Policyowner's death.
If any Policyowner is not an individual, the death or change of any Annuitant
will be treated as the death of a Policyowner, and We will pay the Beneficiary
the Cash Surrender Value.
This will be construed in a manner consistent with section 72(s) of the Internal
Revenue Code of 1986, as amended. If anything in the Policy conflicts with the
foregoing, this Prospectus will control.
PARTIAL WITHDRAWALS
You may withdraw part of the Cash Surrender Value, subject to the following:
1. the Company's minimum partial withdrawal is currently $250;
2. the maximum partial withdrawal is the amount that would leave a Cash
Surrender Value of $2,000; and
3. a partial withdrawal request which would reduce the amount in a Sub-
Account or the Fixed Account below $500 will be treated as a request
for a full withdrawal of the amount in that Sub-Account or the Fixed
Account.
On the date We receive at Our Home Office Your Written Notice for a partial
withdrawal, We will withdraw the partial withdrawal from the Policy Value. We
will then deduct any applicable surrender charge from the amount requested for
withdrawal. The Company reserves the right to change its minimum partial
withdrawal amount requirements.
You may specify the amount to be withdrawn from certain Sub-Accounts or the
Fixed Account. If You do not provide this information to us, We will withdraw
proportionately from the Sub-Accounts in which You are invested and the Fixed
Account. If You do provide this information to us, but the amount in the
35
<PAGE>
designated Sub-Accounts and/or the Fixed Account is inadequate to comply with
Your withdrawal request, We will first withdraw from the specified Sub-Accounts
and the Fixed Account. The remaining balance will be withdrawn proportionately
from the other Sub-Accounts and the Fixed Account in which You are invested.
Any partial or systematic withdrawal may be included in the Policyowner's gross
income in the year in which the withdrawal occurs, and may be subject to federal
income tax (including a penalty tax equal to 10% of the amount treated as
taxable income). The Code restricts certain distributions under Tax-Sheltered
Annuity Plans and other qualified plans. See "FEDERAL TAX STATUS."
SYSTEMATIC WITHDRAWAL PRIVILEGE
You may elect to use the Systematic Withdrawal Privilege (SWP) to withdraw a
fixed-level amount from the Sub-Account(s) and the Fixed Account on a monthly,
quarterly, semi-annual or annual basis, beginning 30 days after the Effective
Date, if:
. We receive Your Written Notice on Our administrative form;
. the Policy meets a minimum premium, currently $25,000 (if surrender
charges apply); and
. the Policy complies with the "Partial Withdrawals" provision (if
surrender charges apply).
If surrender charges are applicable, You may withdraw without incurring a
surrender charge the following:
. 100% of investment earnings in the Variable Account, available at the
time the SWP is executed/processed
. 100% of interest earned in the Fixed Account, available at the time the
SWP is executed/processed
. 100% of premiums paid 7 years or more (5 years for Policies issued
prior to January 26, 1996) from the date the SWP is executed/processed
. 10% of total premiums withdrawn during a Policy Year and paid less than
7 years (5 years for Policies issued prior to January 26, 1996) from
the date the SWP is executed/processed*
. Amounts required to be withdrawn, only as they apply to the Policy and
independent of all other qualified retirement assets, pursuant to the
minimum required distribution rules under federal tax laws (see
"Minimum Distribution Requirements")
*10% is not cumulative and is first withdrawn from the oldest premium paid.
If surrender charges are not applicable, the entire Policy is available for
systematic withdrawal. Once an amount has been selected for withdrawal, it will
remain fixed until the earlier of the next Policy Anniversary or termination of
the privilege. A written request to change the withdrawal amount for the
following Policy Year must be received no later than 7 days prior to the Policy
Anniversary date. The Systematic Withdrawal Privilege will end at the earliest
of the date:
. when the Sub-Account(s) and/or the Fixed Account You specified for
those withdrawals have no remaining amount to withdraw;
. the Cash Surrender Value is reduced to $2,000*;
. You choose to pay premiums by the pre-authorized check agreement plan
(for Policies issued prior to January 26, 1996);
. We receive Your Written Notice to end this privilege; or
. We choose to discontinue this privilege upon 30 days Written Notice to
You.
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References to partial withdrawals in other provisions of this Prospectus include
systematic withdrawals. If applicable, a charge for premium taxes may be
deducted from each systematic withdrawal payment. This option is not available
on the 29th, 30th or 31st day of each month. The Company reserves the right to
change its minimum systematic withdrawal amount requirements or terminate this
privilege. There is no charge for this feature.
In certain circumstances, amounts withdrawn pursuant to a systematic withdrawal
option may be included in a Policyowner's gross income and may be subject to
penalty taxes.
* If the Cash Surrender Value is reduced to $2,000, Your Policy may terminate.
See "Termination."
PORTFOLIO REBALANCING
Portfolio rebalancing (Rebalancing) is an investment strategy in which Your
Policy Value, in the Sub-Accounts only, is reallocated back to its original
portfolio allocation. Rebalancing is performed regardless of changes in
individual portfolio values from the time of the last rebalancing. It is
executed on a quarterly, semi-annual or annual basis. We make no representation
or guarantee that rebalancing will result in a profit, protect You against loss
or ensure that You meet Your financial goals.
To initiate Rebalancing, We must receive Your Written Notice on Our form.
Participation in Rebalancing is voluntary and can be modified or discontinued at
any time by You in writing on Our form. Portfolio Rebalancing is not available
for the Fixed Account.
Once elected, We will continue to perform Rebalancing until We are instructed
otherwise. We reserve the right to change Our procedures or discontinue offering
Rebalancing upon 30 days Written Notice to You. This option is not available on
the 29th, 30th or 31st day of each month. There is no charge for this feature.
POSTPONEMENT OF PAYMENT
We will usually pay any proceeds payable, amounts partially withdrawn, or the
Cash Surrender Value within seven calendar days after:
1. we receive Your Written Notice for a partial withdrawal or a cash
surrender;
2. the date chosen for any systematic withdrawal; or
3. we receive Due Proof of Death of the Owner or the Last Surviving
Annuitant.
However, We can postpone the payment of proceeds, amounts withdrawn, the Cash
Surrender Value, or the transfer of amounts between Sub-Accounts if:
1. the New York Stock Exchange is closed, other than customary weekend and
holiday closings, or trading on the exchange is restricted as
determined by the SEC;
2. the SEC permits by an order the postponement for the protection of
Policyowners; or
3. the SEC determines that an emergency exists that would make the
disposal of securities held in the Variable Account or the
determination of the value of the Variable Account's net assets not
reasonably practicable.
If the Cash Surrender Value payable at a surrender, partial withdrawal or in a
lump sum on the Annuity Date is not mailed or delivered within ten working days
after We receive the documentation necessary to complete the transaction, We
will add interest from the date We receive the necessary documentation, unless
the amount of such interest is less than $25. The rate of interest We will apply
is the rate We pay for dividends on deposit in our whole life insurance
portfolio. We guarantee that the interest rate will never be less than 2.5%.
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We have the right to defer payment of any partial withdrawal, cash surrender, or
transfer from the Fixed Account for up to six months from the date We receive
Your Written Notice for a withdrawal, surrender or transfer.
CHARGES AGAINST THE POLICY, VARIABLE ACCOUNT, AND FUNDS
SURRENDER CHARGE
A surrender charge may be deducted when a partial withdrawal or cash surrender
is made in order to at least partially reimburse Us for certain expenses
relating to the sale of the Policy. These expenses include commissions to
registered representatives and other promotional expenses (which are not
expected to exceed 6% of premium payments under the policies). A surrender
charge may also be applied to the proceeds paid on the Annuity Date, unless
Payment Option 1 is chosen.
The amount withdrawn is first taken from any investment earnings in the Variable
Account and interest earned in the Fixed Account available at the time the
request is made. Then, further amounts withdrawn will be taken from premiums
starting with the oldest premium paid.
Withdrawal or surrender of the following will not incur a surrender charge:
. 100% of investment earnings in the Variable Account
. 100% of interest earned in the Fixed Account
. 100 % of premiums paid 7 years or more (5 years for Policies issued
prior to January 26, 1996) from the date of withdrawal or surrender
. 10% of total premiums withdrawn during a Policy Year and paid less than
7 years (5 years for Policies issued prior to January 26, 1996) from
the date of withdrawal or surrender *
. Amounts required to be withdrawn, only as they apply to the Policy and
independent of all other qualified retirement assets, pursuant to the
minimum required distribution rules under federal tax laws (see
"Minimum Distribution Requirements")
* 10% is not cumulative and is first withdrawn from the oldest premium paid.
If a surrender charge does apply, the following percentages will be used to
calculate the amount of the charge:
For Policies issued prior to January 26, 1996:
(For 5 years from the date of payment, each premium is subject to a 6%
surrender charge. After the 5th year, no surrender charge will apply to such
payment).................................................................. 6%
For Policies issued on or after January 26, 1996:
Policy Years Since Premium Was Paid
-----------------------------------
Less than 1.............................................................. 6%
At least 1, but less than 2.............................................. 6%
At least 2, but less than 3.............................................. 5%
At least 3, but less than 4.............................................. 5%
At least 4, but less than 5.............................................. 4%
At least 5, but less than 6.............................................. 3%
At least 6, but less than 7.............................................. 2%
At least 7............................................................... None
Any surrender charge will be deducted from the amount requested for withdrawal
or surrender.
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ANNUAL ADMINISTRATION CHARGE
To cover the costs of providing certain administrative services such as
maintaining Policy records, communicating with Policyowners, and processing
transactions, We deduct an Annual Administration Charge of $30 for the prior
Policy Year on each Policy Anniversary. We will also deduct this charge if the
Policy is surrendered for its Cash Surrender Value, unless the Policy is
surrendered on a Policy Anniversary.
If the Policy Value on the Policy Anniversary is $75,000 or more, We will waive
the Annual Administration Charge for the prior Policy Year. We will also waive
the Annual Administration Charge if the Policy is a Tax-Sheltered Annuity.
The charge will be assessed proportionately from any Sub-Accounts in which You
are invested and the Fixed Account. If the charge is obtained from a Sub-
Account(s), We will cancel the appropriate number of Units credited to this
Policy based on the Unit Value at the end of the Valuation Period when the
charge is assessed.
DAILY ADMINISTRATION FEE
At each Valuation Period, We deduct a daily administration fee at an annual rate
of 0.15% from the assets of each Sub-Account of the Variable Account. This daily
administration fee relates to other administrative costs under the policies.
The daily administration fee is imposed only under Policies issued on or after
January 26, 1996.
TRANSFER PROCESSING FEE
There is no limit to the number of transfers that You can make between Sub-
Accounts or the Fixed Account. The first 12 transfers during each Policy Year
are currently free, although We reserve the right to change this procedure. We
currently assess a $25 transfer fee for the 13th and each additional transfer in
a Policy Year. A transfer request (which includes Written Notices and telephone
calls) is considered to be one transfer, regardless of the number of Sub-
Accounts affected by the request. The processing fee will be deducted
proportionately from the receiving Sub-Account(s) and/or the Fixed Account. The
$25 transfer fee is waived when using the Intouch(R) Voice Response System,
portfolio rebalancing, and dollar cost averaging. See "Transfers" for the
rules concerning transfers.
MORTALITY AND EXPENSE RISK CHARGE
We assess an annual mortality and expense risk charge, deducted at each
Valuation Period from the assets of the Variable Account. This charge:
. is an annual rate of 1.25% of the average daily value of the net assets
in the Variable Account;
. is assessed during the Accumulation Period, but is not charged after
the Annuity Date;
. consists of approximately 0.75% to cover the mortality risk and
approximately 0.50% to cover the expense risk; and
. is guaranteed not to increase for the duration of the Policy.
The mortality risk We assume arises from Our obligation to make annuity payments
(determined in accordance with the annuity tables and other provisions contained
in the Policy) for the full life of all Annuitants regardless of how long each
may live. This means:
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. Mortality risk is the risk that Annuitants may live for a longer period
of time than We estimated when We established Our guarantees in the
Policy.
. Each Annuitant is assured that neither his or her longevity, nor an
improvement in life expectancy generally, will have any adverse effect
on the annuity payments received under the Policy.
. The Annuitant will not outlive the funds accumulated for retirement.
. We guarantee to pay a Death Benefit if the Last Surviving Annuitant
dies before the Annuity Date (see "Proceeds on Death of Last Surviving
Annuitant Before Annuity Date (The Death Benefit)").
. No surrender charge is assessed against the payment of the Death
Benefit, which also increases the mortality risk.
The expense risk We assume is the risk that the surrender charges, Annual
Administration Charge, daily administration fee, and transfer fees may be
insufficient to cover Our actual future expenses.
If the mortality and expense charges are sufficient to cover such costs and
risks, any excess will be profit to the Company and may be used for distribution
expenses. However, if the amounts deducted prove to be insufficient, the loss
will be borne by us.
REDUCTION OR ELIMINATION OF SURRENDER CHARGES AND ANNUAL ADMINISTRATION CHARGES
The amount of surrender charges and/or the Annual Administration Charge may be
reduced or eliminated when some or all of the policies are to be sold to an
individual or a group of individuals in
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<PAGE>
such a manner that results in savings of sales and/or administrative expenses.
In determining whether to reduce or eliminate such expenses, We will consider
certain factors, including:
1. the size and type of group to which the administrative services are to
be provided and the sales are to be made. Generally, sales and
administrative expenses for a larger group are smaller than for a
smaller group because large numbers of sales may result in fewer sales
contacts.
2. the total amount of premiums. Per dollar sales expenses are likely to
be less on larger premiums than on smaller ones.
3. any prior or existing relationship with the Company. Policy sales
expenses are likely to be less when there is a prior or existing
relationship because there is a likelihood of more sales with fewer
sales contacts.
4. the level of commissions paid to selling broker/dealers. For example,
certain broker/dealers may offer policies in connection with financial
planning programs on a fee for service basis. In view of the financial
planning fees, such broker/dealers may elect to receive lower
commissions for sales of the policies, thereby reducing the Company's
sales expenses.
If it is determined that there will be a reduction or elimination in sales
expenses and/or administration expenses, the Company will provide a reduction in
the surrender charge and/or the Annual Administration Charge. Such charges may
also be eliminated when a Policy is issued to an officer, director, employee,
registered representative or relative thereof of: the Company; The Canada Life
Assurance Company; Canada Life Insurance Company of America; J. & W. Seligman &
Co. Incorporated; any selling Broker/Dealer; or any of their affiliates. In no
event will reduction or elimination of the surrender charge and/or Annual
Administration Charge be permitted where such reduction or elimination will be
discriminatory to any person.
In addition, if the Policy Value on the Policy Anniversary is $75,000 or more,
We will waive the Annual Administration Charge for the prior Policy Year.
TAXES
No premium tax is currently payable under New York law. We reserve the right to
deduct any premium taxes payable in respect of future premiums in the event New
York law should change.
When any tax is deducted from the Policy Value, it will be deducted
proportionately from the Sub-Accounts in which You are invested and the Fixed
Account.
We reserve the right to charge or provide for any taxes levied by any
governmental entity, including:
1. taxes that are against or attributable to premiums, Policy Values or
annuity payments; or
2. taxes that We incur which are attributable to investment income,
capital gains retained as part of Our reserves under the policies, or
from the establishment or maintenance of the Variable Account.
OTHER CHARGES INCLUDING INVESTMENT ADVISORY FEES
Each Portfolio is responsible for all of its operating expenses. In addition,
fees for investment advisory services and operating expenses are deducted and
paid daily at an annual rate from each Portfolio as a percentage of the daily
net assets of the Portfolios. The Prospectus and Statement of Additional
Information for each Fund provides more information concerning the investment
advisory fee, other charges assessed against the Portfolio(s) each Fund offers,
and the investment advisory services provided to such Portfolio(s).
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<PAGE>
PAYMENT OPTIONS
The Policy ends when We pay the proceeds on the Annuity Date. We will apply the
Policy Value under Payment Option 1 unless You have an election on file at Our
Home Office to receive another mutually agreed upon payment option (Payment
Option 2). The proceeds We will pay will be the Policy Value if paid on the
first day of the month after any Annuitant's 100th birthday. See "Proceeds on
Annuity Date." We require the surrender of Your Policy so that We may issue a
supplemental contract for the applicable payment option.
ELECTION OF OPTIONS
You may elect, revoke or change a payment option at any time before the Annuity
Date and while the Annuitant(s) is living. If an election is not in effect at
the Last Surviving Annuitant's death, or if payment is to be made in one lump
sum under an existing election, the Beneficiary may elect one of the options.
This election must be made within one year after the Last Surviving Annuitant's
death and before any payment has been made.
An election of an option and any revocation or change must be made in a Written
Notice. It must be filed with Our Home Office with the written consent of any
irrevocable Beneficiary or assignee at least 30 days before the Annuity Date.
An option may not be elected and We will pay the proceeds in one lump sum if
either of the following conditions exist:
1. the amount to be applied under the option is less than $1,000; or
2. any periodic payment under the election would be less than $50.
DESCRIPTION OF PAYMENT OPTIONS
Payment Option 1: Life Income With Payments for 10 Years Certain
We will pay the proceeds in equal amounts each month, quarter, or year during
the Annuitant's lifetime or for 10 years, whichever is longer.
Payment Option 2: Mutual Agreement
We will pay the proceeds according to other terms, if those terms are mutually
agreed upon.
AMOUNT OF PAYMENTS
The amount of each payment is based upon the interest rate and Policy Value in
effect at the time the payment option is elected. If Payment Option 1 is
selected, We will determine the amount from the tables in the Policy, which use
the Annuitant's age. We will determine age from the nearest birthday at the due
date of the first payment.
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The amount of each payment will vary according to the frequency of the payments
and the length of the guarantee period during which We make the payments.
. The more frequently the payments are made, the lower the amount of
each payment. For example, with all other factors being equal,
payments made monthly will be lower than payments made annually.
. The longer the guarantee period during which payments are made, the
lower the amount of each payment. For example, with all other factors
being equal, payments guaranteed for twenty years will be lower than
payments guaranteed for ten years.
PAYMENT DATES
The payment dates of the options will be calculated from the date on which the
proceeds become payable.
AGE AND SURVIVAL OF ANNUITANT
We have the right to require proof of age of the Annuitant(s) before making any
payment. When any payment depends on the Annuitant's survival, We will have the
right, before making the payment, to require proof satisfactory to Us that the
Annuitant is alive.
BETTERMENT OF INCOME
The annuity benefits at the time the Policy Value is applied under a payment
option will not be less than those that would be provided by the application of
an amount defined in the Policy to purchase any single premium annuity policy
offered by Us at the time to the same class of Annuitants. Such amount will be
the greater of the Cash Surrender Value or 95% of what the Cash Surrender Value
would be if there were no surrender charge.
OTHER POLICY PROVISIONS
POLICYOWNER
During any Annuitant's lifetime and before the Annuity Date, You have all of the
ownership rights and privileges granted by the Policy. If You appoint an
irrevocable Beneficiary or assignee, then Your rights will be subject to those
of that Beneficiary or assignee.
During any Annuitant's lifetime and before the Annuity Date, You may also name,
change or revoke a Policyowner(s), Beneficiary(ies), or Annuitant(s) by giving
Us Written Notice. Any change of Policyowner(s) or Annuitant(s) must be approved
by Us.
A change of any Policyowner may result in resetting the Death Benefit to an
amount equal to the Policy Value as of the date of the change.
With respect to Qualified Policies generally, however:
. the contract may not be assigned (other than to us);
. Joint Ownership is not permitted; and
. the Policyowner must be the Annuitant.
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<PAGE>
BENEFICIARY
We will pay the Beneficiary any proceeds payable on Your death or the death of
the Last Surviving Annuitant. During any Annuitant's lifetime and before the
Annuity Date, You may name and change one or more beneficiaries by giving Us
Written Notice. However, We will require Written Notice from any irrevocable
Beneficiary or assignee specifying their consent to the change.
We will pay the proceeds under the Beneficiary appointment in effect at the date
of death. If You have not designated otherwise in Your appointment, the proceeds
will be paid to the surviving Beneficiary(ies) equally. If no Beneficiary is
living when You or the Last Surviving Annuitant dies, or if none has been
appointed, the proceeds will be paid to You or Your estate.
TERMINATION
The following applies to policies issued on or after January 26, 1996:
We may pay you the Cash Surrender Value and terminate the Policy if before the
Annuity Date the Policy Value is less than $2,000. We will mail You a notice of
Our intention to terminate the Policy at least six months in advance. The Policy
will automatically terminate on the date specified in the notice.
The following applies to policies issued prior to January 26, 1996:
We may pay You the Cash Surrender Value and terminate the Policy if before the
Annuity Date all of these events simultaneously exist:
1. you have not paid any premiums for at least two years;
2. the Policy Value is less than $2,000; and
3. the total premiums paid, less any partial withdrawals, is less than $2,000.
We will mail You a notice of Our intention to terminate the Policy at least six
months in advance. The Policy will automatically terminate on the date specified
in the notice unless We receive an additional premium before such date. This
additional premium must be at least the minimum amount specified in "Additional
Premium."
Qualified contracts may be subject to distribution restrictions. See "FEDERAL
TAX STATUS."
WRITTEN NOTICE
Written Notice must be signed and dated by You. It must be of a form and content
acceptable to us. Your Written Notice will not be effective until We receive and
file it. However, any change provided in Your Written Notice will be effective
as of the date You signed the Written Notice:
1. subject to any payments or other actions We take prior to receiving and
filing Your Written Notice; and
2. whether or not You or the Last Surviving Annuitant are alive when We
receive and file Your Written Notice.
PERIODIC REPORTS
We will mail You a report showing the following items about Your Policy:
1. the number of Units credited to the Policy and the dollar value of a Unit;
2. the Policy Value;
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3. any premiums paid (for Policies issued prior to January 26, 1996),
withdrawals, and charges made since the last report; and
4. any other information required by law.
The information in the report will be as of a date not more than two months
before the date of the mailing. We will mail the report to You:
1. at least annually, or more often as required by law; and
2. to Your last address known to us.
ASSIGNMENT
You may assign a Nonqualified Policy or an interest in it at any time before the
Annuity Date and during any Annuitant's lifetime. Your rights and the rights of
any Beneficiary will be affected by an assignment. An assignment must be in a
Written Notice acceptable to us. It will not be binding on Us until We receive
and file it at Our Home Office. We are not responsible for the validity of any
assignment.
An assignment of a Nonqualified Policy may result in certain tax consequences to
the Policyowner. See "Transfers, Assignment or Exchanges of a Policy."
MODIFICATION
Upon notice to You, We may modify the Policy, but only if such modification:
1. is necessary to make the Policy or the Variable Account comply with any law
or regulation issued by a governmental agency to which We are subject; or
2. is necessary to assure continued qualification of the Policy under the Code
or other federal or state laws relating to retirement annuities or variable
annuity policies; or
3. is necessary to reflect a change in the operation of the Variable Accounts;
or
4. provides additional Variable Account and/or fixed accumulation options.
In the event of any such modification, We may make any appropriate endorsement
to the Policy.
NOTIFICATION OF DEATH
The death of the Annuitant(s) and/or the Owner(s) must be reported to Us
immediately, and We will require Due Proof of Death. We will pay the proceeds
based upon the date We receive the Due Proof of Death. In the case of death
after the Annuity Date, We are entitled to immediately recover, and are not
responsible for, any mispayments made because of a failure to notify Us of any
such death.
YIELDS AND TOTAL RETURNS
YIELDS
From time to time, We may advertise yields, effective yields, and total returns
for the Sub-Accounts. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND DO NOT
INDICATE OR PROJECT FUTURE PERFORMANCE. Each Sub-Account may, from time to time,
advertise performance relative to certain performance rankings and indices
compiled by independent organizations. More detailed information as to the
calculation of performance information, as well as comparisons with unmanaged
market indices, appears in the Statement of Additional Information.
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Effective yields and total returns for the Sub-Accounts are based on the
investment performance of the corresponding Portfolios of the Funds. The Funds'
performance reflects the Funds' expenses. See the attached prospectuses
for the Funds for more information.
The yield of the Money Market Sub-Account refers to the annualized income
generated by an investment in the Sub-Account over a specified 7 day period. The
yield is calculated by assuming that the income generated for that 7 day period
is generated each 7 day period over a 52 week period and is shown as a
percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment in the Sub-Account is
assumed to be reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment.
The yield of a Sub-Account (except the Money Market Sub-Account) refers to the
annualized income generated by an investment in the Sub-Account over a specified
30 day or one month period. The yield is calculated by assuming that the income
generated by the investment during that 30 day or one month period is generated
each period over a 12 month period and is shown as a percentage of the
investment.
TOTAL RETURNS
Standardized Average Annual Total Return. The standardized average annual total
- -----------------------------------------
return quotations of a Sub-Account represent the average annual compounded rates
of return that would equate an initial investment of $1,000 under a Policy to
the redemption value of that investment as of the last day of each of the
periods for which standardized average annual total return quotations are
provided. Standardized average annual total return information shows the average
percentage change in the value of an investment in the Sub-Account from the
beginning of the measuring period to the end of that period, 1, 5 and 10 years
or since the inception of the Sub-Account. Standardized average annual total
return reflects all historic investment results, less all charges and deductions
applied against the Sub-Account (including any surrender charge that would apply
if a Policyowner terminated the Policy at the end of each period indicated, but
excluding any deductions for premium taxes).
Other Total Returns. We may, in addition, advertise performance information
- --------------------
computed on a different basis.
1) NonStandardized Average Annual Total Return. We may present non-
-----------------------------------------------
standardized average annual total return information computed on the same
basis as described above, except deductions will not include the surrender
charge. This presentation assumes that the investment in the Policy persists
beyond the period when the surrender charge applies, consistent with the long-
term investment and retirement objectives of the Policy.
2) Adjusted Historic Fund Average Annual Total Return. We may present
nonstandardized "adjusted" average annual total returns for the Funds since
their inception reduced by some or all of the fees and charges under the
Policy. Such adjusted historic fund performance includes data that precedes
the inception dates of the Sub-Accounts. This data is designed to show the
performance that would have resulted if the Sub-Account had been in existence
during that time.
INDUSTRY COMPARISON
We may compare the performance of each Sub-Account in advertising and sales
literature to the performance of other variable annuity issuers in general. We
may also compare the performance of particular types of variable annuities
investing in mutual funds, or investment series of mutual funds
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<PAGE>
with investment objectives similar to each of the Sub-Accounts. Lipper
Analytical Services, Inc. (Lipper) and the Variable Annuity Research Data
Service (VARDS) are independent services which monitor and rank the performances
of variable annuity issuers in each of the major categories of investment
objectives on an industry-wide basis. Other services or publications may also be
cited in Our advertising and sales literature.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS rankings compare only variable annuity issuers. The performance
analysis prepared by Lipper and VARDS each rank such issuers on the basis of
total return, assuming reinvestment of distributions, but do not take sales
charges, redemption fees or certain expense deductions at the separate account
level into consideration. In addition, VARDS prepares risk adjusted rankings,
which consider the effects of market risk on total return performance. This type
of ranking provides data as to which funds provide the highest total return
within various categories of funds defined by the degree of risk inherent in
their investment objectives.
We may also compare the performance of each Sub-Account in advertising and sales
literature to the Standard & Poor's composite index of 500 common stocks, a
widely used index to measure stock market performance. This unmanaged index does
not reflect any "deduction" for the expense of operating or managing an
investment portfolio. We may also make comparison to Lehman Brothers
Government/Corporate Bond Index, an index that includes the Lehman Brothers
Government Bond and Corporate Bond Indices. These indices are total rate of
return indices. The Government Bond Index includes the Treasury Bond Index
(public obligations of the U.S. Treasury) and the Agency Bond Index (publicly
issued debt of U.S. Government agencies, quasi-federal corporations, and
corporate debt guaranteed by the U.S. Government). The Corporate Bond Index
includes publicly issued, fixed rate, nonconvertible investment grade dollar-
denominated, SEC registered corporate debt. All issues have at least a one-year
maturity, and all returns are at market value inclusive of accrued interest.
Other independent indices such as those prepared by Lehman Brothers Bond Indices
may also be used as a source of performance comparison.
We may also compare the performance of each Sub-Account in advertising and sales
literature to the Dow Jones Industrial Average, a stock average of 30 blue chip
stock companies that does not represent all new industries. Other independent
averages such as those prepared by Dow Jones & Company, Inc. may also be used as
a source of performance comparison. Day to day changes may not be reflective of
the overall market when an average is composed of a small number of companies.
TAX DEFERRAL
Under current tax laws any increase in Policy Value is generally not taxable to
You or an Annuitant until received, subject to certain exceptions. See "FEDERAL
TAX STATUS." This deferred tax treatment may be beneficial to You in building
assets in a long-range investment program.
We may also distribute sales literature or other information including the
effect of tax-deferred compounding on a Sub-Account's investment returns, or
returns in general, which may be illustrated by tables, graphs, charts or
otherwise, and which may include a comparison, at various points in time, of the
return from an investment in a Policy (or returns in general) on a tax-deferred
basis (assuming one or more tax rates) with the return on a currently taxable
basis where allowed by state law. All income and capital gains derived from Sub-
Account investments are reinvested and compound tax-deferred until distributed.
Such tax-deferred compounding can result in substantial long-term accumulation
of assets, provided that the investment experience of the underlying Portfolios
of the Funds is positive.
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FEDERAL TAX STATUS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
INTRODUCTION
This discussion is not intended to address the tax consequences resulting from
all of the situations in which a person may be entitled to or may receive a
distribution under the annuity Policy We issue. Any person concerned about these
tax implications should consult a tax adviser before initiating any transaction.
This discussion is based upon general understanding of the present federal
income tax laws. No representation is made as to the likelihood of the
continuation of the present federal income tax laws or of the current
interpretation by the Internal Revenue Service. Moreover, no attempt has been
made to consider any applicable state or other tax laws.
The Policy may be purchased on a nonqualified tax basis (Nonqualified Policy) or
purchased and used in connection with plans qualifying for favorable tax
treatment (Qualified Policy). The Qualified Policy was designed for use by
individuals whose premium payments are comprised of proceeds from and/or
contributions under retirement plans which are intended to qualify as plans
entitled to special income tax treatment under Sections 401(a), 401(k), 403(a),
403(b), 408, 408A or 457 of the Code. The ultimate effect of federal income
taxes on the amounts held under a Policy, or annuity payments, and on the
economic benefit to the Policyowner, an Annuitant, or the Beneficiary depends on
the type of retirement plan, on the tax and employment status of the individual
concerned and on Our tax status. In addition, certain requirements must be
satisfied in purchasing a Qualified Policy with proceeds from a tax-qualified
plan and receiving distributions from a Qualified Policy in order to continue
receiving favorable tax treatment. Therefore, purchasers of Qualified Policies
should seek legal and tax advice regarding the suitability of a Policy for their
situation, the applicable requirements, and the tax treatment of the rights and
benefits of a Policy. The following discussion assumes that Qualified Policies
are purchased with proceeds from and/or contributions under retirement plans
that receive the intended special federal income tax treatment.
THE COMPANY'S TAX STATUS
The Variable Account is not separately taxed as a "regulated investment company"
under Subchapter M of the Code. The operations of the Variable Account are a
part of and taxed with Our operations. We are taxed as a life insurance company
under Subchapter L of the Code.
At the present time, We make no charge for any federal, state or local taxes
(other than premium taxes) that We incur which may be attributable to the
Variable Account or to the policies. We, however, reserve the right in the
future to make a charge for any such tax or other economic burden resulting from
the application of the tax laws that We determine to be properly attributable to
the Variable Account or to the policies.
TAX STATUS OF THE POLICY
DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code provides that separate account investments underlying
a policy must be "adequately diversified" in accordance with Treasury
regulations in order for the policy to qualify as an annuity policy under
Section 72 of the Code. The Variable Account through each Portfolio of the Funds
intends to comply with the diversification requirements prescribed in
regulations under Section 817(h) of the Code, which affect how the assets in the
various divisions of the Accounts may be invested. Although We do not have
control over the Funds in which the Variable Account invests, We believe
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that each Portfolio in which the Variable Account owns shares will meet the
diversification requirements and that therefore the policy will be treated as an
annuity under the Code.
POLICYOWNER CONTROL
In certain circumstances, variable annuity policyowners may be considered the
owners, for federal income tax purposes, of the assets of the separate account
used to support their policies. In those circumstances, income and gains from
the separate account assets would be includable in the variable annuity
policyowner's gross income. Several years ago, the IRS stated in published
rulings that a variable policyowner will be considered the owner of separate
account assets if the policyowner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. More
recently, the Treasury Department announced, in connection with the issuance of
regulations concerning investment diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the policyowner of the assets in
the account." This announcement also stated that guidance would be issued by
way of regulations or rulings on the "extent to which policyowners may direct
their investments to particular Sub-Accounts without being treated as owners of
the underlying assets."
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets. For example, the
Owner of the Policy has the choice of more subdivisions to which to allocate
premiums and Policy Values than such rulings, has a choice of investment
strategies different from such rulings, and may be able to transfer among
subdivisions more frequently than in such rulings. These differences could
result in the policyowner being treated as the owner of the assets of the
Variable Account. In addition, We do not know what standards will be set forth
in the regulations or rulings which the Treasury Department has stated it
expects to issue. We therefore reserve the right to modify the policy as
necessary to attempt to prevent the policyowner from being considered the owner
of the assets of the Variable Account.
