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As Filed with the Securities and Exchange Commission on March 2, 1998.
Registration No. 33-55890
811-7350
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Securities and Exchange Commission
Washington, D.C. 20549
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FORM N-4
Registration Statement Under the Securities Act of 1933
Pre-Effective Amendment No.
Post-Effective Amendment No.9
and/or
Registration Statement Under the Investment Company Act of 1940
Amendment No.11
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CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2
(Exact Name of Registrant)
CANADA LIFE INSURANCE COMPANY OF AMERICA
(Name of Depositor)
330 University Avenue
Toronto, Canada M5G 1R8
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number: (416) 597-1456
Roy W. Linden
330 University Avenue
Toronto, Canada M5G 1R8
(Name and Address of Agent for Service)
Copy to:
Stephen E. Roth, Esquire
Sutherland, Asbill, & Brennan, LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) pursuant
--- to paragraph (b)
60 days after filing pursuant to paragraph (a)(i)
---
x on May 1, 1998 pursuant to paragraph (a)(i)
---
75 days after filing pursuant to paragraph (a)(ii)
--- on pursuant to paragraph (a)(ii) of Rule 485
If appropriate check the following box:
this Post-Effective Amendment designates a new effective
--- date for a new effective date for a previously filed
Post-Effective Amendment.
Title of Securities Being Registered: Flexible Premium Variable Deferred Annuity
Policies
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CROSS REFERENCE SHEET
Pursuant to Rule 481(a)
Showing Location in Part A (Prospectus) and
Part B (Statement of Additional Information) of Registration
Statement of Information Required by Form N-4
PART A
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ITEM OF FORM N-4 PROSPECTUS CAPTION
1. Cover Page Cover Page
2. Definitions DEFINITIONS
3. Synopsis SUMMARY
4. Condensed Financial Information CONDENSED FINANCIAL INFORMATION
5. General Description of Registrant,
Depositor and Portfolio Companies
a. Depositor THE COMPANY
b. Registrant The Variable Account
c. Portfolio Company The Fund
d. Fund Prospectus The Fund
e. Voting Rights VOTING RIGHTS
f. Administrators N/A
6. Deductions and Expenses Charges Against the Policy, Variable Account, & Fund
a. General Charges Against the Policy, Variable Account, & Fund
b. Sales Load % Charges Against the Policy, Variable Account, & Fund -
Surrender Charge
c. Special Purchase Plan N/A
d. Commissions DISTRIBUTION OF POLICIES
e. Expenses - Registrant Charges Against the Policy, Variable Account, & Fund
f. Fund Expenses Charges Against the Policy, Variable Account, & Fund -
Other Charges Including Investment Management Fees
g. Organizational Expenses N/A
7. General Description of Variable
Annuity Contracts
a. Persons With Rights DEFINITIONS - Owner , Joint Owner; Payment of
Proceeds; Payment Options;
Partial Withdrawals; Other Policy
Provisions; VOTING RIGHTS
b. (i) Allocation of Premium Payments Premiums
(ii) Transfers Transfers; Payment of Benefits, Partial Withdrawals,
Cash Surrenders, & Transfers - Postponement
(iii) Exchanges N/A
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c. Changes Reserved Rights
d. Inquiries SUMMARY - Questions
8. Annuity Period Payment Options
9. Death Benefit Payment of Proceeds; Payment of Benefits, Partial
Withdrawals, Cash Surrenders, & Transfers - Postponement;
Payment Options
10. Purchases and Contract Value
a. Purchases Premiums
b. Valuation Variable Account Value
c. Daily Calculation Variable Account Value
d. Underwriter DISTRIBUTION OF POLICIES
11. Redemptions
a. - By Owners Payment of Proceeds - Proceeds on Surrender; Partial
Withdrawals; Payment of Benefits, Partial Withdrawals,
Cash Surrenders, & Transfers - Postponement
- By Annuitant Payment of Proceeds - Proceeds on Death of Last Surviving Annuitant
Before Annuity Date or Maturity Date; Payment Options
b. Texas ORP RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
c. Check Delay Payment of Benefits, Partial Withdrawals, Cash Surrenders, & Transfers -
Postponement
d. Lapse Premiums - Termination
e. Free Look Ten Day Right to Examine the Policy
12. Taxes Charges Against the Policy, Variable Account, & Fund - Taxes; FEDERAL
TAX STATUS
13. Legal Proceedings LEGAL PROCEEDINGS
14. Table of Contents of the Statement of STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
Additional Information
PART B
ITEM OF FORM N-4 STATEMENT OF ADDITIONAL INFORMATION CAPTION
15. Cover Page Cover Page
16. Table of Contents STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
17. General Information and History See Prospectus - THE COMPANY; THE VARIABLE ACCOUNT AND THE FUND
18. Services
a. Fees and Expenses of Registrant N/A
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b. Management Contract N/A
c. Custodian SAFEKEEPING OF ACCOUNT ASSETS
d. Independent Public Accountant EXPERTS
e. Assets of Registrant SAFEKEEPING OF ACCOUNT ASSETS
f. Affiliated Persons N/A
g. Principal Underwriter See Prospectus - DISTRIBUTION OF POLICIES
19. Purchase of Securities Being Offered See Prospectus - DISTRIBUTION OF POLICIES
20. Underwriter See Prospectus - DISTRIBUTION OF POLICIES
21. Calculation of Performance Data CALCULATION OF YIELDS AND TOTAL RETURNS
22. Annuity Payments See Prospectus - Payment Options
23. Financial Statements FINANCIAL STATEMENTS
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PART A
INFORMATION REQUIRED IN A PROSPECTUS
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CANADA LIFE INSURANCE COMPANY OF AMERICA
ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD, NW, ATLANTA, GEORGIA 30339
PHONE: 1-800-905-1959
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PROSPECTUS
VARIABLE ANNUITY ACCOUNT 2
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY POLICY
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This Prospectus describes the flexible premium variable deferred annuity policy
(the "policy") offered by Canada Life Insurance Company of America ("we," "our,"
or "us"), a stock life insurance company domiciled in Michigan which is a
wholly-owned subsidiary of The Canada Life Assurance Company. The policy is
designed for use in connection with retirement plans which may or may not
qualify for special federal income tax treatment.
The owner ("you") may allocate net premiums when paid and policy value among the
fourteen sub-accounts of the Canada Life of America Variable Annuity Account 2
(the "Variable Account") and the Fixed Account. The Fixed Account guarantees a
minimum fixed rate of interest for specified periods of time, currently one
year, three years, five years, seven years and ten years (each a "Guarantee
Period"). The Fixed Account is part of our general account and may not be
available in all states. Assets of each sub-account are invested in a
corresponding portfolio of Seligman Portfolios, Inc. (the "Fund"), a Maryland
corporation that is a diversified open-end investment company which uses the
investment management services of J. & W. Seligman & Co. Incorporated (the
International, Global Smaller Companies, Global Technology and Global Growth
Opportunities Portfolios use the sub-advisory services of Seligman Henderson
Co.). The Fund has fourteen portfolios: Seligman Bond; Seligman Capital;
Seligman Cash Management; Seligman Common Stock; Seligman Communications and
Information; Seligman Frontier; Seligman Henderson Global Growth Opportunities;
Seligman Henderson Global Smaller Companies; Seligman Henderson Global
Technology; Seligman High-Yield Bond; Seligman Income; Seligman Henderson
International; Seligman Large-Cap Value and Seligman Small-Cap Value. The policy
value prior to the annuity date or maturity date, except for amounts in the
Fixed Account, will vary according to the investment performance of the
portfolio of the Fund in which your elected sub-accounts are invested. You bear
the entire investment risk on amounts allocated to the Variable Account. Except
in the case of the one year Guarantee Period, policy value and other values
provided by this policy, when based on the Fixed Account, are subject to a
Market Value Adjustment, the operation of which may result in upward or downward
adjustments of amounts withdrawn, surrendered, or transferred but net premiums
and policy value allocated to the Fixed Account are guaranteed to earn interest
at an annual rate of at least three percent. The Fixed Account and certain
Guarantee Periods may not be available in all states.
This Prospectus sets forth basic information about the policy, the Variable
Account, and the Fixed Account that a prospective investor ought to know before
investing. Additional information about the policy and the Variable Account is
contained in the Statement of Additional Information, which has been filed with
the Securities and Exchange Commission. The Statement of Additional Information
is dated the same date as this Prospectus and is incorporated herein by
reference. The Table of Contents for the Statement of Additional Information is
included in this Prospectus. You may obtain a copy of the Statement of
Additional Information free of charge by writing or calling us at the address or
phone number shown above.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. THIS
PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE POLICIES AND SHARES OF THE FUNDS ARE NOT INSURED BY THE FDIC OR ANY OTHER
AGENCY. THEY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE
NOT BANK GUARANTEED. THEY ARE SUBJECT TO MARKET FLUCTUATION,
INVESTMENT RISK AND POSSIBLE LOSS OF PRINCIPAL INVESTED
The date of this Prospectus is May 1, 1998.
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TABLE OF CONTENTS
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DEFINITIONS.........................................................................................3
SUMMARY.............................................................................................5
TABLE OF EXPENSES...................................................................................8
CONDENSED FINANCIAL INFORMATION....................................................................11
THE COMPANY........................................................................................12
THE VARIABLE ACCOUNT, THE FUND AND THE
FIXED ACCOUNT.................................................................................12
The Variable Account.........................................................................12
The Fund.....................................................................................13
Seligman Capital Portfolio.............................................................13
Seligman Cash Management Portfolio.....................................................13
Seligman Common Stock Portfolio........................................................13
Seligman Communications and Information Portfolio......................................13
Seligman Bond Portfolio...............................................................13
Seligman Frontier Portfolio............................................................13
Seligman Henderson Global Growth Opportunities Portfolio...............................14
Seligman Henderson International Portfolio.............................................14
Seligman Henderson Global Smaller
Companies Portfolio...............................................................14
Seligman Henderson Global Technology...................................................14
Seligman High-Yield Bond Portfolio.....................................................14
Seligman Income Portfolio..............................................................14
Seligman Large-Cap Value Portfolio.......................................................
Seligman Small-Cap Value Portfolio
Reserved Rights..............................................................................14
Change in Investment Objective...............................................................15
The Fixed Account............................................................................15
Guarantee Amount.......................................................................15
Guarantee Periods......................................................................15
Market Value Adjustment................................................................16
DESCRIPTION OF ANNUITY POLICY......................................................................17
Ten Day Right to Examine the Policy..........................................................17
Premiums.....................................................................................17
Initial Premium........................................................................17
Additional Premiums....................................................................18
Pre-Authorized Check Plan .............................................................
Wire Transmittal Privilege.............................................................18
Electronic Data Transmission of
Application Information............................................................18
Net Premium Allocation.................................................................18
Termination............................................................................19
Variable Account Value.......................................................................19
Units..................................................................................19
Unit Value.............................................................................19
Net Investment Factor..................................................................19
Transfers....................................................................................20
Transfer Privilege.....................................................................20
Telephone Transfer Privilege...........................................................20
Intouch(TM) Voice Response System......................................................
Dollar Cost Averaging Privilege..............................................................20
Restrictions on Transfers From
Fixed Account.....................................................................21
Transfer Processing Fee................................................................21
Payment of Proceeds..........................................................................21
Proceeds...............................................................................21
Proceeds on Annuity Date or Maturity Date..............................................21
Proceeds on Surrender..................................................................22
Proceeds on Death of Last Surviving
Annuitant Before Annuity Date or Maturity Date
(The Death Benefit)................................................................22
Proceeds on Death of Any Owner Before or
After Annuity Date or Maturity Date................................................23
Partial Withdrawals..........................................................................23
Systematic Withdrawal Privilege........................................................24
Seligman Time Horizon Matrix (SM)...........................................................24
Portfolio Rebalancing........................................................................25
Loans........................................................................................25
Payment of Benefits, Partial Withdrawals, Cash
Surrenders, & Transfers - Postponement...................................................26
Charges Against the Policy, Variable Account, and Fund.......................................26
Surrender Charge.......................................................................26
Policy Administration Charge...........................................................27
Daily Administration Fee...............................................................27
Transfer Processing Fee................................................................27
Annualized Mortality and Expense Risk Charge...........................................27
Reduction or Elimination of Surrender Charges..........................................28
Reduction or Elimination of Policy Administration Charge...............................28
Taxes..................................................................................28
Other Charges Including Investment Management Fees.....................................29
Payment Options..............................................................................29
Election of Options....................................................................29
Description of Payment Options.........................................................29
Payment Dates..........................................................................29
Age and Survival of Payee..............................................................30
Death of Payee.........................................................................30
Betterment of Income.........................................................................30
Other Policy Provisions......................................................................30
Owner or Joint Owner...................................................................30
Beneficiary............................................................................30
Written Notice.........................................................................30
Periodic Reports.......................................................................31
Assignment.............................................................................31
Modification...........................................................................31
YIELDS AND TOTAL RETURNS...........................................................................31
TAX DEFERRAL.......................................................................................33
FEDERAL TAX STATUS.................................................................................33
Introduction.................................................................................33
The Company's Tax Status.....................................................................33
Tax Status of the Policy.....................................................................34
Diversification Requirements...........................................................34
Required Distributions.................................................................34
Taxation of Annuities........................................................................35
In General.............................................................................35
Withdrawals/Distributions..............................................................35
Annuity Payments.......................................................................35
Taxation of Death Benefit Proceeds.....................................................35
Penalty Tax on Certain Withdrawals.....................................................36
Transfers, Assignments, or Exchanges of a Policy.............................................36
Withholding..................................................................................36
Multiple Policies............................................................................36
Possible Tax Changes.........................................................................36
Taxation of Qualified Plans..................................................................37
Individual Retirement Annuities and Simplified
Employee Pensions (SEP/IRAs).......................................................37
SIMPLE Individual Retirement Annuities.................................................
ROTH Individual Retirement Annuities ---------------------------------------------------.
Minimum Distribution Requirements ("MDR") for IRAs.....................................37
Corporate and Self-Employed (H.R.10 and Keogh)
Pension and Profit-Sharing Plans...................................................38
Deferred Compensation Plans............................................................38
Tax-Sheltered Annuity Plans............................................................38
Other Tax Consequences.......................................................................38
RESTRICTIONS UNDER THE TEXAS OPTIONAL
RETIREMENT PROGRAM...........................................................................39
DISTRIBUTION OF POLICIES...........................................................................39
LEGAL PROCEEDINGS..................................................................................39
VOTING RIGHTS......................................................................................39
FINANCIAL STATEMENTS...............................................................................40
STATEMENT OF ADDITIONAL INFORMATION TABLE
OF CONTENTS......................................................................................40
APPENDIX A: STATE PREMIUM TAXES....................................................................41
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DEFINITIONS
ADMINISTRATIVE OFFICE: Our office at the address shown on page 1 of the
Prospectus. This is our mailing address.
ANNUITANT: Any natural person whose life is used to determine the duration of
any payments made under a payment option involving life contingencies. The term
annuitant also includes any joint-annuitant, a term used to refer to more than
one annuitant.
ANNUITY DATE: The date when the policy value will be applied under an annuity
payment option.
BENEFICIARY: The person to whom we will pay the proceeds payable on your death
or on the death of the last surviving annuitant.
CASH SURRENDER VALUE: The policy value less: 1) any applicable surrender charge;
and 2) the policy administration charge; and 3) any applicable market value
adjustment.
COMPANY: Canada Life Insurance Company of America.
DUE PROOF OF DEATH: Proof of death that is satisfactory to us. Such proof may
consist of: 1) a certified copy of the death certificate; or 2) a certified copy
of the decree of a court of competent jurisdiction as to the finding of death.
EFFECTIVE DATE: The date the policy is effective is the date we accept your
application and apply your initial premium.
FIXED ACCOUNT: Part of our general account that provides a Guaranteed Interest
Rate for a specified Guarantee Period. This account is not part of and does not
depend on the investment performance of the Variable Account.
FUND: Seligman Portfolios, Inc., a diversified open-end investment company that
offers shares in fourteen portfolios in which the corresponding sub-accounts of
the Variable Account are invested.
GUARANTEE AMOUNT: Before the Annuity Date, the amount equal to that part of any
net premium allocated to or policy value transferred to the Fixed Account for a
designated Guarantee Period with a particular expiration date (including
interest thereon) less any withdrawals (including any applicable surrender
charges, any applicable Market Value Adjustment and any applicable premium tax
charge) or transfers (including any applicable Market Value Adjustments)
therefrom.
GUARANTEE PERIOD: A specific number of years for which we agree to credit a
particular effective annual rate of interest. We currently offer Guarantee
Periods of one, three, five, seven and ten years.
GUARANTEED INTEREST RATE: The applicable effective annual rate of interest that
we will pay on a Guarantee Amount. The Guaranteed Interest Rate will be at least
three percent per year.
JOINT-ANNUITANT: A term used solely for the purpose of referring to more than
one annuitant. There is no other distinction between the terms annuitant and
joint-annuitant. A joint-annuitant: 1) is allowed but not required under a
non-qualified policy and 2) is not allowed under a qualified policy and any
designation of a joint-annuitant under a qualified policy will be of no effect .
JOINT OWNER: A term used solely for the purpose of referring to more than one
owner. There is no other distinction between the terms owner and joint owner.
LAST SURVIVING ANNUITANT: The annuitant or joint-annuitant that survives the
other.
MARKET VALUE ADJUSTMENT: A positive or negative adjustment that may apply to any
portion of a Guarantee Amount upon the surrender, withdrawal, or transfer of
such portion of the Guarantee Amount before the expiration of the Guarantee
Period applicable to that Guarantee Amount.
MATURITY DATE: The first day of the month after the last surviving annuitant's
100th birthday.
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NET PREMIUMS: The premium paid less any premium tax deducted in the year the
premium is paid.
NONQUALIFIED POLICY: A policy that is not a "qualified" policy under the
Internal Revenue Code of 1986, as amended (the "Code"). See "FEDERAL TAX
STATUS".
OWNER: The owner is entitled to exercise all rights and privileges provided the
owner in the policy. The term owner also includes any joint owner.
PAC: Pre-authorized check, including electronic fund transfers.
POLICY: One of the flexible premium variable deferred annuity policies offered
by this Prospectus.
POLICY VALUE: The sum of the Variable Account value and the Fixed Account value.
POLICY DATE, YEARS, MONTHS, and ANNIVERSARIES: Are measured from the policy date
shown in the "Policy Details" of the policy.
QUALIFIED POLICY: A policy that is issued in connection with plans that receive
special federal income tax treatment under sections 401, 403(a), 403(b), 408 or
457 of the Code. See "FEDERAL TAX STATUS".
SUB-ACCOUNT: The Variable Account has fourteen sub-accounts: Bond; Capital; Cash
Management; Common Stock; Communications and Information; Frontier; Global
Growth Opportunities; Global Smaller Companies; Global Technology; High-Yield
Bond; Income; International; Large-Cap Value; and Small-Cap Value. The assets of
these sub-accounts are invested in the corresponding portfolio of the Fund.
UNIT: A measurement used in the determination of the policy's Variable Account
value before the annuity date or maturity date.
VALUATION DAY: Each day the New York Stock Exchange is open for trading.
VALUATION PERIOD: The period beginning at the close of business on a valuation
day and ending at the close of business on the next succeeding valuation day.
The close of business is when the New York Stock Exchange closes (usually at
4:00 P.M. Eastern Time).
VARIABLE ACCOUNT: The Canada Life of America Variable Annuity Account 2.
WE, OUR, and US: Canada Life Insurance Company of America.
WRITTEN NOTICE: See the "Written Notice" provision in the "Other Policy
Provisions" section of this Prospectus.
YOU or YOUR: The owner. See the definitions of "Owner" and "Joint Owner" above.
4
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SUMMARY
TEN DAY RIGHT TO EXAMINE POLICY
You have ten days after you receive the policy to decide if the policy meets
your needs (except in California you have 30 days if the Owner is age 60 or
over, in Colorado you have 15 days, and in Idaho and North Dakota you have 20
days), and if the policy does not meet your needs to return the policy to our
Administrative Office. We will promptly return either the policy value (where
allowed by law); or in states which do not allow return of policy value, we will
return the full premium paid, without interest and less the amount of any
partial withdrawals, within seven days. When the policy is issued as an
Individual Retirement Annuity, during the first seven days of the ten day
period, we will return all premiums if this is greater than the amount otherwise
payable.
