As filed with the Securities and Exchange Commission on April
25, 1997
Registration No. 333-01153
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(X)
PRE-EFFECTIVE AMENDMENT NO.
( )
POST-EFFECTIVE AMENDMENT NO. 1
(X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
(X)
Amendment No. 3
(X)
(Check appropriate box or boxes)
VARIABLE ANNUITY-1 SERIES ACCOUNT
(Exact name of Registrant)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(Name of Depositor)
8515 East Orchard Road
Englewood, Colorado 80111
(Address of Depositor's Principal Executive Offices) (Zip
Code)
Depositor's Telephone Number, including Area Code:
(800) 537-2033
William T. McCallum
President and Chief Executive Officer
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, Colorado 80111
(Name and Address of Agent for Service)
Copy to:
James F. Jorden, Esq.
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W., Suite 400 East
Washington, D.C. 20007-0805
Approximate Date of Proposed Public Offering: Upon the effective
date of
this Registration Statement
It is proposed that this filing will become effective on April
30, 1997.
The Registrant has chosen to register an indefinite number of
securities in
accordance with Rule 24f-2.
The Registrant hereby amends this registration statement on such
date or
dates as may be necessary to delay its effective date until the
Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in
accordance with
Section 8(a) of the Securities Act of 1933 or until the
registration
statement shall become effective on such date as the Commission
acting
pursuant to said Section 8(a) may determine.<PAGE>
VARIABLE
ANNUITY-1 SERIES ACCOUNT
Cross Reference Sheet
Showing Location in Prospectus
and Statement of Additional Information
As Required by Form N-4
FORM N-4 ITEM PROSPECTUS CAPTION
1. Cover Page.......................... Cover Page
2. Definitions......................... Definitions
3. Synopsis............................ Variable Annuity Fee
Table; Key
Features of the
Annuity
4. Condensed Financial Information..... Condensed Financial
Information;
Performance Data
5. General Description of
Registrant, Depositor and
Portfolio Companies............... Great-West Life &
Annuity
Insurance Company and
the Series
Account; The Eligible
Funds;
Voting Rights
6. Deductions and Expenses............ Charges and
Deductions; Appendix
A; Distribution of the
Contracts
7. General Description of
Variable Annuity Contracts........ Key Features of the
Annuity; The
Eligible Funds; The
Guarantee
Period Fund;
Application and
Contributions;
Transfers; Death
Benefit; Payment
Options; Rights
Reserve by the
Company;
Statement of
Additional
Information
8. Annuity Period...................... Payment Options
9. Death Benefit....................... Death Benefit
10. Purchases and Contract Value........ Application and
Contributions;
Annuity Account Value
11. Redemptions......................... Cash Withdrawals;
Payment
Options; Key Features
of the
Annuity
12. Taxes............................... Federal Tax Matters
13. Legal Proceedings................... Legal Proceedings
14. Table of Contents of
Statement of Additional
Information....................... Available Information
STATEMENT OF
ADDITIONAL
FORM N-4 ITEM INFORMATION CAPTION
15. Cover Page.......................... Cover Page
16. Table of Contents................... Table of Contents
17. General Information and
History........................... General Information;
Great-West
Life & Annuity
Insurance Company
and Variable Annuity-1
Series
Account
18. Services............................ Services
19. Purchase of Securities
Being Offered..................... Not Applicable
20. Underwriters........................ Services - Principal
Underwriter
21. Calculation of
Performance Data.................. Calculation of
Performance
Data
22. Annuity Payments.................... Calculation of Annuity
Payments
23. Financial Statements................ Financial Statements<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
THE SCHWAB VARIABLE ANNUITY
A FLEXIBLE PREMIUM DEFERRED FIXED AND VARIABLE
ANNUITY
Distributed by
CHARLES SCHWAB & CO., INC.
_____________________________________________
Issued by
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
This prospectus describes interests under a flexible premium
deferred annuity contract, The Schwab
Variable Annuity (the "Contract"). The Contract is issued either
on a group basis or as individual contracts
by Great-West Life & Annuity Insurance Company (the "Company").
Participation in a group contract will
be accounted for by the issuance of a certificate showing an
interest under the group contract. The
certificate and the individual contract are hereafter both referred
to as the "Contract."
Your investment in the Contract may be allocated among
twenty-four
Investment Divisions of the Variable
Annuity-1 Series Account ("Series Account") and the available
Guarantee Periods under the Guarantee
Period Fund. The Investment Divisions invest in various underlying
funds (open-end investment
companies) offered by fund families such as Federated, INVESCO,
Janus, Lexington, Berger, Alger,
Schwab Funds, Stein Roe, Strong, Montgomery, American Century,
SAFECO and Van Eck. You also have
the option of allocating some or all of your investment in the
Contract to the Guarantee Period Fund which
allows you to select one or more Guarantee Periods, each of which
offers you a specified interest rate for
a specified period. There may be a market value adjustment on the
amounts withdrawn from the
Guarantee Period Fund. The Guarantee Period Fund may not be
available in all states.
The minimum initial investment is $5,000 ($2,000 if an IRA) or
$1,000 if made under an Automatic
Contribution Plan ("ACP"). The minimum subsequent Contribution is
$500 (or $100 per month if made
under an ACP).
There are no sales charges, redemption, surrender or withdrawal
charges. The Contract provides a Free
Look Period of 10 days from your receipt of the Contract (or
longer, if required by state law), during which
time you may cancel your investment in the Contract. During the
Free Look Period, all Contributions
allocated to an Investment Division will be allocated first to the
Schwab Money Market Investment Division
and will remain there until the next Transaction Date following the
end of the Free Look Period.
Contributions to the Guarantee Period Fund will be allocated
immediately into the specified Guarantee
Period(s).
Your Variable Account Value will increase or decrease based on the
investment performance of the
options you select. You bear the entire investment risk under the
Contract prior to the annuity
commencement date for all amounts in your Variable Sub-Accounts.
While there is a guaranteed death
benefit, there is no guaranteed or minimum Variable Account Value
on amounts allocated to Investment
Divisions. Therefore, the Annuity Account Value you receive could
be less than the total amount of your
Contributions.
Amounts allocated to the Guarantee Period Fund may be subject to a
Market Value Adjustment which
could result in receipt of less than your Contributions if you
surrender, Transfer, make a partial
withdrawal, apply amounts to purchase an annuity or take a
distribution upon the death of the Owner
or Annuitant before a Guarantee Period Maturity Date. Whether such
a result actually occurs depends
on the timing of the transaction, the amount of the Market Value
Adjustment and the interest rate credited.
The interest rate in subsequent Guarantee Periods may be more or
less than the rate of a previous
Guarantee Period.
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 THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY
IS A CRIMINAL OFFENSE. NO PERSON IS AUTHORIZED BY THE COMPANY TO
GIVE
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE
CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERS CONTAINED IN THIS
PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE. PLEASE READ THIS PROSPECTUS AND
KEEP IT FOR
FUTURE REFERENCE.
Prospectus Dated April 30, 1997
The Contracts are not deposits of, or guaranteed or endorsed by any
bank, nor are the Contracts federally
insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government
agency. The Contracts involve certain investment risks, including
possible loss of principal.
To Place Orders and for Account Information: Contact the Schwab
Annuity Service Center at 800-838-
0650 or P.O. Box 7666, San Francisco, California 94120-7666.
About This Prospectus: This Prospectus concisely presents
important
information you should have before
investing in the Contract. Please read it carefully and retain it
for future reference. You can find more
detailed information pertaining to the Contract in the Statement of
Additional Information dated April 30,
1997 (as may be amended from time to time), and filed with the
Securities and Exchange Commission.
The Statement of Additional Information is incorporated by
reference into this Prospectus, and may be
obtained without charge by contacting the Schwab Annuity Service
Center at 800-838-0650 or P.O. Box
7666, San Francisco, California 94120-7666.
<PAGE>
TABLE OF CONTENTS
Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . iv
KEY FEATURES OF THE ANNUITY . . . . . . . . . . . . . . . . . . .
. . . . . . . . 1
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
AND THE SERIES ACCOUNT . . . . . . . . . . . . . . . .
. . . . . . . . .7
THE ELIGIBLE FUNDS. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .8
THE GUARANTEE PERIOD FUND . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 12
THE MARKET VALUE ADJUSTMENT . . . . . . . . . . . . . . . . . . .
. . . . . . . . 15
APPLICATION AND CONTRIBUTIONS . . . . . . . . . . . . . . . . . .
. . . . . . . . 16
ANNUITY ACCOUNT VALUE . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 17
TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 18
CASH WITHDRAWALS. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 21
TELEPHONE TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 22
DEATH BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 22
CHARGES AND DEDUCTIONS. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 25
PAYMENT OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 27
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 31
ASSIGNMENTS OR PLEDGES. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 36
PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 36
DISTRIBUTION OF THE CONTRACTS . . . . . . . . . . . . . . . . . .
. . . . . . . . 37
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 38
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 48
RIGHTS RESERVED BY THE COMPANY. . . . . . . . . . . . . . . . . .
. . . . . . . . 49
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 49
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 49
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 50
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 50
APPENDIX A. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 50
APPENDIX B. . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . 50
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .F-1
_________________________________________________________________
_________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION
IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON, OR
OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE
RELIED ON.
_________________________________________________________________
_________
The Contract is not available in all states.
<PAGE>
_________________________________________________________________
_________
DEFINITIONS
_________________________________________________________________
_________
Accumulation Period - The period between the Effective Date and the
Payment Commencement Date.
Annuitant - The person named in the application upon whose life the
payment of an annuity is based and
who will receive annuity payments. If a Contingent Annuitant is
named, then the Annuitant will be
considered the Primary Annuitant. While the Annuitant is living
and at least 30 days prior to the annuity
commencement date, the Owner may, by Request, change the Annuitant.
Annuity Account - An account established by the Company in the name
of the Owner that reflects all
account activity under this Contract.
Annuity Account Value - The sum of the Variable and Fixed
Sub-Accounts credited to the Owner under
the Annuity Account; less Transfers, partial withdrawals, amounts
applied to an annuity option, periodic
withdrawals, charges deducted under the Contract and, less Premium
Tax, if any.
Annuity Payment Period - The period beginning on the annuity
commencement date and continuing until
all annuity payments have been made under the Contract.
Annuity Unit - An accounting measure used to determine the dollar
value of any variable annuity payment
after the first annuity payment is made.
Automatic Contribution Plan ("ACP") - A plan which allows for
automatic periodic Contributions. The
Contribution amount will be withdrawn from a designated
pre-authorized account and automatically
credited to the Annuity Account.
Beneficiary - The person(s) designated by the Owner, in the
application, or as subsequently changed
by the Owner by Request, to receive any death benefit which may
become payable under the terms of
the Contract. If the surviving spouse of an Owner is the surviving
Joint Owner, the surviving spouse will
become the Beneficiary upon such Owner's death and may elect to
take the death benefit, if any, or elect
to continue the Contract in force.
Company - Great-West Life & Annuity Insurance Company, the issuer
of this annuity, located at 8515 East
Orchard Road, Englewood, Colorado 80111.
Contingent Annuitant - The person named in the application, unless
later changed by the Owner by
Request while the Annuitant is alive and before annuity payments
have commenced, who becomes the
Annuitant when the Primary Annuitant dies. No new Contingent
Annuitant may be designated after the
death of the Primary Annuitant.
Contributions - Purchase amounts received under the Contract and
allocated to the Fixed or Variable
Sub-Account(s) prior to any Premium Tax or other deductions.
Effective Date - The date on which the first Contribution is
credited to the Annuity Account.
Eligible Fund - A registered management investment company, or
portfolio thereof, in which the assets
of the Series Account may be invested.
Fixed Sub-Accounts - The subdivision(s) of the Owner's Annuity
Account reflecting the value of
Contributions made to a fixed interest investment option available
under the Contract and any Fixed Sub-
Account Riders.
Guarantee Period - One of the periods of time available in the
Guarantee Period Fund during which the
Company will credit a stated rate of interest. The Company may
stop offering any term at any time for
new Contributions. Amounts allocated to one or more Guaranteed
Periods may be subject to a Market
Value Adjustment.
Guarantee Period Fund - A Fixed Sub-Account in which amounts
allocated will be credited a stated rate
of interest for the applicable Guarantee Period(s).
Guarantee Period Maturity Date - The last day of any Guarantee
Period.
Guaranteed Interest Rate - The minimum interest rate applicable to
each Fixed Sub-Account equal to
an annual effective rate in effect at the time the Contribution is
made and as reflected in written
confirmation of the Contribution. This is the minimum rate allowed
by law and is subject to change in
accordance with changes in applicable law.
Individual Retirement Annuity (IRA) - An annuity contract used in
a retirement savings program that is
intended to satisfy the requirements of Section 408 of the Internal
Revenue Code of 1986, as amended.
Investment Division - A division of the Series Account containing
the shares of an Eligible Fund. There
is an Investment Division for each Eligible Fund.
Market Value Adjustment - An adjustment which may be made to
amounts paid out before the Guarantee
Period Maturity Date due to surrenders, partial withdrawals,
Transfers, amounts applied to the periodic
withdrawal option or to purchase an annuity, and distributions
resulting from death of the Owner or
Annuitant, as applicable. The Market Value Adjustment may increase
or decrease the amount payable
on one of the above-described distributions. A negative adjustment
may result in an effective interest rate
lower than the applicable Guaranteed Interest Rate and the value of
the Contribution(s) allocated to the
Guarantee Period being less than the Contribution(s) made. The
Market Value Adjustment is detailed on
page 15.
Non-Qualified Annuity Contract - An annuity contract which is not
intended to be part of a qualified
retirement plan and is not intended to satisfy the requirements of
Section 408 of the Internal Revenue
Code of 1986, as amended.
Owner (Joint Owner) or You - The person(s), while the Annuitant is
living, named in the Contract Data
Page who is entitled to exercise all rights and privileges under
the Contract. Joint Owners must be
husband and wife as of the date the Contract is issued. The
Annuitant will be the Owner unless otherwise
indicated in the application. If a Contract is purchased as an
IRA, the Owner and the Annuitant must be
the same individual and no Joint Owner may be named. Any reference
to Owner in the singular tense
shall include the plural, and vice versa, as applicable.
Payment Commencement Date - The date on which annuity payments or
periodic withdrawals commence
under a payment option. The Payment Commencement Date must be at
least one year after the Effective
Date of the Contract. If a Payment Commencement Date is not shown
on the Contract Data Page, annuity
payments will commence on the first day of the month of the
Annuitant's 91st birthday. The Payment
Commencement Date may be changed by the Owner within 60 days prior
to commencement of annuity
payments or it may be changed by the Beneficiary upon the death of
the Owner. If this is an IRA,
payments which satisfy the minimum distribution requirements of the
Internal Revenue Code of 1986, as
amended, must begin no later than the Owner's attainment of age
70 1/2.
Premium Tax - The amount of tax, if any, charged by a state or
other governmental authority.
Request - Any written, telephoned, or computerized instruction in
a form satisfactory to the Company and
received at the Schwab Annuity Service Center (or other annuity
service center subsequently named) from
the Owner or the Owner's designee (as specified in a form
acceptable to the Company) or the Beneficiary
(as applicable) as required by any provision of the Contract or as
required by the Company. All Requests
are subject to any action taken or payment made by the Company
before it was processed.
Schwab Annuity Service Center - P.O. Box 7666, San Francisco,
California 94120-7666, telephone 800-
838-0650.
Series Account - The segregated account established by the Company
under Colorado law and
registered as a unit investment trust under the Investment Company
Act of 1940, as amended.
Simplified Employee Pension - An individual retirement annuity
(IRA) which may accept contributions
from one or more employers under a retirement savings program
intended to satisfy the requirements of
Section 408(k) of the Internal Revenue Code of 1986, as amended.
Surrender Value - The Annuity Account Value with a Market Value
Adjustment, if applicable, on the
effective date of the surrender, less Premium Tax, if any.
Transaction Date - The date on which any Contribution or Request
from the Owner will be processed by
the Company at the Schwab Annuity Service Center. Contributions
and Requests received after 4:00 p.m.
EST/EDT will be deemed to have been received on the next business
day. Requests will be processed
and the Variable Account Value will be determined on each day that
the New York Stock Exchange is
open for trading.
Transfer - The moving of money from and among the Investment
Division(s) and the Guaranteed Period
Fund.
Variable Account Value - The sum of the values of the Variable
Sub-Accounts credited to the Owner
under the Annuity Account.
Variable Sub-Accounts - The sub-division(s) of the Owner's Annuity
Account containing the value credited
to the Owner under the Annuity Account from an Investment Division.
We, our, us, or GWL&A: Great-West Life & Annuity Insurance
Company.
<PAGE>
_________________________________________________________________
___________
KEY FEATURES OF THE ANNUITY
_________________________________________________________________
___________
The Contract currently allows you to invest in your choice of
twenty-four different Investment Divisions
offered by thirteen different mutual fund investment advisers. You
can also invest in the Guarantee Period
Fund. Your Annuity Account Value allocated to an Investment
Division will vary with the investment
performance of the Investment Division you select. You bear the
entire investment risk for all amounts
invested in the Investment Division(s). Your Annuity Account Value
could be less than the total amount
of your Contributions.
Who should invest. The Contract is designed for investors who are
seeking long-term tax deferred asset
accumulation with a wide range of investment options. The Contract
can be used for retirement or other
long-term investment purposes. The deferral of income taxes is
particularly attractive to investors in high
federal and state tax brackets who have already fully taken
advantage of their ability to make IRA
contributions or "pre-tax" contributions to their employer
sponsored retirement or savings plans.
A Wide Range of Variable Investment Choices. The Contract gives
you an opportunity to select among
twenty-four different Investment Divisions. Each Investment
Division invests in shares of an Eligible Fund.
The Eligible Funds cover a wide range of investment objectives as
follows:
Investment Objective Eligible Funds
Aggressive Growth SteinRoe Capital
Appreciation Fund
Janus Aspen Aggressive
Growth Portfolio
Alger American Small
Capitalization Portfolio
American Century VP Capital
Appreciation
Berger IPT-Small Company
Growth Fund
Strong Discovery Fund II
International Aggressive Growth Montgomery Variable Series:
International Small
Cap Fund
Lexington Emerging Markets
Fund
Growth Montgomery Variable Series:
Growth Fund
Schwab Asset Director - High
Growth Portfolio
Janus Aspen Growth Portfolio
Alger American Growth
Portfolio
International Growth Janus Aspen Worldwide Growth
Portfolio
American Century VP
International
Index Schwab S&P 500 Portfolio
Growth & Income SAFECO RST Equity Portfolio
Federated American Leaders
Fund II
Equity Income Federated Utility Fund II
INVESCO VIF-Industrial
Income Portfolio
Balanced/Asset Allocation INVESCO VIF-Total Return
Portfolio
Hard Assets Van Eck Worldwide Hard
Assets Fund
High Yield Bond INVESCO VIF-High Yield
Portfolio
Government Bond Federated Fund for U.S.
Government Securities II
Money Market Schwab Money Market
Portfolio
The distinct investment objectives and policies for each Eligible
Fund are more fully described in their
individual fund prospectuses which are available from the Schwab
Annuity Service Center, P.O. Box 7666,
San Francisco, California 94120-7666, or via telephone at
1-800-838-0650.
The Guarantee Period Fund. The Contract also gives you an
opportunity to allocate your Contributions
and to transfer your Annuity Account Value to the Guarantee Period
Fund. However, the Guarantee
Period Fund may not be available in all states or jurisdictions
where the Contract is sold. Please consult
wiht your representative or call the Schwab Annuity Service Center
for more information. This Fixed Sub-
Account option is comprised of Guarantee Periods, each of which has
its own stated rate of interest and
its own maturity date. The stated rate of interest for the
Guarantee Period will depend on the date the
Guarantee Period is established and the duration of the Guarantee
Period you select from among those
available. The rates declared are subject to a minimum (Guaranteed
Interest Rate), but the Company may
declare higher rates (the stated rate of interest). The Guaranteed
Interest Rate will be disclosed in the
written confirmation. The stated rate of interest will not be less
than the Guaranteed Interest Rate and
will also be disclosed in the written confirmation. Amounts
withdrawn or transferred from a Guarantee
Period prior to the Guarantee Period Maturity Date may be subject
to a Market Value Adjustment. (See
"Market Value Adjustment," page 15.)
How to Invest. You must complete a Contract application form in
order to invest in the Contract and you
must pay by check or instruct us to transfer funds from your Schwab
account. The minimum initial
investment is $5,000 (or $2,000 if in an IRA). Subsequent
investments must be at least $500. The
minimum initial investment may be reduced to $1,000 should the
Owner agree to make additional $100
per month minimum recurring deposits through an ACP.
Free Look Period. The Contract provides for a Free Look Period
which allows you to cancel your
investment generally within 10 days of your receipt of the
Contract. You can cancel the Contract during
the Free Look Period by delivering or mailing the Contract to the
Schwab Annuity Service Center. The
cancellation is not effective unless we receive a notice which is
postmarked before the end of the Free
Look Period. If the Contract is returned, the Contract will be
void from the start and the greater of: (a)
Contributions received less surrenders, withdrawals and
distributions, or (b) the Annuity Account Value
less surrenders, withdrawals and distributions, will be refunded.
These procedures may vary where
required by state law. (See "Application and Contributions," page
16.)
Allocation of the Initial Investment. Any initial Contribution
allocated to an Investment Division (other
than certain 1035 exchanges - see "Application and Contributions,"
page 16) will be allocated to the
Schwab Money Market Portfolio until the next Transaction Date
following the end of the Free Look Period.
At that time, the Variable Account Value will be allocated to the
Investment Divisions in accordance with
your instructions. (See "Annuity Account Value," page 17.) Your
initial investment in the Guarantee Period
Fund will be immediately allocated to the Guarantee Period(s)
specified in the application.
Charges and Deductions Under the Contract. The Contract is a "no
load" variable annuity and, as such,
imposes no sales charges, redemption or withdrawal charges.
There is a Mortality and Expense Risk Charge at an effective annual
rate of 0.85% of the value of the net
assets in the Variable Account. A Contract Maintenance Charge of
$25 will be deducted annually from
your Annuity Account Value. There will be a transfer fee of $10
for each Transfer in excess of twelve
Transfers per calendar year. (See "Charges and Deductions," page
25.)
Depending on your state of residence, we may deduct a charge for
Premium Tax from purchase payments
or amounts withdrawn or at the Payment Commencement Date. (See
"Charges and Deductions," page
25.)
The Market Value Adjustment may increase or decrease the value of
a Guarantee Period if the Guarantee
Period is broken prior to the Guarantee Period Maturity Date. A
negative adjustment may result in an
effective interest rate lower than the stated rate of interest for
the Guarantee Period and the Guaranteed
Interest Rate and the value of the Guarantee Period being less than
Contribution(s). (See "Market Value
Adjustment," page 15).
Switching Investments. You may switch Contributions among the
Investment Divisions or Guarantee
Period Fund as often as you like with no immediate tax
consequences. You may make a Transfer
Request to the Schwab Annuity Service Center. A transfer fee may
apply. (See "Charges and
Deductions," page 25.) Amounts Transferred out of a Guarantee
Period prior to the Guarantee Period
Maturity Date may be subject to a Market Value Adjustment. (See
"Market Value Adjustment," page 15.)
Full and Partial Withdrawals. You may withdraw all or part of your
Annuity Account Value before the
earlier of the annuity commencement date you selected or the
Annuitant's or Owner's death. Withdrawals
may be taxable and if made prior to age 59 1/2 may be subject to a
10% penalty tax. Withdrawals of
amounts allocated to a Guarantee Period prior to the Guarantee
Period Maturity Date may be subject to
Market Value Adjustment. (See "Market Value Adjustment," page
15.) The minimum partial withdrawal
prior to the Market Value Adjustment is $500. There is no limit on
the number of withdrawals made. The
Company may delay payment of withdrawals from your Variable
Sub-Accounts by up to 7 days and may
delay withdrawals from the Guarantee Period Fund by up to 6 months.
(See "Cash Withdrawals," page
21.)
Annuity Options. Beginning on the first day of the month
immediately following the annuity
commencement date you select, you may elect to receive annuity
payments on a fixed or variable basis.
(The default date is the first day of the month that the Annuitant
attains age 91.) A wide range of annuity
options are available to provide flexibility in choosing an annuity
payment schedule that meets your
particular needs. These annuity options include alternatives
designed to provide payments for life (for
either a single or joint life), with or without a guaranteed
minimum number of payments. (See "Payment
Options," page 27.)
Death Benefit. The amount of the death benefit, if payable before
annuity payments commence, will be
the greater of (a) the Annuity Account Value with a Market Value
Adjustment, if applicable, as of the date
a Request for payment is received, less Premium Tax, if any; or (b)
the sum of Contributions paid, less
partial withdrawals and Periodic Withdrawals, less charges deducted
under the Contract, if any, less
Premium Tax, if any. (See "Death Benefit," page 22.)
Customer Service. Schwab's professional representatives are
available toll-free to assist you. If you have
any questions about your Contract, please telephone the Schwab
Annuity Service Center (800-838-0650)
or write to the Schwab Annuity Service Center at P.O. Box 7666, San
Francisco, California 94120-7666.
All inquiries should include the Contract number and the Owner's
name. As a Contract Owner you will
receive periodic statements confirming any transactions relating to
your Contract, as well as a quarterly
statement and an annual report.
<PAGE>
VARIABLE ANNUITY FEE TABLE
The purpose of this table and the examples that follow is to
assist you in understanding the
various costs and expenses that you will bear directly or
indirectly when investing in the Contract. The
table and examples reflect expenses related to the Investment
Divisions as well as of the Eligible Funds.
The table assumes that the entire Annuity Account Value is
allocated to one or more Investment Divisions.
The information set forth should be considered together with the
narrative provided under the heading
"Charges and Deductions," page 25 of this Prospectus, and with the
Funds' prospectuses. In addition
to the expenses listed below, Premium Tax may be applicable.
Contract Owner Transaction Expenses
Sales Load
None
Surrender Fee
None
Transfer Fee (First 12 Per Year)
None
Annual Contract Maintenance Charge
$25.00
Investment Division Annual Expenses1
(as a percentage of average Variable
Account assets)
Mortality and Expense Risk Charge
0.85%
Administrative Expense Charge
0.00%
Other Fees and Expenses of the Variable Account
0.00%
Total Investment Division Annual Expenses
0.85%
<PAGE>
Eligible Fund Annual Expenses (1)
(as a percentage of Eligible Fund net assets, after expenses
reimbursements)
Total
Management Other
12b-1 Eligible Fund
Fees Expenses
Fees Expenses
Portfolio
Alger American Growth Portfolio.75% .04% 0%
.79%
Alger American Small
Capitalization Portfolio .85% .03% 0%
.88%
American Century VP Capital Appreciation1.00% 0% 0%
1.00%
American Century VP International1.50% 0% 0%
1.50%
Berger IPT-Small Company Growth Fund .0% 1.15% 0%
1.15%
Federated American Leaders Fund II.53% .32% 0%
.85%
Federated Fund for U.S. Government Securities II.0%.80% 0%
.80%
Federated Utility Fund II .24% .61% 0%
.85%
INVESCO VIF-High Yield Portfolio.60% .27% 0%
.87%
INVESCO VIF-Industrial Income Portfolio.75% .20% 0%
.95%
INVESCO VIF-Total Return Portfolio.75% .19% 0%
.94%
Janus Aspen Aggressive
Growth Portfolio .72% .04% 0%
.76%
Janus Aspen Growth Portfolio .65% .04% 0%
.69%
Janus Aspen Worldwide
Growth Portfolio .66% .14% 0%
.80%
Lexington Emerging Markets Fund.85% .79% 0%
1.64%
Montgomery Variable Series: Growth Fund2 1.00%.25% 0%
1.25%
Montgomery Variable Series:
International Small Cap Fund21.25% .25% 0%
1.50%
SAFECO RST Equity Portfolio .70% .02%
0% .72%
Schwab Asset Director -
High Growth Portfolio .60% .15% 0%
.75%
Schwab Money Market Portfolio .44% .06% 0%
.50%
Schwab S&P 500 Portfolio3 .13% .15% 0%
.28%
SteinRoe Capital Appreciation Fund.50% .26% 0%
.76%
Strong Discovery Fund II 1.00% .21% 0%
1.21%
Van Eck Worldwide Hard Assets Fund.90% .18% 0%
1.08%
_________________________________
(1) The figures given above (other than form the Montgomery
Variable Series: Growth Fund, Montgomery Variable Series;
International
Small Cap Fund and Schwab S&P 500 Portfolio - see notes 2 and 3,
below) reflect the amounts deducted after expense offset
arrangements, if any, from the Eligible Funds during 1996. From
time to time, an Eligible Fund's investment adviser, in its sole
discretion, may waive all or part of its fees and/or voluntarily
assume certain expenses. For a more complete description of the
Eligible Funds' fees and expenses, see the Eligible Funds'
prospectuses. As of the date of this Prospectus, certain fees are
being
waived or expenses are being assumed, in each case on a voluntary
basis. Without such waivers or reimbursements, the total Eligible
Fund annual expenses that would have been incurred for the last
completed fiscal year would be: 8.57% for Berger IPT-Small
Company Growth Fund; 1.07% for Federated American Leaders Fund II;
1.81% for Federated Fund for U.S. Government Securities
II; 1.32% for INVESCO VIF-High Yield Portfolio; 1.19% for INVESCO
VIF-Industrial Income Portfolio; 1.30% for INVESCO VIF-Total
Return Portfolio; .83% for Janus Aspen Aggressive Growth Portfolio;
.83% for Janus Aspen Growth Portfolio; .91% for Janus Aspen
Worldwide Growth Portfolio; 2.23% for Lexington Emerging Markets
Fund; and 0.95% for Schwab Money Market Portfolio, 2.68% for
Schwab S&P 500 Portfolio and 3.92% for Schwab Asset Director-High
Growth Portfolio. See the Eligible Funds' prospectuses for a
discussion of fee waiver and expense reimbursements.
