-----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, Kbv7OIdtuXvUvHn0DxjCG0j7nCjMjouXwwz/FryjImO5qZeQmOXidtF51PlGsNjV 5OJiCZX5OtwQ+wFTnd9r8A== 0000950144-97-004789.txt : 19970430 0000950144-97-004789.hdr.sgml : 19970430 ACCESSION NUMBER: 0000950144-97-004789 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19970429 EFFECTIVENESS DATE: 19970429 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: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-55890 FILM NUMBER: 97590024 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07350 FILM NUMBER: 97590025 BUSINESS ADDRESS: STREET 1: 6201 POWERS FERRY ROAD NW CITY: ATLANTA STATE: GA ZIP: 30339 BUSINESS PHONE: 7709531959 MAIL ADDRESS: STREET 1: 6201 POWERS FERRY ROAD, NW CITY: ATLANTA STATE: GA ZIP: 30339 485BPOS 1 CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 1 As Filed with the Securities and Exchange Commission on April 29, 1997. 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 Pre-Effective Amendment No. Post-Effective Amendment No.8 and/or Registration Statement Under the Investment Company Act of 1940 Amendment No.10 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, L.L.P. 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 on May 1, 1997 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, 1997 for its most recent fiscal year ended December 31, 1996. 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 CONDENSED FINANCIAL INFORMATION 5. General Description of Registrant, Depositor and Portfolio Companies a. Depositor THE COMPANY b. Registrant The Variable Account c. Portfolio Company The Fund d. Fund Prospectus The Fund e. Voting Rights VOTING RIGHTS f. Administrators N/A 6. Deductions and Expenses Charges Against the Policy, Variable Account, & Fund a. General Charges Against the Policy, Variable Account, & Fund b. Sales Load % Charges Against the Policy, Variable Account, & Fund - Surrender Charge c. Special Purchase Plan N/A d. Commissions DISTRIBUTION OF POLICIES e. Expenses - Registrant Charges Against the Policy, Variable Account, & Fund f. Fund Expenses Charges Against the Policy, Variable Account, & Fund - Other Charges Including Investment Management Fees g. Organizational Expenses N/A 7. General Description of Variable Annuity Contracts a. Persons With Rights DEFINITIONS - Owner , Joint Owner; Payment of Proceeds; Payment Options; Partial Withdrawals; Other Policy Provisions; VOTING RIGHTS b. (i) Allocation of Premium Payments Premiums (ii) Transfers Transfers; Payment of Benefits, Partial Withdrawals, Cash Surrenders, & Transfers - Postponement (iii) Exchanges N/A
3 c. Changes Reserved Rights d. Inquiries SUMMARY - Questions 8. Annuity Period Payment Options 9. Death Benefit Payment of Proceeds; Payment of Benefits, Partial Withdrawals, Cash Surrenders, & Transfers - Postponement; Payment Options 10. Purchases and Contract Value a. Purchases Premiums b. Valuation Variable Account Value c. Daily Calculation Variable Account Value d. Underwriter DISTRIBUTION OF POLICIES 11. Redemptions a. - By Owners Payment of Proceeds - Proceeds on Surrender; Partial Withdrawals; Payment of Benefits, Partial Withdrawals, Cash Surrenders, & Transfers - Postponement - By Annuitant Payment of Proceeds - Proceeds on Death of Last Surviving Annuitant Before Annuity Date or Maturity Date; Payment Options b. Texas ORP RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM c. Check Delay Payment of Benefits, Partial Withdrawals, Cash Surrenders, & Transfers - Postponement d. Lapse Premiums - Termination e. Free Look Ten Day Right to Examine the Policy 12. Taxes Charges Against the Policy, Variable Account, & Fund - Taxes; FEDERAL TAX STATUS 13. Legal Proceedings LEGAL PROCEEDINGS 14. Table of Contents of the Statement of Additional Information STATEMENT OF ADDITIONAL INFORMATION TABLE OF 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
4 b. Management Contract N/A c. Custodian SAFEKEEPING OF ACCOUNT ASSETS d. Independent Public Accountant EXPERTS e. Assets of Registrant SAFEKEEPING OF ACCOUNT ASSETS f. Affiliated Persons N/A g. Principal Underwriter See Prospectus - DISTRIBUTION OF POLICIES 19. Purchase of Securities Being Offered See Prospectus - DISTRIBUTION OF POLICIES 20. Underwriter See Prospectus - DISTRIBUTION OF POLICIES 21. Calculation of Performance Data CALCULATION OF YIELDS AND TOTAL RETURNS 22. Annuity Payments See Prospectus - Payment Options 23. Financial Statements FINANCIAL STATEMENTS
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 guarantees a minimum fixed rate of interest for specified periods of time, currently one year, three years, five years, seven years and ten years (each a "Guarantee Period"). The Fixed Account is part of our general account and may not be available in all states. Assets of each sub-account are invested in a corresponding portfolio of Seligman Portfolios, Inc. (the "Fund"), a Maryland corporation that is a diversified open-end investment company which uses the investment management services of J. & W. Seligman & Co. Incorporated (the International, Global Smaller Companies, Global Technology and Global Growth Opportunities Portfolios use the sub-advisory services of Seligman Henderson Co.). The Fund has twelve portfolios: Capital; Cash Management; Common Stock; Bond; Income; International; 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. Except in the case of the one year Guarantee Period, policy value and other values provided by this policy, when based on the Fixed Account, are subject to a Market Value Adjustment, the operation of which may result in upward or downward adjustments of amounts withdrawn, surrendered, or transferred but net premiums and policy value allocated to the Fixed Account are guaranteed to earn interest at an annual rate of at least three percent. This Prospectus sets forth basic information about the policy, the Variable Account, and the Fixed Account that a prospective investor ought to know before investing. Additional information about the policy and the Variable Account is contained in the Statement of Additional Information, which has been filed with the Securities and Exchange Commission. The Statement of Additional Information is dated the same date as this Prospectus and is incorporated herein by reference. The Table of Contents for the Statement of Additional Information is included in this Prospectus. You may obtain a copy of the Statement of Additional Information free of charge by writing or calling us at the address or phone number shown above. PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE FUND. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is May 1, 1997 7 TABLE OF CONTENTS
PAGE ---- DEFINITIONS................................................................................ 4 SUMMARY.................................................................................... 6 TABLE OF EXPENSES.......................................................................... 10 CONDENSED FINANCIAL INFORMATION............................................................ 13 THE COMPANY................................................................................ 15 THE VARIABLE ACCOUNT, THE FUND, AND FIXED ACCOUNT.......................................... 15 The Variable Account.................................................................... 15 The Fund................................................................................ 15 Seligman Capital Portfolio.......................................................... 16 Seligman Cash Management Portfolio.................................................. 16 Seligman Common Stock Portfolio..................................................... 16 Seligman Communications and Information Portfolio................................... 16 Seligman............................................................................ 16 Bond Portfolio...................................................................... 16 Seligman Frontier Portfolio......................................................... 16 Seligman Henderson Global Growth Opportunities Portfolio............................ 17 Seligman Henderson International Portfolio.......................................... 17 Seligman Henderson Global Smaller Companies Portfolio............................................................ 17 Seligman Henderson Global Technology................................................ 17 Seligman ........................................................................... 17 Seligman High-Yield Bond Portfolio.................................................. 17 Seligman Income Portfolio........................................................... 17 Reserved Rights......................................................................... 17 Change in Investment Policy............................................................. 18 The Fixed Account....................................................................... 18 Guarantee Amount.................................................................... 18 Guarantee Periods................................................................... 18 Market Value Adjustment............................................................. 19 DESCRIPTION OF ANNUITY POLICY.............................................................. 20 Ten Day Right to Examine the Policy..................................................... 20 Premiums................................................................................ 20 Initial Premium .................................................................... 21 Additional Premiums................................................................. 21 Wire Transmittal Privilege.......................................................... 21 Electronic Data Transmission of Application Information.......................................................... 21 Net Premium Allocation.............................................................. 22 Termination...................................................................... 22 Variable Account Value.............................................................. 22 Units............................................................................ 22 Unit Value....................................................................... 22 Net Investment Factor............................................................ 23 Transfers........................................................................... 23 Transfer Privilege............................................................... 23 Telephone Transfer Privilege..................................................... 23 Dollar Cost Averaging Privilege.................................................. 23 Restrictions on Transfers From Fixed Account............................................................... 24 Transfer Processing Fee........................................................ Payment of Proceeds ................................................................ 24 Proceeds ...................................................................... 24 Proceeds on Annuity Date or Maturity Date...................................... 24 Proceeds on Surrender.......................................................... 25 Proceeds on Death Of Last Surviving Annuitant Before Annuity Date or Maturity Date (The Death Benefit) ........................................................ 25 Proceeds on Death of Any Owner Before or After Annuity Date or Maturity Date......................................... 26 Interest on Proceeds........................................................... 27 Partial Withdrawals................................................................. 27 Systematic Withdrawal Privilege................................................ 27 Seligman Time Horizon Matrix........................................................ 28 Portfolio Rebalancing............................................................... 28 Loans............................................................................... 28 Payment of Benefits, Partial Withdrawals, Cash Surrenders, & Transfers - Postponement.......................................... 29 Charges Against the Policy, Variable Account, and Fund.............................. 29 Surrender Charge................................................................ 29 Policy Administration Charge.................................................... 30 Daily Administration Fee........................................................ 30 Transfer Processing Fee......................................................... 31 Annualized Mortality and Expense Risk Charge.................................... 31
2 8
Waiver of Surrender Charges.......................................................... 31 Reduction or Elimination of Surrender Charges........................................ 32 Reduction or Elimination of Policy Administration Charge............................. 32 Taxes................................................................................ 32 Other Charges Including Investment Management Fees................................... 33 Payment Options......................................................................... Election of Options ................................................................. 33 Description of Payment Options....................................................... 33 Payment Dates........................................................................ 33 Age and Survival of Payee............................................................ 34 Death of Payee....................................................................... 34 Other Policy Provisions................................................................. 34 Owner or Joint Owner................................................................. 34 Beneficiary ......................................................................... 34 Written Notice....................................................................... 34 Periodic Reports..................................................................... 34 Assignment........................................................................... 35 Modification......................................................................... 35 YIELDS AND TOTAL RETURNS................................................................... 35 TAX DEFERRAL............................................................................... 37 FEDERAL TAX STATUS......................................................................... 37 Introduction ........................................................................... 37 The Company's Tax Status................................................................ 37 Tax Status of the Policy................................................................ 38 Diversification Requirements......................................................... 38 Required Distributions............................................................... 38 Taxation of Annuities................................................................... 39 In General........................................................................... 39 Withdrawals/Distributions ........................................................... 39 Annuity Payments..................................................................... 39 Taxation of Death Benefit Proceeds .................................................. 39 Penalty Tax on Certain Withdrawals .................................................. 40 Transfers, Assignments, or Exchanges of a Policy ....................................... 40 Withholding ............................................................................ 40 Multiple Policies ...................................................................... 40 Possible Tax Changes ................................................................... 40 Taxation of Qualified Plans ............................................................ 41 Individual Retirement Annuities and Simplified Employee Pensions (SEP/IRAs) .............................................. 41 Minimum Distribution Requirements ("MDR") for IRAs................................... 41 Corporate and Self-Employed (H.R.10 and Keogh) Pension and Profit-Sharing Plans........................................ 42 Deferred Compensation Plans.......................................................... 42 Tax-Sheltered Annuity Plans 39 Other Tax Consequences............................................................... 42 RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM.................................................................... DISTRIBUTION OF POLICIES................................................................... 43 LEGAL PROCEEDINGS.......................................................................... 43 VOTING RIGHTS.............................................................................. 43 FINANCIAL STATEMENTS....................................................................... 44 STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS........................................................................... APPENDIX A: STATE PREMIUM TAXES............................................................ 45
3 9 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 an annuity payment option. BENEFICIARY: The person to whom we will pay the proceeds payable on your death or on the death of the last surviving annuitant. CASH SURRENDER VALUE: The policy value less: 1) any applicable surrender charge; and 2) the policy administration charge; and 3) any applicable market value adjustment. 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: Part of our general account that provides a Guaranteed Interest Rate for a specified Guarantee Period. This account is not part of and does not depend on the investment performance of the Variable Account. FUND: Seligman Portfolios, Inc., a diversified open-end investment company that offers shares in 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. GUARANTEE AMOUNT: Before the Annuity Date, the amount equal to that part of any net premium allocated to or policy value transferred to the Fixed Account for a designated Guarantee Period with a particular expiration date (including interest thereon) less any withdrawals (including any applicable surrender charges, any applicable Market Value Adjustment and any applicable premium tax charge) or transfers (including any applicable Market Value Adjustments) therefrom. GUARANTEE PERIOD: A specific number of years for which we agree to credit a particular effective annual rate of interest. We currently offer Guarantee Periods of one, three, five, seven and ten years. GUARANTEED INTEREST RATE: The applicable effective annual rate of interest that we will pay on a Guarantee Amount. The Guaranteed Interest Rate will be at least three percent per year. LAST SURVIVING ANNUITANT: The annuitant or co-annuitant that survives the other. MARKET VALUE ADJUSTMENT: A positive or negative adjustment that may apply to any portion of a Guarantee Amount upon the surrender, withdrawal, or transfer of such portion of the Guarantee Amount before the expiration of the Guarantee Period applicable to that Guarantee Amount. 4 10 MATURITY DATE: The first day of the month after the last surviving 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"). See "FEDERAL TAX STATUS". OWNER: The owner is entitled to exercise all rights and privileges provided the owner in the policy. The term owner also includes any joint owner. PAC: Pre-authorized check, including electronic fund transfers. POLICY: One of the flexible premium variable deferred annuity policies offered by this Prospectus. POLICY VALUE: The sum of the Variable Account value and the Fixed Account value. POLICY DATE, YEARS, MONTHS, and ANNIVERSARIES: Are measured from the policy date shown in the "Policy Details" of the policy. QUALIFIED POLICY: A policy that is issued in connection with plans that receive special federal income tax treatment under Sections 401, 403(a), 403(b), 408 or 457 of the Code. See "FEDERAL TAX STATUS". SUB-ACCOUNT: The Variable Account has twelve sub-accounts: Capital; Cash Management; Common Stock; Bond; Income; International; 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 the New York Stock Exchange is open for trading. VALUATION PERIOD: The period beginning at the close of business on a valuation day and ending at the close of business on the next succeeding valuation day. The close of business is when the New York Stock Exchange closes (usually at 4:00 P.M. Eastern Time). VARIABLE ACCOUNT: The Canada Life of America Variable Annuity Account 2. WE, OUR, and US: Canada Life Insurance Company of America. WRITTEN NOTICE: See the "Written Notice" provision in the "Other Policy Provisions" section of this Prospectus. YOU or YOUR: The owner. See the definitions of "Owner" and "Joint Owner" above. 5 11 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 any annuitant's lifetime and before the annuity date or maturity date. The minimum additional premium is $1,000, or $100 per month if paid by PAC (or $50 per month if paid by PAC if the Policy is an Individual Retirement Annuity). Our prior approval is required before your total premiums paid exceed $1,000,000. You may allocate your net premiums among the sub-accounts of the Variable Account and the Fixed Account. See "Premiums". THE VARIABLE ACCOUNT The Variable Account is a separate investment account consisting of 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". THE FUND The assets of each sub-account are invested in the corresponding portfolios of the Fund. The Fund currently offers twelve portfolios: Seligman Capital; Seligman Cash Management; Seligman Common Stock; Seligman Bond; Seligman Income; Seligman Henderson International; Seligman Communications and Information; Seligman Frontier; Seligman Henderson Global Smaller Companies; Seligman High-Yield Bond; Seligman Henderson Global Technology; and Seligman Henderson Global Growth Opportunities. The Fund is a diversified, open-end investment company. See "The Fund". THE FIXED ACCOUNT The Fixed Account is not part of and does not depend on the investment performance of the Variable Account. Under the Fixed Account you may allocate all or a portion of net premium payments and transfer policy value among several Guarantee Periods selected by you. We currently offer Guarantee Periods with durations of one, three, five, seven, and ten years. If the amount allocated or transferred remains in a Guarantee Period until the expiration date of a Guarantee Period, its value will be equal to the amount originally allocated or transferred, multiplied on an annually compounded basis, by its Guaranteed Interest Rate. Except for the one year Guarantee Period, any surrender, withdrawal, or transfer will be subject to a Market Value Adjustment that may increase or decrease the Guarantee Amount (or portion thereof) being surrendered, withdrawn, or transferred. Because of this adjustment and for other reasons, the amount payable upon surrender, withdrawal, or transfer may be greater or less than the Guarantee Amount at the time of the transaction. However, the Market Value Adjustment will never reduce the earnings on amounts allocated to the Fixed Account to less than three percent per year. The Market Value Adjustment does not apply to amounts surrendered, withdrawn, or transferred from the one year Guarantee Period (See "THE FIXED ACCOUNT - Market Value Adjustment"). 6 12 TRANSFERS You may transfer all or part of an amount in a sub-account or the Fixed Account to another sub-account(s) or the Fixed Account, subject to certain restrictions. See "Transfers". DEATH BENEFIT If we receive due proof of death of the last surviving annuitant before the annuity date or maturity date ("such due proof"), 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 last surviving annuitant's death. If we receive such due proof after the first five policy years, the death benefit is the greatest of: 1. item "1" above; or 2. item "2" above; or 3. the policy value at the end of the most recent 5 policy year period preceding the date we receive due proof of the last surviving annuitant's death, adjusted for any of the following items that occur after such last 5 policy year period: a) less any partial withdrawals, including applicable surrender charges; b) less any incurred taxes; and c) plus any premiums paid. The 5 policy year periods are measured from the policy date (i.e., 5, 10, 15, 20, etc.). If on the date the policy was issued, all annuitants were attained age 80 or less, then after any annuitant attains age 81, the death benefit is the greater of items "1" or "2" above. However, if on the date the policy was issued, any annuitant was attained age 81 or more, then the death benefit is the policy value. THE FOLLOWING APPLIES ONLY TO 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. If we receive such due proof during the first seven policy years, the death benefit is the greater of: 1. the premiums paid, less: a) any partial withdrawals, including applicable surrender charges; and b) any incurred taxes; or 2. the policy value on the date we receive due proof of the last surviving annuitant's death. If we receive such due proof after the first seven policy years, the death benefit is the greatest of: 1. item "1." above; or 2. item "2." above; or 3. the policy value at the end of the most recent 7 policy year period preceding the date we receive due proof of the last surviving annuitant's death, adjusted for any of the following items that occur after such last 7 policy year period: a) less any partial withdrawals, including applicable surrender charges; b) less any incurred taxes; and c) plus any premiums paid. The 7 policy year periods are measured from the policy date (i.e., 7, 14, 21, 28, etc.). For policies issued from May 1, 1995 through April 30, 1996, no further step-ups in Death Benefits will occur after any annuitant's age of 80. No death benefit is payable if the policy is surrendered before the last surviving annuitant's death. See "Proceeds on Death of Last Surviving Annuitant Before Annuity Date or Maturity Date". 7 13 PARTIAL WITHDRAWALS AND CASH SURRENDERS You may withdraw part or all of the cash surrender value at any time before the earlier of the death of the last surviving annuitant, the annuity date or the maturity date, subject to certain limitations. See "The Fixed Account" and "Partial Withdrawals" and "Proceeds on Surrender". Partial withdrawals and cash surrenders may be subject to federal income tax, including a penalty tax. See "FEDERAL TAX STATUS". POLICY CHARGES No deduction for a sales charge is made when premiums are paid. However, a surrender charge (contingent deferred sales charge) will be deducted when certain partial withdrawals and cash surrenders are made. For the purpose of determining if any surrender charge applies and the amount of such charge, partial withdrawals and surrenders are taken according to these rules from policy value attributable to premiums 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". 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". 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". The first 12 transfers during each policy year are free under our current Company policy, which we reserve the right to change. Although, the Company currently does not assess a transfer fee for the 13th and each additional transfer in a policy year, we reserve the right to assess a $25 transfer fee. See "Transfer Processing Fee". We deduct a mortality and expense risk charge at each valuation period from the assets of the Variable Account at an effective annual rate of 1.25%. This charge is not made after the annuity date or maturity date, or against any amounts in the Fixed Account. See "Annualized Mortality and Expense Risk Charge". 8 14 We will incur premium taxes in some jurisdictions relating to the policies. Depending on the jurisdiction, we deduct any such taxes from either: a) the premium when paid; or b) the policy value when it is applied under a payment option, cash surrender value or partial withdrawal. See "Taxes". Each portfolio of the Fund in which the Variable Account invests is responsible for its own expenses. In addition, charges for investment management services are charged daily from each portfolio of the Fund as a percentage of the average net assets of the portfolios, as follows: 0.40% for Capital, Cash Management (currently waived), Common Stock, Bond, and Income; 0.75% for Communications and Information, and Frontier; 1.00% for International, Global Smaller Companies, Global Technology and Global Growth Opportunities; and 0.50% for High-Yield Bond. See "Other Charges Including Investment Management Fees" and the attached "PROSPECTUS FOR THE FUND." LOANS The Company may offer a loan privilege to owners of policies issued in connection with Section 403(b) qualified plans that are not subject to Title I of ERISA (Employee Retirement Income Security Act of 1974, as amended). If offered, owners of such policies may obtain loans using the policy as the only security for the loan. The effective cost of a policy loan would be 2% per year of the amount borrowed. See "Loans". ANNUITY DATE, MATURITY DATE AND PAYMENT OPTIONS On the annuity date, we will apply the policy value under Payment Option 1, unless you have elected to receive the cash surrender value in a lump sum, or pursuant to a mutually agreed upon payment option, Payment Option 2. Payments under these payment options do not depend on the Variable Account's investment performance. The proceeds we will pay on the maturity date is the policy value. The payment options are: 1) Life Income; and 2) Mutual Agreement. See "Payment Options". OTHER POLICY PROVISIONS For information concerning the owner, beneficiary, written notice, periodic policy reports, assignment, and modification see "Other Policy Provisions". FEDERAL TAX STATUS For a brief discussion of our current understanding of the federal tax laws concerning us and the annuity policies we issue see "FEDERAL TAX STATUS". QUESTIONS We will be happy to answer your questions about the policy or our procedures. Call or write to us at the phone number or address on page one. All inquiries should include the policy number, and the names of the owner and the annuitant. 9 15 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")................................................................................. 6.00% Transfer fee Current policy - First 12 transfers each policy year:................................................. No fee Each transfer thereafter:............................................................................. fee** 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 TOTAL ANNUAL SUB-ACCOUNT FEES REIMBURSEMENT EXPENSES ----------- ---------- ------------- ------------ Bond 0.40% 0.20% 0.60% Capital 0.40% 0.19% 0.59% Cash Management 0.00% 0.00% 0.00% Common Stock 0.40% 0.13% 0.53% Communications and Information 0.75% 0.12% 0.87% Frontier 0.75% 0.17% 0.92% Global Growth Opportunities 1.00% 0.40% 1.40% Global Smaller Companies 1.00% 0.40% 1.40% Global Technology 1.00% 0.40% 1.40% High-Yield Bond 0.50% 0.20% 0.70% Income 0.40% 0.19% 0.59% International 1.00% 0.40% 1.40%
10 16 * In addition to the policyowner transaction expenses reflected in the table, a Market Value Adjustment applies to the Guarantee Amount subject to surrender, withdrawal, or transfer except during the 30 days following the expiration of a Guarantee Period. Because of this adjustment and for other reasons, the amount payable upon surrender, withdrawal, or transfer may be greater or less than the Guarantee Amount at the time of the transaction. The Market Value Adjustment, however, will never reduce the earnings on amounts allocated to the Fixed Account to less than three percent per year and does not apply to amounts surrendered, withdrawn, or transferred from the one year Guarantee Period. ** Although, the Company currently does not assess a transfer fee for the 13th and each additional transfer in a policy year, we reserve the right to assess a $25 transfer fee. *** The above table is intended to assist the policyowner in understanding the costs and expenses that will be borne, under the policy, directly or indirectly. These include the expenses of the Fund. The 0.00% following "Management Fees" under Cash Management is based on the fact that the Manager, in its sole discretion, waived its fee of 0.40% during 1996., There is no assurance that the Manager will continue this policy in the future. In the event that this waiver is discontinued, this will be reflected in an updated prospectus. With respect to all portfolios of the Fund except International, Global Smaller Companies, Global Technology and Global Growth Opportunities, the percentage listed following "Other expenses after expense reimbursement" is based on the fact that the Fund expenses, other than the management fee, exceeding 0.20% (0.00% under Cash Management) will be reimbursed by the Fund's Manager by voluntary agreement of the Manager. There is no assurance that the Manager will continue this policy in the future. With respect to International, Global Smaller Companies, Global Technology and Global Growth Opportunities, the Sub-Advisor has agreed to reimburse annual expenses (other than the management fee) that exceed 0.40% of average net assets. There is no assurance that the Manager and the Sub-Advisor will continue this policy in the future. In the event that any of these waivers and reimbursements are discontinued, this will be reflected in an updated prospectus. Absent such a reimbursement, the Fund's "Other Expenses" would be higher, and during 1996 would have been: Cash Management 0.23%; Bond 0.39%; International 1.30%; Global Smaller Companies 0.90%; and High-Yield Bond 0.38%. Expenses for Capital, Common Stock, Communications and Information, Frontier, and Income 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" for the Global Technology and Global Growth Opportunities Portfolios were 3.71% and 5.04% 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," and the Prospectus for the Fund. In addition to the expenses listed above, premium taxes may be applicable, which currently range between .5% to 3.5%, according to the jurisdiction. In many jurisdictions, there is no tax at all. See Appendix A, State Premium Taxes. 11 17 EXAMPLES A policyowner would pay the following expenses on a $1,000 investment, assuming a 5% annual return on assets: 1. If the policy is surrendered at the end of the applicable time period:
SUB-ACCOUNT 1 YEAR 3 YEAR 5 YEAR 10 YEAR - ------------------------------ ------------- ------------- ------------ ------------ Bond $ 77 $ 116 $ 158 $ 262 Capital $ 77 $ 116 $ 158 $ 261 Cash Management $ 71 $ 98 $ 127 $ 199 Common Stock $ 76 $ 114 $ 154 $ 254 Communications and Information $ 80 $ 124 $ 171 $ 289 Frontier $ 80 $ 126 $ 174 $ 293 Global Growth Opportunities $ 85 $ 140 $ 197 $ 339 Global Smaller Companies $ 85 $ 140 $ 197 $ 339 Global Technology $ 85 $ 140 $ 197 $ 339 High-Yield Bond $ 78 $ 119 $ 163 $ 272 Income $ 77 $ 116 $ 158 $ 261 International $ 85 $ 140 $ 198 $ 339
2. If the policy is annuitized or not surrendered at the end of the applicable time period:
SUB-ACCOUNT 1 YEAR 3 YEAR 5 YEAR 10 YEAR - ------------------------------ ------------- ------------- ------------- ------------ Bond $ 23 $ 71 $ 122 $ 262 Capital $ 23 $ 71 $ 121 $ 261 Cash Management $ 17 $ 53 $ 91 $ 198 Common Stock $ 22 $ 69 $ 118 $ 254 Communications and Information $ 26 $ 79 $ 136 $ 289 Frontier $ 26 $ 81 $ 138 $ 293 Global Growth Opportunities $ 31 $ 95 $ 162 $ 339 Global Smaller Companies $ 31 $ 95 $ 162 $ 339 Global Technology $ 31 $ 95 $ 162 $ 339 High-Yield Bond $ 24 $ 74 $ 127 $ 272 Income $ 23 $ 71 $ 122 $ 261 International $ 31 $ 95 $ 162 $ 339
12 18 The examples provided above assume that no transfer charges have been assessed. The examples also reflect a policy administration charge of .08% of assets, determined by dividing the total policy administration charge collected by the total average net assets of the sub-accounts of the Variable Account. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESSER THAN THE ASSUMED AMOUNT. CONDENSED FINANCIAL INFORMATION The following condensed financial information is derived from the financial statements of the Variable Account. The data should be read in conjunction with the financial statements, related notes and other financial information included in the Statement of Additional Information. See the "FINANCIAL STATEMENTS" section concerning financial statements contained in the Statement of Additional Information. The table below sets forth certain information regarding the sub-accounts for a policy for the period from commencement of business operations on June 21, 1993 through December 31, 1996. 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. The Global Technology and Global Growth Opportunities commenced operations on May 1, 1996. 13 19
ACCUMULATION UNIT VALUE AS OF AS OF AS OF AS OF AS OF INCEPTION SUB-ACCOUNT 12/31/96 12/31/95 12/31/94 12/31/93 6/21/93 - ------------------------------ ---------- ------------ -------------- ------------ ---------- Capital $ 25.79 $ 22.89 $ 18.29 $ 19.62 $ 17.53 Cash Management $ 1.34 $ 1.29 $ 1.25 $ 1.22 $ 1.22 Common Stock $ 27.42 $ 23.20 $ 18.53 $ 18.74 $ 17.38 Bond $ 15.22 $ 15.45 $ 13.17 $ 13.84 $ 13.52 Income $ 19.11 $ 18.20 $ 15.69 $ 16.97 $ 16.30 International $ 13.00 $ 12.34 $ 11.26 $ 11.34 $ 9.98 Communications and Information $ 15.17 $ 14.17 $ 10.40 * Frontier $ 16.86 $ 13.83 $ 10.54 * Global Smaller Companies $ 13.91 $ 11.91 $ 10.32 * High-Yield Bond $ 11.99 $ 10.63 ** Global Technology $ 10.29 *** Global Growth Opportunities $ 9.82 *** NUMBER OF UNITS OUTSTANDING AT END OF PERIOD AS OF AS OF AS OF AS OF SUB-ACCOUNT 12/31/96 12/31/95 12/31/94 12/31/93 - ------------------------------ ---------- ---------- -------- -------- Capital 364,487 177,869 62,358 4,660 Cash Management 6,138,138 4,756,423 434,226 56,138 Common Stock 743,848 406,237 127,570 35,206 Bond 174,526 118,761 64,614 15,084 Income 423,690 262,103 124,878 27,474 International 548,115 329,980 150,440 47,001 Communications and Information 3,582,800 2,515,329 47,541 * Frontier 1,536,337 785,660 11,609 * Global Smaller Companies 1,173,248 408,870 12,740 * High-Yield Bond 939,456 275,716 ** Global Technology 108,483 *** Global Growth Opportunities 131,675 ***
* The Accumulation Unit Values for the Communications and Information, Frontier and Global Smaller Companies Sub-Accounts' first valuation period were set at $10. Since these Sub-Accounts were not in existence in 1993, there were no outstanding units to report at the end of the period December 31, 1993. ** The Accumulation Unit Value for the High-Yield Bond Sub-Account's first valuation period was set at $10. Since this Sub-Account was not in existence in 1994, there were no outstanding units to report at the end of the period December 31, 1994. *** The Accumulation Unit Value for the Global Technology and Global Growth Opportunities Sub-Accounts' first valuation period was set at $10. Since these Sub-Accounts were not in existence prior to 5/1/96 there are no units or unit values are provided prior to December 31, 1996. 14 20 THE COMPANY Canada Life Insurance Company of America ("we," "our," and "us") is a stock life insurance company with assets as of December 31, 1996 of approximately $2.7 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, 1996 of approximately $23.2 billion (U.S. dollars). Obligations under the policies are obligations of Canada Life Insurance Company of America. We are subject to regulation and supervision by the Michigan Insurance Bureau, as well as the applicable laws and regulations of all jurisdictions in which we are authorized to do business. THE VARIABLE ACCOUNT, THE FUND AND FIXED ACCOUNT THE VARIABLE ACCOUNT We established the Canada Life of America Variable Annuity Account 2 (the "Variable Account") as a separate investment account on October 30, 1992, under Michigan law. Although we own the assets in the Variable Account, these assets are held separately from our other assets and are not part of our general account. The income, gains or losses, whether or not realized, from the assets of the Variable Account are credited to or charged against the Variable Account in accordance with the policies without regard to our other income, gains or losses. The portion of the assets of the Variable Account equal to the reserves and other contract liabilities of the Variable Account will not be charged with liabilities that arise from any other business that we conduct and will be held in the Variable Account. We have the right to transfer to our general account any assets of the Variable Account which are in excess of such reserves and other liabilities. The Variable Account is registered with the Securities and Exchange Commission (the "SEC") as a unit investment trust under the Investment Company Act of 1940 (the "1940 Act") and meets the definition of a "separate account" under the federal securities laws. However, registration under the 1940 Act does not involve the supervision by the SEC of the management or investment policies or practices of the Variable Account. The Variable Account currently is divided into twelve sub-accounts with the assets of each sub-account invested in shares of the corresponding portfolio of the Fund described below. 15 21 THE FUND Seligman Portfolios, Inc. (the "Fund") currently has twelve portfolios: Seligman Capital; Seligman Cash Management; Seligman Common Stock; Seligman Bond; Seligman Income; Seligman Henderson International; Seligman Communications and Information; Seligman Frontier; Seligman Henderson Global Smaller Companies; Seligman High-Yield Bond; Seligman 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 shares of a portfolio will be reinvested in additional shares of that portfolio at their net asset value. The Fund Prospectus defines the net asset value of portfolio shares. The Fund is a diversified open-end investment company incorporated in Maryland which uses the investment management services of J. & W. Seligman & Co. Incorporated (the International, Global Smaller Companies, Global Technology and Global Growth Opportunities Portfolios use the sub-advisory services of Seligman Henderson Co.). The following is a brief description of the investment objectives of each of the current portfolios of the Fund. There is, 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 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 BOND 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 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. 16 22 SELIGMAN HENDERSON GLOBAL GROWTH OPPORTUNITIES PORTFOLIO The investment objective of this Portfolio is to seek long-term capital appreciation by investing primarily in capital stock of companies that have the potential to benefit from global economic or social trends. SELIGMAN HENDERSON INTERNATIONAL 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. 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 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 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 Rating Service ("S&P") or Moody's Investors Service, Inc. ("Moody's"). The Portfolio may invest up to 100% of its assets in lower rated bonds, commonly known as "junk bonds" which are subject to a greater risk of loss of principal and interest than higher rated investment grade bonds. An investment in the 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 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. 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 17 23 available for investment. We will obtain the approval of the SEC before we make a substitution of shares, if such approval is required by law. When permitted by law, we also reserve the right to: create new variable accounts; combine variable accounts, including the Canada Life of America Variable Annuity Account 2; remove, combine or add sub-accounts and make the new sub-accounts available to policyowners at our discretion; add new portfolios of the Fund or of other registered investment companies; 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. THE FIXED ACCOUNT An owner may allocate some or all of the net premium payments and transfer some or all of the policy value to the Fixed Account, which is part of our general account and pays interest at declared rates (Guaranteed Interest Rates) guaranteed for selected periods of time from one to ten years (Guarantee Periods). The principal, after deductions, is also guaranteed. Since the Fixed Account is part of the general account, we assume the risk of investment gain or loss on this amount. All assets in the general account are subject to our general liabilities from business operations. The Fixed Account may not be available in all states. Due to certain exemptive and exclusionary provisions, interests issued by us in connection with the Fixed Account have not been registered under the Securities Act of 1933 (the "1933 Act"), and neither the Fixed Account nor the general account has been registered as an investment company under the 1940 Act. Accordingly, neither the Fixed Account, nor the general account are generally subject to regulation under the 1933 Act and the 1940 Act. Disclosures relating to the interests in the Fixed Account, the Fixed Account, and the general account, however, may be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy of statements made in a registration statement. GUARANTEE AMOUNT The portion of the policy value allocated to the Fixed Account is the Guarantee Amount which is credited with interest, as described below. The Guarantee Amount reflects interest credited to the policy value in the Guarantee Periods, net premium payments allocated to or policy value transferred to Guarantee Periods and charges assessed in connection with the policy. The Guarantee Amount is guaranteed to accumulate at a minimum effective annual interest rate of 3%. GUARANTEE PERIODS From time to time we will offer to credit Guarantee Amount with interest at specific guaranteed rates for specific periods of time. These periods of time are known as Guarantee Periods. We may offer one or more Guarantee Periods of one to ten years' duration at any time but will always offer a Guarantee Period of one year. We currently offer Guarantee Periods of one, three, five, seven and ten years. The interest rates available at any time will vary with the number of years in the Guarantee Period but will always be equal to or greater than an effective annual interest rate of 3%. Guarantee Periods begin on the date as of which a net premium payment is allocated to or a portion of the policy value is transferred to the Guarantee Period, and end on the last calendar day of the month when the number of years in the 18 24 Guarantee Period elected (measured from the end of the calendar month in which the amount was allocated or transferred to the Guarantee Period) has elapsed. Allocations of net premium payments and transfers of policy value to the Fixed Account for a Guarantee Period may have different applicable Guaranteed Interest Rates depending on the timing of such allocations or transfers. The applicable Guaranteed Interest Rate does not change during a Guarantee Period. If the allocated or transferred amount remains in the fixed rate interest option until the end of the applicable Guarantee Period, its value will be equal to the amount originally allocated or transferred, multiplied, on an annually compounded basis, by its Guaranteed Interest Rate. If a Guarantee Amount is surrendered, withdrawn, or transferred prior to the expiration of the Guarantee Period, the Guaranteed Amount is subject to a Market Value Adjustment, as described below, the application of which may result in the payment of an amount greater or less than the Guarantee Amount at the time of the transaction. The Market Value Adjustment, however, will never reduce the earnings on amounts allocated to the fixed interest rate option to less than three percent per year and does not apply to amounts surrendered, withdrawn, or transferred from the one year Guarantee Period or to provide death, nursing home, terminal illness benefits, and annuitization. During the 30 day period following the expiration of a Guarantee Period ("30 day window"), a policyowner may transfer the Guarantee Amount from the expiring Guaranteed Period to another fixed interest rate option with a new Guarantee Period or to a sub-account(s). A Market Value Adjustment will not apply if the Guarantee Amount from the expired Guarantee Period is surrendered, withdrawn, or transferred during the 30 day window. During the 30 day window, the Guarantee Amount will accrue interest at an annual effective rate of 3% unless the Guarantee Amount remains in the Fixed Account in which case you will receive the interest rate in accordance with the Guarantee Period chosen. Prior to the expiration date of any Guarantee Period, we will notify you of the then currently available Guarantee Periods and the Guaranteed Interest Rates applicable to such Guarantee Periods. A new Guarantee Period of the same duration as the previous Guarantee Period will commence automatically on the first day following the expired Guarantee Period, unless we receive Written Notice prior to the expiration of the 30 day window of the owner's election of a different Guarantee Period from among those being offered by us at that time, or instructions to transfer all or a portion of the expiring Guarantee Amount to a sub-account. If we do not receive such Written Notice and are not offering a Guarantee Period of the same duration as the expiring Guarantee Period or if the duration of the expiring Guarantee Period would, if renewed, extend beyond the annuity date, if known, or maturity date then a new Guarantee Period of one year will commence automatically on the first day following the expiration of the expired Guarantee Period. To the extent permitted by law, we reserve the right at any time to offer Guarantee Periods that differ from those available when an owner's policy was issued. We also reserve the right, at any time, to stop accepting net premium payment allocations or transfers of policy value to a particular Guarantee Period. Since the specific Guarantee Periods available may change periodically, please contact our Administrative Office to determine the Guarantee Periods currently being offered. Owners allocating net premium payments and/or policy value to the Fixed Account do not participate in the investment performance of assets of the Fixed Account, and this performance does not determine the policy value attributable to the Fixed Account or benefits relating thereto. The Fixed Account provides values and benefits based only upon the net purchase payments and policy values allocated thereto, the Guaranteed Interest Rate credited on such amounts, and any charges or Market Value Adjustments imposed on such amounts in accordance with the terms of the policy. MARKET VALUE ADJUSTMENT A Market Value Adjustment reflects the relationship between: (i) the Guaranteed Interest Rate being applied to the Guarantee Period from which the Guarantee Amount is requested to be surrendered, withdrawn, or transferred; and (ii) the current Guaranteed Interest Rate that we credit for a Guarantee Period equal in duration to the Guarantee Period from which the Guarantee Amount will be surrendered, withdrawn, or transferred. If a Guarantee Period of such duration is not being offered, we will use the linear interpolation of the Guaranteed Interest Rates for the Guarantee Periods closest in duration that are available. Any surrender, withdrawal, or transfer of a Guarantee Amount is subject to a Market Value Adjustment, unless the effective date of the surrender, withdrawal, or transfer is within 30 days after the end of a Guarantee Period or the surrender, withdrawal or transfer of a Guarantee Amount is from the one year Guarantee Period. The Market Value Adjustment will be applied after the deduction of any applicable policy administration charge or transfer fee, and before the deduction of any 19 25 applicable surrender charge or charge for taxes on premium payments. The Market Value Adjustment, however, will never invade principal nor reduce the earnings on amounts allocated to the Fixed Account to less than 3% per year. Generally, if the Guaranteed Interest Rate for the selected Guarantee Period is lower than the Guaranteed Interest Rate currently being offered for new Guarantee Periods of duration equal to the selected Guarantee Period as of the date that the Market Value Adjustment is applied, then the application of the Market Value Adjustment will result in the payment, upon surrender, withdrawal or transfer of an amount less than the Guarantee Amount (or portion thereof) being surrendered, withdrawn, or transferred. Conversely, if the Guaranteed Interest Rate for the selected Guarantee Period is higher than the Guaranteed Interest Rate currently being offered for new Guarantee Periods of a duration equal the selected Guarantee Period as of the date that the Market Value Adjustment is applied, then the application of the Market Value Adjustment will result in the payment, upon surrender, withdrawal, or transfer of an amount greater than the Guarantee Amount (or portion thereof) being surrendered, withdrawn, or transferred. The Market Value Adjustment is computed by multiplying the amount being surrendered, withdrawn, or transferred, (the "Amount") by the Market Value Adjustment Factor. The Market Value Adjustment Factor is calculated as follows: n/12 Market Value Adjustment Factor = Lesser of (a) (1 + i) ------------------ - 1 n/12 (1 +r+.005) or (b) .05 where:
