<PAGE>
As filed with the Securities and Exchange Commission on April 28, 2000
Registration Nos. 33-55890
and 811-7350
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
FORM N-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 13 [x]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 17 [x]
CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2
(Exact Name of Registrant)
CANADA LIFE INSURANCE COMPANY OF AMERICA
(Name of Depositor)
300 University Avenue
Toronto, Canada M5G 1R8
(Address of Depositor's Principal Executive Offices)
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, Esq.
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on May 1, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] pursuant to paragraph (a)(i) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii) of Rule 485
[ ] on _______ pursuant to paragraph (a)(ii) of Rule 485
If appropriate check the following box:
[ ] this Post-Effective Amendment designates a new effective date for a new
effective date for a previously filed Post-Effective Amendment
Title of Securities Being Registered: Flexible Premium Variable
Deferred Annuity Policies
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
ADMINISTRATIVE OFFICE: 6201 Powers Ferry Road, NW, Atlanta, Georgia 30339
PHONE: 1-800-905-1959
- -------------------------------------------------------------------------------
TRILLIUM/R/ PROSPECTUS
CANADA LIFE OF AMERICA 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 managed by J. & W. Seligman & Co. Incorporated:
Seligman Bond Seligman Global Smaller Companies*
Seligman Capital Seligman Global Technology
Seligman Cash Management Seligman High-Yield Bond
Seligman Common Stock Seligman Income
Seligman Communications and Information Seligman International Growth
Seligman Frontier Seligman Large-Cap Growth
Seligman Global Growth Seligman Large-Cap Value
Seligman Small-Cap Value
- -----------------------
*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 May 1, 2000.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY..................................................................................... 1
TABLE OF EXPENSES........................................................................... 5
CONDENSED FINANCIAL INFORMATION............................................................. 7
THE COMPANY................................................................................. 8
THE VARIABLE ACCOUNT, THE FUND AND THE FIXED ACCOUNT........................................ 8
The Variable Account...................................................................... 8
The Fund.................................................................................. 9
Seligman Bond Portfolio................................................................ 9
Seligman Capital Portfolio............................................................. 10
Seligman Cash Management Portfolio..................................................... 10
Seligman Common Stock Portfolio........................................................ 10
Seligman Communications and Information Portfolio...................................... 10
Seligman Frontier Portfolio............................................................ 10
Seligman Global Growth Portfolio....................................................... 10
Seligman Global Smaller Companies Portfolio............................................ 10
Seligman Global Technology Portfolio................................................... 10
Seligman High-Yield Bond Portfolio..................................................... 11
Seligman Income Portfolio.............................................................. 11
Seligman International Growth Portfolio................................................ 11
Seligman Large-Cap Growth Portfolio.................................................... 11
Seligman Large-Cap Value Portfolio..................................................... 11
Seligman Small-Cap Value Portfolio..................................................... 11
Reserved Rights........................................................................ 11
Change in Investment Objective......................................................... 12
The Fixed Account......................................................................... 12
Guarantee Amount....................................................................... 13
Guarantee Periods...................................................................... 13
Market Value Adjustment................................................................ 14
DESCRIPTION OF ANNUITY POLICY............................................................... 15
Ten Day Right to Examine Policy........................................................... 15
Premium................................................................................... 15
Initial Premium........................................................................ 15
Additional Premium..................................................................... 16
Pre-Authorized Check Agreement Plan.................................................... 16
Electronic Data Transmission of Application Information................................ 16
Net Premium Allocation................................................................. 17
Cash Surrender Value...................................................................... 17
Policy Value.............................................................................. 17
Variable Account Value.................................................................... 17
Units.................................................................................. 17
Unit Value............................................................................. 17
Net Investment Factor.................................................................. 18
Transfers................................................................................. 18
Transfer Privilege..................................................................... 18
Telephone Transfer Privilege........................................................... 18
Intouch(R) Voice Response System....................................................... 19
Dollar Cost Averaging Privilege........................................................ 19
Transfer Processing Fee................................................................ 20
Payment of Proceeds....................................................................... 20
Proceeds............................................................................... 20
Proceeds on Annuity Date............................................................... 20
Proceeds on Surrender.................................................................. 21
Proceeds on Death of Last Surviving Annuitant Before Annuity Date (The Death Benefit).. 21
Proceeds on Death of Any Owner......................................................... 22
Interest on Proceeds................................................................... 22
Partial Withdrawals....................................................................... 22
Systematic Withdrawal Privilege........................................................ 23
Seligman Time Horizon Matrix/SM/.......................................................... 24
Portfolio Rebalancing..................................................................... 24
Postponement of Payment................................................................... 25
Charges Against the Policy, Variable Account, and Fund.................................... 25
Surrender Charge....................................................................... 25
Annual Administration Charge........................................................... 26
Daily Administration Fee............................................................... 26
Transfer Processing Fee................................................................ 26
Mortality and Expense Risk Charge...................................................... 26
Waiver of Surrender Charge............................................................. 27
Reduction or Elimination of Surrender Charges and Annual Administration Charges........ 28
Taxes.................................................................................. 28
Other Charges Including Investment Management Fees..................................... 28
Payment Options........................................................................... 29
Election of Options.................................................................... 29
Description of Payment Options......................................................... 29
Amount of Payments..................................................................... 29
Payment Dates.......................................................................... 30
Age and Survival of Annuitant.......................................................... 30
Other Policy Provisions................................................................... 30
Policyowner............................................................................ 30
Beneficiary............................................................................ 30
Termination............................................................................ 30
Written Notice......................................................................... 31
Periodic Reports....................................................................... 31
Assignment............................................................................. 31
Modification........................................................................... 31
Notification of Death.................................................................. 32
YIELDS AND TOTAL RETURNS.................................................................... 32
Yields.................................................................................. 32
Total Returns........................................................................... 32
Industry Comparison..................................................................... 33
TAX DEFERRAL................................................................................ 33
FEDERAL TAX STATUS.......................................................................... 34
Introduction.............................................................................. 34
The Company's Tax Status.................................................................. 34
Tax Status of the Policy.................................................................. 35
Diversification Requirements........................................................... 35
Policyowner Control.................................................................... 35
Required Distributions................................................................. 35
Taxation of Annuities..................................................................... 36
In General............................................................................. 36
Withdrawals/Distributions.............................................................. 36
Annuity Payments....................................................................... 37
Taxation of Death Benefit Proceeds..................................................... 37
Penalty Tax on Certain Withdrawals..................................................... 37
Transfers, Assignments, or Exchanges of a Policy.......................................... 37
Withholding............................................................................... 38
Multiple Policies......................................................................... 38
Possible Tax Changes...................................................................... 38
Taxation of Qualified Plans............................................................... 38
Individual Retirement Annuities and Simplified Employee Pensions (SEP/IRAs)............ 39
SIMPLE Individual Retirement Annuities................................................. 39
ROTH Individual Retirement Annuities................................................... 39
Minimum Distribution Requirements...................................................... 39
Corporate And Self-Employed (H.R.10 and Keogh) Pension And Profit-Sharing Plans........ 40
Deferred Compensation Plans............................................................ 40
Tax-Sheltered Annuity Plans............................................................ 41
Other Tax Consequences.................................................................... 41
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM.................................... 41
DISTRIBUTION OF POLICIES.................................................................... 41
LEGAL PROCEEDINGS........................................................................... 42
VOTING RIGHTS............................................................................... 42
INSURANCE MARKETPLACE STANDARDS ASSOCIATION................................................. 43
FINANCIAL STATEMENTS........................................................................ 43
DEFINITIONS................................................................................. 44
STATEMENT OF ADDITIONAL INFORMATION - TABLE OF CONTENTS..................................... 46
APPENDIX A: STATE PREMIUM TAXES............................................................. 47
APPENDIX B: CONDENSED FINANCIAL INFORMATION................................................. 48
</TABLE>
<PAGE>
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
Portfolio(s) 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 Premium 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.
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
1
<PAGE>
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 Annuitant'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 greatest of:
1. the premiums paid, less any partial withdrawals, surrender charges, and
incurred taxes;
2. the Policy Value on the date we receive Due Proof of Death; 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, surrender charges, 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,
the Death Benefit is the Policy Value on the date we receive Due Proof of
Death.
* In some jurisdictions the Death Benefit may vary.
See "Proceeds on Death of Last Surviving Annuitant Before Annuity Date (The
Death Benefit)."
Can I get money out of my Policy?
You may withdraw part or all of the Cash Surrender Value at any time before the
earlier of the death of the Last Surviving Annuitant, the death of any Owner, or
the date when the value in the Policy is transferred to a payment option,
subject to certain limitations. See "The Fixed Account," "Partial Withdrawals"
and "Proceeds on Surrender." A partial withdrawal or a surrender may incur
federal income tax, including a federal penalty tax. See "FEDERAL TAX STATUS."
What charges will I pay?
Surrender Charge: A surrender charge may be deducted when a partial withdrawal
or cash surrender is made.
The amount withdrawn is first taken from any investment earnings in the Variable
Account and interest earned in the Fixed Account available at the time the
request is made. Then, further amounts withdrawn will be taken from premiums
starting with the oldest premium paid.
Withdrawal or surrender of the following will not incur a surrender charge:
. 100% of investment earnings in the Variable Account
2
<PAGE>
. 100% of interest earned in the Fixed Account
. 100% of premiums paid 7 years or more from the date of withdrawal or
surrender
. 10% of total premiums withdrawn during a Policy Year and paid less than 7
years from the date of withdrawal or surrender*
. Amounts required to be withdrawn, only as they apply to the Policy and
independent of all other qualified retirement assets, pursuant to the
minimum required distribution rules under federal tax laws (see "Minimum
Distribution Requirements")
* 10% is not cumulative and is first withdrawn from the oldest premium paid.
If a surrender charge does apply, the following percentages will be used to
calculate the amount of the charge:
Policy Years Since Premium Was Paid
-----------------------------------
Less than 1............................................... 6%
At least 1, but less than 2............................... 6%
At least 2, but less than 3............................... 5%
At least 3, but less than 4............................... 5%
At least 4, but less than 5............................... 4%
At least 5, but less than 6............................... 3%
At least 6, but less than 7............................... 2%
At least 7................................................ None
Any surrender charge will be deducted from the amount requested for withdrawal
or surrender.
See "Surrender Charge."
Annual Administration Charge: We deduct an Annual Administration Charge of $30
for the prior Policy Year on each Policy Anniversary. We will also deduct this
charge for the current Policy Year if the Policy is surrendered for its Cash
Surrender Value, unless the surrender occurs on the Policy Anniversary. If the
Policy Value on the Policy Anniversary is $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 0.15% from the assets of the Variable Account. See "Daily
Administration Fee."
Transfer Processing Fee: The first 12 transfers during each Policy Year are
free. We currently assess a $25 transfer fee for the 13th and each additional
transfer in a Policy Year. See "Transfer Processing Fee."
Mortality and Expense Risk Charge: We deduct a mortality and expense risk
charge each day from the assets of the Variable Account at an annual rate of
1.25%. See "Annualized Mortality and Expense Risk Charge."
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.
See "Appendix A: State Premium Taxes."
Investment Management Fees: Each Portfolio is responsible for all of its
operating expenses, which are deducted daily. In addition, charges for
investment management services are deducted and paid daily at an annual rate
from each Portfolio as a percentage of the average daily net assets of the
Portfolios. See "Other Charges Including Investment Management Fees" and the
attached Fund prospectus.
3
<PAGE>
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?
The Policy's earnings are generally not taxed until you take them out. For
federal tax purposes, if you take money out during the accumulation period,
earnings come out first and are taxed as ordinary income. If you are younger
than 59 1/2 when you take money out, you may also be charged a 10% federal
penalty tax on the earnings. The annuity payments you receive during the income
phase are considered partly a return of your original investment so that part of
each payment is not taxable as income until the "investment in the contract" has
been fully recovered. Different tax consequences may apply for a Policy used in
connection with a qualified retirement plan.
Death benefits are taxable and generally are included in the income of the
recipient as follows: if received under a payment option, death benefits are
taxed in the same manner as annuity payouts; if not received under a payment
option (for instance, if paid out in a lump sum), death benefits are taxed in
the same manner as a partial or complete surrender.
For a brief discussion of our current understanding of the federal tax laws
concerning us and the Policy, see "FEDERAL TAX STATUS."
Who should purchase the Policy?
We have designed this Policy for people seeking long-term tax-deferred
accumulation of assets, generally for retirement. This includes persons who
have maximized their use of other retirement savings methods, such as 401(k)
plans and individual retirement accounts. The tax-deferred feature is most
attractive to people in high federal and state tax brackets. You should not buy
this Policy if you are looking for a short-term investment or if you cannot take
the risk of getting back less money than you put in. If you are purchasing the
Policy through a tax-favored arrangement, including traditional IRAs and Roth
IRAs, you should consider carefully the costs and benefits of the Policy
(including annuity income benefits) before purchasing the Policy, since the tax-
favored arrangement itself provides tax-sheltered growth.
Does Canada Life offer other policies?
We offer other variable annuity policies which also invest in the same
Portfolios of the Fund. These policies may have different charges that could
affect the value of the Sub-Accounts and may offer different benefits more
suitable for your needs. For more information about these policies, please
contact us at the phone number or address on page 1.
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.
4
<PAGE>
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 surrender charge as a percentage of amount
surrendered (10% of total premiums withdrawn during
a Policy Year and paid less than 7 years from the
date of withdrawal or surrender and 100% of earnings
are free of any sales load.
See "Charges Against the Policy, Variable Account, and Fund.")....... 6.00%
Transfer fee
Current Policy - First 12 transfers each Policy Year................. No fee
Each transfer thereafter....................................$25 per transfer
Transfer fee when using the Intouch/R/ Voice Response System......... No fee
Annual Administration Charge
----------------------------
Per Policy per Policy Year............................................... $30
(waived for the prior Policy Year if the Policy Value is
$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................................ 0.15%
-----
Total Variable Account annual expenses................................. 1.40%
Fund Annual Expenses for the Year Ended December 31, 1999
---------------------------------------------------------
(after Expense Reimbursement, as indicated, and as a percentage of average net
assets)
<TABLE>
<CAPTION>
Total
Management Other Expenses Annual
Portfolio Fees/6/ (After Reimbursement)/6/ Expenses
--------- ------------ ------------------------- --------
<S> <C> <C> <C>
Seligman Bond .40% .20% 0.60%
Seligman Capital .40% .19% 0.59%
Seligman Cash Management .00% .00% 0.00%
Seligman Common Stock .40% .12% 0.52%
Seligman Communications and Information .75% .11% 0.86%
Seligman Frontier .75% .20% 0.95%
Seligman Global Growth 1.00%/1/ .40% 1.40%
Seligman Global Smaller Companies 1.00%/1/ .40% 1.40%
Seligman Global Technology 1.00%/2/ .40% 1.40%
Seligman High-Yield Bond .50% .20% 0.70%
Seligman Income .40% .20% 0.60%
Seligman International Growth 1.00%/1/ .39% 1.39%
Seligman Large-Cap Growth .70%/3/ .00% 0.70%
Seligman Large-Cap Value .80%/4/ .00% 0.80%
Seligman Small-Cap Value 1.00%/5/ .00% 1.00%
</TABLE>
1 A management fee rate of 1.00% applies to the Portfolio's first $1 billion in
average daily net assets. The rate declines to 0.95% of the Portfolio's
average daily net assets on the next $1 billion in net assets, and to 0.90%
of the Portfolio's average daily net assets in excess of $2 billion.
2 A management fee rate of 1.00% applies to the Portfolio's first $2 billion in
average daily net assets. The rate declines to 0.95% of the Portfolio's
average daily net assets on the next $2 billion in net assets, and to 0.90%
of the Portfolio's average daily net assets in excess of $4 billion.
3 A management fee rate of 0.70% applies to the Portfolio's first $1 billion in
average daily net assets. The rate declines to 0.65% of the Portfolio's
average daily net assets on the next $1 billion in net assets, and to 0.60%
of the Portfolio's average daily net assets in excess of $2 billion.
4 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.
5 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.
6 The following should be noted regarding Management Fees and Other Expenses:
. The 0.00% Management Fee charge for the Seligman Cash Management
Portfolio resulted because the Manager, in its sole discretion, waived
its 0.40% fee during 1999.
. 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 are voluntarily reimbursed by the Fund's
Manager.
. The Manager, at its discretion, has voluntarily agreed to reimburse
annual expenses other than the Management Fee for the Seligman Large Cap
Growth, Seligman Large-Cap Value and the Seligman Small-Cap Value
Portfolios.
. With respect to the Seligman International Growth, Seligman Global
Smaller Companies, Seligman Global Technology and Seligman Global Growth
Portfolios, the Manager has agreed to reimburse annual expenses (other
than Management Fees) that exceed 0.40% of average net assets.
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.
5
<PAGE>
If the Manager and Sub-Advisor had not waived or reimbursed these expenses, the
Fund's 1999 Management Fees,
Other Expenses and Total Annual Expenses would have been:
<TABLE>
<CAPTION>
Total
Management Other Annual
Portfolio Fees Expenses Expenses
--------- ----------- -------- ---------
<S> <C> <C> <C>
Seligman Bond .40% .31% 0.71%
Seligman Capital .40% .19% 0.59%
Seligman Cash Management .40% .25% 0.65%
Seligman Common Stock .40% .12% 0.52%
Seligman Communications and Information .75% .11% 0.86%
Seligman Frontier .75% .21% 0.96%
Seligman Global Growth 1.00% .45% 1.45%
Seligman Global Smaller Companies 1.00% .60% 1.60%
Seligman Global Technology 1.00% .41% 1.41%
Seligman High-Yield Bond .50% .27% 0.77%
Seligman Income .40% .32% 0.72%
Seligman International Growth 1.00% .66% 1.66%
Seligman Large-Cap Growth .70% .82% 1.52%
Seligman Large-Cap Value .80% .33% 1.13%
Seligman Small-Cap Value 1.00% .41% 1.41%
</TABLE>
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 Fund's prospectus. 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").
6
<PAGE>
Examples
A Policyowner would pay the following expenses on a $1,000 investment, assuming
a 5% annual return on assets:
1. If the Policy is surrendered at the end of the applicable time period:
<TABLE>
<CAPTION>
Sub-Account 1 Year 3 Year 5 Year 10 Year
----------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Bond 75 109 146 238
Capital 75 109 146 237
Cash Management 69 91 115 174
Common Stock 74 107 142 230
Communications and Information 77 117 160 265
Frontier 78 120 164 274
Global Growth 83 133 186 318
Global Smaller Companies 83 133 186 318
Global Technology 83 133 186 318
High-Yield Bond 76 112 152 248
Income 75 109 146 238
International Growth 83 133 186 317
Large-Cap Growth 76 112 152 248
Large-Cap Value 77 115 157 259
Small-Cap Value 79 121 167 279
</TABLE>
2. If the Policy is annuitized or not surrendered at the end of the
applicable time period:
<TABLE>
<CAPTION>
Sub-Account 1 Year 3 Year 5 Year 10 Year
----------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Bond 21 64 110 238
Capital 21 64 110 237
Cash Management 15 46 79 174
Common Stock 20 62 106 230
Communications and Information 23 72 124 265
Frontier 24 75 128 274
Global Growth 29 88 150 318
Global Smaller Companies 29 88 150 318
Global Technology 29 88 150 318
High-Yield Bond 22 67 116 248
Income 21 64 110 238
International Growth 29 88 150 317
Large-Cap Growth 22 67 116 248
Large-Cap Value 23 70 121 259
Small-Cap Value 25 76 131 279
</TABLE>
These Examples are based, with respect to all of the Portfolios, on an estimated
average account value of $58,900. The Examples assume that no transfer
charge or Market Value Adjustment has been assessed. The Examples also reflect
an Annual Administration Charge of 0.05% 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.
CONDENSED FINANCIAL INFORMATION
We have included in Appendix B a financial history of the accumulation unit
values for the Sub-Accounts.
7
<PAGE>
THE COMPANY
We are a stock life insurance company with assets as of December 31, 1999 of
approximately $3.0 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 policies. They do not
take into account deductibles, surrender or cancellation penalties, or
timeliness of claim payment. They also do not address the suitability of a
Policy for a particular purchaser, or relate to our ability to meet non-policy
obligations.