REQUIRED DISTRIBUTIONS
In addition to the requirements of Section 817(h) of the Code, in order to be
treated as an annuity contract for federal income tax purposes, Section 72(s) of
the Code requires any Nonqualified Policy to provide that (a) if any Policyowner
dies on or after the Annuity Date but prior to the time the entire interest in
the Policy has been distributed, the remaining portion of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of that Policyowner's death; and (b) if any Policyowner dies
prior to the Annuity Date, the entire interest in the Policy will be distributed
within five years after the date of the Policyowner's death. These requirements
will be considered satisfied as to any portion of the Policyowner's interest
which is payable to or for the benefit of a "Designated Beneficiary" and which
is distributed over the life of such "Designated Beneficiary" or over a period
not extending beyond the life expectancy of that Beneficiary, provided that such
distributions begin within one year of that Policyowner's death. The
Policyowner's "Designated Beneficiary" is the person designated by such
Policyowner as a Beneficiary and to whom proceeds of the Policy passes by reason
of death and must be a natural person. However, if the Policyowner's "Designated
Beneficiary" is the surviving spouse of the Policyowner, the Policy may be
continued with the surviving spouse as the new Policyowner.
The Nonqualified Policies contain provisions which are intended to comply with
the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. We intend to review such
provisions and modify them if necessary to assure that they comply with the
requirements of Code Section 72(s) when clarified by regulation or otherwise.
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Other rules may apply to Qualified Policies. See "Minimum Distribution
Requirements."
The following discussion assumes that the policies will qualify as annuity
contracts for federal income tax purposes.
TAXATION OF ANNUITIES
IN GENERAL
Section 72 of the Code governs taxation of annuities in general. We believe that
a Policyowner who is a natural person generally is not taxed on increases in the
value of a Policy until distribution occurs by withdrawing all or part of the
accumulation value (e.g., partial withdrawals and surrenders) or as annuity
payments under the annuity option elected. For this purpose, the assignment,
pledge, or agreement to assign or pledge any portion of the accumulation value
(and in the case of a Qualified Policy, any portion of an interest in the
qualified plan) generally will be treated as a distribution. The taxable portion
of a distribution (in the form of a single sum payment or an annuity) is taxable
as ordinary income.
The owner of any annuity contract who is not a natural person generally must
include in income any increase in the excess of the contract's accumulation
value over the Policy's "investment in the contract" during the taxable year.
There are some exceptions to this rule and a prospective Policyowner that is not
a natural person may wish to discuss these with a tax adviser.
The following discussion generally applies to policies owned by natural persons.
WITHDRAWALS/DISTRIBUTIONS
In the case of a distribution under a Qualified Policy (other than a Section 457
plan), under Section 72(e) of the Code a ratable portion of the amount received
is taxable, generally based on the ratio of the "investment in the contract" to
the participant's total accrued benefit or balance under the retirement plan.
The "investment in the contract" generally equals the portion, if any, of any
premium payments paid by or on behalf of any individual under a Policy, reduced
by the amount of any prior distribution which was not excluded from the
individual's gross income. For policies issued in connection with qualified
plans, the "investment in the contract" can be zero. Special tax rules may be
available for certain distributions from Qualified Policies.
In the case of a withdrawal/distribution (e.g., surrender, partial withdrawal or
systematic withdrawal) under a Nonqualified Policy before the Annuity Date,
under Code Section 72(e) amounts received are generally first treated as taxable
income to the extent that the accumulation value immediately before the
withdrawal exceeds the "investment in the contract" at that time. Any additional
amount withdrawn is not taxable.
ANNUITY PAYMENTS
Although tax consequences may vary depending on the annuity option elected under
an annuity contract, under Code Section 72(b), generally gross income does not
include that part of any amount received as an annuity under an annuity contract
that bears the same ratio to such amount as the investment in the contract bears
to the expected return at the annuity starting date. For variable income
payments, in general, the taxable portion (prior to recovery of the investment
in the contract) is
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determined by a formula which establishes the specific dollar amount of each
annuity payment that is not taxed. The dollar amount is determined by dividing
the "investment in the contract" by the total number of expected periodic
payments. For fixed income payments (prior to recovery of the investment in the
contract), in general, there is no tax on the amount of each payment which
represents the same ratio that the "investment in the contract" bears to the
total expected value of the annuity payments for the term of the payments;
however, the remainder of each income payment is taxable. In all cases, after
the "investment in the contract" is recovered, the full amount of any additional
annuity payments is taxable (for Policies issued prior to January 26, 1996).
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Policy because of the death of a Policyowner
or the Last Surviving Annuitant. Generally, such amounts are includable in the
income of the recipient as follows:
1. if distributed in a lump sum, they are taxed in the same manner as a
surrender of the Policy; or
2. if distributed under a payment option, they are taxed in the same
manner as annuity payments.
For these purposes, the investment in the Policy is not affected by a
Policyowner or Annuitant's death. That is the investment in the Policy remains
the amount of any purchase payments paid which were not excluded from gross
income.
PENALTY TAX ON CERTAIN WITHDRAWALS
In the case of a distribution pursuant to a Nonqualified Policy, there may be
imposed a federal penalty tax equal to 10% of the amount treated as taxable
income. In general, however, there is no penalty tax on distributions:
1. made on or after the taxpayer reaches age 59 1/2;
2. made on or after the death of a Policyowner (or if the Policyowner is
not an individual, the death of the primary Annuitant);
3. attributable to the Policyowner becoming disabled;
4. as part of a series of substantially equal periodic payments (not less
frequently than annually) for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the
taxpayer and Beneficiary;
5. made under an annuity Policy that is purchased with a single premium
when the annuity starting date is no later than a year from purchase
of the annuity and substantially equal periodic payments are made, not
less frequently than annually, during the annuity period; and
6. made under certain annuities issued in connection with structured
settlement agreements.
Other tax penalties may apply to certain distributions under a Qualified Policy,
as well as to certain contributions and other circumstances.
TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF A POLICY
A transfer of ownership, the designation of an Annuitant or other Beneficiary
who is not also the Policyowner, the designation of certain annuity starting
dates, or the exchange of a Policy may result in certain tax consequences to the
Policyowner that are not discussed herein. A Policyowner contemplating any such
transfer, assignment, designation, or exchange of a Policy should contact a tax
adviser with respect to the potential tax effects of such a transaction.
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WITHHOLDING
Pension and annuity distributions generally are subject to withholding for the
recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. "Eligible rollover distributions" from section 401(a) plans and
section 403(b) tax-sheltered annuities are subject to a mandatory federal income
tax withholding of 20%. An eligible rollover distribution is the taxable
portion of any distribution from such a plan, except certain distributions such
as distributions required by the Code, hardship distributions of employee
elective contributions under 401(k) and 403(b) plans, or distributions in a
specified annuity form. The 20% withholding does not apply, however, if the
owner chooses a "direct rollover" from the plan to another tax-qualified plan or
IRA.
MULTIPLE POLICIES
Section 72(e)(11) of the Code treats all nonqualified deferred annuity policies
entered into after June 21, 1988 that are issued by Us (or Our affiliates) to
the same owner during any calendar year as one annuity Policy for purposes of
determining the amount includable in gross income under Code Section 72(e). The
effects of this rule are not yet clear; however, it could affect the time when
income is taxable and the amount that might be subject to the 10% penalty tax
described above. In addition, the Treasury Department has specific authority to
issue regulations that prevent the avoidance of Section 72(e) through the serial
purchase of annuity contracts or otherwise. There may also be other situations
in which the Treasury may conclude that it would be appropriate to aggregate two
or more annuity contracts purchased by the same owner. Accordingly, a
Policyowner should consult a tax adviser before purchasing more than one annuity
contract.
POSSIBLE TAX CHANGES
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the Polices could change by legislation or
other means. It is also possible that any change could be retroactive (that is,
effective prior to the date of the change). A tax adviser should be consulted
with respect to legislative developments and their effect on the Policy.
TAXATION OF QUALIFIED PLANS
The Policies are designed for use with several types of qualified plans. The tax
rules applicable to participants in these qualified plans vary according to the
type of plan and the terms and conditions of the plan itself. Special favorable
tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; and in certain other circumstances. Therefore, no
attempt is made to provide more than general information about the use of the
Policies with the various types of qualified retirement plans. Policyowners, the
Annuitants, and beneficiaries are cautioned that the rights of any person to any
benefits under these qualified retirement plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Policy, but We shall not be bound by the terms and conditions of such plans
to the extent such terms contradict the Policy, unless We consent. Some
retirement plans are subject to distribution and other requirements that are not
incorporated in the administration of the Policies. Policyowners are responsible
for determining that contributions, distributions and other transactions with
respect to the Policies satisfy applicable law. Brief descriptions follow of the
various types of qualified retirement plans in connection with which We will
issue a Policy. We will amend the Policy as instructed to conform it to the
applicable legal requirements for such plan.
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INDIVIDUAL RETIREMENT ANNUITIES AND SIMPLIFIED EMPLOYEE PENSIONS (SEP/IRAS)
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity" or
"IRA." These IRAs are subject to limits on the amount that may be contributed,
the persons who may be eligible and on the time when distributions may commence.
Also, distributions from certain other types of qualified retirement plans may
be "rolled over" on a tax-deferred basis into an IRA. Sales of the Policy for
use with IRAs may be subject to special disclosure requirements of the Internal
Revenue Service.
Section 408(k) of the Code allows employers to establish simplified employee
pension plans for their employees, using an IRA for such purpose, if certain
criteria are met. Under these plans the employer may, within specified limits,
make deductible contributions on behalf of the employee to an IRA. Employers
intending to use the Policy in connection with such plans should seek advice.
Purchasers of a Policy for use with IRAs will be provided with supplemental
information required by the Internal Revenue Service or other appropriate
agency. Such purchasers will have the right to revoke their purchase within
seven days of the earlier of the establishment of the IRA or their purchase.
Purchasers should seek advice as to the suitability of the Policy for use with
IRAs. The Internal Revenue Service has not reviewed the Policy for qualification
as an IRA, and has not addressed in a ruling of general applicability whether a
Death Benefit provision such as the provision in the Policy comports with IRA
qualification requirements.
SIMPLE INDIVIDUAL RETIREMENT ANNUITIES
Certain small employers may establish SIMPLE plans as provided by Section 408(p)
of the Code, under which employees may elect to defer a percentage of
compensation up to $6,000 (as increased for cost of living adjustments). The
sponsoring employer is required to make matching or non-elective contributions
on behalf of employees. Distributions from SIMPLE IRAs are subject to the same
restrictions that apply to IRA distributions and are taxed as ordinary income.
Subject to certain exceptions, premature distributions prior to age 59 1/2 are
subject to a 10 percent penalty tax, which is increased to 25 percent if the
distribution occurs within the first two years after the commencement of the
employee's participation in the plan.
ROTH INDIVIDUAL RETIREMENT ANNUITIES
Effective January 1, 1998, section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which are
subject to certain limitations, are not deductible and must be made in cash or
as a rollover or transfer from another Roth IRA or other IRA. A rollover from
or conversion of an IRA to a Roth IRA may be subject to tax and other special
rules may apply. You may wish to consult a tax adviser before combining any
converted amounts with any other Roth IRA contributions, including any
conversion amounts from other tax years. Distributions from a Roth IRA generally
are not taxed, except that, once aggregate distributions exceed contributions to
the Roth IRA, income tax and a 10 percent penalty tax may apply to distributions
made (1) before age 59 1/2 (subject to certain exceptions) and/or (2) during the
five taxable years starting with the year in which the first contribution is
made to the Roth IRA. A 10% penalty tax may apply to amounts attributable to a
conversion from an IRA if they are distributed during the five taxable years
beginning with the year in which the conversion was made.
MINIMUM DISTRIBUTION REQUIREMENTS
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The Code requires that minimum distributions from an IRA begin no later than
April 1 of the year following the year in which the Policyowner attains age 70.
Failure to do so results in a federal tax penalty of 50% of the amount not
withdrawn. This penalty is in addition to normal income tax. We will calculate
the minimum distribution requirement (MDR) only for funds invested in this
Policy and subject to Our administrative guidelines, including but not limited
to minimum withdrawal amount of $250. Surrender charges are not applied
against required minimum distributions.
As an administrative practice, We will calculate and distribute an amount from
an IRA using the method contained in the Code's minimum distribution
requirements. The annual distribution is determined by dividing the prior
December 31st value for the Policy by a life expectancy factor. The factor will
be based on either Your life or the life expectancies of Your life and Your
Designated Beneficiary, as directed by You, and based on tables found in the
IRS' regulations. Factors are redetermined for each year's distribution. The
value of the Policy to be used in this calculation is the Policy Value on the
December 31st prior to the year for which each subsequent payment is made. The
life expectancy factor is determined by using the appropriate IRS chart based on
one of the following circumstances:
1. Your life expectancy (Single Life Expectancy);
2. joint life expectancy between You and Your Designated Beneficiary
(Joint Life and Last Survivor Expectancy); or
3. Your life expectancy and a non-spouse Beneficiary more than 10 years
younger than You (Minimum Distribution Incidental Benefit
Requirement).
No minimum distributions are required from a Roth IRA during Your life, although
upon Your death certain distribution requirements apply.
The Code Minimum Distribution Requirements also apply to distributions from
qualified plans other than IRAs. For qualified plans under section 401(a),
401(k), 403(a), 403(b), and 457, the Code requires that distributions generally
must commence no later than the later of April 1 of the calendar year following
the calendar year in which the owner (or plan participant) (i) reaches age 70 or
(ii) retires, and must be made in a specified form or manner. If the plan
participant is a "5% Owner" (as defined in the Code), distributions generally
must begin no later than the date described in (i). You are responsible for
ensuring that distributions from such plans satisfy the Code minimum
distribution requirements.
CORPORATE AND SELF-EMPLOYED (H.R.10 AND KEOGH) PENSION AND PROFIT-SHARING PLANS
Sections 401(a), 401(k) and 403(a) of the Code permit corporate employers to
establish various types of tax-favored retirement plans for employees. The Self-
Employed Individual Tax Retirement Act of 1962, as amended, commonly referred to
as "H.R.10" or "Keogh," permits self-employed individuals also to establish such
tax-favored retirement plans for themselves and their employees. Such retirement
plans may permit the purchase of the Policies in order to accumulate retirement
savings under the plans. Adverse tax consequences to the plan, to the
participant or to both may result if this Policy is assigned or transferred to
any individual as a means to provide benefit payments. Employers intending to
use the Policy in connection with such plans should seek advice.
The Policy includes a Death Benefit that in some cases may exceed the greater of
the premium payments or the Policy Value. The Death Benefit could be
characterized as an incidental benefit, the amount of which is limited in any
pension or profit-sharing plan. Because the Death Benefit may exceed this
limitation, employers using the Policy in connection with such plans should
consult their tax adviser.
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DEFERRED COMPENSATION PLANS
Section 457 of the Code provides for certain deferred compensation plans. These
plans may be offered with respect to service for state governments, local
governments, political subdivisions, agencies, instrumentalities and certain
affiliates of such entities, and tax exempt organizations. The plans may permit
participants to specify the form of investment for their deferred compensation
account. All distributions are taxable as ordinary income. Except for
governmental plans, all investments are owned by the sponsoring employer and are
subject to the claims of the general creditors of the employer.
TAX-SHELTERED ANNUITY PLANS
Section 403(b) of the Code permits public school systems and certain tax exempt
organizations specified in Section 501(c)(3) to make payments to purchase
annuity policies for their employees. Such payments are excludable from the
employee's gross income (subject to certain limitations), but may be subject to
FICA (Social Security) taxes. The Policy includes a Death Benefit that in some
cases may exceed the greater of the premium payments or the Policy Value. The
Death Benefit could be characterized as an incidental benefit, the amount of
which is limited in any tax-sheltered annuity under section 403(b). Because the
Death Benefit may exceed this limitation, employers using the Policy in
connection with such plans should consult their tax adviser. Under Code
requirements, Section 403(b) annuities generally may not permit distribution of:
1) elective contributions made in years beginning after December 31, 1988; 2)
earnings on those contributions; and 3) earnings on amounts attributed to
elective contributions held as of the end of the last year beginning before
January 1, 1989. Under Code requirements, distributions of such amounts will be
allowed only: 1) upon the death of the employee; or 2) on or after attainment of
age 59 1/2; or 3) separation from service; or 4) disability; or 5) financial
hardship, except that income attributable to elective contributions may not be
distributed in the case of hardship. With respect to these restrictions, the
Company is relying upon a no-action letter dated November 28, 1988 from the
staff of the SEC to the American Council of Life Insurance, the requirements for
which have been or will be complied with by the Company.
OTHER TAX CONSEQUENCES
Other restrictions with respect to the election, commencement, or distribution
of benefits may apply under Qualified Policies or under the terms of the plans
in respect of which Qualified Policies are issued.
As noted above, the foregoing comments about the federal tax consequences under
these policies are not exhaustive and special rules are provided with respect to
other tax situations not discussed in this Prospectus. Further, the federal
income tax consequences discussed herein reflect Our understanding of current
law and the law may change. Federal estate and state and local estate,
inheritance, and other tax consequences of ownership or receipt of distributions
under a Policy depend on the individual circumstances of each owner or recipient
of the distribution. A tax adviser should be consulted for further information.
DISTRIBUTION OF POLICIES
Canada Life of America Financial Services, Inc. (CLAFS) acts as the principal
underwriter, as defined in the Investment Company Act of 1940, of the Policies
for the Variable Account. CLAFS is a wholly-owned subsidiary of Canada Life
Insurance Company of America and an affiliate of Our Company. CLAFS, a Georgia
corporation organized on January 18, 1988, is registered with the SEC under the
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Securities Exchange Act of 1934 (1934 Act) as a broker/dealer and is a member of
the National Association of Securities Dealers, Inc. CLAFS' principal business
address is 6201 Powers Ferry Road, NW, Atlanta, Georgia.
Sales of the Policies will be made by registered representatives of
broker/dealers registered under the 1934 Act and authorized by CLAFS to sell the
Policies. Such registered representatives will be licensed insurance agents
appointed with Our Company and authorized by applicable law to sell variable
annuity policies. CLAFS will pay distribution compensation to selling
broker/dealers in varying amounts which, under normal circumstances, is not
expected to exceed 6.5% of premium payments under the Policies. We may from time
to time pay additional compensation pursuant to promotional contracts. In some
circumstances, we may provide reimbursement of certain sales and marketing
expenses. CLAFS will pay a promotional agent fee for providing marketing support
for the distribution of the contracts.
The Policies will be offered to the public on a continuous basis, and We do not
anticipate discontinuing the offering of the Policies. However, We reserve the
right to discontinue this offering.
LEGAL PROCEEDINGS
Certain affiliates of the Company, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, the Company believes that at the
present time there are no pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on the Variable Account or the Company.
VOTING RIGHTS
To the extent deemed to be required by law and as described in the prospectuses
for the Funds, portfolio shares held in the Variable Account and in Our general
account will be voted by Us at regular and special shareholder meetings of the
Funds in accordance with instructions received from persons having voting
interests in the corresponding Sub-Accounts. If, however, the Investment Company
Act of 1940 or any regulation thereunder should be amended, or if the present
interpretation thereof should change, or if We determine that We are allowed to
vote the portfolio shares in Our own right, We may elect to do so.
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The number of votes which are available to You will be calculated separately for
each Sub-Account of the Variable Account, and may include fractional votes. The
number of votes attributable to a Sub-Account will be determined by applying
Your percentage interest, if any, in a particular Sub-Account to the total
number of votes attributable to that Sub-Account. You hold a voting interest in
each Sub-Account to which the Variable Account value is allocated. You only have
voting interest prior to the Annuity Date.
The number of votes of a Portfolio which are available to You will be determined
as of the date coincident with the date established for determining shareholders
eligible to vote at the relevant meeting of the Funds. Voting instructions will
be solicited by written communication prior to such meeting in accordance with
procedures established by the Funds.
Fund shares as to which no timely instructions are received and shares held by
Us in a Sub-Account as to which You have no beneficial interest will be voted in
proportion to the voting instructions which are received with respect to all
policies participating in that Sub-Account. Voting instructions to abstain on
any item to be voted upon will be applied to reduce the total number of votes
cast on such item.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports, and other material relating to the appropriate Portfolios.
INSURANCE MARKETPLACE STANDARDS ASSOCIATION
Canada Life Insurance Company of New York is a member of the Insurance
Marketplace Standards Association (IMSA) and as such may include the IMSA logo
and information about IMSA membership in its advertisements and sales
literature. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuity products.
PREPARING FOR YEAR 2000
Like all financial services providers, the Company utilizes systems that may be
affected by Year 2000 transition issues and it relies on service providers,
including the Funds, that also may be affected. The Company and its affiliates
have developed, and are in the process of implementing, a comprehensive Year
2000 transition plan, and are confirming that its service providers are also so
engaged. The Company is not aware of any instances where a service provider will
not be compliant, but the Company does not have the ability to assure with any
certainty the compliance capacity of third parties. The resources that are
being devoted to this effort are substantial. It is difficult to predict with
precision whether the amount of resources ultimately devoted, or the outcome of
these efforts, will have any negative impact on the Company. However, as of the
date of this Prospectus, it is not anticipated that Policyowners will experience
negative effects on their investment, or on the services provided in connection
therewith, as a result of Year 2000 transition implementation. The Company
currently anticipates that its systems will be Year 2000 compliant prior to the
end of 1999, but there can be no assurance that the Company will be successful,
or that interaction with other service providers will not impair the Company's
services at that time. However, We are developing contingency plans that will
prepare Us to respond as quickly as possible should We encounter any problems,
disruptions or delays.
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FINANCIAL STATEMENTS
Our balance sheets as of December 31, 1998 and 1997, and the related statements
of operations, accumulated surplus (deficit), and cash flows for each of the
three years in the period ended December 31, 1998, as well as the Report of
Independent Auditors, are contained in the Statement of Additional Information.
The Variable Account's statement of net assets as of December 31, 1998, and the
related statements of operations and changes in net assets for the periods
indicated therein, as well as the Report of Independent Auditors, are contained
in the Statement of Additional Information.
The financial statements of the Company included in the Statement of Additional
Information should be considered only as bearing on the ability of the Company
to meet its obligations under the policies. They should not be considered as
bearing on the investment performance of the assets held in the Variable
Account.
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DEFINITIONS
Annuitant(s): Any natural person(s) whose life is used to determine the duration
of any payments made under a payment option involving a life contingency. The
term Annuitant(s) also includes any Joint Annuitant(s), a term used solely to
refer to more than one Annuitant. There is no other distinction between the
terms Annuitant(s) and Joint Annuitant(s). A Joint Annuitant is not allowed
under a Qualified Policy and any designation of a Joint Annuitant under a
Qualified Policy will be of no effect.
ANNUITY DATE: The date when the proceeds will be paid under an annuity payment
option or on the first day of the month after any Annuitant reaches age 100,
whichever occurs first.
BENEFICIARY(IES): The person(s) to whom We will pay the proceeds payable on Your
death or on the death of the Last Surviving Annuitant.
CASH SURRENDER VALUE: The Policy Value less any applicable surrender charge and
Annual Administration Charge.
DUE PROOF OF DEATH: Proof of death that is satisfactory to us. Such proof may
consist of: 1) a certified copy of the death certificate; or 2) a certified copy
of the decree of a court of competent jurisdiction as to the finding of death.
EFFECTIVE DATE: The date We accept Your completed application and apply Your
single premium.
FIXED ACCOUNT: Part of Our general account that provides a Guaranteed Interest
Rate. This account is not part of and does not depend on the investment
performance of the Variable Account.
GUARANTEE AMOUNT: Before the Annuity Date, the amount equal to that part of any
Net Premium allocated to, or Policy Value transferred to, the Fixed Account
(including interest) less any withdrawals (including any applicable surrender
charges and premium tax charges) or transfers.
GUARANTEED INTEREST RATE: The applicable effective annual rate of interest that
We will pay on a Guarantee Amount. The Guaranteed Interest Rate will be at least
three percent per year.
HOME OFFICE: Our office at the address shown on page 1 of the Prospectus. This
is Our mailing address.
LAST SURVIVING ANNUITANT(S): The Annuitant(s) or Joint Annuitant(s) that
survives the other.
NET PREMIUM: The premium(s) paid less any premium tax deducted in the year the
premium is paid.
NONQUALIFIED POLICY: A Policy that is not a "qualified" Policy under the
Internal Revenue Code of 1986, as amended (Code).
OWNER(S): The individual(s), trust(s), corporation(s), or any other entity(ies)
entitled to exercise ownership rights and privileges under the Policy. The term
Owner(s) also includes any Joint Owner(s), a term used solely for the purpose of
referring to more than one Owner. There is no other distinction between the
terms Owner(s) and Joint Owner(s).
POLICY: The single premium variable deferred annuity Policy offered by this
Prospectus.
59
<PAGE>
POLICY VALUE: The sum of the Variable Account value and the Fixed Account value.
POLICY DATE: The date the Policy goes into effect.
POLICY YEARS, MONTHS, and ANNIVERSARIES: Starts on the same month and day as the
Policy Date.
QUALIFIED POLICY: A Policy issued in connection with plans that receive special
federal income tax treatment under sections 401, 403(a), 403(b), 408, 408A, or
457 of the Code.
UNIT: A measurement used in the determination of the Policy's Variable Account
value before the Annuity Date.
VALUATION DAY: Each day the New York Stock Exchange is open for trading.
Valuation Period: THE PERIOD BEGINNING AT THE CLOSE OF BUSINESS ON A VALUATION
DAY AND ENDING AT THE CLOSE OF BUSINESS ON THE NEXT SUCCEEDING VALUATION DAY.
THE CLOSE OF BUSINESS IS WHEN THE NEW YORK STOCK EXCHANGE CLOSES (USUALLY AT
4:00 P.M. EASTERN TIME).
60
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION - TABLE OF CONTENTS
<TABLE>
<S> <C>
ADDITIONAL POLICY PROVISIONS...................................... 3
Contract........................................................ 3
Incontestability................................................ 3
Misstatement of Age............................................. 3
Currency........................................................ 3
Place of Payment................................................ 3
Non-Participation............................................... 3
Our Consent..................................................... 3
PRINCIPAL UNDERWRITER............................................. 4
CALCULATION OF YIELDS AND TOTAL RETURNS........................... 4
Money Market Yields............................................. 4
Other Sub-Account Yields........................................ 5
Total Returns................................................... 6
A. Standardized "Average Annual Total Returns"................ 6
B. Nonstandardized "Average Annual Total Returns"............. 9
C. Adjusted Historic Fund Performance......................... 11
Effect of the Annual Administration Charge on Performance Data.. 14
SAFEKEEPING OF ACCOUNT ASSETS..................................... 14
STATE REGULATION.................................................. 14
RECORDS AND REPORTS............................................... 14
LEGAL MATTERS..................................................... 14
EXPERTS........................................................... 15
OTHER INFORMATION................................................. 15
FINANCIAL STATEMENTS.............................................. 15
</TABLE>
61
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
HOME OFFICE: 410 SAW MILL RIVER ROAD, ARDSLEY, NEW YORK 10502
PHONE: (914) 693-2300
VARIFUND(R)
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY ACCOUNT 1
SINGLE PREMIUM VARIABLE DEFERRED ANNUITY POLICY
This Statement of Additional Information contains information in addition to the
information described in the Prospectus for the single premium variable deferred
annuity policy (the Policy) offered by Canada Life Insurance Company of New
York. This Statement of Additional Information is not a Prospectus, and it
should be read only in conjunction with the Prospectuses for the Policy and the
underlying Funds. The Funds are:
The Alger American Fund
Berger Institutional Products Trust
Canada Life of America Series Fund, Inc.
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Variable Investment Fund
Fidelity Variable Insurance Products Fund
Fidelity Variable Insurance Products Fund II
Fidelity Variable Insurance Products Fund III
Goldman Sachs Variable Insurance Trust (Goldman Sachs VIT)
The Montgomery Funds III
Seligman Portfolios, Inc.
The Prospectuses are dated the same date as this Statement of Additional
Information. You may obtain the Prospectuses by writing or calling us at our
address or phone number shown above.
The date of this Statement of Additional Information is May 1, 1999.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
ADDITIONAL POLICY PROVISIONS.................................................................. 3
Contract................................................................................. 3
Incontestability......................................................................... 3
Misstatement Of Age or Sex............................................................... 3
Currency................................................................................. 3
Place Of Payment......................................................................... 3
Non-Participation........................................................................ 3
Our Consent.............................................................................. 3
PRINCIPAL UNDERWRITER......................................................................... 3
CALCULATION OF YIELDS AND TOTAL RETURNS....................................................... 4
Money Market Yields...................................................................... 4
Other Sub-Account Yields................................................................. 5
Total Returns............................................................................ 6
A. Standardized "Average Annual Total Returns"................................. 6
B. Nonstandardized "Average Annual Total Returns".............................. 1
C. Adjusted Historic Fund Performance.......................................... 4
Effect of the Annual Administration Charge on Performance Data........................... 9
SAFEKEEPING OF ACCOUNT ASSETS................................................................. 9
STATE REGULATION.............................................................................. 9
RECORDS AND REPORTS........................................................................... 9
LEGAL MATTERS................................................................................. 9
EXPERTS....................................................................................... 10
OTHER INFORMATION............................................................................. 10
FINANCIAL STATEMENTS.......................................................................... 10
</TABLE>
2
<PAGE>
ADDITIONAL POLICY PROVISIONS
CONTRACT
The entire contract is made up of the Policy, the application for the Policy and
any riders or endorsements. The statements made in the application are deemed
representations and not warranties. We cannot use any statement in defense of a
claim or to void the Policy unless it is contained in the application and a copy
of the application is attached to the Policy at issue.
INCONTESTABILITY
Other than misstatement of age or sex (see below), We will not contest the
Policy after it has been in force during any annuitant's lifetime for two years
from the date of issue of the Policy.
MISSTATEMENT OF AGE OR SEX
If the age or sex of any annuitant has been misstated, we will pay the amount
which the proceeds would have purchased at the correct age or for the correct
sex.
If we make an overpayment because of an error in age or sex, the overpayment
plus interest at 3% compounded annually will be a debt against the Policy. If
the debt is not repaid, future payments will be reduced accordingly.
If we make an underpayment because of an error in age or sex, any annuity
payments will be recalculated at the correct age or sex, and future payments
will be adjusted. The underpayment with interest at 3% compounded annually will
be paid in a single sum.
CURRENCY
All amounts payable under the Policy will be paid in United States currency.
PLACE OF PAYMENT
All amounts payable by us will be payable at our Home Office at the address
shown on page one of this Statement of Additional Information.
NON-PARTICIPATION
The Policy is not eligible for dividends and will not participate in our
divisible surplus.
OUR CONSENT
If our consent is required, it must be given in writing. It must bear the
signature, or a reproduction of the signature, of our President, Vice President,
Secretary or Actuary.
PRINCIPAL UNDERWRITER
Canada Life of America Financial Services, Inc. (CLAFS), an affiliate of Canada
Life Insurance Company of New York (CLNY), is the principal underwriter of the
variable annuity policies described
3
<PAGE>
herein. The offering of the policies is continuous, and CLNY does not anticipate
discontinuing the offering of the policies. However, CLNY does reserve the right
to discontinue the offering of the policies.
CLAFS received and retained in $590 1998, $2,891 in 1997 and $12,024 in 1996 as
commissions for serving as principal underwriter of the variable annuity
policies.
CALCULATION OF YIELDS AND TOTAL RETURNS
MONEY MARKET YIELDS
We may, from time to time, quote in advertisements and sales literature the
current annualized yield of the Money Market Sub-Account for a 7 day period in a
manner which does not take into consideration any realized or unrealized gains
or losses, or income other than investment income, on shares of the Money Market
Portfolio or on its portfolio securities. This current annualized yield is
computed by determining the net change (exclusive of realized gains and losses
on the sale of securities and unrealized appreciation and depreciation, and
exclusive of income other than investment income) at the end of the 7 day period
in the value of a hypothetical account under a Policy having a balance of 1 unit
of the Money Market Sub-Account at the beginning of the period, dividing such
net change in account value by the value of the account at the beginning of the
period to determine the base period return, and annualizing this quotient on a
365 day basis. The net change in account value reflects: 1) net income from the
Portfolio attributable to the hypothetical account; and 2) charges and
deductions imposed under the Policy which are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the
hypothetical account for: 1) the annual administration charge; 2) the daily
administration fee; and 3) the mortality and expense risk charge. The yield
calculation reflects an average per unit annual administration charge of $30 per
year per Policy deducted at the end of each Policy Year. Current Yield will be
calculated according to the following formula:
Current Yield = ((NCS-ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized
appreciation and depreciation, and exclusive of income other than
investment income) for the 7 day period attributable to a
hypothetical account having a balance of 1 Sub-Account unit.
ES = per unit expenses of the Sub-Account for the 7 day period.
UV = the unit value on the first day of the 7 day period.
The current yield for the 7 day period ended December 31, 1998 was 3.14%.
We may also quote the effective yield of the Money Market Sub-Account for the
same 7 day period, determined on a compounded basis. The effective yield is
calculated by compounding the unannualized base period return according to the
following formula:
365/7
Effective Yield = (1+((NCS-ES)/UV)) - 1
Where:
NCS = the net change in the value of the Portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized
appreciation and
4
<PAGE>
depreciation, and exclusive of income other than investment income)
for the 7 day period attributable to a hypothetical account having a
balance of 1 Sub-Account unit.
ES = per unit expenses of the Sub-Account for the 7 day period.
UV = the unit value for the first day of the 7 day period.
The effective yield for the 7 day period ended December 31, 1998 was 3.19%.
Because of the charges and deductions imposed under the Policy, the yield for
the Money Market Sub-Account will be lower than the yield for the Money Market
Portfolio.
The yields on amounts held in the Money Market Sub-Account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Money Market Sub-Account's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Money Market Portfolio, the types and quality of portfolio securities held by
the Money Market Portfolio of the Fund, and the Money Market Portfolio's
operating expenses.