"i" is the Guaranteed Interest Rate currently being credited to the "Amount"; "r" is the Guaranteed Interest Rate that is currently being offered for a Guarantee Period of a duration equal to the Guarantee Period for the Guarantee Amount from which the "Amount" is taken; and "n" is the number of months remaining to the expiration of the Guarantee Period for the Guarantee Amount from which the "Amount" is taken. The Market Value Adjustment, however, will never invade principal nor reduce the earnings on amounts allocated to the Fixed Account to less than 3% per year. DESCRIPTION OF ANNUITY POLICY TEN DAY RIGHT TO EXAMINE POLICY You have ten days after you receive the policy to decide if the policy meets your needs (except in California you have 30 days if the Owner is age 60 or over, 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. 20 26 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 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. 21 27 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. 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. 22 28 The unit value for a valuation period applies to each day in that period. The unit value may increase or decrease from one valuation period to the next. NET INVESTMENT FACTOR The net investment factor is an index that measures the investment performance of a sub-account from one valuation period to the next. Each sub-account has a net investment factor, which may be greater than or less than one. The net investment factor for each sub-account for a valuation period equals 1 plus the rate of return earned by the relevant portfolio of the Fund, adjusted for the effect of taxes charged or credited to the sub-account, the mortality and expense risk charge, and the daily administration fee. The rate of return of the relevant portfolio is equal to the fraction obtained by dividing (a) by (b) where: (a) is the net investment income and net gains, realized and unrealized, credited during the current valuation period; and (b) is the value of the net assets of the relevant portfolio at the end of the preceding valuation period, adjusted for the net capital transactions and dividends declared during the current valuation period. TRANSFERS TRANSFER PRIVILEGE You may transfer all or a part of an amount in the sub-account(s) to another sub-account(s) or to the Fixed Account, or transfer a part of an amount in the Fixed Account to the sub-account(s), subject to these general restrictions and the additional restrictions in "Restrictions on Transfers from Fixed Account": 1. the Company's minimum transfer amount, currently $250; and 2. a transfer request that would reduce the amount in that sub-account or the Fixed Account below $500 will be treated as a transfer request for the entire amount in that sub-account or the Fixed Account; and 3. transfers from the Fixed Account except from the one year Guarantee Period may be subject to a Market Value Adjustment We cannot guarantee that a sub-account or shares of a portfolio will always be available. If you request an amount in a sub-account or Fixed Account be transferred to a sub-account at a time when the sub-account or underlying portfolio is unavailable, we will not process your transfer request, and this request will not be counted as a transfer for purposes of determining the number of free transfers executed. The Company reserves the right to change its minimum transfer amount requirements. TELEPHONE TRANSFER PRIVILEGE You may direct us to act on transfer instructions given by telephone, subject to our procedures, by initialing the authorization on the application or by subsequently completing our administrative form. The authorization will continue in effect until we receive your written revocation or we discontinue this privilege. We reserve the right to change our procedures and to discontinue this privilege. We will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. If we do not employ such reasonable procedures, we may be liable for any losses due to unauthorized or fraudulent instructions. These procedures may include, but are not limited to, possible recording of telephone calls and obtaining appropriate personal security codes and contract number before effecting any transfers. DOLLAR COST AVERAGING PRIVILEGE ("DCA") You may elect to have us automatically transfer specified amounts FROM ANY ONE variable sub-account or the one year Guarantee Period under the Fixed Account (either one a "disbursement account") TO ANY OTHER variable sub-account(s) or Guarantee Period under the Fixed Account on a periodic basis, subject to our administrative procedures and the restrictions in 23 29 "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. 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 a Guarantee Period under the Fixed Account subject to these additional restrictions: 1. Transfers from a Guarantee Period other than the one year Guarantee Period may be subject to a Market Value Adjustment. 2. Transfers from one Guarantee Period to another are prohibited other than within the 30 day window. Under our current procedures, the transfer will be made on the valuation date that occurs on or next following the date we receive your transfer request at our Administrative Office. TRANSFER PROCESSING FEE There is no limit to the number of transfers that you can make between sub-accounts or to the Fixed Account. However, other than transfers made pursuant to DCA, we only allow one transfer each year from the Guarantee Periods under the Fixed Account (see "Restrictions on Transfers from Fixed Account" above). The first 12 transfers during each policy year are free under our current policy, which we reserve the right to change. Although, the Company currently does not assess a transfer fee for the 13th and each additional transfer in a policy year, we reserve the right to assess a $25 transfer fee. For the purposes of assessing the fee, each transfer request (which includes a written notice or telephone call, but does not include dollar cost averaging automatic transfers) is considered to be one transfer, regardless of the number of sub-accounts or the Fixed Account affected by the transfer. The processing fee will be charged proportionately to the receiving sub-account(s) and/or the Fixed Account. PAYMENT OF PROCEEDS PROCEEDS Proceeds means the amount we will pay under your policy when the first of the following events occurs: the annuity date or maturity date; or the policy is surrendered; or we receive due proof of death of the last surviving annuitant or any owner. We will pay any proceeds in a single sum that may be payable due to death before the annuity date or maturity date, unless an election is made for a payment option. See "Election of Options" . The policy ends when we pay the proceeds. We will deduct any applicable premium tax from the proceeds described below, unless we deducted the tax from the premiums when paid. PROCEEDS ON ANNUITY DATE OR MATURITY DATE If Payment Option 1 is in effect on the annuity date, the proceeds we will pay is the policy value. See "Payment Options". If the proceeds are paid in a lump sum on the annuity date, we will pay the cash surrender value. 24 30 You may change the annuity date, subject to these limitations: 1. we must receive your written notice at our Administrative Office at least 30 days before the current annuity date; 2. the requested annuity date must be a date that is at least 30 days after we receive your written notice; and 3. the requested annuity date should be no later than the first day of the month following any annuitant's 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 policy administration charge and any applicable Market Value Adjustment. The cash surrender value will be determined on the date we receive your written notice for surrender and this policy at our Administrative Office. You may surrender the policy for its cash surrender value at any time before the earlier of the death of the last surviving annuitant, the annuity date or maturity date. However, the surrender proceeds may be subject to federal income tax, including a penalty tax. See "FEDERAL TAX STATUS". You may elect to have the cash surrender value paid in a single sum or under a payment option. See "Payment Options" on . The policy ends when we pay the cash surrender value. You may avoid a surrender charge by electing to apply the policy values under Payment Option 1. See "Proceeds on Annuity Date or Maturity Date". PROCEEDS ON DEATH OF LAST SURVIVING ANNUITANT BEFORE ANNUITY DATE OR MATURITY DATE (THE DEATH BENEFIT) If we receive due proof of death of the last surviving annuitant before the annuity date or maturity date ("such due proof"), the proceeds we will pay to the beneficiary is the death benefit. THE FOLLOWING APPLIES 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 last surviving annuitant's death. If we receive such due proof after the first five policy years, the death benefit is the greatest of: 1. item "1" above; or 2. item "2" above; or 3. the policy value at the end of the most recent 5 policy year period preceding the date we receive due proof of the last surviving annuitant's death, adjusted for any of the following items that occur after such last 5 policy year period: a) less any partial withdrawals, including applicable surrender charges; b) less any incurred taxes; and c) plus any premiums paid. The 5 policy year periods are measured from the policy date (i.e., 5, 10, 15, 20, etc.). If on the date the policy was issued, all annuitants were attained age 80 or less, then after any annuitant attains age 81, the death benefit is the greater of items "1" or "2" above. However, if on the date the policy was issued, any annuitant was attained age 81 or more, then the death benefit is the policy value. THE FOLLOWING APPLIES ONLY TO CERTAIN POLICIES ISSUED PRIOR TO MAY 1, 1996 OR SUCH LATER DATE AS APPLICABLE REGULATORY APPROVAL 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: 25 31 1. the premiums paid, less: a) any partial withdrawals, including applicable surrender charges; and b) any incurred taxes; or 2. the policy value on the date we receive due proof of the last surviving annuitant's death. If we receive such due proof after the first seven policy years, the death benefit is the greatest of: 1. item "1." above; or 2. item "2." above; or 3. the policy value at the end of the 7 policy year period preceding the date we receive due proof of the last surviving annuitant's death, adjusted for any of the following items that occur after such last 7 policy year period: a) less any partial withdrawals, including applicable surrender charges; b) less any incurred taxes; and c) plus any premiums paid. The 7 policy year periods are measured from the policy date (i.e., 7, 14, 21, 28, etc.). For policies issued from May 1, 1995 through April 30, 1996, no further step-ups in Death Benefits will occur after any annuitant's age of 80. No death benefit is payable if the policy is surrendered before the last surviving annuitant's death. If you are the last surviving annuitant who dies before the annuity date or maturity date, the death benefit proceeds must be distributed pursuant to the rules set forth below in "Proceeds on Death of Any Owner Before or After Annuity Date or Maturity Date ." PROCEEDS ON DEATH OF ANY OWNER BEFORE OR AFTER ANNUITY DATE OR MATURITY DATE If you are not an annuitant, and we receive due proof of your death before the annuity date or maturity date we will pay the beneficiary the policy value as of the date we receive due proof of your death. If you are the annuitant, and we receive due proof of your death before the annuity date or maturity date we will pay the beneficiary the death benefit described in "Proceeds on the Death of Last Surviving Annuitant Before Annuity Date or Maturity Date." If any owner dies before the annuity date, Federal tax law requires the policy value be distributed within five years after the date of such owner's death regardless of whether such owner is or is not an annuitant, unless such owner's spouse is the designated beneficiary, in which case, the policy may be continued with the surviving spouse as the new owner. All such distributions will be made in accordance with the requirements of the Investment Company Act of 1940. A "designated beneficiary" is the person designated by you as a beneficiary and to whom the proceeds of the policy pass by reason of an owner's death and must be a natural person. If any owner dies on or after the earlier of the annuity date or maturity date, any remaining payments must be distributed at least as rapidly as under the payment option in effect on the date of such owner's death. The distribution requirements described above will be considered satisfied as to any portion of the proceeds: 1. payable to or for the benefit of a designated beneficiary; and 2. which is distributed over the life (or period not exceeding the life expectancy) of that beneficiary, provided that the beneficiary is a natural person and such distributions begin within one year of the owner's death. If you are not a natural person, the primary annuitant as determined in accordance with Section 72(s) of the Code (i.e., the individual the events in the life of whom are of primary importance in effecting the timing or amount of the payout under the policy) will be treated as an owner for purposes of these distribution requirements, and any change in the primary annuitant will be treated as the death of an owner. INTEREST ON PROCEEDS We will pay interest on proceeds if we do not pay the proceeds in a single sum or begin paying the proceeds under a payment option: 1. within 30 days after the proceeds become payable; or 2. within the time required by the applicable jurisdiction, if less than 30 days. This interest will accrue from the date the proceeds become payable to the date of payment, but not for more than one year, at an annual rate of 3%, or the rate and time required by law, if greater. 26 32 PARTIAL WITHDRAWALS You may withdraw part of the cash surrender value at any time before the earlier of the death of the last surviving annuitant, the annuity date or maturity date, subject to these limits: 1. the Company's minimum partial withdrawal, currently $250; 2. the maximum partial withdrawal is the amount that would leave a cash surrender value of $5,000; 3. a partial withdrawal request which would reduce the amount in a sub-account or a Guarantee Period under the Fixed Account below $500 will be treated as a request for a full withdrawal of the amount in that sub-account or a Guarantee Period; 4. a partial withdrawal request for an amount exceeding $10,000 must be accompanied by a guarantee of the owner's signature by a commercial bank, a trust company, or a savings and loan. On the date we receive your written notice for a partial withdrawal at our Administrative Office, we will withdraw the amount of the partial withdrawal from the policy value and we will then deduct any applicable surrender charge from the remaining policy value. The Company reserves the right to change its minimum partial withdrawal amount requirements. You may specify the amount to be withdrawn from certain sub-accounts or Guarantee Periods under the Fixed Account. If you do not provide this information to us, we will withdraw proportionately from the sub-accounts and the Guarantee Periods under the Fixed Account in which you are invested. If you do provide this information to us, but the amount in the designated sub-accounts and the Guarantee Periods is inadequate to comply with your withdrawal request, we will first withdraw from the specified sub-accounts and the Guarantee Periods under the Fixed Account. The remaining balance will be withdrawn proportionately from the other sub-accounts and Guarantee Periods in which you are invested. Any partial or systematic withdrawal may be included in the owner's gross income in the year in which the withdrawal occurs, and may be subject to federal income tax, including a penalty tax equal to 10% of the amount treated as taxable income, and the Code restricts certain distributions under Tax-Sheltered Annuity Plans and other qualified plans. See "FEDERAL TAX STATUS". SYSTEMATIC WITHDRAWAL PRIVILEGE ("SWP") You may elect to withdraw a fixed-level amount from the sub-account(s) and the Guarantee Period(s) under the Fixed Account on a monthly, quarterly, 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 the FIXED ACCOUNT available at the time the SWP is executed/processed; PLUS 3. Up to 10% of total premiums still subject to a surrender charge; PLUS 4. Up to 100% of total premiums NOT SUBJECT TO A SURRENDER CHARGE. NOTE: Withdrawals from a Guarantee Period other than from the one year Guarantee Period under the Fixed Account will be subject to a Market Value Adjustment. When no Surrender Charges are applicable, the entire policy is available for systematic withdrawal. The Systematic Withdrawal Privilege will end at the earliest of the date: when the sub-account(s) and Guarantee Period(s) you specified for those withdrawals has no remaining amount to withdraw; or the cash surrender value is reduced to $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. 27 33 SELIGMAN TIME HORIZON MATRIX(SM)("MATRIX") You may elect to participate in Seligman Time Horizon Matrix (the "Matrix") an asset allocation strategy which will allocate your policy value based primarily upon the amount of time you have to reach specific financial goals. The Matrix uses certain predetermined model portfolios, designed by J. & W. Seligman, that seek a wide range of financial goals for an investor's specific time horizon. Each J. & W. Seligman model portfolio represents a predetermined allocation of your policy value among one or more of the variable sub-accounts. The Matrix also allows you to construct your own customized model portfolio. Under the Matrix, you may elect to periodically rebalance your policy value to reflect the J. & W. Seligman model portfolio you have selected or periodically rebalance your policy value to reflect your customized model portfolio. Any rebalancing of your policy value will be made pursuant to our procedures governing portfolio rebalancing. See "Portfolio Rebalancing" below. You may also choose a J. & W. Seligman model portfolio or create a customized portfolio and elect not to rebalance your policy value after the initial allocation of policy value under that model portfolio. We make no representation or guarantee that following the Matrix will result in a profit, protect against loss or ensure the achievement of financial goals. To initiate the Matrix, we must receive your written notice on our form. Participation in the Matrix is voluntary and can be modified or discontinued at any time by you in writing on our form. We reserve the right to change our procedures or to discontinue offering the Matrix upon 30 days written notice to you. 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 offer a loan privilege to owners of policies issued in connection with Section 403(b) qualified plans that are not subject to Title I of ERISA. If offered, owners of such policies may obtain loans using the policy as the only security for the loan. Loans are subject to provisions of the Code and to applicable retirement program rules (collectively, "loan rules"). Tax advisers and retirement plan fiduciaries should be consulted prior to exercising loan privileges. Policy loans that satisfy certain requirements with respect to loan amount and repayment are not treated as taxable distributions. If these requirements are not satisfied, or if the policy terminates while a loan is outstanding, the loan balance will be treated as a taxable distribution and may be subject to penalty tax, and the treatment of the policy under Section 403(b) may be adversely affected. If loans are offered, the following will apply: Under the terms of the policy, qualified policies have a maximum loan value equal to 80% of the policy value, although loan rules may serve to reduce such maximum loan value in some cases. The amount available for a loan at any given time is the loan value less any outstanding debt. Debt equals the amount of any loans plus accrued interest. Loans will be made only upon written request from the owner. The Company will make loans within seven days of receiving a properly completed loan application (applications are available from the Company), subject to postponement under the same circumstances that payment of withdrawals may be postponed. See "Partial Withdrawals". 28 34 When an owner requests a loan, the Company will reduce the owner's investment in the investment accounts and transfer the amount of the loan to the loan account, a part of the Company's general account. The owner may designate the investment accounts from which the loan is to be withdrawn. Absent such a designation, the amount of the loan will be withdrawn from the investment accounts in accordance with the rules for making partial withdrawals. See "Partial Withdrawals". The policy provides that owners may repay policy debt at any time. Under applicable loan rules, loans generally must be repaid within five years, repayments must be made at least quarterly and repayments must be made in substantially equal amounts. When a loan is repaid, the amount of the repayment will be transferred from the loan account to the investment accounts. The owner may designate the investment accounts to which a repayment is to be allocated. Otherwise, the repayment will be allocated in the same manner as the owner's most recent premium. On each policy anniversary, the Company will transfer from the investment accounts to the loan account the amount by which the debt on the policy exceeds the balance in the loan account. The Company charges interest of 6% per year on policy loans. Loan interest is payable in arrears and, unless paid in cash, the accrued loan interest is added to the amount of the debt and bears interest at 6% as well. The Company credits interest with respect to amounts held in the loan account at a rate of 4% per year. Consequently, the net cost of loans under the policy is 2%. If on any date debt under a policy exceeds the policy value, the policy will be in default. In such case the owner will receive a notice indicating the payment needed to bring the policy out of default and will have a thirty-one day grace period within which to pay the default amount. If the required payment is not made within the grace period, the policy will be foreclosed (terminated without value). The amount of any debt will be deducted from the minimum death benefit. See "Proceeds on Death of Last Surviving Annuitant Before Annuity Date or Maturity Date". In addition, debt, whether or not repaid, will have a permanent effect on the policy value because the investment results of the investments accounts will apply only to the unborrowed portion of the policy value. The longer debt is outstanding, the greater the effect is likely to be. The effect could be favorable or unfavorable. If the investment results are greater than the rate being credited on amounts held in the loan account while the debt is outstanding, the policy value will not increase as rapidly as it would have if no debt were outstanding. If investment results are below that rate, the policy value will be higher than it would have been had no debt been outstanding. PAYMENT OF BENEFITS, PARTIAL WITHDRAWALS, CASH SURRENDERS & TRANSFERS - POSTPONEMENT We will usually pay any proceeds payable, amounts partially withdrawn, or the cash surrender value within seven calendar days after: 1. we receive your written notice for a partial withdrawal or a cash surrender; or 2. the date chosen for any systematic withdrawal; or 3. we receive due proof of your death or the death of the last surviving annuitant. However, we can postpone the payment of proceeds, amounts withdrawn, the cash surrender value, or the transfer of amounts between sub-accounts if: 1. the New York Stock Exchange is closed, other than customary weekend and holiday closings, or trading on the exchange is restricted as determined by the SEC; or 2. the SEC permits by an order the postponement for the protection of policyowners; or 3. the SEC determines that an emergency exists that would make the disposal of securities held in the Variable Account or the determination of the value of the Variable Account's net assets not reasonably practicable. We have the right to defer payment of any partial withdrawal, cash surrender, or transfer from the Fixed Account for up to six months from the date we receive your written notice for a withdrawal, surrender or transfer. CHARGES AGAINST THE POLICY, VARIABLE ACCOUNT, AND FUND SURRENDER CHARGE No deduction for a sales charge is made when premiums are paid. However, a surrender charge (contingent deferred sales charge) will be deducted when certain partial withdrawals and cash surrenders are made to at least partially reimburse us for 29 35 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 the Guarantee Periods under the Fixed Account being surrendered or partially withdrawn in relation to the amount(s) withdrawn. If the amount remaining in a sub-account or a Guarantee Period after the withdrawal is insufficient to cover the proportionate surrender charge deduction, the balance of the surrender charge will be assessed proportionately from any other sub-account and Guarantee Period in which you are invested. POLICY ADMINISTRATION CHARGE To cover the costs of providing certain administrative services attributable to the policies and the operations of the Variable Account, including policy records, communicating with policyowners, and processing transactions, we deduct a policy administration charge of $30 for the prior policy year on each policy anniversary. If the policy value on the policy anniversary is $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. The charge will be assessed proportionately from any sub-accounts and the Guarantee Periods under the Fixed Account in which you are invested. If the charge is obtained from a sub-account(s), we will cancel the appropriate number of units credited to this policy based on the unit value at the end of the valuation period when the charge is assessed. DAILY ADMINISTRATION FEE At each valuation period, we also deduct a daily administration fee at an effective annual rate of 0.35% from the assets of the Variable Account. This daily administration fee is intended to reimburse us for other administrative costs under the policies. 30 36 TRANSFER PROCESSING FEE The first 12 transfers during each policy year are free under our current policy, which we reserve the right to change. Although, the Company currently does not assess a transfer fee for the 13th and each additional transfer in a policy year, we reserve the right to assess a $25 fee. For the purposes of assessing the fee, each transfer request (which includes a written notice or telephone call, but does not include dollar cost averaging automatic transfers, telephone call, or automatic transfer) is considered to be one transfer, regardless of the number of sub-accounts or Guarantee Periods under the Fixed Account effected by the transfer. The processing fee will be charged proportionately to the receiving sub-account(s) and/or the Fixed Account. See "Transfers" for the rules concerning transfers. ANNUALIZED MORTALITY AND EXPENSE RISK CHARGE The mortality risk we assume is the risk that annuitants may live for a longer period of time than we estimated when we established our guarantees in the policy. Because of these guarantees, each annuitant is assured that their longevity will not have an adverse effect on the annuity payments they receive. The mortality risk we assume also includes our guarantee to pay a death benefit if the last surviving annuitant dies before the annuity date or maturity date. The expense risk we assume is the risk that the surrender charges, policy administration charge, daily administration fee, and transfer fees may be insufficient to cover our actual future expenses. The annual mortality and expense risk charge is deducted at each valuation period from the assets of the Variable Account at an effective annual rate of 1.25% of the value of the net assets in the Variable Account. This charge is not made after the earlier of the annuity date or maturity date, and this charge is not made against any Fixed Account value. This charge consists of approximately 0.75% to cover the mortality risk, and approximately 0.50% to cover the expense risk. WAIVER OF SURRENDER CHARGE When the policy has been in effect for 1 year, upon written notice from you, the Surrender Charge will be waived on any partial withdrawal or surrender after you provide us evidence that satisfies us in a written statement signed by a qualified physician that: 1. a) you are terminally ill; and b) your life expectancy is not more than 12 months due to the severity and nature of the terminal illness; and c) the diagnosis of the terminal illness was made after the effective date of this policy. 2. you are or have been confined to a hospital, nursing home or long-term care facility for at least 90 consecutive days, provided: a) confinement is for medically necessary reasons at the recommendation of a physician; b) the hospital, nursing home or long-term care facility is licensed or otherwise recognized and operating as such by the proper authority in the state where it is located, the Joint Commission on Accreditation of Hospitals or Medicare and satisfactory evidence of such status is provided to us; and c) the withdrawal or surrender request is received by us no later than 91 days after the last day of your confinement. For policies issued on or after May 1, 1996, this provision is not available if any owner was attained age 81 or older on the Effective Date. 31 37 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 Guarantee Periods under the Fixed Account in which you are invested. We reserve the right to charge or provide for any taxes levied by any governmental entity, including: 1. taxes that are against or attributable to premiums, policy values or annuity payments; or 2. taxes that we incur which are attributable to investment income or capital gains retained as part of our reserves under the policies or from the establishment or maintenance of the Variable Account. 32 38 OTHER CHARGES INCLUDING INVESTMENT MANAGEMENT FEES Each portfolio of the Fund is responsible for all of its operating expenses. In addition, the Fund pays J. & W. Seligman & Co. Incorporated (the "Manager") fees for investment management services that are calculated daily and payable monthly from each portfolio at an annual rate of 0.40% for Capital, Cash Management (currently waived), Common Stock, Bond and Income; 0.50% for High-Yield Bond; 0.75% for Communications and Information, and Frontier; and 1.00% for International, Global Smaller Companies, Global Technology and Global Growth Opportunities (of which the Manager in turn pays 0.90% to Seligman Henderson Co., the Sub-Adviser to these four portfolios) of the average daily net assets of the portfolio. The Prospectus and Statement of Additional Information for the Fund provide more information concerning the investment management fee, other charges against the portfolios, the investment management services provided to the portfolios by J. & W. Seligman & Co. Incorporated, and the sub-advisory services provided to the International, Global Smaller Companies, Global Technology, and Global Growth Opportunities Portfolios by Seligman Henderson Co. PAYMENT OPTIONS The policy ends when we pay the proceeds on the earlier of the annuity date or maturity date. On the annuity date, we will apply the policy value under Payment Option 1, unless you have an election of a payment option on file at our Administrative Office to receive the cash surrender value in a single sum, or to receive a mutually agreed upon payment option (Payment Option 2). The proceeds we will pay on the maturity date is the policy value. See "Proceeds on Annuity Date or Maturity Date". 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. 33 39 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. 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; 34 40 2. the policy value; 3. any premiums paid, withdrawals, and charges made since the last report; and 4. any other information required by law. The information in the report will be as of a date not more than two months before the date of the mailing. We will mail the report to you: 1. at least annually, or more often as required by law; and 2. to your last address known to us. ASSIGNMENT You may assign a nonqualified policy or an interest in it at any time before the earlier of the annuity date or maturity date during any annuitant's lifetime. An assignment must be in a written notice acceptable to us. It will not be binding on us until we receive and file it at our Administrative Office. We are not responsible for the validity of any assignment. Your rights and the rights of any beneficiary will be effected by an assignment. An assignment of a nonqualified policy may result in certain tax consequences to the owner. See "Transfers, Assignment or Exchanges of a Policy". MODIFICATION Upon notice to you, we may modify the policy, but only if such modification: 1. is necessary to make the policy or the Variable Account comply with any law or regulation issued by a governmental agency to which we are subject; or 2. is necessary to assure continued qualification of the policy under the Code or other federal or state laws relating to retirement annuities or variable annuity policies; or 3. is necessary to reflect a change in the operation of the Variable Accounts; or 4. provides additional variable account and/or fixed accumulation options. In the event of any such modification, we may make any appropriate endorsement to the policy. YIELDS AND TOTAL RETURNS From time to time, we may advertise yields, effective yields, and total returns for the sub-accounts. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND DO NOT INDICATE OR PROJECT FUTURE PERFORMANCE. Each sub-account may, from time to time, advertise performance relative to certain performance rankings and indices compiled by independent organizations. More detailed information as to the calculation of performance information, as well as comparisons with unmanaged market indices, appears in the Statement of Additional Information. 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. 35 41 The total return of a sub-account refers to return quotations assuming an investment under a policy has been held in the sub-account for various periods of time including, but not limited to, a period measured from the date the sub-account commenced operations. When a sub-account has been in operation for 1, 5, and 10 years, respectively, the total return for these periods will be provided. The average annual total return quotations represent the average annual compounded rates of return that would equate an initial investment of $1,000 under a policy to the redemption value of that investment as of the last day of each of the periods for which total return quotations are provided. Average annual total return information shows the average percentage change in the value of an investment in the sub-account from the beginning date of the measuring period to the end of that period. This standardized version of average annual total return reflects all historical investment results, less all charges and deductions applied against the sub-account (including any surrender charge that would apply if an Owner terminated the policy at the end of each period indicated, but excluding any deductions for premium taxes). We may, in addition, advertise total return performance information computed on a different basis. We may present total return information computed on the same basis as described above, except deductions will not include the surrender charge. This presentation assumes that the investment in the policy persists beyond the period when the surrender charge applies, consistent with the long-term investment and retirement objectives of the policy. We may compare the performance of each sub-account in advertising and sales literature to the performance of other variable annuity issuers in general or to the performance of particular types of variable annuities investing in mutual funds, or investment series of mutual funds with investment objectives similar to each of the sub-accounts. Lipper Analytical Services, Inc. ("Lipper") and the Variable Annuity Research Data Service ("VARDS") are independent services which monitor and rank the performances of variable annuity issuers in each of the major categories of investment objectives on an industry-wide basis. Other services or publications may also be cited in our advertising and sales literature. Lipper's rankings include variable life issuers as well as variable annuity issuers. VARDS rankings compare only variable annuity issuers. The performance analysis prepared by Lipper and VARDS each rank such issuers on the basis of total return, assuming reinvestment of distributions, but do not take sales charges, redemption fees or certain expense deductions at the separate account level into consideration. In addition, VARDS prepares risk adjusted rankings, which consider the effects of market risk on total return performance. This type of ranking provides data as to which funds provide the highest total return within various categories of funds defined by the degree of risk inherent in their investment objectives. We may also compare the performance of each sub-account in advertising and sales literature to the Standard & Poor's composite index of 500 common stocks, a widely used index to measure stock market performance. This unmanaged index does not reflect any "deduction" for the expense of operating or managing an investment portfolio. We may also make comparison to Lehman Brothers Government/Corporate Bond Index, an index that includes the Lehman Brothers Government Bond and Corporate Bond Indices. These indices are total rate of return indices. The Government Bond Index includes the Treasury Bond Index (public obligations of the U.S. Treasury) and the Agency Bond Index (publicly issued debt of U.S. Government agencies, quasi-federal corporations, and corporate debt guaranteed by the U.S. Government). The Corporate Bond Index includes publicly issued, fixed rate, nonconvertible investment grade dollar-denominated, SEC registered corporate debt. All issues have at least a one-year maturity, and all returns are at market value inclusive of accrued 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. 36 42 TAX DEFERRAL Under current tax laws any increase in policy value is generally not taxable to you or an annuitant until received, subject to certain exceptions. See "FEDERAL TAX STATUS". This deferred tax treatment may be beneficial to you in building assets in a long-range investment program. We may also distribute sales literature or other information including the effect of tax-deferred compounding on a sub-account's investment returns, or returns in general, which may be illustrated by tables, graphs, charts or otherwise, and which may include a comparison, at various points in time, of the return from an investment in a policy (or returns in general) on a tax-deferred basis (assuming one or more tax rates) with the return on a currently taxable basis where allowed by state law. All income and capital gains derived from sub-account investments are reinvested and compound tax-deferred until distributed. Such tax-deferred compounding can result in substantial long-term accumulation of assets, provided that the investment experience of the underlying portfolio of the Fund is positive. FEDERAL TAX STATUS THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE INTRODUCTION This discussion is not intended to address the tax consequences resulting from all of the situations in which a person may be entitled to or may receive a distribution under the annuity policy we issue. Any person concerned about these tax implications should consult a tax adviser before initiating any transaction. This discussion is based upon general understanding of the present Federal income tax laws. No representation is made as to the likelihood of the continuation of the present Federal income tax laws or of the current interpretation by the Internal Revenue Service. Moreover, no attempt has been made to consider any applicable state or other tax laws. The policy may be purchased on a nonqualified tax basis ("Nonqualified Policy") or purchased and used in connection with plans qualifying for favorable tax treatment ("Qualified Policy"). The Qualified Policy was designed for use by individuals whose premium payments are comprised of proceeds from and/or contributions under retirement plans which are intended to qualify as plans entitled to special income tax treatment under Sections 401(a), 401(k), 403(a), 403(b), 408 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. 37 43 TAX STATUS OF THE POLICY DIVERSIFICATION REQUIREMENTS Section 817(h) of the Code provides that separate account investments underlying a policy must be "adequately diversified" in accordance with Treasury regulations in order for the policy to qualify as an annuity policy under Section 72 of the Code. The Variable Account through each portfolio of the Fund, intends to comply with the diversification requirements prescribed in regulations under Section 817(h) of the Code, which affect how the assets in the various divisions of the Accounts may be invested. Although we do not have control over the fund in which the Variable Account invests, we believe that each portfolio in which the Variable Account owns shares will meet the diversification requirements and that therefore the Policy will be treated as an annuity under the Code. In certain circumstances, variable annuity policyowners may be considered the owners, for Federal income tax purposes, of the assets of the separate account used to support their policies. In those circumstances, income and gains from the separate account assets would be includable in the variable annuity policyowner's gross income. Several years ago, the IRS stated in published rulings that a variable policyowner will be considered the owner of separate account assets if the policyowner possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. More recently, the Treasury Department announced, in connection with the issuance of regulations concerning investment diversification, that those regulations "do not provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor, rather than the insurance company, to be treated as the owner of the assets in the account." This announcement also stated that guidance would be issued by way of regulations or rulings on the "extent to which policyholders may direct their investments to particular sub-accounts without being treated as owners of the underlying assets." The ownership rights under the policy are similar to, but different in certain respects from, those described by the IRS in rulings in which it was determined that policyowners were not owners of separate account assets. For example, the owner of the policy has the choice of more subdivisions to which to allocate premiums and policy values than such rulings, has a choice of investment strategies different from such rulings, and may be able to transfer among subdivisions more frequently than in such rulings. These differences could result in the policyowner being treated as the owner of the assets of the Variable Account. In addition, we do not know what standards will be set forth in the regulations or rulings which the Treasury Department has stated it expects to issue. We therefore reserve the right to modify the policy as necessary to attempt to prevent the policyowner from being considered the owner of the assets of the Variable Account. REQUIRED DISTRIBUTIONS In addition to the requirements of Section 817(h) of the Code, in order to be treated as an annuity policy for Federal income tax purposes, Section 72(s) of the Code requires any Nonqualified Policy to provide that (a) if any owner dies on or after the annuity date but prior to the time the entire interest in the Policy has been distributed, the remaining portion of such interest will be distributed at least as rapidly as under the method of distribution being used as of the date of that owner's death; and (b) if any owner dies prior to the annuity 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 IRAs). The following discussion assumes that the policies will qualify as annuity contracts for Federal income tax purposes. 38 44 TAXATION OF ANNUITIES IN GENERAL Section 72 of the Code governs taxation of annuities in general. We believe that an owner who is a natural person generally is not taxed on increases in the value of a policy until distribution occurs by withdrawing all or part of the accumulation value (e.g., partial withdrawals and surrenders) or as annuity payments under the annuity option elected. For this purpose, the assignment, pledge, or agreement to assign or pledge any portion of the accumulation value (and in the case of a Qualified Policy, any portion of an interest in the qualified plan) generally will be treated as a distribution. The taxable portion of a distribution (in the form of a single sum payment or an annuity) is taxable as ordinary income. The owner of any annuity policy who is not a natural person generally must include in income any increase in the excess of the policy's accumulation value over the policy's "investment in the contract" during the taxable year. There are some exceptions to this rule and a prospective owner that is not a natural person may wish to discuss these with a tax adviser. The following discussion generally applies to policies owned by natural persons. WITHDRAWALS/DISTRIBUTIONS In the case of a distribution under a Qualified Policy (other than a Section 457 plan), under Section 72(e) of the Code a ratable portion of the amount received is taxable, generally based on the ratio of the "investment in the contract" to the participant's total accrued benefit or balance under the retirement plan. The "investment in the contract" generally equals the portion, if any, of any premium payments paid by or on behalf of any individual under a Policy which was not excluded from the individual's gross income. For policies issued in connection with qualified plans, the "investment in the contract" can be zero. Special tax rules may be available for certain distributions from Qualified Policies. In the case of a withdrawal/distribution (e.g., surrender, partial withdrawal or systematic withdrawal) under a Nonqualified Policy before the annuity 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. For these purposes, the investment in the policy is not affected by an owner or annuitant's death. That is the investment in the policy remains the amount of any purchase payments paid which were not excluded from gross income. 39 45 PENALTY TAX ON CERTAIN WITHDRAWALS In the case of a distribution pursuant to a Nonqualified Policy, there may be imposed a Federal penalty tax equal to 10% of the amount treated as taxable income. In general, however, there is no penalty tax on distributions: 1. made on or after the taxpayer reaches age 59 1/2; 2. made on or after the death of an owner (or if the owner is not an individual, the death of the primary annuitant); 3. attributable to the owner becoming disabled; 4. as part of a series of substantially equal periodic payments (not less frequently than annually) for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of the taxpayer and beneficiary; 5. made under an annuity policy that is purchased with a single premium when the annuity starting date is no later than a year from purchase of the annuity and substantially equal periodic payments are made, not less frequently than annually, during the annuity period; and 6. made under certain annuities issued in connection with structured settlement agreements. Other tax penalties may apply to certain distributions under a Qualified Policy, as well as to certain contributions, loans and other circumstances. TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF A POLICY A transfer of ownership, the designation of an annuitant or other beneficiary who is not also the owner, the designation of certain annuity starting dates, or the exchange of a policy may result in certain tax consequences to the owner that are not discussed herein. An owner contemplating any such transfer, assignment, designation, or exchange of a policy should contact a tax adviser with respect to the potential tax effects of such a transaction. WITHHOLDING Pension and annuity distributions generally are subject to withholding for the recipient's Federal income tax liability at rates that vary according to the type of distribution and the recipient's tax status. Recipients, however, generally are provided the opportunity to elect not to have tax withheld from distributions. Effective January 1, 1993, withholding is mandatory for certain distributions from Qualified contracts. MULTIPLE POLICIES Section 72(e)(11) of the Code treats all nonqualified deferred annuity policies entered into after 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). 40 46 TAXATION OF QUALIFIED PLANS The policies are designed for use with several types of qualified plans. The tax rules applicable to participants in these qualified plans vary according to the type of plan and the terms and conditions of the plan itself. Special favorable tax treatment may be available for certain types of contributions and distributions. Adverse tax consequences may result from contributions in excess of specified limits; distributions prior to age 59 1/2 (subject to certain exceptions); distributions that do not conform to specified commencement and minimum distribution rules; aggregate distributions in excess of a specified annual amount; and in certain other circumstances. Therefore, no attempt is made to provide more than general information about the use of the policies with the various types of qualified retirement plans. Policyowners, the annuitants, and beneficiaries are cautioned that the rights of any person to any benefits under these qualified retirement plans may be subject to the terms and conditions of the plans themselves, regardless of the terms and conditions of the policy, but we shall not be bound by the terms and conditions of such plans to the extent such terms contradict the policy, unless we consent. Some retirement plans are subject to distribution and other requirements that are not incorporated in the administration of the policies. Owners are responsible for determining that contributions, distributions and other transactions with respect to the policies satisfy applicable law. Brief descriptions follow of the various types of qualified retirement plans in connection with which we will issue a policy. We will amend the policy as instructed to conform it to the applicable legal requirements for such plan. INDIVIDUAL RETIREMENT ANNUITIES AND SIMPLIFIED EMPLOYEE PENSIONS (SEP/IRAS) Section 408 of the Code permits eligible individuals to contribute to an individual retirement program known as an "Individual Retirement Annuity" or "IRA". These IRAs are subject to limits on the amount that may be contributed, the persons who may be eligible and on the time when distributions may commence. Also, distributions from certain other types of qualified retirement plans may be "rolled over" on a tax-deferred basis into an IRA. Sales of the policy for use with IRAs may be subject to special requirements of the Internal Revenue Service. Section 408(k) of the Code allows employers to establish simplified employee pension plans for their employees, using an IRA for such purpose, if certain criteria are met. Under these plans the employer may, within specified limits, make deductible contributions on behalf of the employee to an IRA. Employers intending to use the policy in connection with such plans should seek advice. Purchasers of a policy for use with IRAs will be provided with supplemental information required by the Internal Revenue Service or other appropriate agency. Such purchasers will have the right to revoke their purchase within seven days of the earlier of the establishment of the IRA or their purchase. Purchasers should seek advice as to the suitability of the policy for use with IRAs. The Internal Revenue Service has not reviewed the Policy for qualification as an IRA, and has not addressed in a ruling of general applicability whether a death benefit provision such as the provision in the policy comports with IRA qualification requirements. 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. 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: 41 47 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. For qualified plans under section 401(1), 401(k), 403(1), 403(b), and 457, the code requires that distributions generally must commence no later than the later of (i) April 1 of the calendar year following the calendar year in which the owner (or plan participant) reaches age 701/2 or (ii) retirement, and must be made in a specified form or manner. If the plan participant is a "5% owner" (as defined in the code) distributions generally must begin no later than the date described in (i). You are responsible for ensuring that distributions from such plans satisfy the Code minimum distribution requirements. CORPORATE AND SELF-EMPLOYED (H.R.10 AND KEOGH) PENSION AND PROFIT-SHARING PLANS Sections 401(a), 401(k) and 403(a) of the Code permit corporate employers to establish various types of tax-favored retirement plans for employees. The Self-Employed Individual Tax Retirement Act of 1962, as amended, commonly referred to as "H.R.10" or "Keogh", permits self-employed individuals also to establish such tax-favored retirement plans for themselves and their employees. Such retirement plans may permit the purchase of the policies in order to accumulate retirement savings under the plans. Adverse tax consequences to the plan, to the participant or to both may result if this policy is assigned or transferred to any individual as a means to provide benefit payments. Employers intending to use the policy in connection with such plans should seek advice. DEFERRED COMPENSATION PLANS Section 457 of the Code provides for certain deferred compensation plans. These plans may be offered with respect to service for state governments, local governments, political subdivisions, agencies, instrumentalities and certain affiliates of such entities, and tax exempt organizations. The plans may permit participants to specify the form of investment for their deferred compensation account. All distributions are taxable as ordinary income. Except for certain governmental plans, all investments are owned by the sponsoring employer and are subject to the claims of the general creditors of the employer. 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. 42 48 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 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 43 49 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, 1996 and 1995, and the related statements of operations, accumulated deficit, and cash flows for each of the three years in the period ended December 31, 1996, 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, 1996, and the related statements of operations and changes in net assets for the periods indicated therein, as well as the Report of Independent Auditors, are contained in the Statement of Additional Information. The financial statements of the Company included in the Statement of Additional Information should be considered only as bearing on the ability of the Company to meet its obligations under the policies. They should not be considered as bearing on the investment performance of the assets held in the Variable Account. 44 50 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 Consen....................................................... 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... 7 SAFEKEEPING OF ACCOUNT ASSETS....................................... 7 STATE REGULATION.................................................... 7 RECORDS AND REPORTS................................................. 7 LEGAL MATTERS....................................................... 7 EXPERTS............................................................. OTHER INFORMATION................................................... 8 FINANCIAL STATEMENTS................................................ 8
45 51 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%
46 52 PART B INFORMATION REQUIRED TO BE IN THE STATEMENT OF ADDITIONAL INFORMATION 53 CANADA LIFE INSURANCE COMPANY OF AMERICA ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD, NW, ATLANTA, GEORGIA 30339 PHONE: (800) 333-2542 - -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION VARIABLE ANNUITY ACCOUNT 2 FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY POLICY - -------------------------------------------------------------------------------- This Statement of Additional Information contains information in addition to the information described in the Prospectus for the flexible premium variable deferred annuity policy (the "policy") offered by Canada Life Insurance Company of America. This Statement of Additional Information is not a Prospectus, and it should be read only in conjunction with the Prospectuses for the policy and Seligman Portfolios, Inc. (the "Fund"). The Prospectuses are dated the same date as this Statement of Additional Information. You may obtain copies of the Prospectuses by writing or calling us at our address or phone number shown above. The date of this Statement of Additional Information is May 1, 1997. 54 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 Conset...................................................... 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.. 7 SAFEKEEPING OF ACCOUNT ASSETS......................................... 7 STATE REGULATION...................................................... 7 RECORDS AND REPORTS................................................... 7 LEGAL MATTERS......................................................... 7 EXPERTS............................................................... OTHER INFORMATION..................................................... 8 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. 2 55 If we make an overpayment because of an error in age, the overpayment plus interest at 3% compounded annually will be a debt against the policy. If the debt is not repaid, future payments will be reduced accordingly. If we make an underpayment because of an error in age, any annuity payments will be recalculated at the correct age, and future payments will be adjusted. The underpayment with interest at 3% compounded annually will be paid in a single sum. 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.
