-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UFi9E3MK8rN9qL0lNYtaak5goMA+Z0osOsDBVsNUl3Rj7M8XwUXfESaNPeP0Ho5U kgkursQLKSc3HrGRIZ4UQA== 0000950144-96-001842.txt : 19960501 0000950144-96-001842.hdr.sgml : 19960501 ACCESSION NUMBER: 0000950144-96-001842 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19960430 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 CENTRAL INDEX KEY: 0000895360 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 382816473 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-55890 FILM NUMBER: 96553862 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07350 FILM NUMBER: 96553863 BUSINESS ADDRESS: STREET 1: 330 UNIVERSITY AVE CITY: TORONTO CANADA STATE: A0 BUSINESS PHONE: 4165971456 MAIL ADDRESS: STREET 1: 6201 POWERS FERRY ROAD, NW CITY: ATLANTA STATE: GA ZIP: 30339 485APOS 1 CANADA LIFE POST-EFFECTIVE AMENDMENT 6 TO N-4 1 As Filed with the Securities and Exchange Commission on April 30, 1996. Registration No. 33-55890 811-7350 ================================================================================ Securities and Exchange Commission Washington, D.C. 20549 ================================================================================ FORM N-4 Registration Statement Under the Securities Act of 1933 X --- Pre-Effective Amendment No. Post-Effective Amendment No. 6 and/or Registration Statement Under the Investment Company Act of 1940 X --- Amendment No. 8 ================================================================================ CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 (Exact Name of Registrant) CANADA LIFE INSURANCE COMPANY OF AMERICA (Name of Depositor) 330 University Avenue Toronto, Canada M5G 1R8 (Address of Depositor's Principal Executive Office) Depositor's Telephone Number: (416) 597-1456 Roy W. Linden 330 University Avenue Toronto, Canada M5G 1R8 (Name and Address of Agent for Service) Copy to: Stephen E. Roth, Esquire Sutherland, Asbill, & Brennan 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) --- X May 1, 1996 on pursuant to paragraph (b) --- ------------- 60 days after filing pursuant to paragraph (a)(i) --- on pursuant to paragraph (a)(i) --- ----------- 75 days after filing pursuant to paragraph (a)(ii) --- on pursuant to paragraph (a)(ii) of Rule 485 --- ------------ If appropriate check the following box: --- this Post-Effective Amendment designates a new effective date for a new effective date for a previously filed Post-Effective Amendment. Pursuant to Rule 24f.2(a)(1) under the Investment Company Act of 1940, the Registrant has registered an indefinite number of shares. The Registrant will file a Rule 24f-2 Notice by June 30, 1996 for its most recent fiscal year ended December 31, 1995. 2 CROSS REFERENCE SHEET Pursuant to Rule 481(a) Showing Location in Part A (Prospectus) and Part B (Statement of Additional Information) of Registration Statement of Information Required by Form N-4 ================================================================================ PART A
ITEM OF FORM N-4 PROSPECTUS CAPTION - ---------------- ------------------ 1. Cover Page Cover Page 2. Definitions DEFINITIONS 3. Synopsis SUMMARY 4. Condensed Financial Information FINANCIAL STATEMENTS 5. General Description of Registrant, Depositor and Portfolio Companies a. Depositor THE COMPANY b. Registrant The Variable Account c. Portfolio Company The Fund d. Fund Prospectus The Fund e. Voting Rights VOTING RIGHTS f. Administrators N/A 6. Deductions and Expenses Charges Against the Policy, Variable Account, & Fund a. General Charges Against the Policy, Variable Account, & Fund b. Sales Load % Charges Against the Policy, Variable Account, & Fund - Surrender Charge c. Special Purchase Plan N/A d. Commissions DISTRIBUTION OF POLICIES e. Expenses - Registrant Charges Against the Policy, Variable Account, & Fund f. Fund Expenses Charges Against the Policy, Variable Account, & Fund - Other Charges Including Investment Management Fees g. Organizational Expenses N/A 7. General Description of Variable Annuity Contracts a. Persons With Rights DEFINITIONS - Owner , Joint Owner; Payment of Proceeds; Payment Options; Partial Withdrawals; Other Policy Provisions; VOTING RIGHTS b. (i) Allocation of Premium Premiums Payments (ii) Transfers Transfers; Payment of Benefits, Partial Withdrawals, Cash Surrenders, & Transfers - Postponement (iii) Exchanges N/A c. Changes Reserved Rights d. Inquiries SUMMARY - Questions
2 3 8. Annuity Period Payment Options 9. Death Benefit Payment of Proceeds; Payment of Benefits, Partial Withdrawals, Cash Surrenders, & Transfers - Postponement; Payment Options 10. Purchases and Contract Value a. Purchases Premiums b. Valuation Variable Account Value c. Daily Calculation Variable Account Value d. Underwriter DISTRIBUTION OF POLICIES 11. Redemptions a. - By Owners Payment of Proceeds - Proceeds on Surrender; Partial Withdrawals; Payment of Benefits, Partial Withdrawals, Cash Surrenders, & Transfers - Postponement - By Annuitant Payment of Proceeds - Proceeds on Death of Last Surviving Annuitant Before Annuity Date or Maturity Date; Payment Options b. Texas ORP RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM c. Check Delay Payment of Benefits, Partial Withdrawals, Cash Surrenders, & Transfers - Postponement d. Lapse Premiums - Termination e. Free Look Ten Day Right to Examine the Policy 12. Taxes Charges Against the Policy, Variable Account, & Fund - Taxes; FEDERAL TAX STATUS 13. Legal Proceedings LEGAL PROCEEDINGS 14. Table of Contents of the Statement STATEMENT OF ADDITIONAL INFORMATION TABLE OF of Additional Information CONTENTS
PART B
ITEM OF FORM N-4 STATEMENT OF ADDITIONAL INFORMATION CAPTION - ---------------- ------------------------------------------- 15. Cover Page Cover Page 16. Table of Contents STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS 17. General Information and History See Prospectus - THE COMPANY; THE VARIABLE ACCOUNT AND THE FUND 18. Services a. Fees and Expenses of Registrant N/A b. Management Contract N/A c. Custodian SAFEKEEPING OF ACCOUNT ASSETS d. Independent Public Accountant EXPERTS
3 4 e. Assets of Registrant SAFEKEEPING OF ACCOUNT ASSETS f. Affiliated Persons N/A g. Principal Underwriter See Prospectus - DISTRIBUTION OF POLICIES 19. Purchase of Securities Being Offered See Prospectus - DISTRIBUTION OF POLICIES 20. Underwriter See Prospectus - DISTRIBUTION OF POLICIES 21. Calculation of Performance Data CALCULATION OF YIELDS AND TOTAL RETURNS 22. Annuity Payments See Prospectus - Payment Options 23. Financial Statements FINANCIAL STATEMENTS
4 5 PART A INFORMATION REQUIRED IN A PROSPECTUS 6 CANADA LIFE INSURANCE COMPANY OF AMERICA ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD, NW, ATLANTA, GEORGIA 30339 PHONE: 1-800-905-1959 ================================================================================ PROSPECTUS VARIABLE ANNUITY ACCOUNT 2 FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY POLICY ================================================================================ This Prospectus describes the flexible premium variable deferred annuity policy (the "policy") offered by Canada Life Insurance Company of America ("we," "our," or "us"), a stock life insurance company domiciled in Michigan which is a wholly-owned subsidiary of The Canada Life Assurance Company. The policy is designed for use in connection with retirement plans which may or may not qualify for special federal income tax treatment. The owner ("you") may allocate net premiums when paid and policy value among the twelve sub-accounts of the Canada Life of America Variable Annuity Account 2 (the "Variable Account") and the Fixed Account. The Fixed Account is part of our general account and may not be available in all states. Assets of each sub-account are invested in a corresponding portfolio of Seligman Portfolios, Inc. (the "Fund"), a Maryland corporation that is a diversified open-end investment company which uses the investment management services of J. & W. Seligman & Co. Incorporated (the Global, Global Smaller Companies, Global Technology and Global Growth Opportunities Portfolios use the sub-advisory services of Seligman Henderson Co.). The Fund has twelve portfolios: Capital; Cash Management; Common Stock; Fixed Income Securities; Income; Global; Communications and Information; Frontier; Global Smaller Companies; High-Yield Bond; Global Technology; and Global Growth Opportunities. The policy value prior to the annuity date or maturity date, except for amounts in the Fixed Account, will vary according to the investment performance of the portfolio of the Fund in which your elected sub-accounts are invested. You bear the entire investment risk on amounts allocated to the Variable Account. This Prospectus sets forth basic information about the policy and the Variable Account that a prospective investor ought to know before investing. Additional information about the policy and the Variable Account is contained in the Statement of Additional Information, which has been filed with the Securities and Exchange Commission. The Statement of Additional Information is dated the same date as this Prospectus and is incorporated herein by reference. The Table of Contents for the Statement of Additional Information is on page 37 of this Prospectus. You may obtain a copy of the Statement of Additional Information free of charge by writing or calling us at the address or phone number shown above. PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE FUND. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is May 1, 1996 7 TABLE OF CONTENTS
PAGE ---- DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 TABLE OF EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 CONDENSED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 THE VARIABLE ACCOUNT AND THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 The Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 The Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Seligman Capital Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Seligman Cash Management Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Seligman Common Stock Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Seligman Fixed Income Securities Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Seligman Income Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Seligman HENDERSON Global Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Seligman Communications and Information Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Seligman Frontier Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Seligman HENDERSON Global Smaller Companies Portfolio . . . . . . . . . . . . . . . . . . . . . . . . 13 Seligman High-Yield Bond Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Seligman Henderson Global Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Seligman Henderson Global Growth Opportunities Portfolio . . . . . . . . . . . . . . . . . . . . . . 13 Reserved Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Change in Investment Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 DESCRIPTION OF ANNUITY POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Ten Day Right to Examine the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Initial Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Additional Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Wire Transmittal Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Electronic Data Transmission of Application Information . . . . . . . . . . . . . . . . . . . . . . 15 Net Premium Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Variable Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Unit Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Transfer Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Telephone Transfer Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Dollar Cost Averaging Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Restrictions on Transfers From Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Transfer Processing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Payment of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Proceeds on Annuity Date or Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Proceeds on Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Proceeds on Death Of Last Surviving Annuitant Before Annuity Date or Maturity Date (The Death Benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Proceeds on Death of Any Owner Before or After Annuity Date or Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Interest on Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Partial Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Systematic Withdrawal Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Seligman Time Horizon Matrix (SM). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Portfolio Rebalancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Payment of Benefits, Partial Withdrawals, Cash Surrenders, & Transfers - Postponement . . . . . . . . . 21 Charges Against the Policy, Variable Account, and Fund . . . . . . . . . . . . . . . . . . . . . . . . . 23 Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Policy Administration Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Daily Administration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Transfer Processing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Annualized Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Waiver of Surrender Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Reduction or Elimination of Surrender Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Reduction or Elimination of Policy Administration Charge . . . . . . . . . . . . . . . . . . . . . . 25 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Other Charges Including Investment Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . 26 Payment Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Election of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Description of Payment Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Age and Survival of Payee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Death of Payee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Other Policy Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Owner or Joint Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Written Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Periodic Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 YIELDS AND TOTAL RETURNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 TAX DEFERRAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 FEDERAL TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 The Company's Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Tax Status of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Diversification Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Required Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Taxation of Annuities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Withdrawals/Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Annuity Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Taxation of Death Benefit Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Penalty Tax on Certain Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Transfers, Assignments, or Exchanges of a Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Multiple Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Possible Tax Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Taxation of Qualified Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Individual Retirement Annuities and Simplified Employee Pensions (SEP/IRAs) . . . . . . . . . . . . 34 Minimum Distribution Requirements ("MDR") for IRAs . . . . . . . . . . . . . . . . . . . . . . . . . 34 Corporate and Self-Employed (H.R.10 and Keogh) Pension and Profit-Sharing Plans . . . . . . . . . . 34 Deferred Compensation Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Tax-Sheltered Annuity Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Other Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM . . . . . . . . . . . . . . . . . . . . . . . . . 35 DISTRIBUTION OF POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 FIXED ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Fixed Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 APPENDIX A: STATE PREMIUM TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2 8 DEFINITIONS ADMINISTRATIVE OFFICE: Our office at the address shown on page 1 of the Prospectus. This is our mailing address. ANNUITANT: Any natural person whose life is used to determine the duration of any payments made under a payment option involving life contingencies. The term annuitant also includes any co-annuitant, a term used to refer to more than one annuitant. ANNUITY DATE: The date when the policy value will be applied under Payment Option 1, unless you have elected to receive a lump sum payment of the cash surrender value, or Payment Option 2. BENEFICIARY: The person to whom we will pay the proceeds payable on your death or on the death of the last surviving annuitant. CASH SURRENDER VALUE: The policy value less: 1) any applicable surrender charge; and 2) the policy administration charge. CO-ANNUITANT: A term used solely for the purpose of referring to more than one annuitant. There is no other distinction between the terms annuitant and co-annuitant. A co-annuitant: 1) is allowed but not required under a nonqualified policy; and 2) is not allowed under a qualified policy, and any designation of a co-annuitant under a qualified policy will be of no effect. COMPANY: Canada Life Insurance Company of America. DUE PROOF OF DEATH: Proof of death that is satisfactory to us. Such proof may consist of: 1) a certified copy of the death certificate; or 2) a certified copy of the decree of a court of competent jurisdiction as to the finding of death. EFFECTIVE DATE: The date the policy is effective is the date we accept your application and apply your initial premium. FIXED ACCOUNT: This account is part of our general account. This account is not part of and does not depend on the investment performance of the Variable Account. FUND: Seligman Portfolios, Inc., a diversified open-end investment company that offers shares in twelve portfolios of shares in which the corresponding sub-accounts of the Variable Account are invested. JOINT OWNER: A term used solely for the purpose of referring to more than one owner. There is no other distinction between the terms owner and joint owner. LAST SURVIVING ANNUITANT: The annuitant or co-annuitant that survives the other. MATURITY DATE: The first day of the month after any annuitant's 100th birthday. NET PREMIUMS: The premium paid less any premium tax deducted in the year the premium is paid. NONQUALIFIED POLICY: A policy that is not a "qualified" policy under the Internal Revenue Code of 1986, as amended (the "Code"). However, any increase in policy value under a nonqualified policy is not taxable to the owner or annuitant until received (tax deferred), subject to certain exceptions. See "FEDERAL TAX STATUS" on page 30. OWNER: The owner is entitled to exercise all rights and privileges provided the owner in the policy. The term owner also includes any joint owner. PAC: Pre-authorized check, including electronic fund transfers. POLICY: One of the flexible premium variable deferred annuity policies offered by this Prospectus. POLICY VALUE: The sum of the Variable Account value and the Fixed Account value. 3 9 POLICY DATE, YEARS, MONTHS, and ANNIVERSARIES: Are measured from the policy date shown in the "Policy Details" of the policy. QUALIFIED POLICY: A policy that is issued in connection with plans that receive special federal income tax treatment under sections 401, 403(a), 403(b), 408 or 457 of the Code. See "FEDERAL TAX STATUS" on page 30. SUB-ACCOUNT: The Variable Account has twelve sub-accounts: Capital; Cash Management; Common Stock; Fixed Income Securities; Income; Global; Communications and Information; Frontier; Global Smaller Companies; High-Yield Bond; Global Technology; and Global Growth Opportunities. The assets of these sub-accounts are invested in the corresponding portfolio of the Fund. UNIT: A unit is a measurement used in the determination of the policy's Variable Account value before the annuity date or maturity date. VALUATION DAY: Each day on which valuation of assets is required by applicable law, which currently is each day the New York Stock Exchange is open for trading, except for the business day after Thanksgiving and the business day after Christmas which are days that we will be closed although the New York Stock Exchange may be open for trading. VALUATION PERIOD: The period that starts at the close of business on one valuation day and ends at the close of business on the next succeeding valuation day. The close of business is when the New York Stock Exchange closes (usually at 4:00 P.M. Eastern Time). VARIABLE ACCOUNT: The Canada Life of America Variable Annuity Account 2, which is not part of our general account. The Variable Account has twelve sub-accounts, the assets of which are invested in the corresponding portfolio of the Fund. WE, OUR, and US: Canada Life Insurance Company of America. WRITTEN NOTICE: See the "Written Notice" provision on page 27 in the "Other Policy Provisions" section of this Prospectus. YOU or YOUR: The owner. See the definitions of "owner" and "joint owner" above. SUMMARY TEN DAY RIGHT TO EXAMINE POLICY You have ten days after you receive the policy to decide if the policy meets your needs (except in California you have 30 days if the Owner is age 60 or over, and in Idaho and North Dakota you have 20 days), and if the policy does not meet your needs to return the policy to our Administrative Office. We will promptly return either the Policy Value (where allowed by law); or in states which do not allow return of Policy Value, we will return the full premium paid, without interest and less the amount of any partial withdrawals, within seven days. When the policy is issued as an Individual Retirement Annuity, during the first seven days of the ten day period, we will return all premiums if this is greater than the amount otherwise payable. PREMIUMS The minimum initial premium is $5,000 ($2,000 if the Policy is an Individual Retirement Annuity, but we reserve the right to lower or raise the minimum premium for IRAs). However, the minimum initial premium is $100 ($50 if the policy is an Individual Retirement Annuity) if submitted with a pre-authorized check ("PAC") agreement. You may make additional premium payments during the annuitant's lifetime and before the annuity date or maturity date. The minimum additional premium is $1,000, or $100 per month if paid by PAC (or $50 per month if paid by PAC if the Policy is an Individual Retirement Annuity). Our prior approval is required before your total premiums paid exceed $1,000,000. You may allocate your net premiums among the sub-accounts of the Variable Account and the Fixed Account. See "Premiums" on page 14. 4 10 THE VARIABLE ACCOUNT The Variable Account is a separate investment account consisting of twelve sub-accounts. The policy value before the annuity date or maturity date, except for amounts in the Fixed Account, will vary according to the investment performance of the portfolios of the Fund in which your elected sub-accounts are invested. See "The Variable Account" on page 11. THE FUND The assets of each sub-account are invested in the corresponding portfolios of the Fund. The Fund currently has twelve portfolios: Seligman Capital; Seligman Cash Management; Seligman Common Stock; Seligman Fixed Income Securities; Seligman Income; Seligman Henderson Global; Seligman Communications and Information; Seligman Frontier; Seligman Henderson Global Smaller Companies; Seligman High-Yield Bond; Seligman Henderson Global Technology; and Seligman Henderson Global Growth Opportunities. The Fund is a diversified, open-end investment company. See "The Fund" on page 11. THE FIXED ACCOUNT The Fixed Account is not part of and does not depend on the investment performance of the Variable Account. We credit interest to amounts in the Fixed Account at a guaranteed minimum rate of 3% per annum, and we may credit a higher current interest rate. See "FIXED ACCOUNT" on page 38. TRANSFERS You may transfer all or part of an amount in a sub-account or the Fixed Account to another sub-account(s) or the Fixed Account, subject to certain restrictions. See "Transfers" on page 16. DEATH BENEFIT If we receive due proof of death of the last surviving annuitant before the annuity date or maturity date ("such due proof"), we will pay the beneficiary a death benefit. THE FOLLOWING APPLIES ONLY TO CERTAIN POLICIES ISSUED ON OR AFTER MAY 1, 1996 AS APPLICABLE REGULATORY APPROVALS ARE OBTAINED IN THE JURISDICTION IN WHICH THE POLICIES ARE OFFERED: If we receive such due proof during the first five years, the death benefit is the greater of: 1. the premiums paid, less: a) any partial withdrawals, including applicable surrender charges; and b) any incurred taxes; or 2. the policy value on the date we receive due proof of the annuitant's death. If we receive such due proof after the first five policy years, the death benefit is the greatest of: 1. item "1" above; or 2. item "2" above; or 3. the policy value at the end of the most recent 5 policy year period preceding the date we receive due proof of the annuitant 's death, adjusted for any of the following items that occur after such last 5 policy year period: a) less any partial withdrawals, including applicable surrender charges; b) less any incurred taxes; and c) plus any premiums paid. The 5 policy year periods are measured from the policy date (i.e., 5, 10, 15, 20, etc.). If on the date the policy was issued, the annuitant was attained age 80 or less, then after the annuitant attains age 81, the death benefit is the greater of items "1" or "2" above. However, if on the date the policy was issued, any annuitant was attained age 81 or more, then the death benefit is the policy value. THE FOLLOWING APPLIES ONLY TO CONTRACTS ISSUED PRIOR TO MAY 1, 1996 OR SUCH LATER DATE AS APPLICABLE REGULATORY APPROVALS ARE OBTAINED IN THE JURISDICTION IN WHICH THE CONTRACTS ARE OFFERED. 5 11 If we receive such due proof during the first seven policy years, the death benefit is the greater of: 1. the premiums paid, less: a) any partial withdrawals, including applicable surrender charges; and b) any incurred taxes; or 2. the policy value on the date we receive due proof of the annuitant's death. If we receive such due proof after the first seven policy years, the death benefit is the greatest of: 1. item "1." above; or 2. item "2." above; or 3. the policy value at the end of the most recent 7 policy year period preceding the date we receive due proof of the annuitant's death, adjusted for any of the following items that occur after such last 7 policy year period: a) less any partial withdrawals, including applicable surrender charges; b) less any incurred taxes; and c) plus any premiums paid. The 7 policy year periods are measured from the policy date (i.e., 7, 14, 21, 28, etc.). For policies issued from May 1, 1995 through April 30, 1996, no further step-ups in Death Benefits will occur after any annuitant's age of 80. No death benefit is payable if the policy is surrendered before the last surviving annuitant's death. See "Proceeds on Death of Last Surviving Annuitant Before Annuity Date or Maturity Date" on page 18. PARTIAL WITHDRAWALS AND CASH SURRENDERS You may withdraw part or all of the cash surrender value at any time before the earlier of the death of the last surviving annuitant, the annuity date or the maturity date, subject to certain limitations. See "Partial Withdrawals" on page 20 and "Proceeds on Surrender" on page 18. Partial withdrawals and cash surrenders may be subject to federal income tax, including a penalty tax. See "FEDERAL TAX STATUS" on page 30. POLICY CHARGES No deduction for a sales charge is made when premiums are paid. However, a surrender charge (contingent deferred sales charge) will be deducted when certain partial withdrawals and cash surrenders are made. For the purpose of determining if any surrender charge applies and the amount of such charge, partial withdrawals and surrenders are taken according to these rules from policy value attributable to premiums or investment earnings in the following order:
SURRENDER CHARGE ---------------- 1. Up to 100% of positive investment earnings of each variable sub-account available at the time the request is made, once a policy year, PLUS . . . . . . . . . . . . . . None 2. Up to 100% of current policy year's interest on the FIXED ACCOUNT at the time the request for surrender/withdrawal is made, once a policy year, PLUS . . . . . . . None 3. Up to 10% of total premiums STILL SUBJECT TO A SURRENDER CHARGE, once a policy year, PLUS . . . None 4. Up to 100% of those premiums NOT SUBJECT TO A SURRENDER CHARGE, available at any time. . . . . . None 5. Premiums subject to a surrender charge: Policy Years Since Premium Was Paid ----------------------------------- Less than 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6% At least 1, but less than 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6% At least 2, but less than 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% At least 3, but less than 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% At least 4, but less than 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4% At least 5, but less than 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3% At least 6, but less than 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2% At least 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
See "Surrender Charge" on page 23. 6 12 We deduct a policy administration charge of $30 for the prior policy year on each policy anniversary. If the policy value on the policy anniversary is $75,000 or more, we will waive the policy administration charge for the prior policy year. We will also deduct this charge for the current policy year if the policy is surrendered for its cash surrender value, unless the surrender occurs on the policy anniversary. See "Policy Administration Charge" on page 23. At each valuation period, we also deduct a daily administration fee at an effective annual rate of 0.35% from the assets of the Variable Account. See "Daily Administration Fee" on page 24. The first 12 transfers during each policy year are free under our current Company policy, which we reserve the right to change. If our current policy changes, we guarantee that we will provide at least four free transfers during each policy year. We assess a $25 transfer fee for each additional transfer. See "Transfer Processing Fee" on page 16. We deduct a mortality and expense risk charge at each valuation period from the assets of the Variable Account at an effective annual rate of 1.25%. This charge is not made after the annuity date or maturity date, or against any amounts in the Fixed Account. See "Annualized Mortality and Expense Risk Charge" on page 24. We will incur premium taxes in some jurisdictions relating to the policies. Depending on the jurisdiction, we deduct any such taxes from either: a) the premium when paid; or b) the policy value when it is applied under a payment option, cash surrender value or partial withdrawal. See "Taxes" on page 25. Each portfolio of the Fund in which the Variable Account invests is responsible for its own expenses. In addition, charges for investment management services are charged daily from each portfolio of the Fund as a percentage of the average net assets of the portfolios, as follows: 0.40% for Capital, Cash Management (currently waived), Common Stock, Fixed Income Securities, and Income; 0.75% for Communications and Information, and Frontier; 1.00% for Global, Global Smaller Companies, Global Technology and Global Growth Opportunities; and 0.50% for High-Yield Bond. See "Other Charges Including Investment Management Fees" on page 26 and the attached "PROSPECTUS FOR THE FUND." LOANS The Company may in the future offer a loan privilege to owners of policies issued in connection with Section 403(b) qualified plans that are not subject to Title I of ERISA. If offered, owners of such policies may obtain loans using the policy as the only security for the loan. The effective cost of a policy loan would be 2% per year of the amount borrowed. See "Loans" on page 21. ANNUITY DATE, MATURITY DATE AND PAYMENT OPTIONS On the annuity date, we will apply the policy value under Payment Option 1, unless you have elected to receive the cash surrender value in a lump sum, or pursuant to a mutually agreed upon payment option, Payment Option 2. Payments under these payment options do not depend on the Variable Account's investment performance. The proceeds we will pay on the maturity date is the policy value. The payment options are: 1) Life Income; and 2) Mutual Agreement. See "Payment Options" on page 26. OTHER POLICY PROVISIONS For information concerning the owner, beneficiary, written notice, periodic policy reports, assignment, and modification see "Other Policy Provisions" on page 27. FEDERAL TAX STATUS For a brief discussion of our current understanding of the federal tax laws concerning us and the annuity policies we issue see "FEDERAL TAX STATUS" on page 30. QUESTIONS We will be happy to answer your questions about the policy or our procedures. Call or write to us at the phone number or address on page one. All inquiries should include the policy number, and the names of the owner and the annuitant. 7 13 TABLE OF EXPENSES EXPENSE DATA The following information regarding expenses assumes that the entire policy value is in the Variable Account.
POLICYOWNER TRANSACTION EXPENSES -------------------------------- Sales load on purchase payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None Maximum contingent deferred sales charge as a percentage of amount surrendered (10% of total premiums still subject to a surrender charge are free of any sales load. See "Policy Charges" on page 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.00% Transfer fee Current policy - First 12 transfers each policy year: . . . . . . . . . . . . . . . . . . No fee Guarantee - First 4 transfers each policy year: . . . . . . . . . . . . . . . . . . . . . No fee Each transfer thereafter: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25 POLICY ADMINISTRATION CHARGE ---------------------------- Per policy per policy year: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30 (waived for the prior policy year if the policy value is $75,000 or more on the policy anniversary) VARIABLE ACCOUNT ANNUAL EXPENSES -------------------------------- (as a percentage of account value) Mortality and expense risk charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.25% Effective annual rate of daily administration fee . . . . . . . . . . . . . . . . . . . . . . 0.35% Total Variable Account annual expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.60%
SELIGMAN PORTFOLIOS, INC. (THE "FUND") ANNUAL EXPENSES (as a percentage of average net assets)
OTHER EXPENSES MANAGEMENT AFTER EXPENSE TOTAL ANNUAL FEES REIMBURSEMENT* EXPENSES ---------- -------------- ------------ Capital 0.40% 0.20% 0.60% Cash Management 0.00% 0.00% 0.00% Common Stock 0.40% 0.14% 0.54% Fixed Income Securities 0.40% 0.20% 0.60% Income 0.40% 0.20% 0.60% Global 1.00% 0.40% 1.40% Communications and Information 0.75% 0.20% 0.95% Frontier 0.75% 0.20% 0.95% Global Smaller Companies 1.00% 0.40% 1.40% High-Yield Bond 0.50% 0.20% 0.70% Global Technology 1.00% 0.40% 1.40% Global Growth Opportunities 1.00% 0.40% 1.40%
* The above table is intended to assist the policyowner in understanding the costs and expenses that will be borne, under the policy, directly or indirectly. These include the expenses of the Fund. The 0.00% following "Management Fees" under Cash Management is based on the fact that the Manager, in its sole discretion, waived its fee of 0.20% during 1995, and voluntarily has agreed in 1996 to waive this fee. There is no assurance that the Manager will continue this policy in the future. In the event that this waiver is discontinued, this will be reflected in an updated prospectus. With respect to all portfolios of the Fund except Global, Global Smaller Companies, Global Technology and Global Growth Opportunities, the 0.20% (0.00% under Cash Management) listed following "Other expenses after expense reimbursement" is based on the fact that the Fund expenses, other than the management fee, exceeding 0.20% (0.00% under Cash Management) will be reimbursed by the Fund's Manager by voluntary agreement of the Manager. There is no assurance that the Manager will continue this policy in the future. With respect to Global, Global Smaller Companies, Global Technology and Global Growth Opportunities, the Sub- 8 14 Advisor has agreed to reimburse annual expenses (other than the management fee) that exceed 0.40% of average net assets. There is no assurance that the Manager and the Sub-Advisor will continue this policy in the future. In the event that any of these waivers and reimbursements are discontinued, this will be reflected in an updated prospectus. Absent such a reimbursement, the Fund's "Other Expenses" would be higher, and during 1995 would have been: Capital 0.31%; Cash Management 0.47%; Fixed Income Securities 0.59%; Income 0.22%; Global 2.05%; Frontier 0.62%; Global Smaller Companies 2.45%; and High-Yield Bond 3.88% (annualized). The High-Yield Bond Portfolio commenced operations on May 1, 1995. Expenses for Common Stock and Communications and Information did not exceed the reimbursement level of 0.20%. The Global Technology and Global Growth Opportunities Portfolios commenced operations on May 1, 1996. In the absence of any expense reimbursement, the annualized "Other Expenses" and "Total Annual Expenses" for the Global Technology and Global Growth Opportunities Portfolios are estimated to be 1.40% and 1.40%, respectively. 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. See "Charges Against the Policy, Variable Account, and Fund," page 23, and the Prospectus for the Fund. In addition to the expenses listed above, premium taxes may be applicable, which currently range between 0.5% to 3.5%, according to the jurisdiction. In many jurisdictions, there is no tax at all. See Appendix A, State Premium Taxes. EXAMPLES A policyowner would pay the following expenses on a $1,000 investment, assuming a 5% annual return on assets: 1. If the policy is surrendered at the end of the applicable time period:
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS ----------- ------ ------- ------- -------- Capital $77 $114 $146 $255 Cash Management $70 $ 96 $115 $192 Common Stock $76 $113 $143 $249 Fixed Income Securities $77 $114 $146 $255 Income $77 $114 $146 $255 Global $84 $138 $186 $334 Communications and Information $80 $125 $164 $290 Frontier $80 $125 $164 $290 Global Smaller Companies $84 $138 $186 $334 High-Yield Bond $78 $117 $151 $266 Global Technology $84 $138 $186 $334 Global Growth Opportunities $84 $138 $186 $334
2. If the policy is annuitized or not surrendered at the end of the applicable time period:
SUB-ACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS ----------- ------ ------- ------- -------- Capital $23 $69 $119 $255 Cash Management $16 $51 $ 88 $192 Common Stock $22 $68 $116 $249 Fixed Income Securities $23 $69 $119 $255 Income $23 $69 $119 $255 Global $30 $93 $159 $334 Communications and Information $26 $80 $137 $290 Frontier $26 $80 $137 $290 Global Smaller Companies $30 $93 $159 $334 High-Yield Bond $24 $72 $124 $266 Global Technology $30 $93 $159 $334 Global Growth Opportunities $30 $93 $159 $334
The examples provided above assume that no transfer charges have been assessed. The examples also reflect a policy administration charge of 0.02% of assets, determined by dividing the total policy administration charge collected by the total average net assets of the sub-accounts of the Variable Account. 9 15 THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESSER THAN THE ASSUMED AMOUNT. CONDENSED FINANCIAL INFORMATION The following condensed financial information is derived from the financial statements of the Variable Account. The data should be read in conjunction with the financial statements, related notes and other financial information included in the Statement of Additional Information. See the "FINANCIAL STATEMENTS" section on page 36 concerning financial statements contained in the Statement of Additional Information. The table below sets forth certain information regarding the sub-accounts for a policy for the period from commencement of business operations on June 21, 1993 through December 31, 1995. Accumulation Unit Values will not be provided for any date prior to the inception of the Variable Account. The Communications and Information, Frontier and Global Smaller Companies commenced operations on October 11, 1994. High-Yield Bond commenced operations on May 1, 1995. No condensed financial information is shown for the Global Technology and Global Growth Opportunities Sub-Accounts since these sub-accounts had not commenced operations on December 31, 1995.
