<PAGE>
As Filed with the Securities and Exchange Commission on January 26, 1999.
Registration No.
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 [X]
Pre-Effective Amendment No. [ ]
----
Post-Effective Amendment No. [ ]
----
and/or
Registration Statement Under the Investment Company Act of 1940
Amendment No. 14 [X]
----
================================================================================
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
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of the registration statement.
Title of Securities Being Registered: Individual Flexible Premium Variable
Annuity Contracts.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may determine.
<PAGE>
PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
ADMINISTRATIVE OFFICE: 6201 Powers Ferry Road, NW, Atlanta, Georgia 30339
PHONE: 1-800-905-1959
- --------------------------------------------------------------------------------
TRILLIUM ADVISOR
PROSPECTUS
VARIABLE ANNUITY ACCOUNT 2
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY POLICY
This Prospectus describes the flexible premium variable deferred annuity policy
(the Policy) offered by Canada Life Insurance Company of America (We, Our, Us or
the Company).
The Owner (Policyowner or You) may choose among the 15 divisions (the
Sub-Accounts) of the Canada Life of America Variable Annuity Account 2 (the
Variable Account) and/or the Fixed Account. Assets in each Sub-Account are
invested in a corresponding portfolio of Seligman Portfolios, Inc. (the Fund).
The Fund has 15 portfolios:
<TABLE>
<S> <C>
Seligman Bond* Seligman Henderson Global Smaller Companies**
Seligman Capital* Seligman Henderson Global Technology**
Seligman Cash Management* Seligman Henderson International**
Seligman Common Stock* Seligman High-Yield Bond*
Seligman Communications and Information* Seligman Income*
Seligman Frontier* Seligman Large-Cap Growth*
Seligman Henderson Global Growth Opportunities** Seligman Large-Cap Value*
Seligman Small-Cap Value*
</TABLE>
- --------------------------------------
* Advised by J. & W. Seligman & Co. Incorporated
** Sub-advised by Henderson Investment Management Limited
The Policy Value will vary according to the investment performance of the
portfolio(s) in which the Sub-Accounts you choose are invested, until the Policy
Value is applied to a payment option. You bear the entire investment risk on
amounts allocated to the Variable Account.
This Prospectus provides basic information that a prospective Policyowner ought
to know before investing. Additional information is contained in the Statement
of Additional Information, which has been filed with the Securities and Exchange
Commission. The Statement of Additional Information is dated the same date as
this Prospectus and is incorporated herein by reference. The Table of Contents
for the Statement of Additional Information is included on the last page of this
Prospectus. You may obtain a free copy of the Statement of Additional
Information by writing or calling Us at the address or phone number shown above.
Please read this Prospectus carefully before buying a policy and keep it for
future reference. This Prospectus must be accompanied by a current prospectus
for the Fund. The Fund's prospectus is attached to this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities nor passed upon the accuracy or adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
The Policies and the Fund are not insured by the FDIC nor any other agency. They
are not deposits or other obligations of any bank and are not bank guaranteed.
The Policy described in this Prospectus is subject to market fluctuation,
investment risk and possible loss of principal.
The date of this Prospectus is , 1999.
1
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY................................................................ 3
TABLE OF EXPENSES...................................................... 6
THE COMPANY............................................................ 9
THE VARIABLE ACCOUNT, THE FUND AND THE FIXED ACCOUNT...................10
The Variable Account...............................................10
The Fund 10
Seligman Bond Portfolio.......................................11
Seligman Capital Portfolio....................................11
Seligman Cash Management Portfolio............................11
Seligman Common Stock Portfolio...............................11
Seligman Communications and Information Portfolio.............11
Seligman Frontier Portfolio...................................11
Seligman Henderson Global Growth Opportunities Portfolio......12
Seligman Henderson Global Smaller Companies Portfolio.........12
Seligman Henderson Global Technology Portfolio................12
Seligman Henderson International Portfolio....................12
Seligman High-Yield Bond Portfolio............................12
Seligman Income Portfolio.....................................12
Seligman Large-Cap Growth Portfolio...........................12
Seligman Large-Cap Value Portfolio............................12
Seligman Small-Cap Value Portfolio............................13
Reserved Rights...............................................13
Change in Investment Objective................................13
The Fixed Account..................................................14
Guarantee Amount..............................................14
Guarantee Periods.............................................15
Market Value Adjustment.......................................16
DESCRIPTION OF ANNUITY POLICY..........................................17
Ten Day Right to Examine Policy....................................17
Premium 17
Initial Premium...............................................17
Additional Premium............................................18
Premium Enhancement...........................................18
Pre-Authorized Check Agreement Plan...........................19
Electronic Data Transmission of Application Information.......19
Wire Transmittal Privilege....................................19
Net Premium Allocation........................................20
Cash Surrender Value...............................................20
Policy Value.......................................................20
Variable Account Value.............................................20
Units 20
Unit Value....................................................21
Net Investment Factor.........................................21
Transfers..........................................................21
Transfer Privilege............................................21
Telephone Transfer Privilege..................................22
Intouch(R) Voice Response System..............................22
Dollar Cost Averaging Privilege...............................22
Transfer Processing Fee.......................................23
Payment of Proceeds................................................23
Proceeds 23
Proceeds on Annuity Date......................................23
Proceeds on Surrender.........................................24
Proceeds on Death of Last Surviving Annuitant Before
Annuity Date (The Death Benefit).....................24
Proceeds on Death of Any Policyowner..........................25
Interest on Proceeds..........................................25
Partial Withdrawals................................................25
Systematic Withdrawal Privilege...............................26
Seligman Time Horizon MatrixSM.....................................27
Portfolio Rebalancing..............................................27
Postponement of Payment............................................27
Charges Against the Policy, Variable Account, and Fund.............28
Annual Administration Charge..................................28
Daily Administration Fee......................................28
Transfer Processing Fee.......................................28
Mortality and Expense Risk Charge.............................29
Reduction or Elimination of the Annual Administration Charge..29
Taxes 30
Other Charges Including Investment Management Fees............30
Payment Options....................................................31
Election of Options...........................................31
Description of Payment Options................................31
Payment Dates.................................................31
Age and Survival of Annuitant.................................32
Other Policy Provisions............................................32
Policyowner...................................................32
Beneficiary...................................................32
Termination...................................................32
Written Notice................................................33
Periodic Reports..............................................33
Assignment....................................................33
Modification..................................................33
Notification Of Death.........................................34
YIELDS AND TOTAL RETURNS...............................................34
TAX DEFERRAL...........................................................35
FEDERAL TAX STATUS.....................................................36
Introduction.......................................................36
The Company's Tax Status...........................................36
Tax Status of the Policy...........................................37
Diversification Requirements..................................37
Policyowner Control...........................................37
Required Distributions........................................37
Taxation of Annuities..............................................38
In General....................................................38
Withdrawals/Distributions.....................................39
Annuity Payments..............................................39
Taxation of Death Benefit Proceeds............................39
Penalty Tax on Certain Withdrawals............................40
Transfers, Assignments, or Exchanges of a Policy...................40
Withholding........................................................40
Multiple Policies..................................................40
Possible Tax Changes...............................................41
Taxation of Qualified Plans........................................41
Individual Retirement Annuities and Simplified Employee
Pensions (SEP/IRAs)..................................41
SIMPLE Individual Retirement Annuities........................42
ROTH Individual Retirement Annuities..........................42
Minimum Distribution Requirements.............................42
Corporate And Self-Employed (H.R.10 and Keogh) Pension
And Profit-Sharing Plans.............................43
Deferred Compensation Plans...................................43
Tax-Sheltered Annuity Plans...................................44
Other Tax Consequences.............................................44
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM...............44
DISTRIBUTION OF POLICIES...............................................45
LEGAL PROCEEDINGS......................................................45
VOTING RIGHTS..........................................................45
INSURANCE MARKETPLACE STANDARDS ASSOCIATION............................46
PREPARING FOR YEAR 2000................................................46
FINANCIAL STATEMENTS...................................................47
DEFINITIONS............................................................48
STATEMENT OF ADDITIONAL INFORMATION - TABLE OF CONTENTS................50
APPENDIX A: STATE PREMIUM TAXES........................................51
</TABLE>
2
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SUMMARY
This summary provides a brief description of some of the features and charges of
the Policy offered by Us. You will find more detailed information in the rest of
this Prospectus, the Statement of Additional Information and the Policy. Please
keep the Policy and its riders or endorsements, if any, together with the
application. Together they are the entire agreement between You and Us.
HOW DO I PURCHASE A POLICY?
You may purchase a Policy with a premium payment of at least $5,000 (generally
$2,000 if the Policy is an Individual Retirement Annuity (IRA)). You may
purchase a Policy with a premium of $100 (generally $50 if the Policy is an
IRA), if the premium payment is submitted with a pre-authorized check (PAC)
agreement. See "Premiums" and "Pre-Authorized Check Agreement Plan."
CAN I MAKE ADDITIONAL PREMIUM PAYMENTS?
You may make additional premium payments during any Annuitant's lifetime and
before the Annuity Date. Additional premium payments must be at least $1,000 or
$100 per month if paid by PAC (or $50 per month if paid by PAC and the Policy is
an IRA). You must obtain prior approval before Your total premiums paid can
exceed $1,000,000. See "Premiums."
HOW DOES THE TEN DAY RIGHT TO EXAMINE THE POLICY WORK?
Generally, You have ten days after You receive the Policy to decide if You would
like to cancel the Policy. Depending on which state you live in, we will return
either the Policy Value or the full premium paid (without interest and less the
amount of any partial withdrawals). If the Policy is issued as an IRA and
canceled within 7 days, We will return all premiums if the premiums are greater
than the amount otherwise payable. The right to examine period and the amount
refunded may vary from state to state.
See "Ten Day Right to Examine Policy."
WHAT IS THE PURPOSE OF THE VARIABLE ACCOUNT?
The Variable Account is a separate investment account that consists of 15
Sub-Accounts. Before the Policy Value is applied to a payment option, amounts in
the Variable Account will vary according to the investment performance of the
portfolios of the Fund in which Your elected Sub-Accounts are invested. You may
allocate Your Net Premium among the Fixed Account and the 15 Sub-Accounts of the
Variable Account. The assets of each Sub-Account are invested in the
corresponding portfolios of the Fund that are listed on the cover page of this
Prospectus. See "The Variable Account" and "The Fund."
HOW DOES THE FIXED ACCOUNT WORK?
You may allocate all or part of Net Premiums or make transfers from the Variable
Account to several sections (the Guarantee Periods) of the Fixed Account
selected by You.
. Currently, You may select a Guarantee Period with a duration of one,
three, five, seven, or ten years.
. If the amount in a Guarantee Period remains until the end of the
Guarantee Period, the value of the amount will equal the amount
originally placed in the Guarantee Period increased by an interest
rate, annually compounded, designated for that Guarantee Period.
3
<PAGE>
Market Value Adjustment. A surrender, withdrawal, or transfer made before the
end of a Guarantee Period is subject to an adjustment that may increase or
decrease the amount in the Guarantee Period. The adjustment never results in a
reduction of earnings to less than 3 percent per year on the amount allocated to
the Guarantee Period. This adjustment does not apply to the one year Guarantee
Period. The Fixed Account, Market Value Adjustment and certain Guarantee Periods
may not be available in all jurisdictions. The Fixed Account is not affected by
the investment performance of the Variable Account. See "The Fixed Account" and
"Market Value Adjustment."
WHEN WILL I RECEIVE PAYMENTS?
After the Policy Value is transferred to a payment option, We will pay proceeds
in equal amounts monthly, quarterly or annually during the payee's lifetime or
for 10 years, whichever is longer, unless You have elected another payment
option. See "Proceeds on Annuity Date."
WHAT HAPPENS IF THE OWNER DIES?
If any Owner dies before the Policy Value is transferred to a payment option, We
will pay the Beneficiary the Policy Value as of the date we receive proof of the
Owner's death. See "Proceeds on Death of Any Owner."
WHAT HAPPENS IF THE LAST SURVIVING ANNUITANT DIES?
If the Last Surviving Annuitant dies before the Policy Value is transferred to a
payment option, We will pay the Beneficiary a Death Benefit.
The Death Benefit is the greater of:
1. the premiums paid, less any partial withdrawals and incurred taxes; or
2. the Policy Value on the date We receive Due Proof of Death.
For Policyowners who have chosen on the application to pay an additional
Mortality and Expense Risk Charge of 0.15%, the Death Benefit is the greatest
of:
1. item "1" above;
2. item "2" above; or
3. the greatest Policy Value occurring before both the date the Last
Surviving Annuitant attained age 81 and the date We receive Due Proof
of the Annuitant's death. This value will be adjusted for any partial
withdrawals, incurred taxes, and premiums paid that occur after such
Policy Anniversary.
If on the date the Policy was issued any Annuitant was attained age 81 or older,
either Death Benefit is the Policy Value on the date We receive Due Proof of
Death.
See "Proceeds on Death of Last Surviving Annuitant Before Annuity Date (The
Death Benefit)."
CAN I GET MONEY OUT OF MY POLICY?
You may withdraw part or all of the Cash Surrender Value at any time before the
earlier of the death of the Last Surviving Annuitant, the death of any Owner, or
the date when the value in the Policy is
4
<PAGE>
transferred to a payment option, subject to certain limitations. See "The Fixed
Account," "Partial Withdrawals" and "Proceeds on Surrender." A partial
withdrawal or a surrender may incur federal income tax, including a federal
penalty tax. See "FEDERAL TAX STATUS."
WHAT CHARGES WILL I PAY?
Surrender Charge: There are no surrender charges when a partial withdrawal or
cash surrender is made.
Annual Administration Charge: We deduct an Annual Administration Charge of $30
for the prior Policy Year on each Policy Anniversary. We will also deduct this
charge for the current Policy Year if the Policy is surrendered for its Cash
Surrender Value, unless the surrender occurs on the Policy Anniversary. If the
Policy Value on the Policy Anniversary is $35,000 or more, We will waive the
Annual Administration Charge for the prior Policy Year. We will also waive the
Annual Administration Charge if the Policy is a Tax-Sheltered Annuity. See
"Annual Administration Charge."
Daily Administration Fee: We also deduct a daily administration fee each day at
an annual rate of 0.20% from the assets of the Variable Account. See "Daily
Administration Fee."
Transfer Processing Fee: The first 12 transfers during each Policy Year are
free. We currently assess a $25 transfer fee for the 13th and each additional
transfer in a Policy Year. See "Transfer Processing Fee."
Mortality and Expense Risk Charge: We deduct a mortality and expense risk charge
each day from the assets of the Variable Account at an annual rate of 1.25%. We
charge an additional 0.15% if You choose on the application to receive an
enhanced Death Benefit. See "Annualized Mortality and Expense Risk Charge" and
"Proceeds on Death of Last Surviving Annuitant Before Annuity Date (The Death
Benefit)."
Premium Taxes: In some states, a charge for applicable premium taxes ranging
from 0 - 3.5% is deducted from the premium when paid, resulting in Net Premium.
Investment Management Fees: Each portfolio of the Fund in which the Variable
Account invests is responsible for its own expenses. In addition, charges for
the investment management services and operating expenses are deducted charged
daily from each portfolio of the Fund as a percentage of the average net assets
of the portfolios. See "Other Charges Including Investment Management Fees" and
the attached Fund prospectus.
ARE THERE ANY OTHER POLICY PROVISIONS?
For information concerning the Owner, Beneficiary, Written Notice, periodic
reports, assignment, modification and other important Policy provisions, see
"Other Policy Provisions."
HOW WILL THE POLICY BE TAXED?
For a brief discussion of Our current understanding of the federal tax laws
concerning Us and the Policy, see "FEDERAL TAX STATUS."
5
<PAGE>
WHAT IF I HAVE QUESTIONS?
We will be happy to answer Your questions about the Policy or Our procedures.
Call or write to Us at the phone number or address on page 1. All inquiries
should include the Policy number and the names of the Owner and the Annuitant.
If You have questions concerning Your investment strategies, please contact Your
registered representative.
TABLE OF EXPENSES
This table is intended to assist You in understanding the various costs and
expenses that You will bear directly or indirectly. It reflects expenses of the
Variable Account as well as the Fund.
EXPENSE DATA
The following information regarding expenses assumes that the entire Policy
Value is in the Variable Account.
POLICYOWNER TRANSACTION EXPENSES
--------------------------------
Sales load on purchase payments........................................None
Maximum contingent deferred sales charge as a percentage of amount
surrendered............................................................None
Transfer fee
Current Policy - First 12 transfers each Policy Year:................fee
Each transfer thereafter:...............................$25 per transfer
Transfer fee when using the Intouch(R) Voice Response System......No fee
ANNUAL ADMINISTRATION CHARGE
----------------------------
Per Policy per Policy Year:.............................................$30
(waived for the prior Policy Year if the Policy Value is $35,000 or more
on the Policy Anniversary or if the Policy is a Tax-Sheltered Annuity)
VARIABLE ACCOUNT ANNUAL EXPENSES
--------------------------------
(as a percentage of average account value)
Mortality and expense risk charges....................................1.25%
Annual rate of daily administration fee...............................0.20%
-----
Total Variable Account annual expenses................................1.45%
VARIABLE ACCOUNT ANNUAL EXPENSES (IF ENHANCED DEATH BENEFIT CHOSEN)
--------------------------------
(as a percentage of average account value)
Mortality and expense risk charges....................................1.40%
Annual rate of daily administration fee...............................0.20%
-----
Total Variable Account annual expenses................................1.60%
FUND ANNUAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------
(as a percentage of average net assets)
6
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<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL
PORTFOLIO MANAGEMENT (AFTER ANNUAL
---------
FEES REIMBURSEMENT)*** EXPENSES
----------- ------------------ --------
<S> <C> <C> <C>
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 Henderson International
Seligman High-Yield Bond
Seligman Income
Seligman Large-Cap Growth
Seligman Large-Cap Value *
Seligman Small-Cap Value **
</TABLE>
* The annual rate of 0.80% applies to the portfolio's first $500 million in
average daily net assets. The rate declines to 0.70% of the portfolio's average
daily net assets on the next $500 million in net assets, and to 0.60% of the
portfolio's average daily net assets in excess of $1 billion.
** The annual rate of 1.00% applies to the portfolio's first $500 million in
average daily net assets. The rate declines to 0.90% of the portfolio's average
daily net assets on the next $500 million in net assets, and to 0.80% of the
portfolio's average daily net assets in excess of $1 billion.
*** The following should be noted regarding Management Fees and Other Expenses:
. The 0.00% Management Fee charge for the Seligman Cash Management
portfolio is because the Manager, in its sole discretion, waived its
0.40% fee during 1998.
. With respect to the Seligman Bond, Seligman Capital, Seligman Cash
Management, Seligman Common Stock, Seligman Communications and
Information, Seligman Frontier, Seligman High-Yield Bond, and Seligman
Income portfolios, Other Expenses After Reimbursement reflect that
annual expenses (other than Management Fees) exceeding 0.20% (0.00%
for Cash Management) will be voluntarily reimbursed by the Fund's
Manager.
. The Manager has voluntarily agreed to reimburse 1998 annual expenses
(including Management Fees) that exceed 0.80% for the Seligman Large-
Cap Value and 1.00% for the Seligman Small-Cap Value portfolios.
. With respect to the Seligman Henderson International, Seligman
Henderson Global Smaller Companies, Seligman Henderson Global
Technology and Seligman Henderson Global Growth Opportunities
portfolios, the Sub-Advisor has agreed to reimburse annual expenses
(other than Management Fees) that exceed 0.40% of average net assets.
. With respect to the Seligman Large-Cap Growth portfolio,.............
If the Manager and Sub-Advisor had not waived or reimbursed these expenses, the
Fund's 1998 Other Expenses would have been:
PORTFOLIO OTHER EXPENSES
--------- --------------
Seligman Bond %
Seligman Capital %
7
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PORTFOLIO OTHER EXPENSES
--------- --------------
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 Henderson International %
Seligman High-Yield Bond %
Seligman Income %
Seligman Large-Cap Growth %
Seligman Large-Cap Value %
Seligman Small-Cap Value %
There is no assurance that these waiver or reimbursement policies will be
continued in the future. If any of these policies are discontinued, it will
be reflected in an updated prospectus.
The data with respect to the Fund's annual expenses have been provided to Us by
the Fund and We have not independently verified such data.
For a more complete description of the various costs and expenses, see "Charges
Against the Policy, Variable Account and Fund" and the prospectus for the Fund.
In addition to the expenses listed above, premium taxes may be applicable (see
"Appendix A: State Premium Taxes") and a Market Value Adjustment may apply to
amounts held in the Fixed Account (see "Market Value Adjustment").
EXAMPLES
1. A Policyowner would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
SUB-ACCOUNT 1 YEAR 3 YEAR
----------- ------ ------
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 Growth
Large-Cap Value
8
<PAGE>
SUB-ACCOUNT 1 YEAR 3 YEAR
----------- ------ ------
Small-Cap Value
2. If the enhanced Death Benefit with a higher mortality and expense charge has
been chosen, the Policyowner would pay the following expenses on a $1,000
investment, assuming a 5% annual return on assets:
SUB-ACCOUNT 1 YEAR 3 YEAR
----------- ------ ------
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 Growth
Large-Cap Value
Small-Cap Value
These Examples are based, with respect to all of the Portfolios, on an estimated
average account value of $ . The Examples assume that no transfer charge or
Market Value Adjustment has been assessed. The Examples also reflect an Annual
Administration Charge of % of assets, determined by dividing the total Annual
Administration Charge collected by the total average net assets of the
Sub-Accounts of the Variable Account.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE
ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESSER
THAN THE ASSUMED AMOUNT.