3 56 The current yield for the 7 day period ended December 31, 1996 was 2.67%. 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, 1996 was 2.71%. 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. 4 57 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 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:
1 YEAR 5 YEAR RETURN FROM FUND YEAR ENDED YEAR ENDED INCEPTION DATE FUND SUB-ACCOUNT* 12/31/96 12/31/96 TO 12/31/96 INCEPTION DATE - ------------------------------- ---------- ------------- -------------- -------------- Bond (6.98)% 3.35% 4.98% 06/21/88 Capital 7.22% 8.17% 11.68% 06/21/88 Cash Management (1.76)% 1.91% 3.45% 06/21/88 Common Stock 12.69% 11.79% 12.49% 06/21/88 Communications and Information 1.61% *** 18.75% 10/04/94 Frontier 16.48% *** 24.67% 10/04/94 Global Growth Opportunities**** ** *** (7.29)% 05/01/96 Global Smaller Companies 11.29% *** 14.11% 10/04/94 Global Technology**** ** *** (2.56)% 05/01/96 High Yield Bond 7.31% *** 8.43% 05/01/95 Income (0.52)% 6.75% 7.82% 06/21/88 International (0.10)% *** 6.33% 05/03/93
5 58 * The Inception Dates of the Sub-Accounts are as follows: Capital, Cash Management, Common Stock, Bond and Income Portfolios, 06/21/93; International, 05/03/93; Communication and Information, Frontier and Global Smaller Companies, 10/11/94; High Yield Bond, 05/01/95; and Global Growth Opportunities and Global Technology, 05/01/96. ** These Sub-Accounts invest in portfolios that have not been in operation one year as of December 31, 1996, and accordingly, no one year average annual total return is available. Thus, the from inception date returns for these Sub-Accounts were not annualized. *** These Sub-Accounts invest in portfolios that have not been in operation five years as of December 31, 1996, and accordingly, no five year average annual total return is available. ****The date of inception of Global Growth Opportunities and Global Technology was May 1, 1996, therefore, only cumulative from inception total returns are provided. We may, from time to time, also quote in sales literature or advertisements, total returns that do not reflect the surrender charge. These are calculated in exactly the same way as average annual total returns described above, except that the ending redeemable value of the hypothetical account for the period is replaced with an ending value for the period that does not take into account any charge on amounts surrendered or withdrawn. Average annual total returns without a surrender charge for the periods shown below for the sub-accounts were:
1 YEAR 5 YEAR RETURN FROM FUND YEAR ENDED YEAR ENDED INCEPTION DATE FUND SUB-ACCOUNT* 12/31/96 12/31/96 TO 12/31/96 INCEPTION DATE - ------------------------------- ---------- ------------- -------------- -------------- Bond (1.58)% 3.82% 4.98% 06/21/88 Capital 12.62% 8.56% 11.68% 06/21/88 Cash Management 3.64% 2.41% 3.45% 06/21/88 Common Stock 18.09% 12.13% 12.49% 06/21/88 Communications and Information 7.01% *** 20.33% 10/04/94 Frontier 21.88% *** 26.15% 10/04/94 Global Growth Opportunities**** ** *** (1.89)% 05/01/96 Global Smaller Companies 16.69% *** 15.77% 10/04/94 Global Technology**** ** *** 2.84% 05/01/96 High Yield Bond 12.71% *** 11.42% 05/01/95 Income 4.88% 7.17% 7.82% 06/21/88 International 5.30% *** 7.36% 05/03/93
* The Inception Dates of the Sub-Accounts are as follows: Capital, Cash Management, Common Stock, Bond and Income Portfolios, 06/21/93; Global, 05/03/93; Communication and Information, Frontier and Global Smaller Companies, 10/11/94; High Yield Bond, 05/01/95; and Global Growth Opportunities and Global Technology, 05/01/96. ** These Sub-Accounts invest in portfolios that have not been in operation one year as of December 31, 1996, and accordingly, no one year average annual total return is available. Thus, the from inception date returns for these Sub-Accounts were not annualized. *** These Sub-Accounts invest in portfolios that have not been in operation five years as of December 31, 1996, and accordingly, no five year average annual total return is available. 6 59 ****The date of inception of Global Growth Opportunities and Global Technology was May 1, 1996, therefore, only cumulative from inception total returns are provided. EFFECT OF THE POLICY ADMINISTRATION CHARGE ON PERFORMANCE DATA The policy provides for a $30 policy administration charge to be assessed annually on each policy anniversary proportionately from any sub-accounts and Fixed Account in which you are invested. If the policy value on the policy anniversary is $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. 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, L.L.P. of Washington, DC, has provided advice on certain matters relating to the federal securities laws. EXPERTS Our balance sheets as of December 31, 1996 and 1995, and the related statements of operations, accumulated deficit, and cash flows for each of the three years in the period ended December 31, 1996, 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, 1996, and the related statements of operations and changes in net assets for the periods indicated therein included in 7 60 this Statement of Additional Information and Registration Statement have been audited by Ernst & Young LLP, independent auditors, of Atlanta, Georgia, as set forth in their reports thereon appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. OTHER INFORMATION A registration statement has been filed with the SEC under the Securities Act of 1933 as amended, with respect to the policies discussed in this Statement of Additional Information. Not all of the information set forth in the registration statement, amendments and exhibits thereto has been included in this Statement of Additional Information. Statements contained in this Statement of Additional Information concerning the content of the policies and other legal instruments are intended to be summaries. For a complete statement of the terms of these documents, reference should be made to the instruments filed with the SEC. FINANCIAL STATEMENTS The Variable Account's statement of net assets as of December 31, 1996, 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, 1996 and 1995, and the related statements of operations, accumulated deficit, and cash flows for each of the three years in the period ended December 31, 1996, 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 61 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, 1996 .............................................. 2 Statement of Operations for the year ended December 31, 1996 ......................................... 4 Statements of Changes in Net Assets for the years ended December 31, 1996 and 1995 ............................... 6 Notes to Financial Statements ............................................. 8 CANADA LIFE INSURANCE COMPANY OF AMERICA Report of Independent Auditors ............................................ 1 Balance Sheets as of December 31, 1996 and 1995 ........................... 3 Statements of Operations for the years ended December 31, 1996, 1995 and 1994 ..................................... 4 Statement of Accumulated Deficit for the years ended December 31, 1996, 1995 and 1994 ..................................... 5 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 ..................................... 6 Notes to Financial Statements ............................................. 8
62 CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 FINANCIAL STATEMENTS December 31, 1996 CONTENTS Report of Independent Auditors .......................................... 1 Audited Financial Statements Statement of Net Assets ................................................. 2 Statement of Operations ................................................. 4 Statements of Changes in Net Assets ..................................... 6 Notes to Financial Statements ........................................... 8
63 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, 1996, 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, 1996, 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, 1996, 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. Atlanta, Georgia February 10, 1997 /s/ Ernst & Young LLP 64 - -------------------------------------------------------------------------------- CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - -------------------------------------------------------------------------------- STATEMENT OF NET ASSETS - --------------------------------------------------------------------------------
CASH COMMON COMMUNICATIONS BOND CAPITAL MANAGEMENT STOCK AND INFORMATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT -------------------------------------------------------------------------------------------- NET ASSETS: Investment in Seligman Portfolios, Inc. at market (see Note 3 for cost values) $ 2,664,646 $ 9,378,396 $8,003,236 $ 20,348,176 $ 54,230,173 Due (to) from Canada Life Insurance Company of America (Note 6) (10,780) 39,919 223,294 48,019 161,556 Receivable (payable) for investments sold (purchased) 2,623 (17,309) 15,148 (1,219) (42,092) ------------------------------------------------------------------------------------------- NET ASSETS $ 2,656,489 $ 9,401,006 $8,241,678 $ 20,394,976 $ 54,349,637 =========================================================================================== NET ASSETS ATTRIBUTABLE TO: Policyholders' liability reserve $ 2,656,489 $ 9,401,006 $8,241,678 $ 20,394,976 $ 54,349,637 ------------------------------------------------------------------------------------------- NET ASSETS $ 2,656,489 $ 9,401,006 $8,241,678 $ 20,394,976 $ 54,349,637 =========================================================================================== NUMBER OF UNITS OUTSTANDING 174,526 364,487 6,138,138 743,848 3,582,800 =========================================================================================== NET ASSET VALUE PER UNIT $ 15.2212 $ 25.7924 $ 1.3427 $ 27.4182 $ 15.1696 ===========================================================================================
- ---------- See accompanying notes. 2 65 - -------------------------------------------------------------------------------- CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - -------------------------------------------------------------------------------- DECEMBER 31, 1996 - --------------------------------------------------------------------------------
GLOBAL GLOBAL GROWTH SMALLER GLOBAL FRONTIER OPPORTUNITIES COMPANIES TECHNOLOGY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------------------------------------------------ $ 25,833,183 $1,134,022 $ 16,225,324 $ 1,117,188 86,125 157,596 96,808 5,939 (9,900) 1,165 (841) (6,626) - ----------------------------------------------------------------------- $ 25,909,408 $1,292,783 $ 16,321,291 $ 1,116,501 ======================================================================= $ 25,909,408 $1,292,783 $ 16,321,291 $ 1,116,501 - ----------------------------------------------------------------------- $ 25,909,408 $1,292,783 $ 16,321,291 $ 1,116,501 ======================================================================= 1,536,337 131,675 1,173,248 108,483 ======================================================================= $ 16.8644 $ 9.8180 $ 13.9112 $ 10.2919 ======================================================================= HIGH-YIELD BOND INCOME INTERNATIONAL SUB-ACCOUNTS SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT COMBINED - ----------------------------------------------------------------------- $11,039,436 $8,065,426 $ 7,083,372 $ 165,122,578 218,996 21,750 56,256 1,105,478 9,691 7,592 (12,052) (53,820) - ----------------------------------------------------------------------- $11,268,123 $8,094,768 $ 7,127,576 $ 166,174,236 ======================================================================= $11,268,123 $8,094,768 $ 7,127,576 $ 166,174,236 - ----------------------------------------------------------------------- $11,268,123 $8,094,768 $ 7,127,576 $ 166,174,236 ======================================================================= 939,456 423,690 548,115 ======================================================================= $ 11.9943 $ 19.1054 $ 13.0038 =======================================================================
3 66 - -------------------------------------------------------------------------------- CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS - --------------------------------------------------------------------------------
CASH COMMON COMMUNICATIONS BOND CAPITAL MANAGEMENT STOCK AND INFORMATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------------------------------------------------------------ NET INVESTMENT INCOME: Dividend and capital gain distributions $ 142,586 $580,328 $392,562 $ 2,871,550 $ - Less mortality and expense risk charges (Note 6) 35,572 104,427 62,446 192,837 667,768 ------------------------------------------------------------------------------------ Net investment income (loss) 107,014 475,901 330,116 2,678,713 (667,768) ------------------------------------------------------------------------------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) from in- vestments and foreign currency (2,688) 148,246 - 195,563 (1,090,347) Net unrealized appreciation (depreciation) from investments and foreign currency (116,469) 52,121 - (425,986) 5,505,927 ------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) from investments and foreign currency (119,157) 200,367 - (230,423) 4,415,580 ------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (12,143) $676,268 $330,116 $ 2,448,290 $ 3,747,812 ====================================================================================
- ----------- * For the period May 1, 1996 (commencement of operations) to December 31, 1996. See accompanying notes. 4 67 - -------------------------------------------------------------------------------- CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - -------------------------------------------------------------------------------- For the year ended December 31, 1996 - --------------------------------------------------------------------------------
GLOBAL* GLOBAL GROWTH SMALLER GLOBAL* HIGH-YIELD FRONTIER OPPORTUNITIES COMPANIES TECHNOLOGY BOND INCOME INTERNATIONAL SUB-ACCOUNTS SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT COMBINED - ----------------------------------------------------------------------------------------------------------------------------------- $2,768,897 $ 1,293 $ 1,127,741 $ 8,543 $762,387 $ 519,131 $162,025 $ 9,337,043 259,818 4,716 136,416 7,851 118,147 95,228 55,278 1,740,504 - ----------------------------------------------------------------------------------------------------------------------------------- 2,509,079 (3,423) 991,325 692 644,240 423,903 106,747 7,596,539 - ----------------------------------------------------------------------------------------------------------------------------------- 341,465 1,198 177,060 3,894 143,025 (17,889) 107,485 7,012 405,499 10,126 (45,488) 54,493 45,075 (105,663) 112,177 5,491,812 - ----------------------------------------------------------------------------------------------------------------------------------- 746,964 11,324 131,572 58,387 188,100 (123,552) 219,662 5,498,824 - ----------------------------------------------------------------------------------------------------------------------------------- $3,256,043 $ 7,901 $ 1,122,897 $59,079 $832,340 $ 300,351 $326,409 $13,095,363 ===================================================================================================================================
5 68 - -------------------------------------------------------------------------------- CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
BOND CAPITAL SUB-ACCOUNT SUB-ACCOUNT ------------------------------ ---------------------------- YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 1996 1995 1996 1995 ------------------------------ ---------------------------- OPERATIONS: Net investment income (loss) $ 107,014 $ 79,532 $ 475,901 $ 246,499 Net realized gain (loss) on investments (2,688) 12,976 148,246 444 Unrealized appreciation (depreciation) on investments (116,469) 98,202 52,121 183,650 ------------------------------ ----------------------------- Net increase (decrease) in net assets resulting from operations (12,143) 190,710 676,268 430,593 ------------------------------ ----------------------------- CAPITAL TRANSACTIONS: Net increase from unit transactions (Note 5) 833,395 793,373 4,653,886 2,499,622 ------------------------------ ----------------------------- Net increase in net assets arising from capital transactions 833,395 793,373 4,653,886 2,499,622 ------------------------------ ----------------------------- TOTAL INCREASE IN NET ASSETS 821,252 984,083 5,330,154 2,930,215 NET ASSETS, BEGINNING OF PERIOD 1,835,237 851,154 4,070,852 1,140,637 ------------------------------ ----------------------------- NET ASSETS, END OF PERIOD $ 2,656,489 $1,835,237 $9,401,006 $4,070,852 ============================== =============================
GLOBAL GROWTH GLOBAL SMALLER GLOBAL OPPORTUNITIES COMPANIES TECHNOLOGY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------- ------------------------------- ----------- 5/01/96* TO YEAR ENDED DECEMBER 31 5/01/96* TO 12/31/96 1996 1995 12/31/96 ----------- ------------------------------- ----------- OPERATIONS: Net investment income (loss) $ (3,423) $ 991,325 $ 142,438 $ 692 Net realized gain (loss) from invest- ments and foreign currency 1,198 177,060 23,758 3,894 Unrealized appreciation (depreciation) from investments and foreign currency 10,126 (45,488) 130,256 54,493 ----------- ------------------------------- ---------- Net increase in net assets resulting from operations 7,901 1,122,897 296,452 59,079 ----------- ------------------------------- ---------- CAPITAL TRANSACTIONS: Net increase from unit transactions (Note 5) 1,284,882 10,327,648 4,442,826 1,057,422 ----------- ------------------------------- ---------- Net increase in net assets arising from capital transactions 1,284,882 10,327,648 4,442,826 1,057,422 ----------- ------------------------------- ---------- TOTAL INCREASE IN NET ASSETS 1,292,783 11,450,545 4,739,278 1,116,501 NET ASSETS, BEGINNING OF PERIOD -- 4,870,746 131,468 -- ----------- ------------------------------- ---------- NET ASSETS, END OF PERIOD $ 1,292,783 $ 16,321,291 $4,870,746 $1,116,501 =========== =============================== ==========
- ---------- *Commencement of operations. See accompanying notes. 6 69 - -------------------------------------------------------------------------------- CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
CASH MANAGEMENT COMMON STOCK COMMUNICATIONS AND FRONTIER SUB-ACCOUNT SUB-ACCOUNT INFORMATION SUB-ACCOUNT SUB-ACCOUNT - ---------------------------- -------------------------- ---------------------------- -------------------------- YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 1996 1995 1996 1995 1996 1995 1996 1995 - ---------------------------- -------------------------- ---------------------------- -------------------------- $ 330,116 $ (15,033) $ 2,678,713 $ 1,019,091 $ (667,768) $ 2,090,182 $ 2,509,079 $ 354,285 - - 195,563 18,592 (1,090,347) 184,393 341,465 20,460 - - (425,986) (2,480) 5,505,927 (3,631,372) 405,499 417,244 - ---------------------------- -------------------------- ---------------------------- -------------------------- 330,116 (15,033) 2,448,290 1,035,203 3,747,812 (1,356,797) 3,256,043 791,989 - ---------------------------- -------------------------- ---------------------------- -------------------------- 1,753,858 5,630,605 8,521,175 6,025,857 14,971,955 36,492,207 11,790,123 9,948,895 - ---------------------------- -------------------------- ---------------------------- -------------------------- 1,753,858 5,630,605 8,521,175 6,025,857 14,971,955 36,492,207 11,790,123 9,948,895 - ---------------------------- -------------------------- ---------------------------- -------------------------- 2,083,974 5,615,572 10,969,465 7,061,060 18,719,767 35,135,410 15,046,166 10,740,884 6,157,704 542,132 9,425,511 2,364,451 35,629,870 494,460 10,863,242 122,358 - ---------------------------- -------------------------- ---------------------------- -------------------------- $ 8,241,678 $ 6,157,704 $20,394,976 $ 9,425,511 $ 54,349,637 $35,629,870 $25,909,408 $ 10,863,242 ============================ ========================== ============================ ==========================
HIGH-YIELD BOND INCOME INTERNATIONAL SUB-ACCOUNTS SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT COMBINED - ---------------------------- -------------------------- ---------------------------- -------------------------- YEAR ENDED 5/25/95* TO YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 12/31/96 12/31/95 1996 1995 1996 1995 1996 1995 - ---------------------------- -------------------------- ---------------------------- -------------------------- $ 644,240 $ 50,308 $ 423,903 $ 427,388 $ 106,747 $ 34,867 $ 7,596,539 $ 4,429,557 143,025 8,630 (17,889) 8,567 107,485 5,717 7,012 283,537 45,075 39,826 (105,663) 20,816 112,177 208,452 5,491,812 (2,535,406) - ---------------------------- -------------------------- ---------------------------- -------------------------- 832,340 98,764 300,351 456,771 326,409 249,036 13,095,363 2,177,688 - ---------------------------- -------------------------- ---------------------------- -------------------------- 7,503,654 2,833,365 3,023,461 2,354,736 2,728,950 2,128,790 68,450,409 73,150,276 - ---------------------------- -------------------------- ---------------------------- -------------------------- 7,503,654 2,833,365 3,023,461 2,354,736 2,728,950 2,128,790 68,450,409 73,150,276 - ---------------------------- -------------------------- ---------------------------- -------------------------- 8,335,994 2,932,129 3,323,812 2,811,507 3,055,359 2,377,826 81,545,772 75,327,964 2,932,129 - 4,770,956 1,959,449 4,072,217 1,694,391 84,628,464 9,300,500 - ---------------------------- -------------------------- ---------------------------- -------------------------- $11,268,123 $ 2,932,129 $8,094,768 $ 4,770,956 $ 7,127,576 $ 4,072,217 $166,174,236 $84,628,464 ============================ ========================== ============================ ==========================
7 70 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 twelve 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. FOREIGN CURRENCY TRANSLATION The accounting records of Variable Annuity Account 2 are maintained in U.S. dollars. The International, Global Growth Opportunities, Global Smaller Companies, and Global Technology Sub-accounts contain investment securities and other assets and liabilities denominated in foreign currency that are translated into U.S. dollars at the prevailing rates of exchange at the end of the period. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the rate of exchange prevailing on the respective dates of such transactions. Net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of investments in foreign securities usually denominated in foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and unrealized gain or loss on investment securities. 8 71 CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DIVIDENDS Dividends are recorded on the ex-dividend date and reflect the dividends declared by the Fund from their accumulated net investment income and net realized investment gains. Dividends in the Cash Management Portfolio are declared daily and paid monthly. Dividends in the Bond (formerly Fixed Income Securities), Capital, Common Stock, Communications and Information, Frontier, Global Growth Opportunities, Global Smaller Companies, Global Technology, High-Yield Bond, Income, and International (formerly Global) Portfolios are declared and paid annually. Dividends paid to 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. 9 72 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 ----------------------------------------------------------------------- Bond 269,428 $ 9.890 $ 2,664,646 $ 2,747,914 Capital 585,784 16.010 9,378,396 9,282,028 Cash Management 8,003,236 1.000 8,003,236 8,003,236 Common Stock 1,278,152 15.920 20,348,176 21,031,182 Communications and Information 3,691,639 14.690 54,230,173 52,337,520 Frontier 1,724,512 14.980 25,833,183 25,004,035 Global Growth Opportunities 114,432 9.910 1,134,022 1,123,896 Global Smaller Companies 1,260,709 12.870 16,225,324 16,136,762 Global Technology 108,255 10.320 1,117,188 1,062,695 High-Yield Bond 986,545 11.190 11,039,436 10,954,535 Income 766,675 10.520 8,065,426 8,358,207 International 546,556 12.960 7,083,372 6,759,696 ---------------------------------- $ 165,122,578 $ 162,801,706 ==================================
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 -------------------------------- ------------------------------- Bond $ 2,391,777 $ 1,449,799 Capital 6,899,251 1,799,167 Cash Management 20,161,529 18,134,205 Common Stock 13,969,073 2,803,146 Communications and Information 28,795,670 14,525,470 Frontier 17,078,578 2,830,270 Global Growth Opportunities 1,359,432 236,734 Global Smaller Companies 13,123,246 1,832,259 Global Technology 1,286,825 228,024 High-Yield Bond 11,105,700 3,092,556 Income 5,382,303 1,936,361 International 4,493,854 1,689,913 ------------- ------------ $ 126,047,238 $ 50,557,904 ============= ============
10 73 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 Global Growth Opportunities and Global Technology Portfolios commenced operations on May 1, 1996. The High-Yield Bond Portfolio commenced operations on May 25, 1995.
YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 ----------------- ----------------- UNITS AMOUNT UNITS AMOUNT ----- ------ ----- ------ BOND SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 132,349 $ 1,978,551 95,564 $ 1,388,851 Terminated contracts & net transfers out (76,585) (1,145,156) (41,417) (595,478) ------------------------------------------------------------------ 55,764 833,395 54,147 793,373 ================================================================== CAPITAL SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 248,098 6,192,212 145,385 3,087,710 Terminated contracts & net transfers out (61,479) (1,538,326) (29,873) (588,088) ------------------------------------------------------------------ 186,619 4,653,886 115,512 2,499,622 ================================================================== CASH MANAGEMENT SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 16,031,782 22,304,326 7,886,784 10,076,561 Terminated contracts & net transfers out (14,650,097) (20,550,468) (3,564,557) (4,445,956) ------------------------------------------------------------------ 1,381,685 1,753,858 4,322,227 5,630,605 ================================================================== COMMON STOCK SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 420,292 10,665,942 309,502 6,657,602 Terminated contracts & net transfers out (82,681) (2,144,767) (30,836) (631,745) ------------------------------------------------------------------ 337,611 8,521,175 278,666 6,025,857 ================================================================== COMMUNICATIONS AND INFORMATION SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 2,136,400 29,690,542 2,691,921 39,852,870 Terminated contracts & net transfers out (1,068,840) (14,718,587) (224,222) (3,360,663) ------------------------------------------------------------------ 1,067,560 14,971,955 2,467,699 36,492,207 ==================================================================
11 74 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, 1996 DECEMBER 31, 1995 ----------------- ----------------- UNITS AMOUNT UNITS AMOUNT ----- ------ ----- ------ FRONTIER SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 813,870 $14,406,146 795,646 $10,220,653 Terminated contracts & net transfers out (63,193) (2,616,023) (21,595) (271,758) ------------------------------------------------------------------ 750,677 11,790,123 774,051 9,948,895 ================================================================== GLOBAL GROWTH OPPORTUNITIES SUB-ACCOUNT* Accumulation Units: Contract purchases and net transfers in 163,620 1,572,553 - - Terminated contracts & net transfers out (31,945) (287,671) - - ------------------------------------------------------------------ 131,675 1,284,882 - - ================================================================== GLOBAL SMALLER COMPANIES SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 890,029 11,994,060 436,679 4,901,518 Terminated contracts & net transfers out (125,651) (1,666,412) (40,549) (458,692) ------------------------------------------------------------------ 764,378 10,327,648 396,130 4,442,826 ================================================================== GLOBAL TECHNOLOGY SUB-ACCOUNT* Accumulation Units: Contract purchases and net transfers in 127,107 1,242,668 - - Terminated contracts & net transfers out (18,624) (185,246) - - ------------------------------------------------------------------ 108,483 1,057,422 - - ================================================================== HIGH-YIELD BOND SUB-ACCOUNT* Accumulation Units: Contract purchases and net transfers in 848,850 9,721,724 302,720 3,111,221 Terminated contracts & net transfers out (185,110) (2,218,070) (27,004) (277,856) ------------------------------------------------------------------ 663,740 7,503,654 275,716 2,833,365 ================================================================== INCOME SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 224,340 4,172,168 153,550 2,639,743 Terminated contracts & net transfers out (62,752) (1,148,707) (16,325) (285,007) ------------------------------------------------------------------ 161,588 3,023,461 137,225 2,354,736 ================================================================== INTERNATIONAL SUB-ACCOUNT Accumulation Units: Contract purchases and net transfers in 327,752 4,120,757 229,813 2,694,210 Terminated contracts & net transfers out (109,617) (1,391,807) (50,273) (565,420) ------------------------------------------------------------------ 218,135 2,728,950 179,540 2,128,790 ================================================================== Net increase from unit transactions $68,450,409 $73,150,276 =========== ===========
- --------------- *From commencement of operations. 12 75 CANADA LIFE OF AMERICA VARIABLE ANNUITY ACCOUNT 2 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 6. MORTALITY AND EXPENSE RISK (M AND E) CHARGES CLICA assumes mortality and expense risks related to the operations of Variable Annuity Account 2 and deducts a charge equal to an effective annual rate of 1.25% of the net asset value of each 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. 7. NET ASSETS Net assets at December 31, 1996 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 COMBINED ----------- ------------ ------- ----- ----------- ----------- -------- Bond $ 2,492,585 $ (56,212) $ 303,432 $ (48) $ (83,268) $ 2,656,489 Capital 8,312,839 (165,703) 1,021,761 135,741 96,368 9,401,006 Cash Management 7,916,162 (224,189) 549,705 - - 8,241,678 Common Stock 16,906,891 (299,818) 4,258,616 212,293 (683,006) 20,394,976 Communications & Information 51,941,384 (893,630) 2,315,169 (905,939) 1,892,653 54,349,637 Frontier 21,855,180 (308,540) 3,171,688 361,932 829,148 25,909,408 Global Growth Opportunities 1,284,882 (4,716) 1,293 1,198 10,126 1,292,783 Global Smaller Companies 14,897,867 (161,640) 1,295,682 200,820 88,562 16,321,291 Global Technology 1,057,422 (7,851) 8,543 3,894 54,493 1,116,501 High-Yield Bond 10,337,019 (129,225) 823,773 151,655 84,901 11,268,123 Income 7,400,385 (168,349) 1,180,263 (24,750) (292,781) 8,094,768 International 6,532,621 (113,489) 265,443 119,325 323,676 7,127,576 ------------------------------------------------------------------------------------------------------- $150,935,237 $ (2,533,362) $15,195,368 $ 256,121 $2,320,872 $166,174,236 =======================================================================================================
8. UNIT VALUE Unit Values as reported are calculated as total net assets divided by total units for each Sub-account. 13 76 FINANCIAL STATEMENTS CANADA LIFE INSURANCE COMPANY OF AMERICA December 31, 1996 With Report of Independent Auditors 77 CANADA LIFE INSURANCE COMPANY OF AMERICA FINANCIAL STATEMENTS - STATUTORY BASIS December 31, 1996 CONTENTS Report of Independent Auditors............................................... 1 Audited Financial Statements Balance Sheets - Statutory Basis............................................. 3 Statements of Operations - Statutory Basis................................... 4 Statements of Accumulated Deficit - Statutory Basis.......................... 5 Statements of Cash Flows - Statutory Basis................................... 6 Notes to Financial Statements - Statutory Basis.............................. 8
78 REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- Board of Directors Canada Life Insurance Company of America We have audited the accompanying statutory-basis balance sheets of CANADA LIFE INSURANCE COMPANY OF AMERICA as of December 31, 1996 and 1995, and the related statutory-basis statements of operations, accumulated deficit, and cash flows for each of the three years in the period ended December 31, 1996. 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 described in Note 2 to the financial statements, the Company presents its financial statements in conformity with accounting practices prescribed or permitted by the Michigan Insurance Department, which practices differ from generally accepted accounting principles. The variances between such practices and generally accepted accounting principles are also described in Note 2. The effects on the financial statements of these variances are not reasonably determinable but are presumed to be material. In our report dated February 9, 1996, we expressed an opinion that the 1995 financial statements of the Company fairly present, in all material respects, financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. As described in Note 2, the accompanying statutory-basis financial statements are no longer considered to be prepared in conformity with generally accepted accounting principles. Accordingly, our present opinion on the 1995 financial statements, as presented in the following paragraph, is different from that expressed in our previous report. 1 79 REPORT OF INDEPENDENT AUDITORS (CONTINUED) - -------------------------------------------------------------------------------- In our opinion, because of the effects of the matter described in the second preceding paragraph, the financial statements referred to above do not present fairly, in conformity with generally accepted accounting principles, the financial position of Canada Life Insurance Company of America at December 31, 1996 and 1995, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 1996. Also, in our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Canada Life Insurance Company of America at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with accounting practices prescribed or permitted by the Michigan Insurance Department. Atlanta, Georgia February 10, 1997 /s/ Ernst & Young LLP 2 80 CANADA LIFE INSURANCE COMPANY OF AMERICA BALANCE SHEETS - STATUTORY BASIS [in thousands of dollars] except per share values
AS AT DECEMBER 31 1996 1995 - ---------------------------------------------------------------------------------------------------------------- ASSETS INVESTMENTS [ note 3 ] Bonds, at amortized cost less write-downs [fair value - 1996-$1,313,400; 1995 - $1,308,040] $1,276,783 $1,237,848 Mortgage loans, at amortized cost less write-downs 881,189 899,501 Real estate, at depreciated cost less write-downs 20,613 8,308 Common stocks, at fair value [cost-1996-$9,879; 1995 - $7,580] 12,294 9,950 Investment in partnerships 1,773 2,457 Policy loans 11,461 12,285 Short-term investments, at cost 59,321 45,985 Cash and interest-bearing deposits 682 893 - ---------------------------------------------------------------------------------------------------------------- TOTAL CASH AND INVESTMENTS 2,264,116 2,217,227 Deferred premiums and premiums in the course of collection 216 169 Investment income due and accrued 30,034 31,444 Investment in subsidiaries and affiliates, at equity [cost - 1996 - $15,118; 1995 - $14,982] 16,899 16,818 Preferred stocks of subsidiary at cost (market value - 1996 - $1; 1995 - $6) 1 6 Other assets [including federal tax recoverable] 5,424 5,051 Assets held in separate accounts [ note 7 ] 361,253 273,195 - ---------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $2,677,943 $2,543,910 ================================================================================================================ LIABILITIES AND CAPITAL AND SURPLUS LIABILITIES Actuarial reserves $2,159,004 $2,145,140 Benefits in course of payment and provision for unreported claims 681 15 Policyholders' amounts left on deposit at interest 92 92 Provisions for future policy dividends 2,067 2,251 - ---------------------------------------------------------------------------------------------------------------- POLICY BENEFIT LIABILITIES 2,161,844 2,147,498 Interest maintenance reserve 225 - Amounts owing to parent company [ note 7 ] 18,677 6,320 Unallocated amounts 384 1,607 Miscellaneous liabilities [including provision for outstanding taxes and expenses] 5,342 5,094 Asset valuation reserve 21,447 15,783 Liabilities from separate accounts 353,863 266,474 - ---------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 2,561,782 2,442,776 - ---------------------------------------------------------------------------------------------------------------- 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 (5,839) (20,866) - ---------------------------------------------------------------------------------------------------------------- TOTAL CAPITAL AND SURPLUS 116,161 101,134 - ---------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND CAPITAL AND SURPLUS $2,677,943 $2,543,910 ================================================================================================================
See accompanying notes 3 81 CANADA LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF OPERATIONS - STATUTORY BASIS [in thousands of dollars]
YEARS ENDED DECEMBER 31 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------- REVENUES [ note 7 ] Premiums for insurance and annuity considerations $295,540 $326,196 $296,195 Considerations for supplementary contracts and dividends left on deposit 2,452 3,946 2,117 Net investment income [ note 3 ] 188,794 187,899 173,556 Other income - 1 3 - --------------------------------------------------------------------------------------------------------------- TOTAL REVENUES 486,786 518,042 471,871 - --------------------------------------------------------------------------------------------------------------- EXPENDITURES [ note 7 ] Death benefits and matured endowments 1,917 1,618 1,657 Annuity benefits 201,807 184,836 160,031 Surrender benefits 119,530 104,786 74,453 Payments on supplementary contracts and dividends left on deposit 2,211 2,087 1,636 Dividends to policyholders 2,064 2,237 2,350 - --------------------------------------------------------------------------------------------------------------- TOTAL PAYMENTS TO POLICYHOLDERS AND BENEFICIARIES 327,529 295,564 240,127 Increase in actuarial reserves 13,859 73,737 181,391 Commissions to agents 7,175 6,406 1,332 Allowances on reinsurance assumed 12,304 14,322 15,666 General insurance expenses 8,005 6,348 3,902 Taxes, licenses and fees 311 128 181 Transfers to separate accounts 98,702 98,967 13,360 - --------------------------------------------------------------------------------------------------------------- TOTAL EXPENDITURES 467,885 495,472 455,959 - --------------------------------------------------------------------------------------------------------------- Income from operations before net realized capital (losses) and federal income taxes (benefit) 18,901 22,570 15,912 Federal income taxes (benefit)[ note 4 ] (1,990) 3,835 2,637 - --------------------------------------------------------------------------------------------------------------- Income from operations before net realized capital (losses) 20,891 18,735 13,275 Net realized capital (losses) [ note 3[b] ] (11,339) (2,586) (10,523) - --------------------------------------------------------------------------------------------------------------- NET INCOME $ 9,552 $ 16,149 $ 2,752 ===============================================================================================================
See accompanying notes 4 82 CANADA LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF ACCUMULATED DEFICIT - STATUTORY BASIS [in thousands of dollars] YEARS ENDED DECEMBER 31
1996 1995 1994 - --------------------------------------------------------------------------------------------- ACCUMULATED DEFICIT, BEGINNING OF YEAR $(20,866) $(23,527) $(26,854) Net income 9,552 16,149 2,752 Change in net unrealized capital gain (loss) 10,253 (1,441) 2,135 Change in deficit on account of: Non-admitted assets 612 (612) - Actuarial valuation basis - (6,523) (3,457) Asset valuation reserve (5,664) (4,699) 1,897 Change in surplus of separate account 669 6,722 - Seed money transfer to separate account - (6,614) - Cost of business acquired (377) (321) - Adjustment for (loss) in currency exchange (18) - - - --------------------------------------------------------------------------------------------- ACCUMULATED DEFICIT, END OF YEAR $ (5,839) $(20,866) $(23,527) =============================================================================================
See accompanying notes 5 83 CANADA LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF CASH FLOW - STATUTORY BASIS [IN THOUSANDS OF DOLLARS] YEARS ENDED DECEMBER 31
1996 1995 1994 - --------------------------------------------------------------------------------------------------------- OPERATIONS Premiums, policy proceeds, and other considerations received $ 298,324 $ 330,077 $ 298,325 Net investment income received 185,038 177,349 165,551 Benefits paid (325,182) (293,366) (237,762) Insurance expenses paid (27,825) (27,014) (21,305) Dividends paid to policyholders (2,248) (2,341) (2,693) Federal income taxes paid, net (6,465) (4,225) (4,802) Net decrease in policy loans 824 884 977 Net transfers to Separate Accounts (98,702) (98,967) (13,351) Other income received net of other expenses (paid) 12,431 (5,467) 7,632 - --------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATIONS 36,195 76,930 192,572 PROCEEDS FROM SALES, MATURITIES, OR REPAYMENTS OF INVESTMENTS Bonds 321,755 287,100 372,374 Common stocks 10,499 18,180 10,538 Subsidiaries - 5 - Mortgage loans 52,510 37,876 48,338 Real estate 2,082 9,775 4,725 Other invested assets 684 796 674 Net gains (losses) on cash and short-term investments - 48 (2) Miscellaneous proceeds 5,288 603 4,368 - --------------------------------------------------------------------------------------------------------- PROCEEDS FROM SALES, MATURITIES, OR REPAYMENTS OF INVESTMENTS 392,818 354,383 441,015 OTHER CASH PROVIDED Other sources 113 3,380 621 - --------------------------------------------------------------------------------------------------------- Total other cash provided 113 3,380 621 - --------------------------------------------------------------------------------------------------------- TOTAL CASH PROVIDED 429,126 434,693 634,208 - ---------------------------------------------------------------------------------------------------------
6 84 CANADA LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF CASH FLOW - STATUTORY BASIS (CONTINUED) [IN THOUSANDS OF DOLLARS] YEARS ENDED DECEMBER 31
1996 1995 1994 - --------------------------------------------------------------------------------------------------------- COST OF INVESTMENTS ACQUIRED Bonds $351,242 $309,767 $491,330 Common stocks 10,215 5,702 6,365 Subsidiaries - 69 - Mortgage loans 54,197 122,407 98,732 Real estate - 606 1,377 Miscellaneous applications - 10,750 579 - --------------------------------------------------------------------------------------------------------- TOTAL COST OF INVESTMENTS ACQUIRED 415,654 449,301 598,383 OTHER CASH APPLIED Other applications, net 347 - - - --------------------------------------------------------------------------------------------------------- Total other cash applied 347 - - - --------------------------------------------------------------------------------------------------------- TOTAL CASH USED 416,001 449,301 598,383 - --------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 13,125 (14,608) 35,825 CASH AND SHORT-TERM INVESTMENTS Beginning of year 46,878 61,486 25,661 - --------------------------------------------------------------------------------------------------------- END OF YEAR $ 60,003 $ 46,878 $ 61,486 =========================================================================================================
See accompanying notes 7 85 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 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 47 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. as well as other independent agents. 2. BASIS OF ACCOUNTING The accompanying financial statements have been prepared in conformity with accounting practices prescribed or permitted by the Michigan Insurance Department, which practices differ from generally accepted accounting principles ("GAAP"). Prescribed statutory accounting practices include state laws, regulations, and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners ("NAIC"). Permitted statutory accounting practices encompass all accounting practices that are not prescribed; such practices may differ from state to state, may differ from company to company within a state, and may change in the future. The NAIC is currently in the process of recodifying statutory accounting practices, the result of which is expected to constitute the only source of "prescribed" statutory accounting practices. Accordingly, that project, which is expected to be completed in 1997, will likely change, to some extent, prescribed statutory accounting practices, and may result in changes to the accounting practices that the Company uses to prepare its statutory financial statements. The impact of any such changes on the Company's statutory surplus cannot be determined at this time and could be material. The Company currently does not follow any permitted accounting practices which would have a material impact on net income or capital and surplus. The 1995 financial statements presented for comparative purposes were previously described as also being prepared in accordance with GAAP. Pursuant to FASB Interpretation 40, Applicability of Generally Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises ("FIN 40"), as amended, which is effective for 1996 annual financial statements, financial statements based on statutory accounting practices can no longer be described as prepared in conformity with GAAP. Furthermore, financial statements prepared in conformity with statutory accounting practices for periods prior to the effective date of FIN 40 are not considered GAAP presentations when presented in comparative form with financial statements for periods subsequent to the effective date. Accordingly, the 1995 financial statements are no longer considered to be presented in conformity with GAAP. 8 86 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 2. BASIS OF ACCOUNTING (CONT'D) 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 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 implemented these pronouncements which are required for financial statements prepared in accordance with GAAP. The more significant variances from GAAP are as follows: Investments: Investments in bonds are reported at amortized cost based on their National Association of Insurance Commissioners ("NAIC") rating; for GAAP, such fixed maturity investments would be designated at purchase as held-to-maturity, trading, or available-for-sale. Held-to-maturity fixed investments would be reported at amortized cost, and the remaining fixed maturity investments are reported at fair value with unrealized holding gains and losses reported in operations for those designated as trading and as a separate component of shareholders' equity for those designated as available-for-sale. Changes between cost and admitted asset amounts of investment real estate are credited or charged directly to unassigned surplus rather than to a separate surplus account. Valuation allowances, if necessary, are established for mortgage loans based on (1) the difference between the unpaid loan balance and the estimated fair value of the underlying real estate when such loans are determined to be in default as to scheduled payments and (2) a reduction of the maximum percentage of any loan to the value of the security at the time of the loan, exclusive of insured, guaranteed or purchase money mortgages, to 75%, where necessary. Under GAAP, valuation allowances would be established when the Company determines it is probable that it will be unable to collect all amounts (both principal and interest) due according to the contractual terms of the loan agreement. The initial valuation allowance and subsequent changes in the allowance for mortgage loans are charged or credited directly to unassigned surplus, rather than being included as a component of earnings as would be required for GAAP. 9 87 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 2. BASIS OF ACCOUNTING (CONT'D) Under a formula prescribed by the NAIC, the Company defers the portion of realized capital gains and losses on sales of fixed income investments, principally bonds and mortgage loans, attributable to changes in the general level of interest rates and amortizes those deferrals into income on a straight-line basis over the remaining period to maturity based on groupings of individual securities sold in five-year bands. That net deferral is reported as the "Interest Maintenance Reserve" in the accompanying balance sheets. Realized capital gains and losses are reported in income net of federal income tax and transfers to the interest maintenance reserve. The "Asset Valuation Reserve" is determined by an NAIC prescribed formula and is reported as a liability rather than unassigned surplus. Under GAAP, realized capital gains and losses would be reported in the income statement on a pretax basis in the period that the asset giving rise to the gain or loss is sold and valuation allowances would be provided when there has been a decline in value deemed other than temporary, in which case, the provision for such declines would be charged to earnings. Subsidiaries: The accounts and operations of the Company's subsidiaries are not consolidated with the accounts and operations of the Company as would be required under GAAP. Policy Acquisition Costs: The costs of acquiring and renewing business are expensed when incurred. Under GAAP, acquisition costs related to traditional life insurance, to the extent recoverable from future policy revenues, would be deferred and amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves. For investment products, to the extent recoverable from future gross profits, deferred policy acquisition costs are amortized generally in proportion to the present value of expected gross profits from surrender charges and investment, mortality, and expense margins. Nonadmitted Assets: Certain assets designated as "nonadmitted" as defined by regulatory authorities, such as negative IMR, are excluded from the accompanying balance sheets and are charged directly to unassigned surplus. Benefit Reserves: Certain policy reserves are calculated based on statutorily required interest and mortality assumptions rather than on estimated expected experience or actual account balances as would be required under GAAP. Federal Income Taxes: Deferred federal income taxes are not provided for differences between the financial statement amounts and tax bases of assets and liabilities. Policyholder Dividends: Policyholder dividends are recognized when declared rather than over the term of the related policies. The effects of the foregoing variances from GAAP on the accompanying statutory-basis financial statements have not been determined, but are presumed to be material. 10 88 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 2. BASIS OF ACCOUNTING (CONT'D) A summary of other significant accounting practices employed by the Company is as follows: [a] Bonds are stated at values prescribed by the NAIC, as follows. Bonds not backed by other loans are principally stated at amortized cost. Loan-backed bonds and structured securities are valued at amortized cost using the interest method including anticipated prepayments. Prepayment assumptions are obtained from dealer surveys or internal estimates and are based on the current interest rate and economic environment. The retrospective adjustment method is used to value all such securities. 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. Unrealized capital gains and losses are reflected as a direct credit or charge to the surplus or deficit of the Company. Investments in subsidiaries, affiliates and partnerships are accounted for using the equity method. [b] 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. [c] 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%. Changes in actuarial reserves due to changes in valuation assumptions are charged or credited directly to unassigned surplus. 11 89 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 2. BASIS OF ACCOUNTING (CONT'D) [d] 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. [e] 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. [f] 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. [g] For the purposes of the statements of cash flows, cash refers to demand deposits with banks and other financial institutions. [h] The 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. Futures are valued at initial margin deposit adjusted by changes in market value and are reported as other assets. Interest rate swaps are an off-balance sheet item with income being reported as other income. [i] 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. [j] Certain amounts in the accompanying financial statements for 1994 have been reclassified to conform with the 1995 and 1996 financial statement presentation. [k] The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: 12 90 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 2. BASIS OF ACCOUNTING (CONT'D) 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 values published by the NAIC Securities Valuation Office. 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 and swaps 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. Policy loans: The fair values for policy loans approximate their carrying values. 3. INVESTMENTS [a] Additional information with respect to net investment income is as follows:
YEAR ENDED DECEMBER 31 1996 1995 1994 - ------------------------------------------------------------------------------------------ [in thousands of dollars] Interest and dividends on fixed maturities $ 97,995 $ 97,097 $ 91,310 Interest on derivatives 608 522 1,118 Income on real estate 1,228 572 99 Dividends on equity securities 1,483 2,091 1,158 Amortization of IMR 878 980 1,293 Interest on: Mortgage loans 87,092 86,540 79,701 Policy loans 843 370 674 Short-term investments 2,007 3,362 1,410 Other income 752 (14) 292 - ------------------------------------------------------------------------------------------ 192,886 191,520 177,055 Less: investment expenses 3,501 3,445 3,364 Less: depreciation on real estate 591 176 135 - ------------------------------------------------------------------------------------------ NET INVESTMENT INCOME $188,794 $187,899 $173,556 ==========================================================================================
13 91 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 3. INVESTMENTS (CONT'D) [b] Summary of realized capital gains (losses):
YEAR ENDED DECEMBER 31 1996 1995 1994 - ------------------------------------------------------------------------------------------ [in thousands of dollars] Realized capital gains (losses): Fixed maturities $ (520) $ 4,915 $ (9,074) Short-term investments - 48 (2) Equity securities 2,715 3,865 1,005 Mortgage loans (13,018) (1,965) (8,728) Real estate 758 (828) (1,793) Derivative instruments 1,118 (7,812) - - ------------------------------------------------------------------------------------------ (8,947) (1,777) (18,592) Income tax (expense) benefit (677) (2,661) 3,006 Transfer to interest maintenance reserve (1,715) 1,852 5,063 - ------------------------------------------------------------------------------------------ NET REALIZED CAPITAL (LOSSES) $(11,339) $(2,586) $(10,523) ==========================================================================================
Proceeds from sales and maturities of fixed maturity investments for the years ended December 31, 1996, 1995, and 1994 were $321,755,000, $287,100,000 and $372,374,000, respectively. Gross gains of $3,345,000, $5,626,000 and $5,923,000, and gross losses of $3,865,000, $711,000 and $14,997,000, respectively, were realized on those sales for the years ended December 31, 1996, 1995 and 1994. Gross gains of $2,896,000, $4,150,000 and $1,756,000, and gross losses of $181,000, $285,000 and $751,000, respectively, were realized on sales of equity securities for the years ended December 31, 1996, 1995 and 1994. 14 92 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 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, 1996 ------------------------------------------------------------------------ GROSS GROSS AMORTIZED CARRYING UNREALIZED UNREALIZED COST VALUE GAINS LOSSES FAIR VALUE - ----------------------------------------------------------------------------------------------------------- [in thousands of dollars] United States Government agencies and authorities $ 446,845 $ 446,845 $31,369 $(1,693) $ 476,521 States, municipalities, and other political subdivisions 2,073 2,073 126 - 2,199 Foreign governments 826 826 - - 826 Public utilities 95,228 93,707 1,746 (1,184) 94,269 Mortgage-backed securities 132,547 132,547 - - 132,547 All other corporate bonds 600,786 600,785 6,490 (237) 607,038 - ----------------------------------------------------------------------------------------------------------- TOTAL FIXED MATURITIES $1,278,305 $1,276,783 $39,731 $(3,114) $1,313,400 ===========================================================================================================
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 - 2,775 Foreign governments 1,375 1,375 - - 1,375 Public utilities 102,300 100,758 2,687 (827) 102,618 Mortgage-backed securities 136,954 136,954 - - 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 ===========================================================================================================
15 93 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 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, 1996, 1995 and 1994, there were changes in net unrealized gains and (losses) on fixed maturities of $(33,575,000), $88,640,000 and $(63,074,000), 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, 1996 ------------------------------------- CARRYING FAIR VALUE VALUE - ------------------------------------------------------------------------------ [in thousands of dollars] 1 year or less $ 107,051 $ 107,024 Over 1 year through 5 years 289,727 291,058 Over 5 years through 10 years 278,115 281,367 Over 10 years 601,890 633,951 - ------------------------------------------------------------------------------ $1,276,783 $1,313,400 ==============================================================================
[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 $45,000, $(397,000) and $(902,000) for the years ended December 31, 1996, 1995 and 1994, respectively. The accumulated gross unrealized gains and accumulated gross unrealized losses on marketable equity securities were as follows:
1996 1995 1994 - ------------------------------------------------------------------------------ [in thousands of dollars] Gross unrealized gains $2,594 $2,607 $3,505 Gross unrealized losses (179) (237) (738) - ------------------------------------------------------------------------------ Net unrealized gains $2,415 $2,370 $2,767 ==============================================================================
16 94 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 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, 1996.
CARRYING FAIR VALUE VALUE - ----------------------------------------------------------------------------- [in thousands of dollars] Commercial mortgages $886,124 $958,599 Write-downs on mortgage loans (4,935) - - ----------------------------------------------------------------------------- $881,189 $958,599 - ----------------------------------------------------------------------------- Policy loans $ 11,461 $ 11,461 =============================================================================
The Company's distribution of mortgage loans by property type and by the ten most significant states follows:
DECEMBER 31, 1996 - ----------------------------------------------------------------------------- AMOUNT PERCENT - ----------------------------------------------------------------------------- [thousands of dollars] PROPERTY TYPE Apartments and townhomes $398,163 45.2% Retail 240,489 27.3% General office buildings 92,477 10.5% Industrial and warehouse 107,146 12.2% Other 47,849 5.4% Write-downs on mortgage loans (4,935) (0.6)% - ----------------------------------------------------------------------------- Total $881,189 100.0% - -----------------------------------------------------------------------------
DECEMBER 31, 1996 - ----------------------------------------------------------------------------- AMOUNT PERCENT - ----------------------------------------------------------------------------- STATE California $169,937 19.3% Pennsylvania 96,195 10.9% Ohio 95,399 10.8% Michigan 87,731 10.0% New York 86,262 9.8% Illinois 62,513 7.1% Oregon 45,212 5.1% New Jersey 42,112 4.8% Nevada 34,830 4.0% Maryland 27,913 3.2% Other 138,020 15.6% Write-downs on mortgage loans (4,935) (0.6)% - ----------------------------------------------------------------------------- Total $881,189 100.0% =============================================================================
17 95 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 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. Increases to the mortgage loan loss reserve were $5,342,000, $7,119,000 and $3,817,000, and decreases to the mortgage loan loss reserve were $12,139,000, $3,906,000 and $8,635,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Accumulated depreciation on investment real estate was $545,000 and $392,000 as of December 31, 1996 and 1995, respectively. No investment in any persons or their affiliates exceeded 10% of capital and surplus as of December 31, 1996 and 1995. The maximum and minimum lending rates for new mortgage loans in 1996 were 8.875% and 7.375%, 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, 1996 the Company held one mortgage loan with a carrying value of $4,531,156 on which interest of $1,058,397 was more than one year overdue. 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 1996, the Company did not reduce interest rates on any outstanding mortgage loans. At December 31, 1996 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, 1996 the Company had no outstanding amounts which had been advanced for mortgage loans. Due and accrued income was excluded from investment income on mortgage loans where due and unpaid was more than three months. The total amount excluded as of December 31, 1996 was $1,168,467. There was no amount excluded for 1995. At December 31, 1996 and 1995 the Company held $869,201 and $3,472,786, respectively, in mortgages with prior outstanding liens. 18 96 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 3. INVESTMENTS (CONT'D) [g] The following tables represent a summary of investments held as of December 31, 1996 and 1995.
DECEMBER 31, 1996 --------------------------------------------- COST OR AMORTIZED FAIR CARRYING COST VALUE VALUE - ------------------------------------------------------------------------------ [in thousands of dollars] Fixed maturities [ note 3[c] ] $1,278,305 $1,313,400 $1,276,783 Common stocks 9,879 12,294 12,294 Real estate 20,763 22,150 20,613 Mortgage loans on real estate 886,124 958,978 881,189 Policy loans 11,461 11,461 11,461 Other long-term investments 1,773 1,773 1,773 Short-term investments 59,321 59,321 59,321 - ------------------------------------------------------------------------------ TOTAL INVESTMENTS $2,267,626 $2,379,377 $2,263,434 ==============================================================================
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 ==============================================================================
[h] The following table presents the fair values and carrying amounts for the Company's derivative instruments:
DECEMBER 31, 1996 -------------------------------------- FAIR CARRYING VALUE VALUE - ------------------------------------------------------------------------------ [in thousands of dollars] Interest rate futures $ 377 $ 377 Interest rate swaps 7,744 -
19 97 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 3. INVESTMENTS (CONT'D)
DECEMBER 31, 1995 -------------------------------------- FAIR CARRYING VALUE VALUE ------------------------------------------------------------------------ [in thousands of dollars] Interest rate futures $ 609 $ 609 Interest rate swaps 5,025 -
[i] The carrying amounts and fair values of the Company's liabilities for investment-type insurance contracts (included with actuarial reserves liability in the balance sheet) are as follows:
DECEMBER 31, 1996 -------------------------------------- FAIR VALUE CARRYING VALUE ------------------------------------------------------------------------ [in thousands of dollars] Investment contracts $547,142 $531,508
DECEMBER 31, 1995 -------------------------------------- FAIR VALUE CARRYING VALUE ------------------------------------------------------------------------ [in thousands of dollars] Investment contracts $584,696 $529,124
20 98 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 4. FEDERAL INCOME TAXES As of December 31, 1996 and 1995, federal income taxes receivable (payable) were $4,656,000 and $(3,470,000), respectively. During 1996, 1995 and 1994, the Company made cash payments (net of refunds received) on behalf of federal income taxes of $6,465,000, $4,225,000 and $4,802,000, respectively. The statutory federal income tax provision amount at the statutory rate of 35% for 1994, 1995 and 1996 differs from the effective tax provision amount as follows:
YEARS ENDED DECEMBER 31 1996 1995 1994 - -------------------------------------------------------------------------------------------------------- [in thousands of dollars] Computed income taxes at statutory rate $ 6,615 $ 7,899 $ 5,569 Increase (decrease) in income taxes resulting from: Policyholder dividends (64) 5 (120) Deferred reinsurance commissions net of amortization - (46) (247) Amortization of interest maintenance reserve (307) (343) (453) Income tax (over) provision (2,350) (1,257) (1,932) Amortization of prior year change in reserves (591) (206) (207) Discount accrual (1,519) (700) (889) Reserve differences 82 2,278 4,305 Deferred acquisition cost tax (3) (14) 158 Bad debt on mortgages (3,857) (688) (3,055) Losses on options - (25) - Futures losses 391 (2,640) - Mortgage prepayment penalties (722) (556) - Other 335 128 (492) - -------------------------------------------------------------------------------------------------------- Federal income taxes (benefit) $(1,990) $ 3,835 $ 2,637 ========================================================================================================
21 99 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 5. ACTUARIAL RESERVES All policies, except variable annuities and institutional investment products, were acquired through coinsurance reinsurance agreements with the Parent. The reserves established meet the requirements of the Insurance Law and regulations of the State of Michigan and are consistent with the reserving practices of the Parent. Certain reserving practices for life and annuity reserves are as follows: [a] The Company waives deduction of deferred fractional premium upon death of the insured for all issues and returns any portion of the final premium beyond the date of death from 1980 and later issues. For 1980 and later issues, the Company's reserves are calculated on a continuous basis to reflect the above practice. For issues prior to 1980, annual premium is assumed in the reserve calculation and for policies with premium frequency other than annual, the Company holds a separate NDDFP reserve which is the present value of a death benefit of half of the gross premium for the balance of the policy premium paying period. Some policies promise a surrender value in excess of the reserve as legally computed. This excess is calculated on a policy by policy basis. [b] Policies issued at premium corresponding to ages higher than the true ages are valued at the rated-up ages. Policies providing for payment at death during certain periods of an amount less than the full amount of insurance, being policies subject to liens, are valued as if the full amount is payable without any deduction. For policies, issued with, or subsequently subject to, an extra premium payable annually, an extra reserve is held. The extra premium reserve is 45% of the gross extra premium payable during the year if the policies are rated for reasons other than medical impairments. For medical impairments, the extra premium reserve is calculated at the excess of the reserve on rated mortality over that on standard mortality. [c] At the end of 1996 and 1995 respectively, the Company had $0 of insurance in-force for which the gross premiums are less than the net premiums according to the standard of valuation set by the State of Michigan. [d] The Tabular Interest has been determined from the basic data for the calculation of policy reserves. The Tabular Less Actual Reserve Released has been determined by formula. The Tabular Cost has been determined from the basic data for the calculation of policy reserves. [e] The Tabular Interest on funds not involving life contingencies was determined by formula. 22 100 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 5. ACTUARIAL RESERVES (CONT'D) [f] There were no significant "Other Increases." Withdrawal characteristics of annuity actuarial reserves and deposit liabilities as at December 31, 1996 are as follows:
AMOUNT % OF TOTAL ------ ---------- Subject to discretionary withdrawal with adjustment -with market value adjustment $ 120,931,028 5.7% -at book value less surrender charge 192,824,778 9.1% -------------- ----- Subtotal 313,755,806 14.8% Subject to discretionary withdrawal without adjustment -at book value (minimal or no charge adjustment) 194,479,020 9.1% Not subject to discretionary withdrawal provision 1,618,150,093 76.1% -------------- ----- Total annuity actuarial reserves and deposit fund liabilities (gross) 2,126,384,919 100.0% -------------- ----- Less: reinsurance - -------------- Total annuity actuarial reserves and deposit fund liabilities (net) $2,126,384,919 ==============
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 recognized an additional expense of $1,430,000 in 1996 to complete the phase in of AG 33. 23 101 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 6. POLICYHOLDER DIVIDENDS Participating insurance accounts for 100% of the ordinary life insurance in-force and premium income from ordinary life insurance as of December 31, 1996 and 1995. 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 and institutional investment products issued, all premiums for insurance and annuity considerations and benefit expenses recorded for the years ended December 31, 1996, 1995, and 1994 were the result of the coinsurance agreements. As of December 31, 1996, 1995, and 1994, $(16,596,053), $3,342,280, and $(4,466,448) respectively, were receivable (payable) from (to) the Parent under the agreements. Information regarding premiums is as follows:
YEARS ENDED DECEMBER 31 ----------------------- [in thousands of dollars] Percentage Percentage Percentage of Total of Total of Total 1996 Premiums 1995 Premiums 1994 Premiums ---- -------- ---- -------- ---- -------- Direct premiums $124,862 42.2% $123,170 37.8% $ 26,676 9.0% Assumed premiums 170,678 57.8% 203,026 62.2% 269,519 91.0% ------------------------------------------------------------------------------------- Total premiums for insurance and annuity contracts $295,540 100.0% $326,196 100.0% $296,195 100.0% =====================================================================================
Direct premiums above represent premiums earned from variable annuity products and institutional investment products issued. 24 102 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 7. RELATED PARTY TRANSACTIONS (CONT'D) Information regarding ordinary life insurance in-force is as follows:
AS OF DECEMBER 31 ----------------- [in thousands of dollars] Percentage of Percentage Total of Total 1996 In-Force 1995 In-Force ---- -------- ---- --------- Direct life insurance in-force - - - - Assumed life insurance in- force $49,354,000 100.0% $52,721,000 100.0% ------------------------------------------------------------ Total life insurance in-force $49,354,000 100.0% $52,721,000 100.0% ============================================================
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, 1996, 1995 and 1994, the cost of these services amounted to $6,378,851, $7,686,114, and $4,519,609, respectively. 25 103 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 7. RELATED PARTY TRANSACTIONS (CONT'D) As of December 31, 1996 and 1995, 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 1996 1995 - -------------------------------------------------------------------------------------- [in thousands of dollars] Payable: Canada Life Assurance Company $18,629 $6,320 Canada Life of America Series Fund, Inc. 48 - Receivable: CL Capital Management, Inc. 92 156 Canada Life of America Series Fund, Inc. - 49 - -------------------------------------------------------------------------------------- $18,585 $6,115 - --------------------------------------------------------------------------------------
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 five 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 1996 1995 ------------------------------------------------------------------------------------ [in thousands of dollars] Premiums, considerations, or deposits received $129,475 $111,252 Reserves, subject to discretionary withdrawal - at market with current surrender charges $350,886 $264,143
26 104 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 7. RELATED PARTY TRANSACTIONS (CONT'D) A reconciliation of the amounts transferred to and from the Separate Accounts is presented below:
YEARS ENDED DECEMBER 31 ----------------------------------------------- [in thousands of dollars] 1996 1995 1994 ---- ---- ---- Transfers as reported in the Summary of Operations of the Separate Accounts Statement: Transfers to Separate Accounts $129,475 $ 253,914 $17,877 Transfers from Separate Accounts 80,018 30,998 4,551 ----------------------------------------------- Net transfers to Separate Accounts 49,457 222,916 13,326 Reconciling adjustments: (a) Gains/losses transferred 303 (192) 34 (b) Separate Account liability assumed on acquisition - (123,757) - (c) Transfers to Managed Accounts 48,942 - - ----------------------------------------------- Transfers as reported in the Summary of Operations of the Life, Accident & Health Annual Statement $ 98,702 $ 98,967 $13,360 ===============================================
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. 27 105 CANADA LIFE INSURANCE COMPANY OF AMERICA NOTES TO FINANCIAL STATEMENTS December 31, 1996 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 1996. Also, the Company is subject to insurance regulatory restrictions that stipulate that shareholder dividends may only be paid from its surplus earnings unless the Commissioner approves the dividend prior to payment. In accordance with statutory requirements, bonds carried at a value of $4,562,418 and $4,587,000 were on deposit with insurance regulatory authorities at December 31, 1996 and 1995, 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. 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 1996 1995 1996 1995 --------------------------------------------------------- [in thousands of dollars] [in thousands of dollars] Interest rate swaps $ 7,744 $15,000 - - Futures (government bonds) 52,400 27,200 $377 $609 --------------------------------------------------------- Total $60,144 $42,200 $377 $609 =========================================================
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. 28 106 PART C OTHER INFORMATION 107 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) Amendment to Distribution Agreement (4) (a) Form of Annuity Policy (b) Riders and Endorsements (5) Form of Application (6) (a) Certificate of Incorporation of CLICA* (b) By-Laws of CLICA* (7) Not applicable (8) Form of Buy-Sell Agreement (9) Opinion and Consent of Counsel (10)(a) Consent of Counsel (b) Consent of Independent Counsel (c) Consent of Independent Auditors (11)No financial statements are excluded from Item 23. (12)Not Applicable (13)Not Applicable * Incorporated herein by reference to Post-Effective Amendment No. 13 to the Registration Statement on Form N-4 for Variable Account 1 of Canada Life Insurance Company of America (File No. 33-28889) made April 1997. 108 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 (2) Marketing Actuary J. G. Deskins(2) Marketing Actuary M. G. Libenson(1) Internal Auditor R. W. Linden (1) Secretary D. A. Hopkins (2) Assistant Secretary 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 S. H. Zimmerman (3) Director H.A. Rachfalowski(1) Director K.A. Phelan(1) Assistant Treasurer
--------------------- (1) The business address is 330 University Avenue, Toronto, Ontario, Canada M5G 1R8. (2) The business address is 6201 Powers Ferry Road, NW, Suite 600, Atlanta, Georgia 30339. (3) The business address is 800 Michigan National Tower, Lansing, Michigan 48933. 109 Item 26. Persons Controlled by or Under Common Control With the Depositor or Registrant
NAME JURISDICTION PERCENT OF PRINCIPAL - ---- --------------- VOTING SECURITIES OWNED BUSINESS ----------------------- -------- The Canada Life Assurance Company Canada Mutual Company Life and Health Insurance Canada Life Insurance Company of New York Ownership of voting securities Life and Health New York through Canada Life Insurance Adason Properties Limited Canada Ownership of all voting securities Property Management through Canada Life Canada Life Irish Operations England Ownership of all voting securities Life and Health Limited through Canada Life Insurance Canada Life Unit Trust Managers England Ownership of all voting securities Unit Trust Limited through Canada Life Irish Management Operations Canada Life Mortgage Services Ltd. Canada Ownership of all voting securities Mortgage Portfolios through Canada Life The CLGB Property Company Limited England Ownership of all voting securities Real Estate through Canada Life Irish Investment Operations CLASSCO Benefit Services Limited Canada Ownership of all voting securities Administrative through Canada Life Services Canada Life Casualty Insurance Canada Ownership of all voting securities Property and Company through Canada Life Insurance Casualty Insurance Canada Life Investment Management Canada Ownership of all voting securities Investment Limited through Canada Life Counseling Sherway Centre Limited Canada Ownership of all voting securities Real Estate Broker through Canada Life The Canada Life Assurance Company Rep. of Ireland Ownership of all voting securities Life and Health of Ireland Limited through Canada Life Irish Insurance Operations Canlife - IBI Investment Services Rep. of Ireland Ownership of 50% of voting Unit Trust Limited securities through Canada Life Ass. Management (Ireland) Limited and 50% by the Investment Bank of Ireland Canada Life Financial Services England Ownership of all voting securities Life Insurance Company Limited through Canada Life Irish Operations F.S.D. Investments Ltd. Rep. of Ireland Ownership of all voting securities Unit Fund Sales and through Canada Life Assurance Management (Ireland) Limited Canada Life Insurance Company of US Canada Life Life and Health America Insurance Canada Life of America Financial Georgia Ownership of all voting securities Broker Dealer Services Inc. through CLICA Canada Life of America Series Maryland Ownership of all voting securities Mutual Fund Fund, Inc. through CLICA
110
NAME JURISDICTION PERCENT OF PRINCIPAL - ---- --------------- VOTING SECURITIES OWNED BUSINESS ----------------------- -------- CLMS Realty Ltd. Canada 99% of the common shares and 100% Realtor of the convertible preference shares are owned by Canada Life Canada Life Pension & Annuities Rep. of Ireland Ownership of all voting securities Life Assurance (Ireland) Limited through Canada Life Assurance (Ireland) Limited CLAI Limited Rep. of Ireland Ownership of all voting securities Holding, Service, through Canada Life Ireland Management, and Holdings Limited Investment Company The Canada Life Assurance Rep. of Ireland Ownership of all voting securities Life Insurance, (Ireland) Limited through CLAI Limited and the Canada Pension, and Life Assurance Company of Ireland Annuity CL Capital Management, Inc. Georgia Ownership of all voting securities Investment Advisor through CLICA Canada Life Capital Corporation Canada Ownership of all voting securities External Sources of Inc. through Canada Life Capital Canada Life Securing Corporation Canada Ownership of all voting securities Holding Company Inc. through Canada Life The Canada Life Group (UK) Limited England Ownership of all voting securities Holding Company through Canada life Canada Life Holdings (UK) Limited England The Canada Life Group (UK) Limited Holding Company The Canada Life Assurance Company England The Canada Life Group (UK) Limited Life and Health of Great Britain Limited Insurance Canada Life Management (UK) England The Canada Life Group (UK) Limited Unit Trust Sales & Limited Management Canada Life Group Services (UK) England The Canada Life Group (UK) Limited Administrative Limited Services Canada Life Trustee Services (UK) England The Canada Life Group (UK) Limited Trustee Services Limited Canada Life Ireland Holdings Ireland Canada Life Irish Operations Limited Holding Company Limited
111 Item 27. Number of Policy Owners As of December 31, 1996 there were 2,714 owners of Nonqualified Policies and 1,273 owners of Qualified Policies. Item 28. Indemnification Canada Life Insurance Company of America's By-Laws provide in Article II, Section 10 as follows: In addition to any indemnification to which a person may be entitled to under common law or otherwise, each person who is or was a director, an officer, or an employee of this Corporation, or is or was serving at the request of the Corporation as a director, an officer, a partner, a trustee, or an employee of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprises, whether profit or not, shall be indemnified by the Corporation to the fullest extent permitted by the laws of the State of Michigan as they may be in effect from time to time. This Corporation may purchase and maintain insurance on behalf of any such person against any liability asserted against and incurred by such person in any such capacity or arising out of his or her status as such, whether or not the corporation would have power to indenmify such person against such liability under the laws of the State of Michigan. In addition, Sections 5241 and 5242 of the Michigan Insurance Code generally provides that a corporation has the power (and in some instances the obligation) to indemnify a director, officer, employee or agent of the corporation, or a person serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another corporation or other entity (the "indemnities") against reasonably incurred expenses in a civil, administrative, criminal or investigative action, suit or proceeding if the indemnitee acted in good faith in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation or its shareholders or policyholders (or, in the case of a criminal action, if the indemnitee had no reasonable cause to believe his or her conduct was unlawful). Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinon of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the questions whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. 112 Item 29. Principal Underwriter Canada Life of America Financial Services, Inc. (CLAFS) is the principal underwriter of the Policies as defined in the Investment Company act of 1940. The following table provides certain information with respect to each director and officer of CLAFS.