(2) The figures given above for the Montgomery Variable Series:
Growth Fund and Montgomery Variable Series: International Small
Cap Fund reflect an estimate of fees and expenses which could apply
to these funds. However, the actual expenses charged in 1996
for both of these funds were 0.00% due to a voluntary waiver of
management fees and expenses by Montgomery. Without such
waivers or reimbursements, the total Eligible Fund annual expenses
that would have been incurred for the last completed fiscal year
would be: 6.98% for the Montgomery Variable Series: Growth Fund and
6.30% for the Montgomery Variable Series: International Small
Cap Fund.
(3) The figures given above reflect a voluntary waiver of a
portion of the management fee for the Schwab S&P 500 Portfolio
effective
May 1, 1997. Prior to that date the applicable management fee was
0.20%.
<PAGE>
Examples(1)
If you retain, annuitize, or surrender the Contract at the end of
the applicable time period, you would pay the following fees and
expenses on a $1,000 investment, assuming a 5% annual return on
assets:
Investment Divisions 1 Year 3 Years
Alger American Growth Portfolio $ 8.26
$27.11
Alger American Small
Capitalization Portfolio $ 9.20
$30.16
American Century VP Capital Appreciation $10.45
$34.21
American Century VP International $15.63
$50.93
Berger IPT-Small Company Growth Fund $12.00
$39.25
Federated American Leaders Fund II $ 8.89
$29.14
Federated Fund for U.S. Government Securities II$ 8.37
$27.45
Federated Utility Fund II $ 8.89
$29.14
INVESCO VIF-High Yield Portfolio $ 9.09
$29.82
INVESCO VIF-Industrial Income Portfolio $ 9.93
$32.52
INVESCO VIF-Total Return Portfolio $ 9.82
$32.19
Janus Aspen Aggressive
Growth Portfolio $ 7.95
$26.09
Janus Aspen Growth Portfolio $ 7.22
$23.71
Janus Aspen Worldwide
Growth Portfolio $ 8.37
$27.45
Lexington Emerging Markets Fund $17.08
$55.57
Montgomery Variable Series: Growth Fund $13.04
$42.60
Montgomery Variable Series:
International Small-Cap Fund $15.63
$50.93
SAFECO RST Equity Portfolio $ 7.53
$24.73
Schwab Asset Director -
High Growth Portfolio $ 7.84
$25.75
Schwab Money Market Portfolio $ 5.24
$17.23
Schwab S&P 500 Portfolio $ 2.94 $
9.68
SteinRoe Capital Appreciation Fund $ 7.95
$26.09
Strong Discovery Fund II $12.63
$41.26
Van Eck Worldwide Hard Assets Fund $11.28
$36.90
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE
EXPENSES. ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE
SHOWN, SUBJECT
TO THE GUARANTEES IN THE CONTRACT.
These examples assume that no premium taxes have been assessed
(although premium taxes may be
applicable - see "Premium Tax," page 26).
(1) The Eligible Fund Annual Expenses and these examples are based
on data provided by the Eligible
Funds. The Company has no reason to doubt the accuracy or
completeness of that data, but the
Company has not verified the Eligible Funds' figures. In preparing
the Eligible Fund Expense table and
the Examples above, the Company has relied on the figures provided
by the Eligible Funds.
<PAGE>
Condensed Financial Information
Selected Data for Accumulation Units
Outstanding Through Each Period
For the Years Ended December 31,
Investment Division
1996
Alger American Growth
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.24
1,166.64
Alger American Small-Cap
Value at
beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.09
4,080.46
American Century VP Capital Appreciation
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$ 9.61
30,139.13
American Century VP International
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.49
13,399.99
Federated American Leaders Fund II Value
at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.42
65,888.88
Federated Fund for U.S.
Government Securities II
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$ 9.97
9,330.15
INVESCO VIF - High Yield
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.39
52,043.52
INVESCO VIF - Industrial Income
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.44
68,873.87
INVESCO VIF - Total Return
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.27
3,927.31
Janus Aspen Aggressive Growth
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$ 9.89
6,698.73
Janus Aspen Growth
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.26
93,598.79
Janus Aspen Worldwide Growth
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.42
51,892.38
Lexington Emerging Markets
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.26
18,281.42
Montgomery Variable Series:
International Small-Cap
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.51
3,230.28
Montgomery Variable Series:
Growth
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.35
11,226.77
Schwab Asset Director - High Growth
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.35
16,525.39
Schwab Money Market
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.07
297,045.95
Schwab S&P 500
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.52
62,674.08
SteinRoe Capital Appreciation
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.27
70,715.11
Strong Discovery Fund II
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.44
24,613.07
Van Eck Worldwide Hard Assets
Value at beginning of period
Value at end of period
Number of accumulation units
outstanding at end of period
$10.00
$10.31
2,220.85
_________________________________________________________________
___________
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
AND THE SERIES ACCOUNT
_________________________________________________________________
___________
Great-West Life & Annuity Insurance Company ("GWL&A")
The Company is a stock life insurance company originally
organized under the laws of the state
of Kansas as the National Interment Association. Its name was
changed to Ranger National Life Insurance
Company in 1963 and to Insuramerica Corporation prior to changing
to its current name in 1982. In
September of 1990, GWL&A redomesticated and is now organized under
the laws of the state of
Colorado.
GWL&A is authorized to engage in the sale of life insurance,
accident and health insurance and
annuities. It is qualified to do business in the District of
Columbia, Puerto Rico and 49 states in the United
States.
GWL&A is a wholly-owned subsidiary of The Great-West Life
Assurance Company ("Great-West
Life"). Great-West Life is a subsidiary of Great-West Lifeco Inc.,
a holding company. Great-West Lifeco
Inc. is in turn a subsidiary of Power Financial Corporation, a
financial services company. Power
Corporation of Canada, a holding and management company, has voting
control of Power Financial
Corporation. Mr. Paul Desmarais, through a group of private
holding companies, which he controls, has
voting control of Power Corporation of Canada.
The Series Account
The Variable Annuity-1 Series Account ("Series Account") was
established by the Company as
a separate account under the laws of the State of Colorado on July
24, 1995. The Series Account is
registered with the Securities and Exchange Commission
("Commission") under the Investment
Company Act of 1940, as amended ("1940 Act"), as a unit investment
trust. The Series Account meets
the definition of a "separate account" under the federal securities
laws. However, such registration
does not involve supervision of the management of the Series
Account or the Company by the
Commission.
The Company does not guarantee the investment performance of
the Series Account. The
portion of the Annuity Account Value attributable to the Series
Account and the amount of variable
annuity payments depend on the investment performance of the
Eligible Funds. Thus, the Contract
Owner bears the full investment risk for all Contributions
allocated to the Series Account.
The Series Account is administered and accounted for as part
of the general business of the
Company; but the income, capital gains, or capital losses of each
Investment Division are credited to
or charged against the assets held in that Investment Division in
accordance with the terms of the
Contract, without regard to other income, capital gains or capital
losses of any other Investment
Division or arising out of any other business the Company may
conduct. Under Colorado law, the
assets of the Series Account are not chargeable with liabilities
arising out of any other business the
Company may conduct. Nevertheless, all obligations arising under
the Contracts are generally
corporate obligations of the Company.
The Series Account currently has twenty-four Investment
Divisions available for allocation of
Contributions. If, in the future, the Company determines that
marketing needs and investment
conditions warrant, it may establish additional Investment
Divisions which will be made available to
Owners to the extent and on a basis to be determined by the
Company, (See "Addition, Deletion, or
Substitution," page 12). Each Investment Division invests in
shares of an Eligible Fund, each having a
specific investment objective.
_________________________________________________________________
___________
THE ELIGIBLE FUNDS
_________________________________________________________________
___________
The Eligible Funds described below are offered exclusively
for use as funding vehicles for
insurance products and, consequently, are not publicly available
mutual funds. Each Eligible Fund
has separate investment objectives and policies. As a result, each
Eligible Fund operates as a
separate investment portfolio and the investment performance of one
Eligible Fund has no effect on
the investment performance of any other Eligible Fund. See the
Eligible Funds' prospectuses for more
information.
The Alger American Fund
Alger American Small Capitalization Portfolio: Seeks
long-term capital appreciation by
investing at least 65% of its total assets, except during
temporary defensive periods, in equity
securities of companies that, at the time of purchase, have
total market capitalization within
the range of companies included in the Russell 2000 Growth
Index ("Russell Index") or the
S&P SmallCap 600 Index ("S&P Index"), updated quarterly.
Both indexes are broad indexes of
small capitalization stocks. As of March 31, 1997, the range
of market capitalization of the
companies in the Russell Index was $10 million to $1.94
billion; the range of market
capitalization of the companies in the S&P Index at that date
was $32 million to $2.579 billion.
The combined range as of that date was $10 million to $2.579
billion. The Portfolio may invest
up to 35% of its total assets in equity securities of
companies that, at the time of purchase,
have total market capitalization outside this combined range,
and in excess of that amount (up
to 100% of its assets) during temporary defensive periods.
Alger American Growth Portfolio: Seeks long-term capital
appreciation by investment of at
least 65% of its total assets, except during temporary
defensive periods, in equity securities of
companies that, at the time of purchase of the securities,
have total market capitalization of $1
billion or greater. The Portfolio may invest up to 35% of
its total assets in equity securities of
companies that, at the time of purchase, have total market
capitalization of less than $1 billion.
American Century Variable Portfolios, Inc.
American Century VP Capital Appreciation: Seeks capital
growth by investing in common
stocks (including securities convertible into common stocks
and other equity equivalents) and
other securities that meet certain fundamental and technical
standards of selection and have,
in the opinion of the investment manager, better-than-average
potential for appreciation. The
Portfolio's investment manager intends to stay fully invested
in such securities, regardless of
the movement of stock prices generally.
American Century VP International: Seeks capital growth by
investing primarily in an
internationally diversified portfolio of securities of
foreign companies that meet certain
fundamental and technical standards of selection and have, in
the opinion of the investment
manager, potential for capital appreciation. The Portfolio
will invest primarily in common
stocks (defined to include depository receipts for common
stock and other equity equivalents)
of such companies. Investment in securities for foreign
issues typically involves a greater
degree of risk than an investment in domestic securities.
Berger Institutional Products Trust
Berger IPT-Small Company Growth Fund: Seeks capital
appreciation by investing primarily
in equity securities (including common and preferred stocks,
convertible debt securities and
other securities having equity features) of small growth
companies with market capitalization of
less than $1 billion at the time of initial purchase.
Federated Insurance Series
Federated American Leaders Fund II: Seeks to achieve
long-term growth of capital as a
primary objective and seeks to provide income as a secondary
objective through investment of
at least 65 % of its total assets (under normal
circumstances) in common stocks of "blue chip"
companies.
Federated Fund for U.S. Government Securities II: Seeks to
provide current income through
investment of at least 65% of its total assets in securities
which are primary or direct
obligations of the U.S. government or its agencies or
instrumentalities or which are guaranteed
as to principal and interest by the U.S. government, its
agencies, or instrumentalities and in
certain collateralized mortgage obligations, and repurchase
agreements.
Federated Utility Fund II: Seeks to provide high current
income and moderate capital
appreciation by investing in a professionally-managed,
diversified portfolio of utility company
equity and debt securities.
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-Industrial Income Portfolio: Seeks the best
possible current income while
following sound investment practices. Capital growth
potential is an additional consideration
in the selection of portfolio securities. The Portfolio
normally invests at least 65% of its total
assets in dividend-paying common stocks. Up to 10% of the
Portfolio's total assets may be
invested in equity securities that do not pay regular
dividends. The remaining assets are
invested in other income-producing securities such as
corporate bonds. The Portfolio also
has the flexibility to invest in other types of securities.
INVESCO VIF-Total Return Portfolio: Seeks a high total return
on investment through capital
appreciation and current income. The Total Return Portfolio
seeks to achieve its investment
objective by investing in a combination of equity securities
(consisting of common stocks and,
to a lesser degree, securities convertible into common stock)
and fixed income securities.
INVESCO VIF-High Yield Portfolio: Seeks a high level of
current income by investing
substantially all of its assets in lower rated bonds and
other debt securities and in preferred
stock. These bonds and other securities are sometimes
referred to as "junk bonds." The High
Yield Portfolio pursues its investment objective through
investment in a variety of long-term,
intermediate-term, and short-term bonds. Potential capital
appreciation is a factor in the
selection of investments, but is secondary to the Portfolio's
primary objective.
Janus Aspen Series
Janus Aspen Aggressive Growth Portfolio: Seeks long-term
growth of capital in a manner
consistent with the preservation of capital. The Portfolio
normally invests at least 50% of its
equity assets in securities issued by medium-sized companies.
Medium-sized companies are
those whose market capitalizations fall within the range of
companies in the S&P MidCap 400
Index (the "MidCap Index"). Companies whose capitalization
falls outside this range after the
Portfolio's initial purchase continue to be considered
medium-sized companies for the purpose
of this policy. As of December 30, 1996, the MidCap Index
included companies with
capitalizations between approximately $192 million to $6.5
billion. The range of the MidCap
Index is expected to change on a regular basis. Subject to
the above policy, the Portfolio may
also invest in smaller or larger issuers.
Janus Aspen Growth Portfolio: Seeks long-term growth of
capital in a manner consistent with
the preservation of capital. The Portfolio pursues its
objective by investing in common stocks
of companies of any size. This Portfolio generally invests
in larger, more established issuers.
Janus Aspen Worldwide Growth Portfolio: Seeks long-term
growth of capital in a manner
consistent with the preservation of capital. The Portfolio
pursues its objective primarily through
investments in common stocks of foreign and domestic issuers.
The Portfolio has the flexibility
to invest on a worldwide basis in companies and organizations
of any size, regardless of
country of organization or place of principal business
activity. The Portfolio normally invests in
issuers from at least five different countries, including the
United States; however, it may at
times invest in fewer than five countries or even a single
country.
Lexington Emerging Markets Fund, Inc.
Lexington Emerging Markets Fund: Seeks long term growth of
capital primarily through
investment in equity securities of companies domiciled in, or
doing business in emerging
countries and emerging markets. For purposes of its
investment objective, the Fund
considers emerging country equity securities to be any
country whose economy and market
the World Bank or United Nations considers to be emerging or
developing. The Fund may
also invest in equity securities and equivalents traded in
any market of companies that derive
50% or more of their total revenue from either goods or
services produced in such emerging
countries or markets or sales made in such countries.
Montgomery Variable Series
Montgomery Growth Fund: Seeks capital appreciation by
investing at least 65% of its total
assets (under normal conditions) in the equity securities of
domestic corporations. In addition
to capital appreciation, this Fund emphasizes value. While
the Fund emphasizes investments
in common stock, it also invests in other types of equity
securities (including options on equity
securities, warrants and futures contracts on equity
securities). The Fund may invest up to
35% of its total assets in debt securities rated within the
three highest grades of S&P, Moody's
or Fitch, or unrated debt securities deemed to be of
comparable quality by its portfolio
manager using guidelines approved by the Board of Trustees.
Montgomery International Small Cap Fund: Seeks capital
appreciation by investing at least
65% of its total assets (under normal conditions) in equity
securities of companies outside the
United States having total market capitalizations of less
than $1 billion, sound fundamental
values and potential for long-term growth at a reasonable
price. The Fund generally invests
the remaining 35% of its total assets in a similar manner but
may invest those assets in
companies having market capitalizations of $1 billion or
more, or in debt securities, including
up to 5% of its total assets in debt securities rated below
investment grade.
SAFECO Resource Series Trust
SAFECO RST Equity Portfolio: Seeks long-term growth of
capital and reasonable current
income. The Portfolio ordinarily invests principally in
common stocks or securities convertible
into common stocks.
Schwab Annuity Portfolios
Schwab Money Market Portfolio: Seeks maximum current income
consistent with liquidity
and stability of capital. It seeks to achieve its objective
by investing in short-term money
market instruments. This Portfolio is neither insured nor
guaranteed by the United States
Government and there can be no assurance that it will be able
to maintain a stable net asset
value of $1.00 per share.
Schwab Asset Director-High Growth Portfolio: Seeks to provide
high capital growth with less
volatility than an all stock portfolio. The High Growth Fund
seeks to meet its investment
objective by investing in a mix of stocks, bonds, and cash
equivalents.
Schwab S&P 500 Portfolio: Seeks to track the price and
dividend performance (total return)
of common stocks of U.S. companies, as represented in the
Standard & Poor's Composite
Index of 500 stocks (the "Index"). The S&P 500 Fund invests
primarily in the common stocks
of companies composing the Index.
SteinRoe Variable Investment Trust
SteinRoe Capital Appreciation Fund: Seeks capital growth by
investing primarily in common
stocks, convertible securities, and other securities selected
for prospective capital growth.
Strong Discovery Fund II, Inc.
Strong Discovery Fund II: Seeks capital growth. The Fund
invests in securities that the
Fund's investment adviser believes represent attractive
growth opportunities. The Fund
normally emphasizes equity investments, although it has the
flexibility to invest in any security
the Fund's investment adviser believes has the potential for
capital appreciation.
Van Eck Worldwide Insurance Trust
Van Eck Worldwide Hard Assets Fund: Seeks long-term capital
appreciation by investing in
hard asset securities; i.e., commodities or securities of
firms involved (directly or indirectly) in
the following areas: precious metals, ferrous and
non-ferrous metals, energy, real estate, and
other non-agricultural commodities. The Fund seeks
opportunities in all the global stock,
bond, and commodity markets, including domestic markets.
Current income is not an
investment objective.
The two Alger American Funds are advised by Fred Alger
Management, Inc. of New York, New
York. The two American Century Variable Portfolios, Inc., are
advised by American Century Investment
Management of Kansas City, Missouri, advisers to the American
Century family of mutual funds. The
Berger IPT-Small Company Growth Fund is advised by Berger
Associates of Denver, Colorado. The
three Federated Insurance Series Portfolios are advised by
Federated Advisers of Pittsburgh,
Pennsylvania. The three INVESCO Variable Investment Funds, Inc.,
Portfolios are advised by
INVESCO Funds Group, Inc., of Denver, Colorado. INVESCO Trust
Company is the sub-adviser for
the INVESCO VIF-Industrial Income Portfolio. The three Janus Aspen
Series Portfolios are advised by
Janus Capital Corporation of Denver, Colorado. The Lexington
Emerging Markets Fund is advised by
Lexington Management Corporation of Saddle Brook, New Jersey. The
two Montgomery Variable
Series Funds are advised by Montgomery Asset Management, L.P. of
San Francisco, California. The
SAFECO RST Equity Portfolio is advised by SAFECO Asset Management
Company of Seattle,
Washington. The three Schwab Annuity Portfolios are advised by
Charles Schwab Investment
Management, Inc., of San Francisco, California. The SteinRoe
Capital Appreciation Fund is advised by
Stein Roe & Farnham Incorporated of Chicago, Illinois. Strong
Discovery Fund II is advised by Strong
Capital Management, Inc. of Milwaukee, Wisconsin. The Van Eck
Worldwide Hard Assets Fund is
advised by Van Eck Associates Corporation of New York, New York.
***
Meeting investment objectives depends on various factors,
including, but not limited to, how
well the Eligible Fund managers anticipate changing economic and
market conditions. THERE IS NO
ASSURANCE THAT ANY OF THESE ELIGIBLE FUNDS WILL ACHIEVE THEIR
STATED OBJECTIVES.
The Contracts are not deposits of, or guaranteed or endorsed
by, any bank, nor are the
Contracts federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or
any other government agency. The Contracts involve certain
investment risks, including possible loss
of principal.
Each Eligible Fund is registered with the Commission as an
open-end management
investment company or portfolio thereof. The Commission does not
supervise the management or the
investment practices and policies of any of the Eligible Funds.
Since some of the Eligible Funds are available to registered
separate accounts of other
insurance companies offering variable annuity and variable life
products, there is a possibility that a
material conflict may arise between the interests of the Series
Account and one or more other
separate accounts investing in the Eligible Funds. In the event of
a material conflict, the affected
insurance companies are required to take any necessary steps to
resolve the matter, including
stopping their separate accounts from investing in the Eligible
Funds. See the Eligible Funds'
prospectuses for more details.
Additional information concerning the investment objectives
and policies of all of the Eligible
Funds and the investment advisory services and administrative
services and charges can be found in
the current prospectuses for the Eligible Funds, which can be
obtained by calling the Schwab Annuity
Service Center at 800-838-0650, or by writing to Schwab Annuity
Service Center, P.O. Box 7666, San
Francisco, California 94120-7666. The Eligible Funds' prospectuses
should be read carefully
before any decision is made concerning the allocation of
Contributions to, or Transfers among,
the Investment Divisions.
Addition, Deletion, or Substitution
The Company does not control the Eligible Funds and cannot
guarantee that any of the
Eligible Funds will always be available for allocation of
Contributions or Transfers. The Company
retains the right to make changes in the Series Account and in its
investments. Currently, Schwab
must approve certain changes.
GWL&A and Schwab reserve the right to eliminate the shares of
any Eligible Fund held by an
Investment Division and to substitute shares of another Eligible
Fund or of another investment
company, for the shares of any Eligible Fund, if the shares of the
Eligible Fund are no longer available
for investment or if, in GWL&A's and Schwab's judgment, investment
in any Eligible Fund would be
inappropriate in view of the purposes of the Series Account. To
the extent required by the 1940 Act, a
substitution of shares attributable to the Owner's interest in an
Investment Division will not be made
without prior notice to the Owners and the prior approval of the
Commission. Nothing contained
herein shall prevent the Series Account from purchasing other
securities for other series or classes of
variable annuity policies, or from effecting an exchange between
series or classes of variable policies
on the basis of Requests made by you.
New Investment Divisions may be established when, in our
discretion, marketing, tax,
investment or other conditions so warrant. Any new Investment
Divisions will be made available to
Owners on a basis to be determined by us. Each additional
Investment Division will purchase shares
in a Eligible Fund or in another mutual fund or investment vehicle.
We may also eliminate one or
more Investment Divisions if, in our sole discretion, marketing,
tax, investment or other conditions so
warrant. In the event any Investment Division is eliminated, we
will notify the Owners and request a re-
allocation of the amounts invested in the eliminated Investment
Division.
In the event of any such substitution or change, we may make
such changes to your Contract
as may be necessary or appropriate to reflect such substitution or
change. Furthermore, if deemed to
be in the best interests of persons having voting rights under the
Contracts, the Series Account may
be operated as a management company under the 1940 Act or any other
form permitted by law, may
be de-registered under such Act in the event such registration is
no longer required, or may be
combined with one or more other separate accounts. Such changes
will be made in compliance with
applicable law.
_________________________________________________________________
__________
THE GUARANTEE PERIOD FUND
_________________________________________________________________
___________
Guarantee Period Fund
Amounts allocated to the Guarantee Period Fund under the
Contract will be deposited to, and
accounted for, in a non-unitized market value separate account
established by the Company under
Section 10-7-401, et seq. of the Colorado Insurance Code and,
accordingly, are not part of the Series
Account. A non-unitized separate account is a separate account in
which the Owner does not
participate in the performance of the assets through unit values.
Therefore, Owners allocating
Contributions do not receive a unit ownership of assets accounted
for in this separate account. The
assets accrue solely to the benefit of the Company and any gain or
loss in the separate account is
borne entirely by the Company. For amounts allocated to the
Guarantee Period Fund, Owners will
receive the Contract guarantees made by the Company.
Contributions allocated to or amounts transferred to the
Guarantee Period Fund will establish
a new Guarantee Period of a duration selected by the Owner from
those currently being offered by the
Company. Every Guarantee Period offered by the Company will have
a duration of at least one year.
Contributions allocated to the Guarantee Period Fund will be
credited on the Transaction Date.
Each Guarantee Period will have its own stated rate of
interest and Guarantee Period Maturity
Date. The stated rate of interest applicable to a Guarantee Period
will depend on the date the
Guarantee Period is established and the duration chosen by the
Owner.
As of the date of this Prospectus, Guarantee Periods with
annual durations of 1 to 10 years
are offered only in those states where the Guarantee Period Fund is
available. The Guarantee Periods
may be changed in the future; however, any such modification will
not have an impact on any
Guarantee Period then in effect.
The value of amounts in each Guarantee Period is the Owner's
Contributions, less Premium
Tax, if any, in that Guarantee Period, plus interest earned, less
amounts distributed, withdrawn (in
whole or in part), Transferred or applied to an annuity option,
periodic withdrawals, and charges
deducted under the Contract. If a Guarantee Period is broken, a
Market Value Adjustment may be
assessed. Any such amount withdrawn or Transferred from a
Guarantee Period will be paid in
accordance with the MVA formula (See "Market Value Adjustment,"
page 15.)
Investments
The Company intends to invest in assets which, in the
aggregate, have characteristics,
especially cash flow patterns, reasonably related to the
characteristics of its liabilities. Various
techniques will be used to achieve the objective of close aggregate
matching of assets and liabilities.
The Company will primarily invest in investment-grade fixed income
securities including:
Securities issued by the U.S. Government or its
agencies or instrumentalities, which
issues may or may not be guaranteed by the U.S. Government.
Debt securities which have an investment grade, at the
time of purchase, within the
four highest grades assigned by Moody's Investment Services,
Inc. (Aaa, Aa, A or Baa),
Standard & Poor's Corporation (AAA, AA, A or BBB) or any
other nationally recognized rating
service.
Other debt instruments, including, but not limited to,
issues of banks or bank holding
companies and of corporations, which obligations, although
not rated by Moody's, Standard &
Poor's, or other nationally recognized rating firms, are
deemed by the Company's
management to have an investment quality comparable to
securities which may be purchased
as stated above.
Commercial paper, cash or cash equivalents, and other
short-term investments having
a maturity of less than one year which are considered by the
Company's management to have
investment quality comparable to securities which may be
purchased as stated above.
In addition, the Company may invest in futures and options.
Financial futures and related
options thereon and options on securities are purchased solely for
non-speculative hedging purposes.
The Company may sell a futures contract or purchase a put option on
futures or securities to protect
the value of securities held in or to be sold for the general
account or the non-unitized separate
account in the event the securities prices are anticipated to
decline. Similarly, if securities prices are
expected to rise, the Company may purchase a futures contract or a
call option thereon against
anticipated positive cash flow or may purchase options on
securities.
WHILE THE FOREGOING GENERALLY DESCRIBES THE INVESTMENT
STRATEGY FOR
THE GUARANTEE PERIOD FUND, THE COMPANY IS NOT OBLIGATED TO INVEST
THE ASSETS
ATTRIBUTABLE TO THE GUARANTEE PERIOD FUND ACCORDING TO ANY
PARTICULAR
STRATEGY, EXCEPT AS MAY BE REQUIRED BY COLORADO AND OTHER STATE
INSURANCE
LAWS, NOR WILL THE STATED RATE OF INTEREST THAT THE COMPANY
ESTABLISHES
NECESSARILY RELATE TO THE PERFORMANCE OF THE NON-UNITIZED MARKET
VALUE
SEPARATE ACCOUNT.
Subsequent Guarantee Periods
Prior to the date annuity payments commence, you may invest
the value of amounts held in a
maturing Guarantee Period in any Guarantee Period that we offer at
that time. On the quarterly
statement issued prior to the end of any Guarantee Period, we will
notify you of the upcoming maturity
of a Guarantee Period. THE GUARANTEE PERIOD AVAILABLE FOR NEW
CONTRIBUTIONS MAY BE
CHANGED AT ANY TIME, INCLUDING BETWEEN THE DATE OF NOTIFICATION OF
A MATURING
GUARANTEE PERIOD AND THE DATE A SUBSEQUENT GUARANTEE PERIOD BEGINS.
Information
regarding the current Guarantee Periods then available and their
stated rate of interest may be
obtained by calling the Schwab Annuity Service Center at:
1-800-838-0650.
If the Company receives no direction from the Contract Owner
by the Guarantee Period
Maturity Date, the Company will automatically allocate the amount
from the maturing Guarantee Period
to a Guarantee Period equal in duration to the one just ended. If
at that time, the duration previously
chosen is no longer available, the amount will be allocated to the
next shortest available Guarantee
Period duration. If none of the above is available, the value of
matured Guarantee Periods will be
allocated to the Schwab Money Market Investment Division. In any
event, a Guarantee Period will not
renew for a term equal in duration to the one just ended if the
Guarantee Period will mature after the
Payment Commencement Date. No Guarantee Period may mature later
than six months after a
Payment Commencement Date. For example, if a 3-year Guarantee
Period matures and the
Payment Commencement Date begins 1 3/4 years from the Guarantee
Period Maturity Date, the
matured value will be transferred to a 2-year Guarantee Period.
Breaking A Guarantee Period
Any Transfer, withdrawal or the selection of an annuity
option prior to the Guarantee Period
Maturity Date will be known as breaking a Guarantee Period. When
a Request to break a Guarantee
Period is received, the Guarantee Period that is closest to the
Guarantee Period Maturity Date will be
broken first. If a Guarantee Period is broken, a Market Value
Adjustment may be assessed. The
Market Value Adjustment may increase or decrease the value of the
amount Transferred or withdrawn
from the Guarantee Period Fund. The Market Value Adjustment may
reduce the value of amounts
held in a Guarantee Period below the amount of your Contribution(s)
allocated to that Guarantee
Period. (See "Market Value Adjustment" below.)