We are a wholly-owned subsidiary of The Canada Life Assurance Company, a
Canadian life insurance company headquartered in Toronto, Ontario, Canada. The
Canada Life Assurance Company commenced insurance operations in 1847 and has
been actively operating in the United States since 1889. It is one of the
largest life insurance companies in North America with consolidated assets as of
December 31, 1999 of approximately $36.5 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.
8
<PAGE>
The Fund
The Fund has 15 Portfolios:
Seligman Bond Seligman Global Smaller Companies
Seligman Capital Seligman Global Technology
Seligman Cash Management Seligman High-Yield Bond
Seligman Common Stock Seligman Income
Seligman Communications and Information Seligman International Growth
Seligman Frontier Seligman Large-Cap Growth
Seligman Global Growth Seligman Large-Cap Value
Seligman Small-Cap Value
Shares of a Portfolio are purchased and redeemed for a corresponding Sub-Account
at their net asset value. Any amounts of income, dividends and gains distributed
from the shares of a Portfolio 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 (Seligman Global Smaller Companies Portfolio uses the
sub-advisory services of Henderson Investment Management Limited).
The Fund may, in the future, create additional Portfolios that may or may not be
available as investment options under the Policies. Each Portfolio has its own
investment objectives and the income and losses for each Portfolio are
determined separately for that Portfolio.
The investment objectives and policies of the Portfolios of the Fund are similar
to the investment objectives and policies of other portfolios that may be
managed by the same investment adviser or manager. The investment results of the
Portfolios of the Fund, however, may differ from the results of such other
portfolios. There can be no assurance, and no representation is made, that the
investment results of the Portfolios of the Fund will be comparable to the
investment results of any other portfolio, even if the other portfolios have the
same investment adviser or manager.
We may receive significant compensation from the investment manager of the Fund
(or affiliates thereof) in connection with administration, distribution, or
other services provided with respect to the Portfolios and their availability
through the Policies. The amount of this compensation is based upon a
percentage of the assets of the Portfolio attributable to the Policies and other
contracts issued by us.
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, including a description of risks and expenses.
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.
9
<PAGE>
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 incidental to the Portfolio's investment objective.
The Portfolio invests primarily in equity securities of smaller companies
selected for their growth prospects.
Seligman Global Growth Portfolio
(Formerly 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 Global Smaller Companies Portfolio
(Formerly Seligman Henderson Global Smaller Companies Portfolio)
This Portfolio seeks to achieve long-term capital appreciation primarily through
global investments in securities of smaller companies.
Seligman Global Technology Portfolio
(Formerly 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.
10
<PAGE>
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 International Growth Portfolio
(Formerly 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 Large-Cap Growth Portfolio*
This Portfolio seeks long-term capital appreciation by investing primarily in
the common stocks of large U.S. based companies.
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.
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 add, delete, and substitute shares of another portfolio
of the Funds or shares of another registered open-end investment company if, in
our judgment, investment in shares of a current Portfolio(s) is no longer
appropriate. We may also add, delete, or substitute shares of another portfolio
of the Funds or shares of another registered open-end investment
11
<PAGE>
company only for certain classes of Owners. New or substitute portfolios or
funds may have different fees and expenses and may only be offered to certain
classes of Owners. 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 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 rates
declared subject to our sole discretion and without any formula (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/or Policy 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.
12
<PAGE>
. 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
. the deduction of 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 an 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
13
<PAGE>
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.
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 weighted average
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 surrender
charges or taxes incurred. The Market Value Adjustment will never invade
principal nor reduce earnings on amounts allocated to a particular Guarantee
Period 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 a 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
14
<PAGE>
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
"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>
15
<PAGE>
* We reserve the right to lower or raise the minimum initial premium.
** For more information on PAC agreements, see "Pre-Authorized Check Agreement
Plan."
The application must meet our underwriting standards. The application must be
properly completed and accompanied by all the information necessary to process
it, including the initial premium. We will normally accept the application and
apply the initial Net Premium within two Valuation Days of receipt at our
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."
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.
16
<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 surrender
charge, 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.
Unit Value
The Unit Value for each Sub-Account's first Valuation Period is generally 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.
17
<PAGE>
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 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.
18
<PAGE>
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 policy 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;
. 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:
. 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.
19
<PAGE>
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, although we reserve the right to change this procedure.
We currently assess a $25 transfer fee for the 13th and each additional transfer
in a Policy Year. A transfer request, (which includes Written Notices and
telephone calls) is considered to be one transfer, regardless of the number of
Sub-Accounts or Guarantee Periods affected by the request. The processing fee
will be deducted proportionately from the receiving Sub-Account(s) and/or
Guarantee Period(s). The $25 transfer fee is waived when using the Intouch(R)
Voice Response System, portfolio rebalancing, and dollar cost averaging.
Payment of Proceeds
Proceeds
Proceeds means the amount we will pay when the first of the following events
occurs:
. the Annuity Date;
. the Policy is surrendered;
. We receive Due Proof of Death of any Owner;
. We receive Due Proof of Death of the Last Surviving Annuitant.
If death occurs prior to the Annuity Date, proceeds are paid in one of the
following ways:
. lump sum;
. within 5 years of the Owner's death, as required by federal tax laws (see
"Proceeds on Death of Any Owner"); or
. by a mutually agreed upon payment option. See "Election of Options."
The Policy ends when we pay the proceeds.
We will deduct any applicable premium tax from the proceeds, unless we deducted
the tax from the premiums when paid.
The payment of proceeds will have federal income tax consequences. See "FEDERAL
TAX STATUS."
Proceeds on Annuity Date
If Payment Option 1 is in effect on the Annuity Date, we will pay the Policy
Value. See "Payment Options."
You may annuitize at any time, and may change the Annuity Date, subject to these
limitations:
1. We must receive your Written Notice at our 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 may be no later than the first day of the month
after any Annuitant's 100th birthday.
The proceeds paid will be the Policy Value if paid on the first day of the
month after any Annuitant's 100th birthday.
20
<PAGE>
Proceeds on Surrender
If you surrender the Policy, we will pay the Cash Surrender Value. The
Cash Surrender Value will be determined on the date we receive your
Written Notice for surrender and your Policy at our 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. You may avoid a surrender charge by electing to apply the
Policy Value under Payment Option 1. See "Proceeds on Annuity Date."
Surrender proceeds may be subject to federal income tax, including a penalty
tax. See "FEDERAL TAX STATUS."
Proceeds on Death of Last Surviving Annuitant Before Annuity Date (The Death
Benefit)
If the Last Surviving Annuitant dies before the Policy Value is transferred to a
payment option, we will pay the Beneficiary a Death Benefit.*
The Death Benefit is the greatest of:
1. the premiums paid, less any partial withdrawals, surrender charges and
incurred taxes;
2. the Policy Value on the date we receive Due Proof of Death; 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, surrender charges, 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,
the 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 Owner."
The Death Benefit may be taxable. See "FEDERAL TAX STATUS."
* In some jurisdictions the Death Benefit may vary.
21
<PAGE>
Proceeds on Death of Any Owner
If any Policyowner dies before the Annuity Date, the following rules apply:
. If you (the deceased Policyowner) were not the Last Surviving Annuitant and we
receive Due Proof of your death before the Annuity Date, we will pay the
Beneficiary the Policy Value as of the date we receive Due Proof of your
death.
. If you were the Last Surviving Annuitant and we receive Due Proof of your
death before the Annuity Date, we will pay the Beneficiary the Death Benefit
described in "Proceeds on the Death of Last Surviving Annuitant Before Annuity
Date."
. As required by federal tax law, regardless of whether you were the Annuitant,
the entire interest in the Policy will be distributed to the Beneficiary:
a) within five years of your death; or
b) over the life of the Beneficiary or over a period not extending beyond the
life expectancy of that Beneficiary, with payments beginning within one
year of your death.
However, if your spouse is the Beneficiary the Policy may be continued. If this
occurs and you were the only Annuitant, your spouse will become the Annuitant.
If any Policyowner dies on or after the Annuity Date but before all proceeds
payable under the Policy have been distributed, we will continue payments to the
designated payee under the payment option in effect on the date of the deceased
Policyowner's death.
If any Policyowner is not an individual, the death or change of any Annuitant
will be treated as the death of a Policyowner, and we will pay the Beneficiary
the Cash Surrender Value.
This will be construed in a manner consistent with Section 72(s) of the Internal
Revenue Code of 1986, as amended. If anything in the Policy conflicts with the
foregoing, this Prospectus will control.
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:
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 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
22
<PAGE>
withdrawal, we will withdraw the partial withdrawal from the Policy Value. We
will then deduct any applicable surrender charge from the amount requested for
withdrawal. The Company reserves the right to change its minimum partial
withdrawal amount requirements.
You may specify the amount to be withdrawn from certain Sub-Accounts or
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) on a
monthly, quarterly, semi-annual or annual basis, beginning 30 days after the
Effective Date, if:
. We receive your Written Notice on our administrative form;
. the Policy meets a minimum premium, currently $25,000 (if surrender charges
apply); and
. the Policy complies with the "Partial Withdrawals" provision (if surrender
charges apply).
If surrender charges are applicable, you may withdraw without incurring a
surrender charge the following:
. 100% of investment earnings in the Variable Account, available at the time the
SWP is executed/processed
. 100% of interest earned in the Fixed Account, available at the time the SWP
is executed/processed
. 100% of premiums paid 7 years or more from the date the SWP is
executed/processed
. 10% of total premiums withdrawn during a Policy Year and paid less than 7
years from the date the SWP is executed/processed*
. Amounts required to be withdrawn, only as they apply to the Policy and
independent of all other qualified retirement assets, pursuant to the minimum
required distribution rules under federal tax laws (see "Minimum Distribution
Requirements")
* 10% is not cumulative and is first withdrawn from the oldest premium paid.
Note: Withdrawals from a Guarantee Period other than from the one year
Guarantee Period may be subject to a Market Value Adjustment.
If surrender charges are not applicable, the entire Policy is available for
systematic withdrawal. Once an amount has been selected for withdrawal, it will
remain fixed until the earlier of the next Policy Anniversary or termination of
the privilege. A written request to change the withdrawal amount for the
following Policy Year must be received no later than 7 days prior to the Policy
Anniversary date. The Systematic Withdrawal Privilege will end at the earliest
of the date:
. when the Sub-Account(s) and Guarantee Period(s) you specified for those
withdrawals have no remaining amount to withdraw;
. the Cash Surrender Value is reduced to $2,000*;
.
23
<PAGE>
. you choose to pay premiums by the pre-authorized check agreement plan;
. we receive your Written Notice to end this privilege; or
. we choose 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. This option is not available
on the 29th, 30th or 31st day of each month. The Company reserves the right to
change its minimum systematic withdrawal amount requirements or terminate this
privilege. There is no charge for this feature.
In certain circumstances, amounts withdrawn pursuant to a systematic withdrawal
option may be included in a Policyowner's gross income and may be subject to
penalty taxes.
* If the Cash Surrender Value is reduced to $2,000, your Policy may
terminate. See "Termination."
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. There is no charge for this feature.
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
24
<PAGE>
reserve the right to change our procedures or discontinue offering Rebalancing
upon 30 days Written Notice to you. This option is not available on the 29th,
30th or 31st day of each month. There is no charge for this feature.
Postponement of Payment
We will usually pay any proceeds payable, amounts partially withdrawn, or the
Cash Surrender Value within seven calendar days after:
1. we receive your Written Notice for a partial withdrawal or a cash
surrender;
2. the date chosen for any systematic withdrawal; or
3. we receive Due Proof of Death of the Owner or the Last Surviving Annuitant.
However, we can postpone the payment of proceeds, amounts withdrawn, the Cash
Surrender Value, or the transfer of amounts between Sub-Accounts if:
1. the New York Stock Exchange is closed, other than customary weekend and
holiday closings, or trading on the exchange is restricted as determined by
the SEC;
2. the SEC permits by an order the postponement for the protection of
Policyowners; or
3. the SEC determines that an emergency exists that would make the disposal of
securities held in the Variable Account or the determination of the value of
the Variable Account's net assets not reasonably practicable.
We have the right to defer payment of any partial withdrawal, cash surrender, or
transfer from the Fixed Account for up to six months from the date we receive
your Written Notice for a withdrawal, surrender or transfer.
Charges Against the Policy, Variable Account, and Fund
Surrender Charge
A surrender charge may be deducted when a partial withdrawal or cash surrender
is made in order to at least partially reimburse us for certain expenses
relating to the sale of the Policy. These expenses include commissions to
registered representatives and other promotional expenses (which are not
expected to exceed 6% of premium payments under the policies). A surrender
charge may also be applied to the proceeds paid on the Annuity Date, unless
Payment Option 1 is chosen.
The amount withdrawn is first taken from any investment earnings in the Variable
Account and interest earned in the Fixed Account available at the time the
request is made. Then, further amounts withdrawn will be taken from premiums
starting with the oldest premium paid.
Withdrawal or surrender of the following will not incur a surrender charge:
. 100% of investment earnings in the Variable Account
. 100% of interest earned in the Fixed Account
. 100% of premiums paid 7 years or more from the date of withdrawal or surrender
. 10% of total premiums withdrawn during a Policy Year and paid less than 7
years from the date of withdrawal or surrender*
. Amounts required to be withdrawn, only as they apply to the Policy and
independent of all other qualified retirement assets, pursuant to the minimum
required distribution rules under federal tax laws (see "Minimum Distribution
Requirements")
* 10% is not cumulative and is first withdrawn from the oldest premium paid.
If a surrender charge does apply, the following percentages will be used to
calculate the amount of the charge:
Policy Years Since Premium Was Paid
25
<PAGE>
Less than 1................................................ 6%
At least 1, but less than 2................................ 6%
At least 2, but less than 3................................ 5%
At least 3, but less than 4................................ 5%
At least 4, but less than 5................................ 4%
At least 5, but less than 6................................ 3%
At least 6, but less than 7................................ 2%
At least 7................................................. None
Any surrender charge will be deducted from the amount requested for withdrawal
or surrender.
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 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 0.15% from the assets of each Sub-Account of the Variable Account. This
daily administration fee relates to other administrative costs under the
Policies.
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, although we reserve the right to change this
procedure. We currently assess a $25 transfer fee for the 13th and each
additional transfer in a Policy Year. A transfer request, (which includes
Written Notices and telephone calls) is considered to be one transfer,
regardless of the number of Sub-Accounts or Guarantee Periods affected by the
request. The processing fee will be deducted proportionately from the receiving
Sub-Account(s) and/or Guarantee Period(s). The $25 transfer fee is waived when
using the Intouch(R) Voice Response System, portfolio rebalancing, and dollar
cost averaging. See "Transfers" for the rules concerning transfers.
Mortality and Expense Risk Charge
We assess an annual mortality and expense risk charge, deducted at each
Valuation Period from the assets of the Variable Account. This charge:
. is an annual rate of 1.25% of the average daily value of the net assets in the
Variable Account;
. is assessed during the accumulation period, but is not charged after the
Annuity Date;
. consists of approximately 0.75% to cover the mortality risk and approximately
0.50% to cover the expense risk; and
26
<PAGE>
. is guaranteed not to increase for the duration of the Policy.
The mortality risk we assume arises from our obligation to make annuity
payments (determined in accordance with the annuity tables and other provisions
contained in the Policy) for the full life of all Annuitants regardless of how
long each may live. This means:
. Mortality risk is the risk that Annuitants may live for a longer period of
time than we estimated when we established our guarantees in the
Policy.
. Each Annuitant is assured that neither his or her longevity, nor an
improvement in life expectancy generally, will have any adverse effect on the
annuity payments received under the Policy.
. The Annuitant will not outlive the funds accumulated for retirement.
. We guarantee to pay a Death Benefit if the Last Surviving Annuitant dies
before the Annuity Date (see "Proceeds on Death of Last Surviving Annuitant
Before Annuity Date (The Death Benefit)").
. No surrender charge is assessed against the payment of the Death Benefit,
which also increases the mortality risk.
The expense risk we assume is the risk that the surrender charges, Annual
Administration Charge, daily administration fee, and transfer fees may be
insufficient to cover our actual future expenses.
If the mortality and expense charges are sufficient to cover such costs and
risks, any excess will be profit to the Company and may be used for distribution
expenses. However, if the amounts deducted prove to be insufficient, the loss
will be borne by us.
Waiver of Surrender Charge
When the Policy has been in effect for 1 year, surrender charges and any
applicable Market Value Adjustment will be waived on any partial withdrawal or
surrender after you provide us written evidence, satisfactory to us and
signed by a qualified physician, that:
1. you are terminally ill, provided:
a) your life expectancy is not more than 12 months due to the severity and
nature of the terminal illness; and
b) the diagnosis of the terminal illness was made after the Effective Date
of this Policy.
OR
2. you are or have been confined to a hospital, nursing home or long-term care
facility for at least 90 consecutive days, provided:
a) confinement is for medically necessary reasons at the recommendation of a
physician;
b) the hospital, nursing home or long-term care facility is licensed or
otherwise recognized and operating as such by the proper authority in the
state where it is located, the Joint Commission on Accreditation of
Hospitals or Medicare and satisfactory evidence of such status is
provided to us; and
c) the withdrawal or surrender request is received by us no later than 91
days after the last day of your confinement.
For Policies issued on or after May 1, 1996, this provision is not available if
any Owner was attained age 81 or older on the Effective Date. This provision may
not be available in all jurisdictions.
27
<PAGE>
Reduction or Elimination of Surrender Charges and Annual Administration Charges
The amount of surrender charges and/or the Annual Administration Charge may be
reduced or eliminated when some or all of the policies are to be sold to an
individual or a group of individuals in such a manner that results in savings of
sales and/or administrative expenses. In determining whether to reduce or
eliminate such expenses, we will consider certain factors, including:
1. the size and type of group to which the administrative services are to be
provided and the sales are to be made. Generally, sales and administrative
expenses for a larger group are smaller than for a smaller group because
large numbers of sales may result in fewer sales contacts.
2. the total amount of premiums. Per dollar sales expenses are likely to be
less on larger premiums than on smaller ones.
3. any prior or existing relationship with the Company. Policy sales expenses
are likely to be less when there is a prior or existing relationship because
there is a likelihood of more sales with fewer sales contacts.
4. the level of commissions paid to selling broker/dealers. For example,
certain broker/dealers may offer policies in connection with financial
planning programs on a fee for service basis. In view of the financial
planning fees, such broker/dealers may elect to receive lower commissions
for sales of the policies, thereby reducing the Company's sales expenses.
If it is determined that there will be a reduction or elimination in sales
expenses and/or administration expenses, the Company will provide a reduction in
the surrender charge and/or the Annual Administration Charge. Such charges may
also be eliminated when a Policy is issued to an officer, director, employee,
registered representative or relative thereof of: the Company; The Canada Life
Assurance Company; Canada Life Insurance Company of New York; J. & W. Seligman &
Co. Incorporated; any selling Broker/Dealer; or any of their affiliates. In no
event will reduction or elimination of the surrender charge and/or Annual
Administration Charge be permitted where such reduction or elimination will be
discriminatory to any person.
In addition, if the Policy Value on the Policy Anniversary is $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 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 is responsible for all of its operating expenses, which are
deducted daily. In addition, the Fund pays J. & W. Seligman & Co. Incorporated
(the Manager) fees for investment management services. Fees for investment
management services are deducted and paid daily at an annual rate from each
Portfolio as a percentage of the average daily net assets of the Portfolio. The
Prospectus
28
<PAGE>
and Statement of Additional Information for the Fund provides more
information concerning the investment advisory fee, other charges assessed
against the Portfolio, and the investment advisory services provided to such
Portfolios.
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 policy for the applicable payment option.
Election of Options
You may elect, revoke or change a payment option at any time before the Annuity
Date and while the Annuitant(s) is living. If an election is not in effect at
the Last Surviving Annuitant's death, or if payment is to be made in one lump
sum under an existing election, the Beneficiary may elect one of the options.
This election must be made within one year after the Last Surviving Annuitant's
death and before any payment has been made.
An election of an option and any revocation or change must be made in a Written
Notice. It must be filed with our 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.
Payment Option 2: Mutual Agreement
We will pay the proceeds according to other terms, if those terms are mutually
agreed upon.