THE COMPANY
We are a stock life insurance company with assets as of December 31, 1998 of
approximately $ billion (U.S. dollars). 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 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 and Our ratings from
Standard & Poor's Corporation, Duff & Phelps Inc., and/or Moody's Investors
Service for claims paying ability. These ratings relate to Our financial ability
to meet Our contractual obligations under Our insurance contracts. They do not
take into account deductibles, surrender or cancellation penalties, or
timeliness of claim payment. They also
9
<PAGE>
do not address the suitability of a Policy for a particular purchaser, or relate
to Our ability to meet non-policy obligations.
We are a wholly-owned subsidiary of The Canada Life Assurance Company, a
Canadian life insurance company headquartered in Toronto, Ontario, Canada. The
Canada Life Assurance Company commenced insurance operations in 1847 and has
been actively operating in the United States since 1889. It is one of the
largest life insurance companies in North America with consolidated assets as of
December 31, 1998 of approximately $ 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 laws and regulations of all jurisdictions in which We are
authorized to do business.
THE VARIABLE ACCOUNT, THE FUND AND THE 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. We have the
right to transfer to Our general account any assets of the Variable Account
which are in excess of such reserves and other liabilities.
The Variable Account is registered with the Securities and Exchange Commission
(the SEC) as a unit investment trust under the Investment Company Act of 1940
(the 1940 Act) and meets the definition of a "separate account" under the
federal securities laws. However, the SEC does not supervise the management,
investment policies or practices of the Variable Account.
The Variable Account currently is divided into 15 Sub-Accounts. Each Sub-Account
invests its assets in shares of the corresponding portfolio of the Fund
described below.
THE FUND
The Fund has 15 portfolios:
<TABLE>
<S> <C>
Seligman Bond Seligman Henderson Global Smaller Companies
Seligman Capital Seligman Henderson Global Technology
Seligman Cash Management Seligman Henderson International
Seligman Common Stock Seligman High-Yield Bond
Seligman Communications and Information Seligman Income
Seligman Frontier Seligman Large-Cap Growth
Seligman Henderson Global Growth Opportunities Seligman Large-Cap Value
Seligman Small-Cap Value
</TABLE>
10
<PAGE>
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 are 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.
It uses the investment management services of J. & W. Seligman & Co.
Incorporated (the Seligman Henderson Global Growth Opportunities, Seligman
Henderson Global Smaller Companies, Seligman Henderson Global Technology, and
Seligman Henderson International Portfolios use the sub-advisory services of
Henderson Investment Management Limited).
The following is a brief description of the investment objectives of each of the
Fund's portfolios. THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF ANY
PORTFOLIO WILL BE ACHIEVED. Please see the attached prospectus for the Fund for
more detailed information.
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 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 and rights, 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 FRONTIER PORTFOLIO
This Portfolio seeks to produce growth in capital value; income may be
considered but will be only
11
<PAGE>
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 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 with
business operations in technology and technology-related industries.
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.
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 will 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 GROWTH PORTFOLIO
This Portfolio seeks long-term capital appreciation by investing primarily in
the common stocks of large U.S. based corporations.
SELIGMAN LARGE-CAP VALUE PORTFOLIO
This Portfolio seeks capital appreciation by investing in equity securities of
companies with large market capitalizations deemed to be value companies by the
investment manager.
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<PAGE>
SELIGMAN SMALL-CAP VALUE PORTFOLIO
This Portfolio seeks capital appreciation by investing in equity securities of
companies with small market capitalizations deemed to be value companies by the
investment manager.
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. We, the
Fund's Board of Directors, the Fund's investment manager, 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 BEFORE
INVESTING.
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 our judgment,
investment in shares of a current portfolio(s) is no longer appropriate. This
decision will be based on a legitimate reason, such as a change in investment
objective, a change in the tax laws, or the shares are no longer available for
investment. We will first obtain SEC approval , if such approval is required by
law.
When permitted by law, We also reserve the right to:
. create new separate accounts;
. combine separate accounts, including the Canada Life of America
Variable Annuity Account 1;
. remove, combine or add Sub-Accounts and make the new Sub-Accounts
available to Policyowners at Our discretion;
. add new portfolios of the Fund or of other registered investment
companies;
. deregister the Variable Account under the 1940 Act if registration is
no longer required;
. make any changes required by the 1940 Act; and
. operate the Variable Account as a managed investment company under the
1940 Act or any other form permitted by law.
If a change is made, We will send You a revised prospectus and any notice
required by law.
CHANGE IN INVESTMENT OBJECTIVE
The investment objective of a Sub-Account may not be changed unless the change
is approved, if required, by the Michigan Insurance Bureau. A statement of such
approval will be filed, if required, with
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<PAGE>
the insurance department of the state in which the Policy is delivered.
THE FIXED ACCOUNT
You may allocate some or all of the Net Premium and/or make transfers from the
Variable Account to the Fixed Account. The Fixed Account pays interest at
declared rates (Guaranteed Interest Rates) guaranteed for selected periods of
time (Guarantee Periods).
The principal, after deductions, is also guaranteed.
Policyowners allocating Net Premium and/or Policy Value to the Fixed Account do
not participate in the investment performance of assets of the Fixed Account.
The Fixed Account value is calculated by:
. adding the Net Premium and Policy/or Value allocated to it;
. adding the Guaranteed Interest Rate credited on amounts in it; and
. subtracting any charges or Market Value Adjustments imposed on amounts
in it in accordance with the terms of the Policy
The following also applies to the Fixed Account:
. The Fixed Account is part of Our general account. We assume the risk
of investment gain or loss on this amount. All assets in the general
account are subject to Our general liabilities from business
operations. The Fixed Account is not affected by the investment
performance of the Variable Account.
. Interests issued by Us in connection with the Fixed Account have not
been registered under the Securities Act of 1933 (the 1933 Act). Also,
neither the Fixed Account nor the general account has been registered
as an investment company under the 1940 Act. So, neither the Fixed
Account nor the general account is generally subject to regulation
under either Act. However, certain disclosures may be subject to
generally applicable provisions of the federal securities laws
regarding the accuracy of statements made in a registration statement.
. The Fixed Account may not be available in all states.
GUARANTEE AMOUNT
The Guarantee Amount is the portion of the Policy Value allocated to the Fixed
Account. The Guarantee Amount includes:
. Net Premium allocated to Guarantee Periods;
. Policy Value transferred to Guarantee Periods;
. interest credited to the Policy Value in the Guarantee Periods; and
. charges assessed in connection with the Policy.
If the Guarantee Amount in a Guarantee Period remains until the end of the
Guarantee Period, the value will be equal to the amount originally placed in the
Guarantee Period increased by its Guaranteed Interest Rate (compounded
annually). If a Guarantee Amount is surrendered, withdrawn, or transferred prior
to the end of the Guarantee Period, it may be subject to a Market Value
Adjustment, as described below. This may result in the payment of a Guarantee
Amount greater or less than the Guarantee Amount at the time of the transaction.
14
<PAGE>
The Guarantee Amount is guaranteed to accumulate at a minimum effective annual
interest rate of 3%.
GUARANTEE PERIODS
Guarantee Periods are specific intervals of time over which the Guarantee Amount
is credited with interest at a specific Guaranteed Interest Rate. We currently
offer Guarantee Periods of one, three, five, seven and ten years. We will always
offer a Guarantee Period of one year. Since the specific Guarantee Periods
available may change periodically, please contact Our Administrative Office to
determine the Guarantee Periods currently being offered. Guarantee Periods may
not be available in all states.
Beginning and Ending of Guarantee Periods. Guarantee Periods begin on the date a
Net Premium is allocated to, or a portion of the Policy Value is transferred to,
the Guarantee Period. Guarantee Periods end on the last calendar day of the
month when the number of years in the Guarantee Period chosen (measured from the
end of the month in which the amount was allocated or transferred to the
Guarantee Period) has elapsed.
Guaranteed Interest Rates. Once an amount has been allocated or transferred to a
Guarantee Period, the applicable Guaranteed Interest Rate will not change during
that Guarantee Period. However, Guaranteed Interest Rates for different
allocations and transfers may differ, depending on the timing of the allocation
and transfer.
Expiration of Guarantee Period. During the 30 day period following the end of a
Guarantee Period (30 day window), a Policyowner may transfer the Guarantee
Amount to a new Guarantee Period or to a Sub-Account(s). A Market Value
Adjustment will not apply if the Guarantee Amount is surrendered, withdrawn, or
transferred during the 30 day window. During the 30 day window, the Guarantee
Amount will generally accrue interest at an annual effective rate of 3%.
However, if the Guarantee Amount is placed in another Guarantee Period You will
receive the interest rate for that Guarantee Period.
Prior to the expiration date of any Guarantee Period, We will notify You of
available Guarantee Periods and their corresponding Guaranteed Interest Rates.
. A new Guarantee Period of the same length as the previous Guarantee
Period will begin automatically on the first day following the expired
Guarantee Period, unless We receive Written Notice, prior to the end
of the 30 day window, containing instructions to transfer all or a
portion of the expiring Guarantee Amount to a Sub-Account(s) or a
Guarantee Period.
. If We do not receive such Written Notice and are not offering a
Guarantee Period of the same length as the expiring Guarantee Period,
then a new Guarantee Period of one year will begin automatically on
the first day following the end of the expired Guarantee Period.
. A Guarantee Period of one year will also begin automatically if
renewal of the expiring Guarantee Period would continue the Policy
beyond its Annuity Date.
Reserved Rights. To the extent permitted by law, We reserve the right at any
time to:
1. offer Guarantee Periods that differ from those available when a
Policyowner's Policy was issued; and
2. stop accepting Net Premium allocations or transfers of Policy Value to
a particular Guarantee Period.
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<PAGE>
Dollar Cost Averaging. From time to time We may offer a special Guarantee
Period, not to exceed one year, whereby You may elect to automatically transfer
specified additional premium from this account to any Sub-Account(s) and/or
other Guarantee Period(s) on a periodic basis, for a period not to exceed twelve
months. This special Guarantee Period is subject to Our administrative
procedures and the restrictions disclosed in the "Transfer Privilege" section. A
special interest rate may be offered for this Guarantee Period, which may differ
from that offered for any other one year Guarantee Period. The available
interest rate will always be an effective annual interest rate of at least 3%.
This Guarantee Period is used solely in connection with the "dollar cost
averaging" privilege (see "Dollar Cost Averaging Privilege").
MARKET VALUE ADJUSTMENT
A Market Value Adjustment compares:
(i) the Guaranteed Interest Rate applied to the Guarantee Period from
which a Guarantee Amount is surrendered, withdrawn, or transferred;
and
(ii) the current Guaranteed Interest Rate that is credited for an equal
Guarantee Period.
If an equal Guarantee Period is not offered, We will use the linear
interpolation of the Guaranteed Interest Rates for the Guarantee Periods closest
in duration that are offered. Any surrender, withdrawal, or transfer of a
Guarantee Amount is subject to a Market Value Adjustment, unless:
. the Effective Date of the surrender, withdrawal, or transfer is within
30 days after the end of a Guarantee Period;
. the surrender, withdrawal or transfer is from the one year Guarantee
Period; or
. the surrender, withdrawal or transfer is to provide death benefits,
nursing home benefits, terminal illness benefits or annuitization.
The Market Value Adjustment will be applied after deducting any Annual
Administration Charge or transfer fees, but before deducting any taxes incurred.
The Market Value Adjustment will never invade principal nor reduce earnings on
amounts allocated to the Fixed Account to less than 3% per year.
On the date the Market Value Adjustment is to be applied, one of the following
will happen:
. If the Guaranteed Interest Rate for the selected Guarantee Period,
less 0.50%, is less than the Guaranteed Interest Rate currently being
offered for new Guarantee Periods of equal length, the Market Value
Adjustment will result in the payment of an amount less than the
Guarantee Amount (or portion thereof) being surrendered, withdrawn, or
transferred.
. If the Guaranteed Interest Rate for the selected Guarantee Period is
greater than 0.50% plus the Guaranteed Interest Rate currently being
offered for new Guarantee Periods of equal length, the Market Value
Adjustment will result in the payment 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 by the Market Value Adjustment Factor.
The Market Value Adjustment Factor is calculated as follows:
Market Value Adjustment Factor = Lesser of (a) (1 + i) /n/12/
-------------- - 1
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(1 +r + .005)/n/12/
or (b) .05
where:
"i" is the Guaranteed Interest Rate currently being credited to the
amount being surrendered, withdrawn, or transferred;
"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 being surrendered, withdrawn, or
transferred 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 being
surrendered, withdrawn, or transferred is taken.
DESCRIPTION OF ANNUITY POLICY
TEN DAY RIGHT TO EXAMINE POLICY
Generally, You have ten days after You receive the Policy to decide if You would
like to cancel the Policy. In California You have 30 days if You are age 60 or
over, in Colorado You have 15 days, and in Idaho and North Dakota You have 20
days.
If the Policy does not meet Your needs, return it to Our Administrative Office.
Within seven days of receipt of the Policy, We will return the Policy Value. 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.
When the Policy is issued as an IRA and canceled within seven days, We will
return all premiums if the premiums are greater than the amount otherwise
payable.
PREMIUM
INITIAL PREMIUM
You must submit a complete application and check made payable to Us for the
initial premium. The following chart outlines the minimum initial premium
accepted.
<TABLE>
<CAPTION>
MINIMUM INITIAL
TYPE OF POLICY PREMIUM ACCEPTED*
<S> <C>
Policy is an IRA.............................................................................. $2,000
Policy is not an IRA.......................................................................... $5,000
Policy is IRA and PAC agreement** for additional premiums submitted........................... $ 50
Policy is not an IRA and PAC agreement for additional premiums submitted...................... $ 100
</TABLE>
* We reserve the right to lower or raise the minimum initial premium.
** For more information on PAC agreements, see "Pre-Authorized Check Agreement
Plan."
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<PAGE>
The application must meet Our underwriting standards. The application must be
properly completed and accompanied by all the information necessary to process
it, including the initial premium. We will normally accept the application and
apply the initial Net Premium within two Valuation Days of receipt at Our
Administrative Office. However, We may hold the premium for up to five Valuation
Days while We attempt to complete the processing of an incomplete application.
If this cannot be done within five Valuation Days, We will inform You of the
reasons for the delay and immediately return the premium, unless You
specifically consent to Our keeping the premium until the application is made
complete. We will then apply the initial Net Premium within two Valuation Days
of when the application is correctly completed.
ADDITIONAL PREMIUM
You may make additional premium payments at any time during any Annuitant's
lifetime and before the Annuity Date. Our prior approval is required before We
will accept an additional premium which, together with the total of other
premiums paid, would exceed $1,000,000. We will apply additional Net Premium as
of receipt at Our Administrative Office. We will give You a receipt for each
additional premium payment.
The following chart outlines the minimum additional premium accepted.
<TABLE>
<CAPTION>
MINIMUM ADDITIONAL
TYPE OF POLICY PREMIUM ACCEPTED*
<S> <C>
Policy is an IRA........................................................................... $1,000
Policy is not an IRA....................................................................... $1,000
Policy is IRA and PAC agreement** for additional premiums submitted........................ $ 50
Policy is not an IRA and PAC agreement for additional premiums submitted................... $ 100
</TABLE>
* We reserve the right to lower or raise the minimum additional premium.
** For more information on PAC agreements, see "Pre-Authorized Check Agreement
Plan."
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<PAGE>
PRE-AUTHORIZED CHECK AGREEMENT PLAN
You may choose to have monthly premiums automatically collected from Your
checking or savings account pursuant to a pre-authorized check agreement plan
(PAC). This plan may be terminated by You or Us after 30 days Written Notice, or
at any time by Us if a payment has not been paid by Your bank. This option is
not available on the 29th, 30th or 31st day of each month. There is no charge
for this feature.
ELECTRONIC DATA TRANSMISSION OF APPLICATION INFORMATION
In certain states, We may accept electronic data transmission of application
information accompanied by a wire transfer of the initial premium. 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 Your instructions. We
will then send a Policy and verification letter to You to sign.
During the period from receipt of the initial premium until the signed
verification letter is received, no financial transactions may be executed under
the Policy, unless You request such transactions in writing and provide a
signature guarantee.
WIRE TRANSMITTAL PRIVILEGE
We may accept transmittal of premium by wire order from Your broker/dealer to
Our financial institution. A copy of the transmittal must be simultaneously
sent, by telephone facsimile, to Our Administrative Office. The transmittal must
contain the information required to process the application and/or to allocate
the premium.
Normally, initial premium is applied within two Valuation Days after receipt. If
incomplete information is sent, We may hold Your wire order for up to five
Valuation Days while We try to obtain the missing information. If this
information is not obtained within five Valuation Days, We will inform Your
broker/dealer of the reasons for the delay and immediately return the premium.
Your broker/dealer will return the full premium paid to You. However, if We
receive, within such five Valuation Days, Your written consent, We will keep the
premium until We receive the required information via facsimile transmission.
Our acceptance of the wire order and facsimile does not create a contract
between Us until We receive and accept a properly completed original
application. If We do not receive one within ten Valuation Days of receipt of
the initial wire order premium, We will return the premium to the broker/dealer,
who will return the full premium paid to You.
If the allocation instructions in Your application are inconsistent with the
instructions in the facsimile transmission, the Policy Value will be reallocated
in accordance with the instructions in the application at the price which was
next determined after receipt of the application.
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<PAGE>
NET PREMIUM ALLOCATION
You elect in Your application how You want Your initial Net Premium to be
allocated among the Sub-Accounts and the Fixed Account. Any additional Net
Premium will be allocated in the same manner unless, at the time of payment, We
have received Your Written Notice to the contrary.
We cannot guarantee that a Sub-Account or shares of a portfolio will always be
available. If You request that all or part of a premium be allocated to a
Sub-Account or underlying portfolio that is not available, We will immediately
return that portion of the premium to You, unless You specify otherwise.
CASH SURRENDER VALUE
The Cash Surrender Value is the Policy Value less any applicable Annual
Administration Charge and Market Value Adjustment.
POLICY VALUE
The Policy Value is the sum of the Variable Account value and the Fixed Account
value.
VARIABLE ACCOUNT VALUE
To calculate the Variable Account value before the Annuity Date, multiply (a) by
(b), where:
a) is the number of Units credited to the Policy for each Sub-Account; and
b) is the current Unit Value of these Units.
UNITS
We credit Net Premium in the form of Units. The number of Units credited to the
Policy for each Sub-Account is (a) divided by (b), where:
a) is the Net Premium allocated to that Sub-Account; and
b) is the Unit Value for that Sub-Account (at the end of the Valuation
Period during which We receive the premium).
We will credit Units for the 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 occurs:
. the Annual Administration Charge is assessed;
. the date We receive and file Your Written Notice for a partial
withdrawal or surrender;
. the date of a systematic withdrawal;
. the Annuity Date; or
. the date We receive Due Proof of Your death or the Last Surviving
Annuitant's death.
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<PAGE>
UNIT VALUE
The Unit Value for each Sub-Account's first Valuation Period is set at $10,
except the Cash Management Sub-Account is set at $1. After that, the Unit Value
is determined by multiplying the Unit Value at the end of the immediately
preceding Valuation Period by the Net Investment Factor for the current
Valuation Period.
The Unit Value for a Valuation Period applies to each day in that period. The
Unit Value may increase or decrease from one Valuation Period to the next.
NET INVESTMENT FACTOR
The Net Investment Factor is an index that measures the investment performance
of a Sub-Account from one Valuation Period to the next. Each Sub-Account has a
Net Investment Factor, which may be greater than or less than 1.
The Net Investment Factor for each Sub-Account for a Valuation Period equals 1
plus the rate of return earned by the portfolio in which the Sub-Account You
selected invests, adjusted for taxes charged or credited to the Sub-Account, the
mortality and expense risk charge, and the daily administration fee.
To find the rate of return of each portfolio in which the Sub-Accounts invest
divide (a) by (b) where:
(a) is the net investment income and net gains, realized and unrealized,
credited during the current Valuation Period; and
(b) is the value of the net assets of the relevant portfolio at the end of
the preceding Valuation Period, adjusted for the net capital
transactions and dividends declared during the current Valuation
Period.
TRANSFERS
TRANSFER PRIVILEGE
You may transfer all or a part of an amount in a Sub-Account(s) to another
Sub-Account(s) or to a Guarantee Period(s). You also can transfer an amount in a
Guarantee Period(s) to a Sub-Account(s) or another Guarantee Period(s).
Transfers are subject to the following restrictions:
1. the Company's minimum transfer amount, currently $250;
2. a transfer request that would reduce the amount in that Sub-Account or
Guarantee Period below $500 will be treated as a transfer request for
the entire amount in that Sub-Account or Guarantee Period; and
3. transfers from the Guarantee Periods, 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 Guarantee Period be
transferred to a Sub-Account at a time when the Sub-Account or underlying
portfolio is unavailable, We will not process Your transfer request. This
request will not be counted as a transfer for purposes of determining the number
of free transfers executed in a year. The Company reserves the right to change
its minimum transfer amount requirements.
Excessive trading (including short-term "market timing" trading) may adversely
affect the performance
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<PAGE>
of the Sub-Accounts. If a pattern of excessive trading by a Policyowner or the
Policyowner's agent develops, We reserve the right not to process the transfer
request. If Your request is not processed, it will not be counted as a transfer
for purposes of determining the number of free transfers executed.
TELEPHONE TRANSFER PRIVILEGE
We can process Your transfer request by phone if You have completed Our
administrative form or initialed the authorization box on Your application. The
authorization will remain effective until We receive Your written revocation or
We discontinue this privilege.