Interest Rates
Declared rates are effective annual rates of interest. The
rate is guaranteed throughout the
Guarantee Period. FOR GUARANTEE PERIODS NOT YET IN EFFECT, GWL&A
MAY DECLARE
INTEREST RATES DIFFERENT THAN THOSE CURRENTLY IN EFFECT. When a
subsequent
Guarantee Period begins, the rate applied will not be less than the
rate then applicable to new
Contracts of the same type with the same Guarantee Period.
The stated rate of interest must be at least equal to the
Guaranteed Interest Rate. The
Company may declare higher rates. The Guaranteed Interest Rate is
based on the applicable state
standard non-forfeiture law. Please see Appendix A for the
standard non-forfeiture law rate applicable
to the state in which the Contract was issued.
The determination of the stated rate of interest is
influenced by, but does not necessarily
correspond to, interest rates available on fixed income investments
which the Company may acquire
using funds deposited into the Guarantee Period Fund. In addition,
the Company will consider other
items in determining the stated rate of interest including
regulatory and tax requirements, sales
commissions and administrative expenses borne by the Company,
general economic trends, and
competitive factors.
Market Value Adjustment
Distributions from the amounts allocated to a Guarantee
Period due to a full surrender or
partial withdrawal, Transfer, application of amounts to the
periodic withdrawal option or to purchase an
annuity, or distributions resulting from the death of the Owner or
Annuitant prior to a Guarantee Period
Maturity Date will be subject to a Market Value Adjustment ("MVA").
An MVA may increase or
decrease the amount payable on one of the above described
distributions. Amount available for a full
surrender, partial withdrawal or Transfer = amount Requested + MVA.
The MVA is calculated by
multiplying the amount Requested by the Market Value Adjustment
Factor ("MVAF").
The MVA reflects the relationship as of the time of its
calculation between (a) the U.S. Treasury
Strip ask side yield as published in the Wall Street Journal on the
last business day of the week prior
to the date the stated rate of interest was established for the
Guarantee Period; and (b) the U.S.
Treasury Strip ask side yield as published in the Wall Street
Journal on the last business day of the
week prior to the week the Guarantee Period is broken. There would
be a downward adjustment if
Treasury rates at the time the Guarantee Period is broken, exceed
Treasury rates when the Guarantee
Period was created. There would be an upward adjustment if
Treasury rates at the time the
Guarantee Period is broken, are lower than when the Guarantee
Period was created. The MVA factor
is the same for all Contracts.
1. The formula used to determine the MVA is:
MVA = (amount applied) X (MVAF)
The Market Value Adjustment Factor (MVAF) is:
MVAF = {[(1 + i)/(1 + j +.10%)] N/12} - 1
where:
a) i is the U.S. Treasury Strip ask side yield as
published in the Wall Street
Journal on the last business day of the week prior to
the date the stated rate of
interest was established for the Guarantee Period.
The term of i is measured in years
and equals the term of the Guarantee Period;
b) j is the U.S. Treasury Strip ask side yield as
published in the Wall Street
Journal on the last business day of the week prior to
the week the Guarantee Period is
broken. The term of j equals the remaining term to
maturity of the Guarantee Period,
rounded up to the higher number of years; and
c) N is the number of complete months remaining
until maturity.
If i + j differ by less than .10%, the MVA will equal 0. If
N is less than 6, the MVA will
equal 0.
2. The Market Value Adjustment will apply to any Guarantee
Period six or more months prior to
the Guarantee Period Maturity Date in each of the following
situations:
a) Transfer to another Guarantee Period or to an
Investment Division offered
under this Contract; or
b) Surrenders, partial withdrawals, annuitization
or Periodic Withdrawals; or
c) A single sum payment upon death of the Owner or
Annuitant.
3. The Market Value Adjustment will not apply to any Guarantee
Period having fewer than six
months prior to the Guarantee Period Maturity Date in each of the
following situations:
a) Transfer to an Investment Division offered under
this Contract; or
b) Surrenders, partial withdrawals, annuitization
or Periodic Withdrawals.
c) A single sum payment upon death of the Owner or
Annuitant.
See Appendix B for Illustrations of the MVA.
<PAGE>
_________________________________________________________________
___________
APPLICATION AND CONTRIBUTIONS
_________________________________________________________________
___________
Contributions
All Contributions may be paid at the Schwab Annuity
Service
Center by a check payable to
GWL&A or by transfer to GWL&A of available funds from your Schwab
account.
The initial Contribution for the Contract must be at least
$5,000 (or $2,000 if for an IRA).
Subsequent Contributions must be at least $500. This minimum
initial investment may be reduced to
$1,000, but only if you participate in an Automatic Contribution
Plan and contribute at least $100 per
month through a recurring deposit. A confirmation will be issued
to you upon the acceptance of each
Contribution.
Your Contract will be issued and your Contribution generally
will be accepted and credited
within two business days after receipt of an acceptable application
and receipt of the initial
Contribution at the Schwab Annuity Service Center. All
Contributions should be paid to the Schwab
Annuity Service Center by check (payable to GWL&A) or by
instructing Schwab to transfer to GWL&A
available funds from your account with Schwab. Acceptance is
subject to there being sufficient
information in a form acceptable to us and we reserve the right to
reject any application or
Contribution.
The Schwab Annuity Service Center will process your
application and Contributions. If your
application is complete and your initial Contribution is being
transferred from funds available in your
Schwab account, then the Contribution will generally be credited
within two business days following
receipt of the application. If your application is incomplete, the
Schwab Annuity Service Center will
either complete the application from information Schwab has on
file, or contact you for the additional
information. No transfer of funds will be made from your Schwab
account until your application is
complete. The funds will be credited as Contributions to the
Contract when they are transferred.
If your Contribution is by check, and the application is
complete, Schwab will use its best
efforts to credit the Contribution on the day of receipt, but in
all such cases it will be credited to your
Contract within two business days of receipt. If your application
is incomplete, the Schwab Annuity
Service Center will complete the application from information
Schwab has on file or contact you by
telephone to obtain the required information. If your application
remains incomplete for five business
days, we will return to you both the check and the application
unless you consent to our retaining the
initial Contribution and crediting it as soon as the requirements
are fulfilled.
A Contract may be returned within ten days after receipt, or
longer where required by law
("Free Look Period"). During the Free Look Period, all
contributions will be processed as follows:
(1) Amounts to be allocated to one or more of the then
available Guarantee Periods will
be allocated as directed, effective upon the
Transaction Date.
(2) Amounts the Owner has directed to be allocated to one
or more of the Investment
Divisions will first be allocated to the Schwab Money
Market Investment Division until
the next Transaction Date following the end of the
Free Look Period. On that date, the
Variable Account Value held in the Schwab Money Market
Investment Division will be
allocated to the Investment Divisions selected by the
Owner.
(3) During the Free Look Period, you may change the
allocation percentages among the
Investment Divisions and/or your selection of
Investment Divisions to which
Contributions will be allocated after the Free Look
Period.
(4) If the Contract is returned, the contract will be
void
from the start and the greater of:
(a) Contributions received less surrenders,
withdrawals and distributions or (b) the
Annuity Account Value less surrenders, withdrawals and
distributions, will be refunded.
Exercising the return privilege requires the return of
the Contract to the Company or to
the Schwab Annuity Service Center.
Amounts the Owner has contributed from a 1035 exchange of
the
variable annuity issued by
Transamerica Occidental Life Insurance Company and First
Transamerica Occidental Life Insurance
Company distributed by Charles Schwab & Co., Inc. (previously
referred to as the Schwab Investment
Advantage Annuity Contract) will be immediately allocated to the
Investment Divisions selected by the
Owner. If the Contract is returned, it will be void from the start
and the greater of: (a) Contributions
received less surrenders, withdrawals and distributions, or (b) the
Annuity Account Value less
surrenders, withdrawals and distributions, will be refunded.
Additional Contributions may be made at any time prior to the
Payment Commencement Date,
as long as the Annuitant is living. Additional Contributions must
be at least $500 or $100 per month if
under an ACP. Additional contributions will be credited within two
days following receipt.
Total Contributions may exceed $1,000,000 with our prior
approval.
The Company reserves the right to modify the limitations set
forth in this section.
_________________________________________________________________
___________
ANNUITY ACCOUNT VALUE
_________________________________________________________________
___________
Before the date annuity payments commence, your Annuity
Account Value is the sum of each
Variable and Fixed Sub-Account established under your Contract.
Before the annuity commencement date, the Variable Account
Value is the total dollar amount
of all Accumulation Units under each of your Variable Sub-Accounts.
Initially, the value of each
Accumulation Unit was set at $10.00. Each Variable Sub-Account's
value prior to the Payment
Commencement Date is equal to: (a) net Contributions allocated to
the corresponding Investment
Division; plus or minus (b) any increase or decrease in the value
of the assets of the Variable Sub-
Account due to investment results; less (c) the daily Mortality and
Expense Risk Charge; less (d)
reductions for the Contract Maintenance Charge deducted on the last
business day of each Contract
Year; less (e) any applicable Transfer Fees; and less (f) any
withdrawals or Transfers from the
Variable Sub-Account.
A Valuation Period is the period between successive Valuation
Dates. It begins at the close of
the New York Stock Exchange (generally 4:00 p.m. ET) on each
Valuation Date and ends at the close
of the New York Stock Exchange on the next succeeding Valuation
Date. A Valuation Date is each
day that the New York Stock Exchange is open for regular business.
The value of an Investment
Division's assets is determined at the end of each Valuation Date.
To determine the value of an asset
on a day that is not a Valuation Date, the value of that asset as
of the end of the previous Valuation
Date will be used.
The Variable Account Value is expected to change from
Valuation Period to Valuation Period,
reflecting the investment experience of the selected Investment
Division(s) as well as the deductions
for charges.
Contributions which you allocate to an Investment Division
are used to purchase Variable
Accumulation Units in the Investment Division(s) you select. The
number of Accumulation Units to be
credited will be determined by dividing the portion of each
Contribution allocated to the Investment
Division by the value of an Accumulation Unit determined at the end
of the Valuation Period during
which the Contribution was received. In the case of the initial
Contribution, Accumulation Units for that
payment will be credited to the Variable Account Value (and, except
for certain 1035 exchanges), held
in the Schwab Money Market Investment Division until the end of the
Free Look Period (see
"Application and Contributions," page 16). In the case of any
subsequent Contribution, Accumulation
Units for that payment will be credited at the end of the Valuation
Period during which we receive the
Contribution. The value of an Accumulation Unit for each
Investment Division for a Valuation Period is
established at the end of each Valuation Period and is calculated
by multiplying the value of that unit
at the end of the prior Valuation Period by the Investment
Division's Net Investment Factor for the
Valuation Period.
Unlike a brokerage account, amounts held under a Contract are
not covered by the Securities
Investor Protection Corporation ("SIPC") .
_________________________________________________________________
___________
TRANSFERS
_________________________________________________________________
___________
In General
Prior to the Payment Commencement Date you may Transfer all
or part of your Annuity
Account Value among and between the Investment Divisions and the
available Guarantee Periods by
telephone or by sending a Request to the Schwab Annuity Service
Center. The Request must specify
the amounts being Transferred, the Investment Division(s) and/or
Guarantee Period(s) from which the
Transfer is to be made, and the Investment Division(s) and/or
Guarantee Period(s) that will receive the
Transfer.
Currently, there is no limit on the number of Transfers you
can make among the Investment
Divisions during any Contract Year. There is no charge for the
first twelve Transfers each Contract
Year, but there will be a charge of $10 for each additional
Transfer in each Contract Year. We reserve
the right to limit the number of Transfers you make. The charge
will be deducted from the amount
transferred. All Transfers made on a single Transaction Date will
be aggregated to count as only one
Transfer toward the twelve free Transfers; however, if a one time
rebalancing Transfer also occurs on
the Transaction Date, it will be counted as a separate and
additional Transfer.
Transfers involving the Guarantee Period Fund (including
Transfers to or from the Investment
Division(s)) are not limited during any calendar year. These
Guarantee Period Fund Transfers are
counted against your twelve free Transfers as discussed above. The
$10 charge will apply to each
Transfer made in excess of the first twelve Transfers each calendar
year.
A Transfer generally will be effective on the date the
Request for Transfer is received by the
Schwab Annuity Service Center if received before 4:00 p.m. Eastern
Time. Under current law, there
will not be any tax liability to you if you make a Transfer.
Transfers involving the Investment Divisions will result in
the purchase and/or cancellation of
Accumulation Units having a total value equal to the dollar amount
being Transferred to or from a
particular Investment Division. The purchase and/or cancellation
of such units generally shall be
made using the Variable Account Value as of the end of the
Valuation Date on which the Transfer is
effective.
When a Transfer is made from amounts in a Guarantee Period
before the Guarantee Period
Maturity Date, the amount Transferred may be subject to a Market
Value Adjustment. (See "Market
Value Adjustment," page 15.) A Request for Transfer from amounts
in a Guarantee Period made prior
to the Guarantee Period Maturity Date for Transfers on the
Guarantee Period Maturity Date will not be
counted for the purpose of determining any Transfer Fee on
Transfers in excess of the twelve
Transfers per year if these Transfers are to take place on the
Guarantee Period Maturity Date.
Possible Restrictions
We reserve the right without prior notice to modify,
restrict, suspend or eliminate the Transfer
privileges (including telephone Transfers) at any time. For
example, restrictions may be necessary to
protect Owners from adverse impacts on portfolio management of
large and/or numerous Transfers by
market timers or others. We have determined that the movement of
significant amounts from one
Investment Division to another may prevent the underlying Eligible
Fund from taking advantage of
investment opportunities because the Eligible Fund must maintain a
significant cash position in order
to handle redemptions. Such movement may also cause a substantial
increase in Eligible Fund
transaction costs which must be indirectly borne by Owners.
Therefore, we reserve the right to
require that all Transfer Requests be made by the Owner and not by
an Owner's designee and to
require that each Transfer Request be made by a separate
communication to us. We also reserve the
right to request that each Transfer Request be submitted in writing
and be manually signed by the
Owner; facsimile Transfer Requests may not be allowed. Transfers
among the Investment Divisions
may also be subject to such terms and conditions as may be imposed
by the Eligible Funds.
Custom Transfer: Dollar Cost Averaging (Automatic Transfers)
The Owner may Request to automatically Transfer at regular
intervals, predetermined amounts
from one Investment Division selected from among those being
allowed under this option (which may
be modified by the Company from time to time) to any of the other
Investment Divisions. The
intervals between Transfers may be monthly, quarterly,
semi-annually or annually. The Transfer will be
initiated on the Transaction Date one frequency period following
the date of the Request. Transfers
will continue on that same day each interval unless terminated by
you or for other reasons as set forth
in the Contract. If there are insufficient funds in the applicable
Variable Sub-Account on the date of
Transfer, no Transfer will be made; however, Dollar Cost Averaging
will resume once there are
sufficient funds in the applicable Variable Sub-Account. Dollar
Cost Averaging will terminate
automatically upon the annuity commencement date. Amounts
transferred through Dollar Cost
Averaging are not counted against the twelve free Transfers allowed
in a calendar year.
Automatic Transfers must meet the following conditions:
1. The minimum amount that can be Transferred out of the
selected Investment Division is
$100 per month.
2. The Owner must specify dollar amount to be Transferred,
designate the Investment
Division(s) to which the Transfer will be made and the percent to
be allocated to such Investment
Division(s). The Accumulation Unit values will be determined on
the Transfer Date.
Dollar Cost Averaging may be used to purchase Accumulation
Units of the Investment
Divisions over a period of time. The Owner, by Request, may cease
Dollar Cost Averaging at any
time. Participation in Dollar Cost Averaging does not, however,
assure a greater profit, nor will it
prevent or necessarily alleviate losses in a declining market. The
Company reserves the right to
modify, suspend or terminate Dollar Cost Averaging at any time.
Custom Transfer: Rebalancer Option
The Owner may Request to automatically Transfer among the
Investment Divisions on a
periodic basis by electing the Rebalancer Option. This option
automatically reallocates the Variable
Account Value to maintain a particular allocation among Investment
Divisions selected by the Owner.
The amount allocated to each Investment Division will increase or
decrease at different rates
depending on the investment experience of the Investment Division.
The Owner may Request that the rebalancing occur one time
only, in which case the Transfer
will take place on the Transaction Date of the Request. This
Transfer will count as one Transfer
towards the twelve free Transfers allowed in a calendar year. (See
"Transfer Fee," page 26.)
Rebalancing may also be set up on a quarterly, semiannual or
annual basis, in which case the
first Transfer will be initiated on the Transaction Date one
frequency period following the date of the
Request. On the Transaction Date for the specified Request, assets
will be automatically reallocated
to the selected Investment Divisions. Rebalancing will continue on
the same Transaction Date for
subsequent periods. In order to participate in the Rebalancer
Option, the entire Variable Account
Value must be included. Transfers set up with these frequencies
will not count against the twelve free
Transfers allowed in a calendar year.
The Owner must specify the percentage of Variable Account
Value to be allocated to each
Investment Division and the frequency of rebalancing. The Owner,
by Request, may modify the
allocations or cease the Rebalancer Option at any time. The
Rebalancer Option will terminate
automatically upon the Payment Commencement Date. Participation in
the Rebalancer Option and
Dollar Cost Averaging at the same time is not allowed.
Participation in the Rebalancer Option does
not assure a greater profit, nor will it prevent or necessarily
alleviate losses in a declining market. The
Company reserves the right to modify, suspend, or terminate the
Rebalancer Option at any time.</R.
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CASH WITHDRAWALS
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Withdrawals
You (the Owner) may withdraw from the Contract all or part of
your Annuity Account Value at
any time during the life of the Annuitant and prior to the date
annuity payments commence by
Request at the Schwab Annuity Service Center subject to the rules
below. Federal or state laws, rules
or regulations may apply. The amount payable to you if you
surrender your Contract is your Annuity
Account Value, with a Market Value Adjustment, if applicable, on
the effective date of the surrender,
and less any applicable Premium Tax. No withdrawals may be made
after the date annuity payments
commence.
A Request for a partial withdrawal will result in a reduction
in your Annuity Account Value
equal to the sum of the dollar amount withdrawn. A Market Value
Adjustment may apply. (See
"Market Value Adjustment," page 15.) The partial withdrawal
proceeds may be greater or less than the
amount requested, depending on the effect of the Market Value
Adjustment.
The minimum partial withdrawal before application of the MVA
is $500. Partial withdrawals are
unlimited; however, you must specify the Investment Division(s) or
Guarantee Period(s) from which the
withdrawal is to be made. After any partial withdrawal, if the
remaining Annuity Account Value is less
than $2,000, then a full surrender may be required.
The following terms apply:
(a) No partial withdrawals are permitted after the date
annuity payments commence.
(b) A partial withdrawal will be effective upon the
Transaction Date.
(c) A partial withdrawal from amounts in a Guarantee
Period may be subject to the Market
Value Adjustment provisions, the Guarantee Period Fund
provisions of the Contract,
and the terms of the attached Guarantee Period Fund
Rider(s), if any.
Withdrawals may be taxable (this includes Periodic
Withdrawals, discussed below). Moreover,
the Internal Revenue Code (the "Code") provides that a 10% penalty
tax may be imposed on the
taxable portions of certain early withdrawals. The Code generally
requires us to withhold federal
income tax from withdrawals. However, generally you will be
entitled to elect, in writing, not to have
tax withholding apply unless withholding is mandatory for your
Contract. Withholding applies to the
portion of the withdrawal which is included in your income and
subject to federal income tax. The tax
withholding rate is 10% of the taxable amount of the withdrawal.
Withholding applies only if the
taxable amount of the withdrawal is at least $200. Some states
also require withholding for state
income taxes. (See "Federal Tax Matters," page 31.)
Withdrawal Requests must be in writing to ensure that your
instructions regarding withholding
are followed. If an adequate election is not made, the Request
will be denied and no withdrawal or
partial withdrawal will be processed.
After a withdrawal of all of your total Annuity Account
Value, or at any time that your Annuity
Account Value is zero, all your rights under the Contract will
terminate.
Since IRAs are offered by this Prospectus, reference should
be made to the applicable
provisions of the Code for any additional limitations or
restrictions on cash withdrawals.
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TELEPHONE TRANSACTIONS
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We will employ reasonable procedures to confirm that
instructions communicated by
telephone are genuine and if we follow such procedures we will not
be liable for any losses due to
unauthorized or fraudulent instructions. However, we may be liable
for such losses if we do not follow
those reasonable procedures. The procedures we will follow for
telephone transactions may include
requiring some form of personal identification prior to acting on
instructions received by telephone,
providing written confirmation of the transaction, and/or tape
recording the instructions given by
telephone.
We reserve the right to suspend telephone transaction
privileges at any time, for some or all
Contracts, and for any reason. Withdrawals are not permitted by
telephone.
<PAGE>
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DEATH BENEFIT
_________________________________________________________________
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Payment of Death Benefit
Before the date annuity payments commence, the death benefit,
if any, will be equal to the
greater of: (a) the Annuity Account Value with an MVA, if
applicable, as of the date the Request for
payment is received, less Premium Tax, if any, or (b) the sum of
Contributions paid, less partial
withdrawals and/or Periodic Withdrawals, less Premium Tax, if any.
The death benefit will become
payable following the Company's receipt of a Request from the
Beneficiary. When an Owner or the
Annuitant dies before the annuity commencement date and a death
benefit is payable to a
Beneficiary, the death benefit proceeds will remain invested in
accordance with the allocation
instructions given by the Owner(s) until new allocation
instructions are Requested by the Beneficiary
or until the death benefit is actually paid to the Beneficiary.
The death benefit will be determined as of
the date payments commence; however, on the date a payment option
is processed, amounts in the
Variable Sub-Account will be Transferred to the Money Market
Investment Division unless the
Beneficiary otherwise elects by Request. Subject to the
distribution rules set forth below, payment of
the death benefit may be Requested to be made as follows:
A. Proceeds from the Variable Sub-Account(s)
1. payment in a single sum; or
2. payment under any of the variable annuity
options provided under this
Contract.
B. Proceeds from the Guarantee Period(s)
1. payment in a single sum with respect to which a
Market Value Adjustment may
apply; or
2. payment under any of the annuity options
provided under this Contract with
respect to which a Market Value Adjustment may
apply; or
3. payment on the Guarantee Period Maturity Date so
that a Market Value
Adjustment will not apply.
In any event, no payment of benefits provided under the
Contract will be allowed that does not
satisfy the requirements of Section 72(s) of the Code and any other
applicable federal or state laws,
rules or regulations.
Distribution Rules
1. Death of Annuitant
Upon the death of the Annuitant while the Owner is living,
and before the annuity
commencement date, the Company will pay the death benefit to the
Beneficiary unless there is a
Contingent Annuitant.
If a Contingent Annuitant was named by the Owner(s) prior to
the Annuitant's death, and the
Annuitant dies before the annuity commencement date while the Owner
and Contingent Annuitant are
living, no death benefit will be payable by reason of the
Annuitant's death and the Contingent
Annuitant will become the Annuitant.
If the Annuitant dies after the date annuity payments
commence and before the entire interest
has been distributed, any benefit payable must be distributed to
the Beneficiary in accordance with
and at least as rapidly as under the payment option applicable to
the Annuitant on the Annuitant's
date of death.
If a corporation or other non-individual is an Owner, or if
the deceased Annuitant is an Owner,
the death of the Annuitant will be treated as the death of an Owner
and the Contract will be subject to
the "Death of Owner" provisions described below.
2. Death of Owner
If the Owner is not the Annuitant:
(1) If there is a Joint Owner who is the surviving spouse of
the deceased Owner, the Joint
Owner will become the Owner and Beneficiary and may elect to
take the death benefit or elect
to continue the Contract in force.
(2) In all other cases, the Company will pay the death
benefit to the Beneficiary even if a Joint
Owner (who was not the Owner's spouse on the date of the
Owner's death), the Annuitant
and/or the Contingent Annuitant are alive at the time of the
Owner's death, unless the sole
Beneficiary is the deceased Owner's surviving spouse and the
Beneficiary elects to become
the Owner and Annuitant and to continue the Contract in
force.
If the Owner is not the Annuitant, and the Owner dies after
annuity payments commence and
before the entire interest has been distributed while the Annuitant
is living, any benefit payable will
continue to be distributed to the Annuitant at least as rapidly as
under the payment option applicable
on the Owner's death. All rights granted the Owner under the
Contract will pass to any surviving Joint
Owner and, if none, to the Annuitant.
If the Owner is the Annuitant (Owner/Annuitant):
(1) If there is a Joint Owner who is the surviving spouse of
the deceased Owner and a
Contingent Annuitant, the Joint Owner will become the Owner
and the Beneficiary, the
Contingent Annuitant will become the Annuitant, and the
Contract will continue in force.
(2) If there is a Joint Owner who is the surviving spouse of
the deceased Owner but no
Contingent Annuitant, the Joint Owner will become the Owner,
Annuitant and Beneficiary and
may elect to take the death benefit or continue the Contract
in force.
(3) In all other cases, the Company will pay the death
benefit to the Beneficiary, even if a
Joint Owner (who was not the Owner's spouse on the date of
the Owner's death), Annuitant
and/or Contingent Annuitant are alive at the time of the
Owner's death, unless the sole
Beneficiary is the deceased Owner's surviving spouse and the
Beneficiary Requests to
become the Owner and Annuitant and to continue the Contract
in force.
Any death benefit payable to the Beneficiary upon an Owner's
death will be distributed as
follows:
(1) If the Owner's surviving spouse is the person entitled
to receive benefits upon the Owner's
death, the surviving spouse will be treated as the Owner and
will be allowed to take the death
benefit or continue the Contract in force; or
(2) If the Beneficiary is a non-spouse individual, she/he
may elect, not later than one year
after the Owner's date of death, to receive the death benefit
in either a single sum or payment
under any of the variable or fixed annuity options available
under the Contract, provided that
(a) such annuity is distributed in substantially equal
installments over the life or life expectancy
of the Beneficiary or over a period not extending beyond the
life expectancy of the Beneficiary;
and (b) such distributions begin not later than one year
after the Owner's date of death. If no
election is received by the Company from a non-spouse
Beneficiary such that substantially
equal installments have begun not later than one year after
the Owner's date of death, then
the entire amount must be distributed within five years of
the Owner's date of death. The
death benefit will be determined as of the date the payments
commence; or
(3) If a corporation or other non-individual entity is
entitled to receive benefits upon the
Owner's death, the death benefit must be completely
distributed within five years of the
Owner's date of death.
Beneficiary
You may select one or more Beneficiaries. If more than one
Beneficiary is selected, unless
you indicate otherwise, they will share equally in any death
benefit payable. You may change the
Beneficiary any time before the Annuitant's death.
You may, while the Annuitant is living, change the
Beneficiary by Request. A change of
Beneficiary will take effect as of the date the Request is
processed by the Schwab Annuity Service
Center, unless a certain date is specified by the Owner. If the
Owner dies before the Request was
processed, the change will take effect as of the date the Request
was made, unless the Company has
already made a payment or otherwise taken action on a designation
or change before receipt or
processing of such Request. A beneficiary designated irrevocably
may not be changed without the
written consent of that Beneficiary, except as allowed by law.
The interest of any Beneficiary who dies before the Owner or
the Annuitant will terminate at
the death of the Beneficiary. The interest of any Beneficiary who
dies at the time of, or within 30 days
after, the death of an Owner or the Annuitant will also terminate
if no benefits have been paid to such
Beneficiary, unless the Owner otherwise indicates by Request. The
benefits will then be paid as
though the Beneficiary had died before the deceased Owner or
Annuitant. If no Beneficiary survives
the Owner or Annuitant, as applicable, the Company will pay the
death benefit proceeds to the
Owner's estate.
If the surviving spouse of an Owner is the surviving Joint
Owner, the surviving spouse will
become the Beneficiary upon such Owner's death and may elect to
take the death benefit or may
elect to continue the Contract in force. If there is no surviving
Joint Owner, and no named Beneficiary
is alive at the time at the time of an Owner's death, any benefits
payable will be paid to the Owner's
estate.
Contingent Annuitant
While the Annuitant is living, the Owner(s) may, by Request,
designate or change a
Contingent Annuitant from time to time. A change of Contingent
Annuitant will take effect as of the
date the Request is processed at the Schwab Annuity Service Center,
unless a certain date is
specified by the Owner(s).
<PAGE>
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CHARGES AND DEDUCTIONS
_________________________________________________________________
___________
No deductions are made from Contributions except for any
applicable Premium Tax.
Therefore, the full amount of the Contributions (less any
applicable Premium Tax) are invested in the
Contract.
As more fully described below, charges under the Contract are
assessed only as deductions
for Premium Tax, if applicable, for certain Transfers, as a
Contract Maintenance Charge, and as
charges against the assets in the Owner's Variable Sub-Account(s)
for our assumption of mortality
and expense risks. In addition, a Market Value Adjustment may
apply to withdrawals and surrenders,
Transfers, amounts applied to purchase an annuity, and
distributions resulting from death of the
Owner or Annuitant if the amounts held in a Guarantee Period are
paid out prior to the Guarantee
Period Maturity Date.
Mortality and Expense Risk Charge
We deduct a Mortality and Expense Risk Charge from your
Variable Sub-Account(s) at the end
of each Valuation Period to compensate us for bearing certain
mortality and expense risks under the
Contract. This is a daily charge equal to an effective annual rate
of 0.85% of the value of the net
assets in your Variable Sub-Account(s). The approximate portion of
this charge attributable to
mortality risks is 0.68%; the approximate portion of this charge
estimated to be attributable to expense
risk is 0.17% of the value of the net assets in your Variable
Sub-Account(s). We guarantee that this
charge will never increase beyond 0.85%.
The Mortality and Expense Risk Charge is reflected in the
Accumulation Unit Values for each
of your Variable Sub-Accounts. Thus, this charge will continue to
be applicable should you choose a
variable annuity payment option or the periodic withdrawal option.