Amount of Payments
The amount of each payment is based upon the interest rate and Policy Value in
effect at the time the payment option is elected. If Payment Option 1 is
selected, we will determine the amount from the tables in the Policy, which
use the Annuitant's age. We will determine age from the nearest birthday at the
due date of the first payment.
The amount of each payment will vary according to the frequency of the payments
and the length of the guarantee period during which we make the payments.
. The more frequently the payments are made, the lower the amount of each
payment. For example, with all other factors being equal, payments made
monthly will be lower than payments made annually.
. The longer the guarantee period during which payments are made, the lower the
amount of each payment. For example, with all other factors being equal,
payments guaranteed for
29
<PAGE>
twenty years will be lower than payments guaranteed for ten years.
Payment Dates
The payment dates of the options will be calculated from the date on which the
proceeds become payable.
Age and Survival of Annuitant
We have the right to require proof of age of the Annuitant(s) before making any
payment. When any payment depends on the Annuitant's survival, we will have
the right, before making the payment, to require proof satisfactory to us
that the Annuitant is alive.
Other Policy Provisions
Policyowner
During any Annuitant's lifetime and before the Annuity Date, you have all of the
ownership rights and privileges granted by the Policy. If you appoint an
irrevocable Beneficiary or assignee, then your rights will be subject to those
of that Beneficiary or assignee.
During any Annuitant's lifetime and before the Annuity Date, you may also name,
change or revoke a Policyowner(s), Beneficiary(ies), or Annuitant(s) by giving
us Written Notice. Any change of Policyowner(s) or Annuitant(s) must be approved
by us.
A change of any Policyowner may result in resetting the Death Benefit to an
amount equal to the Policy Value as of the date of the change.
With respect to Qualified Policies generally, however:
. the Policy may not be assigned (other than to us);
. Joint Ownership is not permitted; and
. the Policyowner or plan participant 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
30
<PAGE>
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 Policies 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.
In the event of any such modification, we may make any appropriate endorsement
to the Policy.
31
<PAGE>
Notification of Death
The death of the Annuitant(s) and/or the Owner(s) must be reported to us
immediately, and we will require Due Proof of Death. We will pay the proceeds
based upon the date we receive the Due Proof of Death. In the case of death
after the Annuity Date, we are entitled to immediately recover, and are not
responsible for, any mispayments made because of a failure to notify us of any
such death.
YIELDS AND TOTAL RETURNS
Yields
From time to time, we may advertise yields, effective yields, and total returns
for the Sub-Accounts. These figures are based on historical earnings and do not
indicate or project future performance. Each Sub-Account may, from time to time,
advertise performance relative to certain performance rankings and indices
compiled by independent organizations. More detailed information as to the
calculation of performance information, as well as comparisons with unmanaged
market indices, appears in the Statement of Additional Information.
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 reflects the Fund's expenses. See the attached prospectus for the
Fund for more information.
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.
Total Returns
Standardized Average Annual Total Return. The standardized average annual total
return quotations of a Sub-Account represent the average annual compounded rates
of return that would equate an initial investment of $1,000 under a Policy to
the redemption value of that investment as of the last day of each of the
periods for which standardized average annual total return quotations are
provided. Standardized average annual total return information shows the average
percentage change in the value of an investment in the Sub-Account from the
beginning of the measuring period to the end of that period, 1, 5 and 10 years
or since the inception of the Sub-Account. Standardized average annual total
return reflects all historic investment results, less all charges and deductions
applied against the Sub-Account (including any surrender charge that would apply
if a Policyowner terminated the Policy at the end of each period indicated, but
excluding any deductions for premium taxes).
Other Total Returns. We may, in addition, advertise performance information
computed on a different basis.
1) NonStandardized Average Annual Total Return. We may present non-
standardized average annual total return information computed on the same
basis as described above,
32
<PAGE>
except deductions will not include the surrender charge. This presentation
assumes that the investment in the Policy persists beyond the period when the
surrender charge applies, consistent with the long-term investment and
retirement objectives of the Policy.
2) Adjusted Historic Fund Average Annual Total Return. We may present
nonstandardized "adjusted" average annual total returns for the Fund since
its inception reduced by some or all of the fees and charges under the
Policy. Such adjusted historic fund performance includes data that precedes
the inception dates of the Sub-Accounts. This data is designed to show the
performance that would have resulted if the Sub-Account had been in existence
during that time.
Industry Comparison
We may compare the performance of each Sub-Account in advertising and sales
literature to the performance of other variable annuity issuers in general. We
may also compare the performance of particular types of variable annuities
investing in mutual funds, or investment series of mutual funds 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
33
<PAGE>
tax treatment may be beneficial to you in building assets in a long-range
investment program.
We may also distribute sales literature or other information including the
effect of tax-deferred compounding on a Sub-Account's investment returns, or
returns in general, which may be illustrated by tables, graphs, charts or
otherwise, and which may include a comparison, at various points in time, of the
return from an investment in a Policy (or returns in general) on a tax-deferred
basis (assuming one or more tax rates) with the return on a currently taxable
basis where allowed by state law. All income and capital gains derived from Sub-
Account investments are reinvested and compound tax-deferred until distributed.
Such tax-deferred compounding can result in substantial long-term accumulation
of assets, provided that the investment experience of the underlying Portfolio
of the Fund is positive.
FEDERAL TAX STATUS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
Introduction
This discussion is not intended to address the tax consequences resulting from
all of the situations in which a person may be entitled to or may receive a
distribution under the annuity Policy we issue. Any person concerned about these
tax implications should consult a tax adviser before initiating any transaction.
This discussion is based upon general understanding of the present federal
income tax laws. No representation is made as to the likelihood of the
continuation of the present federal income tax laws or of the current
interpretation by the Internal Revenue Service. Moreover, no attempt has been
made to consider any applicable state or other tax laws.
The Policy may be purchased on a nonqualified tax basis (Nonqualified Policy) or
purchased and used in connection with plans qualifying for favorable tax
treatment (Qualified Policy). The Qualified Policy was designed for use by
individuals whose premium payments are comprised of proceeds from and/or
contributions under retirement plans which are intended to qualify as plans
entitled to special income tax treatment under Sections 401(a), 401(k), 403(a),
403(b), 408, 408A or 457 of the Code. The ultimate effect of federal income
taxes on the amounts held under a Policy, or annuity payments, and on the
economic benefit to the 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.
34
<PAGE>
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
Owner of the Policy has the choice of more subdivisions to which to allocate
premiums and Policy Values than such rulings, has a choice of investment
strategies different from such rulings, and may be able to transfer among
subdivisions more frequently than in such rulings. These differences could
result in the policyowner being treated as the owner of the assets of the
Variable Account. In addition, we do not know what standards will be set
forth in the regulations or rulings which the Treasury Department has stated it
expects to issue. We therefore reserve the right to modify the policy as
necessary to attempt to prevent the policyowner from being considered the owner
of the assets of the Variable Account.
Required Distributions
In addition to the requirements of Section 817(h) of the Code, in order to be
treated as an annuity contract for federal income tax purposes, Section 72(s) of
the Code requires any Nonqualified Policy to provide that (a) if any Policyowner
dies on or after the Annuity Date but prior to the time the entire interest in
the Policy has been distributed, the remaining portion of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of that Policyowner's death; and (b) if any Policyowner dies
prior to the Annuity Date, the entire interest in the Policy will be distributed
within five years after the date of the Policyowner's death. These requirements
will be considered satisfied as to any portion of the Policyowner's interest
which is payable to or for the benefit of a "Designated Beneficiary" and which
is distributed over the life of such "Designated Beneficiary" or over a period
not extending beyond the life expectancy of that Beneficiary, provided that such
distributions begin within one year of that Policyowner's death. The
Policyowner's "Designated Beneficiary" is the person designated by such
Policyowner as a Beneficiary and to
35
<PAGE>
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 contract who is not a natural person generally must
include in income any increase in the excess of the contract's accumulation
value over the Policy's "investment in the contract" during the taxable year.
There are some exceptions to this rule and a prospective Policyowner that is not
a natural person may wish to discuss these with a tax adviser.
The following discussion generally applies to policies owned by natural persons.
Withdrawals/Distributions
In the case of a distribution under a Qualified Policy (other than a Policy
issued in connection with a Section 457 plan), under Section 72(e) of the Code a
ratable portion of the amount received is taxable, generally based on the ratio
of the "investment in the contract" to the participant's total accrued benefit
or balance under the retirement plan. The "investment in the contract" generally
equals the portion, if any, of any premium payments paid by or on behalf of any
individual under a Policy, reduced by the amount of any prior distribution which
was not excluded from the individual's gross income. For policies issued in
connection with qualified plans, the "investment in the contract" can be zero.
Special tax rules may be available for certain distributions from Qualified
Policies.
In the case of a withdrawal/distribution (e.g., surrender, partial withdrawal or
systematic withdrawal) under a Nonqualified Policy before the Annuity Date,
under Code Section 72(e) amounts received are generally first treated as taxable
income to the extent that the accumulation value immediately before the
withdrawal exceeds the "investment in the contract" at that time. Any additional
amount withdrawn is not taxable. 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.
36
<PAGE>
Annuity Payments
Although tax consequences may vary depending on the annuity option elected under
an annuity contract, under Code Section 72(b), generally gross income does not
include that part of any amount received as an annuity under an annuity contract
that bears the same ratio to such amount as the investment in the contract bears
to the expected return at the annuity starting date. For variable income
payments, in general, the taxable portion (prior to recovery of the investment
in the contract) is 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 contract is not affected by a
Policyowner or Annuitant's death. That is the investment in the contract remains
the amount of any purchase payments paid which were not excluded from gross
income.
Penalty Tax on Certain Withdrawals
In the case of a distribution pursuant to a Nonqualified Policy, there may be
imposed a federal penalty tax equal to 10% of the amount treated as taxable
income. In general, however, there is no penalty tax on distributions:
1. made on or after the taxpayer reaches age 59 1/2;
2. made on or after the death of a Policyowner (or if the Policyowner is not
an individual, the death of the primary Annuitant);
3. attributable to the Policyowner becoming disabled;
4. as part of a series of substantially equal periodic payments (not less
frequently than annually) for the life (or life expectancy) of the taxpayer
or the joint lives (or joint life expectancies) of the taxpayer and
Beneficiary;
5. made under an annuity Policy that is purchased with a single premium when
the annuity starting date is no later than a year from purchase of the
annuity and substantially equal periodic payments are made, not less
frequently than annually, during the annuity period; and
6. made under certain annuities issued in connection with structured
settlement agreements.
Other tax penalties may apply to certain distributions under a Qualified Policy,
as well as to certain contributions and other circumstances.
Transfers, Assignments, or Exchanges of a Policy
A transfer of ownership, the designation of an Annuitant or other Beneficiary
who is not also the Policyowner, the designation of certain annuity starting
dates, or the exchange of a Policy may result in certain tax consequences to the
Policyowner that are not discussed herein. A Policyowner
37
<PAGE>
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,
Section 401(k) plans, Section 403(a) annuities, and Section 403(b) tax-sheltered
annuities are subject to a mandatory federal income tax withholding of 20%. An
eligible rollover distribution is the taxable portion of any distribution from
such a plan, except certain distributions such as distributions required by the
Code, hardship distributions of employee elective contributions under 401(k) and
403(b) plans, or distributions in a specified annuity form. The 20% withholding
does not apply, however, if the owner chooses a "direct rollover" from the plan
to another tax-qualified plan or IRA.
Multiple Policies
Section 72(e)(11) of the Code treats all nonqualified deferred annuity policies
entered into after June 21, 1988 that are issued by us (or our affiliates) to
the same owner during any calendar year as one annuity Policy for purposes of
determining the amount includable in gross income under Code Section 72(e). The
effects of this rule are not yet clear; however, it could affect the time when
income is taxable and the amount that might be subject to the 10% penalty tax
described above. In addition, the Treasury Department has specific authority to
issue regulations that prevent the avoidance of Section 72(e) through the serial
purchase of annuity contracts or otherwise. There may also be other situations
in which the Treasury may conclude that it would be appropriate to aggregate two
or more annuity contracts purchased by the same owner. Accordingly, a
Policyowner should consult a tax adviser before purchasing more than one annuity
contract.
Possible Tax Changes
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the Policies 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.
38
<PAGE>
Individual Retirement Annuities and Simplified Employee Pensions (SEP/IRAs)
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity" or
"IRA." These IRAs are subject to limits on the amount that may be contributed,
the persons who may be eligible and on the time when distributions may commence.
Also, distributions from certain other types of qualified retirement plans may
be "rolled over" on a tax-deferred basis into an IRA. Sales of the Policy for
use with IRAs may be subject to special disclosure requirements of the Internal
Revenue Service.
Section 408(k) of the Code allows employers to establish simplified employee
pension plans for their employees, using an IRA for such purpose, if certain
criteria are met. Under these plans the employer may, within specified limits,
make deductible contributions on behalf of the employee to an IRA. Employers
intending to use the Policy in connection with such plans should seek advice.
Purchasers of a Policy for use with IRAs will be provided with supplemental
information required by the Internal Revenue Service or other appropriate
agency. Such purchasers will have the right to revoke their purchase within
seven days of the earlier of the establishment of the IRA or their purchase.
Purchasers should seek advice as to the suitability of the Policy for use with
IRAs. The Internal Revenue Service has not reviewed the Policy for qualification
as an IRA, and has not addressed in a ruling of general applicability whether a
Death Benefit provision such as the provision in the Policy comports with IRA
qualification requirements.
SIMPLE Individual Retirement Annuities
Certain small employers may establish SIMPLE plans as provided by Section 408(p)
of the Code, under which employees may elect to defer a percentage of
compensation up to $6,000 (as increased for cost of living adjustments). The
sponsoring employer is required to make matching or non-elective contributions
on behalf of employees. Distributions from SIMPLE IRAs are subject to the same
restrictions that apply to IRA distributions and are taxed as ordinary income.
Subject to certain exceptions, premature distributions prior to age 59 1/2 are
subject to a 10 percent penalty tax, which is increased to 25 percent if the
distribution occurs within the first two years after the commencement of the
employee's participation in the plan.
ROTH Individual Retirement Annuities
Effective January 1, 1998, Section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which are
subject to certain limitations, are not deductible and must be made in cash or
as a rollover or transfer from another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax and other special rules
may apply. You may wish to consult a tax adviser before combining any converted
amounts with any other Roth IRA contributions, including any conversion amounts
from other tax years. Distributions from a Roth IRA generally are not taxed,
except that, once aggregate distributions exceed contributions to the Roth IRA,
income tax and a 10 percent penalty tax may apply to distributions made (1)
before age 59 1/2 (subject to certain exceptions) and/or (2) during the five
taxable years starting with the year in which the first contribution is made to
any 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 minimum distribution requirement (MDR) only for funds invested in
this Policy and subject to our administrative guidelines, including but not
limited a minimum withdrawal amount of $250. Surrender charges are not applied
against required minimum distributions.
39
<PAGE>
As an administrative practice, we will calculate and distribute an amount from
an IRA using the method contained in the Code's minimum distribution
requirements. The annual distribution is determined by dividing the prior
December 31st value for the Policy by a life expectancy factor. The factor will
be based on either your life or the life expectancies of your life and your
Designated Beneficiary, as directed by you, and based on tables found in the
IRS' regulations. Factors are redetermined for each year's distribution. The
value of the Policy to be used in this calculation is the Policy Value on the
December 31st prior to the year for which each subsequent payment is made. The
life expectancy factor is determined by using the appropriate IRS chart based on
one of the following circumstances:
1. your life expectancy (Single Life Expectancy);
2. joint life expectancy between you and your Designated Beneficiary
(Joint Life and Last Survivor Expectancy); or
3. your life expectancy and a non-spouse Beneficiary more than 10 years
younger than you (Minimum Distribution Incidental Benefit Requirement).
No minimum distributions are required from a Roth IRA during your life, although
upon your death certain distribution requirements apply.
The Code Minimum Distribution Requirements also apply to distributions from
qualified plans other than IRAs. For qualified plans under Sections 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.
40
<PAGE>
Tax-Sheltered Annuity Plans
Section 403(b) of the Code permits public school systems and certain tax exempt
organizations specified in Section 501(c)(3) to make payments to purchase
annuity policies for their employees. Such payments are excludable from the
employee's gross income (subject to certain limitations), but may be subject to
FICA (Social Security) taxes. The Policy includes a Death Benefit that in some
cases may exceed the greater of the premium payments or the Policy Value. The
Death Benefit could be characterized as an incidental benefit, the amount of
which is limited in any tax-sheltered annuity under Section 403(b). Because the
Death Benefit may exceed this limitation, employers using the Policy in
connection with such plans should consult their tax adviser. Under Code
requirements, Section 403(b) annuities generally may not permit distribution of:
1) elective contributions made in years beginning after December 31, 1988; 2)
earnings on those contributions; and 3) earnings on amounts attributed to
elective contributions held as of the end of the last year beginning before
January 1, 1989. Under Code requirements, distributions of such amounts will be
allowed only: 1) upon the death of the employee; or 2) on or after attainment of
age 59 1/2; or 3) separation from service; or 4) disability; or 5) financial
hardship, except that income attributable to elective contributions may not be
distributed in the case of hardship. With respect to these restrictions, the
Company is relying upon a no-action letter dated November 28, 1988 from the
staff of the SEC to the American Council of Life Insurance, the requirements for
which have been or will be complied with by the Company.
Other Tax Consequences
Other restrictions with respect to the election, commencement, or distribution
of benefits may apply under Qualified Policies or under the terms of the plans
in respect of which Qualified Policies are issued.
As noted above, the foregoing comments about the federal tax consequences under
these policies are not exhaustive and special rules are provided with respect to
other tax situations not discussed in this Prospectus. Further, the federal
income tax consequences discussed herein reflect our understanding of current
law and the law may change. Federal estate and state and local estate,
inheritance, and other tax consequences of ownership or receipt of distributions
under a Policy depend on the individual circumstances of each owner or recipient
of the distribution. A tax adviser should be consulted for further information.
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.
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, our wholly-owned subsidiary and 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 registered under
41
<PAGE>
the 1934 Act and authorized by CLAFS to sell the Policies. Such registered
representatives will be licensed insurance agents appointed with our Company and
authorized by applicable law to sell variable annuity policies. CLAFS and our
Company have entered into a 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,
is 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 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.
42
<PAGE>
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.
FINANCIAL STATEMENTS
Our balance sheets as of December 31, 1999 and 1998, and the related statements
of operations, capital and surplus, and cash flows for each of the three years
in the period ended December 31, 1999, 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, 1999, 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.
43
<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 surrender charge,
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 applicable surrender charges,
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).
44
<PAGE>
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).
45
<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............................................. 4
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. Nonstandardized "Average Annual Total Returns"........... 9
C. Adjusted Historic Fund Performance....................... 11
Effect of the Annual Administration Charge on Performance Data.. 13
SAFEKEEPING OF ACCOUNT ASSETS..................................... 13
STATE REGULATION.................................................. 13
RECORDS AND REPORTS............................................... 13
LEGAL MATTERS..................................................... 13
EXPERTS........................................................... 14
OTHER INFORMATION................................................. 14
FINANCIAL STATEMENTS.............................................. 14
46
<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................................................ 0.50% 2.35%
Kentucky.................................................. 0.00% 0.00%
Maine..................................................... 0.00% 2.00%
Nevada.................................................... 0.00% 3.50%
South Dakota.............................................. 0.00% 1.25%
West Virginia............................................. 1.00% 1.00%
Wyoming................................................... 0.00% 1.00%
</TABLE>
47
<PAGE>
APPENDIX B: CONDENSED FINANCIAL INFORMATION
The following condensed financial information is derived from the financial
statements of the Variable Account. The data should be read in conjunction with
the financial statements, related notes and other financial information included
in the "Financial Statements" section of the Statement of Additional
Information.
The table below sets forth certain information for the period from
commencement of business operations on June 21, 1993 through December 31, 1999.
We do not provide Accumulation Unit Values for any date prior to the inception
of the Variable Account.