OTHER SUB-ACCOUNT YIELDS
We may, from time to time, quote in sales literature and advertisements the
current annualized yield of one or more of the (except the Money Market Sub-
Account) for a Policy for 30 day or one month periods. The annualized yield of a
Sub-Account refers to income generated by the Sub-Account over a specific 30 day
or one month period. Because the yield is annualized, the yield generated by a
Sub-Account during the 30 day or one month period is assumed to be generated
each period over a 12 month period. The yield is computed by: 1) dividing the
net investment income of the Portfolio attributable to the Sub-Account units
less Sub-Account expenses for the period; by 2) the maximum offering price per
unit on the last day of the period multiplied by the daily average number of
units outstanding for the period; by 3) compounding that yield for a 6 month
period; and by 4) multiplying that result by 2. Expenses attributable to the
Sub-Account include 1) the annual administration charge, 2) the daily
administration fee, and 3) the mortality and expense risk charge. The yield
calculation reflects an annual administration charge of $30 per year per Policy
deducted at the end of each Policy Year. For purposes of calculating the 30 day
or one month yield, an average annual administration charge per dollar of Policy
Value in the Variable Account is used to determine the amount of the charge
attributable to the Sub-Account for the 30 day or one month period as described
below. The 30 day or one month yield is calculated according to the following
formula:
6
Yield = 2 x ((((NI-ES)/(U x UV))+1) - 1)
Where:
NI = net income of the Portfolio for the 30 day or one month period
attributable to the Sub-Account's units.
ES = expenses of the Sub-Account for the 30 day or one month period.
U = the average number of units outstanding.
UV = the unit value at the close (highest) of the last day in the 30
day or one month period.
5
<PAGE>
Because of the charges and deductions imposed under the policies, the yield for
the Sub-Account will be lower than the yield for the corresponding Portfolio.
The yield on the amounts held in the Sub-Accounts normally will fluctuate over
time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. The Sub-
Account's actual yield is affected by the types and quality of portfolio
securities held by the Portfolio, and its operating expenses.
Yield calculations do not take into account the surrender charge under the
Policy. The maximum surrender charge is equal to 6% of certain amounts
surrendered or withdrawn under the Policy. A surrender charge will not be
imposed on any investment earnings in the Variable Account or interest earned in
the Fixed Account and in certain other situations as described in the
prospectus.
TOTAL RETURNS
A. STANDARDIZED "AVERAGE ANNUAL TOTAL RETURNS"
We may, from time to time, also quote in sales literature or advertisements
total returns, including standardized average annual total returns for the Sub-
Accounts calculated in a manner prescribed by the Securities and Exchange
Commission, and other total returns. We will always include quotes of
standardized average annual total return for the period measured from the date
the Sub-Account commenced operations. When a Sub-Account has been in operation
for 1, 5, and 10 years, respectively, the standardized average annual total
returns for these periods will be provided.
Standardized average annual total returns represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Policy to the redemption value of that investment as of the last day of
each of the periods. The ending date for each period for which total
standardized average annual return quotations are provided will be for the most
recent month-end practicable, considering the type and media of the
communication and will be stated in the communication.
Standardized average annual total returns will be calculated using Sub-Account
unit values which we calculate on each valuation day based on the performance of
the Sub-Account's underlying Portfolio, and the deductions for the mortality and
expense risk charge, daily administration fee, surrender charge and the annual
administration charge of $30 per year per Policy deducted at the end of each
Policy Year. For purposes of calculating standardized average annual total
return, an average per dollar annual administration charge attributable to the
hypothetical account for the period is used. The standardized average annual
total return will then be calculated according to the following formula:
1/N
TR = ((ERV/P) ) - 1
Where:
TR = the standardized average annual total return net of Sub-Account
recurring charges.
6
<PAGE>
ERV = the ending redeemable value of the hypothetical account at the
end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
The standardized average annual total returns assume that the maximum fees and
charges are imposed for calculations.
Standardized average annual total returns for the period ending December 31,
1998 are shown on the following page.
7
<PAGE>
Standardized average annual total returns for the periods shown below were:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 5 YEAR FROM SUB- SUB-ACCOUNT
RETURN RETURN ACCOUNT INCEPTION
YEAR ENDED YEAR ENDED INCEPTION TO DATE
12/31/98 12/31/98 12/31/98
<S> <C> <C> <C> <C>
Bond 1.98% 4.71% 6.40 % 12/4/89
Capital 13.02% 14.05% 14.46 % 5/1/93
International Equity 6.29% ** 8.93 % 5/1/95
Managed (1.83)% 7.73% 8.28 % 12/4/89
Money Market (2.15)% 2.56% 2.98 % 12/4/89
Value Equity (4.14)% 9.98% 9.63 % 12/4/89
Alger American Growth 40.51% ** 25.69 % 5/1/96
Alger American Leveraged AllCap 50.13% ** 23.10 % 5/1/96
Alger American MidCap Growth 22.99% ** 13.14 % 5/1/96
Alger American Small Capitalization 8.43% ** 3.94 % 5/1/96
Berger/BIAM IPT-International 9.02% ** 3.33 % 5/1/97
Berger IPT-Small Company Growth **** ** **** 5/1/98
Dreyfus: Capital Appreciation **** ** **** 5/1/98
Dreyfus: Growth and Income 4.77% ** 11.07 % 5/1/96
Dreyfus Socially Responsible 22.09% ** 23.64 % 5/1/96
Fidelity VIP Growth 32.05% ** 21.94 % 5/1/94
Fidelity VIP High Income (11.14)% ** 7.55 % 5/1/94
Fidelity VIP Overseas 5.69% ** 6.95 % 5/1/94
Fidelity VIP II Asset Manager 7.96% ** 11.50 % 5/1/94
Fidelity VIP II Contrafund 22.40% ** 20.68 % 5/1/98
Fidelity VIP III Growth Opportunities 17.22% ** 11.07 % 5/1/98
Fidelity VIP II Index 500 21.04% ** 25.53 % 5/1/96
Goldman Sachs VIT Capital Growth * ** *** 5/1/99
Goldman Sachs VIT CORE US Equity * ** *** 5/1/99
Goldman Sachs VIT Global Income * ** *** 5/1/99
Goldman Sachs VIT Growth and Income * ** *** 5/1/99
Montgomery Variable Series: Emerging Markets (43.87)% ** (18.82)% 5/1/96
Montgomery Variable Series: Growth (3.99)% ** 11.98 % 5/1/97
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Seligman Communications and
Information 29.09% ** 20.64% 5/1/95
Seligman Frontier (8.31)% ** 13.11% 5/1/95
</TABLE>
* These Sub-Accounts have not been in operation one year as of December 31,
1998, and accordingly, no one year standardized average annual total return
is available.
** These Sub-Accounts have not been in operation five years as of December 31,
1998, and accordingly, no five year standardized average annual total
return is available.
*** As of December 31, 1998, the Goldman Sachs VIT Capital Growth, Goldman
Sachs VIT CORE US Equity, Goldman Sachs VIT Global Income, and Goldman
Sachs VIT Growth and Income Sub-Accounts had not commenced operations.
Accordingly, we have not provided standardized average annual total return
information for these Sub-Accounts.
**** As of December 31, 1998, there was no activity in these sub-accounts.
<PAGE>
B. NONSTANDARDIZED "AVERAGE ANNUAL TOTAL RETURNS"
We may, from time to time, also quote in sales literature or advertisements,
nonstandardized average annual total returns for the Sub-Accounts that do not
reflect the surrender charge. These are calculated in exactly the same way as
standardized average annual total returns described above, except that the
ending redeemable value of the hypothetical account for the period is replaced
with an ending value for the period that does not take into account any charges
on amounts surrendered or withdrawn, and that the initial investment is assumed
to be $10,000 rather than $1,000.
Generally, nonstandardized Sub-Account performance data will only be disclosed
if standardized average annual return for the Sub-Accounts for the required
periods is also disclosed.
Nonstandardized average annual total returns for the period ending December 31,
1998 are shown on the following page.
<PAGE>
Nonstandardized average annual total returns for the periods shown below were:
<TABLE>
<CAPTION>
SUB-ACCOUNT 1 YEAR 5 YEAR FROM SUB-
RETURN RETURN ACCOUNT SUB-ACCOUNT
YEAR ENDED YEAR ENDED INCEPTION TO INCEPTION
12/31/98 12/31/98 12/31/98 DATE
<S> <C> <C> <C> <C>
Bond 7.38 % 5.15% 6.40 % 12/4/89
Capital 18.42 % 14.37% 14.71 % 5/1/93
International Equity 11.69 % ** 9.89 % 5/1/95
Managed 3.57 % 8.12% 8.28 % 12/4/89
Money Market 3.25 % 3.04% 2.98 % 12/4/89
Value Equity 1.26 % 10.35% 9.63 % 12/4/89
Alger American Growth 45.91 % ** 26.83 % 5/1/96
Alger American Leveraged AllCap 55.53 % ** 24.28 % 5/1/96
Alger American MidCap Growth 28.39 % ** 14.49 % 5/1/96
Alger American Small Capitalization 13.83 % ** 5.50 % 5/1/96
Berger/BIAM IPT-International 14.42 % ** 6.47 % 5/1/97
Berger IPT-Small Company Growth **** ** **** 5/1/98
Dreyfus: Capital Appreciation **** ** **** 5/1/98
Dreyfus: Growth and Income 10.17 % ** 11.84 % 5/1/96
Dreyfus Socially Responsible 27.49 % ** 24.41 % 5/1/96
Fidelity VIP Growth 37.45 % ** 22.31 % 5/1/94
Fidelity VIP High Income (5.74)% ** 8.13 % 5/1/94
Fidelity VIP Overseas 11.09 % ** 7.54 % 5/1/94
Fidelity VIP II Asset Manager 13.36 % ** 12.01 % 5/1/94
Fidelity VIP II Contrafund 27.80 % ** 12.22 % 5/1/98
Fidelity VIP III Growth Opportunities 22.62 % ** 19.50 % 5/1/98
Fidelity VIP II Index 500 26.44 % ** 26.68 % 5/1/96
Goldman Sachs VIT Capital Growth * ** *** 5/1/99
Goldman Sachs VIT CORE US Equity * ** *** 5/1/99
Goldman Sachs VIT Global Income * ** *** 5/1/99
Goldman Sachs VIT Growth and Income * ** *** 5/1/99
Montgomery Variable Series: Emerging Markets (38.47)% ** (16.56) 5/1/96
Montgomery Variable Series: Growth 1.41 % ** 14.26 % 5/1/97
Seligman Communications and Information 34.49 % ** 21.24 % 5/1/95
Seligman Frontier (2.91)% ** 13.85 % 5/1/95
</TABLE>
<PAGE>
* These Sub-Accounts have not been in operation one year as of December 31,
1998, and accordingly, no one year nonstandardized average annual total
return is available.
** These Sub-Accounts have not been in operation five years as of December 31,
1998, and accordingly, no five year nonstandardized average annual total
return is available.
*** As of December 31, 1998, the Goldman Sachs VIT Capital Growth, Goldman
Sachs VIT CORE US Equity, Goldman Sachs VIT Global Income and Goldman Sachs
VIT Growth and Income Sub-Accounts had not commenced operations.
Accordingly, we have not provided nonstandardized average annual total
return information for these Sub-Accounts.
**** As of December 31, 1998, there was no activity in these sub-accounts.
<PAGE>
C. ADJUSTED HISTORIC FUND AVERAGE ANNUAL TOTAL RETURNS
Sales literature or advertisements may quote historic performance data for the
Funds since their inception reduced by some or all of the fees and charges under
the Policy. Such adjusted historic fund performance includes data that precedes
the inception dates of the Sub-Accounts. This data is designed to show the
performance that would have resulted if the Policy had been in existence during
that time. Adjusted historic Fund average annual total returns will be shown
only if standard performance data for the Sub-Accounts is shown, if available.
The Funds have provided the adjusted historic Fund average annual total return
information used to calculate the adjusted historic total returns for the Funds
for periods prior to the inception date of the Sub-Accounts.
Adjusted historic Fund average annual total returns for the period ending
December 31,1998, are shown on the following pages.
<PAGE>
Adjusted historic Fund average annual total returns, assuming a surrender
charge, for the periods shown below were:
<TABLE>
<CAPTION>
1 YEAR RETURN 5 YEAR RETURN 10 YEAR RETURN FROM FUND
YEAR ENDED YEAR ENDED YEAR ENDED INCEPTION DATE FUND
SUB-ACCOUNT 12/31/98 12/31/98 12/31/98 TO 12/31/98 INCEPTION DATE
----------- -------- -------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Bond 1.98 % 4.71% *** 6.40 % 12/04/89
Capital 13.02 % 14.05% *** 14.41 % 04/23/93
International Equity 6.29 % ** *** 8.89 % 04/24/95
Managed (1.83)% 7.73% *** 8.28 % 12/04/89
Money Market (2.15)% 2.56% *** 2.98 % 12/04/89
Value Equity (4.14)% 9.98% *** 9.63 % 12/04/89
Alger American Growth 40.51 % 21.87% *** 20.28 % 01/08/89
Alger American Leveraged AllCap 50.13 % ** *** 36.90 % 01/25/95
Alger American MidCap Growth 22.99 % 16.98% *** 21.54 % 05/03/93
Alger American Small
Capitalization 8.43 % 11.10% 18.14% 17.16 % 09/20/88
Berger/BIAM IPT-International 9.02 % ** *** 3.33 % 05/01/97
Berger IPT-Small Company Growth (5.02)% ** *** 13.63 % 05/01/96
Dreyfus: Capital Appreciation 22.89 % 21.45% *** 19.59 % 03/31/93
Dreyfus: Growth and Income 4.77 % ** *** 18.85 % 05/02/94
Dreyfus Socially Responsible 22.09 % 20.33% *** 20.98 % 10/07/93
Fidelity VIP Growth 32.05 % 19.71% 17.69% 15.67 % 10/09/86
Fidelity VIP High Income (11.14)% 6.79% 9.48% 9.49 % 09/19/85
Fidelity VIP Overseas 5.69 % 7.67% 8.48% 7.01 % 01/28/87
Fidelity VIP II Asset Manager 7.96 % 9.79% *** 11.26 % 09/06/89
Fidelity VIP II Contrafund 22.40 % ** *** 26.17 % 01/03/95
Fidelity VIP III Growth
Opportunities 17.22 % ** *** 23.81 % 01/03/95
Fidelity VIP II Index 500 21.04 % 21.70% *** 19.31 % 08/27/92
Goldman Sachs VIT Capital Growth * ** *** **** 05/01/99
Goldman Sachs VIT CORE US Equity * ** *** **** 05/01/99
Goldman Sachs VIT Global Income * ** *** **** 05/01/99
Goldman Sachs VIT Growth and Income * ** *** **** 05/01/99
Montgomery Variable Series:
Emerging Markets (43.87)% ** *** (16.58)% 02/02/96
Montgomery Variable Series: Growth (3.99)% ** *** 17.18 % 02/09/96
Seligman Communications and Information 29.09 % ** *** 23.28 % 10/11/94
Seligman Frontier (8.31)% ** *** 15.56 % 10/11/94
</TABLE>
<PAGE>
* These Sub-Accounts invest in Portfolios that have not been in operation one
year as of December 31, 1998, and accordingly, no one year adjusted
historic Fund average annual total return is available.
** These Sub-Accounts invest in Portfolios that have not been in operation
five years as of December 31, 1998, and accordingly, no five year adjusted
historic Fund average annual total return is available.
*** These Sub-Accounts invest in Portfolios that have not been in operation ten
years as of December 31, 1998, and accordingly, no ten year adjusted
historic Fund average annual total return is available.
**** As of December 31, 1998, these Sub-Accounts had not commenced operations.
Accordingly, we have not provided adjusted historic Fund average annual
total return information for these Sub-Accounts.
<PAGE>
Adjusted historic Fund average annual total returns, assuming no surrender
charge, for the periods shown below were:
<TABLE>
<CAPTION>
1 YEAR RETURN 5 YEAR RETURN 10 YEAR RETURN FROM FUND
YEAR ENDED YEAR ENDED YEAR ENDED INCEPTION DATE FUND
SUB-ACCOUNT 12/31/98 12/31/98 12/31/98 TO 12/31/98 INCEPTION DATE
----------- -------- -------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Bond 7.38 % 5.15% *** 6.40 % 12/04/89
Capital 18.42 % 14.37% *** 14.66 % 04/23/93
International Equity 11.69 % ** *** 9.85 % 04/24/95
Managed 3.57 % 8.12% *** 8.28 % 12/04/89
Money Market 3.25 % 3.04% *** 2.98 % 12/04/89
Value Equity 1.26 % 10.35% *** 9.63 % 12/04/89
Alger American Growth 45.91 % 22.11% *** 20.28 % 01/08/89
Alger American Leveraged AllCap 55.53 % ** *** 37.36 % 01/25/95
Alger American MidCap Growth 28.39 % 17.27% *** 21.73 % 05/03/93
Alger American Small Capitalization 13.83 % 11.45% 18.14% 17.16 % 09/20/88
Berger/BIAM IPT-International 14.42 % ** *** 6.47 % 05/01/97
Berger IPT-Small Company Growth 0.38 % ** *** 18.13 % 05/05/96
Dreyfus: Capital Appreciation 28.29 % 21.78% *** 19.79 % 3/31/93
Dreyfus: Growth and Income 10.17 % ** *** 19.25 % 05/02/94
Dreyfus Socially Responsible 27.49 % 20.67% *** 21.21 % 10/07/93
Fidelity VIP Growth 37.45 % 19.97% 17.69% 15.67 % 10/09/86
Fidelity VIP High Income (5.74)% 7.20% 9.48% 9.49 % 09/19/85
Fidelity VIP Overseas 11.09 % 8.07% 8.48% 7.01 % 01/28/87
Fidelity VIP II Asset Manager 13.36 % 10.16% *** 11.34 % 09/06/89
Fidelity VIP II Contrafund 27.80 % ** *** 26.72 % 01/03/95
Fidelity VIP III Growth Opportunities 22.62 % ** *** 24.40 % 01/03/95
Fidelity VIP II Index 500 26.44 % 21.94% *** 19.42 % 08/27/92
Goldman Sachs VIT Capital Growth * ** *** **** 05/01/99
Goldman Sachs VIT CORE US Equity * ** *** **** 05/01/99
Goldman Sachs VIT Global Income * ** *** **** 05/01/99
Goldman Sachs VIT Growth and Income * ** *** **** 05/01/99
Montgomery Variable Series: (38.47)% ** *** (14.45)% 02/02/96
Emerging Markets
Montgomery Variable Series: Growth 1.41 % ** *** 18.32 % 02/09/96
Seligman Communications and Information 34.49 % ** *** 23.70 % 10/11/94
Seligman Frontier (2.91)% ** *** 16.08 % 10/11/94
</TABLE>
<PAGE>
* These Sub-Accounts invest in Portfolios that have not been in operation one
year as of December 31, 1998, and accordingly, no one year adjusted
historic Fund average annual total return is available.
** These Sub-Accounts invest in Portfolios that have not been in operation
five years as of December 31, 1998, and accordingly, no five year adjusted
historic Fund average annual total return is available.
*** These Sub-Accounts invest in Portfolios that have not been in operation ten
years as of December 31, 1998, and accordingly, no ten year adjusted
historic Fund average annual total return is available.
**** As of December 31, 1998, these Sub-Accounts had not commenced operations.
Accordingly, we have not provided adjusted historic Fund average annual
total return information for these Sub-Accounts.
<PAGE>
EFFECT OF THE ANNUAL ADMINISTRATION CHARGE ON PERFORMANCE DATA
The Policy provides for a $30 annual administration charge to be assessed
annually on each policy anniversary proportionately from any Sub-Accounts or
Fixed Account in which You are invested. If the Policy Value on the policy
anniversary is $75,000 or more, we will waive the annual administration charge
for the prior Policy Year. We will also waive the annual administration charge
for Tax-Sheltered Annuity Policies. For purposes of reflecting the annual
administration charge in yield and total return quotations, we will convert the
annual charge into a per-dollar per-day charge based on the average Policy Value
in the Variable Account of all policies on the last day of the period for which
quotations are provided. The per-dollar per-day average charge will then be
adjusted to reflect the basis upon which the particular quotation is calculated.
SAFEKEEPING OF ACCOUNT ASSETS
We hold the title to the assets of the Variable Account. The assets are kept
physically segregated and held separate and apart from our general account
assets and from the assets in any other separate account we have.
Records are maintained of all purchases and redemptions of portfolio shares held
by each of the Sub-Accounts.
Our officers and employees are covered by an insurance company blanket bond
issued by America Home Assurance Company to The Canada Life Assurance Company,
our parent Company, in the amount of $25 million. The bond insures against
dishonest and fraudulent acts of officers and employees.
STATE REGULATION
We are subject to the insurance laws and regulations of all the jurisdictions
where we are licensed to operate. The availability of certain Policy rights and
provisions depends on state approval and/or filing and review processes. The
policies will be modified to comply with the requirements of each applicable
jurisdiction.
RECORDS AND REPORTS
We will maintain all records and accounts relating to the Variable Account. As
presently required by the Investment Company Act of 1940 and regulations
promulgated thereunder, reports containing such information as may be required
under the Act or by any other applicable law or regulation will be sent to you
semi-annually at your last address known to us.
LEGAL MATTERS
All matters relating to New York law pertaining to the policies, including the
validity of the policies and our authority to issue the policies, have been
passed upon by Charles MacPhaul. Sutherland Asbill &
<PAGE>
Brennan LLP of Washington, DC, has provided advice on certain matters relating
to the federal securities laws.
EXPERTS
Our balance sheets as of December 31, 1998 and 1997, and the related statements
of operations, accumulated surplus (deficit), and cash flows for each of the
three years in the period ended December 31, 1998, included in this Statement of
Additional Information and Registration Statement as well as the Variable
Account's statement of net assets as of December 31, 1998, and the related
statements of operations and changes in net assets for the periods indicated
therein included in this Statement of Additional Information and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, of as
set forth in their reports thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933 as amended, with respect to the policies discussed in this Statement of
Additional Information. Not all of the information set forth in the registration
statement, amendments and exhibits thereto has been included in this Statement
of Additional Information. Statements contained in this Statement of Additional
Information concerning the content of the policies and other legal instruments
are intended to be summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the SEC.
FINANCIAL STATEMENTS
The Variable Account's statement of net assets as of December 31, 1998, and the
related statements of operations and changes in net assets for the periods
indicated therein, as well as the Report of Independent Auditors, are contained
herein. Ernst & Young LLP, independent auditors, serves as independent auditors
for the Variable Account.
Our balance sheets as of December 31, 1998 and 1997, and the related statements
of operations, accumulated surplus (deficit), and cash flows for each of the
three years in the period ended December 31, 1998, as well as the Report of
Independent Auditors, are contained herein. The financial statements of the
Company should be considered only as bearing on our ability to meet our
obligations under the policies. They should not be considered as bearing on the
investment performance of the assets held in the Variable Account.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
CANADA LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT 1
Page
<S> <C>
Report of Independent Auditors................... 1
Audited Financial Statements
Statement of Net Assets.......................... 2
Statements of Operations......................... 10
Statements of Changes in Net Assets.............. 18
Notes to Financial Statements.................... 32
CANADA LIFE INSURANCE COMPANY OF NEW YORK
Report of Independent Auditors................... 1
Audited Financial Statements
Statutory Balance Sheets......................... 2
Statutory Statements of Operations............... 3
Statutory Statements of Capital and Surplus...... 4
Statutory Statements of Cash Flows............... 5
Notes to Statutory Financial Statements.......... 6
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
CANADA LIFE OF NEW YORK
VARIABLE ANNUITY ACCOUNT 1
December 31, 1998
With Report of Independent Auditors
<PAGE>
Canada Life of New York Variable Annuity Account 1
Financial Statements
December 31, 1998
Contents
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors....................................... 1
Audited Financial Statements
Statement of Net Assets.............................................. 2
Statement of Operations.............................................. 10
Statements of Changes in Net Assets.................................. 18
Notes to Financial Statements........................................ 32
</TABLE>
<PAGE>
Report of Independent Auditors
Board of Directors
Canada Life Insurance Company of New York
We have audited the accompanying statement of net assets of Canada Life of New
York Variable Annuity Account 1 (comprising, respectively, the Money Market,
Managed, Bond, Equity, Capital, International Equity, Asset Manager, Growth,
High Income, Overseas, Index 500, Contrafund, Growth Opportunities,
Communications and Information, Frontier, Small Capitalization, Growth, MidCap,
Leveraged AllCap, Growth and Income, Socially Responsible, Emerging Markets,
Variable Series Growth and Berger IPT International Sub-accounts) as at December
31, 1998, and the results of its operations for the year then ended, and the
changes in net assets for each of the years ended December 31, 1998 and December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Variable Annuity Account 1 as
at December 31, 1998, and the results of its operations for the year then ended,
and the changes in its net assets for each of the years ended December 31, 1998
and December 31, 1997 in accordance with accounting principles generally
accepted in the United States.
Toronto, Canada
April 15, 1999 Chartered Accountants
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
CLASF Series
------------------------------------------------------------------------------------------
International
Money Market Managed Bond Equity
Sub- Sub- Sub- Equity Capital Sub-
account account account Sub-account Sub-account account
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Assets
Investment in Canada
Life of America Series
Fund, Inc., at market
(See Note 3 for cost
values) $380,390 $188,439 $179,456 $111,583 $ 81,913 $142,393
Dividends receivable 1,362 19,706 8,892 5,139 5,802 10,713
Due from (to) Canada
Life Insurance Company
of New York (Note 6) 43,366 (1,148) (474) (892) 7,392 (276)
------------------------------------------------------------------------------------------
Net assets $425,118 $206,997 $187,874 $115,830 $ 95,107 $152,830
==========================================================================================
Net assets
attributable to:
Policyholders'
liability
reserve $425,118 $206,997 $187,874 $115,830 $ 95,107 $152,830
---------------------------------------------------------------------------------------
Net assets $425,118 $206,997 $187,874 $115,830 $ 95,107 $152,830
=======================================================================================
Number of units
outstanding 32,340 9,949 10,630 4,981 4,334 10,775
=======================================================================================
Net asset value per $13.1453 $20.8058 $17.6739 $23.2544 $21.9444 $14.1838
unit
=======================================================================================
</TABLE>
See accompanying notes.
2
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
Fidelity VIP Series
-------------------
Asset Manager Growth High Income Overseas
Sub- Sub- Sub- Sub-
account account account account
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Assets
Investment in Fidelity
VIP at market (See Note
3 for cost values) $676,351 $577,791 $349,094 $ 67,107
Dividends receivable - - - -
Due from (to) Canada Life
Insurance Company of New
York (Note 6) (3,158) (27,160) 25,499 (421)
--------------------------------------------------------------------------
Net assets $673,193 $550,631 $374,593 $ 66,686
==========================================================================
Net assets attributable
to:
Policyholders' liability
reserve $673,193 $550,631 $374,593 $ 66,686
--------------------------------------------------------------------------
Net assets $673,193 $550,631 $374,593 $ 66,686
==========================================================================
Number of units
outstanding 24,513 9,177 11,141 2,947
==========================================================================
Net asset value per unit $27.4627 $60.0012 $33.6229 $22.6284
==========================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
Fidelity VIP Series (continued)
---------------------------------------------------------
Index Growth
500 Contrafund Opportunities
Sub- Sub- Sub-
account account account
-----------------------------------------------------------
<S> <C> <C> <C>
Net Assets
Investment in Fidelity VIP
at market (See Note 3 for
cost values) $ 602,573 $ 56,799 $ 58,916
Dividends receivable - - -
Due from (to) Canada Life
Insurance Company of New
York (Note 6) (30,239) 2,022 (24)
-----------------------------------------------------------
Net assets $ 572,334 $ 58,821 $ 58,892
===========================================================
Net assets attributable to:
Policyholders'
liability reserve $ 572,334 $ 58,821 $ 58,892
-----------------------------------------------------------
Net assets $ 572,334 $ 58,821 $ 58,892
===========================================================
Number of units outstanding 3,693 2,278 2,456
===========================================================
Net asset value per unit $154.9781 $25.8213 $23.9788
===========================================================
</TABLE>
See accompanying notes.
4
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
Seligman Portfolios Series
----------------------------------------------
Communications
and Information Frontier
Sub-account Sub-account
----------------------------------------------
<S> <C> <C>
Net Assets
Investment in Seligman Portfolios,
Inc. at market (See Note 3 for cost
values) $715,012 $302,836
Dividends receivable - -
Due from (to) Canada Life Insurance
Company of New York (Note 6) (31,416) (24,736)
----------------------------------------------
Net assets $683,596 $278,100
==============================================
Net assets attributable to:
Policyholders' liability reserve $683,596 $278,100
----------------------------------------------
Net assets $683,596 $278,100
==============================================
Number of units outstanding 27,600 14,716
==============================================
Net asset value per unit $24.7680 $18.8978
==============================================
</TABLE>
See accompanying notes.
5
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
Alger American Series
---------------------
Small Leveraged
Capitalization Growth MidCap AllCap
Sub-account Sub-account Sub-account Sub-account
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Assets
Investment in Alger American at market
(See Note 3 for cost values) $154,071 $623,845 $ 73,676 $113,355
Dividends receivable - - - -
Due from (to) Canada Life Insurance
Company of New York (Note 6) 993 (54,365) (502) 6,997
-------------------------------------------------------------------------------
Net assets $155,064 $569,480 $ 73,174 $120,352
===============================================================================
Net assets attributable to:
Policyholders' liability reserve $155,064 $569,480 $ 73,174 $120,352
-------------------------------------------------------------------------------
Net assets $155,064 $569,480 $ 73,174 $120,352
===============================================================================
Number of units outstanding 3,026 8,966 2,394 3,445
===============================================================================
Net asset value per unit $51.2439 $63.5155 $30.5656 $34.9353
===============================================================================
</TABLE>
See accompanying notes.
6
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
Dreyfus Series
--------------
Growth Socially
And Income Responsible
Sub-account Sub-account
--------------------------------------------
<S> <C> <C>
Net Assets
Investment in Dreyfus at market (See
Note 3 for cost values) $250,854 $168,391
Dividends receivable - -
Due from (to) Canada Life Insurance
Company of New York (Note 6) (23,168) (899)
--------------------------------------------
Net assets $227,686 $167,492
============================================
Net assets attributable to:
Policyholders' liability reserve $227,686 $167,492
-------------------------------------------
Net assets $227,686 $167,492
===========================================
Number of units outstanding 7,983 4,879
===========================================
Net asset value per unit $28.5214 $34.3292
===========================================
</TABLE>
See accompanying notes.
7
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
Montgomery Series
-----------------
Emerging Variable Series
Markets Growth
Sub-account Sub-account
--------------------------------------------
<S> <C> <C>
Net Assets
Investment in Montgomery at market (See
Note 3 for cost values) $ 5,186 $114,748
Dividends receivable - -
Due from (to) Canada Life Insurance
Company of New York (Note 6) (160) (645)
--------------------------------------------
Net assets $ 5,026 $114,103
============================================
Net assets attributable to:
Policyholders' liability reserve $ 5,026 $114,103
--------------------------------------------
Net assets $ 5,026 $114,103
============================================
Number of units outstanding 789 7,000
============================================
Net asset value per unit $6.3701 $16.3004
============================================
</TABLE>
See accompanying notes.
8
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
Berger Series
---------------------
Berger IPT
International All Series
Sub-account Combined
-------------------------------------------------
<S> <C> <C>
Net Assets $ 18,284 $6,013,063
Investment in Berger at market
(See Note 3 for cost values)
Dividends receivable 51,614
Due from (to) Canada Life Insurance
Company of New York (Note 6) (1,331) (114,745)
-------------------------------------------------
Net assets $ 16,953 $5,949,932
=================================================
Net assets attributable to:
Policyholders' liability reserve $ 16,953 $5,949,932
-------------------------------------------------
Net assets $ 16,953 $5,949,932
=================================================
Number of units outstanding 1,525 211,537
=================================================
Net asset value per unit $11.1167
=================================================
</TABLE>
See accompanying notes.
9
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Operations
Year ended December 31, 1998
<TABLE>
<CAPTION>
CLASF Series
------------
Money International
Market Managed Bond Equity Capital Equity
Sub- Sub- Sub- Sub- Sub- Sub-
account account account account account account
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income $10,918 $19,706 $ 8,892 $ 5,139 $13,327 $10,713
Less mortality & expense
risk charges (Note 6) 3,285 2,822 1,506 1,942 1,524 1,956
----------------------------------------------------------------------------------
Net investment income 7,633 16,884 7,386 3,197 11,803 8,757
Net realized and unrealized
gain (loss) on
investments: -
Net unrealized appreciation
(depreciation) from
investments - (8,847) (6,756) (6,286) 3,913 6,937
Net realized gain (loss)
from investments - 763 9,734 (214) 9,616 (3,065)
----------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) from
investments - (8,084) 2,978 (6,500) 13,529 3,872
----------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations $ 7,633 $ 8,800 $10,364 $(3,303) $25,332 $12,629
==================================================================================
</TABLE>
See accompanying notes.
10
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Fidelity VIP Series
-------------------
Asset
Manager Growth High Income Overseas
Sub- Sub- Sub- Sub-
account Account Account account
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income:
Dividend income $64,663 $ 56,802 $ 39,190 $6,200
Less mortality and expense
risk charges (Note 6) 7,872 6,713 5,008 1,229
---------------------------------------------------------------------
Net investment income 56,791 50,089 34,182 4,971
Net realized and unrealized
gain (loss) on investments:
Net unrealized appreciation
(depreciation) from
investments 14,374 75,863 (26,795) (981)
Net realized gain (loss)
from investments 3,091 35,230 (46,725) 4,460
---------------------------------------------------------------------
Net realized and unrealized
gain (loss) from
investments 17,465 111,093 (73,520) 3,479
---------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations $74,256 $161,182 $(39,338) $8,450
=====================================================================
</TABLE>
See accompanying notes.