Annuity Account Values and annuity payments are not affected
by changes in actual mortality
experience incurred by us. The mortality risks assumed by us arise
from our contractual obligations
to make annuity payments determined in accordance with the annuity
tables and other provisions
contained in the Contract. Thus you are assured that neither the
Annuitant's longevity nor an
unanticipated improvement in general life expectancy will adversely
affect the annuity payments under
the Contract.
We bear substantial risk in connection with the death benefit
before the annuity
commencement date, since we will pay a death benefit equal to the
greater of: (1) the Annuity
Account Value with a Market Value Adjustment, if applicable, as of
the later of the date of death or the
date the Request for payment is received, less Premium Tax, if any;
or, (2) the sum of the
Contributions paid, less partial withdrawals and/or Periodic
Withdrawals, less any charges under
Contract less Premium Tax, if any (i.e., we bear the risk of
unfavorable experience in your Variable
Sub-Accounts).
The expense risk assumed is the risk that our actual expenses
in administering the Contracts
and the Series Account will be greater than anticipated, or exceed
the amount recovered through the
Contract Maintenance Charge plus the amount, if any, recovered
through Transfer Fees.
If the Mortality and Expense Risk Charge is insufficient to
cover actual costs and risks
assumed, the loss will fall on us. Conversely, if this charge is
more than sufficient, any excess will be
profit to us. Currently, we expect a profit from this charge. Our
expenses for distributing the
Contracts will be borne by our general assets, including any
profits from this charge.
Contract Maintenance Charge
We currently deduct a $25 annual Contract Maintenance
Charge
from the Annuity Account
Value only on each Contract anniversary date. This charge
partially covers our costs for
administering the Contracts and the Series Account. Once you have
selected a payment option, this
charge will cease to apply other than for the Periodic Withdrawal
Option. The Contract Maintenance
Charge is deducted from your Annuity Account Value allocated to the
Schwab Money Market
Investment Division. If you do not have sufficient Annuity Account
Value allocated to the Schwab
Money Market Investment Division to cover the Contract Maintenance
Charge, then the charge or any
portion thereof will be deducted on a pro rata basis from all your
Variable Sub-Accounts with current
value. If the entire Annuity Account is held in the Guarantee
Period Fund or there are not enough
funds in any Variable Sub-Account to pay the entire charge, then
the Contract Maintenance Charge
will be deducted on a pro rata basis from amounts held in all
Guarantee Periods. There is no MVA on
amounts deducted from a Guarantee Period for the Contract
Maintenance Charge. The Contract
Maintenance Charge is currently waived for Contracts with an
Annuity Account Value of at least
$50,000. If your Annuity Account Value falls below $50,000 due to
a withdrawal, the Contract
Maintenance Charge will be reinstated until such time as your
Annuity Account Value is equal to or
greater than $50,000. This charge may also be waived for Contracts
issued under certain sponsored
arrangements. We do not expect a profit from amounts received from
the Contract Maintenance
Charge.
Premium Tax
We may be required to pay state premium taxes or retaliatory
taxes currently ranging from 0%
to 3.5% in connection with Contributions or values under the
Contracts. Depending upon applicable
state law, we will deduct charges for the premium taxes we incur
with respect to a particular Contract
from the Contributions, from amounts withdrawn, or from amounts
applied on the Payment
Commencement Date. In some states, charges for both direct premium
taxes and retaliatory premium
taxes may be imposed at the same or different times with respect to
the same Contribution,
depending on applicable state law.
Transfer Fee
There will be a $10 charge for each Transfer in excess of
twelve Transfers in any calendar
year. We do not expect a profit from the Transfer fee for excess
Transfers.
Other Taxes
Under present laws, we will incur state or local taxes (in
addition to the Premium Tax
described above) in several states. No charges are currently made
for taxes other than Premium Tax.
However, we reserve the right to deduct charges in the future for
federal, state, and local taxes or the
economic burden resulting from the application of any tax laws that
we determine to be attributable to
the Contracts.
Expenses of the Eligible Funds
The value of the assets in the Investment Divisions reflect
the value of Eligible Fund shares
and therefore the fees and expenses paid by each Eligible Fund. A
complete description of the fees,
expenses, and deductions from the Eligible Funds are found in the
Eligible Funds' prospectuses. (See
"The Eligible Funds," page 8.) Current prospectuses for the Funds
can be obtained by calling the
Schwab Annuity Service Center at 800-838-0650, or by writing to the
Schwab Annuity Service Center,
P.O. Box 7666, San Francisco, California 94120-7666.
_________________________________________________________________
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PAYMENT OPTIONS
_________________________________________________________________
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Periodic Withdrawal Option
The Owner may Request that all or part of the Annuity Account
Value be applied to a Periodic
Withdrawal Option. The amount applied to a Periodic Withdrawal is
the Annuity Account Value with an
MVA, if applicable, less Premium Tax, if any.
In Requesting Periodic Withdrawals, the Owner must elect:
- The withdrawal frequency of either 12-, 6-, 3-, or
1-month intervals;
- A withdrawal amount; a minimum of $100 is required;
- The calendar day of the month on which withdrawals
will be made;
- One withdrawal option; and
- The allocation of withdrawals from the Owner's
Variable and/or Fixed Sub-Account(s)
as follows:
1) Prorate the amount to be paid across all
Variable and Fixed Sub-Accounts in
proportion to the assets in each sub-account; or
2) Select the Variable and/or Fixed Sub-Account(s)
from which withdrawals will
be made. Once the Variable and/or Fixed
Sub-Accounts have been depleted,
the Company will automatically prorate the
remaining withdrawals against all
remaining available Variable and/or Fixed
Sub-Accounts unless the Owner
Requests the selection of another Variable
and/or Fixed Sub-Account.
The Owner may elect to change the withdrawal option and/or
the frequency once each
calendar year.
While Periodic Withdrawals are being received:
1. the Owner may continue to exercise all contractual
rights that are available prior to
electing an annuity option, except that no
Contributions may be made;
2. for Periodic Withdrawals from Guarantee Periods six or
more months prior to its
Guarantee Period Maturity Date, a Market Value
Adjustment, if applicable, will be
assessed;
3. the Owner may keep the same investment options as were
in force before periodic
withdrawals began;
4. charges and fees under the Contract continue to apply;
and
5. maturing Guarantee Periods renew into the shortest
Guarantee Period then available.
Periodic Withdrawals will cease on the earlier of the date:
1. the amount elected to be paid under the option
selected has been reduced to zero;
2. the Annuity Account Value is zero;
3. the Owner Requests that withdrawals stop; or
4. an Owner or the Annuitant dies.
The Owner must elect one of the following five (5) withdrawal
options:
1. Income for a Specified Period for at least thirty-six
(36) months - The Owner elects the
duration over which withdrawals will be made. The amount
paid will vary based on the
duration; or
2. Income of a Specified Amount for at least thirty-six
(36) months - The Owner elects the
dollar amount of the withdrawals. Based on the amount
elected, the duration may vary; or
3. Interest Only - The withdrawals will be based on the
amount of interest credited to the
Guarantee Period Fund between each withdrawal. Available
only if 100% of the account value
is invested in the Guarantee Period Fund; or
4. Minimum Distribution - If this is an IRA contract, the
Owner may Request minimum
distributions as specified under Code Section 401(a)(9); or
5. Any Other Form for a period of at least thirty-six
(36) months - Any other form of
Periodic Withdrawal which is acceptable to the Company.
If Periodic Withdrawals cease, the Owner may resume making
Contributions. The Owner may
elect to restart a Periodic Withdrawal program; however, the
Company may limit the number of times
the Owner may restart a Periodic Withdrawal program.
Periodic withdrawals may be taxable, subject to withholding
and subject to the 10% penalty
tax. IRAs are subject to complex rules with respect to
restrictions on and taxation of distributions,
including the applicability of penalty taxes. A competent tax
adviser should be consulted before a
Periodic Withdrawal Option is requested. (See "Federal Tax
Matters," page 31.)
Annuity Date
The date annuity payments commence may be chosen when the
Contract is purchased or at
a later date. This date must be at least one year after the
initial Contribution. In the absence of an
earlier election, the annuity date is the first day of the month of
the Annuitant's 91st birthday.
If an option has not been elected within 30 days of the
annuity commencement date, the
Annuity Account Value held in the Fixed Sub-Account(s) will be
applied under Annuity Payment Option
3, discussed below, to provide payments for life with a guaranteed
period of 20 years. The Annuity
Account Value held in the Variable Sub-Account(s) will be applied
under Variable Annuity Payment
Option 1, discussed below, to provide payments for life with a
guaranteed period of 20 years.
Under section 401(a)(9) of the Code, a Contract which is
purchased and used in connection
with an Individual Retirement Account or with certain other plans
qualifying for special federal income
tax treatment is subject to complex "minimum distribution"
requirements, which require that
distributions under such a plan must begin by a specific date, and
also that the entire interest of the
plan participant must be distributed within certain specified
periods under formulas that specify
minimum annual distributions. The application of the minimum
distribution requirements to each
person will vary according to the person's age and other
circumstances. A prospective purchaser
may wish to consult a competent tax adviser regarding the
application of the minimum distribution
requirements. (See "Federal Tax Matters," page 31.)
<PAGE>
Annuity Options
An annuity option may be selected by the Owner when the
Contract is purchased, or at a later
date. This selection may be changed, by Request, at any time up to
30 days before the annuity date.
In the absence of an election, payments will automatically commence
on the annuity date as
described above. The amount to be applied is the Annuity Account
Value on the annuity date. The
minimum amount that may be withdrawn from the Annuity Account Value
to purchase an annuity
payment option is $2,000 with an MVA, if applicable. If the amount
is less than $2,000, the Company
may pay the amount in a single sum subject to the Contract
provisions applicable to a partial
withdrawal. Payments may be elected to be received monthly,
quarterly, semi-annually or annually.
Payments to be made under the annuity payment option selected must
be at least $50. The
Company reserves the right to make payments using the most frequent
payment interval which
produces a payment of not less than $50. The maximum amount that
may be applied under any
payment option is $1,000,000, unless prior approval is obtained
from the Company.
A single sum payment may be elected. If it is, then the
amount to be paid is the Surrender
Value. If the Owner elects a variable annuity with funds from the
Owner's Variable Sub-Accounts, then
the amount to be applied is the Annuity Account Value held in the
Variable Sub-Account(s), as of the
annuity commencement date, less any applicable Premium Tax. If the
Owner elects a fixed annuity
with funds from the Fixed Sub-Accounts, then the amount to be
applied is the Annuity Account Value
held in the Fixed Sub-Account(s), as of the annuity commencement
date with an MVA, if applicable,
less any applicable Premium Tax.
Fixed Annuity Payment Options
Option 1: Income of Specified Amount
The amount applied under this option may be paid in equal
annual, semiannual, quarterly or
monthly installments of the dollar amount elected for not more than
240 months. Upon death of the
Annuitant, the Beneficiary will begin to receive the remaining
payments at the same interval that was
elected by the Owner.
Option 2: Income for a Specified Period
Payments are paid annually, semiannually, quarterly or
monthly, as elected, for a selected
number of years not to exceed 240 months. Upon death of the
Annuitant, the Beneficiary will begin to
receive the remaining payments at the same interval that was
elected by the Owner.
Option 3: Fixed Life Annuity with Guaranteed Period
This option provides for monthly payments during a designated
period and thereafter
throughout the lifetime of the Annuitant. The designated period
may be 5, 10, 15 or 20 years. Upon
death of the Annuitant, for each remaining designated period, the
amounts payable under this
payment option will be paid to the Beneficiary.
Option 4: Fixed Life Annuity
This annuity is payable monthly during the lifetime of the
Annuitant, terminating with the last
payment due prior to the death of the Annuitant. Since no minimum
number of payments is
guaranteed, this option may offer the maximum level of monthly
payments of the annuity options. It is
possible that only one payment may be made if the Annuitant died
before the date on which the
second payment was due. Upon the death of the Annuitant, all
payments cease and no amounts are
payable to the Beneficiary.
Option 5: Any Other Form
This option allows an Owner the ability to choose any other
form of annuity which is
acceptable to the Company.
Variable Annuity Payment Options
Option 1: Variable Life Annuity with Guarantee Period
This option provides for payments during a designated period
and thereafter throughout the
life time of the Annuitant. The designated period may be 5, 10, 15
or 20 years. Upon death of the
Annuitant, for each remaining designated period, the amounts
payable under this payment option will
be paid to the Beneficiary.
Option 2: Variable Life Annuity
This annuity is payable during the lifetime of the
Annuitant.
The annuity terminates with the
last payment due prior to the death of the Annuitant. Since no
minimum number of payments is
guaranteed, this option may offer the maximum level of monthly
payments of the annuity options. It is
possible that only one payment may be made if the Annuitant died
before the date on which the
second payment was due. Upon the death of the Annuitant, all
payments cease and no amounts are
payable to the Beneficiary.
Variable annuity payment options are subject to the following
provisions:
Amount of First Payment
The first payment under a variable annuity payment option
will be based on the value of the
amounts held in each Variable Sub-Account on the 5th Valuation Date
preceding the annuity
commencement date. It will be determined by applying the
appropriate rate to the amount applied
under the payment option.
Annuity Units
The number of Annuity Units paid to the Annuitant for each
Variable Sub-Account is
determined by dividing the amount of the first monthly payment by
its Accumulation Unit Value on the
5th Valuation Date preceding the date the first payment is due.
The number of Annuity Units used to
calculate each payment for a Variable Sub-Account remains fixed
during the Annuity Payment Period.
Amount of Payments after the First
Payments after the first will vary depending upon the
investment experience of the Investment
Divisions. The subsequent amount paid from each sub-account is
determined by multiplying (a) by
(b) where (a) is the number of sub-account Annuity Units to be paid
and (b) is the sub-account
Annuity Unit value on the 5th Valuation Date preceding the date the
annuity payment is due. The total
amount of each variable annuity payment will be the sum of the
variable annuity payments for each
Variable Sub-Account. The Company guarantees that the dollar
amount of each payment after the
first will not be affected by variations in expenses or mortality
experience.
<PAGE>
Transfers After the Annuity Commencement Date
Once annuity payments have begun, no Transfers may be made
from a fixed annuity payment
option to a variable annuity payment option, or vice versa;
however, for variable annuity payment
options, Transfers may be made among Investment Divisions.
Transfers after the annuity
commencement date will be made by converting the number of Annuity
Units being Transferred to the
number of Accumulation Units of the Variable Sub-Account to which
the Transfer is made. The result
will be that the next annuity payment, if it were made at that
time, would be the same amount that it
would have been without the Transfer. Thereafter, annuity payments
will reflect changes in the value
of the new Annuity Units.
***
For annuity options involving life income, the actual age
and/or sex of the Annuitant will affect the
amount of each payment. We reserve the right to ask for
satisfactory proof of the Annuitant's age. We
may delay annuity payments until satisfactory proof is received.
Since payments to older Annuitants are
expected to be fewer in number, the amount of each annuity payment
under a selected annuity form will
be greater for older Annuitants than for younger Annuitants.
If the age of the Annuitant has been misstated, the payments
established will be made on the
basis of the correct age. If payments were too large because of
misstatement, the difference with interest
may be deducted by the Company from the next payment or payments.
If payments were too small, the
difference with interest may be added by the Company to the next
payment. This interest is at an annual
effective rate which will not be less than the Guaranteed Interest
Rate.
The Payment Commencement Date and annuity options available
for IRAs may also be controlled
by endorsements, the plan documents, or applicable law.
Once payments start under the annuity form selected by the
Owner: (a) no changes can be made
in the annuity form, (b) no additional Contributions will be
accepted under the Contract, and (c) no further
withdrawals, other than withdrawals made to provide annuity
benefits, will be allowed.
***
A portion or the entire amount of the annuity payments may be
taxable as ordinary income. If, at
the time the annuity payments begin, we have not received a proper
written election not to have federal
income taxes withheld, we must by law withhold such taxes from the
taxable portion of such annuity
payments and remit that amount to the federal government (an
election not to have taxes withheld is not
permitted for certain Qualified Contracts). State income tax
withholding may also apply. (See "Federal
Tax-Matters," below.)
_________________________________________________________________
___________
FEDERAL TAX MATTERS
_________________________________________________________________
___________
Introduction
The following discussion is a general description of federal
income tax considerations relating to
the Contracts and is not intended as tax advice. Further, this
discussion is based on the assumption that
the Contract qualifies as an annuity contract for federal income
tax purposes. 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 Contract. Any
person concerned about these tax
implications should consult a competent tax adviser before
initiating any transaction. This discussion is
based upon our understanding of the present federal income tax laws
as they are currently interpreted
by the Internal Revenue Service. 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 Contract may be purchased on a non-tax qualified basis
("Non-Qualified Contract") or
purchased and used in connection with IRAs. The ultimate effect of
federal income taxes on the amounts
held under a Contract, on annuity payments, and on the economic
benefit to you, the Annuitant, or the
Beneficiary may depend on the type of Contract, and on the tax
status of the individual concerned. In
addition, certain requirements must be satisfied in purchasing an
IRA and receiving distributions from an
IRA in order to continue receiving favorable tax treatment.
Therefore, purchasers of IRAs should seek
competent legal and tax advice regarding the suitability of the
Contract for their situation, the applicable
requirements, and the tax treatment of the rights and benefits of
the Contract. The following discussion
assumes that an IRA is purchased with proceeds from and/or
Contributions that qualify for the intended
special federal income tax treatment.
Tax Status
The Company is taxed as a life insurance company under Part
I of Subchapter L of the Code.
Taxation of Annuities
In General
Section 72 of the Code governs taxation of annuities in
general. An Owner who is a natural
person generally is not taxed on increases (if any) in the value of
an Annuity Account Value until
distribution occurs by withdrawing all or part of the Annuity
Account Value (e.g., withdrawals or annuity
payments under the annuity form elected). However, under certain
circumstances, the Owner may be
subject to taxation currently. In addition, an assignment, pledge,
or agreement to assign or pledge any
portion of the Annuity Account Value 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. An IRA
Contract may not be assigned as collateral.
The Owner of any annuity contract who is not a natural person
(e.g. a corporation) generally must
include in income any increase in the excess of the Annuity Account
Value over the "investment in the
contract" (discussed below) during each taxable year. The rule
does not apply where the non-natural
person is the nominal owner of a Contract and the beneficial owner
is a natural person. The rule also
does not apply in the following circumstances: (1) where the
annuity Contract is acquired by the estate
of a decedent, (2) where the Contract is held under an IRA, (3)
where the Contract is a qualified funding
asset for a structured settlement, and (4) where the Contract is
purchased on behalf of an employee upon
termination of a qualified plan. A prospective Owner that is not
a natural person may wish to discuss
these matters with a competent tax adviser.
The following discussion generally applies to a Contract
owned by a natural person.
Withdrawals
In the case of a withdrawal under an IRA, including
withdrawals under the Periodic Withdrawal
Option, a ratable portion of the amount received may be
non-taxable. The amount of the non-taxable
portion is generally determined by the ratio of the "investment in
the contract" to the individual's total
accrued benefit under the retirement plan. The "investment in the
contract" generally equals the amount
of any nondeductible Contributions paid by or on behalf of any
individual. Special tax rules may be
available for certain distributions from an IRA.
With respect to Non-Qualified Contracts, partial withdrawals,
including Periodic Withdrawals, are
generally treated as taxable income to the extent that the Annuity
Account Value immediately before the
withdrawal exceeds the "investment in the contract" at that time.
If a partial withdrawal is made from a
Guarantee Period which is subject to a Market Value Adjustment,
then the Annuity Account Value
immediately before the withdrawal will not be altered to take into
account the Market Value Adjustment.
As a result, for purposes of determining the taxable portion of the
partial withdrawal, the Annuity Account
Value will not reflect the amount, if any, deducted from or added
to the Guarantee Period due to the
Market Value Adjustment. Full surrenders are treated as taxable
income to the extent that the amount
received exceeds the "investment in the contract." The taxable
portion of any annuity payment is taxed
at ordinary income tax rates.
Annuity Payments
Although the tax consequences may vary depending on the
annuity form elected under the
Contract, in general, only the portion of the annuity payment that
represents the amount by which the
Annuity Account Value exceeds the "investment in the contract" will
be taxed; after the investment in the
contract is recovered, the full amount of any additional annuity
payments is taxable. For fixed annuity
payments, in general there is no tax on the portion 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 annuity payment is
taxable. Once the investment in the
Contract has been fully recovered, the full amount of any
additional annuity payments is taxable. If the
annuity payments cease as a result of an Annuitant's death before
full recovery of the "investment in the
contract," you should consult a competent tax adviser regarding the
deductibility of the unrecovered
amount.
Penalty Tax
In the case of a distribution pursuant to a Non-Qualified
Contract, there may be imposed a federal
income tax penalty 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 date on
which the recipient of payments under
the Contract attains age 59 1/2; (2) made as a result of death or
disability of the recipient of payments
under the Contract; or (3) received in substantially equal periodic
payments as a life annuity or a joint and
survivor annuity for the lives or life expectancies of the Owner
and a "designated beneficiary." Other
exemptions or tax penalties may apply to certain distributions
pursuant to an IRA. For more details
regarding these exemptions or penalties consult a competent tax
adviser.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the Contract because of the
death of an Owner or the Annuitant.
Generally such amounts are includible in the income of the
recipient as follows: (1) if distributed in a lump
sum, they are taxed in the same manner as a full surrender, as
described above, or (2) if distributed under
an annuity form, they are taxed in the same manner as annuity
payments, as described above.
Distribution-at-Death Rules
In order to be treated as an annuity contract, the terms of
the Contract must provide the following
two distribution rules: (A) if any Contract Owner dies on or after
the date annuity payments commence,
and before the entire interest in the Contract has been
distributed, the remainder of his interest will not
be distributed under a slower distribution schedule than that
provided for in the method in effect on the
Contract Owner's death; and (B) if any Contract Owner dies before
the date annuity payments commence,
his entire interest must generally be distributed within five years
after the date of death provided that if
such interest is payable to a designated Beneficiary, then such
interest may be made over the life of that
designated Beneficiary or over a period not extending beyond the
life expectancy of that Beneficiary, so
long as payments commence within one year after the Contract
Owner's death. If the sole designated
Beneficiary is the spouse of the Contract Owner, the Contract may
be continued in the name of the
spouse as Contract Owner. The designated Beneficiary is the
natural person designated by the terms
of the Contract or by the Contract Owner as the individual to whom
ownership of the contract passes by
reason of the Contract Owner's death. If the Contract Owner is not
an individual, then for purposes of
the distribution at death rules, the Primary Annuitant is
considered the Contract Owner. In addition, when
the Contract Owner is not an individual, a change in the Primary
Annuitant is treated as the death of the
Contract Owner.
Transfers, Assignments, or Exchanges
A Transfer of ownership of a Contract, the designation of an
Annuitant, Payee or other Beneficiary
who is not also the Owner, or the exchange of a Contract may result
in adverse tax consequences to the
Owner that are not discussed herein. An Owner contemplating any
such designation, transfer,
assignment, or exchange of a Contract should contact a competent
tax adviser with respect to the
potential tax effects of such a transaction.
Multiple Contracts
All deferred, non-qualified annuity contracts that are issued
by the Company (or our affiliates) to
the same Owner during any calendar year will be treated as one
annuity contract for purposes of
determining the amount includible in gross income under section
72(e) of the Code. Amounts received
under any such Contract may be taxable (and may be subject to the
10% Penalty Tax) to the extent of
the combined income in all such Contracts. 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. Congress has also indicated that the
Treasury Department may have authority
to treat the combination purchase of an immediate annuity contract
and separate deferred annuity
contracts as a single annuity contract under its general authority
to prescribe rules as may be necessary
to enforce the income tax laws.
Withholding
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.
Certain distributions from IRAs are subject to mandatory federal
income tax withholding.
Possible Changes in Taxation
In past 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. There is always the possibility that the tax
treatment of annuities could change by
legislation or other means (such as IRS regulations, revenue
rulings, judicial decisions, etc.). Moreover,
it is also possible that any change could be retroactive (that is,
effective prior to the date of the change).
<PAGE>
Section 1035 Exchanges
Code Section 1035 provides that no gain or loss shall be
recognized on the exchange of one
annuity contract for another. A replacement contract obtained in
a tax-free exchange of contracts
succeeds to the status of the original contract. Special rules
apply to Contracts issued prior to August
14, 1982. Prospective Owners wishing to take advantage of a
Section 1035 exchange should consult their
tax adviser.
Individual Retirement Annuities
The Contract may be used with IRAs as described in Section
408 of the Code. Section 408 of
the Code permits eligible individuals to contribute to an
individual retirement program known as an
Individual Retirement Annuity. Also, certain kinds of
distributions from certain types of qualified and non-
qualified retirement plans may be "rolled over" following the
rules set out in the Code to maintain
favorable tax treatment, to an Individual Retirement Annuity. The
sale of a Contract for use with an IRA
may be subject to special disclosure requirements of the Internal
Revenue Service. Purchasers of the
Contract for use with IRA's 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 purchase of the IRA Contract.
Various tax penalties may apply to contributions in excess of
specified limits, aggregate
distributions in excess of $150,000 annually, distributions that do
not satisfy specified requirements, and
certain other transactions. The Contract will be amended as
necessary to conform to the requirements
of the Code. Purchasers should seek competent advice as to the
suitability of the Contract for use with
IRA's.
If a Contract is issued in connection with an employer's
Simplified Employee Pension ("SEP") plan,
Owners, Annuitants and Beneficiaries are cautioned that the rights
of any person to any of the benefits
under the Contract may be subject to the terms and conditions of
the plan itself, regardless of the terms
and conditions of the Contract.
If a Contract is purchased to fund an IRA the Annuitant must
also be the Owner. In addition, if
a Contract is purchased to fund an IRA, minimum distributions must
commence not later than April 1st
of the calendar year following the calendar year in which you
attain age 70 1/2. You should consult your
tax adviser concerning these matters.
The Contract and prototype IRA endorsement have been
submitted for IRS approval and
determination that they are acceptable under Section 408 of the
Code, so that each individual who
purchases a Contract with an IRA endorsement will be considered to
have adopted a retirement savings
program that satisfies the requirements of Section 408 of the Code.
The IRS approval is a determination
only as to the form of the Contract and does not represent a
determination of the merits of the Contract.
At the time the Initial Contribution is paid, a prospective
purchaser must specify whether he or she
is purchasing a Non-Qualified Contract or an IRA. If the initial
Contribution is derived from an exchange
or surrender of another annuity contract, we may require that the
prospective purchaser provide
information with regard to the federal income tax status of the
previous annuity contract. We will require
that persons purchase separate Contracts if they desire to invest
monies qualifying for different annuity
tax treatment under the Code. Each such separate Contract would
require the minimum initial
Contribution stated above. Additional Contributions under a
Contract must qualify for the same federal
income tax treatment as the initial Contribution under the
Contract; we will not accept an additional
Contribution under a Contract if the federal income tax treatment
of such Contribution would be different
from that of the initial Contribution.
Seek Tax Advice
The foregoing discussion of the federal income tax
consequences is only a brief summary and
is not intended as tax advice. Further, the federal income tax
consequences discussed herein reflect our
understanding of current law and the law may change. Federal
estate tax consequences and state and
local estate, inheritance, and other tax consequences of ownership
or receipt of distributions under a
Contract depend on the individual circumstances of each Owner or
recipient of the distribution. A
COMPETENT TAX ADVISER SHOULD BE CONSULTED FOR FURTHER INFORMATION.
_________________________________________________________________
___________
ASSIGNMENTS OR PLEDGES
_________________________________________________________________
___________
Generally, rights in the Contract may be assigned or pledged
for loans at any time during the life
of the Annuitant; however, if the Contract is an IRA, the Owner may
not assign the Contract as collateral.
If a non-IRA Contract is assigned, the interest of the
assignee has priority over the interest of the
Owner and the interest of the Beneficiary. Any amount payable to
the assignee will be paid in a single
sum.
A copy of any assignment must be submitted to the Company at
the Schwab Annuity Service
Center. Any assignment is subject to any action taken or payment
made by the Company before the
assignment was processed. The Company is not responsible for the
validity or sufficiency of any
assignment.
If any portion of the Annuity Account Value is assigned or
pledged for a loan, it may be treated
as a distribution. A competent tax adviser should be consulted for
further information.
_________________________________________________________________
___________
PERFORMANCE DATA
_________________________________________________________________
___________
From time to time, we may advertise yields and average annual
total returns for the Investment
Divisions. In addition, we may advertise the effective yield of
the Schwab Money Market Investment
Division. These figures will be based on historical information
and are not intended to indicate future
performance.
The yield of the Schwab Money Market Investment Division
refers to the annualized income
generated by an investment in that Investment Division over a
specified seven-day period. The yield is
calculated by assuming that the income generated for that seven-day
period is generated each seven-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 that Investment Division
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 an Investment Division (other than the Schwab
Money Market Investment Division)
refers to the annualized income generated by an investment in that
Investment Division over a specified
thirty-day period. The yield is calculated by assuming that the
income generated by the investment during
that thirty-day period is generated each thirty-day period over a
twelve-month period and is shown as a
percentage of the investment.
The yield calculations do not reflect the effect of any
Premium Tax that may be applicable to a
particular Contract. To the extent that premium taxes are
applicable to a particular Contract, the yield of
that Contract will be reduced. For a description of the methods
used to determine yield and total returns,
see the Statement of Additional Information.
Investment DivisionEffective Yield
Money Market 4.10%
The average annual total return of an Investment Division
refers to return quotations assuming an
investment has been held in the Investment Division for various
periods of time including, but not limited
to, a period measured from the date the Investment Division
commenced operations. When an Investment
Division has been in operation for 1, 5, and 10 years,
respectively, the average annual total return for
these periods will be provided. The average annual total return
quotations will represent the average
annual compounded rates of return that would equate an initial
investment of $1,000 to the redemption
value of that investment (excluding Premium Tax) as of the last day
of each of the periods for which total
return quotations are provided. For additional information
regarding yields and total returns calculated
using the standard formats briefly described herein, please refer
to the Statement of Additional
Information.