PREMIUMS
The minimum initial premium is $5,000 ($2,000 if the policy is an Individual
Retirement Annuity, but we reserve the right to lower or raise the minimum
premium for IRAs). However, the minimum initial premium is $100 ($50 if the
policy is an Individual Retirement Annuity) if submitted with a pre-authorized
check ("PAC") agreement. You may make additional premium payments during any
annuitant's lifetime and before the annuity date or maturity date. The minimum
additional premium is $1,000, or $100 per month if paid by PAC (or $50 per month
if paid by PAC if the Policy is an Individual Retirement Annuity). Our prior
approval is required before your total premiums paid exceed $1,000,000. You may
allocate your net premiums among the sub-accounts of the Variable Account and
the Fixed Account. See "Premiums".
THE VARIABLE ACCOUNT
The Variable Account is a separate investment account consisting of fourteen
sub-accounts. The policy value before the annuity date or maturity date, except
for amounts in the Fixed Account, will vary according to the investment
performance of the portfolios of the Fund in which your elected sub-accounts are
invested. See "The Variable Account".
THE FUND
The assets of each sub-account are invested in the corresponding portfolios of
the Fund. The Fund currently offers fourteen portfolios: Seligman Bond; Seligman
Capital; Seligman Cash Management; Seligman Common Stock; Seligman
Communications and Information; Seligman Frontier; Seligman Henderson Global
Growth Opportunities; Seligman Henderson Global Smaller Companies; Seligman
Henderson Global Technology; Seligman High-Yield Bond; Seligman Income; Seligman
Henderson International; Seligman Large-Cap Value and Seligman Small-Cap Value.
The Fund is a diversified, open-end investment company. See "The Fund".
THE FIXED ACCOUNT
The Fixed Account is not part of and does not depend on the investment
performance of the Variable Account. Under the Fixed Account you may allocate
all or a portion of net premium payments and transfer policy value among several
Guarantee Periods selected by you. We currently offer Guarantee Periods with
durations of one, three, five, seven, and ten years. If the amount allocated or
transferred remains in a Guarantee Period until the expiration date of a
Guarantee Period, its value will be equal to the amount originally allocated or
transferred, multiplied on an annually compounded based, by its Guaranteed
Interest Rate. Except for the one year account, any surrender, withdrawal, or
transfer will be subject to a Market Value Adjustment that may increase or
decrease the Guarantee Amount (or portion thereof) being surrendered, withdrawn,
or transferred. Because of this adjustment and for other reasons, the amount
payable upon surrender, withdrawal, or transfer may be greater or less than the
Guarantee Amount at the time of the transaction. However, the Market Value
Adjustment will never reduce the earnings on amounts allocated to the Fixed
Account to less than three percent per year. The Market Value Adjustment does
not apply to amounts surrendered, withdrawn, or transferred from the one year
Guarantee Period (See "THE FIXED ACCOUNT - Market Value Adjustment").
The Fixed Account and certain Guarantee Periods may not be available in all
jurisdictions.
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TRANSFERS
You may transfer all or part of an amount in a sub-account or the Fixed Account
to another sub-account(s) or the Fixed Account, subject to certain restrictions.
See "Transfers".
DEATH BENEFIT
If we receive due proof of death of the last surviving annuitant before the
annuity date or maturity date (such "due proof"), the we will pay the
beneficiary a death benefit.
THE FOLLOWING APPLIES TO CERTAIN POLICIES ISSUED ON THE LATTER OF OCTOBER 1,
1997 OR THE DATE APPLICABLE REGULATORY APPROVALS ARE OBTAINED IN THE
JURISDICTION IN WHICH THE POLICIES ARE OFFERED:
The death benefit is the greatest of:
1. the premiums paid, less a) any partial withdrawals, including
applicable surrender charges; and b) any incurred taxes; or
2. the policy value on the date we receive such due proof; or
3. the greatest policy value on any policy anniversary preceding both
the date the last surviving annuitant attained age 81 and the date
we receive such due proof of the annuitant's death, adjusted for
any of the following items that occur after such policy
anniversary: a) less any partial withdrawals, including applicable
surrender charges; b) less any incurred taxes; and c) plus any
premiums paid.
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 Owner(s) of a policy issued prior to October 1, 1997 will be entitled to the
Death Benefit described above, after such date as regulatory approval is
received for such provision from the Owner's state of residence, unless the
Owner(s) elects not to accept this provision. The Company will not assess a
charge in connection with the election of this Death Benefit.
* In some jurisdictions the death benefit may vary.
THE FOLLOWING APPLIES ONLY TO CERTAIN POLICIES ISSUED FROM MAY 1, 1996 THROUGH
OCTOBER 1, 1997, OR SUCH LATER DATE AS APPLICABLE REGULATORY APPROVALS WERE
OBTAINED IN THE JURISDICTION IN WHICH THE POLICIES ARE OFFERED:
If we receive such due proof during the first five years, the death
benefit is the greater of:
1. the premiums paid, less: a) any partial withdrawals,
including applicable surrender charges; and b) any incurred
taxes; or
2. the policy value on the date we receive due proof of last
surviving annuitant's death.
If we receive such due proof after the first five policy years, the death
benefit is the greatest of:
1. item "1" above; or
2. item "2" above; or
3. the policy value at the end of the most recent 5 policy
year period preceding the date we receive due proof of the
last surviving annuitant's death, adjusted for any of the
following items that occur after such last 5 policy year
period: a) less any partial withdrawals, including
applicable surrender charges; b) less any incurred taxes;
and c) plus any premiums paid. The 5 policy year periods
are measured from the policy date (i.e., 5, 10, 15, 20,
etc.).
If on the date the policy was issued, all annuitants were attained age 80
or less, then after any annuitant attains age 81, the death benefit is
the greater of items "1" or "2" above. However, if on the date the policy
was issued, any annuitant was attained age 81 or more, then the death
benefit is the policy value.
THE FOLLOWING APPLIES ONLY TO CERTAIN POLICIES ISSUED PRIOR TO MAY 1, 1996 OR
SUCH LATER DATE AS APPLICABLE REGULATORY APPROVAL WAS OBTAINED IN THE
JURISDICTION IN WHICH THE POLICIES ARE OFFERED:
If we receive such due proof during the first seven policy years, the
death benefit is the greater of:
1. the premiums paid, less: a) any partial withdrawals,
including applicable surrender charges; and b) any incurred
taxes; or
2. the policy value on the date we receive due proof of the
last surviving annuitant's death.
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If we receive such due proof after the first seven policy years, the
death benefit is the greatest of:
1. item "1." above; or
2. item "2." above; or
3. the policy value at the end of the most recent 7 policy
year period preceding the date we receive due proof of the
last surviving annuitant's death, adjusted for any of the
following items that occur after such last 7 policy year
period: a) less any partial withdrawals, including
applicable surrender charges; b) less any incurred taxes;
and c) plus any premiums paid. The 7 policy year periods
are measured from the policy date (i.e., 7, 14, 21, 28,
etc.). For policies issued from May 1, 1995 through April
30, 1996, no further step-ups in Death Benefits will occur
after any annuitant's age of 80.
No death benefit is payable if the policy is surrendered before the last
surviving annuitant's death.
See "Proceeds on Death of Any Owner Before or After Annuity Date or Maturity
Date."
PARTIAL WITHDRAWALS AND CASH SURRENDERS
You may withdraw part or all of the cash surrender value at any time before the
earlier of the death of the last surviving annuitant, the annuity date or the
maturity date, subject to certain limitations. See "The Fixed Account," "Partial
Withdrawals" and "Proceeds on Surrender". Partial withdrawals and cash
surrenders may be subject to federal income tax, including a penalty tax. See
"FEDERAL TAX STATUS".
POLICY CHARGES
No deduction for a sales charge is made when premiums are paid. However, a
surrender charge (contingent deferred sales charge) will be deducted when
certain partial withdrawals and cash surrenders are made. For the purpose of
determining if any surrender charge applies and the amount of such charge,
partial withdrawals and surrenders are taken according to these rules from
policy value attributable to premiums in the following order:
<TABLE>
<CAPTION>
SURRENDER CHARGE
<S> <C> <C>
1. Up to 100% of positive investment earnings of each variable
sub-account available at the time the request is made,
PLUS..............................................................................None
2. Up to 100% of interest on the FIXED ACCOUNT at the time the
request for surrender/withdrawal is made, PLUS....................................None
3. Up to 10% of total premiums STILL SUBJECT TO A SURRENDER CHARGE,
once a policy year, PLUS..........................................................None
4. Up to 100% of those premiums NOT SUBJECT TO A SURRENDER CHARGE,
available at any time.............................................................None
5. Premiums subject to a surrender charge:
Policy Years Since Premium Was Paid
-----------------------------------
Less than 1......................................................................6%
At least 1, but less than 2......................................................6%
At least 2, but less than 3......................................................5%
At least 3, but less than 4......................................................5%
At least 4, but less than 5......................................................4%
At least 5, but less than 6......................................................3%
At least 6, but less than 7......................................................2%
At least 7.....................................................................None
</TABLE>
See "Surrender Charge".
We deduct a policy administration charge of $30 for the prior policy year on
each policy anniversary. If the policy value on the policy anniversary is
$35,000 or more, we will waive the policy administration charge for the prior
policy year. We will also
7
<PAGE> 13
deduct this charge for the current policy year if the policy is surrendered for
its cash surrender value, unless the surrender occurs on the policy anniversary.
See "Policy Administration Charge".
At each valuation period, we also deduct a daily administration fee at an
effective annual rate of 0.15% from the assets of the Variable Account. See
"Daily Administration Fee".
The first 12 transfers during each policy year are free under our current
Company policy, which we reserve the right to change. The Company currently
assesses a $25 transfer fee for the 13th and each additional transfer in a
policy year. See "Transfer Processing Fee".
We deduct a mortality and expense risk charge at each valuation period from the
assets of the Variable Account at an effective annual rate of 1.25%. This charge
is not made after the annuity date or maturity date, or against any amounts in
the Fixed Account. See "Annualized Mortality and Expense Risk Charge".
We will incur premium taxes in some jurisdictions relating to the policies.
Depending on the jurisdiction, we deduct any such taxes from either: a) the
premium when paid; or b) the policy value when it is applied under a payment
option, cash surrender value or partial withdrawal. See "Taxes".
Each portfolio of the Fund in which the Variable Account invests is responsible
for its own expenses. In addition, charges for investment management services
are charged daily from each portfolio of the Fund as a percentage of the average
net assets of the portfolios, as follows: 0.40% for Capital, Cash Management
(currently waived), Common Stock, Bond, and Income; 0.75% for Communications and
Information, and Frontier; 1.00% for International, Global Smaller Companies,
Global Technology and Global Growth Opportunities; 0.50% for High-Yield Bond; %
for Large-Cap Value; and % for Small-Cap Value. See "Other Charges Including
Investment Management Fees" and the attached "PROSPECTUS FOR THE FUND."
LOANS
The Company may offer a loan privilege to owners of policies issued in
connection with Section 403(b) qualified plans that are not subject to Title I
of ERISA (Employee Retirement Income Security Act of 1974, as amended). If
offered, owners of such policies may obtain loans using the policy as the only
security for the loan. The effective cost of a policy loan would be 2% per year
of the amount borrowed. See "Loans".
ANNUITY DATE, MATURITY DATE AND PAYMENT OPTIONS
On the annuity date, we will apply the policy value under Payment Option 1,
unless you have elected to receive the cash surrender value in a lump sum, or
pursuant to a mutually agreed upon payment option, Payment Option 2. Payments
under these payment options do not depend on the Variable Account's investment
performance. The proceeds we will pay on the maturity date is the policy value.
The payment options are: 1) Life Income with Payments for 10 Years Certain; and
2) Mutual Agreement. See "Payment Options".
OTHER POLICY PROVISIONS
For information concerning the owner, beneficiary, written notice, periodic
policy reports, assignment, and modification see "Other Policy Provisions".
FEDERAL TAX STATUS
For a brief discussion of our current understanding of the federal tax laws
concerning us and the annuity policies we issue see "FEDERAL TAX STATUS".
QUESTIONS
We will be happy to answer your questions about the policy or our procedures.
Call or write to us at the phone number or address on page one. All inquiries
should include the policy number and the names of the owner and the annuitant.
8
<PAGE> 14
TABLE OF EXPENSES
EXPENSE DATA
The following information regarding expenses assumes that the entire policy
value is in the Variable Account.
<TABLE>
<S> <C>
POLICYOWNER TRANSACTION EXPENSES*
-------------------------------
Sales load on purchase payments.....................................................................None
Maximum contingent deferred sales charge as a percentage of amount surrendered
(10% of total premiums still subject to a surrender charge are free
of any sales load.
See "Policy Charges" )..........................................................................6.00%
Transfer fee
Current policy - First 12 transfers each policy year:..........................................No fee
Each transfer thereafter:............................................................$25 per transfer
POLICY ADMINISTRATION CHARGE
----------------------------
Per policy per policy year:.........................................................................$30
(waived for the prior policy year if the policy value is $35,000
or more on the policy anniversary)
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and expense risk charges.................................................................1.25%
Effective annual rate of daily administration fee..................................................0.15%
Total Variable Account annual expenses.............................................................1.40%
</TABLE>
SELIGMAN PORTFOLIOS, INC. (THE "FUND")
ANNUAL EXPENSES**
(as a percentage of average net assets)
<TABLE>
<CAPTION>
PORTFOLIO OTHER EXPENSES TOTAL
MANAGEMENT AFTER ANNUAL
FEES REIMBURSEMENT** EXPENSES
---- --------------- --------
<S> <C> <C> <C>
Bond 0.40% 0.20% 0.60%
Capital 0.40% 0.19% 0.59%
Cash Management 0.00% 0.00% 0.00%
Common Stock 0.40% 0.13% 0.53%
Communications and Information 0.75% 0.12% 0.87%
Frontier 0.75% 0.17% 0.92%
Global Growth Opportunities 1.00% 0.40% 1.40%
Global Smaller Companies 1.00% 0.40% 1.40%
Global Technology 1.00% 0.40% 1.40%
High-Yield Bond 0.50% 0.20% 0.70%
Income 0.40% 0.19% 0.59%
International 1.00% 0.40% 1.40%
Large-Cap Value % % %
Small-Cap Value % % %
</TABLE>
* In addition to the policyowner transaction expenses reflected in the
table, a Market Value Adjustment applies to the Guarantee Amount subject
to surrender, withdrawal, or transfer except during the 30 days following
the expiration of a Guarantee Period. Because of this adjustment and for
other reasons, the amount payable upon surrender, withdrawal, or transfer
may be greater or less than the Guarantee Amount at the time of the
transaction. The Market Value Adjustment,
9
<PAGE> 15
however, will never reduce the earnings on amounts allocated to the Fixed
Account to less than three percent per year and does not apply to amounts
surrendered, withdrawn, or transferred from the one year Guarantee
Period. The Fixed Account and certain Guarantee Periods may not be
available in all jurisdictions.
** The above table is intended to assist the policyowner in understanding
the costs and expenses that will be borne, under the policy, directly or
indirectly. These include the expenses of the Fund. The 0.00% following
"Management Fees" under Cash Management is based on the fact that the
Manager, in its sole discretion, waived its fee of 0.40% during 1997.,
There is no assurance that the Manager will continue this policy in the
future. In the event that this waiver is discontinued, this will be
reflected in an updated prospectus. With respect to all portfolios of the
Fund except International, Global Smaller Companies, Global Technology
and Global Growth Opportunities, the percentage listed following "Other
expenses after expense reimbursement" is based on the fact that the Fund
expenses, other than the management fee, exceeding 0.20% (0.00% under
Cash Management) will be reimbursed by the Fund's Manager by voluntary
agreement of the Manager. There is no assurance that the Manager will
continue this policy in the future. With respect to International, Global
Smaller Companies, Global Technology and Global Growth Opportunities, the
Sub-Advisor has agreed to reimburse annual expenses (other than the
management fee) that exceed 0.40% of average net assets. There is no
assurance that the Manager and the Sub-Advisor will continue this policy
in the future. In the event that any of these waivers and reimbursements
are discontinued, this will be reflected in an updated prospectus. Absent
such a reimbursement, the Fund's "Other Expenses" would be higher, and
during 1997 would have been: Bond 0.39%; Cash Management 0.23%; Global
Growth Opportunities % ; Global Smaller Companies 0.90%; Global
Technology % ; High-Yield Bond 0.38%; and International 1.30%. Expenses
for Capital, Common Stock, Communications and Information, Frontier, and
Income did not exceed the reimbursement level of 0.20%.
The data with respect to the Fund's annual expenses have been provided to us by
the Fund and we have not independently verified such data.
The purpose of the above Table of Expenses is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly. The Table
of Expenses reflects expenses of the separate account as well as the Fund.
For a more complete description of the various costs and expenses, see "Charges
Against the Policy, Variable Account, and Fund" and the Prospectus for the Fund.
In addition to the expenses listed above, premium taxes may be applicable, which
currently range between 0.5% to 3.5%, according to the jurisdiction. In many
jurisdictions, there is no tax at all. See Appendix A: State Premium Taxes.
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>
PORTFOLIO 1 YEAR 3 YEAR 5 YEAR 10 YEAR
--------- ------ ------ ------ -------
<S> <C> <C> <C> <C>
Bond $ 75 $ 110 $ 148 $ 241
Capital $ 75 $ 110 $ 147 $ 240
Cash Management $ 69 $ 92 $ 117 $ 176
Common Stock $ 74 $ 108 $ 144 $ 233
Communications and Information $ 78 $ 118 $ 161 $ 268
Frontier $ 78 $ 120 $ 164 $ 273
Global Growth Opportunities $ 83 $ 134 $ 188 $ 320
Global Smaller Companies $ 83 $ 134 $ 188 $ 320
Global Technology $ 83 $ 134 $ 188 $ 320
High-Yield Bond $ 76 $ 113 $ 153 $ 251
Income $ 75 $ 110 $ 147 $ 240
International $ 83 $ 134 $ 188 $ 320
Large-Cap Value $ $ $ $
Small-Cap Value $ $ $ $
</TABLE>
10
<PAGE> 16
2. If the policy is annuitized or not surrendered at the end of the
applicable time period:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEAR 5 YEAR 10 YEAR
--------- ------ ------ ------ -------
<S> <C> <C> <C> <C>
Bond $ 21 $ 65 $ 112 $ 241
Capital $ 21 $ 65 $ 111 $ 240
Cash Management $ 15 $ 47 $ 81 $ 176
Common Stock $ 20 $ 63 $ 108 $ 233
Communications and Information $ 24 $ 73 $ 125 $ 268
Frontier $ 24 $ 75 $ 128 $ 273
Global Growth Opportunities $ 29 $ 89 $ 152 $ 320
Global Smaller Companies $ 29 $ 89 $ 152 $ 320
Global Technology $ 29 $ 89 $ 152 $ 320
High-Yield Bond $ 22 $ 68 $ 117 $ 251
Income $ 21 $ 65 $ 111 $ 240
International $ 29 $ 89 $ 152 $ 320
Large-Cap Value $ $ $ $
Small-Cap Value $ $ $ $
</TABLE>
The examples provided above assume that no transfer charges have been assessed.
The examples also reflect a policy administration charge of .08% of assets,
determined by dividing the total policy administration charge collected by the
total average net assets of the sub-accounts of the Variable Account.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE
ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESSER
THAN THE ASSUMED AMOUNT.
CONDENSED FINANCIAL INFORMATION
The following condensed financial information is derived from the financial
statements of the Variable Account. The data should be read in conjunction with
the financial statements, related notes and other financial information included
in the Statement of Additional Information. See the "FINANCIAL STATEMENTS"
section concerning financial statements contained in the Statement of Additional
Information.