11
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Fidelity VIP Series (continued)
-------------------------------
Index Growth
500 Contrafund Opportunities
Sub- Sub- Sub-
account account* account*
-------------------------------------------------------
<S> <C> <C> <C>
Net investment income:
Dividend income $ 9,857 $ - $ -
Less mortality and expense
risk charges (Note 6) 6,440 116 98
-------------------------------------------------------
Net investment income 3,417 (116) (98)
Net realized and unrealized
gain (loss) on investments:
Net unrealized appreciation
(depreciation) from
investments 75,151 5,708 4,344
Net realized gain (loss)
from investments 34,153 773 -
-------------------------------------------------------
Net realized and unrealized
gain (loss) from
investments 109,304 6,481 4,344
-------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations $112,721 $6,365 $4,246
=======================================================
</TABLE>
See accompanying notes.
*For the period from May 1, 1998 (commencement of operations) to December31,
1998
12
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Seligman Portfolio Series
-------------------------
Communications
and Information Frontier
Sub-account Sub-account
---------------------------------------------
<S> <C> <C>
Net investment income:
Dividend income $ 26,494 $ -
Less mortality and expense
risk charges (Note 6) 7,004 4,598
---------------------------------------------
Net investment income 19,490 (4,598)
Net realized and unrealized
gain (loss) on investments:
Net unrealized appreciation
(depreciation) from
investments 176,948 23,005
Net realized gain (loss)
from investments (5,015) (19,311)
---------------------------------------------
Net realized and unrealized
gain (loss) from investments 171,933 3,694
---------------------------------------------
Net increase (decrease) in
net assets resulting from
operations $191,423 $ (904)
=============================================
</TABLE>
See accompanying notes.
13
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Alger American Series
---------------------
Small Leveraged
Capitalization Growth MidCap AllCap
Sub-account Sub-account Sub-account Sub-account
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income:
Dividend income $12,670 $ 67,785 $ 7,915 $ 2,243
Less mortality and expense
risk charges (Note 6) 1,269 6,018 826 715
------------------------------------------------------------------------------------
Net investment income 11,401 61,767 7,089 1,528
Net realized and unrealized
gain (loss) on investments:
Net unrealized appreciation
(depreciation) from
investments 6,195 95,276 10,628 15,633
Net realized gain (loss)
from investments (1,279) 45,786 (1,879) 3,544
------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) from investments 4,916 141,062 8,749 19,177
------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations $16,317 $202,829 $15,838 $20,705
====================================================================================
</TABLE>
See accompanying notes.
14
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Dreyfus Series
--------------
Growth Socially
and Income Responsible
Sub-account Sub-account*
----------------------------------------
<S> <C> <C>
Net investment income:
Dividend income $ 5,540 $ 6,303
Less mortality and expense risk
charges (Note 6) 3,110 1,503
---------------------------------------
Net investment income 2,430 4,800
Net realized and unrealized gain (loss)
on investments:
Net unrealized appreciation
(depreciation) from investments 14,706 21,020
Net realized gain (loss) from
investments (264) 4,155
---------------------------------------
Net realized and unrealized gain
(loss) from investments 14,442 25,175
---------------------------------------
Net increase (decrease) in net assets
resulting from operations $16,872 $29,975
=======================================
</TABLE>
See accompanying notes.
*For the period from May 1, 1998 (commencement of operations) to December 31,
1998
15
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Montgomery Series
-----------------
Emerging Variable Series
Markets Growth
Sub-account Sub-account
---------------------------------------------
<S> <C> <C>
Net investment income:
Dividend income $ 10 $1,001
Less mortality and expense
risk charges (Note 6) 177 1,557
---------------------------------------------
Net investment income (167) (556)
Net realized and unrealized
gain (loss) on investments:
Net unrealized appreciation
(depreciation) from
investments (1,407) 2,092
Net realized gain (loss)
from investments (6,293) 33
---------------------------------------------
Net realized and unrealized
gain (loss) from investments
(7,700) 2,125
---------------------------------------------
Net increase (decrease) in
net assets resulting from
operations $(7,867) $1,569
=============================================
</TABLE>
See accompanying notes.
16
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Berger Series
-----------------
Berger IPT
International All Series
Sub-account* Combined
----------------------------------------
<S> <C> <C>
Net investment income:
Dividend income $ 258 $375,626
Less mortality and expense
risk charges (Note 6) 166 67,454
----------------------------------------
Net investment income 92 308,172
Net realized and unrealized
gain (loss) on investments:
Net unrealized appreciation
(depreciation) from
investments 686 501,407
Net realized gain (loss)
from investments (1,958) 65,335
----------------------------------------
Net realized and unrealized
gain (loss) from investments
(1,272) 566,742
----------------------------------------
Net increase (decrease) in
net assets resulting from
operations $(1,180) $874,914
========================================
</TABLE>
See accompanying notes.
*For the period from May 1, 1998 (commencement of operations) to December 31,
1998
17
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Changes in Net Assets
Year ended December 31, 1998
<TABLE>
<CAPTION>
CLASF Series
------------
Money International
Market Managed Bond Equity Capital Equity
Sub- Sub- Sub- Sub- Sub- Sub-
account account account account account account
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income
(loss) $ 7,633 $ 16,884 $ 7,386 $ 3,197 $ 11,803 $ 8,757
Unrealized appreciation
(depreciation) from
investments - (8,847) (6,756) (6,286) 3,913 6,937
Net realized gain (loss)
from investments - 763 9,734 (214) 9,616 (3,065)
-------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 7,633 8,800 10,364 (3,303) 25,332 12,629
Capital transactions:
Net increase (decrease)
from unit transactions
(Note 5) 266,976 (23,949) 161,666 2,191 (46,118) 9,697
-------------------------------------------------------------------------------------
Net increase (decrease)
in net assets arising
from capital transactions 266,976 (23,949) 161,666 2,191 (46,118) 9,697
-------------------------------------------------------------------------------------
Total increase (decrease)
in net assets 274,609 (15,149) 172,030 (1,112) (20,786) 22,326
Net assets, beginning of
year 150,509 222,146 15,844 116,942 115,893 130,504
-------------------------------------------------------------------------------------
Net assets, end of year $425,118 $206,997 $187,874 $115,830 $ 95,107 $152,830
=====================================================================================
</TABLE>
See accompanying notes.
18
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Fidelity VIP Series
--------------------
Asset Manager Growth High Income Overseas
Sub-account Sub-account Sub-account Sub-account
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income
(loss) $ 56,791 $ 50,089 $ 34,182 $ 4,971
Unrealized appreciation
(depreciation) from
investments 14,374 75,863 (26,795) (981)
Net realized gain (loss)
from investments 3,091 35,230 (46,725) 4,460
-------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 74,256 161,182 (39,338) 8,450
Capital transactions:
Net increase (decrease)
from unit transactions
(Note 5) 164,752 (60,011) 104,021 (21,509)
-------------------------------------------------------------------------------
Net increase (decrease) in
net assets arising from
capital transactions 164,752 (60,011) 104,021 (21,509)
-------------------------------------------------------------------------------
Total increase
(decrease) in net
assets 239,008 101,171 64,683 (13,059)
Net assets, beginning of year
434,185 449,460 309,910 79,745
-------------------------------------------------------------------------------
Net assets, end of year $673,193 $550,631 $374,593 $ 66,686
===============================================================================
</TABLE>
See accompanying notes.
19
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Fidelity VIP Series (continued)
-------------------------------
Index Growth
500 Contrafund Opportunities
Sub-account Sub-account* Sub-account*
--------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income
(loss) $ 3,417 $ (116) $ (98)
Unrealized appreciation
(depreciation) from
investments 75,151 5,708 4,344
Net realized gain (loss)
from investments 34,153 773 -
--------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations 112,721 6,365 4,246
Capital transactions:
Net increase (decrease)
from unit transactions
(Note 5) 298,966 52,456 54,646
--------------------------------------------------------------
Net increase (decrease) in
net assets arising from
capital transactions 298,966 52,456 54,646
--------------------------------------------------------------
Total increase
(decrease) in net
assets 411,687 58,821 58,892
Net assets, beginning of
year 160,647 - -
--------------------------------------------------------------
Net assets, end of year $572,334 $58,821 $58,892
==============================================================
</TABLE>
See accompanying notes.
*For the period from May 1, 1998 (commencement of operations) to December 31,
1998
20
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Seligman Portfolios Series
--------------------------
Communications
and Information Frontier
Sub-account Sub-account
-----------------------------------------
<S> <C> <C>
Operations:
Net investment income
(loss) $ 19,490 $ (4,598)
Unrealized appreciation
(depreciation) from
investments 176,948 23,005
Net realized gain (loss)
from investments (5,015) (19,311)
-----------------------------------------
Net increase (decrease)
in net assets resulting
from operations 191,423 (904)
Capital transactions:
Net increase (decrease)
from unit transactions
(Note 5) 57,524 10,242
-----------------------------------------
Net increase (decrease)
in net assets arising
from capital transactions 57,524 10,242
-----------------------------------------
Total increase (decrease)
in net assets 248,947 9,338
Net assets, beginning of
year 434,649 268,762
-----------------------------------------
Net assets, end of year $683,596 $278,100
=========================================
</TABLE>
See accompanying notes.
21
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Alger American Series
---------------------
Small Leveraged
Capitalization Growth MidCap AllCap
Sub-account Sub-account Sub-account Sub-account
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income
(loss) $ 11,401 $ 61,767 $ 7,089 $ 1,528
Unrealized appreciation
(depreciation) from
investments 6,195 95,276 10,628 15,633
Net realized gain (loss)
from investments (1,279) 45,786 (1,879) 3,544
------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 16,317 202,829 15,838 20,705
Capital transactions:
Net increase (decrease)
from unit transactions
(Note 5) 89,024 192,309 21,462 77,987
-------------------------------------------------------------------------------
Net increase (decrease)
in net assets arising
from capital transactions 89,024 192,309 21,462 77,987
-------------------------------------------------------------------------------
Total increase (decrease)
in net assets 105,341 395,138 37,300 98,692
Net assets, beginning of
year 49,723 174,342 35,874 21,660
-------------------------------------------------------------------------------
Net assets, end of year $155,064 $569,480 $73,174 $120,352
===============================================================================
</TABLE>
See accompanying notes.
22
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Dreyfus Series
--------------
Growth and Socially
Income Responsible
Sub-account Sub-account
------------------------------------
<S> <C> <C>
Operations:
Net investment income
(loss) $ 2,430 $ 4,800
Unrealized appreciation
(depreciation) from
investments 14,706 21,020
Net realized gain (loss)
from investments (264) 4,155
------------------------------------
Net increase (decrease)
in net assets resulting
from operations 16,872 29,975
Capital transactions:
Net increase (decrease)
from unit transactions
(Note 5) 116,188 74,114
------------------------------------
Net increase (decrease)
in net assets arising
from capital transactions 116,188 74,114
------------------------------------
Total increase (decrease)
in net assets 133,060 104,089
Net assets, beginning of
year 94,626 63,403
------------------------------------
Net assets, end of year $227,686 $167,492
====================================
</TABLE>
See accompanying notes.
23
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Montgomery Series
-----------------
Emerging Variable Series
Markets Growth
Sub-account Sub-account
-------------------------------------------
<S> <C> <C>
Operations:
Net investment income
(loss) $ (167) $ (556)
Unrealized appreciation
(depreciation) from
investments (1,407) 2,092
Net realized gain (loss)
from investments (6,293) 33
----------------------------------------
.Net increase (decrease)
in net assets resulting
from operations (7,867) 1,569
Capital transactions:
Net increase (decrease)
from unit transactions
(Note 5) (5,331) 12,092
----------------------------------------
Net increase (decrease)
in net assets arising
from capital transactions (5,331) 12,092
----------------------------------------
Total increase (decrease)
in net assets (13,198) 13,661
Net assets, beginning of
year 18,224 100,442
----------------------------------------
Net assets, end of year 5,026 $114,103
========================================
</TABLE>
See accompanying notes.
24
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Berger Series
-------------------
Berger IPT
International All Series
Sub-account* Combined
------------------------------------------
<S> <C> <C>
Operations:
Net investment income
(loss) $ 92 $ 308,172
Unrealized appreciation
(depreciation) from
investments 686 501,407
Net realized gain (loss)
from investments (1,958) 65,335
------------------------------------------
Net increase (decrease)
in net assets resulting
from operations (1,180) 874,914
Capital transactions:
Net increase (decrease)
from unit transactions
(Note 5) 18,133 1,627,528
------------------------------------------
Net increase (decrease)
in net assets arising
from capital transactions 18,133 1,627,528
------------------------------------------
Total increase (decrease)
in net assets 16,953 2,502,442
Net assets, beginning of
year - 3,447,490
------------------------------------------
Net assets, end of year $16,953 $5,949,932
==========================================
</TABLE>
See accompanying notes.
*For the period from May 1, 1998 (commencement of operations) to December 31,
1998
25
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Changes in Net Assets
Year ended December 31, 1997
<TABLE>
<CAPTION>
CLASF Series
------------
Inter-national
Money Equity
Market Managed Bond Equity Capital Sub-
Sub-account Sub-account Sub-account Sub-account Sub-account account*
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income
(loss) $ 5,909 $ 21,061 $ 729 $ 11,481 $ 17,721 $ 6,968
Unrealized appreciation
(depreciation) from
investments - 1,238 66 10,984 (19,335) (15,409)
--------------------------------------------------------------------------------------------
Net realized gain (loss)
from investments - (393) (2) 4,026 21,049 83
Net increase (decrease)
in net assets resulting
from operations 5,909 21,906 793 26,491 19,435 (8,358)
--------------------------------------------------------------------------------------------
Capital transactions:
Net increase (decrease)
from unit transactions
(Note 5) 32,715 75,459 7,045 (15,700) (43,955) 138,862
Net increase (decrease)
in net assets arising
from capital
transactions 32,715 75,459 7,045 (15,700) (43,955) 138,862
--------------------------------------------------------------------------------------------
Total increase (decrease)
in net assets
38,624 97,365 7,838 10,791 (24,520) 130,504
Net assets, beginning of
year 111,885 124,781 8,006 106,151 140,413 -
--------------------------------------------------------------------------------------------
Net assets, end of year $150,509 $222,146 $15,844 $116,942 $115,893 $130,504
============================================================================================
</TABLE>
See accompanying notes
*For the period February 4, 1997 (commencement of operations) to December 31,
1997
26
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Fidelity VIP Series
-------------------
Asset
Manager Index
Sub- Growth High Income Overseas 500
account Sub-account Sub-account Sub-account Sub-account*
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income
(loss) $ 23,961 $ 4,564 $ 7,003 $ 3,639 $ (593)
Unrealized appreciation
(depreciation) from
investments 19,614 37,383 24,796 475 16,847
Net realized gain (loss)
from investments 3,414 24,397 8,182 145 904
-------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 46,989 66,344 39,981 4,259 17,158
-------------------------------------------------------------------------------------------------
Capital transactions:
Net increase (decrease)
from unit transactions
(Note 5) 166,340 189,988 223,679 38,179 143,489
-------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets arising
from capital transactions 166,340 189,988 223,679 38,179 143,489
-------------------------------------------------------------------------------------------------
Total increase (decrease)
in net assets 213,329 256,332 263,660 42,438 160,647
Net assets, beginning of
year 220,856 193,128 46,250 37,307 -
-------------------------------------------------------------------------------------------------
Net assets, end of year $434,185 $449,460 $309,910 $79,745 $160,647
=================================================================================================
</TABLE>
See accompanying notes
*For the period January 20, 1997 (commencement of operations) to December 31,
1997
27
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Seligman Portfolios Series
--------------------------
Communications
and Information Frontier
Sub-account Sub-account
------------------------------------------
<S> <C> <C>
Operations:
Net investment income
(loss) $103,840 $ 21,794
Unrealized appreciation
(depreciation) from
investments (60,439) 5,330
Net realized gain (loss)
from investments 19,282 (1,184)
Net increase (decrease)
in net assets resulting
from operations 62,683 25,940
---------------------------------------------
Capital transactions:
Net increase (decrease)
from unit transactions
(Note 5) (20,355) 138,412
---------------------------------------------
Net increase (decrease)
in net assets arising
from capital transactions (20,355) 138,412
---------------------------------------------
Total increase (decrease)
in net assets 42,328 164,352
Net assets, beginning of
year 392,321 104,410
---------------------------------------------
Net assets, end of year $434,649 $268,762
=============================================
</TABLE>
See accompanying notes
28
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Alger American Series
---------------------
Small Leveraged
Capitalization Growth MidCap AllCap
Sub-account Sub-account Sub-account Sub-account
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income
(loss) $ 329 $ (334) $ (69) $ (86)
Unrealized appreciation
(depreciation) from
investments 2,723 14,619 653 (4)
Net realized gain (loss)
from investments (4,529) (509) 6 -
--------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations (1,477) 13,776 590 (90)
--------------------------------------------------------------------------------------
Capital transactions:
Net increase (decrease)
from unit transactions
(Note 5) 9,002 148,463 24,798 18,898
--------------------------------------------------------------------------------------
Net increase (decrease)
in net assets arising
from capital transactions 9,002 148,463 24,798 18,898
--------------------------------------------------------------------------------------
Total increase (decrease)
in net assets 7,525 162,239 25,388 18,808
Net assets, beginning of
year 42,198 12,103 10,486 2,852
--------------------------------------------------------------------------------------
Net assets, end of year $49,723 $174,342 $35,874 $21,660
======================================================================================
</TABLE>
See accompanying notes
29
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Dreyfus Series
---------------
Growth and Socially
Income Responsible
Sub-account Sub-account*
-------------------------------------------
<S> <C> <C>
Operations:
Net investment income
(loss) $ 9,044 $ 1,668
Unrealized appreciation
(depreciation) from
investments 982 2,262
Net realized gain (loss)
from investments (182) 1,389
-------------------------------------------
Net increase (decrease)
in net assets resulting
from operations 9,844 5,319
-------------------------------------------
Capital transactions:
Net increase (decrease)
from unit transactions
(Note 5) 81,913 58,084
-------------------------------------------
Net increase (decrease)
in net assets arising
from capital transactions 81,913 58,084
-------------------------------------------
Total increase (decrease)
in net assets 91,757 63,403
Net assets, beginning of
year 2,869 -
-------------------------------------------
Net assets, end of year $94,626 $63,403
===========================================
</TABLE>
See accompanying notes
*For the period March 27, 1997 (commencement of operations) to December 31, 1997
30
<PAGE>
Canada Life of New York Variable Annuity Account 1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Montgomery Series
-----------------
Emerging Variable Series
Markets Growth All Series
Sub-account* Sub-account** Combined
----------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income
(loss) $ (130) $ 4,673 $ 243,172
Unrealized appreciation
(depreciation) from
investments (3,116) (4,613) 35,056
Net realized gain (loss)
from investments 551 - 76,629
----------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations (2,695) 60 354,857
----------------------------------------------------------------------
Capital transactions:
Net increase (decrease)
from unit transactions
(Note 5) 20,919 100,382 1,536,617
----------------------------------------------------------------------
Net increase (decrease)
in net assets arising
from capital transactions 20,919 100,382 1,536,617
----------------------------------------------------------------------
Total increase (decrease)
in net assets 18,224 100,442 1,891,474
Net assets, beginning of
year - - 1,556,016
----------------------------------------------------------------------
Net assets, end of year $18,224 $100,442 $3,447,490
======================================================================
</TABLE>
See accompanying notes *For the period April 1, 1997 (commencement of
operations) to December 31, 1997
**For the period May 1, 1997 (commencement of operations) to December 31, 1997
31
<PAGE>
Canada Life of New York Variable Annuity Account 1
Notes to Financial Statements
December 31, 1998
1. Organization
Canada Life of New York Variable Annuity Account 1 ("Variable Annuity Account
1") was established on September 13, 1989 as a separate investment account of
Canada Life Insurance Company of New York ("CLNY") to receive and invest premium
payments under variable annuity policies issued by CLNY. Variable Annuity
Account 1 is registered as a unit investment trust under the Investment Company
Act of 1940, as amended. The assets of Variable Annuity Account 1 are invested
in either the shares of Canada Life of America Series Fund, Inc. (the "Series
Fund"), a diversified, open-end, management investment company, or in Fidelity
Investments Variable Insurance Products Fund ("Fidelity"), a Massachusetts
Business Trust organized as an open-end, diversified management investment
company, in Seligman Portfolios, Inc. ("Seligman"), a diversified, open-end,
management investment company, in Dreyfus Variable Investment Fund ("Dreyfus"),
a diversified, open-end, management investment company, in Alger American Fund
("Alger"), a diversified, open-end, management investment company, in the
Montgomery Funds III ("Montgomery"), a Delaware Business Trust organized as a
diversified, open-end management investment company or in Berger, a diversified,
open-end management investment company. Variable Annuity Account 1 commenced
operations on December 4, 1989, with the exception of the CLASF Capital Series
which commenced operations on April 23, 1993, the Fidelity Series which
commenced operations on May 1, 1994, the Seligman Portfolios Series which
commenced operations on May 1, 1995, the Alger American Series and the Dreyfus
Series which commenced operations on May 1, 1996, and the Montgomery Series
which commenced operations on April 1, 1997.
The assets of Variable Annuity Account 1 are the property of CLNY. The portion
of Variable Annuity Account 1 assets applicable to the policies will not be
charged with liabilities arising out of any other business CLNY may conduct.
2. Significant Accounting Policies
Investments
Investments in shares of the Series Fund, Fidelity, Seligman, Alger American,
Dreyfus, Montgomery, and Berger are valued at the reported net asset values of
the respective Sub-account portfolios. Realized gains and losses are computed
on the basis of average cost. The difference between cost and current market
value of investments owned is recorded as an unrealized gain or loss on
investments.
Dividends
Dividends are recorded on the ex-dividend date and reflect the dividends
declared by the Series Fund, Fidelity, Seligman, Alger American, Dreyfus,
Montgomery, and Berger from their accumulated net investment income and net
realized investment gains. Dividends in the Money Market Sub-account are
declared daily and paid quarterly. Dividends in all other Sub-accounts are
declared and paid annually. Dividends paid to Variable Annuity Account 1 are
reinvested in additional shares of the respective Sub-accounts at the net asset
value per share.
32
<PAGE>
Canada Life of New York Variable Annuity Account 1
Notes to Financial Statements
December 31, 1998
2. Significant Accounting Policies (continued)
Federal Income Taxes
Variable Annuity Account 1 is not taxed separately because the operations of
Variable Annuity Account 1 will be included in the federal income tax return of
CLNY, which is taxed as a "life insurance company" under the provisions of the
Internal Revenue Code.
3. Investments
The investments held by Variable Annuity Account 1 as at December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
Number of Market Market
Shares Price Value Cost
-------------------------------------------------------------------------
CLASF Series
- ------------
<S> <C> <C> <C> <C>
Money Market Sub-account 38,039 $ 10.00 $ 380,390 $ 380,390
Managed Sub-account 15,902 11.85 188,439 201,548
Bond Sub-account 16,329 10.99 179,456 186,631
Equity Sub-account 7,722 14.45 111,583 113,384
Capital Sub-account 5,155 15.89 81,913 70,125
International Equity Sub-account 11,605 12.27 142,393 150,865
Fidelity VIP Series
- -------------------
Asset Manager Sub-account 37,244 18.16 676,351 612,446
Growth Sub-account 12,877 44.87 577,791 436,275
High Income Sub-account 30,277 11.53 349,094 348,331
Overseas Sub-account 3,347 20.05 67,107 64,022
Index 500 Sub-account 4,266 141.25 602,573 510,575
Contrafund Sub-account 2,324 24.44 56,799 51,091
Growth Opportunities Sub-account 2,575 22.88 58,916 54,572
Seligman Portfolio Series
- -------------------------
Communications and Information Sub-account 41,716 17.14 715,012 612,294
Frontier Sub-account 19,475 15.55 302,836 273,741
Alger American Series
- ---------------------
Small Capitalization Sub-account 3,504 43.97 154,071 146,708
Growth Sub-account 11,722 53.22 623,845 514,259
MidCap Sub-account 2,552 28.87 73,676 61,353
Leveraged AllCap Sub-account 3,248 34.90 113,355 97,756
Dreyfus Series
- --------------
Growth and Income Sub-account 11,805 22.63 250,854 235,486
Socially Responsible Sub-account 5,418 31.08 168,391 145,109
Montgomery Series
- -----------------
Emerging Markets Sub-account 787 6.59 5,186 9,709
Variable Series Growth Sub-account 7,456 15.39 114,748 117,269
Berger Series
- -------------
Berger IPT International Sub-account 1,631 11.21 18,284 17,598
-------------------------------
$6,013,063 $5,411,537
===============================
</TABLE>
33
<PAGE>
Canada Life of New York Variable Annuity Account 1
Notes to Financial Statements
December 31, 1998
4. Security Purchases and Sales
The aggregate cost of purchases of investments are presented below:
<TABLE>
<CAPTION>
Aggregate Cost
of Purchases
-----------------------
CLASF Series
------------
<S> <C>
Money Market Sub-account $1,238,100
Managed Sub-account 31,771
Bond Sub-account 656,620
Equity Sub-account 58,334
Capital Sub-account 27,973
International Equity Sub-account 44,207
Fidelity VIP Series
-------------------
Asset Manager Sub-account 348,934
Growth Sub-account 313,657
High Income Sub-account 974,461
Overseas Sub-account 50,895
Index 500 Sub-account 722,155
Contrafund Sub-account 278,080
Growth Opportunities Sub-account 54,572
Seligman Portfolio Series
-------------------------
Communications and Information Sub-account 610,652
Frontier Sub-account 891,812
Alger American Series
---------------------
Small Capitalization Sub-account 114,926
Growth Sub-account 1,057,065
MidCap Sub-account 40,418
Leveraged AllCap Sub-account 276,368
Dreyfus Series
--------------
Growth and Income Sub-account 170,247
Socially Responsible Sub-account 144,715
Montgomery Series
-----------------
Emerging Markets Sub-account 10
Variable Series Growth Sub-account 13,162
Berger Series
-------------
Berger IPT International Sub-account 156,190
-----------------------
$8,275,324
=======================
</TABLE>
34
<PAGE>
Canada Life of New York Variable Annuity Account 1
Notes to Financial Statements
December 31, 1998
4. Security Purchases and Sales (continued)
The proceeds from sales of investments are presented below:
<TABLE>
<CAPTION>
Proceeds
from Sales
-----------------------
CLASF Series
-------------
<S> <C>
Money Market Sub-account $ 981,000
Managed Sub-account 35,456
Bond Sub-account 495,190
Equity Sub-account 46,369
Capital Sub-account 57,337
International Equity Sub-account 28,860
Fidelity VIP Series
-------------------
Asset Manager Sub-account 125,314
Growth Sub-account 317,127
High Income Sub-account 855,781
Overseas Sub-account 66,947
Index 500 Sub-account 389,032
Contrafund Sub-account 227,762
Growth Opportunities Sub-account -
Seligman Portfolio Series
-------------------------
Communications and Information Sub-account 487,762
Frontier Sub-account 857,190
Alger American Series
---------------------
Small Capitalization Sub-account 17,659
Growth Sub-account 747,845
MidCap Sub-account 11,374
Leveraged AllCap Sub-account 207,237
Dreyfus Series
--------------
Growth and Income Sub-account 80,022
Socially Responsible Sub-account 64,848
Montgomery Series
-----------------
Emerging Markets Sub-account 5,569
Variable Series Growth Sub-account 1,053
Berger Series
-------------
Berger IPT International Sub-account 136,634
-----------------------
$6,243,368
=======================
</TABLE>
35
<PAGE>
Canada Life of New York Variable Annuity Account 1
Notes to Financial Statements
December 31, 1998
5. Summary of Changes from Unit Transactions
The following table represents a summary of changes from unit transactions
attributable to contract holders for the periods indicated. The Fidelity
Contrafund, Growth Opportunities, Dreyfus Capital Appreciation, and Berger Small
Company Growth portfolios commenced operations on May 1, 1998.
<TABLE>
<CAPTION>
Year ended December 31, 1998
Units Amount
---------------------------------------
CLASF Series
------------
<S> <C> <C>
Money Market Sub-account
Accumulation Units:
Contract purchases and net transfers in 114,440 $ 1,349,241
Terminated contracts and net transfers out (93,930) (1,082,265)
---------------------------------------
20,510 266,976
Managed Sub-account
Accumulation Units:
Contract purchases and net transfers in 1,268 26,334
Terminated contracts and net transfers out (2,397) (50,283)
---------------------------------------
(1,129) (23,949)
Bond Sub-account
Accumulation Units:
Contract purchases and net transfers in 11,036 232,755
Terminated contracts and net transfers out (1,367) (71,089)
---------------------------------------
9,669 161,666
Equity Sub-account
Accumulation Units:
Contract purchases and net transfers in 2,391 56,747
Terminated contracts and net transfers out (2,500) (54,556)
---------------------------------------
(109) 2,191
Capital Sub-account
Accumulation Units:
Contract purchases and net transfers in 946 12,432
Terminated contracts and net transfers out (2,872) (58,550)
---------------------------------------
(1,926) (46,118)
International Equity Sub-account
Accumulation Units:
Contract purchases and net transfers in 1,659 24,918
Terminated contracts and net transfers out (1,164) (15,221)
---------------------------------------
495 9,697
</TABLE>
36
<PAGE>
Canada Life of New York Variable Annuity Account 1
Notes to Financial Statements
December 31, 1998
5. Summary of Changes from Unit Transactions (continued)
<TABLE>
<CAPTION>
Year ended December 31, 1998
Units Amount
----------------------------------------
Fidelity VIP Series
- -------------------
<S> <C> <C>
Asset Manager Sub-account
Accumulation Units:
Contract purchases and net transfers in 11,301 286,706
Terminated contracts and net transfers out (4,706) (121,954)
----------------------------------------
6,595 164,752
Growth Sub-account
Accumulation Units:
Contract purchases and net transfers in 5,680 305,937
Terminated contracts and net transfers out (6,796) (365,948)
----------------------------------------
(1,116) (60,011)
High Income Sub-account
Accumulation Units:
Contract purchases and net transfers in 13,951 507,685
Terminated contracts and net transfers out (11,506) (403,664)
----------------------------------------
2,445 104,021
Overseas Sub-account
Accumulation Units:
Contract purchases and net transfers in 1,862 44,389
Terminated contracts and net transfers out (2,833) (65,898)
----------------------------------------
(971) (21,509)
Index 500 Sub-account
Accumulation Units:
Contract purchases and net transfers in 2,869 364,655
Terminated contracts and net transfers out (487) (65,689)
----------------------------------------
2,382 298,966
Contrafund Sub-account (from May 1, 1998)
Accumulation Units:
Contract purchases and net transfers in 3,018 67,920
Terminated contracts and net transfers out (740) (15,464)
----------------------------------------
2,278 52,456
Growth Opportunities Sub-account (from May 1, 1998)
Accumulation Units:
Contract purchases and net transfers in 2,456 54,646
Terminated contracts and net transfers out - -
----------------------------------------
2,456 54,646
</TABLE>
37
<PAGE>
Canada Life of New York Variable Annuity Account 1
Notes to Financial Statements
December 31, 1998
5. Summary of Changes from Unit Transactions (continued)
<TABLE>
<CAPTION>
Year ended December 31, 1998
Units Amount
----------------------------------------
<S> <C> <C>
Seligman Portfolio Series
- --------------------------
Communications and Information Sub-account
Accumulation Units:
Contract purchases and net transfers in 15,675 284,374
Terminated contracts and net transfers out (11,682) (226,850)
----------------------------------------
3,993 57,524
Frontier Sub-account
Accumulation Units:
Contract purchases and net transfers in 10,067 178,598
Terminated contracts and net transfers out (9,169) (168,356)
----------------------------------------
898 10,242
Alger American Series
- ---------------------
Small Capitalization Sub-account
Accumulation Units:
Contract purchases and net transfers in 2,231 102,825
Terminated contracts and net transfers out (310) (13,801)
----------------------------------------
1,921 89,024
Growth Sub-account
Accumulation Units:
Contract purchases and net transfers in 6,356 267,109
Terminated contracts and net transfers out (1,395) (74,800)
----------------------------------------
4,961 192,309
MidCap Sub-account
Accumulation Units:
Contract purchases and net transfers in 1,390 32,401
Terminated contracts and net transfers out (504) (10,939)
----------------------------------------
886 21,462
Leveraged AllCap Sub-account
Accumulation Units:
Contract purchases and net transfers in 5,321 155,477
Terminated contracts and net transfers out (2,841) (77,490)
----------------------------------------
2,480 77,987
</TABLE>
38
<PAGE>
Canada Life of New York Variable Annuity Account 1
Notes to Financial Statements
December 31, 1998
5. Summary of Changes from Unit Transactions (continued)
<TABLE>
<CAPTION>
Year ended December 31, 1998
Units Amount
----------------------------------------
<S> <C> <C>
Dreyfus Series
- ---------------
Growth and Income Sub-account
Accumulation Units:
Contract purchases and net transfers in 4,800 127,359
Terminated contracts and net transfers out (475) (11,171)
----------------------------------------
4,325 116,188
Socially Responsible Sub-account
Accumulation Units:
Contract purchases and net transfers in 2,996 86,590
Terminated contracts and net transfers out (473) (12,476)
----------------------------------------
2,523 74,114
Montgomery Series
- -----------------
Emerging Markets Sub-account
Accumulation Units:
Contract purchases and net transfers in - 79
Terminated contracts and net transfers out (974) (5,410)
----------------------------------------
(974) (5,331)
Variable Series Growth Sub-account
Accumulation Units:
Contract purchases and net transfers in 746 12,102
Terminated contracts and net transfers out - (10)
----------------------------------------
746 12,092
Berger Series
- -------------
Berger IPT International Sub-account (from May 1, 1998)
Accumulation Units:
Contract purchases and net transfers in 7,111 76,963
Terminated contracts and net transfers out (5,586) (58,830)
----------------------------------------
1,525 18,133
Net increase from unit transactions $1,627,528
==========
</TABLE>
39
<PAGE>
Canada Life of New York Variable Annuity Account 1
Notes to Financial Statements
December 31, 1998
5. Summary of Changes from Unit Transactions
The following table represents a summary of changes from unit transactions
attributable to contract holders for the periods indicated.