Investment Division One
Year Three
Year Five
Year Since
Inception
Inception Date of
Underlying Fund
Alger American
Growth Portfolio
12.39%
15.18%
15.60%
17.58%
1/9/89
Alger American Small
Capitalization Portfolio
3.30%
11.89%
10.04%
17.70%
9/21/88
American Century VP Capital
Appreciation
-5.11%
6.49%
5.23%
9.78%
11/20/87
American Century VP International 13.35% N/A N/A 12.17% 5/1/94
Berger IPT-Small Company
Growth Fund N/A N/A N/A -1.73%
4/15/96
Federated American Leaders
Fund II 20.55% N/A
N/A
17.01%
2/10/94
Federated Fund for U.S.
Government Securities
3.32%
N/A
N/A
4.71
3/28/94
Federated Utility Fund II10.62%N/AN/A 9.67%2/10/94
INVESCO VIF-High
Yield Portfolio 15.60%
N/A
N/A
12.61%
5/1/94
INVESCO VIF-Industrial
Income Portfolio 21.25%
N/A
N/A
20.41%
8/1/94
INVESCO VIF-Total
Return Portfolio
11.23%
N/A
N/A
12.98%
6/1/94
Janus Aspen Aggressive
Growth Portfolio
7.04%
15.97%
N/A
20.27%
9/13/93
Janus Aspen
Growth Portfolio 17.45%
15.57%
N/A
15.21%
9/13/93
Janus Aspen Worldwide
Growth Portfolio
27.95%
17.59%
N/A
22.13%
9/13/93
Lexington Emerging Markets Fund
6.55%
N/A
N/A
0.56%
3/30/94
Montgomery Variable Series:
Growth Fund
N/A
N/A
N/A
26.14%
2/9/96
Montgomery Variable Series:
International Small-Cap Fund
N/A
N/A
N/A
%
11/27/96
SAFECO RST Equity Portfolio
23.73%19.44%18.25%13.45%7/21/87
Schwab Asset Director-High
Growth Portfolio
N/A
N/A
N/A
3.54%
11/1/96
Schwab S&P 500 Portfolio
N/AN/AN/A 5.16%11/1/96
SteinRoe Capital Appreciation
Fund
25.87%
11.84%
16.37%
16.50%
1/1/89
Strong Discovery Fund II
- -0.04%7.92%N/A11.30%5/8/92
Van Eck Worldwide Hard Assets
Fund
17.04%
6.72%
13.54%
7.25%
9/1/89
Performance information for any Investment Division reflects
only the performance of a
hypothetical Contract under which Annuity Account Value is
allocated to an Investment Division during
a particular time period on which the calculations are based.
Performance information should be
considered in light of the investment objectives and policies and
characteristics of the Eligible Funds in
which the Investment Division invests, and the market conditions
during the given time period, and should
not be considered as a representation of what may be achieved in
the future.
Reports and promotional literature may also contain other
information including (1) the ranking
of any Investment Division derived from rankings of variable
annuity separate accounts or their investment
products tracked by Lipper Analytical Services, Inc., VARDS,
Morningstar, Value Line, IBC/Donoghue's
Money Fund Report, Financial Planning Magazine, Money Magazine,
Bank Rate Monitor, Standard &
Poor's Indices, Dow Jones Industrial Average, and other rating
services, companies, publications, or other
persons who rank separate accounts or other investment products on
overall performance or other
criteria, and (2) the effect of tax-deferred compounding on
investment returns, or returns in general, which
may be illustrated by graphs, charts, or otherwise, and which may
include a comparison, at various points
in time, of the return from an investment in a Contract (or returns
in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a currently
taxable basis. Other ranking services and
indices may be used.
We may from time to time also disclose cumulative
(non-annualized) total returns for the
Investment Divisions. We may from time to time also disclose yield
and standard total returns for any or
all Investment Divisions.
We may also advertise performance figures for the Investment
Divisions based on the performance
of an Eligible Fund prior to the time the Series Account commenced
operations.
For additional information regarding the calculation of other
performance data, please refer to the
Statement of Additional Information.
_________________________________________________________________
__________
DISTRIBUTION OF THE CONTRACTS
_________________________________________________________________
___________
Charles Schwab & Co., Inc. ("Schwab") is the principal
underwriter and distributor of the Contracts.
Schwab is registered with the Securities and Exchange Commission as
a broker/dealer and is a member
of the National Association of Securities Dealers, Inc. ("NASD").
Its principal offices are located at 101
Montgomery, San Francisco, California 94104, telephone
800-838-0650.
Certain administrative services are provided by Schwab to
assist the Company in the processing
of the Contracts, which services are described in written
agreements between Schwab and the Company.
The Company has agreed to indemnify Schwab (and its agents,
employees, and controlling persons) for
certain damages arising out of the sale of the Contracts, including
those arising under the securities laws.
_________________________________________________________________
__________
SELECTED FINANCIAL DATA
_________________________________________________________________
___________
The following is a summary of certain financial data of the
Company. This summary has been
derived in part from, and should be read in conjunction with, the
financial statements of the Company
included elsewhere in this Prospectus.
Millions Years Ended December 31
1996 1995 1994 1993 1992
INCOME STATEMENT DATA
Premiums and other income
$ 1,199$ 1,067$ 1,000$ 696$ 245
Net investment income
837 835 768 792 661
Realized investment gains (losses)
(21) 8 (72) 25 (4)
Total Revenues
2,015 1,910 1,696 1,513$ 902
Total benefits and expenses
1,824$ 1,733$ 1,593$ 1,417$ 844
Income tax expense
56 49 29 31 18
Cumulative effect of adopting
a new accounting method for
income taxes
(23)
Net Income
$ 135 $ 128$ 74$ 65$ 63
BALANCE SHEET DATA
Investment assets
$12,717$12,473$11,791$11,592$10,732
Separate account assets
5,485 3,999 2,555 1,680 937
Total assets
19,351 17,682 15,616 14,296 12,948
Total policyholder liabilities
11,687 11,492 10,929 10,592 10,352
Total shareholder's equity
1,034 993 777 821 769
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company
Great-West Life & Annuity Insurance Company (the "Company")
is a stock life insurance
company originally organized under the laws of the State of Kansas
in 1907 as the National Interment
Association. Its name was changed to Ranger National Life
Insurance Company in 1963 and to
Insuramerica Corporation prior to changing to its current name in
1982. In September of 1990, the
Company redomesticated and is now organized under the laws of the
State of Colorado.
The Company is authorized to engage in the sale of life
insurance, accident and health insurance
and annuities. It is qualified to do business in the District of
Columbia, Puerto Rico, and in all states in
the United States except New York.
The Company operates in one business segment as a provider of
life, health and annuity
products; however, the business operations of the Company will be
discussed in terms of major business
units, which are:
Employee - life, health, disability income and 401(k) products for
group clients.
Benefits
Financial- accumulation and payout annuity products for both group
and individual
Services clients, primarily in the public/non-profit sector, as
well as insurance products for individual
clients.
Investment- management of assets, both general funds and separate
accounts which segregate,
Operationsfrom the Company's general account, the assets and
liabilities of contractholders of variable
products ("Separate Accounts")
Management's discussion and analysis of financial
condition and results of operations of the
Company for the three years ended December 31, 1996 follows. In
connection with, and because it
desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of
1995, the Company cautions readers regarding certain
forward-looking statements contained in the
following discussion and elsewhere in this prospectus and in any
other statements made by, or on behalf
of, the Company, whether or not in future filings with the
Securities and Exchange Commission. Forward-
looking statements are statements not based on historical
information and which relate to future
operations, strategies, financial results, or other developments.
In particular, statements using verbs such
as "expect," "anticipate," "believe," or words of similar import
generally involve forward-looking statements
which represent the Company's beliefs concerning future or
projected levels of sales of the Company's
products, investment spreads or yields, or the earnings or
profitability of the Company's activities.
Forward-looking statements are necessarily based upon
estimates and assumptions that are
inherently subject to significant business, economic and
competitive uncertainties and contingencies,
many of which are beyond the Company's control and many of which,
with respect to future business
decisions, are subject to change. These uncertainties and
contingencies can affect actual results and
could cause actual results to differ materially from those
expressed in any forward-looking statements
made by, or on behalf of, the Company. Whether or not actual
results differ materially from forward-
looking statements may depend on numerous foreseeable and
unforeseeable events or developments,
some of which may be national in scope, such as general economic
conditions and interest rates, some
of which may be related to the insurance industry generally, such
as pricing competition, regulatory
developments and industry consolidation, and others of which may
relate to the Company specifically,
such as credit, volatility and other risks associated with the
Company's investment portfolio, and other
factors. Readers are also directed to consider other risks and
uncertainties discussed in documents filed
with the SEC. The Company disclaims any obligations to update
forward-looking information.
Comparison of Years Ended December 31, 1996 and 1995
The Company's consolidated net income increased 5% to $134.6
million, when compared to
1995.
Premiums and other income increased 12% from $1,067.4 million
in 1995 to $1,199.2 million in
1996. The 1996 premiums included $164.8 million of reinsurance
premium associated with the recapture
of a block of participating individual insurance business from
Great-West Life. This transaction did not
impact consolidated net income, as it was offset by an increase in
reserves (see discussion of policy
benefits below). Therefore, premiums and other income from
operations were down from 1995 levels,
which reflects a 7% reduction in group life and health premiums due
to high termination rates associated
with price sensitivity and competition from managed care companies.
Net investment income increased $1.5 million from $835.1
million in 1995 to $836.6 million in 1996.
This change reflected an increase in the amount of invested assets
of $243.8 million, which was largely
offset by a lower effective yield on investments purchased in late
1995 and early 1996. The increase in
invested assets is primarily the result of growth in policy loans
on the Corporate-Owned Life Insurance
("COLI") business.
The Company's realized investment gains (losses) changed from
a net realized gain of $7.5
million in 1995 to a net realized loss of $21.1 million in 1996.
The increase in interest rates in 1996
resulted in realized losses on the sale of fixed maturities
totaling $11.6 million, while lower interest rates
contributed to $28.2 million of fixed maturity gains recorded in
1995. The 50% improvement in the
provision for asset losses helped to partially offset the fixed
maturities capital losses, as the change in
provision was reduced from $22.0 million in 1995 to $10.6 million
in 1996.
Total benefits and expenses includes life and other policy
benefits, increase in reserves, interest
paid or credited to contractholders, expenses, and dividends to
policyholders. The increase of 5% from
$1,733.3 million in 1995 to $1,824.3 million in 1996 is primarily
the result of the increase in reserves of
$164.8 million associated with the recapture of insurance from
Great-West Life. After this adjustment the
total benefits and expenses actually decreased from 1995 to 1996.
This is the result of a reduction in
group health claims which is consistent with the premium decrease
discussed previously.
Net income in 1996 also reflects a $25.6 million release of
a previously recorded contingent
liability that the Company assumed from Great-West Life in 1993.
The release was triggered by the
resolution of 1988 and 1989 tax issues with the Internal Revenue
Service.
The effective income tax rates were reduced in 1996 by the
release of the contingent liability
which was not taxable and in 1995 by the release of a $13.3 million
deferred tax valuation allowance in a
subsidiary investment company.
Comparison of Years Ended December 31, 1995 and 1994
The Company's consolidated net income increased 73% in 1995,
compared with 1994. The
majority of the increase was in the Financial Services unit where
the asset intensive lines benefited from a
combination of lower mortgage writedowns and capital gains from
sales in the fixed maturities portfolio, as
described below.
Premiums and other income increased 7% from $1,000.1 million
in 1994 to $1,067.4 million in
1995, as the result of an increase in group life and health
premiums which were augmented by the
acquisition of blocks of business from Confederation Life Insurance
Company and Life of Georgia.
Net investment income increased $67.4 million in 1995 to a
total of $835.1 million reflecting an
increase in invested assets from $11.8 billion to $12.5 billion in
1995. The increase was driven by the
growth in policy loans associated with COLI business.
The Company's realized gains (losses) changed from a net
realized loss of $71.9 million in 1994
to a net realized gain of $7.5 million in 1995. The provision for
asset losses, included in realized losses,
continued to decline as the $22.0 million in 1995 was $12.2 million
lower than the $34.2 million recorded
in 1994, as the mortgage portfolio continued to improve. Interest
rates decreased in 1995, leading to
capital gains on the sale of fixed maturities of $28.2 million
which were better than the $39.8 million of
losses recorded in 1994.
Total benefits and expenses increased 9% in 1995 to a total
of $1,733.3 million. This increase
reflects the growth in the group life and health block of business,
and its impact on the increase in group
health claims and operating expenses.
The effective income tax in 1995 and 1994 was lower than the
statutory rate due to a reduction of
$13.3 million and $7.1 million, respectively, in the deferred tax
asset valuation allowance held in a real
estate subsidiary.
Investment Operations
The Company's primary investment objective is to acquire
assets whose durations and cash
flows reflect the characteristics of the Company's liabilities,
while meeting industry, size, issuer and
geographic diversification standards. Formal liquidity and credit
quality parameters have also been
established.
The Company follows rigorous procedures to control interest
rate risk and observes strict asset
and liability matching guidelines. These guidelines are designed
to ensure that even in changing interest
rate environments the Company's assets will always be able to meet
the cash flow and income
requirements of its liabilities. Through dynamic modeling, using
state-of-the-art software to analyze the
effects of a wide range of possible market changes upon investments
and policyholder benefits, the
Company ensures that its investment portfolio is appropriately
structured to fulfill financial obligations to its
policyholders.
A summary of the Company's invested assets (Millions)
follows:
19961995
Fixed maturities, available for sale,
at fair value
$6,206
$6,263
Fixed maturities, held at maturity,
at amortized cost
1,993
2,054
Mortgage loans
1,488
1,713
Real estate and common stock
88
70
Short-term investments
419
135
Policy loans
2,523
2,238
$12,717
$12,473
Fixed Maturities
Fixed maturity investments include publicly traded
bonds,
privately placed bonds and public and
private structured assets. This latter category contains
both
asset-backed and mortgage-backed
securities, including collateralized mortgage obligations ("CMOs").
The Company's strategy related to
structured assets is to focus on those with lower volatility and
minimal credit risk. The Company does not
invest in higher risk CMOs such as interest-only and principal-only
strips, and currently has no plans to
invest in such securities.
Private placement investments are generally less marketable
than publicly traded assets, yet they
typically offer covenant protection which allows the Company, if
necessary, to take appropriate action to
protect its investment. The Company believes that the cost of the
additional monitoring and analysis
required by private placements is more than offset by their
enhanced yield.
One of the Company's primary objectives is to ensure that its
fixed maturity portfolio is
maintained at a high average quality, so as to limit credit risk.
In excess of 85% of the value of the
securities in this portfolio are rated by external rating agencies.
If not externally rated, the securities are
rated by the Company on a basis intended to be similar to that of
the rating agencies.
The distribution of the fixed maturity portfolio (both
available for sale and held to maturity) by
credit rating is summarized as:
Credit Rating
1996
1995
AAA
45.9%
43.9%
AA
8.1
8.0
A
23.7
26.8
BBB
20.9
19.2
BB and Below (non-investment grade)
1.4
2.1
TOTAL
100.0%
100.0%
At December 31, 1996, the Company had one bond in default
in
the amount of $8 million, and
one potentially problematic bond, with a carrying value of
$6.4 million, which, although current, is judged
by management as likely to require either restructuring or other
types of relief. Both bonds are carried at
their estimated net realizable values. Their combined total of
$14.4 million is a relatively low proportion of
the total fixed maturity portfolio (less than .2%) as the high
credit quality of the portfolio limits the
Company's exposure to problematic bonds. At December 31, 1995,
there were no bonds in default and
only one potentially problematic security, with a carrying value of
$7.4 million.
Mortgage Loans
During 1996, the mortgage portfolio declined 13% to $1.5
billion, net of impairment reserves. The
Company has not actively sought new loan opportunities since 1989
and, as such, has experienced an
ongoing reduction in this portfolio's balance.
The Company follows a comprehensive approach to the
management of mortgage loans which
includes ongoing analysis of key mortgage characteristics such as
debt service coverage, net collateral
cash flow, property condition, loan to value ratios and market
conditions. Collateral valuations are
performed for those mortgages which, after review, are determined
by management to present possible
risks and exposures. These valuations are then incorporated into
the determination of the Company's
allowance for credit losses. Effective January 1, 1995, the
Company adopted Statement of Financial
Accounting Standards Nos. 114 and 118 (see Note 1 to the financial
statements), both of which deal with
accounting for impaired loans (defined as those loans upon which
the Company will likely collect less
than all amounts due according to the contractual terms of the
agreement). As the Company already
provided for impairment reserves through its allowance procedures,
the adoption of the new standards
had no material effect upon the Company's financial position.
The average balance of impaired loans continued to remain low
at $39.1 million in 1996 compared
with $29.1 million in 1995, and foreclosures totaled $14.0 million
and $37.0 million in 1996 and 1995,
respectively. The low levels of problematic mortgages relative to
the Company's overall balance sheet
are due to the ongoing decrease in the size of the mortgage
portfolio, the Company's active loan
management program and improvement in market conditions.
Occasionally, the Company elects to restructure certain loans
if the economic benefits to the
Company are believed to be more advantageous than those achieved by
acquiring the collateral through
foreclosure. At December 31, 1996 and 1995, the Company's loan
portfolio included $68.3 million and
$89.2 million, respectively, of non-impaired restructured loans.
Real Estate and Common Stock
The Company's real estate portfolio is composed primarily of
properties acquired through the
foreclosure of troubled mortgages. The Company operates a wholly
owned real estate subsidiary which
attempts to maximize the value of these properties through
rehabilitation, leasing and sale. The Company
anticipates limited, if any, investments in voluntary real estate
assets during 1997.
The common stock portfolio is composed of mutual fund seed
money and some private equity
investments. The Company anticipates a limited participation in
the stock markets in 1997.
Derivatives
The Company uses certain derivatives, such as futures,
options, and swaps, for purposes of
hedging interest rate and foreign exchange risk. These
derivatives, when taken alone, may subject the
Company to varying degrees of market and credit risk; however, when
used for hedging, these
instruments typically reduce risk. The Company controls the credit
risk of its financial contracts through
credit approvals, limits and monitoring procedures. Note 6 to the
financial statements (page 46) contains
a summary of the Company's outstanding financial hedging
derivatives.
Other
General economic conditions improved during 1996, including
improvement or stabilization in
many real estate markets. If present market conditions continue,
the Company does not expect to
recognize any asset chargeoffs or restructurings which would result
in a material adverse effect upon the
Company's financial condition in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have liquidity requirements that
vary among the principal product
lines. Life insurance and pension plan reserves are primarily
long-term liabilities. Accident and health
reserves, including long-term disability, consist of both
short-term and long-term liabilities. Life insurance
and pension plan reserve requirements are usually stable and
predictable, and are supported primarily by
long-term, fixed income investments. Accident and health claim
demands are stable and predictable but
generally shorter term, requiring greater liquidity.
Generally, the Company has met its operating requirements by
maintaining appropriate levels of
liquidity in its investment portfolio and utilizing positive cash
flows from operations. Liquidity for the
Company has remained strong, as evidenced by significant amounts of
short-term investments and cash,
which totaled $544.2 million and $225.8 million as of December 31,
1996 and 1995, respectively.
During 1996, cash increased $34.2 million to $125.2 million
as of December 31, 1996. This
increase primarily reflects the positive cash flow from operating
activities ($712.4 million). The increase
was partially offset by net investment purchases ($127.7 million),
contract withdrawals ($413.6 million),
net repurchase agreement payments ($88.6 million) and payment of
dividends on stock ($56.7 million).
During 1995, cash decreased $40.7 million due to contract
withdrawals ($217.2 million), net
repurchase agreement payments ($191.2 million), net investment
purchases ($27.4 million), and payment
of dividends on stock ($49.0 million). Cash flow from operating
activities was $458.1 million.
The 1994 increase in cash primarily reflects cash flows from
operating activities net of withdrawals
and net investment purchases.
Funds provided from premiums and fees, investment income and
maturities of investment assets
are reasonably predictable and normally exceed liquidity
requirements for payment of claims, benefits and
expenses. However, since the timing of available funds cannot
always be matched precisely to
commitments, imbalances may arise when demands for funds exceed
those on hand. Also, a demand for
funds may arise as a result of the Company taking advantage of
current investment opportunities. The
Company's capital resources represent funds available for long-term
business commitments and
primarily consist of retained earnings and proceeds from the
issuance of commercial paper and equity
securities. Capital resources provide protection for
policyholders and the financial strength to support
the underwriting of insurance risks, and allow for continued
business growth. The amount of capital
resources that may be needed is determined by the Company's senior
management and Board of
Directors as well as by regulatory requirements. The allocation of
resources to new long-term business
commitments is designed to achieve an attractive return, tempered
by considerations of risk and the need
to support the Company's existing business.
The Company's financial strength provides the capacity and
flexibility to enable it to raise funds
in the capital markets through the issuance of commercial paper.
The Company continues to be well
capitalized, with sufficient borrowing capacity to meet the
anticipated needs of its business. The
Company had $84.7 million of commercial paper outstanding at
December 31, 1996, compared with $84.9
million at December 31, 1995. The commercial paper has been given
a rating of A-1+ by Standard &
Poor's Corporation and a rating of P-1 by Moody's Investors
Service, each being the highest rating
available.
ACCOUNTING PRONOUNCEMENTS
In 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
The implementation of this statement had no material effect on the
Company's results of operations,
liquidity or financial condition.
Effective January 1, 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for
Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income
Recognition and Disclosures". As the Company was already providing
for impairment of loans through
an allowance for credit losses, the implementation of these
statements had no material effect on the
Company's financial condition. See Note 6 to the financial
statements for further information (page 46).
In 1994, the Company implemented SFAS No. 115, "Accounting
for Certain Investments in Debt
and Equity Securities". The cumulative effect as of January 1,
1994 of adopting SFAS No. 115 increased
the opening balance of stockholder's equity by $6.5 million to
reflect the net unrealized gains on
securities classified as available-for-sale (previously carried at
the lower of aggregated amortized cost or
fair value) and the corresponding adjustments to deferred policy
acquisition costs, policy reserves, and
amounts allocable to the liability for undistributed earnings on
participating business, all net of income
taxes.
During the fourth quarter of 1995, the Financial Accounting
Standards Board issued a guide to
implementation of SFAS No. 115, which permits a one-time
opportunity to reclassify securities subject to
SFAS No. 115. Consequently, the Company reassessed the
classification of its investment portfolio in
December 1995 and reclassed securities totaling $2.1 billion from
held-to-maturity to available-for-sale. In
connection with this reclassification, an unrealized gain, net of
related policyholder amounts and deferred
income taxes, of $23.4 million was recognized in stockholder's
equity at the date of transfer.
In connection with the employee transfer discussed in Note 2
to the financial statements on page
42, the Company in 1997 will apply the provisions of SFAS No. 87,
"Employers Accounting for
Pensions", SFAS No. 106, "Employers' Accounting for Post Retirement
Benefits Other Than Pensions",
and SFAS No. 123, "Accounting for Stock-Based Compensation".
Previously employee expenses
(including costs for benefit plans) were transferred from
Great-West Life to the Company through
administrative services agreements. Accordingly, the
implementation of these standards will have no
material effect on the financial results of the Company.
<PAGE>
Regulation
General
The Company must comply with the insurance laws of all
jurisdictions in which its is licensed to
do business. Although the intent of regulation varies, most
jurisdictions have laws and regulations
governing rates, solvency, standards of business conduct and
various insurance and investment
products. The form and content of statutory financial reports and
the type and concentration of
investments are also regulated.
The Company's operations and accounts are subject to
examination by the Colorado Insurance
Division and other regulators at specified intervals. The latest
financial examination by the Colorado
Insurance Division was completed in 1997, and covered the 5-year
period ending December 31, 1995.
This examination produced no significant adverse findings regarding
the Company.
Solvency Regulation
The National Association of Insurance Commissioners has
adopted risk-based capital rules for life
insurance companies. These rules recommend a specified level of
capital depending upon the types and
quality of investments held, the types of business written, and the
types of liabilities maintained.
Depending on the ratio of the insurer's adjusted capital to its
risk based capital, the insurer could be
subject to various regulatory actions ranging from increased
scrutiny to conservatorship. Based on the
Company's December 31, 1996 statutory financial reports, the
Company was well within these rules.
The National Association of Insurance Commissioners Insurance
Regulatory Information System
ratios are another set of tools used by regulators to provide an
"early warning" as to when a company
may require special attention. There are twelve categories of
financial data with defined usual ranges for
each. For 1996, the Company was within the usual ranges in all
categories.
Insurance Holding Company Regulations
The Company is subject to insurance holding company
regulations in Colorado. These
regulations contain certain restrictions and reporting requirements
for transactions between an insurer
and its affiliates, including payment of dividends. They also
regulate changes in control of an insurance
company.
Securities Laws
The Company is subject to various levels of regulation under
federal securities laws. Certain of
the Company's Separate Accounts and the mutual funds used as
funding vehicles for those Separate
Accounts, and variable insurance and annuity products are
registered under the Investment Company Act
of 1940 and the Securities Act of 1933.
Guaranty Funds
Under insurance guaranty fund laws existing in all states,
insurers doing business in those states
can be assess (up to prescribed limits) for certain obligations of
insolvent insurance companies. The
Company has established a reserve of $9.1 million as of December
31, 1996 to cover future assessments
of known insolvencies. The Company has historically recovered more
than half of the guaranty fund
assessments through statutorily permitted premium tax offsets. The
Company has a prepaid asset
associated with guaranty fund assessments of $5.6 million at
December 31, 1996.
Canadian Regulation
Because the Company is a subsidiary of Great-West Life, which
is a Canadian company, the
Office of Superintendent of Financial Institutions Canada conducts
periodic examinations of the Company
and approves certain investments in subsidiary companies.
Ratings
The Company is rated by a number of nationally recognized
rating agencies. The ratings
represent the opinion of the rating agencies on the financial
strength of the Company and its ability to
meet the obligations of its insurance policies but have no
relevance to the performance or quality of the
assets in the Series Account.
Rating Agency
Measurement
Rating
A.M. Best Company
Financial Condition and Operating Performance
A++*
Duff & Phelps Corporation
Claims Paying Ability
AAA*
Standard & Poor's Corporation
Claims Paying Ability
AA+**
Moody's Investors Service
Insurance Financial Strength
Aa2***
* Highest ratings available
** Second highest rating out of 17 rating categories
*** Third highest rating out of 19 rating categories
Miscellaneous
A portion of the Company's business is "seasonal" in nature
in the sense that reported claims in
the group health line of business are generally higher in the first
quarter.
No customer accounted for 10% or more of the Company's
consolidated revenues in 1996. In
addition, no unit of the Company's business is dependent on a
single customer or a few customers, the
loss of which would have a significant effect on the Company or any
of its business units. The loss of
business from any one, or a few, independent brokers or agents
would not have a material adverse effect
on the Company of any of its business units.
The Company had approximately 4,200 employees at January 1,
1997.
The executive offices of the Company consist of a 517,633
square foot office complex located in
Englewood, Colorado. The office complex is owned by a subsidiary
of the Company. The Company
leases sales and claims offices throughout the United States.
Directors and Officers
Set forth below is information concerning the Company's
directors and executive officers, together
with their principal occupation for the past five years. Unless
otherwise indicated, all of the directors and
executive officers have been engaged for not less than five years
in their present principal occupations or
in another executive capacity with the companies or firms
identified.
Directors Principal Occupation Last 5 Years
James Balog Company Director since March 1993;
previously Chairman,
Lambert Brussels Capital
Corporation
James W. Burns, O.C. Chairman of the Boards of Lifeco1
and Great-West Life; Deputy
Chairman, PCC2
Orest T. Dackow President and Chief Executive
Officer, Lifeco
Paul Desmarais, Jr. Chairman and Co-Chief Executive
Officer, PCC; Chairman, PFC3
Robert G. Graham Company Director since January
1996; previously Chairman and
Chief Executive Officer, Inter-City
Products Corporation
Robert Gratton Chairman of the Board of the
Company; President and Chief
Executive Officer, PFC
N. Berne Hart Company Director since February
1992; previously Chairman of
the Board, United Banks of
Colorado, Inc.
Kevin P. Kavanagh Company Director since April 1992;
previously President and Chief
Executive Officer, Lifeco
William Mackness Company Director since July 1995;
previously Dean, Faculty of
Management, University of Manitoba
William T. McCallum President and Chief Executive
Officer of the Company; President
and Chief Executive Officer (U.S.
Operations), Great-West Life
Jerry E.A. Nickerson Chairman of the Board, H.B.
Nickerson & Sons Limited
The Honourable
P. Michael Pitfield, P.C., Q.C. Vice-Chairman, PCC; Member of the
Senate of Canada
Michel Plessis-Belair, F.C.A. Vice-Chairman and Chief
Financial
Officer, PCC; Executive Vice-
President and Chief Financial
Officer, PFC
Ross J. Turner Chairman, Genstar Investment
Corporation
Brian E. Walsh Partner, Trinity L.P. since January
1996; previously Managing
Director and Co-head, Global
Investment Bank, Bankers Trust
Company
1 Great-West Lifeco Inc.
2 Power Corporation of Canada
3 Power Financial Corporation
Executive Officers Principal Occupation Last 5 Years
William T. McCallum President and Chief Executive
Officer of GWL&A;
President and Chief President and Chief Executive
Officer (U.S. Operations),
Executive Officer Great-West Life
Dennis Low Executive Vice President, Financial
Services, GWL&A
Executive Vice President, and Great-West Life
Financial Services
Alan D. MacLennan Executive Vice President, Employee
Benefits, GWL&A
Executive Vice President, and Great-West Life
Employee Benefits
Robert D. Bond Senior Vice President, Financial
Services, GWL&A and Great-West
Senior Vice President, Life; prior to May 1992, National
Director, Public Marketing, Aetna
Financial Services Life Insurance Company
John A. Brown Senior Vice President, Sales,
Financial Services, GWL&A and
Senior Vice President, Great-West Life
Sales, Financial Services
John T. Hughes Senior Vice President, Chief
Investment Officer, GWL&A;
Senior Vice President, Senior Vice President, Chief
Investment Officer (U.S.
