<PAGE>
As Filed with the Securities and Exchange Commission on April 28, 1999.
Registration No. 33-64240
811-7776
- --------------------------------------------------------------------------------
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. 9 [X]
and/or
Registration Statement Under the Investment Company Act of 1940
Amendment No. 11 [X]
- --------------------------------------------------------------------------------
CANADA LIFE OF NEW YORK VARIABLE ANNUITY ACCOUNT 2
(Exact Name of Registrant)
CANADA LIFE INSURANCE COMPANY OF NEW YORK
(Name of Depositor)
500 Mamaroneck Avenue
Harrison, New York 10528
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number: (416) 597- 1456
Paul R. McCadam
500 Mamaroneck Avenue
Harrison, New York 10528
(Name and Address of Agent for Service)
Copy to:
Stephen E. Roth, Esquire
Sutherland, Asbill, & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective:
____ immediately upon filing pursuant to paragraph (b) of Rule 485
x On May 1, 1999 pursuant to paragraph (b) of Rule 485
---- 60 days after filing pursuant to paragraph (a)(i) of Rule 485
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>
PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
HOME OFFICE: 410 SAW MILL RIVER ROAD, ARDSLEY, NEW YORK 10502
PHONE: (914) 693-2300
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TRILLIUM(R)PROSPECTUS
VARIABLE ANNUITY ACCOUNT 2
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY POLICY
This Prospectus describes the flexible premium variable deferred annuity policy
(the Policy) offered by Canada Life Insurance Company of New York (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 New York 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:
<TABLE>
<S> <C>
Seligman Bond Seligman Henderson Global Smaller Companies**
Seligman Capital Seligman Henderson Global Technology**
Seligman Cash Management Seligman Henderson International**
Seligman Common Stock Seligman High-Yield Bond
Seligman Communications and Information Seligman Income
Seligman Frontier Seligman Large-Cap Growth*
Seligman Henderson Global Growth Opportunities** Seligman Large-Cap Value
Seligman Small-Cap Value
</TABLE>
* Available subject to approval by the New York Insurance Department. Please
check with Your registered representative or Our Home Office for availability.
**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, 1999.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY.......................................................... 4
TABLE OF EXPENSES................................................ 10
CONDENSED FINANCIAL INFORMATION.................................. 13
THE COMPANY...................................................... 17
THE VARIABLE ACCOUNT, THE FUND AND THE FIXED ACCOUNT............. 17
The Variable Account......................................... 17
The Fund..................................................... 18
Seligman Bond Portfolio.................................. 18
Seligman Capital Portfolio............................... 18
Seligman Cash Management Portfolio....................... 19
Seligman Common Stock Portfolio.......................... 19
Seligman Communications and Information Portfolio........ 19
Seligman Frontier Portfolio.............................. 19
Seligman Henderson Global Growth Opportunities Portfolio. 19
Seligman Henderson Global Smaller Companies Portfolio.... 19
Seligman Henderson Global Technology Portfolio........... 19
Seligman Henderson International Portfolio............... 19
Seligman High-Yield Bond Portfolio....................... 19
Seligman Income Portfolio................................ 20
Seligman Large-Cap Growth Portfolio...................... 20
Seligman Large-Cap Value Portfolio....................... 20
Seligman Small-Cap Value Portfolio....................... 20
Reserved Rights.......................................... 20
Change in Investment Objective........................... 21
The Fixed Account............................................ 21
Guarantee Amount......................................... 22
Guarantee Periods........................................ 22
Market Value Adjustment.................................. 22
DESCRIPTION OF ANNUITY POLICY.................................... 22
Ten Day Right to Examine Policy.............................. 22
Premium...................................................... 22
Initial Premium.......................................... 22
Additional Premium....................................... 23
Pre-Authorized Check Agreement Plan...................... 23
Electronic Data Transmission of Application Information.. 23
Net Premium Allocation................................... 24
Cash Surrender Value......................................... 24
Policy Value................................................. 24
Variable Account Value....................................... 24
Units.................................................... 24
Unit Value............................................... 24
Net Investment Factor.................................... 25
Transfers.................................................... 25
Transfer Privilege....................................... 25
Telephone Transfer Privilege............................. 26
Intouch(R)Voice Response System.......................... 26
Dollar Cost Averaging Privilege.......................... 26
Transfer Processing Fee.................................. 27
Payment of Proceeds.......................................... 27
Proceeds................................................. 27
Proceeds on Annuity Date................................. 27
Proceeds on Surrender.................................... 28
Proceeds on Death of Last Surviving Annuitant
Before Annuity Date (The Death Benefit).................. 28
Proceeds on Death of Any Policyowner..................... 29
Interest on Proceeds..................................... 29
Partial Withdrawals.......................................... 29
Systematic Withdrawal Privilege.......................... 30
Seligman Time Horizon Matrix(SM)............................. 31
Portfolio Rebalancing........................................ 32
Postponement of Payment...................................... 32
Charges Against the Policy, Variable Account, and Fund....... 32
Surrender Charge......................................... 32
AnnualAdministration Charge.............................. 33
Daily Administration Fee................................. 34
Transfer Processing Fee.................................. 34
Mortality and Expense Risk Charge........................ 34
Waiver of Surrender Charge............................... 35
Reduction or Elimination of Surrender Charges
and AnnualAdministration Charges......................... 35
Taxes.................................................... 36
Other Charges Including Investment Management Fees....... 36
Payment Options.............................................. 36
Election of Options...................................... 36
Description of Payment Options........................... 37
Payment Dates............................................ 37
Age and Survival of Annuitant............................ 37
Other Policy Provisions...................................... 38
Policyowner.............................................. 38
Beneficiary.............................................. 38
Termination.............................................. 38
Written Notice........................................... 38
Periodic Reports......................................... 39
Assignment............................................... 39
Modification............................................. 39
Notification Of Death.................................... 39
YIELDS AND TOTAL RETURNS......................................... 40
TAX DEFERRAL..................................................... 41
FEDERAL TAX STATUS............................................... 42
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Introduction........................................... 42
The Company's Tax Status............................... 42
Tax Status of the Policy............................... 43
Diversification Requirements....................... 43
Policyowner Control................................ 43
Required Distributions............................. 43
Taxation of Annuities.................................. 44
In General......................................... 44
Withdrawals/Distributions.......................... 44
Annuity Payments................................... 45
Taxation of Death Benefit Proceeds................. 45
Penalty Tax on Certain Withdrawals................. 45
Transfers, Assignments, or Exchanges of a Policy....... 46
Withholding............................................ 46
Multiple Policies...................................... 46
Possible Tax Changes................................... 46
Taxation of Qualified Plans............................ 46
Individual Retirement Annuities and Simplified
Employee Pensions (SEP/IRAs)...................... 47
SIMPLE Individual Retirement Annuities............ 47
ROTH Individual Retirement Annuities.............. 47
Minimum Distribution Requirements................. 48
Corporate And Self-Employed (H.R.10 and Keogh)
Pension And Profit-Sharing Plans.................. 48
Deferred Compensation Plans....................... 49
Tax-Sheltered Annuity Plans....................... 49
Other Tax Consequences................................. 49
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT
PROGRAM ERROR! BOOKMARK NOT DEFINED
DISTRIBUTION OF POLICIES................................... 50
LEGAL PROCEEDINGS.......................................... 50
VOTING RIGHTS.............................................. 50
INSURANCE MARKETPLACE STANDARDS ASSOCIATION................ 51
PREPARING FOR YEAR 2000.................................... 51
FINANCIAL STATEMENTS....................................... 52
DEFINITIONS................................................ 4
STATEMENT OF ADDITIONAL INFORMATION - TABLE OF CONTENTS.... 53
APPENDIX A: STATE PREMIUM TAXESERROR! BOOKMARK NOT DEFINED
</TABLE>
3
<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?
You have ten days after You receive the Policy to decide if You would like to
cancel the Policy. We will return the Policy Value (without interest and less
the amount of any partial withdrawals). If the Policy is issued as an IRA and
canceled within 7 days, We will return all premiums if the premiums are greater
than the amount otherwise payable. See "Ten Day Right to Examine Policy."
WHAT IS THE PURPOSE OF THE VARIABLE ACCOUNT?
The Variable Account is a separate investment account that consists of 15 Sub-
Accounts. Before the Policy Value is applied to a payment option, amounts in the
Variable Account will vary according to the investment performance of the
Portfolios 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 the Fixed Account. The Fixed Account is not affected by the
investment performance of the Variable Account. See "The Fixed Account."
WHEN WILL I RECEIVE PAYMENTS?
After the Policy Value is transferred to a payment option, We will pay proceeds
in equal amounts monthly, quarterly or annually during the Annuitant's lifetime
or for 10 years, whichever is longer, unless You have elected another payment
option. See "Proceeds on Annuity Date."
WHAT HAPPENS IF THE OWNER DIES?
If any Owner dies before the Policy Value is transferred to a payment option, We
will pay the
4
<PAGE>
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.
See "Proceeds on Death of Last Surviving Annuitant Before Annuity Date (The
Death Benefit)."
CAN I GET MONEY OUT OF MY POLICY?
You may withdraw part or all of the Cash Surrender Value at any time before the
earlier of the death of the Last Surviving Annuitant, the death of any Owner, or
the date when the value in the Policy is transferred to a payment option,
subject to certain limitations. See "The Fixed Account," "Partial Withdrawals"
and "Proceeds on Surrender." A partial withdrawal or a surrender may incur
federal income tax, including a federal penalty tax. See "FEDERAL TAX STATUS."
WHAT CHARGES WILL I PAY?
Surrender Charge: A surrender charge may be deducted when a partial withdrawal
or cash surrender is made.
The amount withdrawn is first taken from any investment earnings in the Variable
Account and interest earned in the Fixed Account available at the time the
request is made. Then, further amounts withdrawn will be taken from premiums
starting with the oldest premium paid.
Withdrawal or surrender of the following will not incur a surrender charge:
. 100% of investment earnings in the Variable Account
. 100% of interest earned in the Fixed Account
. 100% of premiums paid 7 years or more 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.
5
<PAGE>
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: There are currently no premium taxes payable under New York law.
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.
ARE THERE ANY OTHER POLICY PROVISIONS?
For information concerning the Owner, Beneficiary, Written Notice, periodic
reports, assignment, modification and other important Policy provisions, see
"Other Policy Provisions."
HOW WILL THE POLICY BE TAXED?
For a brief discussion of Our current understanding of the federal tax laws
concerning Us and the
6
<PAGE>
Policy, see "FEDERAL TAX STATUS."
DOES CANADA LIFE OFFER OTHER POLICIES?
We offer other variable annuity policies which also invest in the same
Portfolios of the Fund. These policies may have different charges that could
affect the value of the Sub-Accounts and may offer different benefits more
suitable for Your needs. For more information about these policies, please
contact Us at the phone number or address on page 1.
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.
7
<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.
<TABLE>
<CAPTION>
POLICYOWNER TRANSACTION EXPENSES
--------------------------------
<S> <C>
Sales load on purchase payments.......................................................... None
Maximum surrender charge as a percentage of amount surrendered
(10% of total permiums 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, 1998
---------------------------------------------------------
(after Expense Reimbursement, as indicated, and as a percentage of average net assets)
----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL
PORTFOLIO MANAGEMENT (AFTER ANNUAL
---------
FEES REIMBURSEMENT)**** EXPENSES
----- ------------------ --------
<S> <C> <C> <C>
Seligman Bond .40% .20% 0.60%
Seligman Capital .40% .20% 0.60%
Seligman Cash Management .00% .00% 0.00%
Seligman Common Stock .40% .12% 0.52%
Seligman Communications and Information .75% .12% 0.87%
Seligman Frontier .75% .17% 0.92%
Seligman Henderson Global Growth
Opportunities 1.00% .40% 1.40%
Seligman Henderson Global Smaller Companies 1.00% .40% 1.40%
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL
PORTFOLIO MANAGEMENT (AFTER ANNUAL
---------
FEES REIMBURSEMENT)**** EXPENSES
------ ------------------ --------
<S> <C> <C> <C>
Seligman Henderson Global Technology 1.00% .40% 1.40%
Seligman Henderson International 1.00% .40% 1.40%
Seligman High-Yield Bond .50% .20% 0.70%
Seligman Income .40% .20% 0.60%
Seligman Large-Cap Growth .70%* .00% .70%
Seligman Large-Cap Value .80%** .00% .80%
Seligman Small-Cap Value 1.00%*** .00% 1.00%
</TABLE>
* As Seligman Large-Cap Growth did not commence operations until May 1, 1999,
the "Other Expenses" for this Sub-Account are based on estimated amounts
for the current fiscal year. 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.
** The annual rate of 0.80% applies to the Portfolio's first $500 million in
average daily net assets. The rate declines to 0.70% of the Portfolio's
average daily net assets on the next $500 million in net assets, and to
0.60% of the Portfolio's average daily net assets in excess of $1 billion.
*** The annual rate of 1.00% applies to the Portfolio's first $500 million in
average daily net assets. The rate declines to 0.90% of the Portfolio's
average daily net assets on the next $500 million in net assets, and to
0.80% of the Portfolio's average daily net assets in excess of $1 billion.
**** The following should be noted regarding Management Fees and Other Expenses:
. The 0.00% Management Fee charge for the Seligman Cash Management
Portfolio is because the Manager, in its sole discretion, waived
its 0.40% fee during 1998.
. With respect to the Seligman Bond, Seligman Capital, Seligman
Cash Management, Seligman Common Stock, Seligman Communications
and Information, Seligman Frontier, Seligman High-Yield Bond, and
Seligman Income Portfolios, Other Expenses (After Reimbursement)
reflect that annual expenses (other than Management Fees)
exceeding 0.20% (0.00% for Cash Management) will be voluntarily
reimbursed by the Fund's Manager.
. The Manager has voluntarily agreed to reimburse annual expenses
(including Management Fees) that exceed 0.80% for the Seligman
Large-Cap Value and 1.00% for the Seligman Small-Cap Value
Portfolios. Information for these Portfolios is for the period
5/01/98 (commencement of operations) to 12/31/98.
. With respect to the Seligman Henderson International, Seligman
Henderson Global Smaller Companies, Seligman Henderson Global
Technology and Seligman Henderson Global Growth Opportunities
Portfolios, the Sub-Advisor has agreed to reimburse annual
expenses (other than Management Fees) that exceed 0.40% of
average net assets.
. With respect to the Seligman Large-Cap Growth Portfolio, "Other
Expenses (After Reimbursement)" reflect that annual expenses
(other than Management Fees) exceeding 0.00% will be voluntarily
reimbursed by the Fund's Manager. The fees and expenses for the
Seligman Large-Cap Growth Portfolio are estimated because the
Portfolio commenced operations on May 1, 1999.
If the Manager and Sub-Advisor had not waived or reimbursed these
expenses, the Fund's 1998 Management Fees, Other Expenses and Total
Annual Expenses would have been:
<TABLE>
<CAPTION>
PORTFOLIO MANAGEMENT OTHER EXPENSES TOTAL ANNUAL
--------- ---------- -------------- ------------
FEES EXPENSES
----- --------
<S> <C> <C> <C>
Seligman Bond .40% .42% 0.82%
Seligman Capital .40% .20% 0.60
Seligman Cash Management .40% .27% 0.67%
Seligman Common Stock .40% .12% 0.52%
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO MANAGEMENT OTHER EXPENSES TOTAL ANNUAL
--------- ---------- -------------- ------------
FEES EXPENSES
----- --------
<S> <C> <C> <C>
Seligman Communications and Information .75% .12% 0.87%
Seligman Frontier .75% .17% 0.92%
Seligman Henderson Global Growth
Opportunities 1.00% .60% 1.60%
Seligman Henderson Global Smaller Companies 1.00% .50% 1.50%
Seligman Henderson Global Technology 1.00% .80% 1.80
Seligman Henderson International 1.00% .78% 1.78%
Seligman High-Yield Bond .50% .24% 0.74%
Seligman Income .40% .21% 0.61%
Seligman Large-Cap Growth * * *
Seligman Large-Cap Value .80%** 1.44%** 2.24%
Seligman Small-Cap Value 1.00%** 2.08%** 3.08%
</TABLE>
* The Seligman Large-Cap Growth Portfolio commenced operations on May
1, 1999, therefore no actual expense information is available for
1998.
** For the period 5/01/98 (commencement of operations) to 12/31/98.
There is no assurance that these waiver or reimbursement policies will
be continued in the future. If any of these policies are discontinued,
it will be reflected in an updated prospectus.
The data with respect to the Fund's annual expenses have been provided to Us by
the Fund and We have not independently verified such data.
For a more complete description of the various costs and expenses, see "Charges
Against the Policy, Variable Account and Fund" and the Fund's prospectus. In
addition to the expenses listed above, premium taxes may be applicable, although
no premium tax is currently payable under New York law.
EXAMPLES
A Policyowner would pay the following expenses on a $1,000 investment, assuming
a 5% annual return on assets:
1. If the Policy is surrendered at the end of the applicable time period:
SUB-ACCOUNT 1 YEAR 3 YEAR 5 YEAR 10 YEAR
----------- ------ ------ ------ -------
Bond 75 110 147 239
Capital 75 110 147 239
Cash Management 69 91 116 175
Common Stock 74 107 143 231
Communications and Information 78 118 161 267
Frontier 78 119 163 272
Global Growth Opportunities 83 134 187 319
Global Smaller Companies 83 134 187 319
Global Technology 83 134 187 319
High-Yield Bond 76 113 152 250
10
<PAGE>
SUB-ACCOUNT 1 YEAR 3 YEAR 5 YEAR 10 YEAR
----------- ------ ------ ------ -------
Income 75 110 147 239
International 83 134 187 319
Large-Cap Growth 76 113 * *
Large-Cap Value 77 116 157 260
Small-Cap Value 79 122 167 280
* Pursuant to regulations set forth by the Securities and Exchange Commission,
examples for 5 and 10 Year periods have not been provided for Sub-Accounts
commencing operations on or after May 1, 1999.
2. If the Policy is annuitized or not surrendered at the end of the
applicable time period:
SUB-ACCOUNT 1 YEAR 3 YEAR 5 YEAR 10 YEAR
----------- ------ ------ ------ -------
Bond 21 65 111 239
Capital 21 65 111 239
Cash Management 15 46 80 175
Common Stock 20 62 107 231
Communications and Information 24 73 125 267
Frontier 24 74 127 272
Global Growth Opportunities 29 89 151 319
Global Smaller Companies 29 89 151 319
Global Technology 29 89 151 319
High-Yield Bond 22 68 116 250
Income 21 65 111 239
International 29 89 151 319
Large-Cap Growth 22 68 * *
Large-Cap Value 23 71 121 260
Small-Cap Value 25 77 131 280
* Pursuant to regulations set forth by the Securities and Exchange Commission,
examples for 5 and 10 Year periods have not been provided for Sub-Accounts
commencing operations on or after May 1, 1999.
These Examples are based, with respect to all of the Portfolios, on an estimated
average account value of $47,010. The Examples assume that no transfer charge
has been assessed. The Examples also reflect an Annual Administration Charge of
0.06% 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
The following condensed financial information is derived from the financial
statements of the Variable
11
<PAGE>
Account. The data should be read in conjunction with the financial statements,
related notes and other financial information included in the "Financial
Statements" section of the Statement of Additional Information.
The table on the following page sets forth certain information for the period
from commencement of business operations through December 31, 1998. We do not
provide Accumulation Unit Values for any date prior to the inception of the
Variable Account.
As of December 31, 1998, the Large-Cap Growth Sub-Account had not commenced
operations. Accordingly, condensed financial information is not available for
this Sub-Account.
12
<PAGE>
ACCUMULATION UNIT VALUE
AS OF
AS OF AS OF AS OF INCEPTION
SUB-ACCOUNT 12/31/98 12/31/97 12/31/96 DATE
----------- -------- -------- -------- ----
Bond* $17.43 $ 16.33 $ 15.21 $ 15.40
Capital* $37.12 $ 30.81 $ 25.79 $ 22.63
Cash Management* $ 1.45 $ 1.40 $ 1.34 $ 1.30
Common Stock* $40.10 $ 32.75 $ 27.42 $ 23.44
Communications and Information*
$24.57 $ 18.26 $ 15.17 $ 13.61
Frontier* $18.77 $ 19.32 $ 16.86 $ 17.32
Global Growth Opportunities** $13.05 $ 10.88 $ 9.82 $ 10.00
Global Smaller Companies* $14.89 $ 14.17 $ 13.91 $ 14.16
Global Technology** $16.34 $ 12.11 $ 10.29 $ 10.00
High-Yield Bond* $13.54 $ 13.59 $ 11.99 $ 11.21
Income* $22.79 $ 21.45 $ 19.11 $ 18.40
International* $15.84 $ 13.87 $ 13.00 $ 12.35
Large-Cap Value $ 9.88 ***
Small-Cap Value $ 8.22 ***
13
<PAGE>
NUMBER OF UNITS OUTSTANDING
AT END OF PERIOD
AS OF AS OF AS OF
SUB-ACCOUNT 12/31/98 12/31/97 12/31/96
----------- -------- -------- --------
Bond* 10,846 11,449 1,008
Capital* 15,326 13,870 4,295
Cash Management* 372,238 80,615 107,526
Common Stock* 107,766 24,355 7,651
Communications and 53,475 13,615
Information* 24,351
Frontier* 54,057 39,062 20,321
Global Growth Opportunities** 30,195 23,053 2,878
Global Smaller Companies* 46,911 48,900 23,204
Global Technology** 15,022 6,972 3,596
High-Yield Bond* 83,085 55,396 10,064
Income* 16,571 9,543 4,576
International* 10,161 8,667 2,363
Large-Cap Value 10,597 ***
Small-Cap Value 15,675 ***
* Commenced operations 1/28/96.
** Commenced operations 5/1/96.
*** 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.
14
<PAGE>
THE COMPANY
We are a stock life insurance company with assets as of December 31, 1998 of
approximately $293 million (U.S. dollars). We were incorporated under New York
law on June 7, 1971, and Our Home Office is located at 410 Saw Mill River Road,
Ardsley, New York 10502. We are principally engaged in issuing and reinsuring
annuity and life insurance policies in the state of New York.