We will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. If We do not employ such reasonable procedures, We may
be liable for any losses due to unauthorized or fraudulent instructions. These
procedures may include recording telephone calls and obtaining personal security
codes and contract number before effecting any transfers.
We can not accept or process transfer requests left on Our voice mail system,
although transfers through Our Intouch(R) Voice Response System are acceptable.
INTOUCH(R) VOICE RESPONSE SYSTEM
The Intouch Voice Response System is our interactive voice response system which
You can access through Your touch tone telephone. Use of this service allows you
to:
. obtain current Sub-Account balances;
. obtain current Policy and Unit Values; and
. obtain the current Guarantee Period(s)' interest rate(s);
. change Your Sub-Account allocation; and
. effect transfers between Sub-Accounts or to the Guarantee Periods.
Transfers from the Guarantee Periods, other than from the one year Guarantee
Period, are not permitted under the Intouch Voice Response System. Your Policy
number and Personal Identification Number, issued by Us to ensure security, are
required for any transfers and/or allocation changes.
When using the Intouch Voice Response System, You will not be assessed a
transfer processing fee regardless of the number of transfers made per Policy
Year.
DOLLAR COST AVERAGING PRIVILEGE
You may choose to automatically transfer specified amounts FROM ANY Sub-Account
or the one year Guarantee Period (either one a disbursement account) TO ANY
OTHER Sub-Account(s) or Guarantee Period(s) on a periodic basis. Transfers are
subject to Our administrative procedures and the restrictions in "Transfer
Privilege." This privilege is intended to allow You to utilize "Dollar Cost
Averaging" (DCA), a long-term investment method which provides for regular,
level investments over time. We make no representation or guarantee that DCA
will result in a profit or protect against loss. You should first discuss this
(as you would all other investment strategies) with Your registered
representative.
To initiate DCA, We must receive Your Written Notice on Our form. Once elected,
transfers will be processed until one of the following occurs:
22
<PAGE>
. the entire value of the Sub-Account or the one year Guarantee Period
is completely depleted; or
. We receive Your written revocation of such monthly transfers; or
. We discontinue this privilege.
We reserve the right to change Our procedures or to discontinue the DCA
privilege upon 30 days Written Notice to You.
This option is not available on the 29th, 30th or 31st day of each month. There
is no charge for this feature.
TRANSFER PROCESSING FEE
There is no limit to the number of transfers that You can make between
Sub-Accounts or the Guarantee Periods. The first 12 transfers during each Policy
Year are currently free. The Company currently assesses a $25 transfer fee for
the 13th and each additional transfer in a Policy Year. For the purposes of
assessing the fee, each transfer request (which includes a Written Notice or
telephone call, but does not include automatic transfers) is considered to be
one transfer, regardless of the number of Sub-Accounts or Guarantee Periods
affected by the transfer. The processing fee will be charged proportionately to
the receiving Sub-Account(s) and/or Guarantee Periods. The $25 transfer fee is
waived when using the Intouch(R) Voice Response System.
PAYMENT OF PROCEEDS
PROCEEDS
Proceeds means the amount We will pay when the first of the following events
occurs:
. the Annuity Date;
. the Policy is surrendered;
. We receive Due Proof of Death of any Owner;
. We receive Due Proof of Death of the Last Surviving Annuitant.
If death occurs prior to the Annuity Date, proceeds are paid in one of the
following ways:
. lump sum;
. within 5 years of the Owner's death, as required by federal tax laws
(see "Proceeds on Death of Any Policyowner"); or
. by a mutually agreed upon payment option. See "Election of Options."
The Policy ends when We pay the proceeds.
We will deduct any applicable premium tax from the proceeds, unless We deducted
the tax from the premiums when paid.
PROCEEDS ON ANNUITY DATE
If Payment Option 1 is in effect on the Annuity Date, We will pay the Policy
Value. See "Payment Options."
You may annuitize at any time, and may change the Annuity Date, subject to these
limitations:
23
<PAGE>
1. We must receive Your Written Notice at Our Administrative Office at
least 30 days before the current Annuity Date; and
2. The requested Annuity Date must be a date that is at least 30 days
after We receive Your Written Notice.
The proceeds paid will be the Policy Value if paid on the first day of the month
after any Annuitant's 100th birthday.
PROCEEDS ON SURRENDER
If You surrender the Policy We will pay the Cash Surrender Value. The Cash
Surrender Value will be determined on the date We receive Your Written Notice
for surrender and Your Policy at Our Administrative Office.
You may elect to have the Cash Surrender Value paid in a single sum or under a
payment option. See "Payment Options." The Policy ends when We pay the Cash
Surrender Value.
Surrender proceeds may be subject to federal income tax, including a penalty
tax. See "FEDERAL TAX STATUS."
PROCEEDS ON DEATH OF LAST SURVIVING ANNUITANT BEFORE ANNUITY DATE (THE DEATH
BENEFIT)
If the Last Surviving Annuitant dies before the Policy Value is transferred to a
payment option, We will pay the Beneficiary a Death Benefit.
The Death Benefit is the greater of:
1. the premiums paid, less any partial withdrawals and incurred taxes; or
2. the Policy Value on the date We receive Due Proof of Death.
For Policyowners who have chosen on the application to pay an additional
Mortality and Expense Risk Charge of 0.15%, the Death Benefit is the greatest
of:
1. item "1" above;
2. item "2" above; or
3. the greatest Policy Value on any Policy Anniversary occurring before
both the date the Last Surviving Annuitant attained age 81 and the
date We receive Due Proof of the Annuitant's death This value will be
adjusted for any partial withdrawals, incurred taxes, and premiums
paid that occur after such Policy Anniversary.
If on the date the Policy was issued any Annuitant was attained age 81 or older,
either Death Benefit is the Policy Value on the date We receive Due Proof of
Death.
If You are the Last Surviving Annuitant who dies before the Annuity Date, the
Death Benefit proceeds must be distributed pursuant to the rules set forth below
in "Proceeds on Death of Any Policyowner."
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PROCEEDS ON DEATH OF ANY POLICYOWNER
If any Policyowner dies before the Annuity Date, the following rules apply:
. If You (the deceased Policyowner) were not the Last Surviving
Annuitant and We receive Due Proof of Your death before the Annuity
Date, We will pay the Beneficiary the Policy Value as of the date We
receive Due Proof of Your death.
. If You were Last Surviving Annuitant and We receive Due Proof of Your
death before the Annuity Date, We will pay the Beneficiary the Death
Benefit described in "Proceeds on the Death of Last Surviving
Annuitant Before Annuity Date."
. As required by federal tax law, regardless of whether You were the
Annuitant, the entire interest in the Policy will be distributed to
the Beneficiary:
a) within five years of Your death; or
b) over the life of the Beneficiary or over a period not
extending beyond the life expectancy of that Beneficiary,
with payments beginning within one year of Your death.
However, if your spouse is the Beneficiary the Policy may be
continued. If this occurs and You were the only Annuitant, Your
spouse will become the Annuitant.
If any Policyowner dies on or after the Annuity Date but before all proceeds
payable under the Policy have been distributed, We will continue payments to the
designated payee (or, if the deceased Policyowner was the Annuitant, to the
Beneficiary) under the payment option in effect on the date of the deceased
Policyowner's death.
For purposes of this section, if any Policyowner is not an individual, the death
or change of any Annuitant will be treated as the death of a Policyowner, and we
will pay the Beneficiary the Cash Surrender Value.
This section shall, in all events, be construed in a manner consistent with
section 72(s) of the Internal Revenue Code of 1986, as amended. If anything in
the Policy conflicts with the provisions of this section, this section will
control.
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, subject to the following:
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1. the Company's minimum partial withdrawal is currently $250;
2. the maximum partial withdrawal is the amount that would leave a Cash
Surrender Value of $2,000; and
3. a partial withdrawal request which would reduce the amount in a Sub-
Account or 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 Guarantee Period.
On the date We receive at Our Administrative Office Your Written Notice for a
partial withdrawal, We will withdraw the partial withdrawal from the 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. If You do not provide this information to us, We will
withdraw proportionately from the Sub-Accounts and the Guarantee Periods in
which You are invested. If You do provide this information to us, but the amount
in the designated Sub-Accounts and/or Guarantee Periods is inadequate to comply
with Your withdrawal request, We will first withdraw from the specified
Sub-Accounts and the Guarantee Periods. 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 Policyowner's gross
income in the year in which the withdrawal occurs, and may be subject to federal
income tax (including a penalty tax equal to 10% of the amount treated as
taxable income). The Code restricts certain distributions under Tax-Sheltered
Annuity Plans and other qualified plans. See "FEDERAL TAX STATUS."
SYSTEMATIC WITHDRAWAL PRIVILEGE
You may elect to use the Systematic Withdrawal Privilege (SWP) to withdraw a
fixed-level amount from the Sub-Account(s) and the 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
administrative form.
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;
. the Cash Surrender Value is reduced to $2,000*;
. You elect to pay premiums by pre-authorized check;
. We receive Your Written Notice to end this privilege; or
. We elect to discontinue this privilege upon 30 days
Written Notice to You.
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. Withdrawals from a Guarantee
Period other than from the one year Guarantee Period under the Fixed Account may
be subject to a Market Value Adjustment. This option is not available on the
29th, 30th or 31st day of each month. The Company reserves the right to change
its minimum systematic withdrawal amount requirements or terminate this
privilege.
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In certain circumstances, amounts withdrawn pursuant to a systematic withdrawal
option may be included in a Policyowner's gross income and may be subject to
penalty taxes.
* If the Cash Surrender Value is reduced to $2,000, Your Policy may terminate.
See "Termination."
SELIGMAN TIME HORIZON MATRIX(SM)
You may elect to participate in Seligman Time Horizon Matrix (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 & Co.
Incorporated that seek a wide range of financial goals for an investor's
specific time horizon. Each J. & W. Seligman & Co. Incorporated model portfolio
represents a predetermined allocation of Your Policy Value among one or more of
the Sub-Accounts. You may also construct Your own customized model portfolio.
Under the Matrix, You may elect to periodically rebalance Your Policy Value to
reflect the J. & W. Seligman & Co. Incorporated 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 & Co. Incorporated 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, model portfolios, or to discontinue offering the Matrix upon 30 days
Written Notice to You.
PORTFOLIO REBALANCING
Portfolio rebalancing (Rebalancing) is an investment strategy in which Your
Policy Value, in the Sub-Accounts only, is reallocated back to its original
portfolio allocation. Rebalancing is performed regardless of changes in
individual portfolio values from the time of the last rebalancing. It is
executed on a quarterly, semi-annual or annual basis. We make no representation
or guarantee that rebalancing will result in a profit, protect You against loss
or ensure that You meet Your financial goals.
To initiate Rebalancing, We must receive Your Written Notice on Our form.
Participation in Rebalancing is voluntary and can be modified or discontinued at
any time by You in writing on Our form. Portfolio Rebalancing is not available
for the Fixed Account.
Once elected, We will continue to perform Rebalancing until We are instructed
otherwise. We reserve the right to change Our procedures or discontinue offering
Rebalancing upon 30 days Written Notice to You. This option is not available on
the 29th, 30th or 31st day of each month. There is no charge for this feature.
POSTPONEMENT OF PAYMENT
We will usually pay any proceeds payable, amounts partially withdrawn, or the
Cash Surrender Value within seven calendar days after:
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1. we receive Your Written Notice for a partial withdrawal or a cash
surrender;
2. the date chosen for any systematic withdrawal; or
3. we receive Due Proof of Death of the Owner or the Last Surviving
Annuitant.
However, We can postpone the payment of proceeds, amounts withdrawn, the Cash
Surrender Value, or the transfer of amounts between Sub-Accounts if:
1. the New York Stock Exchange is closed, other than customary weekend
and holiday closings, or trading on the exchange is restricted as
determined by the SEC;
2. the SEC permits by an order the postponement for the protection of
Policyowners; or
3. the SEC determines that an emergency exists that would make the
disposal of securities held in the Variable Account or the
determination of the value of the Variable Account's net assets not
reasonably practicable.
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
ANNUAL ADMINISTRATION CHARGE
To cover the costs of providing certain administrative services such as
maintaining Policy records, communicating with Policyowners, and processing
transactions, We deduct an Annual Administration Charge of $30 for the prior
Policy Year on each Policy Anniversary. We will also deduct this charge if the
Policy is surrendered for its Cash Surrender Value, unless the Policy is
surrendered on a Policy Anniversary.
If the Policy Value on the Policy Anniversary is $35,000 or more, We will waive
the Annual Administration Charge for the prior Policy Year. We will also waive
the Annual Administration Charge if the Policy is a Tax-Sheltered Annuity.
The charge will be assessed proportionately from any Sub-Accounts 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 deduct a daily administration fee at an annual rate
of 0.20% from the assets of each Sub-Account of the Variable Account. This daily
administration fee is intended to reimburse Us for other administrative costs
under the policies.
TRANSFER PROCESSING FEE
The first 12 transfers during each Policy Year are currently free, although We
reserve the right to change this procedure. The Company currently assesses a $25
transfer fee for the 13th and each additional transfer in a Policy Year.
Transfer requests include Written Notices and telephone call, but do not include
automatic transfers. Such requests are 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 deducted proportionately
from the receiving Sub-Account(s) and/or the Fixed
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Account. See "Transfers" for the rules concerning transfers.
MORTALITY AND EXPENSE RISK CHARGE
We assess an annual mortality and expense risk charge, deducted at each
Valuation Period from the assets of the Variable Account. This charge:
. is an annual rate of 1.25% of the average daily value of the net
assets in the Variable Account;
. is assessed during the Accumulation Period, but is not charged after
the Annuity Date;
. consists of approximately 0.75% to cover the mortality risk and
approximately 0.50% to cover the expense risk;
. is guaranteed not to increase for the duration of the Policy.
If You have chosen on the application to receive an enhanced Death Benefit, the
mortality and expense charge will be increased by 0.15%. This increase covers an
increase in the mortality risk. See "Proceeds on Death of Last Surviving
Annuitant Before Annuity Date (The Death Benefit)."
The mortality risk We assume arises from Our obligation to make annuity payments
(determined in accordance with the annuity tables and other provisions contained
in the Policy) for the full life of all Annuitants regardless of how long each
may live. This means:
. Mortality risk is the risk that Annuitants may live for a longer
period of time than We estimated when We established Our guarantees in
the Policy.
. Each Annuitant is assured that neither his or her longevity, nor an
improvement in life expectancy generally, will have any adverse effect
on the annuity payments received under the Policy.
. The Annuitant will not outlive the funds accumulated for retirement.
. We guarantee to pay a Death Benefit if the Last Surviving Annuitant
dies before the Annuity Date (see "Proceeds on Death of Last Surviving
Annuitant Before Annuity Date (The Death Benefit)").
The expense risk We assume is the risk that the Annual Administration Charge,
daily administration fee, and transfer fees may be insufficient to cover Our
actual future expenses.
If the mortality and expense charges are sufficient to cover such costs and
risks, any excess will be profit to the Company and may be used to reimburse Us
for distribution expenses. However, if the amounts deducted prove to be
insufficient, the loss will be borne by us.
REDUCTION OR ELIMINATION OF THE ANNUAL ADMINISTRATION CHARGE
The Annual Administration Charge may be reduced or eliminated when some or all
of the policies are to be sold to an individual or a group of individuals. In
determining whether to reduce or eliminate this charge, We will consider certain
factors, including:
1. the size and type of group to which the administrative services are to
be provided and the sales are to be made. Generally, sales and
administrative expenses for a larger group are smaller than for a
smaller group because large numbers of sales may result in fewer sales
contacts.
2. the total amount of premiums. Per dollar sales expenses are likely to
be less on larger premiums than on smaller ones.
3. any prior or existing relationship with the Company. Policy sales
expenses are likely to be
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less when there is a prior or existing relationship because there is a
likelihood of more sales with fewer sales contacts.
4. the level of commissions paid to selling broker/dealers. For example,
certain broker/dealers may offer policies in connection with financial
planning programs on a fee for service basis. In view of the financial
planning fees, such broker/dealers may elect to receive lower
commissions for sales of the policies, thereby reducing the Company's
sales expenses.
If it is determined that there will be a reduction or elimination in sales
expenses and/or administration expenses, the Company will provide a reduction in
or elimination of the Annual Administration Charge. This charge 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 Annual
Administration Charge be permitted where such reduction or elimination will be
discriminatory to any person.
In addition, if the Policy Value on the Policy Anniversary is $35,000 or more,
We will waive the Annual Administration Charge for the prior Policy Year.
TAXES
We will incur premium taxes in some jurisdictions relating to the policies.
Depending on the jurisdiction, We deduct any such taxes from either: a) the
premiums when paid; or b) the Policy Value when it is applied under a payment
option, at cash surrender or upon partial withdrawal. A summary of current state
premium tax rates is contained in Appendix A.
When any tax is deducted from the Policy Value, it will be deducted
proportionately from the Sub-Accounts and the Guarantee Periods under the Fixed
Account in which You are invested.
We reserve the right to charge or provide for any taxes levied by any
governmental entity, including:
1. taxes that are against or attributable to premiums, Policy Values or
annuity payments; or
2. taxes that We incur which are attributable to investment income,
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. These fees are calculated daily and payable
monthly from the average daily net assets of each portfolio. See the prospectus
for the Fund for more information.
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PAYMENT OPTIONS
The Policy ends when We pay the proceeds on the Annuity Date. We will apply the
Policy Value under Payment Option 1 unless You have an election on file at Our
Administrative Office to receive another mutually agreed upon payment option
(Payment Option 2). The proceeds We will pay will be the Policy Value if paid on
the first day of the month after any Annuitant's 100th birthday. See "Proceeds
on Annuity Date." We require the surrender of Your Policy so that We may issue a
supplemental contract for the applicable payment option. The term "payee" means
a person who is entitled to receive payments under this section.
ELECTION OF OPTIONS
You may elect, revoke or change a payment option at any time before the Annuity
Date and while the Annuitant(s) is living. If an election is not in effect at
the Last Surviving Annuitant's death, or if payment is to be made in one lump
sum under an existing election, the Beneficiary may elect one of the options.
This election must be made within one year after the Last Surviving Annuitant's
death and before any payment has been made.
An election of an option and any revocation or change must be made in a Written
Notice. It must be filed with Our Administrative Office with the written consent
of any irrevocable Beneficiary or assignee at least 30 days before the Annuity
Date.
An option may not be elected and We will pay the proceeds in one lump sum if
either of the following conditions exist:
1. the amount to be applied under the option is less than $1,000; or
2. any periodic payment under the election would be less than $50.
DESCRIPTION OF PAYMENT OPTIONS
Payment Option 1: Life Income With Payments for 10 Years Certain
We will pay the proceeds in equal amounts each month, quarter, or year during
the Annuitant's lifetime or for 10 years, whichever is longer.
The amount of each payment will be determined from the tables in the Policy
which apply to Payment Option 1, using the Annuitant'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.
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AGE AND SURVIVAL OF ANNUITANT
We have the right to require proof of age of the Annuitant(s) before making any
payment. When any payment depends on the Annuitant's survival, We will have the
right, before making the payment, to require proof satisfactory to Us that the
Annuitant is alive.
OTHER POLICY PROVISIONS
POLICYOWNER
During any Annuitant's lifetime and before the Annuity Date, You have all of the
ownership rights and privileges granted by the Policy. If You appoint an
irrevocable Beneficiary or assignee, then Your rights will be subject to those
of that Beneficiary or assignee.
During any Annuitant's lifetime and before the Annuity Date, You may also name,
change or revoke a Policyowner(s), Beneficiary(ies), Payee(s), or Annuitant(s)
by giving Us Written Notice. Any change of Policyowner(s) or Annuitant(s) must
be approved by Us.
A change of any Policyowner may result in resetting the Death Benefit to an
amount equal to the Policy Value as of the date of the change.
With respect to Qualified Policies generally, however:
. the contract may not be assigned (other than to us);
. Joint Ownership is not permitted; and
. the Policyowner must be the Annuitant.
BENEFICIARY
We will pay the Beneficiary any proceeds payable on Your death or the death of
the Last Surviving Annuitant. During any Annuitant's lifetime and before the
Annuity Date, You may name and change one or more beneficiaries by giving Us
Written Notice. However, We will require Written Notice from any irrevocable
Beneficiary or assignee specifying their consent to the change.
We will pay the proceeds under the Beneficiary appointment in effect at the date
of death. If You have not designated otherwise in Your appointment, the proceeds
will be paid to the surviving Beneficiary(ies) equally. If no Beneficiary is
living when You or the Last Surviving Annuitant dies, or if none has been
appointed, the proceeds will be paid to You or Your estate.
TERMINATION
We may pay You the Cash Surrender Value and terminate the Policy if before the
Annuity Date all of these events simultaneously exist:
1. you have not paid any premiums for at least two years;
2. the Policy Value is less than $2,000; and
3. the total premiums paid, less any partial withdrawals, is less than
$2,000.
We will mail You a notice of Our intention to terminate the Policy at least six
months in advance. The Policy will automatically terminate on the date specified
in the notice unless We receive an additional
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premium before such date. This additional premium must be at least the minimum
amount specified in "Additional Premium."
Qualified contracts may be subject to distribution restrictions. See "FEDERAL
TAX STATUS."
WRITTEN NOTICE
Written Notice must be signed and dated by You. It must be of a form and content
acceptable to us. Your Written Notice will not be effective until We receive and
file it. However, any change provided in Your Written Notice will be effective
as of the date You signed the Written Notice:
1. subject to any payments or other actions We take prior to receiving
and filing Your Written Notice; and
2. whether or not You or the Last Surviving Annuitant are alive when We
receive and file Your Written Notice.