The table below sets forth certain information regarding the sub-accounts for a
policy for the period from commencement of business operations on June 21, 1993
through December 31, 1997. Accumulation Unit Values will not be provided for any
date prior to the inception of the Variable Account. Communications and
Information, Frontier and Global Smaller Companies commenced operations on
October 11, 1994. High-Yield Bond commenced operations on May 1, 1995. The
Global Technology and Global Growth Opportunities commenced operations on May 1,
1996. Large-Cap Value and Small-Cap Value commenced operations on May 1, 1998.
11
<PAGE> 17
ACCUMULATION UNIT VALUE
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF INCEPTION
SUB-ACCOUNT 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 6/21/93
----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Capital $ 25.79 $ 22.89 $ 18.29 $ 19.62 $ 17.53
Cash Management $ 1.34 $ 1.29 $ 1.25 $ 1.22 $ 1.22
Common Stock $ 27.42 $ 23.20 $ 18.53 $ 18.74 $ 17.38
Bond $ 15.22 $ 15.45 $ 13.17 $ 13.84 $ 13.52
Income $ 19.11 $ 18.20 $ 15.69 $ 16.97 $ 16.30
International $ 13.00 $ 12.34 $ 11.26 $ 11.34 $ 9.98
Communications and Information $ 15.17 $ 14.17 $ 10.40 *
Frontier $ 16.86 $ 13.83 $ 10.54 *
Global Smaller Companies $ 13.91 $ 11.91 $ 10.32 *
High-Yield Bond $ 11.99 $ 10.63 **
Global Technology $ 10.29 ***
Global Growth Opportunities $ 9.82 ***
Large-Cap Value ****
Small-Cap Value ****
</TABLE>
NUMBER OF UNITS OUTSTANDING
AT END OF PERIOD
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF AS OF
SUB-ACCOUNT 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
----------- --------
<S> <C> <C> <C> <C> <C>
Capital 364,487 177,869 62,358 4,660
Cash Management 6,138,138 4,756,423 434,226 56,138
Common Stock 743,848 406,237 127,570 35,206
Bond 174,526 118,761 64,614 15,084
Income 423,690 262,103 124,878 27,474
International 548,115 329,980 150,440 47,001
Communications and Information 3,582,800 2,515,329 47,541 *
Frontier 1,536,337 785,660 11,609 *
Global Smaller Companies 1,173,248 408,870 12,740 *
High-Yield Bond 939,456 275,716 **
Global Technology 108,483 ***
Global Growth Opportunities 131,675 ***
Large-Cap Value ****
Small-Cap Value ****
</TABLE>
* The Accumulation Unit Values for the Communications and Information, Frontier
and Global Smaller Companies Sub-Accounts' first valuation period were set at
$10. Since these Sub-Accounts were not in existence in 1993, there were no
outstanding units to report at the end of the period December 31, 1993.
**The Accumulation Unit Value for the High-Yield Bond Sub-Account's first
valuation period was set at $10. Since this sub-account was not in existence in
1994, there were no outstanding units to report at the end of the period
December 31, 1994.
***The Accumulation Unit Value for the Global Technology and Global Growth
Opportunities Sub-Accounts' first valuation period was set at $10. Since these
sub-accounts were not in existence prior to 5/1/96 there are no units or unit
values provided prior to December 31, 1996.
**** The Accumulation Unit Value for the Large-Cap Value and Small-Cap Value
Sub-Accounts' first valuation period were set at $ . Since these Sub-Accounts
were not in existence in 1997, there were no outstanding units to report at the
end of the period December 31, 1997.
12
<PAGE> 18
THE COMPANY
Canada Life Insurance Company of America ("we," "our," and "us") is a stock life
insurance company with assets as of December 31, 1997 of approximately $
billion. We were incorporated under Michigan law on April 12, 1988, and our
Administrative Office is located at 6201 Powers Ferry Road, NW, Atlanta, Georgia
30339. We currently are principally engaged in issuing and reinsuring annuity
policies.
We share our A.M. Best rating with our parent company, The Canada Life Assurance
Company. From time to time, we will quote this rating, our rating from Standard
& Poor's Corporation, Duff & Phelps Inc., and/or Moody's Investors Service for
claims paying ability. These ratings address the financial ability of these
companies to meet their contractual obligations in accordance with the terms of
their insurance contracts. They do not take into account deductibles, surrender
or cancellation penalties, or timeliness of claim payment, nor do they address
the suitability of the policy for a particular purchaser. Also, these
evaluations do not refer to the ability of these companies to meet non-policy
obligations.
We are a wholly-owned subsidiary of The Canada Life Assurance Company, a
Canadian life insurance company headquartered in Toronto, Ontario, Canada, with
a U.S. home office in Atlanta, Georgia. The Canada Life Assurance Company
commenced insurance operations in 1847 and has been actively operating in the
United States since 1889. It is one of the largest life insurance companies in
North America with consolidated assets as of December 31, 1997 of approximately
$ billion (U.S. dollars).
Obligations under the policies are obligations of Canada Life Insurance Company
of America.
We are subject to regulation and supervision by the Michigan Insurance Bureau,
as well as the applicable laws and regulations of all jurisdictions in which we
are authorized to do business.
THE VARIABLE ACCOUNT, THE FUND AND FIXED ACCOUNT
THE VARIABLE ACCOUNT
We established the Canada Life of America Variable Annuity Account 2 (the
"Variable Account") as a separate investment account on October 30, 1992, under
Michigan law. Although we own the assets in the Variable Account, these assets
are held separately from our other assets and are not part of our general
account. The income, gains or losses, whether or not realized, from the assets
of the Variable Account are credited to or charged against the Variable Account
in accordance with the policies without regard to our other income, gains or
losses.
The portion of the assets of the Variable Account equal to the reserves and
other contract liabilities of the Variable Account will not be charged with
liabilities that arise from any other business that we conduct and will be held
in the Variable Account. We have the right to transfer to our general account
any assets of the Variable Account which are in excess of such reserves and
other liabilities.
The Variable Account is registered with the Securities and Exchange Commission
(the "SEC") as a unit investment trust under the Investment Company Act of 1940
(the "1940 Act") and meets the definition of a "separate account" under the
federal securities laws. However, registration under the 1940 Act does not
involve the supervision by the SEC of the management or investment policies or
practices of the Variable Account.
The Variable Account currently is divided into fourteen sub-accounts with the
assets of each sub-account invested in shares of the corresponding portfolio of
the Fund described below.
THE FUND
Seligman Portfolios, Inc. (the "Fund") currently has fourteen portfolios:
Seligman Capital; Seligman Cash Management; Seligman Common Stock; Seligman
Bond; Seligman Income; Seligman Henderson International; Seligman Communications
and Information; Seligman Frontier; Seligman Henderson Global Smaller Companies;
Seligman High-Yield Bond; Seligman
13
<PAGE> 19
Henderson Global Technology; Seligman Henderson Global Growth Opportunities;
Seligman Large-Cap Value; and Seligman Small-Cap Value. Shares of a portfolio
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 will be reinvested in additional shares of that portfolio at their
net asset value. The Fund Prospectus defines the net asset value of portfolio
shares.
The Fund is a diversified open-end investment company incorporated in Maryland
which uses the investment management services of J. & W. Seligman & Co.
Incorporated (the International, Global Smaller Companies, Global Technology and
Global Growth Opportunities Portfolios use the sub-advisory services of Seligman
Henderson Co.). The following is a brief description of the investment
objectives of each of the current portfolios of the Fund. THERE IS NO ASSURANCE
THAT THE INVESTMENT OBJECTIVE OF ANY PORTFOLIO WILL BE ACHIEVED. The following
brief descriptions are qualified in their entirety by the more detailed
information appearing in the attached Prospectus for the Fund.
SELIGMAN CAPITAL PORTFOLIO
This Portfolio seeks to produce capital appreciation, not current income, by
investing in common stocks (primarily those with strong near-or
intermediate-term prospects) 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.
SELIGMAN CASH MANAGEMENT PORTFOLIO
This Portfolio seeks to preserve capital and to maximize liquidity and current
income by investing in a diversified portfolio of high-quality money market
instruments. Investments in this Portfolio are neither insured nor guaranteed by
the U.S. Government and there is no assurance that this Portfolio will be able
to maintain a stable net asset value of $1.00 per share.
SELIGMAN COMMON STOCK PORTFOLIO
This Portfolio seeks to produce favorable (but not the highest) current income
and long-term growth of both income and capital value, without exposing capital
to undue risk, primarily through equity investments broadly diversified over a
number of industries.
SELIGMAN COMMUNICATIONS AND INFORMATION PORTFOLIO
This Portfolio seeks to produce capital gain, not income, by investing primarily
in securities of companies operating in the communications, information and
related industries.
SELIGMAN BOND PORTFOLIO
This Portfolio seeks favorable current income by investing in a diversified
portfolio of debt securities, primarily of investment grade, including
convertible issues and preferred stocks, with capital appreciation as a
secondary consideration.
SELIGMAN FRONTIER PORTFOLIO
This Portfolio seeks to produce growth in capital value; income may be
considered but will be only incidental to the Portfolio's investment objective.
The Portfolio invests primarily in equity securities of companies selected for
their growth prospects.
SELIGMAN HENDERSON GLOBAL GROWTH OPPORTUNITIES PORTFOLIO
This Portfolio seeks to achieve long-term capital appreciation by investing
primarily in equity securities of companies that have the potential to benefit
from global economic or social trends.
SELIGMAN HENDERSON INTERNATIONAL PORTFOLIO
This Portfolio currently seeks to achieve long-term capital appreciation
primarily through international investments in securities of medium to
large-sized companies.
14
<PAGE> 20
SELIGMAN HENDERSON GLOBAL SMALLER COMPANIES PORTFOLIO
This Portfolio seeks to achieve long-term capital appreciation primarily through
global investments in securities of companies with small to medium market
capitalizations.
SELIGMAN HENDERSON GLOBAL TECHNOLOGY PORTFOLIO
This Portfolio seeks to achieve long-term capital appreciation by making global
investments of at least 65% of its assets in securities of companies operating
in the technology and technology-related industries.
SELIGMAN HIGH-YIELD BOND PORTFOLIO
This Portfolio seeks to produce maximum current income by investing primarily in
high-yielding, high risk corporate bonds and corporate notes, which, generally,
are unrated or carry ratings lower than those assigned to investment grade bonds
by Standard & Poor's Rating Service ("S&P") or Moody's Investors Service, Inc.
("Moody's"). The Portfolio may invest up to 100% of its assets in lower rated
bonds, commonly known as "junk bonds" which are subject to a greater risk of
loss of principal and interest than higher rated investment grade bonds. An
investment in the Portfolio is appropriate for you only if you can bear the high
risk inherent in investing in such securities. This risk is described in the
attached Prospectus for the Fund, which should be read carefully before
investing.
SELIGMAN INCOME PORTFOLIO
This Portfolio seeks primarily to produce high current income consistent with
what is believed to be prudent risk of capital and secondarily to provide the
possibility of improvement in income and capital value over the longer term, by
investing primarily in income-producing securities.
SELIGMAN LARGE-CAP VALUE PORTFOLIO
This Portfolio seeks capital appreciation by investing in equity securities of
value companies with large market capitalization.
SELIGMAN SMALL-CAP VALUE PORTFOLIO
This Portfolio seeks capital appreciation by investing in equity securities of
value companies with small market capitalization.
Since the Fund 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 New York, Canada Life Insurance Company of America, The
Canada Life Assurance Company, and other unaffiliated insurance companies, it is
possible that material conflicts may arise between the interests of the Variable
Account and one or more other separate accounts investing in the Fund. The
Fund's board of directors, the Fund's investment manager, and we and any other
insurance companies participating in the Fund 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.
A FULL DESCRIPTION OF THE FUND, ITS INVESTMENT OBJECTIVES, ITS POLICIES AND
RESTRICTIONS, ITS EXPENSES AND OTHER ASPECTS OF ITS OPERATION, AS WELL AS A
DESCRIPTION OF THE RISKS RELATED TO INVESTMENT IN THE FUND, IS CONTAINED IN THE
ATTACHED PROSPECTUS FOR THE FUND. THE PROSPECTUS FOR THE FUND SHOULD BE READ
CAREFULLY BY A PROSPECTIVE PURCHASER ALONG WITH THIS PROSPECTUS.
RESERVED RIGHTS
We reserve the right to substitute shares of another portfolio of the Fund or
shares of another registered open-end investment company if, in the judgment of
our management, investment in shares of one or more portfolios is no longer
appropriate for any legitimate reason, including: a change in investment
objective; or a change in the tax laws; or the shares are no longer available
for investment. We will obtain the approval of the SEC before we make a
substitution of shares, if such approval is required by law.
When permitted by law, we also reserve the right to: create new variable
accounts; combine variable accounts, including the Canada Life of America
Variable Annuity Account 2; remove, combine or add sub-accounts and make the new
sub-accounts available to policyowners at our discretion; add new portfolios of
the Fund or of other registered investment companies;
15
<PAGE> 21
deregister the Variable Account under the 1940 Act if registration is no longer
required; make any changes required by the 1940 Act; and operate the Variable
Account as a managed investment company under the 1940 Act or any other form
permitted by law. If a change is made, we will send you a revised Prospectus and
any notice required by law.
CHANGE IN INVESTMENT OBJECTIVE
The investment objective of a sub-account of the Variable Account may not be
changed unless the change is approved, if required, by the Michigan Insurance
Bureau, and a statement of such approval is filed, if required, with the
insurance department of the state in which the policy is delivered.
THE FIXED ACCOUNT
An owner may allocate some or all of the net premium payments and transfer some
or all of the policy value to the Fixed Account, which is part of our general
account and pays interest at declared rates (Guaranteed Interest Rates)
guaranteed for selected periods of time from one to ten years (Guarantee
Periods). The principal, after deductions, is also guaranteed. Since the Fixed
Account is part of the general account, we assume the risk of investment gain or
loss on this amount. All assets in the general account are subject to our
general liabilities from business operations. The Fixed Account and certain
Guarantee Periods may not be available in all states.
Due to certain exemptive and exclusionary provisions, interests issued by us in
connection with the Fixed Account have not been registered under the Securities
Act of 1933 (the "1933 Act"), and neither the Fixed Account nor the general
account has been registered as an investment company under the 1940 Act.
Accordingly, neither the Fixed Account nor the general account is generally
subject to regulation under the 1933 Act and the 1940 Act. Disclosures relating
to the interests in the Fixed Account, the Fixed Account, and the general
account, however, may be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy of statements made in a
registration statement.
GUARANTEE AMOUNT
The portion of the policy value allocated to the Fixed Account is the Guarantee
Amount which is credited with interest, as described below. The Guarantee Amount
reflects interest credited to the policy value in the Guarantee Periods, net
premium payments allocated to or policy value transferred to Guarantee Periods
and charges assessed in connection with the policy. The Guarantee Amount is
guaranteed to accumulate at a minimum effective annual interest rate of 3%.
GUARANTEE PERIODS
From time to time we will offer to credit Guarantee Amount with interest at
specific guaranteed rates for specific periods of time. These periods of time
are known as Guarantee Periods. We may offer one or more Guarantee Periods of
one to ten years' duration at any time but will always offer a Guarantee Period
of one year. We currently offer Guarantee Periods of one, three, five, seven and
ten years. The interest rates available at any time will vary with the number of
years in the Guarantee Period but will always be equal to or greater than an
effective annual interest rate of 3%.
Guarantee Periods begin on the date as of which a net premium payment is
allocated to or a portion of the policy value is transferred to the Guarantee
Period, and end on the last calendar day of the month when the number of years
in the Guarantee Period elected (measured from the end of the calendar month in
which the amount was allocated or transferred to the Guarantee Period) has
elapsed.
Allocations of net premium payments and transfers of policy value to the Fixed
Account for a Guarantee Period may have different applicable Guaranteed Interest
Rates depending on the timing of such allocations or transfers. The applicable
Guaranteed Interest Rate does not change during a Guarantee Period. If the
allocated or transferred amount remains in the fixed rate interest option until
the end of the applicable Guarantee Period, its value will be equal to the
amount originally allocated or transferred, multiplied, on an annually
compounded basis, by its Guaranteed Interest Rate. If a Guarantee
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<PAGE> 22
Amount is surrendered, withdrawn, or transferred prior to the expiration of the
Guarantee Period, the Guaranteed Amount is subject to a Market Value Adjustment,
as described below, the application of which may result in the payment of an
amount greater or less than the Guarantee Amount at the time of the transaction.
The Market Value Adjustment, however, will never reduce the earnings on amounts
allocated to the fixed interest rate option to less than three percent per year
and does not apply to amounts surrendered, withdrawn, or transferred from the
one year Guarantee Period or to provide death, nursing home, terminal illness
benefits, and annuitization.
During the 30 day period following the expiration of a Guarantee Period ("30 day
window"), a policyowner may transfer the Guarantee Amount from the expiring
Guaranteed Period to another fixed interest rate option with a new Guarantee
Period or to a sub-account(s). A Market Value Adjustment will not apply if the
Guarantee Amount from the expired Guarantee Period is surrendered, withdrawn, or
transferred during the 30 day window. During the 30 day window, the Guarantee
Amount will accrue interest at an annual effective rate of 3% unless the
Guarantee Amount remains in the fixed account in which case you will receive the
interest rate in accordance with the Guarantee Period chosen.
Prior to the expiration date of any Guarantee Period, we will notify you of the
then currently available Guarantee Periods and the Guaranteed Interest Rates
applicable to such Guarantee Periods. A new Guarantee Period of the same
duration as the previous Guarantee Period will commence automatically on the
first day following the expired Guarantee Period, unless we receive Written
Notice prior to the expiration of the 30 day window of the owner's election of a
different Guarantee Period from among those being offered by us at that time, or
instructions to transfer all or a portion of the expiring Guarantee Amount to a
sub-account. If we do not receive such Written Notice and are not offering a
Guarantee Period of the same duration as the expiring Guarantee Period or if the
duration of the expiring Guarantee Period would, if renewed, extend beyond the
annuity date, if known, or maturity date, then a new Guarantee Period of one
year will commence automatically on the first day following the expiration of
the expired Guarantee Period.
To the extent permitted by law, we reserve the right at any time to offer
Guarantee Periods that differ from those available when an owner's policy was
issued. We also reserve the right, at any time, to stop accepting net premium
payment allocations or transfers of policy value to a particular Guarantee
Period. Since the specific Guarantee Periods available may change periodically,
please contact our Administrative Office to determine the Guarantee Periods
currently being offered.
Owners allocating net premium payments and/or policy value to the Fixed Account
do not participate in the investment performance of assets of the Fixed Account,
and this performance does not determine the policy value attributable to the
Fixed Account or benefits relating thereto. The Fixed Account provides values
and benefits based only upon the net purchase payments and policy values
allocated thereto, the Guaranteed Interest Rate credited on such amounts, and
any charges or Market Value Adjustments imposed on such amounts in accordance
with the terms of the policy.
From time to time we may offer an additional one year Guarantee Period whereby
you may elect to automatically transfer specified additional premium from this
account to any variable sub-account(s) and/or any Guarantee Period(s) under the
Fixed Account on a periodic basis, for a period not to exceed twelve months,
subject to our administrative procedures and the restrictions disclosed in the
"Transfer Privilege" section. This Guarantee Period is used solely in connection
with the "Dollar Cost Averaging" privilege (see "Dollar Cost Averaging
Privilege" set forth below).
MARKET VALUE ADJUSTMENT
A Market Value Adjustment reflects the relationship between: (i) the Guaranteed
Interest Rate being applied to the Guarantee Period from which the Guarantee
Amount is requested to be surrendered, withdrawn, or transferred; and (ii) the
current Guaranteed Interest Rate that we credit for a Guarantee Period equal in
duration to the Guarantee Period from which the Guarantee Amount will be
surrendered, withdrawn, or transferred. If a Guarantee Period of such duration
is not being offered, we will use the linear interpolation of the Guaranteed
Interest Rates for the Guarantee Periods closest in duration that are available.
Any surrender, withdrawal, or transfer of a Guarantee Amount is subject to a
Market Value Adjustment, unless the effective date of the surrender, withdrawal,
or transfer is within 30 days after the end of a Guarantee Period or the
surrender, withdrawal or transfer of a Guarantee Amount is from the one year
Guarantee Period. The Market Value Adjustment will be applied after the
deduction of any applicable policy administration charge or transfer fee, and
before the deduction of any applicable surrender charge or charge for taxes on
premium payments. The Market Value Adjustment, however, will never invade
principal nor reduce the earnings on amounts allocated to the Fixed Account to
less than 3% per year.
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<PAGE> 23
Generally, if the Guaranteed Interest Rate for the selected Guarantee Period is
lower than the Guaranteed Interest Rate currently being offered for new
Guarantee Periods of duration equal to the selected Guarantee Period as of the
date that the Market Value Adjustment is applied, then the application of the
Market Value Adjustment will result in the payment, upon surrender, withdrawal,
or transfer, of an amount less than the Guarantee Amount (or portion thereof)
being surrendered, withdrawn, or transferred. Conversely, if the Guaranteed
Interest Rate for the selected Guarantee Period is higher than the Guaranteed
Interest Rate currently being offered for new Guarantee Periods of a duration
equal the selected Guarantee Period as of the date that the Market Value
Adjustment is applied, then the application of the Market Value Adjustment will
result in the payment, upon surrender, withdrawal, or transfer of an amount
greater than the Guarantee Amount (or portion thereof) being surrendered,
withdrawn, or transferred.