We share Our A.M. Best rating with Our parent company, The Canada Life Assurance
Company. From time to time, We will quote this rating and Our ratings from
Standard & Poor's Corporation, Duff & Phelps Inc., and/or Moody's Investors
Service for claims paying ability. These ratings relate to Our financial ability
to meet Our contractual obligations under Our insurance contracts. They do not
take into account deductibles, surrender or cancellation penalties, or
timeliness of claim payment. They also do not address the suitability of a
Policy for a particular purchaser, or relate to Our ability to meet non-policy
obligations.
We are a wholly-owned subsidiary of The Canada Life Assurance Company, a
Canadian life insurance company headquartered in Toronto, Ontario, Canada. The
Canada Life Assurance Company commenced insurance operations in 1847 and has
been actively operating in the United States since 1889. It is one of the
largest life insurance companies in North America with consolidated assets as of
December 31, 1998 of approximately $29.4 billion (U.S. dollars).
Obligations under the Policies are obligations of Canada Life Insurance Company
of New York.
We are subject to regulation and supervision by the New York Insurance Bureau,
as well as the laws and regulations of all jurisdictions in which We are
authorized to do business.
THE VARIABLE ACCOUNT, THE FUND AND THE FIXED ACCOUNT
THE VARIABLE ACCOUNT
We established the Canada Life of New York Variable Annuity Account 2 (the
Variable Account) as a separate investment account on February 25, 1993, under
New York law. Although We own the assets in the Variable Account, these assets
are held separately from Our other assets and are not part of Our general
account. The income, gains or losses, whether or not realized, from the assets
of the Variable Account are credited to or charged against the Variable Account
in accordance with the policies without regard to Our other income, gains or
losses.
The portion of the assets of the Variable Account equal to the reserves and
other contract liabilities of the Variable Account will not be charged with
liabilities that arise from any other business that We conduct. We have the
right to transfer to Our general account any assets of the Variable Account
which are in excess of such reserves and other liabilities.
The Variable Account is registered with the Securities and Exchange Commission
(the SEC) as a unit investment trust under the Investment Company Act of 1940
(the 1940 Act) and meets the definition of a "separate account" under the
federal securities laws. However, the SEC does not supervise the management,
investment policies or practices of the Variable Account.
The Variable Account currently is divided into 15 Sub-Accounts. Each Sub-Account
invests its assets in shares of the corresponding Portfolio of the Fund
described below.
15
<PAGE>
THE FUND
The Fund has 15 Portfolios:
<TABLE>
<S> <C>
Seligman Bond Seligman Henderson Global Smaller Companies
Seligman Capital Seligman Henderson Global Technology
Seligman Cash Management Seligman Henderson International
Seligman Common Stock Seligman High-Yield Bond
Seligman Communications and Information Seligman Income
Seligman Frontier Seligman Large-Cap Growth*
Seligman Henderson Global Growth Opportunities Seligman Large-Cap Value
Seligman Small-Cap Value
</TABLE>
* Available subject to approval by the New York Insurance Department. Please
check with Your registered representative or Our Home Office for availability.
Shares of a Portfolio are purchased and redeemed for a corresponding Sub-Account
at their net asset value. Any amounts of income, dividends and gains distributed
from the shares of a Portfolio are reinvested in additional shares of that
Portfolio at their net asset value. The Fund prospectus defines the net asset
value of portfolio shares.
The Fund is a diversified open-end investment company incorporated in Maryland.
It uses the investment management services of J. & W. Seligman & Co.
Incorporated (the Seligman Henderson Global Growth Opportunities, Seligman
Henderson Global Smaller Companies, Seligman Henderson Global Technology, and
Seligman Henderson International Portfolios use the sub-advisory services of
Henderson Investment Management Limited).
The 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.
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.
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
16
<PAGE>
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 HENDERSON GLOBAL GROWTH OPPORTUNITIES PORTFOLIO
This Portfolio seeks to achieve long-term capital appreciation by investing
primarily in equity securities of companies that have the potential to benefit
from global economic or social trends.
SELIGMAN HENDERSON GLOBAL SMALLER COMPANIES PORTFOLIO
This Portfolio seeks to achieve long-term capital appreciation primarily through
global investments in securities of smaller companies.
SELIGMAN HENDERSON GLOBAL TECHNOLOGY PORTFOLIO
This Portfolio seeks to achieve long-term capital appreciation by making global
investments of at least 65% of its assets in securities of companies with
business operations in technology and technology-related industries.
SELIGMAN HENDERSON INTERNATIONAL PORTFOLIO
This Portfolio currently seeks to achieve long-term capital appreciation
primarily through international investments in securities of medium to large-
sized companies.
SELIGMAN HIGH-YIELD BOND PORTFOLIO
This Portfolio seeks to produce maximum current income by investing primarily in
high-yielding, high risk corporate bonds and corporate notes, which, generally,
are unrated or carry ratings lower than
17
<PAGE>
those assigned to investment grade bonds by Standard & Poor's Rating Service
(S&P) or Moody's Investors Service, Inc. (Moody's). The Portfolio will invest up
to 100% of its assets in lower rated bonds, commonly known as "junk bonds,"
which are subject to a greater risk of loss of principal and interest than
higher rated investment grade bonds. An investment in the Portfolio is
appropriate for You only if You can bear the high risk inherent in investing in
such securities. This risk is described in the attached prospectus for the Fund,
which should be read carefully before investing.
SELIGMAN INCOME PORTFOLIO
This Portfolio seeks primarily to produce high current income consistent with
what is believed to be prudent risk of capital and secondarily to provide the
possibility of improvement in income and capital value over the longer term, by
investing primarily in income-producing securities.
SELIGMAN LARGE-CAP GROWTH PORTFOLIO*
This Portfolio seeks long-term capital appreciation by investing primarily in
the common stocks of large U.S. based companies.
* Available subject to approval by the New York Insurance Department. Please
check with Your registered representative or Our Home Office for availability.
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 substitute shares of another portfolio of the Fund or
shares of another registered open-end investment company if, in our judgment,
investment in shares of a current Portfolio(s) is no longer appropriate. This
decision will be based on a legitimate reason, such as a
18
<PAGE>
change in investment objective, a change in the tax laws, or the shares are no
longer available for investment. We will first obtain SEC approval, if such
approval is required by law.
When permitted by law, We also reserve the right to:
. create new separate accounts;
. combine separate accounts, including the Canada Life of New York
Variable Annuity Account 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 New York Insurance Bureau. A statement of such
approval will be filed, if required, with the insurance department of the state
in which the Policy is delivered.
THE FIXED ACCOUNT
You may allocate some or all of the Net Premium and/or make transfers from the
Variable Account to the Fixed Account. The Fixed Account pays interest at a
guaranteed rate declared subject to Our sole discretion and without any formula
(Guaranteed Interest Rate). The principal, after deductions, is also guaranteed.
Policyowners allocating Net Premium and/or Policy Value to the Fixed Account do
not participate in the investment performance of assets of the Fixed Account.
The Fixed Account value is calculated by:
. adding the Net Premium and/or Policy Value allocated to it;
. adding the Guaranteed Interest Rate credited on amounts in it; and
. subtracting any charges imposed on amounts in it in accordance with the
terms of the Policy
The following also applies to the Fixed Account:
. The Fixed Account is part of Our general account. We assume the risk of
investment gain or loss on this amount. All assets in the general
account are subject to Our general liabilities from business
operations. The Fixed Account is not affected by the investment
performance of the Variable Account.
. Interests issued by Us in connection with the Fixed Account have not
been registered under the Securities Act of 1933 (the 1933 Act). Also,
neither the Fixed Account nor the general account has been registered
as an investment company under the 1940 Act. So, neither the Fixed
Account nor the general account is generally subject to regulation
under either Act. However, certain disclosures may be subject to
generally applicable provisions of the federal securities laws
regarding the accuracy of statements made in a registration statement.
19
<PAGE>
GUARANTEE AMOUNT
The Guarantee Amount is the portion of the Policy Value allocated to the Fixed
Account. The Guarantee Amount includes:
. Net Premium allocated to the Fixed Account;
. Policy Value transferred to the Fixed Account;
. interest credited to the Policy Value in the Fixed Account; and o the
. deduction of charges assessed in connection with the Policy.
The Guarantee Amount is guaranteed to accumulate at a minimum effective annual
interest rate of 3%.
Dollar Cost Averaging. From time to time We may offer a special Fixed Account
option, not to exceed one year, whereby You may elect to automatically transfer
specified additional premium from this account to any Sub-Account(s) and/or the
Fixed Account on a periodic basis, for a period not to exceed twelve months.
This special Fixed Account option is subject to Our administrative procedures
and the restrictions disclosed in the "Transfer Privilege" section. A special
interest rate may be offered for this Fixed Account option, which may differ
from that offered for the Fixed Account. The available interest rate will always
be an effective annual interest rate of at least 3%. This Fixed Account option
is used solely in connection with the "dollar cost averaging" privilege (see
"Dollar Cost Averaging Privilege").
DESCRIPTION OF ANNUITY POLICY
TEN DAY RIGHT TO EXAMINE POLICY
You have ten days after You receive the Policy to decide if You would like to
cancel the Policy.
If the Policy does not meet Your needs, return it to Our Home Office. Within
seven days of receipt of the Policy, We will return the Policy Value. When the
Policy is issued as an IRA and canceled within seven days, We will return all
premiums if the premiums are greater than the amount otherwise payable.
PREMIUM
INITIAL PREMIUM
You must submit a complete application and check made payable to Us for the
initial premium. The following chart outlines the minimum initial premium
accepted.
<TABLE>
<CAPTION>
MINIMUM INITIAL
TYPE OF POLICY PREMIUM ACCEPTED*
<S> <C>
Policy is an IRA........................................................................................$2,000
Policy is not an IRA....................................................................................$5,000
Policy is IRA and PAC agreement** for additional premiums submitted.....................................$50
Policy is not an IRA and PAC agreement for additional premiums submitted................................$100
</TABLE>
* We reserve the right to lower or raise the minimum initial premium.
20
<PAGE>
** For more information on PAC agreements, see "Pre-Authorized Check Agreement
Plan."
The application must meet Our underwriting standards. The application must be
properly completed and accompanied by all the information necessary to process
it, including the initial premium. We will normally accept the application and
apply the initial Net Premium within two Valuation Days of receipt at Our Home
Office. However, We may hold the premium for up to five Valuation Days while We
attempt to complete the processing of an incomplete application. If this cannot
be done within five Valuation Days, We will inform You of the reasons for the
delay and immediately return the premium, unless You specifically consent to Our
keeping the premium until the application is made complete. We will then apply
the initial Net Premium within two Valuation Days of when the application is
correctly completed.
ADDITIONAL PREMIUM
You may make additional premium payments at any time during any Annuitant's
lifetime and before the Annuity Date. Our prior approval is required before We
will accept an additional premium which, together with the total of other
premiums paid, would exceed $1,000,000. We will apply additional Net Premium as
of receipt at Our Home Office. We will give You a receipt for each additional
premium payment.
The following chart outlines the minimum additional premium accepted.
<TABLE>
<CAPTION>
MINIMUM ADDITIONAL
TYPE OF POLICY PREMIUM ACCEPTED*
<S> <C>
Policy is an IRA........................................................................................$1,000
Policy is not an IRA....................................................................................$1,000
Policy is IRA and PAC agreement** for additional premiums submitted.....................................$50
Policy is not an IRA and PAC agreement for additional premiums submitted................................$100
</TABLE>
* We reserve the right to lower or raise the minimum additional premium.
** For more information on PAC agreements, see "Pre-Authorized Check Agreement
Plan."
PRE-AUTHORIZED CHECK AGREEMENT PLAN
You may choose to have monthly premiums automatically collected from Your
checking or savings account pursuant to a pre-authorized check agreement plan
(PAC). This plan may be terminated by You or Us after 30 days Written Notice, or
at any time by Us if a payment has not been paid by Your bank. This option is
not available on the 29th, 30th or 31st day of each month. There is no charge
for this feature.
ELECTRONIC DATA TRANSMISSION OF APPLICATION INFORMATION
Subject to regulatory approval, We may accept electronic data transmission of
application information accompanied by a wire transfer of the initial premium.
Contact Us to find out about availability.
Upon receipt of the electronic data and wire transmittal, We will process the
information and allocate the premium payment according to Your instructions. We
will then send a Policy and verification letter to You to sign.
During the period from receipt of the initial premium until the signed
verification letter is received, no financial transactions may be executed under
the Policy, unless You request such transactions in
21
<PAGE>
writing and provide a signature guarantee.
NET PREMIUM ALLOCATION
You elect in Your application how You want Your initial Net Premium to be
allocated among the Sub-Accounts and the Fixed Account. Any additional Net
Premium 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 and Annual Administration Charge.
POLICY VALUE
The Policy Value is the sum of the Variable Account value and the Fixed Account
value.
VARIABLE ACCOUNT VALUE
To calculate the Variable Account value before the Annuity Date, multiply (a) by
(b), where:
a) is the number of Units credited to the Policy for each Sub-Account; and
b) is the current Unit Value of these Units.
UNITS
We credit Net Premium in the form of Units. The number of Units credited to the
Policy for each Sub-Account is (a) divided by (b), where:
a) is the Net Premium allocated to that Sub-Account; and
b) is the Unit Value for that Sub-Account (at the end of the Valuation Period
during which We receive the premium).
We will credit Units for the 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,
22
<PAGE>
except the Cash Management Sub-Account is set at $1. After that, the Unit Value
is determined by multiplying the Unit Value at the end of the immediately
preceding Valuation Period by the Net Investment Factor for the current
Valuation Period.
The Unit Value for a Valuation Period applies to each day in that period. The
Unit Value may increase or decrease from one Valuation Period to the next.
NET INVESTMENT FACTOR
The Net Investment Factor is an index that measures the investment performance
of a Sub-Account from one Valuation Period to the next. Each Sub-Account has a
Net Investment Factor, which may be greater than or less than 1.
The Net Investment Factor for each Sub-Account for a Valuation Period equals 1
plus the rate of return earned by the Portfolio in which the Sub-Account You
selected invests, adjusted for taxes charged or credited to the Sub-Account, the
mortality and expense risk charge, and the daily administration fee.
To find the rate of return of each Portfolio in which the Sub-Accounts invest,
divide (a) by (b) where:
(a) is the net investment income and net gains, realized and unrealized,
credited during the current Valuation Period; and
(b) is the value of the net assets of the relevant Portfolio at the end of
the preceding Valuation Period, adjusted for the net capital transactions
and dividends declared during the current Valuation Period.
TRANSFERS
TRANSFER PRIVILEGE
You may transfer all or a part of an amount in a Sub-Account(s) to another
Sub-Account(s) or to the Fixed Account. You also can transfer an amount in the
Fixed Account to a Sub-Account(s). Transfers are subject to the following
restrictions:
1. the Company's minimum transfer amount, currently $250; and
2. a transfer request that would reduce the amount in that Sub-Account or
the Fixed Account below $500 will be treated as a transfer request for
the entire amount in that Sub-Account or the Fixed Account.
We cannot guarantee that a Sub-Account or shares of a Portfolio will always be
available. If You request an amount in a Sub-Account or the Fixed Account be
transferred to a Sub-Account at a time when the Sub-Account or underlying
Portfolio is unavailable, We will not process Your transfer request. This
request will not be counted as a transfer for purposes of determining the number
of free transfers executed in a year. The Company reserves the right to change
its minimum transfer amount requirements.
Excessive trading (including short-term "market timing" trading) may adversely
affect the performance of the Sub-Accounts. If a pattern of excessive trading by
a Policyowner or the Policyowner's agent develops, We reserve the right not to
process the transfer request. If Your request is not processed, it will not be
counted as a transfer for purposes of determining the number of free transfers
executed.
23
<PAGE>
TELEPHONE TRANSFER PRIVILEGE
We can process Your transfer request by phone if You have completed Our
administrative form. The authorization will remain effective until We receive
Your written revocation or We discontinue this privilege.
We will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. If We do not employ such reasonable procedures, We may
be liable for any losses due to unauthorized or fraudulent instructions. These
procedures may include recording telephone calls and obtaining personal security
codes and contract number before effecting any transfers.
We can not accept or process transfer requests left on Our voice mail system,
although transfers through Our Intouch(R) Voice Response System are acceptable.
INTOUCH(R) VOICE RESPONSE SYSTEM
The Intouch Voice Response System is our interactive voice response system which
You can access through Your touch tone telephone. Use of this service allows you
to:
. obtain current Sub-Account balances;
. obtain current Policy and Unit Values;
. obtain the current Fixed Account interest rate;
. change Your Sub-Account allocation; and
. effect transfers between Sub-Accounts or to the Fixed Account.
Your Policy number and Personal Identification Number, issued by Us to ensure
security, are required for any transfers and/or allocation changes.
When using the Intouch Voice Response System, You will not be assessed a
transfer processing fee regardless of the number of transfers made per Policy
Year.
DOLLAR COST AVERAGING PRIVILEGE
You may choose to automatically transfer specified amounts from any Sub-Account
or the Fixed Account (either one a disbursement account) to any other
Sub-Account(s) or the Fixed Account on a periodic basis. Transfers are subject
to Our administrative procedures and the restrictions in "Transfer Privilege."
This privilege is intended to allow You to utilize "Dollar Cost Averaging"
(DCA), a long-term investment method which provides for regular, level
investments over time. We make no representation or guarantee that DCA will
result in a profit or protect against loss. You should first discuss this (as
you would all other investment strategies) with Your registered representative.
To initiate DCA, We must receive Your Written Notice on Our form. Once elected,
transfers will be processed until one of the following occurs:
. the entire value of the Sub-Account or the Fixed Account is completely
depleted; or
. We receive Your written revocation of such monthly transfers; or
. We discontinue this privilege.
We reserve the right to change Our procedures or to discontinue the DCA
privilege upon 30 days Written Notice to You.
This option is not available on the 29th, 30th or 31st day of each month. There
is no charge for this
24
<PAGE>
feature.
TRANSFER PROCESSING FEE
There is no limit to the number of transfers that You can make between
Sub-Accounts or the Fixed Account. The first 12 transfers during each Policy
Year are currently free, although We reserve the right to change this procedure.
We currently assess a $25 transfer fee for the 13th and each additional transfer
in a Policy Year. A transfer request (which includes Written Notices and
telephone calls) is considered to be one transfer, regardless of the number of
Sub-Accounts affected by the request. The processing fee will be deducted
proportionately from the receiving Sub-Account(s) and/or the Fixed Account. The
$25 transfer fee is waived when using the Intouch(R) Voice Response System,
portfolio rebalancing, and dollar cost averaging.
PAYMENT OF PROCEEDS
PROCEEDS
Proceeds means the amount We will pay when the first of the following events
occurs:
. the Annuity Date;
. the Policy is surrendered;
. We receive Due Proof of Death of any Owner;
. We receive Due Proof of Death of the Last Surviving Annuitant.
If death occurs prior to the Annuity Date, proceeds are paid in one of the
following ways:
. lump sum;
. within 5 years of the Owner's death, as required by federal tax laws (see
"Proceeds on Death of Any Owner"); or
. by a mutually agreed upon payment option. See "Election of Options."
The Policy ends when We pay the proceeds.
For any annuity benefit with payments of five years or more, such annuity
benefits at the time the Policy Value is applied under a payment option will not
be less than those that would be provided by the application of an amount to
purchase any single premium immediate annuity policy offered by Us at the time
to the same class of Annuitants. Such amount shall be the greater of the Cash
Surrender Value or 95% of what the Cash Surrender Value would be if there were
no surrender charge.
We will deduct any applicable premium tax from the proceeds, unless We deducted
the tax from the premiums when paid.
PROCEEDS ON ANNUITY DATE
If Payment Option 1 is in effect on the Annuity Date, We will pay the Policy
Value. See "Payment Options."
You may annuitize at any time, and may change the Annuity Date, subject to these
limitations:
1. We must receive Your Written Notice at Our Home Office at least 30 days
before the current Annuity Date;
2. The requested Annuity Date must be a date that is at least 30 days after
We receive Your Written Notice; and
3. The requested Annuity Date may be no later than the first day of the month
after any Annuitant's 100th birthday (or earlier as required by law).
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The proceeds paid will be the Policy Value if paid on the first day of the month
after any Annuitant's 100th birthday (or earlier as required by law).
PROCEEDS ON SURRENDER
If You surrender the Policy, We will pay the Cash Surrender Value. The Cash
Surrender Value will be determined on the date We receive Your Written Notice
for surrender and Your Policy at Our Home Office.
You may elect to have the Cash Surrender Value paid in a single sum or under a
payment option. See "Payment Options." The Policy ends when We pay the Cash
Surrender Value. You may avoid a surrender charge by electing to apply the
Policy Value under Payment Option 1.
See "Proceeds on Annuity Date."
Surrender proceeds may be subject to federal income tax, including a penalty
tax. See "FEDERAL TAX STATUS."
PROCEEDS ON DEATH OF LAST SURVIVING ANNUITANT BEFORE ANNUITY DATE (THE DEATH
BENEFIT)
If the Last Surviving Annuitant dies before the Policy Value is transferred to a
payment option, We will pay the Beneficiary a Death Benefit.
The 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."
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PROCEEDS ON DEATH OF ANY OWNER
If any Policyowner dies before the Annuity Date, the following rules apply:
. If You (the deceased Policyowner) were not the Last Surviving Annuitant
and We receive Due Proof of Your death before the Annuity Date, We will
pay the Beneficiary the Policy Value as of the date We receive Due Proof
of Your death.
. If You were the Last Surviving Annuitant and We receive Due Proof of
Your death before the Annuity Date, We will pay the Beneficiary the
Death Benefit described in "Proceeds on the Death of Last Surviving
Annuitant Before Annuity Date."
. As required by federal tax law, regardless of whether You were the
Annuitant, the entire interest in the Policy will be distributed to the
Beneficiary:
a) within five years of Your death; or
b) over the life of the Beneficiary or over a period not extending
beyond the life expectancy of that Beneficiary, with payments
beginning within one year of Your death.
However, if Your spouse is the Beneficiary the Policy may be continued. If this
occurs and You were the only Annuitant, Your spouse will become the Annuitant.
If any Policyowner dies on or after the Annuity Date but before all proceeds
payable under the Policy have been distributed, We will continue payments to the
designated payee under the payment option in effect on the date of the deceased
Policyowner's death.
If any Policyowner is not an individual, the death or change of any Annuitant
will be treated as the death of a Policyowner, and We will pay the Beneficiary
the Cash Surrender Value.