PERIODIC REPORTS
We will mail You a report showing the following items about Your Policy:
1. the number of Units credited to the Policy and the dollar value of a
Unit;
2. the Policy Value;
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
Annuity Date and during any Annuitant's lifetime. Your rights and the rights of
any Beneficiary will be affected by an assignment. An assignment must be in a
Written Notice acceptable to us. It will not be binding on Us until We receive
and file it at Our Administrative Office. We are not responsible for the
validity of any assignment.
An assignment of a Nonqualified Policy may result in certain tax consequences to
the Policyowner. See "Transfers, Assignment or Exchanges of a Policy."
MODIFICATION
Upon notice to You, We may modify the Policy, but only if such modification:
1. is necessary to make the Policy or the Variable Account comply with
any law or regulation issued by a governmental agency to which We are
subject; or
2. is necessary to assure continued qualification of the Policy under the
Code or other federal or state laws relating to retirement annuities
or variable annuity policies; or
3. is necessary to reflect a change in the operation of the Variable
Accounts; or
4. provides additional Variable Account and/or fixed accumulation
options.
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In the event of any such modification, We may make any appropriate endorsement
to the Policy.
NOTIFICATION OF DEATH
The death of the Annuitant(s) and/or the Owner(s) must be reported to Us
immediately, and We will require Due Proof of Death. We will pay the proceeds
based upon the date recorded in the Due Proof of Death. However, we are entitled
to immediately recover any overpayments made because of a failure to notify Us
of any such death. We are also not responsible for any mispayments which result
from a failure to notify Us.
YIELDS AND TOTAL RETURNS
From time to time, We may advertise yields, effective yields, and total returns
for the Sub-Accounts. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND DO NOT
INDICATE OR PROJECT FUTURE PERFORMANCE. Each Sub-Account may, from time to time,
advertise performance relative to certain performance rankings and indices
compiled by independent organizations. More detailed information as to the
calculation of performance information, as well as comparisons with unmanaged
market indices, appears in the Statement of Additional Information.
Effective yields and total returns for the Sub-Accounts are based on the
investment performance of the corresponding portfolios of the Fund. The Fund's
performance in part reflects the Fund's expenses. See the attached 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 average annual total return quotations of a Sub-Account represent the
average annual compounded rates of return that would equate an initial
investment of $1,000 under a Policy to the redemption value of that investment
as of the last day of each of the periods for which average annual 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 of the measuring period to the end of that period, usually 1, 5
and 10 years or since the inception of the Sub-Account. Average annual total
return reflects all historical investment results, less all charges and
deductions applied against the Sub-Account (excluding any deductions for premium
taxes).
We may, in addition, advertise performance information computed on a different
basis. We may present non-standardized total return information computed on the
same basis as described above.
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We may compare the performance of each Sub-Account in advertising and sales
literature to the performance of other variable annuity issuers in general. We
may also compare the performance of particular types of variable annuities
investing in mutual funds, or investment series of mutual funds with investment
objectives similar to each of the Sub-Accounts. Lipper Analytical Services, Inc.
(Lipper) and the Variable Annuity Research Data Service (VARDS) are independent
services which monitor and rank the performances of variable annuity issuers in
each of the major categories of investment objectives on an industry-wide basis.
Other services or publications may also be cited in Our advertising and sales
literature.
Lipper's rankings include variable life issuers as well as variable annuity
issuers. VARDS rankings compare only variable annuity issuers. The performance
analysis prepared by Lipper and VARDS each rank such issuers on the basis of
total return, assuming reinvestment of distributions, but do not take sales
charges, redemption fees or certain expense deductions at the separate account
level into consideration. In addition, VARDS prepares risk adjusted rankings,
which consider the effects of market risk on total return performance. This type
of ranking provides data as to which funds provide the highest total return
within various categories of funds defined by the degree of risk inherent in
their investment objectives.
We may also compare the performance of each Sub-Account in advertising and sales
literature to the Standard & Poor's composite index of 500 common stocks, a
widely used index to measure stock market performance. This unmanaged index does
not reflect any "deduction" for the expense of operating or managing an
investment portfolio. We may also make comparison to Lehman Brothers
Government/Corporate Bond Index, an index that includes the Lehman Brothers
Government Bond and Corporate Bond Indices. These indices are total rate of
return indices. The Government Bond Index includes the Treasury Bond Index
(public obligations of the U.S. Treasury) and the Agency Bond Index (publicly
issued debt of U.S. Government agencies, quasi-federal corporations, and
corporate debt guaranteed by the U.S. Government). The Corporate Bond Index
includes publicly issued, fixed rate, nonconvertible investment grade
dollar-denominated, SEC registered corporate debt. All issues have at least a
one-year maturity, and all returns are at market value inclusive of accrued
interest. Other independent indices such as those prepared by Lehman Brothers
Bond Indices may also be used as a source of performance comparison.
We may also compare the performance of each Sub-Account in advertising and sales
literature to the Dow Jones Industrial Average, a stock average of 30 blue chip
stock companies that does not represent all new industries. Other independent
averages such as those prepared by Dow Jones & Company, Inc. may also be used as
a source of performance comparison. Day to day changes may not be reflective of
the overall market when an average is composed of a small number of companies.
TAX DEFERRAL
Under current tax laws any increase in Policy Value is generally not taxable to
You or an Annuitant until received, subject to certain exceptions. See "FEDERAL
TAX STATUS." This deferred tax treatment may be beneficial to You in building
assets in a long-range investment program.
We may also distribute sales literature or other information including the
effect of tax-deferred compounding on a Sub-Account's investment returns, or
returns in general, which may be illustrated by tables, graphs, charts or
otherwise, and which may include a comparison, at various points in time, of the
return from an investment in a Policy (or returns in general) on a tax-deferred
basis (assuming one
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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 Policyowner, an Annuitant, or the Beneficiary depends on
the type of retirement plan, on the tax and employment status of the individual
concerned and on Our tax status. In addition, certain requirements must be
satisfied in purchasing a Qualified Policy with proceeds from a tax-qualified
plan and receiving distributions from a Qualified Policy in order to continue
receiving favorable tax treatment. Therefore, purchasers of Qualified Policies
should seek legal and tax advice regarding the suitability of a Policy for their
situation, the applicable requirements, and the tax treatment of the rights and
benefits of a Policy. The following discussion assumes that Qualified Policies
are purchased with proceeds from and/or contributions under retirement plans
that receive the intended special federal income tax treatment.
THE COMPANY'S TAX STATUS
The Variable Account is not separately taxed as a "regulated investment company"
under Subchapter M of the Code. The operations of the Variable Account are a
part of and taxed with Our operations. We are taxed as a life insurance company
under Subchapter L of the Code.
At the present time, We make no charge for any federal, state or local taxes
(other than premium taxes) that We incur which may be attributable to the
Variable Account or to the policies. We, however, reserve the right in the
future to make a charge for any such tax or other economic burden resulting from
the application of the tax laws that We determine to be properly attributable to
the Variable Account or to the policies.
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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.
POLICYOWNER CONTROL
In certain circumstances, variable annuity Policyowners may be considered the
owners, for federal income tax purposes, of the assets of the separate account
used to support their policies. In those circumstances, income and gains from
the separate account assets would be includable in the variable annuity
Policyowner's gross income. Several years ago, the IRS stated in published
rulings that a variable Policyowner will be considered the owner of separate
account assets if the Policyowner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. More
recently, the Treasury Department announced, in connection with the issuance of
regulations concerning investment diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor, rather
than the insurance company, to be treated as the Policyowner of the assets in
the account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which Policyowners may direct their
investments to particular Sub-Accounts without being treated as owners of the
underlying assets."
The ownership rights under the policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that Policyowners were not owners of separate account assets. For example, the
Policyowner 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 Policyowner
dies on or after the Annuity Date but prior to the time the entire interest in
the Policy has been distributed, the remaining portion of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of that Policyowner's death; and (b) if any Policyowner dies
prior to the Annuity Date, the entire interest in the Policy will be distributed
within five years after the date of the Policyowner's death. These requirements
will be
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considered satisfied as to any portion of the Policyowner's interest which is
payable to or for the benefit of a "Designated Beneficiary" and which is
distributed over the life of such "Designated Beneficiary" or over a period not
extending beyond the life expectancy of that Beneficiary, provided that such
distributions begin within one year of that Policyowner's death. The
Policyowner's "Designated Beneficiary" is the person designated by such
Policyowner as a Beneficiary and to whom proceeds of the Policy passes by reason
of death and must be a natural person. However, if the Policyowner's "Designated
Beneficiary" is the surviving spouse of the Policyowner, the Policy may be
continued with the surviving spouse as the new Policyowner.
The Nonqualified Policies contain provisions which are intended to comply with
the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. We intend to review such
provisions and modify them if necessary to assure that they comply with the
requirements of Code Section 72(s) when clarified by regulation or otherwise.
Other rules may apply to Qualified Policies. See "Minimum Distribution
Requirements."
The following discussion assumes that the policies will qualify as annuity
contracts for federal income tax purposes.
TAXATION OF ANNUITIES
IN GENERAL
Section 72 of the Code governs taxation of annuities in general. We believe that
a Policyowner who is a natural person generally is not taxed on increases in the
value of a Policy until distribution occurs by withdrawing all or part of the
accumulation value (e.g., partial withdrawals and surrenders) or as annuity
payments under the annuity option elected. For this purpose, the assignment,
pledge, or agreement to assign or pledge any portion of the accumulation value
(and in the case of a Qualified Policy, any portion of an interest in the
qualified plan) generally will be treated as a distribution. The taxable portion
of a distribution (in the form of a single sum payment or an annuity) is taxable
as ordinary income.
The owner of any annuity 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 Policyowner that is not a
natural person may wish to discuss these with a tax adviser.
The following discussion generally applies to policies owned by natural persons.
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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. The treatment of Market Value Adjustments for
purposes of these rules is unclear. A tax adviser should be consulted if a
distribution occurs to which a Market Value Adjustment applies.
ANNUITY PAYMENTS
Although tax consequences may vary depending on the annuity option elected under
an annuity Policy, under Code Section 72(b), generally gross income does not
include that part of any amount received as an annuity under an annuity Policy
that bears the same ratio to such amount as the investment in the contract bears
to the expected return at the annuity starting date. For variable income
payments, in general, the taxable portion (prior to recovery of the investment
in the contract) is determined by a formula which establishes the specific
dollar amount of each annuity payment that is not taxed. The dollar amount is
determined by dividing the "investment in the contract" by the total number of
expected periodic payments. For fixed income payments (prior to recovery of the
investment in the contract), in general, there is no tax on the amount of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the annuity payments for the term of the
payments; however, the remainder of each income payment is taxable. In all
cases, after the "investment in the contract" is recovered, the full amount of
any additional annuity payments is taxable.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Policy because of the death of a Policyowner
or the Last Surviving Annuitant. Generally, such amounts are includable in the
income of the recipient as follows:
1. if distributed in a lump sum, they are taxed in the same manner as a
surrender of the Policy; or
2. if distributed under a payment option, they are taxed in the same
manner as annuity payments.
For these purposes, the investment in the Policy is not affected by a
Policyowner or Annuitant's death. That is the investment in the Policy remains
the amount of any purchase payments paid which were not excluded from gross
income.
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PENALTY TAX ON CERTAIN WITHDRAWALS
In the case of a distribution pursuant to a Nonqualified Policy, there may be
imposed a federal penalty tax equal to 10% of the amount treated as taxable
income. In general, however, there is no penalty tax on distributions:
1. made on or after the taxpayer reaches age 59 1/2;
2. made on or after the death of a Policyowner (or if the Policyowner is
not an individual, the death of the primary Annuitant);
3. attributable to the Policyowner becoming disabled;
4. as part of a series of substantially equal periodic payments (not less
frequently than annually) for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the
taxpayer and Beneficiary;
5. made under an annuity Policy that is purchased with a single premium
when the annuity starting date is no later than a year from purchase of
the annuity and substantially equal periodic payments are made, not
less frequently than annually, during the annuity period; and
6. made under certain annuities issued in connection with structured
settlement agreements.
Other tax penalties may apply to certain distributions under a Qualified Policy,
as well as to certain contributions and other circumstances.
TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF A POLICY
A transfer of ownership, the designation of an Annuitant or other Beneficiary
who is not also the Policyowner, the designation of certain annuity starting
dates, or the exchange of a Policy may result in certain tax consequences to the
Policyowner that are not discussed herein. A Policyowner contemplating any such
transfer, assignment, designation, or exchange of a Policy should contact a tax
adviser with respect to the potential tax effects of such a transaction.
WITHHOLDING
Pension and annuity distributions generally are subject to withholding for the
recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. "Eligible rollover distributions" from section 401(a) plans and
section 403(b) tax-sheltered annuities are subject to a mandatory federal income
tax withholding of 20%. An eligible rollover distribution is the taxable portion
of any distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity form.
The 20% withholding does not apply, however, if the owner chooses a "direct
rollover" from the plan to another tax-qualified plan or IRA.
MULTIPLE POLICIES
Section 72(e)(11) of the Code treats all nonqualified deferred annuity policies
entered into after June 21, 1988 that are issued by Us (or Our affiliates) to
the same owner during any calendar year as one annuity Policy for purposes of
determining the amount includable in gross income under Code Section 72(e). The
effects of this rule are not yet clear; however, it could 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)
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through the serial purchase of annuity contracts or otherwise. There may also be
other situations in which the Treasury may conclude that it would be appropriate
to aggregate two or more annuity contracts purchased by the same owner.
Accordingly, a Policyowner should consult a tax adviser before purchasing more
than one annuity contract.
POSSIBLE TAX CHANGES
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the polices could change by legislation or
other means. It is also possible that any change could be retroactive (that is,
effective prior to the date of the change). A tax adviser should be consulted
with respect to legislative developments and their effect on the Policy.
TAXATION OF QUALIFIED PLANS
The Policies are designed for use with several types of qualified plans. The tax
rules applicable to participants in these qualified plans vary according to the
type of plan and the terms and conditions of the plan itself. Special favorable
tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; and in certain other circumstances. Therefore, no
attempt is made to provide more than general information about the use of the
Policies with the various types of qualified retirement plans. Policyowners, the
Annuitants, and beneficiaries are cautioned that the rights of any person to any
benefits under these qualified retirement plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Policy, but We shall not be bound by the terms and conditions of such plans
to the extent such terms contradict the Policy, unless We consent. Some
retirement plans are subject to distribution and other requirements that are not
incorporated in the administration of the Policies. Policyowners are responsible
for determining that contributions, distributions and other transactions with
respect to the Policies satisfy applicable law. Brief descriptions follow of the
various types of qualified retirement plans in connection with which We will
issue a Policy. We will amend the Policy as instructed to conform it to the
applicable legal requirements for such plan.
INDIVIDUAL RETIREMENT ANNUITIES AND SIMPLIFIED EMPLOYEE PENSIONS (SEP/IRAS)
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity" or
"IRA." These IRAs are subject to limits on the amount that may be contributed,
the persons who may be eligible and on the time when distributions may commence.
Also, distributions from certain other types of qualified retirement plans may
be "rolled over" on a tax-deferred basis into an IRA. Sales of the Policy for
use with IRAs may be subject to special disclosure requirements of the Internal
Revenue Service.
Section 408(k) of the Code allows employers to establish simplified employee
pension plans for their employees, using an IRA for such purpose, if certain
criteria are met. Under these plans the employer may, within specified limits,
make deductible contributions on behalf of the employee to an IRA. Employers
intending to use the Policy in connection with such plans should seek advice.
Purchasers of a Policy for use with IRAs will be provided with supplemental
information required by the Internal Revenue Service or other appropriate
agency. Such purchasers will have the right to revoke their purchase within
seven days of the earlier of the establishment of the IRA or their purchase.
Purchasers should seek advice as to the suitability of the Policy for use with
IRAs. The Internal
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Revenue Service has not reviewed the Policy for qualification as an IRA, and has
not addressed in a ruling of general applicability whether a Death Benefit
provision such as the provision in the Policy comports with IRA qualification
requirements.
SIMPLE INDIVIDUAL RETIREMENT ANNUITIES
Certain small employers may establish SIMPLE plans as provided by Section 408(p)
of the Code, under which employees may elect to defer a percentage of
compensation up to $6,000 (as increased for cost of living adjustments). The
sponsoring employer is required to make matching or non-elective contributions
on behalf of employees. Distributions from SIMPLE IRAs are subject to the same
restrictions that apply to IRA distributions and are taxed as ordinary income.
Subject to certain exceptions, premature distributions prior to age 59 1/2 are
subject to a 10 percent penalty tax, which is increased to 25 percent if the
distribution occurs within the first two years after the commencement of the
employee's participation in the plan.
ROTH INDIVIDUAL RETIREMENT ANNUITIES
Effective January 1, 1998, section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which are
subject to certain limitations, are not deductible and must be made in cash or
as a rollover or transfer from another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax and other special rules
may apply. You may wish to consult a tax adviser before combining any converted
amounts with any other Roth IRA contributions, including any conversion amounts
from other tax years. Distributions from a Roth IRA generally are not taxed,
except that, once aggregate distributions exceed contributions to the Roth IRA,
income tax and a 10 percent penalty tax may apply to distributions made (1)
before age 59 1/2 (subject to certain exceptions) and/or (2) during the five
taxable years starting with the year in which the first contribution is made to
the Roth IRA. A 10% penalty tax may apply to amounts attributable to a
conversion from an IRA if they are distributed during the five taxable years
beginning with the year in which the conversion was made.
MINIMUM DISTRIBUTION REQUIREMENTS
The Code requires that minimum distributions from an IRA begin no later than
April 1 of the year following the year in which the Policyowner attains age
70 1/2. Failure to do so results in a federal tax penalty of 50% of the amount
not withdrawn. This penalty is in addition to normal income tax. We will
calculate the MDR only for funds invested in this Policy and subject to Our
administrative guidelines, including but not limited to minimum withdrawal
amount of $250.
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
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Survivor Expectancy); or
3. your life expectancy and a non-spouse Beneficiary more than 10 years
younger than You (Minimum Distribution Incidental Benefit Requirement).
No minimum distributions are required from a Roth IRA during Your life, although
upon Your death certain distribution requirements apply.
The Code Minimum Distribution Requirements also apply to 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
70 1/2 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.
The Policy includes a Death Benefit that in some cases may exceed the greater of
the premium payments or the Policy Value. The Death Benefit could be
characterized as an incidental benefit, the amount of which is limited in any
pension or profit-sharing plan. Because the Death Benefit may exceed this
limitation, employers using the Policy in connection with such plans should
consult their tax adviser.
DEFERRED COMPENSATION PLANS
Section 457 of the Code provides for certain deferred compensation plans. These
plans may be offered with respect to service for state governments, local
governments, political subdivisions, agencies, instrumentalities and certain
affiliates of such entities, and tax exempt organizations. The plans may permit
participants to specify the form of investment for their deferred compensation
account. All distributions are taxable as ordinary income. Except for
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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TAX-SHELTERED ANNUITY PLANS
Section 403(b) of the Code permits public school systems and certain tax exempt
organizations specified in Section 501(c)(3) to make payments to purchase
annuity policies for their employees. Such payments are excludable from the
employee's gross income (subject to certain limitations), but may be subject to
FICA (Social Security) taxes. The Policy includes a Death Benefit that in some
cases may exceed the greater of the premium payments or the Policy Value. The
Death Benefit could be characterized as an incidental benefit, the amount of
which is limited in any tax-sheltered annuity under section 403(b). Because the
Death Benefit may exceed this limitation, employers using the Policy in
connection with such plans should consult their tax adviser. Under Code
requirements, Section 403(b) annuities generally may not permit distribution of:
1) elective contributions made in years beginning after December 31, 1988; 2)
earnings on those contributions; and 3) earnings on amounts attributed to
elective contributions held as of the end of the last year beginning before
January 1, 1989. Under Code requirements, distributions of such amounts will be
allowed only: 1) upon the death of the employee; or 2) on or after attainment of
age 59 1/2; or 3) separation from service; or 4) disability; or 5) financial
hardship, except that income attributable to elective contributions may not be
distributed in the case of hardship. With respect to these restrictions, the
Company is relying upon a no-action letter dated November 28, 1988 from the
staff of the SEC to the American Council of Life Insurance, the requirements for
which have been or will be complied with by the Company.
OTHER TAX CONSEQUENCES
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.
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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 (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 appointed with Our Company.
CLAFS and Our Company have entered into an exclusive promotional agent
(distribution) agreement with Seligman Advisors, Inc. (Seligman Advisors).
Seligman Advisors 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 Advisors will recruit and provide sales training and licensing
assistance to such registered representatives. In addition, Seligman Advisors
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 Advisors may from time to time pay additional
compensation pursuant to promotional contracts. In some circumstances, Seligman
Advisors may provide 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 this offering.
LEGAL PROCEEDINGS
Certain affiliates of the Company, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, the Company believes that at the
present time there are no pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on the Variable Account or the Company.
VOTING RIGHTS
To the extent deemed to be required by law and as described in the 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
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the Variable Account, and may include fractional votes. The number of votes
attributable to a Sub-Account will be determined by applying Your percentage
interest, if any, in a particular Sub-Account to the total number of votes
attributable to that Sub-Account. You hold a voting interest in each Sub-Account
to which the Variable Account value is allocated. You only have voting interest
prior to the Annuity Date.
The number of votes of a portfolio which are available to You will be determined
as of the date coincident with the date established for determining shareholders
eligible to vote at the relevant meeting of the 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 portfolios.