NAME AND PRINCIPAL POSITIONS AND OFFICES BUSINESS ADDRESS WITH UNDERWRITER - ------------------ ----------------------------------- D.A. Loney** Chairman and Director D.A. Hopkins** Secretary D.V. Rough* Treasurer R.W. Linden* Assistant Secretary K.T. Ledwos* Administrative Officer and Director F. D'Ambra** President and Director K.J. Fillman** Administrative Officer D.D. Myers** Accounting Officer B. Smith** Administrative Officer
___________________ * The business address is 330 University Avenue, Toronto, Ontario, Canada M5G1RS. ** The business address is 6201 Powers Ferry Road, N.W., Suite 600, Atlanta, Georgia 30339. Item 30. Location of Accounts and Records All accounts and records required to be maintained by Section 31(a) of the 1940 Act and the rules under it are maintained by CLICA at its Executive Office at 330 University Avenue, Toronto, Ontario M5G 1R8 and 6201 Powers Ferry Road, N.W., Suite 600, Atlanta, Georgia 30339 Item 31. Management Services All management contracts are discussed in Part A or Part B. Item 32. Undertakings (a) Registrant undertakes that it will file a post effective amendment to this registration statement as frequently as necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted. (b) Registrant undertakes that it will include either (1) as part of any application to purchase a contract offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the Prospectus that the applicant can remove to send for a Statment of Additional Information. (c) Registrant undertakes to deliver any Statement of Additional Information and any financial statements required to be made available under this Form promptly upon written or oral request to CLICA at the address or phone number listed in the Prospectus. 113 (d) Depositor undertakes to preserve on behalf of itself and Registrant the books and records required to be preserved by such companies pursuant to Rule 31a-2 under the Investment Company Act of 1940 and to permit examination of such books and records at any time or from time to time during business hours by examiners or other representatives of the Securities and Exchange Commission, and to furnish to said Commission at its principal office in Washington, D.C., or at any regional office of said Commission specified in a demand made by or on behalf of said Commission for copies of books and records, true, correct, complete, and current copies of any or all, or any part, of such books and records. (e) The Registrant is relying on a letter issued by the staff of the Securities and Exchange Commission to the American Council of Life Insurance on November 28, 1988 (Ref. No. IP-6-88) stating that it would not recommend to the Commission that enforcement action be taken under Section 22(e), 27(c)(1), or 27(d) of the Investment Company Act of 1940 if the Registrant, in effect, permits restrictions on cash distributions from elective contributions to the extent necessary to comply with Section 403(b)(11) of the Internal Revenue Code of 1986 in accordance with the following conditions: (1) include appropriate disclosure regarding the redemption restrictions imposed by Section 403(b)(11) in each registration statement, including the prospectus, used in connection with the offer of the policy; (2) include appropriate disclosure regarding the redemption restrictions imposed by Section 403(b)(11) in any sales literature used in connection with the offer of the policy; (3) instruct sales representatives who may solicit individuals to purchase the policies specifically to bring the redemption restrictions inmposed by Section 403(b)(11) to the attention of such individuals; (4) Obtain from each owner who purchases a Section 403(b) policy, prior to or at the time of such purchase, a signed statement acknowledging the owner's understanding of (i) the redemption restrictions imposed by Section 403(b)(11), and (ii) the investment alternatives available under the employer's Section 403(b) arrangement, to which the owner may elect to transfer his or her policy value. The Registrant is complying, and shall comply, with the provisions of paragraphs (1) - (4) above. (f) "Canada Life Insurance Company of America hereby represents that the fees and changes deducted under the Policy, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Canada Life Insurance Company of America." 114 STATEMENT PURSUANT TO RULE 6c-7 CLICA and the Variable Account 2 rely on 17 C.F.R., Section 270.6c-7 and represent that the provisions of that Rule have been or will be complied with. Accordingly, CLICA and the Variable Account 2 are exempt from the provisions of Section 22(e), 27(c)(1) and 27(d) of the Investment Company Act of 1940 with respect to any variable annuity contract participating in such account to the extent necessary to permit compliance with the Texas Optional Retirement Program. - ----------------------- * Incorporated herein by reference to the Post-Effective Amendment No. 13 of the Canada Life of America Variable Annuity Account 1 Form N-4 Registration Statement filed (File No. 33-28889) filed in April 1997. 115 SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all the rquirements 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 8 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, 1997. 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 8 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 04/24/97 ------------------------ D. A. Nield /s/ D. A. Loney President and Director 04/24/97 ------------------------ D. A. Loney /s/ K. T. Ledwos Director 04/24/97 ------------------------ K. T. Ledwos /s/ S. H. Zimmerman Director 04/24/97 ------------------------ S. H. Zimmerman /s/ D. D. Myers Accounting Officer 04/24/97 ------------------------ D. D. Myers
116 EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT 1 Resolution of the Board of Directors of Canada Life Insurance Company of America (CLICA) Authorizing Establishment of the Variable Account 2 3 (a) Form of Promotional Agent Distribution Agreement 3 (b) Form of Selling Agreement 3 (c) Amendment to Distribution Agreement 4 (a) Form of Annuity Policy 4 (b) Riders and Endorsements 5 Form of Application 8 (a) Buy-Sell Agreement 9 Opinion and Consent of Counsel 10 (a) Consent of Counsel 10 (b) Consent of Independent Counsel 10 (c) Consent of Independent Auditors 13 Sample Performance Data Calculation
EX-1 2 RESOLUTION OF THE BOARD OF DIRECTORS 1 EXHIBIT 1 RESOLUTION OF THE BOARD OF DIRECTORS OF CANADA LIFE INSURANCE COMPANY OF AMERICA (CLICA) AUTHORIZING ESTABLISHMENT OF THE VARIABLE ACCOUNT 2. 2 CANADA LIFE INSURANCE COMPANY OF AMERICA Unanimous Written Consent of the Board of Directors In Lieu of Meeting We, the undersigned, being all of the duly elected and acting members of the Board of Directors of Canada Life Insurance Company of America (the "Corporation"), do hereby consent to the adoption of the following resolutions and to the corporate action hereinafter set forth, and direct that they shall, in all respects, be deemed as valid corporate action as though such action and resolutions had been duly adopted and authorized at a formal special meeting of the Board of Directors of the Corporation held on October 30th, 1992: ADDITION OF SUB-ACCOUNT TO VARIABLE ANNUITY ACCOUNT 1 RESOLVED THAT, the Board of Directors of Canada Life Insurance Company of America ("Company"), pursuant to rights previously reserved to the Board of Directors of the Company, hereby authorizes the establishment of a new Investment Subaccount in addition to the existing Investment Subaccounts of Canada Life of America Variable Annuity Account 1, which shall invest in the shares or units of a designated Investment Company Portfolio; and FURTHER RESOLVED THAT, any two of the Officers and those Directors of the Company who are also Officers of The Canada Life Assurance Company, are hereby authorized and empowered to execute and deliver any such agreements and other documents and do any such acts and things as may be deemed necessary or desirable to carry out this resolution and the intent and purposes thereof, including, but not limited to, executing whatever agreement or agreements may be necessary or appropriate, and the filing of any amendments may be necessary or appropriate, and the filing of any amendments to registration statements, any supplements, any undertakings, and any applications for exemptions, and any amendments thereto, from the Investment Company Act of 1940 or other applicable federal laws as the said Officers and Directors of the Company shall deem necessary or appropriate. VARIABLE ANNUITY ACCOUNT 2 RESOLVED THAT, the Board of Directors of Canada Life Insurance Company of America (the "Company") pursuant to the provisions of Section 925 of the Michigan Insurance Code, MCLA 500.925, hereby establishes a separate account designated "Canada Life of America Variable Annuity Account 2" (hereinafter "Variable Annuity Account 2") for the following 3 use and purposes, and subject to such conditions as hereinafter set forth; FURTHER RESOLVED THAT, Variable Annuity Account 2 is established for the purpose of providing for the issuance by the Company of variable annuity contracts, or variable annuity options under annuity contracts (hereinafter, the "Contracts"), and shall constitute a separate account into which are allocated amounts paid to or held by the Company under such Contracts. The form of such Contracts shall be kept on file in the Secretary's Office. FURTHER RESOLVED THAT, the income, gains, and losses, whether or not realized, from assets allocated to Variable Annuity Account 2 shall, in accordance with the Contracts, be credited to or charged against such account without regard to other income, gains, or losses of the Company; FURTHER RESOLVED THAT, the portion of the assets of Variable Annuity Account 2 equal to the reserves and other contract liabilities with respect to Variable Annuity Account 2 shall not be chargeable with liabilities arising out of any other business the Company may conduct; FURTHER RESOLVED THAT, Variable Annuity Account 2 shall be divided into Investments Subaccounts, each of which shall invest in the shares or units of a designated Investment Company Portfolio, and net premiums under the Contracts shall be allocated to the eligible portfolios set forth in the Contracts in accordance with instructions from owners of the Contracts; FURTHER RESOLVED THAT, the Board of Directors expressly reserves the right to add, combine, or remove any Investment Subaccount of Variable Annuity Account 2 as it may hereafter deem necessary or appropriate; FURTHER RESOLVED THAT, any two of the Officers and those Directors of the Company who are also Officers of The Canada Life Assurance Company, are hereby authorized to invest such amount or amounts of the Company's cash in Variable Annuity Account 2 or in any Investment Subaccount thereof as may be deemed necessary or appropriate to facilitate the commencement of Variable Annuity Account 2's operations and/or to meet any minimum capital requirements under the Investment Company Act of 1940; FURTHER RESOLVED THAT, any two of the Officers and those Directors of the Company who are also Officers of The Canada Life Assurance Company, are hereby authorized to transfer cash from time to time between the Company's general account and Variable Annuity Account 2 as deemed necessary or appropriate and consistent with the terms of the Contracts; FURTHER RESOLVED THAT, the Board of Directors of the Company reserves the right to change the designation of Variable Annuity Account 2 4 2 hereafter to such other designation as it may deem necessary or appropriate; FURTHER RESOLVED THAT, any two of the Officers and those Directors of the Company who are also Officers of The Canada Life Assurance Company, with such assistance from the Company's independent certified public accountants, chartered accountants, legal counsel and independent consultants or others as they may require, are hereby authorized and directed to take all action necessary to: (a) register Variable Annuity Account 2 as a unit investment trust under the Investment Company Act of 1940, as amended; (b) register the Contracts in such amounts, which may be an indefinite amount, as the said Officers of the Company shall from time to time deem appropriate under the Securities Act of 1933; and (c) take all other actions which are necessary in connection with the offering of said Contracts for sale and the operation of Variable Annuity Account 2 in order to comply with the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, and other applicable federal laws, including the filing of any amendments to registration statements, any supplements, any undertakings, and any applications for exemptions, and any amendments thereto, from the Investment Company Act of 1940 or other applicable federal laws as the said Officers of the Company shall deem necessary or appropriate; FURTHER RESOLVED THAT, any two of the Officers and those Directors of the Company who are also Officers of The Canada Life Assurance Company, are hereby authorized and empowered to prepare, execute, and cause to be filed with the Securities and Exchange Commission on behalf of Variable Annuity Account 2 and by the Company as sponsor and depositor a Notification of Registration under the Investment Company Act of 1940, on Form N-8A and a Registration Statement on Form N-4 under the Securities Act of 1933 and the Investment Company Act of 1940, and any other forms as may be designated from time to time for such purposes, and any and all amendments to the foregoing on behalf of Variable Annuity Account 2 and the Company and on behalf of and as attorneys-in-fact for the principal executive Officer, and the principal financial Officer, the principal accounting Officer, and/or any other Officer of the Company; FURTHER RESOLVED THAT, R. W. Linden, Secretary, and D. A. Hopkins, Assistant Secretary, are duly appointed as agent for service under any such registration statement, duly authorized to receive communications and notices from the Securities and Exchange Commission with respect thereto; FURTHER RESOLVED THAT, any two of the Officers and those Directors of the Company who are also Officers of The Canada Life Assurance Company, are hereby authorized on behalf of Variable Annuity Account 2 and on behalf of the Company to take any and all action that each of them may deem necessary or advisable in order to offer and sell the Contracts, including any registrations, filings, and qualifications both of the Company, its Officers, agents and employees, and of the 3 5 Contracts, under the insurance and securities laws of any of the states of the United States of America and other jurisdictions, and in connection therewith to prepare, execute, deliver, and file all such applications, reports, covenants, resolutions, applications for exemptions, consents to service of process, and other papers and instruments as may be required under such laws, and to take any and all further action which the said Officers or legal counsel of the Company may deem necessary or desirable (including entering into whatever agreements and contracts may be necessary) in order to maintain such registrations or qualifications for as long as the said Officers or legal counsel deem it to be in the best interests of Variable Annuity Account 2 and the Company; FURTHER RESOLVED THAT, any two of the Officers and those Directors of the Company who are also Officers of The Canada Life Assurance Company, are hereby authorized in the names and on behalf of Variable Annuity Account 2 and the Company to execute and file irrevocable written consents on the part of Variable Annuity Account 2 and of the Company to be used in such states wherein such consents to service of process may be requisite under the insurance or securities laws therein in connection with said registration or qualifications of the Contracts and to appoint the appropriate state official, or such other person as may be allowed by said insurance or securities laws, agent of Variable Annuity Account 2 and of the Company for the purpose of receiving and accepting process; FURTHER RESOLVED THAT, any two of the Officers and those Directors of the Company who are also Officers of The Canada Life Assurance Company, are hereby authorized to establish procedures under which the Company will provide voting rights for owners of the Contracts with respect to securities owned by Variables Annuity Account 2 insofar as such rights are required by any applicable law; FURTHER RESOLVED THAT, any two of the Officers and those Directors of the Company who are also Officers of The Canada Life Assurance Company, are hereby authorized to execute such agreement or agreements as deemed necessary and appropriate (i) with any qualified entity under which such entity will be appointed principal underwriter and distributor of the Contracts and (ii) with one or more qualified banks or other qualified entities to provide administrative and/or custodial services in connection with the establishment and maintenance of Variable Annuity Account 2 and the design, issuance, and administration of the Contracts; FURTHER RESOLVED THAT, because it is expected that Variable Annuity Account 2 will invest solely in the securities issued by one or more investment companies registered under the Investment Company Act of 1940, any two of the Officers and those Directors of the Company who are also Officers of The Canada Life Assurance Company, are hereby authorized to execute whatever agreement or agreements and enter into any arrangements that may be necessary or appropriate to enable such investments to be made; 4 6 FURTHER RESOLVED THAT, the signature of any Director or Officer of the Company required be law to affix his or her signature to a registration statement under the Investment Company Act of 1940 or Securities Act of 1933, or any amendment thereof, may be affixed by said Director or Officer personally or by an attorney-in-fact duly constituted in writing by said Director or Officer to sign his or her name thereto; and FURTHER RESOLVED THAT, any two of the Officers and those Directors of the Company who are also Officers of The Canada Life Assurance Company, are hereby authorized to execute and deliver such agreements and other documents and do such acts and things as may be deemed necessary or desirable to carry out the foregoing resolutions and the intent and purposes thereof. The undersigned further direct that this Unanimous Written Consent of the Board of Directors shall, in all respects, be deemed to be in lieu of a formal special meeting of the Board of Directors, and we do hereby waive all notice requirements in connection therewith. IN WITNESS WHEREOF, we have duly executed this Consent as of the 30th day of October, 1992. /s/ D. A. Nield /s/ A. P. Symons ------------------------- ------------------------- D. A. Nield A. P. Symons /s/ D. A. Loney /s/ H. W. McCubbin ------------------------- ------------------------- D. A. Loney H. W. McCubbin /s/ J. G. Fleming ------------------------- ------------------------- J. G. Fleming S. H. Zimmerman /s/ D. I.Fraser /s/ N. A. Daly ------------------------- ------------------------- D. I. Fraser N. A. Daly EX-3.A 3 FORM OF PROMOTIONAL AGENT DISTRIBUTION AGREEMENT 1 EXHIBIT 3 (a) FORM OF PROMOTIONAL AGENT DISTRIBUTION AGREEMENT 2 PROMOTIONAL AGENT DISTRIBUTION AGREEMENT THIS AGREEMENT, made this _____ day of __________, 199___ is among CANADA LIFE OF AMERICA FINANCIAL SERVICES, INC., a Georgia corporation ("CLAFS"), CANADA LIFE INSURANCE COMPANY OF AMERICA, a Michigan Corporation ("CLICA"), and SELIGMAN FINANCIAL SERVICES, INC., a Delaware Corporation ("Seligman Financial"). WHEREAS, CLICA has determined to issue certain contracts or subsequent variations thereof, such contracts are described in Exhibit A hereto (the "Contracts"), which Contracts shall be funded either through a separate account known as CLICA Variable Annuity Account 2 ("Separate Account") and/or through CLICA's General Account; and WHEREAS, a Registration Statement on Form N-4 including a Prospectus and Statement of Additional Information relating to the Separate Account and units of interest under the Contracts ("Registration Statement") have been or will be filed with the Securities and Exchange Commission ("SEC") to register the Separate Account as a unit investment trust under the Investment Company Act of 1940 ("1940 Act") and to register the units of interest under the Contracts funded through the Separate Account under the Securities Act of 1933 ("1933 Act") and WHEREAS, CLICA and CLAFS have entered into an agreement pursuant to which CLAFS will serve as principal underwriter for the Contracts funded through the Separate Account, it being the intention of CLICA AND CLAFS that such Contracts be offered to the public on a continuous basis; and WHEREAS, Seligman Financial is registered as a broker-dealer under the Securities Exchange Act of 1934 (the "1934 Act") and is a member of the National Association of Securities Dealers, Inc. ("NASD"); and WHEREAS, CLAFS desires to appoint Seligman Financial as the promotional distributing agent for the Contracts and Seligman Financial desires to act as such promotional distributing agent. In consideration of the mutual agreements herein made and intending to be legally bound hereby, the parties agree as follows: 1. Promotional Distributing Agent. CLICA and CLAFS hereby appoint Seligman Financial, and Seligman Financial hereby accepts appointment, as the promotional distributing agent ("Promotional Agent") for the Contracts within the United States and its territories. CLAFS agrees that during the term of the Agreement, except in its capacity as a Selling Firm, as hereinafter defined, it will not distribute the Contracts, will not reallow any compensation it receives to any broker-dealer firm unaffiliated with it and will not be entitled to compensation with respect to distribution of the Contracts to purchasers thereof. As Promotional Agent, Seligman Financial undertakes to make best efforts consistent with market conditions to actively market the Contracts through Selling Firms in those states in which it is so authorized pursuant to applicable law, including, among other things, advertising, visits to brokerage firms, and development of sales literature. As Promotional Agent, Seligman Financial may enter into written agreements ("Selling Agreements") with such brokerage firms ("Selling Firms") as it may from time to time select subject to Section 10(D) below. The form of Selling Agreement is attached hereto as Exhibit B. Any material changes to the form of the Selling Agreement must be approved by CLICA and such approval shall not be unreasonably withheld. CLICA and CLAFS hereby undertake and agree that during the term of this Agreement applications to purchase the Contracts will not be accepted or Contracts issued unless submitted by Selling Firms or Seligman Financial. Seligman Financial hereby agrees that CLAFS may become a Selling Firm, provided however, that CLAFS enters into a Selling Agreement with Seligman Financial. 2. Compensation. As compensation for its services as Promotional Agent, Seligman Financial shall be entitled to receive compensation ("Promotional Agent Fee") with respect to any Contract issued, as disclosed on the attached Exhibit C, Statement of Compensation. CLICA agrees to pay to Selling Firms compensation as set 3 forth in Exhibit C which includes commissions payable to Selling Firms ("B/D Concession"), and any potential Service Fee that might become payable to Seligman Financial and Selling Firm at annuitization. CLICA will pay all compensation consistent with its regular compensation-paying schedule. In addition, CLICA will accept purchase payments net of B/D Concession, subject to certain conditions imposed by CLICA from time to time, from Selling Firms as specified from time to time by Seligman Financial on both initial and subsequent purchase payments. If CLICA is required to purchase payments because (i) a Contracts's "Free Look" provision was exercised, (ii) a Contract was not issued as a result of a failure by a Selling Firm to submit to CLICA an application sufficient to satisfy state insurance laws or CLICA's eligibility requirement, or (iii) a Contract was tendered to CLICA for redemption within ten business days of the date of activity, then (a) no B/D Concession will be payable with respect to said purchase payments, (b) Seligman Financial will refund to CLICA the Promotional Agent Fee it may have received in connection with such purchase payments, (c) any B/D Concessions paid by CLICA for said purchase payments may be deducted by CLICA from any B/D Concession owing to the Selling Firm, and (d) if no B/D Concession is owing to such Selling Firm, Seligman Financial will collect from Selling Firm, such B/D Concession paid by CLICA and will pay such amount to CLICA, it being understood that CLICA's, CLAFS' and Seligman Financial's liability is limited and that Selling Firms are responsible to Contract Owners for any loss of contract value or loss due to reversal of trades which may occur due to wire errors, either in purchase payment amount or investment option, failure or CLICA to receive an original properly completed application, and/or any other failure on part of Selling Firms to follow CLICA's administrative procedures. It is also understood that Seligman Financial's liability, if it is unable to collect from a Selling Firm, is limited as provided in Section 11D. 3. Recordkeeping Service Agent. The parties hereby agree that CLICA shall be the Recordkeeping Service Agent to perform certain services in connection with processing purchase payments, redemptions, transfers, processing of Promotional Agent Fee and B/D Concessions and related services as agent for itself and CLAFS. It is understood that in entering into this Agreement, Seligman Financial is relying upon representations by CLICA that it, CLICA, will provide and maintain or cause to be provided and maintained, certain administrative and other services necessary for the operation of the Separate Account and for the benefit of the Contract Owners and Seligman Financial. 4. Issuance of Contracts. CLICA and CLAFS hereby undertake to use their best efforts, subject to the standards set forth in the Registration Statement, (i) to maintain a continuous offering of the Contracts and (ii) to ensure that applications to purchase units of interest under the Contracts shall be acceptable to CLICA and that the Contracts shall be issued pursuant to such applications and (iii) to ensure that all purchase payments be processed at the accumulation unit value determined in the manner as described in the Registration Statement. It is understood that a Contract shall not be issued unless and until the purchase payments and application received relating to such Contract are sufficient to satisfy CLICA's eligibility requirements as set forth in the Contracts and the requirements of applicable state insurance law. Seligman Financial agrees that all applications for the Contracts shall be made on the application forms supplied by CLICA. Seligman Financial agrees to instruct Selling Firms to (i) review the applications for completeness and correctness as to form, (ii) review all applications for suitability, and (iii) to promptly forward to CLICA all applications found to be complete together with any purchase payments received with the applications received. Any additional purchase payments, to the extent permitted by the Contract shall also be remitted directly to CLICA. 5. Chargebacks. (i) In the event a Contract is returned to CLICA pursuant to a Free Look provision, the full Promotional Agent Fee paid thereon shall be charged back to Seligman Financial in accordance with Section 2 above. (ii) Should any premium or purchase payment on any Contract issued by CLICA be refunded for any reason, Seligman Financial shall repay or return Promotional Agent Fees received by it with respect to such premium or purchase payment. (iii) For full or partial withdrawals from the Contract: 100% of all Selling Concessions paid to Selling Firms on amount(s) withdrawn within 12 months of said amount(s) being paid to CLICA shall be returned or repaid. For any premium or purchase payment that has been in the contract for more 2 4 than 12 months, there shall be no charge back on either Promotional Agent Fee or B/D Concession. To the extent permitted by law, the amount so charged back may, at the option of CLICA, be set off against Promotional Agent Fees otherwise due to Seligman Financial. In addition, such other compensation will be payable as are from time to time agreed by the parties to the this Agreement and will be added to Schedule I of the Selling Agreement in accordance therewith. 6. Plan Name. CLICA, CLAFS and Seligman Financial agree that the Contracts will be sold under the name "Trillium" (Trillium) and that communications to prospective and existing Contract Owners with respect to the sale and servicing of the Contracts will contain prominent reference to the aforementioned name. Property rights to the Name are owned by CLICA which will enter into a license agreement with Seligman Financial to permit the Name's use. 7. Confirmations and Prospectus Delivery. A. CLICA and CLAFS agree that CLAFS, at its own expense and through its agent CLICA, unless otherwise agreed in writing by Seligman Financial, shall issue and deliver or cause to be issued and delivered, confirmations of transactions effected with respect to the account of any Contract Owner for each transaction for which a confirmation is legally required in accordance with the provisions of the 1934 Act and Rule 10b-10 thereunder. CLICA and CLAFS further agree that CLAFS, through its agent CLICA, shall cause copies of all such confirmations to be forwarded to such Selling Firms as agreed to, in writing, by Seligman Financial and CLICA. B. CLICA agrees that it will, in accordance with the provisions of the 1933 Act and the rules thereunder, deliver or cause to be delivered to a Contract Owner who has made an initial purchase payment, a copy of the then current prospectus of the Separate Account and the then current prospectus for the Fund. Such prospectuses shall be delivered prior to or at the time the initial premium or purchase payment is made, or with the confirmation for such initial premium purchase payment, delivered in accordance with Section 7(A). 8. Expenses. Seligman Financial shall be responsible for all costs associated with the marketing and distribution of the Contracts including: (i) the expenses of printing and distributing prospectuses, statements of additional information and financial reports with respect to the Separate Account and the Fund to prospective Contract Owners and of prospectuses to persons described in Section 7(B) above; (ii) the expenses of preparing, printing and distributing all other literature in connection with the solicitation of applications to purchase the contracts, including expenses of filing such literature with the National Association of Securities Dealers, Inc. provided that Seligman Financial may be reimbursed or otherwise paid for any such materials by Selling Firms, and further provided that CLAFS and CLICA will cooperate with Seligman Financial in the development of such materials as reasonably requested by Seligman Financial; and (iii) expenses of advertising in connection with such solicitation effort. CLICA and CLAFS each accept responsibility for, and will bear the cost of, ensuring that Contract Owners receive on an ongoing basis all reports, notices and other materials required by applicable provisions of the Federal or State securities laws, rules of the NASD or any state securities or state insurance department, including without limitation, annual and semi-annual reports and prospectuses and statements of additional information for the Fund and Separate Account. The expenses relating to appointment of agents or producers of Selling Firms are as set forth in Section III.A. of the Selling Agreement, attached hereto as Exhibit B. In addition to any expense hereinabove expressly mentioned, CLICA and CLAFS each agree to pay all costs associated with the operation of the Separate Account, including without limitations: all fees and expenses incurred in connection with the registration of the Separate Account and all units of interest under the Contracts issued by CLICA under the securities laws of the United States; all fees and related expenses which may be incurred in connection with the qualification and registration of the Separate Account and the units of interest under the Contract for sale in the states; all expense relating to the filing of all sales literature approved by Seligman Financial with appropriate state regulatory authorities; and any other costs incurred by CLICA or CLAFS 3 5 or their respective employees unless otherwise agreed upon by the parties in writing and except to the extent such costs are paid by charges made against the Separate Account assets as set forth in the Registration Statement. 9. Representations and Warranties of CLICA and CLAFS. CLICA and CLAFS each hereby represent and warrant that: A. all actions, including, without limitation, those necessary under their articles of incorporation and by-laws and applicable federal and state law, to authorize and establish the Separate Account have been taken; B. each has taken all actions necessary to authorize the execution, delivery and performance of this Agreement and all transactions contemplated hereunder; C. a Registration Statement relating to the Separate Account and the Contracts has been or will be filed with the SEC under the 1933 Act and the 1940 Act and one or more amendments may be filed before the Registration Statement becomes effective; D. Seligman Financial has been provided with a copy of the Registration Statement and amendments thereto in the form in which it has been filed with the Securities and Exchange Commission and is hereby authorized to use such Registration Statement in the form in which it becomes effective and the information contained therein (as post- effectively amended and supplemented from time to time as provided herein) in connection with its activities as Promotional Agent hereunder and shall be provided with such other information relating to the Contracts or the Separate Account as it may reasonably request; E. such Registration Statement when it becomes effective will conform in all material respects with the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations thereunder, will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; F. each of them will use their best efforts to ensure that so long as the Separate Account and the units of interest under the Contracts are the subject of a public offering the Prospectus will continue to conform in all material respects with the requirements of the 1933 Act and the 1940 Act and the rules and regulations thereunder and that at no time will the prospectus include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; G. recognizing that it is the intention of the parties hereto that CLICA engage in a continuous public offering of units of interest under the Contracts and interest thereunder in the Separate Account, every effort will be made to prepare and file on a timely basis with the SEC such post-effective amendments or supplements as may be necessary to maintain a continuous public offering of units of interest under the Contracts. Seligman Financial shall be promptly advised of any proposed amendment or supplement to the Registration Statement and shall be provided with a copy of such proposed amendment or supplement sufficiently in advance of the filing of such amendment or supplement with the SEC to permit its review unless legal or regulatory requirements would make such review impracticable; H. Seligman Financial shall be notified as to the date upon which the Registration Statement as it may be amended becomes effective and shall be provided with a copy of such Registration Statement in the form in which it shall become effective. All information reasonably requested by Seligman Financial in order to provide prospective Contract Owners with a prospectus as contained in the initially effective Registration Statement or a subsequently amended or supplemented Prospectus shall be promptly furnished by CLICA and CLAFS; I. Seligman Financial shall be promptly notified of the institution by the SEC of any stop order proceedings in respect of the Registration Statement and CLICA and CLAFS will use their best efforts to prevent 4 6 the issuance of any such stop order and to obtain as soon as possible its lifting if issued; J. each shall use its best efforts to file and secure approval for sale of the Contracts in such states, as well as the District of Columbia, (hereinafter collectively the "States") in which Seligman Financial, CLICA and CLAFS agree in writing the Contracts shall be made available to the public, and CLICA further agrees to maintain such approvals. It is understood that each shall make every reasonable effort to make the Contracts available in all States except the State of New York, as soon as practicable; K. all sales material prepared by Seligman Financial and reviewed and approved by CLICA and CLAFS, will be filed by CLICA with the appropriate state regulatory authorities as required in such States and CLICA will use its best efforts to effect prompt review of such material in such States and to provide Seligman Financial with such assistance as Seligman Financial may reasonably require in order to develop sales literature in compliance with the laws and regulations of such States; L. upon reasonable request, Seligman Financial shall be informed as to the status of all such sales literature filings and shall be promptly notified of all approvals or disapprovals of sales literature filings in the various States; M. Seligman Financial will receive full cooperation in its efforts to assist the registered representatives of Selling Firms in meeting the requirements for appointment as CLICA agents for the sale of the Contracts under state insurance laws and, upon reasonable request, Seligman Financial shall be informed as to the status of applications for such appointment; N. CLICA will use its best efforts to process all completed applications for such appointment on a timely basis provided that it is understood that CLICA may decline to appoint a particular registered representative; and O. Seligman Financial may be notified in the event CLICA declines to appoint a particular registered representative and the reason for such action. 10. Representations and Warranties of Seligman Financial. Seligman Financial hereby represents and warrants that: A. it has taken all actions including, without limitation, those necessary under its articles of incorporation, by-laws and applicable state corporate law, necessary to authorize the execution, delivery and performance of this Agreement and all transactions contemplated hereunder; B. it is and shall remain duly registered as a broker-dealer under the 1934 Act, is a member in good standing of the NASD, and is duly registered under applicable state securities laws; C. Seligman Financial shall only solicit and shall instruct Selling Firms only to solicit purchases of the Contracts in those jurisdictions in which CLICA in writing states that such Contracts are approved for sale under applicable securities and insurance laws, or where the Contracts are exempt from such qualification and registration; D. it shall enter into Selling Agreements, substantially in the Form of Exhibit B hereto, only with such Selling Firms as are duly registered as broker dealers under the 1934 Act and are members in good standing of the NASD properly qualified to undertake their responsibilities under the Selling Agreements, and who represent that they are duly in compliance with applicable state securities and insurance laws, and shall direct such Selling Firms to sell only through those associated persons (as that term is defined in Section 3(a)(18) of the 1934 Act) who are duly and appropriately licensed, registered and otherwise qualified to sell the Contracts under the 1934 5 7 Act, applicable rules of the NASD, applicable state and insurance law and are appointed by CLICA as insurance agents for the sale on the Contracts. In connection with broker-dealers to distribute the Contracts, Seligman Financial will use reasonable efforts to ascertain that each broker-dealer wishing to execute a Selling Agreement is a member firm of the NASD duly qualified with all federal, state and other regulatory bodies, and otherwise is a suitable entity to represent CLICA and CLAFS. CLICA and CLAFS may refuse to enter into a Selling Agreement with a broker-dealer selected by Seligman Financial if such Selling Firm is deemed by CLICA or CLAFS to be unsuitable for any reason. Neither CLICA nor CLAFS will incur any obligation to compensate, or reimburse the expenses of, Seligman Financial as a result of any such refusal. E. Prior to any use with members of the public, Seligman Financial will provide CLICA and CLAFS copies of all sales literature developed by Seligman Financial for their review and approval. Such sales literature shall be reviewed in light of applicable federal securities laws, NASD requirements and state insurance laws. Seligman Financial shall file such sales literature with the NASD in accordance with the rules and regulations of the NASD. CLICA, CLAFS and Seligman Financial will approve the use of sales material in any state only if CLICA notifies Seligman Financial that such material has been submitted by CLICA, as required by applicable law, reviewed and approved by all appropriate state regulatory authorities; F. no statement or representation concerning the Contracts shall be made by Seligman Financial or any associated person thereof in connection with the Contracts other than those contained in the then current Registration Statement or in any other sales material released or approved by CLICA or CLAFS as information supplemental to such Registration Statement; and G. it shall promptly furnish to CLICA and CLAFS or their agent, any reports and information which the other party may reasonably request for the purpose of meeting their reporting and recordkeeping requirements under the insurance laws of any state, and under the federal and state securities laws and rules of the NASD. 11. Indemnification. A. CLICA and CLAFS each agree to indemnify and hold harmless Seligman Financial, any Selling Firm and each person who controls Seligman Financial or any such Selling Firm and their agents, subsidiaries and employees against any and all losses, claims, damages, liabilities or expenses (including, without limitation, any expenses reasonably incurred in investigating or defending against any litigation commenced or threatened, or any claim) arising out of or based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in (a) the Separate Account Registration Statement; or (b) any contract, application or other document filed in any State in order to qualify the Separate Account in such State or to qualify the Contracts to be issued thereby for sale in such state or to maintain such qualifications; or (ii) the omission or alleged omission in such Registration Statement, written material, application or other such document to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; or (iii) the negligent, improper fraudulent or unauthorized acts or omissions of CLICA or CLAFS or (iv) any breach of, or failure to comply with, the representations and warranties made by CLICA and/or CLAFS as set forth herein. Notwithstanding the foregoing, CLICA and CLAFS shall not indemnify Seligman Financial, any Selling Firm and each person who controls Seligman Financial or any such Selling Firm and their agents, subsidiaries and employees under paragraphs 11(A) (i) and 11(A) (ii) hereof to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in 11(A) (i) such Registration Statement or other sales material in conformity with written information furnished to them by Seligman Financial or any of its affiliates specifically for use therein; or 11(A) (ii) in the prospectus and statement of additional information for the Fund, except for liability arising out or written information furnished by CLICA or CLAFS specifically for use therein. This indemnity agreement will be in addition to any liability which CLICA or CLAFS may otherwise have. 6 8 B. Seligman Financial agrees to indemnify and hold harmless CLICA, CLAFS, each person who controls CLICA or CLAFS and their agents, subsidiaries and employees against any and all losses, claims, damages, liabilities, or expenses (including, without limitation any expenses reasonably incurred in investigating or defending against any litigation commenced or threatened or any claim) arising out of or based upon: (i) any untrue or alleged untrue statement or representation made by Seligman Financial in connection with its obligations as Promotional Agent hereunder or by associated persons of Seligman Financial (except to the extent that such statements may be made in reliance on any material relating to the Separate Account or the contracts supplied by CLICA or CLAFS), or (ii) the omission or alleged omission by Seligman Financial in connection with its obligations as Promotional Agent hereunder or by associated persons of Seligman Financial to state any material fact necessary to make statements made not misleading in light of the circumstances in which they were made (except to the extent that, in omitting to make such statement, reliance was placed upon material relating to the Separate Account or the Contracts supplied by CLICA or CLAFS), or (iii) use of sales literature by Seligman Financial and associated persons thereof which has not been approved for use by CLICA and CLAFS and has not been, if necessary, submitted by Seligman Financial on behalf of CLICA and CLAFS to the NASD; or (iv) the negligent, improper, fraudulent or unauthorized acts or omissions of Seligman Financial; or (v) any breach of, or failure to comply with, the representations and warranties made by Seligman Financial as set forth herein; or (vi) any untrue statement or alleged untrue statement of a material fact contained in the prospectus and/or statement of additional information for the Fund; or (vii) the omission or alleged omission of a material fact contained in the Prospectus and/or statement of additional information for the Fund. C. Promptly after receipt by an indemnified party under this paragraph 11 of notice of the commencement of any action by a third party, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this paragraph 11, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve the indemnifying party from liability which the indemnifying party may have to any indemnified party otherwise than under this paragraph 11. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, to assume the defense thereof, with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. D. Seligman Financial and CLICA agree to share equally any losses, including reasonable attorney cost, incurred by CLICA resulting from the breach by Selling Firms or their associated persons of the Selling Agreements; it being understood that CLICA and Seligman Financial must promptly notify the other party upon knowledge of such breach. Notwithstanding the agreement contained in this subsection D, CLICA may in the course of losses suffered by it as a result of wire orders accompanied by a telephone facsimile transmission as described in Section 4 thereof, may deduct the amount of Promotional Agent Fee due Seligman Financial for sales of the Contracts hereunder. In addition, CLICA will hold Selling Firm liable for losses under such Contracts when the (i) allocation instructions provided in the facsimile are different from those provided in the original application; (ii) purchase payment has been received and invested, and prior to the Contract being issued it is turned back for cancellation by the Selling Firm; (iii) Contract is being returned under the Free Look provision, but more than 30 days from the wire date; and (iv) application is not received by CLICA within five business days after the wire date. If CLICA is unable to collect such losses from Selling Firms, then CLICA and Seligman Financial agree to share equally such losses, including reasonable attorney costs. 