ACCUMULATION UNIT VALUE AS OF AS OF AS OF AS OF DATE OF SUB-ACCOUNT 12/31/95 12/31/94 12/31/93 INCEPTION 6/2 ----------- -------- -------- -------- ------------- Capital 22.8868 18.2918 19.6172 17.5309 Cash Management 1.2946 1.2485 1.2207 1.2169 Common Stock 23.2020 18.5345 18.7397 17.3783 Fixed Income Securities 15.4532 13.1729 13.8444 13.5230 Income 18.2026 15.6909 16.9728 16.2960 Global 12.3408 11.2629 11.3350 9.9778 Communications and Information 14.1656 10.4007 * Frontier 13.8269 10.5399 * Global Smaller Companies 11.9127 10.3193 * High-Yield Bond 10.6346 ** NUMBER OF UNITS OUTSTANDING AT END OF PERIOD AS OF AS OF AS OF SUB-ACCOUNT 12/31/95 12/31/94 12/31/93 ----------- -------- -------- -------- Capital 177,869 62,358 4,660 Cash Management 4,756,423 434,226 56,138 Common Stock 406,237 127,570 35,206 Fixed Income Securities 118,761 64,614 15,084 Income 262,103 124,878 27,474 Global 329,980 150,440 47,001 Communications and Information 2,515,329 47,541 * Frontier 785,660 11,609 * Global Smaller Companies 408,870 12,740 * High-Yield Bond 275,716 **
* The Accumulation Unit Values for the Communications and Information, Frontier and Global Smaller Companies Sub-Accounts' first valuation period were set at $10. Since these Sub-Accounts were not in existence in 1993, there were no outstanding units to report at the end of the period December 31, 1993. ** The Accumulation Unit Value for the High-Yield Bond Sub-Account's first valuation period was set at $10. Since this Sub-Account was not in existence in 1994, there were no outstanding units to report at the end of the period December 31, 1994. 10 16 THE COMPANY Canada Life Insurance Company of America ("we," "our," and "us") is a stock life insurance company with assets as of December 31, 1995 of approximately $2.5 billion. We were incorporated under Michigan law on April 12, 1988, and our administrative office is located at 6201 Powers Ferry Road, NW, Atlanta, Georgia 30339. We currently are principally engaged in issuing and reinsuring annuity policies. We share our A.M. Best rating with our parent company, The Canada Life Assurance Company. From time to time, we will quote this rating, our rating from Standard & Poor's Corporation, Duff & Phelps Inc., and/or Moody's Investors Service for claims paying ability. These ratings address the financial ability of these companies to meet their contractual obligations in accordance with the terms of their insurance contracts. They do not take into account deductibles, surrender or cancellation penalties, or timeliness of claim payment, nor do they address the suitability of the policy for a particular purchaser. Also, these evaluations do not refer to the ability of these companies to meet non-policy obligations. We are a wholly-owned subsidiary of The Canada Life Assurance Company, a Canadian life insurance company headquartered in Toronto, Ontario, Canada, with a U.S. home office in Atlanta, Georgia. The Canada Life Assurance Company: commenced insurance operations in 1847, and has been actively operating in the United States since 1889; and is one of the largest life insurance companies in North America with consolidated assets as of December 31, 1995 of approximately $20.8 billion (U.S. dollars). Obligations under the policies are obligations of Canada Life Insurance Company of America. We are subject to regulation and supervision by the Michigan Insurance Bureau, as well as the applicable laws and regulations of all jurisdictions in which we are authorized to do business. THE VARIABLE ACCOUNT AND THE FUND THE VARIABLE ACCOUNT We established the Canada Life of America Variable Annuity Account 2 (the "Variable Account") as a separate investment account on October 30, 1992, under Michigan law. Although we own the assets in the Variable Account, these assets are held separately from our other assets and are not part of our general account. The income, gains or losses, whether or not realized, from the assets of the Variable Account are credited to or charged against the Variable Account in accordance with the policies without regard to our other income, gains or losses. The portion of the assets of the Variable Account equal to the reserves and other contract liabilities of the Variable Account will not be charged with liabilities that arise from any other business that we conduct and will be held in the Variable Account. We have the right to transfer to our general account any assets of the Variable Account which are in excess of such reserves and other liabilities. The Variable Account is registered with the Securities and Exchange Commission (the "SEC") as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act") and meets the definition of a "separate account" under the federal securities laws. A unit investment trust is a type of investment company that invests its assets in specified securities, such as the shares of one or more investment companies. Registration under the 1940 Act does not involve the supervision by the SEC of the management or investment policies or practices of the Variable Account. The Variable Account has twelve sub-accounts: Capital; Cash Management; Common Stock; Fixed Income Securities; Income; Global; Communications and Information; Frontier; Global Smaller Companies; High-Yield Bond; Global Technology; and Global Growth Opportunities. The assets of each sub-account are invested in shares of the corresponding portfolio of the Fund. THE FUND Seligman Portfolios, Inc. (the "Fund") currently has twelve portfolios: Seligman Capital; Seligman Cash Management; Seligman Common Stock; Seligman Fixed Income Securities; Seligman Income; Seligman Henderson Global; Seligman Communications and Information; Seligman Frontier; Seligman Henderson Global Smaller Companies; Seligman High-Yield Bond; Seligman Henderson Global Technology; and Seligman Henderson Global Growth Opportunities. 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 11 17 shares of a portfolio will be reinvested in additional shares of that portfolio at their net asset value. The Fund Prospectus defines the net asset value of portfolio shares. The Fund is a diversified open-end investment company incorporated in Maryland which uses the investment management services of J. & W. Seligman & Co. Incorporated (the Global, Global Smaller Companies, Global Technology and Global Growth Opportunities Portfolios use the sub-advisory services of Seligman Henderson Co.). The following is a brief description of the investment objectives of each of the current portfolios of the Fund. There is, of course, no assurance that the investment objective of any portfolios will be achieved. The following brief descriptions are qualified in their entirety by the more detailed information appearing in the attached Prospectus for the Fund. SELIGMAN CAPITAL PORTFOLIO The investment objective of this Portfolio is to produce capital appreciation, not current income, by investing in common stocks (primarily those with strong near-or intermediate-term prospects) and securities convertible into or exchangeable for common stocks, in common stock purchase warrants, in debt securities and in preferred stocks believed to provide capital appreciation opportunities. SELIGMAN CASH MANAGEMENT PORTFOLIO The investment objective of this Portfolio is 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 The investment objective of this Portfolio is 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 FIXED INCOME SECURITIES PORTFOLIO The investment objective of this Portfolio is to achieve favorable current income by investing in a diversified range of debt securities, primarily of investment grade, including convertible issues and preferred stock, with capital appreciation as a secondary consideration. SELIGMAN INCOME PORTFOLIO The investment objective of this Portfolio is 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 HENDERSON GLOBAL PORTFOLIO The investment objective of this Portfolio currently is long-term capital appreciation primarily through global investments in securities of medium-to-large sized companies. 12 18 SELIGMAN COMMUNICATIONS AND INFORMATION PORTFOLIO The investment objective of this Portfolio is to produce capital gain not income, by investing primarily in securities of companies operating in the communications, information and related industries. SELIGMAN FRONTIER PORTFOLIO The investment objective of this Portfolio is to produce growth in capital value; income may be considered but will be only incidental to the Portfolio's investment objective. In general, securities owned are likely to be those issued by small- to medium-sized companies selected for their growth prospects. SELIGMAN HENDERSON GLOBAL SMALLER COMPANIES PORTFOLIO The investment objective of this Portfolio is long-term capital appreciation primarily through global investments in securities of companies with small to medium market capitalizations. SELIGMAN HIGH-YIELD BOND PORTFOLIO The investment objective of this Portfolio is to produce maximum current income by investing primarily in high-yielding, high risk corporate bonds and corporate notes, which, generally, are unrated or carry ratings lower than those assigned to investment grade bonds by Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"). The Portfolio may invest up to 100% of its assets in lower rated bonds, commonly known as "junk bonds" which are subject to a greater risk of loss of principal and interest than higher rated investment grade bonds. An investment in the Series 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 HENDERSON GLOBAL TECHNOLOGY PORTFOLIO The investment objective of this Portfolio is to seek long term capital appreciation by making global investments of at least 65% of its assets in securities of U.S. and non-U.S. companies operating in the technology and technology-related industries. SELIGMAN HENDERSON GLOBAL GROWTH OPPORTUNITIES PORTFOLIO The investment objective of this Portfolio is to seek capital long-term appreciation by investing primarily in capital stock of companies that have the potential to benefit from global economic or social trends. 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 America, Canada Life Insurance Company of New York, The Canada Life Assurance Company, and other unaffiliated insurance companies, it is possible that material conflicts may arise between the interests of the Variable Account and one or more other separate accounts investing in the Fund. The Fund's board of directors, the Fund's investment manager, and we and any other insurance companies participating in the Fund will monitor events to identify any irreconcilable material conflict. Upon being advised of such a conflict, we will take any steps we believe necessary to resolve the matter, including removing the assets of the Variable Account from one or more series. A FULL DESCRIPTION OF THE FUND, ITS INVESTMENT OBJECTIVES, ITS POLICIES AND RESTRICTIONS, ITS EXPENSES AND OTHER ASPECTS OF ITS OPERATION, AS WELL AS A DESCRIPTION OF THE RISKS RELATED TO INVESTMENT IN THE FUND, IS CONTAINED IN THE ATTACHED PROSPECTUS FOR THE FUND. THE PROSPECTUS FOR THE FUND SHOULD BE READ CAREFULLY BY A PROSPECTIVE PURCHASER ALONG WITH THIS PROSPECTUS. RESERVED RIGHTS We reserve the right to substitute shares of another portfolio of the Fund or shares of another registered open-end investment company if, in the judgment of our management, investment in shares of one or more portfolios is no longer appropriate for any legitimate reason, including: a change in investment policy; or a change in the tax laws; or the shares are no longer available for investment. However, we will obtain the approval of the SEC before we make a substitution of shares, if such approval is required by law. 13 19 When permitted by law, we also reserve the right to: create new variable accounts; combine variable accounts, including the Canada Life of America Variable Annuity Account 2; remove, combine or add sub-accounts and make the new sub-accounts available to policyowners at our discretion; add new portfolios of the Fund or of other registered investment companies; 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 POLICY The investment policy of a sub-account of the Variable Account may not be changed unless: the change is approved, if required, by the Michigan Insurance Bureau; and a statement of such approval is filed, if required, with the insurance department of the state in which the policy is delivered. DESCRIPTION OF ANNUITY POLICY TEN DAY RIGHT TO EXAMINE POLICY You have ten days after you receive the policy to decide if the policy meets your needs (except in California you have 30 days if the Owner is age 60 or over, and in Idaho and North Dakota you have 20 days), and if the policy does not meet your needs to return the policy to our Administrative Office. We will promptly return either the Policy Value (where allowed by law); or in states which do not allow return of Policy Value, we will return the full premium paid, without interest and less the amount of any partial withdrawals, within seven days. When the policy is issued as an Individual Retirement Annuity, during the first seven days of the ten day period, we will return all premiums if this is greater than the amount otherwise payable. PREMIUMS INITIAL PREMIUM An applicant must submit a properly completed application along with a check made payable to us for the initial premium. The minimum initial premium is $5,000 ($2,000 if the Policy is an Individual Retirement Annuity, but we reserve the right to lower or raise the minimum premium for IRAs). However, the minimum initial premium is $100 ($50 if the Policy is an Individual Retirement Annuity) when an applicant has enclosed a completed pre-authorized check ("PAC") agreement for additional premiums to be automatically withdrawn monthly from the owner's bank account. The application is subject to our underwriting standards. If the application is properly completed and is accompanied by all the information necessary to process it, including the initial premium, we will normally accept the application and apply the initial net premium within two valuation days of receipt at our Administrative Office. However, we may retain the premium for up to five valuation days while we attempt to complete the processing of an incomplete application. If this cannot be achieved within five valuation days, we will inform the applicant of the reasons for the delay and immediately return the premium, unless the applicant specifically consents to our retaining the premium until the application is made complete. If the applicant consents to our retaining the premium, we will apply the initial net premium within two valuation days of when the application is complete. ADDITIONAL PREMIUMS The minimum additional premium is $1,000. However, the minimum additional premium paid by PAC is $100 per month ($50 per month if the policy is an Individual Retirement Annuity). We will apply additional net premiums as of receipt at our Administrative Office. You may make additional premium payments at any time during any annuitant's lifetime and before the earlier of the annuity date or maturity date. Our prior approval is required before we will accept an additional premium which, together 14 20 with the total of other premiums paid, would exceed $1,000,000. We will give you a receipt for each additional premium payment. WIRE TRANSMITTAL PRIVILEGE If a written agreement between us and broker/dealers who use wire transmittals is in effect, as a privilege to you we will accept transmittal of the initial and/or additional premiums by wire order from the broker/dealer to our designated financial institution. A copy of such transmittal must be simultaneously sent to our Administrative Office via a telephone facsimile transmission that also contains the essential information we require to begin application processing and/or to allocate the net premium. We will normally apply the initial net premium within two valuation days of receipt at our Administrative Office of the facsimile transmission that contains a copy of the wire order and such required essential information. We may retain such wire orders for up to five valuation days while an attempt is made to obtain such required information that we do not receive via such facsimile transmission. If such required information is not obtained within five valuation days, we will inform the broker/dealer, on behalf of the applicant, of the reasons for the delay and immediately return the premium wired to us to the broker/dealer who will return the full premium paid to the applicant, unless we receive within such five valuation days the applicant's specific written consent to our retaining the premium until we receive such required information via facsimile transmission. Our acceptance of the wire order and facsimile does not create a contractual obligation with us until we receive and accept a properly completed original application. If we do not receive a properly completed original application within ten valuation days of receipt of the initial wire order premium, we will return the premium wired to us to the broker/dealer who will return the full premium paid to the applicant. If the allocation instructions in the properly completed original application are inconsistent with such instructions contained in the facsimile transmission, the policy value will be reallocated in accordance with the allocation instructions in the application at the price which was next determined after receipt of the wire order. ELECTRONIC DATA TRANSMISSION OF APPLICATION INFORMATION In certain states, we will also accept, by agreement with broker-dealers who use electronic data transmissions of application information, wire transmittals of initial premium payments from the broker-dealer to the Company for purchase of the policy. Contact us to find out about state availability. Upon receipt of the electronic data and wire transmittal, we will process the information and allocate the premium payment according to the policyowner's instructions. Based on the information provided, we will generate a policy and a verification letter to be forwarded to the policyowner for signature. During the period from receipt of the initial premium until the signed verification letter is received, the policyowner may not execute any financial transactions with respect to the policy unless such transactions are requested in writing by the owner and signature guaranteed. NET PREMIUM ALLOCATION You elect in your application how you want your initial net premium to be allocated among the sub-accounts and the Fixed Account. Any additional net premiums will be allocated in the same manner, unless at the time of payment we have received your written notice to the contrary. The total allocation must equal 100%. We cannot guarantee that a sub-account or shares of a portfolio will always be available. If you request that all or part of a premium be allocated to a sub-account at a time when the sub-account or underlying portfolio is not available, we will immediately return that portion of the premium to you, unless you specify otherwise. TERMINATION We may pay you the cash surrender value and terminate the policy if before the annuity date or maturity date all of these events simultaneously exist: 1. you have not paid any premiums for at least two years; 2. the policy value is less than $2,000; and 3. the total premiums paid, less any partial withdrawals, is less than $2,000. 15 21 We will mail you a notice of our intention to terminate this policy at least six months in advance. The policy will automatically terminate on the date specified in the notice, unless we receive an additional premium before the termination date specified in the notice. This additional premium must be at least the minimum amount specified in "Additional Premiums." VARIABLE ACCOUNT VALUE The Variable Account value before the annuity date or maturity date is determined by multiplying the number of units credited to this policy for each sub-account by the current unit value of these units. UNITS We credit net premiums in the form of units. The number of units credited to the policy for each sub-account is determined by dividing the net premium allocated to that sub-account by the unit value for that sub-account at the end of the valuation period during which we receive the premium at our Administrative Office. We will credit units for the initial net premium on the effective date of the policy. We will adjust the units for any transfers in or out of a sub-account, including any transfer processing fee. We will cancel the appropriate number of units based on the unit value at the end of the valuation period in which any of the following events occur: the policy administration charge is assessed; the date we receive and file your written notice for a partial withdrawal or surrender; the date of a systematic withdrawal; the earlier of the annuity date or maturity date; or the date we receive due proof of your death or the last surviving annuitant's death. UNIT VALUE The unit value for each sub-account's first valuation period is set at $10, except the Cash Management sub-account which is set at $1. The unit value for each subsequent valuation period is determined by multiplying the unit value at the end of the immediately preceding valuation period by the net investment factor for the valuation period for which the value is being determined. The unit value for a valuation period applies to each day in that period. The unit value may increase or decrease from one valuation period to the next. NET INVESTMENT FACTOR The net investment factor is an index that measures the investment performance of a sub-account from one valuation period to the next. Each sub-account has a net investment factor, which may be greater than or less than one. The net investment factor for each sub-account for a valuation period equals 1 plus the rate of return earned by the relevant portfolio of the Fund, adjusted for the effect of taxes charged or credited to the sub-account, the mortality and expense risk charge, and the daily administration fee. The rate of return of the relevant portfolio is equal to the fraction obtained by dividing (a) by (b) where: a) is the net investment income and net gains, realized and unrealized, credited during the current valuation period; and b) is the value of the net assets of the relevant portfolio at the end of the preceding valuation period, adjusted for the net capital transactions and dividends declared during the current valuation period. TRANSFERS TRANSFER PRIVILEGE You may transfer all or a part of an amount in the sub-account(s) to another sub-account(s) or to the Fixed Account, or transfer a part of an amount in the Fixed Account to the sub-account(s), subject to these general restrictions and the additional restrictions in "Restrictions on Transfers from Fixed Account": 16 22 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 Fixed Account be transferred to a sub-account at a time when the sub-account or underlying portfolio is unavailable, we will not process your transfer request, and this request will not be counted as a transfer for purposes of determining the number of free transfers executed. The Company reserves the right to change its minimum transfer amount requirements. TELEPHONE TRANSFER PRIVILEGE You may direct us to act on transfer instructions given by telephone, subject to our procedures, by initialing the authorization on the application or by subsequently completing our administrative form. The authorization will continue in effect until we receive your written revocation or we discontinue this privilege. We reserve the right to change our procedures and to discontinue this privilege. We will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. If we do not employ such reasonable procedures, we may be liable for any losses due to unauthorized or fraudulent instructions. These procedures may include, but are not limited to, possible recording of telephone calls and obtaining appropriate personal security codes and contract number before effecting any transfers. DOLLAR COST AVERAGING PRIVILEGE ("DCA") You may elect to have us automatically transfer specified amounts FROM ANY ONE variable sub-account or the Fixed Account (either one a "disbursement account") TO ANY OTHER variable sub-account(s) or the Fixed Account on a periodic basis, subject to our administrative procedures and the restrictions in "Transfer Privilege" above. This privilege is intended to allow you to utilize "Dollar Cost Averaging," 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. When the Fixed Account is selected as the disbursement account, we require a minimum distribution period of 18 months. During this period, surrenders and/or transfers from the Fixed Account are not permitted. To initiate DCA, we must receive your written notice on our form. Once elected, such transfers will be processed until the entire value of the sub-account or Fixed Account is completely depleted; or we receive your written revocation of such monthly transfers; or we discontinue this privilege. We reserve the right to change our procedures or to discontinue the DCA privilege upon 30 days written notice to you. RESTRICTIONS ON TRANSFERS FROM FIXED ACCOUNT Other than transfers made pursuant to DCA, you may transfer an amount from the Fixed Account to the sub-account(s) of the Variable Account, subject to these additional restrictions: 1. we allow only one transfer each year and this transfer must be within the period that is 30 days before and 30 days after the policy anniversary, and an unused transfer option does not carry over to the next year; and 2. the maximum transfer amount is 50% of the Fixed Account value on the date of the transfer, unless the balance after the transfer is less than $5,000, in which case you may transfer the entire value. Under our current procedures, the transfer will be made on the valuation date that occurs on or next following the date we receive your transfer request at our Administrative Office. TRANSFER PROCESSING FEE There is no limit to the number of transfers that you can make between sub-accounts or to the Fixed Account. However, we only allow one transfer each year from the Fixed Account (see "Restrictions on Transfers from Fixed Account" above). The first 12 transfers during each policy year are free under our current policy, which we reserve the right to change. If our current policy changes, we guarantee that we will provide at least four free transfers during each policy year. Any unused free transfers do not carry over. We will assess a $25 processing fee for each additional transfer. For the purposes of assessing the fee, each transfer request (which includes a written notice or telephone call, but does not include dollar cost averaging automatic transfers) is considered to be one transfer, regardless of the number of sub- 17 23 accounts or the Fixed Account affected by the transfer. The processing fee will be charged proportionately to the receiving sub-account(s) and/or the Fixed Account. PAYMENT OF PROCEEDS PROCEEDS Proceeds means the amount we will pay under your policy when the first of the following events occurs: the annuity date or maturity date; or the policy is surrendered; or we receive due proof of death of the last surviving annuitant or any owner. We will pay any proceeds in a single sum that may be payable due to death before the annuity date or maturity date, unless an election is made for a payment option. See "Election of Options" on page 26. The policy ends when we pay the proceeds. We will deduct any applicable premium tax from the proceeds described below, unless we deducted the tax from the premiums when paid. PROCEEDS ON ANNUITY DATE OR MATURITY DATE If Payment Option 1 is in effect on the annuity date, the proceeds we will pay is the policy value. See "Payment Options" on page 26. If the proceeds are paid in a lump sum on the annuity date, we will pay the cash surrender value. You may change the annuity date, subject to these limitations: 1. we must receive your written notice at our Administrative Office at least 30 days before the current annuity date; 2. the requested annuity date must be a date that is at least 30 days after we receive your written notice; and 3. the requested annuity date should be no later than the first day of the month following the any annuitant's 100th birthday or any earlier date required by law. The proceeds on the Maturity Date will be the policy value. The Maturity Date is the first day of the month after any annuitant's 100th birthday. PROCEEDS ON SURRENDER If you surrender the policy before the annuity date, the proceeds we will pay is the cash surrender value. The cash surrender value is the policy value, less any applicable surrender charge. The cash surrender value will be determined on the date we receive your written notice for surrender and this policy at our Administrative Office. You may surrender the policy for its cash surrender value at any time before the earlier of the death of the last surviving annuitant, the annuity date or maturity date. However, the surrender proceeds may be subject to federal income tax, including a penalty tax. See "FEDERAL TAX STATUS" on page 30. You may elect to have the cash surrender value paid in a single sum or under a payment option. See "Payment Options" on page 26. The policy ends when we pay the cash surrender value. You may avoid a surrender charge by electing to apply the policy values under Payment Option 1. See "Proceeds on Annuity Date or Maturity Date" on page 18. PROCEEDS ON DEATH OF LAST SURVIVING ANNUITANT BEFORE ANNUITY DATE OR MATURITY DATE (THE DEATH BENEFIT) If we receive due proof of death of the last surviving annuitant before the annuity date or maturity date ("such due proof"), the proceeds we will pay to the beneficiary is the death benefit. THE FOLLOWING APPLIES ONLY TO CERTAIN POLICIES ISSUED ON OR AFTER MAY 1, 1996 AS APPLICABLE REGULATORY APPROVALS ARE OBTAINED IN THE JURISDICTION IN WHICH THE POLICIES ARE OFFERED: If we receive such due proof during the first five years, the death benefit is the greater of: 1. the premiums paid, less: a) any partial withdrawals, including applicable surrender charges; and b) any incurred taxes; or 2. the policy value on the date we receive due proof of the annuitant's death. 18 24 If we receive such due proof after the first five policy years, the death benefit is the greatest of: 1. item "1" above; or 2. item "2" above; or 3. the policy value at the end of the most recent 5 policy year period preceding the date we receive due proof of the annuitant's death, adjusted for any of the following items that occur after such last 5 policy year period: a) less any partial withdrawals, including applicable surrender charges; b) less any incurred taxes; and c) plus any premiums paid. The 5 policy year periods are measured from the policy date (i.e., 5, 10, 15, 20, etc.). If on the date the policy was issued, all annuitants were attained age 80 or less, then after any annuitant attains age 81, the death benefit is the greater of items "1" or "2" above. However, if on the date the policy was issued, any annuitant was attained age 81 or more, then the death benefit is the policy value. THE FOLLOWING APPLIES ONLY TO CERTAIN POLICIES ISSUED PRIOR TO MAY 1, 1996 OR SUCH LATER DATE AS APPLICABLE REGULATORY APPROVAL IS OBTAINED IN THE JURISDICTION IN WHICH THE POLICIES ARE OFFERED: If we receive such due proof during the first seven policy years, the death benefit is the greater of: 1. the premiums paid, less: a) any partial withdrawals, including applicable surrender charges; and b) any incurred taxes; or 2. the policy value on the date we receive due proof of the annuitant's death. If we receive such due proof after the first seven policy years, the death benefit is the greatest of: 1. item "1." above; or 2. item "2." above; or 3. the policy value at the end of the 7 policy year period preceding the date we receive due proof of the annuitant's death, adjusted for any of the following items that occur after such last 7 policy year period: a) less any partial withdrawals, including applicable surrender charges; b) less any incurred taxes; and c) plus any premiums paid. The 7 policy year periods are measured from the policy date (i.e., 7, 14, 21, 28, etc.). For policies issued from May 1, 1995 through April 30, 1996, no further step-ups in Death Benefits will occur after any annuitant's age of 80. No death benefit is payable if the policy is surrendered before the last surviving annuitant's death. If you are the last surviving annuitant who dies before the annuity date or maturity date, the death benefit proceeds must be distributed pursuant to the rules set forth below in "Proceeds on Death of Any Owner Before or After Annuity Date or Maturity Date." PROCEEDS ON DEATH OF ANY OWNER BEFORE OR AFTER ANNUITY DATE OR MATURITY DATE If you are not an annuitant, and we receive due proof of your death before the annuity date or maturity date we will pay the beneficiary the policy value as of the date we receive due proof of your death. If you are the last surviving annuitant, and we receive due proof of your death before the annuity date or maturity date we will pay the beneficiary the death benefit described in "Proceeds on the Death of Last Surviving Annuitant Before Annuity Date or Maturity Date." If any owner dies before the annuity date, Federal tax law requires the policy value be distributed within five years after the date of such owner's death regardless of whether such owner is or is not an annuitant, unless such owner's spouse is the designated beneficiary, in which case, the policy may be continued with the surviving spouse as the new owner. All such distributions will be made in accordance with the requirements of the Investment Company Act of 1940. A "designated beneficiary" is the person designated by you as a beneficiary and to whom the proceeds of the policy pass by reason of an owner's death and must be a natural person. If any owner dies on or after the earlier of the annuity date or maturity date, any remaining payments must be distributed at least as rapidly as under the payment option in effect on the date of such owner's death. The distribution requirements described above will be considered satisfied as to any portion of the proceeds: 1. payable to or for the benefit of a designated beneficiary; and 2. which is distributed over the life (or period not exceeding the life expectancy) of that beneficiary, provided that the beneficiary is a natural person and such distributions begin within one year of the owner's death. 19 25 If you are not a natural person, the primary annuitant as determined in accordance with Section 72(s) of the Code (i.e., the individual the events in the life of whom are of primary importance in effecting the timing or amount of the payout under the policy) will be treated as an owner for purposes of these distribution requirements, and any change in the primary annuitant will be treated as the death of an owner. INTEREST ON PROCEEDS We will pay interest on proceeds if we do not pay the proceeds in a single sum or begin paying the proceeds under a payment option: 1. within 30 days after the proceeds become payable; or 2. within the time required by the applicable jurisdiction, if less than 30 days. This interest will accrue from the date the proceeds become payable to the date of payment, but not for more than one year, at an annual rate of 3%, or the rate and time required by law, if greater. PARTIAL WITHDRAWALS You may withdraw part of the cash surrender value at any time before the earlier of the death of the last surviving annuitant, the annuity date or maturity date, subject to these limits: 1. the Company's minimum partial withdrawal, currently $250; 2. the maximum partial withdrawal is the amount that would leave a cash surrender value of $5,000; 3. a partial withdrawal request which would reduce the amount in a sub- account or the Fixed Account below $500 will be treated as a request for a full withdrawal of the amount in that sub-account or Fixed Account; and 4. a partial withdrawal request for an amount exceeding $10,000 must be accompanied by a guarantee of the owner's signature by a commercial bank, a trust company, or a savings and loan. On the date we receive your written notice for a partial withdrawal at our Administrative Office, we will withdraw the amount of the partial withdrawal from the policy value and we will then deduct any applicable surrender charge from the remaining policy value. The Company reserves the right to change its minimum partial withdrawal amount requirements. You may specify the amount to be withdrawn from certain sub-accounts or the Fixed Account. If you do not provide this information to us, we will withdraw proportionately from the sub-accounts and Fixed Account in which you are invested. If you do provide this information to us, but the amount in the designated sub-accounts and the Fixed Account is inadequate to comply with your withdrawal request, we will first withdraw from the specified sub-accounts and Fixed Account. The remaining balance will be withdrawn proportionately from the other sub-accounts and Fixed Account in which you are invested. Any partial or systematic withdrawal may be included in the owner's gross income in the year in which the withdrawal occurs, and may be subject to federal income tax, including a penalty tax equal to 10% of the amount treated as taxable income, and the Code restricts certain distributions under Tax-Sheltered Annuity Plans and other qualified plans. See "FEDERAL TAX STATUS" on page 30. SYSTEMATIC WITHDRAWAL PRIVILEGE ("SWP") You may elect to withdraw a fixed-level amount from the sub-account(s) on a monthly, quarterly, or semi-annual basis, beginning 30 days after the Effective Date, if we receive your written notice on our form and the policy meets the Company's minimum premium, currently $25,000, and in accordance with "Partial Withdrawals" above (when surrender charges are applicable). No minimum is necessary when Surrender Charges are not applicable. While Surrender Charges are applicable, each year you may withdraw as follows: 1. Up to 100% of positive investment earnings of each variable sub-account available at the time the SWP is executed/processed; PLUS 2. Up to 100% of current policy year's interest on FIXED ACCOUNT available at the time the SWP is executed/processed; PLUS 3. Up to 10% of total premiums still subject to a surrender charge; PLUS 4. Up to 100% of total premiums NOT SUBJECT TO A SURRENDER CHARGE. 