The Market Value Adjustment is computed by multiplying the amount being
surrendered, withdrawn, or transferred, (the "Amount") by the Market Value
Adjustment Factor. The Market Value Adjustment Factor is calculated as follows:
<TABLE>
<S> <C> <C>
Market Value Adjustment Factor = Lesser of (a) (1 + i)n/12
----------------- - 1
(1 +r + .005)n/12
or (b) .05
</TABLE>
where:
"i" is the Guaranteed Interest Rate currently being credited to
the "Amount";
"r" is the Guaranteed Interest Rate that is currently being
offered for a Guarantee Period of duration equal to the Guarantee
Period for the Guarantee Amount from which the "Amount" is taken;
and
"n" is the number of months remaining to the expiration of the
Guarantee Period for the Guarantee Amount from which the "Amount"
is taken.
The Market Value Adjustment, however, will never invade principal nor reduce the
earnings on amounts allocated to the Fixed Account to less than 3% per year.
DESCRIPTION OF ANNUITY POLICY
TEN DAY RIGHT TO EXAMINE POLICY
YOU HAVE TEN DAYS AFTER YOU RECEIVE THE POLICY TO DECIDE IF THE POLICY MEETS
YOUR NEEDS (EXCEPT IN CALIFORNIA YOU HAVE 30 DAYS IF THE OWNER IS AGE 60 OR
OVER, IN COLORADO YOU HAVE 15 DAYS, AND IN IDAHO AND NORTH DAKOTA YOU HAVE 20
DAYS),AND IF THE POLICY DOES NOT MEET YOUR NEEDS TO RETURN THE POLICY TO OUR
ADMINISTRATIVE OFFICE. WE WILL PROMPTLY RETURN EITHER THE POLICY VALUE (WHERE
ALLOWED BY LAW) OR IN STATES WHICH DO NOT ALLOW RETURN OF POLICY VALUE, WE WILL
RETURN THE FULL PREMIUM PAID, WITHOUT INTEREST AND LESS THE AMOUNT OF ANY
PARTIAL WITHDRAWALS, WITHIN SEVEN DAYS. WHEN THE POLICY IS ISSUED AS AN
INDIVIDUAL RETIREMENT ANNUITY, DURING THE FIRST SEVEN DAYS OF THE TEN DAY
PERIOD, WE WILL RETURN ALL PREMIUMS IF THIS IS GREATER THAN THE AMOUNT OTHERWISE
PAYABLE.
PREMIUMS
INITIAL PREMIUM
An applicant must submit a properly completed application along with a check
made payable to us for the initial premium. The minimum initial premium is
$5,000 ($2,000 if the Policy is an Individual Retirement Annuity, but we reserve
the right to lower or raise the minimum premium for IRAs). However, the minimum
initial premium is $100 ($50 if the Policy is an Individual Retirement Annuity)
when an applicant has enclosed a completed pre-authorized check ("PAC")
agreement for additional premiums to be automatically withdrawn monthly from the
owner's bank account.
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<PAGE> 24
The application is subject to our underwriting standards. If the application is
properly completed and is accompanied by all the information necessary to
process it, including the initial premium, we will normally accept the
application and apply the initial net premium within two valuation days of
receipt at our Administrative Office. However, we may retain the premium for up
to five valuation days while we attempt to complete the processing of an
incomplete application. If this cannot be achieved within five valuation days,
we will inform the applicant of the reasons for the delay and immediately return
the premium, unless the applicant specifically consents to our retaining the
premium until the application is made complete. If the applicant consents to our
retaining the premium, we will apply the initial net premium within two
valuation days of when the application is complete.
ADDITIONAL PREMIUMS
The minimum additional premium is $1,000. However, the minimum additional
premium paid by PAC is $100 per month ($50 per month if the policy is an
Individual Retirement Annuity). We will apply additional net premiums as of
receipt at our Administrative Office.
You may make additional premium payments at any time during any annuitant's
lifetime and before the earlier of the annuity date or maturity date. Our prior
approval is required before we will accept an additional premium which, together
with the total of other premiums paid, would exceed $1,000,000. We will give you
a receipt for each additional premium payment.
PRE-AUTHORIZED CHECK PLAN
You may elect, in writing, to have monthly premiums automatically collected from
your checking account or savings account pursuant to a Pre-Authorized Check Plan
("PAC"). This plan may be terminated by you or us after 30 days written notice,
or at any time by us if a payment has not been paid by your bank. This option is
not available on the 29th, 30th or 31st day of each month.
WIRE TRANSMITTAL PRIVILEGE
If a written agreement between us and broker/dealers who use wire transmittals
is in effect, as a privilege to you we will accept transmittal of the initial
and/or additional premiums by wire order from the broker/dealer to our
designated financial institution. A copy of such transmittal must be
simultaneously sent to our Administrative Office via a telephone facsimile
transmission that also contains the essential information we require to begin
application processing and/or to allocate the net premium. We will normally
apply the initial net premium within two valuation days of receipt at our
Administrative Office of the facsimile transmission that contains a copy of the
wire order and such required essential information. We may retain such wire
orders for up to five valuation days while an attempt is made to obtain such
required information that we do not receive via such facsimile transmission. If
such required information is not obtained within five valuation days, we will
inform the broker/dealer, on behalf of the applicant, of the reasons for the
delay and immediately return the premium wired to us to the broker/dealer who
will return the full premium paid to the applicant, unless we receive within
such five valuation days the applicant's specific written consent to our
retaining the premium until we receive such required information via facsimile
transmission.
Our acceptance of the wire order and facsimile does not create a contractual
obligation with us until we receive and accept a properly completed original
application. If we do not receive a properly completed original application
within ten valuation days of receipt of the initial wire order premium, we will
return the premium wired to us to the broker/dealer who will return the full
premium paid to the applicant. If the allocation instructions in the properly
completed original application are inconsistent with such instructions contained
in the facsimile transmission, the policy value will be reallocated in
accordance with the allocation instructions in the application at the price
which was next determined after receipt of the wire order.
ELECTRONIC DATA TRANSMISSION OF APPLICATION INFORMATION
In certain states, we will also accept, by agreement with broker/dealers who use
electronic data transmissions of application information, wire transmittals of
initial premium payments from the broker/dealer to the Company for purchase of
the policy. Contact us to find out about state availability.
Upon receipt of the electronic data and wire transmittal, we will process the
information and allocate the premium payment according to the policyowner's
instructions. Based on the information provided, we will generate a policy and a
verification letter to be forwarded to the policyowner for signature.
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<PAGE> 25
During the period from receipt of the initial premium until the signed
verification letter is received, the policyowner may not execute any financial
transactions with respect to the policy unless such transactions are requested
in writing by the owner and signature guaranteed.
NET PREMIUM ALLOCATION
You elect in your application how you want your initial net premium to be
allocated among the sub-accounts and the Fixed Account. Any additional net
premiums will be allocated in the same manner, unless at the time of payment we
have received your written notice to the contrary. The total allocation must
equal 100%.
We cannot guarantee that a sub-account or shares of a portfolio will always be
available. If you request that all or part of a premium be allocated to a
sub-account at a time when the sub-account or underlying portfolio is not
available, we will immediately return that portion of the premium to you, unless
you specify otherwise.
TERMINATION
We may pay you the cash surrender value and terminate the policy if before the
annuity date or maturity date all of these events simultaneously exist:
1. you have not paid any premiums for at least two years;
2. the policy value is less than $2,000; and
3. the total premiums paid, less any partial withdrawals, is less than
$2,000.
We will mail you a notice of our intention to terminate this policy at least six
months in advance. The policy will automatically terminate on the date specified
in the notice, unless we receive an additional premium before the termination
date specified in the notice. This additional premium must be at least the
minimum amount specified in "Additional Premiums."
VARIABLE ACCOUNT VALUE
The Variable Account value before the annuity date or maturity date is
determined by multiplying the number of units credited to this policy for each
sub-account by the current unit value of these units.
UNITS
We credit net premiums in the form of units. The number of units credited to the
policy for each sub-account is determined by dividing the net premium allocated
to that sub-account by the unit value for that sub-account at the end of the
valuation period during which we receive the premium at our Administrative
Office.
We will credit units for the initial net premium on the effective date of the
policy. We will adjust the units for any transfers in or out of a sub-account,
including any transfer processing fee.
We will cancel the appropriate number of units based on the unit value at the
end of the valuation period in which any of the following events occur: the
policy administration charge is assessed; the date we receive and file your
written notice for a partial withdrawal or surrender; the date of a systematic
withdrawal; the earlier of the annuity date or maturity date; or the date we
receive due proof of your death or the last surviving annuitant's death.
UNIT VALUE
The unit value for each sub-account's first valuation period is set at $10,
except the Cash Management sub-account which is set at $1. The unit value for
each subsequent valuation period is determined by multiplying the unit value at
the end of the immediately preceding valuation period by the net investment
factor for the valuation period for which the value is being determined.
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<PAGE> 26
The unit value for a valuation period applies to each day in that period. The
unit value may increase or decrease from one valuation period to the next.
NET INVESTMENT FACTOR
The net investment factor is an index that measures the investment performance
of a sub-account from one valuation period to the next. Each sub-account has a
net investment factor, which may be greater than or less than one.
The net investment factor for each sub-account for a valuation period equals 1
plus the rate of return earned by the relevant portfolio of the Fund, adjusted
for the effect of taxes charged or credited to the sub-account, the mortality
and expense risk charge, and the daily administration fee.
The rate of return of the relevant portfolio is equal to the fraction obtained
by dividing (a) by (b) where:
(a) is the net investment income and net gains, realized and
unrealized, credited during the current valuation period; and
(b) is the value of the net assets of the relevant portfolio at the
end of the preceding valuation period, adjusted for the net
capital transactions and dividends declared during the current
valuation period.
TRANSFERS
TRANSFER PRIVILEGE
You may transfer all or a part of an amount in the sub-account(s) to another
sub-account(s) or to the Fixed Account, or transfer a part of an amount in the
Fixed Account to the sub-account(s), subject to these general restrictions and
the additional restrictions in "Restrictions on Transfers from Fixed Account":
1. the Company's minimum transfer amount, currently $250; 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; and
3. transfers from the Fixed Account except from the one year
Guarantee Period may be subject to a Market Value Adjustment
We cannot guarantee that a sub-account or shares of a portfolio will always be
available. If you request an amount in a sub-account or Fixed Account be
transferred to a sub-account at a time when the sub-account or underlying
portfolio is unavailable, we will not process your transfer request, and this
request will not be counted as a transfer for purposes of determining the number
of free transfers executed. The Company reserves the right to change its minimum
transfer amount requirements.
TELEPHONE TRANSFER PRIVILEGE
You may direct us to act on transfer instructions given by telephone, subject to
our procedures, by initialing the authorization on the application or by
subsequently completing our administrative form. The authorization will continue
in effect until we receive your written revocation or we discontinue this
privilege. We reserve the right to change our procedures and to discontinue this
privilege.
We will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. If we do not employ such reasonable procedures, we may
be liable for any losses due to unauthorized or fraudulent instructions. These
procedures may include, but are not limited to, possible recording of telephone
calls and obtaining appropriate personal security codes and contract number
before effecting any transfers.
INTOUCH(TM) VOICE RESPONSE SYSTEM
You may obtain current account information, including sub-account balances,
policy and unit values, and the current Fixed Account interest rate, through an
interactive voice response system accessed by your touch tone telephone (the
"Intouch Voice Response System"). In addition, you may change your sub-
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<PAGE> 27
account allocation and effect transfers between sub-accounts or to the Fixed
Account. Transfers from the Fixed Account are not permitted under the Intouch
Voice Response System. Your policy number and Personal Identification Number,
issued by us to ensure security, are required for any transfers and/or
allocation changes.
When using the Intouch Voice Response System, you will not be assessed a
transfer processing fee regardless of the number of transfers made per policy
year.
DOLLAR COST AVERAGING PRIVILEGE
You may elect to have us automatically transfer specified amounts FROM ANY ONE
variable sub-account or the one year Guarantee Period under the Fixed Account
(either one a "disbursement account") TO ANY OTHER variable sub-account(s) or
Guarantee Period under the Fixed Account on a periodic basis, subject to our
administrative procedures and the restrictions in "Transfer Privilege" above.
This privilege is intended to allow you to utilize "Dollar Cost Averaging"
("DCA"), a long-term investment method which provides for regular, level
investments over time. We make no representation or guarantee that DCA will
result in a profit or protect against loss. To initiate DCA, we must receive
your written notice on our form. Once elected, such transfers will be processed
until the entire value of the sub-account or 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.
RESTRICTIONS ON TRANSFERS FROM FIXED ACCOUNT
Other than transfers made pursuant to DCA, you may transfer an amount from a
Guarantee Period under the Fixed Account subject to these additional
restrictions:
1. Transfers from a Guarantee Period other than the one year
Guarantee Period may be subject to a Market Value Adjustment.
2. Transfers from one Guarantee Period to another are prohibited
other than within the 30 day window.
Under our current procedures, the transfer will be made on the valuation date
that occurs on or next following the date we receive your transfer request at
our Administrative Office.
TRANSFER PROCESSING FEE
There is no limit to the number of transfers that you can make between
sub-accounts or to the Fixed Account. However, other than transfers made
pursuant to DCA, we only allow one transfer each year from the Guarantee Periods
under the Fixed Account (see "Restrictions on Transfers from Fixed Account"
above). The first 12 transfers during each policy year are free under our
current policy, which we reserve the right to change. The Company currently
assesses a $25 transfer fee for the 13th and each additional transfer in a
policy year. For the purposes of assessing the fee, each transfer request (which
includes a written notice or telephone call, but does not include dollar cost
averaging automatic transfers) is considered to be one transfer, regardless of
the number of sub-accounts or the Fixed Account affected by the transfer. The
processing fee will be charged proportionately to the receiving sub-account(s)
and/or the Fixed Account.
PAYMENT OF PROCEEDS
PROCEEDS
Proceeds means the amount we will pay under your policy when the first of the
following events occurs: the annuity date or maturity date; or the policy is
surrendered; or we receive due proof of death of the last surviving annuitant or
any owner. We will pay any proceeds in a single sum that may be payable due to
death before the annuity date or maturity date, unless an election is made for a
payment option. See "Election of Options". The policy ends when we pay the
proceeds.
We will deduct any applicable premium tax from the proceeds described below,
unless we deducted the tax from the premiums when paid.
PROCEEDS ON ANNUITY DATE OR MATURITY DATE
If Payment Option 1 is in effect on the annuity date, the proceeds we will pay
is the policy value. See "Payment Options" on . If the proceeds are paid in a
lump sum on the annuity date, we will pay the cash surrender value.
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<PAGE> 28
You may change the annuity date, subject to these limitations:
1. we must receive your written notice at our Administrative Office
at least 30 days before the current annuity date;
2. the requested annuity date must be a date that is at least 30 days
after we receive your written notice; and
3. the requested annuity date should be no later than the first day
of the month following any annuitant's 85th birthday (90th
birthday, pending regulatory approval) or any earlier date
required by law.
The proceeds on the Maturity Date will be the policy value. The Maturity Date is
the first day of the month after any annuitant's 100th birthday.
PROCEEDS ON SURRENDER
If you surrender the policy before the annuity date, the proceeds we will pay is
the cash surrender value. The cash surrender value is the policy value, less any
applicable surrender charge, the policy administration charge and any applicable
Market Value Adjustment. The cash surrender value will be determined on the date
we receive your written notice for surrender and this policy at our
Administrative Office.
You may surrender the policy for its cash surrender value at any time before the
earlier of the death of the last surviving annuitant, the annuity date or
maturity date. However, the surrender proceeds may be subject to federal income
tax, including a penalty tax. See "FEDERAL TAX STATUS".
You may elect to have the cash surrender value paid in a single sum or under a
payment option. See "Payment Options". The policy ends when we pay the cash
surrender value. You may avoid a surrender charge by electing to apply the
policy values under Payment Option 1. See "Proceeds on Annuity Date or Maturity
Date".
PROCEEDS ON DEATH OF LAST SURVIVING ANNUITANT BEFORE ANNUITY DATE OR MATURITY
DATE (THE DEATH BENEFIT)
If we receive due proof of death of the last surviving annuitant before the
annuity date or maturity date (such "due proof"), the proceeds we will pay to
the beneficiary is the death benefit.
THE FOLLOWING APPLIES TO CERTAIN POLICIES ISSUED ON THE LATTER OF OCTOBER 1,
1997 OR THE DATE APPLICABLE REGULATORY APPROVALS ARE OBTAINED IN THE
JURISDICTION IN WHICH THE POLICIES ARE OFFERED:
1. The death benefit is the greatest of:the premiums paid, less a)
any partial withdrawals, including applicable surrender charges;
and b) any incurred taxes; or
2. the policy value on the date we receive such due proof; or
3. the greatest policy value on any policy anniversary preceding both
the date the last surviving annuitant attained age 81 and the date
we receive such due proof of the annuitant's death, adjusted for
any of the following items that occur after such policy
anniversary: a) less any partial withdrawals, including applicable
surrender charges; b) less any incurred taxes; and c) plus any
premiums paid.
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 Owner(s) of a policy issued prior to October 1, 1997 will be entitled to the
Death Benefit described above, after such date as regulatory approval is
received for such provision from the Owner's state of residence, unless the
Owner(s) elects not to accept this provision. The Company will not assess a
charge in connection with the election of this Death Benefit.
* In some jurisdictions the death benefit may vary.
THE FOLLOWING APPLIES ONLY TO CERTAIN POLICIES ISSUED FROM MAY 1, 1996 THROUGH
OCTOBER 1, 1997, OR SUCH LATER DATE AS APPLICABLE REGULATORY APPROVALS WERE
OBTAINED IN THE JURISDICTION IN WHICH THE POLICIES ARE OFFERED:
If we receive such due proof during the first five years, the death benefit
is the greater of:
1. the premiums paid, less: a) any partial withdrawals, including
applicable surrender charges; and b) any incurred taxes; or
2. the policy value on the date we receive due proof of last
surviving annuitant's death.
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<PAGE> 29
If we receive such due proof after the first five policy years, the death
benefit is the greatest of:
1. item "1" above; or
2. item "2" above; or
3. the policy value at the end of the most recent 5 policy year
period preceding the date we receive due proof of the last
surviving annuitant's death, adjusted for any of the following
items that occur after such last 5 policy year period: a) less any
partial withdrawals, including applicable surrender charges; b)
less any incurred taxes; and c) plus any premiums paid. The 5
policy year periods are measured from the policy date (i.e., 5,
10, 15, 20, etc.).
If on the date the policy was issued, all annuitants were attained age 80 or
less, then after any annuitant attains age 81, the death benefit is the
greater of items "1" or "2" above. However, if on the date the policy was
issued, any annuitant was attained age 81 or more, then the death benefit is
the policy value.
THE FOLLOWING APPLIES ONLY TO CERTAIN POLICIES ISSUED PRIOR TO MAY 1, 1996 OR
SUCH LATER DATE AS APPLICABLE REGULATORY APPROVAL WAS OBTAINED IN THE
JURISDICTION IN WHICH THE POLICIES ARE OFFERED:
If we receive such due proof during the first seven policy years, the death
benefit is the greater of:
1. the premiums paid, less: a) any partial withdrawals, including
applicable surrender charges; and b) any incurred taxes; or
2. the policy value on the date we receive due proof of the last
surviving annuitant's death.
If we receive such due proof after the first seven policy years, the death
benefit is the greatest of:
1. item "1." above; or
2. item "2." above; or
3. the policy value at the end of the 7 policy year period preceding
the date we receive due proof of the last surviving annuitant's
death, adjusted for any of the following items that occur after
such last 7 policy year period: a) less any partial withdrawals,
including applicable surrender charges; b) less any incurred
taxes; and c) plus any premiums paid. The 7 policy year periods
are measured from the policy date (i.e., 7, 14, 21, 28, etc.). For
policies issued from May 1, 1995 through April 30, 1996, no
further step-ups in Death Benefits will occur after any
annuitant's age of 80.
No death benefit is payable if the policy is surrendered before the last
surviving annuitant's death. If you are the last surviving annuitant who dies
before the annuity date or maturity date, the death benefit proceeds must be
distributed pursuant to the rules set forth below in "Proceeds on Death of Any
Owner Before or After Annuity Date or Maturity Date."