12. Opinion of Counsel; Opinion of Auditors; Opinion of Officers. A. Prior to the date first above written (the "Closing Date"), CLICA and CLAFS will provide to Seligman Financial in a form acceptable to it, an opinion of counsel from David A. Hopkins, Assistant Secretary, to be dated the Closing Date, to the effect that: (i) CLICA and CLAFS are duly incorporated and are existing corporations in 7 9 good standing under their respective state laws of incorporation; (ii) CLAFS is duly registered as a broker-dealer under the 1934 Act and is a member in good standing of the NASD; (iii) CLICA and CLAFS may execute, deliver and perform their respective obligations hereunder without, as a result, breaching or violating any provision of their respective corporate charters or by-laws, the provisions of any statute, rule, regulation or order to which either is subject or to which any subsidiary is subject or any agreement or instrument to which either is a party or by which either is bound; (iv) CLICA has taken all actions, including, without limitation, those necessary under its articles of incorporation and by-laws and applicable state laws, to authorize and establish the Separate Account; (v) such counsel has no reason to believe that either the Registration Statement or any amendment or supplement thereto as of the date of the opinion contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading; the descriptions in the Registration Statement of statutes, legal and governmental proceedings and contracts and other documents are accurate and fairly present the information required to be shown; and such counsel does not know of any legal or governmental proceedings required to be described in the Registration Statement which are not described as required or of any contracts or documents of a character required to be described in the Registration Statement or to be filed as exhibits to the Registration Statement which are not described and filed as required, it being understood that such counsel need express no opinion as to the financial statement or other financial data contained in the Registration Statement or on information contained in the Registration Statement based on written information furnished by Seligman Financial or any of its affiliates specifically for use therein; and (vi) this Agreement has been duly authorized, executed and delivered by CLICA and CLAFS. B. On or before the Closing Date, CLICA will provide to Seligman Financial a copy of the most recent Report of Independent Auditor prepared by Ernst & Young to the effect that: (i) Ernst & Young are independent certified public accountants with respect to CLICA as defined in the Code of Professional Ethics of the American Institute of Certified Public Accountants and (ii) Ernst & Young have issued their opinion on the financial statements of CLICA, copies of which have been furnished to Seligman Financial. C. On the Closing Date, Seligman Financial will have received a certificate, dated as of the Closing Date, of the President or any Vice President, and Secretary or Assistant Secretary of CLICA in which such officers, to the best of their knowledge after reasonable investigation, shall state that the representations and warranties of CLICA in this Agreement are true and current, that CLICA has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the execution of this Agreement, that subsequent to the date(s) of the most recent financial statements in the Prospectus, there has been no material adverse change in the financial position or results or operation of CLICA and its subsidiaries except as set forth in or contemplated by the Prospectus or as described in such certificate. D. Prior to the Closing Date, Seligman Financial will provide to CLICA and CLAFS in a form acceptable to them, an opinion of Nina O. Shenker, Senior Vice President and General Counsel of J. & W. Seligman and Company, Inc., to be dated as of the Closing Date, to the effect that: (i) Seligman Financial is duly incorporated and is an existing corporation in good standing under the laws of the state in which it is incorporated; (ii) Seligman Financial is duly registered as a broker-dealer under the 1934 Act and is a member in good standing of the NASD; (iii) Seligman Financial may execute, deliver and perform its obligations hereunder without, as a result, breaching or violating any provision of its corporate charter or by-laws, any provision of the federal securities laws, rules and regulations, or the NASD Rules of Fair Practice, applicable to Seligman Financial, or any judicial or administrative orders in which it or any subsidiary is named or any material Agreement or instrument to which it is a party or by which it is bound; and (iv) this Agreement has been duly authorized, executed and delivered by Seligman Financial. E. On the Closing Date, Seligman Financial shall provide to CLICA and CLAFS in a form acceptable to them a certificate, dated as of the Closing Date, of the President or any Vice President, and a principal financial or accounting officer of Seligman Financial in which such officers, to the best of their knowledge after reasonable investigation, shall state that the representations and warranties of Seligman Financial in this Agreement are true 8 10 and current, that Seligman Financial has complied with all Agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to execution of this Agreement. F. CLICA agrees that, so long as this Agreement is in effect, it will furnish to Seligman Financial, as soon as practicable after the end of each fiscal year, a copy of its annual report to policyholders for such year, and CLICA will furnish to Seligman Financial (a) as soon as available, a copy of each report of CLICA to be mailed to policyholders, and (b) from time to time, such other financial information concerning CLICA as Seligman Financial may reasonably request. 13. Term of Agreement. This Agreement may not be assigned by any of the parties hereto. This Agreement shall continue in full force and effect for a period of 5 years from the effective date of this Agreement, unless otherwise mutually agreed upon by the parties to terminate sooner or if terminated for such reasons as set forth in paragraph 14 below. After such 5 year period, it will be deemed extended thereafter from year to year subject to termination at will by any party hereto upon 60 days prior written notice to the other, it being understood and agreed that the right to terminate this Agreement upon 60 days notice may be exercised for any reason or for no reason. 14. Termination. This Agreement shall terminate: A. at the option of CLICA or CLAFS upon the institution of formal proceedings against Seligman Financial or an affiliate by the NASD, the SEC, or any state securities or insurance department or any other regulatory body provided that CLICA or CLAFS determines in good faith in either's sole judgment, that such institution will have a material adverse impact on Seligman Financial or the affiliate's ability to perform its obligations under this Agreement; or B. at the option of Seligman Financial upon the institution of formal proceedings against The Canada Life Assurance Company ("CLA"), CLICA or CLAFS brought by any Canadian legal or regulatory authority, the NASD, SEC, or any formal proceedings involving a material matter brought by any state securities or state insurance department or any other regulatory body regarding CLA, CLICA or CLAFS provided that Seligman Financial determines in good faith in its sole judgment that such institution will have a material adverse impact on CLICA's or CLAFS' ability to perform its obligations under this Agreement or Seligman Financial's ability to distribute the Contracts; or C. at the option of Seligman Financial or CLICA upon any material adverse change in the financial condition of one or the other; or D. at the option of Seligman Financial, CLICA or CLAFS if the Buy-Sell Agreement among the Fund, the Separate Account, CLICA and J. & W. Seligman & Co., Inc. ("JWSI"), the Investment Adviser is terminated. E. at the option of Seligman Financial, CLICA or CLAFS, mutually and equally, if senior management of any of the parties to this Agreement so determines. In that event, termination of the Agreement will occur 30 days after written notice to that effect has been received by the non-terminating party(ies). 15. Provisions Surviving Termination. Notwithstanding termination of this Agreement, and regardless of the cause or reason for such termination, the provisions of Paragraph 11 (Indemnification) shall survive and be binding upon the parties for a period of 10 years following such termination. 16. Notices. Any notice required under this Agreement shall be deemed to have been given to CLICA and CLAFS if mailed to either, sent to the attention of the Assistant Secretary, Canada Life Insurance Company of America, 6201 Powers Ferry Road, N.W., Atlanta, GA 30339, and notice is deemed given to Seligman Financial if mailed to Seligman Financial Services, Inc., with a copy to Senior Vice President and General Counsel, JWSI, 130 Liberty Street, New York, NY 10006, or at such other address furnished to the other party pursuant hereto. 9 11 17. Nature and Survival of Representations and Warranties. All statements contained in this Agreement or in connection with the transactions contemplated hereby shall be deemed representations and warranties by the parties hereunder. All representations and warranties of the parties made in this Agreement or as provided herein shall survive, regardless of any investigation made by or on behalf of the parties hereto, until the applicable statutes of limitations have run, and except if a claim arises under a representation or warranty and a notice of claim is given prior to the expiration of the survival period, then such representation or warranty shall not terminate with respect to such claim until indemnification thereof shall have been made in accordance with the provisions of this Agreement. 18. Exclusivity of Agreement. A. CLICA and CLAFS hereby agree not to develop, market or otherwise engage in the sale of other individual or group variable annuities distributed through selling agreements with NYSE member firms or other broker-dealers as agreed to by the parties from time to time, for five years from the effective date of this Agreement, without the prior written consent of Seligman Financial subject to the following: (i) This provision is not applicable to and will in no way limit the further development and distribution of CLICA's existing individual (VariFund) and group (The Canada Life 401(k)) variable annuity products or amendments thereto; (ii) The exclusive nature of this Agreement will be reassessed by the parties and the exclusive nature of this Agreement may be terminated by either CLICA or Seligman Financial, upon 180 days notice, if this venture is not successful in achieving the total assets under management through individual and group annuity sales by the end of the year specified below. Year End 1994 $ 50 million 1995 $100 million 1996 $150 million 1997 $250 million CLICA and Seligman Financial believe that these levels of production are achievable and will work together in a spirit of cooperation to achieve the success of this venture. B. Seligman Financial agrees during the term of this Agreement not to enter into any distribution agreement with any other insurance company unaffiliated with CLICA for the development, distribution, marketing or sale of any other individual or group variable annuity or similar annuity, so long as Section 18A of this Agreement is in effect, without the express prior written consent of CLICA or CLAFS. C. This Section 18 A and B shall be of no effect if this Agreement is terminated pursuant to Section 14. 19. Miscellaneous. A. This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan. Anything herein to the contrary notwithstanding, this Agreement shall not be construed to require, or to impose any duty upon, either of the parties to do anything in violation of any applicable laws or regulations, and CLICA and Seligman Financial shall each comply with all applicable Federal and State laws, rules and regulations; B. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original; and C. If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise the remainder of this Agreement shall not be affected thereby. 10 12 20. Headings. The descriptive headings of this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. 21. Waivers. The waiver by any party of a breach by any other party of any of the provisions of this Agreement shall not operate or be deemed as a waiver of any other provision of this Agreement or of any subsequent breach thereof by any party. 22. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and may not be modified except in a written instrument executed by all parties hereto. IN WITNESS WHEREOF, Seligman Financial, CLICA and CLAFS have caused this Agreement to be executed by their duly authorized officers as of the date first above written. CANADA LIFE INSURANCE COMPANY OF AMERICA BY ______________________________________________ BY ______________________________________________ CANADA LIFE OF AMERICA FINANCIAL SERVICES, INC. BY ______________________________________________ BY ______________________________________________ SELIGMAN FINANCIAL SERVICES, INC. BY ______________________________________________ 11 13 EXHIBIT C STATEMENT OF COMPENSATION Subject to the terms and conditions of this Agreement, CLAFS will pay to Seligman Financial compensation based upon the premiums and purchase payments received from Selling Firms having a Selling Agreement with CLAFS as a direct result of Seligman Financial's efforts. Promotional Agent Fees will be paid to Seligman Financial in accordance with applicable law, in the percentages shown below:
B/D CONCESSION PROMOTIONAL PAID TO SELLING AGENT FEE PAID TO GROSS FIRM SELIGMAN CLICA-Issued policies; All States except NY TRILLIUM VARIABLE ANNUITY, Form 20067 5.50% of premium 5.00% .50% .25% annual trail based on acct. value as calculated on Contract Anniversary. S e r v i c e F e e a t Annuitization if "internal" annuity rates are used. 3.5% if payout = or > 10 3.0% .50% Service Fee is only paid on years or a life annuity annuitized proceeds that and amount $0-1 million; are past any applicable 1.5% if amount over $1 1.25% .25% surrender charge/period. million (Form is dependent on payout option and/or State 2.35% if payout, 10 2.0% .35% of issue.) years, not a life annuity and amount $0-1 million; 1.5% if amount 1.25% .25% over $1 million
Promotional Agent Fees will be paid to Seligman Financial based on premiums or purchase payments accepted by CLICA on contracts specified above, in accordance with the provisions of this Agreement. The Gross payout above represents total payment from CLICA, including Selling Concessions paid to Selling Firms. Chargebacks: (i) In the event a contract is returned to CLICA pursuant to a "Free Look" provision, the full Promotional Agent Fee paid thereon shall be charged back to Seligman Financial. (ii) Should any premium or purchase payment on any contract issued by CLICA be refunded for any reason, Seligman Financial shall repay or return Promotional Agent Fees received by it with respect to such premium or purchase payment. (iii) If a Contract was not issued as a result of failure by Selling Firm to submit to CLICA an application sufficient to satisfy state insurance laws or CLICA's eligibility requirements then amounts paid to Seligman Financial shall be returned or repaid. (iv) If a Contract was tendered to CLICA for redemption within ten business days of the date of activity then amounts paid to Seligman Financial shall be returned or repaid. (v) For full or partial withdrawals from the contract: 100% of all Selling Concessions paid to Selling Firms on amount(s) withdrawn within 12 months of such amount(s) being paid to CLICA shall be returned or repaid. For any premium or purchase payment that has been in the contract for more than 12 months, there shall be no charge back on either Promotional Agent Fee or B/D concession. To the extent permitted by law, the amount so charged back may, at the option of CLICA, be set off against Promotional Agent Fees otherwise due to Seligman Financial. In addition, such other compensation will be payable as are from time to time agreed by the parties to the foregoing Agreement and which is in accordance with applicable law, and will be added to this Schedule. EX-3.B 4 FORM OF SELLING AGREEMENT 1 EXHIBIT 3 (b) FORM OF SELLING AGREEMENT 2 SELIGMAN CANADA LIFE INSURANCE COMPANY OF AMERICA A wholly-owned subsidiary of The Canada Life Assurance Company Annuity Service Office 6201 Powers Ferry Road Atlanta, Georgia 30339 (800) 333-2542 SELLING AGREEMENT AGREEMENT by and between Canada Life Insurance Company of America (CLICA), a Michigan Corporation, a wholly- owned subsidiary of The Canada Life Assurance Company of Canada; Canada Life of America Financial Services, Inc. (CLAFS), a registered broker-dealer with the Securities and Exchange Commission under the Securities Act of 1934 (the 1934 Act), and a member of the National Association of Securities Dealers, Inc. (NASD) and Seligman Financial Services Inc. (Seligman Financial) also a registered broker-dealer and member of the NASD; ________________________________________________________________________________ ________________________________________________________________________________ (Selling Broker-Dealer), also a registered broker-dealer and member of the NASD; and ________________________________________________________________________________ ________________________________________________________________________________ (General Agent). I. INTRODUCTION WHEREAS, CLICA has issued certain annuity contracts, and these Contracts are registered under the Securities Act of 1933 (the 1933 Act) and the Investment Company Act of 1940 (the "1940 Act") (Contracts or Contracts collectively); and WHEREAS, CLICA has authorized CLAFS as principal underwriter and Seligman Financial as promotional agent to enter into agreements, subject to the consent of CLICA, with Selling Broker-Dealers and General Agents for the distribution of the Contracts; and WHEREAS, CLICA and CLAFS have entered into a Promotional Agent Distribution Agreement with Seligman Financial that Seligman Financial shall secure duly qualified Selling Broker-Dealers and General Agents to contract with CLICA and CLAFS for the distribution of the Contracts, refer these Selling Broker-Dealers and General Agents to contract with CLICA and CLAFS for the distribution of the Contracts, refer these Selling Broker-Dealers and General Agents to CLICA for information in obtaining licenses, registrations and appointments to enable the registered representatives and producers of these Selling Broker-Dealers and General Agents to sell the Contracts, and provide educational meetings to familiarize these Selling Broker-Dealers and General Agents and their registered representatives and producers with the provisions and features of the Contracts; and WHEREAS, Selling Broker-Dealer and General Agent wish to participate in the distribution of the Contracts; 3 NOW THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: II. APPOINTMENT Subject to the terms and conditions of this Agreement, CLICA and CLAFS hereby appoint ____________________ as Selling Broker-Dealer and ____________________ as General Agent for the solicitation of applications for the purchase of the Contracts, and Selling Broker-Dealer and General Agent accept such appointment. III. AUTHORITY AND DUTIES OF GENERAL AGENT A. LICENSING AND APPOINTMENT OF PRODUCERS General Agent is authorized to appoint producers to solicit sales of the Contracts. General Agent warrants that all producers appointed by General Agent pursuant to this Agreement shall not solicit nor aid, directly or indirectly, in the solicitation of any application for any Contract until that producer is fully licensed under the applicable insurance laws and, in connection with securities regulated Contracts, is a fully registered representative of Selling Broker-Dealer. General Agent shall prepare and transmit the appropriate licensing and appointment forms to CLICA. General Agent shall pay all fees to state insurance regulatory authorities in connection with the initial CLICA appointment of producers who already possess necessary insurance licenses shall be paid by CLICA. Any renewal license fees due after the initial appointment shall be paid by CLICA, if there has been any "production" during the period between the initial appointment and the current renewal, or between the last previous renewal and current renewal; otherwise, renewal fees shall be paid by General Agent. "Production" is defined as either a new issued Contract or an additional purchase payment on a previously issued Contract. General Agent shall periodically provide CLICA with a list of all producers appointed by General Agent and the jurisdictions where such producers are licensed to solicit sales of the contracts. CLICA shall periodically provide General Agent with a list which shows: 1) the jurisdictions where CLICA is authorized to do business; and 2) any limitations on the availability of the Contracts in any of such jurisdictions. General Agent agrees to fulfill all requirements set forth in the General Letter of Recommendation attached as Exhibit A in conjunction with the submission of licensing and appointment papers for all applicants as producers submitted by General Agent. B. REJECTION OF PRODUCER CLAFS, or CLICA may, by written notice to General Agent, refuse to permit any producer the right to solicit applications for the sale of any of the Contracts, require General Agent to cause any producer to cease such solicitations or sales and cancel the appointment of any producer. C. SUPERVISION OF PRODUCERS General Agent shall supervise any producers appointed pursuant to this Agreement to solicit sales of the Contracts and bear responsibility for all acts and omissions of each producer. General Agent shall comply with and exercise all responsibilities required by applicable federal and state law and regulations. General Agent shall not be responsible for those supervisory responsibilities belonging to Selling Broker-Dealer under applicable securities laws which include, but are not limited to, supervising and training producers in their capacity as registered representatives. Nothing contained in this Agreement or otherwise shall be deemed to make any producer appointed by General Agent an employee or agent of CLICA, CLAFS or Seligman Financial. If the act or omission of a producer or any other employee of General Agent is the proximate cause of any claim, damage or liability (including reasonable attorneys' fees) to CLICA, CLAFS or Seligman Financial, General Agent shall be responsible and liable therefor. 2 4 Before a producer is permitted to sell the Contracts, General Agent, Selling Broker-Dealer and producer shall have entered into a written agreement pursuant to which: 1) producer is appointed a producer of General Agent and a registered representative of Selling Broker-Dealer; 2) producer agrees that his or her selling activities relating to securities regulated contracts shall be under the supervision and control of Selling Broker-Dealer and his or her selling activities relating to insurance regulated Contracts shall be under the supervision and control of General Agent; and 3) that producer's right to continue to sell such Contracts is subject to his or her continued compliance with such agreement and any procedures, rules or regulations implemented by Selling Broker-Dealer or General Agent. IV. AUTHORITY AND DUTIES OF SELLING BROKER-DEALER A. SUPERVISION OF REGISTERED REPRESENTATIVES Selling Broker-Dealer agrees that it has full responsibility for the training and supervision of all persons, including producers of General Agent, associated with Selling Broker-Dealer who are engaged directly or indirectly in the offer or sale of securities regulated Contracts. All such persons shall be subject to the control of Selling Broker-Dealer with respect to their securities regulated activities. Broker-Dealer shall: 1) train and supervise producers, in their capacity as registered representatives, in the sale of securities regulated Contracts; 2) use its best efforts to cause such producers to qualify under applicable federal and state laws to engage in the sale of securities regulated Contracts when required; 3) provide CLICA and CLAFS, to their satisfaction, with evidence of producers' qualifications to sell securities regulated Contracts; and 4) notify CLICA if any of such producers ceases to be a registered representative of Selling Broker-Dealer. Selling Broker-Dealer agrees that a producer must be a registered representative of Selling Broker-Dealer before engaging in the solicitation of any securities regulated Contracts and have entered into the written agreement more fully described in Section III, Paragraph C. CLICA and CLAFS shall not have any responsibility for the supervision of any registered representative or any other employee or affiliate of Selling Broker-Dealer. If the act or omission of a registered representative or any other employee or affiliate of Selling Broker-Dealer is the proximate cause of any claim, damage or liability (including reasonable attorneys' fees) to CLICA, CLAFS or Seligman Financial, Selling Broker-Dealer shall be responsible and liable therefore. Selling Broker-Dealer shall fully comply with the requirements of the National Association of Securities Dealers, Inc. and of the Securities Exchange Act of 1934 and all other applicable federal or state laws. Selling Broker-Dealer shall establish such rules and procedures as may be necessary to cause diligent supervision of the securities activities of the producers. Upon request by CLICA or CLAFS, Broker-Dealer shall furnish such records as may be necessary to establish diligent supervision. V. AUTHORITY AND DUTIES OF GENERAL AGENT AND SELLING BROKER-DEALER A. CONTRACTS The securities and insurance regulated Contracts issued by CLICA to which this Agreement applies are listed in Schedule I which may be amended from time to time by CLICA. CLICA, in its sole discretion, with prior or concurrent written notice to Selling Broker-Dealer and General Agent, may suspend distribution of any Contracts. CLICA also has the right to amend any Contracts at any time. B. SECURING APPLICATION Each application for a Contract shall be made on an application form provided by CLICA, and all payments collected by Selling Broker-Dealer, General Agent or any registered representative and producer shall be remitted promptly in full, together with such application form and any other required documentation, directly to CLICA at the address indicated on such application or to such other address as may be designated. Selling Broker-Dealer and General Agent 3 5 shall review all such applications for completeness. Check or money order in payment of such Contracts should be made payable to the order of "Canada Life Insurance Company of America". All applications are subject to acceptance or rejection by CLICA in its sole discretion. C. RECEIPT OF MONEY All money payable in connection with any of the Contracts, whether as premium, purchase payment or otherwise and whether paid by or on behalf of any contract owner or anyone else having an interest in the Contracts, is the property of CLICA and shall be transmitted immediately in accordance with the administrative procedures of CLICA without any deduction or offset for any reason including, but not limited to, any deduction or offset for compensation claimed by Selling Broker-Dealer or General Agent, unless there has been a prior arrangement for net wire transmissions between CLICA and Selling Broker-Dealer or General Agent. D. NOTICE OF PRODUCER'S NONCOMPLIANCE Selling Broker-Dealer shall notify CLAFS and General Agent in the event a producer fails or refuses to submit to the supervision of Selling Broker-Dealer or General Agent in accordance with this Agreement, the agreement between Selling Broker-Dealer, General Agent and producer referred to in Section III, Paragraph C and Section IV, Paragraph A, or otherwise fails to meet the rules and standards imposed by Selling Broker-Dealer or its registered representatives or General Agent or its producers. Selling Broker-Dealer or General Agent shall also immediately notify such producer that he or she is no longer authorized to sell the Contracts, and both Selling Broker-Dealer and General Agent shall take whatever additional action may be necessary to terminate the sales activities of such producer relating to the Contracts. E. SALES PROMOTION, ADVERTISING AND PROSPECTUSES No sales promotion materials, circulars, documents or any advertising relating to any of the Contracts shall be used by Selling Broker-Dealer, General Agent or any producers unless the specific item has been approved in writing by CLAFS and CLICA prior to use. Selling Broker-Dealer shall be provided by Seligman Financial, without any expense to Selling Broker-Dealer, with prospectuses and other material determined to be necessary for use relating to securities regulated Contracts. Nothing in these provisions shall prohibit Selling Broker-Dealer or General Agent from advertising life insurance and annuities on a generic basis. VI. COMPENSATION A. COMMISSIONS AND FEES Commissions and fees payable to Selling Broker-Dealer or General Agent in connection with the securities regulated Contracts shall be paid on behalf of CLAFS by CLICA to Selling Broker-Dealer or General Agent, or as otherwise directed or required by law. Commissions and fees payable to Selling Broker-Dealer, General Agent or producer in connection with the insurance regulated Contracts shall be paid by CLICA to Selling Broker-Dealer or General Agent, or as otherwise directed or required by law. Selling Broker-Dealer or General Agent, as applicable, shall pay producer. CLAFS will provide Selling Broker-Dealer and General Agent with a copy of CLICA's current Schedule I. Unless otherwise provided in Schedule I, commissions will be paid as a percentage of premiums or purchase payments (collectively, Payments) received in cash or other legal tender and accepted by CLICA on applications obtained by the various producers appointed by General Agent hereunder. Upon termination of this Agreement, all compensation to the Selling Broker-Dealer and General Agent hereunder shall cease. However, Selling Broker-Dealer and General Agent shall be entitled to receive compensation for all new and additional premium payments which are in process at the time of termination, and shall continue to be liable for any chargebacks pursuant to the provisions of said Contracts, Commissions and Fee Schedule, or for any other amounts advanced by or otherwise due CLAFS or CLICA hereunder. 4 6 B. TIME OF PAYMENT CLICA will pay any commissions due General Agent hereunder no later than within fifteen (15) days after the end of the calendar month in which Payments upon which such commission is based are accepted by CLICA. Any commission payable by CLICA based upon Account Value (defined as The sum of the Variable Account Value and the Fixed Account Value) will be paid on or about the date of the policy anniversary. C. AMENDMENT OF SCHEDULES CLAFS, CLICA and Seligman Financial may, upon at least ten (10) days' prior written notice to Selling Broker- Dealer and General Agent, change the Contracts, Commissions and Fee Schedule by written amendment of such Schedule. Any such change shall apply to compensation due on applications received by CLICA after the effective date of such notice. D. PROHIBITION AGAINST REBATES CLAFS or CLICA may terminate this Agreement if Selling Broker-Dealer, General Agent or any producer of General Agent rebates, offers to rebate or withholds any part of any Payments on the Contracts. If Selling Broker-Dealer, General Agent or any producer of General Agent shall at any time induce or endeavor to induce any owner of any Contract issued hereunder to discontinue payments or to relinquish any such Contract, except under circumstances where there is reasonable grounds for believing the Contract is not suitable for such person, any and all compensation due Selling Broker-Dealer or General Agent hereunder shall cease and terminate. E. INDEBTEDNESS AND RIGHT OF SET OFF Nothing contained in this Agreement shall be construed as giving Selling Broker-Dealer or General Agent the right to issue any indebtedness on behalf of CLICA, CLAFS or Seligman Financial. Selling Broker-Dealer and General Agent hereby authorize CLICA as agent of CLAFS to set off liabilities of Selling Broker-Dealer and General Agent to CLICA, CLAFS or Seligman Financial against any and all amounts otherwise payable to Selling Broker-Dealer or General Agent. VII. GENERAL PROVISIONS A. WAIVER Failure of any party to insist upon strict compliance with any of the conditions of this Agreement shall not be construed as a waiver of any of the conditions, but the same shall remain in full force and effect. No waiver of any of the provisions of this Agreement shall be deemed to be, or shall constitute, a waiver of any other provisions, whether or not similar, nor shall any waiver constitute a continuing waiver. B. LIMITATIONS No party other than CLICA shall have the authority to: 1) make, alter, or discharge any Contract issued by CLICA; 2) waive any forfeiture or extend the time of making any Payments; or 3) enter into any proceeding in a court of law or before a regulatory agency in the name of or on behalf of CLICA. No party other than CLAFS and Seligman Financial, respectively, shall have the authority to: 1) alter the forms or substitute other forms in place of those prescribed by CLAFS or Seligman Financial; or 2) enter into any proceeding in a court of law or before a regulatory agency in the name of or on behalf of CLAFS or Seligman Financial. 5 7 C. FIDELITY BOND AND OTHER LIABILITY COVERAGE Selling Broker-Dealer and General Agent hereby assign any proceeds received from a fidelity bonding company, error and omissions or other liability coverage to CLICA, CLAFS or Seligman Financial, to the extent of their loss due to activities covered by the bond, policy or other liability coverage. If there is any deficiency amount, whether due to a deductible or otherwise, Selling Broker-Dealer or General Agent shall promptly pay such amount on demand. Selling Broker-Dealer and General Agent hereby indemnify and hold harmless CLICA, CLAFS and Seligman Financial from any such deficiency and from the costs of collection thereof (including reasonable attorneys' fees). D. BINDING EFFECT This Agreement shall be binding on and shall inure to the benefit of the parties to it and their respective successors and assigns provided that neither Selling Broker-Dealer nor General Agent may assign this Agreement or any rights or obligations hereunder without the prior written consent of CLICA and CLAFS. E. REGULATIONS All parties agree to observe and comply with the existing laws and rules or regulations of applicable local, state, or federal regulatory authorities and with those which may be enacted or adopted during the term of this Agreement regulating the business contemplated hereby in any jurisdiction in which the business described herein is to be transacted. Selling Broker-Dealer and General Agent shall promptly furnish to CLICA and CLAFS or their agent, any reports and information which the other party may reasonably request for the purpose of meeting their reporting and recordkeeping requirements under the insurance laws of any state, and under federal and state securities laws and rules of the NASD. F. INDEMNIFICATION 1) CLAFS agrees to indemnify and hold harmless Selling Broker-Dealer and General Agent, their officers, directors and employees, against any and all losses, claims, damages or liabilities to which they may become subject under the 1933 Act, the 1934 Act, or other federal or state statutory law or regulations, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission to state a material fact required to be stated or necessary to make the statements made not misleading in the registration statement for the Contracts or any prospectus included as a part thereof, as from time to time amended and supplemented. Seligman Financial agrees to indemnify and hold harmless Selling Broker-Dealer and General Agent, their officers, directors and employees, against any and all losses, claims, damages or liabilities to which they may become subject under the 1933 Act, 1934 Act, or other federal or state statutory law or regulations, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission to state a material fact required to be stated or necessary to make the statements made not misleading in the registration statement for the shares of Seligman Portfolios Inc., (the "Fund") filed pursuant to the 1933 Act or any prospectus included as part thereof, as from time to time amended and supplemented. 2) Selling Broker-Dealer and General Agent agree to indemnify and hold harmless CLAFS, CLICA and Seligman Financial, their affiliates and their officers, directors and employees, against any and all losses, claims, damages or liabilities to which they may become subject under the 1933 Act, the 1934 Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: a) any oral or written misrepresentation by Selling Broker-Dealer or General Agent or their officers, directors, employees or agents unless such misrepresentation is contained in the registration statement for the Contracts or Fund Shares, any prospectus included as a part thereof, as from time to time amended and supplemented, or any advertisement or sales literature approved in writing by CLICA and CLAFS pursuant to Section V, Paragraph E, 6 8 of this Agreement, or b) the failure of Selling Broker-Dealer or General Agent or their officers, directors, employees or agents to comply with any applicable provisions of this Agreement. G. NOTICES All notices or communications shall be sent to the address shown in this Agreement or to such other address as the party may request, by giving written notice to the other parties. H. GOVERNING LAW This Agreement shall be construed in accordance with and governed by the laws of the State of Georgia. I. AMENDMENT OF AGREEMENT CLICA reserves the right to amend this Agreement in writing at any time. The submission of an application for the Contracts by Selling Broker-Dealer or General Agent five or more business days after notice of any such amendment has been sent to the other parties shall constitute agreement to such amendment. J. GENERAL AGENT AS BROKER-DEALER If Selling Broker-Dealer and General Agent are the same person or legal entity, such person or legal entity shall have the rights and obligations hereunder of both Selling Broker-Dealer and General Agent and this Agreement shall be binding and enforceable by and against such person or legal entity in both capacities. K. COMPLAINTS AND INVESTIGATIONS General Agent, Selling Broker-Dealer, CLICA, CLAFS and Seligman Financial agree to cooperate fully in the event of any regulatory investigation, inquiry or proceeding, judicial proceeding or customer complaint involving the Contracts. In furtherance of the foregoing: 1) each party will notify all other parties of any such investigation, inquiry, proceeding or complaint involving the Contracts or affecting the ability of a party to perform pursuant to this Agreement within 10 days of obtaining knowledge of the same; and 2) in the case of a customer complaint, the involved parties will consult with each other prior to sending any written response with respect to such complaint. L. TERMINATION This Agreement may be terminated, without cause, by any party upon thirty (30) days' prior written notice; and may be terminated, for cause, by any party immediately; and shall be terminated if CLAFS and Seligman Financial or Selling Broker-Dealer shall cease to be a registered broker-dealer under the Securities Exchange Act of 1934 and a member of the NASD. M. ADDRESS FOR NOTICES Address For Canada Life Insurance Company of America and Canada Life of America Financial Services, Inc. 6201 Powers Ferry Road, N.W. Atlanta, Georgia 30339 Address for Seligman Financial 100 Park Avenue New York, New York 10017 7 9 Address For Selling Broker-Dealer Address for General Agent _________________________________ ________________________________ _________________________________ ________________________________ _________________________________ ________________________________ This Agreement shall be effective upon execution by General Agent and Selling Broker-Dealer, and delivery of the Agreement to CLICA or CLAFS. Dated: _________________ Canada Life of America Financial Canada Life Insurance Company of America Services, Inc. By: /s/ Frank D' Ambra III, President By: /s/ D. Allen Loney, President ---------------------- ------------------ Frank D' Ambra III D. Allen Loney Seligman Financial Services, Inc. By: /s/ Stephen J. Hodgdon, President ---------------------- Stephen J. Hodgdon _______________________________ - General Agent, Please Print By: __________________________ - Name and Title _________________________ Please Print Signature _______________________________ - Selling Broker-Dealer, Please Print By: __________________________ - Name and Title _________________________ Please Print Signature PLEASE COMPLETE THE FOLLOWING: 1. CLICA IS DIRECTED TO MAIL ISSUED POLICIES TO ____________________ (SELECT ONE POLICYOWNER, BROKER OR HOME OFFICE.) (IMPORTANT NOTE: IF NOT COMPLETED, CLICA WILL AUTOMATICALLY SEND ISSUED POLICIES TO THE POLICYOWNER.) 2. WE DO/DO NOT (SELECT ONE) WANT TO ALLOW OUR BROKERS THE OPPORTUNITY TO SELECT COMMISSION OPTIONS ON A CASE BY CASE BASIS. (IMPORTANT NOTE: PLEASE MARK ALL OPTIONS, BELOW, IF YOU WILL ALLOW THIS OPPORTUNITY. IF THIS QUESTION ISN'T ANSWERED BUT ALL BOXES BELOW ARE CHECKED, OR IF THIS QUESTION IS ANSWERED IN THE AFFIRMATIVE BUT ALL BOXES BELOW ARE NOT CHECKED, CLICA WILL STILL ALLOW THE CASE BY CASE SELECTION. IF THIS QUESTION IS NOT ANSWERED AND ONLY ONE OPTION BELOW, IS SELECTED, THEN CLICA WILL NOT ALLOW THE CASE BY CASE SELECTION.) COMMISSION SCHEDULE SELECTION: DEFAULT TO "A1" IF NONE SELECTED. A1, B1 & C1 ARE FOR ISSUE AGES 0-80; A2 & B2 FOR ISSUE AGES 81-86. SEE SCHEDULE I FOR COMMISSION AT ISSUE AGES 86-90 AND ADDITIONAL PREMIUMS AFTER AGE 86. __________ OPTION A1 - 5.0% OF PREMIUM PLUS 0.25% ANNUAL TRAIL BASED ON POLICY VALUE AS CALCULATED ON POLICY ANNIVERSARY, TRAIL INCREASING TO 0.40% AFTER SURRENDER PERIOD. __________ OPTION B1 - 6.5% OF PREMIUM, NO TRAIL. __________ OPTION C - 2.0% OF PREMIUM PLUS 0.75% ANNUAL TRAIL BASED ON POLICY VALUE AS CALCULATED ON POLICY ANNIVERSARY. __________ OPTION A2 - 2.25% OF PREMIUM PLUS 0.25% ANNUAL TRAIL, AS CALCULATED IN A1. __________ OPTION B2 - 3.0% OF PREMIUM, NO TRAIL. 8 10 EXHIBIT A GENERAL LETTER OF RECOMMENDATION General Agent hereby certifies to Canada Life Insurance Company of America (CLICA) that all of the following requirements will be fulfilled in conjunction with the submission of licensing/appointment papers for all applicants as producers submitted by General Agent. General Agent will, upon request, forward proof of compliance with the same to CLICA in a timely manner. 1. We have made a thorough and diligent inquiry and investigation relative to each applicant's identity, residence and business reputation and declare that each applicant is personally known to us, has been examined by us, is known to be of good moral character, has a good business reputation, is reliable, is financially responsible and is worthy of a license. Each individual is trustworthy, competent and qualified to act as an agent for CLICA to hold himself out in good faith to the general public. We vouch for each applicant. 2. We have on file a U-4 Form which was completed by each applicant. We have fulfilled all the necessary investigative requirements for the registration of each applicant as a registered representative through our NASD member firm, and each applicant is presently registered as an NASD registered representative. The above information in our files indicates no fact or condition which would disqualify the applicant from receiving a license and all the findings of all investigative information is favorable. 3. We certify that all educational requirements have been met for the specific state in which each applicant is requesting a license, and that all such persons have fulfilled the appropriate examination, education and training requirements. 4. If the applicant is required to submit his or her picture and signature in the state in which he or she is applying for a license, we certify that those items forwarded to CLICA are those of the applicant. 5. We hereby warrant that the applicant is not applying for a license with CLICA in order to place insurance chiefly and solely on his or her life or property, lives or property of his or her relatives, or property or liability of his or her associates. 6. We certify that each applicant will receive close and adequate supervision, and that we will make inspection when needed of any or all risks written by these applicants, to the end that the insurance interest of the public will be properly protected. 7. We will not permit any applicant to transact insurance as an agent until duly licensed therefor. No applicants have been given a contract or furnished supplies, nor have any applicants been permitted to write, solicit business, or act as an agent in any capacity, and they will not be so permitted until the certificate of authority or license applied for is received. 8. We certify that General Agent, Selling Broker-Dealer and applicant shall have entered into a written agreement pursuant to which a) applicant is appointed a producer of General Agent and a registered representative of Selling Broker-Dealer; b) applicant agrees that his or her selling activities relating to securities regulated contracts shall be under the supervision and control of Selling Broker-Dealer and his or her selling activities relating to insurance regulated Contracts shall be under the supervision and control of General Agent; and c) that applicant's right to continue to sell such Contracts is subject to his or her continued compliance with such agreement and any procedures, rules or regulations implemented by Selling Broker-Dealer or General Agent. 11 SCHEDULE I - STATEMENT OF COMPENSATION As of February 1, 1997 Subject to the terms and conditions of this Agreement, CLAFS will pay to Selling Firm compensation based upon the premiums and purchase payments received from such Selling Firm, in accordance with applicable law, in the percentages shown below, for CLICA-issued Trillium Variable Annuity, Form 20067 and any subsequent approved form: B/D CONCESSION OWNER'S ISSUE AGE 0-80 OWNER'S ISSUE AGE 81-85 Option A1: 5% of premium plus .25% on an Option A2: 2.25% of premium plus .25% annual annual basis, based on account value of associated trail, calculated as in Option A1. premium, .0625% first payable at end of 5th quarter Option B2: 3% of premium, no trail. of the associated premium, end of the following OWNER'S ISSUE AGE 86-90 & ADDITIONAL quarters thereafter. Option A1 ONLY, the trail PREMIUM ON ISSUED POLICIES, OWNER'S payable will increase to .40% after Surrender AGE 86-90 Charges are no longer applicable to that premium. Option A3: .50% of premium plus .50% annual Option B1: 6.5% of premium, no trail. trail, calculated as in Option A1. Option C: 2% of premium plus .75% annual trail, calculated as in Option A1.