INSURANCE MARKETPLACE STANDARDS ASSOCIATION
Canada Life Insurance Company of America is a member of the Insurance
Marketplace Standards Association (IMSA) and as such may include the IMSA logo
and information about IMSA membership in its advertisements and sales
literature. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuity products.
PREPARING FOR YEAR 2000
Like all financial services providers, the Company utilizes systems that may be
affected by Year 2000 transition issues and it relies on service providers,
including the Fund, that also may be affected. The Company and its affiliates
have developed, and are in the process of implementing, a Year 2000 transition
plan, and are confirming that its service providers are also so engaged. The
resources that are being devoted to this effort are substantial. It is difficult
to predict with precision whether the amount of resources ultimately devoted, or
the outcome of these efforts, will have any negative impact on the Company.
However, as of the date of this Prospectus, it is not anticipated that
Policyowners will experience negative effects on their investment, or on the
services provided in connection therewith, as a result of Year 2000 transition
implementation. The Company currently anticipates that its systems will be Year
2000 compliant prior to the end of 1999, but there can be no assurance that the
Company will be successful, or that interaction with other service providers
will not impair the Company's services at that time.
46
<PAGE>
FINANCIAL STATEMENTS
Our balance sheets as of December 31, 1998 and 1997, and the related statements
of operations, accumulated surplus (deficit), and cash flows for each of the
three years in the period ended December 31, 1998, as well as the Report of
Independent Auditors, are contained in the Statement of Additional Information.
The Variable Account's statement of net assets as of December 31, 1998, and the
related statements of operations and changes in net assets for the periods
indicated therein, as well as the Report of Independent Auditors, are contained
in the Statement of Additional Information.
The financial statements of the Company included in the Statement of Additional
Information should be considered only as bearing on the ability of the Company
to meet its obligations under the policies. They should not be considered as
bearing on the investment performance of the assets held in the Variable
Account.
47
<PAGE>
DEFINITIONS
ADMINISTRATIVE OFFICE: Our office at the address shown on page 1 of the
Prospectus. This is Our mailing address.
ANNUITANT(S): Any natural person(s) whose life is used to determine the duration
of any payments made under a payment option involving a life contingency. The
term Annuitant(s) also includes any Joint Annuitant(s), a term used solely to
refer to more than one Annuitant. There is no other distinction between the
terms Annuitant(s) and Joint Annuitant(s). A Joint Annuitant is not allowed
under a Qualified Policy and any designation of a Joint Annuitant under a
Qualified Policy will be of no effect.
ANNUITY DATE: The date when the proceeds will be paid under an annuity payment
option or on the first day of the month after any Annuitant reaches age 100,
whichever occurs first.
BENEFICIARY(IES): The person(s) to whom We will pay the proceeds payable on
Your death or on the death of the Last Surviving Annuitant.
CASH SURRENDER VALUE: The Policy Value less any applicable Annual Administration
Charge and Market Value Adjustment.
DUE PROOF OF DEATH: Proof of death that is satisfactory to us. Such proof may
consist of: 1) a certified copy of the death certificate; or 2) a certified copy
of the decree of a court of competent jurisdiction as to the finding of death.
EFFECTIVE DATE: The date We accept Your completed application and apply Your
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.
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) less any withdrawals (including any Market Value Adjustments and
premium tax charges) or transfers (including any applicable Market Value
Adjustments).
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.
LAST SURVIVING ANNUITANT(S): The Annuitant(s) or Joint Annuitant(s) that
survives the other.
MARKET VALUE ADJUSTMENT: A positive or negative adjustment assessed upon the
surrender, withdrawal, or transfer of any portion of a Guarantee Amount before
the expiration of its Guarantee Period.
NET PREMIUM: The premium(s) paid less any premium tax deducted in the year the
premium is paid.
48
<PAGE>
NONQUALIFIED POLICY: A Policy that is not a "qualified" Policy under the
Internal Revenue Code of 1986, as amended (Code).
OWNER(S): The individual(s), trust(s), corporation(s), or any other entity(ies)
entitled to exercise ownership rights and privileges under the Policy. The term
Owner(s) also includes any Joint Owner(s), a term used solely for the purpose of
referring to more than one Owner. There is no other distinction between the
terms Owner(s) and Joint Owner(s).
POLICY: The flexible premium variable deferred annuity Policy offered by this
Prospectus.
POLICY VALUE: The sum of the Variable Account value and the Fixed Account value.
Policy Date: The date the Policy goes into effect.
POLICY YEARS, MONTHS, and ANNIVERSARIES: Starts on the same month and day as the
Policy Date.
QUALIFIED POLICY: A Policy issued in connection with plans that receive special
federal income tax treatment under sections 401, 403(a), 403(b), 408, 408A, or
457 of the Code.
UNIT: A measurement used in the determination of the Policy's Variable Account
value before the Annuity Date.
VALUATION DAY: Each day the New York Stock Exchange is open for trading.
VALUATION PERIOD: The period beginning at the close of business on a Valuation
Day and ending at the close of business on the next succeeding Valuation Day.
The close of business is when the New York Stock Exchange closes (usually at
4:00 P.M. Eastern Time).
49
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION - TABLE OF CONTENTS
<TABLE>
<S> <C>
ADDITIONAL POLICY PROVISIONS............................................................................ 2
Contract............................................................................................ 2
Incontestability.................................................................................... 2
Misstatement of Age................................................................................. 2
Currency............................................................................................ 3
Place of Payment.................................................................................... 3
Non-Participation................................................................................... 3
Our Consent......................................................................................... 3
PRINCIPAL UNDERWRITER................................................................................... 3
CALCULATION OF YIELDS AND TOTAL RETURNS................................................................. 3
Cash Management Yields.............................................................................. 3
Other Sub-Account Yields............................................................................ 4
Total Returns....................................................................................... 5
Effect of the Annual Administration Charge on Performance Data...................................... 7
SAFEKEEPING OF ACCOUNT ASSETS.......................................................................... 7
STATE REGULATION....................................................................................... 7
RECORDS AND REPORTS.................................................................................... 8
LEGAL MATTERS.......................................................................................... 8
EXPERTS................................................................................................ 8
OTHER INFORMATION...................................................................................... 8
FINANCIAL STATEMENTS................................................................................... 8
</TABLE>
50
<PAGE>
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..............................................
District of
Columbia................................................
Kentucky................................................
Maine...................................................
Nevada..................................................
South
Dakota..................................................
West
Virginia................................................
Wyoming.................................................
</TABLE>
51
<PAGE>
TADV-A.DOC
52
<PAGE>
PART B
INFORMATION REQUIRED TO BE IN THE
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD, NW, ATLANTA, GEORGIA 30339
PHONE: (800)905-1959
TRILLIUM ADVISOR
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 Prospectus is dated the same date as
this Statement of Additional Information. You may obtain the Prospectus by
writing or calling us at our address or phone number shown above.
The date of this Statement of Additional Information is , 1999.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
ADDITIONAL POLICY PROVISIONS.............................................3
Contract............................................................3
Incontestability....................................................3
Misstatement Of Age or Sex..........................................3
Currency............................................................3
Place Of Payment....................................................3
Non-Participation...................................................3
Our Consent.........................................................3
PRINCIPAL UNDERWRITER....................................................3
CALCULATION OF YIELDS AND TOTAL RETURNS..................................4
Cash Management Yields..............................................4
Other Sub-Account Yields............................................5
Total Returns.......................................................6
A. Standardized "Average Annual Total Returns"................6
B. Adjusted Historic Fund Performance..........................2
Effect of the Annual Administration Charge on Performance Data......1
SAFEKEEPING OF ACCOUNT ASSETS............................................1
STATE REGULATION.........................................................1
RECORDS AND REPORTS......................................................1
LEGAL MATTERS............................................................1
EXPERTS..................................................................2
OTHER INFORMATION........................................................2
FINANCIAL STATEMENTS.....................................................2
2
<PAGE>
ADDITIONAL POLICY PROVISIONS
CONTRACT
The entire contract is made up of the Policy, the application for the Policy and
any riders or endorsements. The statements made in the application are deemed
representations and not warranties. We cannot use any statement in defense of a
claim or to void the Policy unless it is contained in the application and a copy
of the application is attached to the Policy at issue.
INCONTESTABILITY
Other than misstatement of age or sex (see below), we will not contest the
Policy after it has been in force during any annuitant's lifetime for two years
from the date of issue of the Policy.
MISSTATEMENT OF AGE OR SEX
If the age or sex of any annuitant has been misstated, we will pay the amount
which the proceeds would have purchased at the correct age or for the correct
sex.
If we make an overpayment because of an error in age or sex, the overpayment
plus interest at 3% compounded annually will be a debt against the Policy. If
the debt is not repaid, future payments will be reduced accordingly.
If we make an underpayment because of an error in age or sex, any annuity
payments will be recalculated at the correct age or sex, and future payments
will be adjusted. The underpayment with interest at 3% compounded annually will
be paid in a single sum.
CURRENCY
All amounts payable under the Policy will be paid in United States currency.
PLACE OF PAYMENT
All amounts payable by us will be payable at our 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, Vice President,
Secretary or Actuary.
PRINCIPAL UNDERWRITER
3
<PAGE>
Canada Life of America Financial Services, Inc. (CLAFS), an affiliate of Canada
Life Insurance Company of America (CLICA), is the principal underwriter of the
variable annuity policies described herein. The offering of the policies is
continuous, and CLICA does not anticipate discontinuing the offering of the
policies. However, CLICA does reserve the right to discontinue the offering of
the policies.
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, or income other than investment income, 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,
and exclusive of income other than investment income) at the end of the 7 day
period in the value of a hypothetical account under a policy having a balance of
1 unit of the 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 annual administration charge; 2) the
daily administration fee; and 3) the mortality and expense risk charge. The
yield calculation reflects an average per unit annual administration charge of
$30 per year deducted at the end of each policy year. Current Yield will be
calculated according to the following formula:
Current Yield = ((NCS-ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the portfolio (exclusive of
realized gains and losses on the sale of securities and unrealized
appreciation and depreciation, and exclusive of income other than
investment income) for the 7 day period attributable to a
hypothetical account having a balance of 1 Sub-Account unit.
ES = per unit expenses of the Sub-Account for the 7 day period.
UV = the unit value on the first day of the 7 day period.
The current yield for the 7 day period ended December 31, 1998 was %.
If you have chosen on the application to receive an enhanced death benefit which
has an increased mortality and expense charge of 0.15%, the current yield for
the 7 day period ended December 31, 1998 was %.
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:
4
<PAGE>
NCS = the net change in the value of the portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized
appreciation and depreciation, and exclusive of income other than
investment income) for the 7 day period attributable to a
hypothetical account having a balance of 1 Sub-Account unit.
ES = per unit expenses of the Sub-Account for the 7 day period.
UV = the unit value for the first day of the 7 day period.
The effective yield for the 7 day period ended December 31, 1998 was %.
If you have chosen on the application to receive an enhanced death benefit which
has an increased mortality and expense charge of 0.15%, the effective yield for
the 7 day period ended December 31, 1998 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 (except the Cash Management
Market Sub-Account) for a Policy for 30 day or one month periods. The
annualized yield of a Sub-Account refers to income generated by the Sub-Account
over a specific 30 day or one month period. Because the yield is annualized,
the yield generated by a Sub-Account during the 30 day or one month period is
assumed to be generated each period over a 12 month period. The yield is
computed by: 1) dividing the net investment income of the portfolio attributable
to the Sub-Account units less Sub-Account expenses for the period; by 2) the
maximum offering price per unit on the last day of the period multiplied by the
daily average number of units outstanding for the period; by 3) compounding that
yield for a 6 month period; and by 4) multiplying that result by 2. Expenses
attributable to the Sub-Account include 1) the annual administration charge, 2)
the daily administration fee, and 3) the mortality and expense risk charge. The
yield calculation reflects an annual administration charge of $30 per year per
Policy deducted at the end of each policy year. For purposes of calculating the
30 day or one month yield, an average annual administration charge per dollar of
Policy Value in the Variable Account is used to determine the amount of the
charge attributable to the Sub-Account for the 30 day or one month period as
described below. The 30 day or one month yield is calculated according to the
following formula:
6
Yield = 2 x ((((NI-ES)/(U x UV))+1) -1)
Where:
NI = net income of the portfolio for the 30 day or one month period
attributable to the Sub-Account's units.
5
<PAGE>
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.
Total Returns
A. STANDARDIZED "AVERAGE ANNUAL TOTAL RETURNS"
We may, from time to time, also quote in sales literature or advertisements
total returns, including standardized average annual total returns calculated in
a manner prescribed by the Securities and Exchange Commission, and other total
returns. We will always include quotes of standardized average annual total
return for the period measured from the date the Sub-Account commenced
operations. When a Sub-Account has been in operation for 1, 5, and 10 years,
respectively, the standardized average annual total return for these periods
will be provided.
Standardized average annual total returns represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Policy to the redemption value of that investment as of the last day of
each of the periods. The ending date for each period for which total return
quotations are provided will be for the most recent month-end practicable,
considering the type and media of the communication and will be stated in the
communication.
Standardized average annual total returns will be calculated using Sub-Account
unit values which we calculate on each valuation day based on the performance of
the Sub-Account's underlying portfolio, and the deductions for the mortality and
expense risk charge, daily administration fee and the annual administration
charge of $30 per year per Policy deducted at the end of each policy year. For
purposes of calculating standardized average annual total return, an average per
dollar annual administration charge attributable to the hypothetical account for
the period is used. The standardized average annual total return will then be
calculated according to the following formula:
1/N
TR = ((ERV/P) ) - 1
Where:
TR = the standardized average annual total return net of Sub-Account
recurring charges.
ERV = the ending redeemable value of the hypothetical account at the end
of the period.
6
<PAGE>
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
The standardized average annual total returns assume that the maximum fees and
charges are imposed for calculations.
Standardized average annual total returns may be calculated either taking into
account or not taking into account the impact of choosing an enhanced death
benefit, which has an additional mortality and expense charge of 0.15%.
Currently, there are no standardized average annual total returns for this
product.
7
<PAGE>
B. ADJUSTED HISTORIC FUND PERFORMANCE
Sales literature or advertisements may quote nonstandardized "adjusted" total
returns for the Funds since their inception reduced by some or all of the fees
and charges under the Policy. Such adjusted historic fund performance includes
data that precedes the inception dates of the Sub-Accounts. This data is
designed to show the performance that would have resulted if the Policy had been
in existence during that time.
When the standardized performance data for the Sub-Accounts is available,
nonstandardized Sub-Account and adjusted historic Fund performance data will be
disclosed together with the standardized performance data for the required
periods.
The Funds have provided the total return information, which includes the
adjusted historic Fund total return information used to calculate the adjusted
historic total returns of the Funds for periods prior to the inception of the
Sub-Accounts.
Adjusted historic Fund average annual total returns are shown on the following
page.
<PAGE>
Adjusted historic Fund average annual total returns, assuming a 1.20% mortality
and expense charge, for the periods shown below were:
<TABLE>
<CAPTION>
1 YEAR RETURN 5 YEAR RETURN 10 YEAR RETURN FROM FUND
YEAR ENDED YEAR ENDED YEAR ENDED INCEPTION DATE FUND
Sub-Account 12/31/98 12/31/98 12/31/98 to 12/31/98 Inception Date
- ----------------------------------- ------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Bond 06/21/88
Capital 06/21/88
Cash Management 06/21/88
Common Stock 06/21/88
Communications and Information ** *** 10/04/94
Frontier ** *** 10/04/94
Global Growth Opportunities ** *** 05/01/96
Global Smaller Companies ** *** 10/04/94
Global Technology ** *** 05/01/96
High-Yield Bond ** *** 05/01/95
Income 06/21/88
International *** 05/03/93
Large-Cap Growth * ** *** **** 05/01/99
Large-Cap Value * ** 05/01/98
Small-Cap Value * ** 05/01/98
</TABLE>
Adjusted historic Fund average annual total returns, assuming a 1.40% mortality
and expense charge, for the periods shown below were:
<TABLE>
<CAPTION>
1 YEAR RETURN 5 YEAR RETURN 10 YEAR RETURN FROM FUND
YEAR ENDED YEAR ENDED YEAR ENDED INCEPTION DATE FUND
Sub-Account 12/31/98 12/31/98 12/31/98 to 12/31/98 Inception Date
- ----------------------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Bond 06/21/88
Capital 06/21/88
Cash Management 06/21/88
Common Stock 06/21/88
Communications and ** *** 10/04/94
Information
Frontier ** *** 10/04/94
Global Growth Opportunities ** *** 05/01/96
Global Smaller Companies ** *** 10/04/94
Global Technology ** *** 05/01/96
High-Yield Bond ** *** 05/01/95
Income 06/21/88
International *** 05/03/93
Large-Cap Growth * ** *** **** 05/01/99
Large-Cap Value * ** 05/01/98
Small-Cap Value * ** 05/01/98
</TABLE>
* These Sub-Accounts invest in portfolios that have not been in operation one
year as of December 31, 1998, and accordingly, no one year adjusted historic
Fund average annual total return is available.
** These Sub-Accounts invest in portfolios that have not been in operation five
years as of December 31, 1998, and accordingly, no five year adjusted
historic Fund average annual total return is available.
*** These Sub-Accounts invest in portfolios that have not been in operation ten
years as of December 31, 1998, and accordingly, no five year adjusted
historic Fund average annual total return is available.
**** As of December 31, 1998, the Large-Cap Growth Sub-Account had not commenced
operations. Accordingly, we have not provided adjusted historic Fund
average annual total return information for this Sub-Account.
<PAGE>
EFFECT OF THE ANNUAL ADMINISTRATION CHARGE ON PERFORMANCE DATA
The Policy provides for a $30 annual administration charge to be assessed
annually on each policy anniversary proportionately from any Sub-Accounts or
Fixed Account in which the Policy is invested. If the Policy Value on the
policy anniversary is $35,000 or more, we will waive the annual administration
charge for the prior policy year. We will also waive the annual administration
charge for Tax-Sheltered Annuity Policies. For purposes of reflecting the
annual administration charge in yield and total return quotations, we will
convert the annual charge into a per-dollar per-day charge based on the average
Policy Value in the Variable Account of all policies on the last day of the
period for which quotations are provided. The per-dollar per-day average charge
will then be adjusted to reflect the basis upon which the particular quotation
is calculated.
SAFEKEEPING OF ACCOUNT ASSETS
We hold the title to the assets of the Variable Account. The assets are kept
physically segregated and held separate and apart from our general account
assets and from the assets in any other separate account we have.
Records are maintained of all purchases and redemptions of portfolio shares held
by each of the Sub-Accounts.
Our officers and employees are covered by an insurance company blanket bond
issued by America Home Assurance Company to The Canada Life Assurance Company,
our parent Company, in the amount of $25 million. The bond insures against
dishonest and fraudulent acts of officers and employees.
STATE REGULATION
We are subject to the insurance laws and regulations of all the jurisdictions
where we are licensed to operate. The availability of certain Policy rights and
provisions depends on state approval and/or filing and review processes. The
policies will be modified to comply with the requirements of each applicable
jurisdiction.
RECORDS AND REPORTS
We will maintain all records and accounts relating to the Variable Account. As
presently required by the Investment Company Act of 1940 and regulations
promulgated thereunder, reports containing such information as may be required
under the Act or by any other applicable law or regulation will be sent to you
semi-annually at your last address known to us.
LEGAL MATTERS
All matters relating to Michigan law pertaining to the policies, including the
validity of the policies and our authority to issue the policies, have been
passed upon by Charles MacPhaul. Sutherland, Asbill &
<PAGE>
Brennan LLP of Washington, DC, has provided advice on certain matters relating
to the federal securities laws.
EXPERTS
Our balance sheets as of December 31, 1998 and 1997, and the related statements
of operations, accumulated surplus (deficit), and cash flows for each of the
three years in the period ended December 31, 1998, included in this Statement of
Additional Information and Registration Statement as well as the Variable
Account's statement of net assets as of December 31, 1998, and the related
statements of operations and changes in net assets for the periods indicated
therein included in this Statement of Additional Information and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, of
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, 1998, and the
related statements of operations and changes in net assets for the periods
indicated therein, as well as the Report of Independent Auditors, are contained
herein. Ernst & Young LLP, independent auditors, serves as independent auditors
for the Variable Account.
Our balance sheets as of December 31, 1998 and 1997, and the related statements
of operations, accumulated surplus (deficit), and cash flows for each of the
three years in the period ended December 31, 1998, as well as the Report of
Independent Auditors, are contained herein. The financial statements of the
Company should be considered only as bearing on our ability to meet our
obligations under the policies. They should not be considered as bearing on the
investment performance of the assets held in the Variable Account.
2
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits
(1) Resolution of the Board of Directors of Canada Life Insurance Company
of America (CLICA) authorizing establishment of Variable Account 2/2/
(2) Not applicable
(3) (a) Form of Promotional Agent Distribution Agreement/2/
(b) Form of Selling Agreement/4/
(c) Distribution Agreement/1/
(d) Amendment to Distribution Agreement/2/
(4) (a) Form of Annuity Policy
(b) Riders and Endorsements/4/
(5) Form of Application
(6) (a) Certificate of Incorporation of CLICA/1/
(b) By-Laws of CLICA/1/
(7) Not applicable
(8) Form of Buy-Sell Agreement/2/
(9) Opinion and Consent of Counsel
(10) (a) Consent of Counsel/4/
(b) Consent of Independent Counsel/4/
(c) Consent of Independent Auditors/4/
(11) No financial statements are excluded from Item 23.