20 26 When no Surrender Charges are applicable, the entire policy is available for systematic withdrawal. The Systematic Withdrawal Privilege will end at the earliest of the date: when the sub-account(s) you specified for those withdrawals has no remaining amount to withdraw; or the cash surrender value is reduced to $5,000; or you elect to pay premiums by pre-authorized check; or we receive your written notice to end this privilege; or we elect to discontinue this privilege upon 30 days written notice to you. Use of this privilege during a policy year counts as your first 10% free withdrawal of total premiums under the "Surrender Charge" provision. References to partial withdrawals in other provisions of this Prospectus include systematic withdrawals. If applicable, a charge for premium taxes may be deducted from each systematic withdrawal payment. The Company reserves the right to change its minimum systematic withdrawal amount requirements. SELIGMAN TIME HORIZON MATRIX (SM) ("MATRIX") You may elect to participate in Seligman Time Horizon Matrix (SM) (the "Matrix") an asset allocation strategy which will allocate your policy value based primarily upon the amount of time you have to reach specific financial goals. The Matrix uses certain predetermined model portfolios, designed by J. & W. Seligman, that seek a wide range of financial goals for an investor's specific time horizon. Each J. & W. Seligman model portfolio represents a predetermined allocation of your policy value among one or more of the variable sub-accounts. The Matrix also allows you to construct your own customized model portfolio. Under the Matrix, you may elect to periodically rebalance your policy value to reflect the J. & W. Seligman model portfolio you have selected or periodically rebalance your policy value to reflect your customized model portfolio. Any rebalancing of your policy value will be made pursuant to our procedures governing portfolio rebalancing. See "Portfolio Rebalancing" below. You may also choose a J. & W. Seligman model portfolio or create a customized portfolio and elect not to rebalance your policy value after the initial allocation of policy value under that model portfolio. We make no representation or guarantee that following the Matrix will result in a profit, protect against loss or ensure the achievement of financial goals. To initiate the Matix, we must receive your written notice on our form. Participation in the Matrix is voluntary and can be modified or discontinued at any time by you in writing on our form. We reserve the right to change our procedures or to discontinue offering the Matrix upon 30 days written notice to you. PORTFOLIO REBALANCING ("REBALANCING") Portfolio Rebalancing is an investment strategy in which, on a quarterly, semi-annual or annual basis, your policy value in the sub-accounts only is reallocated back to its original portfolio allocation, regardless of changes in individual portfolio values from the time of the last Rebalancing. We make no representation or guarantee that Rebalancing will result in a profit, protect you against loss or ensure that you meet your financial goals. To initiate Rebalancing, we must receive your written notice on our form. Participation in Rebalancing is voluntary and can be modified or discontinued at any time by you in writing on our form. Portfolio Rebalancing is not available for amounts invested and earnings thereon in the Fixed Account. Once elected, we will continue to perform Rebalancing until we are instructed otherwise. We reserve the right to change our procedures or discontinue offering Rebalancing upon 30 days written notice to you. LOANS The Company may in the future offer a loan privilege to owners of policies issued in connection with Section 403(b) qualified plans that are not subject to Title I of ERISA. If offered, owners of such policies may obtain loans using the policy as the only security for the loan. Loans are subject to provisions of the Code and to applicable retirement program rules (collectively, "loan rules"). Tax advisers and retirement plan fiduciaries should be consulted prior to exercising loan privileges. Policy loans that satisfy certain requirements with respect to loan amount and repayment are not treated as taxable distributions. If these requirements are not satisfied, or if the policy terminates while a loan is outstanding, the 21 27 loan balance will be treated as a taxable distribution and may be subject to penalty tax, and the treatment of the policy under Section 403(b) may be adversely affected. If loans are offered, the following will apply: Under the terms of the policy, qualified policies have a maximum loan value equal to 80% of the policy value, although loan rules may serve to reduce such maximum loan value in some cases. The amount available for a loan at any given time is the loan value less any outstanding debt. Debt equals the amount of any loans plus accrued interest. Loans will be made only upon written request from the owner. The Company will make loans within seven days of receiving a properly completed loan application (applications are available from the Company), subject to postponement under the same circumstances that payment of withdrawals may be postponed. See "Partial Withdrawals" on page 20. When an owner requests a loan, the Company will reduce the owner's investment in the investment accounts and transfer the amount of the loan to the loan account, a part of the Company's general account. The owner may designate the investment accounts from which the loan is to be withdrawn. Absent such a designation, the amount of the loan will be withdrawn from the investment accounts in accordance with the rules for making partial withdrawals. See "Partial Withdrawals" on page 20. The policy provides that owners may repay policy debt at any time. Under applicable loan rules, loans generally must be repaid within five years, repayments must be made at least quarterly and repayments must be made in substantially equal amounts. When a loan is repaid, the amount of the repayment will be transferred from the loan account to the investment accounts. The owner may designate the investment accounts to which a repayment is to be allocated. Otherwise, the repayment will be allocated in the same manner as the owner's most recent premium. On each policy anniversary, the Company will transfer from the investment accounts to the loan account the amount by which the debt on the policy exceeds the balance in the loan account. The Company charges interest of 6% per year on policy loans. Loan interest is payable in arrears and, unless paid in cash, the accrued loan is added to the amount of the debt and bears interest at 6% as well. The Company credits interest with respect to amounts held in the loan account at a rate of 4% per year. Consequently, the net cost of loans under the policy is 2%. If on any date debt under a policy exceeds the policy value, the policy will be in default. In such case the owner will receive a notice indicating the payment needed to bring the policy out of default and will have a thirty-one day grace period within which to pay the default amount. If the required payment is not made within the grace period, the policy will be foreclosed (terminated without value). The amount of any debt will be deducted from the minimum death benefit. See "Proceeds on Death of Last Surviving Annuitant Before Annuity Date or Maturity Date" on page 18. In addition, debt, whether or not repaid, will have a permanent effect on the policy value because the investment results of the investments accounts will apply only to the unborrowed portion of the policy value. The longer debt is outstanding, the greater the effect is likely to be. The effect could be favorable or unfavorable. If the investment results are greater than the rate being credited on amounts held in the loan account while the debt is outstanding, the policy value will not increase as rapidly as it would have if no debt were outstanding. If investment results are below that rate, the policy value will be higher than it would have been had no debt been outstanding. PAYMENT OF BENEFITS, PARTIAL WITHDRAWALS, CASH SURRENDERS & TRANSFERS - POSTPONEMENT We will usually pay any proceeds payable, amounts partially withdrawn, or the cash surrender value within seven calendar days after: 1. we receive your written notice for a partial withdrawal or a cash surrender; or 2. the date chosen for any systematic withdrawal; or 3. we receive due proof of your death or the death of the last surviving annuitant. However, we can postpone the payment of proceeds, amounts withdrawn, the cash surrender value, or the transfer of amounts between sub-accounts if: 1. the New York Stock Exchange is closed, other than customary weekend and holiday closings, or trading on the exchange is restricted as determined by the SEC; or 2. the SEC permits by an order the postponement for the protection of policyowners; or 22 28 3. the SEC determines that an emergency exists that would make the disposal of securities held in the Variable Account or the determination of the value of the Variable Account's net assets not reasonably practicable. We have the right to defer payment of any partial withdrawal, cash surrender, or transfer from the Fixed Account for up to six months from the date we receive your written notice for a withdrawal, surrender or transfer. CHARGES AGAINST THE POLICY, VARIABLE ACCOUNT, AND FUND SURRENDER CHARGE No deduction for a sales charge is made when premiums are paid. However, a surrender charge (contingent deferred sales charge) will be deducted when certain partial withdrawals and cash surrenders are made to at least partially reimburse us for certain expenses relating to the sale of the policy, including commissions to registered representatives and other promotional expenses. A surrender charge may also be applied to the proceeds paid on the annuity date, unless the proceeds are applied under Payment Option 1. For the purpose of determining if any surrender charge applies and the amount of such charge, partial withdrawals and surrenders are taken according to these rules from policy value attributable to premiums or investment earnings in the following order:
SURRENDER CHARGE ---------------- 1. Up to 100% of positive investment earnings of each variable sub-account available at the time the request is made, once a policy year, PLUS . . . . . . . . . . . . . None 2. Up to 100% of current policy year's interest on the FIXED ACCOUNT at the time the request for surrender/withdrawal is made, once a policy year, PLUS . . . . . . . . None 3. Up to 10% of total premiums STILL SUBJECT TO A SURRENDER CHARGE, once a policy year, PLUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None 4. Up to 100% of those premiums NOT SUBJECT TO A SURRENDER CHARGE, available at any time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None 5. Premiums subject to a surrender charge . . . . . . . . . . . . . . . . . . . . . . . 6% 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 proportionately from the sub-account(s) or Fixed Account being surrendered or partially withdrawn in relation to the amount(s) withdrawn. If the amount remaining in a sub-account or the Fixed Account after the withdrawal is insufficient to cover the proportionate surrender charge deduction, the balance of the surrender charge will be assessed proportionately from any other sub-account and the Fixed Account in which you are invested. POLICY ADMINISTRATION CHARGE To cover the costs of providing certain administrative services attributable to the policies and the operations of the Variable Account, including policy records, communicating with policyowners, and processing transactions, we deduct a policy administration charge of $30 for the prior policy year on each policy anniversary. If the policy value on the policy anniversary is $75,000 or more, we will waive the policy administration charge for the prior policy year. We will also deduct this charge for the current policy year if the policy is surrendered for its cash surrender value, unless the policy is surrendered on a policy anniversary. We do not anticipate any profit from this charge. Even though our administrative expenses may increase, we guarantee that we will not increase this charge. The charge will be assessed proportionately from any sub-accounts and the Fixed Account in which you are invested. If the charge is obtained from a sub-account(s), we will cancel the appropriate number of units credited to this policy based on the unit value at the end of the valuation period when the charge is assessed. 23 29 DAILY ADMINISTRATION FEE At each valuation period, we also deduct a daily administration fee at an effective annual rate of 0.35% from the assets of the Variable Account. This daily administration fee is intended to reimburse us for other administrative costs under the policies. There is no necessary relationship between the daily administration fee and the amount of expenses that may be attributable to any one policy. We do not anticipate realizing any profit from this fee, which is guaranteed not to increase for the duration of your policy. TRANSFER PROCESSING FEE The first 12 transfers during each policy year are free under our current policy, which we reserve the right to change. If our current policy changes, we guarantee that we will provide at least four free transfers during each policy year. We will assess a $25 processing fee for each additional transfer. For the purposes of assessing the fee, each transfer request (which includes a written notice or telephone call, but does not include dollar cost averaging automatic transfers, telephone call, or automatic transfer) is considered to be one transfer, regardless of the number of sub-accounts or the Fixed Account effected by the transfer. The processing fee will be charged proportionately to the receiving sub-account(s) and/or the Fixed Account. We do not expect a profit from this fee. See "Transfers" on page 16 for the rules concerning transfers. ANNUALIZED MORTALITY AND EXPENSE RISK CHARGE The mortality risk we assume is the risk that annuitants may live for a longer period of time than we estimated when we established our guarantees in the policy. Because of these guarantees, each annuitant is assured that their longevity will not have an adverse effect on the annuity payments they receive. The mortality risk we assume also includes our guarantee to pay a death benefit if the last surviving annuitant dies before the annuity date or maturity date. The expense risk we assume is the risk that the surrender charges, policy administration charge, daily administration fee, and transfer fees may be insufficient to cover our actual future expenses. The annual mortality and expense risk charge is deducted at each valuation period from the assets of the Variable Account at an effective annual rate of 1.25% of the value of the net assets in the Variable Account. We guarantee that the rate of this charge will never increase. This charge is not made after the earlier of the annuity date or maturity date, and this charge is not made against any Fixed Account value. This charge consists of approximately 0.75% to cover the mortality risk, and approximately 0.50% to cover the expense risk. If this charge is insufficient to cover our actual costs of mortality and expense risks, we will bear the loss. However, if this charge exceeds our actual costs of mortality and expense risks, the excess will be a profit to us and will be available for any proper corporate purpose including, among other things, payment of distribution expenses, since we anticipate that the surrender charges will be insufficient to cover the costs of our actual distribution expenses. We currently anticipate a profit from this charge. WAIVER OF SURRENDER CHARGE When the policy has been in effect for 1 year, upon written notice from you, the Surrender Charge will be waived on any partial withdrawal or surrender after you provide us evidence that satisfies us in a written statement signed by a qualified physician that: 1. a) you are terminally ill; and b) your life expectancy is not more than 12 months due to the severity and nature of the terminal illness; and c) the diagnosis of the terminal illness was made after the effective date of this policy. 2. you are or have been confined to a hospital, nursing home or long-term care facility for at least 90 consecutive days, provided: a) confinement is for medically necessary reasons at the recommendation of a physician; b) the hospital, nursing home or long-term care facility is licensed or otherwise recognized and operating as such by the proper authority in the state where it is located, the Joint Commission on Accreditation of Hospitals or Medicare and satisfactory evidence of such status is provided to us; and c) the withdrawal or surrender request is received by us no later than 91 days after the last day of your confinement. 24 30 For policies issued on or after May 1, 1996, this provision is not available if any owner was attained age 81 or older on the Effective Date. REDUCTION OR ELIMINATION OF SURRENDER CHARGES The amount of the surrender charge on a policy may be reduced or eliminated when some or all of the policies are to be sold to a group of individuals in such a manner that results in savings of sales expenses. In determining whether to reduce the surrender charge, the Company will consider certain factors including the following: 1. The size and type of group to which the sales are to be made will be considered. Generally, sales expenses for a larger group are smaller than for a smaller group because of the ability to implement large numbers of sales with fewer sales contacts. 2. The total amount of premiums to be received will be considered. Per dollar sales expenses are likely to be less on larger premiums than on smaller ones. 3. Any prior or existing relationship with the Company will be considered. Policy sales expenses are likely to be less when there is a prior or existing relationship because of the likelihood of implementing more sales with fewer sales contacts. 4. The level of commissions paid to selling broker-dealers will be considered. Certain broker-dealers may offer policies in connection with financial planning programs offered on a fee for service basis. In view of the financial planning fees, such broker-dealers may elect to receive lower commissions for sales of the policies, thereby reducing the Company's sales expenses. If, after consideration of the foregoing factors, it is determined that there will be a reduction in sales expenses, the Company will provide a reduction in the surrender charge. The surrender charge will be eliminated when a policy is issued to an officer, director, employee, or relative thereof of: the Company; The Canada Life Assurance Company; J. & W. Seligman & Co. Incorporated; or any of their affiliates. In no event will reduction or elimination of the surrender charge be permitted where such reduction or elimination will be discriminatory to any person. REDUCTION OR ELIMINATION OF POLICY ADMINISTRATION CHARGE The amount of the policy administration charge on a policy may be reduced or eliminated when some or all of the policies are to be sold to a group of individuals in such a manner that results in savings of administration expenses. In addition, if the policy value on the policy anniversary is $75,000 or more, we will waive the policy administration charge for the prior policy year. In determining whether to reduce or eliminate the administration charges, the Company will consider certain factors including the following: 1. The size and type of group to which administrative services are to be provided will be considered. 2. The total amount of premiums to be received will be considered. If, after consideration of the foregoing factors, it is determined that there will be a reduction or elimination of administration expenses, the Company will provide a reduction in the policy administration charge. In no event will reduction or elimination of the administration charge be permitted where such reduction or elimination will be discriminatory to any person. TAXES We will incur premium taxes in some jurisdictions relating to the policies. Depending on the jurisdiction, we deduct any such taxes: a) from premiums when paid; or b) when the policy value is applied under a payment option, at cash surrender or upon partial withdrawal. A summary of current state premium tax rates is contained in Appendix A. When any tax is deducted from the policy value, it will be deducted proportionately from the sub-accounts and the Fixed Account in which you are invested. We reserve the right to charge or provide for any taxes levied by any governmental entity, including: 1. taxes that are against or attributable to premiums, policy values or annuity payments; or 2. taxes that we incur which are attributable to investment income or capital gains retained as part of our reserves under the policies or from the establishment or maintenance of the Variable Account. 25 31 OTHER CHARGES INCLUDING INVESTMENT MANAGEMENT FEES Each portfolio of the Fund is responsible for all of its operating expenses. In addition, the Fund pays J. & W. Seligman & Co. Incorporated (the "Manager") fees for investment management services that are calculated daily and payable monthly from each portfolio at an annual rate of 0.40% for Capital, Cash Management (currently waived), Common Stock, Fixed Income Securities and Income; 0.50% for High-Yield Bond; 0.75% for Communications and Information, and Frontier; and 1.00% for Global, Global Smaller Companies, Global Technology and Global Growth Opportunities (of which the Manager in turn pays 0.90% to Seligman Henderson Co., the Sub-Adviser to these four portfolios) of the average daily net assets of the portfolio. The Prospectus and Statement of Additional Information for the Fund provide more information concerning the investment management fee, other charges against the portfolios, the investment management services provided to the portfolios by J. & W. Seligman & Co. Incorporated, and the sub-advisory services provided to the Global, Global Smaller Companies, Global Technology, and Global Growth Opportunities Portfolios by Seligman Henderson Co. PAYMENT OPTIONS The policy ends when we pay the proceeds on the earlier of the annuity date or maturity date. On the annuity date, we will apply the policy value under Payment Option 1, unless you have an election of a payment option on file at our Administrative Office to receive the cash surrender value in a single sum, or to receive a mutually agreed upon payment option (Payment Option 2). The proceeds we will pay on the maturity date is the policy value. See "Proceeds on Annuity Date or Maturity Date" on page 18. We require the surrender of your policy so that we may pay the cash surrender value or issue a supplemental contract for the applicable payment option. The term "payee" means a person who is entitled to receive payment under this section. ELECTION OF OPTIONS You may elect an option or revoke or change your election at any time before the annuity date or maturity date while any annuitant is living. If an election is not in effect at the last surviving annuitant's death or if payment is to be made in one sum under an existing election, the beneficiary may elect one of the options. This election must be made within one year after the last surviving annuitant's death and before any payment has been made. An election of an option and any revocation or change must be made in a written notice. It must be filed with our Administrative Office with the written consent of any irrevocable beneficiary. An option may not be elected and we will pay the proceeds in one sum if either of the following conditions exist: 1. the amount to be applied under the option is less than $1,000; or 2. any periodic payment under the election would be less than $50. DESCRIPTION OF PAYMENT OPTIONS Payment Option 1: Life Income We will pay the proceeds in equal amounts at the beginning of each month, during the payee's lifetime. The amount of each payment will be determined from the tables in the policy which apply to Payment Option 1, using the payee's age. Age will be determined from the nearest birthday at the due date of the first payment. Payment Option 2: Mutual Agreement We will pay the proceeds according to other terms, if those terms are mutually agreed upon. PAYMENT DATES The payment dates of the options will be calculated from the date on which the proceeds become payable. 26 32 AGE AND SURVIVAL OF PAYEE We have the right to require proof of age of the payee(s) before making any payment. When any payment depends on the payee's survival, we will have the right, before making the payment, to require proof satisfactory to us that the payee is alive. DEATH OF PAYEE At the death of the payee, or the last survivor of the payees, any amount remaining to be paid under this section will become payable in one sum, unless specified otherwise. OTHER POLICY PROVISIONS OWNER OR JOINT OWNER During any annuitant's lifetime and before the earlier of the annuity date or maturity date, you have all the rights and privileges granted by the policy. If you appoint an irrevocable beneficiary or assignee, then your rights will be subject to those of that beneficiary or assignee. During any annuitant's lifetime and before the earlier of the annuity date or maturity date, you may name a new owner, joint owner or annuitant by giving us written notice. With respect to Qualified Policies generally, however, the contract may not be assigned (other than to us), joint ownership is not permitted, and the Owner must be the annuitant. If you die before the annuity date or maturity date and before the last surviving annuitant, the proceeds will pass: 1. to your surviving "designated beneficiary," if any; otherwise 2. to your estate. The "designated beneficiary" is defined in "Proceeds on Death of Any Owner Before or After Annuity Date or Maturity Date" on page 18. BENEFICIARY We will pay the beneficiary any proceeds payable on your death or the death of the last surviving annuitant. During any annuitant's lifetime and before the earlier of the annuity date or maturity date, you may name and change one or more beneficiaries by giving us written notice. However, we will require written notice from any irrevocable beneficiary or assignee specifying their consent to the change. We will pay the proceeds under the beneficiary appointment in effect at the date of death. If you have not designated otherwise in your appointment, the proceeds will be paid to the surviving beneficiary(ies) equally. If no beneficiary is living when you die or the last surviving annuitant dies, or if none has been appointed, the proceeds will be paid to your estate. WRITTEN NOTICE Written Notice must be signed by you, dated, and of a form and content acceptable to us. Your written notice will not be effective until we receive and file it at our Administrative Office. However, the change provided in your written notice to name or change the owner or beneficiary will then be effective as of the date you signed the written notice: 1. subject to any payments made or other action we take before we receive and file your written notice; and 2. whether or not you or the last surviving annuitant are alive when we receive and file your written notice. PERIODIC REPORTS We will mail you a report showing the following items about your policy: 1. the number of units credited to the policy and the dollar value of a unit; 27 33 2. the policy value; 3. any premiums paid, withdrawals, and charges made since the last report; and 4. any other information required by law. The information in the report will be as of a date not more than two months before the date of the mailing. We will mail the report to you: 1. at least annually, or more often as required by law; and 2. to your last address known to us. ASSIGNMENT You may assign a nonqualified policy or an interest in it at any time before the earlier of the annuity date or maturity date during any annuitant's lifetime. An assignment must be in a written notice acceptable to us. It will not be binding on us until we receive and file it at our Administrative Office. We are not responsible for the validity of any assignment. Your rights and the rights of any beneficiary will be effected by an assignment. An assignment of a nonqualified policy may result in certain tax consequences to the owner. See "Transfers, Assignment or Exchanges of a Policy" on page 33. MODIFICATION Upon notice to you, we may modify the policy, but only if such modification: 1. is necessary to make the policy or the Variable Account comply with any law or regulation issued by a governmental agency to which we are subject; or 2. is necessary to assure continued qualification of the policy under the Code or other federal or state laws relating to retirement annuities or variable annuity policies; or 3. is necessary to reflect a change in the operation of the Variable Accounts; or 4. provides additional variable account and/or fixed accumulation options. In the event of any such modification, we may make any appropriate endorsement to the policy. YIELDS AND TOTAL RETURNS From time to time, we may advertise yields, effective yields, and total returns for the sub-accounts. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND DO NOT INDICATE OR PROJECT FUTURE PERFORMANCE. Each sub-account may, from time to time, advertise performance relative to certain performance rankings and indices compiled by independent organizations. More detailed information as to the calculation of performance information, as well as comparisons with unmanaged market indices, appears in the Statement of Additional Information. Effective yields and total returns for the sub-accounts are based on the investment performance of the corresponding portfolios of the Fund. The Fund's performance in part reflects the Fund's expenses. See the Prospectus for the Fund. The yield of the Cash Management Sub-Account refers to the annualized income generated by an investment in the Sub-Account over a specified 7 day period. The yield is calculated by assuming that the income generated for that 7 day period is generated each 7 day period over a 52 week period and is shown as a percentage of the investment. The effective yield is calculated similarly but, when annualized, the income earned by an investment in the Sub-Account is assumed to be reinvested. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. The yield of a sub-account (except the Cash Management Sub-Account) refers to the annualized income generated by an investment in the sub-account over a specified 30 day or one month period. The yield is calculated by assuming that the income generated by the investment during that 30 day or one month period is generated each period over a 12 month period and is shown as a percentage of the investment. The total return of a sub-account refers to return quotations assuming an investment under a policy has been held in the sub-account for various periods of time including, but not limited to, a period measured from the date the sub-account 28 34 commenced operations. When a sub-account has been in operation for 1, 5, and 10 years, respectively, the total return for these periods will be provided. The average annual total return quotations represent the average annual compounded rates of return that would equate an initial investment of $1,000 under a policy to the redemption value of that investment as of the last day of each of the periods for which total return quotations are provided. Average annual total return information shows the average percentage change in the value of an investment in the sub-account from the beginning date of the measuring period to the end of that period. This standardized version of average annual total return reflects all historical investment results, less all charges and deductions applied against the sub-account (including any surrender charge that would apply if an Owner terminated the policy at the end of each period indicated, but excluding any deductions for premium taxes). We may, in addition, advertise total return performance information computed on a different basis. We may present total return information computed on the same basis as described above, except deductions will not include the surrender charge. This presentation assumes that the investment in the policy persists beyond the period when the surrender charge applies, consistent with the long-term investment and retirement objectives of the policy. We may compare the performance of each sub-account in advertising and sales literature to the performance of other variable annuity issuers in general or to the performance of particular types of variable annuities investing in mutual funds, or investment series of mutual funds with investment objectives similar to each of the sub-accounts. Lipper Analytical Services, Inc. ("Lipper") and the Variable Annuity Research Data Service ("VARDS") are independent services which monitor and rank the performances of variable annuity issuers in each of the major categories of investment objectives on an industry-wide basis. Other services or publications may also be cited in our advertising and sales literature. Lipper's rankings include variable life issuers as well as variable annuity issuers. VARDS rankings compare only variable annuity issuers. The performance analysis prepared by Lipper and VARDS each rank such issuers on the basis of total return, assuming reinvestment of distributions, but do not take sales charges, redemption fees or certain expense deductions at the separate account level into consideration. In addition, VARDS prepares risk adjusted rankings, which consider the effects of market risk on total return performance. This type of ranking provides data as to which funds provide the highest total return within various categories of funds defined by the degree of risk inherent in their investment objectives. We may also compare the performance of each sub-account in advertising and sales literature to the Standard & Poor's composite index of 500 common stocks, a widely used index to measure stock market performance. This unmanaged index does not reflect any "deduction" for the expense of operating or managing an investment portfolio. We may also make comparison to Lehman Brothers Government/Corporate Bond Index, an index that includes the Lehman Brothers Government Bond and Corporate Bond Indices. These indices are total rate of return indices. The Government Bond Index includes the Treasury Bond Index (public obligations of the U.S. Treasury) and the Agency Bond Index (publicly issued debt of U.S. Government agencies, quasi-federal corporations, and corporate debt guaranteed by the U.S. Government). The Corporate Bond Index includes publicly issued, fixed rate, nonconvertible investment grade dollar-denominated, SEC registered corporate debt. All issues have at least a one-year maturity, and all returns are at market value inclusive of accrued 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" on page 30. This deferred tax treatment may be beneficial to you in building assets in a long-range investment program. We may also distribute sales literature or other information including the effect of tax-deferred compounding on a sub-account's investment returns, or returns in general, which may be illustrated by tables, graphs, charts or otherwise, and 29 35 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 or 457 of the Code. The ultimate effect of Federal income taxes on the amounts held under a policy, or annuity payments, and on the economic benefit to the owner, an annuitant, or the beneficiary depends on the type of retirement plan, on the tax and employment status of the individual concerned and on our tax status. In addition, certain requirements must be satisfied in purchasing a Qualified Policy with proceeds from a tax-qualified plan and receiving distributions from a Qualified Policy in order to continue receiving favorable tax treatment. Therefore, purchasers of Qualified Policies should seek legal and tax advice regarding the suitability of a policy for their situation, the applicable requirements, and the tax treatment of the rights and benefits of a policy. The following discussion assumes that Qualified Policies are purchased with proceeds from and/or contributions under retirement plans that receive the intended special Federal income tax treatment. THE COMPANY'S TAX STATUS The Variable Account is not separately taxed as a "regulated investment company" under Subchapter M of the Code. The operations of the Variable Account are a part of and taxed with our operations. We are taxed as a life insurance company under Subchapter L of the Code. At the present time, we make no charge for any Federal, state or local taxes (other than premium taxes) that we incur which may be attributable to the Variable Account or to the policies. We, however, reserve the right in the future to make a charge for any such tax or other economic burden resulting from the application of the tax laws that we determine to be properly attributable to the Variable Account or to the policies. TAX STATUS OF THE POLICY DIVERSIFICATION REQUIREMENTS Section 817(h) of the Code provides that separate account investments underlying a policy must be "adequately diversified" in accordance with Treasury regulations in order for the policy to qualify as an annuity policy under Section 72 of the Code. The Variable Account through each portfolio of the Fund, intends to comply with the diversification requirements prescribed in regulations under Section 817(h) of the Code, which affect how the assets in the various divisions of the Accounts may be invested. Although we do not have control over the fund in which the Variable Account invests, we believe that each portfolio in which the Variable Account owns shares will meet the diversification requirements and that therefore the Policy will be treated as an annuity under the Code. 30 36 In certain circumstances, variable annuity policyowners may be considered the owners, for Federal income tax purposes, of the assets of the separate account used to support their policies. In those circumstances, income and gains from the separate account assets would be includable in the variable annuity policyowner's gross income. Several years ago, the IRS stated in published rulings that a variable policyowner will be considered the owner of separate account assets if the policyowner possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. More recently, the Treasury Department announced, in connection with the issuance of regulations concerning investment diversification, that those regulations "do not provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor, rather than the insurance company, to be treated as the owner of the assets in the account." This announcement also stated that guidance would be issued by way of regulations or rulings on the "extent to which policyholders may direct their investments to particular sub-accounts without being treated as owners of the underlying assets." The ownership rights under the policy are similar to, but different in certain respects from, those described by the IRS in rulings in which it was determined that policyowners were not owners of separate account assets. For example, the owner of the policy has the choice of more subdivisions to which to allocate premiums and policy values than such rulings, has a choice of investment strategies different from such rulings, and may be able to transfer among subdivisions more frequently than in such rulings. These differences could result in the policyowner being treated as the owner of the assets of the Variable Account. In addition, we do not know what standards will be set forth in the regulations or rulings which the Treasury Department has stated it expects to issue. We therefore reserve the right to modify the policy as necessary to attempt to prevent the policyowner from being considered the owner of the assets of the Variable Account. REQUIRED DISTRIBUTIONS In addition to the requirements of Section 817(h) of the Code, in order to be treated as an annuity policy for Federal income tax purposes, Section 72(s) of the Code requires any Nonqualified Policy to provide that (a) if any owner dies on or after the annuity date but prior to the time the entire interest in the Policy has been distributed, the remaining portion of such interest will be distributed at least as rapidly as under the method of distribution being used as of the date of that owner's death; and (b) if any owner dies prior to the annuity commencement date, the entire interest in the Policy will be distributed within five years after the date of the owner's death. These requirements will be considered satisfied as to any portion of the owner's interest which is payable to or for the benefit of a "designated beneficiary" and which is distributed over the life of such "designated beneficiary" or over a period not extending beyond the life expectancy of that beneficiary, provided that such distributions begin within one year of that owner's death. The owner's "designated beneficiary" is the person designated by such owner as a beneficiary and to whom ownership of the Policy passes by reason of death and must be a natural person. However, if the owner's "designated beneficiary" is the surviving spouse of the owner, the Policy may be continued with the surviving spouse as the new owner. The Nonqualified Policies contain provisions which are intended to comply with the requirements of Section 72(s) of the Code, although no regulations interpreting these requirements have yet been issued. We intend to review such provisions and modify them if necessary to assure that they comply with the requirements of Code Section 72(s) when clarified by regulation or otherwise. Other rules may apply to Qualified Policies (see "Minimum Distribution Requirements ["MDR"] for IRA's, page 34). The following discussion assumes that the policies will qualify as annuity contracts for Federal income tax purposes. TAXATION OF ANNUITIES IN GENERAL Section 72 of the Code governs taxation of annuities in general. We believe that an owner who is a natural person generally is not taxed on increases in the value of a policy until distribution occurs by withdrawing all or part of the accumulation value (e.g., partial withdrawals and surrenders) or as annuity payments under the annuity option elected. For this purpose, the assignment, pledge, or agreement to assign or pledge any portion of the accumulation value (and in the case of a Qualified Policy, any portion of an interest in the qualified plan) generally will be treated as a distribution. The taxable portion of a distribution (in the form of a single sum payment or an annuity) is taxable as ordinary income. 