This will be construed in a manner consistent with section 72(s) of the Internal
Revenue Code of 1986, as amended. If anything in the Policy conflicts with the
foregoing, this Prospectus will control.
PARTIAL WITHDRAWALS
You may withdraw part of the Cash Surrender Value, subject to the following:
1. the Company's minimum partial withdrawal is currently $250;
2. the maximum partial withdrawal is the amount that would leave a Cash
Surrender Value of $2,000; and
3. a partial withdrawal request which would reduce the amount in a Sub-
Account or the Fixed Account below $500 will be treated as a request for a
full withdrawal of the amount in that Sub-Account or the Fixed Account.
On the date We receive at Our Home Office Your Written Notice for a partial
withdrawal, We will withdraw the partial withdrawal from the Policy Value. We
will then deduct any applicable surrender charge from the amount requested for
withdrawal. The Company reserves the right to change its minimum partial
withdrawal amount requirements.
You may specify the amount to be withdrawn from certain Sub-Accounts or the
Fixed Account. If You do not provide this information to us, We will withdraw
proportionately from the Sub-Accounts in which You are invested and the Fixed
Account. If You do provide this information to us, but the amount in the
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<PAGE>
designated Sub-Accounts and/or the Fixed Account is inadequate to comply with
Your withdrawal request, We will first withdraw from the specified Sub-Accounts
and the Fixed Account. The remaining balance will be withdrawn proportionately
from the other Sub-Accounts and the Fixed Account in which You are invested.
Any partial or systematic withdrawal may be included in the Policyowner's gross
income in the year in which the withdrawal occurs, and may be subject to federal
income tax (including a penalty tax equal to 10% of the amount treated as
taxable income). The Code restricts certain distributions under Tax-Sheltered
Annuity Plans and other qualified plans. See "FEDERAL TAX STATUS."
SYSTEMATIC WITHDRAWAL PRIVILEGE
You may elect to use the Systematic Withdrawal Privilege (SWP) to withdraw a
fixed-level amount from the Sub-Account(s) and the Fixed Account on a monthly,
quarterly, semi-annual or annual basis, beginning 30 days after the Effective
Date, if:
. We receive Your Written Notice on Our administrative form;
. the Policy meets a minimum premium, currently $25,000 (if surrender
charges apply); and
. the Policy complies with the "Partial Withdrawals" provision (if surrender
charges apply).
If surrender charges are applicable, You may withdraw without incurring a
surrender charge the following:
. 100% of investment earnings in the Variable Account, available at the time
the SWP is executed/processed
. 100% of interest earned in the Fixed Account, available at the time the
SWP is executed/processed
. 100% of premiums paid 7 years or more 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.
If surrender charges are not applicable, the entire Policy is available for
systematic withdrawal. Once an amount has been selected for withdrawal, it will
remain fixed until the earlier of the next Policy Anniversary or termination of
the privilege. A written request to change the withdrawal amount for the
following Policy Year must be received no later than 7 days prior to the Policy
Anniversary date. The Systematic Withdrawal Privilege will end at the earliest
of the date:
. when the Sub-Account(s) and/or the Fixed Account You specified for those
withdrawals have no remaining amount to withdraw;
. the Cash Surrender Value is reduced to $2,000*;
. You choose to pay premiums by the pre-authorized check agreement plan;
. 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
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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. Participation in
the Matrix is voluntary and can be modified or discontinued at any time by You
in writing. 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.
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PORTFOLIO REBALANCING
Portfolio rebalancing (Rebalancing) is an investment strategy in which Your
Policy Value, in the Sub-Accounts only, is reallocated back to its original
portfolio allocation. Rebalancing is performed regardless of changes in
individual portfolio values from the time of the last rebalancing. It is
executed on a quarterly, semi-annual or annual basis. We make no representation
or guarantee that rebalancing will result in a profit, protect You against loss
or ensure that You meet Your financial goals.
To initiate Rebalancing, We must receive Your Written Notice on Our form.
Participation in Rebalancing is voluntary and can be modified or discontinued at
any time by You in writing on Our form. Portfolio Rebalancing is not available
for the Fixed Account.
Once elected, We will continue to perform Rebalancing until We are instructed
otherwise. We reserve the right to change Our procedures or discontinue offering
Rebalancing upon 30 days Written Notice to You. This option is not available on
the 29th, 30th or 31st day of each month. There is no charge for this feature.
POSTPONEMENT OF PAYMENT
We will usually pay any proceeds payable, amounts partially withdrawn, or the
Cash Surrender Value within seven calendar days after:
1. we receive Your Written Notice for a partial withdrawal or a cash
surrender;
2. the date chosen for any systematic withdrawal; or
3. we receive Due Proof of Death of the Owner or the Last Surviving
Annuitant.
However, We can postpone the payment of proceeds, amounts withdrawn, the Cash
Surrender Value, or the transfer of amounts between Sub-Accounts if:
1. the New York Stock Exchange is closed, other than customary weekend and
holiday closings, or trading on the exchange is restricted as determined
by the SEC;
2. the SEC permits by an order the postponement for the protection of
Policyowners; or
3. the SEC determines that an emergency exists that would make the disposal
of securities held in the Variable Account or the determination of the
value of the Variable Account's net assets not reasonably practicable.
If the Cash Surrender Value payable at a surrender, partial withdrawal or in a
lump sum on the Annuity Date is not mailed or delivered within ten working days
after We receive the documentation necessary to complete the transaction, We
will add interest from the date We receive the necessary documentation, unless
the amount of such interest is less than $25. The rate of interest We will apply
is the rate We pay for dividends on deposit in our whole life insurance
portfolio. We guarantee that the interest rate will never be less than 2.5%.
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
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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:
<TABLE>
<S> <C>
Policy Years Since Premium Was Paid
Less than 1....................................................... 6%
At least 1, but less than 2....................................... 6%
At least 2, but less than 3....................................... 5%
At least 3, but less than 4....................................... 5%
At least 4, but less than 5....................................... 4%
At least 5, but less than 6....................................... 3%
At least 6, but less than 7....................................... 2%
At least 7........................................................ None
</TABLE>
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 in which You
are invested and the Fixed Account. If the charge is obtained from a
Sub-Account(s), We will cancel the appropriate number of Units credited to this
Policy based on the Unit Value at the end of the Valuation Period when the
charge is assessed.
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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 Fixed Account. The first 12 transfers during each Policy Year
are currently free, although We reserve the right to change this procedure. We
currently assess a $25 transfer fee for the 13th and each additional transfer in
a Policy Year. A transfer request (which includes Written Notices and telephone
calls) is considered to be one transfer, regardless of the number of Sub-
Accounts affected by the request. The processing fee will be deducted
proportionately from the receiving Sub-Account(s) and/or the Fixed Account. The
$25 transfer fee is waived when using the Intouch(R) Voice Response System,
portfolio rebalancing, and dollar cost averaging. See "Transfers" for the rules
concerning transfers.
MORTALITY AND EXPENSE RISK CHARGE
We assess an annual mortality and expense risk charge, deducted at each
Valuation Period from the assets of the Variable Account. This charge:
. is an annual rate of 1.25% of the average daily value of the net assets in
the Variable Account;
. is assessed during the Accumulation Period, but is not charged after the
Annuity Date;
. consists of approximately 0.75% to cover the mortality risk and
approximately 0.50% to cover the expense risk; and
. is guaranteed not to increase for the duration of the Policy.
The mortality risk We assume arises from Our obligation to make annuity payments
(determined in accordance with the annuity tables and other provisions contained
in the Policy) for the full life of all Annuitants regardless of how long each
may live. This means:
. 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.
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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
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<PAGE>
Assurance Company; Canada Life Insurance Company of America; J. & W. Seligman &
Co. Incorporated; any selling Broker/Dealer; or any of their affiliates. In no
event will reduction or elimination of the surrender charge and/or Annual
Administration Charge be permitted where such reduction or elimination will be
discriminatory to any person.
In addition, if the Policy Value on the Policy Anniversary is $35,000 or more,
We will waive the Annual Administration Charge for the prior Policy Year.
TAXES
No premium tax is currently payable under New York law. We reserve the right to
deduct any premium taxes payable in respect of future premiums in the event New
York law should change.
When any tax is deducted from the Policy Value, it will be deducted
proportionately from the Sub-Accounts in which You are invested and the Fixed
Account.
We reserve the right to charge or provide for any taxes levied by any
governmental entity, including:
1. taxes that are against or attributable to premiums, Policy Values or
annuity payments; or
2. taxes that We incur which are attributable to investment income,
capital gains retained as part of Our reserves under the policies, or
from the establishment or maintenance of the Variable Account.
OTHER CHARGES INCLUDING INVESTMENT MANAGEMENT FEES
Each Portfolio is responsible for all of its operation 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 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
Home Office to receive another mutually agreed upon payment option (Payment
Option 2). The proceeds We will pay will be the Policy Value if paid on the
first day of the month after any Annuitant's 100th birthday (or earlier as
required by law). See "Proceeds on Annuity Date." We require the surrender of
Your Policy so that We may issue a supplemental contract for the applicable
payment option.
ELECTION OF OPTIONS
You may elect, revoke or change a payment option at any time before the Annuity
Date and while the Annuitant(s) is living. If an election is not in effect at
the Last Surviving Annuitant's death, or if payment is to be made in one lump
sum under an existing election, the Beneficiary may elect one of the options.
This election must be made within one year after the Last Surviving Annuitant's
death and before any payment has been made.
An election of an option and any revocation or change must be made in a Written
Notice. It must be filed with Our Home Office with the written consent of any
irrevocable Beneficiary or assignee at least 30 days before the Annuity Date.
An option may not be elected and We will pay the proceeds in one lump sum if
either of the following
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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 twenty years will be lower than
payments guaranteed for ten years.
PAYMENT DATES
The payment dates of the options will be calculated from the date on which the
proceeds become payable.
AGE AND SURVIVAL OF ANNUITANT
We have the right to require proof of age of the Annuitant(s) before making any
payment. When any payment depends on the Annuitant's survival, We will have the
right, before making the payment, to require proof satisfactory to Us that the
Annuitant is alive.
Betterment of Income
The annuity benefits at the time the Policy Value is applied under a payment
option will not be less than those that would be provided by the application of
an amount defined in the Policy to purchase any single premium annuity policy
offered by Us at the time to the same class of Annuitants. Such amount will be
the greater of the Cash Surrender Value or 95% of what the Cash Surrender Value
would be if there were no surrender charge.
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<PAGE>
OTHER POLICY PROVISIONS
POLICYOWNER
During any Annuitant's lifetime and before the Annuity Date, You have all of the
ownership rights and privileges granted by the Policy. If You appoint an
irrevocable Beneficiary or assignee, then Your rights will be subject to those
of that Beneficiary or assignee.
During any Annuitant's lifetime and before the Annuity Date, You may also name,
change or revoke a Policyowner(s), Beneficiary(ies), or Annuitant(s) by giving
Us Written Notice. Any change of Policyowner(s) or Annuitant(s) must be approved
by Us.
A change of any Policyowner may result in resetting the Death Benefit to an
amount equal to the Policy Value as of the date of the change.
With respect to Qualified Policies generally, however:
. the contract may not be assigned (other than to us);
. Joint Ownership is not permitted; and
. the Policyowner must be the Annuitant.
BENEFICIARY
We will pay the Beneficiary any proceeds payable on Your death or the death of
the Last Surviving Annuitant. During any Annuitant's lifetime and before the
Annuity Date, You may name and change one or more beneficiaries by giving Us
Written Notice. However, We will require Written Notice from any irrevocable
Beneficiary or assignee specifying their consent to the change.
We will pay the proceeds under the Beneficiary appointment in effect at the date
of death. If You have not designated otherwise in Your appointment, the proceeds
will be paid to the surviving Beneficiary(ies) equally. If no Beneficiary is
living when You or the Last Surviving Annuitant dies, or if none has been
appointed, the proceeds will be paid to You or Your estate.
TERMINATION
We may pay You the Cash Surrender Value and terminate the Policy if before the
Annuity Date all of these events simultaneously exist:
1. you have not paid any premiums for at least two years;
2. the Policy Value is less than $2,000; and
3. the total premiums paid, less any partial withdrawals, is less than
$2,000.
We will mail You a notice of Our intention to terminate the Policy at least six
months in advance. The Policy will automatically terminate on the date specified
in the notice unless We receive an additional premium before such date. This
additional premium must be at least the minimum amount specified in "Additional
Premium."
Qualified contracts may be subject to distribution restrictions. See "FEDERAL
TAX STATUS."
WRITTEN NOTICE
Written Notice must be signed and dated by You. It must be of a form and content
acceptable to Us. Your Written Notice will not be effective until We receive and
file it. However, any change provided in
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<PAGE>
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 Home Office. We are not responsible for the validity of any
assignment.
An assignment of a Nonqualified Policy may result in certain tax consequences to
the Policyowner. See "Transfers, Assignment or Exchanges of a Policy."
MODIFICATION
Upon notice to You, We may modify the Policy, but only if such modification:
1. is necessary to make the Policy or the Variable Account comply with any
law or regulation issued by a governmental agency to which We are subject;
or
2. is necessary to assure continued qualification of the Policy under the
Code or other federal or state laws relating to retirement annuities or
variable annuity policies; or
3. is necessary to reflect a change in the operation of the Variable
Accounts; or
4. provides additional Variable Account and/or fixed accumulation options.
In the event of any such modification, We may make any appropriate endorsement
to the Policy.
NOTIFICATION OF DEATH
The death of the Annuitant(s) and/or the Owner(s) must be reported to Us
immediately, and We will require Due Proof of Death. We will pay the proceeds
based upon the date We receive the Due Proof of Death. In the case of death
after the Annuity Date, We are entitled to immediately recover, and are not
responsible for, any mispayments made because of a failure to notify Us of any
such death.
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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 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
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computed on a different basis.
1) NonStandardized Average Annual Total Return. We may present
non-standardized total return information computed on the same basis as
described above, except deductions will not include the surrender charge.
This presentation assumes that the investment in the Policy persists
beyond the period when the surrender charge applies, consistent with the
long-term investment and retirement objectives of the Policy.
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2) Adjusted Historic Fund Average Annual Total Return. We may present
nonstandardized "adjusted" 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 Policy 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 tax
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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
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Account or to the policies.
TAX STATUS OF THE POLICY
DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code provides that separate account investments underlying
a policy must be "adequately diversified" in accordance with Treasury
regulations in order for the policy to qualify as an annuity policy under
Section 72 of the Code. The Variable Account, through each Portfolio of the
Fund, intends to comply with the diversification requirements prescribed in
regulations under Section 817(h) of the Code, which affect how the assets in the
various divisions of the Accounts may be invested. Although We do not have
control over the Fund in which the Variable Account invests, We believe that
each Portfolio in which the Variable Account owns shares will meet the
diversification requirements and that therefore the policy will be treated as an
annuity under the Code.
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
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of a "Designated Beneficiary" and which is distributed over the life of such
"Designated Beneficiary" or over a period not extending beyond the life
expectancy of that Beneficiary, provided that such distributions begin within
one year of that Policyowner's death. The Policyowner's "Designated Beneficiary"
is the person designated by such Policyowner as a Beneficiary and to whom
proceeds of the Policy passes by reason of death and must be a natural person.
However, if the Policyowner's "Designated Beneficiary" is the surviving spouse
of the Policyowner, the Policy may be continued with the surviving spouse as the
new Policyowner.
The Nonqualified Policies contain provisions which are intended to comply with
the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. We intend to review such
provisions and modify them if necessary to assure that they comply with the
requirements of Code Section 72(s) when clarified by regulation or otherwise.
Other rules may apply to Qualified Policies. See "Minimum Distribution
Requirements."
The following discussion assumes that the policies will qualify as annuity
contracts for federal income tax purposes.
TAXATION OF ANNUITIES
IN GENERAL
Section 72 of the Code governs taxation of annuities in general. We believe that
a Policyowner who is a natural person generally is not taxed on increases in the
value of a Policy until distribution occurs by withdrawing all or part of the
accumulation value (e.g., partial withdrawals and surrenders) or as annuity
payments under the annuity option elected. For this purpose, the assignment,
pledge, or agreement to assign or pledge any portion of the accumulation value
(and in the case of a Qualified Policy, any portion of an interest in the
qualified plan) generally will be treated as a distribution. The taxable portion
of a distribution (in the form of a single sum payment or an annuity) is taxable
as ordinary income.
The owner of any annuity contract who is not a natural person generally must
include in income any increase in the excess of the contract's accumulation
value over the Policy's "investment in the contract" during the taxable year.
There are some exceptions to this rule and a prospective Policyowner that is not
a natural person may wish to discuss these with a tax adviser.
The following discussion generally applies to policies owned by natural persons.
WITHDRAWALS/DISTRIBUTIONS
In the case of a distribution under a Qualified Policy (other than a Section 457
plan), under Section 72(e) of the Code a ratable portion of the amount received
is taxable, generally based on the ratio of the "investment in the contract" to
the participant's total accrued benefit or balance under the retirement plan.
The "investment in the contract" generally equals the portion, if any, of any
premium payments paid by or on behalf of any individual under a Policy, reduced
by the amount of any prior distribution which was not excluded from the
individual's gross income. For policies issued in connection with qualified
plans, the "investment in the contract" can be zero. Special tax rules may be
available for certain distributions from Qualified Policies.
In the case of a withdrawal/distribution (e.g., surrender, partial withdrawal or
systematic withdrawal)
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under a Nonqualified Policy before the Annuity Date, under Code Section 72(e)
amounts received are generally first treated as taxable income to the extent
that the accumulation value immediately before the withdrawal exceeds the
"investment in the contract" at that time. Any additional amount withdrawn is
not taxable.
ANNUITY PAYMENTS
Although tax consequences may vary depending on the annuity option elected under
an annuity contract, under Code Section 72(b), generally gross income does not
include that part of any amount received as an annuity under an annuity contract
that bears the same ratio to such amount as the investment in the contract bears
to the expected return at the annuity starting date. For variable income
payments, in general, the taxable portion (prior to recovery of the investment
in the contract) is determined by a formula which establishes the specific
dollar amount of each annuity payment that is not taxed. The dollar amount is
determined by dividing the "investment in the contract" by the total number of
expected periodic payments. For fixed income payments (prior to recovery of the
investment in the contract), in general, there is no tax on the amount of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the annuity payments for the term of the
payments; however, the remainder of each income payment is taxable. In all
cases, after the "investment in the contract" is recovered, the full amount of
any additional annuity payments is taxable.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Policy because of the death of a Policyowner
or the Last Surviving Annuitant. Generally, such amounts are includable in the
income of the recipient as follows:
1. if distributed in a lump sum, they are taxed in the same manner as a
surrender of the Policy; or
2. if distributed under a payment option, they are taxed in the same manner
as annuity payments.
For these purposes, the investment in the Policy is not affected by a
Policyowner or Annuitant's death. That is the investment in the Policy remains
the amount of any purchase payments paid which were not excluded from gross
income.
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.
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Other tax penalties may apply to certain distributions under a Qualified Policy,
as well as to certain contributions and other circumstances.
TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF A POLICY
A transfer of ownership, the designation of an Annuitant or other Beneficiary
who is not also the Policyowner, the designation of certain annuity starting
dates, or the exchange of a Policy may result in certain tax consequences to the
Policyowner that are not discussed herein. A Policyowner contemplating any such
transfer, assignment, designation, or exchange of a Policy should contact a tax
adviser with respect to the potential tax effects of such a transaction.
WITHHOLDING
Pension and annuity distributions generally are subject to withholding for the
recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. "Eligible rollover distributions" from section 401(a) plans and
section 403(b) tax-sheltered annuities are subject to a mandatory federal income
tax withholding of 20%. An eligible rollover distribution is the taxable portion
of any distribution from such a plan, except certain distributions such as
distributions required by the Code, hardship distributions of employee elective
contributions under 401(k) and 403(b) plans, or distributions in a specified
annuity form. The 20% withholding does not apply, however, if the owner chooses
a "direct rollover" from the plan to another tax-qualified plan or IRA.
MULTIPLE POLICIES
Section 72(e)(11) of the Code treats all nonqualified deferred annuity policies
entered into after June 21, 1988 that are issued by Us (or Our affiliates) to
the same owner during any calendar year as one annuity Policy for purposes of
determining the amount includable in gross income under Code Section 72(e). The
effects of this rule are not yet clear; however, it could affect the time when
income is taxable and the amount that might be subject to the 10% penalty tax
described above. In addition, the Treasury Department has specific authority to
issue regulations that prevent the avoidance of Section 72(e) through the serial
purchase of annuity contracts or otherwise. There may also be other situations
in which the Treasury may conclude that it would be appropriate to aggregate two
or more annuity contracts purchased by the same owner. Accordingly, a
Policyowner should consult a tax adviser before purchasing more than one annuity
contract.
POSSIBLE TAX CHANGES
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the Polices could change by legislation or
other means. It is also possible that any change could be retroactive (that is,
effective prior to the date of the change). A tax adviser should be consulted
with respect to legislative developments and their effect on the Policy.
TAXATION OF QUALIFIED PLANS
The Policies are designed for use with several types of qualified plans. The tax
rules applicable to participants in these qualified plans vary according to the
type of plan and the terms and conditions of the plan itself. Special favorable
tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to
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specified commencement and minimum distribution rules; and in certain other
circumstances. Therefore, no attempt is made to provide more than general
information about the use of the Policies with the various types of qualified
retirement plans. Policyowners, the Annuitants, and beneficiaries are cautioned
that the rights of any person to any benefits under these qualified retirement
plans may be subject to the terms and conditions of the plans themselves,
regardless of the terms and conditions of the Policy, but We shall not be bound
by the terms and conditions of such plans to the extent such terms contradict
the Policy, unless We consent. Some retirement plans are subject to distribution
and other requirements that are not incorporated in the administration of the
Policies. Policyowners are responsible for determining that contributions,
distributions and other transactions with respect to the Policies satisfy
applicable law. Brief descriptions follow of the various types of qualified
retirement plans in connection with which We will issue a Policy. We will amend
the Policy as instructed to conform it to the applicable legal requirements for
such plan.
INDIVIDUAL RETIREMENT ANNUITIES AND SIMPLIFIED EMPLOYEE PENSIONS (SEP/IRAS)
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity" or
"IRA." These IRAs are subject to limits on the amount that may be contributed,
the persons who may be eligible and on the time when distributions may commence.