48
<PAGE>
<TABLE>
<CAPTION>
Accumulation Unit Value
As of As of As of As of As of As of As of Inception
Sub-Account 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 6/21/93
----------- --------- --------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bond $ 16.42 $ 17.43 $ 16.33 $ 15.22 $ 15.45 $ 13.17 $ 13.84 $ 13.52
Capital $ 56.12 $ 37.12 $ 30.81 $ 25.79 $ 22.89 $ 18.29 $ 19.62 $ 17.53
Cash Management $ 1.50 $ 1.45 $ 1.40 $ 1.34 $ 1.29 $ 1.25 $ 1.22 $ 1.22
Common Stock $ 44.74 $ 40.10 $ 32.75 $ 27.42 $ 23.20 $ 18.53 $ 18.74 $ 17.38
Communications and Information $ 45.02 $ 24.57 $ 18.26 $ 15.17 $ 14.17 $ 10.40 *
Frontier $ 21.58 $ 18.77 $ 19.32 $ 16.86 $ 13.83 $ 10.54 *
Global Growth $ 19.62 $ 13.05 $ 10.88 $ 9.82 ***
Global Smaller Companies $ 18.84 $ 14.89 $ 14.17 $ 13.91 $ 11.91 $ 10.32 *
Global Technology $ 35.26 $ 16.34 $ 12.11 $ 10.29 ***
High-Yield Bond $ 13.25 $ 13.54 $ 13.59 $ 11.99 $ 10.63 **
Income $ 23.12 $ 22.79 $ 21.45 $ 19.11 $ 18.20 $ 15.69 $ 16.97 $ 16.30
International Growth $ 19.79 $ 15.84 $ 13.87 $ 13.00 $ 12.34 $ 11.26 $ 11.34 $ 9.98
Large-Cap Growth $ 12.05 *****
Large-Cap Value $ 9.47 $ 9.88 ****
Small-Cap Value $ 10.97 $ 8.22 ****
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Number of Units Outstanding
At End of Period
As of As of As of As of As of As of As of
Sub-Account 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
----------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Bond 299,153 302,558 303,296 174,526 118,761 64,614 15,084
Capital 474,940 485,399 486,445 364,487 177,869 62,358 4,660
Cash Management 11,215,405 6,178,761 5,291,742 6,138,138 4,756,423 434,226 56,138
Common Stock 1,020,957 1,044,087 992,580 743,848 406,237 127,570 35,206
Communications and Information 3,821,257 3,963,361 4,053,481 3,582,800 2,515,329 47,541 *
Frontier 970,283 1,684,443 1,806,075 1,536,337 785,660 11,609 *
Global Growth 558,642 604,445 437,357 131,675 ***
Global Smaller Companies 996,611 1,310,083 1,380,030 1,173,248 408,870 12,740 *
Global Technology 569,543 322,591 271,907 108,483 ***
High-Yield Bond 1,903,614 2,279,540 1,671,215 939,456 275,716 **
Income 340,851 394,266 386,042 423,690 262,103 124,878 27,474
International Growth 498,296 591,251 634,692 548,115 329,980 150,440 47,001
Large-Cap Growth 246,607 *****
Large-Cap Value 590,205 362,174 ****
Small-Cap Value 372,720 268,697 ****
</TABLE>
* The Accumulation Unit Values for the Communications and Information,
Frontier and Global Smaller Companies Sub-Accounts' first Valuation
Period were set at $10.00. Since these Sub-Accounts commenced
operations October 11, 1994, there were no Accumulation Unit Values
or Outstanding Units to report at or prior to December 31, 1993.
** The Accumulation Unit Value for the High-Yield Bond Sub-Account's
first Valuation Period was set at $10.00. Since this Sub-Account
commenced operations May 1, 1995, there were no Accumulation Unit
Values or Outstanding Units to report at or prior to December 31,
1994.
*** The Accumulation Unit Values for the Global Technology and Global
Growth Opportunities Sub-Accounts' first Valuation Period were set at
$10.00. Since these Sub-Accounts commenced operations May 1, 1996,
there were no Accumulation Unit Values or Outstanding Units to report
at or prior to December 31, 1995.
**** The Accumulation Unit Values for the Large-Cap Value and Small-Cap
Value Sub-Accounts' first Valuation Period were set at $10.00. Since
these Sub-Accounts commenced operations May 1, 1998, there were no
Accumulation Unit Values or Outstanding Units to report at or prior
to December 31, 1997.
***** The Accumulation Unit Value for the Large-Cap Growth Sub-Account's first
Valuation Period was set at $10.00. Since this Sub-Account commenced
operations May 1, 1999, there were no Accumulation Unit Values or
Outstanding Units to report at or prior to December 31, 1998.
50
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
ADMINISTRATIVE OFFICE: 6201 Powers Ferry Road, NW, Atlanta, Georgia 30339
PHONE: (800) 905-1959
TRILLIUM(R)
STATEMENT OF ADDITIONAL INFORMATION
CANADA LIFE OF AMERICA 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 May 1, 2000.
<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................................................ 4
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. Nonstandardized "Average Annual Total Returns"......... 9
C. Adjusted Historic Fund Average Annual Total Returns..... 11
Effect of the Annual Administration Charge on Performance Data.. 13
SAFEKEEPING OF ACCOUNT ASSETS........................................ 13
STATE REGULATION..................................................... 13
RECORDS AND REPORTS.................................................. 13
LEGAL MATTERS........................................................ 13
EXPERTS.............................................................. 14
OTHER INFORMATION.................................................... 14
FINANCIAL STATEMENTS................................................. 14
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.
3
<PAGE>
PRINCIPAL UNDERWRITER
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.
CLAFS received $5,412,788 in 1999, $6,246,502 in 1998, and $7,386,384 in 1997 as
commissions for serving as principal underwriter of the variable annuity
Policies and other variable annuity policies issued by Canada Life Insurance
Company of America. CLAFS did not retain any commissions in 1999, 1998 or 1997.
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 per Policy deducted at the end of each Policy Year. Current Yield
will be calculated according to the following formula:
Current Yield = ((NCS-ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized
appreciation and depreciation, and exclusive of income other than
investment income) for the 7 day period attributable to a
hypothetical account having a balance of 1 Sub-Account unit.
ES = per unit expenses of the Sub-Account for the 7 day period.
UV = the unit value on the first day of the 7 day period.
4
<PAGE>
The current yield for the 7 day period ended December 31, 1999 was 2.28%.
We may also quote the effective yield of the Cash Management Sub-Account for the
same 7 day period, determined on a compounded basis. The effective yield is
calculated by compounding the unannualized base period return according to the
following formula:
365/7
Effective Yield = (1+((NCS-ES)/UV)) - 1
Where:
NCS = the net change in the value of the Portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized
appreciation and depreciation, 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, 1999 was 2.30%.
Because of the charges and deductions imposed under the Policy, the yield for
the Cash Management Sub-Account will be lower than the yield for the Cash
Management Portfolio.
The yields on amounts held in the Cash Management Sub-Account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Cash Management Sub-Account's actual yield is affected by changes in
interest rates on money market securities, average portfolio maturity of the
Cash Management Portfolio, the types and quality of portfolio securities held by
the Cash Management Portfolio of the Fund, and the Cash Management Portfolio's
operating expenses.
Other Sub-Account Yields
We may, from time to time, quote in sales literature and advertisements the
current annualized yield of one or more of the Sub-Accounts (except the Cash
Management Sub-Account) for 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
5
<PAGE>
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 = 2x((((NI-ES)/(U x UV))+1) - 1)
Where:
NI = net income of the Portfolio for the 30 day or one month period
attributable to the Sub-Account's units.
ES = expenses of the Sub-Account for the 30 day or one month period.
U = the average number of units outstanding.
UV = the unit value at the close (highest) of the last day in the 30
day or one month period.
Because of the charges and deductions imposed under the Policies, the yield for
the Sub-Account will be lower than the yield for the corresponding Portfolio.
The yield on the amounts held in the Sub-Accounts normally will fluctuate over
time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. The Sub-
Account's actual yield is affected by the types and quality of portfolio
securities held by the Portfolio, and its operating expenses.
Yield calculations do not take into account the surrender charge under the
Policy. The maximum surrender charge is equal to 6% of certain amounts
surrendered or withdrawn under the Policy. A surrender charge will not be
imposed on any investment earnings in the Variable Account or interest earned in
the Fixed Account and in certain other situations as described in the
Prospectus.
Total Returns
A. Standardized "Average Annual Total Returns"
We may, from time to time, also quote in sales literature or advertisements
total returns, including standardized average annual total returns for the Sub-
Accounts calculated in a manner prescribed by the Securities and Exchange
Commission, and other total returns. We will always include quotes of
standardized average annual total returns for the period measured from the date
the Sub-Account commenced operations. When a Sub-Account has been in operation
for 1, 5, and 10 years, respectively, the standardized average annual total
returns for these periods will be provided.
Standardized average annual total returns represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Policy to the redemption value of that investment as of the last day of
each of the periods. The ending date for each period for which standardized
average annual 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, surrender charge and the annual
administration charge of $30 per year per Policy deducted at the end of each
Policy Year. For purposes of calculating standardized average annual total
return, an average per dollar annual administration charge attributable to the
hypothetical account for the
6
<PAGE>
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.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
The standardized average annual total returns assume that the maximum fees and
charges are imposed for calculations.
Standardized average annual total returns for the period ending December 31,
1999 are shown on the following page.
7
<PAGE>
Standardized average annual total returns for the periods shown below were:
<TABLE>
<CAPTION>
1 Year Return 5 Year Return From Sub-Account
Year Ended Year Ended Inception Date Sub-Account
Sub-Account 12/31/99 12/31/99 To 12/31/99 Inception Date
- ----------- ------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
Bond (11.28)% 3.97% 2.64 % 06/21/93
Capital 45.71 % 24.85% 18.90 % 06/21/93
Cash Management (1.86)% 3.24% 2.99 % 06/21/93
Common Stock 6.09 % 18.94% 15.16 % 06/21/93
Communications and Information 77.73 % 33.82% 33.59 % 10/11/94
Frontier 9.49 % 15.04% 15.73 % 10/11/94
Global Growth 44.88 % ** 19.34 % 05/01/96
Global Smaller Companies 21.07 % 12.40% 12.67 % 10/11/94
Global Technology 110.25 % ** 40.42 % 05/01/96
High-Yield Bond (7.60)% ** 5.52 % 05/01/95
Income (4.03)% 7.59% 5.05 % 06/21/93
International Growth 19.40 % 11.52% 10.86 % 06/21/93
Large-Cap Growth * ** 23.26 % 05/01/99
Large-Cap Value (9.59)% ** (6.61)% 05/01/98
Small-Cap Value 27.90 % ** 2.46 % 05/01/98
</TABLE>
* This Sub-Account has not been in operation one year as of December 31, 1999,
and accordingly, no one year standardized average annual total return is
available.
* * These Sub-Accounts have not been in operation five years as of December 31,
1999, and accordingly, no five year standardized average annual total
return is available.
8
<PAGE>
B. Nonstandardized "Average Annual Total Returns"
We may, from time to time, also quote in sales literature or advertisements,
nonstandardized average annual total returns for the Sub-Accounts that do not
reflect the surrender charge. These are calculated in exactly the same way as
standardized average annual total returns described above, except that the
ending redeemable value of the hypothetical account for the period is replaced
with an ending value for the period that does not take into account any charges
on amounts surrendered or withdrawn, and that the initial investment is assumed
to be $10,000 rather than $1,000.
Generally, nonstandardized Sub-Account performance data will only be disclosed
if standardized average annual return for the Sub-Accounts for the required
periods is also disclosed.
Nonstandardized average annual total returns for the period ending December 31,
1999 are shown on the following page.
9
<PAGE>
Nonstandardized average annual total returns for the periods shown below were:
<TABLE>
<CAPTION>
1 Year 5 Year Return From Sub-Account
Year Ended Year Ended Inception Date Sub-Account
Sub-Account 12/31/99 12/31/99 to 12/31/99 Inception Date
- ----------- ------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
Bond (5.88)% 4.43% 2.88 % 06/21/93
Capital 51.11 % 25.07% 19.01 % 06/21/93
Cash Management 3.54 % 3.71% 3.23 % 06/21/93
Common Stock 11.49 % 19.21% 15.29 % 06/21/93
Communications and Information 83.13 % 33.99% 33.75 % 10/11/94
Frontier 14.89 % 15.35% 16.01 % 10/11/94
Global Growth 50.28 % ** 20.10 % 05/01/96
Global Smaller Companies 26.47 % 12.73% 12.99 % 10/11/94
Global Technology 115.65 % ** 40.92 % 05/01/96
High-Yield Bond (2.20)% ** 6.14 % 05/01/95
Income 1.37 % 7.99% 5.26 % 06/21/93
International Growth 24.80 % 11.86% 11.01 % 06/21/93
Large-Cap Growth * ** 32.02 % 05/01/99
Large-Cap Value (4.19)% ** (3.26)% 05/01/98
Small-Cap Value 33.30 % ** 5.61 % 05/01/98
</TABLE>
* This Sub-Account has not been in operation one year as of December 31, 1999,
and accordingly, no one year nonstandardized average annual total return is
available.
** These Sub-Accounts have not been in operation five years as of December 31,
1999, and accordingly, no five year nonstandardized average annual total
return is available.
10
<PAGE>
C. Adjusted Historic Fund Average Annual Total Returns
Sales literature or advertisements may quote historic performance data for the
Fund since its inception reduced by some or all of the fees and charges under
the Policy. Such adjusted historic fund performance includes data that precedes
the inception dates of the Sub-Accounts. This data is designed to show the
performance that would have resulted if the Sub-Accounts had been in existence
during that time. Adjusted historic fund average annual total returns will be
shown only if standard performance data for the Sub-Accounts is also shown, if
available.
The Fund has provided the adjusted historic fund average annual total return
information used to calculate the adjusted historic total returns for the Fund
for periods prior to the inception date of the Sub-Accounts.
Adjusted historic fund average annual total returns for the period ending
December 31, 1999, are shown on the following page.
11
<PAGE>
Adjusted historic Fund average annual total returns, assuming a surrender
charge, for the periods shown below were:
<TABLE>
<CAPTION>
1 Year Return 5 Year Return 10 Year Return From Fund
Year Ended Year Ended Year Ended Inception Date Fund
Portfolio 12/31/99 12/31/99 12/31/99 To 12/31/99 Inception Date
- --------- ------------- ------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Bond (11.28)% 3.97% 4.31% 4.33 % 06/21/88
Capital 45.71 % 24.85% 17.20% 16.08 % 06/21/88
Cash Management (1.86)% 3.24% 3.33% 3.53 % 06/21/88
Common Stock 6.09 % 18.94% 13.71% 13.82 % 06/21/88
Communications and Information 77.73 % 33.82% *** 33.02 % 10/11/94
Frontier 9.49 % 15.04% *** 15.44 % 10/11/94
Global Growth 44.88 % ** *** 19.34 % 05/01/96
Global Smaller Companies 21.07 % 12.40% *** 12.47 % 10/11/94
Global Technology 110.25 % ** *** 40.42 % 05/01/96
High-Yield Bond (7.60)% ** *** 5.52 % 05/01/95
Income (4.03)% 7.59% 7.36% 7.48 % 06/21/88
International Growth 19.40 % 11.52% *** 10.56 % 05/03/93
Large-Cap Growth * ** *** 23.86 % 05/01/99
Large-Cap Value (9.59)% ** *** (6.61)% 05/01/98
Small-Cap Value 27.90 % ** *** 2.46 % 05/01/98
</TABLE>
Adjusted historic Fund average annual total returns, assuming no surrender
charge, for the periods shown below were:
<TABLE>
<CAPTION>
1 Year Return 5 Year Return 10 Year Return From Fund
Year Ended Year Ended Year Ended Inception Date Fund
Portfolio 12/31/99 12/31/99 12/31/99 to 12/31/99 Inception Date
- --------- ------------- ------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Bond (5.88)% 4.43% 4.31% 4.33 % 06/21/88
Capital 51.11 % 25.07% 17.20% 16.08 % 06/21/88
Cash Management 3.54 % 3.71% 3.33% 3.53 % 06/21/88
Common Stock 11.49 % 19.21% 13.71% 13.82 % 06/21/88
Communications and Information 83.13 % 33.99% *** 33.17 % 10/11/94
Frontier 14.89 % 15.35% *** 15.72 % 10/11/94
Global Growth 50.28 % ** *** 20.10 % 05/01/96
Global Smaller Companies 26.47 % 12.73% *** 12.78 % 10/11/94
Global Technology 115.65 % ** *** 40.92 % 05/01/96
High-Yield Bond (2.20)% ** *** 6.14 % 05/01/95
Income 1.37 % 7.99% 7.36% 7.48 % 06/21/88
International Growth 24.80 % 11.86% *** 10.72 % 05/03/93
Large-Cap Growth * ** *** 32.02 % 05/01/99
Large-Cap Value (4.19)% ** *** (3.26)% 05/01/98
Small-Cap Value 33.30 % ** *** 5.61 % 05/01/98
</TABLE>
* This Sub-Account invests in a Portfolio that has not been in operation one
year as of December 31, 1999, 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, 1999, 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, 1999, and accordingly, no ten year adjusted
historic Fund average annual total return is available.
12
<PAGE>
Effect of the Annual Administration Charge on Performance Data
The Policy provides for a $30 annual administration charge to be assessed
annually on each policy anniversary proportionately from any Sub-Accounts or
Fixed Account in which You are invested. If the Policy Value on the policy
anniversary is $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.
13
<PAGE>
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 Craig Edwards. Sutherland Asbill & Brennan LLP of Washington,
DC, has provided advice on certain matters relating to the federal securities
laws.
EXPERTS
Our balance sheets as of December 31, 1999 and 1998, and the related statements
of operations, capital and surplus, and cash flows for each of the three years
in the period ended December 31, 1999, 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, 1999, 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 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, 1999, 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, 1999 and 1998, and the related statements
of operations, capital and surplus, and cash flows for each of the three years
in the period ended December 31, 1999, 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.
14
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Canada Life of America Variable Annuity Account 2
Report of Independent Auditors......................... 1
Statement of Net Assets
as of December 31, 1999............................. 2
Statement of Operations for the
year ended December 31, 1999........................ 4
Statements of Changes in Net Assets for the
years ended December 31, 1999 and 1998.............. 6
Notes to Financial Statements.......................... 8
Canada Life Insurance Company of America
Report of Independent Auditors......................... 1
Balance Sheets as of December 31, 1999 and 1998........ 2
Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.................... 3
Statements of Capital and Surplus for the years ended
December 31, 1999, 1998 and 1997.................... 4
Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.................... 5
Notes to Financial Statements.......................... 6
<PAGE>
FINANCIAL STATEMENTS
CANADA LIFE OF AMERICA
VARIABLE ANNUITY ACCOUNT 2
December 31, 1999
With Report of Independent Auditors
<PAGE>
Canada Life of America Variable Annuity Account 2
Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
Contents
<S> <C>
Report of Independent Auditors...................................... 1
Audited Financial Statements
Statement of Net Assets............................................. 2
Statement of Operations............................................. 4
Statements of Changes in Net Assets................................. 6
Notes to Financial Statements....................................... 8
</TABLE>
<PAGE>
Report on Independent Auditors
Board of Directors of Canada Life Insurance Company of America and Contract
Owners of Canada Life of America Variable Annuity Account 2
We have audited the accompanying statement of net assets of Canada Life of
America Variable Annuity Account 2 (comprising, respectively, the Bond, Capital,
Cash Management, Common Stock, Communications and Information, Frontier, Global
Growth Opportunities, Global Smaller Companies, Global Technology, High-Yield
Bond, Income, International Growth, Large-Cap Growth, Large-Cap Value and Small-
Cap Value Sub-Accounts) as of December 31, 1999, and the related statements of
operations and changes in net assets for the periods indicated therein. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of December 31,
1999, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective sub-
accounts constituting the Canada Life of America Variable Annuity Account 2 at
December 31, 1999, and the results of their operations and the changes in their
net assets for each of the periods indicated therein in conformity with
accounting principles generally accepted in the United States.