31 37 The owner of any annuity policy who is not a natural person generally must include in income any increase in the excess of the policy's accumulation value over the policy's "investment in the contract" during the taxable year. There are some exceptions to this rule and a prospective owner that is not a natural person may wish to discuss these with a tax adviser. The following discussion generally applies to policies owned by natural persons. WITHDRAWALS/DISTRIBUTIONS In the case of a distribution under a Qualified Policy (other than a Section 457 plan), under Section 72(e) of the Code a ratable portion of the amount received is taxable, generally based on the ratio of the "investment in the contract" to the participant's total accrued benefit or balance under the retirement plan. The "investment in the contract" generally equals the portion, if any, of any premium payments paid by or on behalf of any individual under a Policy which was not excluded from the individual's gross income. For policies issued in connection with qualified plans, the "investment in the contract" can be zero. Special tax rules may be available for certain distributions from Qualified Policies. In the case of a withdrawal/distribution (e.g., surrender, partial withdrawal or systematic withdrawal) under a Nonqualified Policy before the annuity commencement date, under Code Section 72(e) amounts received are generally first treated as taxable income to the extent that the accumulation value immediately before the withdrawal exceeds the "investment in the contract" at that time. Any additional amount withdrawn is not taxable. ANNUITY PAYMENTS Although tax consequences may vary depending on the annuity option elected under an annuity policy, under Code Section 72(b), generally gross income does not include that part of any amount received as an annuity under an annuity policy that bears the same ratio to such amount as the investment in the contract bears to the expected return at the annuity starting date. For variable income payments, in general, the taxable portion (prior to recovery of the investment in the contract) is determined by a formula which establishes the specific dollar amount of each annuity payment that is not taxed. The dollar amount is determined by dividing the "investment in the contract" by the total number of expected periodic payments. For fixed income payments (prior to recovery of the investment in the contract), in general, there is no tax on the amount of each payment which represents the same ratio that the "investment in the contract" bears to the total expected value of the annuity payments for the term of the payments; however, the remainder of each income payment is taxable. In all cases, after the "investment in the contract" is recovered, the full amount of any additional annuity payments is taxable. TAXATION OF DEATH BENEFIT PROCEEDS Amounts may be distributed from a policy because of an death of the owner or the last surviving annuitant. Generally, such amounts are includable in the income of the recipient as follows: 1. if distributed in a lump sum, they are taxed in the same manner as a surrender of the policy; or 2. if distributed under a payment option, they are taxed in the same manner as annuity payments. PENALTY TAX ON CERTAIN WITHDRAWALS In the case of a distribution pursuant to a Nonqualified Policy, there may be imposed a Federal penalty tax equal to 10% of the amount treated as taxable income. In general, however, there is no penalty tax on distributions: 1. made on or after the taxpayer reaches age 59 1/2; 2. made on or after the death of an owner (or if the owner is not an individual, the death of the primary annuitant); 3. attributable to the owner becoming disabled; 4. as part of a series of substantially equal periodic payments (not less frequently than annually) for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of the taxpayer and beneficiary; 5. made under an annuity policy that is purchased with a single premium when the annuity starting date is no later than a year from purchase of the annuity and substantially equal periodic payments are made, not less frequently than annually, during the annuity period; and 6. made under certain annuities issued in connection with structured settlement agreements. 32 38 Other tax penalties may apply to certain distributions under a Qualified Policy, as well as to certain contributions, loans and other circumstances. TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF A POLICY A transfer of ownership, the designation of an annuitant or other beneficiary who is not also the owner, the designation of certain annuity starting dates, or the exchange of a policy may result in certain tax consequences to the owner that are not discussed herein. An owner contemplating any such transfer, assignment, designation, or exchange of a policy should contact a tax adviser with respect to the potential tax effects of such a transaction. WITHHOLDING Pension and annuity distributions generally are subject to withholding for the recipient's Federal income tax liability at rates that vary according to the type of distribution and the recipient's tax status. Recipients, however, generally are provided the opportunity to elect not to have tax withheld from distributions. Effective January 1, 1993, withholding is mandatory for certain distributions from Qualified contracts. MULTIPLE POLICIES Section 72(e)(11) of the Code treats all nonqualified deferred annuity policies entered into after October 21, 1988 that are issued by us (or our affiliates) to the same owner during any calendar year as one annuity policy for purposes of determining the amount includable in gross income under Code Section 72(e). The effects of this rule are not yet clear; however, it could effect the time when income is taxable and the amount that might be subject to the 10% penalty tax described above. In addition, the Treasury Department has specific authority to issue regulations that prevent the avoidance of Section 72(e) through the serial purchase of annuity contracts or otherwise. There may also be other situations in which the Treasury may conclude that it would be appropriate to aggregate two or more annuity contracts purchased by the same owner. Accordingly, a policyowner should consult a tax adviser before purchasing more than one annuity contract. POSSIBLE TAX CHANGES In recent years, legislation has been proposed that would have adversely modified the federal taxation of certain annuities. For example, one such proposal would have changed the tax treatment of non-qualified annuities that did not have "substantial life contingencies" by taxing income as it is credited to the annuity. Although as of the date of this prospectus Congress is not considering any legislation regarding the taxation of annuities, there is always the possibility that the tax treatment of annuities could change by legislation or other means (such as IRS regulations, revenue rulings, and judicial decisions). Moreover, it is also possible that any legislative change could be retroactive (that is, effective prior to the date of such change). TAXATION OF QUALIFIED PLANS The policies are designed for use with several types of qualified plans. The tax rules applicable to participants in these qualified plans vary according to the type of plan and the terms and conditions of the plan itself. Special favorable tax treatment may be available for certain types of contributions and distributions. Adverse tax consequences may result from contributions in excess of specified limits; distributions prior to age 59 1/2 (subject to certain exceptions); distributions that do not conform to specified commencement and minimum distribution rules; aggregate distributions in excess of a specified annual amount; and in certain other circumstances. Therefore, no attempt is made to provide more than general information about the use of the policies with the various types of qualified retirement plans. Policyowners, the annuitants, and beneficiaries are cautioned that the rights of any person to any benefits under these qualified retirement plans may be subject to the terms and conditions of the plans themselves, regardless of the terms and conditions of the policy, but we shall not be bound by the terms and conditions of such plans to the extent such terms contradict the policy, unless we consent. Some retirement plans are subject to distribution and other requirements that are not incorporated in the administration of the policies. Owners are responsible for determining that contributions, distributions and other transactions with respect to the policies satisfy applicable law. Brief descriptions follow of the various types of qualified 33 39 retirement plans in connection with which we will issue a policy. We will amend the policy as instructed to conform it to the applicable legal requirements for such plan. INDIVIDUAL RETIREMENT ANNUITIES AND SIMPLIFIED EMPLOYEE PENSIONS (SEP/IRAS) Section 408 of the Code permits eligible individuals to contribute to an individual retirement program known as an "Individual Retirement Annuity" or "IRA". These IRAs are subject to limits on the amount that may be contributed, the persons who may be eligible and on the time when distributions may commence. Also, distributions from certain other types of qualified retirement plans may be "rolled over" on a tax-deferred basis into an IRA. Sales of the policy for use with IRAs may be subject to special requirements of the Internal Revenue Service. Section 408(k) of the Code allows employers to establish simplified employee pension plans for their employees, using an IRA for such purpose, if certain criteria are met. Under these plans the employer may, within specified limits, make deductible contributions on behalf of the employee to an IRA. Employers intending to use the policy in connection with such plans should seek advice. Purchasers of a policy for use with IRAs will be provided with supplemental information required by the Internal Revenue Service or other appropriate agency. Such purchasers will have the right to revoke their purchase within seven days of the earlier of the establishment of the IRA or their purchase. Purchasers should seek advice as to the suitability of the policy for use with IRAs. The Internal Revenue Service has not reviewed the Policy for qualification as an IRA, and has not addressed in a ruling of general applicability whether a death benefit provision such as the provision in the policy comports with IRA qualification requirements. MINIMUM DISTRIBUTION REQUIREMENTS ("MDR") FOR IRAS The Code requires that minimum distribution from an IRA begin no later than April 1 of the year following the year in which the owner attains age 70 1/2. Failure to do so results in a penalty of 50% of the amount not withdrawn. This penalty is in addition to normal income tax. We will calculate the MDR only for funds invested in this Policy and subject to our administrative guidelines, including but not limited to: 1) minimum withdrawal amount of $250; 2) while surrender charges are applicable, up to 10% of total premium plus 100% of any sub-account earnings and 100% of current policy year's Fixed Account interest may be withdrawn; and 3) use of MDR counts as the once a policy year free withdrawal. As an administrative practice, we will calculate and distribute an amount from an IRA using the method contained in the Code's minimum distribution requirements. The annual distribution is determined by dividing the prior December 31st value for the policy by a life expectancy factor. The factor will be based on either your life or the life expectancies of your life and your designated beneficiary, as directed by you, and based on tables found in the IRS' regulations. Factors are redetermined for each year's distribution. The value of the policy to be used in this calculation is the policy value on the December 31st prior to the year for which each subsequent payment is made. The life expectancy factor is determined by using the appropriate IRS chart based on one of the following circumstances: 1. Your life expectancy (Single Life Expectancy); 2. Joint life expectancy between you and your designated beneficiary (Joint Life and Last Survivor Expectancy); or 3. Your life expectancy and a non-spouse beneficiary more than 10 years younger than you (Minimum Distribution Incident Benefit Requirement). The Code Minimum Distribution Requirements also apply to distribution from qualified plans other than IRA's. You are responsible for ensuring that distributions from such plans satisfy the Code minimum distribution requirements. CORPORATE AND SELF-EMPLOYED (H.R.10 AND KEOGH) PENSION AND PROFIT-SHARING PLANS Sections 401(a), 401(k) and 403(a) of the Code permit corporate employers to establish various types of tax-favored retirement plans for employees. The Self-Employed Individual Tax Retirement Act of 1962, as amended, commonly referred to as "H.R.10" or "Keogh", permits self-employed individuals also to establish such tax-favored retirement plans for themselves and their employees. Such retirement plans may permit the purchase of the policies in order to accumulate retirement savings under the plans. Adverse tax consequences to the plan, to the participant or to both may result if this policy is assigned or transferred to any individual as a means to provide benefit payments. Employers intending to use the policy in connection with such plans should seek advice. 34 40 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. 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. Under Code requirements, Section 403(b) annuities generally may not permit distribution of: 1) elective contributions made in years beginning after December 31, 1988; 2) earnings on those contributions; and 3) earnings on amounts attributed to elective contributions held as of the end of the last year beginning before January 1, 1989. Under Code requirements, distributions of such amounts will be allowed only: 1) upon the death of the employee; or 2) on or after attainment of age 59 1/2; or 3) separation from service; or 4) disability; or 5) financial hardship, except that income attributable to elective contributions may not be distributed in the case of hardship. With respect to these restrictions, the Company is relying upon a no-action letter dated November 28, 1988 from the staff of the SEC to the American Council of Life Insurance, the requirements for which have been or will be complied with by the Company. OTHER TAX CONSEQUENCES As noted above, the foregoing comments about the Federal tax consequences under these policies are not exhaustive and special rules are provided with respect to other tax situations not discussed in this Prospectus. Further, the Federal income tax consequences discussed herein reflect our understanding of current law and the law may change. Federal estate and state and local estate, inheritance, and other tax consequences of ownership or receipt of distributions under a Policy depend on the individual circumstances of each owner or recipient of the distribution. A tax adviser should be consulted for further information. RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM Section 36.105 of the Texas Educational Code permits participants in the Texas Optional Retirement Program ("ORP") to withdraw their interest in a variable annuity policy issued under the ORP only upon: 1) termination of employment in the Texas public institutions of higher education; 2) retirement; or 3) death. Accordingly, a participant in the ORP, or the participant's estate if the participant has died, will be required to obtain a certificate of termination from the employer or a certificate of death before policy values can be withdrawn or surrendered. Other restrictions with respect to the election, commencement, or distribution of benefits may apply under Qualified Policies or under the terms of the plans in respect of which Qualified Policies are issued. DISTRIBUTION OF POLICIES Canada Life of America Financial Services, Inc. ("CLAFS") acts as the principal underwriter, as defined in the Investment Company Act of 1940, of the policies for the Variable Account. CLAFS is a wholly-owned subsidiary of our Company. CLAFS, a Georgia corporation organized on January 18, 1988, is registered with the SEC under the Securities Exchange Act of 1934 (the "1934 Act") as a broker-dealer and is a member of the National Association of Securities Dealers, Inc. ("NASD"). CLAFS' principal business address is 6201 Powers Ferry Road, NW, Atlanta, Georgia. Sales of the policies will be made by registered representatives of broker-dealers authorized by CLAFS to sell the policies. Such registered representatives will be licensed insurance agents of our Company. CLAFS and our Company have entered into an exclusive promotional agent (distribution) agreement with Seligman Financial Services, Inc. ("Seligman Financial"). Seligman Financial is a broker-dealer registered with the SEC under the 1934 Act and is a 35 41 member of the NASD. Under the promotional agent distribution agreement, Seligman Financial will recruit and provide sales training and licensing assistance to such registered representatives. In addition, Seligman Financial will prepare sales and promotional materials for the policies. CLAFS will pay distribution compensation to selling broker-dealers in varying amounts which, under normal circumstances, are not expected to exceed 6.5% of premium payments under the policies. Seligman Financial may from time to time pay additional compensation pursuant to promotional contracts. In some circumstances, Seligman Financial 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 the offering. LEGAL PROCEEDINGS There are at present no legal proceedings to which the Variable Account is a party or the assets of the Variable Account are subject. We are not involved in any litigation that is of material importance in relation to our total assets or that relates to the Variable Account. VOTING RIGHTS To the extent deemed to be required by law and as described in the Prospectus for the Fund, portfolio shares held in the Variable Account and in our general account will be voted by us at regular and special shareholder meetings of the Fund in accordance with instructions received from persons having voting interests in the corresponding sub-accounts. If however, the Investment Company Act of 1940 or any regulation thereunder should be amended, or if the present interpretation thereof should change, or if we determine that we are allowed to vote the portfolio shares in our own right, we may elect to do so. The number of votes which are available to you will be calculated separately for each sub-account of the Variable Account, and may include fractional votes. The number of votes attributable to a sub-account will be determined by applying your percentage interest, if any, in a particular sub-account to the total number of votes attributable to that sub-account. You hold a voting interest in each sub-account to which the Variable Account value is allocated. You only have voting interest prior to the annuity date or maturity date. The number of votes of a portfolio which are available to you will be determined as of the date coincident with the date established for determining shareholders eligible to vote at the relevant meeting of the Fund. Voting instructions will be solicited by written communication prior to such meeting in accordance with procedures established by the Fund. Fund shares as to which no timely instructions are received and shares held by us in a sub-account as to which you have no beneficial interest will be voted in proportion to the voting instructions which are received with respect to all policies participating in that sub-account. Voting instructions to abstain on any item to be voted upon will be applied to reduce the total number of votes cast on such item. Each person having a voting interest in a sub-account will receive proxy materials, reports, and other material relating to the appropriate series. FINANCIAL STATEMENTS Our balance sheets as of December 31, 1995 and 1994, and the related statements of operations, accumulated deficit, and cash flows for each of the three years in the period ended December 31, 1995, 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, 1995, 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. 36 42 The financial statements of the Company included in the Statement of Additional Information should be considered only as bearing on the ability of the Company to meet its obligations under the policies. They should not be considered as bearing on the investment performance of the assets held in the Variable Account. STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
ADDITIONAL POLICY PROVISIONS Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Misstatement of Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Non-Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Our Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 CALCULATION OF YIELDS AND TOTAL RETURNS Cash Management Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Other Sub-Account Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Total Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Effect of the Policy Administration Charge on Performance Data . . . . . . . . . . . . . . 6 SAFEKEEPING OF ACCOUNT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
37 43 THE FIXED ACCOUNT DUE TO EXEMPTIVE AND EXCLUSIONARY PROVISIONS, OUR GENERAL ACCOUNT, INCLUDING THE FIXED ACCOUNT, IS NOT SUBJECT TO OR REGISTERED UNDER THE SECURITIES ACT OF 1933, AND IS NOT SUBJECT TO OR REGISTERED AS AN INVESTMENT COMPANY UNDER THE 1940 ACT. THEREFORE, THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURES IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT. HOWEVER, DISCLOSURES ABOUT THE GENERAL ACCOUNT AND THE FIXED ACCOUNT MAY BE SUBJECT TO CERTAIN GENERALLY APPLICABLE PROVISIONS OF FEDERAL SECURITIES LAWS CONCERNING THE ACCURACY AND COMPLETENESS OF STATEMENTS IN PROSPECTUSES. The Fixed Account is not part of and does not depend on the investment performance of the Variable Account. Amounts in the Fixed Account are part of our general account. We credit interest to amounts in the Fixed Account at rates we determine. We guarantee the interest rate will not be less than 3% per annum. At our sole discretion, we may credit a higher current interest rate. Each net premium allocated to the Fixed Account will be credited with a specified interest rate which will remain in effect for 12 calendar months. After such 12 month period, the net premium and any earnings accumulated thereon will be credited with the rate of interest currently credited to new monies allocated to the Fixed Account. This means that if you allocate monies to the Fixed Account on a monthly basis, over the course of 12 months, those monies may be credited with 12 different interest rates. We will establish a new interest rate the first business day of each calendar month. You may allocate all or a portion of initial and any additional net premiums to the Fixed Account. See "Net Premium Allocation" on page 15. You may transfer all or a part of an amount in the sub-account(s) to the Fixed Account. You may transfer a part of an amount in the Fixed Account to the sub-account(s), subject to these restrictions, and except for transfers made pursuant to DCA (see page 16): 1. we allow only one transfer each year and this transfer must be within the period that is 30 days before and 30 days after the policy anniversary, and an unused transfer option does not carry over to the next year; and 2. the maximum transfer amount is 50% of the Fixed Account value on the date of the transfer, unless the balance after the transfer is less than $5,000, in which case the entire value may be transferred. Transfers to and from the Fixed Account may be subject to a transfer fee, and are also subject to other restrictions. See "Transfers" on page 16. A portion or all of the policy administration charge will be deducted from amounts in the Fixed Account to the extent that amounts in the sub-accounts are insufficient to cover the charge. See "Policy Administration Charge" on page 23. A fee for taxes may also be deducted from amounts in the Fixed Account. See "Taxes" on page 25. You may withdraw all or a part of your Fixed Account value. See "Partial Withdrawals" on page 20 and "Proceeds on Surrender" on page 18. Upon a partial withdrawal or a cash surrender, you may incur a surrender charge. See "Surrender Charge" on page 23. We have the right to defer payment of any cash surrender value or partial withdrawal from the Fixed Account for up to six months from the date we receive your written notice for surrender. See "Payment of Benefits, Partial Withdrawals, Cash Surrenders and Transfers - Postponement" on page 21. FIXED ACCOUNT VALUE The Fixed Account value before the annuity date or maturity date is: 1. the sum of the net premiums allocated to the Fixed Account; plus 2. any amounts transferred to the Fixed Account from a sub-account of the Variable Account; minus 3. any cash surrender value withdrawn or amounts transferred from the Fixed Account; minus 4. any policy administration charge deducted from the amount in the Fixed Account; plus 5. interest credited to the amount in the Fixed Account. 38 44 APPENDIX A: STATE PREMIUM TAXES Premium taxes vary according to the state and are subject to change. In many jurisdictions there is no tax at all. For current information, a tax adviser should be consulted.
TAX RATE QUALIFIED NONQUALIFIED STATE CONTRACTS CONTRACTS California 0.50% 2.35% District of Columbia 2.25% 2.25% Kansas 0.00% 2.00% Kentucky 2.00% 2.00% Maine 0.00% 2.00% Nevada 0.00% 3.50% South Dakota 0.00% 1.25% West Virginia 1.00% 1.00% Wyoming 0.00% 1.00%
39 45 PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION 46 CANADA LIFE INSURANCE COMPANY OF AMERICA ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD, NW, ATLANTA, GEORGIA 30339 PHONE: (800) 333-2542 ================================================================================ STATEMENT OF ADDITIONAL INFORMATION VARIABLE ANNUITY ACCOUNT 2 FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY POLICY ================================================================================ This Statement of Additional Information contains information in addition to the information described in the Prospectus for the flexible premium variable deferred annuity policy (the "policy") offered by Canada Life Insurance Company of America. This Statement of Additional Information is not a Prospectus, and it should be read only in conjunction with the Prospectuses for the policy and Seligman Portfolios, Inc. (the "Fund"). The Prospectuses are dated the same date as this Statement of Additional Information. You may obtain copies of the Prospectuses by writing or calling us at our address or phone number shown above. The date of this Statement of Additional Information May 1, 1996. 47 STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS ADDITIONAL POLICY PROVISIONS Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Misstatement Of Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Place Of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Non-Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Our Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 CALCULATION OF YIELDS AND TOTAL RETURNS Cash Management Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Other Sub-Account Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Total Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Effect Of The Policy Administration Charge On Performance Data . . . . . . . . . . . . . . 6 SAFEKEEPING OF ACCOUNT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 STATE REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ADDITIONAL POLICY PROVISIONS CONTRACT The entire contract is made up of the policy and the application for the policy. The statements made in the application are deemed representations and not warranties. We cannot use any statement in defense of a claim or to void the policy unless it is contained in the application and a copy of the application is attached to the policy at issue. INCONTESTABILITY We will not contest the policy after it has been in force during any annuitant's lifetime for two years from the date of issue of the policy. MISSTATEMENT OF AGE If the age of any annuitant has been misstated, we will pay the amount which the proceeds would have purchased at the correct age. If we make an overpayment because of an error in age, the overpayment plus interest at 3% compounded annually will be a debt against the policy. If the debt is not repaid, future payments will be reduced accordingly. 2 48 If we make an underpayment because of an error in age, any annuity payments will be recalculated at the correct age, and future payments will be adjusted. The underpayment with interest at 3% compounded annually will be paid in a single sum. CURRENCY All amounts payable under the policy will be paid in United States currency. PLACE OF PAYMENT All amounts payable by us will be payable at our Administrative Office at the address shown on page one of this Statement of Additional Information. NON-PARTICIPATION The policy is not eligible for dividends and will not participate in our divisible surplus. OUR CONSENT If our consent is required, it must be given in writing. It must bear the signature, or a reproduction of the signature, of our President, Secretary or Actuary. CALCULATION OF YIELDS AND TOTAL RETURNS CASH MANAGEMENT YIELDS We may, from time to time, quote in advertisements and sales literature the current annualized yield of the Cash Management Sub-Account for a 7 day period in a manner which does not take into consideration any realized or unrealized gains or losses on shares of the Cash Management Portfolio or on its portfolio securities. This current annualized yield is computed by determining the net change (exclusive of realized gains and losses on the sale of securities and unrealized appreciation and depreciation) at the end of the 7 day period in the value of a hypothetical account under a policy having a balance of 1 unit of the Cash Management Sub-Account at the beginning of the period, dividing such net change in account value by the value of the account at the beginning of the period to determine the base period return, and annualizing this quotient on a 365 day basis. The net change in account value reflects: 1) net income from the portfolio attributable to the hypothetical account; and 2) charges and deductions imposed under the policy which are attributable to the hypothetical account. The charges and deductions include the per unit charges for the hypothetical account for: 1) the policy administration charge; 2) the daily administration fee; and 3) the mortality and expense risk charge. The yield calculation reflects an average per unit policy administration charge of $30 per year deducted at the end of each policy year. Current Yield will be calculated according to the following formula: Current Yield = ((NCS-ES)/UV) X (365/7) Where: NCS = the net change in the value of the portfolio (exclusive of realized gains and losses on the sale of securities and unrealized appreciation and depreciation) for the 7 day period attributable to a hypothetical account having a balance of 1 Sub-Account unit. ES = per unit expenses of the Sub-Account for the 7 day period. UV = the unit value on the first day of the 7 day period. The current yield for the 7 day period ended December 31, 1995 was 2.95%. 3 49 We may also quote the effective yield of the Cash Management Sub-Account for the same 7 day period, determined on a compounded basis. The effective yield is calculated by compounding the unannualized base period return according to the following formula: 365/7 Effective Yield = (1+((NCS-ES)/UV)) -1 Where: NCS = the net change in the value of the portfolio (exclusive of realized gains and losses on the sale of securities and unrealized appreciation and depreciation) for the 7 day period attributable to a hypothetical account having a balance of 1 Sub-Account unit. ES = per unit expenses of the Sub-Account for the 7 day period. UV = the unit value for the first day of the 7 day period. The effective yield for the 7 day period ended December 31, 1995 was 2.99%. Because of the charges and deductions imposed under the policy, the yield for the Cash Management Sub-Account will be lower than the yield for the Cash Management Portfolio. The yields on amounts held in the Cash Management Sub-Account normally will fluctuate on a daily basis. Therefore, the disclosed yield for any given past period is not an indication or representation of future yields or rates of return. The Cash Management Sub-Account's actual yield is affected by changes in interest rates on money market securities, average portfolio maturity of the Cash Management Portfolio, the types and quality of portfolio securities held by the Cash Management Portfolio of the Fund, and the Cash Management Portfolio's operating expenses. OTHER SUB-ACCOUNT YIELDS We may, from time to time, quote in sales literature and advertisements the current annualized yield of one or more of the sub-accounts (except the Cash Management Sub-Account) for 30 day or one month periods. The annualized yield of a sub-account refers to income generated by the sub-account over a specific 30 day or one month period. Because the yield is annualized, the yield generated by a sub-account during the 30 day or one month period is assumed to be generated each period over a 12 month period. The yield is computed by: 1) dividing the net investment income of the series attributable to the sub-account units less sub-account expenses for the period; by 2) the maximum offering price per unit on the last day of the period multiplied by the daily average number of units outstanding for the period; by 3) compounding that yield for a 6 month period; and by 4) multiplying that result by 2. Expenses attributable to the sub-account include 1) the policy administration charge; 2) the daily administration fee, and 3) the mortality and expense risk charge. The yield calculation reflects a policy administration charge of $30 per year per policy deducted at the end of each policy year. For purposes of calculating the 30 day or one month yield, an average policy administration charge per dollar of policy value in the Variable Account is used to determine the amount of the charge attributable to the sub-account for the 30 day or one month period as described below. The 30 day or one month yield is calculated according to the following formula: 6 Yield = 2 x ((((NI-ES)/(U x UV)) + 1) - 1) Where: NI = net income of the portfolio for the 30 day or one month period attributable to the sub-account's units. ES = expenses of the sub-account for the 30 day or one month period. U = the average number of units outstanding. UV = the unit value at the close (highest) of the last day in the 30 day or one month period. Because of the charges and deductions imposed under the policies, the yield for the sub-account will be lower than the yield for the corresponding portfolio. The yield on the amounts held in the sub-accounts normally will fluctuate over time. Therefore, the disclosed yield for any given past period is not an indication or representation of future yields or rates of return. The sub-account's actual yield is affected by the types and quality of portfolio securities held by the portfolio, and its operating expenses. Yield calculations do not take into account the surrender charge under the policy. The surrender charge is equal to 6% of premiums paid during that current policy year and the previous 6 policy years on certain amounts surrendered or 4 50 withdrawn under the policy as described in the Prospectus. A surrender charge will not be imposed on the first withdrawal in any policy year on an amount up to 10% of the premiums paid during that current policy year and the previous 6 policy years, if the systematic withdrawal privilege is not elected in that policy year. TOTAL RETURNS We may, from time to time, also quote in sales literature or advertisements total returns, including average annual total returns for one or more of the sub-accounts for various periods of time. We will always include quotes of average annual total return for the period measured from the date the sub-account commenced operations. When a sub-account has been in operation for 1, 5, and 10 years, respectively, the average annual total return for these periods will be provided. Average annual total returns for other periods of time may, from time to time, also be disclosed. Average annual total returns represent the average annual compounded rates of return that would equate an initial investment of $1,000 under a policy to the redemption value of that investment as of the last day of each of the periods. The ending date for each period for which total return quotations are provided will be for the most recent quarter-end practicable, considering the type and media of the communication and will be stated in the communication. Average annual total returns will be calculated using sub-account unit values which we calculate on each valuation day based on the performance of the sub-account's underlying portfolio, and the deductions for the mortality and expense risk charge, daily administration fee and the policy administration charge of $30 per year per policy deducted at the end of each policy year. For purposes of calculating total return, an average per dollar policy administration charge attributable to the hypothetical account for the period is used. The total return will then be calculated according to the following formula: 1/N TR = ((ERV/P) )-1 Where: TR = the average annual total return net of sub-account recurring charges. ERV = the ending redeemable value of the hypothetical account at the end of the period. P = a hypothetical initial payment of $1,000. N = the number of years in the period. Average annual total returns for the periods shown below were:
Sub-Account Sub-Account 1 Year Return Cumulative from Fund 5 Year Year Ended Inception 06/21/93 Return 12/31/90 12/31/95 to 12/31/95 to 12/31/95 ---------- ------------ ----------- Capital 19.64 % 11.56% 16.33% Cash Management (1.78)% 3.42% 1.98% Common Stock 19.70 % 11.76% 14.21% Fixed Income Securities 11.83 % 5.88% 6.25% Income 10.53 % 8.21% 11.34% Global 4.09 % 6.34% * Communications and Information 30.71 % 28.22% ** Frontier 25.70 % 25.65% ** Global Smaller Companies 9.96 % 10.84% ** High-Yield Bond *** 1.34% ***
* The Date of Inception of the Global Sub-Account was May 3, 1993. Therefore, total returns are provided only for Cumulative from Inception and 1 Year Return. ** The Date of Inception for the Communications and Information, Frontier and Global Smaller Companies Sub-Accounts was October 11, 1994. Therefore, total returns are provided only for Cumulative from Inception and 1 Year Return. 5 51 *** The Date of Inception of the High-Yield Bond Sub-Account was May 1, 1995. Therefore, only Cumulative from Inception total returns are provided. As of December 31, 1995, the Global Technology and Global Growth Opportunities Sub-Accounts had not commenced operations. Accordingly, average annual total return information is not available for those sub-accounts. We may, from time to time, also quote in sales literature or advertisements, total returns that do not reflect the surrender charge. These are calculated in exactly the same way as average annual total returns described above, except that the ending redeemable value of the hypothetical account for the period is replaced with an ending value for the period that does not take into account any charge on amounts surrendered or withdrawn. Average annual total returns without a surrender charge for the periods shown below for the sub-accounts (except the Global Technology and Global Growth Opportunities Sub-Accounts) were:
Sub-Account Sub-Account 1 Year Return Cumulative from Year Ended Inception 06/21/93 Fund 5 Year Return 12/31/95 to 12/31/95 12/31/90 to 12/31/95 ------------- ------------------ -------------------- Capital 25.04% 11.56% 16.62% Cash Management 3.62% 3.42% 2.47% Common Stock 25.10% 11.76% 14.53% Fixed Income Securities 17.23% 5.88% 6.67% Income 15.93% 8.21% 11.69% Global 9.49% 8.14% * Communications and Information 36.11% 32.31% ** Frontier 31.10% 29.75% ** Global Smaller Companies 15.36% 15.07% ** High-Yield Bond *** 9.56% ***
* The Date of Inception of the Global Sub-Account was May 3, 1993. Therefore, total returns are provided only for Cumulative from Inception and 1 Year Return. ** The Date of Inception for the Communications and Information, Frontier and Global Smaller Companies Sub-Accounts was October 11, 1994. Therefore, total returns are provided only for Cumulative from Inception and 1 Year Return. *** The Date of Inception of the High-Yield Bond Sub-Accounts was May 1, 1995. Therefore, only Cumulative from Inception total returns are provided. As of December 31, 1995, the Global Technology and Global Growth Opportunities Sub-Accounts had not commenced operations. Accordingly, average annual total return information without a surrender charge is not available for those sub-accounts. EFFECT OF THE POLICY ADMINISTRATION CHARGE ON PERFORMANCE DATA The policy provides for a $30 policy administration charge to be assessed annually on each policy anniversary proportionately from any sub-accounts and Fixed Account in which you are invested. If the policy value on the policy anniversary is $75,000 or more, we will waive the policy administration charge for the prior policy year. For purposes of reflecting the policy administration charge in yield and total return quotations, we will convert the annual charge into a per-dollar per-day charge based on the average policy value in the Variable Account of all policies on the last day of the period for which quotations are provided. The per-dollar per-day average charge will then be adjusted to reflect the basis upon which the particular quotation is calculated. 6 52 SAFEKEEPING OF ACCOUNT ASSETS We hold the title to the assets of the Variable Account. The assets are kept physically segregated and held separate and apart from our general account assets and from the assets in any other separate account we have. Records are maintained of all purchases and redemptions of portfolio shares held by each of the sub-accounts. Our officers and employees are covered by an insurance company blanket bond issued by America Home Assurance Company to The Canada Life Assurance Company, our parent Company, in the amount of $25 million. The bond insures against dishonest and fraudulent acts of officers and employees. STATE REGULATION We are subject to the insurance laws and regulations of all the jurisdictions where we are licensed to operate. The availability of certain policy rights and provisions depends on state approval and/or filing and review processes. The policies will be modified to comply with the requirements of each applicable jurisdiction. RECORDS AND REPORTS We will maintain all records and accounts relating to the Variable Account. As presently required by the Investment Company Act of 1940 and regulations promulgated thereunder, reports containing such information as may be required under the Act or by any other applicable law or regulation will be sent to you semi-annually at your last address known to us. LEGAL MATTERS All matters relating to Michigan law pertaining to the policies, including the validity of the policies and our authority to issue the policies, have been passed upon by David A. Hopkins. Sutherland, Asbill & Brennan of Washington, D.C., has provided advice on certain matters relating to the federal securities laws. EXPERTS Our balance sheets as of December 31, 1995 and 1994, and the related statements of operations, accumulated deficit, and cash flows for each of the three years in the period ended December 31, 1995, 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, 1995, and the related statements of operations and changes in net assets for the periods indicated therein included in this Statement of Additional Information and Registration Statement have been audited by Ernst & Young LLP, independent auditors, of Atlanta, Georgia, as set forth in their reports thereon appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. OTHER INFORMATION A registration statement has been filed with the SEC under the Securities Act of 1933 as amended, with respect to the policies discussed in this Statement of Additional Information. Not all of the information set forth in the registration statement, amendments and exhibits thereto has been included in this Statement of Additional Information. Statements contained in this Statement of Additional Information concerning the content of the policies and other legal instruments are intended to be summaries. For a complete statement of the terms of these documents, reference should be made to the instruments filed with the SEC. 7 53 FINANCIAL STATEMENTS The Variable Account's statement of net assets as of December 31, 1995, 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, 1995 and 1994, and the related statements of operations, accumulated deficit, and cash flows for each of the three years in the period ended December 31, 1995, as well as the Report of Independent Auditors, are contained herein. The financial statements of the Company should be considered only as bearing on our ability to meet our obligations under the policies. They should not be considered as bearing on the investment performance of the assets held in the Variable Account. 8 54 FINANCIAL STATEMENTS CANADA LIFE INSURANCE COMPANY OF AMERICA December 31, 1995 With Report of Independent Auditors 55 INDEX TO FINANCIAL STATEMENTS
PAGE CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 Report of Independent Auditors......................................... 1 Statement of Net Assets as of December 31, 1995.............................................. 2 Statement of Operations for the year ended December 31, 1995......................................... 2 Statements of Changes in Net Assets for the years ended December 31, 1995 and 1994............................... 4 Notes to Financial Statements.......................................... 6 CANADA LIFE INSURANCE COMPANY OF AMERICA Report of Independent Auditors......................................... 1 Balance Sheets as of December 31, 1995 and 1994........................ 2 Statement of Operations for the years ended December 31, 1995, 1994 and 1993..................................... 3 Statements of Accumulated Deficit for the years ended December 31, 1995, 1994, and 1993.................................... 4 Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993..................................... 5 Notes to Financial Statements.......................................... 6
56 [ERNST & YOUNG LLP LETTERHEAD] - ------------------------------------------------------------------------------ REPORT OF INDEPENDENT AUDITORS - ------------------------------------------------------------------------------ Board of Directors of Canada Life Insurance Company of America and Contract Owners of Canada Life of America Variable Annuity Account 2: We have audited the accompanying statement of net assets of Canada Life of America Variable Annuity Account 2 ("Variable Annuity Account 2") as of December 31, 1995, and the related statements of operations and changes in net assets for the periods indicated therein. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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. Our procedures included confirmation of securities owned as of December 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Variable Annuity Account 2 at December 31, 1995, and the results of its operations and the changes in its net assets for each of the periods indicated therein in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Atlanta, Georgia January 29, 1996 57 - ------------------------------------------------------------------------------ CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - ------------------------------------------------------------------------------ STATEMENT OF NET ASSETS - ------------------------------------------------------------------------------
CASH COMMON COMMUNICATIONS CAPITAL MANAGEMENT STOCK AND INFORMATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------------------------------------------------- NET ASSETS: Investment in Seligman Portfolios, Inc. at market (see Note 3 for cost values) $4,077,945 $5,975,912 $9,412,672 35,544,393 Due (to) from Canada Life Insurance Company of America (Note 6) 12,059 167,712 6,719 84,508 Receivable (payable) for investments sold (purchased) (19,152) 14,080 6,120 969 --------------------------------------------------------------------- NET ASSETS $4,070,852 $6,157,704 $9,425,511 35,629,870 ===================================================================== NET ASSETS ATTRIBUTABLE TO: Policyholders' liability reserve $4,070,852 $6,157,704 $9,425,511 35,629,870 --------------------------------------------------------------------- NET ASSETS $4,070,852 $6,157,704 $9,425,511 35,629,870 ===================================================================== NUMBER OF UNITS OUTSTANDING 177,869 4,756,453 406,237 2,515,239 ===================================================================== NET ASSET VALUE PER UNIT $ 22.8868 $ 1.2946 $ 23.2020 $ 14.1656 =====================================================================
- -------- See accompanying notes. 2 58 - ------------------------------------------------------------------------------ CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------- December 31, 1995 - ------------------------------------------------------------------------------------------------------------------------- FIXED GLOBAL INCOME SMALLER HIGH YIELD SECURITIES FRONTIER GLOBAL COMPANIES BOND INCOME ALL SERIES SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT COMBINED -------------------------------------------------------------------------------------------------------------------- $1,841,825 $10,837,911 $4,059,769 $4,802,765 $2,838,192 $4,743,035 $84,134,419 (7,401) 25,314 23,240 67,822 93,949 18,793 492,715 813 17 (10,792) 159 (12) 9,128 1,330 -------------------------------------------------------------------------------------------------------------------- $1,835,237 $10,863,242 $4,072,217 4,870,746 2,932,19 $4,770,956 $84,628,464 ==================================================================================================================== $1,835,237 $10,863,242 $4,072,217 $4,870,746 $2,932,129 $4,770,956 $84,628,464 -------------------------------------------------------------------------------------------------------------------- $1,835,237 $10,863,242 $4,072,217 $4,870,746 $2,932,129 $4,770,956 $84,628,464 ==================================================================================================================== 118,761 785,660 329,980 408,870 275,716 262,103 ==================================================================================================================== $ 15.4532 $ 13.8269 $ 12.3408 $ 11.9127 $ 10.6346 $ 18.2026 ====================================================================================================================
3 59 - ------------------------------------------------------------------------------ CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - ------------------------------------------------------------------------------ STATEMENT OF OPERATIONS - ------------------------------------------------------------------------------
CASH COMMON COMMUNICATIONS CAPITAL MANAGEMENT STOCK AND INFORMATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ---------------------------------------------------------------- NET INVESTMENT INCOME: Dividend and capital gain distributions $297,902 $139,845 $1,105,269 $2,315,169 Less mortality and expense risk charges (Note 6) 51,403 154,878 86,178 224,987 ------------------------------------------------------------ Net investment income/(loss) 246,499 (15,033) 1,019,091 90,182 ------------------------------------------------------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments 444 - 18,592 184,393 Net unrealized appreciation (depreciation) on investments 183,650 - (2,480) (3,631,372) ------------------------------------------------------------ Net realized and unrealized gain (loss) on investments 184,094 - 16,112 (3,446,979) ------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $430,593 $(15,033) $1,035,203 $(1,356,797) ============================================================
- -------- *For the period May 25, 1995 (commencement of operations) to December 31 1995. See accompanying notes 4 60 - ------------------------------------------------------------------------------ CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - ------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------- For the year ended December 31, 1995 - ---------------------------------------------------------------------------------------------------------------- FIXED GLOBAL INCOME SMALLER HIGH YIELD* SECURITIES FRONTIER GLOBAL COMPANIES BOND INCOME AIL SERIES SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT COMBINED ------------------------------------------------------------------------------------------------------------- $ 94,268 $402,791 $ 74,080 $167,404 $61,386 $477,188 $5,135,302 14,736 48,506 39,213 24,966 11,078 49,800 705,745 ------------------------------------------------------------------------------------------------------------ 79,532 354,285 34,867 142,438 50,308 427,388 4,429,557 ------------------------------------------------------------------------------------------------------------ 12,976 20,460 5,717 23,758 8,630 8,567 283,537 98,202 417,244 208,452 130,256 39,826 20,816 (2,535,406) ------------------------------------------------------------------------------------------------------------ 111,178 437,704 214,169 154,014 48,456 29,383 (2,251,869) ------------------------------------------------------------------------------------------------------------ $190,710 $791,989 $249,036 $296,452 $98,764 $456,771 $2,177,688 ============================================================================================================
5 61 - ------------------------------------------------------------------------------ CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - ------------------------------------------------------------------------------ STATEMENTS OF CHANGES IN NET ASSETS - ------------------------------------------------------------------------------
CAPITAL CASH MANAGEMENT SUB-ACCOUNT SUB-ACCOUNT ---------------------------- ------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/95 12/31/94 12/31195 12/31/94 -------- -------- -------- -------- OPERATIONS: Net investment income (loss) $ 246,499 $ 114,890 $ (15,033) $ 10,177 Net realized gain (loss) on investments 444 (12,916) - - Unrealized appreciation (depreciation) on investments 183,650 (124,248) - - ----------------------------- -------------------------------- Net increase (decrease) in net assets resulting from operations 430,593 (22,274) (15,033) 10,177 ----------------------------- -------------------------------- CAPITAL TRANSACTIONS: Net increase from unit transactions (Note 5) 2,499,622 1,071,495 5,630,605 463,427 ----------------------------- -------------------------------- Net increase in net assets arising from capital transactions 2,499,622 1,071,495 5,630,605 463,427 ----------------------------- -------------------------------- TOTAL INCREASE IN NET ASSETS 2,930,215 1,049,221 5,615,572 473,604 NET ASSETS, BEGINNING OF PERIOD 1,140,637 91,416 542,132 68,528 ----------------------------- -------------------------------- NET ASSETS, END OF PERIOD $4,070,852 $1,140,637 $6,157,704 $542,132 ============================= ================================ GLOBAL GLOBAL SMALLER COMPANIES SUB-ACCOUNT SUB-ACCOUNT ------------------------------ -------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED 10/11/94* TO 12/31/95 12/31/94 12/31/95 12/31/94 -------- -------- -------- -------- OPERATIONS: Net investment income $ 34,867 $ 9,277 $ 142,438 $ 279 Net realized gain (loss) on investments 5,717 6,044 23,758 2 Unrealized appreciation (depreciation) on investments 208,452 (21,540) 130,256 3,794 ----------------------------- -------------------------------- Net increase (decrease) in net assets resulting from operations 249,036 (6,219) 296,452 4,075 ----------------------------- -------------------------------- CAPITAL TRANSACTIONS: Net increase from unit transactions (Note 5) 2,128,790 1,167,854 4,442,826 127,393 ----------------------------- -------------------------------- Net increase in net assets arising from capital transactions 2,128,790 1,167,854 4,442,826 127,393 ----------------------------- -------------------------------- TOTAL INCREASE IN NET ASSETS 2,377,826 1,161,635 4,739,278 131,468 ----------------------------- -------------------------------- NET ASSETS, BEGINNING OF PERIOD 1,694,391 532,756 131,468 - ----------------------------- -------------------------------- NET ASSETS, END OF PERIOD $4,072,217 $1,694,391 $4,870,746 $131,468 ============================= ================================
*commencement of operations See accompanying notes. 6 62 - ------------------------------------------------------------------------------ CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------
COMMON COMMUNICATIONS FIXED INCOME STOCK AND INFORMATION SECURITIES FRONTIER SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED 10/11/94* TO YEAR ENDED YEAR ENDED YEAR ENDED 10/11/94* TO 12/31/95 12/31/94 12/31/95 12/31/94 12/31/95 12/31/94 12/31/95 12/31/94 -------- -------- -------- -------- -------- -------- -------- -------- $1,019,091 $ 169,210 $ 2,090,182 $ (875) $ 79,532 $ 35,441 $ 354,285 $ (216) 18,592 (1,721) 184,393 15 12,976 (10,205) 20,460 7 (2,480) (179,355) (3,631,372) 18,098 98,202 (39,410) 417,244 6,405 - ------------------------------------------------------------------------------------------------------------------------- 1,035,203 (11,866) (1,356,797) 17,238 190,710 (14,174) 791,989 6,196 - ------------------------------------------------------------------------------------------------------------------------- 6,025,857 1,716,567 36,492,207 477,222 793,373 656,499 9,948,895 116,162 - ------------------------------------------------------------------------------------------------------------------------- 6,025,857 1,716,567 36,492,207 477,222 793,373 656,499 9,948,895 116,162 - ------------------------------------------------------------------------------------------------------------------------- 7,061,060 1,704,701 35,135,410 494,460 984,083 642,325 10,740,884 122,358 2,364,451 659,750 494,460 - 851,154 208,829 122,358 - - ------------------------------------------------------------------------------------------------------------------------- $9,425,511 $2,364,451 $35,629,870 $494,460 $1,835,237 $851,154 $10,863,242 $122,358 ========================================================================================================================= HIGH YIELD BOND INCOME ALL SERIES SUB-ACCOUNT SUB-ACCOUNT COMBINED - --------------- --------------------------- ---------------------------- 05/25/95* TO YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 12/31/95 12/31/95 12/31/94 12/31/95 12/31/94 -------- -------- -------- -------- -------- $ 50,308 $ 427,388 $ 110,698 $ 4,429,557 $ 448,881 8,630 8,567 (15,131) 283,537 (33,905) 39,826 20,816 (163,064) (2,535,406) (499,320) - ---------- --------------------------- ----------------------------- 98,764 456,771 (67,497) 2,177,688 (84,344) - ---------- --------------------------- ----------------------------- 2,833,365 2,354,736 1,560,635 73,150,276 7,357,254 - ---------- --------------------------- ----------------------------- 2,833,365 2,354,736 1,560,635 73,150,276 7,357,254 - ---------- --------------------------- ----------------------------- 2,932,129 2,811,507 1,493,138 75,327,964 7,272,910 - 1,959,449 466,311 9,300,500 2,027,590 - ---------- --------------------------- ----------------------------- $2,932,129 $4,770,956 $1,959,449 $84,628,464 $9,300,500 ========== =========================== =============================
7 63 - ------------------------------------------------------------------------------ CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ 1. ORGANIZATION Canada Life of America Variable Annuity Account 2 ("Variable Annuity Account 2") was established on February 26, 1993 as a separate investment account of Canada Life Insurance Company of America ("CLICA") to receive and invest premium payments under variable annuity policies issued by CLICA. Variable Annuity Account 2 is registered as a unit investment trust under the Investment Company Act of 1940, as amended. The assets of Variable Annuity Account 2 are invested in the shares of Seligman Portfolios, Inc. (the "Fund"), a diversified, open-end, management investment company. Variable Annuity Account 2 has ten sub-accounts, each of which invests only in the shares of the corresponding portfolio of the Fund. The assets of Variable Annuity Account 2 are the property of CLICA. The portion of Variable Annuity Account 2 assets applicable to the policies will not be charged with liabilities arising out of any other business CLICA may conduct. 2. SIGNIFICANT ACCOUNTING POLICIES INVESTMENTS Investments in shares of the Fund are valued at the reported net asset values of the respective portfolios. Realized gains and losses are computed on the basis of average cost. The difference between cost and current market value of investments owned is recorded as an unrealized gain or loss on investments. DIVIDENDS 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 Capital, Common Stock, Communications and Information, Fixed Income Securities, Frontier, Global, Global Smaller Companies (formerly Global Emerging Companies), High Yield Bond and Income Portfolios are declared and paid annually. Dividends paid to the Variable Annuity Account 2 are reinvested in additional shares of the respective Fund at the net asset value per share. FEDERAL INCOME TAXES Variable Annuity Account 2 is not taxed separately because the operations of Variable Annuity Account 2 will be included in the Federal income tax return of CLICA, which is taxed as a "life insurance company" under the provisions of the Internal Revenue Code. 8 64 - ------------------------------------------------------------------------------ CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------ 3. INVESTMENTS The investment by Variable Annuity Account 2 in the individual Portfolios of the Fund is as follows:
NUMBER OF MARKET MARKET SHARES PRICE VALUE COST ---------------------------------------------------------------- Capital 273,504 $14.910 $ 4,077,945 $ 4,033,698 Cash Management 5,975,912 1.000 5,975,912 5,975,912 Common Stock 609,629 15.440 9,412,672 9,669,692 Communications and Information 2,632,918 13.500 35,544,393 39,157,667 Fixed Income Securities 176,420 10.440 1,841,825 1,809,624 Frontier 799,256 13.560 10,837,911 10,414,262 Global 327,665 12.390 4,059,769 3,848,270 Global Smaller Companies 411,548 11.670 4,802,765 4,668,715 High Yield Bond 270,304 10.500 2,838,192 2,798,366 Income 449,151 10.560 4,743,035 4,930,154 -------------------------------- $84,134,419 $87,305,360 ================================
4. SECURITY PURCHASES AND SALES The aggregate cost of purchases and the proceeds from sales of investments are presented below:
Aggregate Cost of Purchases Proceeds from Sales -------------- ------------------- Capital $ 3,406,536 $ 672,438 Cash Management 9,808,492 4,369,824 Common Stock 7,728,267 691,043 Communications and Information 41,256,452 2,759,744 Fixed Income Securities 1,502,496 622,434 Frontier 10,622,758 344,961 Global 2,743,252 603,246 Global Smaller Companies 5,060,830 543,611 High Yield Bond 3,220,104 430,368 Income 3,086,197 312,617 ----------- ----------- $88,435,384 $11,350,286 =========== ===========
9 65 - ------------------------------------------------------------------------------ CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------ 5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS The following table represents a summary of changes from unit transactions attributable to contract holders for the periods indicated. The High Yield Bond Portfolio commenced operations on May 25, 1995. The Communications and Information, Frontier, and Global Smaller Companies Portfolios commenced operations on October 11, 1994:
YEAR ENDED YEAR ENDED DECEMBER 31, 1995 DECEMBER 31, 1994 ----------------- ----------------- UNITS AMOUNT UNITS AMOUNT ----- ------ ----- ------ CAPITAL SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 145,385 $3,087,710 68,845 $1,206,771 Terminated contracts & net transfers out (29,873) (588,088) (11,147) (135,276) ------------------------------------------------------------ 115,512 2,499,622 57,698 1,071,495 ============================================================ CASH MANAGEMENT SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 7,886,784 10,076,561 895,094 919,388 Terminated contracts & net transfers out (3,564,557) (4,445,956) (517,005) (455,961) ------------------------------------------------------------ 4,322,227 5,630,605 378,089 463,427 ============================================================ COMMON STOCK SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 309,502 6,657,602 94,149 1,729,749 Terminated contracts & net transfers out (30,836) (631,745) (1,785) (13,182) ------------------------------------------------------------ 278,666 6,025,857 92,364 1,716,567 ============================================================ COMMUNICATIONS AND INFORMATION SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 2,691,921 39,852,870 47,541 477,222 Terminated contracts & net transfers out (224,222) (3,360,663) - - ------------------------------------------------------------ 2,467,699 36,492,207 47,541 477,222 ============================================================ FIXED INCOME SECURITIES SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 95,564 1,388,851 60,800 705,025 Terminated contracts & net transfers out (41,417) (595,478) (11,270) (48,526) ------------------------------------------------------------ 54,147 793,373 49,530 656,499 ============================================================
10 66 - ------------------------------------------------------------------------------ CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS (continued) - ------------------------------------------------------------------------------ 5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS (continued)
YEAR ENDED YEAR ENDED DECEMBER 31, 1995 DECEMBER 31, 1994 ----------------- ----------------- UNITS AMOUNT UNITS AMOUNT ----- ------ ----- ------ FRONTIER SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 795,646 $10,220,653 11,609 $ 116,162 Terminated contracts & net transfers out (21,595) (271,758) - - ------------------------------------------------------- 774,051 9,948,895 11,609 116,162 ======================================================= GLOBAL SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 229,813 2,694,210 119,532 1,203,916 Terminated contracts & net transfers out (50,273) (565,420) (16,093) (36,062) ------------------------------------------------------- 179,540 2,128,790 103,439 1,167,854 ======================================================= GLOBAL SMALLER COMPANIES SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 436,679 4,901,518 12,740 127,393 Terminated contracts & net transfers out (40,549) (458,692) - - ------------------------------------------------------- 396,130 4,442,826 12,740 127,393 ======================================================= HIGH YIELD BOND SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 302,720 3,111,221 - - Terminated contracts & net transfers out (27,004) (277,856) ------------------------------------------------------- 275,716 2,833,365 ======================================================= INCOME SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 153,550 2,639,743 117,463 1,805,921 Terminated contracts & net transfers out (16,325) (285,007) (20,059) (245,286) ------------------------------------------------------- 137,225 2,354,736 97,404 1,560,635 ======================================================= Net increase from unit transactions $73,150,276 $7,357,254 =======================================================
6. MORTALITY AND EXPENSE RISK (M AND E) CHARGES CLICA assumes mortality and expense risks related to the operations of Variable Annuity Account 2 and deducts a charge equal to an effective annual rate of 1.25% of the net asset value of each of the Funds at each valuation period. In addition, at each valuation period an effective annual rate of 0.35% of the net asset value of each Fund is deducted as daily administration fees. 11 67 - ------------------------------------------------------------------------------ CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - ------------------------------------------------------------------------------ NOTES TO FINANCIAL STATEMENTS (continued) - ------------------------------------------------------------------------------ 7. NET ASSETS Net assets at December 31, 1995 consisted of the following:
NET ACCUMULATED NET UNREALIZED INVESTMENT REALIZED APPRECIATION ACCUMULATED INCOME GAIN (LOSS) (DEPRECIATION) UNIT M AND E AND CAPITAL ON ON SUB-ACCOUNT TRANSACTIONS CHARGES GAINS INVESTMENTS INVESTMENTS TOTAL ----------- ------------ ------- ----- ----------- ----------- ----- Capital $ 3,658,953 $ (61,276) $ 441,433 $(12,505) $ 44,247 $ 4,070,852 Cash Management 6,162,304 (161,743) 157,143 - - 6,157,704 Common Stock 8,385,716 (106,981) 1,387,066 16,730 (257,020) 9,425,511 Communications & Information 36,969,429 (225,862) 2,315,169 184,408 (3,613,274) 35,629,870 Fixed Income Securities 1,659,190 (20,640) 160,846 2,640 33,201 1,835,237 Frontier 10,065,057 (48,722) 402,791 20,467 423,649 10,863,242 Global 3,803,671 (58,211) 103,418 11,840 211,499 4,072,217 Global Smaller Companies 4,570,219 (25,224) 167,941 23,760 134,050 4,870,746 High Yield Bond 2,833,365 (11,078) 61,386 8,630 39,826 2,932,129 Income 4,376,924 (73,121) 661,132 (6,861) (187,118) 4,770,956 ---------------------------------------------------------------------------------------- $82,484,828 $(792,858) $5,858,325 $249,109 $(3,170,940) $84,628,464 ========================================================================================
8. UNIT VALUE Unit Values as reported are calculated as total net assets divided by total units for each Sub-account. 12 68 ERNST & YOUNG LLP / /Suite 2800 / / PHONE: 404 874 8300 600 PEACHTREE STREET ATLANTA, GEORGIA 30308-2215
REPORT OF INDEPENDENT AUDITORS - ------------------------------------------------------------------------------ Board of Directors Canada Life Insurance Company of America We have audited the accompanying balance sheets of CANADA LIFE INSURANCE COMPANY OF AMERICA as of December 31, 1995 and 1994, and the related statements of operations, accumulated deficit, and cash flows for each of the three years in the period ended December 31, 1995. 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. We believe that our audits provide a reasonable basis for our opinion. As more fully described in Notes 1 and 7, the Company is a wholly-owned subsidiary of The Canada Life Assurance Company, and the Company has material transactions with its Parent. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Canada Life Insurance Company of America at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Atlanta, Georgia February 9, 1996 Ernst & Young LLP is a member of Ernst & Young International, Ltd. 69 CANADA LIFE INSURANCE COMPANY OF AMERICA BALANCE SHEETS [in thousands of dollars] except per share values
AS AT DECEMBER 31 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ ASSETS INVESTMENTS [note 3] Bonds, at amortized cost less write-downs [fair value - 1995 - $1,308,040; 1994 - $1,185,470] $1,237,848 $1,203,918 Mortgage loans, at amortized cost less write-downs 899,501 826,840 Real estate, at depreciated cost less write-downs 8,308 10,362 Common stocks, at fair value [cost - 1995 - $7,580; 1994 - $17,273] 9,950 20,040 Investment in partnerships 2,457 3,253 Policy loans 12,285 13,168 Short-term investments, at cost 45,985 61,379 - ------------------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS 2,216,334 2,138,960 Cash and interest-bearing deposits 893 107 Deferred premiums and premiums in the course of collection 169 115 Investment income due and accrued 31,444 29,644 Investment in subsidiaries and affiliates, at equity [cost - 1995 - $14,982; 1994 - $13,843] 16,818 14,955 Preferred stocks of subsidiary at cost (market value $6) 6 0 Other assets [including federal tax recoverable] 5,051 5,900 Assets held in separate accounts [note 7] 273,195 35,585 - ------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $2,543,910 $2,225,266 ======================================================================================================================== LIABILITIES AND CAPITAL AND SURPLUS LIABILITIES Actuarial reserves $2,145,140 $2,064,872 Benefits in course of payment and provision for unreported claims 15 65 Policyholders' amounts left on deposit at interest 92 100 Provisions for future policy dividends 2,251 2,356 - ------------------------------------------------------------------------------------------------------------------------ POLICY BENEFIT LIABILITIES 2,147,498 2,067,393 Interest maintenance reserve 0 2,219 Amounts owing to parent company [note 7] 6,320 6,366 Unallocated amounts 1,607 3,399 Miscellaneous liabilities [including provision for outstanding taxes and expenses] 5,094 747 Asset valuation reserve 15,783 11,084 Liabilities from separate accounts 266,474 35,585 - ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES 2,442,776 2,126,793 - ------------------------------------------------------------------------------------------------------------------------ CAPITAL AND SURPLUS [notes 8 and 9] Authorized: 25,000,000 common shares at a par value of $ 10 per share 25,000,000 redeemable preferred shares at a par value of $ 10 per share Issued and outstanding: 500,000 common shares 5,000 5,000 4,100,000 redeemable preferred shares 41,000 41,000 Paid-in surplus 76,000 76,000 Accumulated deficit (20,866) (23,527) - ------------------------------------------------------------------------------------------------------------------------ TOTAL CAPITAL AND SURPLUS 101,134 98,473 - ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND CAPITAL AND SURPLUS $2,543,910 $2,225,266 ========================================================================================================================