(12) Not Applicable
(13) Sample Performance Data Calculation/4/
______________________
/1/ 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 20, 1997.
/2/ Incorporated herein by reference to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-4 for Variable Account 2 of Canada Life
Insurance Company of America (File No. 33-55890), made April 29, 1997.
/3/ Incorporated herein by reference to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-4 for Variable Account 2 of Canada Life
Insurance Company of America (File No. 33-55890), made April 30,
1998.
/4/ To be filed by amendment.
-2-
<PAGE>
Item 25. Directors and Officers of the Depositor
Name and Principal
Business Address Positions and Offices with Depositor
----------------- ------------------------------------
D. A. Nield (1) Chairman & Director
R. E. Beettam (2) President & Director
G. E. Hughes (2) Agency Vice President
W. S. McIlwaine (2) Group Sales Vice-President
P. D. Cochrane (1) Administrative Officer
A. W. Bard(2) Administrative Officer
K. T. Ledwos (2) Actuary & Director
S. Benedetti (2) Marketing Actuary
J. G. Deskins(2) Illustration Actuary
J. W. Elliott(2) Internal Auditor
R. W. Linden (1) Secretary
G. N. Isaac (1) Treasurer
D. V. Rough (1) Assistant Treasurer
E. P. Ovsenny (1) Assistant Treasurer
D. N. Rattray (1) Assistant Treasurer
B. J. Lynch (1) Assistant Treasurer
M. V. Sim (1) Assistant Treasurer
K. J. Fillman (2) Product Manager Investment Management Services
D. A. Loney (2) Director
H.A. Rachfalowski (1) Director
T. C. Scott (2) Director
S. H. Zimmerman (3) Director
K.A. Phelan (2) Assistant Treasurer
(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.
-3-
<PAGE>
Item 26. Persons Controlled by or Under Common Control With the Depositor or
Registrant
<TABLE>
<CAPTION>
NAME JURISDICTION PERCENT OF PRINCIPAL
- ---- ------------ VOTING SECURITIES OWNED BUSINESS
----------------------- --------
<S> <C> <C> <C>
The Canada Life Assurance Canada Mutual Company Life and Health
Company Insurance
Canada Life Insurance Company New York Ownership of voting securities through Life and Health
of New York Canada Life Insurance
Adason Properties Limited Canada Ownership of all voting securities Property
through Canada Life Management
Canada Life Irish Operations England Ownership of all voting securities Life and Health
Limited through Canada Life Insurance
Canada Life Unit Trust Managers England Ownership of all voting securities Unit Trust
Limited through Canada Life Irish Operations Management
Canada Life Mortgage Services Canada Ownership of all voting securities Mortgage
Ltd. through Canada Life Portfolios
The CLGB Property Company England Ownership of all voting securities Real Estate
Limited through Canada Life Irish Operations Investment
CLASSCO Benefit Services Limited Canada Ownership of all voting securities Administrative
through Canada Life Services
Canada Life Casualty Insurance Canada Ownership of all voting securities Property and
Company through Canada Life Insurance Casualty
Insurance
INDAGO Capital Management Inc. Canada Ownership of 50% of voting securities Investment
through INDAGO Capital Management Inc. Counseling
and 50% by the executive employees
Sherway Centre Limited Canada Ownership of all voting securities Real Estate
through Canada Life Broker
The Canada Life Assurance Rep. of Ireland Ownership of all voting securities Life and Health
Company of Ireland Limited through Canada Life Irish Operations Insurance
Canlife - IBI Investment Rep. of Ireland Ownership of 50% of voting securities Unit Trust
Services Limited through Canada Life Ass. ( Ireland) Management
Limited and 50% by the Investment Bank
of Ireland
Canada Life Financial England Ownership of all voting securities Life
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
NAME JURISDICTION PERCENT OF PRINCIPAL
- ---- ------------ VOTING SECURITIES OWNED BUSINESS
----------------------- --------
<S> <C> <C> <C>
Services Company Limited through Canada Life Irish Operations Insurance
F.S.D. Investments Ltd. Rep. of Ireland Ownership of all voting securities Unit Fund Sales
through Canada Life Assurance (Ireland) and Management
Limited
Canada Life Insurance Company US Canada Life Life and Health
of America Insurance
Canada Life of America Georgia Ownership of all voting securities Broker Dealer
Financial Services Inc. through CLICA
Canada Life of America Series Maryland Ownership of all voting securities Mutual Fund
Fund, Inc. through CLICA
CLMS Realty Ltd. Canada 99% of the common shares and 100% of Realtor
the convertible preference shares are
owned by Canada Life
Canada Life Pension & Annuities Rep. of Ireland Ownership of all voting securities Life Assurance
(Ireland) Limited through Canada Life Assurance (Ireland)
Limited
CLAI Limited Rep. of Ireland Ownership of all voting securities Holding,
through Canada Life Ireland Holdings Service,
Limited Management, and
Investment
Company
The Canada Life Assurance Rep. of Ireland Ownership of all voting securities Life Insurance,
(Ireland) Limited through CLAI Limited and the Canada Pension, and
Life Assurance Company of Ireland Annuity
CL Capital Management, Inc. Georgia Ownership of all voting securities Investment
through CLICA Advisor
Canada Life Capital Corporation Canada Ownership of all voting securities External
Inc. through Canada Life Sources of
Capital
Canada Life Securing Canada Ownership of all voting securities Holding Company
Corporation Inc. through Canada Life
The Canada Life Group (UK) England Ownership of all voting securities Holding Company
Limited through Canada life
Canada Life Holdings (UK) England The Canada Life Group (UK) Limited Holding Company
Limited
The Canada Life Assurance England The Canada Life Group (UK) Life and Health
Company of Great Britain
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
NAME JURISDICTION PERCENT OF PRINCIPAL
- ---- ------------ VOTING SECURITIES OWNED BUSINESS
----------------------- --------
<S> <C> <C> <C>
Limited Limited Insurance
Canada Life Management (UK) England The Canada Life Group (UK) Limited Unit Trust
Limited Sales &
Management
Canada Life Group Services (UK) England The Canada Life Group (UK) Limited Administrative
Limited Services
Canada Life Trustee Services England The Canada Life Group (UK) Limited Trustee Services
(UK) Limited
Canada Life Ireland Holdings Ireland Canada Life Irish Operations Limited Holding Company
Limited
MetLife (UK) Limited England Ownership of all voting securities Holding Company
through Canada Life
MetLife Group Services Limited England Ownership of all voting securities Administrative Services
through MetLife (UK) Limited
Metropolitan Unit Trust Managers England Ownership of all voting securities Unit Trust Services
Limited through MetLife (UK) Limited
Albany International Assurance England Ownership of all voting securities Unit Investment Products
Limited through MetLife (UK) Limited
Albany Life Assurance Company England Ownership of all voting securities Unit Life and Pension
Limited through MetLife (UK) Limited Insurance
Albany Pension Managers and England Ownership of all voting securities Trustee Services
Trustees Limited through Albany Life Assurance Company
Limited
Crown Life
</TABLE>
-6-
<PAGE>
Item 27. Number of Policy Owners
- --------------------------------------------------------------------------------
As of January 25, 1999, there were no owners of Nonqualified Policies and no
owners of Qualified Policies.
- --------------------------------------------------------------------------------
Item 28. Indemnification
Canada Life Insurance Company of America's By-Laws provide in Article II,
Section 10 as follows:
In addition to any indemnification to which a person may be entitled to under
common law or otherwise, each person who is or was a director, an officer, or an
employee of this Corporation, or is or was serving at the request of the
Corporation as a director, an officer, a partner, a trustee, or an employee of
another foreign or domestic corporation, partnership, joint venture, trust, or
other enterprises, whether profit or not, shall be indemnified by the
Corporation to the fullest extent permitted by the laws of the State of Michigan
as they may be in effect from time to time. This Corporation may purchase and
maintain insurance on behalf of any such person against any liability asserted
against and incurred by such person in any such capacity or arising out of his
or her status as such, whether or not the corporation would have power to
indemnify such person against such liability under the laws of the State of
Michigan.
In addition, Sections 5241 and 5242 of the Michigan Insurance Code generally
provides that a corporation has the power ( and in some instances the
obligation) to indemnify a director, officer, employee or agent of the
corporation, or a person serving at the request of the corporation as a
director, officer, partner, trustee, employee or agent of another corporation or
other entity (the "indemnities") against reasonably incurred expenses in a
civil, administrative, criminal or investigative action, suit or proceeding if
the indemnitee acted in good faith in a manner he or she reasonably believed to
be in or not opposed to the best interests of the corporation or its
shareholders or policyholders (or, in the case of a criminal action, if the
indemnitee had no reasonable cause to believe his or her conduct was unlawful).
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the questions whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
-7-
<PAGE>
Item 29. Principal Underwriter
Canada Life of America Financial Services, Inc. (CLAFS) is the principal
underwriter of the Policies as defined in the Investment Company Act of 1940.
The following table provides certain information with respect to each director
and officer of CLAFS.
Name and Principal Positions and Offices
Business Address With Underwriter
- ---------------- ----------------
S. Benedetti** Chairman and Director
D.V. Rough* Treasurer
C.H. MacPhaul** Assistant Secretary
K.T. Ledwos** Administrative Officer and Director
S. Benedetti** President and Director
K.J. Fillman** Administrative Officer
_____________________
* The business address is 330 University Avenue, Toronto, Ontario, Canada
M5G1RS.
** The business address is 6201 Powers Ferry Road, N.W., Suite 600, Atlanta,
Georgia 30339.
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of the 1940
Act and the rules under it are maintained by CLICA at its Executive Office at
330 university Avenue, Toronto, Canada M5G1R8 and at 6201 Powers Ferry Rd.,
N.W., Atlanta, Georgia 30339.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
Item 32.
Undertakings
(a) Registrant undertakes that it will file a post effective amendment to this
registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that
an applicant can check to request a Statement of Additional Information, or
(2) a post card or similar written communication affixed to or included in
the Prospectus that the applicant can remove to send for a Statement of
Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to CLICA at the address or phone
number listed in the Prospectus.
-8-
<PAGE>
(d) Depositor undertakes to preserve on behalf of itself and Registrant the
books and records required to be preserved by such companies pursuant to
Rule 31a-2 under the Investment Company Act of 1940 and to permit
examination of such books and records at any time or from time to time
during business hours by examiners or other representatives of the
Securities and Exchange Commission, and to furnish to said Commission at
its principal office in Washington, D.C., or at any regional office of said
Commission specified in a demand made by or on behalf of said Commission
for copies of books and records, true, correct, complete, and current
copies of any or all, or any part, of such books and records.
(e) The Registrant is relying on a letter issued by the staff of the Securities
and Exchange Commission to the American Council of Life Insurance on
November 28, 1988 (Ref. No. IP-6-88) stating that it would not recommend to
the Commission that enforcement action be taken under Section 22(e),
27(c)(1), or 27(d) of the Investment Company Act of 1940 if the Registrant,
in effect, permits restrictions on cash distributions from elective
contributions to the extent necessary to comply with Section 403(b)(11) of
the Internal Revenue Code of 1986 in accordance with the following
conditions:
(1) include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the policy;
(2) include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection
with the offer of the policy;
(3) instruct sales representatives who may solicit individuals to purchase
the policies specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of such individuals;
(4) obtain from each owner who purchases a Section 403(b) policy, prior to
or at the time of such purchase, a signed statement acknowledging the
owner's understanding of (i) the redemption restrictions imposed by Section
403(b)(11), and (ii) the investment alternatives available under the
employer's Section 403(b) arrangement, to which the owner may elect to
transfer his or her policy value.
The Registrant is complying, and shall comply, with the provisions of
paragraphs (1) - (4) above.
(f) Canada Life Insurance Company of America hereby represents that the fees
and changes deducted under the Policy, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred,
and the risks assumed by Canada Life Insurance Company of America.
STATEMENT PURSUANT TO RULE 6c-7
CLICA and the Variable Account 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.
-9-
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets all the requirements for
effectiveness of this Registration Statement and has caused this Registration
Statement 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, 1999.
CANADA LIFE INSURANCE COMPANY OF AMERICA
VARIABLE ANNUITY ACCOUNT 2
By /s/ R.E. Beettam
----------------------------------------
R. E. Beettam, President
Canada Life Insurance Company of America
CANADA LIFE INSURANCE COMPANY OF AMERICA
By /s/ R.E. Beettam
----------------------------------------
R. E. Beettam, President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ D. A. Nield Chairman and Director January 20, 1999
--------------- ----------------
D. A. Nield
/s/ R.E. Beettam President and Director January 20, 1999
---------------- ----------------
R. E. Beettam
/s/ K. T. Ledwos Director January 20, 1999
---------------- ----------------
K. T. Ledwos
/s/ D. A. Loney Director January 20, 1999
--------------- ----------------
D. A. Loney
/s/ H. A. Rachfalowski Director January 21, 1999
---------------------- ----------------
H. A. Rachfalowski
/s/ T. C. Scott Director January 17, 1999
--------------- ----------------
T. C. Scott
/s/ S. H. Zimmerman Director January 13, 1999
------------------- ----------------
S. H. Zimmerman
/s/ G. N. Isaac Treasurer January 21, 1999
--------------- ----------------
G. N. Isaac
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
4 (a) Form of Annuity Policy
5 Form of Application
9 Opinion and Consent of Counsel
-10-
<PAGE>
EXHIBIT 4 (A)
FORM OF ANNUITY POLICY
<PAGE>
POLICY NUMBER: 000 000
OWNER: JOHN DOE
CANADA LIFE INSURANCE COMPANY OF AMERICA
LANSING, MICHIGAN
ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD, N.W. ATLANTA, GA 30339
MAILING ADDRESS: P.O. BOX 105662 ATLANTA, GA 30348-5662
If You (the Policyowner) have any questions or complaints about this Policy, You
may call Us toll free at 1-800-905-1959.
We, Canada Life Insurance Company of America, are pleased to issue this Policy
to You.
We agree to pay the proceeds as described in this Policy, subject to its
provisions.
PLEASE READ THIS POLICY CAREFULLY, SINCE IT IS A LEGAL CONTRACT BETWEEN YOU AND
US.
THE DOLLAR AMOUNTS OF ACCUMULATION BENEFITS AND VALUES OF THIS POLICY PROVIDED
BY THE VARIABLE ACCOUNT MAY INCREASE OR DECREASE DAILY, DEPENDING ON THE
INVESTMENT PERFORMANCE OF THE PORTFOLIOS OF THE FUNDS IN WHICH YOUR ELECTED SUB-
ACCOUNTS ARE INVESTED, AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNTS. NO
MINIMUM AMOUNT OF POLICY VALUE IS GUARANTEED, EXCEPT FOR ANY AMOUNTS IN THE
FIXED ACCOUNT.
REGARDING THE FIXED ACCOUNT, AMOUNTS TRANSFERRED, WITHDRAWN OR SURRENDERED UNDER
THIS POLICY FROM A GUARANTEE PERIOD WHOSE SPECIFIED DURATION IS GREATER THAN ONE
YEAR, MAY INCREASE OR DECREASE IN ACCORDANCE WITH A MARKET VALUE ADJUSTMENT
DURING THE GUARANTEE PERIOD TERM SPECIFIED, SUBJECT TO THE MINIMUM VALUES
DEFINED IN THIS POLICY.
TEN DAY RIGHT TO EXAMINE POLICY
YOU HAVE TEN DAYS AFTER YOU RECEIVE THIS POLICY TO DECIDE IF IT MEETS YOUR
NEEDS. IF IT DOES NOT, YOU MAY RETURN IT TO OUR ADMINISTRATIVE OFFICE OR TO THE
AGENT FROM WHOM YOU BOUGHT IT. WE SHALL CANCEL THE POLICY AND PROMPTLY REFUND
THE POLICY VALUE. THE REFUND WILL INCLUDE ANY FEES AND OR CHARGES THAT WERE
DEDUCTED FROM THAT POLICY VALUE, LESS ANY PARTIAL WITHDRAWALS. THE POLICY WILL
BE VOID FROM THE BEGINNING.
/s/ Signature illegible /s/ Signature illegible
Secretary President
TRILLIUM ADVISOR
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY
Flexible premium as stated in the Additional Premium Provision.
Accumulation benefits and values are variable, except for amounts in the Fixed
Account.
Guarantee Periods under the Fixed Account may be subject to a Market Value
Adjustment.
After the Annuity Date, payment options are on a guaranteed basis.
Death Benefit payable upon death of the Last Surviving Annuitant before the
Annuity Date.
Non-participating - Not eligible for dividends.
Page 1
<PAGE>
TABLE OF CONTENTS
POLICY DETAILS 4
DEFINITIONS 5
GENERAL PROVISIONS 7
ANNUITY DATE 7
ASSIGNMENT 7
BENEFICIARY 7
CONFORMITY WITH LAWS 7
CONSTRUCTION OF TERMS 7
CONTRACT 7
CURRENCY 8
INCONTESTABILITY 8
MISSTATEMENT OF AGE OR SEX 8
MODIFICATION 8
NON-PARTICIPATION 8
NOTIFICATION OF DEATH 8
OUR CONSENT 8
OWNER 9
PERIODIC REPORTS 9
PLACE OF PAYMENT 9
TERMINATION 9
WRITTEN NOTICE 9
PREMIUM 10
INITIAL PREMIUM 10
ADDITIONAL PREMIUM 10
NET PREMIUM ALLOCATION AMONG SUB-ACCOUNTS AND
FIXED ACCOUNT 10
THE VARIABLE ACCOUNT 10
VARIABLE ACCOUNT 10
SUB-ACCOUNTS 11
VARIABLE ACCOUNT VALUE 11
UNITS 11
UNIT VALUE 12
NET INVESTMENT FACTOR 12
RESERVED RIGHTS 12
CHANGE IN INVESTMENT POLICY 12
THE FIXED ACCOUNT 13
FIXED ACCOUNT 13
MARKET VALUE ADJUSTMENT 14
POLICY VALUES 15
POLICY VALUE 15
CASH SURRENDER VALUE 15
PARTIAL WITHDRAWALS 16
ANNUAL ADMINISTRATION CHARGE 16
BASIS OF VALUES 16
Page 2
<PAGE>
TRANSFERS 16
TRANSFER PRIVILEGE 16
TRANSFER PROCESSING FEE 17
PAYMENT OF PROCEEDS 17
PROCEEDS 17
PROCEEDS ON ANNUITY DATE 17
PROCEEDS ON SURRENDER 18
PROCEEDS ON DEATH OF THE LAST SURVIVING ANNUITANT
BEFORE ANNUITY DATE (THE DEATH BENEFIT) 18
PROCEEDS ON DEATH OF ANY OWNER 19
INTEREST ON PROCEEDS 19
POSTPONEMENT OF PAYMENT 19
PAYMENT OPTIONS 20
ELECTION OF PAYMENT OPTIONS 20
PAYMENT DATES 20
AGE AND SURVIVAL OF ANNUITANT 21
APPENDIX - TABLE OF PAYMENTS ON BASIS OF $1,000 NET PROCEEDS 22
Page 3
<PAGE>
POLICY DETAILS
POLICY NUMBER 000 000
ANNUITANT John Doe
JOINT ANNUITANT
ANNUITANT AGE*
JOINT ANNUITANT AGE*
ANNUITANT SEX
JOINT ANNUITANT SEX
POLICY DATE May 1, 1999
EFFECTIVE DATE May 1, 1999
ANNUITY DATE May 1, 2049
OWNER John Doe
JOINT OWNER
OWNER AGE*
JOINT OWNER AGE*
INITIAL PREMIUM $5,000
ANNUAL ADMINISTRATION CHARGE** $30.00
ANNUALIZED MORTALITY AND
EXPENSE CHARGE 1.25%
[ANNUALIZED MORTALITY AND
EXPENSE CHARGE
IF ENHANCED DEATH BENEFIT CHOSEN 1.40%]
ANNUALIZED RATE OF DAILY
ADMINISTRATIVE FEE 0.20%
* Age is at Date of Issue.
** If the Policy Value on the Policy Anniversary is $35,000 or higher, We will
waive the Annual Administration Charge for the prior Policy Year. We will
also waive the Annual Administration Charge if the Policy is a Tax-Sheltered
Annuity.
THE DATE OF ISSUE OF THIS POLICY IS MAY 1, 1999.
Page 4
<PAGE>
DEFINITIONS
ANNUITANT(S): As shown on the Policy Details page, any natural person(s) whose
life is used to determine the duration of any payments made under a payment
option involving a life contingency. The term Annuitant(s) also includes any
Joint Annuitant(s), a term used solely to refer to more than one Annuitant.
There is no other distinction between the terms Annuitant(s) and Joint
Annuitant(s). A Joint Annuitant is not allowed under a Qualified Policy and any
designation of a Joint Annuitant under a Qualified Policy will be of no effect.
ANNUITY DATE: The date when the proceeds will be paid under an annuity payment
option or on the first day of the month after any Annuitant reaches age 100,
whichever occurs first.
BENEFICIARY(IES): The person(s) designated by You in the application to receive
any proceeds payable on Your death or on the death of the Last Surviving
Annuitant.
CONTINGENT BENEFICIARY(IES): The person(s) designated by You in the application
to receive any proceeds payable in the event no primary Beneficiary(ies) is
alive on the date of death of the Last Surviving Annuitant.
DATE OF ISSUE: As shown on the Policy Details page, the date on which the Policy
is issued at Our Administrative Office. The Date of Issue may be different than
the Policy Date.
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: As shown on the Policy Details Page, the date We accept Your
completed 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.