Chief Investment Officer Operations), Great-West Life
Robert E. Kavanagh Senior Vice President, Employee
Benefits, Sales, GWL&A and
Senior Vice President, Great-West Life
Employee Benefits, Sales
D. Craig Lennox Senior Vice President, General
Counsel and Secretary,
Senior Vice President, GWL&A; Senior Vice President and
Chief U.S. Legal Officer,
General Counsel and Secretary Great-West Life
Steve H. Miller Senior Vice President, Employee
Benefits, Sales, GWL&A and
Senior Vice President, Great-West Life
Employee Benefits, Sales
James D. Motz Executive Vice President, Employee
Benefits, GWL&A and
Executive Vice President, Great-West Life
Employee Benefits
Martin L. Rosenbaum Senior Vice President, Employee
Benefits Operations, GWL&A
Senior Vice President, and Great-West Life
Employee Benefits Operations
Douglas L. Wooden Senior Vice President, Financial
Services, GWL&A and
Senior Vice President, Great-West Life
Financial Services
Executive Compensation
The following table sets out all compensation paid by
Great-West Life and its subsidiaries in
respect of the individuals who were, at December 31, 1996, the
Chief Executive Officer and the other four
most highly compensated executive officers of GWL&A (collectively
the "Named Executive Officers") for
services rendered to GWL&A and Great-West Life in all capacities
for fiscal years ended 1994, 1995 and
1996 respectively.
Name and
Principal Position
Year
Annual
Compensation(1)
Salary Bonus
($) ($)
Long-Term
Compensation Awards
Securities Under
Options Granted (2)
W.T. McCallum,
President and
Chief Executive
Officer
1996
1995
1994
561,818 370,500
523,958 351,000
225,000(3)
476,750 318,500
300,000
None
None
D. Low, Executive
Vice President,
Financial Services
1996
1995
1994
325,000 146,250
305,000 152,500
285,000 142,500
150,000
None
None
J.T. Hughes, Senior
Vice President, Chief
Investment Officer
1996
1995
1994
312,000 136.968
301,000 150,500
290,000 145,000
80,000
None
None
A.D. MacLennan,
Executive Vice
President, Employee
Benefits
1996
1995
1994
325,000 115,000
312,000 125,000
300,000 97,890
150,000
None
None
D.L. Wooden, Senior
Vice President,
Financial Services
1996
1995
1994
287,000 143,500
275,500 137,500
265,000 142,500
100,000
None
None
(1) The aggregate of perquisites and other personal benefits,
securities or property provided to each
Named Executive Officer in 1996 did not exceed the lesser of
$50,000 and 10% of the total of the
individual's annual salary and bonus.
(2) The options are for common shares of Great-West Lifeco
("Lifeco Options"). Lifeco Options are
granted by Great-West Lifeco pursuant to the Great-West Lifeco
Stock option Plan which was approved
by the Great-West Lifeco shareholders on April 24, 1996. Lifeco
Options become exercisable 20% per
year commencing on the first anniversary of the date of the grant
and expire 10 years after the date of the
grant.
(3) A special one-time bonus payment with respect to long-term
performance.
The following table describes options granted to the Named
Executive Officers during the most
recently completed fiscal year. All options are Lifeco Options
granted pursuant to the Great-West Lifeco
Stock Option Plan. Lifeco Options are issued with an exercise
price in Canadian dollars. Canadian dollar
amounts have been translated to U.S. dollars at a rate of 1/1.37.
Individual grants
Potential realizable
value at assumed
annual rates of stock
price appreciation for
option term
Name
Options
granted
Percent of
total options
granted to
employees in
fiscal year
Exercise or
base price
($/share)
Expiration
date
5%
($)
10%
($)
W.T. McCallum
300,000
10.42
12.376697
July 22, 2006
2,335,080
5,917,590
D. Low
150,000
5.21
12.376697
July 22, 2006
1,167,540
2,958,795
J.T. Hughes
80,000
2.78
12.376697
July 22, 2006
622,688
1,578,024
A.D. MacLennan
150,000
5.21
12.376697
July 22, 2006
1,167,540
2,958,795
D.L. Wooden
100,000
3.47
12.376697
July 22, 2006
778,360
1,972,530
Prior to April 24, 1996, the Named Executive Officers participated
in the Power Financial Employee Share
Option Plan pursuant to which options to acquire common shares of
Power Financial ("PFC Options) were
granted. the following table describes all Lifeco Options and all
PFC Options exercised in 1996, and all
unexercised Lifeco Options and PFC Options held as of December 31,
1996, by the Named Executive
Officers. PFC Options and Lifeco Options are issued with an
exercise price in Canadian dollars.
Canadian dollar amounts have been translated to U.S. dollars at a
rate of 1/1.37.
Name
Securities
Acquired
on
Exercise
Aggregate
Value
Realized
($)
Unexercised Options at FY-
End
Exercisable Unexercisable
Value of Unexercised in-
the-Money Options at FY-
End ($)
Exercisable Unexercisable
W.T. McCallum
26,000(1) 300,000(2)
658,659(1) 940,276(2)
D. Low
6,700(1)
100,892
37,300(1) 150,000(2)
944,922(1) 470,138(2)
J.T. Hughes
60,000(1) 80,000(2)
1,214,781(1) 250,740(2)
A.D. MacLennan
150,000(2)
470,138(2)
D.L. Wooden
44,000(1) 100,000(2)
911,916(1) 313,425(2)
(1) PFC Options
(2) Lifeco Options
Pension Plan Table
The following table sets out the pension benefits payable to
the Named Executive Officers by
Great-West Life or the Company, as of December 31, 1996.
Employees' Pension Plan
Remuneration
($) Years of Service
15 20 25 30
35
400,000 120,000 160,000 200,000 240,000
240,000
500,000 150,000 200,000 250,000 300,000
300,000
600,000 180,000 240,000 300,000 360,000
360,000
700,000 210,000 280,000 350,000 420,000
420,000
800,000 240,000 320,000 400,000 480,000
480,000
900,000 270,000 360,000 450,000 540,000
540,000
1,000,000 300,000 400,000 500,000 600,000
600,000
The Named Executive Officers have the following years of service:
Name Years of Service
W.T. McCallum 30
D. Low 31
J.T. Hughes 6
A.D. MacLennan 30
D.L. Wooden 5
For W.T. McCallum, the benefits shown are payable commencing
December 31, 2000, and remuneration
is the average of the highest 36 consecutive months of compensation
during the last 86 months of
employment. For D. Low, J.T. Hughes, A.D. MacLennan and D.L.
Wooden, the benefits shown are
payable upon the attainment of age 62, and remuneration is the
average of the highest 60 consecutive
months of compensation during the last 86 months of employment.
Compensation includes salary and
bonuses prior to any deferrals. The normal form of pension is a
life only annuity. Other optional forms of
pension payment are available on an actuarially equivalent basis.
The benefits listed in the table are
subject to deduction for social security and other retirement
benefits.
Directors of the Company
The following sets out remuneration paid by the Company to
its directors.
For each director of the Company who is not also a director
of Great-West Life, the Company
pays an annual fee of $12,500, and a meeting fee of $1,000 for each
meeting of the Board of Directors or
a committee thereof attended. With the exception of the President
and Chief Executive Officer of Great-
West Lifeco, and the President and Chief Executive Officer of the
Company, for each director of the
Company who is also a director of Great-West Life, the Company pays
a meeting fee of $1,000 for each
meeting of the Board of Directors or a committee thereof attended
which is not coincident with a Great-
West Life meeting. In addition, all directors are reimbursed for
incidental expenses.
The above amounts are paid in the currency of the country of
residence of the director.
Compensation Committee Interlocks and Insider Participation
Prior to January 1, 1997, all of the Company's executive
officers were employees of Great-West
Life (effective January 1, 1997, they became employees of the
Company). For 1996, executive officer
compensation was paid by Great-West Life and compensation was
determined by the United States
Executive Committee of the Board of Directors of Great-West Life
(the "U.S. Executive Committee"). The
following individuals served as members of the U.S. Executive
Committee during 1996.
R. Gratton N.B. Hart
J.W. Burns K.P. Kavanagh
O.T. Dackow W. Mackness
P. Desmarais, Jr. W.T. McCallum
R.G. Graham P.M. Pitfield
W.T. McCallum, President and Chief Executive Officer of the
Company, is a member of the U.S.
Executive Committee. Mr. McCallum participated in executive
compensation matters generally but was
not present when his own compensation was discussed or determined.
Security Ownership of Certain Beneficial Owners
As of March 1, 1997, the following sets out the beneficial
owners of more than 5% of the
Company's voting securities:
(1) 100% of the Company's 7,032,000 outstanding common shares are
owned by The Great-West Life
Assurance Company, 100 Osborne Street North, Winnipeg, Manitoba,
Canada R3C 3A5.
(2) 99.5% of the outstanding common shares of The Great-West Life
Assurance Company are owned by
Great-West Lifeco Inc., 100 Osborne Street North, Winnipeg,
Manitoba, Canada R3C 3A5.
(3) 86.5% of the outstanding common shares of Great-West Lifeco
Inc. are owned by Power Financial
Corporation, 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3.
(4) 68.1% of the outstanding common shares of Power Financial
Corporation are owned by 171263
Canada Inc., 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3.
(5) 100% of the outstanding common shares of 171263 Canada Inc.
are owned by Marquette
Communications Corporation, 751 Victoria Square, Montreal, Quebec,
Canada H2Y 2J3.
(6) 100% of the outstanding common shares of Marquette
Communications Corporation are owned by
Power Corporation of Canada, 751 Victoria Square, Montreal, Quebec,
Canada H2Y 2J3.
(7) Mr. Paul Desmarais, 751 Victoria Square, Montreal, Quebec,
Canada H2Y 2J3, through a group of
private holding companies, which he controls, has voting control of
Power Corporation of Canada.
Security Ownership of Management
The following table sets out the number of equity securities,
and exercisable options for equity
securities, of the Company or any of its parents or subsidiaries,
beneficially owned, as of March 1, 1997,
by (i) the directors of the Company; (ii) the Named Executive
Officers; and (iii) the directors and executive
officers of the Company as a group.
Company
The Great-West Life
Assurance
Company
Great-West Lifeco
Inc.
Power Financial
Corporation
Power Corporation
of Canada
(1)
(2)
(3)
(4)Directors
J. Balog
- -
- -
- -
- -
J. W. Burns
50
56,000
4,000
203,320
164,500 options
O.T. Dackow
16
35,089
5,400
40,000 options
- -
P. Desmarais, Jr.
50
30,000
- -
120,000
188,250 options
R.G. Graham
- -
- -
- -
- -
R. Gratton
- -
165,000
155,000
2,500
150,000 options
N.B. Hart
- -
- -
- -
- -
K. P. Kavanagh
50
23,626
- -
- -
W. Mackness
- -
- -
- -
- -
W.T. McCallum
17
34,202
16,000
52,000 options
- -
J.E.A. Nickerson
- -
- -
- -
- -
P.M. Pitfield
- -
50,000
40,000
80,000
99,500 options
M. Plessis-Belair
- -
10,000
1,000
32,900
58,250 options
R.J. Turner
- -
- -
- -
- -
B.E. Walsh
- -
- -
- -
- -
Named Executive Officers
W.T. McCallum
17
34,200
16,000
52,000 options
- -
D. Low
- -
7,846
74,600 options
- -
J.T. Hughes
- -
4,467
120,000 options
- -
A.D. MacLennan
- -
9,011
- -
- -
D.L. Wooden
- -<PAGE>
- -
88,000 options
- -
Directors and Executive
Officers as a Group
183
484,381
221,400
494,600 options
438,720
660,500 options
(1) All holdings are common shares of The Great-West Life
Assurance Company.
(2) All holdings are common shares of Great-West Lifeco Inc.
(3) All holdings are common shares, or where indicated,
exercisable options for common shares, of Power Financial
Corporation.
(4) All holdings are subordinate voting shares, or where
indicated, exercisable options for subordinate voting shares, of
Power
Corporation of Canada.
None of the share holdings set out above exceed 1% of the total
shares of the class outstanding.
_________________________________________________________________
__________
VOTING RIGHTS
_________________________________________________________________
___________
To the extent required by applicable law, all Eligible Fund
shares held in the Series Account will
be voted by the Company at regular and special shareholder meetings
of the respective Eligible Funds in
accordance with instructions received from persons having voting
interests in the corresponding
Investment Division. If, however, the 1940 Act 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 all Eligible
Funds shares in our own rights, we may elect to do so.
Before the annuity commencement date, you the Owner, have the
voting interest. The number of
votes which are available to you will be calculated separately for
each of your Variable Sub-Accounts.
That number will be determined by applying your percentage
interest, if any, in a particular Investment
Division to the total number of votes attributable to that
Investment Division. You hold a voting interest in
each Investment Division to which your Annuity Account Value is
allocated. If you select a variable
annuity option, the votes attributable to a Contract will decrease
as annuity payments are made.
The number of votes of an Eligible Fund will be determined as
of the date coincident with the
date established by that Eligible Fund for determining shareholders
eligible to vote at the meeting of the
Eligible Funds. Voting instructions will be solicited by written
communication prior to such meeting in
accordance with procedures established by the respective Eligible
Funds.
Shares as to which no timely instructions are received and
shares held by us as to which Owners
have no beneficial interest will be voted in proportion to the
voting instructions which are received with
respect to all Contracts participating in the Investment Division.
Voting instructions to abstain on any
item to be voted upon will be applied on a pro rata basis to reduce
the votes eligible to be cast.
Each person or entity having a voting interest in a
Investment Division will receive proxy material,
reports and other material relating to the appropriate Eligible
Fund.
It should be noted that generally the Eligible Funds are not
required to, and do not intend to,
hold annual or other regular meetings of shareholders.
Contract Owners have no voting rights in the Company.
_________________________________________________________________
___________
RIGHTS RESERVED BY THE COMPANY
_________________________________________________________________
___________
The Company reserves the right to make certain changes if, in
its judgment, they would best
serve the interests of Owners and Annuitants or would be
appropriate in carrying out the purposes of the
Contracts. Any changes will be made only to the extent and in the
manner permitted by applicable laws.
Also, when required by law, the Company will obtain your approval
of the changes and approval from
any appropriate regulatory authority. Such approval may not be
required in all cases, however.
Examples of the changes the Company may make include:
- To operate the Series Account in any form permitted under
the Investment Company Act of
1940 or in any other form permitted by law.
- To transfer any assets in any Investment Division to
another Investment Division, or to one or
more separate accounts, or to a Guarantee Period; or to add,
combine or remove Investment
Divisions of the Series Account.
- To substitute, for the Eligible Fund shares in any
Investment Division, the shares of another
Eligible Fund or shares of another investment company or any
other investment permitted by law.
- To make any changes required by the Internal Revenue Code
or by any other applicable law in
order to continue treatment of the Contract as an annuity.
- To change the time or time of day at which a Valuation
Date is deemed to have ended.
- To make any other necessary technical changes in the
Contract in order to conform with any
action the above provisions permit the Company to take,
including to change the way the
Company assess charges, but without increasing as to any then
outstanding Contract the
aggregate amount of the types of charges which the Company
has guaranteed.
_________________________________________________________________
___________
LEGAL PROCEEDINGS
_________________________________________________________________
___________
There are at present no material legal proceedings to which
the Series Account is a party or to
which the assets of the Series Account are subject. The Company is
not currently a party to, and its
property is not currently subject to, any material legal
proceedings. The lawsuits to which the Company
is a party are, in the opinion of management, in the ordinary
course of business, and are not expected to
have a material adverse effect on the financial results, conditions
or prospects of the Company.
_________________________________________________________________
___________
LEGAL MATTERS
_________________________________________________________________
___________
Advice regarding certain legal matters concerning the federal
securities laws applicable to the
issue and sale of the Contract has been provided by Jorden Burt
Berenson & Johnson LLP. The
organization of the Company, the Company's authority to issue the
Contract, and the validity of the form
of the Contract have been passed upon by Ruth B. Lurie, Vice
President, Counsel and Associate
Secretary of the Company.
_________________________________________________________________
___________
EXPERTS
_________________________________________________________________
___________
The consolidated financial statements of Great-West Life
&
Annuity Insurance Company at
December 31, 1996 and 1995, and for each of the three years in the
period ended December 31, 1996
included in this prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated
in their report appearing herein, and are included in reliance upon
the report of such firm given upon
their authority as experts in accounting and auditing.
_________________________________________________________________
___________
AVAILABLE INFORMATION
_________________________________________________________________
___________
We have filed a registration statement ("Registration
Statement") with the Commission under the
1933 Act relating to the Contracts offered by this Prospectus.
This Prospectus has been filed as a part of
the Registration Statement and does not contain all of the
information set forth in the Registration
Statement and exhibits thereto. Reference is hereby made to the
Registration Statement and exhibits for
further information relating to us and the Contracts. Statements
contained in this Prospectus, as to the
content of the Contracts and other legal instruments, are
summaries. For a complete statement of the
terms thereof, reference is made to the instruments as filed as
exhibits to the Registration Statement.
The Registration Statement and its exhibits may be inspected and
copied at the offices of the
Commission located at 450 Fifth Street, N.W., Washington, D.C.
The Statement of Additional Information contains more
specific information relating to the Series
Account and GWL&A. The Table of Contents of the Statement of
Additional Information is set forth
below:
1. General Information
2. Great-West Life & Annuity Insurance Company and the
Variable Annuity-1 Series Account
3. Calculation of Annuity Payments
4. Postponement of Payments
5. Services
6. Withholding
7. Calculation of Performance Data
<PAGE>
Appendix A
The standard nonforfeiture rate in all states, other than those
listed below is 3%.
Florida 0%
Mississippi 0%
Oklahoma 0%
<PAGE>
Appendix B
On the following pages are four examples of Market Value
Adjustments illustrating (1) increasing interest
rates, (2) decreasing interest rates, (3) flat interest rates (i
and j are within .10% of each other), and (4)
less than 6 months to maturity.
Example #1 - Increasing Interest Rates
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period:10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2000
j: 7.00%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.071]65/12} - 1
= .952885 - 1
= .047115
MVA = (amount Transferred or surrendered) x
MVAF
= $10,000 x - .047115
= - $471.15
Surrender Value = (amount Transferred or surrendered
+ MVA)
= ($10,000 + - $471.15)
= $9,528.85
Example #2 - Decreasing Interest Rates
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period:10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2000
j: 5.00%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.05]65/12} - 1
= .0055323
MVAF = (amount Transferred or surrendered) x
MVAF
= $10,000 x .0055323
= $553.23
Surrender Value = (amount Transferred or surrendered
+ MVA)
= ($10,000 + $553.23)
= $10,553.23
<PAGE>
Example #3 - Flat Interest Rates (i and j are within .10% of
each other)
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period:10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2000
j: 6.24%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.0634]65/12} - 1
= .99036 - 1
= -.00964
However, [i-j] <.10%, so MVAF = 0
MVAF = (amount Transferred or surrendered) x
MVAF
= $10,000 x 0
= $0
Surrender Value = (amount Transferred or surrendered
+ MVA)
= ($10,000 + $0)
= $10,000
Example #4 - N<6 (less than 6 months to maturity)
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period:10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2005
j: 7.00%
Amount Surrendered: $10,000
N: 5
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.071]5/12} - 1
= .99629 - 1
= -.00371
However, N<6, so MVAF = 0
MVAF = (amount Transferred or surrendered) x MVAF
= $10,000 x 0
= $0
Surrender Value = (amount Transferred or surrendered + MVA)
= ($10,000 + $0)
= $10,000
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 1996, 1995, AND 1994
AND INDEPENDENT AUDITORS' REPORT
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(A wholly-owned subsidiary of
The Great-West Life Assurance Company)
Consolidated Financial Statements for the
Years Ended December 31, 1996, 1995, and 1994
and Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
of Great-West Life & Annuity Insurance Company:
We have audited the accompanying consolidated balance sheets of
Great-West Life & Annuity Insurance Company (a wholly-owned
subsidiary of The Great-West Life Assurance Company) and
subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholder's equity, 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.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Great-West Life & Annuity Insurance Company and subsidiaries as of
December 31, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
January 25, 1997
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(Dollars in Thousands)
ASSETS
1996
1995
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized cost (fair value $2,041,064 and
$2,158,043)
$ 1,992,681
$ 2,054,204
Available-for-sale, at fair value (amortized cost $6,151,519
and $6,087,969)
6,206,478
6,263,187
Common stock
19,715
9,440
Mortgage loans on real estate, net
1,487,575
1,713,195
Real estate, net
67,967
60,454
Policy loans
2,523,477
2,237,745
Short-term investments, available-for-sale (cost approximates
fair value)
419,008
134,835
Total Investments
12,716,901
12,473,060
Cash
125,182
90,939
Reinsurance receivable
196,958
333,924
Deferred policy acquisition costs
282,780
278,526
Investment income due and accrued
198,441
211,922
Other assets
57,244
40,038
Premiums in course of collection
74,693
85,990
Deferred income taxes
214,404
168,941
Separate account assets
5,484,631
3,998,878
TOTAL ASSETS
$19,351,234
$17,682,218
See notes to consolidated financial statements.
<PAGE>
LIABILITIES AND STOCKHOLDER'S EQUITY
1996
1995
POLICY BENEFIT LIABILITIES:
Policy reserves
$11,022,595
$10,845,935
Policy and contract claims
372,327
359,791
Policyholders' funds
153,867
154,872
Experience refunds
87,399
83,562
Provision for policyholders' dividends
51,279
47,760
GENERAL LIABILITIES:
Due to Parent Corporation
151,431
149,974
Repurchase agreements
286,736
375,299
Commercial paper
84,682
84,854
Other liabilities
488,818
451,555
Undistributed earnings on
participating business
133,255
136,617
Separate account liabilities
5,484,631
3,998,878
Total Liabilities
18,317,020
16,689,097
STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value,
50,000,000 shares authorized:
Series A, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
600 shares issued and outstanding
60,000
60,000
Series B, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
200 shares issued and outstanding
20,000
20,000
Series C, cumulative, 1500 shares authorized,
none outstanding
Series D, cumulative, 1500 shares authorized,
none outstanding
Series E, non-cumulative, 2,000,000
shares authorized, liquidation value of $20.90
per share, issued, and outstanding
41,800
41,800
Common stock, $1 par value; 50,000,000 shares authorized;
7,032,000 shares issued and outstanding
7,032
7,032
Additional paid-in capital
664,265
657,265
Net unrealized gains on securities available-for-sale, net
14,951
58,763
Retained earnings
226,166
148,261
Total Stockholder's Equity
1,034,214
993,121
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
$19,351,234
$17,682,218
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands)
1996
1995
1994
REVENUES:
Annuity contract charges and premiums
$91,881
$79,816
$61,122
Life, accident, and health premiums earned (net of
premiums ceded totaling $(104,250), $60,880
and $48,115)
1,107,367
987,611
938,947
Net investment income
836,642
835,046
767,646
Net realized gains (losses) on investments
(21,078)
7,465
(71,939)
2,014,812
1,909,938
1,695,776
BENEFITS AND EXPENSES:
Life and other policy benefits (net of reinsurance
recoveries totaling $52,675, $43,574,
and $18,937)
515,750
557,469
548,950
Increase in reserves
229,198
98,797
64,834
Interest paid or credited to contractholders
561,786
562,263
529,118
Provision for policyholders' share of earnings (losses)
on participating business
(7)
2,027
(725)
Dividends to policyholders
49,237
48,150
42,094
1,355,964
1,268,706
1,184,271
Commissions
106,561
122,926
120,058
Operating expenses
336,719
314,810
261,311
Premium taxes
25,021
26,884
27,402
1,824,265
1,733,326
1,593,042
INCOME BEFORE INCOME TAXES
190,547
176,612
102,734
PROVISION FOR INCOME TAXES:
Current
77,134
88,366
65,070
Deferred
(21,162)
(39,434)
(36,614)
55,972
48,932
28,456
NET INCOME
$134,575
$127,680
$74,278
See notes to consolidated financial statements.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands)
Preferred Stock
Shares
Amount
Common Stock
Shares
Amount
Additional Paid-In Capital
Net Unrealized Gains (Losses)
Retained Earnings (Deficit)
Total
BALANCE, JANUARY 1, 1994
2,000,800
$121,800
7,032,000
$7,032
$656,793
$0
$35,721
$821,346
Adjustment to beginning balance for change in
accounting method for investment
securities
6,515
6,515
Change in net unrealized gains (losses)
(84,942)
(84,942)
Capital contributions
472
472
Dividends
(40,438)
(40,438)
Net income
74,278
74,278
BALANCE, DECEMBER 31, 1994
2,000,800
121,800
7,032,000
7,032
657,265
(78,427)
69,561
777,231
Change in net realized gains (losses)
137,190
137,190
Dividends
(48,980)
(48,980)
Net income
127,680
27,680
BALANCE, DECEMBER 31, 1995
2,000,800
121,800
7,032,000
7,032
657,265
58,763
148,261
993,121
Change in net unrealized gains (losses)
(43,812)
(43,812)
Capital contributions
7,000
7,000
Dividends
(56,670)
(56,670)
Net income
134,575
134,575
BALANCE, DECEMBER 31, 1996
2,000,800
$121,800
7,032,000
$7,032
$664,265
$14,951
$226,166
$1,034,214
See notes to consolidated financial statements.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands)
1996
1995
1994
OPERATING ACTIVITIES:
Net income
$134,575
$127,680
$74,278
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain (loss) allocated to participating policyholders
(7)
2,027
(725)
Amortization of investments
15,518
26,725
36,978
Realized losses (gains) on disposal of investments
and write-downs of mortgage loans and real estate
21,078
(7,465)
71,939
Amortization
49,454
49,464
29,197
Deferred income taxes
(20,258)
(39,763)
(38,631)
Changes in assets and liabilities:
Policy benefit liabilities
358,393
346,975
93,998
Reinsurance receivable
136,966
(38,776)
(25,868)
Accrued interest and other receivables
24,778
(17,617)
(26,032)
Other, net
(8,076)
8,834
96,950
Net cash provided by operating activities
712,421
458,084
312,084
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and
redemptions of investments:
Fixed maturities
Held-to-maturity
Sales
18,821
16,014
Maturities and redemptions
516,838
655,993
1,034,324
Available-for-sale
Sales
3,569,608
4,211,649
1,753,445
Maturities and redemptions
803,369
253,747
141,299
Mortgage loans
235,907
260,960
291,102
Real estate
2,607
4,401
29,868
Common stock
1,888
178
Purchases of investments:
Fixed maturities
Held-to-maturity
(453,787)
(490,228)
(673,567)
Available-for-sale
(4,753,154)
(4,932,566)
(2,606,028)
Mortgage loans
(23,237)
(683)
(9)
Real estate
(15,588)
(5,302)
(9,253)
Common stock
(12,113)
(4,218)
(2,063)
Net cash used in investing activities
(127,662)
(27,426)
(24,690)
(Continued)
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands)
1996
1995
1994
FINANCING ACTIVITIES:
Contract withdrawals, net of deposits
$(413,568)
$(217,190)
$(238,166)
Due to Parent Corporation
1,457
(9,143)
(13,078)
Dividends paid
(56,670)
(48,980)
(40,438)
Net commercial paper (repayments) borrowings
(172)
(4,832)
89,686
Net repurchase agreements repayments
(88,563)
(191,195)
(39,244)
Capital contributions
7,000
Net cash used in financing activities
(550,516)
(471,340)
(241,240)
NET INCREASE (DECREASE) IN CASH
34,243
(40,682)
46,154
CASH, BEGINNING OF YEAR
90,939
131,621
85,467
CASH, END OF YEAR
$125,182
$90,939
$131,621
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes
$103,700
$83,841
$68,892
Interest
15,414
17,016
12,229
See notes to consolidated financial statements.
(Concluded)
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Amounts in Thousands, except Share Amounts)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Great-West Life & Annuity Insurance Company
(the Company) is a wholly-owned subsidiary of The Great-West Life
Assurance Company (the Parent Corporation). The Company is an
insurance company domiciled in the State of Colorado. The Company
offers a wide range of life insurance, health insurance, and
retirement and investment products to individuals, businesses, and
other private and public organizations throughout the United
States.
Basis of Presentation - The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. The consolidated financial statements
include the accounts of the Company and its subsidiaries. All
material intercompany transactions and balances have been
eliminated in consolidation.
Certain reclassifications have been made to the 1995 and 1994
financial statements to conform with the basis of presentation used
in 1996.
Investments - Investments are reported as follows:
1. Management determines the classification of fixed maturities
at the time of purchase. Fixed maturities are classified as
held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost unless fair value is less
than cost and the decline is deemed to be other than temporary, in
which case they are written down to fair value and a new cost basis
is established.
Fixed maturities not classified as held-to-maturity are
classified as available-for-sale. Available-for-sale securities
are carried at fair value, with the net unrealized gains and losses
reported as a separate component of stockholder's equity. The net
unrealized gains and losses in derivative financial instruments
used to hedge available-for-sale securities are included in the
separate component of stockholder's equity.