Atlanta, Georgia
February 2, 2000
<PAGE>
- -------------------------------------------------------------------------------
Canada Life of America Variable Annuity Account 2
- --------------------------------------------------------------------------------
Statement of Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cash Common Communications Global
Bond Capital Management Stock and Information Frontier Growth
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Assets:
Investment in Seligman
Portfolios, Inc., at market
value
(see Note 3 for cost values) $4,808,210 $26,692,333 $16,817,027 $45,616,674 $172,260,230 $20,946,622 $10,944,754
Due from (to) Canada Life
Insurance Company of
America 102,438 (36,414) 40,600 58,643 (220,348) (7,211) 16,451
-----------------------------------------------------------------------------------------------------
Net assets $4,910,648 $26,655,919 $16,857,627 $45,675,317 $172,039,882 $20,939,411 $10,961,205
=====================================================================================================
Net assets attributable to:
Policyholders' liability
reserve $4,910,648 $26,655,919 $16,857,627 $45,675,317 $172,039,882 $20,939,411 $10,961,205
-----------------------------------------------------------------------------------------------------
Net assets $4,910,648 $26,655,919 $16,857,627 $45,675,317 $172,039,882 $20,939,411 $10,961,205
=====================================================================================================
Number of units outstanding 299,153 474,940 11,215,405 1,020,957 3,821,257 970,283 558,642
=====================================================================================================
Net asset value per unit
$ 16.4152 $ 56.1248 $ 1.5031 $ 44.7377 $ 49.0218 $ 21.5807 $ 19.6212
=====================================================================================================
</TABLE>
- --------------
See accompanying Notes.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global
Smaller Global High-Yield International Large-Cap Large-Cap Small-Cap
Companies Technology Bond Income Growth Growth Value Value Sub-Accounts
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Combined
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$18,741,951 $20,207,361 $24,996,057 $7,880,026 $9,869,838 $3,008,396 $5,610,326 $4,253,886 $392,653,691
37,943 (127,456) 230,046 573 (10,513) (37,703) (18,969) (166,405) (138,325)
- ------------------------------------------------------------------------------------------------------------------------------------
$18,779,894 $20,079,905 $25,226,103 $7,880,599 $9,859,325 $2,970,693 $5,591,357 $4,087,481 $392,515,366
====================================================================================================================================
$18,779,894 $20,079,905 $25,226,103 $7,880,599 $9,859,325 $2,970,693 $5,591,357 $4,087,481 $392,515,366
- ------------------------------------------------------------------------------------------------------------------------------------
$18,779,894 $20,079,905 $25,226,103 $7,880,599 $9,859,325 $2,970,693 $5,591,357 $4,087,481 $392,515,366
====================================================================================================================================
996,611 569,543 1,903,614 340,851 498,296 246,607 590,205 327,720 23,879,084
===================================================================================================================================
$ 18.8438 $ 35.2562 $ 13.2517 $ 23.1204 $ 19.7861 $ 12.0463 $ 9.4736 $ 10.9666
===================================================================================================================================
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of America Variable Annuity Account 2
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cash Common Communications Global
Bond Capital Management Stock and Information Frontier Growth
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend and capital gain
distributions $ 330,155 $5,991,515 $ 691,933 $ 9,489,021 $ 25,452,529 $ - $1,045,916
Less mortality and expense
risk charges (Note 6) 72,701 269,393 193,759 630,094 1,618,310 309,166 122,265
------------------------------------------------------------------------------------------------------
Net investment income (loss) 257,454 5,722,122 498,174 8,858,927 23,834,219 (309,166) 923,651
------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments:
Net realized gain (loss) from
investments (144,807) 1,347,782 - 1,788,619 8,073,059 (1,417,941) 790,461
Net unrealized appreciation
(depreciation) from
investments (426,084) 2,021,410 - (5,762,124) 47,083,794 2,941,214 2,051,588
------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) from investments (570,891) 3,369,192 - (3,973,505) 55,156,853 1,523,273 2,842,049
------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations $ (313,437) $9,091,314 $ 498,174 $ 4,885,422 $ 78,991,072 $ 1,214,107 $3,765,700
=======================================================================================================
</TABLE>
------------------
*For the period May 1, 1999 (commencement of operations) to December 31, 1999.
See accompanying Notes.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global
Smaller Global High-Yield International Large-Cap Large-Cap Small-Cap
Companies Technology Bond Income Growth Growth Value Value Sub-Accounts
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account* Sub-Account Sub-Account Combined
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ - $1,720,843 $2,869,303 $969,966 $1,343,307 $ - $ 65,583 $759,553 $ 50,729,624
237,320 135,607 392,472 115,964 127,269 15,838 73,372 54,793 4,368,323
- ------------------------------------------------------------------------------------------------------------------------------------
(237,320) 1,585,236 2,476,831 854,002 1,216,038 (15,838) (7,789) 704,760 46,361,301
- ------------------------------------------------------------------------------------------------------------------------------------
246,754 3,349,814 (1,389,315) (19,359) 488,026 15,637 28,971 181,803 13,339,504
3,855,334 4,867,611 (1,657,637) (717,827) 322,636 484,748 (294,330) 36,494 54,806,827
- ------------------------------------------------------------------------------------------------------------------------------------
4,102,088 8,217,425 (3,046,952) (737,186) 810,662 500,385 (265,359) 218,297 68,146,331
- ------------------------------------------------------------------------------------------------------------------------------------
$ 3,864,768 $9,802,661 $ (570,121) $116,816 $2,026,700 $ 484,547 $(273,148) $923,057 $114,507,632
====================================================================================================================================
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
Canada Life of America Variable Annuity Account 2
- -------------------------------------------------------------------------------
Statements of Changes in Net Assets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bond Capital Cash Management
Sub-Account Sub-Account Sub-Account
------------------------- ----------------------- ------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
12/13/99 12/31/98 12/31/99 12/31/98 12/31/99 12/31/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 257,454 $ 261,254 $ 5,722,122 $ 792,674 $ 498,174 $ 339,212
Net realized gain (loss) on investments (144,807) 75,857 1,347,782 640,187 - -
Net unrealized appreciation (depreciation) of
investments (426,084) (24,918) 2,021,410 1,474,942 - -
----------------------- ------------------------ -----------------------
Net increase (decrease) in net assets resulting from
operations (313,437) 312,193 9,091,314 2,907,803 498,174 339,212
----------------------- ------------------------ -----------------------
Capital transactions:
Net increase (decrease) from unit transactions (Note 5) (48,827) 6,780 (453,005) 123,897 7,396,543 1,240,131
----------------------- ------------------------ -----------------------
Net increase (decrease) in net assets arising from
capital transactions (48,827) 6,780 (453,005) 123,897 7,396,543 1,240,131
----------------------- ------------------------ -----------------------
Total increase (decrease) in net assets (362,264) 318,973 8,638,309 3,031,700 7,894,717 1,579,343
Net assets, beginning of period 5,272,912 4,953,939 18,017,610 14,985,910 8,962,910 7,383,567
----------------------- ------------------------ -----------------------
Net assets, end of period $4,910,648 $5,272,912 $26,655,919 $18,017,610 $16,857,627 $8,962,910
======================= ======================== =======================
</TABLE>
<TABLE>
<CAPTION>
Global Technology High-Yield Bond Income
Sub-Account Sub-Account Sub-Account
------------------------- ----------------------- ------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
12/31/99 12/31/98 12/31/99 12/31/98 12/31/99 12/31/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 1,585,236 $ 168,834 $ 2,476,831 $ 2,241,555 $ 854,002 $ 358,180
Net realized gain (loss) on investments 3,349,814 119,124 (1,389,315) 242,702 (19,359) 48,543
Net unrealized appreciation (depreciation) of
investments 4,867,611 960,333 (1,657,637) (2,787,854) (717,827) 120,665
------------------------- ------------------------- ---------------------
Net increase (decrease) in net assets resulting from
operations 9,802,661 1,248,291 (570,121) (303,597) 116,816 527,388
------------------------- ------------------------- ---------------------
Capital transactions:
Net increase (decrease) from unit transactions
(Note 5) 5,006,209 729,244 (5,068,977) 8,452,975 (1,222,331) 178,197
------------------------- ------------------------- ----------------------
Net increase (decrease) in net assets arising from
capital transactions 5,006,209 729,244 (5,068,977) 8,452,975 (1,222,331) 178,197
------------------------- ------------------------- ----------------------
Total increase (decrease) in net assets 14,808,870 1,977,535 (5,639,098) 8,149,378 (1,105,515) 705,585
Net assets, beginning of period 5,271,035 3,293,500 30,865,201 22,715,823 8,986,114 8,280,52
------------------------- ------------------------- ----------------------
Net assets, end of period $20,079,905 $5,271,035 $25,226,103 $30,865,201 $7,880,599 $8,986,114
========================= ========================= ======================
</TABLE>
------------
*Commencement of operations.
See accompanying Notes.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Communications and Frontier Global Growth Global-Smaller Companies
Sub-Account Information Sub-Account Sub-Account Sub-Account Sub-Account
------------------------- ------------------------- -------------------------- ------------------------ ------------------------
Year Year Year Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended Ended Ended Ended
12/31/99 12/31/98 12/31/99 12/31/98 12/31/99 12/31/98 12/31/99 12/31/98 12/31/99 12/31/98
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8,858,927 $ 2,679,016 $ 23,834,219 $ 2,724,807 $ (309,166) $ (477,598) $ 923,651 $ (45,233) $ (237,320)$ 2,687
1,788,619 737,506 8,073,059 (9,244) (1,417,941) (30,358) 790,461 170,051 246,754 237,916
(5,762,124) 4,133,708 47,083,794 22,974,473 2,941,214 (588,267) 2,051,588 921,826 3,855,334 664,912
------------------------ ------------------------ ------------------------ ----------------------- -----------------------
4,885,422 7,550,230 78,991,072 25,690,036 1,214,107 (1,096,223) 3,765,700 1,046,644 3,864,768 905,515
------------------------ ------------------------ ------------------------ ----------------------- -----------------------
(1,075,059) 1,806,531 (4,332,148) (2,309,026) (11,892,873) (2,173,725) (691,469) 2,080,972 (4,591,356) (950,338)
------------------------ ------------------------ ------------------------ ----------------------- -----------------------
(1,075,059) 1,806,531 (4,332,148) (2,309,026) (11,892,873) (2,173,725) (691,469) 2,080,972 (4,591,356) (950,338)
------------------------ ------------------------ ------------------------ ----------------------- -----------------------
3,810,363 9,356,761 74,658,924 23,381,010 (10,678,766) (3,269,948) 3,074,231 3,127,616 (726,588) (44,823)
41,864,954 32,508,193 97,380,958 73,999,948 31,618,177 34,888,125 7,886,974 4,759,358 19,506,482 19,551,305
------------------------ ------------------------ ------------------------ ----------------------- -----------------------
$45,675,317 $41,864,954 $172,039,882 $97,380,958 $20,939,411 $31,618,177 $10,961,205 $ 7,886,974 $18,779,894 $19,506,482
======================== ======================== ======================== ======================= =======================
</TABLE>
<TABLE>
<CAPTION>
International
Growth Large-Cap Growth Large-Cap Value Small-Cap Value Sub-Accounts
Sub-Account Sub-Account Sub-Account Sub-Account Combined
------------------------- ---------------------- -------------------------- ------------------------ -------------------------
Year Year 5/1/99* Year Year Year Year Year Year Year
Ended Ended to Ended Ended Ended Ended Ended Ended Ended
12/31/99 12/31/98 12/31/99 12/31/98 12/31/99 12/31/98 12/31/99 12/31/98 12/31/99 12/31/98
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,216,038 $ 52,265 $ (15,838) - $ (7,789) $ 93,225 $ 704,760 $ 232,466 $ 46,361,301 $ 9,423,344
488,026 302,886 15,637 - 28,971 (39,349) 181,803 (82,801) 13,339,504 2,413,020
322,636 852,183 484,748 - (294,330) 109,072 36,494 (34,480) 54,806,827 28,776,595
------------------------ --------------------- ---------------------- ---------------------- --------------------------
2,026,700 1,207,334 484,547 - (273,148) 162,948 923,057 115,185 114,507,632 40,612,959
------------------------ --------------------- ---------------------- ---------------------- --------------------------
(1,534,864) (645,302) 2,486,146 - 2,286,079 3,415,478 955,227 2,094,012 (12,780,705) 14,049,826
------------------------ --------------------- ---------------------- ---------------------- --------------------------
(1,534,864) (645,302) 2,486,146 - 2,286,079 3,415,478 955,227 2,094,012 (12,780,705) 14,049,826
------------------------ --------------------- ---------------------- ---------------------- --------------------------
491,836 562,032 2,970,693 - 2,012,931 3,578,426 1,878,284 2,209,197 101,726,927 54,662,785
9,367,489 8,805,457 - - 3,578,426 - 2,209,197 - 290,788,439 236,125,654
------------------------ --------------------- ---------------------- ---------------------- --------------------------
$ 9,859,325 $9,367,489 $2,970,693 - $5,591,357 $3,578,426 $4,087,481 $2,209,197 $ 392,515,366 $290,788,439
======================== ===================== ====================== ====================== ==========================
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of America Variable Annuity Account 2
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Organization
Canada Life of America Variable Annuity Account 2 ("Variable Annuity Account 2")
was established on February 26, 1993 as a separate investment account of Canada
Life Insurance Company of America ("CLICA") to receive and invest premium
payments under variable annuity policies issued by CLICA. Variable Annuity
Account 2 is registered as a unit investment trust under the Investment Company
Act of 1940, as amended. The assets of Variable Annuity Account 2 are invested
in the shares of Seligman Portfolios, Inc. (the "Fund"), a diversified,
open-end, management investment company. Variable Annuity Account 2 has fifteen
sub-accounts, each of which invests only in the shares of the corresponding
portfolio of the Fund.
The assets of Variable Annuity Account 2 are the property of CLICA. The portion
of Variable Annuity Account 2 assets applicable to the policies will not be
charged with liabilities arising out of any other business CLICA may conduct.
2. Significant Accounting Policies
Investments
Investments in shares of the Fund are valued at the reported net asset values of
the respective portfolios. Realized gains and losses are computed on the basis
of average cost. The difference between cost and current market value of
investments owned is recorded as an unrealized gain or loss on investments.
Dividends and Capital Gain Distributions
Dividends and capital gain distributions are recorded on the ex-dividend date
and reflect the dividends declared by the Fund from their accumulated net
investment income and net realized investment gains. Except for the Cash
Management Portfolio, whose dividends are declared daily and paid monthly,
dividends and capital gain distributions are declared and paid annually.
Dividends and capital gain distributions paid to the Variable Annuity Account 2
are reinvested in additional shares of the respective portfolio of the Fund at
the net asset value per share.
Federal Income Taxes
Variable Annuity Account 2 is not taxed separately because the operations of
Variable Annuity Account 2 will be included in the federal income tax return of
CLICA, which is taxed as a "life insurance company" under the provisions of the
Internal Revenue Code.
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of America Variable Annuity Account 2
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
3. Investments
The investment by Variable Annuity Account 2 in the individual portfolios of the
Fund at December 31, 1999, is as follows:
<TABLE>
<CAPTION>
Number of Market Market
Shares Price Value Cost
----------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Bond 518,685 $ 9.27 $ 4,808,210 $ 5,276,462
Capital 1,116,834 23.90 26,692,333 22,200,005
Cash Management 16,817,027 1.00 16,817,027 16,817,027
Common Stock 2,746,338 16.61 45,616,674 48,463,227
Communications and Information 6,451,694 26.70 172,260,230 109,235,845
Frontier 1,155,357 18.13 20,946,622 17,264,417
Global Growth 600,700 18.22 10,944,754 7,807,514
Global Smaller Companies 1,072,194 17.48 18,741,951 14,223,260
Global Technology 736,957 27.42 20,207,361 14,649,674
High-Yield Bond 2,606,471 9.59 24,996,057 29,179,989
Income 795,159 9.91 7,880,026 8,604,612
International Growth 593,496 16.63 9,869,838 8,297,431
Large-Cap Growth 247,401 12.16 3,008,396 2,523,648
Large-Cap Value 604,561 9.28 5,610,326 5,795,584
Small-Cap Value 526,471 8.08 4,253,886 4,251,872
-------------------------------
$392,653,691 $ 314,590,567
===============================
</TABLE>
4. Security Purchases and Sales
The aggregate cost of purchases and the proceeds from sales of investments are
presented below:
<TABLE>
<CAPTION>
Aggregate Cost
of Purchases Proceeds from Sales
------------------------------ -------------------------
<S> <C> <C>
Bond $ 3,826,276 $ 3,751,874
Capital 13,889,025 8,681,988
Cash Management 43,166,244 35,395,276
Common Stock 27,060,996 19,591,198
Communications and Information 50,054,207 30,952,174
Frontier 11,982,334 24,371,953
Global Growth 3,730,334 3,556,286
Global Smaller Companies 2,141,143 7,133,175
Global Technology 23,539,594 16,853,432
High-Yield Bond 14,911,889 17,909,850
Income 2,556,593 2,981,872
International Growth 2,547,173 2,925,162
Large-Cap Growth 2,678,782 170,771
Large-Cap Value 4,746,946 2,465,419
Small-Cap Value 3,762,411 1,943,397
------------------------------ -------------------------
$210,593,947 $178,683,827
============================== =========================
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of America Variable Annuity Account 2
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
5. Summary of Changes from Unit Transactions
The following table represents a summary of changes from unit transactions
attributable to contract holders for the periods indicated. The Large-Cap Growth
Sub-Account commenced operations on May 1, 1999.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Units Amount Units Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Bond Sub-Account
Accumulation Units:
Contract purchases & net transfers in 322,587 $ 5,568,576 290,989 $ 4,955,129
Terminated contracts & net transfers out (325,992) (5,617,403) (291,727) (4,948,349)
---------------------------------------------------------------
(3,405) (48,827) (738) 6,780
===============================================================
Capital Sub-Account
Accumulation Units:
Contract purchases & net transfers in 299,549 11,994,851 476,675 15,080,911
Terminated contracts & net transfers out (310,008) (12,447,856) (477,721) (14,957,014)
---------------------------------------------------------------
10,459 (453,005) (1,046) 123,897
===============================================================
Cash Management Sub-Account
Accumulation Units:
Contract purchases & net transfers in 40,947,833 60,392,520 28,701,853 40,888,881
Terminated contracts & net transfers out (35,911,189) (52,995,977) (27,814,834) (39,648,750)
---------------------------------------------------------------
5,036,644 7,396,543 887,019 1,240,131
===============================================================
Common Stock Sub-Account
Accumulation Units:
Contract purchases & net transfers in 585,115 24,933,937 584,818 21,245,552
Terminated contracts & net transfers out (608,245) (26,008,996) (533,311) (19,439,021)
---------------------------------------------------------------
(23,130) (1,075,059) 51,507 1,806,531
===============================================================
Communications and Information
Sub-Account
Accumulation Units:
Contract purchases & net transfers in 1,216,263 35,884,214 1,336,799 26,057,001
Terminated contracts & net transfers out (1,358,367) (40,216,362) (1,426,919) (28,366,027)
---------------------------------------------------------------
(142,104) (4,332,148) (90,120) (2,309,026)
===============================================================
Frontier Sub-Account
Accumulation Units:
Contract purchases & net transfers in 848,373 14,699,046 920,590 17,444,970
Terminated contracts & net transfers out (1,562,533) (26,591,919) (1,042,222) (19,618,695)
---------------------------------------------------------------
(714,160) (11,892,873) (121,632) (2,173,725)
===============================================================
Global Growth Sub-Account
Accumulation Units:
Contract purchases & net transfers in 514,496 7,656,906 601,646 7,353,393
Terminated contracts & net transfers out (560,299) (8,348,375) (434,558) (5,272,421)
---------------------------------------------------------------
(45,803) (691,469) 167,088 2,080,972
===============================================================
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of America Variable Annuity Account 2
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
5. Summary of Changes from Unit Transactions (continued)
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Units Amount Units Amount
----- ------ ----- ------
Global Smaller Companies
Sub-Account
Accumulation Units:
<S> <C> <C> <C> <C>
Contract purchases & net transfers in 487,918 7,603,927 479,301 7,291,622
Terminated contracts & net transfers out (801,390) (12,195,283) (549,248) (8,241,960)
-----------------------------------------------------------------
(313,472) (4,591,356) (69,947) (950,338)
=================================================================
Global Technology Sub-Account
Accumulation Units:
Contract purchases & net transfers in 1,084,404 24,282,406 406,018 5,711,409
Terminated contracts & net transfers out (837,452) (19,276,197) (355,334) (4,982,165)
------------------------------------------------------------------
246,952 5,006,209 50,684 729,244
==================================================================
High-Yield Bond Sub-Account
Accumulation Units:
Contract purchases & net transfers in 1,232,239 16,959,707 1,589,267 22,003,390
Terminated contracts & net transfers out (1,608,165) (22,028,684) (980,942) (13,550,415)
------------------------------------------------------------------
(375,926) (5,068,977) 608,325 8,452,975
==================================================================
Income Sub-Account
Accumulation Units:
Contract purchases & net transfers in 116,816 2,770,238 145,220 3,209,039
Terminated contracts & net transfers out (170,231) (3,992,569) (136,996) (3,030,842)
-------------------------------------------------------------------
(53,415) (1,222,331) 8,224 178,197
===================================================================
International Growth Sub-Account
Accumulation Units:
Contract purchases & net transfers in 192,473 3,273,321 234,066 3,590,169
Terminated contracts & net transfers out (285,428) (4,808,185) (277,507) (4,235,471)
-------------------------------------------------------------------
(92,955) (1,534,864) (43,441) (645,302)
===================================================================
Large-Cap Growth Sub-Account*
Accumulation Units:
Contract purchases & net transfers in 254,809 2,574,416 - -
Terminated contracts & net transfers out (8,202) (88,270) - -
-------------------------------------------------------------------
246,607 2,486,146 - -
===================================================================
Large-Cap Value Sub-Account
Accumulation Units:
Contract purchases & net transfers in 693,579 6,974,655 470,789 4,426,163
Terminated contracts & net transfers out (465,548) (4,688,576) (108,615) (1,010,685)
-------------------------------------------------------------------
228,031 2,286,079 362,174 3,415,478
===================================================================
Small-Cap Value Sub-Account
Accumulation Units:
Contract purchases & net transfers in 508,816 5,203,249 362,710 2,860,882
Terminated contracts & net transfers out (404,793) (4,248,022) (94,013) (766,870)
-------------------------------------------------------------------
104,023 955,227 268,697 2,094,012
===================================================================
Net increase (decrease) from unit
transactions $(12,780,705) $ 14,049,826
================= ================
</TABLE>
*From commencement of operations
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of America Variable Annuity Account 2
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
6. Mortality and Expense Risk (M and E) Charges
CLICA assumes mortality and expense risks related to the operations of Variable
Annuity Account 2 and deducts a charge equal to an effective annual rate of
1.25% of the net asset value of each Sub-Account at each valuation period. In
addition, at each valuation period an effective annual rate of 0.15% of the net
asset value of each Sub-Account was deducted as daily administration fees.
