Class Plus 2 Information Folder and Contract Provisions - Empire Life

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Growth Portfolio FundInvestment ObjectiveThe fundamental investment objective of the Growth PortfolioFund (the principal Fund) is to achieve long-term growththrough capital appreciation, with some consideration given togenerating income by investing primarily in units of Empire LifeSegregated Funds (the secondary funds).Principal Investment StrategiesIn order to achieve its objective the Fund may invest in unitsof investment Funds including but not limited to: Empire LifeSegregated Funds, ETFs, externally managed segregated and/or mutual funds, and other investments. The target asset mixof the Growth Portfolio Fund is 20% fixed income and 80%equities. The Fund will be monitored and re-balanced at thediscretion of the Investment Manager consistent with theFund’s investment objective and target asset mix.Principal RisksEach asset category held in the Growth Portfolio Fund is subjectto the same risks as described in the corresponding SegregatedFund. Refer to the descriptions of the Money Market, Bond, andEquity Funds.14. POTENTIAL RISKS OF INVESTINGAll investments carry some risks. The major risks associatedwith our Segregated Funds are described below.14.1 Equity FundsOutlined below are the principal risks of our equity Funds:• Business risks are the risks associated with developmentsin the business underlying the companies whose stocks areheld in the Funds;• Market risks are associated with volatility in the stockmarket;• Sovereign risk refers to general economic, political,regulatory* and financial* risk in various countries whereinvestments are denominated;• Foreign currency risk, which is currency risk associatedwith the non-Canadian markets in which stocks arepurchased.*North American standards are generally more rigorous. Regulatory riskrefers to the fact that the regulations in a certain country may not be ascomprehensive as these standards while financial risk refers to the factthat accounting rules may not be as strict.Because equity markets have historically been more volatilethan fixed income markets, equity Fund unit values mayfluctuate more than fixed income unit values. In addition,since the balance of these Funds is invested in money marketsecurities, there is an additional risk as described in the risksection for Fixed Income Funds.The Small Cap Equity Fund and the Global Smaller CompaniesFund are exposed to the same risks as outlined for the otherEmpire Life equity Funds. In addition, these Funds aresubject to special equities risk due to the generally smallercapitalization of the stocks held. Such companies may be newercompanies with less experienced management. The impactof these risks may be magnified, resulting in higher volatilityof the unit price of the Small Cap Equity and Global SmallerCompanies Funds. To the extent that other Empire Life equityFunds are invested in stocks of companies with smaller marketcapitalization, they will also be exposed to this risk.Our equity Funds do not use derivatives for the purpose ofleverage. Leverage is using assets and cash in a portfolio tocontrol a greater dollar amount of assets than the portfoliowould otherwise be able to acquire outright. This increasesthe risk of the portfolio. Leverage can be accomplished byborrowing money or using derivatives. A good example of usingleverage is buying securities on margin.Use of derivatives in the equity Funds may include futures,ETFs, common equity warrants, instalment receipts forcommon equities, convertible preferred stocks and convertibledebentures. These instruments may expose the Fund toderivatives risk as the price of any of these instruments willfluctuate in accordance with the fluctuations in the price of thestocks underlying the instrument, as well as, in many cases,with interest rates. These instruments are purchased as proxiesfor the common stocks.Equity Funds may invest in Income Trusts. This may expose theFund to trust investment risk where Income Trust investorsmay be held liable for certain obligations and claims of the trustshould the assets of the Income Trust not meet theclaim amounts.Equity Funds may also use currency forwards, currency optionsand currency futures. Forwards are the primary instrumentsused for the purchase or sale of foreign currencies althoughfutures and options can also be used. A forward contract or afuture contract is a commitment to buy or sell a security at acertain price within a given period. An option is the right to buyor sell a security at a certain price within a given period.Following is an example of how a forward contract would beused to hedge a currency risk. If a U.S. security is purchased,the Fund could be exposed to currency risk. The Fund managermay neutralize this risk by selling the foreign currency on theforward market. If the Canadian dollar gains in value against31
the foreign currency, the currency gain on the forward marketoffsets the currency loss on the foreign-denominated security.If the reverse happens and the foreign currency increases theloss on the forward contract is offset by the currency gain onthe security. In both cases, no currency gain or loss would berealized. There can be no assurance however that the Fund’shedging strategies will be effective.14.1.1 US Equity Index FundThe US Equity Index Fund is a passive index fund that invests invarious futures contracts and/or ETFs. It invests in this mannerin order to closely track the performance of the index the Fundis attempting to simulate.A futures contract is a commitment to buy or sell a securityat a certain price within a given period. The value of thesecontracts fluctuates in accordance with the fluctuations in thelevel of the index it represents. Holding futures exposes the USEquity Index Fund to derivatives risk (See Section 14.3 GeneralDerivatives Risk). Futures contracts are marked to market daily,and the change in the value of the futures contract