<TABLE>
<CAPTION>
Year ended December 31, 1997
Units Amount
--------------------------------------
CLASF Series
- ------------
<S> <C> <C>
Money Market Sub-account
Accumulation Units:
Contract purchases and net transfers in 53,395 $ 648,514
Terminated contracts and net transfers out (50,662) (615,799)
--------------------------------------
2,733 32,715
Managed Sub-account
Accumulation Units:
Contract purchases and net transfers in 4,600 88,215
Terminated contracts and net transfers out (735) (12,756)
--------------------------------------
3,865 75,459
Bond Sub-account
Accumulation Units:
Contract purchases and net transfers in 444 7,052
Terminated contracts and net transfers out - (7)
--------------------------------------
444 7,045
Equity Sub-account
Accumulation Units:
Contract purchases and net transfers in 1,112 23,729
Terminated contracts and net transfers out (1,812) (39,429)
--------------------------------------
(700) (15,700)
Capital Sub-account
Accumulation Units:
Contract purchases and net transfers in 2,389 42,878
Terminated contracts and net transfers out (5,172) (86,833)
--------------------------------------
(2,783) (43,955)
International Equity Sub-account (from February 1, 1997)
Accumulation Units:
Contract purchases and net transfers in 10,421 140,873
Terminated contracts and net transfers out (141) (2,011)
--------------------------------------
10,280 138,862
Fidelity VIP Series
- -------------------
Asset Manager Sub-account
Accumulation Units:
Contract purchases and net transfers in 15,988 348,493
Terminated contracts and net transfers out (8,888) (182,153)
--------------------------------------
7,100 166,340
</TABLE>
40
<PAGE>
Canada Life of New York Variable Annuity Account 1
Notes to Financial Statements
December 31, 1998
5. Summary of Changes from Unit Transactions (continued)
<TABLE>
<CAPTION>
Year ended December 31, 1997
Units Amount
---------------------------------------
Fidelity VIP Series (continued)
- ------------------------------
<S> <C> <C>
Growth Sub-account
Accumulation Units:
Contract purchases and net transfers in 11,783 466,665
Terminated contracts and net transfers out (6,858) (276,677)
---------------------------------------
4,925 189,988
High Income Sub-account
Accumulation Units:
Contract purchases and net transfers in 15,924 514,105
Terminated contracts and net transfers out (8,734) (290,426)
---------------------------------------
7,190 223,679
Overseas Sub-account
Accumulation Units:
Contract purchases and net transfers in 2,078 38,186
Terminated contracts and net transfers out (174) (7)
---------------------------------------
1,904 38,179
Index 500 Sub-account (from January 20, 1997)
Accumulation Units:
Contract purchases and net transfers in 1,720 185,227
Terminated contracts and net transfers out (409) (41,738)
---------------------------------------
1,311 143,489
Seligman Portfolio Series
- -------------------------
Communications and Information Sub-account
Accumulation Units:
Contract purchases and net transfers in 12,985 234,689
Terminated contracts and net transfers out (15,050) (255,044)
---------------------------------------
(2,065) (20,355)
Frontier Sub-account
Accumulation Units:
Contract purchases and net transfers in 9,017 164,693
Terminated contracts and net transfers out (1,354) (26,281)
---------------------------------------
7,663 138,412
Alger American Series
- ---------------------
Small Capitalization Sub-account
Accumulation Units:
Contract purchases and net transfers in 878 38,194
Terminated contracts and net transfers out (803) (29,192)
---------------------------------------
75 9,002
Growth Sub-account
Accumulation Units:
Contract purchases and net transfers in 4,147 165,538
Terminated contracts and net transfers out (478) (17,075)
---------------------------------------
3,669 148,463
</TABLE>
41
<PAGE>
Canada Life of New York Variable Annuity Account 1
Notes to Financial Statements
December 31, 1998
5. Summary of Changes from Unit Transactions (continued)
<TABLE>
<CAPTION>
Year ended December 31, 1997
Units Amount
------------------------------
Alger American Series (continued)
- ---------------------------------
<S> <C> <C>
MidCap Sub-account
Accumulation Units:
Contract purchases and net transfers in 1,008 24,804
Terminated contracts and net transfers out - (6)
---------------------------------------
1,008 24,798
Leveraged AllCap Sub-account
Accumulation Units:
Contract purchases and net transfers in 965 21,925
Terminated contracts and net transfers out (150) (3,027)
---------------------------------------
815 18,898
Dreyfus Series
- --------------
Growth and Income Sub-account
Accumulation Units:
Contract purchases and net transfers in 5,063 108,749
Terminated contracts and net transfers out (1,532) (26,836)
---------------------------------------
3,531 81,913
Socially Responsible Sub-account (from March 27, 1997)
Accumulation Units:
Contract purchases and net transfers in 2,743 68,328
Terminated contracts and net transfers out (387) (10,244)
---------------------------------------
2,356 58,084
Montgomery Series
- -----------------
Emerging Markets Sub-account (from April 1, 1997)
Accumulation Units:
Contract purchases and net transfers in 2,134 25,738
Terminated contracts and net transfers out (371) (4,819)
---------------------------------------
1,763 20,919
Variable Series Growth Sub-account (from May 1, 1997)
Accumulation Units:
Contract purchases and net transfers in 6,254 100,382
Terminated contracts and net transfers out - -
---------------------------------------
6,254 100,382
Net increase from unit transactions $1,536,617
==========
</TABLE>
42
<PAGE>
Canada Life of New York Variable Annuity Account 1
Notes to Financial Statements
December 31, 1998
6. Mortality and Expense Risk (M and E) Charges
CLNY assumes mortality and expense risks related to the operations of Variable
Annuity Account 1 and deducts a charge equal to an effective annual rate of
either 1.25% or 1.40% of the net asset value of each of the Sub-accounts at each
valuation period.
7. Net Assets
Net assets in each Sub-account as at December 31, 1998 consisted of the
following:
<TABLE>
<CAPTION>
Net
Realized Net Unrealized
Accumulated Accumulated Gain (Loss) Appreciation
Unit M and E Investment on (Depreciation)on
Sub-account Transactions Charges Income Investments Investments Combined
- --------------------------------------------------------------------------------------------------------------------------------
CLASF Series
- ------------
<S> <C> <C> <C> <C> <C> <C>
Money Market $ 410,803 $ (6,241) $ 20,556 - - $ 425,118
Managed 128,130 (14,103) 95,658 $ 10,421 $(13,109) 206,997
Bond 175,022 (2,131) 12,916 9,242 (7,175) 187,874
Equity 62,586 (9,147) 52,477 11,715 (1,801) 115,830
Capital 4,667 (8,855) 51,805 35,702 11,788 95,107
International Equity 148,559 (2,375) 18,100 (2,982) (8,472) 152,830
Fidelity VIP Series
- -------------------
Asset Manager 516,940 (20,729) 103,424 9,653 63,905 673,193
Growth 293,479 (20,745) 74,177 62,204 141,516 550,631
High Income 367,184 (9,185) 51,799 (35,968) 763 374,593
Overseas 53,591 (6,818) 10,866 5,962 3,085 66,686
Index 500 442,455 (7,507) 10,331 35,057 91,998 572,334
Contrafund 52,456 (116) - 773 5,708 58,821
Growth Opportunities 54,646 (98) - - 4,344 58,892
Seligman Portfolio Series
- -------------------------
Communications
and Information 427,261 (17,514) 156,954 14,177 102,718 683,596
Frontier 240,722 (11,058) 38,504 (19,163) 29,095 278,100
Alger American Series
- ----------------------
Small Capitalization 142,998 (2,542) 13,461 (6,216) 7,363 155,064
Growth 352,862 (7,036) 68,795 45,273 109,586 569, 480
MidCap 56,539 (1,898) 8,077 (1,867) 12,323 73,174
Leveraged AllCap 99,781 (815) 2,243 3,544 15,599 120,352
Dreyfus Series
- --------------
Growth and Income 200,997 (4,071) 15,838 (446) 15,368 227,686
Socially Responsible 132,198 (1,827) 8,295 5,544 23,282 167,492
Montgomery Series
- -----------------
Emerging Markets 15,588 (338) 41 (5,742) (4,523) 5,026
Variable Series Growth 112,474 (1,623) 5,740 33 (2,521) 114,103
Berger Series
- -------------
IPT International 18,133 (166) 258 (1,958) 686 16,953
----------------------------------------------------------------------------------------------------------
$4,510,071 $(156,938) $820,315 $174,958 $601,526 $5,949,932
==========================================================================================================
</TABLE>
43
<PAGE>
Canada Life of New York Variable Annuity Account 1
Notes to Financial Statements
December 31, 1998
8. Unit Value
Unit Values as reported are calculated as total net assets divided by total
units for each Sub-account.
44
<PAGE>
ACTUARY'S REPORT
To the Shareholder, Directors and Policyholders of Canada Life Insurance Company
of New York:
I have made the valuation of policy benefit liabilities of Canada Life Insurance
Company of New York for its balance sheet at December 31, 1998 and 1997, and its
statement of operations for the years ended December 31, 1998, 1997 and 1996.
In my opinion:
(i) The actuarial reserves are computed in accordance with accepted
actuarial standards consistently applied, meet the requirements of the
Insurance Law and regulation of the State of New York, and are at least
as great as the minimum aggregate amounts required by the State of New
York; and
(ii) The policy benefit liabilities, when considered in light of the assets
held by the Company with respect to such liabilities, make adequate
provision for the anticipated cash flows required by the contractual
obligations of the Company under the terms of its policies.
Atlanta, Georgia ______________________________
April 15, 1999 K.T. Ledwos, FSA, MAAA
Actuary
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
Statutory Financial Statements
December 31, 1998
Contents
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors....................................................................... 1
Statutory Balance Sheets............................................................................. 2
Statutory Statements of Operations................................................................... 3
Statutory Statements of Capital and Surplus.......................................................... 4
Statutory Statements of Cash Flows................................................................... 5
Notes to Statutory Financial Statements.............................................................. 6
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholder, Directors and Policyholders of
Canada Life Insurance Company of New York
We have audited the accompanying statutory balance sheets of Canada Life
Insurance Company of New York as of December 31, 1998 and 1997, and the related
statutory statements of operations, accumulated surplus, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
As described in Note B to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of New York, which practices
differ from generally accepted accounting principles. The variances between
such practices and generally accepted accounting principles are also described
in Note B. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the second
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of Canada Life Insurance Company of New York at December 31,
1998 and 1997, or the results of its operations or its cash flows for each of
the three years in the period ended December 31, 1998.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Canada Life Insurance
Company of New York at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of New York.
Toronto, Canada [X]
April 15, 1999 Chartered Accountants
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
STATUTORY BALANCE SHEETS
[in thousands of dollars
except per share amounts]
<TABLE>
<CAPTION>
At December 31 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADMITTED ASSETS
Investments [note C]
Bonds $138,193 $142,641
Mortgage loans 96,297 98,854
Common stocks 12,742 10,208
Policy loans 12,970 12,821
Short-term investments 9,296 600
Cash 1,515 1,422
Other invested assets 907 440
- -----------------------------------------------------------------------------------------------------------
Total cash and investments 271,920 266,986
Investment income due and accrued 3,122 3,243
Deferred premiums and premiums in the course of collection 2,175 2,363
Other assets 178 762
Assets held in Separate Accounts [note I] 15,535 9,118
- -----------------------------------------------------------------------------------------------------------
Total admitted assets $292,930 $282,472
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities
Policy liabilities
Life and annuity reserves $239,415 $241,502
Accident and health reserves 304 329
Policy and contract claims 379 852
Dividends payable 3,034 2,566
Policyholders' amounts left on deposit at interest 2,550 2,559
Other policy and contract liabilities 594 824
- -----------------------------------------------------------------------------------------------------------
Total policy liabilities 246,276 248,632
Asset valuation reserve 5,609 3,637
Amounts payable to parent company 3,806 1,644
Interest maintenance reserve 1,407 98
Miscellaneous liabilities 4,413 4,071
Transfers to Separate Accounts due or accrued (net) (252) (77)
Liabilities from Separate Accounts 15,535 9,118
- -----------------------------------------------------------------------------------------------------------
Total liabilities 276,794 267,123
- -----------------------------------------------------------------------------------------------------------
Capital and surplus [note K]
Common stock-$10.00 par valueauthorized, issued and outstanding:
100,000 common shares 1,000 1,000
Paid-in surplus 2,850 2,850
Accumulated surplus 12,286 11,499
- -----------------------------------------------------------------------------------------------------------
Total capital and surplus 16,136 15,349
- -----------------------------------------------------------------------------------------------------------
Total liabilities and capital and surplus $292,930 $282,472
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
2
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
STATUTORY STATEMENTS OF OPERATIONS
[in thousands of dollars]
<TABLE>
<CAPTION>
Years ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums for insurance and annuity $20,787 $39,204 $37,423
considerations [note G]
Considerations for supplementary contracts
and dividends left on deposit 377 211 1,006
Net investment income [note C] 20,854 20,215 18,793
Reserve adjustments on reinsurance ceded 3,801 731 1,946
Other income 434 341 36
- -------------------------------------------------------------------------------------------------------------
Total revenues 46,253 60,702 59,204
- -------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Benefits paid or provided to policyholders
Annuity 22,164 19,578 16,005
Life 6,797 7,079 6,509
Accident and health 41 50 49
Supplementary contracts and dividends left on 839 790 745
deposit
Dividends to policyholders 3,352 2,777 2,706
Interest on policy or contract funds 309 474 469
- -------------------------------------------------------------------------------------------------------------
Total benefits paid or provided to policyholders 33,502 30,748 26,483
Increase (decrease) in actuarial reserves (2,427) 14,480 20,802
Commissions 2,637 3,126 2,847
General insurance expenses 5,018 5,079 4,891
Taxes, licenses and fees 574 572 556
Other disbursements 274 414 276
Transfers to Separate Accounts 4,316 4,732 2,098
- -------------------------------------------------------------------------------------------------------------
Total benefits and expenses 43,894 59,151 57,953
- -------------------------------------------------------------------------------------------------------------
Gain from operations before federal income
taxes and net realized capital gains (losses) 2,359 1,551 1,251
Federal income taxes [note E] 904 572 599
- -------------------------------------------------------------------------------------------------------------
Gain from operations before
net realized capital gains (losses) 1,455 979 652
Net realized capital gains (losses) [note C] (154) (117) 476
- -------------------------------------------------------------------------------------------------------------
Net income $ 1,301 $ 862 $ 1,128
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
3
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
STATUTORY STATEMENT OF CAPITAL AND SURPLUS
[In thousands of dollars]
<TABLE>
<CAPTION>
Years ended December 31 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock at beginning and end of year $ 1,000 $ 1,000 $ 1,000
Paid-in Surplus at beginning and end of year 2,850 2,850 2,850
Accumulated surplus at beginning of year 11,499 10,358 9,012
Net income 1,301 862 1,128
Change in net unrealized capital gains 2,624 1,508 665
Change in surplus on account of:
Asset valuation reserve (1,971) (568) (35)
Prior year federal income tax adjustment (1,092) (564) -
Nonadmitted assets 42 (33) (239)
Adjustment for loss in currency exchange (117) (64) (1)
Actuarial valuation basis - - (172)
Accumulated surplus at end of year 12,286 11,499 10,358
Total capital and surplus $16,136 $15,349 $14,208
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
4
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
STATUTORY STATEMENTS OF CASH FLOWS
[In thousands of dollars]
<TABLE>
<CAPTION>
Years ended December 31 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds, and other considerations $ 25,306 $ 40,813 $ 39,668
Net investment income received 19,202 19,453 16,964
Benefits paid (30,584) (27,429) (23,721)
Insurance expenses paid (8,360) (9,521) (8,445)
Dividends paid to policyholders (2,847) (2,751) (2,440)
Federal income taxes paid (1,410) (850) (599)
Other disbursements 175 88 24
Net transfers to Separate Accounts (4,491) (4,750) (2,155)
- -----------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by operations (3,009) 15,053 19,296
Investing Activities
Proceeds from sales, maturities, or repayments of
investments
Bonds 34,183 51,078 49,924
Mortgage loans and real estate 8,376 5,939 4,348
Equity and other investments 641 2,276 3,813
Cost of investments acquired
Bonds (25,596) (49,082) (64,961)
Mortgage loans and real estate (5,845) (24,905) (9,713)
Equity and other investments (1,228) (3,872) (2,651)
Change in policy loans (149) (557) (99)
Taxes paid on capital gains (927) (615) (517)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investments 9,455 (19,738) (19,856)
FINANCING ACTIVITIES
Other sources 2,343 (815) 3,897
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and short-term
investments 8,789 (5,500) 3,337
- -----------------------------------------------------------------------------------------------------------------------
Cash and short-term investments - beginning of year 2,022 7,522 4,185
Cash and short-term investments - end of year $ 10,811 $ 2,022 $ 7,522
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
5
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE A
Nature of Operations. Canada Life Insurance Company of New York (CLNY or the
- --------------------
Company) was incorporated on June 7, 1971 in the State of New York and is a
wholly-owned subsidiary of The Canada Life Assurance Company (CLA), a mutual
life and accident and health insurance company. CLNY sells individual life
insurance and annuity products. These include participating whole life,
universal life, individual payout and savings annuities, and individual variable
annuities. The products sold are similar to those sold by CLNY's parent and by
it's affiliate, Canada Life Insurance Company of America (CLICA) with variations
as appropriate to meet the special requirements of the New York insurance
regulations and the needs of the New York market.
NOTE B
Accounting Practices and Basis of Presentation. The accompanying financial
- ----------------------------------------------
statements have been prepared in accordance with accounting principles
prescribed or permitted by the Insurance Department of the State of New York.
Prescribed statutory accounting practices (SAP) include state laws, regulations,
and general administrative rules applicable to all insurance enterprises
domiciled in a particular state, as well as practices described in National
Association of Insurance Commissioners (NAIC) publications. Permitted statutory
accounting practices include practices not prescribed, but allowed, by the
domiciliary state insurance department. CLNY currently follows only prescribed
accounting practices. The preparation of financial statements in conformity
with SAP requires management to make estimates and assumptions that affect the
amounts reported. Actual results could differ from these estimates.
In 1998, the NAIC adopted codified statutory accounting practices
(Codification). Codification will likely change, to some extent, prescribed
statutory accounting practices and may result in changes to the accounting
practices that the Company uses to prepare its statutory financial statements.
Adoption by the domiciliary state insurance department is required before
Codification becomes effective as the prescribed statutory basis of accounting
for the domiciled insurance company. At this time, the Insurance Department of
the State of New York has stated that they will incorporate sections of the
Codification but will not formally adopt it. The impact on the Company's
statutory surplus cannot be determined at this time and could be material.
SAP followed by the Company differs from generally accepted accounting
principles (GAAP) principally as follows:
. Investments. For SAP, all fixed maturities are reported at amortized cost less
write-downs for other-than-temporary impairments, based on their NAIC rating.
For SAP, the fair values of bonds and stocks is based on values specified by
the NAIC versus a quoted or estimated fair value as required for GAAP.
For GAAP, such fixed maturity investments would be designated at purchase as
held-to-maturity, trading, or available-for-sale. Held-to-maturity fixed
maturity investments would be reported at amortized cost, and the remaining
fixed maturity investments are reported at fair value with unrealized holding
gains and losses reported in operations for those designated as trading and as
a separate component of shareholder's equity for those designated as
available-for-sale.
Credit tenant loans are classified as bonds for SAP and would be considered
mortgage loans for GAAP.
6
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE B
Accounting Practices and Basis of Presentation (continued).
- ----------------------------------------------------------
Changes between cost and admitted asset amounts of investment real estate are
credited or charged directly to unassigned surplus rather than to a separate
surplus account as would be the case for GAAP.
Realized gains and losses on investments for SAP are reported in income, net
of tax. The interest maintenance reserve (IMR) serves to defer the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates. The deferred gains and losses are amortized into investment
income over the remaining period to maturity based on groupings of individual
investments sold in one to ten-year time periods. GAAP does not have a
similar concept. For SAP, an asset valuation reserve represents a provision
for the possible fluctuations in invested assets and is determined by a NAIC
prescribed formula and is reported as a liability rather than as a valuation
allowance. Under GAAP, realized capital gains and losses would be reported in
the income statement on a pretax basis in the period the asset is sold and
valuation allowances would be provided when there has been a decline in value
deemed other-than-temporary, in which case the provision for such declines
would be charged to earnings.
Valuation allowances, if necessary, are established for mortgage loans based
on (1) the difference between the unpaid loan balance and the estimated fair
value of the underlying real estate when such loans are determined to be in
default as to scheduled payments and (2) a reduction of the maximum percentage
of any loan to the value of the security at the time of the loan, exclusive of
insured, guaranteed or purchase money mortgages, to 75%, where necessary.
Under GAAP, valuation allowances would be established when the Company
determines it is probable that it will be unable to collect all amounts (both
principal and interest) due according to the contractual terms of the loan
agreement. The initial valuation allowance and subsequent changes in the
allowance for mortgage loans are charged or credited directly to unassigned
surplus, rather than being included as a component of earnings as would be
required for GAAP.
. Policy Acquisition Costs. For SAP, commissions and other costs of acquiring
and renewing business are expensed when incurred. For GAAP, acquisition costs
related to traditional life insurance and certain long-duration accident and
health insurance, to the extent recoverable from future policy revenues would
be deferred and amortized over the premium-paying period of the related
policies using assumptions consistent with those used in computing policy
benefit reserves. For annuity products, to the extent recoverable from future
gross profits, deferred policy acquisition costs are amortized generally in
proportion to the present value of expected gross profits from surrender
charges and investment, mortality, and expense margins.
. Nonadmitted Assets. Certain assets designated as nonadmitted, principally
receivables, would be included in GAAP assets but are excluded from the SAP
balance sheet with changes therein credited or charged directly to unassigned
surplus.
7
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE B
Accounting Practices and Basis of Presentation (continued).
- ----------------------------------------------------------
. Recognition of Premiums. Interest-sensitive life insurance and annuity
premiums for SAP are recognized as income when received rather than being
credited directly to liabilities for future policy benefits as required for
GAAP.
. Benefit Reserves. Certain policy reserves are calculated based on statutorily
required interest and mortality assumptions rather than on estimated expected
experience or actual account balances as would be required under GAAP.
. Federal Income Taxes. Federal income taxes for SAP are generally reported
based on income which is currently taxable. Variances between taxes reported
and the amount subsequently paid are reported as adjustments of tax expense in
the year paid. Deferred income taxes are not provided for differences between
the financial statement and tax bases of assets and liabilities under SAP as
would be required under GAAP.
. Policyholder Dividends. Policyholder dividends for SAP are recognized when
declared rather than over the term of the related policies as required for
GAAP.
. Reinsurance. Policy and contract liabilities ceded to reinsurers have been
reported as reductions of the related reserves rather than as assets as would
be required under GAAP. For SAP, commissions allowed by reinsurers on business
ceded are reported as income when received rather than being deferred and
amortized with deferred policy acquisition costs.
. Employee Benefits. For purposes of calculating the Company's postretirement
benefit obligation, only vested participants and current retirees are included
in the valuation for SAP. Under GAAP, active participants not currently
eligible would also be included. For SAP, pension expense is recognized when
required contributions are paid rather than accrued and expensed during the
periods in which the employees provide service as required for GAAP.
. Guaranty Fund and Other Assessments. Guaranty fund and other assessments are
accrued when the Company receives notice that an assessment is payable. Under
GAAP, guaranty fund and other assessments are accrued at the time the events
occur on which assessments are expected to be based.
The effects of the foregoing variances from GAAP on the accompanying statutory
financial statements have not been determined, but are presumed to be material.
A summary of the significant accounting practices employed by the Company is as
follows:
. Investments. Asset values are generally stated as follows: Bonds not backed
by other loans at amortized cost using the yield method including anticipated
future cash flows. Loan-backed bonds and structured securities at amortized
cost using the interest method including anticipated prepayments (cashflows
are updated periodically to reflect prepayments). Significant changes in
estimated cash flows from the original purchase assumptions are accounted for
using the retrospective adjustment method.
8
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE B
Accounting Practices and Basis of Presentation (continued).
- ----------------------------------------------------------
Mortgage loans on real estate are carried at amortized cost.
Common stocks are stated at fair value.
Preferred stocks are carried at actual cost.
Investments in real estate or property acquired in satisfaction of debt is
carried at depreciated cost less encumbrances.
Policy loans are carried at the aggregate unpaid balance.
Other invested assets are reported using the equity method.
Short-term investments include investments with maturities of less than one
year at the date of acquisition. The carrying values reported in the balance
sheet are at cost which approximates fair value.
The Company utilizes derivative instruments where appropriate in the
management of its asset/liability matching and to hedge against fluctuations
in interest rates and foreign exchange rates. Gains and losses resulting from
these instruments are included in income on a basis consistent with the
underlying assets or liabilities that have been hedged. Options are valued at
amortized cost and futures are valued at initial margin deposit adjusted by
changes in market value. Both items are reported as other assets.
. Premiums. Premium revenues are recognized when due for other than interest-
sensitive life insurance and annuities, which are recognized when received.
Accident and health insurance premiums are earned pro-rata over the terms of
the policies.
. Separate Accounts. Separate Accounts are maintained to receive and invest
premium payments under individual variable annuity policies issued by the
Company. The assets and liabilities of the Separate Account are clearly
identifiable and distinguishable from other assets and liabilities of the
Company, and the contractholder bears the investment risk. Separate Account
assets are reported at fair value. The operations of the Separate Account are
not included in the accompanying financial statements.
. Life Insurance and Annuity Reserves. The Company waives deduction of
deferred fractional premium upon death of the insured for all issues and
returns any portion of the final premium beyond the date of death from 1980
and later issues. For 1980 and later issues, the Company's reserves are
calculated on a continuous basis to reflect the above practice. For issues
prior to 1980, annual premium is assumed in the reserve calculation and for
policies with premium frequency other than annual, the Company holds a
separate NDDFP reserve which is the present value of a death benefit of half
of the gross premium for the balance of the policy premium paying period. Some
policies promise a surrender value in excess of the reserve as legally
computed. This excess is calculated on a policy by policy basis.
9
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE B
Accounting Practices and Basis of Presentation (continued).
- ----------------------------------------------------------
Policies issued at premium corresponding to ages higher than the true ages are
valued at the rated-up ages. Policies providing for payment at death during
certain periods of an amount less than the full amount of insurance, being
policies subject to liens, are valued as if the full amount is payable without
any deduction. For policies issued with, or subsequently subject to, an extra
premium payable annually, an extra reserve is held. The extra premium reserve
is 45% of the gross extra premium payable during the year if the policies are
rated for reasons other than medical impairments. For medical impairments,
the extra premium reserve is calculated at the excess of the reserve based on
rated mortality over that based on standard mortality.
At the end of 1998 and 1997 respectively, the Company had $66,217,000 and
$222,790,000 of insurance in force for which the gross premiums are less than
the net premiums according to the standard of valuation set by the State of
New York. Deficiency reserves to cover the above insurance were $84,000 at
December 31, 1998. Tabular interest and tabular cost have been determined
from the basic data for the calculation of policy reserves. Tabular less
actual reserve released and tabular interest on funds not involving life
contingencies have been determined by formula.
. Policy and Contract Claims. Liabilities for policy and contract claims are
determined using case-basis evaluations and statistical analyses. These
liabilities represent estimates of the ultimate expected cost of incurred
claims. Any required revisions in these estimates are included in operations
in the period when they are discovered.
. Federal Income Tax. Federal income taxes are provided based on an estimate
of the amount currently payable which may not bear a normal relationship to
pretax income because of timing and other differences in the calculation of
taxable income.
. Policyholder Dividends. Annual policyholder dividends are calculated using
either the contribution method or a modified experience premium method. These
methods distribute the aggregate divisible surplus among policies in the same
proportion as the policies are considered to have contributed to divisible
surplus. A proportion of earnings and surplus is allocated to participating
policies based on various allocation bases.
Certain amounts in the 1997 and 1996 financial statements have been reclassified
to conform to the 1998 presentation.
10
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE C
Investments. The fair value for fixed maturities is based on quoted market
- -----------
prices where available. For fixed maturities not actively traded, fair values
are estimated using values obtained from independent pricing services. The
carrying value and the fair value of investments in bonds are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------------------------
Gross Gross
Carrying unrealized unrealized Fair
value gains losses value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government obligations $ 43,918 $12,320 $ - $ 56,238
All other corporate bonds 59,678 1,246 - 60,924
Public utilities 6,504 226 - 6,730
Mortgage-backed securities 15,174 82 - 15,256
Foreign securities 12,919 234 (20) 13,133
- -----------------------------------------------------------------------------------------------------------------
Total fixed maturities $138,193 $14,108 $ (20) $152,281
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------------------------
Gross Gross
Carrying unrealized unrealized Fair
value gains losses value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government obligations $ 48,376 $ 8,822 $(3) $ 57,195
All other corporate bonds 62,791 934 - 63,725
Public utilities 8,965 174 - 9,139
Mortgage-backed securities 10,711 48 - 10,759
Foreign securities 11,798 242 12,040
- ----------------------------------------------------------------------------------------------------------------
Total fixed maturities $142,641 $10,220 $(3) $152,858
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The carrying value and fair value of fixed maturity investments at December 31,
1998, by contractual maturity, are shown below (in thousands of dollars).
Expected maturities may differ from contractual maturities because certain
borrowers have the right to call or prepay obligations with or without call or
prepayment penalties. In addition, corporate requirements may result in sales
before maturity.
<TABLE>
<CAPTION>
Carrying value Fair value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
In 1999 $ 2,144 $ 2,154
In 2000 - 2003 30,489 31,005
In 2004 - 2008 24,359 25,269
2009 and after 66,027 78,597
Mortgage-backed securities 15,174 15,256
- -----------------------------------------------------------------------------------------------------------
$138,193 $152,281
- -----------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE C
Investments (continued).
- -----------------------
At December 31, 1998, and 1997, bonds with an admitted asset value of $250,000
and $350,000, respectively were on deposit with state insurance departments to
satisfy regulatory requirements.
During 1998, the maximum and minimum lending rates for commercial mortgage loans
were 7.95% and 7.0%, respectively. All properties covered by mortgage loans
have fire insurance at least equal to the excess of the loan over the maximum
loan which would be permitted by law on the land without the buildings. During
1998, the Company did not reduce interest rates on any outstanding mortgage
loan. Mortgages held by the Company on which interest was more than one year
overdue at December 31, 1998 and 1997 was $0 and $216,615, respectively.
Mortgage loans are typically collateralized by the related properties and the
loan to value ratios at the date of loan origination generally do not exceed
75%. The Company's exposure to credit loss in the event of non-performance by
the borrowers, assuming that the associated collateral proved to be of no value,
is represented by the outstanding principal and accrued interest balances of the
respective loans. The mortgage loan loss reserve decreased $192,000 in 1998 and
increased $4,000 in 1997.
Major categories of CLNY's net investment income for years ended December 31,
are summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Fixed maturities $10,464 $10,427 $10,145
Equity securities 189 227 165
Mortgage loans 9,627 8,699 7,730
Real estate - 52 47
Short-term investments 243 344 264
Policy loans 789 755 722
Amortization of IMR 200 167 189
Other income 31 84 28
- -------------------------------------------------------------------------------------------------------
Total investment income 21,543 20,755 19,290
Less: investment expenses 689 540 497
- -------------------------------------------------------------------------------------------------------
Net investment income $20,854 $20,215 $18,793
- -------------------------------------------------------------------------------------------------------
</TABLE>
Due and accrued income was excluded from investment income on mortgage loans in
foreclosure or delinquent more than ninety days. The total amount excluded as
of December 31, 1998 and 1997 was $0 and $216,615, respectively.
CLNY uses the grouped method of computing the IMR amortization for interest
related gains and losses arising from the sale of fixed income investments. The
method is unchanged from prior years.
12
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE C
Investments (continued).
- -----------------------
Realized capital gains (losses) for years ended December 31, are summarized as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Gross gains $ 2,535 $ 1,373 $ 809
Gross losses (41) (300) (369)
----------------------------------------------------------
Total fixed maturities 2,494 1,073 440
Equity securities:
Gross gains 156 794 1,122
Gross losses - (58) (69)
----------------------------------------------------------
Total equity securities 156 736 1,053
Mortgage loans (194) - (264)
Derivative instruments (174) (1,515) 122
Real estate - - 27
- ---------------------------------------------------------------------------------------------------------
2,282 294 1,378
Income tax expense (928) (615) (517)
Transfer from (to) IMR (1,508) 204 (385)
- ---------------------------------------------------------------------------------------------------------
Net realized capital (losses) gains $ (154) $ (117) $ 476
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales and maturities of fixed maturity investments for the years
ended December 31, 1998, 1997, and 1996 were $34,183,000, $51,078,000, and
$49,924,000 respectively.
Unrealized capital gains and losses for equity securities are recorded
directly to surplus. The change in the unrealized gains and losses on equity
securities was $2,432,000, $1,343,000 and $653,000 for the years ended December
31, 1998, 1997, and 1996, respectively. The accumulated gross unrealized gains
and losses on equity securities at December 31, are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated gross unrealized gains $7,904 $5,286 $3,912
Accumulated gross unrealized losses (234) (48) (18)
- -------------------------------------------------------------------------------------------------------
Net unrealized gains $7,670 $5,238 $3,894
- -------------------------------------------------------------------------------------------------------
</TABLE>
The Company is party to various derivative instruments limited to contracts to
buy or sell U.S. Treasury securities used to hedge specific asset and liability
interest rate risks. Management actively monitors the use and level of these
instruments to ensure that credit and liquidity risks are maintained within pre-
approved levels. Futures are valued at initial margin deposit adjusted for
unrealized gains and losses. The Company has also entered into a currency swap
to hedge its position in a Canadian equity investment. The currency swap is
valued at replacement value at December 31, 1998. As of December 31, 1998 and
1997, the notional amounts for futures were $6,000,000 and $12,300,000. For
currency swaps, the notional amount was $998,000 for both December 31, 1998 and
1997.