7. Net Assets
Net assets at December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
Net
Accumulated Net Unrealized
Investment Realized Appreciation
Accumulated Income Gain (Loss) (Depreciation) Combined
Unit M and E and Capital on on Net
Sub-Account Transactions Charges Gains Investments Investments Assets
----------- ------------ ------- ----- ----------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Bond $ 4,479,553 $ (249,973) $ 1,210,252 $ (60,932) $ (468,252) $ 4,910,648
Capital 11,411,808 (849,979) 9,019,763 2,581,999 4,492,328 26,655,919
Cash Management 15,390,200 (663,657) 2,131,084 - - 16,857,627
Common Stock 25,232,296 (1,863,480) 21,926,017 3,227,037 (2,846,553) 45,675,317
Communications
and Information 53,408,336 (4,663,265) 50,620,608 9,649,818 63,024,385 172,039,882
Frontier 12,716,961 (1,558,958) 6,306,959 (207,756) 3,682,205 20,939,411
Global Growth 5,907,643 (267,513) 1,144,797 1,039,038 3,137,240 10,961,205
Global Smaller
Companies 12,231,009 (982,656) 2,062,353 950,497 4,518,691 18,779,894
Global Technology 8,692,448 (237,827) 2,404,704 3,662,893 5,557,687 20,079,905
High-Yield Bond 23,109,119 (1,159,632) 8,064,833 (604,285) (4,183,932) 25,226,103
Income 5,608,919 (533,627) 3,447,909 81,984 (724,586) 7,880,599
International Growth 5,526,222 (505,213) 2,104,479 1,161,430 1,572,407 9,859,325
Large-Cap Growth 2,486,146 (15,838) - 15,637 484,748 2,970,693
Large-Cap Value 5,701,557 (87,890) 173,326 (10,378) (185,258) 5,591,357
Small-Cap Value 3,049,239 (64,381) 1,001,607 99,002 2,014 4,087,481
------------------------------------------------------------------------------------------------------
$ 194,951,456 $(13,703,889) $ 111,618,691 $21,585,984 $ 78,063,124 $ 392,515,366
======================================================================================================
</TABLE>
8. Unit Value
Unit Values as reported are calculated as total net assets divided by total
units for each Sub-Account.
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
Statutory Financial Statements
December 31, 1999
Contents
<TABLE>
<S> <C>
Report of Independent Auditors............................................... 1
Statutory Balance Sheets..................................................... 2
Statutory Statements of Operations........................................... 3
Statutory Statements of Capital and Surplus.................................. 4
Statutory Statements of Cash Flows........................................... 5
Notes to Statutory Financial Statements...................................... 6
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
________________________________________________________________________________
Board of Directors
Canada Life Insurance Company of America
We have audited the accompanying statutory balance sheets of Canada Life
Insurance Company of America as of December 31, 1999 and 1998, and the related
statutory statements of operations, capital and surplus, and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note B to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Michigan Insurance Department, which practices differ from
accounting principles generally accepted in the United States. The variances
between such practices and accounting principles generally accepted in the
United States are also described in Note B. The effects on the financial
statements of these variances are not reasonably determinable but are presumed
to be material.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with accounting principles generally accepted in the United States,
the financial position of Canada Life Insurance Company of America at December
31, 1999 and 1998, or the results of its operations or its cash flows for each
of the three years in the period ended December 31, 1999.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Canada Life
Insurance Company of America at December 31, 1999 and 1998, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting practices prescribed or
permitted by the Michigan Insurance Department.
Atlanta, Georgia
February 4, 2000
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
STATUTORY BALANCE SHEETS
[in thousands of dollars
except shares and per share values]
<TABLE>
<CAPTION>
At December 31 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ADMITTED ASSETS
Investments [note C]
Bonds $1,316,100 $1,312,081
Mortgage loans 898,623 902,549
Common and preferred stocks, including subsidiaries 37,827 37,642
Real estate 6,400 7,031
Policy loans - 9,333
Short-term investments 24,810 34,473
Cash 3,813 2,697
Receivable for securities 50 2,606
Other invested assets 3,813 833
- -------------------------------------------------------------------------------------------------
Total cash and investments 2,291,436 2,309,245
Investment income due and accrued 30,205 29,527
Receivable from parent and affiliates 7,844 3,002
Other assets 4,133 402
Assets held in Separate Accounts [note I] 693,086 530,649
- -------------------------------------------------------------------------------------------------
Total admitted assets $3,026,704 $2,872,825
=================================================================================================
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities
Policy liabilities
Life and annuity reserves $1,886,010 $1,884,119
Guaranteed investment contracts 247,174 267,156
Policy and contract claims - 47
Dividends payable - 1,151
Other policy and contract liabilities 215 307
- --------------------------------------------------------------------------------------------------
Total policy liabilities 2,133,399 2,152,780
Interest maintenance reserve 13,165 12,124
Amounts owing to parent and affiliates [note H] 4,335 9,836
Miscellaneous liabilities 7,286 8,701
Asset valuation reserve 31,162 27,034
Transfers to Separate Accounts due or accrued (net) (11,399) (9,883)
Liabilities from Separate Accounts 693,086 530,649
- -------------------------------------------------------------------------------------------------
Total liabilities 2,871,034 2,731,241
- -------------------------------------------------------------------------------------------------
Capital and surplus [note K]
Common stock - $10.00 par value, authorized - 25,000,000
shares; issued and outstanding - 500,000 shares 5,000 5,000
Redeemable preferred stock - $10.00 par value, authorized -
25,000,000 shares; issued and outstanding - 4,100,000 shares 41,000 41,000
Paid-in surplus 76,000 76,000
Accumulated surplus 33,670 19,584
- -------------------------------------------------------------------------------------------------
Total capital and surplus 155,670 141,584
- -------------------------------------------------------------------------------------------------
Total liabilities and capital and surplus $3,026,704 $2,872,825
=================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
STATUTORY STATEMENTS OF OPERATIONS
[in thousands of dollars]
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums for insurance and annuity considerations [note G] $238,675 $329,578 $326,559
Considerations for supplementary contracts
and dividends left on deposit 559 3,357 2,905
Net investment income [note C] 190,492 188,155 184,549
Other income 8,488 7,942 3,657
- --------------------------------------------------------------------------------------------------------------------------
Total revenues 438,214 529,032 517,670
- --------------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Benefits paid or provided to policyholders
Annuity 391,819 356,748 450,348
Life 1,306 2,639 3,176
Supplementary contracts and dividends left on deposit 1,825 2,843 2,570
Dividends to policyholders (593) 1,011 1,682
- --------------------------------------------------------------------------------------------------------------------------
Total benefits paid or provided to policyholders 394,357 363,241 457,776
Increase (decrease) in actuarial reserves 11,567 63,918 (79,003)
Commissions and expense allowances on reinsurance assumed 13,392 14,056 13,418
Commissions 5,413 6,246 7,386
General insurance expenses 7,970 8,737 8,628
Taxes, licenses and fees 722 3,913 1,497
Transfers to (from) Separate Accounts (15,387) 46,271 82,213
- --------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 418,034 506,382 491,915
- --------------------------------------------------------------------------------------------------------------------------
Gain from operations before net realized capital
gains (losses) and federal income taxes 20,180 22,650 25,755
Federal income taxes [note E] 1,593 3,992 6,823
- --------------------------------------------------------------------------------------------------------------------------
Gain from operations before net realized capital gains (losses) 18,587 18,658 18,932
Net realized capital gains (losses) [note C] (2,199) (373) 1,682
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 16,388 $ 18,285 $ 20,614
==========================================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
STATUTORY STATEMENTS OF CAPITAL AND SURPLUS
[in thousands of dollars]
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock at beginning and end of year $ 5,000 $ 5,000 $ 5,000
Redeemable preferred stock at beginning and end of year 41,000 41,000 41,000
Paid-in surplus at beginning and end of year 76,000 76,000 76,000
Accumulated surplus (deficit) at beginning of year 19,584 7,530 (5,839)
Net income 16,388 18,285 20,614
Change in net unrealized capital gain (loss) 1,693 (467) 1,253
Change in surplus (deficit) on account of:
Prior year federal income tax adjustment - 2,589 (6,195)
Actuarial valuation basis - (5,740) -
Asset valuation reserve (4,128) (2,226) (3,361)
Adjustment for loss in currency exchange 133 (392) (378)
Change in surplus of Separate Account - 25 1,436
Nonadmitted assets - (20) -
--------------------------------------------------
Accumulated surplus at end of year 33,670 19,584 7,530
--------------------------------------------------
Total capital and surplus $155,670 $141,584 $129,530
================================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
STATUTORY STATEMENTS OF CASH FLOWS
[in thousands of dollars]
<TABLE>
<CAPTION>
Years ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Premiums, policy proceeds, and other considerations $ 239,293 $ 332,841 $ 329,344
Net investment income received 179,786 177,110 178,329
Benefits paid (394,997) (362,205) (456,151)
Insurance expenses paid (26,971) (32,814) (31,296)
Dividends paid to policyholders (558) (1,588) (2,021)
Federal income taxes paid (112) (9,738) (1,832)
Net transfers to Separate Accounts 13,871 (53,553) (83,224)
Withdrawal of seed monies - 8,852 -
Other income 8,488 7,941 3,657
Other disbursements (27,348) - -
- -----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operations (8,548) 66,846 (63,194)
INVESTING ACTIVITIES
Proceeds from sales, maturities, or
repayments of investments
Bonds 483,036 389,477 477,542
Mortgage loans and real estate 89,029 61,367 70,056
Equity and other investments 11,626 22,694 18,861
Cost of investments acquired
Bonds (470,134) (411,694) (449,592)
Mortgage loans and real estate (83,911) (81,621) (59,488)
Equity and other investments (18,944) (26,403) (16,372)
Changes in policy loans 9,333 957 1,171
Taxes paid on capital gains - (6,409) (5,449)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investments 20,035 (51,632) 36,729
FINANCING ACTIVITIES
Other sources (uses) (20,034) 4,271 (15,853)
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and short-term investments (8,547) 19,485 (42,318)
Cash and short-term investments - beginning of year 37,170 17,685 60,003
- -----------------------------------------------------------------------------------------------------------------
Cash and short-term investments - end of year $ 28,623 $ 37,170 $ 17,685
=================================================================================================================
</TABLE>
See accompanying notes.
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1999
NOTE A
Nature of Operations. Canada Life Insurance Company of America (CLICA or the
- --------------------
Company) was incorporated on April 12, 1988 in the State of Michigan and is a
wholly-owned subsidiary of The Canada Life Assurance Company (CLA), a mutual
life and accident and health insurance company. The Company's business consists
primarily of group and individual annuity policies assumed from CLA. The
Company's direct business consists of individual variable annuity and
institutional investment products. The Company is licensed to sell its products
in 48 states and the District of Columbia; however, its primary markets are
California, Florida, Michigan, Missouri, Texas and Virginia. The Company's
variable annuity products are sold by agents who are licensed and registered
representatives of the Company's subsidiary, Canada Life of America Financial
Services, Inc. as well as other independent agents.
NOTE B
Accounting Practices and Basis of Presentation. The accompanying financial
- ----------------------------------------------
statements have been prepared in accordance with accounting practices prescribed
or permitted by the Michigan Insurance Department, which practices differ from
generally accepted accounting principles (GAAP).
Currently, "prescribed" statutory accounting practices (SAP) are interspersed
throughout state insurance laws and regulations, the NAIC's Accounting Practices
and Procedures Manual and a variety of other NAIC Publications. "Permitted"
statutory accounting practices encompass all accounting practices that are not
prescribed; such practices may differ from state to state, may differ from
company to company within a state, and may change in the future. CLICA currently
follows only prescribed accounting practices.
In 1998, the NAIC adopted codified statutory accounting practices (Codification)
effective January 1, 2001. Codification will likely change, to some extent,
prescribed statutory accounting practices and may result in changes to the
accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly, before Codification
becomes effective for the Company, the state of Michigan must adopt Codification
as the prescribed basis of accounting on which domestic insurers must report
their statutory-basis results to the Insurance Department. The Michigan
Insurance Department plans to adopt Codification effective January 1, 2001
subject to certain modifications. Management has not yet determined the impact
of Codification on the Company's statutory-basis financial statements.
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
The more significant variances from GAAP are as follows:
. Investments. For SAP, all fixed maturities are reported at amortized cost
less write-downs for other-than-temporary impairments, based on their NAIC
rating. For SAP, the fair values of bonds and stocks are based on values
specified by the NAIC versus a quoted or estimated fair value as required for
GAAP.
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1999
NOTE B
Accounting Practices and Basis of Presentation (continued).
- ----------------------------------------------------------
For GAAP, such fixed maturity investments would be designated at purchase as
held-to-maturity, trading, or available-for-sale. Held-to-maturity fixed
investments would be reported at amortized cost, and the remaining fixed
maturity investments are reported at fair value with unrealized holding gains
and losses reported in operations for those designated as trading and as a
component of accumulated other comprehensive income in shareholder's equity
for those designated as available-for-sale.
Credit tenant loans are classified as bonds for SAP and would be considered
mortgage loans for GAAP.
Changes between cost and admitted asset amounts of investment real estate are
credited or charged directly to unassigned surplus rather than income, as
would be the case for GAAP.
Realized gains and losses on investments for SAP are reported in income, net
of tax. The interest maintenance reserve (IMR) serves to defer the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates. The deferred gains and losses are amortized into investment
income over the remaining period to maturity based on groupings of individual
investments sold in one to ten-year time periods. GAAP does not have a similar
concept. For SAP, an asset valuation reserve represents a provision for the
possible fluctuations in invested assets and is determined by an NAIC
prescribed formula and is reported as a liability rather than as a valuation
allowance. Under GAAP, realized capital gains and losses would be reported in
the income statement on a pretax basis in the period the asset is sold and
valuation allowances would be provided when there has been a decline in value
deemed other-than-temporary, in which case the provision for such declines
would be charged to earnings.
Valuation allowances, if necessary, are established for mortgage loans based
on (1) the difference between the unpaid loan balance and the estimated fair
value of the underlying real estate when such loans are determined to be in
default as to scheduled payments and (2) a reduction of the maximum percentage
of any loan to the value of the security at the time of the loan, exclusive of
insured, guaranteed or purchase money mortgages, to 75%, where necessary.
Under GAAP, valuation allowances would be established when the Company
determines it is probable that it will be unable to collect all amounts due
(both principal and interest) according to the contractual terms of the loan
agreement. The initial valuation allowance and subsequent changes in the
allowance for mortgage loans are charged or credited directly to unassigned
surplus for SAP, rather than being included as a component of earnings as
would be required for GAAP.
. Policy Acquisition Costs. The costs of acquiring and renewing business are
expensed when incurred. Under GAAP, to the extent recoverable from future
gross profits, deferred policy acquisition costs are amortized generally in
proportion to the present value of expected gross profits from surrender
charges and investment, mortality, and expense margins.
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1999
NOTE B
Accounting Practices and Basis of Presentation (continued).
- ----------------------------------------------------------
. Nonadmitted Assets. Certain assets designated as nonadmitted, principally
receivables, would be included in GAAP assets but are excluded from the SAP
balance sheets with changes therein credited or charged directly to
unassigned surplus.
. Subsidiaries. The accounts and operations of the Company's subsidiaries are
not consolidated with the accounts and operations of the Company as would be
required for GAAP.
. Recognition of Premiums. Revenues for annuity policies consist of the entire
premium received and benefits incurred represent the total of death benefits
paid and the change in policy reserves. Under GAAP, premiums received in
excess of policy charges would not be recognized as premium revenue and
benefits would represent the excess of benefits paid over the policy account
value and interest credited to the account values.
. Benefit Reserves. Certain policy reserves are calculated based on statutorily
required interest and mortality assumptions rather than on estimated expected
experience or actual account balances as would be required under GAAP.
. Federal Income Taxes. Federal income taxes for SAP are generally reported
based on income which is currently taxable. Variances between taxes reported
and the amount subsequently paid are reported as adjustments to accumulated
surplus in the year paid. Deferred income taxes are not provided for
differences between the financial statement and tax bases of assets and
liabilities under SAP as would be required under GAAP.
. Policyholder Dividends. Policyholder dividends are recognized when declared
rather than over the term of the related policies as required for GAAP.
. Reinsurance. Policy and contract liabilities ceded to reinsurers have been
reported as reductions of the related reserves rather than as assets as would
be required under GAAP. For SAP, commissions allowed by reinsurers on
business ceded are reported as income when received rather than being
deferred and amortized with deferred policy acquisition costs as under GAAP.
. Guaranty Fund and Other Assessments. Guaranty fund and other assessments are
accrued when the Company receives notice that an assessment is payable. Under
GAAP, guaranty fund and other assessments are accrued at the time the events
occur on which assessments are expected to be based.
. Statement of Cash Flows. Cash and short term investment in the statement of
cash flows represent cash balances and investments with initial maturities of
one year or less. Under GAAP, the corresponding captions of cash and cash
equivalents include cash balances and investments with initial maturities of
three months or less.
The effects of the foregoing variances from GAAP on the accompanying statutory-
basis financial statements have not been determined, but are presumed to be
material.
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1999
NOTE B
Accounting Practices and Basis of Presentation (continued).