The amortized cost of fixed maturities classified as
held-to-maturity or available-for-sale is adjusted for amortization
of premiums and accretion of discounts using the effective interest
method over the estimated life of the related bonds. Such
amortization is included in net investment income. Realized gains
and losses, and declines in value judged to be other-than-temporary
are included in net realized gains (losses) on investments.
2. Mortgage loans on real estate are carried at their unpaid
balances adjusted for any unamortized premiums or discounts and any
valuation reserves. Interest income is accrued on the unpaid
principal balance. Discounts and premiums are amortized to net
investment income using the effective interest method. Accrual of
interest is discontinued on any impaired loans where collection of
interest is doubtful.
The Company maintains an allowance for credit losses at a
level that, in management's opinion, is sufficient to absorb
possible credit losses on its impaired loans and to provide
adequate provision for any possible future losses in the portfolio.
Management's judgment is based on past loss experience, current and
projected economic conditions, and extensive situational analysis
of each individual loan.
Effective January 1, 1995, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 114 "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan-Income Recognition and
Disclosures". In accordance with these standards, a mortgage loan
is considered to be impaired when it is probable that the Company
will be unable to collect all amounts due according to the
contractual terms of the loan agreement. The measurement of
impaired loans is based on the fair value of the collateral. As
the Company was already providing for impairment of loans through
an allowance for credit losses, the implementation of these
statements had no material effect on the Company's financial
statements.
3. Real estate is carried at the lower of cost or fair value, net
of costs of disposal. Effective January 1, 1996, the Company
adopted SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". The
implementation of this statement had no material effect on the
Company's financial statements.
4. Investments in common stock are carried at fair value.
5. Policy loans are carried at their unpaid balances.
6. Short-term investments include securities purchased with
initial maturities of one year or less and are carried at amortized
cost. The Company considers short-term investments to be
available-for-sale and amortized cost approximates fair value.
Gains and losses realized on disposal of investments are
determined on a specific identification basis.
Cash - Cash includes only amounts in demand deposit accounts.
Deferred Policy Acquisition Costs - Policy acquisition costs,
which consist of sales commissions and other costs that vary with
and are primarily related to the production of new and renewal
business, have been deferred to the extent recoverable. Deferred
costs associated with the annuity products are being amortized
over the life of the contracts in proportion to the emergence of
gross profits. Retrospective adjustments of these amounts are made
when the Company revises its estimates of current or future gross
profits. Deferred costs associated with traditional life insurance
are amortized over the premium paying period of the related
policies in proportion to premium revenues recognized.
Amortization of deferred policy acquisition costs totaled $47,089,
$48,054, and $28,199 in 1996, 1995, and 1994, respectively.
Separate Account - Separate account assets and related
liabilities are carried at fair value. The Company's separate
accounts invest in shares of Maxim Series Fund, Inc., a
diversified, open-end management investment company which is an
affiliate of the Company, shares of other external mutual funds, or
government or corporate bonds.
Life Insurance and Annuity Reserves - Life insurance and
annuity policy reserves with life contingencies of $5,242,753, and
$4,675,175 at December 31, 1996 and 1995, respectively, are
computed on the basis of estimated mortality, investment yield,
withdrawals, future maintenance and settlement expenses, and
retrospective experience rating premium refunds. Annuity contract
reserves without life contingencies of $5,779,842 and $6,170,760,
at December 31, 1996 and 1995, respectively, are established at the
contractholder's account value.
Reinsurance - Policy reserves ceded to other insurance
companies are carried as reinsurance receivable on the balance
sheet (See Note 3). The cost of reinsurance related to
long-duration contracts is accounted for over the life of the
underlying reinsured policies using assumptions consistent with
those used to account for the underlying policies.
Policy and Contract Claims - Policy and contract claims
include provisions for reported claims in process of settlement,
valued in accordance with the terms of the related policies and
contracts, as well as provisions for claims incurred and unreported
based primarily on prior experience of the Company.
Participating Fund Account - Participating life and annuity
policy reserves are $3,591,077 and $3,339,316 at December 31, 1996
and 1995, respectively. Participating business approximates 50.3%
of the Company's ordinary life insurance in force and 92.2% of
ordinary life insurance premium income at December 31, 1996.
The liability for undistributed earnings on participating
business was decreased by $3,362 in 1996, which represented $7 of
losses on participating business, a reduction of $2,924 to reflect
the net change in unrealized gains on securities classified as
available-for-sale, net of certain adjustments to policy reserves
and income taxes, and a decrease of $431 due to reinsurance
transactions (See Note 2).
The amount of dividends to be paid from undistributed earnings
on participating business is determined annually by the Board of
Directors. Amounts allocable to participating policyholders are
consistent with established Company practice.
The Company has established a Participating Policyholder
Experience Account (PPEA) for the benefit of all participating
policyholders which is included in the accompanying consolidated
balance sheet. Earnings associated with the operation of the PPEA
are credited to the benefit of all participating policyholders. In
the event that the assets of the PPEA are insufficient to provide
contractually guaranteed benefits, the Company must provide such
benefits from its general assets.
The Company has also established a Participation Fund Account
(PFA) for the benefit of the participating policyholders previously
transferred to the Company from the Parent under an assumption
reinsurance transaction. The PFA is part of the PPEA. The assets
and liabilities associated with these policies are segregated in
the accounting records of the Company. Earnings derived from the
operation of the PFA accrue solely for the benefit of the acquired
participating policyholders.
Recognition of Premium Income and Benefits and Expenses - Life
insurance premiums are recognized as earned. Annuity premiums with
life contingencies are recognized as received. Accident and health
premiums are earned on a monthly pro rata basis. Revenues for
annuity and other contracts without significant life contingencies
consist of contract charges for the cost of insurance, contract
administration, and surrender fees that have been assessed against
the contract account balance during the period. Benefits and
expenses on policies with life contingencies are associated with
premium income by means of the provision for future policy benefit
reserves, resulting in recognition of profits over the life of the
contracts. The average crediting rate on annuity products was
approximately 6.8% in 1996.
Income Taxes - Income taxes are recorded using the asset and
liability approach which requires, among other provisions, the
recognition of deferred tax assets and liabilities for expected
future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating
future tax consequences, all expected future events (other than the
enactments or changes in the tax laws or rules) are considered.
Although realization is not assured, management believes it is more
likely than not that the deferred tax asset, net of a valuation
allowance, will be realized.
Repurchase Agreements and Securities Lending - The Company
enters into repurchase agreements with third-party broker-dealers
in which the Company sells securities and agrees to repurchase
substantially similar securities at a specified date and price.
Such agreements are accounted for as collateralized borrowings.
Interest expense on repurchase agreements is recorded at the coupon
interest rate on the underlying securities. The repurchase fee
received or paid is amortized over the term of the related
agreement and recognized as an adjustment to investment income.
The Company will implement Statement of Financial Accounting
Standards (SFAS) No. 125 "Accounting for Transfer and Servicing of
Financial Assets and Extinguishments of Liabilities" in 1998 as it
relates to repurchase agreements and securities lending
arrangements. Management estimates the effect of the change will
not be material.
Derivatives - The Company engages in hedging activities to manage
interest rate and foreign exchange risk (See Note 6).
2. RELATED-PARTY TRANSACTIONS
On October 31, 1996 the Company recaptured certain pieces of
an individual participating insurance block of business previously
reinsured to the Parent Corporation on December 31, 1992. The
Company recorded, at estimated fair value, the following at October
31, 1996 as a result of this transaction:
Assets Liabilities and
Stockholder's Equity
Cash $162,000 Policy reserves $164,839
Mortgages 19,753 Due to parent corporation 9,180
Other 18 Deferred income taxes 1,283
Undistributed earnings on Stockholder's equity 7,000
participating business 431
$182,302 $182,302
The Company and the Parent Corporation have a number of
service agreements whereby the Parent Corporation administers,
distributes, and underwrites business for the Company and
administers the Company's investment portfolio. Certain operating
expenses represent allocations made by the Parent Corporation to
the Company for services provided pursuant to these service
agreements. These transactions are summarized as follows:
Years Ended December 31,
1996
1995
1994
Investment management expense (included in net
investment income)
$14,800
$15,182
$13,841
Administrative and underwriting payments
(included in operating expenses)
304,599
301,529
269,020
Effective January 1, 1997 all employees of the U.S. operations of
the Parent Corporation and the related benefit plans were
transferred to the Company. All related employee benefit plan
assets and liabilities were transferred from the Parent Corporation
to the Company with no material impact on the Company's financial
position. There will not be any material effect on the Company's
operating expenses as the costs associated with the employees and
these benefit plans are reflected in the present service
agreements.
At December 31, 1996 and 1995, due to Parent Corporation
includes $31,639 and $27,814 due on demand and $119,792 and
$122,160 of notes payable which bear interest and mature at various
dates. These notes may be prepaid in whole or in part at any time
without penalty; the issuer may not demand payment before the
maturity date. The Company also has available an arrangement to
obtain advances from the Parent Corporation to fund short-term
liquidity needs. The due on demand to the Parent Corporation bears
interest at the public bond rate (7.0% and 6.4% at December 31,
1996 and 1995, respectively) while the remainder bear interest at
various rates.
3. REINSURANCE
In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured and to recover a portion
of benefits paid by ceding risks to other insurance enterprises
under excess coverage and co-insurance contracts. The Company
retains a maximum of $1.5 million of coverage per individual life.
Reinsurance contracts do not relieve the Company from its
obligations to policyholders. Failure of reinsurers to honor their
obligations could result in losses to the Company; consequently,
allowances are established for amounts deemed uncollectible. The
Company evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the
reinsurers to minimize its exposure to significant losses from
reinsurer insolvencies. At December 31, 1996 and 1995, reinsurance
receivables with a carrying value of $196,958 and $333,924,
respectively, were due primarily from the Parent Corporation.
Total reinsurance premiums assumed from the Parent Corporation
were $1,693, $1,606 and $2,438, in 1996, 1995, and 1994,
respectively.
The Company considers all accident and health policies to be
short-duration contracts. The following schedule details life
insurance in force and life and accident/health premiums:
Gross Amount
Ceded Primarily to the Parent Corporation
Assumed Primarily From Other Companies
Net Amount
Percentage of Amount Assumed to Net
December 31, 1996:
Life insurance in force:
Individual
$23,409,823
$5,246,079
$3,482,118
$21,645,862
16.1%
Group
47,682,237
1,817,511
49,499,748
3.7%
Total
$71,092,060
$5,246,079
$5,299,629
$71,145,610
Premiums:
Life insurance
$334,127
$(111,743)
$19,633
$465,503
4.2%
Accident/health
592,577
7,493
56,780
641,864
8.8%
Total
$926,704
$(104,250)
$76,413
$1,107,367
December 31, 1995:
Life insurance in force:
Individual
$22,388,520
$7,200,882
$3,476,784
$18,664,422
18.6%
Group
48,415,592
1,954,313
50,369,905
3.9%
Total
$70,804,112
$7,200,882
$5,431,097
$69,034,327
Premiums:
Life insurance
$339,342
$51,688
$21,028
$308,682
6.8%
Accident/health
623,626
9,192
64,495
678,929
9.5%
Total
$962,968
$60,880
$85,523
$987,611
December 31, 1994:
Life insurance in force:
Individual
$21,461,590
$7,411,811
$3,415,596
$17,465,375
19.6%
Group
48,948,669
2,102,228
51,050,897
4.1%
Total
$70,410,259
$7,411,811
$5,517,824
$68,516,272
Premiums:
Life insurance
$322,263
$42,946
$22,009
$301,326
7.3%
Accident/health
579,650
5,169
63,140
637,621
9.9%
Total
$901,913
$48,115
$85,149
$938,947
4. NET INVESTMENT INCOME
Net investment income is summarized as follows:
Years Ended December 31,
1996
1995
1994
Investment income:
Fixed maturities and short-term investments
$601,913
$591,561
$555,103
Mortgage loans on real estate
140,823
171,008
182,544
Real estate
5,292
3,936
5,700
Policy loans
175,746
163,547
116,060
Other
3,319
927,095
930,052
859,407
Investment expenses, including
interest on amounts charged
by the Parent Corporation
of $11,282, $10,778, and $11,145
90,453
95,006
91,761
Net investment income
$836,642
$835,046
$767,646
5. NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) on investments are as follows:
Years Ended December 31,
1996
1995
1994
Realized gains (losses):
Fixed Maturities
$(11,624)
$28,166
$(39,775)
Mortgage loans on real estate
1,143
1,309
2,120
Real estate
(10)
(102)
Provisions
(10,597)
(22,000)
(34,182)
Net realized gains (losses) on investments
$(21,078)
$7,465
$(71,939)
6. SUMMARY OF INVESTMENTS
Fixed maturities owned at December 31, 1996 are summarized as
follows:
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Estimated Fair Value
Carrying Value
Held-to-Maturity:
U.S. Treasury Securities and
obligations of U.S. Government
Agencies:
Collateralized mortgage
obligations
$
$
$
$
$
Direct mortgage pass-through
certificates
Other
10,935
630
106
11,459
10,935
Collateralized mortgage obligations
Public utilities
284,954
12,755
320
297,389
284,954
Corporate bonds
1,634,745
41,195
7,360
1,668,580
1,634,745
Foreign governments
12,577
556
3
13,130
12,577
State and municipalities
49,470
1,051
15
50,506
49,470
$ 1,992,681
$ 56,187
$ 7,804
$ 2,041,064
$1,992,681
Available-for-Sale:
U.S. Treasury Securities and
obligations of U.S.
Government Agencies:
Collateralized mortgage
obligations
$ 658,612
$ 8,058
$ 3,700
$ 662,970
$ 662,970
Direct mortgage pass-through
certificates
844,291
5,093
10,908
838,476
838,476
Other
359,220
596
2,686
357,130
357,130
Collateralized mortgage obligations
614,773
13,619
3,553
624,839
624,839
Public utilities
628,382
6,523
5,375
629,530
629,530
Corporate bonds
2,907,875
56,551
5,250
2,959,176
2,959,176
Foreign governments
110,013
1,762
5,673
106,102
106,102
State and municipalities
28,353
21
119
28,255
28,255
$ 6,151,519
$ 92,223
$ 37,264
$ 6,206,478
$6,206,478
6. SUMMARY OF INVESTMENTS [Continued]
Fixed maturities owned at December 31, 1995 are summarized as
follows:
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Estimated Fair Value
Carrying Value
Held-to-Maturity:
U.S. Treasury Securities and
obligations of U.S.
Government Agencies:
Collateralized mortgage
obligations
$
$
$
$
$
Direct mortgage pass-through
certificates
Other
11,107
1,093
12,200
11,107
Collateralized mortgage obligations
Public utilities
269,671
22,084
95
291,660
269,671
Corporate bonds
1,732,046
83,583
5,867
1,809,762
1,732,046
Foreign governments
18,596
1,087
12
19,671
18,596
State and municipalities
22,784
1,966
24,750
22,784
$ 2,054,204
$ 109,813
$ 5,974
$2,158,043
$ 2,054,204
Available-for-Sale:
U.S. Treasury Securities and
obligations of U.S.
Government Agencies:
Collateralized mortgage
obligations
$ 561,475
$ 9,983
$ 1,948
$ 569,510
$ 569,510
Direct mortgage pass-through
certificates
794,056
11,980
2,233
803,803
803,803
Other
561,736
7,703
39
569,400
569,400
Collateralized mortgage obligations
490,074
18,044
3,304
504,814
504,814
Public utilities
581,482
16,607
2,425
595,664
595,664
Corporate bonds
2,943,918
121,537
26
3,065,429
3,065,429
Foreign governments
141,362
5,021
5,644
140,739
140,739
State and municipalities
13,866
22
60
13,828
13,828
$ 6,087,969
$ 190,897
$ 15,679
$6,263,187
$ 6,263,187
Most of the collateralized mortgage obligations consist of
planned amortization classes with final stated maturities of two to
thirty years and average lives of less than one to fourteen years.
Prepayments on all mortgage-backed securities are monitored monthly
and amortization of the premium and/or the accretion of the
discount associated with the purchase of such securities is
adjusted by such prepayments.
The cumulative effect as of January 1, 1994 of adopting SFAS
No. 115 "Accounting for Certain Investments in Debt and Equity
Securities," increased the opening balance of stockholders' equity
by $6,515 to reflect the net unrealized gains on securities
classified as available-for-sale (previously carried at the lower
of aggregate amortized cost or fair value) and the corresponding
adjustments to deferred policy acquisition costs, policy reserves,
and amounts allocable to the liability for undistributed earnings
on participating business, all net of income taxes.
In November 1995, the Financial Accounting Standards Board
issued a special report entitled "A Guide to Implementation of SFAS
115 on Accounting for Certain Investments in Debt and Equity
Securities". In accordance with the adoption of this guidance, the
Company reassessed the classification of its investment portfolio
in December 1995 and reclassed securities totaling $2,119,814 from
held-to-maturity to available-for-sale. In connection with this
reclassification, an unrealized gain, net of related adjustments
(see above), of $23,449 was recognized in stockholder's equity at
the date of transfer.
The estimated fair value of fixed maturities that are publicly
traded are obtained from an independent pricing service. To
determine fair value for fixed maturities not actively traded, the
Company utilized discounted cash flows calculated at current market
rates on investments of similar quality and term.
The amortized cost and estimated fair value of fixed maturity
investments at December 31, 1996, by projected maturity, are shown
below. Actual maturities will likely differ from these projections
because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Held-to-Maturity
Amortized Cost
Estimated Fair Value
Available-for-Sale
Amortized Cost
Estimated Fair Value
Due in one year or less
$197,135
$200,356
$294,236
$308,805
Due after one year through five years
840,192
860,192
1,294,892
1,300,473
Due after five years through ten years
621,900
641,103
934,312
940,880
Due after ten years
140,061
145,287
422,179
432,721
Mortgage-backed securities
2,117,676
2,126,285
Asset-backed securities
193,393
194,126
1,088,224
1,097,314
$1,992,681
$2,041,064
$6,151,519
$6,206,478
Proceeds from sales of securities available-for-sale were
$3,569,608, $4,211,649, and $1,753,445 during 1996, 1995, and 1994,
respectively. The realized gains on such sales totaled $24,919,
$39,755, and $7,030 for 1996, 1995, and 1994, respectively. The
realized losses totaled $40,748, $15,516, and $50,612 for 1996,
1995, and 1994, respectively. During 1996, 1995, and 1994
held-to-maturity securities with an amortized cost of $0, $18,087,
and $15,300 were sold due to credit deterioration with
insignificant realized gains and losses.
At December 31, 1996 and 1995, pursuant to fully
collateralized securities lending arrangements, the Company had
loaned $230,419 and $343,351 of fixed maturities, respectively.
The Company makes limited use of derivative financial
instruments to manage interest rate and foreign exchange risk.
Such hedging activity consists of interest rate swap agreements,
interest rate floors and caps, and foreign currency exchange
contracts. Interest rate floors and caps are interest rate
protection instruments that require the payment by a counter-party
to the Company of an interest differential. This differential
represents the difference between current interest rates and an
agreed-upon rate, the strike rate, applied to a notional principal
amount. Interest rate swap agreements are used to convert the
interest rate on certain fixed maturities from a floating rate to
a fixed rate. Interest rate swap transactions generally involve
the exchange of fixed and floating rate interest payment
obligations without the exchange of the underlying principal
amounts. Foreign currency exchange contracts are used to hedge the
foreign exchange rate risk associated with bonds denominated in
other than U.S. dollars. The differential paid or received on
interest rate and amounts received under interest rate floor and
cap agreements are recognized as an adjustment to net investment
income on the accrual method. Gains and losses on foreign exchange
contracts are deferred and recognized in net investment income when
the hedged transactions are realized.
Although derivative financial instruments taken alone may
expose the Company to varying degrees of market and credit risk
when used solely for hedging purposes, these instruments typically
reduce overall market and interest rate risk. The Company controls
the credit risk of its financial contracts through credit
approvals, limits, and monitoring procedures. As the Company
generally enters into transactions only with high quality
institutions, no losses associated with non-performance on
derivative financial instruments have occurred or are expected to
occur.
The following table summarizes the financial hedge
instruments:
December 31, 1996
Notional Amount
Strike/Swap Rate
Maturity
Interest Rate Floor
$100,000
4.5% [LIBOR]
1999
Interest Rate Caps
260,000
11.0% to 11.82%[CMT]
2000 to 2001
Interest Rate Swaps
187,847
6.203% to 9.35%
01/98 to 02/2003
Foreign Currency Exchange
Contracts
61,012
N/A
09/98 to 03/2003
December 31, 1995
Notional Amount
Strike/Swap Rate
Maturity
Interest Rate Floor
$100,000
4.5% [LIBOR]
1999
Interest Rate Cap
100,000
11.0% [CMT]
2000
Interest Rate Swaps
165,000
6.203% to 9.35%
01/98 to 2/2002
Foreign Currency Exchange
Contracts
66,650
N/A
10/96 to 09/98
LIBOR - London Interbank Offered Rate
CMT - Constant Maturity Treasury Rate
The Company has established specific investment guidelines
designed to emphasize a diversified and geographically dispersed
portfolio of mortgages collateralized by commercial and industrial
properties located in the United States. The Company's policy is
to obtain collateral sufficient to provide loan-to-value ratios of
not greater than 75% at the inception of the mortgages. At
December 31, 1996 approximately 32% and 10% of the Company's
mortgage loans were collateralized by real estate located in
California and Michigan, respectively.
The following represents impairments and other information under
SFAS No. 114:
1996
1995
Impaired Loans
Loans with related allowance for credit losses of $2,793 and $654
$16,443
$3,254
Loans with no related allowance for credit losses
31,709
20,424
Average balance of impaired loans during the year
39,064
29,150
Interest income recognized [while impaired]
923
675
Interest income received and recorded [while impaired] using the
cash basis method of recognition
1,130
857
As part of an active loan management policy and in the
interest of maximizing the future return of each individual loan,
the Company may from time to time alter the original terms of
certain loans. These restructured loans, all performing in
accordance with their modified terms that are not impaired,
aggregated $68,254, and $89,160 at December 31, 1996, and 1995,
respectively.
The following table presents changes in the allowance for
credit losses since January 1, 1995 (date of the adoption of SFAS
No. 114):
1996
1995
Balance, beginning of year
$63,994
$57,987
Provision for loan losses
4,470
15,877
Chargeoffs
(3,468)
(10,480)
Recoveries
246
610
Balance, end of year
$65,242
$63,994
7. COMMERCIAL PAPER
The Company has a commercial paper program which is partially
supported by a $50,000 standby letter-of-credit. At December 31,
1996, commercial paper outstanding has maturities ranging from 49
to 123 days and interest rates ranging from 5.4% to 5.6%. At
December 31, 1995, maturities ranged from 25 to 160 days and
interest rates ranged from 5.7% to 5.9%.
8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table provides estimated fair value for all
assets and liabilities and hedge contracts considered to be
financial instruments:
December 31,
1996
Carrying Amount
Estimated Fair Amount
1995
Carrying Amount
Estimated Fair Value
ASSETS:
Fixed maturities and short-term
investments
$8,618,167
$8,666,550
$8,452,226
$8,556,065
Mortgage loans on real estate
1,487,575
1,506,162
1,713,195
1,749,514
Policy loans
2,523,477
2,523,477
2,237,745
2,237,745
Common stock
19,715
19,715
9,440
9,440
LIABILITIES:
Annuity contract reserves
without life contingencies
5,779,842
5,821,404
6,170,760
6,268,749
Policyholders' funds
153,867
153,867
154,872
154,872
Due to Parent Corporation
151,431
154,479
149,974
152,347
Repurchase agreements
286,736
286,736
375,299
375,299
Commercial paper
84,682
84,682
84,854
84,854
HEDGE CONTRACTS:
Interest rate floor
62
124
84
1,320
Interest rate cap
173
173
90
90
Interest rate swaps
4,746
4,746
10,052
10,052
Foreign currency exchange
contracts
(8,954)
(8,954)
(4,604)
(4,604)
The estimated fair value of financial instruments has been
determined using available market information and appropriate
valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented are
not necessarily indicative of the amounts the Company could realize
in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Mortgage loans fair value estimates generally are based on a
discounted cash flow basis. A discount rate "matrix" is
incorporated whereby the discount rate used in valuing a specific
mortgage generally corresponds to that mortgage's remaining term.
The rates selected for inclusion in the discount rate "matrix"
reflect rates that the Company would quote if placing loans
representative in size and quality to those currently in the
portfolio.
Policy loans accrue interest generally at variable rates with
no fixed maturity dates and, therefore, estimated fair value
approximates carrying value.
The fair value of annuity contract reserves without life
contingencies is estimated by discounting the cash flows to
maturity of the contracts, utilizing current credited rates for
similar products.
The estimated fair value of policyholders' funds is the same
as the carrying amount as the Company can change the crediting
rates with 30 days notice.
The estimated fair value of due to Parent Corporation is based
on discounted cash flows at current market spread rates on high
quality investments.
The carrying value of repurchase agreements and commercial
paper is a reasonable estimate of fair value due to the short-term
nature of the liabilities.
The estimated fair value of financial hedge instruments, all
of which are held for other than trading purposes, is the estimated
amount the Company would receive or pay to terminate the agreement
at each year-end, taking into consideration current interest rates
and other relevant factors. Included in the net gain position for
interest rates swaps are $160 and $0 of unrealized losses in 1996
and 1995, respectively. Included in the net loss position for
foreign currencies exchange contracts are $8,954 and $5,497 loss
exposures in 1996 and 1995, respectively.
See note 6 for additional information on policies regarding
estimated fair value of fixed maturities.
9. FEDERAL INCOME TAXES
The following is a reconciliation between the federal income
tax rate and the Company's effective rate:
1996
1995
1994
Federal tax rate
35.0%
35.0%
35.0%
Change in tax rate resulting from:
Investment income not subject to federal tax
(1.0)
(0.5)
(1.0)
Release of contingent liability
(4.7)
Change in valuation allowance
0.8
(7.8)
(6.9)
State and environmental taxes
0.7
0.7
0.9
Other, net
(1.4)
0.3
(0.3)
Total
29.4%
27.7%
27.7%
Temporary differences which give rise to the deferred tax
assets and liabilities as of December 31, 1996 and 1995 are as
follows:
1996
Deferred Tax Asset
Deferred Tax Liability
1995
Deferred Tax Asset
Deferred Tax Liability
Policyholder reserves
$151,239
$
$162,073
$
Deferred policy acquisition costs
57,031
55,542
Deferred acquisition cost proxy tax
70,413
58,481
Investment assets
35,658
16,372
Net operating loss carryforwards
12,295
17,588
Tax credits and other
5,366
4,786
Subtotal
274,971
57,031
242,928
71,914
Valuation allowance
(3,536)
(2,073)
Total Deferred Taxes
$271,435
$57,031
$240,855
$71,914
Amounts related to investment assets above include $8,530 and
$33,735 related to the unrealized gains on the Company's fixed
maturities available-for-sale at December 31, 1996 and 1995,
respectively.
The Company files a separate tax return and, therefore, losses
incurred by subsidiaries cannot be offset against operating income
of the Company. At December 31, 1996, the Company's subsidiaries
have approximately $35,128 of net operating loss carryforwards,
expiring through the year 2011. The tax benefit of subsidiaries'
net operating loss carryforwards, net of a valuation allowance of
$1,612 are included in the deferred tax assets.
The Company's valuation allowance was increased/(decreased) in
1996, 1995, and 1994 by $1,463, $(13,145), and $(6,278),
respectively, primarily as a result of taxable income in
subsidiaries which was greater than expected and the resulting
re-evaluation by management of future estimated taxable income in
the subsidiaries.
Under pre-1984 life insurance company income tax laws, a portion of
life insurance company gain from operations was not subject to
current income taxation but was accumulated, for tax purposes, in
a memorandum account designated as "policyholders' surplus
account." The aggregate accumulation in the account is $7,742 and
the Company does not anticipate any transactions which would cause
any part of the amount to become taxable. Accordingly, no
provision has been made for possible future federal income taxes on
this accumulation.
Pursuant to a December 31, 1993 agreement between the Company
and its Parent whereby the Company assumed responsibility for the
Parent Corporation's income tax liability for fiscal years prior to
1994, the Company had previously recorded a contingent liability
provision. The Company's 1996 results of operations include a
release of $25,600 from the provision, to reflect the resolution of
1988 and l989 tax issues with the Internal Revenue Service (IRS).
Audits of tax years 1990 and 1991 are in the process of being
finalized. The IRS is currently auditing tax years 1992 and 1993.
In the opinion of Company management, the amounts paid or accrued
are adequate; however, it is possible that the Company's accrued
amounts may change as a result of the completion of the IRS audits.
10. STOCKHOLDER'S EQUITY, DIVIDEND RESTRICTIONS, AND OTHER MATTERS
All of the Company's outstanding series of preferred stock are
owned by the Parent Corporation. The dividend rate on the Series
A Stated Rate Auction Preferred Stock (STRAPS) is 7.3% through
December 30, 2002. The Series A STRAPS are redeemable at the
option of the Company on or after December 29, 2002 at a price of
$100,000 per share, plus accumulated and unpaid dividends.
The dividend rate on the Series B Straps is 5.8% through
December 30, 1997. The Series B STRAPS are redeemable at the
option of the Company on or after December 29, 1997 at a price of
$100,000 per share, plus accumulated and unpaid dividends.
The Company's Series E 7.5% non-cumulative, non-redeemable
preferred shares are redeemable by the Company after April 1, 1999.
The shares are convertible into common shares at the option of the
holder on or after September 30, 1999, at a conversion price
negotiated between the holder and the Company or at a formula
determined conversion price in accordance with the share
conditions.