13
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE D
Concentration of Credit Risk. At December 31, 1998, CLNY held unrated or less-
- ----------------------------
than-investment grade corporate bonds of $3,048,000, with an aggregate fair
value of $3,028,000. These holdings amounted to 2.1% of the bond portfolio and
1.0% of CLNY's total admitted assets. The portfolio is well diversified by
industry.
CLNY's mortgage portfolio is well diversified by region and property type with
21% in California (book value - $20,253,000), 11% (book value - $10,207,000) in
Pennsylvania, and the remainder of the states less than 10%. The investments
consist of first mortgage liens. The mortgage outstanding on any individual
property does not exceed $1,100,000.
NOTE E
Federal Income Taxes. The statutory federal income tax provision amount at the
- --------------------
statutory rate of 35% for 1998 and 34% for 1997 and 1996 differs from the
effective tax provision amount for years ended December 31 as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed income taxes at statutory rate $ 826 $ 527 $ 425
Increase (decrease) in income taxes
resulting from:
Policyholder dividends 164 9 86
Actuarial reserves (45) 257 385
Deferred acquisition cost tax 98 150 232
Accrual of bond discount 81 (6) (298)
Other (220) (365) (231)
- ---------------------------------------------------------------------------------------------------
Federal income taxes $ 904 $ 572 $ 599
- ---------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998 and 1997, the federal income tax receivable was $127,000
and $713,000, respectively.
During 1998, 1997 and 1996, the Company made cash payments on behalf of federal
income taxes of $2,293,000, $1,564,000 and $525,000, respectively.
NOTE F
Participating Insurance. Participating insurance accounted for 84%, 83% and 78%
- -----------------------
of total ordinary insurance in force, and premium income from ordinary life
participating policies amounted to 95%, 97% and 96% of total life insurance
premiums during 1998, 1997 and 1996, respectively.
NOTE G
Reinsurance. CLNY reinsures a portion of its life and accident and health
- -----------
insurance and annuity product risks with other insurance companies, principally
CLA, in order to minimize its exposure to loss. In accordance with industry
practice, reserves and liabilities relating to insurance ceded (1998 -
$15,312,000; 1997 - $7,912,000) are not provided for in CLNY's financial
statements. To the extent that any reinsuring companies are unable to meet
their obligations under the reinsurance agreements, CLNY would remain liable.
14
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE G
Reinsurance (continued).
- -----------------------
Various reinsurance agreements exist between CLNY and CLA, primarily in the form
of yearly renewable term treaties for life insurance and modified coinsurance
for annuities. The effect of reinsurance on premiums and annuity considerations
earned for years ended December 31, follow (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums $ 30,551 $ 43,155 $ 41,607
Premiums ceded (9,764) (3,951) (4,184)
- ------------------------------------------------------------------------------------------------------
Net premiums and annuity
considerations 20,787 39,204 37,423
- ------------------------------------------------------------------------------------------------------
Benefits ceded 281 2,983 935
Life insurance in force ceded 865,000 695,000 639,000
- ------------------------------------------------------------------------------------------------------
</TABLE>
NOTE H
Related Party Transactions. CLNY and CLA have an agreement to provide services
- --------------------------
for each other. For the years ended December 31, 1998, 1997 and 1996, the net
cost of these services to the Company amounted to $1,625,000, $1,948,000 and
$1,909,000, respectively. As of December 31, 1998 and 1997, the amount payable
to CLA were $3,755,000 and $1,644,000, respectively.
NOTE I
Separate Accounts. The Company's non-guaranteed Separate Accounts represent
- -----------------
primarily funds invested in variable annuity policies issued by the Company.
The assets of these funds are invested in either shares of Canada Life of
America Series Fund, Inc., an affiliated diversified, open-ended management
investment company or in shares of four unaffiliated management investment
companies.
Premiums or deposits for years ended December 31, 1998, 1997 and 1996 were
$5,354,000, $5,528,000 and $2,149,000, respectively. Total reserves were
$14,870,000 and $9,118,000 at December 31, 1998 and 1997, respectively. All
reserves were subject to discretionary withdrawal, at fair value, with less than
a 1% surrender charge.
15
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE I
Separate Accounts (continued).
- ----------------------------
A reconciliation of the amounts transferred to and from the Separate Accounts
for years ended December 31, is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transfers as reported in the Summary of
Operations of the Separate Accounts statement:
Transfers to Separate Accounts $5,354 $5,528 $2,149
Transfers from Separate Accounts 1,158 922 77
- ------------------------------------------------------------------------------------------------------
Net transfers to Separate Accounts 4,196 4,606 2,072
Gains transferred 120 126 26
- ------------------------------------------------------------------------------------------------------
Transfers as reported in the Summary of
Operations of the Life, Accident and Health
annual statement $4,316 $4,732 $2,098
- ------------------------------------------------------------------------------------------------------
</TABLE>
NOTE J
Actuarial Reserves. CLNY's withdrawal characteristics for annuity reserves and
- ------------------
deposit fund liabilities at December 31, are summarized as follows (in thousands
of dollars):
<TABLE>
<CAPTION>
Amount Percent of Total
------------------------------ ------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal:
At book value less surrender charge of 5% or more $ 24,404 $ 26,403 14.9% 15.7%
Subject to discretionary withdrawal without
adjustment at book value (minimal or no charge
adjustment) 7,127 3,762 4.3% 2.2%
Not subject to discretionary withdrawal 132,352 138,572 80.8% 82.1%
- ------------------------------------------------------------------------------------------------------------------------
Total (gross) 163,883 168,737 100.0% 100.0%
Less: reinsurance ceded - -
- -----------------------------------------------------------------------------------
Net annuity reserves and deposit fund liabilities $163,883 $168,737
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE K
Capital and Surplus. Under applicable New York insurance law, the Company is
- -------------------
required to maintain a minimum capital of $1,000,000 and surplus at least equal
to 50% of such capital. At December 31, 1998 surplus was $15,136,000.
In New York, life insurance companies are not permitted to pay dividends without
the prior approval of the New York insurance department.
16
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE K
Capital and Surplus (continued).
- -------------------------------
At December 31, 1998, the Company's capital and surplus exceeded the NAIC's
"Risk-Based Capital" requirements for life and health insurance companies.
NOTE L
Retirement Plans.
- ----------------
Retirement Plans. CLA sponsors a consolidated defined benefit pension plan
- ----------------
covering substantially all employees and agents. The benefits for the employees
are based on years of service and the employee's compensation during the last
five years of employment. The benefits for agents are based on the agent's
commission earnings. CLA's funding policy is to contribute annually to the plan
the maximum amount that can be deducted for federal income tax purposes. Each
subsidiary of CLA is charged with its share of the pension cost based on a
percentage of payroll and commissions. In 1998, no pension expense was
recognized under SAP.
Postretirement Benefit Plan. In addition to pension benefits, the Company
- ---------------------------
provides certain health care and life insurance benefits ("postretirement
benefits") for retired employees. Substantially all employees may become
eligible for these benefits if they reach retirement age while working for the
Company.
Postretirement benefit cost for the year ended December 31, 1998 was ($88,000).
Postretirement benefit cost includes the expected cost of postretirement
benefits for newly eligible or vested employees, interest cost, and gains and
losses arising from differences between actuarial assumptions and actual
experience. The Company made contributions to the plan of $4,000 in 1998, as
claims were incurred.
At December 31, 1998, the postretirement benefit obligation for retirees and
other fully eligible or vested plan participants was fully accrued. The
estimated cost of the benefit obligation for active employees was $486,000. The
discount rate used in determining the accumulated postretirement benefit
obligation was 6.7% and the health care cost trend rate was 9%, graded to 6%
over 20 years.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the postretirement
benefit obligation as of December 31, 1998, by $49,000 and the estimated
eligibility cost and interest components of net periodic postretirement benefit
cost for 1998 by $6,000.
17
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE M
Fair Value of Financial Instruments. The fair value of certain financial
- -----------------------------------
instruments along with their corresponding carrying values at December 31 follow
(in thousands of dollars). As the fair value of all CLNY's assets and
liabilities is not presented, this information in the aggregate does not
represent the underlying value of CLNY.
<TABLE>
<CAPTION>
1998 1997
------------------------------- ------------------------------
Fair Carrying Fair Carrying Valuation
Value Value Value Value Method
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Assets
- ----------------
Fixed maturities $152,281 $138,193 $152,858 $142,641 1
Equity securities 12,742 12,742 10,208 10,208 1
Mortgage loans 107,365 96,297 109,291 98,854 2
Policy loans 12,970 12,970 12,821 12,821 4
Financial Liabilities
- ---------------------
Investment-type
insurance contracts 31,074 27,897 30,694 28,878 5
Off-balance sheet
- -----------------
Derivatives
Futures (707) (695) 14,747 14,722 3
Currency Swaps 29 (1,103) (40) (1,103) 3
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Fair values are based on publicly quoted market prices at the close of
trading on the last business day of the year. In cases where publicly quoted
prices are not available, fair values are based on estimates using values
obtained from independent pricing services, or, in the case of private
placements, by discounting expected future cash flows using a current market
rate applicable to the yield, credit quality, and maturity of the
investments.
2. Fair values are estimated using discounted cash flow analysis based on
interest rates currently being offered for similar credit ratings.
3. Fair values for futures contracts and options that have not settled are
based on current settlement values.
4. Carrying value approximates fair value.
5. Fair values for liabilities under investment-type insurance contracts are
estimated using discounted liability calculations, adjusted to approximate
the effect of current market interest rates for the assets supporting the
liabilities.
18
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE N
Premium and Annuity Considerations Deferred and Uncollected. CLNY's deferred
- -----------------------------------------------------------
and uncollected life insurance premiums and annuity considerations at December
31, were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Gross Net of Loading
------------------------- --------------------------
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ordinary new business $ 352 $1,192 $ 57 $1,116
Ordinary renewal 2,687 1,934 2,110 1,240
Group life 11 6 7 6
- ----------------------------------------------------------------------------------------------------
Total $3,050 $3,132 $2,174 $2,362
- ----------------------------------------------------------------------------------------------------
</TABLE>
NOTE O
Impact of Year 2000 Computer Software Modification Costs (Unaudited). The year
- --------------------------------------------------------------------
2000 issue (Y2K) is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of CLA's computer
programs or hardware that have date sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal activities.
CLA's plan to resolve Y2K involves the following four phases: assessment,
testing, remediation, and implementation. A team of key personnel was formed to
mitigate Y2K issues. A majority of the resources were obtained from the
Information Technology profession. In addition, team members were designated
from the business units, Internal Audit, Legal, Corporate, and Compliance
departments. To date, CLA has fully completed its assessment of all systems
that could be significantly affected by the Year 2000. The completed assessment
indicates that most systems could be affected, but subsequent testing and
remediation of these systems indicates such issues will be minimal with no
significant disruption expected. However, due to a tremendous reliance on
systems and external business partners, CLA cannot guarantee that a disruption
will not occur. Since CLA's systems rely primarily on third party externally
developed software rather than proprietary internally developed software,
external vendors have performed what limited remediation work has been required.
CLA retests all remediation work in its Y2K test lab before implementing changes
into production. As of March 1999, assessment, testing, remediation, and
implementation are 96% complete on mission-critical systems.
In addition, CLA has gathered information about the year 2000 compliance status
of its significant business partners and continues to monitor their compliance
status. Y2K business contingency plans are being developed for mission critical
processes. The objectives of the plans will be to prepare alternatives in the
event of a failure of a mission-critical system and to provide a methodology and
means to audit and assess the functionality of mission-critical systems
immediately following the turn of the century. Additionally, the plans will
ensure that critical personnel are identified and available to respond to Y2K
issues should they arise. Once developed, these contingency plans will be
approved by the full Y2K Steering Committee after a detailed walk-through. CLA
expects the plans to be complete by the end of April.
19
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE O
Impact of Year 2000 Computer Software Modification Costs (Unaudited -
- ---------------------------------------------------------------------
continued).
- ----------
Based on recent assessments, CLA has identified only two software applications,
bank reconciliation software and payroll software, that have date sensitive
issues that could disrupt processing if not resolved before December 31, 1999.
CLA contacted and is working closely with the providers of these applications.
It is anticipated that the installation of software upgrades that resolve the
date sensitive issues will occur no later than July 1999. A third application
used for financial reporting is not Y2K compliant, and CLA plans to replace it
rather than make it compliant. CLA expects the replacement to be ready by June
1999.
Other than the three software applications discussed, CLA has determined that,
based on its most recent assessments and testing, minimal disruption of
operation at CLA is expected due to Y2K issues. All modifications or
replacement of its software or hardware so that its systems will properly
utilize dates beyond December 31, 1999 will be complete by June 1999.
Consequently, due to the efforts that CLA has expended in addressing the date
sensitivity of its mission critical system, it is not expected that any material
disruption or major impact on the operations of CLA will occur. However, due to
the reliance on systems and external business partners, CLA cannot guarantee
that the company will be unaffected by the Year 2000.
20
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B of this
registration statement.
(b) Exhibits
(1) Resolution of the Board of Directors of Canada Life Insurance
Company of New York (CLNY) authorizing establishment of the Variable
Account/1/
(2) Not applicable.
(3) (a) Form of Distribution Agreement/1/
(b) Form of Selling Agreement/1/
(b) (a) Amendment to Form of Selling Agreement/2/
(b) (b) Amendment to Form of Selling Agreement
(4) (a) Form of Annuity Policy/3/
(b) Riders and Endorsements/2/
(5) Form of Application/3/
(6) (a) Certificate of Incorporation of CLNY/1/
(b) By-Laws of CLNY/1/
(c) Amendment to the By-laws of Canada Life Insurance Company
of New York passed by the Board November 19, 1993/1/
(d) Amendment to the By-laws of Canada Life Insurance Company
of New York passed by the Board September 4, 1997/2/
(7) Not applicable
(8) (a)(a) Participation Agreement Between Canada Life Series Fund and
Canada Life Insurance Company of New York/1/
(a)(b) Participation Agreement Between Dreyfus Corporation and
Canada Life Insurance Company of New York/1/
(a)(c) Participation Agreement Between Montgomery Asset Management,
L.P. and Canada Life Insurance Company of New York/1/
(a)(d) Participation Agreement Between Fred Alger and Company, Inc.
and Canada Life Insurance Company of New York/1/
(a)(e) Participation Agreement Among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Canada Life
Insurance Company of New York/2/
(a)(f) Participation Agreement Among Berger Institutional Products
Trust and Canada Life Insurance Company of New York/1/
(a)(g) Participation Agreement Among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and Canada Life
Insurance Company of New York/2/
(a)(h) Participation Agreement Among Variable Insurance Products
Fund III, Fidelity Distributors Corporation and Canada Life
Insurance Company of New York/2/
(a)(i) Participation Agreement Among Berger Institutional Products
Trust, Berger Associates, Inc. and Canada Life Insurance
Company of New York/2/
(a)(j) Participation Agreement Between Canada Life Insurance
Company of New York and The Dreyfus Socially Responsible
Growth Fund, Inc./2/
<PAGE>
(a)(k) Participation Agreement Between Canada Life Insurance
Company of New York and Dreyfus Variable Investment Fund/2/
(a)(l) Amendment to Participation Agreement Among Variable
Insurance Products Fund, Fidelity Distributors Corporation
and Canada Life Insurance Company of New York/2/
(a)(m) Amendment to Participation Agreement Among Variable
Insurance Products Fund II, Fidelity Distributors
Corporation and Canada Life Insurance Company of New York/2/
(a)(n) Amendment to Participation Agreement By and Among Canada
Life Insurance Company of New York and Montgomery Funds III
and Montgomery Asset Management, L.P. /2/
(a)(o) Form of Participation Agreement By and Between Canada Life
Insurance Company of New York and Goldman Sachs, Inc.
(b) Service Agreement/1/
(9) Opinion and Consent of Counsel/1/
(10) (a) Consent of Counsel
(b) Consent of Independent Counsel
(c) Consent of Independent Auditors
(11) No financial statements were omitted from Item 23.
(12) Not applicable
(13) Sample Performance Data Calculation/2/
____________________________
1 Incorporated herein by reference to exhibits filed with the Post-Effective
Amendment No. 11 to this Registration Statement on Form N-4 (File No. 33-
32199) filed on April 29, 1997.
2 Incorporated herein by reference to Post-Effective Amendment No. 12 to this
Registration Statement on Form N-4 (File No. 33-32199), filed on April 30,
1998.
3 Incorporated herein by reference to Post-Effective Amendment No. 13 to this
Registration Statement on Form N-4 (File No. 33-32199), filed on February
12, 1999.
<PAGE>
Item 25. Directors and Officers of the Depositor
Name and Principal
Business Address Positions and Offices with Depositor
---------------- ------------------------------------
David A. Nield (1) Chairman and Director
Ron E. Beettam (2) President and Director
Paul R. McCadam (3) Vice-President, Chief Operating Officer, and
Director
Thomas C. Scott (2) Financial Vice President
Dr. Robert W. Lund (2) Medical Director
Donald K. Cooper (3) Director of Marketing
Nathanial Lacov (3) Director of Marketing
William S. McIlwaine (2) Director of Group Sales
Cheryl McGinness (3) Administrative Officer
Kenneth T. Ledwos (2) Actuary
Sergio Benedetti (2) Marketing Actuary
Janet G. Deskins(2) Illustration Actuary
John W. Pratt (2) Actuarial Associate
Jane W. Elliott (2) Internal Auditor
Roy W. Linden (1) Assistant Secretary
Charles H. MacPhaul (2) Assistant Secretary
George N. Isaac (1) Assistant Treasurer
Edward P. Ovsenny (1) Assistant Treasurer
Brian J. Lynch (1) Assistant Treasurer
Kevin A. Phelan (1) Assistant Treasurer
Michael Tibando (1) Assistant Treasurer
Wendy M. Michaud (3) Chief Underwriter
Christopher T. Green (5) Director
Alfred F. Kelly (6) Director
D. Allen Loney (1) Director
William B. Morris (9) Director
Harry Van Benschoten (10) Director
Alan R. Wentzel (6) Director
Henry A. Rachfalowski (1) Treasurer
(1) The business address is 330 University Avenue, Toronto, Ontario, Canada
M5G 1R8.
(2) The business address is 6201 Powers Ferry Road, NW, Suite 600, Atlanta,
GA, USA 30339.
(3) The business address is 500 Mamaroneck Avenue, Harrison, New York, USA
10528.
(4) The business address is 43 Meadow Avenue, Weekapaug, Rhode Island, USA
02891
(5) The business address is 1000 Cathedral Place, 298 Main Street, Buffalo,
New York, USA 14202.
(6) The business address is 320 Park Avenue, New York, NY, USA 10022-6815
(7) The business address is 320 Park Avenue, New York, New York, USA 10022.
(8) The business address is 4 Glenellen Drive East, Toronto, Ontario, Canada
M8Y 2G5
(9) The business address is 9 West 57th Street, New York, New York, USA 10019
(10) The business address is 105 Seminary Street, New Canaan, Connecticut, USA
06840
(11) The business address is 72 Colt Road, Summit, New Jersey, USA 07901
<PAGE>
Item 26. Persons Controlled by or Under Common Control With the Depositor or
Registrant
<TABLE>
<CAPTION>
NAME JURISDICTION PERCENT OF PRINCIPAL
- ---- ------------ VOTING SECURITIES OWNED BUSINESS
----------------------- --------
<S> <C> <C> <C>
The Canada Life Assurance Company Canada Mutual Company Life and Health
Insurance
Canada Life Insurance Company of New New York Ownership of voting securities through Life and Health
York Canada Life Insurance
Adason Properties Limited Canada Ownership of all voting securities Property
through Canada Life Management
Canada Life Irish Operations Limited England Ownership of all voting securities Life and Health
through Canada Life Insurance
Canada Life Unit Trust Managers England Ownership of all voting securities Unit Trust
Limited through Canada Life Irish Operations Management
Canada Life Mortgage Services Ltd. Canada Ownership of all voting securities Mortgage
through Canada Life Portfolios
The CLGB Property Company Limited England Ownership of all voting securities Real Estate
through Canada Life Irish Operations Investment
CLASSCO Benefit Services Limited Canada Ownership of all voting securities Administrative
through Canada Life Services
Canada Life Casualty Insurance Canada Ownership of all voting securities Property and
Company through Canada Life Insurance Casualty
Insurance
Sherway Centre Limited Canada Ownership of all voting securities Real Estate
through Canada Life Broker
The Canada Life Assurance Company of Rep. of Ireland Ownership of all voting securities Life and Health
Ireland Limited through Canada Life Irish Operations Insurance
Canlife - IBI Investment Services Rep. of Ireland Ownership of 50% of voting securities Unit Trust
Limited through Canada Life Ass. ( Ireland) Management
Limited and 50% by the Investment Bank
of Ireland
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME JURISDICTION PERCENT OF PRINCIPAL
- ---- ------------ VOTING SECURITIES OWNED BUSINESS
----------------------- --------
<S> <C> <C> <C>
Canada Life Financial Services England Ownership of all voting securities Life Insurance
Company Limited through Canada Life Irish Operations
F.S.D. Investments Ltd. Rep. of Ireland Ownership of all voting securities Unit Fund Sales
through Canada Life Assurance (Ireland) and Management
Limited
Canada Life Insurance Company of US Canada Life Life and Health
America Insurance
Canada Life of America Financial Georgia Ownership of all voting securities Broker Dealer
Services Inc. through CLICA
Canada Life of America Series Fund, Maryland Ownership of all voting securities Mutual Fund
Inc. through CLICA
CLMS Realty Ltd. Canada 99% of the common shares and 100% of the Realtor
convertible preference shares are owned
by Canada Life
Canada Life Pension & Annuities Rep. of Ireland Ownership of all voting securities Life Assurance
(Ireland) Limited through Canada Life Assurance (Ireland)
Limited
CLAI Limited Rep. of Ireland Ownership of all voting securities Holding,
through Canada Life Ireland Holdings Service,
Limited Management, and
Investment
Company
The Canada Life Assurance (Ireland) Rep. of Ireland Ownership of all voting securities Life Insurance,
Limited through CLAI Limited and the Canada Life Pension, and
Assurance Company of Ireland Annuity
CL Capital Management, Inc. Georgia Ownership of all voting securities Investment
through CLICA Advisor
Canada Life Capital Corporation Inc. Canada Ownership of all voting securities External
through Canada Life Sources of
Capital
Canada Life Securing Corporation Inc. Canada Ownership of all voting securities Holding Company
through Canada Life
The Canada Life Group (UK) Limited England Ownership of all voting securities Holding Company
through Canada life
Canada Life Holdings (UK) Limited England The Canada Life Group (UK) Limited Holding Company
The Canada Life Assurance Company of England The Canada Life Group (UK) Limited Life and Health
Great Britain
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME JURISDICTION PERCENT OF PRINCIPAL
- ---- ------------ VOTING SECURITIES OWNED BUSINESS
----------------------- --------
<S> <C> <C> <C>
Limited Insurance
Canada Life Management (UK) Limited England The Canada Life Group (UK) Limited Unit Trust
Sales &
Management
Canada Life Group Services (UK) England The Canada Life Group (UK) Limited Administrative
Limited Services
Canada Life Trustee Services (UK) England The Canada Life Group (UK) Limited Trustee Services
Limited
Canada Life Ireland Holdings Limited Ireland Canada Life Irish Operations Limited Holding Company
MetLife (UK) Limited England Ownership of all voting securities Holding Company
through Canada Life
MetLife Group Services Limited England Ownership of all voting securities Administrative Services
through MetLife (UK) Limited
Metropolitan Unit Trust Managers England Ownership of all voting securities Unit Trust Services
Limited through MetLife (UK) Limited
Albany International Assurance Limited England Ownership of all voting securities Unit Investment Products
through MetLife (UK) Limited
Albany Life Assurance Company Limited England Ownership of all voting securities Unit Life and Pension
through MetLife (UK) Limited Insurance
Albany Pension Managers and Trustees England Ownership of all voting securities Trustee Services
Limited through Albany Life Assurance Company
Limited
Crown Life Insurance Company of Canada Canada Ownership of all voting securities Life and Health
through Canada Life Insurance
</TABLE>
<PAGE>
Item 27. Number of Policy Owners
As of March 15, 1999, there were 56 owners of Nonqualified Policies and 61
owners of Qualified Policies.
Item 28. Indemnification
Canada Life Insurance Company of New York's By-Laws provide in Article II,
Section 10 as follows:
In addition to and without limiting the generality of Subsections A and B of
this Section 10, the Corporation shall indemnify each director and each person
whose testator or intestate was a director made or threatened to be made a party
to any action or proceeding, including an action or proceeding by or in the
right of the Corporation by reason of the fact that he is or was a director or
that his testator or intestate was a director, against judgments, fines, amounts
paid in settlement, and reasonable expenses, including attorneys' fees actually
and necessarily incurred by him in connection with the defense or settlement of
such action or proceeding unless the judgment or other final adjudication
adverse to the director or to the person whose testator or intestate was a
director in such action or proceeding establishes that the director's acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or that the director
personally gained in fact a financial profit or other advantage to which he was
not legally entitled.
In addition, expenses incurred in defending a civil or criminal action or
proceeding may be paid by the corporation in advance of the final disposition of
such action or proceeding upon receipt of an undertaking by or on behalf of such
director, officer or employee to repay such amount as, and to the extent
required by paragraph (a) of Section 725 of the New York Business Corporation
Law.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the questions whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
<PAGE>
Item 29. Principal Underwriter
Canada Life of America Financial Services, Inc. (CLAFS) is the principal
underwriter of the Policies as defined in the Investment Company Act of 1940.
The following table provides certain information with respect to each director
and officer of CLAFS.
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
- ---------------- ----------------
S. Benedetti** Chairman and Director
D.V. Rough* Treasurer
C.H. MacPhaul** Assistant Secretary
K.T. Ledwos** Administrative Officer and Director
S. Benedetti** President and Director
K.J. Fillman** Administrative Officer
- -------------------
* The business address is 330 University Avenue, Toronto, Ontario, Canada M5G
1R8.
** The business address is 6201 Powers Ferry Road, N.W., Suite 600, Atlanta,
Georgia 30339.
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of the 1940
Act and the rules under it are maintained by CLICA at its Executive Office at
330 university Avenue, Toronto, Canada M5G 1R8 and at 500 Mamaroneck Avenue,
Harrison, New York 10528.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
Item 32
Undertakings
(a) Registrant undertakes that it will file a post effective amendment to this
registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that
an applicant can check to request a Statement of Additional Information, or
(2) a post card or similar written communication affixed to or included in
the Prospectus that the applicant can remove to send for a Statement of
Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to CLNY at the address or phone
number listed in the Prospectus.
(d) Depositor undertakes to preserve on behalf of itself and Registrant the
books and records required to be preserved by such companies pursuant to
Rule 31a-2 under the Investment Company Act of 1940 and to permit
examination of such books and records at any time or from time to time
during business hours by
<PAGE>
examiners or other representatives of the Securities and Exchange
Commission, and to furnish to said Commission at its principal office in
Washington, D.C., or at any regional office of said Commission specified in
a demand made by or on behalf of said Commission for copies of books and
records, true, correct, complete, and current copies of any or all, or any
part, of such books and records.
(e) The Registrant is relying on a letter issued by the staff of the Securities
and Exchange Commission to the American Council of Life Insurance on
November 28, 1988 (Ref. No. IP-6-88) stating that it would not recommend to
the Commission that enforcement action be taken under Section 22(e),
27(c)(1), or 27(d) of the Investment Company Act of 1940 if the Registrant,
in effect, permits restrictions on cash distributions from elective
contributions to the extent necessary to comply with Section 403(b)(11) of
the Internal Revenue Code of 1986 in accordance with the following
conditions:
(1) include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the policy;
(2) include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection
with the offer of the policy;
(3) instruct sales representatives who may solicit individuals to purchase
the policies specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of such individuals;
(4) obtain from each owner who purchases a Section 403(b) policy, prior to
or at the time of such purchase, a signed statement acknowledging the
owner's understanding of (i) the redemption restrictions imposed by Section
403(b)(11), and (ii) the investment alternatives available under the
employer's Section 403(b) arrangement, to which the owner may elect to
transfer his or her policy value.
The Registrant is complying, and shall comply, with the provisions of
paragraphs (1) - (4) above.
(f) Canada Life Insurance Company of New York hereby represents that the fees
and changes deducted under the Policy, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred,
and the risks assumed by Canada Life Insurance Company of New York.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets all the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933, and has caused this Post-Effective Amendment Number 13
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, and the State of New York on this 25th day of February, 1999.
---- --------
CANADA LIFE INSURANCE COMPANY OF NEW YORK
VARIABLE ANNUITY ACCOUNT 1
By /s/ R. E. Beettam
----------------------------------------
R. E. Beettam, President
Canada Life Insurance Company of New York
CANADA LIFE INSURANCE COMPANY OF NEW YORK
By /s/ R. E. Beettam
----------------------------------------
R. E. Beettam, President
As required by the Securities Act of 1933, this Post-Effective Amendment Number
13 has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ D. A. Nield Chairman and Director 2/25/99
- ------------------------- -------
D. A. Nield
/s/ R. E. Beettam President and Director 2/25/99
- ------------------------- -------
R. E. Beettam
/s/ G. N. Farquhar Director 3/4/99
- ------------------------- -------
G. N. Farquhar
/s/ C. T. Greene Director 2/25/99
- ------------------------- -------
C. T. Greene
/s/ A. F. Kelly Director 2/25/99
- ------------------------- -------
A. F. Kelly
<PAGE>
/s/ D. A. Loney Director 3/18/99
- ------------------------- -------
D. A. Loney
/s/ W. B. Morris Director 2/25/99
- ------------------------- -------
W. B. Morris
/s/ H. Van Benschoten Director 2/25/99
- ------------------------- -------
H. Van Benschoten
/s/ A. R. Wentzel Director 2/25/99
- ------------------------- -------
A. R. Wentzel
/s/ H. A. Rachfalowski Treasurer 2/25/99
- ------------------------- -------
H. A. Rachfalowski
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
3 (a)(b) Amendment to Form of Selling Agreement
8 (a)(o) Participation Agreement By and Between Canada Life
Insurance Company of New York and Goldman Sachs, Inc.
10 (a) Consent of Counsel
(b) Consent of Independent Counsel
(c) Consent of Independent Auditors
<PAGE>
EXHIBIT 3(a)(b)
Amendment to Form of Selling Agreement
<PAGE>
VARIFUND(R)
SCHEDULE 1 - STATEMENT OF COMPENSATION
CANADA LIFE INSURANCE COMPANY OF NEW YORK
AS OF MARCH 1, 1999
Commission will be paid to Broker/Dealer in the percentages shown below:
OWNER'S ISSUE AGE 0-80 OWNERS ISSUE AGE 81-85
- ---------------------- ----------------------
OPTION A: 6.5% of premium OPTION A: 3.25% of premium
- -------- --------
OPTION B: 5.0% of premium plus 0.25% OPTION B: 2.5% of premium plus
- -------- --------
annual trail based on account value. 0.25% annual trail based on
OPTION C: 1.0% of premium plus 1.0% account value.
- --------
annual trail based on account value.
NOTE: ALL ASSET BASED PAYMENTS START BEING PAID IN THE FIFTH QUARTER AFTER THE
POLICY IS ISSUED, ARE PAYABLE QUARTERLY THEREAFTER, AND ARE BASED ON POLICY
VALUE AT THE TIME OF ASSET BASED PAYMENT CALCULATION.
ALL PAYMENTS IN THIS SCHEDULE, INCLUDING TRAIL PAYMENTS, ARE 50% COMMISSION AND
50% EXPENSE ALLOWANCE.
CHARGEBACKS
- -----------
(i) In the event a policy is returned to Canada Life Insurance of New york
("CLNY") pursuant to a "Free Look" provision, the full B/D Concession paid
thereon or retained by Selling Firm pursuant to net submission of premium or
purchase payment shall be charged back to the Selling Firm. (ii) Should any
premium or purchase payment on any policy issued by CLNY be refunded for any
reason, Selling Firm shall repay or return B/D Concession received by it with
respect to such premium or purchase payment. (iii) If a policy was not issued as
a result of failure of Selling Firm to submit to CLNY an application sufficient
to satisfy state insurance laws or CLNY's eligibility requirements, then amounts
paid to Selling Firm shall be returned or repaid. (iv) If a policy was tendered
to CLNY for redemption within 10 business days of the date of activity, then
amounts paid to Selling Firm shall be returned or repaid. (v) For full or
partial withdrawals from the policies, other than those pursuant to Systematic
and/or Free Withdrawals: 100% of all B/D Concession paid to Selling Firm on
amount(s) within 6 months of such amount(s) being paid to CLNY and 50% of all
B/D Concession paid to Selling Firm on amount(s) withdrawn from 7-12 months of
such amount(s) being paid to CLNY, shall be returned or repaid. (vi) For
Annuitizations occurring during the first policy year, B/D Concessions will be
charged back to the extent that they exceed the amount of the Service Fees
referenced above.
For any premium or purchase payment that has been in the Policy for more than 12
months, there shall be no chargeback on B/D Concession. To the extent permitted
by law, the amount so charged back may, at the option of CLNY, be set off
against B/D Concession otherwise due Selling Firm. In addition, such other
compensation will be payable as are from time to time agreed by the parties to
the foregoing Agreement and which is in accordance with applicable law, and will
be added to the schedule. The rates of concession specified above and any rates
of concession otherwise determined by the company will be subject to change at
any time by the Company but no charge will affect the rates of concession in
connection with any policy effected herein for which the initial premium was due
prior to the effective date of such change. Any such changes of concession will
be binding upon the Broker/Dealer when the Company sends notice thereof in
writing to it and will take effect from the date specified in such notice.