is reflectedin the unit value of the Fund. Thus, one risk of the US EquityIndex Fund is that it reflects the risk of its respective stockmarket. For example, the US Equity Index futures would reflectthe risk of the U.S. stock market, as measured by the S&P 500Index. Another risk of this Fund is that it may have more of itsnet assets invested in an issuer(s) than is usually permitted.As the exposure to any one issuer increases, there is potentialfor liquidity risk to increase and the volatility to also increase.Additionally, a passive equity index fund that focuses on asingle index may be considered less diversified than a fund thatis attempting to simulate more than one index, and thereforewill be more volatile.In addition, since the balance of the value of the Fund isinvested in money market securities, there is a risk as describedin the risk section for Fixed Income Funds.14.2 Fixed Income FundsThe principal risks of our fixed income Funds are the risksassociated with interest rate movements. The market priceof fixed income securities varies with changes in the overalllevel of interest rates and the creditworthiness of the issuers ofthe securities. In general, when interest rates rise, the marketprice of fixed income securities falls; on the other hand, wheninterest rates fall, the market price of fixed income securitiesrises. In addition, the longer the duration of the security thegreater the volatility in its price. To the extent a Fund invests infixed income securities denominated in currencies other thanthe Canadian dollar, the unit value of the Fund may fluctuateas a result of changes in currency exchange rates as well as beaffected by the general economic and financial conditions inthose countries where the securities are held.Another potential risk is credit risk, which refers to the riskthat the issuer of a fixed income security may fail to pay theprincipal and interest payments on the security in a timelymanner, resulting in a decline in the value of the security.A high proportion of government issued or governmentguaranteed securities serves to reduce the overall credit risk ofthese Funds.The fixed income Funds do not use derivatives for the purposeof leverage. Leverage is the method by which a portfolio cantake on additional risk by investing in the return of greaterassets than the portfolio has cash to purchase those assets. Theuse of derivatives is limited to futures, forwards and options.Derivatives, such as options, futures, and forwards are used toadjust a Fund’s average term to maturity, to gain exposure toincome-producing securities, and to hedge against changes ininterest rates or currencies.Forwards are the primary instruments used for the purchaseor sale of foreign currencies although futures and options canalso be used. Futures and forwards are a commitment to buyor sell a security at a certain price within a given period. Anoption is the right to buy or sell a security at a certain pricewithin a given period. Following is an example of how a forwardcontract would be used to hedge a currency risk.If a foreign bond is purchased, the Fund could be exposed tocurrency risk. The Fund manager may hedge this risk by sellingthe foreign currency on the forward market. If the Canadiandollar gains in value against the foreign currency, the currencygain on the forward market offsets the currency loss on theforeign-denominated security. If the reverse happens and theforeign currency increases, the loss on the forward contract isoffset by the currency gain on the security. In both cases, nocurrency gain or loss would be realized. There can be no assurancehowever that the Fund’s hedging strategies will be effective.14.3 General Derivatives RiskGenerally, the risk of using derivatives to gain exposure to anunderlying market (as in the US Equity Index Fund) or reduceexposure to a currency (as in the Income Fund) is the sameas investing directly in the market or currency. However,there can be some additional risks, each of which is explainedbriefly below.• A counterparty credit risk may exist when the issuer of thederivative is unable to meet its obligations, and this riskapplies to derivatives that are traded over-the-counter asopposed to exchange traded derivatives.32
Page 3 and 4: KEY FACTS FOR THE CLASS PLUS 2 CONT
Page 5 and 6: TABLE OF CONTENTS1. GENERAL INFORMA
Page 7 and 8: INTRODUCTIONThe Empire Life Insuran
Page 9 and 10: or, if applicable, the life of the
Page 11 and 12: certain transactions otherwise perm
Page 13 and 14: You may, by providing notice to us
Page 15 and 16: Example - calculation of the LWA (w
Page 17 and 18: Example - calculation of the LWA (w
Page 19 and 20: 6.6 Income Base ResetCommencing on
Page 21 and 22: We will notify you that the withdra
Page 23 and 24: On the death of the Annuitant:1) a
Page 25 and 26: The fee you pay for the Maturity an
Page 27 and 28: 8.3.3 Collection of the Class Plus
Page 29 and 30: Retirement income payments that con
Page 31 and 32: 11.7 Fees and Expenses Paid by the
Page 33 and 34: 11.15.1 Portfolio FundsWe currently
Page 35 and 36: The portfolio’s curve positioning
Page 37: Principal RisksRisks of investing i
Page 41 and 42: APPENDIX TO INFORMATION FOLDER34
Page 43 and 44: Income Now - Down Market ScenarioAs
Page 45 and 46: Income Later - Down Market Scenario
Page 47 and 48: John and Mary are guaranteed an LWA
Page 49 and 50: Income Later - Down Market Scenario
Page 51 and 52: 1. GENERAL INFORMATION1.1 Definitio
Page 53 and 54: and a Senior Vice-President of Empi
Page 55 and 56: You may, by providing notice to us
Page 57 and 58: 1) the current LWA; and2) a new LWA
Page 59 and 60: 6.3 Maturity BenefitThe Maturity Be
Page 61 and 62: 6.11.1 Death Benefit GuaranteeThe D
Page 63 and 64: 8.3 Valuation Date and Fund Class U
Page 65 and 66: 2) “Spouse” or “common-law pa
Page 68: The Empire Life Insurance Company (

Class Plus 2 Information Folder and Contract Provisions - Empire Life

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