See accompanying notes 2 70 CANADA LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF OPERATIONS [in thousands of dollars]
YEARS ENDED DECEMBER 31 1995 1994 1993 - --------------------------------------------------------------------------------------------------- REVENUES [note 7] Premiums for insurance and annuity considerations $326,196 $296,195 $246,793 Considerations for supplementary contracts and dividends left on deposit 3,946 2,117 1,610 Net investment income [note 3] 187,899 173,556 169,249 Other income 1 3 197 - --------------------------------------------------------------------------------------------------- TOTAL REVENUES 518,042 471,871 417,849 - --------------------------------------------------------------------------------------------------- EXPENDITURES [note 7] Death benefits and matured endowments 1,618 1,657 1,618 Annuity benefits 184,836 160,031 139,024 Surrender benefits 104,786 74,453 115,874 Payments on supplementary contracts and dividends left on deposit 2,087 1,636 1,430 Dividends to policyholders 2,237 2,350 2,674 - --------------------------------------------------------------------------------------------------- TOTAL PAYMENTS TO POLICYHOLDERS AND BENEFICIARIES 295,564 240,127 260,620 Increase in actuarial reserves 73,737 181,391 100,918 Commissions to agents 6,406 1,332 771 Allowances on reinsurance assumed 14,322 15,666 11,253 General insurance expenses 6,348 3,902 4,403 Taxes, licenses and fees 128 181 217 Transfers to separate accounts 98,967 13,360 11,114 - --------------------------------------------------------------------------------------------------- TOTAL EXPENDITURES 495,472 455,959 389,296 - --------------------------------------------------------------------------------------------------- Income from operations before net realized capital (losses) and federal income taxes 22,570 15,912 28,553 Provision for federal income taxes [note 4] 3,835 2,637 13,413 - --------------------------------------------------------------------------------------------------- Income from operations before net realized capital (losses) 18,735 13,275 15,140 Net realized capital (losses) [note 3[b]] (2,586) (10,523) (4,545) - --------------------------------------------------------------------------------------------------- NET INCOME $ 16,149 $ 2,752 $ 10,595 ===================================================================================================
See accompanying notes 3 71 CANADA LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF ACCUMULATED DEFICIT [in thousands of dollars] YEARS ENDED DECEMBER 31
1994 1993 1995 - ------------------------------------------------------------------------------------------------------ ACCUMULATED DEFICIT, BEGINNING OF YEAR $(23,527) $(26,854) $(37,328) Net income 16,149 2,752 10,595 Change in net unrealized capital gain (loss) (1,441) 2,135 (4) Change in deficit on account of: Non-admitted assets (612) 0 0 Actuarial valuation basis (6,523) (3,457) 0 Asset valuation reserve (4,699) 1,897 (118) Change in surplus of separate account 6,722 0 0 Seed money transfer to separate account (6,614) 0 0 Cost of business acquired (321) 0 0 Adjustment for gain in currency exchange 0 0 1 - --------------------------------------------------------------------------------------------------- Accumulated deficit, end of year $(20,866) $(23,527) $(26,854) ====================================================================================================
See accompanying notes 4 72 CANADA LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF CASH FLOWS [IN THOUSANDS OF DOLLARS] YEARS ENDED DECEMBER 31
1995 1994 1993 - --------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 16,149 $ 2,752 $ 10,595 Adjustments to reconcile net income to net cash provided by operating activities: Net realized capital (gains) losses before capital gains tax (74) 13,529 2,687 Amortization of net investment discounts (7,262) (7,111) (6,836) Depreciation on real estate 176 135 166 Changes in operating assets and liabilities: Increase (decrease) in policy benefit liabilities 80,105 184,520 100,686 Policy benefit liability valuation basis change (6,523) (3,457) 0 Increase (decrease) in general liabilities 2,509 5,416 (8,833) Decrease (increase) in deferred premiums and premiums in the course of collection (54) 10 13 Decrease (increase) in investment income due and accrued (1,800) 0 (1,232) Decrease (increase) in other assets 849 211 (4,687) - --------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 84,075 196,005 92,559 - --------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from investments sold, matured or repaid 352,931 438,397 487,806 Cost of investments acquired (438,546) (599,554) (570,948) Gain (loss) on derivatives (7,812) 0 0 Net sales (purchases) of short-term investments 15,394 (38,179) (13,850) Net decrease in partnership investment 796 0 0 Net decrease in policy loans 883 977 829 - --------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (76,354) (198,359) (96,163) - --------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Transfers to separate accounts (6,935) 0 0 - --------------------------------------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (6,935) 0 0 - --------------------------------------------------------------------------------------------------- Net increase (decrease) in cash 786 (2,354) (3,604) Cash, beginning of year 107 2,461 6,065 - --------------------------------------------------------------------------------------------------- Cash, end of year $ 893 $ 107 $ 2,461 ===================================================================================================
See accompanying notes 5 73 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1995 1. ORGANIZATION Canada Life Insurance Company of America (the "Company") was incorporated on April 12, 1988 in the State of Michigan and is a wholly-owned subsidiary of The Canada Life Assurance Company (the "Parent"), a mutual life and accident and health insurance company. The Company commenced operations on July 29, 1988. NATURE OF OPERATIONS The Company's business consists primarily of group and individual annuity policies assumed from its Parent. The Company's direct business consists of individual variable annuity and institutional investment products. The Company is licensed to sell its products in 46 states and the District of Columbia, however, its primary markets are California, Ohio and Missouri. The Company's variable annuity products are sold by agents who are licensed and registered representatives of the Company's subsidiary, Canada Life of America Financial Services, Inc. 2. BASIS OF ACCOUNTING The accompanying financial statements have been prepared in conformity with accounting practices and procedures of the National Association of Insurance Commissioners ("the NAIC") as prescribed or permitted by the Insurance Department of the State of Michigan. Prescribed statutory accounting practices include state laws, regulations, and general administrative rules, as well as a variety of publications of the NAIC. Permitted statutory accounting practices encompass all accounting practices that are not prescribed; such practices differ from state to state, may differ from company to company within a state, and may change in the future. The Company currently does not follow any permitted accounting practices. These statutory accounting practices are considered to be generally accepted accounting principles for wholly-owned subsidiaries of mutual life and accident health insurance companies. In April, 1993, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 40 - Applicability of Generally Accepted Accounting Principles ("GAAP") to Mutual Life Insurance and Other Enterprises. The Interpretation requires mutual and fraternal life insurers whose financial statements purport to be in conformity with GAAP to follow all applicable guidance from which they are not specifically exempt. This Interpretation is effective for the fiscal years beginning after December 15, 1995 and is to be implemented retroactively with restatement of prior periods. After the effective date of FASB Interpretation No. 40, financial statements prepared on the basis of statutory accounting practices will no longer be described as prepared in conformity with GAAP. As noted above, the Company currently prepares its financial statements on the basis of statutory accounting practices. In January 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 120, Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration Participating Contracts. This Statement extends the requirements of FASB Statements No. 60, Accounting and Reporting by Insurance 6 74 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1995 2. BASIS OF ACCOUNTING (cont'd) Enterprises; No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments; and No. 113, Accounting and Reporting for Reinsurance of Short- Duration and Long-Duration Contracts, to mutual life insurance enterprises. Also, in January 1995, the AICPA issued Statement of Position 95-1, Accounting for Certain Insurance Activities of Mutual Life Insurance Enterprises. This Statement of Position (SOP) provides accounting guidance for certain participating insurance contracts of mutual life insurance enterprises. Both Statement No. 120 and SOP 95-1 are effective for financial statements issued for fiscal years beginning after December 15, 1995. The Company has not yet determined the effects of these pronouncements on its financial statements. A summary of the significant accounting practices employed by the Company is as follows: [a] Assets included in the balance sheets are "admitted assets" as defined by regulatory authorities. [b] Bonds are carried at values prescribed by the NAIC which is generally amortized cost. Mortgage loans are carried at amortized cost less principal repayments. Real estate is carried at the lower of current market value or cost less depreciation, which is computed on the straight line basis over the estimated useful lives of the properties. Common stocks are carried at fair value. Gains and losses resulting from sales of investment securities are recognized using an average cost basis. Investments in subsidiaries, affiliates and partnerships are accounted for using the equity method. [c] Policy loans are carried at their unpaid balance and are fully secured by the cash surrender value of the policies on which the respective loans are made. [d] Actuarial reserves represent the amount required, in addition to future premiums, annuity considerations and interest, to provide for future payments under insurance and annuity contracts. Reserves for life insurance contracts are determined on a CRVM basis using primarily the 1941 and 1958 CSO mortality table, with assumed interest rates ranging from 2% to 4 1/2%. Reserves for annuity contracts are determined on the net level premium method using primarily the Group Annuity Mortality tables for 1971 and 1983 and the 1971 Individual Annuity Mortality and the 1983"A" mortality tables with interest rates ranging from 5% to 11 1/4%. Reserves for individual accumulation annuities are calculated in accordance with the Commissioners Annuity Valuation Reserve Method (CARVM) with interest rates ranging from 3.5% to 6.75%. Reserves for deposit administration funds are based on accepted actuarial methods at various interest rates ranging from 7% to 10%. 7 75 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1995 2. BASIS OF ACCOUNTING (cont'd) Changes in actuarial reserves due to changes in valuation assumptions are charged or credited directly to unassigned surplus. [e] Certain acquisition costs, such as reinsurance allowances and other costs incurred in connection with new policies, are charged to operations in the year incurred. [f] Premiums and annuity considerations paid annually are recorded as income on the policy anniversary date. Premiums and annuity considerations collected on other than an annual basis are included in income as they become receivable. [g] As prescribed by the NAIC, the Company reports an Asset Valuation Reserve (AVR). The AVR is computed in accordance with a prescribed formula and represents a provision for possible fluctuations in the value of bonds, equity securities, mortgage loans, real estate and other changes to invested assets. Changes to the AVR are charged or credited directly to unassigned surplus. [h] As prescribed by the NAIC, the Company reports an Interest Maintenance Reserve (IMR) that represents the net accumulated unamortized realized capital gains and losses attributable to changes in the general level of interest rates on sales of fixed income investments, principally bonds and mortgage loans. Such gains or losses are amortized into income on a straight-line basis over the remaining period to maturity based on groupings of individual securities sold in five-year bands. [i] Realized capital gains and losses for other investments, net of any applicable capital gains tax or benefits, are reflected in the statements of operations. Unrealized capital gains and losses are reflected as a direct credit or charge to the surplus or deficit of the Company. [j] Income taxes are provided based on an estimate of the amount currently payable which may not bear a normal relationship to pre-tax income because of timing and other differences in the calculation of taxable income. [k] Separate accounts are maintained to receive and invest premium payments under both individual and group variable annuity policies issued by the Company. The assets and liabilities of the separate accounts are clearly identifiable and distinguishable from other assets and liabilities of the Company, and the contract holder bears the investment risk. Separate account assets are reported at fair value. The operations of the separate accounts are not included in the accompanying financial statements. [l] For the purposes of the statements of cash flows, cash refers to demand deposits with banks and other financial institutions. 8 76 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1995 2. BASIS OF ACCOUNTING (cont'd) [m] Company utilizes derivative instruments where appropriate in the management of its asset/liability matching and to hedge against fluctuations in interest 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. Interest rate swaps are an off balance sheet item with income being reported as other income and expense. [n] The preparation of statutory-basis financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. [o] Certain amounts in the accompanying financial statements for 1994 have been reclassified to conform with 1995 financial statement presentation. [p] The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and interest-bearing deposits, short-term investments and policy loans: The carrying amounts reported in the balance sheets for these items approximate their fair values. Investment securities: Fair values for investment securities are based on quoted market prices, where available. For securities not actively traded, fair values are estimated using values obtained from independent pricing services or, in the case of private placements, are estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments. Mortgage loans: The fair values for mortgage loans are estimated based on discounted cash flow analyses, using interest rates currently being offered for similar loans to borrowers. Derivative Instruments: Fair values for the Company's interest rate futures contracts, swaps and bond options that have not settled are based on current settlement values. Investment contracts: Fair values for the Company's 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. The carrying amount and fair value of the Company's liabilities for investment-type insurance contracts (included with actuarial reserves liability in the balance sheet) at December 31, 1995 are as follows: CARRYING AMOUNT FAIR VALUE --------------- ---------- [in thousands of dollars] Investment contracts $529,124 $584,696 -------- -------- 9 77 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1995 3.INVESTMENTS [a] Additional information with respect to net investment income is as follows:
YEAR ENDED DECEMBER 31 1995 1994 1993 - ---------------------------------------------------------------------------------- [in thousands of dollars] Interest and dividends on fixed maturities $ 97,097 $ 91,310 $ 84,587 Interest on derivatives 522 1,118 0 Income on real estate 572 99 30 Dividends on equity securities 2,091 1,158 1,049 Amortization of IMR 980 1,293 868 Interest on: Mortgage loans 86,540 79,701 84,955 Policy loans 370 674 720 Short-term investments 3,362 1,410 351 Other income (14) 292 302 - ---------------------------------------------------------------------------------- 191,520 177,055 172,862 Less: investment expenses 3,445 3,364 3,447 Less: depreciation on real estate 176 135 166 - ---------------------------------------------------------------------------------- NET INVESTMENT INCOME $187,899 $173,566 $169,249 ==================================================================================
[b] Summary of realized capital gains (losses):
YEAR ENDED DECEMBER 31 1995 1994 1993 - ------------------------------------------------------------------------------------- [in thousands of dollars] Realized capital gains (losses): Fixed maturities $ 4,915 $ (9,074) $ 1,953 Short term investments 48 (2) 0 Equity securities 3,865 1,005 (346) Mortgage loans (1,965) (8,728) 3,869 Real estate (828) (1,793) (367) Derivative instruments (7,812) 0 0 - ------------------------------------------------------------------------------------- (1,777) (18,592) 5,109 Income tax expense (2,661) 3,006 (1,858) Transfer to interest maintenance reserve 1,852 5,063 (7,796) - ------------------------------------------------------------------------------------- NET REALIZED CAPITAL GAINS (LOSSES) $(2,586) $(10,523) $(4,545) =====================================================================================
Proceeds from sales and maturities of fixed maturity investments for the years ended December 31, 1995, 1994, and 1993 were $287,100,000, $372,374,000 and $198,573,000, respectively. Gross gains of $5,626,000, $5,923,000 and $7,089,000, and gross losses of $711,000, $14,997,000 and $5,136,000, respectively, were realized on those sales for the years ended December 31, 1995, 1994 and1993. 10 78 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1995 3.INVESTMENTS (cont'd) [c] The amortized cost, carrying value, gross unrealized gains, gross unrealized losses and fair values of fixed maturity investments by security type are as follows:
DECEMBER 31, 1995 ----------------- GROSS GROSS AMORTIZED CARRYING UNREALIZED UNREALIZED COST VALUE GAINS LOSSES FAIR VALUE - ------------------------------------------------------------------------------------------------------- [in thousands of dollars] United States Government agencies and authorities $ 476,868 $ 476,868 $61,672 $ (640) $ 537,900 States, municipalities, and other political subdivisions 2,568 2,568 207 0 2,775 Foreign governments 1,375 1,375 0 0 1,375 Public utilities 102,300 100,758 2,687 (827) 102,618 Mortgage-backed securities 136,954 136,954 0 0 136,954 All other corporate bonds 522,322 519,325 7,318 (225) 526,418 - ----------------------------------------------------------------------------------------------------- TOTAL FIXED MATURITIES $1,242,387 $1,237,848 $71,884 $(1,692) $1,308,040 =====================================================================================================
DECEMBER 31, 1994 ----------------- GROSS GROSS AMORTIZED CARRYING UNREALIZED UNREALIZED COST VALUE GAINS LOSSES FAIR VALUE - ------------------------------------------------------------------------------------------------------- (in thousands of dollars] United States Government agencies and authorities $ 489,916 $ 489,916 $1,490 $(19,464) $ 471,942 States, municipalities, and other political subdivisions 2,903 2,903 0 (30) 2,873 Foreign governments 3,787 3,787 0 (71) 3,716 Public utilities 104,313 102,758 675 (1,158) 102,275 Mortgage-backed securities 141,468 141,468 0 0 141,468 All other corporate bonds 465,860 463,086 2,288 (2,178) 463,196 - ------------------------------------------------------------------------------------------------------ TOTAL FIXED MATURITIES $1,208,247 $1,203,918 $4,453 $(22,901) $1,185,470 ======================================================================================================
11 79 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1995 3. INVESTMENTS (cont'd) Differences between the amortized cost and carrying value for fixed maturity securities are due to the NAIC statutory requirement for fixed maturity securities in default that the carrying value be set at the lower of amortized cost or fair value. Unrealized gains and losses on fixed maturities are based on NAIC required fair values. For the years ended December 31, 1995, 1994 and 1993, there were changes in net unrealized gains and losses on fixed maturities of $88,640,000, $(63,074,000) and $28,300,000 respectively. These unrealized gains and losses are not reflected in the accompanying financial statements. The Company's investment policy, generally, is to hold fixed maturity investments until maturity. However, under certain circumstances where there are changes in the business or financial fundamentals, individual securities may be liquidated prior to maturity. [d] The carrying value and the NAIC fair value of fixed maturity investments by maturity date are shown below. Mortgage-backed securities were included in the various categories in accordance with their scheduled maturity table.
DECEMBER 31, 1995 ----------------- CARRYING FAIR VALUE VALUE - --------------------------------------------------------------------------- [in thousands of dollars] 1 year or less $ 155,189 $ 155,752 Over 1 year through 5 years 309,225 314,066 Over 5 years through 10 years 176,146 180,383 Over 10 years 597,288 657,839 - --------------------------------------------------------------------------- $1,237,848 $1,308,040 ===========================================================================
[e] Unrealized capital gains and losses, resulting from carrying marketable equity securities at fair value in the accompanying financial statements, are recorded directly in surplus. The changes in the unrealized gains (losses) on marketable equity securities were $(397,000), $(902,000) and $1,176,000 for the years ended December 31, 1995, 1994 and 1993, respectively. The accumulated gross unrealized gains and accumulated gross unrealized losses on marketable equity securities were as follows:
1995 1994 1993 - ------------------------------------------------------------------------------ [in thousands of dollars] Gross unrealized gains $2,607 $3,505 $4,227 Gross unrealized losses (237) (738) (558) - ------------------------------------------------------------------------------ Net unrealized gains $2,370 $2,767 $3,669 ==============================================================================
12 80 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1995 3. INVESTMENTS (cont'd) [f] The carrying value and fair value of the Company's investments in mortgage loans and policy loans were as follows at December 31, 1995.
CARRYING FAIR VALUE VALUE - ------------------------------------------------------------------------- [in thousands of dollars] Commercial mortgages $518,773 $ 581,563 Residential mortgages 392,460 443,198 Write-downs on mortgage loans (11,732) 0 - ------------------------------------------------------------------------- $899,501 $1,024,761 - ------------------------------------------------------------------------- Policy loans $ 12,285 $ 12,285 =========================================================================
The Company's distribution of mortgage loans by property type and by the ten most significant states follows:
DECEMBER 31, 1995 - ------------------------------------------------------------------------ AMOUNT PERCENT - ------------------------------------------------------------------------ [in thousands of dollars] PROPERTY TYPE Residential $392,460 43.6% Retail 243,453 27.1% General office buildings 111,765 12.4% Industrial and warehouse 110,305 12.3% Other 53,250 5.9% Write-downs on mortgage loans (11,732) -1.3% - ------------------------------------------------------------------------ Total $899,501 100.0% - ------------------------------------------------------------------------
December 31, 1995 - ------------------------------------------------------------------------ AMOUNT PERCENT - ------------------------------------------------------------------------ STATE California $167,120 18.6% Pennsylvania 108,417 12.1% New York 105,282 11.7% Ohio 96,624 10.7% Michigan 86,679 9.6% Illinois 66,920 7.4% New Jersey 43,696 4.9% Oregon 36,513 4.1% Nevada 35,172 3.9% Maryland 28,307 3.1% Other 136,503 15.2% Write-downs on mortgage loans (11,732) -1.3% - ----------------------------------------------------------------------- Total $899,501 100.0% =======================================================================
13 81 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1995 3.INVESTMENTS (cont'd) The mortgage loans are typically collateralized by the related properties, and the loan to value ratios at the date of loan origination generally do not exceed 75%. The Company's exposure to credit loss in the event of non-performance by the borrowers, assuming that the associated collateral proved to be of no value, is represented by the outstanding principal and accrued interest balances of the respective loans. During 1995, the mortgage loan reserve was increased by $7,119,000 and $3,906,000 was charged against it. Accumulated depreciation on investment real estate was $392,000 and $273,000 as of December 31, 1995 and 1994, respectively. No investment in any persons or their affiliates exceeded 10% of capital and surplus as of December 31, 1995 and 1994. The maximum and minimum lending rates for commercial mortgage loans during 1995 was 9.875% and 7.750%, respectively. Fire insurance is required on all properties covered by mortgage loans at least equal to the excess of the loan over the maximum loan which would be permitted by law without the buildings. At December 31, 1995 the Company held mortgages with a carrying value of $17,875,002 on which interest of $1,361,140 was more than one year overdue. During 1995, the Company did not reduce interest rates on any outstanding mortgage loans. At December 31, 1995 the Company had no mortgage loans that were converted to loans that require payments of principal or interest be made based upon the cash flows generated by the property serving as collateral for the loans or that have a diminutive payment requirement. At December 31, 1995 the Company had no outstanding amounts which had been advanced for mortgage loans. At December 31, 1995 the Company held $3,472,786 in mortgages with prior outstanding liens. [g] The following tables represent a summary of investments held as of December 31, 1995 and 1994.
DECEMBER 31, 1995 ------------------------------------------- COST OR AMORTIZED FAIR CARRYING COST VALUE VALUE - ----------------------------------------------------------------------------- [in thousands of dollars] Fixed maturities[note 3[c]] $1,242,387 $1,308,040 $1,237,848 Common stocks 7,580 9,950 9,950 Real estate 8,908 8,308 8,308 Mortgage loans on real estate 911,232 1,024,761 899,501 Policy loans 12,285 12,285 12,285 Other long-term investments 2,457 2,457 2,457 Short-term investments 45,985 45,985 45,985 - ----------------------------------------------------------------------------- TOTAL INVESTMENTS $2,230,834 $2,411,786 $2,216,334 =============================================================================
14 82 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1995 3.INVESTMENTS (cont'd)
DECEMBER 31, 1994 --------------------------------------------- COST OR AMORTIZED FAIR CARRYING COST VALUE VALUE - ---------------------------------------------------------------------------- [in thousands of dollars] Fixed maturities [note 3[c]] $1,208,247 $1,185,470 $1,203,918 Common stocks 17,273 20,040 20,040 Real estate 12,617 10,362 10,362 Mortgage loans on real estate 835,358 825,208 826,840 Policy loans 13,168 13,168 13,168 Other long-term investments 3,253 3,253 3,253 Short-term investments 61,379 61,379 61,379 - ---------------------------------------------------------------------------- TOTAL INVESTMENTS $2,151,295 $2,118,880 $2,138,960 ============================================================================
(h] The following table presents the fair value for the Company's derivative instruments:
YEARS ENDED DECEMBER 31 1995 1994 - -------------------------------------------------------------------------- [in thousands of dollars] Interest rate futures $ 609 $1,142 Bond options 0 85 Interest rate swaps 5,025 2,044
4. FEDERAL INCOME TAXES As of December 31, 1995 and 1994, the federal income taxes receivable were $3,470,000 and $3,365,000, respectively. During 1995, 1994 and 1993, the Company made cash payments on behalf of federal income taxes of $4,225,000, $4,802,000 and $13,486,000, respectively. 15 83 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1995 4.FEDERAL INCOME TAXES (cont'd) The statutory federal income tax provision amount at the statutory rate of 35% for 1993, 1994 and 1995 differs from the effective tax provision amount as follows:
YEARS ENDED DECEMBER 31 1995 1994 1993 - ------------------------------------------------------------------------------------------------------- [in thousands of dollars] Computed income taxes at statutory rate $9,466 $5,569 $ 9,994 Increase (decrease) in income taxes resulting from: Policyholder dividends 5 (120) (76) Deferred reinsurance commissions net of amortization (46) (247) (620) Amortization of interest maintenance reserve (343) (453) (304) Income tax (over)/under provision (1,257) (1,932) 7 Amortization of prior year change in reserves (206) (207) (207) Discount accrual (700) (889) (630) Reserve differences 711 4,305 5,250 Deferred acquisition cost tax (14) 158 (88) Bad debt on mortgages (688) (3,055) 0 Losses on options (25) 0 0 Futures losses (2,640) 0 0 Mortgage prepayment penalties (556) 0 0 Other 128 (492) 87 - ------------------------------------------------------------------------------------------------------- $3,835 $2,637 $ 3,413 =======================================================================================================
5. ACTUARIAL RESERVES All policies, except variable annuities, were acquired through coinsurance reinsurance agreements. The reserves established meet the requirements of the Insurance Law and regulation of the State of Michigan. Withdrawal characteristics of annuity actuarial reserves and deposit liabilities as at December 31, 1995 are as follows:
AMOUNT % OF TOTAL ------ ---------- Subject to discretionary withdrawal with adjustment -with market value adjustment $ 126,532,317 5.9% -at book value less surrender charge 173,864,791 8.3% -------------- ------ Subtotal 300,397,108 14.2% Subject to discretionary withdrawal without adjustment -at book value (minimal or no charge adjustment) 223,334,437 10.6% Not subject to discretionary withdrawal provision 1,587,239,570 75.2% -------------- ------ Total annuity actuarial reserves and deposit fund liabilities (gross) 2,110,971,115 100.0% ----- Less: reinsurance 0 -------------- Total annuity actuarial reserves and deposit fund liabilities (net) $2,110,971,115 ==============
16 84 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1995 5. ACTUARIAL RESERVES (cont'd) In March 1995 the NAIC adopted Actuarial Guideline 33 (AG 33) which codified the basic interpretation of CARVM and applies to all individual annuities issued on or after January 1, 1981. The effective date of AG 33 was December 31, 1995. AG 33 required that the reserve held be the greatest actuarial present value of any possible future cash value or other benefit. A three year phase-in period was allowed to recognize any reserve increase as a result of implementation of AG 33. The Company implemented AG 33 effective December 31, 1995, and recognized in 1995 an expense of $4,477,000 for additional current reserves and a decrease in surplus of $6,523,000 for the cumulative effect on reserves for prior years. The Company anticipates it will recognize an additional decrease in surplus of $1,590,000 in 1996 to complete the phase in of AG 33. 6. POLICYHOLDER DIVIDENDS The insurance business of the Company is comprised entirely of business reinsured from the Parent which represents 100% of both the ordinary insurance in force and the insurance premium income of the Company. Policyholder dividends represent amounts reimbursed to the Parent on behalf of the participating business reinsured by the Company. 7. RELATED PARTY TRANSACTIONS REINSURANCE The Company has entered into coinsurance agreements with its Parent. The effect of the agreements is to have the Company assume certain existing and future insurance and annuity business of the Parent. Except for variable annuity contracts issued, all premiums for insurance and annuity considerations and benefit expenses recorded for the years ended December 31, 1995, 1994, and 1993 were the result of the coinsurance agreements. As of December 31, 1995, 1994, and 1993, $3,342,280, $(4,466,448), and $1,171,397 respectively, were receivable (payable) from (to) the Parent under the agreements. As of December 31, 1995, 1994 and 1993, the Company has assumed $52,753,000, $55,870,000, and $59,314,000 of life insurance in force from the Parent. ASSET SALE During 1993, $135,492,000 of mortgages were sold to the Parent in order to comply with new Florida regulations concerning the limitation on mortgage investments as a percentage of total admitted assets of the Company. The mortgages were sold at market value and a net gain of $6,100,000 was realized on the transactions. The entire gain net of tax was transferred to the IMR. OTHER In addition to the coinsurance agreements mentioned above, the Company has a service agreement with its Parent. This agreement requires the Parent to perform various administrative and other services for the Company and its subsidiaries. For the years ended December 31, 1995, 1994 and 1993, the cost of these services amounted to $7,686,114, $4,519,609, and $6,152,491, respectively. 17 85 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1995 7. RELATED PARTY TRANSACTIONS (cont'd) As of December 31, 1995 and 1994, the amounts receivable and payable to its Parent and affiliates, which include the above reinsurance amounts as well as outstanding administrative expenses, are as follows:
DECEMBER 31 1995 1994 - ----------------------------------------------------------------------------------------------- [in thousands of dollars] Payable: Canada Life Assurance Company $6,320 $6,420 Receivable: CL Capital Management, Inc. 156 0 Canada Life of America Investment Management, Inc. 0 14 Canada Life of America Series Fund, Inc. 49 40 - ----------------------------------------------------------------------------------------------- $6,115 $6,366 - -----------------------------------------------------------------------------------------------
SEPARATE ACCOUNTS The Company's non-guaranteed separate variable accounts represent primarily funds invested in variable annuity policies issued by the Company. The assets of these funds are invested in either shares of Canada Life of America Series Fund, Inc., an affiliated, diversified, open-ended management investment company, shares of two unaffiliated management investment companies, or in funds managed by CL Capital Management, Inc., an investment management subsidiary. Information regarding the Separate Accounts of the Company is as follows:
YEARS ENDED DECEMBER 31 1995 1994 - --------------------------------------------------------------------------------------------------- [in thousands of dollars] Premiums, considerations, or deposits received $111,252 $17,877 Reserves, subject to discretionary withdrawal $264,143 $35,588 Reserves, not subject to withdrawal 0 0
ACQUISITIONS The Company acquired on January 1, 1995 all of the outstanding stock of CL Capital Management, Inc., (CLCM) for an adjusted purchase price of $187,649. The acquisition was accounted for using the equity method and the Company recognized a $124,934 charge to surplus for the premium over the fair value of the stock acquired. On April 30, 1995 the Company contributed its wholly-owned investment management subsidiary, Canada Life of America Investment Management, Inc., to CLCM in exchange for 5,000 shares of CLCM preferred stock. On September 1, 1995, the Company acquired a block of separate account business containing assets and liabilities of $142,661,940 for $100,000. As part of the transaction, the Company invested $6,613,851 in seed money in the separate account funds acquired. 18 86 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1995 8. CAPITAL STOCK The Company has two classes of capital stock: redeemable preferred stock ($10.00 par value) and common stock ($10.00 par value), ranked in order of liquidation preference. The preferred shares have no interest rate assigned, are non-voting and are redeemable by the Company at any time at a redemption price of $10.00 per share. 9. MINIMUM CAPITAL AND SURPLUS AND OTHER REGULATORY REQUIREMENTS Under applicable Michigan Insurance Law, the Company is required to maintain a minimum capital of $1,000,000 and initial surplus of $500,000. The Company's capital and surplus exceeds the NAIC's "Risk Based Capital" requirement at the end of 1995. Also, the Company is subject to insurance regulatory restrictions that stipulate that shareholder cash dividends may only be paid from its surplus earnings. In accordance with statutory requirements, bonds carried at a value of $4,587,000 and $4,610,000 were on deposit with insurance regulatory authorities at December 31, 1995 and 1994, respectively. 10. DERIVATIVE INSTRUMENTS The Company is party to various derivative instruments used to hedge specific asset and liability interest rate risks. Management actively monitors the use and level of these instruments to ensure that credit and liquidity risks are maintained within pre-approved levels. Interest rate swaps are an off balance sheet item while options are valued at amortized cost. Futures are valued at initial margin deposit adjusted for unrealized gains and losses. The notional amounts and the carrying amounts of outstanding derivative instruments are as follows:
NOTIONAL CARRYING AMOUNT AMOUNT DECEMBER 31 DECEMBER 31 1995 1994 1995 1994 ---------------------------------------------------- [in thousands of dollars] (in thousands of dollars] Interest rate swaps $15,000 $15,000 $ 0 $ 0 Futures (government bonds) 27,200 32,500 609 1,142 Options (government bonds) 0 3,000 0 70 ---------------------------------------------------- Total $42,200 $50,500 $609 $1,212 ====================================================
The Company's involvement in derivative instruments may also subject it to market risk which is associated with adverse movements in the underlying interest rates, equity prices and commodity prices. Since the Company's investment in derivative instruments is confined to hedging activities, market risk is minimal. 19 87 PART C OTHER INFORMATION 88 PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) Financial Statements All required financial statements are included in Part B of this Registration Statement. (b) Exhibits (1) Resolution of the Board of Directors of Canada Life Insurance Company of America (CLICA) authorizing establishment of Variable Account 2* (2) Not applicable (3) (a) Form of Promotional Agent Distribution Agreement*** (b) Form of Selling Agreement*** (c) Distribution Agreement**** (d) Amendment to Distribution Agreement (4) (a) Form of Annuity Policy (b) Riders and Endorsements (5) Form of Application (6) (a) Certificate of Incorporation of CLICA** (b) By-Laws of CLICA** (7) Not applicable (8) Form of Buy-Sell Agreement*** (9) Opinion and Consent of Counsel*** (10) (a) Consent of Counsel (b) Consent of Independent Counsel (c) Consent of Independent Auditors (11) Not Applicable (12) Not Applicable (13) Not Applicable - -------------------- * Incorporated herein by reference to the initial filing of the Registration Statement on Form N-4 for Variable Account 2 of Canada Life Insurance Company of America (File No. 33-55890) made on December 18, 1992. ** Incorporated herein by reference to the initial filing of the Registration Statement on Form N-4 for Variable Annuity Account 1 of Canada Life Insurance Company of America (File No. 33-28889) filed May 31, 1989. *** Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4 for Variable Account 2 of Canada Life Insurance Company of America (File No. 33-55890) made on April 9, 1993. **** Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4 for Variable Account 1 of Canada Life Insurance Company of America (File No. 33-28889) filed September 5, 1989. 89 Item 25. Directors and Officers of the Depositor
Name and Principal Business Address Positions and Offices with Depositor ------------------ ------------------------------------ D. A. Nield (1) Chairman & Director D. A. Loney (2) President & Director G. E. Hughes (2) Agency Vice President W. S. McIlwaine (2) Group Sales Vice-President F. D'Ambra (2) Annuity & Investment Products Vice-President D. D. Myers (2) Accounting Officer P. D. Cochrane (1) Administrative Officer M. L. Craft (2) Administrative Officer K. T. Ledwos (2) Actuary & Director S. Benedetti Marketing Actuary J. G. Deskins Marketing Actuary M. G. Libenson Internal Auditor R. W. Linden (1) Secretary D. A. Hopkins (2) Assistant Secretary D. M. Cooper (1) Treasurer D. V. Rough (1) Assistant Treasurer E. P. Ovsenny (1) Assistant Treasurer D. N. Rattray (1) Assistant Treasurer G. N. Isaac (1) Assistant Treasurer B. J. Lynch (1) Assistant Treasurer M. V. Sim (1) Assistant Treasurer K. J. J. Fillman (2) Product Manager Investment Management Services J. H. Ruess (1) Director S. H. Zimmerman (3) Director
------------------------- (1) The business address is 330 University Avenue, Toronto, Ontario, Canada M5G 1R8. (2) The business address is 6201 Powers Ferry Road, NW, Suite 600, Atlanta, Georgia 30339. (3) The business address is 800 Michigan National Tower, Lansing, Michigan 48933. Item 26. Persons Controlled by or Under Common Control With the Depositor or Registrant
PERCENT OF VOTING SECURITIES PRINCIPAL NAME JURISDICTION OWNED BUSINESS ---- ------------ ----- -------- The Canada Life Assurance Canada Mutual Company Life Insurance and Health Company Canada Life Insurance New York Ownership of voting securities Life Insurance Company of New York through Canada Life Adason Properties Limited Canada Ownership of all voting securities Property Management through Canada Life The Canada Life Assurance England Ownership of all voting securities Life Insurance Company of Great Britain through Canada Life Canada Life Unit Trust England Ownership of all voting securities Unit Trust Management Managers Limited through Canada Life of Great Britain
90 Canada Life Mortgage Canada Ownership of all voting securities Mortgage Portfolios Services Ltd. through Canada life Management Canada Life Data Services Canada Ownership of all voting securities Data Support Services Limited through Canada Life The CLGB Property Company England Ownership of all voting securities Property Management Limited through Canada Life of Great Britain CLASSO Benefit Services Canada Ownership of all voting securities Administrative Services Limited through Canada Life Canada Life Casualty Canada Ownership of all voting securities Property and Casualty Insurance Company through Canada Life Insurance Canada Life Investment Canada Ownership of all voting securities Investment Counseling Management Limited through Canada Life Sherway Centre Limited Canada Ownership of all voting securities Property Management Limited through Canada Life The Canada Life Assurance Rep. of Ireland Ownership of all voting securities Life Insurance Company of Ireland Limited through Canada Life of Great Britain Canlife - IBI Investment Rep. of Ireland Ownership of 50% of voting Equity Fund Management Services Limited securities through Canada Life of Ireland Limited and 50% by the Investment Bank of Ireland Canada Life Financial England Ownership of all voting securities Unit Fund Sales and Services Company Limited through Canada Life of Great Britain Management Canada Life Financial Rep. of Ireland Ownership of all voting securities Unit Fund Sales and Services Company of Ireland through Canada Life of Ireland Management Limited 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 Realtor 100% of the convertible preference shares are owned by Canada Life Canada Life Pension & Rep. of Ireland Ownership of all voting securities Unit Trust Annuities (Ireland) Limited through Canada Life Assurance (Ireland) Limited CLAI Limited Rep. of Ireland Ownership of all voting securities Holding Company through Canada Life of Great Britain The Canada Life Assurance Rep. of Ireland Ownership of all voting securities Life Insurance Company of Ireland Limited through CLAI Limited CL Capital Management, Inc. Georgia Ownership of all voting securities Investment Management through CLICA
91 Item 27. Number of Policy Owners As of December 31, 1995 there were 1,435 owners of Nonqualified Policies and 956 owners of Qualified Policies. Item 28. Indemnification* Item 29. Principal Underwriter* Item 30. Location of Accounts and Records All accounts and records required to be maintained by Section 31(a) of the 1940 Act and the rules under it are maintained by CLICA at its Executive Office at 330 University Avenue, Toronto, Ontario M5G 1R8 and 6201 Powers Ferry Road, N.W., Suite 600, Atlanta, Georgia 30339 Item 31. Management Services All management contract are discussed in Part A or Part B. Item 32. Undertakings***** STATEMENT PURSUANT TO RULE 6c-7 CLICA and the Variable Account rely on 17 C.F.R., Section 270.6c-7 and represent that the provisions of that Rule have been or will be complied with. Accordingly, CLICA and the Variable Account 2 are exempt from the provisions of Section 22(e), 27(c)(1) and 27(d) of the Investment Company Act of 1940 with respect to any variable annuity contract participating in such account to the extent necessary to permit compliance with the Texas Optional Retirement Program. - ------------------------------- * Incorporated herein by reference to the Pre-Effective Amendment No. 1 of this Form N-4 Registration Statement filed (File No. 33-28889) on September 5, 1989. ***** Incorporated herein by reference to Pre-Effective Amendment No. 2 to the Registration Statement on Form N-4 for Variable Account 2 of Canada Life Insurance Company of America (File No. 33-55890) filed on April 28, 1993. 92 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 6 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Toronto, and the Province of Ontario on the 24th day of April, 1996. CANADA LIFE INSURANCE COMPANY OF AMERICA VARIABLE ANNUITY ACCOUNT 2 By /s/ D. A. Loney ---------------------------------------------- D. A. Loney, President Canada Life Insurance Company of America CANADA LIFE INSURANCE COMPANY OF AMERICA By /s/ D. A. Loney ---------------------------------------------- D. A. Loney, President As required by the Securities Act of 1933, this Post-Effective Amendment Number 6 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 04/24/96 - ------------------------------- ------------ D. A. Nield /s/ D. A. Loney President and Director 04/24/96 - ------------------------------- ------------ D. A. Loney /s/ K. T. Ledwos Director 04/24/96 - ------------------------------- ------------ K. T. Ledwos /s/ J. H. Ruess Director 04/24/96 - ------------------------------- ------------ J. H. Ruess /s/ S. H. Zimmerman Director 04/24/96 - ------------------------------- ------------ S. H. Zimmerman /s/ D. M. Cooper Treasurer 04/24/96 - ------------------------------- ------------ D. M. Cooper /s/ D. D. Myers Accounting Officer 04/24/96 - ------------------------------- ------------ D. D. Myers
93 EXHIBIT INDEX
Exhibit Number Description of Exhibit -------------- ---------------------- 4 (a) Form of Annuity 4 (b) Riders and Endorsements 5 Form of Application 10 (a) Consent of Counsel 10 (b) Consent of Independent Counsel 10 (c) Consent of Independent Auditors
EX-4.A 2 FORM OF ANNUITY POLICY 1 Exhibit 4 (a) Form of Annuity Policy 2 CANADA LIFE INSURANCE COMPANY OF AMERICA LANSING, MICHIGAN ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD, N.W. ATLANTA, GA 30339 MAILING ADDRESS: P.O. BOX 105662 ATLANTA, GA 30348-5662 If you have any questions or complaints about this policy, you may call us toll free at 1-800-905-1959. We are pleased to issue this policy to you. We agree to pay the proceeds as described in this policy, subject to its provisions. PLEASE READ THIS POLICY CAREFULLY, SINCE IT IS A LEGAL CONTRACT BETWEEN YOU AND US. THE DOLLAR AMOUNTS OF ACCUMULATION BENEFITS AND VALUES OF THIS POLICY PROVIDED BY THE VARIABLE ACCOUNT MAY INCREASE OR DECREASE DAILY, DEPENDING ON THE INVESTMENT PERFORMANCE OF THE PORTFOLIO OF THE FUND IN WHICH YOUR ELECTED SUB-ACCOUNTS ARE INVESTED, AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNTS. NO MINIMUM AMOUNT OF POLICY VALUE IS GUARANTEED, EXCEPT FOR ANY AMOUNTS IN THE FIXED ACCOUNT. TEN DAY RIGHT TO EXAMINE POLICY YOU HAVE TEN DAYS AFTER YOU RECEIVE THIS POLICY TO DECIDE IF IT MEETS YOUR NEEDS. IF IT DOES NOT, YOU MAY RETURN IT TO OUR ADMINISTRATIVE OFFICE OR TO THE AGENT FROM WHOM YOU BOUGHT IT. WE SHALL CANCEL THE POLICY FROM THE POLICY DATE AND PROMPTLY RETURN THE POLICY VALUE. FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY Flexible premiums as stated in the Additional Premiums Provision. Accumulation benefits and values are variable, except for amounts in the Fixed Account. After the Annuity Date or Maturity Date, payment options are on a guaranteed basis. Death Benefit payable upon death of the last surviving annuitant before the Annuity Date or Maturity Date. Nonparticipating - Not eligible for dividends 3 TABLE OF CONTENTS POLICY DETAILS 3 DEFINITIONS 4 PAYMENT OF PROCEEDS Proceeds 4 Proceeds On Annuity Date 4 Proceeds On Maturity Date 4 Proceeds On Surrender 5 Proceeds On Death Of Last Surviving Annuitant Before Annuity Date Or Maturity Date (The Death Benefit) 5 Proceeds On Death Of Any Owner Before or After Annuity Date Or Before Maturity Date 5 Interest On Proceeds 6 Conformity With Laws 6 PREMIUMS Initial Premium 6 Additional Premiums 6 Net Premium 7 Net Premium Allocation Among Sub-Accounts And Fixed Account 7 THE VARIABLE ACCOUNT Variable Account 7 Sub-Accounts 7 Variable Account Value 7 Units 8 Unit Value 8 Net Investment Factor 8 Reserved Rights 9 Change in Investment Policy 9 Valuation Periods and Valuation Days 9 THE FIXED ACCOUNT Fixed Account 10 Fixed Account Value 10 TRANSFERS Transfer Privilege 10 Restrictions on Transfers From Fixed Account 11 Transfer Processing Fee 11 POLICY VALUES Policy Value 11 Cash Surrender Value 11 Partial Withdrawals 11 Surrender Charges 12 Waiver of Surrender Charges 13
Page 2 4 TABLE OF CONTENTS (CONTINUED) Policy Administration Charge 13 Annuity Date 13 Termination 14 Basis of Values 14 PAYMENT OF BENEFITS, PARTIAL WITHDRAWALS, CASH SURRENDERS & TRANSFERS - POSTPONEMENT 14 GENERAL PROVISIONS Contract 15 Incontestability 15 Owner 15 Beneficiary 15 Written Notice 16 Misstatement of Age 16 Periodic Reports 16 Assignment 16 Our Consent 17 Policy Date 17 Effective Date 17 Currency 17 Place of Payment 17 Modification 17 Nonparticipation 17 PAYMENT OPTIONS Election of Payment Options 18 Payment Dates 18 Age and Survival of Payee 18 Death of Payee 18 Table of Payments 19
Page 2A 5 DEFINITIONS - ------------------------------------------------------------------------------- "You" and "your" means the owner(s) of the policy. "We", "our" and "us" means Canada Life Insurance Company of America. "Written notice" is defined in the "WRITTEN NOTICE" provision. "Annuitant" means any natural person whose life is used to determine the duration of any payments made under a payment option involving life contingencies. "Annuity Date" means the date when the policy value will be applied under Payment Option 1, unless you have elected to receive a lump sum payment of the cash surrender value. The Annuity Date is shown in the Policy Details unless later changed. "Maturity Date" means the first day of the month after any annuitant's 100th birthday or any earlier date required by law. PAYMENT OF PROCEEDS - ------------------------------------------------------------------------------- PROCEEDS Proceeds means the amount we will pay when the first of the following occurs: 1. the policy reaches the annuity date; or 2. the policy reaches the maturity date; or 3. the policy is surrendered; or 4. when we receive due proof of death of the last surviving annuitant or any owner. We will pay any proceeds in a single sum that may be payable due to death before the annuity date or maturity date, unless an election is made for a payment option. See "Election of Options". This policy ends when we pay the proceeds. "Due proof of death" is proof of death that is satisfactory to us. Such proof may consist of: 1) a certified copy of the death certificate; and/or 2) a certified copy of the decree of a court of competent jurisdiction as to the finding of death. We will deduct any applicable premium tax from the proceeds described below, unless we already deducted the tax from the premiums when paid. See the "Net Premium" provision. PROCEEDS ON ANNUITY DATE If you have elected to receive the proceeds under Payment Option 1, we will pay the policy value as described in the "Policy Values" provision. If proceeds are to be paid in a lump sum, we will pay the cash surrender value as described in the "Cash Surrender Value" provision. PROCEEDS ON MATURITY DATE The proceeds we will pay is the policy value. Page 4 6 PROCEEDS ON SURRENDER If you surrender this policy before the annuity date or the maturity date, the proceeds we will pay is the cash surrender value. No death benefit is payable if the policy is surrendered before the last surviving annuitant's death or any owner's death. PROCEEDS ON DEATH OF LAST SURVIVING ANNUITANT BEFORE ANNUITY DATE OR MATURITY DATE (THE DEATH BENEFIT) If we receive due proof of death of the last surviving annuitant before the annuity date or maturity date, (such "due proof"), the proceeds we will pay to the beneficiary is the death benefit. If we receive due proof during the first 5 years, the death benefit is the greater of: 1. the premiums paid, less: a) any partial withdrawals, including applicable surrender charges; and b) any incurred taxes; or 2. the policy value on the date we receive such due proof. If we receive such due proof after the first 5 policy years, the death benefit is the greater of: 1. item "1" above; or 2. item "2" above; or 3. the policy value at the end of the most recent 5 policy year period preceding the date we receive due proof, adjusted for any of the following items that occur after such last 5 policy year period: a) less any partial withdrawals, including applicable surrender charges; b) less any incurred taxes; and c) plus any premiums paid. The 5 policy year periods are measured from the policy date (i.e. 5, 10, 15, 20, 25, etc.) If on the date the policy was issued, all annuitants were attained age 80 or less, then after any annuitant attains age 81, the death benefit is then the greater of "1" or "2" above. However, if on the date the policy was issued, any annuitant was attained age 81 or more, then the death benefit is the policy value. PROCEEDS ON DEATH OF ANY OWNER BEFORE OR AFTER THE ANNUITY DATE OR BEFORE THE MATURITY DATE If you are not the annuitant and we receive due proof of your death before the annuity date or maturity date, we will pay the beneficiary the policy value as of the date we receive due proof of your death. If you are the last surviving annuitant and we receive due proof of your death before the annuity date or maturity date, we will pay the beneficiary the death benefit described in "Proceeds on Death of Last Surviving Annuitant Before Annuity Date or Maturity Date". If you die before the annuity date or maturity date, Federal tax law requires the policy value be distributed within five years after the date of your death regardless of whether or not you are an annuitant, unless your spouse is the designated beneficiary, in which case the policy may be continued with your surviving spouse as the new owner. Your "designated beneficiary" is designated by you as a beneficiary and to whom the benefits of the policy pass by reason of your death. If you die on or after the annuity date or before the maturity date, any remaining payments must be distributed at least as rapidly under the payment option in effect on the date of your death. Page 5 7 The distribution requirements described above will be considered satisfied as to any portion of the proceeds: 1. payable to or for the benefit of a designated beneficiary; and 2. which is distributed over the life (or period not exceeding the life expectancy) of that beneficiary, provided that the beneficiary is a natural person and such distributions begin within one year of your death. If you are not a natural person, the primary annuitant as determined in accordance with Section 72(s) of the Internal Revenue Code will be treated as owner for purposes of these distribution requirements, and any change in the primary annuitant will be treated as the death of the owner. INTEREST ON PROCEEDS We will pay interest on proceeds if we do not pay the proceeds in a single sum or begin paying the proceeds under a payment option: 1. within 30 days after the proceeds become payable; or 2. within the time required by the applicable jurisdiction, if less than 30 days. This interest will accrue from the date the proceeds become payable to the date of payment, but not for more than one year, at an annual rate of 3%, or the rate and time required by law, if greater. CONFORMITY WITH LAWS To the extent this policy conflicts with any applicable laws or the requirements of the Internal Revenue Service concerning distributions on death, this policy shall be considered to be amended to conform. PREMIUMS - -------------------------------------------------------------------------------- INITIAL PREMIUM The initial premium is shown in the Policy Details and is payable on or before the effective date. ADDITIONAL PREMIUMS You may make additional premium payments at any time during any annuitant's lifetime and before the annuity date or maturity date. The amount of additional premium payments may vary, but is subject to these rules: 1. the minimum additional premium that we will accept is $1,000. However, we will accept premium payments under a pre-authorized check agreement with a minimum premium payment of $100 per month ($50 per month if an Individual Retirement Annuity); and 2. 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. A confirmation statement will be issued to you for financial transactions. Page 6 8 NET PREMIUM The net premium is the premium paid less any premium tax, if applicable. NET PREMIUM ALLOCATION AMONG SUB-ACCOUNTS AND FIXED ACCOUNT You elected in your application how you wanted your initial net premium to be allocated among the sub-accounts and the Fixed Account. Any additional net premiums will be allocated in the same manner unless at the time of payment we have received your written notice to the contrary. The total allocation must equal 100%. THE VARIABLE ACCOUNT - ------------------------------------------------------------------------------- VARIABLE ACCOUNT We established the Canada Life Insurance Company of America Variable Annuity Account 2 (called "the Variable Account") as a separate investment account on October 30, 1992, under Michigan law. The Variable Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940. The Variable Account is also subject to the laws of the State of Michigan. 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 assets in the Variable Account are used to support the operation of and provide the variable values and benefits for this policy and similar policies. 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. SUB-ACCOUNTS The Variable Account currently consists of the sub-accounts shown in the current prospectus you received. Each sub-account invests in shares of one portfolio of the Seligman Portfolios, Inc. (the "Fund"). Shares of a portfolio are purchased and redeemed for a sub-account at their net asset value. Any amounts of income, dividends and gains distributed from the shares of a portfolio will be reinvested in additional shares of that portfolio at its net asset value. The Fund prospectus you received defines the net asset value and describes the portfolios of the Fund. The dollar amounts of accumulation values and benefits of this policy provided by the Variable Account depend on the investment performance of the portfolio of the Fund in which your elected sub-accounts are invested. We do not guarantee the investment performance of the portfolios. You bear the full investment risk for amounts applied to the elected sub-accounts. VARIABLE ACCOUNT VALUE The policy Variable Account value before the annuity date or maturity date is determined by multiplying the number of units credited to this policy for each sub-account by the current unit value of these units. Page 7 9 UNITS We will credit net premiums in the form of units. The number of units credited to the policy for each sub-account is determined by dividing the net premium allocated to that sub-account by the unit value for that sub-account at the end of the valuation period during which we receive the premium at our Administration Office. We will credit units for the initial net premium on the effective date of the policy. We will adjust the units for any transfers in or out of a sub-account, including any transfer processing fee. We will cancel the appropriate number of units based on the unit value at the end of the valuation period in which any of the following events occur: 1. the policy administration charge shown in the Policy Details is assessed; 2. the date we receive and process your written notice for a partial withdrawal or surrender; 3. the annuity date or maturity date; or 4. the date we receive due proof of your death or the last surviving annuitant's death. UNIT VALUE The unit value to each sub-account for the first valuation period is set at $10, except the Cash Management Sub-Account which is set at $1. The unit value for each subsequent valuation period is determined by multiplying the unit value at the end of the immediately preceding valuation period by the net investment factor for the valuation period for which the value is being determined. 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 relevant portfolio of the Fund adjusted for the effect of taxes charged or credited to the sub-account, the mortality and expense risk charge and the daily administration fee. The annualized rate of the daily administration fee is shown on the Policy Details. The rate of return of the relevant portfolio is equal to the fraction obtained by dividing (a) by (b) where: (a) is the next 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 series at the end of the preceding valuation period, adjusted for the net capital transactions and dividends declared during the current valuation period. Page 8 10 RESERVED RIGHTS When permitted by law, we reserve the right to: 1. create new variable accounts; 2. combine variable accounts, including the Canada Life Insurance Company of America Variable Annuity Account 2; 3. remove, combine or add sub-accounts and make the new sub-accounts available to policyowners at our discretion; 4. add new portfolios of the Fund or of other registered investment companies; 5. deregister the Variable Account under the Investment Company Act of 1940 if registration is no longer required; 6. make any changes required by the Investment Company Act of 1940; 7. operate the Variable Account as a managed investment company under the Investment Company Act of 1940 or any other form permitted by law; and 8. substitute shares of another portfolio of the Fund or shares of another registered open-end investment company or any other reserved rights as detailed in the prospectus. If a change is made, we will send you a revised prospectus and any notice required by law. CHANGE IN INVESTMENT POLICY The investment policy for a sub-account in the Variable Account may not be changed unless: 1. the change is approved, if required, by the Michigan Insurance Bureau; and 2. a statement of such approval is filed, if required, with the insurance department of the state in which this policy is delivered. VALUATION PERIODS AND VALUATION DAYS A valuation period for each sub-account is the period that starts at the close of business on one valuation day and ends 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. A valuation day is each day on which valuation of the assets is required by applicable law, which currently is each day the New York Stock Exchange is open for trading, except the business day after Thanksgiving and the business day after Christmas, which are days that we may be closed although the New York Stock Exchange may be open for trading. Page 9 11 THE FIXED ACCOUNT - ------------------------------------------------------------------------------- FIXED ACCOUNT Amounts in the Fixed Account are part of our general account. The Fixed Account is not part of and does not depend on the investment performance of the Variable Account. We credit interest to amounts in the Fixed Account at rates we determine. We guarantee the interest rate will not be less than 3% per annum. Each net premium allocated to the Fixed Account will be credited with a specified interest rate which will remain in effect for 12 calendar months. After such 12 month period, the net premium and any earnings accumulated thereon will be credited with the rate of interest currently credited to new monies allocated to the Fixed Account. This means that if you allocate monies to the Fixed Account on a monthly basis, over the course of 12 months, those monies may be credited with 12 different interest rates. We will establish a new interest rate the first business day of each calendar month. FIXED ACCOUNT VALUE This policy's Fixed Account value before the annuity date or maturity date is: 1. the sum of the net premiums allocated to the Fixed Account; plus 2. any amounts transferred to the Fixed Account from a sub-account of the Variable Account; minus 3. any cash surrender value withdrawn or amounts transferred from the Fixed Account; minus 4. any applicable surrender charges; minus 5. any policy administration charge deducted from the amount in the Fixed Account; plus 6. interest credited to the amount in the Fixed Account. TRANSFERS - ------------------------------------------------------------------------------- TRANSFER PRIVILEGE You may transfer all or part of an amount in the sub-account(s) to another sub-account(s) or to the Fixed Account, or transfer a part of an amount in the Fixed Account to the sub-account(s), subject to the availability of a sub-account or shares of a portfolio and subject to these general restrictions and the additional restrictions below in "Restrictions on Transfers from Fixed Account": 1. the minimum transfer amount is $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. Page 10 12 RESTRICTIONS ON TRANSFERS FROM THE FIXED ACCOUNT You may transfer an amount from the Fixed Account to the sub-account(s) in the Variable Account, subject to these additional restrictions: 1. we allow only one transfer each year and this transfer must be within the period that is 30 days before and 30 days after the policy anniversary. An unused transfer option does not carry over to the next year; and 2. the maximum transfer amount is 50% of the Fixed Account value on the date of the transfer, unless the balance after the transfer is less than $5,000, in which case you may transfer the entire amount. TRANSFER PROCESSING FEE There is no limit to the number of transfers that you can make between sub-accounts or to the Fixed Account. However, we only allow one transfer each year from the Fixed Account (see Restrictions on Transfers From Fixed Account). The first four transfers during each policy year are free. We may assess a $25 processing fee for each additional transfer. For the purposes of assessing the fee, each written notice of transfer is considered to be one transfer, regardless of the number of sub-accounts or the Fixed Account effected by the transfer. The processing fee will be charged proportionately to the receiving sub-account(s) and/or Fixed Account. POLICY VALUES - ------------------------------------------------------------------------------- POLICY VALUE The policy value is the sum of the Variable Account value and the Fixed Account value. CASH SURRENDER VALUE The cash surrender value is the policy value less: a) any applicable surrender charge; and b) the policy administration charge. The cash surrender value will be determined on the date we receive and file your written notice for surrender and this policy at our Administrative Office. You may surrender this policy for its cash surrender value at any time before the earlier of the death of the last surviving annuitant, the annuity date or the maturity date. You may elect to have the cash surrender value paid in a single sum or under a payment option. This 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. PARTIAL WITHDRAWALS You may withdraw part of the cash surrender value at any time before the earlier of the death of the last surviving annuitant, the annuity date or the maturity date subject to these limits: 1. the minimum partial withdrawal is $250; 2. the maximum partial withdrawal is the amount that would leave a cash surrender value of $5,000; Page 11 13 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; and 4. a partial withdrawal request for an amount exceeding $10,000 must be accompanied by a guarantee of the owner's signature by a commercial bank, trust company or a savings and loan. On the date we receive and process your written notice for a partial withdrawal at our Administrative Office, we will withdraw the amount of the partial withdrawal from the policy value and we will then deduct any applicable surrender charge from the remaining policy value. 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 and Fixed Account in which you are invested. If you do provide this information to us, but the amount in the designated sub-accounts and Fixed Account is inadequate to comply with your withdrawal request, we will first withdraw from the specified sub-accounts and Fixed Account. The remaining balance will be withdrawn proportionately from the other sub-accounts and Fixed Account in which you are invested. SURRENDER CHARGE For the purposes of determining if any surrender charge applies and the amount of such charge, partial withdrawals and surrenders are taken according to these rules from policy value attributable to premiums or investment earnings in the following order:
Surrender Charge ---------------- 1. Up to 100% of positive investment earnings for each variable sub-account available at the time the request is made, once a policy year; plus None 2. Up to 100% of the current policy year's interest on the Fixed Account at the time the request for the withdrawal or surrender is made, once a policy year; plus None 3. Up to 10% of total premiums still subject to a surrender charge, once a policy year; plus None 4. Up to 100% of those premiums not subject to a surrender charge, available at any time; plus None 5. Premium subject to a surrender charge: Policy Years Since Premiums Were 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 proportionately from the sub-account(s) or the Fixed Account being surrendered or partially withdrawn in relation to the amount(s) withdrawn. If the amount remaining in a sub-account or Fixed Account after the withdrawal is insufficient to cover the proportionate surrender charge deduction, the balance of the surrender charge will be assessed proportionately from any other sub-account and the Fixed Account in which you are invested. Page 12 14 WAIVER OF SURRENDER CHARGE When this policy has been in effect for one year, upon written notice from you, the Surrender Charge will be waived on any partial withdrawal or surrender after you provide us with evidence that satisfies us in a written statement signed by a qualified physician that: 1. you are terminally ill and: a) your life expectancy is not more than 12 months due to the severity and nature of the illness; and b) the diagnosis of the terminal illness was made after the Effective Date of this policy; or 2. you are confined to a hospital, nursing home or long-term care facility for at least 90 consecutive days, provided: a) confinement is for medically necessary reasons at the recommendation of a physician; b) the hospital, nursing home or long-term care facility is licensed or otherwise recognized and operating as such by proper authority in the state where it is located, the Joint Commission on Accreditation of Hospitals or Medicare and satisfactory evidence of such status is provided to us; and c) the withdrawal or surrender request is received no later than 91 days after the last day of your confinement. This provision is not available if on the Effective Date of this policy any owner is attained age 81 or more. POLICY ADMINISTRATION CHARGE We will assess the policy administration charge shown in the Policy Details: 1. for the prior policy year on the policy anniversary; and 2. for the current policy year on the date this policy is surrendered for its cash surrender value, unless the policy is surrendered on a policy anniversary. If the policy value on the policy anniversary is $75,000 or more, we will waive the policy administration charge for the prior policy year. The charge will be assessed proportionately from any sub-accounts and the Fixed Account in which you are invested. If the charge is obtained from a sub-account(s), we will cancel the appropriate number of units from the applicable sub-account based on the unit value at the end of the valuation period when the charge is assessed. If the charge is obtained from the Fixed Account, we will reduce this policy's Fixed Account value by the amount of the charge. ANNUITY DATE You may change the annuity date, subject to these limitations 1. we must receive your written notice at our Administrative Office at least 30 days before the current annuity date; 2. the requested annuity date must be a date that is at least 30 days after we receive your written request; and 3. the requested annuity date cannot be any later than the maturity date. Page 13 15 TERMINATION We may pay you the cash surrender value and end this policy if before the annuity date or maturity date all of these events simultaneously exists: 1. you have not paid any premiums for at least two years; and 2. the policy value is less than $2,000; and 3. the total premiums paid, less any partial withdrawals, is less than $2,000. We will mail you a notice of our intention to terminate this policy at least six months in advance. This policy will automatically terminate on the date specified in the notice, unless we receive an additional premium before the termination date specified in the notice. The additional premium must be at least the minimum amount specified in the Additional Premiums provision. BASIS OF VALUES Any paid up annuity cash surrender or death benefits that may be available are at least equal to the minimum required by law in the state in which this policy is delivered. A detailed statement of the method used to compute the minimum values has been filed, where required, with the insurance officials of the jurisdiction in which this policy is delivered. PAYMENT OF BENEFITS, PARTIAL WITHDRAWALS, CASH SURRENDERS & TRANSFERS - POSTPONEMENT - ------------------------------------------------------------------------------- We will usually pay any proceeds, partial withdrawals, or cash surrenders within seven calendar day after: 1. we receive and process your written notice for a partial withdrawal or a cash surrender; or 2. the date chosen for any systematic withdrawal; or 3. we receive and process due proof of your death or the death of the last surviving annuitant. However, we can postpone the payment of proceeds, amounts withdrawn, 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 Securities and Exchange Commission (SEC); or 2. the SEC permits by an order the postponement for the protection of policyowners; or 3. the SEC determines that an emergency exists that would make the disposal of securities held in the Variable Account or the determination of their value not reasonably practicable. We have the right to defer payment of any partial withdrawal, cash surrender, or transfer from the Fixed Account for up to six months from the date we receive your written notice for a withdrawal, surrender or transfer. Page 14 16 GENERAL PROVISIONS - ------------------------------------------------------------------------------- CONTRACT We have issued this policy in consideration of your application and your payment of the initial premium. The entire contract is made up of this policy and the attached copy of the application. The statements made in the application are deemed representations and not warranties. We cannot use any statement in defense to a claim or to void this policy unless it is contained in the application and a copy of the application is attached to the policy at issue. Only our President, Secretary or Actuary may modify this policy or waive any of our rights or requirements. Any change in this policy must be in writing. The change must bear the signature or a reproduction of the signature of one or more of the above officers. INCONTESTABILITY We will not contest this policy after it has been in force during the annuitant's lifetime for two years from the date of issue of this policy. OWNER During any annuitant's lifetime and before the earlier of the annuity date or maturity date, you have all the rights and privileges granted by this policy. If you appoint an irrevocable beneficiary, then your rights will be subject to those of that beneficiary. During any annuitant's lifetime and before the earlier of the annuity date or maturity date, you may name a new owner, joint owner or annuitant by giving us written notice. BENEFICIARY We will pay the beneficiary any proceeds payable on your death or the death of the last surviving annuitant. During any annuitant's lifetime and before the earlier of the annuity date or maturity date, you may name and change one or more beneficiaries by giving us written notice. However, we will require written notice from any irrevocable beneficiary 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 the last surviving annuitant dies, or if none has been appointed, the proceeds will be paid to you. If no beneficiary is living when you die, any proceeds will be paid to your estate. Page 15 17 WRITTEN NOTICE Written notice must be signed by you, dated, and of a form and content acceptable to us. Your written notice will not be effective until we receive and file it at our Administrative Office. However, the change provided in your written notice to name or change the owner or beneficiary will then be effective as of the date you signed the written notice: 1. subject to any payments made or other action we take before we receive and file your written notice; and 2. whether or not the last surviving owner or the last surviving annuitant are alive when we receive and file your written notice. MISSTATEMENT OF AGE If the age of any annuitant has been misstated, we will pay the amount which the proceeds would have purchased at the correct age. If we make an overpayment because of an error in age, the overpayment plus interest at 3% compounded annually will be a debt against the policy. If the debt is not repaid, future payments will be reduced accordingly. If we make an underpayment because of an error in age, any unpaid payments will be recalculated at the correct age and future payments will be adjusted. The underpayment with interest at 3% compounded annually will be paid in a single sum. PERIODIC REPORTS We will mail you a report showing the following items: 1. the number of units credited to this policy and the dollar value of those units; 2. the policy value; 3. any premiums paid, withdrawals and charges made since the last report; and 4. any information required by law. The information in the report will be as of a date not more than two months before the date of the mailing. We will mail the report to you: 1. at least annually or more often as required by law; and 2. to your last address known to us. ASSIGNMENT You may assign a nonqualified policy or an interest in it at any time before the earlier of the annuity date or maturity date during any annuitant's lifetime. An assignment must be in written notice acceptable to us. It will not be binding on us until we receive and file it at our Administrative Office. We are not responsible for the validity of any assignment. Your rights and the rights of any beneficiary will be affected by an assignment. An assignment of a nonqualified policy may result in tax consequences for you. Page 16 18 OUR CONSENT If our consent is required, it must be given in writing. It must bear the signature, or a reproduction of the signature, of our President, Secretary or Actuary. POLICY DATE Policy years, months and anniversaries are measured from the policy date shown in the Policy Details. EFFECTIVE DATE The effective date is the date this policy goes into effect and your initial premium is invested. CURRENCY All amounts payable under this policy will be paid in United States currency. PLACE OF PAYMENT All amounts payable by us will be payable at our Administrative Office. 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 Internal Revenue 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 event of such modification, we may make appropriate endorsement to the policy. NON-PARTICIPATION This policy is not eligible for dividends and will not participate in our divisible surplus. Page 17 19 PAYMENT OPTIONS - ------------------------------------------------------------------------------- The term "payee" means a person who is entitled to receive payment under this section. ELECTION OF PAYMENT OPTIONS You may elect a payment option or revoke or change your election while any annuitant is living and before the annuity date or maturity date. If an election is not in effect at the last surviving annuitant's death or if payment is to be made in a lump sum under an existing payment option, the beneficiary may elect one of the payment 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 a payment option and any revocation or change must be made in a written notice. It must be filed with our Administrative Office with the written consent of any irrevocable beneficiary. A payment option may not be elected and we will pay the proceeds in a lump sum if either of the following conditions exist: 1. the amount to be applied under the payment option is less than $1,000; or 2. any periodic payment under the election would be less than $50. PAYMENT OPTION 1: LIFE INCOME We will pay the proceeds in equal amounts at the beginning of each month, during the payee's lifetime. The amount of each payment will be determined from the Table of Payment on Basis of $1,000 Net Proceeds, using the payee's age. Age will be determined from the nearest birthday at the due date of the first payment. PAYMENT OPTION 2: MUTUAL AGREEMENT We will pay the proceeds according to other terms, if those terms are mutually agreed upon. PAYMENT DATES The payment dates of the payment options will be calculated from the date on which the proceeds become payable. AGE AND SURVIVAL OF PAYEE We have the right to require proof of age of the payee(s) before making any payment. When any payment depends on the payee's survival, we will have the right, before making the payment to require satisfactory proof that the payee is alive. DEATH OF PAYEE At the death of the payee or the last surviving payee, any amount remaining to be paid under this section will become payable in one sum, unless specified otherwise Page 18 20 TABLE OF PAYMENTS ON BASIS OF $1,000 NET PROCEEDS OPTION 1 - LIFE INCOME
AGE MONTHLY AGE MONTHLY 25 2.80 64 4.61 30 2.88 65 4.73 35 2.99 66 4.86 40 3.12 67 5.00 45 3.29 68 5.15 46 3.33 69 5.31 47 3.37 70 5.49 48 3.42 71 5.68 49 3.47 72 5.88 50 3.52 73 6.10 51 3.57 74 6.35 52 3.62 75 6.61 53 3.68 76 6.89 54 3.74 77 7.20 55 3.81 78 7.53 56 3.87 79 7.89 57 3.95 80 8.28 58 4.03 81 8.71 59 4.11 82 9.18 60 4.20 83 9.68 61 4.29 84 10.24 62 4.39 85 10.84 63 4.49
The Table is based on the following assumptions: 1983a Projection G. YOP = 1995, Interest = 3%, 3% Load. The monthly payment for ages are shown in the Table will be calculated on the same basis as these shown and will be quoted on request. Page 19 21 CANADA LIFE INSURANCE COMPANY OF AMERICA LANSING, MICHIGAN ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD N.W. ATLANTA, GA 30339 MAILING ADDRESS: P.O. BOX 105662 ATLANTA, GA 30348-5662 FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY Flexible premiums as stated in the Additional Premiums Provision. Accumulation benefits and values are variable, except for amounts in the Fixed Account. After the Annuity Date or Maturity Date, payment options are on a guaranteed basis. Death benefit payable upon death of the last surviving annuitant before the Annuity Date or Maturity Date. Nonparticipating - Not eligible for dividends. EX-4.B 3 RIDERS AND ENDORSEMENTS 1 Exhibit 4 (b) Riders and Endorsements 2 TAX SHELTERED ANNUITY RIDER This Rider is part of the Policy. The policy is issued in connection with a tax sheltered annuity plan described in Section 403(b) of the Internal Revenue Code of 1986, as amended (the "Code"). The following provisions apply and replace any contrary policy provisions. The owner is responsible for determining that contributions and distributions under this policy comply with the following provisions: 1. The annuitant shall be the sole owner. 2. The Policy may not be transferred, sold, assigned, discounted or pledged either as collateral for a loan or as security for the performance of an obligation or for any other purpose to any person other than the Company. 3. The annuity commencement date (annuity date) is the date your entire interest (value of the annuity) will be distributed or commence to be distributed. The annuity date shall not be later than the required beginning date, which is: a) April 1 of the calendar year following the calendar year in which you attain age 70 1/2; or b) for a government or church sponsored TSA plan, April 1 of the calendar year following the later of the calendar year in which you retire or attain age 70 1/2. 4. With respect to any amount which becomes payable under the policy during your lifetime: (a) such payment shall commence on or before the required beginning date; and (b) such payment shall be payable in substantially equal amounts, not less frequently than annually. The entire interest in the policy shall be distributed as follows: (a) over your life; or (b) over the lives of you and your designated beneficiary; or (c) over a period certain not exceeding your life expectancy; or (d) over the joint and last survivor life expectancy of you and your designated beneficiary. As the entire interest is to be distributed in other than one lump sum, then the amount to be distributed each year (commencing with the required beginning date and each year thereafter) shall be determined in accordance with Code Section 403(b)(10) and the regulations thereunder. 5. If you die after distribution of your interest has commenced, the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used immediately before your death. 6. If you die before distribution has commenced, the entire interest shall be distributed no later than December 31 of the calendar year in which the fifth anniversary of your death occurs. However, proceeds payable to a named beneficiary who is a natural person may be distributed in substantially equal installments over the lifetime of the beneficiary or a period certain not exceeding the life expectancy of the beneficiary provided such distribution commences not later than December 31 of the calendar year following the calendar year in which your death occurred. (a) If your surviving spouse is the beneficiary, the beneficiary may elect to receive equal or substantially equal payments over their life or life expectancy commencing at any date prior to the date on which you would have attained age 70 1/2. Such election shall be made by December 31 of the calendar year in which the fifth anniversary of your death occurs. Payments shall be calculated in accordance with Code Section 403(b)(10) and regulations thereunder. For the purposes of the requirement, any amount paid to your child shall be treated as if it had been paid to the surviving spouse if the remainder of the interest becomes payable to the surviving spouse when the child reaches the age of majority. (b) If your surviving spouse is not the beneficiary, the method of distribution selected will assure that: 1) at least 50% of the present value of the amount available for distribution is paid within your life expectancy; and 2) that such method of distribution complies with the requirements of Code Section 403(b)(10) and the regulations thereunder. Page 1 3 7. For purposes of the foregoing provisions, life expectancy and joint and survivor life expectancy shall be determined by use of the expected return multiples in Tables V and VI of Treasury Regulation Section 1.72-9 in accordance with Code Section 403(b)(10) and the regulations thereunder. For distributions under paragraph 4 of this rider, your life expectancy or, if applicable, the joint and last survivor life expectancy of you and your beneficiary, will be initially determined on the basis of attained ages in the year you reach age 70 1/2. For distributions under paragraph 6 of this rider, life expectancy shall be initially determined on the basis of the beneficiary's attained age in the year distributions are required to commence. Unless you (or your spouse) elects otherwise prior to the date distributions are required to commence, your life expectancy and, if applicable, your spouse's life expectancy shall be recalculated annually based on attained ages in the year for which the required distribution is being determined. The life expectancy of a nonspouse beneficiary shall not be recalculated. For distributions other than in the form of life income or joint life income, the annual distribution required to be made by the required beginning date is for the calendar year in which you reached 70 1/2. Annual payments for subsequent years, including the year in which the required beginning date occurs, must be made by December 31 of the year. The amount distributed for each year shall equal or exceed the annuity value as of the close of business on December 31 of the preceding year, divided by the applicable life expectancy or joint and last survivor life expectancy. 8. Distributions shall not be made prior to the date you attain age 59 1/2, separate from service, die, become disabled, or incur a hardship within the meaning of Code Section 403(b)(11), to the extent such distributions are attributable to: (a) contributions made pursuant to a salary reduction agreement (except to the extent attributable to assets held as of the close of the last year beginning before January 1, 1989); or (b) amounts transferred to this policy from a contract or account that was subject to such conditions. In the event of hardship, income attributable to such contributions or amounts shall not be distributed. 9. Contributions made pursuant to a salary reduction agreement in connection with the plan under which this policy is purchased may not in any taxable year exceed the amount specified in Code Section 402(g)(4). 10. This policy shall be subject to and interpreted in conformity with the provisions, terms and conditions of the TSA annuity plan document of which this policy is a part, if any, and with the terms and conditions of Section 403(b) of the Code, the regulations thereunder, and other applicable law (including without limitation the Employee Retirement Income Security Act of 1974, as amended, if applicable), as determined by the plan administrator or other designated plan fiduciary or, if none, you. Canada Life is not a plan administrator or fiduciary, and is under no obligation either to: (a) determine whether any contribution, distribution or transfer under the policy complies with the provisions, terms and condition of such plan or with applicable law; or (b) administer such plan, including, without limitation, any provisions required by the Retirement Equity Act of 1984. 11. Notwithstanding any other provision to the contrary in the policy or the TSA annuity plan, if any, Canada Life reserves the right to amend or modify the policy or this rider, but only to the extent necessary to comply with any law, regulation, ruling or other requirement as instructed by the plan administrator, trustee or fiduciary to establish or maintain the tax advantages, protection or benefits available to such TSA policy under Code Section 403(b) or any applicable law. CANADA LIFE INSURANCE COMPANY OF AMERICA /s/ /s/ Secretary President Page 2 4 QUALIFIED PLAN (CO-ANNUITANT PROHIBITED) This Rider is a part of the Policy. The following provisions apply and replace any contrary Policy provisions: 1. A co-annuitant is not allowed under a qualified policy, and any designation of a co-annuitant under a qualified policy will be of no effect. 2. Notwithstanding any provision to the contrary in the Policy, we reserve the right to amend or modify the Policy or this Rider to the extent necessary to comply with any law, regulation, ruling or other requirement necessary to establish or maintain the qualified status or tax advantages, protection or benefits available to such policy under the Internal Revenue Code or any applicable law. /s/ Secretary CANADA LIFE INSURANCE COMPANY OF AMERICA 5 CANADA LIFE INSURANCE COMPANY OF AMERICA ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD, NW, ATLANTA, GEORGIA 30339 PHONE: (800) 333-2542 QUALIFIED PLAN RIDER This Rider is part of the Policy. The Policy is issued to or purchased by the trustee of a pension or profit-sharing plan intended to qualify under section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The following provisions apply and replace any contrary Policy provisions: 1. Except as allowed by the qualified pension or profit-sharing plan of which this Policy is a part, the Policy may not be transferred, sold, assigned, discounted or pledged, either as collateral for a loan or as security for the performance of an obligation or for any other purpose, to any person other than us. 2. The Policy shall be subject to the provisions, terms and conditions of the qualified pension or profit-sharing plan of which the Policy is a part. Any payment, distribution or transfer under the Policy shall comply with the provisions, terms and conditions of such plan as determined by the plan administrator, trustee or other designated plan fiduciary. We shall be under no obligation either: a) to determine whether any such payment, distribution or transfer is inconsistent with the provisions, terms and conditions of such plan; or b) to administer such plan, including any provisions required by the Retirement Equity Act of 1984. 3. Notwithstanding any provision to the contrary in the Policy or the qualified pension or profitsharing plan of which the Policy is a part, we reserve the right to amend or modify the Policy or Rider to the extent necessary to comply with any law, regulation, ruling or other requirement necessary to establish or maintain the qualified status of such pension or profit-sharing plan. /s/ /s/ Secretary President PAGE 1 6 CANADA LIFE INSURANCE COMPANY OF AMERICA ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD, NW, ATLANTA, GEORGIA 30339 PHONE (800) 333-2542 INDIVIDUAL RETIREMENT ANNUITY RIDER This Rider is part of the Policy. The Policy is intended to qualify as an individual retirement annuity under Section 408(b) and may be purchased pursuant to a simplified employee pension intended to qualify under Section 408(k) of the Code. The following provisions apply and replace any contrary Policy provisions: 1. You shall be the owner. 2. The Policy is not transferable or assignable (other than pursuant to a divorce decree) and is established for the exclusive benefit of you and your beneficiaries. 3. Your entire interest in the Policy shall be nonforfeitable. 4. Premium payments shall be in cash and, except in the case of rollover contributions described in Sections 402(a)(5), 402(a)(6)(F), 402(a)(7), 403(a)(4), 403(b)(8) and 408(d)(3) of the Code, shall not exceed: a) $2,000 for any taxable year; or b) if a premium payment is made by your employer to the Policy in accordance with the terms of a simplified employee pension plan described in Section 408(d) of the Code, $30,000 for any taxable year. You shall have the sole responsibility for determining whether any premium payment qualifies as a rollover or simplified employee pension contributions and whether it is deductible for income tax purposes. 5. The Policy does not require fixed premium payments. We will accept additional premium payments. The minimum additional premium payment paid by pre-authorized check is $50.00. Any refund of premiums (other than those attributable to excess contributions) will be applied before the close of the calendar year following the year of the refund toward the payment of additional premiums or the purchase of additional benefits. 6. The Annuity Date is the date your entire Policy value will be distributed or commence to be distributed to you. Your Annuity Date shall be no later than April 1 of the calendar year following the calendar year in which you attain age 70 1/2. 7. With respect to any amount which becomes payable under the Policy during your lifetime, such payment shall commence on or before the Annuity Date and shall be payable in substantially equal amounts, no less frequently than annually. Payments shall be made in the manner as follows: (a) in a lump sum; or (b) over your life; or (c) over the lives of you and your designated beneficiary; or (d) over a period certain not exceeding your life expectancy; or (e) over a period certain not exceeding the joint and last survivor expectancy of you and your designated beneficiary. Page 1 7 If your entire interest is to be distributed in other than a lump sum, then the amount to be distributed each year (commencing with the calendar year following the calendar year in which you attain age 70 1/2 and each year thereafter) shall be determined in accordance with Code Section 408(b)(3) and the regulations thereunder. 8. If you die after distribution of your interest has commenced, the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to your death. If you die before distribution has begun, the entire interest must be distributed no later than December 31 of the calendar year in which the fifth anniversary of your death occurs. However, proceeds which are payable to a named beneficiary who is a natural person may be distributed in substantially equal installments over the lifetime of the beneficiary or a period certain not exceeding the life expectancy of the beneficiary provided such distributions begins not later than December 31 of the calendar year following the calendar year in which your death occurred. If the beneficiary is your surviving spouse, the beneficiary may elect not later than December 31 of the calendar year in which the fifth anniversary of your death occurs to receive equal or substantially equal payments over the life or life expectancy of the surviving spouse commencing at any date prior to the date on which you would have attained age 70 1/2. Payments will be calculated in accordance with Code Section 408(b)(3) and the regulations thereunder. For the purposes of this requirement, any amount paid to any of your children will be treated as if it had been paid to your surviving spouse if the remainder of the interest becomes payable to the surviving spouse when the child reaches the age of majority. If you die before your entire interest has been distributed, no additional cash premiums or rollover contributions will be accepted under the Policy after your death unless the beneficiary is your surviving spouse. 9. If your spouse is not the named beneficiary, the method of distribution selected will assure that at least 50% of the present value of the amount available for distribution is paid within your life expectancy and that such method of distribution complies with the requirements of Code Section 408(b)(3) and the regulations thereunder. 10. For purposes of the foregoing provisions, life expectancy and joint and last survivor expectancy shall be determined by use of the expected return multiples in Tables V and VI of Treasury Regulation Section 1.72-9 in accordance with Code Section 408(b)(3) and the regulations thereunder. In the case of distributions under paragraph 7 of this Rider, your life expectancy or, if applicable, the joint and last survivor expectancy of you and your beneficiary will be initially determined on the basis of your attained ages in the year you reach age 70 1/2. In the case of a distribution under paragraph (8) of this Rider, life expectancy will be initially determined on the basis of your beneficiary's attained age in the year distributions are required to commence. Unless you (or your spouse) elect otherwise prior to the date distributions are required to commence, your life expectancy and, if applicable, your spouse's life expectancy will be recalculated annually based on your attained ages in the year for which the required distribution is being determined. The life expectancy of a nonspouse beneficiary will not be recalculated. In the case of a distribution other than as life income or joint life income, the annual distribution required to be made by your Annuity Date is for the calendar year in which you reached age 70 1/2. Annual payments for subsequent years, including the year in which your Annuity Date occurs, must be made by December 31 of that year. The amount distributed for each year shall equal or exceed the annuity value as of the close of business on December 31 of the preceding year, divided by the applicable life expectancy or joint and last survivor expectancy. Page 2 8 11. Under the Policy, you may not elect any variable account or sub-account that directly or indirectly invests in collectibles within the meaning of Section 408(m) of the Code. No part of the policy value shall be invested in or used to provide life insurance. 12. We reserve the right to amend the Policy or this Rider to the extent necessary to qualify as an individual retirement annuity for federal income tax purposes. CANADA LIFE INSURANCE COMPANY OF AMERICA /s/ /s/ Secretary President Page 3 EX-5 4 FORM OF APPLICATION 1 Exhibit 5 Form of Application 2 CANADA LIFE TRILLIUM(TM) INSURANCE COMPANY OF AMERICA APPLICATION FOR P.O. BOX 105662 FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY ATLANTA, GA 30348-5662 (FOR ALL STATES EXCEPT FL, KY, NJ, NY, OH AND PA) (800)905-1959 PLEASE PRINT IN BLACK INK 1. Owners (Applicants) 2. Annuitants (if different from Owner) Name(*) ______________________________________________________ Name(*) __________________________________________________________ First Middle Last First Middle Last Address ______________________________________________________ Address __________________________________________________________ Street Street ______________________________________________________________ __________________________________________________________________ City State Zip City State Zip Sex [ ] M [ ] F Date of Birth /______/______/______/ Sex [ ] M [ ] F Date of Birth /______/______/______/ [ ] Other Month Day Year Month Day Year Daytime Phone Number ( ) ___________________________________ [ ][ ][ ][ ][ ][ ][ ][ ][ ] or [ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ] Social Security Number Tax ID Number Social Security Number Client Brokerage Acct.# (If applicable) ______________________ ============================================================== =================================================================== JOINT OWNER (Optional) CO-ANNUITANT (Optional) Name(*) ______________________________________________________ Name(*) __________________________________________________________ First Middle Last First Middle Last Sex [ ] M [ ] F Date of Birth /______/______/______/ Sex [ ] M [ ] F Date of Birth /______/______/______/ [ ] Other Month Day Year Month Day Year [ ][ ][ ][ ][ ][ ][ ][ ][ ] or [ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ] Social Security Number Tax ID Number Social Security Number 3. Beneficiaries 4. My Investment Enclose signed letter if more information is required. Name(*) ________________________________________________________ Allocate payment with application of $________________ as indicated First Middle Last Relationship below (MUST TOTAL 100%): Percentage /_________________/ [ ][ ][ ][ ][ ][ ][ ][ ][ ] [ ] Check here if you are using _____% Cash Management (21) Social Security Number Seligman(SM) Time Horizon(SM) _____% Income (22) Asset Allocation Strategy. If so, _____% Fixed Income Secur. (23) Name(*) ______________________________________________________ LEAVE INVESTMENT _____% Common Stock (24) First Middle Last Relationship ALLOCATION BLANK IN _____% Capital (25) THIS SECTION AND ATTACH _____% Global (26) Percentage /_________________/ [ ][ ][ ][ ][ ][ ][ ][ ][ ] TIME HORIZON(SM) _____% Communic. & Inform. (27) Social Security Number ELECTION FORM. _____% Global Growth Oppor.(28) ============================================================== _____% Global Smaller Cos. (29) CONTINGENT BENEFICIARY _____% Frontier (41) _____% High Yield Bond (42) Name(*) ______________________________________________________ _____% Global Technology (43) First Middle Last Relationship _____% Fixed Account (F2) (Fixed Account Not Available in Oregon) Percentage /_________________/ [ ][ ][ ][ ][ ][ ][ ][ ][ ] Social Security Number 5. Type of Plan (Must be Completed) 6. Pre-Authorized Check (PAC)(**) [ ] Non-Qualified or [ ] Please check here if you elect this option. [ ] IRA Rollover [ ] 401(k) [ ] IRA Tax Year ______ [ ] Qualified Other [ ] Keogh (HR-10) [ ] SEP IRA Tax Year __ I authorize the Company to collect $____________ (MINIMUM $100/$50- [ ] IRA Transfer [ ] 457 [ ] 403(b) If ERISA [ ] IRA) starting on _____ by initiating electronic debit entries to my [ ] Other account. 7. Replacement Select One: [ ] Checking [ ] Savings Will this Annuity replace or change any other insurance or (PLEASE ATTACH A VOIDED CHECK FOR CHECKING OR DEPOSIT SLIP FOR annuity? SAVINGS) [ ] No [ ] Yes (State company and Policy number in "Remarks" and attach replacement forms.) 8. For Agents Only (*) Unless subsequently changed in accordance with terms of Questions? Contact either your broker/dealer or Investment Products Policy issued. at (800) 905-1959, ext. 505. (**) Unless indicated, will commence on the earliest possible business day. [ ] Option A [ ] Option B [ ] Option C [ ] Option D
3 9. Service Options BY INITIALING THE BOX(ES) IN THIS SECTION, I/WE HEREBY AUTHORIZE THE COMPANY TO INITIATE THE OPTIONS(S) INDICATED. I/WE UNDERSTAND AND AGREE ANY AUTHORIZATION AS FOLLOWS: 1) ONLY APPLIES TO THE POLICY APPLIED FOR AND SEPARATE AUTHORIZATION MUST BE COMPLETED FOR ANY OTHER POLICIES. 2) WILL CONTINUE IN EFFECT UNTIL THE COMPANY RECEIVES WRITTEN REVOCATION FROM ME/US OR THE COMPANY DISCONTINUES THE OPTIONS(S). I/WE WILL CONSULT THE CURRENT PROSPECTUS FOR MORE DETAILS ON THE SERVICE OPTIONS BELOW, SUCH AS THE MINIMUMS AND MAXIMUM. ====================================================== ==================================================================== [ ] TELEPHONE TRANSFER AUTHORIZATION (**) [ ] SYSTEMATIC WITHDRAWAL PRIVILEGE (SWP) (**) I/We authorize the Company to act on transfer I/We hereby authorize the Company to initiate withdrawals from my instructions given by telephone from any person who Policy as indicated below. can furnish identification. Neither the Company nor any person authorized by the Company will be Withdraw $_________or [ ] Maximum amount allowed without incurring responsible for any claim, loss, liability or expense a Surrender Charge, to Start on________________. in connection with a telephone transfer if the Stop Date:______________or Number of Withdrawals_______________. Company or such other person acted on telephone Withdraw From: transfer instructions in good faith in reliance on __________ __________ ___________ this authorization. I/We accept and will comply with __________ __________ ___________ the procedures established by the Company from time __________ __________ ___________ to time. __________ __________ ___________ Frequency of Withdrawal: [ ] Monthly [ ] Quarterly [ ] Semi-Annually Please [ ] Withhold [ ] Do Not Withhold Federal Income Taxes. ====================================================== ==================================================================== [ ] DOLLAR COST AVERAGING (**) [ ] PORTFOLIO REBALANCING (**) I/We hereby authorize the Company to automatically I/We hereby authorize the Company to provide portfolio rebalancing transfer, on a periodic basis, amounts for regular services as indicated below: level investments over time, from one sub-account or Fixed Account shown on this form, to any of the other Frequency of Rebalancing: [ ] Quarterly [ ] Semi-Annually sub-accounts or Fixed Account specified on this form. [ ] Annually NOTE: TRANSFERS ORIGINATING FROM THE FIXED ACCOUNT 10. Remarks REQUIRE A MINIMUM DISTRIBUTION OF 18 MONTHS AND NO OTHER SURRENDERS OR TRANSFERS FROM THE FIXED ACCOUNT ____________________________________________________________________ WILL BE PERMITTED DURING THIS TIME. ____________________________________________________________________ Transfer $_________From___________. Start Date________ Stop Date_________ or Number of Transfers_________on a ____________________________________________________________________ [ ] Monthly [ ] Quarterly [ ] Semi-Annual [ ] Annual basis. ____________________________________________________________________ Transfer above __________ __________ ___________ amount to: __________ __________ ___________ __________ __________ ___________ __________ __________ ___________ 11. Signatures STATEMENT OF APPLICANT: To the best of the knowledge and belief of the person(s) signing below, all statements in this Application are true and correctly worded. Each person signing below adopts all statements made in this Application and agrees to be bound by them. IT IS AGREED THAT THE POLICY WILL NOT TAKE EFFECT UNTIL THE LATER OF: 1) THE POLICY IS ISSUED; OR 2) WE RECEIVE AT OUR ADMINISTRATIVE OFFICE THE FIRST PREMIUM REQUIRED UNDER THE POLICY. No agent or registered representative can modify this agreement or waive any of the Company's rights or requirements. I/WE ACKNOWLEDGE RECEIPT OF THE EFFECTIVE PROSPECTUS(ES) FOR THE POLICY. 3) I/WE CERTIFY THAT THE NUMBER SHOWN ON THIS FORM IS MY/OUR SOCIAL SECURITY # OR TAXPAYER ID #. 4) THE POLICY I/WE HAVE APPLIED FOR IS SUITABLE FOR MY/OUR INSURANCE INVESTMENT OBJECTIVES, FINANCIAL SITUATION, AND NEEDS. I/WE UNDERSTAND THAT ALL ACCUMULATION BENEFITS AND VALUES PROVIDED BY THE VARIABLE ACCOUNT MAY INCREASE OR DECREASE DAILY DEPENDING ON INVESTMENT PERFORMANCE, AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNTS. [ ] I/We request the Statement of Additional Information. _____________________________________________________________________________________________________________________________ Signed in (State) Date Signed Signature of Owner/Applicant Signature of Joint Owner _____________________________________________________________________________________________________________________________ Signature of Annuitant Signature of Co-Annuitant Signature of Irrevocable Beneficiary (if different from Owner) (if different from Owner) (if designated) STATEMENT OF AGENT: I certify that 1) the applicant signed this Application; 2) I am authorized and qualified to discuss the Policy herein applied for; and 3) to the best of my knowledge replacement [ ] is [ ] is not involved. _____________________________________________________________________________________________________________________________ Print Registered Representative/Agent Name Name of Firm Date Signed _____________________________________________________________________________________________________________________________ Signature of Agent Branch Address _____________________________________________________________________________________________________________________________ Agent Number State License ID Number Agent Phone Number
(**) Unless indicated, will commence on the earliest possible business day. EX-10.A 5 FORM OF CONSENT OF COUNSEL 1 Exhibit 10 (a) Form of Consent of Counsel 2 April 24, 1996 Board Of Directors Canada Life Insurance Company of America Canada Life of America Variable Annuity Account 2 330 University Avenue Toronto, Canada M5G 1R8 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. 6 to the Registration Statement on Form N-4 (File No. 33-55890) filed by Canada Life Insurance Company of America and Canada Life of America Variable Annuity Account 2 with the Securities and Exchange Commission. In giving this consent, I do not admit that I am in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. Sincerely, /s/ David A. Hopkins - ---------------------------- David A. Hopkins Chief Counsel, U.S. Division DAH/dr EX-10.B 6 CONSENT OF INDEPENDENT COUNSEL 1 Exhibit 10 (b) Consent of Independent Counsel 2 [TRANSMITTED ON SA&B LETTERHEAD] April 22, 1996 VIA EDGARLINK Board of Directors Canada Life Insurance Company of America 330 University Avenue Toronto, Canada M5G 1R8 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. 6 to the registration statement on Form N-4 for the Canada Life of America Variable Annuity Account 2 (File No. 33-55890). 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 EX-10.C 7 CONSENT OF INDEPENDENT AUDITORS 1 Exhibit 10(c) Consent of Independent Auditors 2 EXHIBIT 10(c) CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Financial Statements" and "Experts" and to the use of our reports dated January 29, 1996 and February 9, 1996, in Post-Effective Amendment No. 6 to the Registration Statement (Form N-4 No. 33-55890) and related Prospectus of Canada Life of America Variable Annuity Account 2 (dated May 1, 1996). /s/ Ernst & Young LLP ERNST & YOUNG LLP Atlanta, Georgia April 24, 1996 -----END PRIVACY-ENHANCED MESSAGE-----