ADDITIONAL PREMIUM AFTER OWNER'S ATTAINED AGE 90 Option A4: .50% of premium plus .25% annual trail, as calculated as in Option A1. SERVICE FEE AT ANNUITIZATION (Assumes "internal" annuity rates are used. Service Fee is only paid on annuitized proceeds that are past any applicable Surrender Charge period.) I 3% if payout = or > 10 years, or a life annuity, and the amount is $0 - $1 million; II 1.25% on amounts over $1 million with same payout duration as I; III 2% if payout = or < 10 years and not a life annuity, and the amount is $0 - $1 million; IV 1.25% on amounts over $1 million with same payout duration as III.
CHARGEBACKS: (i) In the event a policy is returned to CLICA pursuant to a "Free Look" provision, the full B/D Concession paid thereon or retained by Selling Firm pursuant to net submission of premium or purchase payment shall be charged back to the Selling Firm. (ii) Should any premium or purchase payment on any policy issued by CLICA be refunded for any reason, Selling Firm shall repay or return B/D Concession received by it with respect to such premium or purchase payment. (iii) If a policy was not issued as a result of failure of Selling Firm to submit to CLICA an application sufficient to satisfy state insurance laws or CLICA's eligibility requirements, then amounts paid to Selling Firm shall be returned or repaid. (iv) If a policy was tendered to CLICA for redemption within 10 business days of the date of activity, then amounts paid to Selling Firm shall be returned or repaid. (v) For full or partial withdrawals from the policies, other than those pursuant to Systematic and/or Free Withdrawals: 100% of all B/D Concession paid to Selling Firm on amount(s) withdrawn within 6 months of such amount(s) being paid to CLICA and 50% of all B/D Concessions paid to Selling Firm on amount(s) withdrawn from 7-12 months of such amount(s) being paid to CLICA, shall be returned or repaid. (vi) For annuitizations within 6 months of issue, 100% of all B/D Concession paid to Selling Firm will be returned or repaid, offset by an amount from 1.25% to 3%, depending on the amount and duration of payout; and for annuitizations from months 7-12 after issue, 50% of all B/D Concession paid to Selling Firm shall be returned or repaid, offset by an amount from 1.25% to 3%, depending on the amount and duration of payout. For any premium or purchase payment that has been in the Policy for more than 12 months, there shall be no chargeback on B/D Concession. (OVER) 12 To the extent permitted by law, the amount so charged back may, at the option of CLICA, be set off against B/D Concession otherwise due Selling Firm. In addition, such other compensation will be payable as are from time to time agreed by the parties to the foregoing Agreement and which is in accordance with applicable law, and will be added to this schedule. The rates of concession specified above and any rates of concession otherwise determined by the Company will be subject to change at any time by the Company but no charge will affect the rates of concession in connection with any policy effected herein for which the initial premium was due prior to the effective date of such change. Any such changes of concession will be binding upon the General Agent and/or Broker/Dealer when the Company sends notice thereof in writing to him/her and will take effect from the date specified in such notice. EX-3.C 5 AMENDMENT TO DISTRIBUTION AGREEMENT 1 EXHIBIT 3 (c) FORM OF AMENDMENT TO DISTRIBUTION AGREEMENT 2 AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT An AMENDMENT is made this _____ day of _____, 1993 to the Distribution Agreement (the "Agreement") dated ____________ (the "Distributor"), a Georgia corporation, and Canada Life Insurance Company of America (the "Company"), a Michigan corporation. WITNESSETH: WHEREAS, pursuant to the Agreement, the Distributor currently acts as principal underwriter for certain variable annuity policies issued through Variable Annuity Account 1 of the Company; and WHEREAS, the Company and Canada Life of America Variable Annuity Account 2, a separate investment account established pursuant to Section 925 of the Michigan Insurance Code, MCLA 500.925, and a registered investment company under the Investment Company Act of 1940, as amended, propose to offer for sale certain variable annuity policies (the "New Policies") which may be deemed to be securities under the Securities Act of 1933 and the laws of some states; and WHEREAS, the parties to the Agreement desire that the Distributor act as principal underwriter for the New Policies pursuant to and in accordance with the terms of the Agreement; and WHEREAS, pursuant to the Promotional Agent Distribution Agreement among the Company, the Distributor, and Seligman Financial Services, Inc. ("Seligman Financial"), Seligman Financial shall act as the promotional distributing agent for the New Policies; NOW, THEREFORE, in consideration of the covenants and mutual promises contained herein, the Distributor and the Company agree that the Distributor shall act as the principal underwriter for the sale of the New Policies during the term of the Agreement, pursuant to and in accordance with the terms of the Agreement, and that pursuant to Section 16 of the Agreement, the Agreement shall be amended as follow: 1. Paragraph 2, page 1: This paragraph shall be amended to read as follows: WHEREAS, the Company and Canada Life of America Variable Annuity Account 1 (the "Account") and Canada Life of America Annuity Account 2 ("Account 2"), each a separate investment account established pursuant to Section 925 of the Michigan Insurance Code, MCLA 500.925, and each a registered investment company under 3 the Investment Company Act of 1940, as amended (the "1940 Act"), propose to offer for sale certain classes of variable annuity policies (the "Policies") which may be deemed to be securities under the Securities Act of 1933, as amended (the "Act") and the laws of some states; 2. Paragraph 1, page 2; and Sections 2, 4, 6, 7, 8, 9, and 15 of the Agreement: This paragraph and these sections shall be amended to read as follows: Each reference to "the Account" is amended to read "the Account and Account 2." IN WITNESS WHEREOF, the parties to the Agreement have executed this Amendment thereto on the day and year first above written. CANADA LIFE OF AMERICA FINANCIAL SERVICES, INC. By: ___________________________ [Name] [Title] CANADA LIFE INSURANCE COMPANY OF AMERICA By: ___________________________ [Name] [Title] By: ___________________________ [Name] [Title] EX-4.A 6 FORM OF ANNUITY POLICY 1 EXHIBIT 4 (a) FORM OF ANNUITY POLICY 2 EXHIBIT 4(a) POLICY NUMBER: E2XXXXX INSURED: JOHN DOE CANADA LIFE INSURANCE COMPANY OF AMERICA LANSING, MICHIGAN ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD, N.W. ATLANTA, GA 30339 MAILING ADDRESS: P.O. BOX 105662 ATLANTA, GA 30348-5662 If you 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. REGARDING THE FIXED ACCOUNT, AMOUNTS TRANSFERRED, WITHDRAWN OR SURRENDERED UNDER THIS POLICY FROM A GUARANTEE PERIOD WHOSE SPECIFIED DURATION IS GREATER THAN ONE YEAR, MAY INCREASE OR DECREASE IN ACCORDANCE WITH A MARKET VALUE ADJUSTMENT DURING THE GUARANTEE PERIOD TERM SPECIFIED, SUBJECT TO THE MINIMUM VALUES DEFINED IN THIS POLICY. TEN DAY RIGHT TO EXAMINE POLICY YOU HAVE TEN DAYS AFTER YOU RECEIVE THIS POLICY TO DECIDE IF IT MEETS YOUR NEEDS. IF IT DOES NOT, YOU MAY RETURN IT TO OUR ADMINISTRATIVE OFFICE OR TO THE AGENT FROM WHOM YOU BOUGHT IT. WE SHALL CANCEL THE POLICY AND PROMPTLY REFUND THE POLICY VALUE, INCLUDING ANY FEES AND OR CHARGES THAT WERE DEDUCTED FROM THAT POLICY VALUE, LESS ANY PARTIAL WITHDRAWALS. THE POLICY WILL BE VOID FROM THE BEGINNING. /s/ /s/ Secretary President 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. Guarantee Periods under the Fixed Account may be subject to a Market Value Adjustment 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 Page 1 3 E2XXXXX TABLE OF CONTENTS POLICY DETAILS 3 DEFINITIONS 4 PAYMENT OF PROCEEDS Proceeds 4 Proceeds On Annuity Date 4 Proceeds On Maturity Date 5 Proceeds On Surrender 5 Proceeds On Death Of The 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 8 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 Market Value Adjustment 11 Fixed Account Value 12 TRANSFERS Transfer Privilege 13 Restrictions on Transfers From Fixed Account 13 Transfer Processing Fee 13 POLICY VALUES Policy Value 13 Cash Surrender Value 13 Partial Withdrawals 14 Surrender Charge 14 Waiver of Surrender Charge 15
Page 2 4 E2XXXXX TABLE OF CONTENTS (CONTINUED) Policy Administration Charge 15 Annuity Date 16 Termination 16 Basis of Values 16 PAYMENT OF BENEFITS, PARTIAL WITHDRAWALS, CASH SURRENDERS & TRANSFERS - POSTPONEMENT 16 GENERAL PROVISIONS Contract 17 Incontestability 17 Owner 17 Beneficiary 17 Written Notice 18 Misstatement of Age 18 Periodic Reports 18 Assignment 18 Our Consent 19 Policy Date 19 Effective Date 19 Currency 19 Place of Payment 19 Modification 19 Nonparticipation 19 PAYMENT OPTIONS Election of Payment Options 20 Payment Dates 20 Age and Survival of Payee 20 Death of Payee 20 Table of Payments on Basis of $1,000 Net Proceeds 21
Page 2A 5 POLICY DETAILS POLICY NUMBER E2XXXXX ANNUITANT JOHN DOE AGE 35 POLICY DATE APRIL 1, 1997 EFFECTIVE DATE APRIL 1, 1997 ANNUITY DATE APRIL 1, 2027 MATURITY DATE APRIL 1, 2062 OWNER JOHN DOE INITIAL PREMIUM $5,000.00 ANNUALIZED MORTALITY AND EXPENSE CHARGE 1.25% ANNUALIZED RATE OF DAILY ADMINISTRATIVE FEE 0.35% ANNUAL ADMINISTRATION CHARGE $30.00*
* 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. Page 3 6 E2XXXXX 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 the last surviving 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 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, no surrender charges will be assessed. 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. Page 4 7 E2XXXXX PROCEEDS ON MATURITY DATE The proceeds we will pay is the policy value. 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 THE 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 had 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 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 the 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. Page 5 8 E2XXXXX 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. 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 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 annuitant will be treated as the death of the owner except that surrender charges will apply. 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 Page 6 9 E2XXXXX 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. 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 Guarantee Periods under 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. Page 7 10 E2XXXXX VARIABLE ACCOUNT VALUE The policy's 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 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 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: 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 of each sub-account for the first valuation period is set at a fixed amount, generally $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 11 E2XXXXX 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. Page 9 12 E2XXXXX THE FIXED ACCOUNT FIXED ACCOUNT The Fixed Account provides values and benefits based only upon the net premium payments and policy values allocated to the Fixed Account, the Guaranteed Interest Rate credited on such amounts, and any charges or Market Value Adjustments imposed on such amounts in accordance with the terms of the policy. 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. From time to time we will offer to credit each Guarantee Amount with interest at specific guaranteed rates for specific periods of time. These periods of time are known as Guarantee Periods. We may offer one or more Guarantee Periods of one to ten years' duration at any time but will always offer a Guarantee Period of one year. The Guarantee Periods we offer on the Date of Issue are shown in your application. The Guaranteed Interest Rates available at any time will vary with the number of years in the Guarantee Period. Guarantee Periods begin on the date as of which a net premium payment is allocated to or a portion of the policy value is transferred to the Guarantee Period, and end on the last calendar day of the month when the number of years in the Guarantee Period elected (measured from the end of the calendar month in which the amount was allocated or transferred to the Guarantee Period) has elapsed. The last day of the Guarantee Period is the expiration date for that Guarantee Period. Allocations of net premium payments and transfers of policy value to the Fixed Account for a Guarantee Period may have different applicable Guaranteed Interest Rates depending on the timing of such allocations or transfers. The applicable Guaranteed Interest Rate does not change during a Guarantee Period. If the allocated or transferred amount remains in the Guarantee Period until such Guarantee Period ends, its value will be equal to the amount originally allocated or transferred, multiplied, on an annually compounded basis, by its Guaranteed Interest Rate. If a Guarantee Amount is surrendered, withdrawn or transferred prior to the expiration of the Guarantee Period, the Guarantee Amount is subject to a Market Value Adjustment, as described below, the application of which may result in the payment of an amount greater or less than the Guarantee Amount at the time of the transaction. The Guaranteed Interest Rate is the applicable effective annual rate of interest we determine that we will pay on a Guarantee Amount. The Guaranteed Interest Rate will not be less than 3%. The Guarantee Amount during a Guarantee Period is equal to: 1. an amount equal to that part of any net premium allocated to or policy value transferred to the Fixed Account for a designated Guarantee Period with a particular expiration date; 2. any policy value transferred to the Fixed Account for such Guarantee Period; plus 3. interest at the Guaranteed Interest Rate on 1 and 2 above; minus 4. any cash surrender value withdrawn from the Fixed Account for such designated Guarantee Period, including any Market Value Adjustment; minus 5. any amount transferred from the Fixed Account for such designated Guarantee Period, including any Market Value Adjustment; minus 6. any applicable premium tax charge; minus 7. any policy administration charge deducted from the Guarantee Period; minus 8. any applicable surrender charges. During the 30 day period following the expiration of a Guarantee Period (30 day window), you may transfer the Guarantee Amount from the expiring Guarantee Period to a new Guarantee Period with a new Page 10 13 E2XXXXX Guaranteed Interest Rate or to a subaccount(s). A Market Value Adjustment will not apply if the Guarantee Amount from the expired Guarantee Period is surrendered, withdrawn or transferred during the 30 day window. During the 30 day window, the Guarantee Amount will accrue interest at an annual effective rate of 3% unless the Guarantee Amount remains in the Fixed Account in which case you will receive the interest rate in accordance with the Guarantee Period chosen. Prior to the expiration date of any Guarantee Period, we will mail you a notice of the Guarantee Periods then available and their applicable Guaranteed Interest Rates. A new Guarantee Period will begin on the first business day following the expiration of the prior Guarantee Period. The Guarantee Amount of such expiring Guarantee Period will be: 1. transferred to such new Guarantee Period you elect from those then available by sending us Written Notice prior to the end of the 30 day window; or 2. transferred to a new Guarantee Period of the same duration as the expiring Guarantee Period if you have not made an election; or 3. will be allocated, on your instructions, to one or more subaccount(s) and/or Guarantee Period(s). However, a new Guarantee Period of one year will begin automatically on the first business day following the expiration of the prior Guarantee Period if: 1. we do not receive a Written Notice from you and we are not offering a Guarantee Period of the same duration as the expiring Guarantee Period; or 2. the duration of the expiring Guarantee Period would, if renewed, extend beyond the annuity date, if known, or maturity date. To the extent permitted by law, we reserve the right, at any time, to offer Guarantee Periods that differ from those available when your policy was issued. We also reserve the right, at any time, to stop accepting net premium payment allocations or transfers of policy value to a particular Guarantee Period. Since the specific Guarantee Periods available may change periodically, please contact our Administrative Office to determine the Guarantee Periods currently being offered. MARKET VALUE ADJUSTMENT A Market Value Adjustment applies to any surrender, withdrawal or transfer of a Guarantee Amount unless: 1. the effective date of the surrender, withdrawal or transfer is within 30 days after the end of a Guarantee Period; or 2. the surrender, withdrawal or transfer is from the one year Guarantee Period; or 3. the surrender, withdrawal or transfer is to provide death, nursing home, or terminal illness benefits; or 4. the Guarantee Amount is applied to an annuity payment option. The Market Value Adjustment will be applied after the deduction of any applicable policy administration charge or transfer fee, and before the deduction of any applicable surrender charge or charge for any applicable taxes on premium payments. A Market Value Adjustment reflects the relationship between: 1. the Guaranteed Interest Rate being applied to the Guarantee Period from which the Guarantee Amount is requested to be surrendered, withdrawn or transferred; and Page 11 14 E2XXXXX 2. the current Guaranteed Interest Rate that we credit for a Guarantee Period equal in duration to the Guarantee Period from which the Guarantee Amount will be surrendered, withdrawn or transferred. If a Guarantee Period of such equal duration is not being offered at such time, we will use the linear interpolation of the Guaranteed Interest Rates for the Guarantee Periods closest in duration that are available. Generally, if the Guaranteed Interest Rate for the selected Guarantee Period is lower than the Guaranteed Interest Rate currently being offered for new Guarantee Periods of equal duration, as of the date that the Market Value Adjustment is applied, then the application of the Market Value Adjustment will result in a reduction in the Guarantee Amount then surrendered, withdrawn or transferred. Conversely, if the Guaranteed Interest Rate for the selected Guarantee Period is higher than the Guaranteed Interest Rate currently being offered for new Guarantee Periods of equal duration, as of the date that the Market Value Adjustment is applied, then the application of the Market Value Adjustment will result in an increase in the Guarantee Amount then surrendered, withdrawn or transferred. The Market Value Adjustment is calculated by multiplying the amount being surrendered, withdrawn or transferred, (less any applicable policy administration charge or transfer fees), by the Market Value Adjustment Factor. The Market Value Adjustment Factor is calculated as the lesser of: a) [(1 + i)n/12 (1 + r + .005)n/12 ] 1; or b) .05 where: "i" is the Guaranteed Interest Rate credited to the specific Guarantee Period; "r" is the Guaranteed Interest Rate that is currently being offered for a Guarantee Period of duration equal to such Guarantee Period ; and "n" is the number of months remaining to the expiration of such Guarantee Period. The Market Value Adjustment, however, will never invade principal nor reduce the earnings on amounts allocated to the Fixed Account for a Guarantee Period to less than 3% a year. FIXED ACCOUNT VALUE This policy's Fixed Account value before the annuity date or maturity date is the sum of the Guarantee Amounts in the Guarantee Periods. Page 12 15 E2XXXXX 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; 2. a transfer request that would reduce the amount in that sub-account or the Fixed Account below $500 will be treated as a transfer request for the entire amount in that sub-account or the Fixed Account; and 3. transfers from the Fixed Account except from the one year Guarantee Period may be subject to a Market Value Adjustment. RESTRICTIONS ON TRANSFERS FROM THE FIXED ACCOUNT You may transfer an amount from a Guarantee Period under the Fixed Account subject to these additional restrictions: 1. transfers from a Guarantee Period other than the one year Guarantee Period may be subject to a Market Value Adjustment. 2. transfers from one Guarantee Period to another are prohibited other than within the 30 day window. TRANSFER PROCESSING FEE There is no limit to the number of transfers that you can make between sub-accounts or to the Fixed Account. The first twelve 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 Guarantee Periods effected by the transfer. The processing fee will be charged proportionately to the receiving sub-account(s) and/or Guarantee Periods. 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 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. Page 13 16 E2XXXXX PARTIAL WITHDRAWALS You may withdraw part of the cash surrender value at any time before 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; 3. a partial withdrawal request which would reduce the amount in a sub-account or a Guarantee Period under the Fixed Account below $500 will be treated as a request for a full withdrawal of the amount in that subaccount or Guarantee Period; and 4. a partial withdrawal request for an amount exceeding $10,000 must be accompanied by a guarantee of the owner's signature by a commercial bank, 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 Guarantee Periods under the Fixed Account. If you do not provide this information to us, we will withdraw proportionately from the sub-accounts and Guarantee Periods under the Fixed Account in which you are invested. If you do provide this information to us, but the amount in the designated sub-accounts and Guarantee Periods is inadequate to comply with your withdrawal request, we will first withdraw from the specified sub-accounts and Guarantee Periods. The remaining balance will be withdrawn proportionately from the other sub-accounts and Guarantee Periods 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
Page 14 17 E2XXXXX Any surrender charge will be deducted proportionately from the sub-account(s) and the Guarantee Periods under the Fixed Account being surrendered or partially withdrawn in relation to the amount(s) withdrawn. If the amount remaining in a sub-account or Guarantee Period after the withdrawal is insufficient to cover the proportionate surrender charge deduction, the balance of the surrender charge will be assessed proportionately from any other sub-account and the Guarantee Period in which you are invested. 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 Guarantee Periods under the Fixed Account in which you are invested. If the charge is obtained from a sub-account(s), we will cancel the appropriate number of units 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 by the amount of the charge. Page 15 18 E2XXXXX 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. 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 days 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 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. Page 16 19 E2XXXXX 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. 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 any 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 17 20 E2XXXXX 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 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 18 21 E2XXXXX 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 19 22 E2XXXXX 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 your death or the last surviving annuitant's death, whichever applies, 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 20 23 E2XXXXX 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: 1983(a) Projection G, 100% female, YOP = 1995, Interest = 3%, and 3% Load. The monthly payment for ages not shown in the Table will be calculated on the same basis as these shown and will be quoted on request. Page 21 24 E2XXXXX 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. Guarantee Periods under the Fixed Account may be subject to a Market Value Adjustment 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 Page 22 EX-4.B 7 RIDERS AND ENDORSEMENTS 1 EXHIBIT 4 (b) RIDERS AND ENDORSEMENTS 2 CANADA LIFE INSURANCE COMPANY OF AMERICA ADMINISTRATIVE OFFICE: 6201 POWERS FERRY ROAD, NW, ATLANTA, GEORGIA 30339 PHONE (800) 905-1959 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. It may not be sold, assigned, alienated, or pledged as collateral for a loan or as security. 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, or c) if the policy is part of a SIMPLE retirement plan described in Section 408(p) of the Code, the amount allowable by law to be contributed to a SIMPLE plan for that 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. PAGE1 3 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, including the incidental death benefit requirements of section 401(a)(9)(G) of the Code, the regulations thereunder, and the minimum distribution incidental benefit requirement of Proposed Income Income Tax Regulation section 1.401(a)(9)-2. Payment must either nonincreasing or may increase only as provided in Proposed Income Tax Regulation section 1.40(a)(9)-1, Q&A F-3. 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 begin 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 4 You may satisfy the minimum distribution requirements under section 408(b)(3) of the Code by receiving a distribution from one IRA that is equal to the amount required to satisfy the minimum distribution requirement for two or more IRAs. For this purpose, if you own two or more IRAs, you may use the alternative method described in Notice 88-38, 1988-1 C.B. 524, to satisfy the minimum distribution requirements. 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. /s/ D. A. Hopkins /s/ D. A. Loney ----------------- --------------- Secretary President PAGE 3 5 CANADA LIFE INSURANCE COMPANY OF AMERICA FIXED ACCOUNT ENDORSEMENT This endorsement is part of the policy to which it is attached. This endorsement changes the policy as provided below. REGARDING THE FIXED ACCOUNT, AMOUNTS TRANSFERRED, WITHDRAWN OR SURRENDERED UNDER THIS POLICY FROM A GUARANTEE PERIOD WHOSE SPECIFIED DURATION IS GREATER THAN ONE YEAR, MAY INCREASE OR DECREASE IN ACCORDANCE WITH A MARKET VALUE ADJUSTMENT DURING THE GUARANTEE PERIOD TERM SPECIFIED, SUBJECT TO THE MINIMUM VALUES DEFINED IN THIS POLICY. FIXED ACCOUNT The Fixed Account provides values and benefits based only upon the net premium payments and policy values allocated to the Fixed Account, the Guaranteed Interest Rate credited on such amounts, and any charges or Market Value Adjustments imposed on such amounts in accordance with the terms of the policy. 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. From time to time we will offer to credit each Guarantee Amount with interest at specific guaranteed rates for specific periods of time. These periods of time are known as Guarantee Periods. We may offer one or more Guarantee Periods of one to ten years' duration at any time but will always offer a Guarantee Period of one year. The Guarantee Periods we offer on the Date of Issue are shown in your application. The Guaranteed Interest Rates available at any time will vary with the number of years in the Guarantee Period. Guarantee Periods begin on the date as of which a net premium payment is allocated to or a portion of the policy value is transferred to the Guarantee Period, and end on the last calendar day of the month when the number of years in the Guarantee Period elected (measured from the end of the calendar month in which the amount was allocated or transferred to the Guarantee Period) has elapsed. The last day of the Guarantee Period is the expiration date for that Guarantee Period. Allocations of net premium payments and transfers of policy value to the Fixed Account for a Guarantee Period may have different applicable Guaranteed Interest Rates depending on the timing of such allocations or transfers. The applicable Guaranteed Interest Rate does not change during a Guarantee Period. If the allocated or transferred amount remains in the Guarantee Period until such Guarantee Period ends, its value will be equal to the amount originally allocated or transferred, multiplied, on an annually compounded basis, by its Guaranteed Interest Rate. If a Guarantee Amount is surrendered, withdrawn or transferred prior to the expiration of the Guarantee Period, the Guarantee Amount is subject to a Market Value Adjustment, as described below, the application of which may result in the payment of an amount greater or less than the Guarantee Amount at the time of the transaction. The Guaranteed Interest Rate is the applicable effective annual rate of interest we determine that we will pay on a Guarantee Amount. The Guaranteed Interest Rate will not be less than 3%. The Guarantee Amount during a Guarantee Period is equal to: 1. an amount equal to that part of any net premium allocated to or policy value transferred to the Fixed Account for a designated Guarantee Period with a particular expiration date; 2. any policy value transferred to the Fixed Account for such Guarantee Period; plus 3. interest at the Guaranteed Interest Rate on 1 and 2 above; minus 4. any cash surrender value withdrawn from the Fixed Account for such designated Guarantee Period, including any Market Value Adjustment; minus Page 1 6 5. any amount transferred from the Fixed Account for such designated Guarantee Period, including any Market Value Adjustment; minus 6. any applicable premium tax charge; minus 7. any policy administration charge deducted from the Guarantee Period; minus 8. any applicable surrender charges. During the 30 day period following the expiration of a Guarantee Period (30 day window), you may transfer the Guarantee Amount from the expiring Guarantee Period to a new Guarantee Period with a new Guaranteed Interest Rate or to a subaccount(s). A Market Value Adjustment will not apply if the Guarantee Amount from the expired Guarantee Period is surrendered, withdrawn or transferred during the 30 day window. During the 30 day window, the Guarantee Amount will accrue interest at an annual effective rate of 3% unless the Guarantee Amount remains in the Fixed Account in which case you will receive the interest rate in accordance with the Guarantee Period chosen. Prior to the expiration date of any Guarantee Period, we will mail you a notice of the Guarantee Periods then available and their applicable Guaranteed Interest Rates. A new Guarantee Period will begin on the first business day following the expiration of the prior Guarantee Period. The Guarantee Amount of such expiring Guarantee Period will be: 1. transferred to such new Guarantee Period you elect from those then available by sending us Written Notice prior to the end of the 30 day window; or 2. transferred to a new Guarantee Period of the same duration as the expiring Guarantee Period if you have not made an election; or 3. will be allocated, on your instructions, to one or more subaccount(s) and/or Guarantee Period(s). However, a new Guarantee Period of one year will begin automatically on the first business day following the expiration of the prior Guarantee Period if: 1. we do not receive a Written Notice from you and we are not offering a Guarantee Period of the same duration as the expiring Guarantee Period; or 2. the duration of the expiring Guarantee Period would, if renewed, extend beyond the annuity date, if known, or maturity date. To the extent permitted by law, we reserve the right, at any time, to offer Guarantee Periods that differ from those available when your policy was issued. We also reserve the right, at any time, to stop accepting net premium payment allocations or transfers of policy value to a particular Guarantee Period. Since the specific Guarantee Periods available may change periodically, please contact our Administrative Office to determine the Guarantee Periods currently being offered. MARKET VALUE ADJUSTMENT A Market Value Adjustment applies to any surrender, withdrawal or transfer of a Guarantee Amount unless: 1. the effective date of the surrender, withdrawal or transfer is within 30 days after the end of a Guarantee Period; or 2. the surrender, withdrawal or transfer is from the one year Guarantee Period; or 3. the surrender, withdrawal or transfer is to provide death, nursing home, or terminal illness benefits; or 4. the Guarantee Amount is applied to an annuity payment option. Page 2 7 The Market Value Adjustment will be applied after the deduction of any applicable policy administration charge or transfer fee, and before the deduction of any applicable surrender charge or charge for any applicable taxes on premium payments. A Market Value Adjustment reflects the relationship between: 1. the Guaranteed Interest Rate being applied to the Guarantee Period from which the Guarantee Amount is requested to be surrendered, withdrawn or transferred; and 2. the current Guaranteed Interest Rate that we credit for a Guarantee Period equal in duration to the Guarantee Period from which the Guarantee Amount will be surrendered, withdrawn or transferred. If a Guarantee Period of such equal duration is not being offered at such time, we will use the linear interpolation of the Guaranteed Interest Rates for the Guarantee Periods closest in duration that are available. Generally, if the Guaranteed Interest Rate for the selected Guarantee Period is lower than the Guaranteed Interest Rate currently being offered for new Guarantee Periods of equal duration, as of the date that the Market Value Adjustment is applied, then the application of the Market Value Adjustment will result in a reduction in the Guarantee Amount then surrendered, withdrawn or transferred. Conversely, if the Guaranteed Interest Rate for the selected Guarantee Period is higher than the Guaranteed Interest Rate currently being offered for new Guarantee Periods of equal duration, as of the date that the Market Value Adjustment is applied, then the application of the Market Value Adjustment will result in an increase in the Guarantee Amount then surrendered, withdrawn or transferred. The Market Value Adjustment is calculated by multiplying the amount being surrendered, withdrawn or transferred, (less any applicable policy administration charge or transfer fees), by the Market Value Adjustment Factor. The Market Value Adjustment Factor is calculated as the lesser of: a) [(1 + i)n/12 (1 + r + .005)n/12 ] 1; or b) .05 where: "i" is the Guaranteed Interest Rate credited to the specific Guarantee Period; "r" is the Guaranteed Interest Rate that is currently being offered for a Guarantee Period of duration equal to such Guarantee Period ; and "n" is the number of months remaining to the expiration of such Guarantee Period. The Market Value Adjustment, however, will never invade principal nor reduce the earnings on amounts allocated to the Fixed Account for a Guarantee Period to less than 3% a year. FIXED ACCOUNT VALUE This policy's Fixed Account value before the annuity date or maturity date is the sum of the Guarantee Amounts in the Guarantee Periods. Page 3 8 RESTRICTIONS ON TRANSFERS FROM THE FIXED ACCOUNT You may transfer an amount from a Guarantee Period under the Fixed Account subject to these additional restrictions: 1. transfers from a Guarantee Period other than the one year Guarantee Period may be subject to a Market Value Adjustment. 2. Transfers from one Guarantee Period to another are prohibited other than within the 30 day window. /s/ D. A. Hopkins /s/ D. A. Loney ----------------- --------------- Secretary President Page 4 EX-5 8 FORM OF APPLICATION 1 EXHIBIT 5 FORM OF APPLICATION 2 EXHIBIT 5
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 CO, FL, KY, NJ, NY, OH AND PA) (800) 905-1959 PLEASE PRINT IN BLACK - ------------------------------------------------------------- --------------------------------------------------------------- 1. OWNERS (APPLICANTS) 2. OWNERS (APPLICANTS) - ------------------------------------------------------------- --------------------------------------------------------------- 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 ( ) [ ][ ][ ][ ][ ][ ][ ][ ][ ] ------------------------------------ Social Security Number [ ][ ][ ][ ][ ][ ][ ][ ][ ] OR [ ][ ][ ][ ][ ][ ][ ][ ][ ] =============================================================== Social Security Number Tax ID Number C0-ANNUITANT (Optional) Client Brokerage Acct. # (if applicable) Name* --------------------- ---------------------------------------------------------- ============================================================= First Middle Last JOINT OWNER (Optional) Sex [ ] M [ ] F Date of Birth | | | | Name* Month Day Year -------------------------------------------------------- First Middle Last [ ][ ][ ][ ][ ][ ][ ][ ][ ] Social Security Number Sex [ ] M [ ] F Date of Birth | | | | --------------------------------------------------------------- [ ] Other Month Day Year 4. MY INVESTMENT --------------------------------------------------------------- [ ][ ][ ][ ][ ][ ][ ][ ][ ] OR [ ][ ][ ][ ][ ][ ][ ][ ][ ] Allocate payment with application of $ ______ as indicated Social Security Number Tax ID Number below (MUST TOTAL 100%) - ------------------------------------------------------------- 3. BENEFICIARIES [ ] Check here if you are using __% Cash Management (21) - ------------------------------------------------------------- Seligman Time Horizon Matrix.(SM) __% Income (22) Enclose signed letter if more information is required If so, LEAVE INVESTMENT __% Bond (23) ALLOCATION BLANK IN __% Common Stock (24) Name* THIS SECTION AND ATTACH __% Capital (25) -------------------------------------------------------- TIME HORIZON MATRIX (SM) __% International (26) First Middle Last Relationship ELECTION FORM. __% Communic. & Inform. (27) __% Global Growth Oppor. (28) Percentage [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ] __% Global Smaller Cos. (29) Social Security Number __% Frontier (41) Name* __% High Yield Bond (42) -------------------------------------------------------- __% Global Technology (43) First Middle Last Relationship FIXED ACCOUNT OPTIONS (MAY NOT BE AVAILABLE IN ALL STATES) Percentage [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ] Social Security Number ________% 1 Yr. (201) ________% 7 Yr. (207) ============================================================= ________% 3 Yr. (203) ________% 10 Yr. (210) CONTINGENT BENEFICIARY ________% 5 Yr. (205) Name* --------------------------------------------------------------- -------------------------------------------------------- 6. PRE-AUTHORIZED CHECK (PAC)** First Middle Last Relationship --------------------------------------------------------------- [ ] Please check here if you elect this option Percentage [ ] [ ][ ][ ][ ][ ][ ][ ][ ][ ] Social Security Number I authorize the Company to collect $________(MINIMUM $100/$50- - ------------------------------------------------------------- IRA) starting on____by initiating electronic debit entries to my 5. TYPE OF PLAN (MUST BE COMPLETED) account. - ------------------------------------------------------------- [ ] Non-Qualified Select One: [ ] Checking [ ] Savings [ ] IRA Rollover [ ] 401(k) [ ] IRA Tax Year______ (PLEASE ATTACH A VOIDED CHECK FOR CHECKING OR DEPOSIT SLIP [ ] Qualified Other [ ] Keogh (HR-10) [ ] SEP IRA Tax Year__ FOR SAVINGS) [ ] IRA Transfer [ ] 457 [ ] 403(b) If ERISA [ ] --------------------------------------------------------------- [ ] Other_______________________________________ 8. FOR AGENTS ONLY - ------------------------------------------------------------- --------------------------------------------------------------- 7. REPLACEMENT Questions? Contact either your broker/dealer or Investment - ------------------------------------------------------------- Products at (800) 905-1959, ext. 505. Will this Annuity replace or change any other insurance or annuity? [ ] Option A [ ] Option B*** [ ] Option C [ ] Option D [ ] No [ ] Yes (State company and Policy number in "Remarks" replacement forms.) * Unless subsequently changed in accordance with terms of Policy issued. ** Unless indicated, will commence on the earliest possible business day. *** Only non-trail option available.