Also, distributions from certain other types of qualified retirement plans may
be "rolled over" on a tax-deferred basis into an IRA. Sales of the Policy for
use with IRAs may be subject to special disclosure requirements of the Internal
Revenue Service.
Section 408(k) of the Code allows employers to establish simplified employee
pension plans for their employees, using an IRA for such purpose, if certain
criteria are met. Under these plans the employer may, within specified limits,
make deductible contributions on behalf of the employee to an IRA. Employers
intending to use the Policy in connection with such plans should seek advice.
Purchasers of a Policy for use with IRAs will be provided with supplemental
information required by the Internal Revenue Service or other appropriate
agency. Such purchasers will have the right to revoke their purchase within
seven days of the earlier of the establishment of the IRA or their purchase.
Purchasers should seek advice as to the suitability of the Policy for use with
IRAs. The Internal 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
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may wish to consult a tax adviser before combining any converted amounts with
any other Roth IRA contributions, including any conversion amounts from other
tax years. Distributions from a Roth IRA generally are not taxed, except that,
once aggregate distributions exceed contributions to the Roth IRA, income tax
and a 10 percent penalty tax may apply to distributions made (1) before age 59
1/2 (subject to certain exceptions) and/or (2) during the five taxable years
starting with the year in which the first contribution is made to the Roth IRA.
A 10% penalty tax may apply to amounts attributable to a conversion from an IRA
if they are distributed during the five taxable years beginning with the year in
which the conversion was made.
MINIMUM DISTRIBUTION REQUIREMENTS
The Code requires that minimum distributions from an IRA begin no later than
April 1 of the year following the year in which the Policyowner attains age
70<K189>. Failure to do so results in a federal tax penalty of 50% of the amount
not withdrawn. This penalty is in addition to normal income tax. We will
calculate the minimum distribution requirement (MDR) only for funds invested in
this Policy and subject to Our administrative guidelines, including but not
limited to minimum withdrawal amount of $250. Surrender charges are not applied
against required minimum distributions.
As an administrative practice, We will calculate and distribute an amount from
an IRA using the method contained in the Code's minimum distribution
requirements. The annual distribution is determined by dividing the prior
December 31st value for the Policy by a life expectancy factor. The factor will
be based on either Your life or the life expectancies of Your life and Your
Designated Beneficiary, as directed by You, and based on tables found in the
IRS' regulations. Factors are redetermined for each year's distribution. The
value of the Policy to be used in this calculation is the Policy Value on the
December 31st prior to the year for which each subsequent payment is made. The
life expectancy factor is determined by using the appropriate IRS chart based on
one of the following circumstances:
1. Your life expectancy (Single Life Expectancy);
2. joint life expectancy between You and Your Designated Beneficiary (Joint
Life and Last Survivor Expectancy); or
3. Your life expectancy and a non-spouse Beneficiary more than 10 years
younger than You (Minimum Distribution Incidental Benefit Requirement).
No minimum distributions are required from a Roth IRA during Your life, although
upon Your death certain distribution requirements apply.
The Code Minimum Distribution Requirements also apply to distributions from
qualified plans other than IRAs. For qualified plans under section 401(a),
401(k), 403(a), 403(b), and 457, the Code requires that distributions generally
must commence no later than the later of April 1 of the calendar year following
the calendar year in which the owner (or plan participant) (i) reaches age
70<K189> 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
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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.
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
47
<PAGE>
circumstances of each owner or recipient of the distribution. A tax adviser
should be consulted for further information.
DISTRIBUTION OF POLICIES
Canada Life of America Financial Services, Inc. (CLAFS) acts as the principal
underwriter, as defined in the Investment Company Act of 1940, of the Policies
for the Variable Account. CLAFS is a wholly-owned subsidiary of Canada Life
Insurance Company of America and an affiliate of Our Company. CLAFS, a Georgia
corporation organized on January 18, 1988, is registered with the SEC under the
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 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 an exclusive
promotional agent (distribution) agreement with Seligman Advisors, Inc.
(Seligman Advisors). Seligman Advisors is a broker/dealer registered with the
SEC under the 1934 Act and is a member of the NASD. Under the promotional agent
distribution agreement, Seligman Advisors will recruit and provide sales
training and licensing assistance to such registered representatives. In
addition, Seligman Advisors will prepare sales and promotional materials for the
Policies. CLAFS will pay distribution compensation to selling broker/dealers in
varying amounts which, under normal circumstances, are not expected to exceed
6.5% of premium payments under the Policies. We or Seligman Advisors may from
time to time pay additional compensation pursuant to promotional contracts. In
some circumstances, Seligman Advisors may provide reimbursement of certain sales
and marketing expenses. CLAFS will pay the promotional agent a fee for providing
marketing support for the distribution of the contracts.
The Policies will be offered to the public on a continuous basis, and We do not
anticipate discontinuing the offering of the Policies. However, We reserve the
right to discontinue this offering.
LEGAL PROCEEDINGS
Certain affiliates of the Company, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, the Company believes that at the
present time there are no pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on the Variable Account or the Company.
VOTING RIGHTS
To the extent deemed to be required by law and as described in the prospectus
for the Fund, portfolio shares held in the Variable Account and in Our general
account will be voted by Us at regular and special shareholder meetings of the
Fund in accordance with instructions received from persons having voting
interests in the corresponding Sub-Accounts. If, however, the Investment Company
Act of 1940 or any regulation thereunder should be amended, or if the present
interpretation thereof should change, or if We determine that We are allowed to
vote the portfolio shares in Our own right, We may elect to do so.
48
<PAGE>
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.
Each person having a voting interest in a Sub-Account will receive proxy
materials, reports, and other material relating to the appropriate Portfolios.
INSURANCE MARKETPLACE STANDARDS ASSOCIATION
Canada Life Insurance Company of New York is a member of the Insurance
Marketplace Standards Association (IMSA) and as such may include the IMSA logo
and information about IMSA membership in its advertisements and sales
literature. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuity products.
PREPARING FOR YEAR 2000
Like all financial services providers, the Company utilizes systems that may be
affected by Year 2000 transition issues and it relies on service providers,
including the Fund, that also may be affected. The Company and its affiliates
have developed, and are in the process of implementing, a comprehensive Year
2000 transition plan, and are confirming that its service providers are also so
engaged. The Company is not aware of any instances where a service provider will
not be compliant, but the Company does not have the ability to assure with any
certainty the compliance capacity of third parties. The resources that are being
devoted to this effort are substantial. It is difficult to predict with
precision whether the amount of resources ultimately devoted, or the outcome of
these efforts, will have any negative impact on the Company. However, as of the
date of this Prospectus, it is not anticipated that Policyowners will experience
negative effects on their investment, or on the services provided in connection
therewith, as a result of Year 2000 transition implementation. The Company
currently anticipates that its systems will be Year 2000 compliant prior to the
end of 1999, but there can be no assurance that the Company will be successful,
or that interaction with other service providers will not impair the Company's
services at that time. However, We are developing contingency plans that will
prepare Us to respond as quickly as possible should We encounter any problems,
disruptions or delays.
49
<PAGE>
FINANCIAL STATEMENTS
Our balance sheets as of December 31, 1998 and 1997, and the related statements
of operations, accumulated surplus (deficit), and cash flows for each of the
three years in the period ended December 31, 1998, as well as the Report of
Independent Auditors, are contained in the Statement of Additional Information.
The Variable Account's statement of net assets as of December 31, 1998, and the
related statements of operations and changes in net assets for the periods
indicated therein, as well as the Report of Independent Auditors, are contained
in the Statement of Additional Information.
The financial statements of the Company included in the Statement of Additional
Information should be considered only as bearing on the ability of the Company
to meet its obligations under the policies. They should not be considered as
bearing on the investment performance of the assets held in the Variable
Account.
50
<PAGE>
DEFINITIONS
ANNUITANT(S): Any natural person(s) whose life is used to determine the duration
of any payments made under a payment option involving a life contingency. The
term Annuitant(s) also includes any Joint Annuitant(s), a term used solely to
refer to more than one Annuitant. There is no other distinction between the
terms Annuitant(s) and Joint Annuitant(s). A Joint Annuitant is not allowed
under a Qualified Policy and any designation of a Joint Annuitant under a
Qualified Policy will be of no effect.
ANNUITY DATE: The date when the proceeds will be paid under an annuity payment
option or on the first day of the month after any Annuitant reaches age 100 (or
earlier as required by law), whichever occurs first.
BENEFICIARY(IES): The person(s) to whom We will pay the proceeds payable on Your
death or on the death of the Last Surviving Annuitant.
CASH SURRENDER VALUE: The Policy Value less any applicable surrender charge and
Annual Administration Charge.
DUE PROOF OF DEATH: Proof of death that is satisfactory to us. Such proof may
consist of: 1) a certified copy of the death certificate; or 2) a certified copy
of the decree of a court of competent jurisdiction as to the finding of death.
EFFECTIVE DATE: The date We accept Your completed application and apply Your
initial premium.
FIXED ACCOUNT: Part of Our general account that provides a Guaranteed Interest
Rate. This account is not part of and does not depend on the investment
performance of the Variable Account.
GUARANTEE AMOUNT: Before the Annuity Date, the amount equal to that part of any
Net Premium allocated to, or Policy Value transferred to, the Fixed Account
(including interest) less any withdrawals (including any applicable surrender
charges and premium tax charges) or transfers.
GUARANTEED INTEREST RATE: The applicable effective annual rate of interest that
We will pay on a Guarantee Amount. The Guaranteed Interest Rate will be at least
three percent per year.
HOME OFFICE: Our office at the address shown on page 1 of the Prospectus. This
is Our mailing address.
LAST SURVIVING ANNUITANT(S): The Annuitant(s) or Joint Annuitant(s) that
survives the other.
NET PREMIUM: The premium(s) paid less any premium tax deducted in the year the
premium is paid.
NONQUALIFIED POLICY: A Policy that is not a "qualified" Policy under the
Internal Revenue Code of 1986, as amended (Code).
OWNER(S): The individual(s), trust(s), corporation(s), or any other entity(ies)
entitled to exercise ownership rights and privileges under the Policy. The term
Owner(s) also includes any Joint Owner(s), a term used solely for the purpose of
referring to more than one Owner. There is no other distinction between the
terms Owner(s) and Joint Owner(s).
POLICY: The flexible premium variable deferred annuity Policy offered by this
Prospectus.
POLICY VALUE: The sum of the Variable Account value and the Fixed Account value.
51
<PAGE>
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).
52
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION - TABLE OF CONTENTS
<TABLE>
<S> <C>
ADDITIONAL POLICY PROVISIONS.......................................................................................3
Contract.......................................................................................................3
Incontestability...............................................................................................3
Misstatement of Age............................................................................................3
Currency.......................................................................................................3
Place of Payment...............................................................................................3
Non-Participation..............................................................................................3
Our Consent....................................................................................................3
PRINCIPAL UNDERWRITER..............................................................................................4
CALCULATION OF YIELDS AND TOTAL RETURNS............................................................................4
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......................................................................................................14
EXPERTS............................................................................................................14
OTHER INFORMATION..................................................................................................14
FINANCIAL STATEMENTS...............................................................................................14
</TABLE>
53
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
HOME OFFICE: 410 SAW MILL RIVER ROAD, ARDSLEY, NEW YORK 10502
PHONE: (914) 693-2300
- --------------------------------------------------------------------------------
TRILLIUM(R)
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY ACCOUNT 2
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY POLICY
- --------------------------------------------------------------------------------
This Statement of Additional Information contains information in addition to the
information described in the Prospectus for the flexible premium variable
deferred annuity policy (the Policy) offered by Canada Life Insurance Company of
New York. This Statement of Additional Information is not a Prospectus, and it
should be read only in conjunction with the Prospectuses for the Policy and
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, 1999.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
ADDITIONAL POLICY PROVISIONS........................................................................ 3
Contract....................................................................................... 3
Incontestability............................................................................... 3
Misstatement Of Age or Sex..................................................................... 3
Currency....................................................................................... 3
Place Of Payment............................................................................... 3
Non-Participation.............................................................................. 3
Our Consent.................................................................................... 3
PRINCIPAL UNDERWRITER............................................................................... 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 Return".......................................... 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....................................................................................... 14
EXPERTS............................................................................................. 14
OTHER INFORMATION................................................................................... 14
FINANCIAL STATEMENTS................................................................................ 14
</TABLE>
2
<PAGE>
ADDITIONAL POLICY PROVISIONS
CONTRACT
The entire contract is made up of the Policy, the application for the Policy and
any riders or endorsements. The statements made in the application are deemed
representations and not warranties. We cannot use any statement in defense of a
claim or to void the Policy unless it is contained in the application and a copy
of the application is attached to the Policy at issue.
INCONTESTABILITY
Other than misstatement of age or sex (see below), We will not contest the
Policy after it has been in force during any annuitant's lifetime for two years
from the date of issue of the Policy.
MISSTATEMENT OF AGE OR SEX
If the age or sex of any annuitant has been misstated, we will pay the amount
which the proceeds would have purchased at the correct age or for the correct
sex.
If we make an overpayment because of an error in age or sex, the overpayment
plus interest at 3% compounded annually will be a debt against the Policy. If
the debt is not repaid, future payments will be reduced accordingly.
If we make an underpayment because of an error in age or sex, any annuity
payments will be recalculated at the correct age or sex, and future payments
will be adjusted. The underpayment with interest at 3% compounded annually will
be paid in a single sum.
CURRENCY
All amounts payable under the Policy will be paid in United States currency.
PLACE OF PAYMENT
All amounts payable by us will be payable at our Home Office at the address
shown on page one of this Statement of Additional Information.
NON-PARTICIPATION
The Policy is not eligible for dividends and will not participate in our
divisible surplus.
OUR CONSENT
If our consent is required, it must be given in writing. It must bear the
signature, or a reproduction of the signature, of our President, Vice President,
Secretary or Actuary.
3
<PAGE>
PRINCIPAL UNDERWRITER
Canada Life of America Financial Services, Inc. (CLAFS), an affiliate of Canada
Life Insurance Company of New York (CLNY), is the principal underwriter of the
variable annuity policies described herein. The offering of the policies is
continuous, and CLNY does not anticipate discontinuing the offering of the
policies. However, CLNY does reserve the right to discontinue the offering of
the policies.
CLAFS did not receive nor retain any commissions for 1998, 1997, or 1996 for
serving as principal underwriter of the variable annuity policies.
CALCULATION OF YIELDS AND TOTAL RETURNS
CASH MANAGEMENT YIELDS
We may, from time to time, quote in advertisements and sales literature the
current annualized yield of the Cash Management Sub-Account for a 7 day period
in a manner which does not take into consideration any realized or unrealized
gains or losses, or income other than investment income, on shares of the Cash
Management Portfolio or on its portfolio securities. This current annualized
yield is computed by determining the net change (exclusive of realized gains and
losses on the sale of securities and unrealized appreciation and depreciation,
and exclusive of income other than investment income) at the end of the 7 day
period in the value of a hypothetical account under a Policy having a balance of
1 unit of the Cash Management Sub-Account at the beginning of the period,
dividing such net change in account value by the value of the account at the
beginning of the period to determine the base period return, and annualizing
this quotient on a 365 day basis. The net change in account value reflects: 1)
net income from the Portfolio attributable to the hypothetical account; and 2)
charges and deductions imposed under the Policy which are attributable to the
hypothetical account. The charges and deductions include the per unit charges
for the hypothetical account for: 1) the annual administration charge; 2) the
daily administration fee; and 3) the mortality and expense risk charge. The
yield calculation reflects an average per unit annual administration charge of
$30 per year per Policy deducted at the end of each Policy Year. Current Yield
will be calculated according to the following formula:
Current Yield = ((NCS-ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Portfolio (exclusive of realized
gains and losses on the sale of securities and unrealized
appreciation and depreciation, and exclusive of income other than
investment income) for the 7 day period attributable to a
hypothetical account having a balance of 1 Sub-Account unit.
ES = per unit expenses of the Sub-Account for the 7 day period.
UV = the unit value on the first day of the 7 day period.
The current yield for the 7 day period ended December 31, 1998 was 2.36%.
4
<PAGE>
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, 1998 was 2.39%.
Because of the charges and deductions imposed under the Policy, the yield for
the Cash Management Sub-Account will be lower than the yield for the Cash
Management Portfolio.
The yields on amounts held in the Cash Management Sub-Account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The Cash Management Sub-Account's actual yield is affected by changes in
interest rates on money market securities, average Portfolio maturity of the
Cash Management Portfolio, the types and quality of portfolio securities held by
the Cash Management Portfolio of the Fund, and the Cash Management Portfolio's
operating expenses.
OTHER SUB-ACCOUNT YIELDS
We may, from time to time, quote in sales literature and advertisements the
current annualized yield of one or more of the (except the Cash Management Sub-
Account) for a Policy for 30 day or one month periods. The annualized yield of
a Sub-Account refers to income generated by the Sub-Account over a specific 30
day or one month period. Because the yield is annualized, the yield generated
by a Sub-Account during the 30 day or one month period is assumed to be
generated each period over a 12 month period. The yield is computed by: 1)
dividing the net investment income of the Portfolio attributable to the Sub-
Account units less Sub-Account expenses for the period; by 2) the maximum
offering price per unit on the last day of the period multiplied by the daily
average number of units outstanding for the period; by 3) compounding that yield
for a 6 month period; and by 4) multiplying that result by 2. Expenses
attributable to the Sub-Account include 1) the annual administration charge, 2)
the daily administration fee, and 3) the mortality and expense risk charge. The
yield calculation reflects an annual administration charge of $30 per year per
Policy deducted at the end of each Policy Year. For purposes of calculating the
30 day or one month yield, an average annual administration charge per dollar of
Policy Value in the Variable Account is used to determine the amount of the
charge attributable to the Sub-Account for the 30 day or one month period as
described below. The 30 day or one month yield is calculated according to the
following formula:
6
Yield = 2 x ((((NI-ES)/(U x UV)) + 1) - 1)
Where:
5
<PAGE>
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
6
<PAGE>
account for the period is used. The standardized average annual total return
will then be calculated according to the following formula:
1/N
TR = ((ERV/P) ) - 1
Where:
TR = the standardized average annual total return net of Sub-Account
recurring charges.
ERV = the ending redeemable value of the hypothetical account at the
end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
The standardized average annual total returns assume that the maximum fees and
charges are imposed for calculations.
Standardized average annual total returns for the period ending December 31,
1998 are shown on the following page.
7
<PAGE>
Standardized average annual total returns for the periods shown below were:
<TABLE>
<CAPTION>
1 YEAR RETURN 5 YEAR RETURN FROM SUB-ACCOUNT
YEAR ENDED YEAR ENDED INCEPTION DATE SUB-ACCOUNT
SUB-ACCOUNT 12/31/98 12/31/98 to 12/31/98 INCEPTION DATE
- ----------- -------- -------- ----------- --------------
<S> <C> <C> <C> <C>
Bond 1.22% 4.19% 2.63% 01/28/96
Capital 15.01% 13.21% 16.44% 01/28/96
Cash Management (1.51)% 2.96% 2.33% 01/28/96
Common Stock 16.95% 16.07% 18.34% 01/28/96
Communications and Information 29.10% ** 20.92% 01/28/96
Frontier (8.30)% ** 10.15% 01/28/96
Global Growth Opportunities 14.42% ** 8.97% 05/01/96
Global Smaller Companies (0.38)% ** 5.30% 01/28/96
Global Technology 29.41% ** 18.88% 05/01/96
High-Yield Bond (5.86)% ** 6.24% 01/28/96
Income 0.78% 5.57% 5.97% 01/28/96
International 8.72% 6.44% 6.98% 01/28/96
Large-Cap Growth * ** *** 05/01/99
Large-Cap Value * ** (6.65)% 05/01/98
Small-Cap Value * ** (23.23)% 05/01/98
</TABLE>
* These Sub-Accounts have not been in operation one year as of December 31,
1998, and accordingly, no one year standardized average annual total return
is available.
* * These Sub-Accounts have not been in operation five years as of December 31,
1998, and accordingly, no five year standardized average annual total
return is available.
*** As of December 31, 1998, the Large-Cap Growth Sub-Account had not commenced
operations. Accordingly, we have not provided standardized average annual
total return information for this Sub-Account.
<PAGE>
B. NONSTANDARDIZED "AVERAGE ANNUAL TOTAL RETURNS"
We may, from time to time, also quote in sales literature or advertisements,
nonstandardized average annual total returns for the Sub-Accounts that do not
reflect the surrender charge. These are calculated in exactly the same way as
standardized average annual total returns described above, except that the
ending redeemable value of the hypothetical account for the period is replaced
with an ending value for the period that does not take into account any charges
on amounts surrendered or withdrawn, and that the initial investment is assumed
to be $10,000 rather than $1,000.
Generally, nonstandardized Sub-Account performance data will only be disclosed
if standardized average annual return for the Sub-Accounts for the required
periods is also disclosed.
Nonstandardized average annual total returns for the period ending December 31,
1998 are shown on the following page.
<PAGE>
Nonstandardized average annual total returns for the periods shown below were:
<TABLE>
<CAPTION>
1 YEAR 5 YEAR RETURN FROM SUB-ACCOUNT
YEAR ENDED YEAR ENDED INCEPTION DATE SUB-ACCOUNT
SUB-ACCOUNT 12/31/98 12/31/98 to 12/31/98 INCEPTION DATE
- ----------- -------- -------- ----------- --------------
<S> <C> <C> <C> <C>
Bond 6.62% 4.64% 4.08 % 01/28/96
Capital 20.41% 13.54% 17.58 % 01/28/96
Cash Management 3.89% 3.44% 3.78 % 01/28/96
Common Stock 22.35% 16.37% 19.45 % 01/28/96
Communications and Information 34.50% ** 21.69 % 01/28/96
Frontier (2.90)% ** 11.07 % 01/28/96
Global Growth Opportunities 19.82% ** 10.41 % 05/01/96
Global Smaller Companies 5.02% ** 6.68 % 01/28/96
Global Technology 34.81% ** 20.13 % 05/01/96
High-Yield Bond (0.46)% ** 7.60 % 01/28/96
Income 6.18% 6.00% 7.33 % 01/28/96
International 14.12% 6.86% 8.32 % 01/28/96
Large-Cap Growth * ** *** 05/01/99
Large-Cap Value * ** (1.25)% 05/01/98
Small-Cap Value * ** (17.83)% 05/01/98
</TABLE>
* These Sub-Accounts have not been in operation one year as of December 31,
1998, and accordingly, no one year nonstandardized average annual total
return is available.