- ----------------------------------------------------------
Other significant accounting practices are as follows:
. Investments. Bonds, preferred stocks, common stocks, short-term investments
and derivative instruments are stated at values prescribed by the NAIC, as
follows: Bonds not backed by other loans are stated at amortized cost using
the effective yield method including anticipated future cash flows. Loan-
backed bonds and structured securities are stated at amortized cost using the
interest method including anticipated prepayments (cash flows are updated
periodically to reflect prepayments). Significant changes in estimated cash
flows from the original purchase assumptions are accounted for using the
retrospective adjustment method.
Mortgage loans on real estate are carried at amortized cost.
Common stocks are stated at fair value.
Preferred stocks are carried at actual cost.
Policy loans are carried at the aggregate unpaid balance.
Investments in real estate or property acquired in satisfaction of debt are
carried at depreciated cost less encumbrances.
Other invested assets are reported using the equity method.
Short-term investments include investments with maturities of less than one
year at the date of acquisition. The carrying values reported in the balance
sheet are at cost which approximates fair value.
The Company utilizes derivative instruments where appropriate in the
management of its asset/liability matching and to hedge against fluctuations
in interest rates and foreign exchange rates. Gains and losses resulting from
these instruments are included in income on a basis consistent with the
underlying assets or liabilities that have been hedged. Options are valued at
amortized cost and futures are valued at initial margin deposit adjusted by
changes in market value. Both items are reported as other assets.
. Premiums and Annuity Considerations. Premium revenues are recognized when due
for other than annuities, which are recognized when received.
. Separate Accounts. Separate Accounts are maintained to receive and invest
premium payments under individual variable annuity policies issued by the
Company. The assets and liabilities of the Separate Account are clearly
identifiable and distinguishable from other assets and liabilities of the
Company, and the contractholder bears the investment risk. Separate Account
assets are reported at fair value. The operations of the Separate Account are
not included in the accompanying financial statements.
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1999
NOTE B
Accounting Practices and Basis of Presentation (continued).
- ----------------------------------------------------------
. Life Insurance and Annuity Reserves. All policies, except variable annuities
and institutional investment products, were acquired through coinsurance
reinsurance agreements with CLA. The reserves established meet the
requirements of the Insurance Law and Regulations of the State of Michigan
and are consistent with the reserving practices of CLA. The Company waives
deduction of deferred fractional premium upon death of the insured for all
issues. Annual premium is assumed in the reserve calculation and for policies
with premium frequency other than annual, the Company holds a separate NDDFP
reserve which is the present value of a death benefit of half of the gross
premium for the balance of the policy premium paying period.
Some policies promise a surrender value in excess of the reserve as legally
computed. This excess is calculated and reserved for on a policy by policy
basis.
Policies issued at premiums corresponding to ages higher than the true ages
are valued at the rated-up ages. Policies providing for payment at death
during certain periods of an amount less than the full amount of insurance,
being policies subject to liens, are valued as if the full amount is payable
without any deduction. For policies issued with, or subsequently subject to,
an extra premium payable annually, an extra reserve is held. The extra
premium reserve is 45% of the gross extra premium payable during the year if
the policies are rated for reasons other than medical impairments. For
medical impairments, the extra premium reserve is calculated at the excess of
the reserve based on rated mortality over that of standard mortality.
At the end of 1999 and 1998, the Company had no insurance in force for which
the gross premiums were less than the net premiums according to the standard
of valuation set by the State of Michigan. The tabular interest and tabular
cost have been determined from the basic data for the calculation of policy
reserves. The tabular less actual reserve released and the tabular interest
on funds not involving life contingencies have been determined by formula.
Other reserve increases are insignificant and relate to the Company valuing
the deferred acquisition costs and/or back-end charges in connection with the
variable annuity.
. Policy and Contract Claims. Liabilities for policy and contract claims are
determined using case-basis evaluations and statistical analyses. These
liabilities represent estimates of the ultimate expected cost of incurred
claims. Any required revisions in these estimates are included in operations
in the period when they are determined.
. Federal Income Tax. Federal income taxes are provided based on an estimate of
the amount currently payable which may not bear a normal relationship to
pretax income because of timing and other differences in the calculation of
taxable income.
. Policyholder Dividends. Annual policyholder dividends are calculated using
either the contribution method or a modified experience premium method. These
methods distribute the aggregate divisible surplus among policies in the same
proportion as the policies are considered to have contributed to divisible
surplus. A proportion of earnings and surplus is allocated to participating
policies based on various allocation bases.
. Reclassifications: Certain amounts in the 1998 and 1997 financial statements
have been reclassified to conform to the 1999 presentation.
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1999
NOTE C
Investments. The fair value for fixed maturities is based on quoted market
- -----------
prices where available. For fixed maturities not actively traded, fair values
are estimated using values obtained from independent pricing services. The
amortized costs and the fair value of investments in bonds are summarized as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
Costs gains losses value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. government obligations $ 205,861 $17,906 $ (2,997) $ 220,770
Foreign governments 7,828 - (5) 7,823
All other corporate bonds 708,220 1,594 (6,150) 703,664
Public utilities 65,955 5 (431) 65,529
Mortgage-backed securities 196,633 - - 196,633
Foreign securities 131,603 824 (667) 131,760
- --------------------------------------------------------------------------------------------------------
Total fixed maturities $1,316,100 $20,329 $(10,250) $1,326,179
========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------
Gross Gross
Amortized unrealized Unrealized Fair
Costs gains losses value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. government obligations $ 321,868 $73,008 $ - $ 394,876
Foreign governments 905 - - 905
All other corporate bonds 585,295 10,296 (681) 594,910
Public utilities 52,331 360 - 52,691
Mortgage-backed securities 236,627 1,195 - 237,822
Foreign securities 115,055 2,292 (97) 117,250
- -------------------------------------------------------------------------------------------------------
Total fixed maturities $1,312,081 $87,151 $(778) $1,398,454
=======================================================================================================
</TABLE>
The amortized costs and fair value of fixed maturity investments at December 31,
1999 by contractual maturity are shown below (in thousands of dollars). Expected
maturities may differ from contractual maturities because certain borrowers have
the right to call or prepay obligations with or without call or prepayment
penalties. In addition, Company requirements may result in sales before
maturity.
<TABLE>
<CAPTION>
Amortized Costs Fair value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
In 2000 $ - $ -
In 2001 - 2004 213,505 212,868
In 2005 - 2009 245,533 243,267
2010 and after 660,429 673,412
Mortgage-backed securities 196,633 196,633
- ----------------------------------------------------------------------------------------------------
$1,316,100 $1,326,179
====================================================================================================
</TABLE>
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1999
NOTE C
Investments (continued).
- -----------------------
At December 31, 1999 and 1998, bonds with an admitted asset value of $4,565,000
and $4,653,000, respectively, were on deposit with state insurance departments
to satisfy regulatory requirements.
Information on mortgage loans at December 31 is as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans $ - $ 2,014
Non-impaired loans 898,623 900,535
- ----------------------------------------------------------------------------------------------------
Total mortgage loans $898,623 $902,549
====================================================================================================
</TABLE>
The Company had no impaired mortgage loans in 1999. Income recognized and
received on impaired loans in 1998 was $381,500.
The maximum and minimum lending rates for commercial mortgage loans in 1999 were
8.50% and 7.00%, respectively. Fire insurance is required on all properties
covered by mortgage loans at least equal to the excess of the loan over the
maximum loan which would be permitted by law on the land without the buildings.
During 1999, the Company did not reduce interest rates on any outstanding
mortgage loan. The Company held no mortgages on which interest was more than one
year overdue at December 31, 1999 and 1998.
The mortgage loans are typically collateralized by the related properties and
the loan-to-value ratios at the date of loan origination generally do not exceed
75%. The Company's exposure to credit loss in the event of non-performance by
the borrowers, assuming that the associated collateral proved to be of no value,
is represented by the outstanding principal and accrued interest balances of the
respective loans. The mortgage loan loss reserve decreased $923,000 and
$2,445,000 in 1999 and 1998, respectively. At December 31, 1999 and 1998 the
Company held no mortgages with prior outstanding liens.
Accumulated depreciation on investment real estate was $940,800 and $705,600 as
of December 31, 1999 and 1998, respectively.
12
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1999
NOTE C
Investments (continued).
- -----------------------
Major categories of CLICA's net investment income for years ended December 31
are summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Fixed maturities $ 98,453 $ 99,325 $ 97,506
Equity securities 3,460 1,340 1,956
Mortgage loans 87,871 88,463 85,952
Real estate 101 211 833
Short-term investments 1,918 1,056 2,408
Derivatives 305 759 552
Policy loans 30 485 530
Amortization of IMR 772 976 883
Other income (losses) 629 222 (875)
---------------------------------------------------------------------------------------------------------------
Total investment income 193,539 192,837 189,745
Less: investment expenses 2,811 4,430 4,714
depreciation on real estate 236 252 482
---------------------------------------------------------------------------------------------------------------
Net investment income $190,492 $188,155 $184,549
===============================================================================================================
</TABLE>
Due and accrued income was excluded from investment income on mortgage loans in
foreclosure or delinquent more than ninety days and on bonds where the
collection of income is uncertain. The total amount excluded as of December 31,
1999, 1998 and 1997 was $0, $798,000 and $1,547,000, respectively.
Realized capital gains (losses) for years ended December 31 are summarized as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Gross gains $15,357 $15,870 $11,727
Gross losses (9,419) (978) (1,720)
--------------------------------------------------------
Total fixed maturities 5,938 14,892 10,007
Equity securities:
Gross gains 2,163 4,374 3,569
Gross losses (936) (957) (94)
--------------------------------------------------------
Total equity securities 1,227 3,417 3,475
Mortgage loans (12) (1,389) (198)
Real estate - (550) 1,584
Derivative instruments (5,031) (1,847) (2,970)
Other invested assets - 1 503
- -----------------------------------------------------------------------------------------------------------------
2,122 14,524 12,401
Income tax expense (2,508) (6,409) (5,449)
Transfer to IMR (1,813) (8,488) (5,270)
- -----------------------------------------------------------------------------------------------------------------
Net realized capital (losses) gains $(2,199) $ (373) $ 1,682
=================================================================================================================
</TABLE>
13
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1999
NOTE C
Investments (continued).
- ----------------------
Unrealized capital gains and losses for equity securities are recorded directly
to surplus. The change in the unrealized gains and losses on equity securities
was $(907,000), $1,193,000 and $142,000 for the years ended December 31, 1999,
1998 and 1997, respectively. The accumulated gross unrealized gains and losses
on equity securities at December 31 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated gross unrealized gains $ 4,950 $4,254 $3,015
Accumulated gross unrealized losses (2,107) (504) (458)
- -----------------------------------------------------------------------------------------------------
Net unrealized gains $ 2,843 $3,750 $2,557
=====================================================================================================
</TABLE>
The Company is party to various derivative instruments used to hedge specific
asset and liability interest rate risks. Management actively monitors the use
and level of these instruments to ensure that credit and liquidity risks are
maintained within pre-approved levels. Interest rate swaps are an off-balance
sheet item. Futures are valued at initial margin deposit adjusted for unrealized
gains and losses. The Company's involvement in derivative instruments may also
subject it to market risk which is associated with adverse movements in the
underlying interest rates, equity prices and commodity prices. Since the
Company's investment in derivative instruments is confined to hedging
activities, market risk is minimal. As of December 31, 1999 and 1998, the
notional amounts for government bond futures were $240,800,000 and $148,100,000,
respectively. The notional amounts for interest rate swaps were $21,503,000 for
1999 and 1998.
NOTE D
Concentration of Credit Risk. At December 31, 1999, CLICA held unrated or less-
- ----------------------------
than-investment grade corporate bonds of $94,752,000, with an aggregate fair
value of $93,033,000. These holdings amounted to 7.2% of the bond portfolio and
3.1% of CLICA's total admitted assets. The portfolio is well diversified by
industry.
CLICA's mortgage portfolio is well diversified by region and property type with
17% in California (book value - $154,834,000), 13% (book value - $112,918,000)
in New York, 11% in Ohio (book value - $98,459,000), 10% (book value -
$87,001,000) in Michigan, and the remainder of the states less than 10%. The
investments consist of first mortgage liens. The mortgage outstanding on any
individual property does not exceed $16,500,000.
14
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1999
NOTE E
Federal Income Taxes. The statutory federal income tax provision amount at the
- --------------------
statutory rate of 35% differs from the effective tax provision amount (excluding
tax on capital gains) for years ended December 31 as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed income taxes at statutory rate $ 7,063 $7,928 $ 9,014
Increase (decrease) in income taxes resulting from:
Policyholder dividends (403) (202) (119)
Change in nonadmitted interest - (541) -
Amortization of interest maintenance reserve (270) (341) (309)
Amortization of prior year change in reserves (609) (609) (624)
Accrual of bond discount (85) (670) (557)
Actuarial reserves (536) 172 684
Deferred acquisition cost tax (766) (251) (165)
Bad debt on mortgages (4) (486) (69)
Futures (losses) gains (1,761) (646) (1,040)
Other (1,036) (362) 8
- --------------------------------------------------------------------------------------------------------
Federal income taxes $ 1,593 $3,992 $ 6,823
========================================================================================================
</TABLE>
At December 31, 1999 and 1998, federal income taxes receivable were $1,279,000
and $331,000, respectively.
NOTE F
Participating Insurance. During 1999, CLA recaptured the participating life and
- -----------------------
annuity business previously reinsured to CLICA. This transaction resulted in a
recapture of 100% of the ordinary life insurance from CLICA. The reinsurance
recapture resulted in a decrease in liabilities of $29,739,000 and the
elimination of the related policy loans and dividends payable associated with
this line of business.
NOTE G
Reinsurance. Various reinsurance agreements exist between CLICA and CLA. The
- -----------
effect of the agreements is to have the Company assume certain existing and
future insurance and annuity business of the Parent. Except for variable
annuity contracts and institutional investment products issued, all premiums for
insurance and annuity considerations and benefit expenses recorded for the years
ended December 31, 1999, 1998, and 1997, were the result of the coinsurance
agreements. As of December 31, 1999 and 1998, $5,420,000 and $2,938,000,
respectively, were payable to CLA under the agreements.
15
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1999
NOTE G
Reinsurance (continued).
- -----------------------
The effect of reinsurance on premiums and annuity considerations earned for
years ended December 31 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums $ 95,430 $120,729 $124,318
Premiums assumed 143,806 210,018 202,241
Premiums ceded (561) (1,169) -
- --------------------------------------------------------------------------------------------------
Net premiums and annuity considerations $238,675 $329,578 $326,559
==================================================================================================
</TABLE>
During 1999, the Company ceased assuming certain lines of business from CLA.
NOTE H
Related Party Transactions. In addition to the coinsurance agreements mentioned
- --------------------------
above, CLA has an agreement to provide various services for CLICA. For the
years ended December 31, 1999, 1998 and 1997, the cost of these services
amounted to $7,755,000, $9,582,000 and $8,860,000, respectively.
At December 31, 1999 and 1998, the amounts receivable and payable to CLA and
affiliates, which include the above reinsurance amounts as well as outstanding
administrative expenses, are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------
Receivable:
<S> <C> <C>
CLA $7,598 $ 2,911
CL Capital Management, Inc. 27 27
Canada Life Insurance Company of New York - 7
Canada Life of America Series Fund, Inc. 219 57
---------------------------------
Total Receivable 7,844 3,002
Payable:
CLA 2,335 9,220
Canada Life Insurance Company of New York 2,000 616
---------------------------------
Total Payable 4,335 9,836
---------------------------------
Net receivable (payable) $3,509 ($6,834)
===================================================================================================
</TABLE>
NOTE I
Separate Accounts. The Company's non-guaranteed separate variable accounts
- -----------------
represent primarily funds invested in variable annuity policies issued by the
Company. The assets of these funds are invested in either shares of Canada Life
of America Series Fund, Inc., an affiliated, diversified, open-ended management
investment company, shares of six unaffiliated management investment companies,
or in funds managed by CL Capital Management, Inc., an investment management
subsidiary.
Premiums or deposits for years ended December 31, 1999, 1998 and 1997 were
$92,103,000, $124,110,000, and $135,571,000, respectively. Total reserves were
$680,050,000 and $520,260,000 at December 31, 1999 and 1998, respectively. All
reserves were subject to discretionary withdrawal, at fair value, with a
surrender charge of up to 6%.
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1999
NOTE I
Separate Accounts (continued).
- -----------------------------
A reconciliation of the amounts transferred to and from the Separate Accounts
for years ended December 31 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transfers as reported in the Summary of Operations of the
Separate Accounts statement:
Transfers to Separate Accounts $ 92,103 $124,110 $135,571
Transfers from Separate Accounts 108,031 136,151 93,073
- ------------------------------------------------------------------------------------------------------------
Net transfers (from) to Separate Accounts (15,928) (12,041) 42,498
Reconciling adjustments:
Gains transferred - - 187
Net policyholder transactions 541 58,312 39,528
- ------------------------------------------------------------------------------------------------------------
Transfers as reported in the Summary of Operations of the
Life, Accident & Health annual statement $(15,387) $ 46,271 $ 82,213
============================================================================================================
</TABLE>
NOTE J
Actuarial Reserves. CLICA's withdrawal characteristics for annuity reserves and
- ------------------
deposit fund liabilities at December 31 are summarized as follows (in thousands
of dollars):
<TABLE>
<CAPTION>
Amount Percent of Total
------------------------------------- ------------------------------
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal:
With market value adjustment
$ 134,653 $ 146,576 6.3% 6.9%
At book value less surrender charge of 5% or
more 197,838 202,269 9.3% 9.5%
- -------------------------------------------------------------------------------------------------------------------------
Subtotal 332,491 348,845 15.6% 16.4%
Subject to discretionary withdrawal without
adjustment at book value (minimal or no charge
adjustment)
115,568 119,235 5.4% 5.6%
Not subject to discretionary withdrawal 1,686,844 1,653,768 79.0% 78.0%
- -------------------------------------------------------------------------------------------------------------------------
Total 2,134,903 2,121,848 100.0% 100.0%
Less: reinsurance ceded 1,730 -
- --------------------------------------------------------------------------------------
Net annuity reserves and deposit fund liabilities $2,133,173 $2,121,848
=========================================================================================================================
</TABLE>
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1999
NOTE K
Capital and Surplus. The Company has two classes of capital stock: redeemable
- -------------------
preferred stock ($10.00 par value) and common stock ($10.00 par value), ranked
in order of liquidation preference. The preferred shares have no interest rate
assigned, are non-voting and are redeemable by the Company at any time at a
redemption price of $10.00 per share.
Under applicable Michigan insurance law, the Company is required to maintain a
minimum capital of $1,000,000 and initial surplus of $500,000. At December 31,
1999, surplus was $109,670,000.
The amount of dividends that can be distributed by Michigan domiciled companies
without prior approval from the Michigan Insurance Department is subject to
restrictions relating to capital and surplus. The maximum dividend payout which
may be made without prior approval in 2000 is $18,587,000.
At December 31, 1999, the Company's capital and surplus exceeded the NAIC's
"Risk Based Capital" requirements for life and health companies.
NOTE L
Fair Value of Financial Instruments. The fair value of certain financial
- -----------------------------------
instruments along with their corresponding carrying values at December 31
follows (in thousands of dollars). As the fair value of all CLICA's assets and
liabilities is not presented, this information in the aggregate does not
represent the underlying value of CLICA.
<TABLE>
<CAPTION>
1999 1998
------------------------------ ----------------------------
Fair Carrying Fair Carrying Valuation
Value Value Value Value Method
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Assets
---------------
Bonds $1,326,179 $1,316,100 $1,398,454 $1,312,081 1
Common & preferred stocks excluding
investment in subsidiaries 20,247 20,247 20,492 20,492 1
Mortgage loans 930,505 898,623 1,018,988 902,549 2
Policy loans - - 9,333 9,333 3
Financial Liabilities
---------------------
Investment-type
Insurance contracts 432,704 438,822 511,896 469,498 4
Off-balance Sheet
-----------------
Derivatives
Interest rate swaps 2,357 - 5,020 - 5
Futures 3,688 3,688 785 785 5
=======================================================================================================================
</TABLE>
<PAGE>
CANADA LIFE INSURANCE COMPANY OF AMERICA
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1999
NOTE L
Fair Value of Financial Instruments (continued).