PROCEEDS ON DEATH OF ANY OWNER BEFORE OR AFTER ANNUITY DATE OR MATURITY DATE
If you are not an annuitant, and we receive due proof of your death before the
annuity date or maturity date we will pay the beneficiary the policy value as of
the date we receive due proof of your death. If you are the annuitant, and we
receive due proof of your death before the annuity date or maturity date we will
pay the beneficiary the death benefit described in "Proceeds on the Death of
Last Surviving Annuitant Before Annuity Date or Maturity Date." If any owner
dies before the annuity date, federal tax law requires the policy value be
distributed within five years after the date of such owner's death regardless of
whether such owner is or is not an annuitant, unless such owner's spouse is the
designated beneficiary, in which case, the policy may be continued with the
surviving spouse as the new owner. All such distributions will be made in
accordance with the requirements of the Investment Company Act of 1940.
A "designated beneficiary" is the person designated by you as a beneficiary and
to whom the proceeds of the policy pass by reason of an owner's death and must
be a natural person.
If any owner dies on or after the earlier of the annuity date or maturity date,
any remaining payments must be distributed at least as rapidly as under the
payment option in effect on the date of such owner's death.
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<PAGE> 30
The distribution requirements described above will be considered satisfied as to
any portion of the proceeds:
1. payable to or for the benefit of a designated beneficiary; and
2. which is distributed over the life (or period not exceeding the
life expectancy) of that beneficiary, provided that the
beneficiary is a natural person and such distributions begin
within one year of the owner's death.
If you are not a natural person, the primary annuitant as determined in
accordance with Section 72(s) of the Code (i.e., the individual the events in
the life of whom are of primary importance in effecting the timing or amount of
the payout under the policy) will be treated as an owner for purposes of these
distribution requirements, and any change in the primary annuitant will be
treated as the death of an owner.
INTEREST ON PROCEEDS
We will pay interest on proceeds if we do not pay the proceeds in a single sum
or begin paying the proceeds under a payment option:
1. within 30 days after the proceeds become payable; or
2. within the time required by the applicable jurisdiction, if less
than 30 days.
This interest will accrue from the date the proceeds become payable to the date
of payment, but not for more than one year, at an annual rate of 3%, or the rate
and time required by law, if greater.
PARTIAL WITHDRAWALS
You may withdraw part of the cash surrender value at any time before the earlier
of the death of the last surviving annuitant, the annuity date or maturity date,
subject to these limits:
1. the Company's minimum partial withdrawal, currently $250;
2. the maximum partial withdrawal is the amount that would leave a
cash surrender value of $5,000;
3. a partial withdrawal request which would reduce the amount in a
sub-account or a Guarantee Period under the Fixed Account below
$500 will be treated as a request for a full withdrawal of the
amount in that sub-account or a Guarantee Period; and
4. a partial withdrawal request for an amount exceeding $10,000 must
be accompanied by a guarantee of the owner's signature by a
commercial bank, a trust company, or a savings and loan.
On the date we receive your written notice for a partial withdrawal at our
Administrative office, we will withdraw the amount of the partial withdrawal
from the policy value and we will then deduct any applicable surrender charge
from the remaining policy value. The Company reserves the right to change its
minimum partial withdrawal amount requirements.
You may specify the amount to be withdrawn from certain sub-accounts or
Guarantee Periods under the Fixed Account. If you do not provide this
information to us, we will withdraw proportionately from the sub-accounts and
the Guarantee Periods under the Fixed Account in which you are invested. If you
do provide this information to us, but the amount in the designated sub-accounts
and the Guarantee Periods is inadequate to comply with your withdrawal request,
we will first withdraw from the specified sub-accounts and the Guarantee Periods
under the Fixed Account. The remaining balance will be withdrawn proportionately
from the other sub-accounts and Guarantee Periods in which you are invested.
Any partial or systematic withdrawal may be included in the owner's gross income
in the year in which the withdrawal occurs, and may be subject to federal income
tax, including a penalty tax equal to 10% of the amount treated as taxable
income, and the Code restricts certain distributions under Tax-Sheltered Annuity
Plans and other qualified plans. See "FEDERAL TAX STATUS".
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<PAGE> 31
SYSTEMATIC WITHDRAWAL PRIVILEGE ("SWP")
You may elect to withdraw a fixed-level amount from the sub-account(s) and the
Guarantee Period(s) under the Fixed Account on a monthly, quarterly, semi-annual
or annual basis, beginning 30 days after the Effective Date, if we receive your
written notice on our form and the policy meets the Company's minimum premium,
currently $25,000, and in accordance with "Partial Withdrawals" above (when
surrender charges are applicable).
No minimum is necessary when Surrender Charges are not applicable. While
Surrender Charges are applicable, each year you may withdraw as follows:
1. Up to 100% of positive investment earnings of each variable
sub-account available at the time the SWP is executed/processed;
PLUS
2. Up to 100% of current policy year's interest on the FIXED ACCOUNT
available at the time the SWP is executed/processed; PLUS
3. Up to 10% of total premiums still subject to a surrender charge;
PLUS
4. Up to 100% of total premiums NOT SUBJECT TO A SURRENDER CHARGE.
NOTE: Withdrawals from a Guarantee Period other than from the one year
Guarantee Period under the Fixed Account will be subject to a Market
Value Adjustment.
When no Surrender Charges are applicable, the entire policy is available for
systematic withdrawal. Once an amount has been selected for withdrawal, it will
remain fixed until the earlier of the next policy anniversary or termination of
the privilege. A written request to change the withdrawal amount for the
following policy year must be received no later than 7 days prior to the policy
anniversary date. The Systematic Withdrawal Privilege will end at the earliest
of the date: when the sub-account(s) and Guarantee Period(s) you specified for
those withdrawals has no remaining amount to withdraw; or the cash surrender
value is reduced to $2,000*; or you elect to pay premiums by pre-authorized
check; or we receive your written notice to end this privilege; or we elect to
discontinue this privilege upon 30 days written notice to you. Use of this
privilege during a policy year counts as your annual free withdrawal of up to
10% of total premiums under the "Surrender Charge" provision. References to
partial withdrawals in other provisions of this Prospectus include systematic
withdrawals. If applicable, a charge for premium taxes may be deducted from each
systematic withdrawal payment. This option is not available on the 29th, 30th or
31st day of each month. The Company reserves the right to change its minimum
systematic withdrawal amount requirements.
* IF THE CASH SURRENDER VALUE IS REDUCED TO $2,000, YOUR POLICY MAY TERMINATE.
SEE "TERMINATION."
SELIGMAN TIME HORIZON MATRIX(SM) ("MATRIX")
You may elect to participate in Seligman Time Horizon Matrix(SM) (the
"Matrix") an asset allocation strategy which will allocate your policy value
based primarily upon the amount of time you have to reach specific financial
goals. The Matrix uses certain predetermined model portfolios, designed by J. &
W. Seligman that seek a wide range of financial goals for an investor's specific
time horizon. Each J. & W. Seligman model portfolio represents a predetermined
allocation of your policy value among one or more of the variable sub-accounts.
The Matrix also allows you to construct your own customized model portfolio.
Under the Matrix, you may elect to periodically rebalance your policy value to
reflect the J. & W. Seligman model portfolio you have selected or periodically
rebalance your policy value to reflect your customized model portfolio. Any
rebalancing of your policy value will be made pursuant to our procedures
governing portfolio rebalancing. See "Portfolio Rebalancing" below. You may also
choose a J. & W. Seligman model portfolio or create a customized portfolio and
elect not to rebalance your policy value after the initial allocation of policy
value under that model portfolio. We make no representation or guarantee that
following the Matrix will result in a profit, protect against loss or ensure the
achievement of financial goals.
To initiate the Matrix, we must receive your written notice on our form.
Participation in the Matrix is voluntary and can be modified or discontinued at
any time by you in writing on our form. We reserve the right to change our
procedures or to discontinue offering the Matrix upon 30 days written notice to
you.
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<PAGE> 32
PORTFOLIO REBALANCING ("REBALANCING")
Portfolio Rebalancing is an investment strategy in which, on a quarterly,
semi-annual or annual basis, your policy value in the sub-accounts only is
reallocated back to its original portfolio allocation, regardless of changes in
individual portfolio values from the time of the last Rebalancing. We make no
representation or guarantee that Rebalancing will result in a profit, protect
you against loss or ensure that you meet your financial goals.
To initiate Rebalancing, we must receive your written notice on our form.
Participation in Rebalancing is voluntary and can be modified or discontinued at
any time by you in writing on our form. Portfolio Rebalancing is not available
for amounts invested and earnings thereon in the Fixed Account.
Once elected, we will continue to perform Rebalancing until we are instructed
otherwise. We reserve the right to change our procedures or discontinue offering
Rebalancing upon 30 days written notice to you. This option is not available on
the 29th, 30th or 31st day of each month.
LOANS
The Company may offer a loan privilege to owners of policies issued in
connection with Section 403(b) qualified plans that are not subject to Title I
of ERISA. If offered, owners of such policies may obtain loans using the policy
as the only security for the loan. Loans are subject to provisions of the Code
and to applicable retirement program rules (collectively, "loan rules"). Tax
advisers and retirement plan fiduciaries should be consulted prior to exercising
loan privileges. Policy loans that satisfy certain requirements with respect to
loan amount and repayment are not treated as taxable distributions. If these
requirements are not satisfied, or if the policy terminates while a loan is
outstanding, the loan balance will be treated as a taxable distribution and may
be subject to penalty tax, and the treatment of the policy under Section 403(b)
may be adversely affected.
If loans are offered, the following will apply:
Under the terms of the policy, qualified policies have a maximum loan
value equal to 80% of the policy value, although loan rules may serve to
reduce such maximum loan value in some cases. The amount available for a
loan at any given time is the loan value less any outstanding debt. Debt
equals the amount of any loans plus accrued interest. Loans will be made
only upon written request from the owner. The Company will make loans
within seven days of receiving a properly completed loan application
(applications are available from the Company), subject to postponement
under the same circumstances that payment of withdrawals may be
postponed. See "Partial Withdrawals".
When an owner requests a loan, the Company will reduce the owner's
investment in the investment accounts and transfer the amount of the
loan to the loan account, a part of the Company's general account. The
owner may designate the investment accounts from which the loan is to be
withdrawn. Absent such a designation, the amount of the loan will be
withdrawn from the investment accounts in accordance with the rules for
making partial withdrawals. See "Partial Withdrawals". The policy
provides that owners may repay policy debt at any time. Under applicable
loan rules, loans generally must be repaid within five years, repayments
must be made at least quarterly and repayments must be made in
substantially equal amounts. When a loan is repaid, the amount of the
repayment will be transferred from the loan account to the investment
accounts. The owner may designate the investment accounts to which a
repayment is to be allocated. Otherwise, the repayment will be allocated
in the same manner as the owner's most recent premium. On each policy
anniversary, the Company will transfer from the investment accounts to
the loan account the amount by which the debt on the policy exceeds the
balance in the loan account.
The Company charges interest of 6% per year on policy loans. Loan
interest is payable in arrears and, unless paid in cash, the accrued
loan interest is added to the amount of the debt and bears interest at
6% as well. The Company credits interest with respect to amounts held in
the loan account at a rate of 4% per year. Consequently, the net cost of
loans under the policy is 2%. If on any date debt under a policy exceeds
the policy value, the policy will be in default. In such case the owner
will receive a notice indicating the payment needed to bring the policy
out of default and will have a thirty-one day grace period within which
to pay the default amount. If the required payment is not made within
the grace period, the policy will be foreclosed (terminated without
value).
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<PAGE> 33
The amount of any debt will be deducted from the minimum death benefit.
See "Proceeds on Death of Last Surviving Annuitant Before Annuity Date
or Maturity Date". In addition, debt, whether or not repaid, will have a
permanent effect on the policy value because the investment results of
the investments accounts will apply only to the unborrowed portion of
the policy value. The longer debt is outstanding, the greater the effect
is likely to be. The effect could be favorable or unfavorable. If the
investment results are greater than the rate being credited on amounts
held in the loan account while the debt is outstanding, the policy value
will not increase as rapidly as it would have if no debt were
outstanding. If investment results are below that rate, the policy value
will be higher than it would have been had no debt been outstanding.
PAYMENT OF BENEFITS, PARTIAL WITHDRAWALS, CASH SURRENDERS & TRANSFERS -
POSTPONEMENT
We will usually pay any proceeds payable, amounts partially withdrawn, or the
cash surrender value within seven calendar days after:
1. we receive your written notice for a partial withdrawal or a cash
surrender; or
2. the date chosen for any systematic withdrawal; or
3. we receive due proof of your death or the death of the last
surviving annuitant.
However, we can postpone the payment of proceeds, amounts withdrawn, the cash
surrender value, or the transfer of amounts between sub-accounts if:
1. the New York Stock Exchange is closed, other than customary
weekend and holiday closings, or trading on the exchange is
restricted as determined by the SEC; or
2. the SEC permits by an order the postponement for the protection of
policyowners; or
3. the SEC determines that an emergency exists that would make the
disposal of securities held in the Variable Account or the
determination of the value of the Variable Account's net assets
not reasonably practicable.
We have the right to defer payment of any partial withdrawal, cash surrender, or
transfer from the Fixed Account for up to six months from the date we receive
your written notice for a withdrawal, surrender or transfer.
CHARGES AGAINST THE POLICY, VARIABLE ACCOUNT, AND FUND
SURRENDER CHARGE
No deduction for a sales charge is made when premiums are paid. However, a
surrender charge (contingent deferred sales charge) will be deducted when
certain partial withdrawals and cash surrenders are made to at least partially
reimburse us for certain expenses relating to the sale of the policy, including
commissions to registered representatives and other promotional expenses. A
surrender charge may also be applied to the proceeds paid on the annuity date,
unless the proceeds are applied under Payment Option 1.
For the purpose of determining if any surrender charge applies and the amount of
such charge, partial withdrawals and surrenders are taken according to these
rules from policy value attributable to premiums in the following order:
<TABLE>
<CAPTION>
SURRENDER CHARGE
----------------
<S> <C> <C>
1. Up to 100% of positive investment earnings of each variable sub-account available
at the time the request is made, PLUS.................................................................None
2. Up to 100% of interest on the FIXED ACCOUNT at the time the request
for surrender/withdrawal is made, PLUS................................................................None
3. Up to 10% of total premiums STILL SUBJECT TO A SURRENDER CHARGE, once a policy
year, PLUS............................................................................................None
4. Up to 100% of those premiums NOT SUBJECT TO A SURRENDER CHARGE, available
at any time...........................................................................................None
5. Premiums subject to a surrender charge
Policy Years Since Premium Was Paid
Less than 1....................................................................................6%
At least 1, but less than 2....................................................................6%
At least 2, but less than 3....................................................................5%
At least 3, but less than 4....................................................................5%
At least 4, but less than 5....................................................................4%
At least 5, but less than 6....................................................................3%
At least 6, but less than 7....................................................................2%
At least 7...................................................................................None
</TABLE>
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<PAGE> 34
Any surrender charge will be deducted proportionately from the sub-account(s)
or the Guarantee Periods under the Fixed Account being surrendered or partially
withdrawn in relation to the premium(s) withdrawn. If the premium remaining in a
sub-account or a Guarantee Period after the withdrawal is insufficient to cover
the proportionate surrender charge deduction, the balance of the surrender
charge will be assessed proportionately from any other sub-account and Guarantee
Period in which you are invested.
POLICY ADMINISTRATION CHARGE
To cover the costs of providing certain administrative services attributable to
the policies and the operations of the Variable Account, including policy
records, communicating with policyowners, and processing transactions, we deduct
a policy administration charge of $30 for the prior policy year on each policy
anniversary. If the policy value on the policy anniversary is $35,000 or more,
we will waive the policy administration charge for the prior policy year. We
will also deduct this charge for the current policy year if the policy is
surrendered for its cash surrender value, unless the policy is surrendered on a
policy anniversary.
The charge will be assessed proportionately from any sub-accounts and the
Guarantee Periods under the Fixed Account in which you are invested. If the
charge is obtained from 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 also deduct a daily administration fee at an
effective annual rate of 0.15% from the assets of the Variable Account. This
daily administration fee is intended to reimburse us for other administrative
costs under the policies.
TRANSFER PROCESSING FEE
The first 12 transfers during each policy year are free under our current
policy, which we reserve the right to change. The Company currently assesses a
$25 transfer fee for the 13th and each additional transfer in a policy year. For
the purposes of assessing the fee, each transfer request (which includes a
written notice or telephone call, but does not include dollar cost averaging
automatic transfers, telephone call, or automatic transfer) is considered to be
one transfer, regardless of the number of sub-accounts or Guarantee Periods
under the Fixed Account effected by the transfer. The processing fee will be
charged proportionately to the receiving sub-account(s) and/or the Fixed
Account. See "Transfers" for the rules concerning transfers.
ANNUALIZED MORTALITY AND EXPENSE RISK CHARGE
The mortality risk we assume is the risk that annuitants may live for a longer
period of time than we estimated when we established our guarantees in the
policy. Because of these guarantees, each annuitant is assured that their
longevity will not have an adverse effect on the annuity payments they receive.
The mortality risk we assume also includes our guarantee to pay a death benefit
if the last surviving annuitant dies before the annuity date or maturity date.
The expense risk we assume is the risk that the surrender charges, policy
administration charge, daily administration fee, and transfer fees may be
insufficient to cover our actual future expenses.
The annual mortality and expense risk charge is deducted at each valuation
period from the assets of the Variable Account at an effective annual rate of
1.25% of the value of the net assets in the Variable Account. This charge is not
made after the earlier of the annuity date or maturity date, and this charge is
not made against any Fixed Account value. This charge consists of approximately
0.15% to cover the mortality risk, and approximately 1.10% to cover the expense
risk.
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<PAGE> 35
WAIVER OF SURRENDER CHARGE
When the policy has been in effect for 1 year, upon written notice from you, the
Surrender Charge will be waived on any partial withdrawal or surrender after you
provide us evidence that satisfies us in a written statement signed by a
qualified physician that:
1. a) you are terminally ill; and
b) your life expectancy is not more than 12 months due to the
severity and nature of the terminal illness; and
c) the diagnosis of the terminal illness was made after the effective
date of this policy.
2. you are or have been confined to a hospital, nursing home or long-term
care facility for at least 90 consecutive days, provided:
a) confinement is for medically necessary reasons at the
recommendation of a physician;
b) the hospital, nursing home or long-term care facility is licensed
or otherwise recognized and operating as such by the proper
authority in the state where it is located, the Joint Commission
on Accreditation of Hospitals or Medicare and satisfactory
evidence of such status is provided to us; and
c) the withdrawal or surrender request is received by us no later
than 91 days after the last day of your confinement.
For policies issued on or after May 1, 1996, this provision is not available if
any owner was attained age 81 or older on the Effective Date. This provision may
not be available in all jurisdictions.
REDUCTION OR ELIMINATION OF SURRENDER CHARGES, POLICY ADMINISTRATION CHARGES AND
DAILY ADMINISTRATION FEES
The amount of the surrender charge, policy administration charge, and/or daily
administration fee on a policy may be reduced or eliminated when some or all of
the policies are to be sold to an individual or a group of individuals in such a
manner that results in savings of sales and/or administrative expenses. In
determining whether to reduce or eliminate such expenses, the Company will
consider certain factors including the following:
1. The size and type of group to which the administrative services
are to be provided and the sales are to be made will be
considered. Generally, sales and administrative expenses for a
larger group are smaller than for a smaller group because of the
ability to implement large numbers of sales with fewer sales
contacts.
2. The total amount of premiums to be received will be considered.
Per dollar sales expenses are likely to be less on larger premiums
than on smaller ones.
3. Any prior or existing relationship with the Company will be
considered. Policy sales expenses are likely to be less when there
is a prior or existing relationship because of the likelihood of
implementing more sales with fewer sales contacts.
4. The level of commissions paid to selling broker/dealers will be
considered. For example, certain broker/dealers may offer policies
in connection with financial planning programs offered on a fee
for service basis. In view of the financial planning fees, such
broker/dealers may elect to receive lower commissions for sales of
the policies, thereby reducing the Company's sales expenses.
If, after consideration of the foregoing factors, it is determined that there
will be a reduction or elimination in sales expenses and/or administration
expenses, the Company will provide a reduction in the surrender charge, the
policy administration charge, and/or the daily administration fee . Such charges
may also be eliminated when a policy is issued to an officer, director,
employee, registered representative or relative thereof of: the Company; The
Canada Life Assurance Company; J. & W. Seligman & Co. Incorporated; any selling
Broker/Dealer; or any of their affiliates. In no event will reduction or
elimination of the surrender charge, policy administration charge and/or daily
administration fee be permitted where such reduction or elimination will be
discriminatory to any person.