** These Sub-Accounts have not been in operation five years as of December 31,
1998, and accordingly, no five year nonstandardized average annual total
return is available.
*** As of December 31, 1998, the Large-Cap Growth Sub-Account had not commenced
operations. Accordingly, we have not provided nonstandardized average annual
total return information for this Sub-Account.
<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-Account 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, 1998, are shown on the following page.
<PAGE>
Adjusted historic Fund average annual total returns, assuming a surrender
charge, for the periods shown below were:
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR FROM FUND
RETURN RETURN RETURN INCEPTION FUND
YEAR ENDED YEAR ENDED YEAR ENDED DATE INCEPTION
---------
SUB-ACCOUNT 12/31/98 12/31/98 12/31/98 TO 12/31/98 DATE
----------- -------- -------- -------- ----------- ----
<S> <C> <C> <C> <C> <C>
Bond 1.22% 4.19% 5.53% 5.35% 06/21/88
Capital 15.01% 13.21% 14.00% 13.20% 06/21/88
Cash Management (1.51)% 2.96% 3.58% 3.53% 06/21/88
Common Stock 16.95% 16.07% 14.75% 14.04% 06/21/88
Communications and Information 29.10% ** *** 23.10% 10/04/94
Frontier (8.30)% ** *** 15.38% 10/04/94
Global Growth Opportunities 14.42% ** *** 8.97% 05/01/96
Global Smaller Companies (0.38)% ** *** 9.13% 10/04/94
Global Technology 29.41% ** *** 18.88% 05/01/96
High-Yield Bond (5.86)% ** *** 7.54% 05/01/95
Income 0.78% 5.57% 8.51% 8.08% 06/21/88
International 8.72% 6.44% *** 8.07% 05/03/93
Large-Cap Growth * ** *** **** 05/01/99
Large-Cap Value * ** *** (6.65)% 05/01/98
Small-Cap Value * ** *** (23.23)% 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 5 YEAR 10 YEAR FROM FUND
RETURN RETURN RETURN INCEPTION FUND
YEAR ENDED YEAR ENDED YEAR ENDED DATE INCEPTION
---------
SUB-ACCOUNT 12/31/98 12/31/98 12/31/98 TO 12/31/98 DATE
----------- -------- -------- -------- ----------- ----
<S> <C> <C> <C> <C> <C>
Bond 6.62% 4.64% 5.53% 5.35% 06/21/88
Capital 20.41% 13.54% 14.00% 13.20% 06/21/88
Cash Management 3.89% 3.44% 3.58% 3.53% 06/21/88
Common Stock 22.35% 16.37% 14.75% 14.04% 06/21/88
Communications and Information 34.50% ** *** 23.53% 10/04/94
Frontier (2.90)% ** *** 15.91% 10/04/94
Global Growth Opportunities 19.82% ** *** 10.41% 05/01/96
Global Smaller Companies 5.02% ** *** 9.77% 10/04/94
Global Technology 34.81% ** *** 20.13% 05/01/96
High-Yield Bond (0.46)% ** *** 8.53% 05/01/95
Income 6.18% 6.00% 8.51% 8.08% 06/21/88
International 14.12% 6.86% *** 8.39% 05/03/93
Large-Cap Growth * ** *** **** 05/01/99
Large-Cap Value * ** (1.25)% 05/01/98
Small-Cap Value * ** (17.83)% 05/01/98
</TABLE>
* These Sub-Accounts invest in Portfolios that have not been in operation one
year as of December 31, 1998, and accordingly, no one year adjusted
historic Fund average annual total return is available.
** These Sub-Accounts invest in Portfolios that have not been in operation
five years as of December 31, 1998, and accordingly, no five year adjusted
historic Fund average annual total return is available.
*** These Sub-Accounts invest in Portfolios that have not been in operation ten
years as of December 31, 1998, and accordingly, no ten year adjusted
historic Fund average annual total return is available.
**** As of December 31, 1998, the Large-Cap Growth Sub-Account had not commenced
operations. Accordingly, we have not provided adjusted historic Fund
average annual total return information for this Sub-Account.
<PAGE>
EFFECT OF THE ANNUAL ADMINISTRATION CHARGE ON PERFORMANCE DATA
The Policy provides for a $30 annual administration charge to be assessed
annually on each policy anniversary proportionately from any Sub-Accounts or
Fixed Account in which 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.
<PAGE>
LEGAL MATTERS
All matters relating to New York law pertaining to the policies, including the
validity of the policies and our authority to issue the policies, have been
passed upon by Charles MacPhaul. Sutherland Asbill & Brennan LLP of Washington,
DC, has provided advice on certain matters relating to the federal securities
laws.
EXPERTS
Our balance sheets as of December 31, 1998 and 1997, and the related statements
of operations, accumulated surplus (deficit), and cash flows for each of the
three years in the period ended December 31, 1998, included in this Statement of
Additional Information and Registration Statement as well as the Variable
Account's statement of net assets as of December 31, 1998, and the related
statements of operations and changes in net assets for the periods indicated
therein included in this Statement of Additional Information and Registration
Statement have been audited by Ernst & Young LLP, independent auditors as set
forth in their reports thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933 as amended, with respect to the policies discussed in this Statement of
Additional Information. Not all of the information set forth in the registration
statement, amendments and exhibits thereto has been included in this Statement
of Additional Information. Statements contained in this Statement of Additional
Information concerning the content of the policies and other legal instruments
are intended to be summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the SEC.
FINANCIAL STATEMENTS
The Variable Account's statement of net assets as of December 31, 1998, and the
related statements of operations and changes in net assets for the periods
indicated therein, as well as the Report of Independent Auditors, are contained
herein. Ernst & Young LLP, independent auditors, serves as independent auditors
for the Variable Account.
Our balance sheets as of December 31, 1998 and 1997, and the related statements
of operations, accumulated surplus (deficit), and cash flows for each of the
three years in the period ended December 31, 1998, as well as the Report of
Independent Auditors, are contained herein. The financial statements of the
Company should be considered only as bearing on our ability to meet our
obligations under the policies. They should not be considered as bearing on the
investment performance of the assets held in the Variable Account.
5
<PAGE>
Canada Life of New York Variable Annuity Account 2
Financial Statements
December 31, 1998
Contents
<TABLE>
<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
CANADA LIFE INSURANCE COMPANY OF NEW YORK
Report of Independent Auditors......................... 1
Audited Financial Statements
Statutory Balance Sheets................................ 2
Statutory Statements of Operations...................... 3
Statutory Statements of Capital and Surplus............. 4
Statutory Statements of Cash Flows....................... 5
Notes to Statutory Financial Statements................. 8
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
CANADA LIFE OF NEW YORK
VARIABLE ANNUITY ACCOUNT 2
December 31, 1998
With Report of Independent Auditors
<PAGE>
Report of Independent Auditors
To the Board of Directors of
Canada Life Insurance Company of New York
We have audited the accompanying statement of net assets of Canada Life of New
York Variable Annuity Account 2 (comprising, respectively, the Bond, Capital,
Cash Management, Common Stock, Communications and Information, Frontier, Global
Growth Opportunities, Global Smaller Companies, Global Technology,
International, High-Yield Bond, Income, Large-Cap Value and Small-Cap Value Sub-
accounts) as at December 31, 1998, and the results of its operations for the
year then ended, and the changes in net assets for each of the years ended
December 31, 1998 and December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Variable Annuity Account 2 as
at December 31, 1998, and the results of its operations for the year then ended,
and the changes in its net assets for each of the years ended December 31, 1998
and December 31, 1997 in accordance with accounting principles generally
accepted in the United States.
Toronto, Canada
April 15, 1999 Chartered Accountants
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of New York Variable Annuity Account 2
- --------------------------------------------------------------------------------
Statement of Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cash Common Communications
Bond Capital Management Stock and Information Frontier
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Assets:
Investment in Seligman
Portfolios, Inc., at market value
(see Note 3 for cost values) $213,724 $598,496 $639,397 $931,146 $2,740,875 $1,044,789
Due (to) from Canada Life
Insurance Company of
New York (Note 6) - 12 - (21,392) (9,172) 7
Receivable (payable) for
investments sold (purchased) (24,697) (29,613) (99,429) 66,633 (83,862) (30,108)
--------------------------------------------------------------------------------------
Net assets $189,027 $568,895 $539,968 $976,387 $2,647,841 $1,014,688
======================================================================================
Net assets attributable to:
Policyholders' liability reserve $189,027 $568,895 $539,968 $976,387 $2,647,841 $1,014,688
--------------------------------------------------------------------------------------
Net assets $189,027 $568,895 $539,968 $976,387 $2,647,841 $1,014,688
======================================================================================
Number of units outstanding 10,846 15,326 372,238 24,351 107,766 54,057
======================================================================================
Net asset value per unit $17.4283 $37.1196 $1.4506 $40.0964 $24.5703 $18.7707
======================================================================================
</TABLE>
___________
See accompanying Notes.
2
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of New York Variable Annuity Account 2
- --------------------------------------------------------------------------------
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global Global
Growth Smaller Global High-Yield Large-Cap Small-Cap
Opportunities Companies Technology International Bond Income Value Value
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$427,187 $696,704 $237,611 $170,069 $1,152,524 $380,396 $105,081 $129,475
- - - - 4 30,602 - -
(33,197) 1,777 7,850 (9,085) (27,551) (33,307) (372) (596)
$393,990 $698,481 $245,461 $160,984 $1,124,977 $377,691 $104,709 $128,879
===========================================================================================================================
$393,990 $698,481 $245,461 $160,984 $1,124,977 $377,691 $104,709 $128,879
$393,990 $698,481 $245,461 $160,984 $1,124,977 $377,691 $104,709 $128,879
===========================================================================================================================
30,195 46,911 15,022 10,161 83,085 16,571 10,597 15,675
===========================================================================================================================
$13.0482 $14.8895 $16.3401 $15.8433 $13.5401 $22.7923 $9.8810 $8.2219
===========================================================================================================================
</TABLE>
Sub-Accounts
Combined
---------------
$9,467,474
61
(295,557)
$9,171,978
==============
$9,171,978
$9,171,978
==============
812,801
==============
$11.2844
==============
3
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of New York Variable Annuity Account 2
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cash Common Communications
Bond Capital Management Stock and Information Frontier
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend and capital gain
distributions $13,503 $33,373 $28,845 $ 69,682 $104,606 $ -
Less mortality and expense
risk charges (Note 6) 3,113 6,788 7,653 12,069 24,171 12,811
--------------------------------------------------------------------------------------------
Net investment income 10,390 26,585 21,192 57,613 80,435 (12,811)
--------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments:
Net realized gain (loss) from
investments 3,648 7,477 - 454 (31,034) (15,901)
Net unrealized appreciation
(depreciation) from investments 374 60,664 - 116,873 565,127 933
--------------------------------------------------------------------------------------------
Net realized and unrealized
gain from investments 4,022 68,141 - 117,327 534,093 (14,968)
--------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations $14,412 $94,726 $21,192 $174,940 $614,528 $(27,779)
============================================================================================
</TABLE>
__________
See accompanying Notes.
4
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of New York Variable Annuity Account 2
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global Global
Growth Smaller Global High-Yield Large-Cap Small-Cap
Opportunities Companies Technology International Bond Income 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>
$ 2,557 $10,461 $10,041 $ 3,308 $ 107,422 $21,966 $ 3,224 $ 14,617 $ 423,605
5,182 8,985 2,363 2,148 13,937 3,474 360 569 103,623
- ------------------------------------------------------------------------------------------------------------------------------------
(2,625) 1,476 7,678 1,160 93,485 18,492 2,864 14,048 319,982
- -----------------------------------------------------------------------------------------------------------------------------------
49,991 13,753 1,883 507 13,240 2,832 (256) (2,691) 43,903
32,816 (1,206) 38,339 15,783 (116,254) 3,664 9,694 (7,318) 719,489
- -----------------------------------------------------------------------------------------------------------------------------------
82,807 12,547 40,222 16,290 (103,014) 6,496 9,438 (10,009) 763,392
- -----------------------------------------------------------------------------------------------------------------------------------
$80,182 $14,023 $47,900 $17,450 $ (9,529) $24,988 $12,302 $ 4,039 $1,083,374
===================================================================================================================================
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of New York Variable Annuity Account 2
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bond Capital
Sub-Account Sub-Account
-------------------- --------------------
Year Year Year Year
Ended Ended Ended Ended
12/31/98 12/31/97 12/31/98 12/31/97
-------- -------- -------- --------
Operations:
<S> <C> <C> <C> <C>
Net investment income (loss) $ 10,390 $ 8,789 $ 26,585 $ 24,950
Net realized gain (loss) on investments 3,648 125 7,477 1,380
Net unrealized appreciation (depreciation) on investments 374 1,028 60,664 23,359
-------------------- ---------------------
Net increase (decrease) in net assets resulting from operations 14,412 9,942 94,726 49,689
-------------------- ---------------------
Capital transactions:
Net increase (decrease) from unit transactions (Note 5) (12,389) 161,726 46,880 266,831
-------------------- ---------------------
Net increase (decrease) in net assets arising from capital transactions (12,389) 161,726 46,880 266,831
-------------------- ---------------------
Total increase (decrease) in net assets 2,023 171,668 141,606 316,520
Net assets, beginning of period 187,004 15,336 427,289 110,769
-------------------- ---------------------
Net assets, end of period $189,027 $187,004 $568,895 $427,289
==================== ======================
Global Smaller Companies Global Technology
Sub-Account Sub-Account
------------------------ --------------------
Year Year Year Year
Ended Ended Ended Ended
12/31/98 12/31/97 12/31/98 12/31/97
-------- -------- -------- --------
Operations:
Net investment income (loss) $ 1,476 $ 7,421 $ 7,678 $ 10,235
Net realized gain (loss) on investments 13,753 (1,052) 1,883 4,910
Net unrealized appreciation (depreciation) on investments (1,206) (5,928) 38,339 (1,380)
-------------------- ---------------------
Net increase in net assets resulting from operations 14,023 441 47,900 13,765
-------------------- ---------------------
Capital transactions:
Net increase (decrease) from unit transactions (Note 5) (8,318) 369,544 113,108 33,680
-------------------- ---------------------
Net increase (decrease) in net assets arising from capital transactions (8,318) 369,544 113,108 33,680
-------------------- ---------------------
Total increase in net assets 5,705 369,985 161,008 47,445
Net assets, beginning of period 692,776 322,791 84,453 37,008
-------------------- ---------------------
Net assets, end of period $698,481 $692,776 $245,461 $ 84,453
==================== ======================
____________
*Commencement of operations.
See accompanying Notes.
Cash Management
Sub-Account
--------------------
Year Year
Ended Ended
12/31/98 12/31/97
-------- --------
<C> <C>
Operations:
Net investment income (loss) $ 21,192 $ 7,048
Net realized gain (loss) on investments - -
Net unrealized appreciation (depreciation) on investments - -
-------------------
Net increase (decrease) in net assets resulting from operations 21,192 7,048
-------------------
Capital transactions:
Net increase (decrease) from unit transactions (Note 5) 406,293 (38,941)
-------------------
Net increase (decrease) in net assets arising from capital transactions 406,293 (38,941)
-------------------
Total increase (decrease) in net assets 427,485 (31,893)
Net assets, beginning of period 112,483 144,376
-------------------
Net assets, end of period $539,968 $112,483
===================
International
Sub-Account
--------------------
Year Year
Ended Ended
12/31/98 12/31/97
-------- --------
Operations:
Net investment income (loss) $ 1,160 $ 3,308
Net realized gain (loss) on investments 507 3,469
Net unrealized appreciation (depreciation) on investments 15,783 (6,215)
-------------------
Net increase in net assets resulting from operations 17,450 562
-------------------
Capital transactions:
Net increase (decrease) from unit transactions (Note 5) 23,297 88,948
-------------------
Net increase (decrease) in net assets arising from capital transactions 23,297 88,948
-------------------
Total increase in net assets 40,747 89,510
Net assets, beginning of period 120,237 30,727
-------------------
Net assets, end of period $160,984 $120,237
===================
</TABLE>
____________
*Commencement of operations.
See accompanying Notes.
6
<PAGE>
<TABLE>
<CAPTION>
Communications Global Growth
Common Stock and Information Frontier Opportunities
Sub-Account Sub-Account Sub-Account Sub-Account
---------------------- ------------------------- ---------------------- --------------------
Year Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended Ended
12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 57,613 $123,807 $ 80,435 $ 241,334 $ (12,811) $ 63,526 $ (2,625) $ 618
454 7,443 (31,034) 105,821 (15,901) 40,992 49,991 553
116,873 (43,433) 565,127 (226,986) 933 (24,455) 32,816 3,000
--------------------- ------------------------- ---------------------- --------------------
174,940 87,817 614,528 120,169 (27,779) 80,063 80,182 4,171
--------------------- ------------------------- ---------------------- --------------------
3,782 500,077 1,057,086 649,524 287,908 331,795 62,938 218,444
--------------------- ------------------------- ---------------------- --------------------
3,782 500,077 1,057,086 649,524 287,908 331,795 62,938 218,444
--------------------- ------------------------- ---------------------- --------------------
178,722 587,894 1,671,614 769,693 260,129 411,858 143,120 222,615
797,665 209,771 976,227 206,534 754,559 342,701 250,870 28,255
--------------------- ------------------------- ---------------------- --------------------
$ 976,387 $797,665 $2,647,841 $ 976,227 $1,014,688 $754,559 $393,990 $250,870
====================== ========================= ====================== ====================
High-Yield Bond Income Large-Cap Value Small-Cap Value Sub-Accounts
Sub-Account Sub-Account Sub-Account Sub-Account Combined
- ---------------------- ------------------------ ------------------------ -------------------- ----------------------
Year Year Year Year Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended Ended Ended Ended Ended
12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
$ 93,485 $ 54,198 $ 18,492 $ 18,525 $ 2,864 - $ 14,048 - $ 319,982 $ 563,759
13,240 22,684 2,832 89 (256) - (2,691) - 43,903 186,414
(116,254) (9,080) 3,664 (4,938) 9,694 - (7,318) - 719,489 (295,028)
- ---------------------- --------------------- --------------------- ---------------------- -----------------------
(9,529) 67,802 24,988 13,676 12,302 - 4,039 - 1,083,374 455,145
- ---------------------- --------------------- --------------------- ---------------------- -----------------------
381,537 564,457 147,998 103,599 92,407 - 124,840 - 2,727,367 3,249,684
- ---------------------- --------------------- --------------------- ---------------------- -----------------------
381,537 564,457 147,998 103,599 92,407 - 124,840 - 2,727,367 3,249,684
- ---------------------- --------------------- --------------------- ---------------------- -----------------------
372,008 632,259 172,986 117,275 104,709 - 128,879 - 3,810,741 3,704,829
752,969 120,710 204,705 87,430 - - - - 5,361,237 1,656,408
- ---------------------- --------------------- --------------------- ---------------------- -----------------------
$1,124,977 $752,969 $ 377,691 $ 204,705 $ 104,709 - $128,879 - $9,171,978 $5,361,237
====================== ======================= ======================= ===================== =======================
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of New York Variable Annuity Account 2
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Organization
Canada Life of New York Variable Annuity Account 2 ("Variable Annuity Account
2") was established on February 25, 1993 as a separate investment account of
Canada Life Insurance Company of New York ("CLNY") to receive and invest premium
payments under variable annuity policies issued by CLNY. Variable Annuity
Account 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 fourteen
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 CLNY. The portion
of Variable Annuity Account 2 assets applicable to the policies will not be
charged with liabilities arising out of any other business CLNY may conduct.
2. Significant Accounting Policies
Investments
Investments in shares of the 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
Dividends 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. Dividends in the Cash Management Portfolio are
declared daily and paid monthly. Dividends in the Bond, Capital, Common Stock,
Communications and Information, Frontier, Global Growth Opportunities, Global
Smaller Companies, Global Technology, International, High-Yield Bond, Income,
Large-Cap Value and Small-Cap Value Portfolios are declared and paid annually.
Dividends 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
CLNY, which is taxed as a "life insurance company" under the provisions of the
Internal Revenue Code.