- -----------------------------------------------
1. Fair values are based on publicly quoted market prices at the close of
trading on the last business day of the year. In cases where publicly quoted
prices are not available, fair values are based on estimates using values
obtained from independent pricing services, or, in the case of private
placements, by discounting expected future cash flows using a current market
rate applicable to the yield, credit quality, and maturity of the
investments.
2. Fair values are estimated using discounted cash flow analysis based on
interest rates currently being offered for similar credit ratings.
3. Carrying value approximates fair value.
4. Fair values for liabilities under investment-type insurance contracts are
estimated using discounted liability calculations, adjusted to approximate
the effect of current market interest rates for the assets supporting the
liabilities.
5. Fair values for futures contracts and swaps that have not settled are based
on current settlement values.
19
<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/2/
(c) Distribution Agreement/1/
(d) Amendment to Distribution Agreement/2/
(e) Amendment to Selling Agreement/3/
(f) Amendment to Selling Agreement/3/
(g) Amendment to Selling Agreement/3/
(h) Amendment to Selling Agreement/5/
(4) (a) Form of Annuity Policy/4/
(b) Riders and Endorsements/3/
(5) Form of Application/4/
(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/2/
(10) (a) Consent of Counsel
(b) Consent of Independent Counsel
(c) Consent of Independent Auditors
(11) No financial statements are excluded from Item 23.
(12) Not Applicable
(13) Sample Performance Data Calculation/3/
(14) Powers of Attorney
- --------------------
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) filed on April 20, 1997.
2 Incorporated herein by reference to Post-Effective Amendment No. 8 to this
Registration Statement on Form N-4 (File No. 33-55890), filed on April 29,
1997.
3 Incorporated herein by reference to Post-Effective Amendment No. 10 to this
Registration Statement on Form N-4 (File No. 33-55890), filed on April 30,
1998.
4 Incorporated herein by reference to Post-Effective Amendment No. 11 to this
Registration Statement on Form N-4 (File No. 33-55890), filed on February 12,
1999.
5 Incorporated herein by reference to Post-Effective Amendment No. 12 to this
Registration Statement on Form N-4 (File No. 33-55890) filed on April 30,
1999.
<PAGE>
Item 25. Directors and Officers of the Depositor
Name and Principal
Business Address Positions and Offices with Depositor
------------------ ------------------------------------
R. E. Beettam (2) Chairman, President & Director
T. C. Scott (2) Financial Vice President
W. S. McIlwaine (2) Group Sales Vice-President
P. D. Cochrane (1) Administrative Officer and Assistant Treasurer
K. T. Ledwos (2) Actuary & Director
Laura D. Foster (2) Internal Auditor
R. W. Linden (1) Secretary
C. H. MacPhaul (2) Assistant Secretary
C. R. Edwards (3) Assistant Secretary
G. N. Isaac (1) Treasurer
D. V. Rough (1) Assistant Treasurer
E. P. Ovsenny (1) Assistant Treasurer
D. N. Rattray (1) Assistant Treasurer
C. P. English (1) Assistant Treasurer
K. A. Phelan (1) Assistant Treasurer
R. L. Findley (1) Assistant Treasurer
C. D. Gordon (1) Assistant Treasurer
J. H. Mazur (1) Assistant Treasurer
L. M. Flater (2) Director of Tax
S. Gile (2) Administrative Officer
J. G. Deskins (2) Illustration & Marketing Actuary
D. A. Loney (1) Director
H.A. Rachfalowski (1) Director
S. H. Zimmerman (3) Director
(1) The business address is 330 University Avenue, Toronto, Ontario,
Canada M5G 1R8.
(2) The business address is 6201 Powers Ferry Road, NW, Suite 600,
Atlanta, Georgia 30339.
(3) The business address is 800 Michigan National Tower, Lansing, Michigan
48933.
<PAGE>
PART C
PART C
Item 26. Persons Controlled by or Under Common Control With the Depositor or
Registrant
<TABLE>
<CAPTION> PERCENT OF PRINCIPAL
NAME JURISDICTION VOTING SECURITIES OWNED BUSINESS
- ----------------------------- ------------------- --------------------------------------- ----------------
<S> <C> <C> <C>
Canada Life Financial Canada Publicly held Insurance
Corporation holding company
The Canada Life Assurance Canada Ownership of voting securities through Life and Health
Company Canada Life Financial Corporation Insurance
Canada Life Insurance New York Ownership of voting securities through Life and Health
Company of New York The Canada Life Assurance Company Insurance
Adason Properties Limited Canada Ownership of all voting securities Property
through The Canada Life Assurance Management
Company
Canada Life Irish Operations England Ownership of all voting securities Life and Health
Limited through Canada Life Limited Insurance
Canada Life Mortgage Canada Ownership of all voting securities Mortgage
Services Ltd. through The Canada Life Assurance Portfolios
Company
CLASSCO Benefit Services Canada Ownership of all voting securities Administrative
Limited through The Canada Life Assurance Services
Company
Canada Life Casualty Canada Ownership of all voting securities Property and
Insurance Company through The Canada Life Assurance Casualty
Company Insurance
Sherway Centre Limited Canada Ownership of all voting securities Real Estate
through The Canada Life Assurance Broker
Company
The Canada Life Assurance Rep. of Ireland Ownership of all voting securities Life and Health
Company of Ireland Limited through Canada Life Irish Holding Insurance
Company Limited
F.S.D. Investments Limited. Rep. of Ireland Ownership of all voting securities Unit Fund Sales
through Canada Life Assurance and Management
(Ireland) Limited
Canada Life Insurance Michigan Ownership of all voting securities Life and Health
Company of America through The Canada Life Assurance Insurance
Company
Canada Life of America Georgia Ownership of all voting securities Broker Dealer
Financial Services Inc. through CLICA
</TABLE>
<PAGE>
<TABLE>
<CAPTION> PERCENT OF PRINCIPAL
NAME JURISDICTION VOTING SECURITIES OWNED BUSINESS
- ----------------------------- ------------------- --------------------------------------- ----------------
<S> <C> <C> <C>
Canada Life of America Maryland Ownership of all voting securities Mutual Fund
Series Fund, Inc. through CLICA
Adason Realty Ltd. Canada Ownership of all voting securities Realtor
through Adason Properties Limited
Canada Life Pension & Rep. of Ireland Ownership of all voting securities Life Assurance
Annuities (Ireland) Limited through Canada Life Assurance
(Ireland) Limited
CLAI Limited Rep. of Ireland Ownership of all voting securities Holding,
through Canada Life Irish Holding Service,
Company Limited Management and
Investment
Company
Canada Life Assurance Rep. of Ireland Ownership of all voting securities Life Insurance,
(Ireland) Limited through Canada Life Irish Holding Pension, and
Company Limited Annuity
CL Capital Management, Inc. Georgia Ownership of all voting securities Investment
through CLICA Advisor
Canada Life Capital Canada Ownership of all voting securities External
Corporation Inc. through The Canada Life Assurance Sources of
Company Capital
Canada Life Securing Canada Ownership of all voting securities Holding Company
Corporation Inc. through Canada Life Capital
Corporation Inc
The Canada Life Group (UK) England Ownership of all voting securities Holding Company
Limited through 3605744 Canada Inc.
Canada Life Holdings (UK) England Canada Life (UK) Limited Holding Company
Limited
Canada Life Limited England The Canada Life Group (UK) Limited Life and Health
Insurance
Canada Life Management (UK) England Canada Life (UK) Limited Unit Trust
Limited Sales &
Management
Canada Life Group Services England The Canada Life (UK) Limited Administrative
(UK) Limited Services
Canada Life Trustee Services England The Canada Life Group (UK) Limited Trustee Services
(UK) Limited
</TABLE>
<PAGE>
<TABLE>
<CAPTION> PERCENT OF PRINCIPAL
NAME JURISDICTION VOTING SECURITIES OWNED BUSINESS
- ----------------------------- ------------------- --------------------------------------- ----------------
<S> <C> <C> <C>
Canada Life Ireland Holdings Ireland Canada Life Irish Operations Limited Holding Company
Limited
Canada Life (UK) Limited England Ownership of all voting securities Holding Company
through Canada Life Limited
Canada Life Services (UK) England Ownership of all voting securities Administrative Services
Limited through Canada Life (UK) Limited
Canada Life International England Ownership of all voting securities Unit Investment Products
Limited through Canada Life (UK) Limited
Albany Life Assurance Company England Ownership of all voting securities Unit Life and Pension
Limited through Canada Life (UK) Limited Insurance
Canada Life Pension Managers England Ownership of all voting securities Trustee Services
and Trustees Limited through Canada Life (UK) Limited
Pelican Food Services Limited Canada Ownership of all voting securities Food service
through the Canada Life Assurance
Company
3605744 Canada Inc. Canada Ownership of all voting securities Holding Company
through the Canada Life Assurance
Company
Canada Life Asset Management Ireland Ownership of all voting securities Stock Corporation
Limited through The Canada Life Group (UK)
Limited
Adason Property Management England Ownership of all voting securities Property Managers
Limited through The Canada Life Group (UK)
Limited
Canada Life Fund Managers (UK) England Ownership of all voting securities Fund Manager
Limited through Canada Life (UK) Limited
Canada Life Irish Holding Ireland Ownership of all voting securities Holding Company
Company Limited through 3605744 Canada Inc.
Canada Life Management Ireland Ownership of all voting securities Management Services
Services Limited through Canada Life Irish Holding
Company Limited
Canada Life Assurance Europe Ireland Ownership of all voting securities Management Services
Limited through Canada Life Irish Holding
Company Limited
Setanta Asset Management Ireland Ownership of all voting securities Asset Management
Limited through Canada Life Irish Holding
Company Limited
Kanetix Ltd. Canada Ownership of all voting securities Distribution Services
through The Canada Life Assurance
Company
Canada Life Brasil Ltd. Brazil Ownership of all voting securities Distribution Services
through The Canada Life Assurance
Company
Canada Life Pactual Brazil Ownership of 70% of voting securities Distribution Services
Previdencia & Segures S.A. through Canada Life Brasil Ltd.
Canada Life Financial Canada Ownership of all voting securities Distribution Services
Distribution Services Inc. through The Canada Life Assurance
Company
Laketon Investment Management Canada Ownership of 35% of voting securities Investment Management
through The Canada Life Assurance
Company
</TABLE>
<PAGE>
Item 27. Number of Policy Owners
As of March 1, 2000, there were 3,717 owners of Nonqualified Policies and
1,759 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.
<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.
CLAFS also acts as underwriter for Canada Life of America Variable Annuity
Account 1, Canada Life of New York Variable Annuity Account 1, and Canada Life
of New York Variable Annuity Account 2.
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
- ------------------ ---------------------
A.W. Bard** Chairman, President and Director
C.R. Edwards** Assistant Secretary
S.C. Gile** Administrative Officer
N.A. Hill** Securities Compliance Officer
D.V. Rough* Treasurer
C.H. MacPhaul** Secretary and Director
K.T. Ledwos** Administrative Officer and Director
___________________
* The business address is 330 University Avenue, Toronto, Ontario, Canada
M5G1R8.
** 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.
(d) Depositor undertakes to preserve on behalf of itself and Registrant the
books and records required to be preserved by such companies pursuant to
Rule 31a-2 under the Investment Company Act of 1940 and to permit
examination of such books and records at any time or from time to time
during business hours by
<PAGE>
examiners or other representatives of the Securities and Exchange
Commission, and to furnish to said Commission at its principal office in
Washington, D.C., or at any regional office of said Commission specified in
a demand made by or on behalf of said Commission for copies of books and
records, true, correct, complete, and current copies of any or all, or any
part, of such books and records.
(e) The Registrant is relying on a letter issued by the staff of the Securities
and Exchange Commission to the American Council of Life Insurance on
November 28, 1988 (Ref. No. IP-6-88) stating that it would not recommend to
the Commission that enforcement action be taken under Section 22(e),
27(c)(1), or 27(d) of the Investment Company Act of 1940 if the Registrant,
in effect, permits restrictions on cash distributions from elective
contributions to the extent necessary to comply with Section 403(b)(11) of
the Internal Revenue Code of 1986 in accordance with the following
conditions:
(1) include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the policy;
(2) include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection
with the offer of the policy;
(3) instruct sales representatives who may solicit individuals to purchase
the policies specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of such individuals;
(4) obtain from each owner who purchases a Section 403(b) policy, prior to
or at the time of such purchase, a signed statement acknowledging the
owner's understanding of (i) the redemption restrictions imposed by Section
403(b)(11), and (ii) the investment alternatives available under the
employer's Section 403(b) arrangement, to which the owner may elect to
transfer his or her policy value.
The Registrant is complying, and shall comply, with the provisions of
paragraphs (1) - (4) above.
(f) Canada Life Insurance Company of 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.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933, and has duly caused this Post-Effective Amendment No. 13
to be signed on its behalf by the undersigned, thereunto duly authorized, and
its seal to be hereunto affixed and attested, all in Fulton County, State of
Georgia, on this 26th day of April, 2000.
CANADA LIFE OF AMERICA
VARIABLE ANNUITY ACCOUNT 2
By: /s/ R. E. Beettam
------------------------
R. E. Beettam, President
CANADA LIFE INSURANCE
COMPANY OF AMERICA
By: /s/ R. E. Beettam
------------------------
R. E. Beettam, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 13 to the Registration Statement has been signed by the following
persons in the capacities indicated on the date(s) set forth below.
Signatures Title Date
---------- ----- ----
/s/ R. E. Beettam Chairman, President & April 26, 2000
- ---------------------- Director (Principal --------------
Executive Officer)
*/s/K. T. Ledwos Director April 26, 2000
--------------------- --------------
K. T. Ledwos
*/s/D. A. Loney Director April 26, 2000
--------------------- --------------
D. A. Loney
<PAGE>
*/s/H. A. Rachfalowski Director April 26, 2000
--------------------- --------------
H. A. Rachfalowski
/s/ T. C. Scott Director & Financial V.P. April 26, 2000
- ---------------------- (Principal Financial --------------
T. C. Scott Officer & Principal
Accounting Officer)
*/s/S. H. Zimmerman Director April 26, 2000
--------------------- --------------
S. H. Zimmerman
*By /s/ R.E. Beettam
----------------
R.E. Beettam
Signed pursuant to power of attorney filed herewith
<PAGE>
EXHIBIT INDEX
Exhibit Description of Exhibit
- ------- ----------------------
10 (a) Consent of Counsel
(b) Consent of Independent Counsel
(c) Consent of Independent Auditors
14 Power of Attorney
<PAGE>
Exhibit 10(a)
[CANADA LIFE INSURANCE COMPANY OF AMERICA LETTERHEAD]
April 26, 2000
Board of Directors
Canada Life Insurance Company of America
Canada Life of America Variable Annuity Account 2
330 University Avenue
Toronto, Canada M5G 1R8
Ladies and Gentlemen:
I hereby consent to the use of my name under the caption "Legal Matters" in the
Statement of Additional Information contained in Post-Effective Amendment No. 13
under the Securities Act of 1933 and Post-Effective Amendment No. 17 under the
Investment Company Act of 1940 to the Registration Statement on Form N-4 (File
No. 33-55890) filed by Canada Life Insurance Company of America and Canada Life
of America Variable Annuity Account 2 with the Securities and Exchange
Commission. In giving this consent, I do not admit that I am in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
Sincerely,
/s/ Craig Edwards
----------------------------------
Craig Edwards
Chief Legal Counsel, U.S. Division
<PAGE>
Exhibit 10(b)
[TRANSMITTED ON SUTHERLAND, ASBILL & BRENNAN LLP LETTERHEAD]
April 26, 2000
Board of Directors
Canada Life Insurance Company of America
Canada Life of America Variable Annuity Account 2
330 University Avenue
Toronto, Canada M5G 1R8
Ladies and Gentlemen:
We hereby consent to the use of our name under the caption "Legal Matters" in
the Statement of Additional Information contained in Post-Effective Amendment
No. 13 under the Securities Act of 1933 and Post-Effective Amendment No. 17
under the Investment Company Act of 1940 to the Registration Statement on Form
N-4 (File No. 33-55890) filed by Canada Life Insurance Company of America and
Canada Life of America Variable Annuity Account 2 with the Securities and
Exchange Commission. In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
--------------------
Stephen E. Roth
<PAGE>
EXHIBIT 10(c)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Statements" and "Experts" and to the use of our reports dated February 2, 2000
and February 4, 2000, in Post-Effective Amendment No. 13 to the Registration
Statement (Form N-4 No. 33-55890) and related Prospectus of Canada Life of
America Variable Annuity Account 2 dated May 1, 2000.
/s/ Ernst & Young LLP
-------------------
ERNST & YOUNG LLP
Atlanta, Georgia
April 21, 2000
<PAGE>
Exhibit 14
POWER OF ATTORNEY
With Respect to the Canada Life of America
Variable Annuity Account 2
Know all men by these presents that Ronald E. Beettam whose signature appears
below, constitutes and appoints Ronald E. Beettam and Thomas C. Scott and each
of them, his attorneys-in-fact, with power of substitution, and each of them in
any and all capacities, to sign any reports and amendments thereto for the Form
N-4 for the Canada Life of America Variable Annuity Account 2 and to file the
same, with exhibits thereto and other documents, in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Date: March 10, 2000
/s/Ronald E. Beettam
--------------------
Ronald E. Beettam
<PAGE>
POWER OF ATTORNEY
With Respect to the Canada Life of America
Variable Annuity Account 2
Know all men by these presents that Kenneth T. Ledwos whose signature appears
below, constitutes and appoints Ronald E. Beettam and Thomas C. Scott and each
of them, his attorneys-in-fact, with power of substitution, and each of them in
any and all capacities, to sign any reports and amendments thereto for the Form
N-4 for the Canada Life of America Variable Annuity Account 2 and to file the
same, with exhibits thereto and other documents, in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Date: March 10, 2000
/s/Kenneth T. Ledwos
--------------------
Kenneth T. Ledwos
<PAGE>
POWER OF ATTORNEY
With Respect to the Canada Life of America
Variable Annuity Account 2
Know all men by these presents that D. A. Loney whose signature appears below,
constitutes and appoints Ronald E. Beettam and Thomas C. Scott and each of them,
his attorneys-in-fact, with power of substitution, and each of them in any and
all capacities, to sign any reports and amendments thereto for the Form N-4 for
the Canada Life of America Variable Annuity Account 2 and to file the same, with
exhibits thereto and other documents, in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Date: March 10, 2000
/s/D. A. Loney
--------------
D. A. Loney
<PAGE>
POWER OF ATTORNEY
With Respect to the Canada Life of America
Variable Annuity Account 2
Know all men by these presents that H. A. Rachfalowski whose signature appears
below, constitutes and appoints Ronald E. Beettam and Thomas C. Scott and each
of them, his attorneys-in-fact, with power of substitution, and each of them in
any and all capacities, to sign any reports and amendments thereto for the Form
N-4 for the Canada Life of America Variable Annuity Account 2 and to file the
same, with exhibits thereto and other documents, in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Date: March 10, 2000
/s/Henry A. Rachfalowski
------------------------
Henry A. Rachfalowski
<PAGE>
POWER OF ATTORNEY
With Respect to the Canada Life of America
Variable Annuity Account 2
Know all men by these presents that Thomas C. Scott whose signature appears
below, constitutes and appoints Ronald E. Beettam and Thomas C. Scott and each
of them, his attorneys-in-fact, with power of substitution, and each of them in
any and all capacities, to sign any reports and amendments thereto for the Form
N-4 for the Canada Life of America Variable Annuity Account 2 and to file the
same, with exhibits thereto and other documents, in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Date: March 10, 2000
/s/Thomas C. Scott
------------------
Thomas C. Scott
<PAGE>
POWER OF ATTORNEY
With Respect to the Canada Life of America
Variable Annuity Account 2
Know all men by these presents that Stephen H. Zimmerman whose signature appears
below, constitutes and appoints Ronald E. Beettam and Thomas C. Scott and each
of them, his attorneys-in-fact, with power of substitution, and each of them in
any and all capacities, to sign any reports and amendments thereto for the Form
N-4 for the Canada Life of America Variable Annuity Account 2 and to file the
same, with exhibits thereto and other documents, in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Date: March 10, 2000
/s/Stephen H. Zimmerman
-----------------------
Stephen H. Zimmerman