In addition, if the policy value on the policy anniversary is $35,000 or more,
we will waive the policy administration charge for the prior policy year.
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<PAGE> 36
TAXES
We will incur premium taxes in some jurisdictions relating to the policies.
Depending on the jurisdiction, we deduct any such taxes: a) from premiums when
paid; or b) when the policy value is applied under a payment option, at cash
surrender or upon partial withdrawal. A summary of current state premium tax
rates is contained in Appendix A.
When any tax is deducted from the policy value, it will be deducted
proportionately from the sub-accounts and the Guarantee Periods under the Fixed
Account in which you are invested.
We reserve the right to charge or provide for any taxes levied by any
governmental entity, including:
1. taxes that are against or attributable to premiums, policy values
or annuity payments; or
2. taxes that we incur which are attributable to investment income or
capital gains retained as part of our reserves under the policies
or from the establishment or maintenance of the Variable Account.
OTHER CHARGES INCLUDING INVESTMENT MANAGEMENT FEES
Each portfolio of the Fund is responsible for all of its operating expenses. In
addition, the Fund pays J. & W. Seligman & Co. Incorporated (the "Manager") fees
for investment management services that are calculated daily and payable monthly
from each portfolio at an annual rate of 0.40% for Capital, Cash Management
(currently waived), Common Stock, Bond and Income; 0.50% for High-Yield Bond;
0.75% for Communications and Information, and Frontier; and 1.00% for
International, Global Smaller Companies, Global Technology and Global Growth
Opportunities (of which the Manager in turn pays 0.90% to Seligman Henderson
Co., the Sub-Adviser to these four portfolios), % for Large-Cap Value; and % for
Small-Cap Value of the average daily net assets of the portfolio. The Prospectus
and Statement of Additional Information for the Fund provide more information
concerning the investment management fee, other charges against the portfolios,
the investment management services provided to the portfolios by J. & W.
Seligman & Co. Incorporated, and the sub-advisory services provided to the
International, Global Smaller Companies, Global Technology, and Global Growth
Opportunities Portfolios by Seligman Henderson Co.
PAYMENT OPTIONS
The policy ends when we pay the proceeds on the earlier of the annuity date or
maturity date. On the annuity date, we will apply the policy value under Payment
Option 1, unless you have an election of a payment option on file at our
Administrative office to receive the cash surrender value in a single sum, or to
receive a mutually agreed upon payment option (Payment Option 2). The proceeds
we will pay on the maturity date is the policy value. See "Proceeds on Annuity
Date or Maturity Date" on. We require the surrender of your policy so that we
may pay the cash surrender value or issue a supplemental contract for the
applicable payment option. The term "payee" means a person who is entitled to
receive payment under this section.
ELECTION OF OPTIONS
You may elect an option or revoke or change your election at any time before the
annuity date or maturity date while any annuitant is living. If an election is
not in effect at the last surviving annuitant's death or if payment is to be
made in one sum under an existing election, the beneficiary may elect one of the
options. This election must be made within one year after the last surviving
annuitant's death and before any payment has been made.
An election of an option and any revocation or change must be made in a written
notice. It must be filed with our Administrative office with the written consent
of any irrevocable beneficiary.
An option may not be elected and we will pay the proceeds in one sum if either
of the following conditions exist:
1. the amount to be applied under the option is less than $1,000; or
2. any periodic payment under the election would be less than $50.
DESCRIPTION OF PAYMENT OPTIONS
Payment Option 1: Life Income With Payments for 10 Years Certain
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<PAGE> 37
We will pay the proceeds in equal amounts at the beginning of each month, during
the payee's lifetime for at least 10 years certain.
The amount of each payment will be determined from the tables in the policy
which apply to Payment Option 1, using the payee's age. Age will be determined
from the nearest birthday at the due date of the first payment.
Payment Option 2: Mutual Agreement
We will pay the proceeds according to other terms, if those terms are mutually
agreed upon.
PAYMENT DATES
The payment dates of the options will be calculated from the date on which the
proceeds become payable.
AGE AND SURVIVAL OF PAYEE
We have the right to require proof of age of the payee(s) before making any
payment. When any payment depends on the payee's survival, we will have the
right, before making the payment, to require proof satisfactory to us that the
payee is alive.
DEATH OF PAYEE
At the death of the payee, or the last survivor of the payees, any amount
remaining to be paid under this section will become payable in one sum, unless
specified otherwise.
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
OWNER OR JOINT OWNER
During any annuitant's lifetime and before the earlier of the annuity date or
maturity date, you have all the rights and privileges granted by the policy. If
you appoint an irrevocable beneficiary or assignee, then your rights will be
subject to those of that beneficiary or assignee.
During any annuitant's lifetime and before the earlier of the annuity date or
maturity date, you may name a new owner, joint owner or annuitant by giving us
written notice.
With respect to Qualified Policies generally, however, the contract may not be
assigned (other than to us), joint ownership is not permitted, and the Owner
must be the annuitant.
BENEFICIARY
We will pay the beneficiary any proceeds payable on your death or the death of
the last surviving annuitant. During any annuitant's lifetime and before the
earlier of the annuity date or maturity date, you may name and change one or
more beneficiaries by giving us written notice. However, we will require written
notice from any irrevocable beneficiary or assignee specifying their consent to
the change.
We will pay the proceeds under the beneficiary appointment in effect at the date
of death. If you have not designated otherwise in your appointment, the proceeds
will be paid to the surviving beneficiary(ies) equally. If no beneficiary is
living when you die or the last surviving annuitant dies, or if none has been
appointed, the proceeds will be paid to your estate.
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<PAGE> 38
WRITTEN NOTICE
Written Notice must be signed by you, dated, and of a form and content
acceptable to us. Your written notice will not be effective until we receive and
file it at our Administrative office. However, the change provided in your
written notice to name or change the owner or beneficiary will then be effective
as of the date you signed the written notice:
1. subject to any payments made or other action we take before we
receive and file your written notice; and
2. whether or not you or the last surviving annuitant are alive when
we receive and file your written notice.
PERIODIC REPORTS
We will mail you a report showing the following items about your policy:
1. the number of units credited to the policy and the dollar value of
a unit;
2. the policy value;
3. any premiums paid, withdrawals, and charges made since the last
report; and
4. any other information required by law.
The information in the report will be as of a date not more than two months
before the date of the mailing. We will mail the report to you:
1. at least annually, or more often as required by law; and
2. to your last address known to us.
ASSIGNMENT
You may assign a nonqualified policy or an interest in it at any time before the
earlier of the annuity date or maturity date during any annuitant's lifetime. An
assignment must be in a written notice acceptable to us. It will not be binding
on us until we receive and file it at our Administrative office. We are not
responsible for the validity of any assignment. Your rights and the rights of
any beneficiary will be effected by an assignment.
An assignment of a nonqualified policy may result in certain tax consequences to
the owner. See "Transfers, Assignment or Exchanges of a Policy".
MODIFICATION
Upon notice to you, we may modify the policy, but only if such modification:
1. is necessary to make the policy or the Variable Account comply
with any law or regulation issued by a governmental agency to
which we are subject; or
2. is necessary to assure continued qualification of the policy under
the Code or other federal or state laws relating to retirement
annuities or variable annuity policies; or
3. is necessary to reflect a change in the operation of the Variable
Accounts; or
4. provides additional variable account and/or fixed accumulation
options.
In the event of any such modification, we may make any appropriate endorsement
to the policy.
YIELDS AND TOTAL RETURNS
From time to time, we may advertise yields, effective yields, and total returns
for the sub-accounts. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND DO NOT
INDICATE OR PROJECT FUTURE PERFORMANCE. Each sub-account may, from time to time,
advertise performance relative to certain performance rankings and indices
compiled by independent organizations. More detailed information as to the
calculation of performance information, as well as comparisons with unmanaged
market indices, appears in the Statement of Additional Information.
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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 Fund. The Fund's
performance in part reflects the Fund's expenses. See the Prospectus for the
Fund.
The yield of the Cash Management 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 Cash Management sub-account) refers to
the annualized income generated by an investment in the sub-account over a
specified 30 day or one month period. The yield is calculated by assuming that
the income generated by the investment during that 30 day or one month period is
generated each period over a 12 month period and is shown as a percentage of the
investment.
The total return of a sub-account refers to return quotations assuming an
investment under a policy has been held in the sub-account for various periods
of time including, but not limited to, a period measured from the date the
sub-account commenced operations. When a sub-account has been in operation for
1, 5, and 10 years, respectively, the total return for these periods will be
provided.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a policy to the redemption value of that investment as of the last day of
each of the periods for which total return quotations are provided. Average
annual total return information shows the average percentage change in the value
of an investment in the sub-account from the beginning date of the measuring
period to the end of that period. This standardized version of average annual
total return reflects all historical investment results, less all charges and
deductions applied against the sub-account (including any surrender charge that
would apply if an Owner terminated the policy at the end of each period
indicated, but excluding any deductions for premium taxes).
We may, in addition, advertise total return performance information computed on
a different basis. We may present total return information computed on the same
basis as described above, except deductions will not include the surrender
charge. This presentation assumes that the investment in the policy persists
beyond the period when the surrender charge applies, consistent with the
long-term investment and retirement objectives of the policy.
We may compare the performance of each sub-account in advertising and sales
literature to the performance of other variable annuity issuers in general or to
the performance of particular types of variable annuities investing in mutual
funds, or investment series of mutual funds with investment objectives similar
to each of the sub-accounts. Lipper Analytical Services, Inc. ("Lipper") and the
Variable Annuity Research Data Service ("VARDS") are independent services which
monitor and rank the performances of variable annuity issuers in each of the
major categories of investment objectives on an industry-wide basis. Other
services or publications may also be cited in our advertising and sales
literature.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS rankings compare only variable annuity issuers. The performance
analysis prepared by Lipper and VARDS each rank such issuers on the basis of
total return, assuming reinvestment of distributions, but do not take sales
charges, redemption fees or certain expense deductions at the separate account
level into consideration. In addition, VARDS prepares risk adjusted rankings,
which consider the effects of market risk on total return performance. This type
of ranking provides data as to which funds provide the highest total return
within various categories of funds defined by the degree of risk inherent in
their investment objectives.
We may also compare the performance of each sub-account in advertising and sales
literature to the Standard & Poor's composite index of 500 common stocks, a
widely used index to measure stock market performance. This unmanaged index does
not reflect any "deduction" for the expense of operating or managing an
investment portfolio. We may also make comparison to Lehman Brothers
Government/Corporate Bond Index, an index that includes the Lehman Brothers
Government Bond and Corporate Bond Indices. These indices are total rate of
return indices. The Government Bond Index includes the Treasury Bond Index
(public obligations of the U.S. Treasury) and the Agency Bond Index (publicly
issued debt of U.S. Government agencies, quasi-federal corporations, and
corporate debt guaranteed by the U.S. Government). The Corporate Bond Index
includes publicly issued, fixed rate, nonconvertible investment grade
dollar-denominated, SEC registered corporate debt. All issues have at least a
one-year maturity, and all returns are at market value inclusive of accrued
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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 portfolio of the Fund is positive.
FEDERAL TAX STATUS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
INTRODUCTION
This discussion is not intended to address the tax consequences resulting from
all of the situations in which a person may be entitled to or may receive a
distribution under the annuity policy we issue. Any person concerned about these
tax implications should consult a tax adviser before initiating any transaction.
This discussion is based upon general understanding of the present federal
income tax laws. No representation is made as to the likelihood of the
continuation of the present federal income tax laws or of the current
interpretation by the Internal Revenue Service. Moreover, no attempt has been
made to consider any applicable state or other tax laws.
The policy may be purchased on a nonqualified tax basis ("Nonqualified Policy")
or purchased and used in connection with plans qualifying for favorable tax
treatment ("Qualified Policy"). The Qualified Policy was designed for use by
individuals whose premium payments are comprised of proceeds from and/or
contributions under retirement plans which are intended to qualify as plans
entitled to special income tax treatment under Sections 401(a), 401(k), 403(a),
403(b), 408, 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 owner, 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.
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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 Fund,
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 fund in which the Variable Account invests, we believe that
each portfolio in which the Variable Account owns shares will meet the
diversification requirements and that therefore the Policy will be treated as an
annuity under the Code.
In certain circumstances, variable annuity policyowners may be considered the
owners, for federal income tax purposes, of the assets of the separate account
used to support their policies. In those circumstances, income and gains from
the separate account assets would be includable in the variable annuity
policyowner's gross income. Several years ago, the IRS stated in published
rulings that a variable policyowner will be considered the owner of separate
account assets if the policyowner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. More
recently, the Treasury Department announced, in connection with the issuance of
regulations concerning investment diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets."
The ownership rights under the policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets. For example, the
owner of the policy has the choice of more subdivisions to which to allocate
premiums and policy values than such rulings, has a choice of investment
strategies different from such rulings, and may be able to transfer among
subdivisions more frequently than in such rulings. These differences could
result in the policyowner being treated as the owner of the assets of the
Variable Account. In addition, we do not know what standards will be set forth
in the regulations or rulings which the Treasury Department has stated it
expects to issue. We therefore reserve the right to modify the policy as
necessary to attempt to prevent the policyowner from being considered the owner
of the assets of the Variable Account.
REQUIRED DISTRIBUTIONS
In addition to the requirements of Section 817(h) of the Code, in order to be
treated as an annuity policy for federal income tax purposes, Section 72(s) of
the Code requires any Nonqualified Policy to provide that (a) if any owner dies
on or after the annuity date but prior to the time the entire interest in the
Policy has been distributed, the remaining portion of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of that owner's death; and (b) if any owner dies prior to the
annuity date, the entire interest in the Policy will be distributed within five
years after the date of the owner's death. These requirements will be considered
satisfied as to any portion of the owner's interest which is payable to or for
the benefit of a "designated beneficiary" and which is distributed over the life
of such "designated beneficiary" or over a period not extending beyond the life
expectancy of that beneficiary, provided that such distributions begin within
one year of that owner's death. The owner's "designated beneficiary" is the
person designated by such owner as a beneficiary and to whom ownership of the
Policy passes by reason of death and must be a natural person. However, if the
owner's "designated beneficiary" is the surviving spouse of the owner, the
Policy may be continued with the surviving spouse as the new owner.
The Nonqualified Policies contain provisions which are intended to comply with
the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. We intend to review such
provisions and modify them if necessary to assure that they comply with the
requirements of Code Section 72(s) when clarified by regulation or otherwise.
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Other rules may apply to Qualified Policies (see "Minimum Distribution
Requirements ["MDR"] for IRAs).
The following discussion assumes that the policies will qualify as annuity
contracts for federal income tax purposes.
TAXATION OF ANNUITIES
IN GENERAL
Section 72 of the Code governs taxation of annuities in general. We believe that
an owner who is a natural person generally is not taxed on increases in the
value of a policy until distribution occurs by withdrawing all or part of the
accumulation value (e.g., partial 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 policy who is not a natural person generally must
include in income any increase in the excess of the policy's accumulation value
over the policy's "investment in the contract" during the taxable year. There
are some exceptions to this rule and a prospective owner that is not a natural
person may wish to discuss these with a tax adviser.
The following discussion generally applies to policies owned by natural persons.
WITHDRAWALS/DISTRIBUTIONS
In the case of a distribution under a Qualified Policy (other than a Section 457
plan), under Section 72(e) of the Code a ratable portion of the amount received
is taxable, generally based on the ratio of the "investment in the contract" to
the participant's total accrued benefit or balance under the retirement plan.
The "investment in the contract" generally equals the portion, if any, of any
premium payments paid by or on behalf of any individual under a Policy which was
not excluded from the individual's gross income. For policies issued in
connection with qualified plans, the "investment in the contract" can be zero.
Special tax rules may be available for certain distributions from Qualified
Policies.
In the case of a withdrawal/distribution (e.g., surrender, partial withdrawal 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 policy, under Code Section 72(b), generally gross income does not
include that part of any amount received as an annuity under an annuity policy
that bears the same ratio to such amount as the investment in the contract bears
to the expected return at the annuity starting date. For variable income
payments, in general, the taxable portion (prior to recovery of the investment
in the contract) is determined by a formula which establishes the specific
dollar amount of each annuity payment that is not taxed. The dollar amount is
determined by dividing the "investment in the contract" by the total number of
expected periodic payments. For fixed income payments (prior to recovery of the
investment in the contract), in general, there is no tax on the amount of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the annuity payments for the term of the
payments; however, the remainder of each income payment is taxable. In all
cases, after the "investment in the contract" is recovered, the full amount of
any additional annuity payments is taxable.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a policy because of an death of the owner or the
last surviving annuitant. Generally, such amounts are includable in the income
of the recipient as follows:
1. if distributed in a lump sum, they are taxed in the same manner as
a surrender of the policy; or
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2. if distributed under a payment option, they are taxed in the same
manner as annuity payments.
For these purposes, the investment in the policy is not affected by an owner or
annuitant's death. That is the investment in the policy remains the amount of
any purchase payments paid which were not excluded from gross income.
PENALTY TAX ON CERTAIN WITHDRAWALS
In the case of a distribution pursuant to a Nonqualified Policy, there may be
imposed a federal penalty tax equal to 10% of the amount treated as taxable
income. In general, however, there is no penalty tax on distributions:
1. made on or after the taxpayer reaches age 59 1/2;
2. made on or after the death of an owner (or if the owner is not an
individual, the death of the primary annuitant);
3. attributable to the owner becoming disabled;
4. as part of a series of substantially equal periodic payments (not
less frequently than annually) for the life (or life expectancy)
of the taxpayer or the joint lives (or joint life expectancies) of
the taxpayer and beneficiary;
5. made under an annuity policy that is purchased with a single
premium when the annuity starting date is no later than a year
from purchase of the annuity and substantially equal periodic
payments are made, not less frequently than annually, during the
annuity period; and
6. made under certain annuities issued in connection with structured
settlement agreements.
Other tax penalties may apply to certain distributions under a Qualified Policy,
as well as to certain contributions, loans and other circumstances.
TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF A POLICY
A transfer of ownership, the designation of an annuitant or other beneficiary
who is not also the owner, the designation of certain annuity starting dates, or
the exchange of a policy may result in certain tax consequences to the owner
that are not discussed herein. An owner contemplating any such transfer,
assignment, designation, or exchange of a policy should contact a tax adviser
with respect to the potential tax effects of such a transaction.
WITHHOLDING
Pension and annuity distributions generally are subject to withholding for the
recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. Effective January 1, 1993, withholding is mandatory for certain
distributions from Qualified contracts.
MULTIPLE POLICIES
Section 72(e)(11) of the Code treats all nonqualified deferred annuity policies
entered into after 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 effect the time when
income is taxable and the amount that might be subject to the 10% penalty tax
described above. In addition, the Treasury Department has specific authority to
issue regulations that prevent the avoidance of Section 72(e) through the serial
purchase of annuity contracts or otherwise. There may also be other situations
in which the Treasury may conclude that it would be appropriate to aggregate two
or more annuity contracts purchased by the same owner.
Accordingly, a policyowner should consult a tax adviser before purchasing more
than one annuity contract.
POSSIBLE TAX CHANGES
In recent years, legislation has been proposed that would have adversely
modified the federal taxation of certain annuities. For example, one such
proposal would have changed the tax treatment of non-qualified annuities that
did not have "substantial life contingencies" by taxing income as it is credited
to the annuity. Although as of the date of this prospectus
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<PAGE> 44
Congress is not considering any legislation regarding the taxation of annuities,
there is always the possibility that the tax treatment of annuities could change
by legislation or other means (such as IRS regulations, revenue rulings, and
judicial decisions). Moreover, it is also possible that any legislative change
could be retroactive (that is, effective prior to the date of such change).
TAXATION OF QUALIFIED PLANS
The policies are designed for use with several types of qualified plans. The tax
rules applicable to participants in these qualified plans vary according to the
type of plan and the terms and conditions of the plan itself. Special favorable
tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; aggregate distributions in excess of a specified
annual amount; and in certain other circumstances. Therefore, no attempt is made
to provide more than general information about the use of the policies with the
various types of qualified retirement plans. Policyowners, 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. Owners are responsible for determining that
contributions, distributions and other transactions with respect to the policies
satisfy applicable law. Brief descriptions follow of the various types of
qualified retirement plans in connection with which we will issue a policy. We
will amend the policy as instructed to conform it to the applicable legal
requirements for such plan.
INDIVIDUAL RETIREMENT ANNUITIES AND SIMPLIFIED EMPLOYEE PENSIONS (SEP/IRAS)
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity" or
"IRA". These IRAs are subject to limits on the amount that may be contributed,
the persons who may be eligible and on the time when distributions may commence.