8
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of New York 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 is as follows:
<TABLE>
<CAPTION>
Number of Market Market
Shares Price Value Cost
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bond 20,590 $10.38 $ 213,724 $ 213,036
Capital 28,760 20.81 598,496 519,608
Cash Management 639,397 1.00 639,397 639,397
Common Stock 49,981 18.63 931,146 875,051
Communications and Information 159,911 17.14 2,740,875 2,398,347
Frontier 67,189 15.55 1,044,789 1,092,133
Global Growth Opportunities 32,047 13.33 427,187 391,147
Global Smaller Companies 51,153 13.62 696,704 722,807
Global Technology 17,156 13.85 237,611 198,106
International 11,065 15.37 170,069 160,437
High-Yield Bond 106,028 10.87 1,152,524 1,282,435
Income 34,550 11.01 380,396 383,872
Large-Cap Value 10,878 9.66 105,081 95,387
Small-Cap Value 17,712 7.31 129,475 136,793
------------------------------
$9,467,474 $9,108,556
==============================
</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 $ 73,916 $ 73,796
Capital 173,231 84,625
Cash Management 4,063,675 3,628,202
Common Stock 458,474 501,227
Communications and Information 1,611,713 441,384
Frontier 1,616,215 1,352,354
Global Growth Opportunities 1,133,469 1,071,005
Global Smaller Companies 440,344 372,179
Global Technology 130,902 18,053
International 41,600 18,536
High-Yield Bond 1,854,030 1,375,621
Income 356,307 187,812
Large-Cap Value 127,850 32,207
Small-Cap Value 167,426 27,942
------------ -----------
$12,249,152 $9,184,943
============ ===========
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of New York 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 Value
and Small-Cap Value Sub-Accounts commenced operations on May 1, 1998.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
-------------------------------------- -------------------------------------
Units Amount Units Amount
----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Bond Sub-Account
Accumulation Units:
Contract purchases and net transfers in 6,339 $ 110,396 13,275 $ 207,472
Terminated contracts & net transfers out (6,942) (122,785) (2,834) (45,746)
--------------------------------------------------------------------------------
(603) (12,389) 10,441 161,726
================================================================================
Capital Sub-Account
Accumulation Units:
Contract purchases and net transfers in 6,795 222,005 10,541 295,558
Terminated contracts & net transfers out (5,339) (175,125) (966) (28,727)
--------------------------------------------------------------------------------
1,456 46,880 9,575 266,831
================================================================================
Cash Management Sub-Account
Accumulation Units:
Contract purchases and net transfers in 2,820,723 4,003,619 2,519,023 3,447,210
Terminated contracts & net transfers out (2,529,100) (3,597,326) (2,545,934) (3,486,151)
--------------------------------------------------------------------------------
291,623 406,293 (26,911) (38,941)
================================================================================
Common Stock Sub-Account
Accumulation Units:
Contract purchases and net transfers in 13,121 470,046 36,236 988,387
Terminated contracts & net transfers out (13,125) (466,264) (19,532) (488,310)
--------------------------------------------------------------------------------
(4) 3,782 16,704 500,077
================================================================================
Communications and Information
Sub-Account
Accumulation Units:
Contract purchases and net transfers in 82,021 1,616,394 119,229 2,026,980
Terminated contracts & net transfers out (27,730) (559,308) (79,369) (1,377,456)
--------------------------------------------------------------------------------
54,291 1,057,086 39,860 649,524
================================================================================
Frontier Sub-Account
Accumulation Units:
Contract purchases and net transfers in 84,780 1,723,022 62,060 1,162,022
Terminated contracts & net transfers out (69,785) (1,435,114) (43,319) (830,227)
--------------------------------------------------------------------------------
14,995 287,908 18,741 331,795
================================================================================
Global Growth Opportunities
Sub-Account
Accumulation Units:
Contract purchases and net transfers in 99,849 1,196,979 26,025 281,529
Terminated contracts & net transfers out (92,707) (1,134,041) (5,850) (63,085)
--------------------------------------------------------------------------------
7,142 62,938 20,175 218,444
================================================================================
</TABLE>
10
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of New York 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, 1998 December 31, 1997
-------------------------------------- -------------------------------------
Units Amount Units Amount
----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Global Smaller Companies
Sub-Account
Accumulation Units:
Contract purchases and net transfers in 32,518 564,689 47,487 678,015
Terminated contracts & net transfers out (34,507) (573,007) (21,791) (308,471)
----------------------------------------------------------------------------
(1,989) (8,318) 25,696 369,544
============================================================================
Global Technology Sub-Account
Accumulation Units:
Contract purchases and net transfers in 8,051 114,697 6,212 67,114
Terminated contracts & net transfers out (1) (1,589) (2,836) (33,434)
----------------------------------------------------------------------------
8,050 113,108 3,376 33,680
============================================================================
International Sub-Account
Accumulation Units:
Contract purchases and net transfers in 4,261 71,603 31,588 428,123
Terminated contracts & net transfers out (2,767) (48,306) (25,284) (339,175)
---------------------------------------------------------------------------
1,494 23,297 6,304 88,948
============================================================================
High-Yield Bond Sub-Account
Accumulation Units:
Contract purchases and net transfers in 130,810 1,833,219 96,930 1,229,026
Terminated contracts & net transfers out (103,121) (1,451,682) (51,598) (664,569)
----------------------------------------------------------------------------
27,689 381,537 45,332 564,457
============================================================================
Income Sub-Account
Accumulation Units:
Contract purchases and net transfers in 14,837 324,326 5,301 110,707
Terminated contracts & net transfers out (7,809) (176,328) (334) (7,108)
----------------------------------------------------------------------------
7,028 147,998 4,967 103,599
============================================================================
Large-Cap Value Sub-Account*
Accumulation Units:
Contract purchases and net transfers in 10,603 92,455 - -
Terminated contracts & net transfers out (6) (48) - -
----------------------------------------------------------------------------
10,597 92,407 - -
============================================================================
Small-Cap Value Sub-Account*
Accumulation Units:
Contract purchases and net transfers in 15,692 124,952 - -
Terminated contracts & net transfers out (17) (112) - -
----------------------------------------------------------------------------
15,675 124,840 - -
============================================================================
Net increase from unit transactions $ 2,727,367 $3,249,684
=========== ==========
_________________
*From commencement of operations.
</TABLE>
11
<PAGE>
- --------------------------------------------------------------------------------
Canada Life of New York Variable Annuity Account 2
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
6. Mortality and Expense Risk (M and E) Charges
CLNY 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 of the Funds at each valuation period. In
addition, at each valuation period from January 1, 1997 through September 30,
1997, an effective annual rate of 0.35% of the net asset value of each Sub-
Account was deducted as daily administration fees. Effective October 1, 1997,
the daily administration fee was lowered to 0.15% of the net asset value of each
Sub-Account.
7. Net Assets
Net assets at December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
Net
Accumulated Net Unrealized
Investment Realized Appreciation
Accumulated Income Gain (Loss) (Depreciation)
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 $ 164,585 $ (4,813) $ 24,794 $ 3,773 $ 688 $ 189,027
Capital 423,342 (11,737) 69,542 8,860 78,888 568,895
Cash Management 509,880 (11,528) 41,616 - - 539,968
Common Stock 698,771 (22,256) 231,954 11,823 56,095 976,387
Communications
and Information 1,892,146 (34,750) 356,081 91,836 342,528 2,647,841
Frontier 946,073 (24,208) 109,233 30,934 (47,344) 1,014,688
Global Growth
Opportunities 309,477 (7,786) 5,716 50,543 36,040 393,990
Global Smaller
Companies 682,565 (18,353) 47,646 12,726 (26,103) 698,481
Global Technology 181,288 (4,047) 21,915 6,800 39,505 245,461
International 142,166 (3,638) 8,849 3,975 9,632 160,984
High-Yield Bond 1,063,075 (21,230) 177,114 35,929 (129,911) 1,124,977
Income 336,156 (6,189) 48,266 2,934 (3,476) 377,691
Large-Cap Value 92,407 (360) 3,224 (256) 9,694 104,709
Small-Cap Value 124,840 (569) 14,617 (2,691) (7,318) 128,879
-----------------------------------------------------------------------------------------
$7,566,771 $(171,464) $1,160,567 $257,186 $ 358,918 $9,171,978
=========================================================================================
</TABLE>
8. Unit Value
Unit Values as reported are calculated as total net assets divided by total
units for each Sub-Account.
12
<PAGE>
ACTUARY'S REPORT
To the Shareholder, Directors and Policyholders of Canada Life Insurance Company
of New York:
I have made the valuation of policy benefit liabilities of Canada Life Insurance
Company of New York for its balance sheet at December 31, 1998 and 1997, and its
statement of operations for the years ended December 31, 1998, 1997 and 1996.
In my opinion:
(i) The actuarial reserves are computed in accordance with accepted
actuarial standards consistently applied, meet the requirements of the
Insurance Law and regulation of the State of New York, and are at least
as great as the minimum aggregate amounts required by the State of New
York; and
(ii) The policy benefit liabilities, when considered in light of the assets
held by the Company with respect to such liabilities, make adequate
provision for the anticipated cash flows required by the contractual
obligations of the Company under the terms of its policies.
Atlanta, Georgia ______________________________
April 15, 1999 K.T. Ledwos, FSA, MAAA
Actuary
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
Statutory Financial Statements
December 31, 1998
Contents
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors....................................................................... 1
Statutory Balance Sheets............................................................................. 2
Statutory Statements of Operations................................................................... 3
Statutory Statements of Capital and Surplus.......................................................... 4
Statutory Statements of Cash Flows................................................................... 5
Notes to Statutory Financial Statements.............................................................. 6
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholder, Directors and Policyholders of
Canada Life Insurance Company of New York
We have audited the accompanying statutory balance sheets of Canada Life
Insurance Company of New York as of December 31, 1998 and 1997, and the related
statutory statements of operations, accumulated surplus, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
As described in Note B to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of New York, which practices
differ from generally accepted accounting principles. The variances between
such practices and generally accepted accounting principles are also described
in Note B. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the second
preceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of Canada Life Insurance Company of New York at December 31,
1998 and 1997, or the results of its operations or its cash flows for each of
the three years in the period ended December 31, 1998.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Canada Life Insurance
Company of New York at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of New York.
Toronto, Canada [X]
April 15, 1999 Chartered Accountants
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
STATUTORY BALANCE SHEETS
[in thousands of dollars
except per share amounts]
<TABLE>
<CAPTION>
At December 31 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ADMITTED ASSETS
Investments [note C]
Bonds $138,193 $142,641
Mortgage loans 96,297 98,854
Common stocks 12,742 10,208
Policy loans 12,970 12,821
Short-term investments 9,296 600
Cash 1,515 1,422
Other invested assets 907 440
- -----------------------------------------------------------------------------------------------------------
Total cash and investments 271,920 266,986
Investment income due and accrued 3,122 3,243
Deferred premiums and premiums in the course of collection 2,175 2,363
Other assets 178 762
Assets held in Separate Accounts [note I] 15,535 9,118
- -----------------------------------------------------------------------------------------------------------
Total admitted assets $292,930 $282,472
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities
Policy liabilities
Life and annuity reserves $239,415 $241,502
Accident and health reserves 304 329
Policy and contract claims 379 852
Dividends payable 3,034 2,566
Policyholders' amounts left on deposit at interest 2,550 2,559
Other policy and contract liabilities 594 824
- -----------------------------------------------------------------------------------------------------------
Total policy liabilities 246,276 248,632
Asset valuation reserve 5,609 3,637
Amounts payable to parent company 3,806 1,644
Interest maintenance reserve 1,407 98
Miscellaneous liabilities 4,413 4,071
Transfers to Separate Accounts due or accrued (net) (252) (77)
Liabilities from Separate Accounts 15,535 9,118
- -----------------------------------------------------------------------------------------------------------
Total liabilities 276,794 267,123
- -----------------------------------------------------------------------------------------------------------
Capital and surplus [note K]
Common stock-$10.00 par valueauthorized, issued and outstanding:
100,000 common shares 1,000 1,000
Paid-in surplus 2,850 2,850
Accumulated surplus 12,286 11,499
- -----------------------------------------------------------------------------------------------------------
Total capital and surplus 16,136 15,349
- -----------------------------------------------------------------------------------------------------------
Total liabilities and capital and surplus $292,930 $282,472
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
2
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
STATUTORY STATEMENTS OF OPERATIONS
[in thousands of dollars]
<TABLE>
<CAPTION>
Years ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums for insurance and annuity $20,787 $39,204 $37,423
considerations [note G]
Considerations for supplementary contracts
and dividends left on deposit 377 211 1,006
Net investment income [note C] 20,854 20,215 18,793
Reserve adjustments on reinsurance ceded 3,801 731 1,946
Other income 434 341 36
- -------------------------------------------------------------------------------------------------------------
Total revenues 46,253 60,702 59,204
- -------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Benefits paid or provided to policyholders
Annuity 22,164 19,578 16,005
Life 6,797 7,079 6,509
Accident and health 41 50 49
Supplementary contracts and dividends left on 839 790 745
deposit
Dividends to policyholders 3,352 2,777 2,706
Interest on policy or contract funds 309 474 469
- -------------------------------------------------------------------------------------------------------------
Total benefits paid or provided to policyholders 33,502 30,748 26,483
Increase (decrease) in actuarial reserves (2,427) 14,480 20,802
Commissions 2,637 3,126 2,847
General insurance expenses 5,018 5,079 4,891
Taxes, licenses and fees 574 572 556
Other disbursements 274 414 276
Transfers to Separate Accounts 4,316 4,732 2,098
- -------------------------------------------------------------------------------------------------------------
Total benefits and expenses 43,894 59,151 57,953
- -------------------------------------------------------------------------------------------------------------
Gain from operations before federal income
taxes and net realized capital gains (losses) 2,359 1,551 1,251
Federal income taxes [note E] 904 572 599
- -------------------------------------------------------------------------------------------------------------
Gain from operations before
net realized capital gains (losses) 1,455 979 652
Net realized capital gains (losses) [note C] (154) (117) 476
- -------------------------------------------------------------------------------------------------------------
Net income $ 1,301 $ 862 $ 1,128
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
3
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
STATUTORY STATEMENT OF CAPITAL AND SURPLUS
[In thousands of dollars]
<TABLE>
<CAPTION>
Years ended December 31 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock at beginning and end of year $ 1,000 $ 1,000 $ 1,000
Paid-in Surplus at beginning and end of year 2,850 2,850 2,850
Accumulated surplus at beginning of year 11,499 10,358 9,012
Net income 1,301 862 1,128
Change in net unrealized capital gains 2,624 1,508 665
Change in surplus on account of:
Asset valuation reserve (1,971) (568) (35)
Prior year federal income tax adjustment (1,092) (564) -
Nonadmitted assets 42 (33) (239)
Adjustment for loss in currency exchange (117) (64) (1)
Actuarial valuation basis - - (172)
Accumulated surplus at end of year 12,286 11,499 10,358
Total capital and surplus $16,136 $15,349 $14,208
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
4
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
STATUTORY STATEMENTS OF CASH FLOWS
[In thousands of dollars]
<TABLE>
<CAPTION>
Years ended December 31 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums, policy proceeds, and other considerations $ 25,306 $ 40,813 $ 39,668
Net investment income received 19,202 19,453 16,964
Benefits paid (30,584) (27,429) (23,721)
Insurance expenses paid (8,360) (9,521) (8,445)
Dividends paid to policyholders (2,847) (2,751) (2,440)
Federal income taxes paid (1,410) (850) (599)
Other disbursements 175 88 24
Net transfers to Separate Accounts (4,491) (4,750) (2,155)
- -----------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by operations (3,009) 15,053 19,296
Investing Activities
Proceeds from sales, maturities, or repayments of
investments
Bonds 34,183 51,078 49,924
Mortgage loans and real estate 8,376 5,939 4,348
Equity and other investments 641 2,276 3,813
Cost of investments acquired
Bonds (25,596) (49,082) (64,961)
Mortgage loans and real estate (5,845) (24,905) (9,713)
Equity and other investments (1,228) (3,872) (2,651)
Change in policy loans (149) (557) (99)
Taxes paid on capital gains (927) (615) (517)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investments 9,455 (19,738) (19,856)
FINANCING ACTIVITIES
Other sources 2,343 (815) 3,897
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and short-term
investments 8,789 (5,500) 3,337
- -----------------------------------------------------------------------------------------------------------------------
Cash and short-term investments - beginning of year 2,022 7,522 4,185
Cash and short-term investments - end of year $ 10,811 $ 2,022 $ 7,522
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
5
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE A
Nature of Operations. Canada Life Insurance Company of New York (CLNY or the
- --------------------
Company) was incorporated on June 7, 1971 in the State of New York and is a
wholly-owned subsidiary of The Canada Life Assurance Company (CLA), a mutual
life and accident and health insurance company. CLNY sells individual life
insurance and annuity products. These include participating whole life,
universal life, individual payout and savings annuities, and individual variable
annuities. The products sold are similar to those sold by CLNY's parent and by
it's affiliate, Canada Life Insurance Company of America (CLICA) with variations
as appropriate to meet the special requirements of the New York insurance
regulations and the needs of the New York market.
NOTE B
Accounting Practices and Basis of Presentation. The accompanying financial
- ----------------------------------------------
statements have been prepared in accordance with accounting principles
prescribed or permitted by the Insurance Department of the State of New York.
Prescribed statutory accounting practices (SAP) include state laws, regulations,
and general administrative rules applicable to all insurance enterprises
domiciled in a particular state, as well as practices described in National
Association of Insurance Commissioners (NAIC) publications. Permitted statutory
accounting practices include practices not prescribed, but allowed, by the
domiciliary state insurance department. CLNY currently follows only prescribed
accounting practices. The preparation of financial statements in conformity
with SAP requires management to make estimates and assumptions that affect the
amounts reported. Actual results could differ from these estimates.
In 1998, the NAIC adopted codified statutory accounting practices
(Codification). Codification will likely change, to some extent, prescribed
statutory accounting practices and may result in changes to the accounting
practices that the Company uses to prepare its statutory financial statements.
Adoption by the domiciliary state insurance department is required before
Codification becomes effective as the prescribed statutory basis of accounting
for the domiciled insurance company. At this time, the Insurance Department of
the State of New York has stated that they will incorporate sections of the
Codification but will not formally adopt it. The impact on the Company's
statutory surplus cannot be determined at this time and could be material.
SAP followed by the Company differs from generally accepted accounting
principles (GAAP) principally as follows:
. Investments. For SAP, all fixed maturities are reported at amortized cost less
write-downs for other-than-temporary impairments, based on their NAIC rating.
For SAP, the fair values of bonds and stocks is based on values specified by
the NAIC versus a quoted or estimated fair value as required for GAAP.
For GAAP, such fixed maturity investments would be designated at purchase as
held-to-maturity, trading, or available-for-sale. Held-to-maturity fixed
maturity investments would be reported at amortized cost, and the remaining
fixed maturity investments are reported at fair value with unrealized holding
gains and losses reported in operations for those designated as trading and as
a separate component of shareholder's equity for those designated as
available-for-sale.
Credit tenant loans are classified as bonds for SAP and would be considered
mortgage loans for GAAP.
6
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE B
Accounting Practices and Basis of Presentation (continued).
- ----------------------------------------------------------
Changes between cost and admitted asset amounts of investment real estate are
credited or charged directly to unassigned surplus rather than to a separate
surplus account as would be the case for GAAP.
Realized gains and losses on investments for SAP are reported in income, net
of tax. The interest maintenance reserve (IMR) serves to defer the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates. The deferred gains and losses are amortized into investment
income over the remaining period to maturity based on groupings of individual
investments sold in one to ten-year time periods. GAAP does not have a
similar concept. For SAP, an asset valuation reserve represents a provision
for the possible fluctuations in invested assets and is determined by a NAIC
prescribed formula and is reported as a liability rather than as a valuation
allowance. Under GAAP, realized capital gains and losses would be reported in
the income statement on a pretax basis in the period the asset is sold and
valuation allowances would be provided when there has been a decline in value
deemed other-than-temporary, in which case the provision for such declines
would be charged to earnings.
Valuation allowances, if necessary, are established for mortgage loans based
on (1) the difference between the unpaid loan balance and the estimated fair
value of the underlying real estate when such loans are determined to be in
default as to scheduled payments and (2) a reduction of the maximum percentage
of any loan to the value of the security at the time of the loan, exclusive of
insured, guaranteed or purchase money mortgages, to 75%, where necessary.
Under GAAP, valuation allowances would be established when the Company
determines it is probable that it will be unable to collect all amounts (both
principal and interest) due according to the contractual terms of the loan
agreement. The initial valuation allowance and subsequent changes in the
allowance for mortgage loans are charged or credited directly to unassigned
surplus, rather than being included as a component of earnings as would be
required for GAAP.
. Policy Acquisition Costs. For SAP, commissions and other costs of acquiring
and renewing business are expensed when incurred. For GAAP, acquisition costs
related to traditional life insurance and certain long-duration accident and
health insurance, to the extent recoverable from future policy revenues would
be deferred and amortized over the premium-paying period of the related
policies using assumptions consistent with those used in computing policy
benefit reserves. For annuity products, to the extent recoverable from future
gross profits, deferred policy acquisition costs are amortized generally in
proportion to the present value of expected gross profits from surrender
charges and investment, mortality, and expense margins.
. Nonadmitted Assets. Certain assets designated as nonadmitted, principally
receivables, would be included in GAAP assets but are excluded from the SAP
balance sheet with changes therein credited or charged directly to unassigned
surplus.
7
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE B
Accounting Practices and Basis of Presentation (continued).
- ----------------------------------------------------------
. Recognition of Premiums. Interest-sensitive life insurance and annuity
premiums for SAP are recognized as income when received rather than being
credited directly to liabilities for future policy benefits as required for
GAAP.
. Benefit Reserves. Certain policy reserves are calculated based on statutorily
required interest and mortality assumptions rather than on estimated expected
experience or actual account balances as would be required under GAAP.
. Federal Income Taxes. Federal income taxes for SAP are generally reported
based on income which is currently taxable. Variances between taxes reported
and the amount subsequently paid are reported as adjustments of tax expense in
the year paid. Deferred income taxes are not provided for differences between
the financial statement and tax bases of assets and liabilities under SAP as
would be required under GAAP.
. Policyholder Dividends. Policyholder dividends for SAP are recognized when
declared rather than over the term of the related policies as required for
GAAP.
. Reinsurance. Policy and contract liabilities ceded to reinsurers have been
reported as reductions of the related reserves rather than as assets as would
be required under GAAP. For SAP, commissions allowed by reinsurers on business
ceded are reported as income when received rather than being deferred and
amortized with deferred policy acquisition costs.
. Employee Benefits. For purposes of calculating the Company's postretirement
benefit obligation, only vested participants and current retirees are included
in the valuation for SAP. Under GAAP, active participants not currently
eligible would also be included. For SAP, pension expense is recognized when
required contributions are paid rather than accrued and expensed during the
periods in which the employees provide service as required for GAAP.
. Guaranty Fund and Other Assessments. Guaranty fund and other assessments are
accrued when the Company receives notice that an assessment is payable. Under
GAAP, guaranty fund and other assessments are accrued at the time the events
occur on which assessments are expected to be based.
The effects of the foregoing variances from GAAP on the accompanying statutory
financial statements have not been determined, but are presumed to be material.
A summary of the significant accounting practices employed by the Company is as
follows:
. Investments. Asset values are generally stated as follows: Bonds not backed
by other loans at amortized cost using the yield method including anticipated
future cash flows. Loan-backed bonds and structured securities at amortized
cost using the interest method including anticipated prepayments (cashflows
are updated periodically to reflect prepayments). Significant changes in
estimated cash flows from the original purchase assumptions are accounted for
using the retrospective adjustment method.
8
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE B
Accounting Practices and Basis of Presentation (continued).
- ----------------------------------------------------------
Mortgage loans on real estate are carried at amortized cost.
Common stocks are stated at fair value.
Preferred stocks are carried at actual cost.
Investments in real estate or property acquired in satisfaction of debt is
carried at depreciated cost less encumbrances.
Policy loans are carried at the aggregate unpaid balance.
Other invested assets are reported using the equity method.
Short-term investments include investments with maturities of less than one
year at the date of acquisition. The carrying values reported in the balance
sheet are at cost which approximates fair value.
The Company utilizes derivative instruments where appropriate in the
management of its asset/liability matching and to hedge against fluctuations
in interest rates and foreign exchange rates. Gains and losses resulting from
these instruments are included in income on a basis consistent with the
underlying assets or liabilities that have been hedged. Options are valued at
amortized cost and futures are valued at initial margin deposit adjusted by
changes in market value. Both items are reported as other assets.