<PAGE>
ADJUSTMENTS FOR ADVANCE BROKER DEALER CONCESSIONS ON 1035 EXCHANGES &/OR OTHER
- ------------------------------------------------------------------------------
TRANSFERS:
- ---------
CLNY will advance broker dealer concessions on 1035 exchanges &/or other
transfers, subject to our administrative procedures, for amounts of $50,000 or
greater. (Amount subject to change without notice). When the actual premiums are
received, there will be an adjustment, either positive or negative, to the
actual broker dealer concession previously paid. If dollar amounts are
consistently over-estimated, this privilege will be discontinued. CLNY reserves
the right to discontinue this practice at any time.
NOTE: If there is more than one owner of a policy the age of the oldest owner
- ----
determines the level of compensation.
EXPENSE ALLOWANCE
- -----------------
Total payments may consist of agent commission, override and/or expense
allowance.
If expense allowances are payable, they are subject to the following conditions
and limitations:
1. Lapses and surrenders in the first year, and any returns of first year
premium made by CLNY, will result in proportionate chargebacks of any
expense allowances paid for said premiums.
2. No expense allowance will be used to effect compensation in excess of the
limits of Section 4228 of the Insurance Law of New York.
3. No expense allowance will be due or payable after the termination of this
Contract except for first year expense allowances for policies written
prior to such termination.
4. Notwithstanding any of the other terms and conditions governing payments
of expense allowances in this Contract, and to confirm with the
requirements of Section 4228 of the Insurance Law and the applicable
regulations resulting therefrom and other governing sections of the law,
the following will apply:
a) The maximum expense allowance payments shall be such that when
added to first year commissions, exclusive of overriding
commissions not exceeding 5% of first year premiums, the total
shall not exceed 91% of first year premiums for ordinary life and
annuity policies and contracts other than single premium policies
and contracts.
b) The maximum expense allowance shall not exceed 100% of the
commissions payable on single premium policies and contracts,
or the overall 7% of premium limit.
In monitoring the maximum allowances rules in this paragraph 4, CLNY will apply
those in a) and b) above, on a "per-policy" basis.
<PAGE>
Exhibit 8(a)(o)
Participation Agreement By and Between Canada Life Insurance Company of New York
and Goldman Sachs, Inc.
<PAGE>
FORM OF PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 1 day of May, 1999 by and
between GOLDMAN SACHS VARIABLE INSURANCE TRUST, an unincorporated business trust
formed under the laws of Delaware (the "Trust"), GOLDMAN, SACHS & CO., a New
York limited partnership (the "Distributor"), and CANADA LIFE INSURANCE COMPANY
OF NEW YORK, a New York life insurance company (the "Company"), on its own
behalf and on behalf of each separate account of the Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more separate
series ("Series") of shares, each such Series representing an interest in a
particular investment portfolio of securities and other assets (a "Fund"), and
which Series may be subdivided into various classes ("Classes") with each such
Class supporting a distinct charge and expense arrangement; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for insurance company separate accounts supporting variable
annuity contracts and variable life insurance policies to be offered by
insurance companies and may also be utilized by qualified retirement plans; and
WHEREAS, the Distributor has the exclusive right to distribute Trust shares
to qualifying investors; and
WHEREAS, the Company desires that the Trust serve as an investment vehicle
for a certain separate account(s) of the Company and the Distributor desires to
sell shares of certain Series and/or Class(es) to such separate account(s);
NOW, THEREFORE, in consideration of their mutual promises, the Trust, the
Distributor and the Company agree as follows:
ARTICLE I
ADDITIONAL DEFINITIONS
1.1. "Account" -- the separate account of the Company described more
specifically in Schedule 1 to this Agreement. If more than one separate account
is described on Schedule 1, the term shall refer to each separate account so
described.
1.2. "Business Day" -- each day that the Trust is open for business as
provided in the Trust's Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended, and any
successor thereto.
1.4. "Contracts" -- the class or classes of variable annuity contracts
and/or variable life insurance policies issued by the Company and described more
specifically on Schedule 2 to this Agreement.
1.5. "Contract Owners" -- the owners of the Contracts, as distinguished
from all Product Owners.
<PAGE>
1.6. "Participating Account" -- a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.7. "Participating Insurance Company" -- any insurance company investing
in the Trust on its behalf or on behalf of a Participating Account, including
the Company.
1.8. "Participating Plan" -- any qualified retirement plan investing in
the Trust.
1.9. "Participating Investor" -- any Participating Account, Participating
Insurance Company or Participating Plan, including the Account and the Company.
1.10. "Products" -- variable annuity contracts and variable life insurance
policies supported by Participating Accounts, including the Contracts.
1.11. "Product Owners" -- owners of Products, including Contract Owners.
1.12. "Trust Board" -- the board of trustees of the Trust.
1.13. "Registration Statement" -- with respect to the Trust shares or a
class of Contracts, the registration statement filed with the SEC to register
such securities under the 1933 Act, or the most recently filed amendment
thereto, in either case in the form in which it was declared or became
effective. The Contracts' Registration Statement for each class of Contracts is
described more specifically on Schedule 2 to this Agreement. The Trust's
Registration Statement is filed on Form N-1A (File No. 333-35883).
1.14. "1940 Act Registration Statement" -- with respect to the Trust or the
Account, the registration statement filed with the SEC to register such person
as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account's 1940 Act Registration Statement is described
more specifically on Schedule 2 to this Agreement. The Trust's 1940 Act
Registration Statement is filed on Form N-1A (File No. 811-08361).
1.15. "Prospectus" -- with respect to shares of a Series (or Class) of the
Trust or a class of Contracts, each version of the definitive prospectus or
supplement thereto filed with the SEC pursuant to Rule 497 under the 1933 Act.
With respect to any provision of this Agreement requiring a party to take action
in accordance with a Prospectus, such reference thereto shall be deemed to be to
the version for the applicable Series, Class or Contracts last so filed prior to
the taking of such action. For purposes of Article IX, the term "Prospectus"
shall include any statement of additional information incorporated therein.
1.16. "Statement of Additional Information" -- with respect to the shares
of the Trust or a class of Contracts, each version of the definitive statement
of additional information or supplement thereto filed with the SEC pursuant to
Rule 497 under the 1933 Act. With respect to any provision of this Agreement
requiring a party to take action in accordance with a Statement of Additional
Information, such reference thereto shall be deemed to be the last version so
filed prior to the taking of such action.
1.17. "SEC" -- the Securities and Exchange Commission.
1.18. "NASD" -- The National Association of Securities Dealers, Inc.
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1.19. "1933 Act" -- the Securities Act of 1933, as amended.
1.20. "1940 Act" -- the Investment Company Act of 1940, as amended.
ARTICLE II
SALE OF TRUST SHARES
2.1. AVAILABILITY OF SHARES
(a) The Trust has granted to the Distributor exclusive authority to
distribute the Trust shares and to select which Series or Classes of Trust
shares shall be made available to Participating Investors. Pursuant to
such authority, and subject to Article X hereof, the Distributor shall make
available to the Company for purchase on behalf of the Account, shares of
the Series and Classes listed on Schedule 3 to this Agreement, such
purchases to be effected at net asset value in accordance with Section 2.3
of this Agreement. Such Series and Classes shall be made available to the
Company in accordance with the terms and provisions of this Agreement until
this Agreement is terminated pursuant to Article X or the Distributor
suspends or terminates the offering of shares of such Series or Classes in
the circumstances described in Article X.
(b) Notwithstanding clause (a) of this Section 2.1, Series or
Classes of Trust shares in existence now or that may be established in the
future will be made available to the Company only as the Distributor may so
provide, subject to the Distributor's rights set forth in Article X to
suspend or terminate the offering of shares of any Series or Class or to
terminate this Agreement.
(c) The parties acknowledge and agree that: (i) the Trust may revoke
the Distributor's authority pursuant to the terms and conditions of its
distribution agreement with the Distributor; and (ii) the Trust reserves
the right in its sole discretion to refuse to accept a request for the
purchase of Trust shares.
2.2. REDEMPTIONS. The Trust shall redeem, at the Company's request, any
full or fractional Trust shares held by the Company on behalf of the Account,
such redemptions to be effected at net asset value in accordance with Section
2.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not
redeem Trust shares attributable to Contract Owners except in the circumstances
permitted in Article X of this Agreement, and (ii) the Trust may delay
redemption of Trust shares of any Series or Class to the extent permitted by the
1940 Act, any rules, regulations or orders thereunder, or the Prospectus for
such Series or Class.
2.3. PURCHASE AND REDEMPTION PROCEDURES
(a) The Trust hereby appoints the Company as an agent of the Trust
for the limited purpose of receiving purchase and redemption requests on
behalf of the Account (but not with respect to any Trust shares that may be
held in the general account of the Company) for shares of those Series or
Classes made available hereunder, based on allocations of amounts to the
Account or subaccounts thereof under the Contracts, other transactions
relating to the Contracts or the Account and customary processing of the
Contracts. Receipt of any such requests (or effectuation of such
transaction or processing) on any Business Day by the Company as such
limited agent of the Trust prior to the Trust's close of business as
defined from time to time in the applicable Prospectus for such Series or
Class (which as of the date of execution of this Agreement is defined as
the close of regular trading on the New York Stock Exchange (normally 4:00
p.m. New
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<PAGE>
York Time)) shall constitute receipt by the Trust on that same Business
Day, provided that the Trust receives actual and sufficient notice of such
request by 8:00 a.m. New York Time on the next following Business Day. Such
notice may be communicated by telephone to the office or person designated
for such notice by the Trust, and shall be confirmed by facsimile.
(b) The Company shall pay for shares of each Series or Class on the
same day that it provides actual notice to the Trust of a purchase request
for such shares. Payment for Series or Class shares shall be made in
Federal funds transmitted to the Trust by wire to be received by the Trust
by 12:00 noon New York Time on the day the Trust receives actual notice of
the purchase request for Series or Class shares (unless the Trust
determines and so advises the Company that sufficient proceeds are
available from redemption of shares of other Series or Classes effected
pursuant to redemption requests tendered by the Company on behalf of the
Account). In no event may proceeds from the redemption of shares requested
pursuant to an order received by the Company after the Trust's close of
business on any Business Day be applied to the payment for shares for which
a purchase order was received prior to the Trust's close of business on
such day. If the issuance of shares is canceled because Federal funds are
not timely received, the Company shall indemnify the respective Fund and
Distributor with respect to all costs, expenses and losses relating
thereto. Upon the Trust's receipt of Federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Trust. If Federal funds are not received on time,
such funds will be invested, and Series or Class shares purchased thereby
will be issued, as soon as practicable after actual receipt of such funds
but in any event not on the same day that the purchase order was received.
(c) Payment for Series or Class shares redeemed by the Account or the
Company shall be made in Federal funds transmitted by wire to the Company
or any other person properly designated in writing by the Company, such
funds normally to be transmitted by 6:00 p.m. New York Time on the next
Business Day after the Trust receives actual notice of the redemption order
for Series or Class shares (unless redemption proceeds are to be applied to
the purchase of Trust shares of other Series or Classes in accordance with
Section 2.3(b) of this Agreement), except that the Trust reserves the right
to redeem Series or Class shares in assets other than cash and to delay
payment of redemption proceeds to the extent permitted by the 1940 Act, any
rules or regulations or orders thereunder, or the applicable Prospectus.
The Trust shall not bear any responsibility whatsoever for the proper
disbursement or crediting of redemption proceeds by the Company; the
Company alone shall be responsible for such action.
(d) Any purchase or redemption request for Series or Class shares
held or to be held in the Company's general account shall be effected at
the net asset value per share next determined after the Trust's actual
receipt of such request, provided that, in the case of a purchase request,
payment for Trust shares so requested is received by the Trust in Federal
funds prior to close of business for determination of such value, as
defined from time to time in the Prospectus for such Series or Class.
(e) Prior to the first purchase of any Trust shares hereunder, the
Company and the Trust shall provide each other with all information
necessary to effect wire transmissions of Federal funds to the other party
and all other designated persons pursuant to such protocols and security
procedures as the parties may agree upon. Should such information change
thereafter, the Trust and the Company, as applicable, shall notify the
other in writing of such changes, observing the same protocols and security
procedures, at least three Business Days in advance of when such change is
to take effect.
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<PAGE>
The Company and the Trust shall observe customary procedures to protect the
confidentiality and security of such information, but the Trust shall not
be liable to the Company for any breach of security.
(f) The procedures set forth herein are subject to any additional
terms set forth in the applicable Prospectus for the Series or Class or by
the requirements of applicable law.
2.4. NET ASSET VALUE. The Trust shall make the net asset value per share
for each Series or Class available to the Company on a daily basis as soon as
reasonably practicable after the net asset value per share for such Series or
Class is calculated and shall use its best efforts to make such net asset value
per share available by 6:30 p.m. New York Time each Business Day. The Trust will
notify the Company as soon as possible if on any Business Day it is determined
that the calculation of net asset value per share will be available after 6:30
p.m. New York Time. The Trust shall calculate such net asset value in accordance
with the Prospectus for such Series or Class.
2.5. DIVIDENDS AND DISTRIBUTIONS. The Trust shall furnish notice to the
Company as soon as reasonably practicable of any income dividends or capital
gain distributions payable on any Series or Class shares. The Company, on its
behalf and on behalf of the Account, hereby elects to receive all such dividends
and distributions as are payable on any Series or Class shares in the form of
additional shares of that Series or Class. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends and capital gain distributions in cash; to be effective, such
revocation must be made in writing and received by the Trust at least ten
Business Days prior to a dividend or distribution date. The Trust shall notify
the Company promptly of the number of Series or Class shares so issued as
payment of such dividends and distributions.
2.6. BOOK ENTRY. Issuance and transfer of Trust shares shall be by book
entry only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Trust shares shall be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
2.7. PRICING ERRORS. Any material errors in the calculation of net asset
value, dividends or capital gain information shall be reported immediately upon
discovery to the Company. An error shall be deemed "material" based on our
interpretation of the SEC's position and policy with regard to materiality, as
it may be modified from time to time. Neither the Trust, any Fund, the
Distributor, nor any of their affiliates shall be liable for any information
provided to the Company pursuant to this Agreement which information is based on
incorrect information supplied by or on behalf of the Company or any other
Participating Company to the Trust or the Distributor.
2.8. LIMITS ON PURCHASERS. The Distributor and the Trust shall sell Trust
shares only to insurance companies and their separate accounts and to persons or
plans ("Qualified Persons") that qualify to purchase shares of the Trust under
Section 817(h) of the Code and the regulations thereunder without impairing the
ability of the Account to consider the portfolio investments of the Trust as
constituting investments of the Account for the purpose of satisfying the
diversification requirements of Section 817(h). The Distributor and the Trust
shall not sell Trust shares to any insurance company or separate account unless
an agreement complying with Article VIII of this Agreement is in effect to
govern such sales. The Company hereby represents and warrants that it and the
Account are Qualified Persons.
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. COMPANY. The Company represents and warrants that: (i) the Company
is an insurance company duly organized and in good standing under Michigan
insurance law; (ii) the Account is a validly existing separate account, duly
established and maintained in accordance with applicable law; (iii) the
Account's 1940 Act Registration Statement has been filed with the SEC in
accordance with the provisions of the 1940 Act and the Account is duly
registered as a unit investment trust thereunder; (iv) the Contracts'
Registration Statement has been declared effective by the SEC; (v) the Contracts
will be issued in compliance in all material respects with all applicable
Federal and state laws; (vi) the Contracts have been filed, qualified and/or
approved for sale, as applicable, under the insurance laws and regulations of
the states in which the Contracts will be offered; (vii) the Account will
maintain its registration under the 1940 Act and will comply in all material
respects with the 1940 Act; (viii) the Contracts currently are, and at the time
of issuance and for so long as they are outstanding will be, treated as annuity
contracts or life insurance policies, whichever is appropriate, under applicable
provisions of the Code; and (ix) the Company's entering into and performing its
obligations under this Agreement does not and will not violate its charter
documents or by-laws, rules or regulations, or any agreement to which it is a
party. The Company will notify the Trust promptly if for any reason it is unable
to perform its obligations under this Agreement.
3.2. TRUST. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed and validly existing under the
Delaware law; (ii) the Trust's 1940 Act Registration Statement has been filed
with the SEC in accordance with the provisions of the 1940 Act and the Trust is
duly registered as an open-end management investment company thereunder; (iii)
the Trust's Registration Statement has been declared effective by the SEC; (iv)
the Trust shares will be issued in compliance in all material respects with all
applicable federal laws; (v) the Trust will remain registered under and will
comply in all material respects with the 1940 Act during the term of this
Agreement; (vi) each Fund of the Trust intends to qualify as a "regulated
investment company" under Subchapter M of the Code and to comply with the
diversification standards prescribed in Section 817(h) of the Code and the
regulations thereunder; and (vii) the investment policies of each Fund are in
material compliance with any investment restrictions set forth on Schedule 4 to
this Agreement. The Trust, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state.
3.3. DISTRIBUTOR. The Distributor represents and warrants that: (i) the
Distributor is a limited partnership duly organized and in good standing under
New York law; (ii) the Distributor is registered as a broker-dealer under
federal and applicable state securities laws and is a member of the NASD; and
(iii) the Distributor is registered as an investment adviser under federal
securities laws .
3.4. LEGAL AUTHORITY. Each party represents and warrants that the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein have been duly authorized by all necessary
corporate, partnership or trust action, as applicable, by such party, and, when
so executed and delivered, this Agreement will be the valid and binding
obligation of such party enforceable in accordance with its terms.
3.5. BONDING REQUIREMENT. Each party represents and warrants that all
of its directors, officers, partners and employees dealing with the money and/or
securities of the Trust are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Trust in an
amount not less than the amount required by the applicable rules of
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the NASD and the federal securities laws. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company. All parties shall make all reasonable efforts to see that this bond or
another bond containing these provisions is always in effect, shall provide
evidence thereof promptly to any other party upon written request therefor, and
shall notify the other parties promptly in the event that such coverage no
longer applies.
ARTICLE IV
REGULATORY REQUIREMENTS
4.1. TRUST FILINGS. The Trust shall amend the Trust's Registration
Statement and the Trust's 1940 Act Registration Statement from time to time as
required in order to effect the continuous offering of Trust shares in
compliance with applicable law and to maintain the Trust's registration under
the 1940 Act for so long as Trust shares are sold.
4.2. CONTRACTS FILINGS. The Company shall amend the Contracts'
Registration Statement and the Account's 1940 Act Registration Statement from
time to time as required in order to effect the continuous offering of the
Contracts in compliance with applicable law or as may otherwise be required by
applicable law, but in any event shall maintain a current effective Contracts'
Registration Statement and the Account's registration under the 1940 Act for so
long as the Contracts are outstanding unless the Company has supplied the Trust
with an SEC no-action letter or opinion of counsel satisfactory to the Trust's
counsel to the effect that maintaining such Registration Statement on a current
basis is no longer required. The Company shall be responsible for filing all
such Contract forms, applications, marketing materials and other documents
relating to the Contracts and/or the Account with state insurance commissions,
as required or customary, and shall use its best efforts: (i) to obtain any and
all approvals thereof, under applicable state insurance law, of each state or
other jurisdiction in which Contracts are or may be offered for sale; and (ii)
to keep such approvals in effect for so long as the Contracts are outstanding.
4.3. VOTING OF TRUST SHARES. With respect to any matter put to vote by
the holders of Trust shares ("Voting Shares"), the Company will provide "pass-
through" voting privileges to owners of Contracts registered with the SEC as
long as the 1940 Act requires such privileges in such cases. In cases in which
"pass-through" privileges apply, the Company will (i) solicit voting
instructions from Contract Owners of SEC-registered Contracts; (ii) vote Voting
Shares attributable to Contract Owners in accordance with instructions or
proxies timely received from such Contract Owners; and (iii) vote Voting Shares
held by it that are not attributable to reserves for SEC-registered Contracts or
for which it has not received timely voting instructions in the same proportion
as instructions received in a timely fashion from Owners of SEC-registered
Contracts. The Company shall be responsible for ensuring that it calculates
"pass-through" votes for the Account in a manner consistent with the provisions
set forth above and with other Participating Insurance Companies. Neither the
Company nor any of its affiliates will in any way recommend action in connection
with, or oppose or interfere with, the solicitation of proxies for the Trust
shares held for such Contract Owners, except with respect to matters as to which
the Company has the right under Rule 6e-2 or 6e-3(T) under the 1940 Act, to vote
Voting Shares without regard to voting instructions from Contract Owners.
4.4. STATE INSURANCE RESTRICTIONS. The Company acknowledges and agrees
that it is the responsibility of the Company and other Participating Insurance
Companies to determine investment restrictions and any other restrictions,
limitations or requirements under state insurance law applicable to any Fund or
the Trust or the Distributor, and that neither the Trust nor the Distributor
shall bear any responsibility to the Company, other Participating Insurance
Companies or any Product Owners for any such determination or the correctness of
such
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determination. Schedule 4 sets forth the investment restrictions that the
Company and/or other Participating Insurance Companies have determined are
applicable to any Fund and with which the Trust has agreed to comply as of the
date of this Agreement. The Company shall inform the Trust of any investment
restrictions imposed by state insurance law that the Company determines may
become applicable to the Trust or a Fund from time to time as a result of the
Account's investment therein, other than those set forth on Schedule 4 to this
Agreement. Upon receipt of any such information from the Company or any other
Participating Insurance Company, the Trust shall determine whether it is in the
best interests of shareholders to comply with any such restrictions. If the
Trust determines that it is not in the best interests of shareholders (it being
understood that "shareholders" for this purpose shall mean Product Owners) to
comply with a restriction determined to be applicable by the Company, the Trust
shall so inform the Company, and the Trust and the Company shall discuss
alternative accommodations in the circumstances. If the Trust determines that it
is in the best interests of shareholders to comply with such restrictions, the
Trust and the Company shall amend Schedule 4 to this Agreement to reflect such
restrictions, subject to obtaining any required shareholder approval thereof.
4.5. COMPLIANCE. Under no circumstances will the Trust, the Distributor
or any of their affiliates (excluding Participating Investors) be held
responsible or liable in any respect for any statements or representations made
by them or their legal advisers to the Company or any Contract Owner concerning
the applicability of any federal or state laws, regulations or other authorities
to the activities contemplated by this Agreement.
4.6. DRAFTS OF FILINGS. The Trust and the Company shall provide to each
other copies of draft versions of any Registration Statements, Prospectuses,
Statements of Additional Information, periodic and other shareholder or Contract
Owner reports, proxy statements, solicitations for voting instructions,
applications for exemptions, requests for no-action letters, and all amendments
or supplements to any of the above, prepared by or on behalf of either of them
and that mentions the other party by name. Such drafts shall be provided to the
other party sufficiently in advance of filing such materials with regulatory
authorities in order to allow such other party a reasonable opportunity to
review the materials.
4.7. COPIES OF FILINGS. The Trust and the Company shall provide to each
other at least one complete copy of all Registration Statements, Prospectuses,
Statements o f Additional Information, periodic and other shareholder or
Contract Owner reports, proxy statements, solicitations of voting instructions,
applications for exemptions, requests for no-action letters, and all amendments
or supplements to any of the above, that relate to the Trust, the Contracts or
the Account, as the case may be, promptly after the filing by or on behalf of
each such party of such document with the SEC or other regulatory authorities
(it being understood that this provision is not intended to require the Trust to
provide to the Company copies of any such documents prepared, filed or used by
Participating Investors other than the Company and the Account).
4.8. REGULATORY RESPONSES. Each party shall promptly provide to all other
parties copies of responses to no-action requests, notices, orders and other
rulings received by such party with respect to any filing covered by Section 4.7
of this Agreement.
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4.9. COMPLAINTS AND PROCEEDINGS
(a) The Trust and/or the Distributor shall immediately notify the
Company of: (i) the issuance by any court or regulatory body of any stop
order, cease and desist order, or other similar order (but not including an
order of a regulatory body exempting or approving a proposed transaction or
arrangement) with respect to the Trust's Registration Statement or the
Prospectus of any Series or Class; (ii) any request by the SEC for any
amendment to the Trust's Registration Statement or the Prospectus of any
Series or Class; (iii) the initiation of any proceedings for that purpose
or for any other purposes relating to the registration or offering of the
Trust shares; or (iv) any other action or circumstances that may prevent
the lawful offer or sale of Trust shares or any Class or Series in any
state or jurisdiction, including, without limitation, any circumstance in
which (A) such shares are not registered and, in all material respects,
issued and sold in accordance with applicable state and federal law or (B)
such law precludes the use of such shares as an underlying investment
medium for the Contracts. The Trust will make every reasonable effort to
prevent the issuance of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting
thereof at the earliest possible time.
(b) The Company shall immediately notify the Trust and the
Distributor of: (i) the issuance by any court or regulatory body of any
stop order, cease and desist order, or other similar order (but not
including an order of a regulatory body exempting or approving a proposed
transaction or arrangement) with respect to the Contracts' Registration
Statement or the Contracts' Prospectus; (ii) any request by the SEC for any
amendment to the Contracts' Registration Statement or Prospectus; (iii) the
initiation of any proceedings for that purpose or for any other purposes
relating to the registration or offering of the Contracts; or (iv) any
other action or circumstances that may prevent the lawful offer or sale of
the Contracts or any class of Contracts in any state or jurisdiction,
including, without limitation, any circumstance in which such Contracts are
not registered, qualified and approved, and, in all material respects,
issued and sold in accordance with applicable state and federal laws. The
Company will make every reasonable effort to prevent the issuance of any
such stop order, cease and desist order or similar order and, if any such
order is issued, to obtain the lifting thereof at the earliest possible
time.
(c) Each party shall immediately notify the other parties when it
receives notice, or otherwise becomes aware of, the commencement of any
litigation or proceeding against such party or a person affiliated
therewith in connection with the issuance or sale of Trust shares or the
Contracts.
(d) The Company shall provide to the Trust and the Distributor any
complaints it has received from Contract Owners pertaining to the Trust or
a Fund, and the Trust and Distributor shall each provide to the Company any
complaints it has received from Contract Owners relating to the Contracts.
4.10. COOPERATION. Each party hereto shall cooperate with the other
parties and all appropriate government authorities (including without limitation
the SEC, the NASD and state securities and insurance regulators) and shall
permit such authorities reasonable access to its books and records in connection
with any investigation or inquiry by any such authority relating to this
Agreement or the transactions contemplated hereby. However, such access shall
not extend to attorney-client privileged information.
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ARTICLE V
SALE, ADMINISTRATION AND SERVICING OF THE CONTRACTS
5.1. SALE OF THE CONTRACTS. The Company shall be fully responsible as to
the Trust and the Distributor for the sale and marketing of the Contracts. The
Company shall provide Contracts, the Contracts' and Trust's Prospectuses,
Contracts' and Trust's Statements of Additional Information, and all amendments
or supplements to any of the foregoing to Contract Owners and prospective
Contract Owners, all in accordance with federal and state laws. The Company
shall ensure that all persons offering the Contracts are duly licensed and
registered under applicable insurance and securities laws. The Company shall
ensure that each sale of a Contract satisfies applicable suitability
requirements under insurance and securities laws and regulations, including
without limitation the rules of the NASD. The Company shall adopt and implement
procedures reasonably designed to ensure that information concerning the Trust
and the Distributor that is intended for use only by brokers or agents selling
the Contracts (i.e., information that is not intended for distribution to
Contract Owners or offerees) is so used.
5.2. ADMINISTRATION AND SERVICING OF THE CONTRACTS. The Company shall be
fully responsible as to the Trust and the Distributor for the underwriting,
issuance, service and administration of the Contracts and for the administration
of the Account, including, without limitation, the calculation of performance
information for the Contracts, the timely payment of Contract Owner redemption
requests and processing of Contract transactions, and the maintenance of a
service center, such functions to be performed in all respects at a level
commensurate with those standards prevailing in the variable insurance industry.
The Company shall provide to Contract Owners all Trust reports, solicitations
for voting instructions including any related Trust proxy solicitation
materials, and updated Trust Prospectuses as required under the federal
securities laws.
5.3. CUSTOMER COMPLAINTS. The Company shall promptly address all customer
complaints and resolve such complaints consistent with high ethical standards
and principles of ethical conduct.
5.4. TRUST PROSPECTUSES AND REPORTS. In order to enable the Company to
fulfill its obligations under this Agreement and the federal securities laws,
the Trust shall provide the Company with a copy, in camera-ready form or form
otherwise suitable for printing or duplication of: (i) the Trust's Prospectus
for the Series and Classes listed on Schedule 3 and any supplement thereto; (ii)
each Statement of Additional Information and any supplement thereto; (iii) any
Trust proxy soliciting material for such Series or Classes; and (iv) any Trust
periodic shareholder reports. The Trust and the Company may agree upon
alternate arrangements, but in all cases, the Trust reserves the right to
approve the printing of any such material. The Trust shall provide the Company
at least 10 days advance written notice when any such material shall become
available, provided, however, that in the case of a supplement, the Trust shall
provide the Company notice reasonable in the circumstances, it being understood
that circumstances surrounding such supplement may not allow for advance notice.
The Company may not alter any material so provided by the Trust or the
Distributor (including without limitation presenting or delivering such material
in a different medium, e.g., electronic or Internet) without the prior written
consent of the Distributor.
5.5. TRUST ADVERTISING MATERIAL. No piece of advertising or sales
literature or other promotional material in which the Trust or the Distributor
is named (including, without limitation, material for prospects, existing
Contract Owners, brokers, rating or ranking agencies, or the press, whether in
print, radio, television, video, Internet, or other electronic medium) shall be
used by the Company or any person directly or indirectly authorized by the
Company, including without limitation, underwriters, distributors, and sellers
of the Contracts, except with
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the prior written consent of the Trust or the Distributor, as applicable, as to
the form, content and medium of such material. Any such piece shall be furnished
to the Trust for such consent prior to its use. The Trust or the Distributor
shall respond to any request for written consent on a prompt and timely basis,
but failure to respond shall not relieve the Company of the obligation to obtain
the prior written consent of the Trust or the Distributor. After receiving the
Trust's or Distributor's consent to the use of any such material, no further
changes may be made without obtaining the Trust's or Distributor's consent to
such changes. The Trust or Distributor may at any time in its sole discretion
revoke such written consent, and upon notification of such revocation, the
Company shall no longer use the material subject to such revocation. Until
further notice to the Company, the Trust has delegated its rights and
responsibilities under this provision to the Distributor.
5.6. CONTRACTS ADVERTISING MATERIAL. No piece of advertising or sales
literature or other promotional material in which the Company is named shall be
used by the Trust or the Distributor, except with the prior written consent of
the Company. Any such piece shall be furnished to the Company for such consent
prior to its use. The Company shall respond to any request for written consent
on a prompt and timely basis, but failure to respond shall not relieve the
Company of the obligation to obtain the prior written consent of the Company.
The Company may at any time in its sole discretion revoke any written consent,
and upon notification of such revocation, neither the Trust nor the Distributor
shall use the material subject to such revocation. The Company, upon prior
written notice to the Trust, may delegate its rights and responsibilities under
this provision to the principal underwriter for the Contracts.
5.7. TRADE NAMES. No party shall use any other party's names, logos,
trademarks or service marks, whether registered or unregistered, without the
prior written consent of such other party, or after written consent therefor has
been revoked. The Company shall not use in advertising, publicity or otherwise
the name of the Trust, Distributor, or any of their affiliates nor any trade
name, trademark, trade device, service mark, symbol or any abbreviation,
contraction or simulation thereof of the Trust, Distributor, or their affiliates
without the prior written consent of the Trust or the Distributor in each
instance.
5.8. REPRESENTATIONS BY COMPANY. Except with the prior written consent of
the Trust, the Company shall not give any information or make any
representations or statements about the Trust or the Funds nor shall it
authorize or allow any other person to do so except information or
representations contained in the Trust's Registration Statement or the Trust's
Prospectuses or in reports or proxy statements for the Trust, or in sales
literature or other promotional material approved in writing by the Trust or its
designee in accordance with this Article V, or in published reports or
statements of the Trust in the public domain.
5.9. REPRESENTATIONS BY TRUST. Except with the prior written consent of
the Company, the Trust shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account
or the Contracts other than the information or representations contained in the
Contracts' Registration Statement or Contracts' Prospectus or in published
reports of the Account which are in the public domain or in sales literature or
other promotional material approved in writing by the Company in accordance with
this Article V.
5.10. ADVERTISING. For purposes of this Article V, the phrase "sales
literature or other promotional material" includes, but is not limited to, any
material constituting sales literature or advertising under the NASD rules, the
1940 Act or the 1933 Act.
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ARTICLE VI
COMPLIANCE WITH CODE
6.1. SECTION 817(H). Each Fund of the Trust shall comply with Section
817(h) of the Code and the regulations issued thereunder to the extent
applicable to the Fund as an investment company underlying the Account, and the
Trust shall notify the Company immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future and will immediately take all reasonable steps to adequately
diversify the Fund to achieve compliance. Upon reasonable request, the Trust
will provide the Company with a certification of compliance with Section 817(h)
in such form as the Company and the Trust shall agree.
6.2. SUBCHAPTER M. Each Fund of the Trust shall maintain the qualification
of the Fund as a regulated investment company (under Subchapter M or any
successor or similar provision), and the Trust shall notify the Company
immediately upon having a reasonable basis for believing that a Fund has ceased
to so qualify or that it might not so qualify in the future.