Also, distributions from certain other types of qualified retirement plans may
be "rolled over" on a tax-deferred basis into an IRA. Sales of the policy for
use with IRAs may be subject to special requirements of the Internal Revenue
Service.
Section 408(k) of the Code allows employers to establish simplified employee
pension plans for their employees, using an IRA for such purpose, if certain
criteria are met. Under these plans the employer may, within specified limits,
make deductible contributions on behalf of the employee to an IRA. Employers
intending to use the policy in connection with such plans should seek advice.
Purchasers of a policy for use with IRAs will be provided with supplemental
information required by the Internal Revenue Service or other appropriate
agency. Such purchasers will have the right to revoke their purchase within
seven days of the earlier of the establishment of the IRA or their purchase.
Purchasers should seek advice as to the suitability of the policy for use with
IRAs. The Internal Revenue Service has not reviewed the Policy for qualification
as an IRA, and has not addressed in a ruling of general applicability whether a
death benefit provision such as the provision in the policy comports with IRA
qualification requirements.
SIMPLE INDIVIDUAL RETIREMENT ANNUITIES
Beginning January 1, 1997, certain small employers may establish SIMPLE plans as
provided by Section 408(p) of the Code, under which employees may elect to defer
a percentage of compensation up to $6,000 (as increased for cost of living
adjustments). The sponsoring employer is required to make matching or
non-elective contributions on behalf of employees. Distributions from SIMPLE
IRAs are subject to the same restrictions that apply to IRA distributions and
are taxed as ordinary income. Subject to certain exceptions, premature
distributions prior to age 59 1/2 are subject to a 10 percent penalty tax, which
is increased to 25 percent if the distribution occurs within the first two years
after the commencement of the employee's participation in the plan. The failure
of the SIMPLE IRA to meet Code requirements may result in adverse tax
consequences.
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ROTH INDIVIDUAL RETIREMENT ANNUITIES
Effective January 1, 1998, section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which are
subject to certain limitations, are not deductible and must be made in cash or
as a rollover or transfer from another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax and other special rules
may apply. Distributions from a Roth IRA generally are not taxed, except that,
once aggregate distributions exceed contributions to the Roth IRA, income tax
and a 10 percent penalty tax may apply to distributions made (1) before age 59
1/2 (subject to certain exceptions) or (2) during the five taxable years
starting with the year in which the first contribution is made to the Roth IRA.
MINIMUM DISTRIBUTION REQUIREMENTS ("MDR") FOR IRAS
The Code requires that minimum distribution from an IRA begin no later than
April 1 of the year following the year in which the owner attains age 70<K189>.
Failure to do so results in a penalty of 50% of the amount not withdrawn. This
penalty is in addition to normal income tax. We will calculate the MDR only for
funds invested in this Policy and subject to our administrative guidelines,
including but not limited to: 1) minimum withdrawal amount of $250; 2) while
surrender charges are applicable, up to 10% of total premium plus 100% of any
sub-account earnings and 100% of current policy year's Fixed Account interest
may be withdrawn; and 3) use of MDR counts as the once a policy year free
withdrawal.
As an administrative practice, we will calculate and distribute an amount from
an IRA using the method contained in the Code's minimum distribution
requirements. The annual distribution is determined by dividing the prior
December 31st value for the policy by a life expectancy factor. The factor will
be based on either your life or the life expectancies of your life and your
designated beneficiary, as directed by you, and based on tables found in the
IRS' regulations. Factors are redetermined for each year's distribution. The
value of the policy to be used in this calculation is the policy value on the
December 31st prior to the year for which each subsequent payment is made. The
life expectancy factor is determined by using the appropriate IRS chart based on
one of the following circumstances:
1. Your life expectancy (Single Life Expectancy);
2. Joint life expectancy between you and your designated beneficiary
(Joint Life and Last Survivor Expectancy); or
3. Your life expectancy and a non-spouse beneficiary more than 10
years younger than you (Minimum Distribution Incident Benefit
Requirement).
No minimum distribution is required from a Roth IRA during your life, although
upon your death certain distribution requirements apply.
The Code Minimum Distribution Requirements also apply to distribution from
qualified plans other than 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 701/2
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.
DEFERRED COMPENSATION PLANS
Section 457 of the Code provides for certain deferred compensation plans. These
plans may be offered with respect to service for state governments, local
governments, political subdivisions, agencies, instrumentalities and certain
affiliates of such entities, and tax exempt organizations. The plans may permit
participants to specify the form of investment for their deferred compensation
account. All distributions are taxable as ordinary income. Except for certain
governmental plans, all investments are owned by the sponsoring employer and are
subject to the claims of the general creditors of the employer.
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<PAGE> 46
TAX-SHELTERED ANNUITY PLANS
Section 403(b) of the Code permits public school systems and certain tax exempt
organizations specified in Section 501(c)(3) to make payments to purchase
annuity policies for their employees. Such payments are excludable from the
employee's gross income (subject to certain limitations), but may be subject to
FICA (Social Security) taxes. Under Code requirements, Section 403(b) annuities
generally may not permit distribution of: 1) elective contributions made in
years beginning after December 31, 1988; 2) earnings on those contributions; and
3) earnings on amounts attributed to elective contributions held as of the end
of the last year beginning before January 1, 1989. Under Code requirements,
distributions of such amounts will be allowed only: 1) upon the death of the
employee; or 2) on or after attainment of age 59 1/2; or 3) separation from
service; or 4) disability; or 5) financial hardship, except that income
attributable to elective contributions may not be distributed in the case of
hardship. With respect to these restrictions, the Company is relying upon a
no-action letter dated November 28, 1988 from the staff of the SEC to the
American Council of Life Insurance, the requirements for which have been or will
be complied with by the Company.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax consequences under
these policies are not exhaustive and special rules are provided with respect to
other tax situations not discussed in this Prospectus. Further, the federal
income tax consequences discussed herein reflect our understanding of current
law and the law may change. Federal estate and state and local estate,
inheritance, and other tax consequences of ownership or receipt of distributions
under a Policy depend on the individual circumstances of each owner or recipient
of the distribution. A tax adviser should be consulted for further information.
RESTRICTIONS UNDER THE TEXAS
OPTIONAL RETIREMENT PROGRAM
Section 36.105 of the Texas Educational Code permits participants in the Texas
Optional Retirement Program ("ORP") to withdraw their interest in a variable
annuity policy issued under the ORP only upon: 1) termination of employment in
the Texas public institutions of higher education; 2) retirement; or 3) death.
Accordingly, a participant in the ORP, or the participant's estate if the
participant has died, will be required to obtain a certificate of termination
from the employer or a certificate of death before policy values can be
withdrawn or surrendered.
Other restrictions with respect to the election, commencement, or distribution
of benefits may apply under Qualified Policies or under the terms of the plans
in respect of which Qualified Policies are issued.
DISTRIBUTION OF POLICIES
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, a Michigan Corporation. CLAFS, a Georgia
corporation organized on January 18, 1988, is registered with the SEC under the
Securities Exchange Act of 1934 (the "1934 Act") as a broker/dealer and is a
member of the National Association of Securities Dealers, Inc. ("NASD"). 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 authorized by CLAFS to sell the policies. Such registered
representatives will be licensed insurance agents of our Company. CLAFS and our
Company have entered into an exclusive promotional agent (distribution)
agreement with Seligman Financial Services, Inc. ("Seligman Financial").
Seligman Financial is a broker/dealer registered with the SEC under the 1934 Act
and is a member of the NASD. Under the promotional agent distribution agreement,
Seligman Financial will recruit and provide sales training and licensing
assistance to such registered representatives. In addition, Seligman Financial
will prepare sales and promotional materials for the policies. CLAFS will pay
distribution compensation to selling broker/dealers in varying amounts which,
under normal circumstances, are not expected to exceed 6.5% of premium payments
under the policies. We or Seligman Financial may from time to time pay
additional compensation pursuant to promotional contracts. In some
circumstances, Seligman Financial may provide
41
<PAGE> 47
reimbursement of certain sales and marketing expenses. CLAFS will pay the
promotional agent a 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 the offering.
LEGAL PROCEEDINGS
There are at present no legal proceedings to which the Variable Account is a
party or the assets of the Variable Account are subject. We are not involved in
any litigation that is of material importance in relation to our total assets or
that relates to the Variable Account.
VOTING RIGHTS
To the extent deemed to be required by law and as described in the Prospectus
for the Fund, 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
Fund 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.
The number of votes which are available to you will be calculated separately for
each sub-account of the Variable Account, and may include fractional votes. The
number of votes attributable to a sub-account will be determined by applying
your percentage interest, if any, in a particular sub-account to the total
number of votes attributable to that sub-account. You hold a voting interest in
each sub-account to which the Variable Account value is allocated. You only have
voting interest prior to the annuity date or maturity date.
The number of votes of a portfolio which are available to you will be determined
as of the date coincident with the date established for determining shareholders
eligible to vote at the relevant meeting of the Fund. Voting instructions will
be solicited by written communication prior to such meeting in accordance with
procedures established by the Fund.
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 series.
FINANCIAL STATEMENTS
Our balance sheets as of December 31, 1997 and 1996, and the related statements
of operations, accumulated surplus, and cash flows for each of the three years
in the period ended December 31, 1997, as well as the Report of Independent
Auditors and the Actuary's Report thereon, are contained in the Statement of
Additional Information. The Variable Account's statement of net assets as of
December 31, 1997, and the related statements of operations and changes in net
assets for the periods indicated therein, as well as the Report of Independent
Auditors, are contained in the Statement of Additional Information.
42
<PAGE> 48
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.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
ADDITIONAL POLICY PROVISIONS..................................................2
Contract................................................................2
Incontestability........................................................2
Misstatement of Age.....................................................2
Currency................................................................3
Place of Payment........................................................3
Non-Participation.......................................................3
Our Consent.............................................................3
CALCULATION OF YIELDS AND TOTAL RETURNS.......................................3
Cash Management Yields..................................................3
Other Sub-Account Yields................................................4
Total Returns...........................................................5
Effect of the Policy Administration Charge on Performance Data..........7
SAFEKEEPING OF ACCOUNT ASSETS.................................................7
STATE REGULATION..............................................................7
RECORDS AND REPORTS...........................................................7
LEGAL MATTERS.................................................................8
EXPERTS.......................................................................8
OTHER INFORMATION.............................................................8
FINANCIAL STATEMENTS..........................................................8
</TABLE>
43
<PAGE> 49
APPENDIX A: STATE PREMIUM TAXES
Premium taxes vary according to the state and are subject to change. In many
jurisdictions there is no tax at all. For current information, a tax adviser
should be consulted.
<TABLE>
<CAPTION>
TAX RATE
QUALIFIED NONQUALIFIED
STATE CONTRACTS CONTRACTS
<S> <C> <C>
California............................... .50% 2.35%
District of Columbia..................... 2.25 2.25
Kentucky................................. 2.00 2.00
Maine. .................................. .00 2.00
Nevada................................... .00 3.50
South Dakota............................. .00 1.25
West Virginia............................ 1.00 1.00
Wyoming.................................. .00 1.00
</TABLE>
44
<PAGE> 50
PART B
INFORMATION REQUIRED TO BE IN THE
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 51
CANADA LIFE INSURANCE COMPANY OF AMERICA
ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD, NW, ATLANTA, GEORGIA 30339
PHONE: (800) 333-2542
================================================================================
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY ACCOUNT 2
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY POLICY
================================================================================
This Statement of Additional Information contains information in addition to the
information described in the Prospectus for the flexible premium variable
deferred annuity policy (the "policy") offered by Canada Life Insurance Company
of America. This Statement of Additional Information is not a Prospectus, and it
should be read only in conjunction with the Prospectuses for the policy and
Seligman Portfolios, Inc. (the "Fund"). The Prospectuses are dated the same date
as this Statement of Additional Information. You may obtain copies of the
Prospectuses by writing or calling us at our address or phone number shown
above.
The date of this Statement of Additional Information is May 1, 1998.
<PAGE> 52
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
ADDITIONAL POLICY PROVISIONS..............................................................2
Contract.............................................................................2
Incontestability.....................................................................2
Misstatement Of Age..................................................................2
Currency.............................................................................3
Place Of Payment.....................................................................3
Non-Participation....................................................................3
Our Consent..........................................................................3
CALCULATION OF YIELDS AND TOTAL RETURNS...................................................3
Cash Management Yields...............................................................3
Other Sub-Account Yields.............................................................4
Total Returns .......................................................................5
Effect Of The Policy Administration Charge On Performance Data.......................7
SAFEKEEPING OF ACCOUNT ASSETS.............................................................7
STATE REGULATION..........................................................................7
RECORDS AND REPORTS.......................................................................7
LEGAL MATTERS ............................................................................8
EXPERTS ..................................................................................8
OTHER INFORMATION.........................................................................8
FINANCIAL STATEMENTS......................................................................8
</TABLE>
ADDITIONAL POLICY PROVISIONS
CONTRACT
The entire contract is made up of the policy and the application for the policy.
The statements made in the application are deemed representations and not
warranties. We cannot use any statement in defense of a claim or to void the
policy unless it is contained in the application and a copy of the application
is attached to the policy at issue.
INCONTESTABILITY
We will not contest the policy after it has been in force during any annuitant's
lifetime for two years from the date of issue of the policy.
MISSTATEMENT OF AGE
If the age of any annuitant has been misstated, we will pay the amount which the
proceeds would have purchased at the correct age.
If we make an overpayment because of an error in age, the overpayment plus
interest at 3% compounded annually will be a debt against the policy. If the
debt is not repaid, future payments will be reduced accordingly.
If we make an underpayment because of an error in age, any annuity payments will
be recalculated at the correct age, and future payments will be adjusted. The
underpayment with interest at 3% compounded annually will be paid in a single
sum.
2
<PAGE> 53
CURRENCY
All amounts payable under the policy will be paid in United States currency.
PLACE OF PAYMENT
All amounts payable by us will be payable at our Administrative Office at the
address shown on page one of this Statement of Additional Information.
NON-PARTICIPATION
The policy is not eligible for dividends and will not participate in our
divisible surplus.
OUR CONSENT
If our consent is required, it must be given in writing. It must bear the
signature, or a reproduction of the signature, of our President, Secretary or
Actuary.
CALCULATION OF YIELDS AND TOTAL RETURNS
CASH MANAGEMENT YIELDS
We may, from time to time, quote in advertisements and sales literature the
current annualized yield of the Cash Management Sub-Account for a 7 day period
in a manner which does not take into consideration any realized or unrealized
gains or losses on shares of the Cash Management Portfolio or on its portfolio
securities. This current annualized yield is computed by determining the net
change (exclusive of realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) at the end of the 7 day period in the
value of a hypothetical account under a policy having a balance of 1 unit of the
Cash Management Sub-Account at the beginning of the period, dividing such net
change in account value by the value of the account at the beginning of the
period to determine the base period return, and annualizing this quotient on a
365 day basis. The net change in account value reflects: 1) net income from the
portfolio attributable to the hypothetical account; and 2) charges and
deductions imposed under the policy which are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the
hypothetical account for: 1) the policy administration charge; 2) the daily
administration fee; and 3) the mortality and expense risk charge. The yield
calculation reflects an average per unit policy administration charge of $30 per
year 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) 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, 1997 was %.
3
<PAGE> 54
We may also quote the effective yield of the Cash Management Sub-Account for the
same 7 day period, determined on a compounded basis. The effective yield is
calculated by compounding the unannualized base period return according to the
following formula:
365/7
Effective Yield = (1+((NCS-ES)/UV)) - 1
Where:
NCS = the net change in the value of the portfolio (exclusive of
realized gains and losses on the sale of securities and
unrealized appreciation and depreciation) for the 7 day
period attributable to a hypothetical account having a
balance of 1 Sub-Account unit.
ES = per unit expenses of the Sub-Account for the 7 day period.
UV = the unit value for the first day of the 7 day period.
The effective yield for the 7 day period ended December 31, 1997 was %.
Because of the charges and deductions imposed under the policy, the yield for
the Cash Management Sub-Account will be lower than the yield for the Cash
Management Portfolio.
The yields on amounts held in the Cash Management 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 Cash Management Sub-Account's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Cash Management Portfolio, the types and quality of portfolio securities held by
the Cash Management Portfolio of the Fund, and the Cash Management 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 sub-accounts (except the Cash
Management Sub-Account) 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 series attributable to the sub-account units less
sub-account expenses for the period; by 2) the maximum offering price per unit
on the last day of the period multiplied by the daily average number of units
outstanding for the period; by 3) compounding that yield for a 6 month period;
and by 4) multiplying that result by 2. Expenses attributable to the sub-account
include 1) the policy administration charge; 2) the daily administration fee,
and 3) the mortality and expense risk charge. The yield calculation reflects a
policy administration charge of $30 per year per policy deducted at the end of
each policy year. For purposes of calculating the 30 day or one month yield, an
average policy administration charge per dollar of policy value in the Variable
Account is used to determine the amount of the charge attributable to the
sub-account for the 30 day or one month period as described below. The 30 day or
one month yield is calculated according to the following formula:
6
Yield = 2 x ((((NI-ES)/(U x UV)) + 1) - 1)
Where:
NI = net income of the portfolio for the 30 day or one month
period attributable to the sub-account's units.
ES = expenses of the sub-account for the 30 day or one month
period.
U = the average number of units outstanding.
UV = the unit value at the close (highest) of the last day in
the 30 day or one month period.
Because of the charges and deductions imposed under the policies, the yield for
the sub-account will be lower than the yield for the corresponding portfolio.
The yield on the amounts held in the sub-accounts normally will fluctuate over
time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. The
sub-account's actual yield is affected by the types and quality of portfolio
securities held by the portfolio, and its operating expenses.
4
<PAGE> 55
Yield calculations do not take into account the surrender charge under the
policy. The surrender charge is equal to 6% of premiums paid during that current
policy year and the previous 6 policy years on certain amounts surrendered or
withdrawn under the policy as described in the Prospectus. A surrender charge
will not be imposed on the first withdrawal in any policy year on an amount up
to 10% of the premiums paid during that current policy year and the previous 6
policy years, if the systematic withdrawal privilege is not elected in that
policy year.
TOTAL RETURNS
We may, from time to time, also quote in sales literature or advertisements
total returns, including average annual total returns for one or more of the
sub-accounts for various periods of time. We will always include quotes of
average annual total return for the period measured from the date the
sub-account commenced operations. When a sub-account has been in operation for
1, 5, and 10 years, respectively, the average annual total return for these
periods will be provided.
Average annual total returns for other periods of time may, from time to time,
also be disclosed. Average annual total returns represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a policy to the redemption value of that investment as of the last day of
each of the periods. The ending date for each period for which total return
quotations are provided will be for the most recent quarter-end practicable,
considering the type and media of the communication and will be stated in the
communication.
Average annual total returns will be calculated using sub-account unit values
which we calculate on each valuation day based on the performance of the
sub-account's underlying portfolio, and the deductions for the mortality and
expense risk charge, daily administration fee and the policy administration
charge of $30 per year per policy deducted at the end of each policy year. For
purposes of calculating total return, an average per dollar policy
administration charge attributable to the hypothetical account for the period is
used. The total return will then be calculated according to the following
formula:
1/N
TR = ((ERV/P)) - 1
Where:
TR = the average annual total return net of sub-account recurring
charges.
ERV = the ending redeemable value of the hypothetical account at
the end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
Average annual total returns for the periods shown below were:
<TABLE>
<CAPTION>
1 YEAR 5 YEAR RETURN FROM FUND
YEAR ENDED YEAR ENDED INCEPTION DATE FUND
SUB-ACCOUNT* 12/31/97 12/31/97 TO 12/31/97 INCEPTION DATE
------------ -------- -------- ----------- --------------
<S> <C> <C> <C> <C>
Bond (6.98)% 3.35% 4.98% 06/21/88
Capital 7.22% 8.17% 11.68% 06/21/88
Cash Management (1.76)% 1.91% 3.45% 06/21/88
Common Stock 12.69% 11.79% 12.49% 06/21/88
Communications and Information 1.61% *** 18.75% 10/04/94
Frontier 16.48% *** 24.67% 10/04/94
Global Growth Opportunities % *** (7.29)% 05/01/96
Global Smaller Companies 11.29% *** 14.11% 10/04/94
Global Technology % *** (2.56)% 05/01/96
High-Yield Bond 7.31% *** 8.43% 05/01/95
Income (0.52)% 6.75% 7.82% 06/21/88
International (0.10)% *** 6.33% 05/03/93
Large-Cap Value ***** *** ** 05/01/98
Small-Cap Value ***** *** ** 05/01/98
</TABLE>
5
<PAGE> 56
* The Inception Dates of the Sub-Accounts are as follows: Capital, Cash
Management, Common Stock, Bond and Income Portfolios, 06/21/93; International,
05/03/93; Communication and Information, Frontier and Global Smaller Companies,
10/11/94; High-Yield Bond, 05/01/95; and Global Growth Opportunities and Global
Technology, 05/01/96; Large-Cap Value and Small-Cap Value, 05/01/98. These dates
may not coincide with the fund inception dates or with the date of first
activity in the account.