. Premiums. Premium revenues are recognized when due for other than interest-
sensitive life insurance and annuities, which are recognized when received.
Accident and health insurance premiums are earned pro-rata over the terms of
the policies.
. Separate Accounts. Separate Accounts are maintained to receive and invest
premium payments under individual variable annuity policies issued by the
Company. The assets and liabilities of the Separate Account are clearly
identifiable and distinguishable from other assets and liabilities of the
Company, and the contractholder bears the investment risk. Separate Account
assets are reported at fair value. The operations of the Separate Account are
not included in the accompanying financial statements.
. Life Insurance and Annuity Reserves. The Company waives deduction of
deferred fractional premium upon death of the insured for all issues and
returns any portion of the final premium beyond the date of death from 1980
and later issues. For 1980 and later issues, the Company's reserves are
calculated on a continuous basis to reflect the above practice. For issues
prior to 1980, annual premium is assumed in the reserve calculation and for
policies with premium frequency other than annual, the Company holds a
separate NDDFP reserve which is the present value of a death benefit of half
of the gross premium for the balance of the policy premium paying period. Some
policies promise a surrender value in excess of the reserve as legally
computed. This excess is calculated on a policy by policy basis.
9
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE B
Accounting Practices and Basis of Presentation (continued).
- ----------------------------------------------------------
Policies issued at premium corresponding to ages higher than the true ages are
valued at the rated-up ages. Policies providing for payment at death during
certain periods of an amount less than the full amount of insurance, being
policies subject to liens, are valued as if the full amount is payable without
any deduction. For policies issued with, or subsequently subject to, an extra
premium payable annually, an extra reserve is held. The extra premium reserve
is 45% of the gross extra premium payable during the year if the policies are
rated for reasons other than medical impairments. For medical impairments,
the extra premium reserve is calculated at the excess of the reserve based on
rated mortality over that based on standard mortality.
At the end of 1998 and 1997 respectively, the Company had $66,217,000 and
$222,790,000 of insurance in force for which the gross premiums are less than
the net premiums according to the standard of valuation set by the State of
New York. Deficiency reserves to cover the above insurance were $84,000 at
December 31, 1998. Tabular interest and tabular cost have been determined
from the basic data for the calculation of policy reserves. Tabular less
actual reserve released and tabular interest on funds not involving life
contingencies have been determined by formula.
. Policy and Contract Claims. Liabilities for policy and contract claims are
determined using case-basis evaluations and statistical analyses. These
liabilities represent estimates of the ultimate expected cost of incurred
claims. Any required revisions in these estimates are included in operations
in the period when they are discovered.
. Federal Income Tax. Federal income taxes are provided based on an estimate
of the amount currently payable which may not bear a normal relationship to
pretax income because of timing and other differences in the calculation of
taxable income.
. Policyholder Dividends. Annual policyholder dividends are calculated using
either the contribution method or a modified experience premium method. These
methods distribute the aggregate divisible surplus among policies in the same
proportion as the policies are considered to have contributed to divisible
surplus. A proportion of earnings and surplus is allocated to participating
policies based on various allocation bases.
Certain amounts in the 1997 and 1996 financial statements have been reclassified
to conform to the 1998 presentation.
10
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE C
Investments. The fair value for fixed maturities is based on quoted market
- -----------
prices where available. For fixed maturities not actively traded, fair values
are estimated using values obtained from independent pricing services. The
carrying value and the fair value of investments in bonds are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------------------------
Gross Gross
Carrying unrealized unrealized Fair
value gains losses value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government obligations $ 43,918 $12,320 $ - $ 56,238
All other corporate bonds 59,678 1,246 - 60,924
Public utilities 6,504 226 - 6,730
Mortgage-backed securities 15,174 82 - 15,256
Foreign securities 12,919 234 (20) 13,133
- -----------------------------------------------------------------------------------------------------------------
Total fixed maturities $138,193 $14,108 $ (20) $152,281
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------------------------
Gross Gross
Carrying unrealized unrealized Fair
value gains losses value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government obligations $ 48,376 $ 8,822 $(3) $ 57,195
All other corporate bonds 62,791 934 - 63,725
Public utilities 8,965 174 - 9,139
Mortgage-backed securities 10,711 48 - 10,759
Foreign securities 11,798 242 12,040
- ----------------------------------------------------------------------------------------------------------------
Total fixed maturities $142,641 $10,220 $(3) $152,858
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The carrying value and fair value of fixed maturity investments at December 31,
1998, by contractual maturity, are shown below (in thousands of dollars).
Expected maturities may differ from contractual maturities because certain
borrowers have the right to call or prepay obligations with or without call or
prepayment penalties. In addition, corporate requirements may result in sales
before maturity.
<TABLE>
<CAPTION>
Carrying value Fair value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
In 1999 $ 2,144 $ 2,154
In 2000 - 2003 30,489 31,005
In 2004 - 2008 24,359 25,269
2009 and after 66,027 78,597
Mortgage-backed securities 15,174 15,256
- -----------------------------------------------------------------------------------------------------------
$138,193 $152,281
- -----------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE C
Investments (continued).
- -----------------------
At December 31, 1998, and 1997, bonds with an admitted asset value of $250,000
and $350,000, respectively were on deposit with state insurance departments to
satisfy regulatory requirements.
During 1998, the maximum and minimum lending rates for commercial mortgage loans
were 7.95% and 7.0%, respectively. All properties covered by mortgage loans
have fire insurance at least equal to the excess of the loan over the maximum
loan which would be permitted by law on the land without the buildings. During
1998, the Company did not reduce interest rates on any outstanding mortgage
loan. Mortgages held by the Company on which interest was more than one year
overdue at December 31, 1998 and 1997 was $0 and $216,615, respectively.
Mortgage loans are typically collateralized by the related properties and the
loan to value ratios at the date of loan origination generally do not exceed
75%. The Company's exposure to credit loss in the event of non-performance by
the borrowers, assuming that the associated collateral proved to be of no value,
is represented by the outstanding principal and accrued interest balances of the
respective loans. The mortgage loan loss reserve decreased $192,000 in 1998 and
increased $4,000 in 1997.
Major categories of CLNY's net investment income for years ended December 31,
are summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Fixed maturities $10,464 $10,427 $10,145
Equity securities 189 227 165
Mortgage loans 9,627 8,699 7,730
Real estate - 52 47
Short-term investments 243 344 264
Policy loans 789 755 722
Amortization of IMR 200 167 189
Other income 31 84 28
- -------------------------------------------------------------------------------------------------------
Total investment income 21,543 20,755 19,290
Less: investment expenses 689 540 497
- -------------------------------------------------------------------------------------------------------
Net investment income $20,854 $20,215 $18,793
- -------------------------------------------------------------------------------------------------------
</TABLE>
Due and accrued income was excluded from investment income on mortgage loans in
foreclosure or delinquent more than ninety days. The total amount excluded as
of December 31, 1998 and 1997 was $0 and $216,615, respectively.
CLNY uses the grouped method of computing the IMR amortization for interest
related gains and losses arising from the sale of fixed income investments. The
method is unchanged from prior years.
12
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE C
Investments (continued).
- -----------------------
Realized capital gains (losses) for years ended December 31, are summarized as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Gross gains $ 2,535 $ 1,373 $ 809
Gross losses (41) (300) (369)
----------------------------------------------------------
Total fixed maturities 2,494 1,073 440
Equity securities:
Gross gains 156 794 1,122
Gross losses - (58) (69)
----------------------------------------------------------
Total equity securities 156 736 1,053
Mortgage loans (194) - (264)
Derivative instruments (174) (1,515) 122
Real estate - - 27
- ---------------------------------------------------------------------------------------------------------
2,282 294 1,378
Income tax expense (928) (615) (517)
Transfer from (to) IMR (1,508) 204 (385)
- ---------------------------------------------------------------------------------------------------------
Net realized capital (losses) gains $ (154) $ (117) $ 476
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales and maturities of fixed maturity investments for the years
ended December 31, 1998, 1997, and 1996 were $34,183,000, $51,078,000, and
$49,924,000 respectively.
Unrealized capital gains and losses for equity securities are recorded
directly to surplus. The change in the unrealized gains and losses on equity
securities was $2,432,000, $1,343,000 and $653,000 for the years ended December
31, 1998, 1997, and 1996, respectively. The accumulated gross unrealized gains
and losses on equity securities at December 31, are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated gross unrealized gains $7,904 $5,286 $3,912
Accumulated gross unrealized losses (234) (48) (18)
- -------------------------------------------------------------------------------------------------------
Net unrealized gains $7,670 $5,238 $3,894
- -------------------------------------------------------------------------------------------------------
</TABLE>
The Company is party to various derivative instruments limited to contracts to
buy or sell U.S. Treasury securities used to hedge specific asset and liability
interest rate risks. Management actively monitors the use and level of these
instruments to ensure that credit and liquidity risks are maintained within pre-
approved levels. Futures are valued at initial margin deposit adjusted for
unrealized gains and losses. The Company has also entered into a currency swap
to hedge its position in a Canadian equity investment. The currency swap is
valued at replacement value at December 31, 1998. As of December 31, 1998 and
1997, the notional amounts for futures were $6,000,000 and $12,300,000. For
currency swaps, the notional amount was $998,000 for both December 31, 1998 and
1997.
13
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE D
Concentration of Credit Risk. At December 31, 1998, CLNY held unrated or less-
- ----------------------------
than-investment grade corporate bonds of $3,048,000, with an aggregate fair
value of $3,028,000. These holdings amounted to 2.1% of the bond portfolio and
1.0% of CLNY's total admitted assets. The portfolio is well diversified by
industry.
CLNY's mortgage portfolio is well diversified by region and property type with
21% in California (book value - $20,253,000), 11% (book value - $10,207,000) in
Pennsylvania, and the remainder of the states less than 10%. The investments
consist of first mortgage liens. The mortgage outstanding on any individual
property does not exceed $1,100,000.
NOTE E
Federal Income Taxes. The statutory federal income tax provision amount at the
- --------------------
statutory rate of 35% for 1998 and 34% for 1997 and 1996 differs from the
effective tax provision amount for years ended December 31 as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed income taxes at statutory rate $ 826 $ 527 $ 425
Increase (decrease) in income taxes
resulting from:
Policyholder dividends 164 9 86
Actuarial reserves (45) 257 385
Deferred acquisition cost tax 98 150 232
Accrual of bond discount 81 (6) (298)
Other (220) (365) (231)
- ---------------------------------------------------------------------------------------------------
Federal income taxes $ 904 $ 572 $ 599
- ---------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998 and 1997, the federal income tax receivable was $127,000
and $713,000, respectively.
During 1998, 1997 and 1996, the Company made cash payments on behalf of federal
income taxes of $2,293,000, $1,564,000 and $525,000, respectively.
NOTE F
Participating Insurance. Participating insurance accounted for 84%, 83% and 78%
- -----------------------
of total ordinary insurance in force, and premium income from ordinary life
participating policies amounted to 95%, 97% and 96% of total life insurance
premiums during 1998, 1997 and 1996, respectively.
NOTE G
Reinsurance. CLNY reinsures a portion of its life and accident and health
- -----------
insurance and annuity product risks with other insurance companies, principally
CLA, in order to minimize its exposure to loss. In accordance with industry
practice, reserves and liabilities relating to insurance ceded (1998 -
$15,312,000; 1997 - $7,912,000) are not provided for in CLNY's financial
statements. To the extent that any reinsuring companies are unable to meet
their obligations under the reinsurance agreements, CLNY would remain liable.
14
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE G
Reinsurance (continued).
- -----------------------
Various reinsurance agreements exist between CLNY and CLA, primarily in the form
of yearly renewable term treaties for life insurance and modified coinsurance
for annuities. The effect of reinsurance on premiums and annuity considerations
earned for years ended December 31, follow (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums $ 30,551 $ 43,155 $ 41,607
Premiums ceded (9,764) (3,951) (4,184)
- ------------------------------------------------------------------------------------------------------
Net premiums and annuity
considerations 20,787 39,204 37,423
- ------------------------------------------------------------------------------------------------------
Benefits ceded 281 2,983 935
Life insurance in force ceded 865,000 695,000 639,000
- ------------------------------------------------------------------------------------------------------
</TABLE>
NOTE H
Related Party Transactions. CLNY and CLA have an agreement to provide services
- --------------------------
for each other. For the years ended December 31, 1998, 1997 and 1996, the net
cost of these services to the Company amounted to $1,625,000, $1,948,000 and
$1,909,000, respectively. As of December 31, 1998 and 1997, the amount payable
to CLA were $3,755,000 and $1,644,000, respectively.
NOTE I
Separate Accounts. The Company's non-guaranteed Separate Accounts represent
- -----------------
primarily funds invested in variable annuity policies issued by the Company.
The assets of these funds are invested in either shares of Canada Life of
America Series Fund, Inc., an affiliated diversified, open-ended management
investment company or in shares of four unaffiliated management investment
companies.
Premiums or deposits for years ended December 31, 1998, 1997 and 1996 were
$5,354,000, $5,528,000 and $2,149,000, respectively. Total reserves were
$14,870,000 and $9,118,000 at December 31, 1998 and 1997, respectively. All
reserves were subject to discretionary withdrawal, at fair value, with less than
a 1% surrender charge.
15
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE I
Separate Accounts (continued).
- ----------------------------
A reconciliation of the amounts transferred to and from the Separate Accounts
for years ended December 31, is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transfers as reported in the Summary of
Operations of the Separate Accounts statement:
Transfers to Separate Accounts $5,354 $5,528 $2,149
Transfers from Separate Accounts 1,158 922 77
- ------------------------------------------------------------------------------------------------------
Net transfers to Separate Accounts 4,196 4,606 2,072
Gains transferred 120 126 26
- ------------------------------------------------------------------------------------------------------
Transfers as reported in the Summary of
Operations of the Life, Accident and Health
annual statement $4,316 $4,732 $2,098
- ------------------------------------------------------------------------------------------------------
</TABLE>
NOTE J
Actuarial Reserves. CLNY's withdrawal characteristics for annuity reserves and
- ------------------
deposit fund liabilities at December 31, are summarized as follows (in thousands
of dollars):
<TABLE>
<CAPTION>
Amount Percent of Total
------------------------------ ------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal:
At book value less surrender charge of 5% or more $ 24,404 $ 26,403 14.9% 15.7%
Subject to discretionary withdrawal without
adjustment at book value (minimal or no charge
adjustment) 7,127 3,762 4.3% 2.2%
Not subject to discretionary withdrawal 132,352 138,572 80.8% 82.1%
- ------------------------------------------------------------------------------------------------------------------------
Total (gross) 163,883 168,737 100.0% 100.0%
Less: reinsurance ceded - -
- -----------------------------------------------------------------------------------
Net annuity reserves and deposit fund liabilities $163,883 $168,737
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE K
Capital and Surplus. Under applicable New York insurance law, the Company is
- -------------------
required to maintain a minimum capital of $1,000,000 and surplus at least equal
to 50% of such capital. At December 31, 1998 surplus was $15,136,000.
In New York, life insurance companies are not permitted to pay dividends without
the prior approval of the New York insurance department.
16
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE K
Capital and Surplus (continued).
- -------------------------------
At December 31, 1998, the Company's capital and surplus exceeded the NAIC's
"Risk-Based Capital" requirements for life and health insurance companies.
NOTE L
Retirement Plans.
- ----------------
Retirement Plans. CLA sponsors a consolidated defined benefit pension plan
- ----------------
covering substantially all employees and agents. The benefits for the employees
are based on years of service and the employee's compensation during the last
five years of employment. The benefits for agents are based on the agent's
commission earnings. CLA's funding policy is to contribute annually to the plan
the maximum amount that can be deducted for federal income tax purposes. Each
subsidiary of CLA is charged with its share of the pension cost based on a
percentage of payroll and commissions. In 1998, no pension expense was
recognized under SAP.
Postretirement Benefit Plan. In addition to pension benefits, the Company
- ---------------------------
provides certain health care and life insurance benefits ("postretirement
benefits") for retired employees. Substantially all employees may become
eligible for these benefits if they reach retirement age while working for the
Company.
Postretirement benefit cost for the year ended December 31, 1998 was ($88,000).
Postretirement benefit cost includes the expected cost of postretirement
benefits for newly eligible or vested employees, interest cost, and gains and
losses arising from differences between actuarial assumptions and actual
experience. The Company made contributions to the plan of $4,000 in 1998, as
claims were incurred.
At December 31, 1998, the postretirement benefit obligation for retirees and
other fully eligible or vested plan participants was fully accrued. The
estimated cost of the benefit obligation for active employees was $486,000. The
discount rate used in determining the accumulated postretirement benefit
obligation was 6.7% and the health care cost trend rate was 9%, graded to 6%
over 20 years.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the postretirement
benefit obligation as of December 31, 1998, by $49,000 and the estimated
eligibility cost and interest components of net periodic postretirement benefit
cost for 1998 by $6,000.
17
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE M
Fair Value of Financial Instruments. The fair value of certain financial
- -----------------------------------
instruments along with their corresponding carrying values at December 31 follow
(in thousands of dollars). As the fair value of all CLNY's assets and
liabilities is not presented, this information in the aggregate does not
represent the underlying value of CLNY.
<TABLE>
<CAPTION>
1998 1997
------------------------------- ------------------------------
Fair Carrying Fair Carrying Valuation
Value Value Value Value Method
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Assets
- ----------------
Fixed maturities $152,281 $138,193 $152,858 $142,641 1
Equity securities 12,742 12,742 10,208 10,208 1
Mortgage loans 107,365 96,297 109,291 98,854 2
Policy loans 12,970 12,970 12,821 12,821 4
Financial Liabilities
- ---------------------
Investment-type
insurance contracts 31,074 27,897 30,694 28,878 5
Off-balance sheet
- -----------------
Derivatives
Futures (707) (695) 14,747 14,722 3
Currency Swaps 29 (1,103) (40) (1,103) 3
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Fair values are based on publicly quoted market prices at the close of
trading on the last business day of the year. In cases where publicly quoted
prices are not available, fair values are based on estimates using values
obtained from independent pricing services, or, in the case of private
placements, by discounting expected future cash flows using a current market
rate applicable to the yield, credit quality, and maturity of the
investments.
2. Fair values are estimated using discounted cash flow analysis based on
interest rates currently being offered for similar credit ratings.
3. Fair values for futures contracts and options that have not settled are
based on current settlement values.
4. Carrying value approximates fair value.
5. Fair values for liabilities under investment-type insurance contracts are
estimated using discounted liability calculations, adjusted to approximate
the effect of current market interest rates for the assets supporting the
liabilities.
18
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE N
Premium and Annuity Considerations Deferred and Uncollected. CLNY's deferred
- -----------------------------------------------------------
and uncollected life insurance premiums and annuity considerations at December
31, were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Gross Net of Loading
------------------------- --------------------------
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ordinary new business $ 352 $1,192 $ 57 $1,116
Ordinary renewal 2,687 1,934 2,110 1,240
Group life 11 6 7 6
- ----------------------------------------------------------------------------------------------------
Total $3,050 $3,132 $2,174 $2,362
- ----------------------------------------------------------------------------------------------------
</TABLE>
NOTE O
Impact of Year 2000 Computer Software Modification Costs (Unaudited). The year
- --------------------------------------------------------------------
2000 issue (Y2K) is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of CLA's computer
programs or hardware that have date sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal activities.
CLA's plan to resolve Y2K involves the following four phases: assessment,
testing, remediation, and implementation. A team of key personnel was formed to
mitigate Y2K issues. A majority of the resources were obtained from the
Information Technology profession. In addition, team members were designated
from the business units, Internal Audit, Legal, Corporate, and Compliance
departments. To date, CLA has fully completed its assessment of all systems
that could be significantly affected by the Year 2000. The completed assessment
indicates that most systems could be affected, but subsequent testing and
remediation of these systems indicates such issues will be minimal with no
significant disruption expected. However, due to a tremendous reliance on
systems and external business partners, CLA cannot guarantee that a disruption
will not occur. Since CLA's systems rely primarily on third party externally
developed software rather than proprietary internally developed software,
external vendors have performed what limited remediation work has been required.
CLA retests all remediation work in its Y2K test lab before implementing changes
into production. As of March 1999, assessment, testing, remediation, and
implementation are 96% complete on mission-critical systems.
In addition, CLA has gathered information about the year 2000 compliance status
of its significant business partners and continues to monitor their compliance
status. Y2K business contingency plans are being developed for mission critical
processes. The objectives of the plans will be to prepare alternatives in the
event of a failure of a mission-critical system and to provide a methodology and
means to audit and assess the functionality of mission-critical systems
immediately following the turn of the century. Additionally, the plans will
ensure that critical personnel are identified and available to respond to Y2K
issues should they arise. Once developed, these contingency plans will be
approved by the full Y2K Steering Committee after a detailed walk-through. CLA
expects the plans to be complete by the end of April.
19
<PAGE>
CANADA LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY FINANCIAL STATEMENTS
December 31, 1998
NOTE O
Impact of Year 2000 Computer Software Modification Costs (Unaudited -
- ---------------------------------------------------------------------
continued).
- ----------
Based on recent assessments, CLA has identified only two software applications,
bank reconciliation software and payroll software, that have date sensitive
issues that could disrupt processing if not resolved before December 31, 1999.
CLA contacted and is working closely with the providers of these applications.
It is anticipated that the installation of software upgrades that resolve the
date sensitive issues will occur no later than July 1999. A third application
used for financial reporting is not Y2K compliant, and CLA plans to replace it
rather than make it compliant. CLA expects the replacement to be ready by June
1999.
Other than the three software applications discussed, CLA has determined that,
based on its most recent assessments and testing, minimal disruption of
operation at CLA is expected due to Y2K issues. All modifications or
replacement of its software or hardware so that its systems will properly
utilize dates beyond December 31, 1999 will be complete by June 1999.
Consequently, due to the efforts that CLA has expended in addressing the date
sensitivity of its mission critical system, it is not expected that any material
disruption or major impact on the operations of CLA will occur. However, due to
the reliance on systems and external business partners, CLA cannot guarantee
that the company will be unaffected by the Year 2000.