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) less any withdrawals (including any Market Value Adjustments and
premium tax charges) or transfers (including any applicable Market Value
Adjustments) .
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.
LAST SURVIVING ANNUITANT(S): The Annuitant(s) or Joint Annuitant(s) that
survives the other.
MARKET VALUE ADJUSTMENT: A positive or negative adjustment assessed upon the
surrender, withdrawal, or transfer of any portion of a Guarantee Amount before
the expiration of its Guarantee Period.
NET PREMIUM: The premium(s) paid less any premium tax deducted in the year the
premium is paid.
NONQUALIFIED POLICY: A Policy that is not a "qualified" Policy under the
Internal Revenue Code of 1986, as amended (Code).
Page 5
<PAGE>
POLICYOWNER(S): As shown on the Policy Details page, the individual(s),
trust(s), corporation(s), or any other entity(ies) entitled to exercise
ownership rights and privileges under the Policy. The term Policyowner(s) also
includes any Joint Policyowner(s), a term used solely for the purpose of
referring to more than one Policyowner. There is no other distinction between
the terms Policyowner(s) and Joint Policyowner(s).
Policy: This Flexible Premium Variable Deferred Annuity contract.
POLICY VALUE: The sum of the Variable Account value and the Fixed Account value.
POLICY DATE: As shown on the Policy Details page, the date this Policy goes into
effect.
POLICY YEARS, MONTHS, and ANNIVERSARIES: Starts on the same month and day as the
Policy Date.
QUALIFIED POLICY: A Policy issued in connection with plans that receive special
federal income tax treatment under sections 401, 403(a), 403(b), 408, 408A, or
457 of the Code.
UNIT: A measurement used in the determination of the Policy's Variable Account
value before the Annuity Date.
VALUATION DAY: Each day the New York Stock Exchange is open for trading.
VALUATION PERIOD: The period beginning at the close of business on a Valuation
Day and ending at the close of business on the next succeeding Valuation Day.
The close of business is when the New York Stock Exchange closes (usually at
4:00 P.M. Eastern Time).
Page 6
<PAGE>
GENERAL PROVISIONS
ANNUITY DATE
You may annuitize at any time, and may change the Annuity Date, subject to these
limitations:
1. We must receive Your Written Notice at Our Administrative Office at least
30 days before the current Annuity Date;
2. The requested Annuity Date must be a date that is at least 30 days after We
receive Your Written Notice; and
3. The requested Annuity Date should be no later than the first day of the
month following any Annuitant's 100th birthday.
ASSIGNMENT
You may assign a Nonqualified Policy or an interest in it at any time before the
Annuity Date and during any Annuitant's lifetime. Your rights and the rights of
any Beneficiary will be affected by an assignment. An assignment must be in a
Written Notice acceptable to us. It will not be binding on Us until We receive
and file it at Our Administrative Office. We are not responsible for the
validity of any assignment. An assignment of a Nonqualified Policy may result
in certain tax consequences to the Policyowner.
BENEFICIARY
We will pay the Beneficiary any proceeds payable on Your death or the death of
the Last Surviving Annuitant. During any Annuitant's lifetime and before the
Annuity Date, You may name and change one or more beneficiaries by giving Us
Written Notice. However, We will require Written Notice from any irrevocable
Beneficiary or assignee specifying their consent to the change.
We will pay the proceeds under the Beneficiary appointment in effect at the date
of death. If You have not designated otherwise in Your appointment, the proceeds
will be paid to the surviving Beneficiary(ies) equally. If no Beneficiary is
living when You or the Last Surviving Annuitant dies, or if none has been
appointed, the proceeds will be paid to You or Your estate.
CONFORMITY WITH LAWS
To the extent this Policy conflicts with any applicable federal or state law,
rules or regulations, or the requirements of the Internal Revenue Service
concerning distributions on death, this Policy shall be deemed to conform with
said law, regulation or ruling and administrated accordingly.
CONSTRUCTION OF TERMS
Singular terms shall be construed to include the plural.
CONTRACT
We have issued this Policy in consideration of Your application and Your payment
of the initial premium. The entire contract is made up of this Policy, which
includes the Policy Details Page, the attached copy of the application, and any
riders and endorsements. We rely on all statements made in the application. The
statements made in the application are deemed representations and not
warranties. Neither You nor We can use any statement in defense to a claim or
to void this Policy unless it is contained in the application and a copy of the
application is attached to the Policy at issue.
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Only Our President, Vice President, Secretary or Actuary may modify this Policy
or waive any of Our rights or requirements. Any change in this Policy must be in
writing. The change must bear the signature, or a reproduction of the
signature, of one or more of the above officers.
CURRENCY
All amounts payable under the Policy will be paid in United States currency.
INCONTESTABILITY
Other than misstatement of age or sex (see below), We will not contest this
Policy after it has been in force during any Annuitant's lifetime for two years
from the Date of Issue.
MISSTATEMENT OF AGE OR SEX
Proof of date of birth and sex of each Annuitant is required before any annuity
payment will be made, if such payment involves a life contingency. If the age
or sex of any annuitant has been misstated, we will pay the amount which the
proceeds would have purchased at the correct age or for the correct sex.
If we make an overpayment because of an error in age or sex, the overpayment
plus interest at 3% compounded annually will be a debt against the Policy. If
the debt is not repaid, future payments will be reduced accordingly.
If we make an underpayment because of an error in age or sex, any annuity
payments will be recalculated at the correct age or sex, and future payments
will be adjusted. The underpayment with interest at 3% compounded annually will
be paid in a single sum.
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.
NON-PARTICIPATION
The Policy is not eligible for dividends and will not participate in our
divisible surplus.
NOTIFICATION OF DEATH
The death of the Annuitant(s) and/or the Owner(s) must be reported to Us
immediately, and We will require Due Proof of Death. We will pay the proceeds
based upon the date recorded in the Due Proof of Death. However, we are
entitled to immediately recover any overpayments made because of a failure to
notify Us of any such death. We are also not responsible for any mispayments
which result from a failure to notify Us.
OUR CONSENT
If our consent is required, it must be given in writing. It must bear the
signature, or a reproduction of the signature, of our President, Vice President,
Secretary or Actuary.
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OWNER
During any Annuitant's lifetime and before the Annuity Date, You have all of the
ownership rights and privileges granted by the Policy. If You appoint an
irrevocable Beneficiary or assignee, then Your rights will be subject to those
of that Beneficiary or assignee.
During any Annuitant's lifetime and before the Annuity Date, You may also name,
change or revoke a Policyowner(s), Beneficiary(ies), Payee(s), or Annuitant(s)
by giving Us Written Notice. Any change of Policyowner(s) or Annuitant(s) must
be approved by Us.
A change of any Policyowner may result in resetting the Death Benefit to an
amount equal to the Policy Value as of the date of the change.
With respect to Qualified Policies generally, however:
. the contract may not be assigned (other than to us);
. Joint Ownership is not permitted; and
. the Policyowner must be the Annuitant.
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.
PLACE OF PAYMENT
All amounts payable by Us will be payable at Our Administrative Office.
TERMINATION
We may pay You the Cash Surrender Value and terminate the Policy if before the
Annuity Date all of these events simultaneously exist:
1. you have not paid any premiums for at least two years;
2. the Policy Value is less than $2,000; and
3. the total premiums paid, less any partial withdrawals, is less than $2,000.
We will mail You a notice of Our intention to terminate the Policy at least six
months in advance. The Policy will automatically terminate on the date specified
in the notice unless We receive an additional premium before such date. This
additional premium must be at least the minimum amount specified in "Additional
Premium."
Qualified contracts may be subject to distribution restrictions.
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WRITTEN NOTICE
Written Notice must be signed and dated by You. It must be of a form and content
acceptable to us. Your Written Notice will not be effective until We receive and
file it. However, any change provided in Your Written Notice will be effective
as of the date You signed the Written Notice:
1. subject to any payments or other actions We take prior to receiving and
filing Your Written Notice; and
2. whether or not You or the Last Surviving Annuitant are alive when We receive
and file Your Written Notice.
PREMIUM
INITIAL PREMIUM
The initial premium is payable on or before the Effective Date.
ADDITIONAL PREMIUM
You may make additional premium payments at any time during any Annuitant's
lifetime and before the Annuity Date. Our prior approval is required before We
will accept an additional premium which, together with the total of other
premiums paid, would exceed $1,000,000. We will apply additional Net Premium as
of receipt at Our Administrative Office. We will give You a receipt for each
additional premium payment.
The following chart outlines the minimum additional premium accepted.
<TABLE>
<CAPTION>
MINIMUM ADDITIONAL
Type of Policy PREMIUM ACCEPTED*
<S> <C>
Policy is an IRA.......................................................... $1,000
Policy is not an IRA...................................................... $1,000
Policy is IRA and PAC agreement** for additional premiums submitted....... $ 50
Policy is not an IRA and PAC agreement for additional premiums submitted.. $ 100
</TABLE>
* We reserve the right to lower or raise the minimum additional premium.
** Pre-authorized check agreement plan.
NET PREMIUM ALLOCATION AMONG SUB-ACCOUNTS AND FIXED ACCOUNT
You elect in Your application how You want Your initial Net Premium to be
allocated among the Sub-Accounts and the Fixed Account. Any additional Net
Premium 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 or underlying portfolio that is not available, We will immediately
return that portion of the premium to You, unless You specify otherwise.
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THE VARIABLE ACCOUNT
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. We have the
right to transfer to Our general account any assets of the Variable Account
which are in excess of such reserves and other liabilities.
The Variable Account is registered with the Securities and Exchange Commission
(the SEC) as a unit investment trust under the Investment Company Act of 1940
(the 1940 Act) and meets the definition of a "separate account" under the
federal securities laws. However, the SEC does not supervise the management,
investment policies or practices of the Variable Account.
SUB-ACCOUNTS
The Variable Account consists of the Sub-Accounts shown in the current
prospectus You received. Each Sub-Account invests in shares of portfolios of
various funds offered as investment choices (Funds). You may refer, at any
time, to the prospectus for detailed fund information. Shares of a portfolio
are purchased and redeemed for a 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 its net
asset value. The Funds' prospectuses, which is part of the prospectus You
received, defines the net asset value and describes the portfolios of the Funds.
The dollar amounts of accumulation values and benefits of this Policy provided
by the Variable Account depend on the investment performance of the portfolios
of the Funds in which Your elected Sub-Accounts are invested. We do not
guarantee the investment performance of the portfolios. You bear the full
investment risk for amounts applied to the elected Sub-Accounts.
VARIABLE ACCOUNT VALUE
To calculate the Variable Account value before the Annuity Date, multiply (a) by
(b), where:
a) is the number of Units credited to the Policy for each Sub-Account; and
b) is the current Unit Value of these Units.
UNITS
We credit Net Premium in the form of Units. The number of Units credited to the
Policy for each Sub-Account is (a) divided by (b), where:
a) is the Net Premium allocated to that Sub-Account; and
b) is the Unit Value for that Sub-Account (at the end of the Valuation Period
during which We receive the premium).
We will credit Units for the 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.
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We will cancel the appropriate number of Units based on the Unit Value at the
end of the Valuation Period in which any of the following occurs:
. the Annual Administration Charge is assessed;
. the date We receive and file Your Written Notice for a partial withdrawal or
surrender;
. the date of a systematic withdrawal;
. the Annuity Date; or
. the date We receive Due Proof of Your death or the Last Surviving Annuitant's
death.
UNIT VALUE
The Unit Value for each Sub-Account's first Valuation Period is generally set at
$10. After that, the Unit Value is determined by multiplying the Unit Value at
the end of the immediately preceding Valuation Period by the Net Investment
Factor for the current Valuation Period.
The Unit Value for a Valuation Period applies to each day in that period. The
Unit Value may increase or decrease from one Valuation Period to the next.
NET INVESTMENT FACTOR
The Net Investment Factor is an index that measures the investment performance
of a Sub-Account from one Valuation Period to the next. Each Sub-Account has a
Net Investment Factor, which may be greater than or less than 1.
The Net Investment Factor for each Sub-Account for a Valuation Period equals 1
plus the rate of return earned by the portfolio in which the Sub-Account You
selected invests, adjusted for taxes charged or credited to the Sub-Account, the
mortality and expense risk charge, and the daily administration fee. The
annualized rate of the daily administration fee is shown on the Policy Details
page.
To find the rate of return of each portfolio in which the Sub-Accounts invest
divide (a) by (b) where:
(a) is the net investment income and net gains, realized and unrealized,
credited during the current Valuation Period; and
(b) is the value of the net assets of the relevant portfolio at the end of the
preceding Valuation Period, adjusted for the net capital transactions and
dividends declared during the current Valuation Period.
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 our judgment,
investment in shares of a current portfolio(s) is no longer appropriate. This
decision will be based on a legitimate reason, such as a change in investment
objective, a change in the tax laws, or the shares are no longer available for
investment. We will first obtain SEC approval , if such approval is required by
law.
When permitted by law, We also reserve the right to:
. create new separate accounts;
. combine separate accounts, including the Canada Life of America Variable
Annuity Account 1;
. remove, combine or add Sub-Accounts and make the new Sub-Accounts available
to Policyowners at Our discretion;
. add new portfolios of the Fund or of other registered investment companies;
. deregister the Variable Account under the 1940 Act if registration is no
longer required;
. make any changes required by the 1940 Act; and
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. 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 POLICY
The investment objective of a Sub-Account may not be changed unless the change
is approved, if required, by the Michigan Insurance Bureau. A statement of such
approval will be filed, if required, with the insurance department of the state
in which the Policy is delivered.
THE FIXED ACCOUNT
FIXED ACCOUNT
You may allocate some or all of the Net Premium and/or make transfers from the
Variable Account to the Fixed Account. The Fixed Account pays interest at
declared rates (Guaranteed Interest Rates) guaranteed for selected periods of
time (Guarantee Periods). The principal, after deductions, is also guaranteed.
Policyowners allocating Net Premium and/or Policy Value to the Fixed Account do
not participate in the investment performance of assets of the Fixed Account.
The Fixed Account value is calculated by:
. adding the Net Premium and Policy/or Value allocated to it;
. adding the Guaranteed Interest Rate credited on amounts in it; and
. subtracting any charges or Market Value Adjustments imposed on amounts in it
in accordance with the terms of the Policy
The following also applies to the Fixed Account:
. The Fixed Account is part of Our general account. We assume the risk of
investment gain or loss on this amount. All assets in the general account are
subject to Our general liabilities from business operations. The Fixed Account
is not affected by the investment performance of the Variable Account.
. Interests issued by Us in connection with the Fixed Account have not been
registered under the Securities Act of 1933 (the 1933 Act). Also, neither the
Fixed Account nor the general account has been registered as an investment
company under the 1940 Act. So, neither the Fixed Account nor the general
account is generally subject to regulation under either Act. However, certain
disclosures may be subject to generally applicable provisions of the federal
securities laws regarding the accuracy of statements made in a registration
statement.
GUARANTEE AMOUNT
The Guarantee Amount is the portion of the Policy Value allocated to the Fixed
Account. The Guarantee Amount includes:
. Net Premium allocated to Guarantee Periods;
. Policy Value transferred to Guarantee Periods; and
. interest credited to the Policy Value in the Guarantee Periods;
. charges assessed in connection with the Policy.
If the Guarantee Amount in a Guarantee Period remains until the end of the
Guarantee Period, the value will be equal to the amount originally placed in the
Guarantee Period increased by its Guaranteed Interest Rate (compounded
annually). If a Guarantee Amount is surrendered, withdrawn,
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or transferred prior to the end of the Guarantee Period, it may be subject to a
Market Value Adjustment, as described below. This may result in the payment of a
Guarantee Amount greater or less than the Guarantee Amount at the time of the
transaction.
The Guarantee Amount is guaranteed to accumulate at a minimum effective annual
interest rate of 3%.
GUARANTEE PERIODS
Guarantee Periods are specific intervals of time over which the Guarantee Amount
is credited with interest at a specific Guaranteed Interest Rate. We currently
offer Guarantee Periods of one, three, five, seven and ten years. We will always
offer a Guarantee Period of one year. Since the specific Guarantee Periods
available may change periodically, please contact Our Administrative Office to
determine the Guarantee Periods currently being offered. Guarantee Periods may
not be available in all states.
Beginning and Ending of Guarantee Periods. Guarantee Periods begin on the date a
Net Premium is allocated to, or a portion of the Policy Value is transferred to,
the Guarantee Period. Guarantee Periods end on the last calendar day of the
month when the number of years in the Guarantee Period chosen (measured from the
end of the month in which the amount was allocated or transferred to the
Guarantee Period) has elapsed.
Guaranteed Interest Rates. Once an amount has been allocated or transferred to a
Guarantee Period, the applicable Guaranteed Interest Rate will not change during
that Guarantee Period. However, Guaranteed Interest Rates for different
allocations and transfers may differ, depending on the timing of the allocation
and transfer.
Expiration of Guarantee Period. During the 30 day period following the end of a
Guarantee Period (30 day window), a Policyowner may transfer the Guarantee
Amount to a new Guarantee Period or to a Sub-Account(s). A Market Value
Adjustment will not apply if the Guarantee Amount is surrendered, withdrawn, or
transferred during the 30 day window. During the 30 day window, the Guarantee
Amount will generally accrue interest at an annual effective rate of 3%.
However, if the Guarantee Amount is placed in another Guarantee Period You will
receive the interest rate for that Guarantee Period.
Prior to the expiration date of any Guarantee Period, We will notify You of
available Guarantee Periods and their corresponding Guaranteed Interest Rates.
. A new Guarantee Period of the same length as the previous Guarantee Period
will begin automatically on the first day following the expired Guarantee
Period, unless We receive Written Notice, prior to the end of the 30 day window,
containing instructions to transfer all or a portion of the expiring Guarantee
Amount to a Sub-Account(s) or a Guarantee Period.
. If We do not receive such Written Notice and are not offering a Guarantee
Period of the same length as the expiring Guarantee Period, then a new Guarantee
Period of one year will begin automatically on the first day following the end
of the expired Guarantee Period.
. A Guarantee Period of one year will also begin automatically if renewal of the
expiring Guarantee Period would continue the Policy beyond its Annuity Date.
Reserved Rights. To the extent permitted by law, We reserve the right at any
time to:
1. offer Guarantee Periods that differ from those available when a
Policyowner's Policy was issued; and
2. stop accepting Net Premium allocations or transfers of Policy Value to a
particular Guarantee Period.
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MARKET VALUE ADJUSTMENT
A Market Value Adjustment compares:
(i) the Guaranteed Interest Rate applied to the Guarantee Period from which a
Guarantee Amount is surrendered, withdrawn, or transferred; and
(ii) the current Guaranteed Interest Rate that is credited for an equal
Guarantee Period.
If an equal Guarantee Period is not offered, We will use the linear
interpolation of the Guaranteed Interest Rates for the Guarantee Periods closest
in duration that are offered. Any surrender, withdrawal, or transfer of a
Guarantee Amount is subject to a Market Value Adjustment, unless:
. the Effective Date of the surrender, withdrawal, or transfer is within 30
days after the end of a Guarantee Period;
. the surrender, withdrawal or transfer is from the one year Guarantee Period;
or
. the surrender, withdrawal or transfer is to provide death benefits, nursing
home benefits, terminal illness benefits or annuitization.
The Market Value Adjustment will be applied after deducting any Annual
Administration Charge or transfer fees, but before deducting any taxes incurred.
The Market Value Adjustment will never invade principal nor reduce earnings on
amounts allocated to the Fixed Account to less than 3% per year.
On the date the Market Value Adjustment is to be applied, one of the following
will happen:
. If the Guaranteed Interest Rate for the selected Guarantee Period, less
0.50%, is less than the Guaranteed Interest Rate currently being offered for new
Guarantee Periods of equal length, the Market Value Adjustment will result in
the payment of an amount less than the Guarantee Amount (or portion thereof)
being surrendered, withdrawn, or transferred.
. If the Guaranteed Interest Rate for the selected Guarantee Period is greater
than 0.50% plus the Guaranteed Interest Rate currently being offered for new
Guarantee Periods of equal length, the Market Value Adjustment will result in
the payment 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 by the Market Value Adjustment Factor.
The Market Value Adjustment Factor is calculated as follows:
Market Value Adjustment Factor = Lesser of (a) (1 + i) n/12
----------------- - 1
(1 +r + .005)n/12
or (b) .05
where:
"i" is the Guaranteed Interest Rate currently being credited to the amount
being surrendered, withdrawn, or transferred;
"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 being surrendered, withdrawn, or
transferred is taken; and
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"n" is the number of months remaining to the expiration of the Guarantee
Period for the Guarantee Amount from which the amount being surrendered,
withdrawn, or transferred is taken.
POLICY VALUES
POLICY VALUE
The Policy Value is the sum of the Variable Account Value and the Fixed Account
Value.
CASH SURRENDER VALUE
The Cash Surrender Value is the Policy Value less any applicable Annual
Administration Charge and Market Value Adjustment.
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 or the Annuity Date, subject to the
following:
1. the Company's minimum partial withdrawal is currently $250;
2. the maximum partial withdrawal is the amount that would leave a Cash
Surrender Value of $2,000; and
3. a partial withdrawal request which would reduce the amount in a Sub-Account
or 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 Guarantee
Period.
On the date We receive at Our Administrative Office Your Written Notice for a
partial withdrawal, We will withdraw the partial withdrawal from the 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. If You do not provide this information to us, We will
withdraw proportionately from the Sub-Accounts and the Guarantee Periods in
which You are invested. If You do provide this information to us, but the amount
in the designated Sub-Accounts and/or Guarantee Periods is inadequate to comply
with Your withdrawal request, We will first withdraw from the specified Sub-
Accounts and the Guarantee Periods. The remaining balance will be withdrawn
proportionately from the other Sub-Accounts and Guarantee Periods in which You
are invested.