6.3. CONTRACTS. The Company shall ensure the continued treatment of the
Contracts as annuity contracts or life insurance policies, whichever is
appropriate, under applicable provisions of the Code and shall notify the Trust
and the Distributor immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
ARTICLE VII
EXPENSES
7.1. EXPENSES. All expenses incident to each party's performance under
this Agreement (including expenses expressly assumed by such party pursuant to
this Agreement) shall be paid by such party to the extent permitted by law.
7.2. TRUST EXPENSES. Expenses incident to the Trust's performance of its
duties and obligations under this Agreement include, but are not limited to, the
costs of:
(a) registration and qualification of the Trust shares under the federal
securities laws;
(b) preparation and filing with the SEC of the Trust's Prospectuses,
Trust's Statement of Additional Information, Trust's Registration
Statement, Trust proxy materials and shareholder reports, and
preparation of a camera-ready copy of the foregoing;
(c) preparation of all statements and notices required by any Federal or
state securities law;
(d) all taxes on the issuance or transfer of Trust shares;
(e) payment of all applicable fees relating to the Trust, including,
without limitation, all fees due under Rule 24f-2 in connection with
sales of Trust shares to qualified retirement plans, custodial,
auditing, transfer agent and advisory fees, fees for insurance
coverage and Trustees' fees; and
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(f) any expenses permitted to be paid or assumed by the Trust pursuant to
a plan, if any, under Rule 12b-1 under the 1940 Act.
7.3. COMPANY EXPENSES. Expenses incident to the Company's performance of
its duties and obligations under this Agreement include, but are not limited to,
the costs of:
(a) registration and qualification of the Contracts under the federal
securities laws;
(b) preparation and filing with the SEC of the Contracts' Prospectus and
Contracts' Registration Statement;
(c) the sale, marketing and distribution of the Contracts, including
printing and dissemination of Contracts' Prospectuses and
compensation for Contract sales;
(d) administration of the Contracts;
(e) payment of all applicable fees relating to the Contracts, including,
without limitation, all fees due under Rule 24f-2;
(f) preparation, printing and dissemination of all statements and notices
to Contract Owners required by any Federal or state insurance law
other than those paid for by the Trust; and
(g) preparation, printing and dissemination of all marketing materials
for the Contracts and Trust except where other arrangements are made
in advance.
7.4. 12B-1 PAYMENTS. The Trust shall pay no fee or other compensation to
the Company under this Agreement, except that if the Trust or any Series or
Class adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses, then payments may be made to the Company in
accordance with such plan. The Trust currently does not intend to make any
payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940
Act or in contravention of such rule, although it may make payments pursuant to
Rule 12b-1 in the future. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1 and such formulation is required by the 1940 Act
or any rules or order thereunder, the Trust undertakes to have a Board of
Trustees, a majority of whom are not interested persons of the Trust, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
ARTICLE VIII
POTENTIAL CONFLICTS
8.1. EXEMPTIVE ORDER. The parties to this Agreement acknowledge that the
Trust has filed an application with the SEC to request an order (the "Exemptive
Order") granting relief from various provisions of the 1940 Act and the rules
thereunder to the extent necessary to permit Trust shares to be sold to and held
by variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and other
Qualified Persons (as defined in Section 2.8 hereof). It is anticipated that the
Exemptive Order, when and if issued, shall require the Trust and each
Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Article VIII. The Trust will not enter into a
participation agreement with any other Participating Insurance Company unless it
imposes the same conditions and undertakings on that company as are imposed on
the Company pursuant to this Article VIII.
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8.2. COMPANY MONITORING REQUIREMENTS. The Company will monitor its
operations and those of the Trust for the purpose of identifying any material
irreconcilable conflicts or potential material irreconcilable conflicts between
or among the interests of Participating Plans, Product Owners of variable life
insurance policies and Product Owners of variable annuity contracts.
8.3. COMPANY REPORTING REQUIREMENTS. The Company shall report any
conflicts or potential conflicts to the Trust Board and will provide the Trust
Board, at least annually, with all information reasonably necessary for the
Trust Board to consider any issues raised by such existing or potential
conflicts or by the conditions and undertakings required by the Exemptive Order.
The Company also shall assist the Trust Board in carrying out its obligations
including, but not limited to: (a) informing the Trust Board whenever it
disregards Contract Owner voting instructions with respect to variable life
insurance policies, and (b) providing such other information and reports as the
Trust Board may reasonably request. The Company will carry out these obligations
with a view only to the interests of Contract Owners.
8.4. TRUST BOARD MONITORING AND DETERMINATION. The Trust Board shall
monitor the Trust for the existence of any material irreconcilable conflicts
between or among the interests of Participating Plans, Product Owners of
variable life insurance policies and Product Owners of variable annuity
contracts and determine what action, if any, should be taken in response to
those conflicts. A majority vote of Trustees who are not interested persons of
the Trust as defined in the 1940 Act (the "disinterested trustees") shall
represent a conclusive determination as to the existence of a material
irreconcilable conflict between or among the interests of Product Owners and
Participating Plans and as to whether any proposed action adequately remedies
any material irreconcilable conflict. The Trust Board shall give prompt written
notice to the Company and Participating Plan of any such determination.
8.5. UNDERTAKING TO RESOLVE CONFLICT. In the event that a material
irreconcilable conflict of interest arises between Product Owners of variable
life insurance policies or Product Owners of variable annuity contracts and
Participating Plans, the Company will, at its own expense, take whatever action
is necessary to remedy such conflict as it adversely affects Contract Owners up
to and including (1) establishing a new registered management investment
company, and (2) withdrawing assets from the Trust attributable to reserves for
the Contracts subject to the conflict and reinvesting such assets in a different
investment medium (including another Fund of the Trust) or submitting the
question of whether such withdrawal should be implemented to a vote of all
affected Contract Owners, and, as appropriate, segregating the assets supporting
the Contracts of any group of such owners that votes in favor of such
withdrawal, or offering to such owners the option of making such a change. The
Company will carry out the responsibility to take the foregoing action with a
view only to the interests of Contract Owners.
8.6. WITHDRAWAL. If a material irreconcilable conflict arises because of
the Company's decision to disregard the voting instructions of Contract Owners
of variable life insurance policies and that decision represents a minority
position or would preclude a majority vote at any Fund shareholder meeting,
then, at the request of the Trust Board, the Company will redeem the shares of
the Trust to which the disregarded voting instructions relate. No charge or
penalty, however, will be imposed in connection with such a redemption.
8.7. EXPENSES ASSOCIATED WITH REMEDIAL ACTION. In no event shall the
Trust be required to bear the expense of establishing a new funding medium for
any Contract. The Company shall not be required by this Article to establish a
new funding medium for any
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Contract if an offer to do so has been declined by vote of a majority of the
Contract Owners materially adversely affected by the irreconcilable material
conflict.
8.8. SUCCESSOR RULES. If and to the extent that Rule 6e-2 and Rule 6e-3(T)
are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provisions of the 1940 Act or the rules promulgated thereunder with respect to
mixed and shared funding on terms and conditions materially different from those
contained in the Exemptive Order, then (i) the Trust and/or the Company, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, or Rule 6e-3, as adopted, as applicable, to the extent
such rules are applicable, and (ii) Sections 8.2 through 8.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE IX
INDEMNIFICATION
9.1. INDEMNIFICATION BY THE COMPANY. The Company hereby agrees to, and
shall, indemnify and hold harmless the Trust, the Distributor and each person
who controls or is affiliated with the Trust or the Distributor within the
meaning of such terms under the 1933 Act or 1940 Act (but not any Participating
Insurance Companies or Qualified Persons) and any officer, trustee, partner,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement of any material
fact contained in the Contracts Registration Statement, Contracts
Prospectus, sales literature or other promotional material for the
Contracts or the Contracts themselves (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made; provided that
this obligation to indemnify shall not apply if such statement or
omission was made in reliance upon and in conformity with information
furnished in writing to the Company by the Trust or the Distributor
for use in the Contracts Registration Statement, Contracts Prospectus
or in the Contracts or sales literature or promotional material for
the Contracts (or any amendment or supplement to any of the
foregoing) or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained in the
Trust Registration Statement, any Prospectus for Series or Classes or
sales literature or other promotional material of the Trust (or any
amendment or supplement to any of the foregoing), or the omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of
the circumstances in which they were made, if such statement or
omission was made in reliance upon and in conformity with information
furnished to the Trust or Distributor in writing by or on behalf of
the Company; or
(c) arise out of or are based upon any wrongful conduct of, or violation
of federal or state law by, the Company or persons under its control
or subject to its authorization, including without limitation, any
broker-dealers or agents
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authorized to sell the Contracts, with respect to the sale, marketing
or distribution of the Contracts or Trust shares, including, without
limitation, any impermissible use of broker-only material, unsuitable
or improper sales of the Contracts or unauthorized representations
about the Contracts or the Trust; or
(d) arise as a result of any failure by the Company or persons under its
control (or subject to its authorization) to provide services,
furnish materials or make payments as required under this Agreement;
or
(e) arise out of any material breach by the Company or persons under its
control (or subject to its authorization) of this Agreement; or
(f) any breach of any warranties contained in Article III hereof, any
failure to transmit a request for redemption or purchase of Trust
shares or payment therefor on a timely basis in accordance with the
procedures set forth in Article II, or any unauthorized use of the
names or trade names of the Trust or the Distributor.
This indemnification is in addition to any liability that the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is caused by the
willful misfeasance, bad faith, gross negligence or reckless disregard of duty
by the party seeking indemnification.
9.2. INDEMNIFICATION BY THE TRUST. The Trust hereby agrees to, and shall,
indemnify and hold harmless the Company and each person who controls or is
affiliated with the Company within the meaning of such terms under the 1933 Act
or 1940 Act and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement of any material
fact contained in the Trust Registration Statement, any Prospectus
for Series or Classes or sales literature or other promotional
material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances in which they were made; provided that this obligation
to indemnify shall not apply if such statement or omission was made
in reliance upon and in conformity with information furnished in
writing by the Company to the Trust or the Distributor for use in the
Trust Registration Statement, Trust Prospectus or sales literature or
promotional material for the Trust (or any amendment or supplement to
any of the foregoing) or otherwise for use in connection with the
sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained in the
Contracts Registration Statement, Contracts Prospectus or sales
literature or other promotional material for the Contracts (or any
amendment or supplement to any of the foregoing), or the omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of
the circumstances in which they were made, if such statement or
omission was
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made in reliance upon information furnished in writing by the Trust
to the Company; or
(c) arise out of or are based upon wrongful conduct of the Trust or its
Trustees or officers with respect to the sale of Trust shares; or
(d) arise as a result of any failure by the Trust to provide services,
furnish materials or make payments as required under the terms of
this Agreement; or
(e) arise out of any material breach by the Trust of this Agreement
(including any breach of Section 6.1 of this Agreement and any
warranties contained in Article III hereof);
it being understood that in no way shall the Trust be liable to the Company with
respect to any violation of insurance law, compliance with which is a
responsibility of the Company under this Agreement or otherwise or as to which
the Company failed to inform the Trust in accordance with Section 4.4 hereof.
This indemnification is in addition to any liability that the Trust may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is caused by the
willful misfeasance, bad faith, gross negligence or reckless disregard of duty
by the party seeking indemnification.
9.3. INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor hereby agrees
to, and shall, indemnify and hold harmless the Company and each person who
controls or is affiliated with the Company within the meaning of such terms
under the 1933 Act or 1940 Act and any officer, director, employee or agent of
the foregoing, against any and all losses, claims, damages or liabilities, joint
or several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they or any of them may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement of any material
fact contained in the Trust Registration Statement, any Prospectus
for Series or Classes or sales literature or other promotional
material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances in which they were made; provided that this obligation
to indemnify shall not apply if such statement or omission was made
in reliance upon and in conformity with information furnished in
writing by the Company to the Trust or Distributor for use in the
Trust Registration Statement, Trust Prospectus or sales literature or
promotional material for the Trust (or any amendment or supplement to
any of the foregoing) or otherwise for use in connection with the
sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained in the
Contracts Registration Statement, Contracts Prospectus or sales
literature or other promotional material for the Contracts (or any
amendment or supplement to any of the foregoing), or the omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of
the circumstances in which they were made, if such statement or
omission was
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made in reliance upon information furnished in writing by the
Distributor to the Company; or
(c) arise out of or are based upon wrongful conduct of the Distributor or
persons under its control with respect to the sale of Trust shares;
or
(d) arise as a result of any failure by the Distributor or persons under
its control to provide services, furnish materials or make payments
as required under the terms of this Agreement; or
(e) arise out of any material breach by the Distributor or persons under
its control of this Agreement (including any breach of Section 6.1 of
this Agreement and any warranties contained in Article III hereof);
it being understood that in no way shall the Distributor be liable to the
Company with respect to any violation of insurance law, compliance with which is
a responsibility of the Company under this Agreement or otherwise or as to which
the Company failed to inform the Distributor in accordance with Section 4.4
hereof. This indemnification is in addition to any liability that the
Distributor may otherwise have; provided, however, that no party shall be
entitled to indemnification if such loss, claim, damage or liability is caused
by the willful misfeasance, bad faith, gross negligence or reckless disregard of
duty by the party seeking indemnification.
9.4. RULE OF CONSTRUCTION. It is the parties' intention that, in the
event of an occurrence for which the Trust has agreed to indemnify the Company,
the Company shall seek indemnification from the Trust only in circumstances in
which the Trust is entitled to seek indemnification from a third party with
respect to the same event or cause thereof.
9.5. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article IX of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article IX ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as practicable
thereafter, provided that the omission to so notify the indemnifying party will
not relieve it from any liability under this Article IX, except to the extent
that the omission results in a failure of actual notice to the indemnifying
party and such indemnifying party is damaged solely as a result of the failure
to give such notice. The indemnifying party, upon the request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the reasonable fees and disbursements
of such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such consent
or if there be a final judgment for the plaintiff, the indemnifying party agrees
to indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment.
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A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article IX. The
indemnification provisions contained in this Article IX shall survive any
termination of this Agreement.
ARTICLE X
RELATIONSHIP OF THE PARTIES; TERMINATION
10.1. RELATIONSHIP OF PARTIES. The Company is to be an independent
contractor vis-a-vis the Trust, the Distributor, or any of their affiliates for
all purposes hereunder and will have no authority to act for or represent any of
them (except to the limited extent the Company acts as agent of the Trust
pursuant to Section 2.3(a) of this Agreement). In addition, no officer or
employee of the Company will be deemed to be an employee or agent of the Trust,
Distributor, or any of their affiliates. The Company will not act as an
"underwriter" or "distributor" of the Trust, as those terms variously are used
in the 1940 Act, the 1933 Act, and rules and regulations promulgated thereunder.
10.2. NON-EXCLUSIVITY AND NON-INTERFERENCE. The parties hereto acknowledge
that the arrangement contemplated by this Agreement is not exclusive; the Trust
shares may be sold to other insurance companies and investors (subject to
Section 2.8 hereof) and the cash value of the Contracts may be invested in other
investment companies, provided, however, that until this Agreement is terminated
pursuant to this Article X:
(a) the Company shall promote the Trust and the Funds made available
hereunder on the same basis as other funding vehicles available under
the Contracts;
(b) the Company shall not, without prior notice to the Distributor
(unless otherwise required by applicable law), take any action to
operate the Account as a management investment company under the 1940
Act;
(c) the Company shall not, without the prior written consent of the
Distributor (unless otherwise required by applicable law), solicit,
induce or encourage Contract Owners to change or modify the Trust to
change the Trust's distributor or investment adviser, to transfer or
withdraw Contract Values allocated to a Fund, or to exchange their
Contracts for contracts not allowing for investment in the Trust;
(d) the Company shall not substitute another investment company for one
or more Funds without providing written notice to the Distributor at
least 60 days in advance of effecting any such substitution; and
(e) the Company shall not withdraw the Account's investment in the Trust
or a Fund of the Trust except as necessary to facilitate Contract
Owner requests and routine Contract processing.
10.3. TERMINATION OF AGREEMENT. This Agreement shall not terminate until
(i) the Trust is dissolved, liquidated, or merged into another entity, or (ii)
as to any Fund that has been made available hereunder, the Account no longer
invests in that Fund and the Company has confirmed in writing to the
Distributor, if so requested by the Distributor, that it no longer intends to
invest in such Fund. However, certain obligations of, or restrictions on, the
parties to this Agreement may terminate as provided in Sections 10.4 through
10.6 and the Company may be required to redeem Trust shares pursuant to Section
10.7 or in the circumstances contemplated
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by Article VIII. Article IX and Sections 5.7, 10.8 and 10.9 shall survive any
termination of this Agreement.
10.4. TERMINATION OF OFFERING OF TRUST SHARES. The obligation of the Trust
and the Distributor to make Trust shares available to the Company for purchase
pursuant to Article II of this Agreement shall terminate at the option of the
Distributor upon written notice to the Company as provided below:
(a) upon institution of formal proceedings against the Company, or the
Distributor's reasonable determination that institution of such
proceedings is being considered by the NASD, the SEC, the insurance
commission of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Trust shares, or an expected or
anticipated ruling, judgment or outcome which would, in the
Distributor's reasonable judgment exercised in good faith, materially
impair the Company's or Trust's ability to meet and perform the
Company's or Trust's obligations and duties hereunder, such
termination effective upon 15 days prior written notice;
(b) in the event any of the Contracts are not registered, issued or sold
in accordance with applicable federal and/or state law, such
termination effective immediately upon receipt of written notice;
(c) if the Distributor shall determine, in its sole judgment exercised in
good faith, that either (1) the Company shall have suffered a
material adverse change in its business or financial condition or (2)
the Company shall have been the subject of material adverse publicity
which is likely to have a material adverse impact upon the business
and operations of either the Trust or the Distributor, such
termination effective upon 30 days prior written notice;
(d) if the Distributor suspends or terminates the offering of Trust
shares of any Series or Class to all Participating Investors or only
designated Participating Investors, if such action is required by law
or by regulatory authorities having jurisdiction or if, in the sole
discretion of the Distributor acting in good faith, suspension or
termination is necessary in the best interests of the shareholders of
any Series or Class (it being understood that "shareholders" for this
purpose shall mean Product Owners), such notice effective immediately
upon receipt of written notice, it being understood that a lack of
Participating Investor interest in a Series or Class may be grounds
for a suspension or termination as to such Series or Class and that a
suspension or termination shall apply only to the specified Series or
Class;
(e) upon the Company's assignment of this Agreement (including, without
limitation, any transfer of the Contracts or the Account to another
insurance company pursuant to an assumption reinsurance agreement)
unless the Trust consents thereto, such termination effective upon 30
days prior written notice;
(f) if the Company is in material breach of any provision of this
Agreement, which breach has not been cured to the satisfaction of the
Trust within 10 days after written notice of such breach has been
delivered to the Company, such termination effective upon expiration
of such 10-day period; or
20
<PAGE>
(g) upon the determination of the Trust s Board to dissolve, liquidate or
merge the Trust as contemplated by Section 10.3(i), upon termination
of the Agreement pursuant to Section 10.3(ii), or upon notice from
the Company pursuant to Section 10.5 or 10.6, such termination
pursuant hereto to be effective upon 15 days prior written notice.
Except in the case of an option exercised under clause (b), (d) or (g), the
obligations shall terminate only as to new Contracts and the Distributor shall
continue to make Trust shares available to the extent necessary to permit owners
of Contracts in effect on the effective date of such termination (hereinafter
referred to as "Existing Contracts") to reallocate investments in the Trust,
redeem investments in the Trust and/or invest in the Trust upon the making of
additional purchase payments under the Existing Contracts.
10.5. TERMINATION OF INVESTMENT IN A FUND. The Company may elect to cease
investing in a Fund, promoting a Fund as an investment option under the
Contracts, or withdraw its investment or the Account's investment in a Fund,
subject to compliance with applicable law, upon written notice to the Trust
within 15 days of the occurrence of any of the following events (unless provided
otherwise below):
(a) if the Trust informs the Company pursuant to Section 4.4 that it will
not cause such Fund to comply with investment restrictions as
requested by the Company and the Trust and the Company are unable to
agree upon any reasonable alternative accommodations;
(b) if shares in such Fund are not reasonably available to meet the
requirements of the Contracts as determined by the Company (including
any non-availability as a result of notice given by the Distributor
pursuant to Section 10.4(d)), and the Distributor, after receiving
written notice from the Company of such non-availability, fails to
make available, within 10 days after receipt of such notice, a
sufficient number of shares in such Fund or an alternate Fund to meet
the requirements of the Contracts; or
(c) if such Fund fails to meet the diversification requirements specified
in Section 817(h) of the Code and any regulations thereunder and the
Trust, upon written request, fails to provide reasonable assurance
that it will take action to cure or correct such failure.
Such termination shall apply only as to the affected Fund and shall not apply to
any other Fund in which the Company or the Account invests.
10.6. TERMINATION OF INVESTMENT BY THE COMPANY. The Company may elect to
cease investing in all Series or Classes of the Trust made available hereunder,
promoting the Trust as an investment option under the Contracts, or withdraw its
investment or the Account s investment in the Trust, subject to compliance with
applicable law, upon written notice to the Trust within 15 days of the
occurrence of any of the following events (unless provided otherwise below):
(a) upon institution of formal proceedings against the Trust or the
Distributor (but only with regard to the Trust) by the NASD, the SEC
or any state securities or insurance commission or any other
regulatory body;
21
<PAGE>
(b) if, with respect to the Trust or a Fund, the Trust or the Fund ceases
to qualify as a regulated investment company under Subchapter M of
the Code, as defined therein, or any successor or similar provision,
or if the Company reasonably believes that the Trust may fail to so
qualify, and the Trust, upon written request, fails to provide
reasonable assurance that it will take action to cure or correct such
failure within 30 days; or
(c) if the Trust or Distributor is in material breach of a provision of
this Agreement, which breach has not been cured to the satisfaction
of the Company within 10 days after written notice of such breach has
been delivered to the Trust or the Distributor, as the case may be.
10.7. COMPANY REQUIRED TO REDEEM. The parties understand and acknowledge
that it is essential for compliance with Section 817(h) of the Code that the
Contracts qualify as annuity contracts or life insurance policies, as
applicable, under the Code. Accordingly, if any of the Contracts cease to
qualify as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Trust reasonably believes that any such Contracts may fail
to so qualify, the Trust shall have the right to require the Company to redeem
Trust shares attributable to such Contracts upon notice to the Company and the
Company shall so redeem such Trust shares in order to ensure that the Trust
complies with the provisions of Section 817(h) of the Code applicable to
ownership of Trust shares. Notice to the Company shall specify the period of
time the Company has to redeem the Trust shares or to make other arrangements
satisfactory to the Trust and its counsel, such period of time to be determined
with reference to the requirements of Section 817(h) of the Code. In addition,
the Company may be required to redeem Trust shares pursuant to action taken or
request made by the Trust Board in accordance with the Exemptive Order described
in Article VIII or any conditions or undertakings set forth or referenced
therein, or other SEC rule, regulation or order that may be adopted after the
date hereof. The Company agrees to redeem shares in the circumstances described
herein and to comply with applicable terms and provisions. Also, in the event
that the Distributor suspends or terminates the offering of a Series or Class
pursuant to Section 10.4(d) of this Agreement, the Company, upon request by the
Distributor, will cooperate in taking appropriate action to withdraw the
Account's investment in the respective Fund.
10.8. CONFIDENTIALITY. The Company will keep confidential any information
acquired as a result of this Agreement regarding the business and affairs of the
Trust, the Distributor, and their affiliates.
ARTICLE XI
APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect, as appropriate, changes in or relating to the
Contracts, any Series or Class, additions of new classes of Contracts to be
issued by the Company and separate accounts therefor investing in the Trust.
Such amendments may be made effective by executing the form of amendment
included on each schedule attached hereto. The provisions of this Agreement
shall be equally applicable to each such class of Contracts, Series, Class or
separate account, as applicable, effective as of the date of amendment of such
Schedule, unless the context otherwise requires. The parties to this Agreement
may amend this Agreement from time to time by written agreement signed by all of
the parties.
22
<PAGE>
ARTICLE XII
NOTICE, REQUEST OR CONSENT
Any notice, request or consent to be provided pursuant to this Agreement is
to be made in writing and shall be given:
If to the Trust:
Douglas C. Grip
President
Goldman Sachs Variable Insurance Trust
One New York Plaza
New York, NY 10004
If to the Distributor:
Douglas C. Grip
Vice President
Goldman Sachs & Co.
One New York Plaza
New York, NY 10004
If to the Company:
Alex Sywak
Sr. Marketing Coordinator
Canada Life Insurance Company of New York
6201 Powers Ferry Road
Atlanta, GA 30339
or at such other address as such party may from time to time specify in writing
to the other party. Each such notice, request or consent to a party shall be
sent by registered or certified United States mail with return receipt requested
or by overnight delivery with a nationally recognized courier, and shall be
effective upon receipt. Notices pursuant to the provisions of Article II may be
sent by facsimile to the person designated in writing for such notices.
ARTICLE XIII
MISCELLANEOUS
13.1. INTERPRETATION. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the state of
Delaware, without giving effect to the principles of conflicts of laws, subject
to the following rules:
(a) This Agreement shall be subject to the provisions of the 1933 Act,
1940 Act and Securities Exchange Act of 1934, as amended, and the
rules, regulations and rulings thereunder, including such exemptions
from those statutes, rules, and regulations as the SEC may grant, and
the terms hereof shall be limited, interpreted and construed in
accordance therewith.
(b) The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
23
<PAGE>
(c) If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
(d) The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are
entitled to under state and federal laws.
13.2. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which together shall constitute one and the same
instrument.
13.3. NO ASSIGNMENT. Neither this Agreement nor any of the rights and
obligations hereunder may be assigned by the Company, the Distributor or the
Trust without the prior written consent of the other parties.
13.4. DECLARATION OF TRUST. A copy of the Declaration of Trust of the
Trust is on file with the Secretary of State of the State of Delaware, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as trustees, and is not binding upon any of the Trustees,
officers or shareholders of the Trust individually, but binding only upon the
assets and property of the Trust. No Series of the Trust shall be liable for the
obligations of any other Series of the Trust.
ARTICLE XIV
YEAR 2000
Each of the parties hereto warrants that it is using all reasonable efforts to
implement and administer a Year 2000 project which includes plans to modify or
replace portions of its existing hardware, software, and impacted non-computer
equipment so that the mission-critical systems under its control will correctly
differentiate between four-digit years and will accurately process date/time
data (including, but not limited to, calculating, comparing and sequencing)
from, into and between different centuries. Each party also warrants that it is
using reasonable efforts to obtain Year 2000 readiness assurances from its
mission-critical third party suppliers. The remedies available to any party
under this warranty shall be limited to reasonable efforts by the warranting
party to correct the performance of any services not correctly performed as
required under the terms of this agreement after such discrepancy is discovered
and made known to the warranting party.
24
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
GOLDMAN SACHS VARIABLE INSURANCE TRUST
(Trust)
Date: ___________ By: _______________________________
Name:
Title:
GOLDMAN, SACHS & CO.
(Distributor)
Date: ___________ By: _______________________________
Name:
Title:
CANADA LIFE INSURANCE COMPANY OF NEW YORK
(Company)
Date: ___________ By: _______________________________
Sergio Benedetti
Marketing Actuary
25
<PAGE>
SCHEDULE 1
----------
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts of the Company are subject to the Agreement:
<TABLE>
<CAPTION>
=================================================================================================
Date Established by
Name of Account and Board of Directors of SEC 1940 Act Type of Product
Subaccounts the Company Registration Number Supported by Account
=================================================================================================
<S> <C> <C> <C>
Canada Life Insurance
Company of New York 9-13-89 811-5817 Variable Annuity
- - Variable Annuity
Account 1
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
=================================================================================================
</TABLE>
________________________________________________________________________________
[Form of Amendment to Schedule 1]
Effective as of _____________, the following separate accounts of the Company
are hereby added to this Schedule 1 and made subject to the Agreement:
<TABLE>
<CAPTION>
=================================================================================================
Date Established by
Name of Account and Board of Directors of SEC 1940 Act Type of Product
Subaccounts the Company Registration Number Supported by Account
=================================================================================================
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
=================================================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 1 in accordance with Article XI of the Agreement.
______________________________________ ____________________________
Goldman Sachs Variable Insurance Trust [______________________]
Life Insurance Company
____________________
Goldman, Sachs & Co.
26
<PAGE>
SCHEDULE 2
----------
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
<TABLE>
<CAPTION>
====================================================================================================
SEC 1933 Act
Policy Marketing Name Registration Number Contract Form Number Annuity or Life
====================================================================================================
<S> <C> <C> <C>
VariFund(R) 33-28889 VariFund(R) Annuity
- ----------------------------------------------------------------------------------------------------
VariFund(R) Access 33-28889 VariFund(R)Access Annuity
- ----------------------------------------------------------------------------------------------------
VariFund(R)Premium 33-28889 VariFund(R)Premium Annuity
Plus Plus
====================================================================================================
</TABLE>
________________________________________________________________________________
[Form of Amendment to Schedule 2]
Effective as of _______, the following classes of Contracts are hereby added to
this Schedule 2 and made subject to the Agreement:
<TABLE>
<CAPTION>
====================================================================================================
SEC 1933 Act Name of Supporting
Policy Marketing Name Registration Number Account Annuity or Life
====================================================================================================
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
====================================================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 2 in accordance with Article XI of the Agreement.
______________________________________ __________________________________
Goldman Sachs Variable Insurance Trust [________________________]
Life Insurance Company
____________________
Goldman, Sachs & Co.
27
<PAGE>
SCHEDULE 3
----------
Trust Classes and Series
Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Classes
and Series are available under the Contracts:
<TABLE>
<CAPTION>
==============================================================================
Contracts Marketing Name Trust Classes and Series
==============================================================================
<S> <C>
VariFund Goldman Sachs Growth and Income Fund
Goldman Sachs Core US Equity Fund
Goldman Sachs Capital Growth Fund
Goldman Sachs Global Income Fund
- ------------------------------------------------------------------------------
VariFund Access Goldman Sachs Growth and Income Fund
Goldman Sachs Core US Equity Fund
Goldman Sachs Capital Growth Fund
Goldman Sachs Global Income Fund
- ------------------------------------------------------------------------------
VariFund Premium Plus Goldman Sachs Growth and Income Fund
Goldman Sachs Core US Equity Fund
Goldman Sachs Capital Growth Fund
Goldman Sachs Global Income Fund
==============================================================================
</TABLE>
________________________________________________________________________________
[Form of Amendment to Schedule 3]
Effective as of __________________, this Schedule 3 is hereby amended to reflect
the following changes in Trust Classes and Series:
<TABLE>
<CAPTION>
==============================================================================
Contracts Marketing Name Trust Classes and Series
==============================================================================
<S> <C>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
==============================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 3 in accordance with Article XI of the Agreement.
28
<PAGE>
______________________________________ _________________________________
Goldman Sachs Variable Insurance Trust [________________________]
Life Insurance Company
______________________________
Goldman, Sachs & Co.
29
<PAGE>
SCHEDULE 4
----------
Investment Restrictions
Applicable to the Trust
Effective as of the date the Agreement was executed, the following investment
restrictions are applicable to the Trust:
________________________________________________________________________________
[Form of Amendment to Schedule 4]
Effective as of ___________________, this Schedule 4 is hereby amended to
reflect the following changes:
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 4 in accordance with Article XI of the Agreement.
______________________________________ ______________________________
Goldman Sachs Variable Insurance Trust [______________________]
Life Insurance Company
____________________
Goldman, Sachs & Co.
30
<PAGE>
Exhibit 10(a)
Consent of Counsel
<PAGE>
[TRANSMITED ON CANADA LIFE LETTERHEAD]
April 20, 1999
Board of Directors
Canada Life Insurance Company of New York
Canada Life of New york Variable Annuity Account 1
410 Saw Mill River Road
Ardsley, New York 10502
Gentlemen:
I hereby consent to the use of my name under the caption "Legal Matters" in the
Statement of Additional Information contained in Post-effective Amendment No. 13
to the Registration Statement on Form N-4 (File No. 33-32199) filed by Canada
Life Insurance Company of New York and Canada Life of New York Variable Annuity
Account 1 with the Securities and Exchange Commission. In giving this consent, I
do not admit that I am in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
Sincerely,
/s/ Charles MacPhaul
- --------------------
Charles MacPhaul
Senior Counsel, U.S. Division
<PAGE>
Exhibit 10(b)
Consent of Independent Counsel
<PAGE>
[TRANSMITED ON SUTHERLAND, ASBILL & BRENNAN LLP LETTERHEAD]
April 28, 1999
Board of Directors
Canada Life Insurance Company of New York
410 Saw Mill River Road
Ardsley, New York 10502
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Statement of Additional Information filed as part of Post-
Effective Amendment No. 13 under the Securities Act of 1933 and Amendment No. 16
under the Investment Company Act of 1940 to the registration statement on Form
N-4 for the Canada Life of New York Variable Annuity Account 1 (File No. 33-
32199). In giving this consent, we do not admit that we in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
By: /s/ Stephen E. Roth
-------------------------
Stephen E. Roth
<PAGE>
Exhibit 10(c)
Consent of Independent Auditors
<PAGE>
- --------------------------------------------------------------------------------
CONSENT OF
INDEPENDENT CHARTERED ACCOUNTANTS
- --------------------------------------------------------------------------------
We consent to the reference to our Firm under the captions "Financial
Statements" and "Experts" and to the use of our reports dated April 15, 1999
with respect to the financial statements of the Canada Life of New York Variable
Annuity Account 1 and the Canada Life Insurance Company of New York included in
the Registration Statement [Form N-4, No. 33-32199] and related Prospectus of
Canada Life of New York Variable Annuity Account 1 [May 1, 1999].
/s/ Ernst & Young LLP
----------------------------------------
Chartered Accountants
Toronto, Canada,
April 28, 1999.
[LOGO OF ERNST & YOUNG APPEARS HERE]