20
<PAGE>
PART C
OTHER INFORMATION
<PAGE>
PART C OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits
(1) Resolution of the Board of Directors of Canada Life Insurance
Company of New York (CLNY) authorizing establishment of 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/3/
(i) Amendment to Selling Agreement
(4) (a) Form of Annuity Policy/4/
(b) Riders and Endorsements/3/
(5) Form of Application/4/
(6) (a) Certificate of Incorporation of CLNY/1/
(b) By-Laws of CLNY/1/
(c) Amendment to the By-laws of Canada Life Insurance Company of
November 19, 19931 New York passed by the Board
(d) Amendment to the By-laws of Canada Life Insurance Company of
September 4, 19973 New York passed by the Board
(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 omitted from Item 23.
(12) Not Applicable
(13) Sample Performance Data Calculation/3/
__________________
1 Incorporated herein by reference to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-4 for Variable Account 1 of Canada Life
Insurance Company of New York (File No. 33-32199) filed on April 29, 1997.
2 Incorporated herein by reference to the filing of Post-Effective Amendment
No. 6 to this Registration Statement on Form N-4 (File No. 33-64240), filed
on April 29, 1997.
3 Incorporated herein by reference to the filing of Post-Effective Amendment
No. 8 to this Registration Statement on Form N-4 (File No. 33-64240), filed
on April 30, 1998.
-2-
<PAGE>
4 Incorporated herein by reference to Post-Effective Amendment No. 9 to this
Registration Statement on Form N-4 (File No. 33-64240), filed on
February 12, 1999.
-3-
<PAGE>
Item 25. Directors and Officers of the Depositor
Name and Principal
Business Address Positions and Offices with Depositor
------------------ ------------------------------------
David A. Nield (1) Chairman and Director
Ron E. Beettam (2) President and Director
Paul R. McCadam (3) Vice-President, Chief Operating Officer,
and Director
Thomas C. Scott(2) Financial Vice President
Dr. Robert W. Lund (2) Medical Director
Donald K. Cooper (3) Director of Marketing
Nathanial Lacov (3) Director of Marketing
William S. McIlwaine (2) Director of Group Sales
Cheryl McGinness (3) Administrative Officer
Kenneth T. Ledwos (2) Actuary
Sergio Benedetti (2) Marketing Actuary
Janet G. Deskins(2) Illustration Actuary
John W. Pratt (2) Actuarial Associate
Jane W. Elliott (2) Internal Auditor
Roy W. Linden (1) Assistant Secretary
Charles H. MacPhaul (2) Assistant Secretary
George N. Isaac (1) Assistant Treasurer
Edward P. Ovsenny (1) Assistant Treasurer
Brian J. Lynch (1) Assistant Treasurer
Kevin A. Phelan (1) Assistant Treasurer
Michael Tibando (1) Assistant Treasurer
Wendy M. Michaud (3) Chief Underwriter
Christopher T. Green (5) Director
Alfred F. Kelly (6) Director
D. Allen Loney (1) Director
William B. Morris (9) Director
Harry Van Benschoten (10) Director
Alan R. Wentzel (6) Director
Henry A. Rachfalowski (1) Treasurer
- -------------
(1) The business address is 330 University Avenue, Toronto, Ontario,
Canada M5G 1R8.
(2) The business address is 6201 Powers Ferry Road, NW, Suite 600,
Atlanta, GA, USA 30339.
(3) The business address is 500 Mamaroneck Avenue, Harrison, New York, USA
10528.
(4) The business address is 43 Meadow Avenue, Weekapaug, Rhode Island, USA
02891
(5) The business address is 1000 Cathedral Place, 298 Main Street,
Buffalo, New York, USA 14202.
(6) The business address is 320 Park Avenue, New York, NY, USA 10022-6815
(7) The business address is 320 Park Avenue, New York, New York, USA
10022.
(8) The business address is 4 Glenellen Drive East, Toronto, Ontario,
Canada M8Y 2G5
(9) The business address is 9 West 57th Street, New York, New York, USA
10019
(10) The business address is 105 Seminary Street, New Canaan, Connecticut,
USA 06840
(11) The business address is 72 Colt Road, Summit, New Jersey, USA 07901
-4-
<PAGE>
Item 26. Persons Controlled by or Under Common Control With the Depositor or
Registrant
<TABLE>
<CAPTION>
NAME JURISDICTION PERCENT OF PRINCIPAL
- ---- ------------ VOTING SECURITIES OWNED BUSINESS
-------------------------------------- ------------------------
<S> <C> <C> <C>
The Canada Life Assurance Canada Mutual Company Life and Health
Company Insurance
Canada Life Insurance Company New York Ownership of voting securities through Life and Health
of New York Canada Life Insurance
Adason Properties Limited Canada Ownership of all voting securities Property Management
through Canada Life
Canada Life Irish Operations England Ownership of all voting securities Life and Health
Limited through Canada Life Insurance
Canada Life Unit Trust England Ownership of all voting securities Unit Trust Management
Managers Limited through Canada Life Irish Operations
Canada Life Mortgage Services Canada Ownership of all voting securities Mortgage Portfolios
Ltd. through Canada Life
The CLGB Property Company England Ownership of all voting securities Real Estate Investment
Limited through Canada Life Irish Operations
CLASSCO Benefit Services Canada Ownership of all voting securities Administrative Services
Limited through Canada Life
Canada Life Casualty Insurance Canada Ownership of all voting securities Property and Casualty
Company through Canada Life Insurance Insurance
Sherway Centre Limited Canada Ownership of all voting securities Real Estate Broker
through Canada Life
The Canada Life Assurance Rep. of Ireland Ownership of all voting securities Life and Health
Company of Ireland Limited through Canada Life Irish Operations Insurance
Canlife - IBI Investment Rep. of Ireland Ownership of 50% of voting securities Unit Trust Management
Services Limited through Canada Life Ass. ( Ireland)
Limited and 50% by the Investment Bank
of Ireland
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NAME JURISDICTION VOTING SECURITIES OWNED BUSINESS
- ---- ------------ ----------------------- --------
<S> <C> <C> <C>
Canada Life Financial England Ownership of all voting securities Life Insurance
Services Company Limited through Canada Life Irish
Operations
F.S.D. Investments Ltd. Rep. of Ireland Ownership of all voting securities Unit Fund Sales and
through Canada Life Assurance Management
(Ireland) Limited
Canada Life Insurance US Canada Life Life and Health
Company of America Insurance
Canada Life of America Georgia Ownership of all voting securities Broker Dealer
Financial Services Inc. through CLICA
Canada Life of America Maryland Ownership of all voting securities Mutual Fund
Series Fund, Inc. through CLICA
CLMS Realty Ltd. Canada 99% of the common shares and 100% of Realtor
the convertible preference shares are
owned by Canada Life
Canada Life Pension & 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, Service,
through Canada Life Ireland Holdings Management, and
Limited Investment Company
The Canada Life Assurance Rep. of Ireland Ownership of all voting securities Life Insurance,
(Ireland) Limited through CLAI Limited and the Canada Pension, and Annuity
Life Assurance Company of Ireland
CL Capital Management, Inc. Georgia Ownership of all voting securities Investment Advisor
through CLICA
Canada Life Capital Canada Ownership of all voting securities External Sources of
Corporation Inc. through Canada Life Capital
Canada Life Securing Canada Ownership of all voting securities Holding Company
Corporation Inc. through Canada Life
The Canada Life Group (UK) England Ownership of all voting securities Holding Company
Limited through Canada life
Canada Life Holdings (UK) England The Canada Life Group (UK) Limited Holding Company
Limited
The Canada Life Assurance England The Canada Life Group (UK) Limited Life and Health
Company of Great Britain
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF PRINCIPAL
NAME JURISDICTION VOTING SECURITIES OWNED BUSINESS
- ---- ------------ ----------------------- --------
<S> <C> <C> <C>
Limited Insurance
Canada Life Management (UK) England The Canada Life Group (UK) Limited Unit Trust Sales &
Limited Management
Canada Life Group Services England The Canada Life Group (UK) Limited Administrative Services
(UK) Limited
Canada Life Trustee Services England The Canada Life Group (UK) Limited Trustee Services
(UK) Limited
Canada Life Ireland Holdings Ireland Canada Life Irish Operations Limited Holding Company
Limited
MetLife (UK) Limited England Ownership of all voting securities Holding Company
through Canada Life
MetLife Group Services Limited England Ownership of all voting securities Administrative Services
through MetLife (UK) Limited
Metropolitan Unit Trust England Ownership of all voting securities Unit Trust Services
Managers Limited through MetLife (UK) Limited
Albany International Assurance England Ownership of all voting securities Unit Investment Products
Limited through MetLife (UK) Limited
Albany Life Assurance Company England Ownership of all voting securities Unit Life and Pension
Limited through MetLife (UK) Limited Insurance
Albany Pension Managers and England Ownership of all voting securities Trustee Services
Trustees Limited through Albany Life Assurance Company
Limited
Crown Life Insurance Company Canada Ownership of all voting securities Life and Health
of Canada through Canada Life Insurance
</TABLE>
-7-
<PAGE>
Item 27. Number of Policy Owners
As of March 15, 1999, there were 105 owners of Nonqualified Policies and
23 owners of Qualified Policies.
Item 28. Indemnification
Canada Life Insurance Company of New York's By-Laws provide in Article II,
Section 10 as follows:
In addition to and without limiting the generality of Subsections A and B of
this Section 10, the Corporation shall indemnify each director and each person
whose testator or intestate was a director made or threatened to be made a party
to any action or proceeding, including an action or proceeding by or in the
right of the Corporation by reason of the fact that he is or was a director or
that his testator or intestate was a director, against judgments, fines, amounts
paid in settlement, and reasonable expenses, including attorneys' fees actually
and necessarily incurred by him in connection with the defense or settlement of
such action or proceeding unless the judgment or other final adjudication
adverse to the director or to the person whose testator or intestate was a
director in such action or proceeding establishes that the director's acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or that the director
personally gained in fact a financial profit or other advantage to which he was
not legally entitled.
In addition, expenses incurred in defending a civil or criminal action or
proceeding may be paid by the corporation in advance of the final disposition of
such action or proceeding upon receipt of an undertaking by or on behalf of such
director, officer or employee to repay such amount as, and to the extent
required by paragraph (a) of Section 725 of the New York Business Corporation
Law.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the questions whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
<PAGE>
Item 29. Principal Underwriter
Canada Life of America Financial Services, Inc. (CLAFS) is the principal
underwriter of the Policies as defined in the Investment Company Act of 1940.
The following table provides certain information with respect to each director
and officer of CLAFS.
NAME AND PRINCIPAL POSITIONS AND OFFICES
Business Address WITH UNDERWRITER
- ---------------- ----------------
S. Benedetti** Chairman and Director
D.V. Rough* Treasurer
C.H. MacPhaul** Assistant Secretary
K.T. Ledwos** Administrative Officer and Director
S. Benedetti** President and Director
K.J. Fillman** Administrative Officer
___________________
* The business address is 330 University Avenue, Toronto, Ontario, Canada M5G
1R8.
** The business address is 6201 Powers Ferry Road, N.W., Suite 600, Atlanta,
Georgia 30339.
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of the 1940
Act and the rules under it are maintained by CLICA at its Executive Office at
330 university Avenue, Toronto, Canada M5G 1R8 and at 500 Mamaroneck Avenue,
Harrison, New York 10528.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
Item 32
Undertakings
(a) Registrant undertakes that it will file a post effective amendment to this
registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that
an applicant can check to request a Statement of Additional Information, or
(2) a post card or similar written communication affixed to or included in
the Prospectus that the applicant can remove to send for a Statement of
Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to CLNY at the address or phone
number listed in the Prospectus.
(d) Depositor undertakes to preserve on behalf of itself and Registrant the
books and records required to be preserved by such companies pursuant to
Rule 31a-2 under the Investment Company Act of 1940 and to permit
examination of such books and records at any time or from time to time
during business hours by
-9-
<PAGE>
examiners or other representatives of the Securities and Exchange
Commission, and to furnish to said Commission at its principal office in
Washington, D.C., or at any regional office of said Commission specified in
a demand made by or on behalf of said Commission for copies of books and
records, true, correct, complete, and current copies of any or all, or any
part, of such books and records.
(e) The Registrant is relying on a letter issued by the staff of the Securities
and Exchange Commission to the American Council of Life Insurance on
November 28, 1988 (Ref. No. IP-6-88) stating that it would not recommend to
the Commission that enforcement action be taken under Section 22(e),
27(c)(1), or 27(d) of the Investment Company Act of 1940 if the Registrant,
in effect, permits restrictions on cash distributions from elective
contributions to the extent necessary to comply with Section 403(b)(11) of
the Internal Revenue Code of 1986 in accordance with the following
conditions:
(1) include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the policy;
(2) include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection
with the offer of the policy;
(3) instruct sales representatives who may solicit individuals to purchase
the policies specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of such individuals;
(4) obtain from each owner who purchases a Section 403(b) policy, prior to
or at the time of such purchase, a signed statement acknowledging the
owner's understanding of (i) the redemption restrictions imposed by Section
403(b)(11), and (ii) the investment alternatives available under the
employer's Section 403(b) arrangement, to which the owner may elect to
transfer his or her policy value.
The Registrant is complying, and shall comply, with the provisions of
paragraphs (1) - (4) above.
(f) Canada Life Insurance Company of New York hereby represents that the fees
and changes deducted under the Policy, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred,
and the risks assumed by Canada Life Insurance Company of New York.
-10-
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
3 (i) Amendment to Selling Agreement
10 (a) Consent of Counsel
(b) Consent of Independent Counsel
(c) Consent of Independent Auditors
-11-
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets all the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933, and has caused this Post-Effective Amendment Number 9
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, and the State of New York on this 25th day of
----
February, 1999.
---------
CANADA LIFE INSURANCE COMPANY OF NEW YORK
VARIABLE ANNUITY ACCOUNT 2
By /s/ R. E. Beettam
-----------------
R. E. Beettam, President
Canada Life Insurance Company of New York
CANADA LIFE INSURANCE COMPANY OF NEW YORK
By /s/ R. E. Beettam
-----------------
R. E. Beettam, President
As required by the Securities Act of 1933, this Post-Effective Amendment
Number 9 has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ D. A. Nield Chairman and Director 2/25/99
--------------- -------
D. A. Nield
/s/ R. E. Beettam President and Director 2/25/99
----------------- -------
R. E. Beettam
/s/ G. N. Farquhar Director 3/4/99
------------------ ------
G. N. Farquhar
/s/ C. T. Greene Director 2/25/99
---------------- -------
C. T. Greene
/s/ A. F. Kelly Director 2/25/99
--------------- -------
A. F. Kelly
<PAGE>
/s/ D. A. Loney Director 3/18/99
--------------- -------
D. A. Loney
/s/ W. B. Morris Director 2/25/99
---------------- -------
W. B. Morris
/s/ H. Van Benschoten Director 2/25/99
--------------------- -------
H. Van Benschoten
/s/ A. R. Wentzel Director 2/25/99
----------------- -------
A. R. Wentzel
/s/ H. A. Rachfalowski Treasurer 2/25/99
---------------------- -------
H. A. Rachfalowski
<PAGE>
EXHIBIT 3 (I)
-------------
AMENDMENT TO SELLING AGREEMENT
------------------------------
<PAGE>
TRILLIUM(R)
SCHEDULE I - STATEMENT OF COMPENSATION
CANADA LIFE INSURANCE COMPANY OF NEW YORK
AS OF MARCH 1, 1999
Commissions will be paid to Broker/Dealer in the percentages shown below:
<TABLE>
<S> <C>
OWNER'S ISSUE AGE 0-80 OWNER'S ISSUE AGE 81-85
- ----------------------- -----------------------
OPTION A1: 5.0% of premium plus 0.25%, on an OPTION A2: 2.25% of premium plus 0.25%
- --------- ---------
annual basis, based on account value of associated annual trail, calculated as in Option A1.
premium, 0.0625% first payable at end of 5th quarter OPTION B2: 3.0% of premium, no trail.
---------
of the associated premium, end of following
quarters thereafter.
OPTION B1: 6.5% of premium, no trail.
- ---------
OPTION C: 2.0% of premium plus 0.75% annual trail,
- --------
as calculated as in Option A1.
</TABLE>
NOTE: ALL ASSET BASED PAYMENTS START BEING PAID IN THE FIFTH QUARTER AFTER THE
POLICY IS ISSUED, ARE PAYABLE QUARTERLY THEREAFTER, AND ARE BASED ON POLICY
VALUE AT THE TIME OF ASSET BASED PAYMENT CALCULATION.
ALL PAYMENTS IN THIS SCHEDULE, INCLUDING TRAIL PAYMENTS, ARE 50% COMMISSION AND
50% EXPENSE ALLOWANCE.
CHARGEBACKS
- -----------
(i) In the event a policy is returned to Canada Life Insurance Company of New
York ("CLNY") pursuant to a "Free Look" provision, the full B/D Concession paid
thereon or retained by Selling Firm pursuant to net submission of premium or
purchase payment shall be charged back to the Selling Firm. (ii) Should any
premium or purchase payment on any policy issued by CLNY be refunded for any
reason, Selling Firm shall repay or return B/D Concession received by it with
respect to such premium or purchase payment. (iii) If a policy was not issued as
a result of failure of Selling Firm to submit to CLNY an application sufficient
to satisfy state insurance laws or CLNY's eligibility requirements, then amounts
paid to Selling Firm shall be returned or repaid. (iv) If a policy was tendered
to CLNY for redemption within 10 business days of the date of activity, then
amounts paid to Selling Firm shall be returned or repaid. (v) For Annuitizations
occurring during the first policy year, B/D Concessions will be charged back to
the extent that they exceed the amount of the Service Fees referenced above.
For any premium or purchase payment that has been in the Policy for more than 12
months, there shall be no chargeback on B/D Concession. To the extent permitted
by law, the amount so charged back may, at the option of CLNY, be set off
against B/D Concession otherwise due Selling Firm. In addition, such other
compensation will be payable as are from time to time agreed by the parties to
the foregoing Agreement and which is in accordance with applicable law, and will
be added to the schedule. The rates of concession specified above and any rates
of concession otherwise determined by the company will be subject to change at
any time by the Company but no charge will affect the rates of concession in
connection with any policy effected herein for which the initial premium was due
prior to the effective date of such change. Any such changes of concession will
be binding upon the Broker/Dealer when the Company sends notice thereof in
writing to it and will take effect from the date specified in such notice.
<PAGE>
ADJUSTMENTS FOR ADVANCE BROKER DEALER CONCESSIONS ON 1035 EXCHANGES &/OR OTHER
- ------------------------------------------------------------------------------
TRANSFERS: CLNY will advance broker dealer concessions on 1035 exchanges &/or
- ----------
other transfers, subject to our administrative procedures, for amounts of
$50,000 or greater. (Amount subject to change without notice) When the actual
premiums are received, there will be an adjustment, either positive or negative,
to the actual broker dealer concession previously paid. If dollar amounts are
consistently over-estimated, this privilege will be discontinued. CLNY reserves
the right to discontinue this practice at any time.
NOTE: If there is more than one owner of a policy the age of the oldest owner
- -----
determines the level of compensation.
EXPENSE ALLOWANCE
- -----------------
Total payments may consist of agent commission, override and/or expense
allowance.
If expense allowances are payable, they are subject to the following conditions
and limitations:
1. Lapses and surrenders in the first year, and any returns of first year
premium made by CLNY, will result in proportionate chargebacks of any
expense allowances paid for said premiums.
2. No expense allowance will be used to effect compensation in excess of the
limits of Section 4228 of the Insurance Law of New York.
3. No expense allowance will be due or payable after the termination of this
Contract except for first year expense allowances for policies written
prior to such termination.
4. Notwithstanding any of the other terms and conditions governing payments of
expense allowances in this Contract, and to confirm with the requirements
of Section 4228 of the Insurance Law and the applicable regulations
resulting therefrom and other governing sections of the law, the following
will apply:
a) The maximum expense allowance payments shall be such that when
added to first year commissions, exclusive of overriding
commissions not exceeding 5% of first year premiums, the total
shall not exceed 91% of first year premiums for ordinary life and
annuity policies and contracts other than single premium policies
and contracts.
b) The maximum expense allowance shall not exceed 100% of the
commissions payable on single premium policies and contracts, or
the overall 7% of premium limit.
In monitoring the maximum allowances rules in this paragraph 4, CLNY will apply
those in a) and b) above, on a "per-policy" basis.
<PAGE>
EXHIBIT 10 (A)
--------------
CONSENT OF COUNSEL
------------------
<PAGE>
[TRANSMITED ON CANADA LIFE LETTERHEAD]
April 20, 1999
Board Of Directors
Canada Life Insurance Company of New York
Canada Life of America Variable Annuity Account 2
410 Saw Mill River Road
Ardsley, New York 10502
Gentlemen:
I hereby consent to the use of my name under the caption "Legal Matters" in the
Statement of Additional Information contained in Post-effective Amendment No. 9
to the Registration Statement on Form N-4 (File No. 33-64240) filed by Canada
Life Insurance Company of New York and Canada Life of New York 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/ Charles MacPhaul
- --------------------
Charles MacPhaul
Senior Counsel, U.S. Division
<PAGE>
EXHIBIT 10 (B)
--------------
CONSENT OF INDEPENDENT COUNSEL
------------------------------
<PAGE>
[TRANSMITED ON SUTHERLAND, ASBILL & BRENNAN LLP LETTERHEAD]
April 28, 1999
Board of Directors
Canada Life Insurance Company of New York
410 Saw Mill River Road
Ardsley, New York 10502
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Statement of Additional Information filed as part of Post-
Effective Amendment No. 9 under the Securities Act of 1933 and Amendment No. 11
under the Investment Company Act of 1940 to the registration statement on Form
N-4 for the Canada Life of New York Variable Annuity Account 2 (File No. 33-
64240). 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
By: /s/ Stephen E. Roth
-----------------------
Stephen E. Roth
<PAGE>
EXHIBIT 10 (C)
--------------
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
<PAGE>
CONSENT OF
INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the reference to our Firm under the captions "Financial
Statements" and "Experts" and to the use of our reports dated April 15, 1999
with respect to the financial statements of the Canada Life of New York Variable
Annuity Account 2 and the Canada Life Insurance Company of New York included in
the Registration Statement [Form N-4, No. 33-64240] and related Prospectus of
Canada Life of New York Variable Annuity Account 2 [May 1, 1999].
/s/ Ernst & Young LLP
-----------------------------
Chartered Accountants
Toronto, Canada
April 28, 1999