ANNUAL ADMINISTRATION CHARGE
To cover the costs of providing certain administrative services such as
maintaining Policy records, communicating with Policyowners, and processing
transactions, We deduct an Annual Administration Charge of $30 for the prior
Policy Year on each Policy Anniversary. We will also deduct this charge if the
Policy is surrendered for its Cash Surrender Value, unless the Policy is
surrendered on a Policy Anniversary.
If the Policy Value on the Policy Anniversary is $35,000 or more, We will waive
the Annual Administration Charge for the prior Policy Year. We will also waive
the Annual Administration Charge if the Policy is a Tax-Sheltered Annuity.
The charge will be assessed proportionately from any Sub-Accounts 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.
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BASIS OF VALUES
Any paid up annuity cash surrender or death benefits that may be available are
at least equal to the minimum required by law in the state in which this Policy
is delivered. A detailed statement of the method used to compute the minimum
values has been filed, where required, with the insurance officials of the
jurisdiction in which this Policy is delivered.
TRANSFERS
TRANSFER PRIVILEGE
You may transfer all or a part of an amount in a Sub-Account(s) to another Sub-
Account(s) or to a Guarantee Period(s). You also can transfer an amount in a
Guarantee Period(s) to a Sub-Account(s) or another Guarantee Period(s).
Transfers are subject to the following restrictions:
1. the Company's minimum transfer amount, currently $250;
2. a transfer request that would reduce the amount in that Sub-Account or
Guarantee Period below $500 will be treated as a transfer request for the
entire amount in that Sub-Account or Guarantee Period; and
3. transfers from the Guarantee Periods, except from the one year Guarantee
Period, may be subject to a Market Value Adjustment.
Excessive trading (including short-term "market timing" trading) may adversely
affect the performance of the Sub-Accounts. If a pattern of excessive trading by
a Policyowner or the Policyowner's agent develops, We reserve the right not to
process the transfer request. If Your request is not processed, it will not be
counted as a transfer for purposes of determining the number of free transfers
executed.
TRANSFER PROCESSING FEE
There is no limit to the number of transfers that You can make between Sub-
Accounts or the Guarantee Periods. The first 12 transfers during each Policy
Year are currently free. The Company currently assesses a $25 transfer fee for
the 13th and each additional transfer in a Policy Year. For the purposes of
assessing the fee, each transfer request (which includes a Written Notice or
telephone call, but does not include automatic transfers) is considered to be
one transfer, regardless of the number of Sub-Accounts or Guarantee Periods
affected by the transfer. The processing fee will be charged proportionately to
the receiving Sub-Account(s) and/or Guarantee Periods.
PAYMENT OF PROCEEDS
PROCEEDS
Proceeds means the amount We will pay when the first of the following events
occurs:
. the Annuity Date;
. the Policy is surrendered;
. We receive Due Proof of Death of any Owner;
. We receive Due Proof of Death of the Last Surviving Annuitant.
If death occurs prior to the Annuity Date, proceeds are paid in one of the
following ways:
. lump sum;
. within 5 years of the Owner's death, as required by federal tax laws (see
"Proceeds on Death of Any Policyowner"); or
. by a mutually agreed upon payment option. See "Election of Options."
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The Policy ends when We pay the proceeds.
We will deduct any applicable premium tax from the proceeds, unless We deducted
the tax from the premiums when paid.
PROCEEDS ON ANNUITY DATE
If Payment Option 1 is in effect on the Annuity Date, We will pay the Policy
Value. See "Payment Options."
The proceeds paid will be the Policy Value if paid on the first day of the month
after any Annuitant's 100th birthday.
PROCEEDS ON SURRENDER
If You surrender the Policy We will pay the Cash Surrender Value. The Cash
Surrender Value will be determined on the date We receive Your Written Notice
for surrender and Your Policy at Our Administrative Office.
You may elect to have the Cash Surrender Value paid in a single sum or under a
payment option. See "Payment Options." The Policy ends when We pay the Cash
Surrender Value.
Surrender proceeds may be subject to federal income tax, including a penalty
tax.
PROCEEDS ON DEATH OF THE LAST SURVIVING ANNUITANT BEFORE ANNUITY DATE (THE DEATH
BENEFIT)
If the Last Surviving Annuitant dies before the Policy Value is transferred to a
payment option, We will pay the Beneficiary a Death Benefit.
The Death Benefit is the greater of:
1. the premiums paid, less any partial withdrawals and incurred taxes; or
2. the Policy Value on the date We receive Due Proof of Death.
For Policyowners who have chosen on the application to pay an additional
Mortality and Expense Risk Charge of 0.15%, the Death Benefit is the greatest
of:
1. item "1" above;
2. item "2" above; or
3. the greatest Policy Value occurring before both the date the Last Surviving
Annuitant attained age 81 and the date We receive Due Proof of the Annuitant's
death This value will be adjusted for any partial withdrawals, incurred taxes,
and premiums paid that occur after such Policy Anniversary.
If on the date the Policy was issued any Annuitant was attained age 81 or older,
either Death Benefit is the Policy Value on the date We receive Due Proof of
Death.
If You are the Last Surviving Annuitant who dies before the Annuity Date, the
Death Benefit proceeds must be distributed pursuant to the rules set forth below
in "Proceeds on Death of Any Policyowner."
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PROCEEDS ON DEATH OF ANY OWNER
If any Policyowner dies before the Annuity Date, the following rules apply:
. If You (the deceased Policyowner) were not the Last Surviving Annuitant and We
receive Due Proof of Your death before the Annuity Date, We will pay the
Beneficiary the Policy Value as of the date We receive Due Proof of Your death.
. If You were Last Surviving Annuitant and We receive Due Proof of Your death
before the Annuity Date, We will pay the Beneficiary the Death Benefit described
in "Proceeds on the Death of Last Surviving Annuitant Before Annuity Date."
. As required by federal tax law, regardless of whether You were the Annuitant,
the entire interest in the Policy will be distributed to the Beneficiary:
a) within five years of Your death; or
b) over the life of the Beneficiary or over a period not extending beyond the
life expectancy of that Beneficiary, with payments beginning within one year of
Your death.
However, if your spouse is the Beneficiary the Policy may be continued. If
this occurs and You were the only Annuitant, Your spouse will become the
Annuitant.
If any Policyowner dies on or after the Annuity Date but before all proceeds
payable under the Policy have been distributed, We will continue payments to the
designated payee (or, if the deceased Policyowner was the Annuitant, to the
Beneficiary) under the payment option in effect on the date of the deceased
Policyowner's death.
For purposes of this section, if any Policyowner is not an individual, the death
or change of any Annuitant will be treated as the death of a Policyowner.
This section shall, in all events, be construed in a manner consistent with
section 72(s) of the Internal Revenue Code of 1986, as amended. If anything in
the Policy conflicts with the provisions of this section, this section will
control.
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.
POSTPONEMENT OF PAYMENT
We will usually pay any proceeds payable, amounts partially withdrawn, or the
Cash Surrender Value within seven calendar days after:
1. we receive Your Written Notice for a partial withdrawal or a cash surrender;
2. the date chosen for any systematic withdrawal; or
3. we receive Due Proof of Death of the Owner or the Last Surviving Annuitant.
However, We can postpone the payment of proceeds, amounts withdrawn, the Cash
Surrender Value, or the transfer of amounts between Sub-Accounts if:
Page 19
<PAGE>
1. the New York Stock Exchange is closed, other than customary weekend and
holiday closings, or trading on the exchange is restricted as determined by
the SEC;
2. the SEC permits by an order the postponement for the protection of
Policyowners; or
3. the SEC determines that an emergency exists that would make the disposal of
securities held in the Variable Account or the determination of the
value of the Variable Account's net assets not reasonably practicable.
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.
PAYMENT OPTIONS
The Policy ends when We pay the proceeds on the Annuity Date. We will apply the
Policy Value under Payment Option 1 unless You have an election on file at Our
Administrative Office to receive another mutually agreed upon payment option
(Payment Option 2). The proceeds We will pay will be the Policy Value if paid on
the first day of the month after any Annuitant's 100th birthday. See "Proceeds
on Annuity Date." We require the surrender of Your Policy so that We may issue
a supplemental contract for the applicable payment option. The term "payee"
means a person who is entitled to receive payments under this section.
ELECTION OF PAYMENT OPTIONS
You may elect, revoke or change a payment option at any time before the Annuity
Date and while the Annuitant(s) is living. If an election is not in effect at
the Last Surviving Annuitant's death, or if payment is to be made in one lump
sum under an existing election, the Beneficiary may elect one of the options.
This election must be made within one year after the Last Surviving Annuitant's
death and before any payment has been made.
An election of an option and any revocation or change must be made in a Written
Notice. It must be filed with Our Administrative Office with the written consent
of any irrevocable Beneficiary or assignee at least 30 days before the Annuity
Date.
An option may not be elected and We will pay the proceeds in one lump sum if
either of the following conditions exist:
1. the amount to be applied under the option is less than $1,000; or
2. any periodic payment under the election would be less than $50.
PAYMENT OPTION 1: LIFE INCOME WITH PAYMENTS FOR 10 YEARS CERTAIN
We will pay the proceeds in equal amounts each month, quarter, or year during
the Annuitant's lifetime or for 10 years, whichever is longer.
The amount of each payment will be determined from the Table of Payment on Basis
of $1,000 Net Proceeds (see Appendix A), using the Annuitant'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.
Page 20
<PAGE>
AGE AND SURVIVAL OF ANNUITANT
We have the right to require proof of age of the Annuitant(s) before making any
payment. When any payment depends on the Annuitant's survival, We will have the
right, before making the payment, to require proof satisfactory to Us that the
Annuitant is alive.
Page 21
<PAGE>
APPENDIX - TABLE OF PAYMENTS ON BASIS OF $1,000 NET PROCEEDS
OPTION 1 - LIFE INCOME WITH PAYMENTS FOR 10 YEARS CERTAIN
<TABLE>
<CAPTION>
AGE MONTHLY AGE MONTHLY
<C> <S> <C> <C>
25 64
30 65
35 66
40 67
45 68
46 69
47 70
48 71
49 72
50 73
51 74
52 75
53 76
54 77
55 78
56 79
57 80
58 81
59 82
60 83
61 84
62 85
63
</TABLE>
The Table is based on the following assumptions: 1983(a) Projection G, 100%
female, YOP = 1995, Interest = 3%, and 3% Load. The monthly payment for ages
not shown in the Table will be calculated on the same basis as these shown and
will be quoted on request.
Page 22
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
LANSING, MICHIGAN
ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD N.W. ATLANTA, GA 30339
MAILING ADDRESS: P.O. BOX 105662 ATLANTA, GA 30348-5662
Trillium Advisor
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY
Flexible premium as stated in the Additional Premium Provision.
Accumulation benefits and values are variable, except for amounts in the Fixed
Account.
Guarantee Periods under the Fixed Account may be subject to a Market Value
Adjustment.
After the Annuity Date, payment options are on a guaranteed basis.
Death Benefit payable upon death of the Last Surviving Annuitant before the
Annuity Date.
Non-participating - Not eligible for dividends.
<PAGE>
EXHIBIT 5
FORM OF APPLICATION
<PAGE>
CANADA LIFE TRILLIUM ADVISOR
INSURANCE COMPANY OF AMERICA APPLICATION FOR
P.O. Box 105662 FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY
Atlanta, GA 30348-5662 (FOR ALL STATES EXCEPT AZ, AR, CO, FL, KY, NJ,
(800) 905-1858 NY, OH, OR, PA AND WA)
===================================== =========================================
1. Owner's (Applicants) 4. Annultants (if different from Owner)
===================================== =========================================
Name*________________________________ ========================================
First Middle Last Name____________________________________
First Middle Last
Address______________________________
Street Address_________________________________
_____________________________________ Street
City State Zip ________________________________________
City State Zip
Sex [_]M [_]F [_]Other Sex [_]M [_]F
Date of Birth _______________________
Month Day Year Date of Birth___________________________
Month Day Year
Daytime Phone Number ( )____________
__ __ __ __ __ __ __ __ __
__ __ __ __ __ __ __ __ __ Social Security Number
Social Security Number or
__ __ __ __ __ __ __ __ __ =====================================
Tax ID Number Joint-Annultant (Optional)
Client Brokerage Acct.:#
(If applicable)______________________ Name____________________________________
===================================== First Middle Last
Joint Owner (Optional)
Name_________________________________ Sex [_]M [_]F
First Middle Last Date of Birth___________________________
Sex [_]M [_]F [_]Other Month Day Year
Date of Birth _______________________
Month Day Year
__ __ __ __ __ __ __ __ __
__ __ __ __ __ __ __ __ __ Social Security Number
Social Security Number or
=========================================
__ __ __ __ __ __ __ __ __ 5. My Investment
Tax ID Number =========================================
Allocate payment with application of
===================================== $__________ as indicated below (MUST
2. Benefactors TOTAL 100%)
=====================================
Enclose signed letter if more infor- ____% Cash Management (21)
mation is required. ____% Bond (23)
____% Capital (25)
1. Name_____________________________ ____% Communic. & Inform. (27)
First Middle Last ____% Global Smaller Cus. (29)
__ __ __ __ __ __ __ __ __ ____% High Yield Bond (42)
Social Security Number or ____% Small-Cap Value (44)
____% Income (22)
__ __ __ __ __ __ __ __ __ ____% Common Stock (24)
Tax ID Number ____% International (26)
Relationship_________________________ ____% Global Growth Oppor. (28)
Percentage____________% ____% Frontier (41)
____% Global Technology (43)
2. Name____________________________ ____% Large-Cap Value (45)
First Middle Last ____% Large-Cap Growth (46)
__ __ __ __ __ __ __ __ __
Social Security Number or [ ]Check here if you are using Seligman
Time Horizon Matrix/tm/. If so, PLEASE
__ __ __ __ __ __ __ __ __ LEAVE INVESTMENT ALLOCATIONS BLANK IN
Tax ID Number THIS SECTION AND ATTACH TIME HORIZON
Relationship_________________________ MATRIX/tm/ ELECTION FORM.
Percentage____________%
==================================== ________________________________________
Contingent Beneficiary Fixed Account Options (May not be
available in all states)
Name*_______________________________ ____% 1 Yr. (301) ____% 5 Yr. (305)
First Middle Last ____% 3 Yr. (303) ____% 7 Yr. (307)
____% 10 Yr.(310)
__ __ __ __ __ __ __ __ __ _________________________________________
Social Security Number or =========================================
6. Pre Authorized Check (PAC)
__ __ __ __ __ __ __ __ __ =========================================
Tax ID Number I authorized the Company to collect
Relationship_________________________ $______ (MINIMUM) $100/$50-IRA)
Percentage____________% starting on _______________ by initiating
==================================== electronic debit entries to my account.
3. Type of Account (Must be Select One: [_] Checking (attached voided
Completed) check)
==================================== [_] Savings (attach deposit
IRA: [_] Traditional slip)
[_] Roth If start date is not indicated, this
[_] Simple option will commence 30 days from issue
[_] SEP date. The option is not available on the
IRA Transfer/Rollover? 29th, 30th or 31st day of each month.
[_]Yes [_]No IRA Tax Year is_______ =========================================
[_]401(k) [_]457 [_]Non-Qualified 7. Replacement
[_]403(b) [_]Keogh (HR-1Q) [_]Other =========================================
______________ Will this Annuity replace or change any
other insurance or annuity?
[ ]No [ ]Yes - Company_________________
Policy No.__________ (Pleas attach
*Unless subsequently changed in replacement forms.)
accordance with terms of Policy ========================================
issued. 8. For Agents Only
========================================
Questions? Contact either your broker/
dealer or Canada Life at (800) 905-1959.
[_] Option A (No Trail)
[_] Option B (Trail)
[_] Option C (Trail)
[_] Option D (Trail)
<PAGE>
9. Service Option
BY INITIALING THE BOX(ES) IN THIS SECTION, I/WE HEREBY AUTHORIZE THE COMPANY TO
INITIATE THE OPTION(S) INDICATED. I/WE UNDERSTAND AND AGREE TO ANY
AUTHORIZATION AS FOLLOWS 1) ONLY APPLIES TO THE POLICY APPLIED FOR AND SEPARATE
AUTHORIZATION MUST BE COMPLETED FOR ANY POLICIES. 2) WILL CONTINUE IN EFFECT
UNTIL THE COMPANY RECEIVES WRITTEN REVOCATION FROM ME/US OR THE COMPANY
DISCONTINUES THE OPTIONS(S).
I/WE WILL CONSULT THE CURRENT PROSPECTUS FOR MORE DETAILS ON THE SERVICE OPTIONS
BELOW, SUCH AS THE MINIMUMS AND MAXIMUMS.
================================================================================
================================================================================
[ ] Telephone Transfer Authorization
I/We authorize the Company to act on transfer instructions given by telephone
from any person who can furnish identification. Neither the Company nor any
person authorized by the Company will be responsible for any claim, loss,
liability, or expense in connection with a telephone transfer if the Company or
such other person acted on telephone transfer instructions in good faith in
reliance on this authorization. I/We accept and will comply with the procedures
established by the Company from time to time.
================================================================================
================================================================================
[ ] Dollar Cost Averaging*
I/We hereby authorize the Company to automatically transfer, on a periodic
basis, amounts for regular level investments over time, from one sub-account or
the 1 year Fixed Account shown on this form, to any of the other sub-accounts or
Fixed Accounts specified on this form.
Transfer $ From Start Date
------------ ------------------ ---------------------
Stop Date or Number of Transfers on a
------------- -----------------------
[ ] Monthly [ ] Quarterly [ ] Semi-Annually [ ] Annually
Transfer above amount to (please use numeric codes listed in Section 5):
- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ----------
================================================================================
================================================================================
[ ] Systematic Withdrawal Privilege (SWP)*
I/We hereby authorize the Company to initiate withdrawals from my Policy via
Electronic Funds Transfer, as indicated below.
Select One: [ ] Checking (attach voided check) [ ] Savings (attach deposit slip)
Withdrawal: [ ] Maximum amount allowed without incurring a Surrender
Charge, or $ , to start on / /
--------------- -------------------------------------
Month Day Year
Withdrawal From (please use numeric codes listed in Section 6):
- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ----------
- ---------- ---------- ---------- ----------
Frequency of Withdrawal:[ ] Monthly [ ] Quarterly [ ] Semi-Annually [ ] Annually
Please [ ] Withhold [ ] Do Not Withhold Federal Income Taxes. (If left blank,
10% of federal taxes will be automatically withheld).
NOTE: WITHDRAWALS FROM THE 3, 5, 7, AND 10 YEAR FIXED ACCOUNTS WILL BE SUBJECT
TO A MARKET VALUE ADJUSTMENT.
================================================================================
================================================================================
[ ] Portfolio Rebalancing*
I/We hereby authorize the Company to provide portfolio rebalancing services as
indicated below:
Frequency of Rebalancing: [ ] Quarterly [ ] Semi-Annually [ ] Annually
10. Remarks
11. Signatures
Statement of Applicant: To the best of my knowledge and belief of the person(s)
signing below, all statements in this Application are true and correctly
worded. Each person signing below adopts all statements made in this Application
and agrees to be bound by them. It is agreed that the Policy will not take
effect until the later of: 1) the Policy is issued; or 2) we receive at our
Administrative Office the first premium required under the Policy. No agent or
registered representative can modify this agreement or waive any of the
Company's rights or requirements. I/We acknowledge receipt of the effective
prospectus(es) for the Policy. 3) I/We certify that the number shown on this
form is my/our Social Security # or Taxpayer ID#. 4) The Policy I/We have
applied for is suitable for my/our insurance investment objectives, financial
situation, and needs.
I/WE UNDERSTAND THAT ALL ACCUMULATION BENEFITS AND VALUES PROVIDED BY THE
VARIABLE ACCOUNT MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT
PERFORMANCE, AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNTS.
I/WE FURTHER UNDERSTAND THAT AMOUNTS TRANSFERRED, WITHDRAWN OR SURRENDERED UNDER
THIS POLICY FROM THE 3,5,7 AND 10 YEAR FIXED ACCOUNTS MAY INCREASE OR DECREASE
IN ACCORDANCE WITH A MARKET VALUE ADJUSTMENT DURING THE TERM PERIOD SPECIFIED IN
THIS POLICY, SUBJECT TO THE MINIMUM VALUES DEFINED IN THIS POLICY.
[ ] I/We request the Statement of Additional Information
- --------------------------------------------------------------------------------
Signed in (State) Date Signed Signature of Signature of
Owner/Applicant Joint Owner
- --------------------------------------------------------------------------------
Signature of Signature of Signature of
Applicant (if different Joint-Applicant (if Irrevocable
from owner) different from Owner) Beneficiary
(if designated)
Statement of Agent: I certify that 1) the applicant signed this Application; 2)
I am authorized and qualified to discuss the Policy herein applied for; and 3)
to the best of my knowledge replacement [ ] is [ ] is not involved.
- --------------------------------------------------------------------------------
Print Registered Name of Firm Date Signed
Representative/Agent
Name
- --------------------------------------------------------------------------------
Signature of Agent Branch Address (if designated)
- --------------------------------------------------------------------------------
Agent Number State License ID Number Agent Phone Number Agent Fax Number
* If start date is not indicated, this option will commence 30 days from issue
date. This option is not available on the 29th, 30th, or 31st day of each
month.
<PAGE>
EXHIBIT 9
OPINION AND CONSENT OF COUNSEL