3 9. SERVICE OPTIONS BY INITIALING THE BOX(ES) IN THIS SECTION, I/WE HEREBY AUTHORIZE THE COMPANY TO INITIATE THE OPTION(S) INDICATED. I/WE UNDERSTAND AND AGREE 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 OPTION(S). I/WE WILL CONSULT THE CURRENT PROSPECTUS FOR MORE DETAILS ON THE SERVICE OPTIONS BELOW, SUCH AS THE MINIMUMS AND MAXIMUMS. / / TELEPHONE TRANSFER AUTHORIZATION** I/We authorize the Company to act on transfer instructions given by telephone from any person who can furnish indentification. Neither the Company nor any person authorized by the Company will be responsible for any claim, loss, liability or expense in connection with a telephone transfer if the Company or such other person acted on telephone transfer instructions in good faith reliance on this authorization. I/We accept and will comply with the procedures established by the Company from time to time. / / DOLLAR COST AVERAGING** I/We hereby authorize the Company to automatically transfer, on a periodic basis, amounts for regular level investments over time, from one sub-account or the 1 year Fixed Account shown on this form, to any of the other sub-accounts or Fixed Accounts specified on this form. Transfer $__________ From ____________ Start Date ______________ Stop Date __________ or Number of Transfers ___________ on a / / Monthly / / Quarterly / / Semi-Annual / / Annual basis. Transfer above amount to: - -------------- --------------- -------------- -------------- - -------------- --------------- -------------- -------------- - -------------- --------------- -------------- -------------- - -------------- --------------- -------------- -------------- 10. REMARKS / / SYSTEMATIC WITHDRAWAL PRIVILEGE (SWP)** Do you have a checking or savings account? / / Yes / / No I/We hereby authorize the Company to initiate withdrawals from my Policy, via Electronic Funds Transfer, as indicated below. Withdraw $ _________ or / / Maximum amount allowed without incurring a Surrender Charge, to Start on ______________. Stop Date: _______________ or Number of Withdrawals _____________. Withdraw From: - -------------- --------------- -------------- -------------- - -------------- --------------- -------------- -------------- - -------------- --------------- -------------- -------------- - -------------- --------------- -------------- -------------- Frequency of Withdrawal: / / Monthly / / Quarterly / / Semi-Annually Please / / Withhold / / Do Not Withhold Federal Income Taxes. NOTE: WITHDRAWALS FROM THE 3,5,7 AND 10 YEAR FIXED ACCOUNTS WILL BE SUBJECT TO A MARKET VALUE ADJUSTMENT. =============================================================================== / / PORTFOLIO REBALANCING** I/We hereby authorize the Company to provide portfolio rebalancing services as indicated below: Frequency of Rebalancing: / / Quarterly / / Semi-Annually / / Annually 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 FURTHER UNDERSTAND THAT AMOUNTS TRANSFERRED, WITHDRAWN OR SURRENDERED UNDER THIS POLICY FROM THE 3,5,7 & 10 YEAR FIXED ACCOUNTS MAY INCREASE OR DECREASE IN ACCORDANCE WITH A MARKET VALUE ADJUSTMENT DURING THE TERM PERIOD SPECIFIED IN THIS POLICY, SUBJECT TO THE MINIMUM VALUES DEFINED IN THE POLICY. / / 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) - ----------------------------------------------------------------------------------------------------------------------------------- Agent Number State License ID Number Agent Phone Number 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-8.A 9 BUY-SELL AGREEMENT 1 EXHIBIT 8 FORM OF BUY-SELL AGREEMENT 2 BUY-SELL AGREEMENT THIS AGREEMENT is made on this ____ day of _____________, 1993 by and among the Canada Life Insurance Company of America, a Michigan corporation ("CLICA") on its own behalf and on behalf of its Variable Annuity Account 2 (the "Separate Account"), Seligman Portfolios, Inc. (formerly Seligman Mutual Benefit Portfolios, Inc.) (the "Fund") and J. & W. Seligman & Co. Incorporated ("JWSI"). WHEREAS, CLICA is a stock life insurance company incorporated under the laws of the State of Michigan; and WHEREAS, the Separate Account is registered as a unit investment trust under the Investment Company Act of 1940 ( "1940 Act") and it is intended that certain variable annuity contracts (the "Contracts"), a form of which is included herein as Exhibit A, shall be funded through the Separate Account; and WHEREAS, the Fund is registered as an open-end diversified management investment company under the 1940 Act and is currently authorized to issue six separate series of shares (the "Portfolios") and to create additional Portfolios in the future; and WHEREAS, JWSI is registered as an investment adviser under the Investment Advisers Act of 1940 and is the Fund's investment adviser pursuant to the terms of an agreement between JWSI and the Fund dated [December 29, 1988] ("Management Agreement"); and WHEREAS, it is the intention of the parties to this Agreement that the Fund will serve as the sole funding vehicle for the Separate Account under the variable accumulation options afforded by the Contracts; NOW, THEREFORE, in consideration of the covenants, mutual promises herein contained and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows: 1. FUND SHARES. A. CLICA agrees that the Fund will be the sole funding vehicle for the Separate Account. The Fund agrees that, except for shares sold to JWSI at the Fund's initial capitalization, and to Mutual Benefit Life Insurance Company through its Mutual Benefit Variable Contract Account 9 ("VCA-9) on behalf of existing Mutual Benefit Life contract owners, the Fund will sell its shares only to the Separate Account or to other separate accounts 3 of CLICA or any of its affiliates. CLICA and the Fund agree that at such time that CLICA and Seligman Financial Services, Inc. ("SFSI") are no longer subject to the exclusivity provisions of the Promotional Agent Distribution Agreement between CLICA and SFSI dated _________, 1993, CLICA may purchase shares for the Separate Account from entities other than the Fund and the Fund may sell its shares to entities other than the Separate Account, other separate accounts of CLICA or its affiliates, and VCA-9. B. The Fund agrees to sell to CLICA, on behalf of the Separate Account, those shares of the Fund which the Separate Account orders, executing such orders on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the order for the shares of the Fund. For purposes of this Section, CLICA (or its designated agent) shall be the designee of the Fund for receipt of such orders from Policy owners and receipt by such designee by 4:30 p.m. New York time shall constitute receipt by the Fund; provided that the Fund receives notice of such order by 9:30 a.m. New York time on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading. C. The Fund agrees to make Fund shares available for purchase at the applicable net asset value per share by CLICA for the Separate Account on those days on which the Fund calculates its net asset value pursuant to rules of the Securities and Exchange Commission and the Fund shall use reasonable efforts to calculate such net asset value on each day which the New York Stock Exchange is open for trading. Notwithstanding the foregoing, the parties to this Agreement recognize that the Board of Directors of the Fund (hereinafter the "Directors") may refuse to sell shares of any Portfolio to the Separate Account, or suspend or terminate the offering of shares of any Portfolio if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Directors acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, necessary in the best interests of the shareholders of such Portfolio. The Separate Account shall pay for the Fund shares on the next Business Day after an order to purchase shares is made in accordance with the provisions of this Section. Payment shall be in federal funds transmitted by wire to the Fund's designated custodian or by a credit for any shares redeemed. D. The Fund agrees to redeem for cash, on CLICA's request, any full or fractional shares of the Fund held by CLICA, executing such requests on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the request for redemption. For purposes of this Section, CLICA (or its designated agent) shall be the designee of the Fund for the receipt of - 2 - 4 requests for redemption from Policy owners and receipt by such designee by 4:30 p.m. New York time shall constitute receipt by the Fund, provided that the Fund receives notice of such request for redemption by 9:30 a.m. New York time on the next following Business Day. The Fund ordinarily shall make payment to CLICA for shares on the next business day after the Fund receives notice from CLICA. Payment shall be in federal funds transmitted by wire or by a debit against any shares purchased. E. Transfer or Portfolio shares will be by book entry. No stock certificates will be issued to the Separate Account unless the Separate Account so requests. Shares of each Portfolio will be recorded in an appropriate title for the corresponding Sub-account on the books of CLICA. If, however, state law requires transfer other than by book entry, then the Fund agrees to provide the required form of transfer. F. The Fund shall make the net asset value per share for each Portfolio available to CLICA on a daily basis as soon as reasonably practicable after the net asset value per share is calculated and shall use its best efforts to make such net asset value per share available by 5:30 p.m. New York time, but in no event later than 6 p.m. New York time. G. The Fund shall furnish notice on the ex-dividend date to CLICA of any dividend or distribution payable on any shares underlying Sub-accounts. All of such dividends and distributions as are payable on shares of a Portfolio recorded in the title for the corresponding Sub-account shall be automatically reinvested in additional shares of that Portfolio at the net asset value computed on its dividend or distribution payable date. The Fund shall notify CLICA of the number of shares so issued. 2. REPRESENTATIONS AND WARRANTIES OF THE FUND. The Fund and JWSI hereby represent and warrant that: A. The Fund is duly incorporated and in good standing under the laws of the State of Maryland; B. The Fund is duly registered under the 1940 Act as an open-end diversified management investment company; C. All actions necessary to authorize the execution, delivery and performance of this Agreement and all transactions contemplated hereunder have been taken or will be taken prior to any sale hereunder; D. A Registration Statement on Form N-1A relating to the Fund, including a Prospectus and statement of additional information, has been prepared and filed with the SEC in accordance - 3 - 5 with applicable provisions of the Securities Act of 1933 ("1933 Act") and the 1940 Act, and is effective; E. The Registration Statement does not include any untrue statements of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; F. The Fund will use its best efforts to ensure that the Registration Statement continues to conform in all respects to the requirements of the 1933 Act and the 1940 Act and the rules and regulations of the SEC thereunder and its best efforts to ensure that at no time will the Registration Statement include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. G. The Fund will promptly furnish CLICA with copies of the Fund's Registration Statement, all amendments and exhibits thereto, each definitive Prospectus, each Prospectus supplement, and each periodic report under the 1940 Act, as filed with the SEC; H. The Fund will promptly advise CLICA of any proposed amendment to the Registration Statement or supplement to the Prospectus and shall provide CLICA with a copy of such proposed amendment or supplement in advance of the filing with the SEC of such amendment or supplement to permit CLICA's review of such amendment or supplement, unless legal or regulatory requirements would make such review impractical; I. The Fund and JWSI represent that each Portfolio is currently qualified as a Regulated Investment Company under Subchapter M of the Internal Revenue Code of 1986, as amended ("Code"), that they will use reasonable effort to maintain such qualification (under Subchapter M or any successor or similar provision), and that they will notify CLICA immediately upon having a reasonable basis for believing that a Portfolio has ceased to so qualify or that it might not so qualify in the future, and that it provide to CLICA not later than 14 days following the end of each calendar quarter, a report showing each Portfolio's continued qualification; J. The Fund and JWSI represent that each Portfolio is currently in compliance with the provisions of Section 817(h) of the Code and regulations thereunder concerning diversification of the assets of the Portfolios of the Fund, and that they will use reasonable effort to maintain such compliance (under Section 817(h) or any successor or similar provision), provided that CLICA will promptly advise the Fund of any changes in such provisions after the date of this Agreement, and that it will provide - 4 - 6 to CLICA, not later than 14 days following the end of each calendar quarter, a report showing each Portfolio's continued compliance; K. The Fund will as directed in writing by CLICA make every effort to comply with the requirements of the State of Michigan concerning permissible investments for the Separate Account; L. The Fund shall pay all its expenses incidental to its performance under this Agreement. The Fund shall see to it that its shares are continuously registered and authorized for issue in accordance with any applicable federal and state laws for so long as this Agreement is effect, and for so long as CLICA may purchase shares of the Fund. Without limiting the generality of the foregoing, the Fund shall bear any expenses in connection with the cost of maintaining registration of Fund shares, preparation of Fund prospectuses, proxy materials, any solicitation of Fund proxies, the preparation of all statements and notices required by any federal or state law, and taxes imposed upon the Fund on the issue or transfer of the Fund's shares subject to this Agreement, to the extent such expenses are incurred. The parties shall cooperate in the printing of the prospectuses of the Fund and of any disclosure documents related to the Contracts; and M. The Fund and JWSI represent and warrant that all of their respective directors, trustees, officers, employees, investment advisers, and other individuals/entities dealing with money and/or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the amount of coverage required by Section 17(g) of the 1940 Act and Rule 17g-1 thereunder. The aforesaid Bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 3. REPRESENTATIONS AND WARRANTIES OF JWSI. JWSI represents and warrants that: A. It will vote Fund shares which it owns in the same proportion as instructions received from owners of variable contracts backed by the Fund; B. It will not vote to elect a Director of the Fund unless the composition of the Board of Directors of the Fund is in compliance with the 1940 Act; and C. JWSI agrees that in connection with the Fund's compliance with Section 817(h) of the Code and any regulations - 5 - 7 thereunder, concerning diversification of the assets of the Portfolios of the Fund, (i) JWSI will provide CLICA within 14 days of the end of each quarter of the Fund's fiscal year, a statement of each Portfolio's assets and (ii) JWSI will provide CLICA with a copy of the procedures that have been established by JWSI for the purpose of ascertaining and monitoring the Fund's compliance with the diversification requirements of Section 817(h) and regulations thereunder. 4. REPRESENTATIONS AND WARRANTIES OF CLICA. CLICA represents and warrants that: A. All actions necessary to authorize the execution, delivery and performance of this Agreement and all transactions contemplated hereunder have been taken: B. All actions required to authorize investment by the Separate Account in the Fund have been taken; C. It will comply with applicable law, including state insurance law, in connection with its obligations hereunder; D. It will provide to Contract owners voting privileges with respect to Fund shares attributable to the variable annuity contracts of such Contract owners. Pass-through voting privileges will be calculated with reference to the number of shares of the Fund attributable to a particular Contract or pursuant to any other method of calculation recommended by the SEC or its staff. CLICA will vote its own shares and shares for which no instructions have been received in the same proportion as instructions received from Contract owners for that Portfolio; and E. The shares of the Fund qualify as an eligible investment for the Separate Account. 5. INDEMNIFICATION. A. The Fund and JWSI will indemnify and hold harmless CLICA and the Separate Account against any and all losses, claims, damages, liabilities or expenses (including, without limitation, any expenses reasonably incurred in investigating or defending against any litigation commenced or threatened, or any claim) to which CLICA or the Separate Account may become subject arising out of or based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or Prospectus relating to the Fund or any amendment or supplement thereto; (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; or (iii) - 6 - 8 any material breach of any representation and/or warranty made by the Fund or JWSI in this Agreement or any material breach of this Agreement by the Fund or JWSI; provided, however, JWSI and the Fund shall not be liable in any such case under (i) and (ii) above to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission in the Registration Statement or Prospectus relating to the Fund made in good faith reliance upon and in conformity with written information furnished by CLICA or the Separate Account specifically for use in the preparation thereof. B. CLICA will indemnify and hold harmless the Fund and JWSI against any and all losses, claims, damages, liabilities, or expense (including without limitation, any expense reasonably incurred in investigating or defending against any litigation commenced or threatened, or any claim) to which the Fund or JWSI becomes subject arising out of or based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus relating to the Contracts or any amendment or supplement thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; or (iii) any material breach of any representation and/or warranty made by CLICA in this Agreement or of any material breach of this Agreement by CLICA; provided, however, that CLICA shall not be liable in any such case under (i) and (ii) above to the extent that any such loss, cliam, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission in the registration statement or prospectus relating to the Contracts made in good faith reliance upon and in conformity with written information furnished by the Fund or JWSI specifically for use in the preparation thereof; and that CLICA shall not be liable to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon the Fund's failure to comply with the investment policies and restrictions set forth in its Registration Statement. C. Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action by a third party, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof. The omission so to notify the indemnifying party shall not relieve it from liability which it may have to any indemnified party under this Section 5, except to the extent that the omission results in a failure of actual notice to the indemnifying party and such indemnifying party is damaged solely as a result of the failure to give such notice; however, it shall not - 7 - 9 relieve it otherwise. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, to assume the defense thereof, with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. 6. TERM OF AGREEMENT. This Agreement shall continue in full force and effect for a period of five (5) years from the effective date of this Agreement, unless otherwise agreed upon by the parties to terminate sooner or if terminated for such reasons as set forth in Section 7 below. After such 5 year period, it will be deemed extended thereafter from year to year, subject to termination at will by any party hereto upon 60 days prior written notice to the other party. 7. TERMINATION. This Agreement shall terminate: A. At the option of CLICA, upon the institution of formal proceedings against the Fund, JWSI, or SFSI by the SEC, the National Association of Securities Dealers, Inc. ("NASD"), any state securities or insurance department or any other regulatory body provided that CLICA determines in good faith in its sole judgment, that such institution will have a material adverse impact upon the Fund or JWSI's ability to perform its obligations under this Agreement; or B. At the option of the Fund, upon the institution of formal proceedings against The Canada Life Assurance Company ("CLA"), CLICA or Canada Life of America Financial Services, Inc. ("CLAFS") brought by a Canadian regulatory authority, the SEC, the NASD, or any formal proceedings involving a material matter brought by any state securities or state insurance department or any other regulatory body regarding CLICA or CLAFS provided that the Fund determines in good faith in its sole judgment that such institution will have a material adverse impact upon CLA's or CLICA's ability to perform its obligations under this Agreement; or C. At the option of the Fund, if there is a material adverse change in the financial condition of CLA or CLICA; or D. At the option of the Fund, if there is material adverse publicity regarding CLA or CLICA; or - 8 - 10 E. At the option of CLICA, if the Fund fails to meet the diversification requirements in Section 817(h) of the Code and the regulations thereunder; or F. At the option of CLICA, if there is a material adverse change in the financial condition of the Fund or JWSI; or G. At the option of CLICA, if there is material adverse publicity regarding the Fund or JWSI; or H. At the option of CLICA, if JWSI hires a sub-adviser for a Portfolio of the Fund without the prior written consent of CLICA. CLICA agrees that Seligman Henderson Company shall act as sub-adviser for the Seligman Henderson Global Portfolio of the Fund; or I. If such action is required by law or by regulatory authorities having jurisdiction or is, in the discretion of the Board of Directors of CLICA or the Board of Directors of the Fund acting in good faith and in light of their fiduciary duties under applicable federal and state laws, necessary in the best interests of the shareholders of the Fund or Contract owners; J. At the option of CLICA or the Fund, upon the termination of the Management Agreement; or K. At the option of CLICA or the Fund, if the Promotional Agent Distribution Agreement terminates. In the event that JWSI shall cease to serve as the Fund's investment adviser, the obligations of JWSI hereunder shall terminate, provided only that any liability for action taken by JWSI in accordance with its representations, warranties, and obligations hereunder during the period that JWSI served as investment adviser to the Fund shall survive such termination. 8. PLAN NAME. JWSI, CLICA and the Fund agree that the name "Trillium" and all property rights thereunder, are owned by CLICA which will enter into a license agreement with SFSI to permit the Name's use. 9. MISCELLANEOUS; BOOKS AND RECORDS. A. The terms and conditions of this Agreement shall be interpreted and construed in accordance with the provisions of the federal securities laws and rules and regulations thereunder. B. The Fund shall immediately notify CLICA of the issuance by any regulatory body of any stop order with respect to the Fund's Registration Statement or the initiation of any proceeding - 9 - 11 relating to the offer or sale of shares of the Fund in any state or jurisdiction. C. Each party hereto shall cooperate with each other party and all appropriate governmental authorities and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. D. The Fund agrees that all records and other data pertaining to the Contracts are the exclusive property of CLICA and that any such records and other data shall be furnished to CLICA by the Fund upon termination of this Agreement for any reason whatsoever. This shall not preclude the Fund from keeping copies of such data or records for its own files to the extent that the Fund is required to keep such records in order to meet any applicable legal or regulatory requirements. CLICA shall have the right to inspect, audit and copy all pertinent records pertaining to the Contracts. 10. SEVERABILITY AND GOVERNING LAW. If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be interpreted in accordance with the laws of the State of Michigan. 11. NOTICES. Any notice required under this Agreement shall be deemed to have been given to CLICA and the Separate Account if mailed to Secretary, Canada Life Insurance Company of America, 6201 Powers Ferry Road, Atlanta, Georgia 30339, and notice given to the Fund (Attention: Treasurer) and JWSI (Attention: General Counsel) if mailed to J. & W. Seligman & Co. Incorporated at 130 Liberty Street, New York, New York 10006, or at such other address furnished to the other party pursuant hereto. 12. PROVISION SURVIVING TERMINATION. A. Notwithstanding any termination of this Agreement, and regardless of the cause or reason for such termination, the provisions of Section 5 of this Agreement (Indemnification) shall survive and be binding upon JWSI, the Fund, and CLICA for a period of ten years following such termination. B. Upon termination of this Agreement, as long as the Fund is in existence, the Fund shall, so long as Contracts in effect on the effective date of termination of this Agreement ("Existing Contracts") remain outstanding, continue to make additional Portfolio shares available pursuant to the terms of this Agreement for all Existing Contracts. JWSI and the Fund agree to provide CLICA and the Separate Account with the daily net asset value of - 10 - 12 each of the Portfolios for al long as there are Existing Contract owners with Contract values allocated to a Sub-Account of the Separate Account with invests in such Portfolio. 13. HEADINGS. The descriptive headings of this Agreement are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. 14. WAIVERS. The waiver by any party or a breach of any other party of any of the provisions of this Agreement shall not operate or be deemed as a waiver of any other provision of this Agreement or of any subsequent breach thereof by any party. 15. COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto or separate counterparts, each complete set of which, when so executed and delivered by the parties shall constitute one and the same instrument. 16. ENTIRE AGREEMENT; MODIFICATIONS; AMENDMENTS. This Agreement constitutes the entire agreement between the parties hereto and may not be modified or amended except as herein noted or in a written instrument executed by all parties hereto. 17. ASSIGNMENT. No party hereto may assign any of its rights pursuant to this Agreement without the prior written consent of the other parties hereto. - 11 - 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. Attest: CANADA LIFE INSURANCE COMPANY OF AMERICA, on its own behalf and on behalf of its Variable Annuity Account 2 ____________________________________ By: ____________________________ Secretary Attest: ____________________________________ By: ____________________________ Secretary Attest: SELIGMAN PORTFOLIOS, INC. ____________________________________ By: ____________________________ Secretary Attest: J. & W. SELIGMAN & CO. INCORPORATED ____________________________________ By: ____________________________ Secretary - 12 - EX-9 10 OPINION AND CONSENT OF COUNSEL 1 Exhibit 9 Opinion and Consent of Counsel 2 [CANADA LIFE LOGO] Canada Life Insurance Company of America May 5, 1993 P.O. Box 105087 Atlanta, GA 30348 (404)953-1959 Canada Life Insurance Company of America 800 Michigan National Tower Lansing, MI 48933 RE: Canada Life of America Variable Annuity Account 2 (the "Account") Registration Statement on Form N-4 File No. 33-55890 Gentlemen: In my capacity as Counsel, U.S. Division for The Canada Life Assurance Company (the "Company"), it is my professional opinion that: 1. The Company is a corporation duly organized, validly existing and qualified as a stock life insurance company to write life and disability insurance and variable annuities/variable life - separate accounts under the laws of the State of Michigan; 2. The establishment of the Account as a separate investment account of the Company is authorized, and when created, shall validly exist under the laws of the State of Michigan; 3. The offer and sale of individual variable annuity contracts ("contracts") have been duly authorized by the Company and the contracts, when issued in accordance with the Registration Statement and in compliance with applicable local law, will be legal and binding obligations of the Company in accordance with their terms; 4. If and to the extent the Company so provides under its variable annuity contracts, that portion of the assets of the Account equal to the reserves and other contract liabilities with respect to such Account will not be chargeable with liabilities arising out of any other business the Company may conduct; 5. Owners of contracts, as such, will not be subject to any deductions, charges or assessments imposed by the Company other than those provided in the contracts. 3 Page Two In forming this opinion, I have made such examination of law and have examined such records and other documents as in my judgment are necessary and appropriate. I hereby consent to the filing of this opinion letter as an exhibit to Pre-Effective Amendment No. 1 to the Registration Statement and to the use of my name under the caption "Legal Matters" in the Statement of Additional Information contained in the Registration Statement. Very truly yours, /s/ David A. Hopkins David A. Hopkins Counsel, U.S. Division DAH/kr EX-10.A 11 CONSENT OF COUNSEL 1 Exhibit 10 (a) Consent of Counsel 2 April 14, 1997 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. 8 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 EX-10.B 12 CONSENT OF INDEPENDENT COUNSEL 1 Exhibit 10 (b) Consent of Independent Counsel 2 [TRANSMITTED ON SUTHERLAND, ASBILL & BRENNAN, L.L.P. LETTERHEAD] April 24, 1997 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. 8 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, L.L.P. By: /s/ Stephen E. Roth --------------------------------- Stephen E. Roth EX-10.C 13 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 February 10, 1997 in Post-Effective Amendment No. 8 of the Registration Statement (Form N-4 No. 33-55890) and related Prospectus of Canada Life of America Variable Annuity Account 2 (dated May 1, 1997). /s/ ERNST & YOUNG LLP ERNST & YOUNG LLP Atlanta, Georgia April 17, 1997 EX-13 14 SAMPLE PERFORMANCE DATA CALCULATION 1 EXHIBIT 13 CANADA LIFE INSURANCE COMPANY OF AMERICA VARIABLE ANNUITY ACCOUNT 2 CASH MANAGEMENT SELIGMAN PORTFOLIO SUB ACCOUNT 7-DAY CURRENT YIELD AS AT DECEMBER 31, 1996 7-DAY CURRENT YIELD = (( NCS - ES/UV /7 ) x 365) Where NCS = the net change in the value of the Series (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 = M & E + Admin Where ES = per unit expenses of the Sub-Account for the 7-day period M & E = per unit Mortality & Expense Risk Charges deducted for the 7-day period Admin = per unit administration charges deducted for the 7-day period = (30 / AAV / 365) x AUV X 7 Where AAV = Average Accumulated Value of Contracts ont he last day of the 7-day period = $40,000.00 AUV = the sum of the unit values on the first and last day of the 7-day period divided by 2 = [ 1.3417 + 1.3427]/ 2 = 1.3422 UV the unit value on the first day of the 7-day period = 1.3417 - -------------------------------------------------------------------------------- DATE NCS M&E Admin Dec 25 0.000000000 0.000043716 Dec 26 0.000000000 0.000043716 Dec 27 0.000439000 0.000043716 Dec 30 0.000430000 0.000131148 Dec 31 0.000144000 0.000043716 ---------------------------------------------- 0.001013 0.000306011 0.000019246 (a) = 0.000688 UV = 1.3417 7 day current yield = (((.001013 - .000306011 - .000019253) / 1.3417)) / 7 x 365 7 - DAY CURRENT YIELD = 2.672796044 OR 2.67%
2 CANADA LIFE INSURANCE COMPANY OF AMERICA VARIABLE ANNUITY ACCOUNT 2 CASH MANAGEMENT SELIGMAN PORTFOLIO SUB ACCOUNT 7-DAY EFFECTIVE YIELD AS AT DECEMBER 31, 1996 365/7 EFFECTIVE YIELD = [ (1 + NCS - ES) / UV) - 1 ] Where NCS = NCS as calculated for the current yield ES = ES as calculated for the current yield UV = UV as calculated for the current yield 365/7 7 day effective yield: [(((.000688)/1.3417 2.71%
3 CANADA LIFE INSURANCE COMPANY OF AMERICA VARIABLE ANNUITY ACCOUNT 2 SELIGMAN PORTFOLIOS, INC.: Cash Management, Income, Bond, Common Stock, Capital, International, Communication and Information, Frontier, Global Smaller Companies, High Yield, Global Growth Opportunities and Global Technology Sub-Accounts AVERAGE ANNUAL TOTAL RETURN (INCLUDING SURRENDER CHARGE) 1 / n Total Return = ((ERV / P) - 1 ) where ERV = the value, at the end of the applicable period, of a hypothetical $1,000 investment made at the beginning of the applicable period. It is assumed that all dividends and capital gains distributions are reinvested P = a hypothetical initial investment of $1,000 n = number of years = 3115/365 = Cash Management, Income, Bond, Common Stock, Capital Sub-Accounts = 1338/365 = International Sub-Account = 819/365 = Communications and Information, Frontier, Global Small Companies Sub-Accounts = 610/365 = High Yield Sub-Account ERV = (1,000 x ((EUV - BUV) / BUV )) + 1,000 - ADMIN - (SC x 1,000) where EUV = Unit value at the end of the period BUV = Unit value at the beginning of the period SC = Surrender charge = 5.4% for 1995, 1996 inception = 4.5% for 1993, 1994 inception = 0.0% for 1988 inception ADMIN = Administration Charges attributable to the hypothetical account for the period = (30 / AAV / 365 ) x No. of days in the period x ($1,000 + ($1,000 x ((EUV - BUV) / BUV) / BUV) / 2 )) where AAV = Average Accumulated Value of Contracts on the last day of the period = $40,000 CASH MANAGEMENT SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 3115 x (1,000 + (1,000 x ((1.3427 - 1.0000) / 1.0000 / 2)) = (.006400685) x (1,171.35) = 7.497442295 ERV = (1,000 x ( (1.3427 - 1.0000) / 1.0000 )) + 1,000 - 7.497442295 - (.00 x 1,0000) = 1,335.20 (1/ (3115 / 365)) Total Return = (1,335.20 / 1,000) - 1 = 3.45% -----
4 CANADA LIFE INSURANCE COMPANY OF AMERICA VARIABLE ANNUITY ACCOUNT 2 INCOME SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 3115 x (1,000 + (1,000 x ((19.1054 - 10.0000) / 10.0000 / 2)) = (.006400685) x (1,455.27) = 9.314724760 ERV = (1,000 X (19.1054 - 10.0000) / 10.0000)) + 1,000 = 9.314724760 - (.00 x 1,000) = 1,901.23 (1 / (3115 / 365)) Total Return = (1.901.23 / 1,000) - 1 = 7.82% ----- BOND SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 3115 x (1,000 + (1,000 x ((15.2212 - 10.0000) / 10.0000 / 2)) = (.006400685) x (1,261.06) = 8.071647740 ERV = (1,000 x ((15.2212 - 10.0000) / 10.0000 )) + 1,000 - 8.071647740 x (.00 x 1,000) = 1,514.05 (1/ (3115 / 365)) Total Return = (1,514.05 / 1,000) - 1 = 4.98% ----- COMMON STOCK SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 3115 x (1,000 + (1,000 x ((27.4182 - 10.0000) / 10.0000 / 2)) = (.006400685) x (1.870.91) = 11.975105445 ERV = (1,000 x ((27.4182 - 10.0000) / 10.0000 )) + 1,000 - 11.975105445 - (.00 x 1,000) = 2,729.84 (1/ (3115 / 365)) Total Return = (2,729.84 / 1,000) - 1 = 12.49% ------
5 CANADA LIFE INSURANCE COMPANY OF AMERICA VARIABLE ANNUITY ACCOUNT 2 CAPITAL SUB ACCOUNT ADMIN = (30 / 40,000 / 365) x 3115 = x (1,000 + (1,000 x ((25.7924 - 10.0000 / 10.0000 / 2)) = (.006400685) x (1,789.62) = 11.454793767 ERV = (1,000 x ((25.7924 - 10.0000) / 10.0000)) + 1.000 - 11.454793767 - (.00 x 1,0000) = 2,567.79 (1 / (3115 / 365)) Total Return = (2,567.79 / 1,000) - 1 = 11,68% INTERNATIONAL SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 1338 x (1,000 + 1.000 x ((13.0038 - 10.0000 / 10.0000 / 2)) = (.002749315) x (1,150.19) = 3.162234699 ERV = (1,000 x ((13.0038 - 10.0000) / 10.0000)) + 1,000 = 3.162234699 - (0.045 x 1,000) = 1,252.22 (1 / (1338 / 365)) Total Return = (1.252.22 / 1,000) - 1 = 6.33% ----- COMMUNICATION & INFORMATION SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 819 x (1,000 + (1,000 x ((15.1696 - 10.0000 / 10.000 / 2)) = (.001682877) x (1,258.48) = 2.117866685 ERV = ( 1,000 x ((15.1696 - 10.0000 )) + 1,000 = - 2.117866685 - (0.045 x 1,000) = 1,469.84 (1/ (819 / 365)) Total Return = (1,469.84/1,000) - 1 = 18.75% ------
6 CANADA LIFE INSURANCE COMPANY OF AMERICA VARIABLE ANNUITY ACCOUNT 2 FRONTIER SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 819 x (1,000 + (1,000 x ((16.8644 - 10.0000 / 10.0000 / 2)) = (.001682877) x (1,343.22) = 2.260473658 ERV = (1,000 x ((16.8644 -10.0000) / 10.0000)) + 1,000 - 2.260473658 - (0.045 x 1,000) = 1,639.18 (1 / (819 / 365)) Total Return = (1,639.18 / 1,000) - 1 = 24.67% ------ GLOBAL SMALLER COMPANIES SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 819 x (1,000 + (1,000 x ((13.9112 - 10.0000 / 10.0000 / 2)) = (.001682877) x (1,195.56) = 2.0119800082 ERV = (1,000 x ((13.9112 - 10.0000) /10.0000)) + 1,000 - 2.0119800082 - (0.045 x 1,000) = 1,344.11 (1/ (819 / 365)) Total Return = ( 1,344.11 / 1,000) - 1 = 14.11% ------- HIGH YIELD SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 610 x (1,000 + (1,000 x ((11.9943 - 10.0000 / 10.0000 / 2)) = (.001253425) x (1,099.72) = 1.37846897 ERV = (1,000 x ((11.9943 - 10.0000) / 10.0000)) + 1,000 - 1.378409897 - (0.054 x 1,000) = 1,144.05 (1/ (610 / 365)) Total Return = (1,144.05 / 1,000) - 1 = 8.43% -----
7 CANADA LIFE INSURANCE COMPANY OF AMERICA VARIABLE ANNUITY ACCOUNT 2 The following Sub-Accounts invest in portfolios that have not been in operation one year as of December 31, 1996, thus, the from inception date returns for these Sub-Accounts were not annualized. GLOBAL GROWTH OPPORTUNITIES SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 244 x (1,000 + (1,000 x ((9.8180 - 10.0000 / 10.0000 / 2)) = (.000750000) x (990.90) = 0.743175000 ERV = (1,000 x ((9.8180 - 10.0000) / 10.0000 )) + 1,000 - 0.743175000 - (0.054 x 1,000) = 927.06 Total Return = (927.06 / 1,000) - 1 = -7.29% ------- GLOBAL TECHNOLOGY SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 244 x (1,000 + (1,000 x ((10.2919 - 10.0000 / 10.0000 / 2)) = (.000750000) x (1,014.60) = 0.760946250 ERV = (1,000 x ((10.2919 - 10.0000) / 10.0000)) + 1,000 - 0.760946250 - (0.054 x 1,000) = 974.43 Total Return = (974.43 / 1,000) - 1 = -2.56 % -------
8 CANADA LIFE INSURANCE COMPANY OF AMERICA VARIABLE ANNUITY ACCOUNT 2 SELIGMAN PORTFOLIOS, INC.: Cash Management Income, Bond, Common Stock, Capital, International, Communication and Information, Frontier, Global Smaller Companies, High Yield, Global Growth Opportunities and Global Technology Sub-accounts AVERAGE ANNUAL TOTAL RETURN (EXCLUDING SURRENDER CHARGE) 1 / n Total Return = ((ERV / P) - 1 ) where ERV = the value, at the end of the applicable period, of a hypothetical $1,000 investment made at the beginning of the applicable period. It is assumed that all dividends and capital gains distributions are reinvested P = a hypothetical initial investment of $1,000 n = number of years = 3115/365 = Cash Management, Income, Bond, Common Stock, Capital Sub-Accounts = 1338/365 = International Sub-Account = 819/365 = Communications and Information, Frontier, Global Small Companies Sub-Accounts = 610/365 = High Yield Sub-Account ERV = (1,000 x ((EUV - BUV) / BUV )) + 1,000 - ADMIN where EUV = Unit value at the end of the period BUV = Unit value at the beginning of the period ADMIN = Administration Charges attributable to the hypothetical account for the period (30/AAV/365) x No. of days in the period x ($1,000 + ($1,000 x ((EUV - BUV) / BUV) / 2 )) where AAV = Average Accumulated Value of Contracts on the last day of the period = $40,000 CASH MANAGEMENT SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 3115 x (1,000 + (1,000 x ((1.3427 - 1.0000) / 1.0000 / 2)) = (.0064000685) x (1,171.35) = 7.497442295 ERV = ( 1,000 x ((1.3427 - 1.0000) / 1.0000)) + 1,000 - 7.497442295 = 1,335.20 (1/ (3115/ 365)) Total Return = (1335.20 / 1,000) - 1 = 3.45% -----
9 CANADA LIFE INSURANCE COMPANY OF AMERICA VARIABLE ANNUITY ACCOUNT 2 INCOME SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 3115 x (1,000 + (1,000 x (( 19.1054 - 10.0000) / 10.0000 /2)) = (.006400685) x (1.455.27) = 9.314724760 ERV = ( 1,000 x (19.1054 - 10.0000) / 10.0000 )) + 1,000 - 9.314724760 = 1,901.23 (1/ (3115 / 365 )) Total Return = (1,901.23 / 1,000 ) - 1 = 7.82% ------ BOND SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 3115 x (1,000 + (1,000 x ((15.2212 - 10.0000) / 10.0000 / 2)) = (.006400685) x (1,261.06) = 8.071647740 ERV = ( 1,000 X ((15.2212 - 10.0000) / 10.0000)) + 1,000 = - 8.071647740 = 1,514.05 (1/ 3115 / 365 )) Total Return = (1,514.05 / 1,000) - 1 = 4.98% ------ COMMON STOCK SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 3115 = x (1,000 + (1,000 x (( 27.4182 - 10.0000) / 10.0000 / 2)) = (.006400685) x (1,870.91) = 11.975105445 ERV = ( 1,000 X ((27.4182 - 10.0000) / 10.0000 )) + 1,000 - 11.975105445 = 2,729.84 (1/ (3115 / 365)) Total Return = (2,729.84 / 1,000) - 1 = 12.49% ------
10 CANADA LIFE INSURANCE COMPANY OF AMERICA VARIABLE ANNUITY ACCOUNT 2 CAPITAL SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 3115 x (1,000 + (1,000 x ((25.7924 - 10.0000 / 10.0000 / 2)) = (.006400685) x (1,789.62) = 11.454793767 ERV = ( 1,000 x (( 25.7924 - 10.0000) / 10.0000)) + 1,000 - 11.454793767 = 2,567.79 (1/ (3115/ 365)) Total Return = (2,567.79 / 1,000) - 1 = 11.68% ------ INTERNATIONAL SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) X 1338 x ( 1,000 + (1,000 x ((13.0038 - 10.0000 / 10.0000 / 2)) = (.002749315) x (1,150.19) = 3.162234699 ERV = ( 1,000 X ((13.0038 - 10.0000) / 10.0000)) + 1,000 - 3.162234699 = 1,297.22 (1/ (1338 / 365)) Total Return = (1,297.22 / 1,000) - 1 = 7.36% ----- COMMUNICATION AND INFORMATION SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) X 819 x (1,000 + (1,000 x ((15.1696 - 10.0000 / 10.0000 / 2)) = (.001682877) x (1,258.48) = 2.117866685 ERV = ( 1,000 X ((15.1696 - 10.0000) / 10.0000)) + 1,000 - 2.117866685 = 1,514.84 (1/ (819 / 365)) Total Return = (1,514.84 / 1,000) - 1 = 20.33% ------
11 CANADA LIFE INSURANCE COMPANY OF AMERICA VARIABLE ANNUITY ACCOUNT 2 FRONTIER SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) X 819 x ( 1,000 + (1,000 x ((16.8644 - 10.0000 / 10.0000 / 2)) = (.001682877) x (1,343.22) = 2.260473658 ERV = (1,000 x ((16.8644 - 10.0000) / 10.0000)) + 1,000 - 2.260473658 = 1,684.18 (1 / (819 / 365)) Total Return = (1,684.18 / 1,000) - 1 = 26.15% ------ GLOBAL SMALLER COMPANIES SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) X 819 x (1,000 + (1,000 x ((13.9112 - 10.0000 / 10.0000 / 2)) = (.001682877) x (1,195.57) = 2.0119800082 ERV = ( 1,000 X ((13.9112 - 10.0000) / 10.0000)) + 1,000 -2.0119800082 = 1,389.11 (1/ (819 / 365)) Total Return = (1,389.11 / 1,000) - 1 = 15.77% ------ HIGH YIELD SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) x 610 x (1,000 + (1,000 x ((11.9943 - 10.0000 / 10.0000 / 2)) = (.001253425) x (1,099.72) = 1.378409897 ERV = ( 1,000 X ((11.9943 - 10.0000) / 10.0000)) + 1,000 - 1.378409897 = 1,198.05 (1/ (610 / 365)) Total Return = (1,198.05 / 1,000) - 1 = 11.42% ------
12 CANADA LIFE INSURANCE COMPANY OF AMERICA VARIABLE ANNUITY ACCOUNT 2 The following Sub-Accounts invest in portfolios that have not been in operation one year as of December 31, 1996, thus, the from inception date returns for these Sub-Accounts were not annualized. GLOBAL GROWTH OPPORTUNITIES SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) X 244 x (1,000 x (1,000 x ((9.8180 - 10.0000 / 10.0000 / 2)) = (.000750000) x (990.90) = 0.743175000 ERV = (1,000 X ((9.8180 - 10.0000) / 10.0000)) + 1,000 - 0.743175000 = 981.06 Total Return = ( 981.06 / 1,000) - 1 = -1.89% ------ GLOBAL TECHNOLOGY SUB-ACCOUNT ADMIN = (30 / 40,000 / 365) X 244 x 1,000 x (1,000 x ((10.2919 - 10.0000 / 10.0000 / 2 )) = (.000750000) x (1,014.60) = 0.760946250 ERV = ( 1,000 X ((10.2919 - 10.0000) / 10.0000)) + 1,000 - 0.760946250 = 1,028.43 Total Return = (1,028.43 / 1,000) - 1 = 2.84% -----
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