** These Sub-Accounts invest in portfolios that have not been in operation one
year as of December 31, 1997, and accordingly, no one year average annual total
return is available. Thus, the from inception date returns for these
Sub-Accounts were not annualized.
*** These Sub-Accounts invest in portfolios that have not been in operation five
years as of December 31, 1997, and accordingly, no five year average annual
total return is available.
****The date of inception of the Large-Cap Value and Small-Cap Value
Sub-Accounts was May 1, 1998, therefore no average annual total return
information has been provided.
We may, from time to time, also quote in sales literature or advertisements,
total returns that do not reflect the surrender charge. These are calculated in
exactly the same way as average annual total returns described above, except
that the ending redeemable value of the hypothetical account for the period is
replaced with an ending value for the period that does not take into account any
charge on amounts surrendered or withdrawn.
Average annual total returns without a surrender charge for the periods shown
below for the sub-accounts were:
<TABLE>
<CAPTION>
1 YEAR 5 YEAR RETURN FROM FUND
YEAR ENDED YEAR ENDED INCEPTION DATE FUND
SUB-ACCOUNT* 12/31/97 12/31/97 TO 12/31/97 INCEPTION DATE
------------ -------- -------- ----------- --------------
<S> <C> <C> <C> <C>
Bond (1.58)% 3.82% 4.98% 06/21/88
Capi1al 2.62% 8.56% 11.68% 06/21/88
Cash Management 3.64% 2.41% 3.45% 06/21/88
Common Stock 18.09% 12.13% 12.49% 06/21/88
Communications and Information 7.01% *** 20.33% 10/04/94
Frontier 21.88% *** 26.15% 10/04/94
Global Growth Opportunities % *** (1.89)% 05/01/96
Global Smaller Company 16.69% *** 15.77% 10/04/94
Global Technology % *** 2.84% 05/01/96
High-Yield Bond 12.71% *** 11.42% 05/01/95
Income 4.88% 7.17% 7.82% 06/21/88
International 5.30% *** 7.36% 05/03/93
Large-Cap Value**** ** *** ** 05/01/98
Small-Cap Value**** ** *** ** 05/01/98
</TABLE>
* The Inception Dates of the Sub-Accounts are as follows: Capital, Cash
Management, Common Stock, Bond and Income Portfolios, 06/21/93; International,
05/03/93; Communication and Information, Frontier and Global Smaller Companies,
6
<PAGE> 57
10/11/94; High-Yield Bond, 05/01/95; and Global Growth Opportunities and Global
Technology, 05/01/96; Large-Cap Value Fund and Small-Cap Value Fund, 05/01/98 .
These dates may not coincide with the fund inception dates or with the date of
first activity in the account..
** These Sub-Accounts invest in portfolios that have not been in operation one
year as of December 31, 1997, and accordingly, no one year average annual total
return is available. Thus, the from inception date returns for these
Sub-Accounts were not annualized.
*** These Sub-Accounts invest in portfolios that have not been in operation five
years as of December 31, 1997, and accordingly, no five year average annual
total return is available.
****The date of inception of the Large-Cap Value and Small-Cap Value
Sub-Accounts was May 1, 1998, therefore no average annual total return
information has been provided.
EFFECT OF THE POLICY ADMINISTRATION CHARGE ON PERFORMANCE DATA
The policy provides for a $30 policy administration charge to be assessed
annually on each policy anniversary proportionately from any sub-accounts and
Fixed Account in which you are invested. If the policy value on the policy
anniversary is $35,000 or more, we will waive the policy administration charge
for the prior policy year. For purposes of reflecting the policy administration
charge in yield and total return quotations, we will convert the annual charge
into a per-dollar per-day charge based on the average policy value in the
Variable Account of all policies on the last day of the period for which
quotations are provided. The per-dollar per-day average charge will then be
adjusted to reflect the basis upon which the particular quotation is calculated.
SAFEKEEPING OF ACCOUNT ASSETS
We hold the title to the assets of the Variable Account. The assets are kept
physically segregated and held separate and apart from our general account
assets and from the assets in any other separate account we have.
Records are maintained of all purchases and redemptions of portfolio shares held
by each of the sub-accounts.
Our officers and employees are covered by an insurance company blanket bond
issued by America Home Assurance Company to The Canada Life Assurance Company,
our parent Company, in the amount of $25 million. The bond insures against
dishonest and fraudulent acts of officers and employees.
STATE REGULATION
We are subject to the insurance laws and regulations of all the jurisdictions
where we are licensed to operate. The availability of certain policy rights and
provisions depends on state approval and/or filing and review processes. The
policies will be modified to comply with the requirements of each applicable
jurisdiction.
RECORDS AND REPORTS
We will maintain all records and accounts relating to the Variable Account. As
presently required by the Investment Company Act of 1940 and regulations
promulgated thereunder, reports containing such information as may be required
under the Act or by any other applicable law or regulation will be sent to you
semi-annually at your last address known to us.
7
<PAGE> 58
LEGAL MATTERS
All matters relating to Michigan law pertaining to the policies, including the
validity of the policies and our authority to issue the policies, have been
passed upon by David A. Hopkins. Sutherland, Asbill & Brennan, LLP of
Washington, DC, has provided advice on certain matters relating to the federal
securities laws.
EXPERTS
Our balance sheets as of December 31, 1997 and 1996, and the related statements
of operations, accumulated deficit, and cash flows for each of the three years
in the period ended December 31, 1997, included in this Statement of Additional
Information and Registration Statement as well as the Variable Account's
statement of net assets as of December 31, 1997, and the related statements of
operations and changes in net assets for the periods indicated therein included
in this Statement of Additional Information and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, of Atlanta, Georgia, as set
forth in their reports thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933 as amended, with respect to the policies discussed in this Statement of
Additional Information. Not all of the information set forth in the registration
statement, amendments and exhibits thereto has been included in this Statement
of Additional Information. Statements contained in this Statement of Additional
Information concerning the content of the policies and other legal instruments
are intended to be summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the SEC.
FINANCIAL STATEMENTS
The Variable Account's statement of net assets as of December 31, 1997, and the
related statements of operations and changes in net assets for the periods
indicated therein, as well as the Report of Independent Auditors, are contained
herein. Ernst & Young LLP, independent auditors, serves as independent auditors
for the Variable Account.
Our balance sheets as of December 31, 1997 and 1996, and the related statements
of operations, accumulated deficit, and cash flows for each of the three years
in the period ended December 31, 1997, as well as the Report of Independent
Auditors, are contained herein. The financial statements of the Company should
be considered only as bearing on our ability to meet our obligations under the
policies. They should not be considered as bearing on the investment performance
of the assets held in the Variable Account.
8
<PAGE> 59
PART C
OTHER INFORMATION
<PAGE> 60
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements**
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits
(1) Resolution of the Board of Directors of Canada Life Insurance
Company of America (CLICA) authorizing establishment of Variable
Account 2**
(2) Not applicable
(3) (a) Form of Promotional Agent Distribution Agreement**
(b) Form of Selling Agreement**
(c) Distribution Agreement*
(d) Amendment to Distribution Agreement**
(4) (a) Form of Annuity Policy**
(b) Riders and Endorsements**
(5) Form of Application**
(6) (a) Certificate of Incorporation of CLICA*
(b) By-Laws of CLICA*
(7) Not applicable
(8) Form of Buy-Sell Agreement**
(9) Opinion and Consent of Counsel**
(10) (a) Consent of Counsel**
(b) Consent of Independent Counsel**
(c) Consent of Independent Auditors**
(11) No financial statements are excluded from Item 23.
(12) Not applicable
(13) Sample Performance Data Calculation**
- ---------------
* Incorporated herein by reference to Post-Effective Amendment No. 13 to
the Registration Statement on Form N-4 for Variable Account 1 of Canada
Life Insurance Company of America (File No. 33-28889) made April 1997.
** To be provided by amendment.
<PAGE> 61
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Name and Principal
Business Address Positions and Offices with Depositor
------------------ ------------------------------------
<S> <C>
D. A. Nield (1) Chairman & Director
D. A. Loney (2) President & Director
G. E. Hughes (2) Agency Vice President
W. S. McIlwaine (2) Group Sales Vice-President
D. D. Myers (2) Accounting Officer
P. D. Cochrane (1) Administrative Officer
M. L. Craft (2) Administrative Officer
K. T. Ledwos (2) Actuary & Director
S. Benedetti(2) Marketing Actuary
J. G. Deskins(2) Marketing Actuary
M. G. Libenson(1) Internal Auditor
R. W. Linden (1) Secretary
D. A. Hopkins (2) Assistant Secretary
G. N. Isaac (1) Treasurer
D. V. Rough (1) Assistant Treasurer
E. P. Ovsenny (1) Assistant Treasurer
D. N. Rattray (1) Assistant Treasurer
B. J. Lynch (1) Assistant Treasurer
M. V. Sim (1) Assistant Treasurer
K. J. J. Fillman (2) Product Manager Investment Management
Services
S. H. Zimmerman (3) Director
H.A. Rachfalowski(1) Director
K.A. Phelan(1) Assistant Treasurer
</TABLE>
-------------------------
(1) The business address is 330 University Avenue, Toronto,
Ontario, Canada M5G 1R8.
(2) The business address is 6201 Powers Ferry Road, NW, Suite 600,
Atlanta, Georgia 30339.
(3) The business address is 800 Michigan National Tower, Lansing,
Michigan 48933.
<PAGE> 62
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 York Ownership of voting securities Life and Health
New York through 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 England Ownership of all voting securities Real Estate
Limited through Canada Life Irish Operations Investment
CLASSCO Benefit Services Limited Canada Ownership of all voting securities Administrative
through Canada Life Services
Canada Life Casualty Insurance Canada Ownership of all voting securities Property and
Company through Canada Life Insurance Casualty Insurance
INDAGO Capital Management Inc. Canada Ownership of 50% of voting securities Investment
through INDAGO Capital Counseling
Management Inc. and 50% by the executive
employees
Sherway Centre Limited Canada Ownership of all voting securities Real Estate
through Canada Life Broker
The Canada Life Assurance Company Rep. of Ireland Ownership of all voting securities Life and Health
of 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
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
through Canada Life Assurance Sales and
(Ireland) Limited Management
Canada Life Insurance Company US Canada Life Life and Health
of America Insurance
Canada Life of America Financial Georgia Ownership of all voting securities Broker Dealer
Services Inc. through CLICA
</TABLE>
<PAGE> 63
<TABLE>
<S> <C> <C> <C>
Canada Life of America Series Maryland Ownership of all voting securities Mutual Fund
Fund, Inc. through CLICA
CLMS Realty Ltd. Canada 99% of the common shares and 100% Realtor
of the convertible preference
shares are owned by Canada Life
Canada Life Pension & Rep. of Ireland Ownership of all voting securities Life
Annuities (Ireland) Limited through Canada Life Assurance Assurance
(Ireland) Limited
CLAI Limited Rep. of Ireland Ownership of all voting securities Holding,
through Canada Life Ireland Service,
Holdings Limited Management,
and Investment
Company
The Canada Life Assurance Rep. of Ireland Ownership of all voting securities Life Insurance,
(Ireland) Limited through CLAI Limited and the Pension,
Canada Life Assurance Company of and Annuity
Ireland
CL Capital Management, Inc. Georgia Ownership of all voting securities Investment
through CLICA Advisor
Canada Life Capital Canada Ownership of all voting securities External Sources
Corporation Inc. through Canada Life of Capital
Canada Life Securing Canada Ownership of all voting securities Holding Company
Corporation Inc. through Canada Life
The Canada Life Group England Ownership of all voting securities Holding Company
(UK) Limited through Canada life
Canada Life Holdings England The Canada Life Group (UK) Limited Holding Company
(UK) Limited
The Canada Life Assurance England The Canada Life Group (UK) Limited Life and Health
Company of Great Britain Limited Insurance
Canada Life Management (UK) England The Canada Life Group (UK) Limited Unit Trust Sales
Limited & Management
Canada Life Group Services England The Canada Life Group (UK) Limited Administrative
(UK) Limited Services
Canada Life Trustee Services England The Canada Life Group (UK) Limited Trustee
(UK) Limited Services
Canada Life Ireland Holdings Ireland Canada Life Irish Operations Limited Holding
Limited Company
</TABLE>
<PAGE> 64
Item 27. Number of Policy Owners
As of December 31, 1997 there were 3402 owners of Nonqualified
Policies and 1517 owners of Qualified Policies.
Item 28. Indemnification
Canada Life Insurance Company of America's By-Laws provide in Article II,
Section 10 as follows:
In addition to any indemnification to which a person may be entitled to under
common law or otherwise, each person who is or was a director, an officer, or an
employee of this Corporation, or is or was serving at the request of the
Corporation as a director, an officer, a partner, a trustee, or an employee of
another foreign or domestic corporation, partnership, joint venture, trust, or
other enterprises, whether profit or not, shall be indemnified by the
Corporation to the fullest extent permitted by the laws of the State of Michigan
as they may be in effect from time to time. This Corporation may purchase and
maintain insurance on behalf of any such person against any liability asserted
against and incurred by such person in any such capacity or arising out of his
or her status as such, whether or not the corporation would have power to
indenmify such person against such liability under the laws of the State of
Michigan.
In addition, Sections 5241 and 5242 of the Michigan Insurance Code generally
provides that a corporation has the power ( and in some instances the
obligation) to indemnify a director, officer, employee or agent of the
corporation, or a person serving at the request of the corporation as a
director, officer, partner, trustee, employee or agent of another corporation or
other entity (the "indemnities") against reasonably incurred expenses in a
civil, administrative, criminal or investigative action, suit or proceeding if
the indemnitee acted in good faith in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation or its
shareholders or policyholders (or, in the case of a criminal action, if the
indemnitee had no reasonable cause to believe his or her conduct was unlawful).
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinon of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
questions whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
<PAGE> 65
Item 29. Principal Underwriter
Canada Life of America Financial Services, Inc. (CLAFS) is the principal
underwriter of the Policies as defined in the Investment Company Act of 1940.
The following table provides certain information with respect to each director
and officer of CLAFS.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
- ---------------- ----------------
<S> <C>
D.A. Loney** Chairman and Director
D.A. Hopkins** Secretary
D.V. Rough* Treasurer
R.W. Linden* Assistant Secretary
K.T. Ledwos* Administrative Officer and Director
G.E. Hughes** President and Director
K.J. Fillman** Administrative Officer
D.D. Myers** Accounting Officer
</TABLE>
- -------------------
* The business address is 330 University Avenue, Toronto, Ontario, Canada
M5G1RS.
** The business address is 6201 Powers Ferry Road, N.W., Suite 600, Atlanta,
Georgia 30339.
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section
31(a) of the 1940 Act and the rules under it are maintained by
CLICA at its Executive Office at 330 University Avenue, Toronto,
Ontario M5G 1R8 and 6201 Powers Ferry Road, N.W., Suite 600,
Atlanta, Georgia 30339
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post effective
amendment to this registration statement as frequently as
necessary to ensure that the audited financial statements in the
registration statement are never more than 16 months old for so
long as payments under the variable annuity contracts may be
accepted.
(b) Registrant undertakes that it will include either (1) as part of
any application to purchase a contract offered by the prospectus,
a space that an applicant can check to request a Statement of
Additional Information, or (2) a post card or similar written
communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statment of Additional
Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made
available under this Form promptly upon written or oral request
to CLICA at the address or phone number listed in the Prospectus.
<PAGE> 66
(d) Depositor undertakes to preserve on behalf of itself and
Registrant the books and records required to be preserved by such
companies pursuant to Rule 31a-2 under the Investment Company Act
of 1940 and to permit examination of such books and records at
any time or from time to time during business hours by examiners
or other representatives of the Securities and Exchange
Commission, and to furnish to said Commission at its principal
office in Washington, D.C., or at any regional office of said
Commission specified in a demand made by or on behalf of said
Commission for copies of books and records, true, correct,
complete, and current copies of any or all, or any part, of such
books and records.
(e) The Registrant is relying on a letter issued by the staff of the
Securities and Exchange Commission to the American Council of
Life Insurance on November 28, 1988 (Ref. No. IP-6-88) stating
that it would not recommend to the Commission that enforcement
action be taken under Section 22(e), 27(c)(1), or 27(d) of the
Investment Company Act of 1940 if the Registrant, in effect,
permits restrictions on cash distributions from elective
contributions to the extent necessary to comply with Section
403(b)(11) of the Internal Revenue Code of 1986 in accordance
with the following conditions:
(1) include appropriate disclosure regarding the redemption
restrictions imposed by Section 403(b)(11) in each registration
statement, including the prospectus, used in connection with the
offer of the policy;
(2) include appropriate disclosure regarding the redemption
restrictions imposed by Section 403(b)(11) in any sales
literature used in connection with the offer of the policy;
(3) instruct sales representatives who may solicit individuals to
purchase the policies specifically to bring the redemption
restrictions inmposed by Section 403(b)(11) to the attention of
such individuals;
(4) Obtain from each owner who purchases a Section 403(b) policy,
prior to or at the time of such purchase, a signed statement
acknowledging the owner's understanding of (i) the redemption
restrictions imposed by Section 403(b)(11), and (ii) the
investment alternatives available under the employer's Section
403(b) arrangement, to which the owner may elect to transfer his
or her policy value.
The Registrant is complying, and shall comply, with the
provisions of paragraphs (1) - (4) above.
(f) Canada Life Insurance Company of America hereby represents that
the fees and changes deducted under the Policy, in the aggregate,
are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by Canada Life
Insurance Company of America.
<PAGE> 67
STATEMENT PURSUANT TO RULE 6c-7
CLICA and the Variable Account 2 rely on 17 C.F.R., Section 270.6c-7
and represent that the provisions of that Rule have been or will be complied
with. Accordingly, CLICA and the Variable Account 2 are exempt from the
provisions of Section 22(e), 27(c)(1) and 27(d) of the Investment Company Act of
1940 with respect to any variable annuity contract participating in such account
to the extent necessary to permit compliance with the Texas Optional Retirement
Program.
<PAGE> 68
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant has caused this Post-Effective Amendment Number
9 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Toronto, and the Province of Ontario on the
26th day of January 1998.
CANADA LIFE INSURANCE COMPANY OF AMERICA
VARIABLE ANNUITY ACCOUNT 2
By /s/ D. A. Loney
---------------------------------------------
D. A. Loney, President
Canada Life Insurance Company of America
CANADA LIFE INSURANCE COMPANY OF AMERICA
By /s/ D. A. Loney
---------------------------------------------
D. A. Loney, President
As required by the Securities Act of 1933, this Post-Effective Amendment Number
9 has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ D. A. Nield Chairman and Director 02/20/98
- ----------------------------------
D. A. Nield
/s/ D. A. Loney President and Director 01/26/98
- ----------------------------------
D. A. Loney
/s/ K. T. Ledwos Director 02/18/98
- ----------------------------------
K. T. Ledwos
/s/ Henry A. Rachfalowski Director 02/18/98
- ----------------------------------
Henry A. Rachfalowski
/s/ S. H. Zimmerman Director 01/27/98
- ----------------------------------
S. H. Zimmerman
/s/ G. N. Isaac Treasurer 02/18/98
- ----------------------------------
G. N. Isaac
/s/ D. D. Myers Accounting Officer 02/18/98
- ----------------------------------
D. D. Myers
</TABLE>
<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
1 Resolution of the Board of Directors of Canada Life Insurance
Company of America (CLICA) Authorizing Establishment of the
Variable Account 2*
3 (a) Form of Promotional Agent Distribution Agreement*
3 (b) Form of Selling Agreement*
3 (dc) Amendment to Distribution Agreement*
4 (a) Form of Annuity Policy*
4 (b) Riders and Endorsements*
5 Form of Application*
8 (a) Buy-Sell Agreement*
9 Opinion and Consent of Counsel*
10 (a) Consent of Counsel*
13 Sample Performance Data Calculation*
- --------------
* To be provided by amendment.
</TABLE>