The Company received $472 of contributed capital in the form
of deferred tax assets from the Parent Corporation during 1994 in
connection with reinsurance transactions with the Parent.
The Company's net income and capital and surplus, as
determined in accordance with statutory accounting principles and
practices for December 31 are as follows:
1996
1995
1994
(Unaudited)
Net Income
$180,635
$114,931
$70,091
Capital and Surplus
713,324
653,479
621,589
The maximum amount of dividends which can be paid to
stockholders by insurance companies domiciled in the State of
Colorado is subject to restrictions relating to statutory surplus
and statutory net gain from operations. Statutory surplus and net
gains from operations at December 31, 1996 were $584,492 and
$182,044 (unaudited), respectively. The Company should be able to
pay up to $182,044 (unaudited) of dividends without regulatory
approval in 1997.
Dividends of $8,587, $9,217, and $7,475, were paid on
preferred stock in 1996, 1995, and 1994, respectively. In
addition, dividends of $48,083, $39,763, and $32,963, were paid on
common stock in 1996, 1995 and 1994, respectively. Dividends are
paid as determined by the Board of Directors.
The Company is involved in various legal proceedings which
arise in the ordinary course of its business. In the opinion of
management, after consultation with counsel, the resolution of
these proceedings should not have a material adverse effect on its
financial position or results of operations.
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
VARIABLE ANNUITY-1 SERIES ACCOUNT
Contracts Under
Flexible Premium Deferred
Combination Variable and Fixed Annuity Contracts
issued by
Great-West Life & Annuity Insurance Company
8515 E. Orchard Road
Englewood, Colorado 80111
Telephone:(800) 468-8661 (Outside Colorado)
(800) 547-4957 (Colorado)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a
Prospectus
and should be read
in conjunction with the Prospectus, dated April 30, 1997, which is
available without charge
by contacting the Schwab Annuity Service Center, P.O. Box 7785, San
Francisco,
California 94120-9420 or at 1-800-838-0650.
April 30, 1997
<PAGE>
TABLE OF CONTENTS
Page
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . .B-3
GREAT-WEST LIFE & ANNUITY
AND THE VARIABLE ANNUITY-1 SERIES ACCOUNT. . . . . . . . . .B-3
CALCULATION OF ANNUITY PAYMENTS. . . . . . . . . . . . . . . .B-3
POSTPONEMENT OF PAYMENTS . . . . . . . . . . . . . . . . . . .B-4
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . .B-4
- Safekeeping of Series Account Assets. . . . . . . . . .B-4
- Experts . . . . . . . . . . . . . . . . . . . . . . . .B-4
- Principal Underwriter . . . . . . . . . . . . . . . . .B-4
WITHHOLDING. . . . . . . . . . . . . . . . . . . . . . . . . .B-5
CALCULATION OF PERFORMANCE DATA. . . . . . . . . . . . . . . .B-6
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . .B-7
<PAGE>
GENERAL INFORMATION
In order to supplement the description in the Prospectus, the
following provides additional information
about the Contracts and other matters which may be of interest to
you. Terms used in this Statement of
Additional Information have the same meanings as are defined in the
Prospectus under the heading
"Definitions."
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
AND THE VARIABLE ANNUITY-1 SERIES ACCOUNT
Great-West Life & Annuity Insurance Company (the "Company"), the
issuer of the Contract, is a Colorado
corporation qualified to sell life insurance and annuity contracts
in Puerto Rico, the District of Columbia
and all states except New York. The Company is a wholly-owned
subsidiary of The Great-West Life
Assurance Company, a stock life insurance company incorporated
under the laws of Canada. The Great-
West Life Assurance Company is in turn owned 86.4% by Great-West
Lifeco Inc., a holding company.
Great-West Lifeco Inc. is owned 68.4% by Power Financial
Corporation of Canada, a financial services
company. Power Corporation of Canada, a holding and management
company, has voting control of
Power Financial Corporation of Canada. Mr. Paul Desmarais, through
a group of private holding
companies, which he controls, has voting control of Power
Corporation of Canada.
The assets allocated to the Series Account are the exclusive
property of the Company.
Registration of the Series Account under the Investment Company Act
of 1940 does not involve
supervision of the management or investment practices or policies
of the Series Account or of the
Company by the Securities and Exchange Commission. The Company may
accumulate in the Series
Account proceeds from charges under the Contracts and other amounts
in excess of the Series Account
assets representing reserves and liabilities under the Contract and
other variable annuity contracts issued
by the Company. The Company may from time to time transfer to its
general account any of such excess
amounts. Under certain remote circumstances, the assets of one
Investment Division may not be
insulated from liability associated with another Investment
Division
Best's Insurance Reports has assigned the Company its
highest
financial strength and operating
performance rating of A++. Duff & Phelps Corporation has assigned
the Company their highest claims
paying ability rating of AAA. Standard & Poor's Corporation has
assigned the Company its second
highest rating of AA+ for claims paying ability. Moody's Investors
Service has assigned the Company
an insurance and financial strength rating of Aa2.
CALCULATION OF ANNUITY PAYMENTS
A. Fixed Annuity Options
The amount of each annuity payment under a fixed annuity
option is fixed and guaranteed
by the Company. On the Payment Commencement Date, the Annuity
Account Value held in the Fixed
Sub-Account(s), with a Market Value Adjustment, if applicable, less
Premium Tax, if any, is computed and
that portion of the Annuity Account Value which will be applied to
the fixed annuity option selected is
determined. The amount of the first monthly payment under the
fixed annuity option selected will be at
least as large as would result from using the annuity tables
contained in the Contract to apply to the
annuity option selected. The dollar amounts of any fixed annuity
payments will not vary during the entire
period of annuity payments and are determined according to the
provisions of the annuity option selected.
<PAGE>
B. Variable Annuity Options
To the extent a variable annuity option has been
selected, the Company converts the
Accumulation Units for each of the Owner's Variable Sub-Accounts
into Annuity Units for each Variable
Sub-Account at their values determined as of the end of the
Valuation Period which contains the Payment
Commencement Date. The number of Annuity Units paid for each
Variable Sub-Account is determined
by dividing the amount of the first monthly payment by the
sub-account's Annuity Unit Value on the fifth
Valuation Date preceding the date the first payment is due. The
number of Annuity Units used to
calculate each payment for a Variable Sub-Account remains fixed
during the annuity payment period.
The first payment under a variable annuity payment option
will be based on the value of
each Variable Sub-Account on the fifth Valuation Date preceding the
Payment Commencement Date. It
will be determined by applying the appropriate rate to the amount
applied under the Payment Option.
Payments after the first will vary depending upon the investment
experience of the Variable Sub-Accounts.
The subsequent amount paid from each sub-account is determined by
multiplying (a) by (b) where (a)
is the number of sub-account Annuity Units to be paid and (b) is
the sub-account Annuity Unit value on
the fifth Valuation Date preceding the date the annuity payment is
due. The total amount of each Variable
Annuity Payment will be the sum of the Variable Annuity Payments
for each Variable Sub-Account.
POSTPONEMENT OF PAYMENTS
With respect to amounts allocated to the Series Account,
payment of any amount due
upon a total or partial surrender, death or under an annuity option
will ordinarily be made within seven
days after all documents required for such payment are received by
the Schwab Annuity Service Center.
However, the determination, application or payment of any death
benefit, Transfer, full surrender, partial
withdrawal or annuity payment may be deferred to the extent
dependent on Accumulation or Annuity Unit
Values, for any period during which the New York Stock Exchange is
closed (other than customary
weekend and holiday closings) or trading on the New York Stock
Exchange is restricted as determined
by the Securities and Exchange Commission, for any period during
which any emergency exists as a
result of which it is not reasonably practicable for the Company to
determine the investment experience,
of such Accumulation or Annuity Units or for such other periods as
the Securities and Exchange
Commission may by order permit for the protection of investors.
SERVICES
A. Safekeeping of Series Account Assets
The assets of Variable Annuity-1 Series Account (the
"Series Account") are held by Great-
West Life & Annuity Insurance Company ("GWL&A"). The assets of the
Series Account are kept physically
segregated and held separate and apart from the general account of
GWL&A. GWL&A maintains records
of all purchases and redemptions of shares of the underlying funds.
Additional protection for the assets
of the Series Account is afforded by blanket fidelity bonds issued
to The Great-West Life Assurance
Company in the amount of $25 million, which covers all officers and
employees of GWL&A.
B. Experts
The accounting firm of Deloitte & Touche LLP performs
certain accounting and auditing
services for GWL&A and the Series Account. The principal business
address of Deloitte & Touche LLP
is 555 Seventeenth Street, Suite 3600, Denver, Colorado 80202.
The consolidated financial statements of GWL&A at
December 31, 1996, 1995 and 1994
for each of the three years in the period ended December 31, 1996,
and the statement of assets and
liabilities of Variable Annuity-1 Series Account as of December 31,
1996, and the related statement of
operations and statement of changes in net assets for the period
then ended included in the prospectus
have been audited by Deloitte & Touche LLP, independent auditors,
as set forth in their report appearing
therein and are included in reliance upon such report given upon
the authority of such firm as experts
in accounting and auditing.
C. Principal Underwriter
The offering of the Contracts is made on a continuous basis by
Charles Schwab & Co., Inc.
("Schwab"). Schwab is a California corporation and is a member of
the National Association of Securities
Dealers ("NASD"). The Company does not anticipate discontinuing
the offering of the Contract, although
it reserves the right to do so. The Contract generally will be
issued for Annuitants from birth to age ninety.
WITHHOLDING
Annuity payments and other amounts received under the
Contract are subject to income
tax withholding unless the recipient elects not to have taxes
withheld. The amounts withheld will vary
among recipients depending on the tax status of the individual and
the type of payments from which taxes
are withheld.
Notwithstanding the recipient's election, withholding may
be required with respect to
certain payments to be delivered outside the United States and,
with respect to certain distributions from
certain types of qualified retirement plans, unless the proceeds
are transferred directly to another qualified
retirement plan. Moreover, special "backup withholding" rules may
require the Company to disregard the
recipient's election if the recipient fails to supply the Company
with a "TIN" or taxpayer identification
number (social security number for individuals), or if the Internal
Revenue Service notifies the Company
that the TIN provided by the recipient is incorrect.
CALCULATION OF PERFORMANCE DATA
A. Yield and Effective Yield Quotations for the Money Market
Investment Division
The yield quotation for the Money Market Investment Division
will be for the seven-day period and
is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical
pre-existing account having a balance of one Accumulation Unit in
the Money Market Investment Division
at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from Participant
accounts, and dividing the difference by the value of the account
at the beginning of the base period to
obtain the base period return, and then multiplying the base period
return by (365/7) with the resulting
yield figure carried to the nearest hundredth of one percent.
The effective yield quotation for the Money Market Investment
Division will be for the seven-day
period and is carried to the nearest hundredth of one percent,
computed by determining the net change,
exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one
Accumulation Unit in the Money Market Investment Division at the
beginning of the period, subtracting
a hypothetical charge reflecting deductions from Participant
accounts, and dividing the difference by the
value of the account at the beginning of the base period to obtain
the base period return, and then
compounding the base period return by adding 1, raising the sum to
a power equal to 365 divided by 7,
and subtracting 1 from the result, according to the following
formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN +1)365/7]-1.
For purposes of the yield and effective yield computations,
the hypothetical charge reflects all
deductions that are charged to all Participant accounts in
proportion to the length of the base period, and
for any fees that vary with the size of the account, the account
size is assumed to be the Money Market
Investment Division's mean account size. The specific percentage
applicable to a particular withdrawal
would depend on a number of factors including the length of time
the Contract Owner has participated
under the Contracts. (See "Charges and Deductions" in the
Prospectus.) No deductions or sales loads
are assessed upon annuitization under the Contracts. Realized
gains and losses from the sale of
securities and unrealized appreciation and depreciation of the
Money Market Investment Division and the
Fund are excluded from the calculation of yield.
B. Total Return and Yield Quotations for All Investment Divisions
(Other than Money Market)
The total return quotations for all Investment Divisions,
other than the Money Market, will be
average annual total return quotations for the one-year period.
The quotations are computed by finding
the average annual compounded rates of return over the relevant
periods that would equate the initial
amount invested to the ending redeemable value, according to the
following formula:
P(1+T)n = ERV
Where:P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV =ending redeemable value of a hypothetical
$1,000 payment made at the
beginning of the particular period at the end
of the particular period
For purposes of the total return quotations for these Investment
Divisions, the calculations take into effect
all fees that are charged to the Contract Value , and for any fees
that vary with the size of the account,
the account size is assumed to be the respective Investment
Divisions' mean account size. The
calculations also assume a complete redemption as of the end of the
particular period.
The yield quotations for these Investment Divisions set forth
in the Prospectus are based on the
thirty-day period ended on December 31, 1996, and are computed by
dividing the net investment income
per Accumulation Unit earned during the period by the maximum
offering price per unit on the last day
of the period, according to the following formula:
YIELD = 2[((a-b)cd +1)6 -1]
Where:a = net investment income earned during the period by
the corresponding portfolio
of the Fund attributable to shares owned by the
Investment Division.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of Accumulation Units
outstanding during the
period.
d = the maximum offering price per Accumulation
Unit on the last day of the
period.
For purposes of the yield quotations for these Investment
Divisions, the calculations take into effect all fees
that are charged to the Contract Value, and for any fees that vary
with the size of the account, the
account size is assumed to be the respective Investment Divisions'
mean account size.
FINANCIAL STATEMENTS
The consolidated financial statements of GWL&A as contained in
the prospectus should be
considered only as bearing upon GWL&A's ability to meet its
obligations under the Contracts, and they
should not be considered as bearing on the investment performance
of the Series Account. The interest
of Contract Owners under the Contracts are affected solely by the
investment results of the Series
Account.
<PAGE>
VARIABLE ANNUITY - 1 SERIES ACCOUNT
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Financial Statements for the Period From
November 1, 1996 [Inception] to December 31, 1996
and Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Contract Owners of
Variable Annuity - 1 Series Account of
Great-West Life & Annuity Insurance Company:
We have audited the accompanying statement of assets and
liabilities of Variable Annuity - 1 Series Account of Great-West
Life & Annuity Insurance Company as of December 31, 1996, and the
related statements of operations and changes in net assets for the
period November 1, 1996 [inception] to December 31, 1996 including
each of the investment divisions. These financial statements are
the responsibility of the Series Account's management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Variable Annuity
- - 1 Series Account of Great-West Life & Annuity Insurance Company
at December 31, 1996 and the results of its operations and the
changes in its net assets for the period November 1, 1996
[inception] to December 31, 1996, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
February 7, 1997
<PAGE>
VARIABLE ANNUITY - 1 SERIES ACCOUNT
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
ASSETS
Shares
Cost
Value
Investments in the underlying funds:
Alger American Growth
348
11,946
$11,950
Alger American Small-Cap
1,007
40,839
41,197
Federated American Leaders Fund II
44,718
688,591
682,404
Federated Fund for U.S. Government Securities II
7,641
77,556
77,096
INVESCO VIF - High Yield
44,423
563,239
523,304
INVESCO VIF - Industrial Income
47,941
739,091
687,009
INVESCO VIF - Total Return
3,054
41,490
40,350
Janus Aspen Aggressive Growth
2,508
45,219
45,741
Janus Aspen Growth
59,080
920,767
916,326
Janus Aspen Worldwide Growth
24,529
472,554
476,843
Lexington Emerging Markets
16,328
160,592
164,587
Montgomery Variable Series: International Small-Cap
3,183
34,519
33,963
Montgomery Variable Series: Growth
9,190
116,820
113,313
Schwab Asset Director - High Growth
13,188
136,649
137,418
Schwab Money Market
2,972,996
2,972,996
2,972,996
Schwab S&P 500
56,788
604,192
597,974
SteinRoe Capital Appreciation
34,800
703,371
721,406
Strong Discovery Fund II
20,832
222,758
224,986
TCI Growth
28,295
290,882
289,743
TCI International
23,588
137,718
140,586
Van Eck Gold & Natural
1,370
22,325
22,901
Total investments
$9,004,114
$8,922,093
Other assets and liabilities:
Premium due and accrued
376,213
Due to Great-West Life & Annuity Insurance Company
(2,812)
NET ASSETS APPLICABLE TO OUTSTANDING UNITS OF CAPITAL (Note 5)
$9,295,494
See notes to financial statements.
VARIABLE ANNUITY - 1 SERIES ACCOUNT
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM NOVEMBER 1, 1996 [INCEPTION] TO DECEMBER 31,
1996
Alger American Growth Investment Division
Alger American Small-Cap Investment Division
Federated American Leaders Fund II Investment Division
Federated Fund for U.S. Government Securities II Investment
Division
INVESCO VIF High Yield Investment Division
INVESCO VIF Industrial Income Investment Division
INVESCO VIF Total Return Investment Division
INVESTMENT INCOME
$
$
$
$
$44,396
$46,923
$1,212
EXPENSES - mortality and
expense risks:
9
32
66
29
170
33
7
NET INVESTMENT INCOME (LOSS)
(9)
(32)
(66)
(29)
44,226
46,890
1,205
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) on investments
(376)
(1,582)
(336)
(300)
(33)
Net change in unrealized appreciation
(depreciation) on investments
4
358
(6,187)
(460)
(39,935)
(52,082)
(1,140)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
(372)
(1,224)
(6,523)
(460)
(39,935)
(52,382)
(1,173)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS
$(381)
$(1,256)
$(6,589)
$(489)
$4,291
$(5,492)
$32
See notes to financial statements.
[Continued]
VARIABLE ANNUITY - 1 SERIES ACCOUNT
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM NOVEMBER 1, 1996 [INCEPTION] TO DECEMBER 31,
1996
Janus Aspen Aggressive Growth Investment Division
Janus Aspen Growth Investment Division
Janus Aspen Worldwide Growth Investment Division
Lexington Emerging Markets Investment Division
Montogmery Variable Series: International Small-Cap Investment
Division
Montgomery Variable Series: Growth Investment Division
Schwab Asset Director High Growth Investment Division
INVESTMENT INCOME
$
$3,255
$2,018
$
$173
$4,324
$
EXPENSES - mortality and
expense risks:
7
210
157
39
19
88
71
NET INVESTMENT INCOME (LOSS)
(7)
3,045
1,861
(39)
154
4,236
(71)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) on investments
(100)
(89)
(308)
(30)
(2,053)
Net change in unrealized appreciation
(depreciation) on investments
522
(4,441)
4,289
3,995
(556)
(3,507)
769
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
422
(4,530)
3,981
3,995
(586)
(5,560)
769
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS
$415
$(1,485)
$5,842
$3,956
$(432)
$(1,324)
$698
See notes to financial statements.
[Continued]
VARIABLE ANNUITY - 1 SERIES ACCOUNT
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM NOVEMBER 1, 1996 [INCEPTION] TO DECEMBER 31,
1996
Schwab Money Market Investment Division
Schwab S&P 500 Investment Division
SteinRoe Capital Appreciation Investment Division
Strong Discovery Fund II Investment Division
TCI Growth Investment Division
TCI International Investment Division
Van Eck Gold & Natural Investment Division
INVESTMENT INCOME
$9,542
$
$
$
$
$
$
EXPENSES - mortality and
expense risks:
1,586
216
149
35
82
77
203.15
NET INVESTMENT INCOME (LOSS)
7,956
(216)
(149)
(35)
(82)
(77)
(15)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) on investments
Net change in unrealized appreciation
(depreciation) on investments
(6,218)
18,035
2,228
(1,139)
2,868
576
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
0
(6,218)
18,035
2,228
(1,139)
2,868
576
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS
$7,956
$(6,434)
$17,886
$2,193
$(1,221)
$2,791
$561
See notes to financial statements.
[Continued]
VARIABLE ANNUITY - 1 SERIES ACCOUNT
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM NOVEMBER 1, 1996 [INCEPTION] TO DECEMBER 31,
1996
Total Variable Annuity - 1 Account
INVESTMENT INCOME
$111,843
EXPENSES - mortality and
expense risks:
3,097
NET INVESTMENT INCOME (LOSS)
108,746
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized (loss) on investments
(5,207)
Net change in unrealized appreciation
(depreciation) on investments
(82,021)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
(87,228)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS
$21,518
See notes to financial statements.
[Concluded]
VARIABLE ANNUITY - 1 SERIES ACCOUNT
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM NOVEMBER 1, 1996 [INCEPTION] TO DECEMBER 31,
1996
Alger American Growth Investment Division 1996
Alger American Small-Cap Investment Division 1996
Federated American Leaders Fund II Investment Division 1996
Federated Fund for U.S. Government Securities II Investment
Division 1996
INVESCO VIF High Yield Investment Division 1996
INVESCO VIF Industrial Income Investment Division 1996
FROM OPERATIONS:
Net investment income (loss)
$(9)
$(32)
$(66)
$(29)
$44,226
$46,890
Net realized (loss) on investments
(376)
(1,582)
(336)
(300)
Net change in unrealized appreciation
(depreciation) in investments
4
358
(6,187)
(460)
(39,935)
(52,082)
Increase (decrease) in net assets
derived from operations
(381)
(1,256)
(6,589)
(489)
4,291
(5,492)
FROM UNIT TRANSACTIONS:
Purchase payments
33,791
11,069
637,876
74,697
466,356
559,540
Redemptions
Net transfers from (to) other annuity contracts:
(21,467)
31,351
55,052
18,776
70,157
164,955
Increase in net assets
derived from unit transactions
12,324
42,420
692,928
93,473
536,513
724,495
INCREASE IN NET ASSETS
11,943
41,164
686,339
92,984
540,804
719,003
NET ASSETS
Beginning of period
End of period
$11,943
$41,164
$686,339
$92,984
$540,804
$719,003
All investment divisions commenced operations on November 1, 1996.
See notes to financial statements.
[Continued]
VARIABLE ANNUITY - 1 SERIES ACCOUNT
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM NOVEMBER 1, 1996 [INCEPTION] TO DECEMBER 31,
1996
INVESCO VIF Total Return Investment Division 1996
Janus Aspen Aggressive Growth Investment Division 1996
Janus Aspen Growth Investment Division 1996
Janus Aspen Worldwide Growth Investment Division 1996
Lexington Emeerging Markets Investment Division 1996
Montgomery Variable Series: International Small-Cap Investment
Division 1996
FROM OPERATIONS:
Net investment income (loss)
$1,205
$(7)
$3,045
$1,861
$(39)
$154
Net realized (loss) on investments
(33)
(100)
(89)
(308)
(30)
Net change in unrealized appreciation
(depreciation) in investments
(1,140)
522
(4,441)
4,289
3,995
(556)
Increase (decrease) in net assets
derived from operations
32
415
(1,485)
5,842
3,956
(432)
FROM UNIT TRANSACTIONS:
Purchase payments
25,169
30,929
842,451
259,930
128,619
7,734
Redemptions
Net transfers from (to) other annuity contracts:
15,142
34,897
119,167
275,727
55,010
26,643
Increase in net assets
derived from unit transactions
40,311
65,826
961,618
535,657
183,629
34,377
INCREASE IN NET ASSETS
40,343
66,241
960,133
541,499
187,585
33,945
NET ASSETS
Beginning of period
End of period
$40,343
$66,241
$960,133
$541,499
$187,585
$33,945
All investment divisions commenced operations on November 1, 1996.
See notes to financial statements.
[Continued]
VARIABLE ANNUITY - 1 SERIES ACCOUNT
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM NOVEMBER 1, 1996 [INCEPTION] TO DECEMBER 31,
1996
Montgomery Variable Series: Growth Investment Division 1996
Schwab Asset Director High Growth Investment Division 1996
Schwab Money Market Investment Division 1996
Schwab S&P 500 Investment Division 1996
Strong Discovery Fund II Investment Division 1996
FROM OPERATIONS:
Net investment income (loss)
$4,236
$(71)
$7,956
$(216)
$(149)
$(35)
Net realized (loss) on investments
(2,053)
Net change in unrealized appreciation
(depreciation) in investments
(3,507)
769
(6,218)
18,035
2,228
Increase (decrease) in net assets
derived from operations
(1,324)
698
7,956
(6,434)
17,886
2,193
FROM UNIT TRANSACTIONS:
Purchase payments
74,762
161,464
4,345,383
357,959
643,060
234,322
Redemptions
Net transfers from (to) other annuity contracts:
42,791
8,949
(1,362,796)
307,543
65,576
20,461
Increase in net assets
derived from unit transactions
117,553
170,413
2,982,587
665,502
708,636
254,783
INCREASE IN NET ASSETS
116,229
171,111
2,990,543
659,068
726,522
256,976
NET ASSETS
Beginning of period
End of period
$116,229
$171,111
$2,990,543
$659,068
$726,522
$256,976
All investment divisions commenced operations on November 1, 1996.
See notes to financial statements.
[Continued]
VARIABLE ANNUITY - 1 SERIES ACCOUNT
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM NOVEMBER 1, 1996 [INCEPTION] TO DECEMBER 31,
1996
TCI Growth Investment Division 1996
TCI International Investment Division 1996
Van Eck Gold & Natural Investment Division 1996
Total Variable Annuity-1 Account 1996
FROM OPERATIONS:
Net investment income
$(82)
$(77)
$(15)
$108,746
Net realized (loss) on investments
(5,207)
Net change in unrealized appreciation
(depreciation) in investments
(1,139)
2,868
576
(82,021)
Increase (decrease) in net assets
derived from operations
(1,221)
2,791
561
21,518
FROM UNIT TRANSACTIONS:
Purchase payments
286,829
92,210
9,274,150
Redemptions
Net transfers from (to) other annuity contracts:
4,056
45,510
22,326
(174)
Increase in net assets
derived from unit transactions
290,885
137,720
22,326
9,273,976
INCREASE IN NET ASSETS
289,664
140,511
22,887
9,295,494
NET ASSETS
Beginning of period
End of period
$289,664
$140,511
$22,887
$9,295,494
All investment divisions commenced operations on November 1, 1996.
See notes to financial statements.
[Concluded]
VARIABLE ANNUITY - 1 SERIES ACCOUNT
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM NOVEMBER 1, 1996 [INCEPTION] TO DECEMBER 31,
1996
1. HISTORY OF THE SERIES ACCOUNT
The Variable Annuity - 1 Series Account of Great-West Life &
Annuity Insurance Company (the Series Account) is a separate
account of Great-West Life & Annuity Insurance Company (the
Company) established under Colorado law. The Series Account
commenced operations on November 1, 1996. The Series Account is
registered with the Securities and Exchange Commission as a unit
investment trust under the provisions of the Investment Company Act
of 1940, as amended.
The Series Account has various investment divisions (the Funds)
which invest in shares of open-end management investment companies
as follows:
Variable Annuity - 1 Series Account Investment Division
Mutual Fund Investment
Alger American Growth
Alger American Growth
Alger American Small-Cap
Alger American Small-Cap
Federated American Leaders Fund II
Federated American Leaders Fund II
Federated Fund for U.S. Government Securities II
Federated Fund for U.S. Government Securities II
INVESCO VIF - High Yield
INVESCO VIF - High Yield
INVESCO VIF - Industrial Income
INVESCO VIF - Industrial Income
INVESCO VIF - Total Return
INVESCO VIF - Total Return
Janus Aspen Aggressive Growth
Janus Aspen Aggressive Growth
Janus Aspen Growth
Janus Aspen Growth
Janus Aspen Worldwide Growth
Janus Aspen Worldwide Growth
Lexington Emerging Markets
Lexington Emerging Markets
Montgomery Variable Series: International Small-Cap
Montgomery Variable Series: International Small-Cap
Montgomery Variable Series: Growth
Montgomery Variable Series: Growth
Schwab Asset Director - High Growth
Schwab Asset Director - High Growth
Schwab Money Market
Schwab Money Market
Schwab S&P 500
Schwab S&P 500
SteinRoe Capital Appreciation
SteinRoe Capital Appreciation
Strong Discovery Fund II
Strong Discovery Fund II
TCI Growth
TCI Growth
TCI International
TCI International
Van Eck Gold & Natural
Van Eck Gold & Natural
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies of
the Series Account which are in accordance with the accounting
principles generally accepted in the investment company industry:
Security Transactions - Security transactions are recorded on the
trade date. Cost of investments sold is determined on the basis of
identified cost.
Dividend income is accrued as of the ex-dividend date and expenses
are accrued on a daily basis.
Security Valuation - The investments in shares of the Funds are
valued at the closing net asset value per share as determined by
the appropriate fund/portfolio at the end of each day.
The cost of investments represents shares of the Funds which were
purchased by the Series Account. Purchases are made at the net
asset value from net purchase payments or through reinvestment of
all distributions from the Fund.
Federal Income Taxes - The Series Account income is automatically
applied to increase contract reserves. Under the existing federal
income tax law, this income is not taxed to the extent that it is
applied to increase reserves under a contract. The Company
reserves the right to charge the Series Account for federal income
taxes attributable to the Series Account if such taxes are imposed
in the future.
3. CHARGES UNDER THE CONTRACT
Contract Maintenance Charge - On the last day of each contract year
before the retirement date, the Company deducts from each
participant account a maintenance charge of $25.
Charges Incurred for Total or Partial Surrenders - The
administrative surrender fee is $50 if the contract is surrendered
in whole during the first 12 months and $25 if the contract is
surrendered in part during the first 12 months.
Deductions for Premium Taxes - The Company presently intends to pay
any premium tax levied by any governmental entity as a result of
the existence of the participant accounts or the Series Account.
Deductions for Variable Asset Charge - The Company deducts an
amount, computed daily, from the net asset value of the Series
Account investments, equal to an annual rate of .85%. This charge
is designed to compensate the Company for its assumption of certain
mortality, death benefit and expense risks.
If the above proves insufficient to cover actual costs and assumed
risks, the loss will be borne by the Company; conversely, if the
amount deducted proves more than sufficient, the excess will be a
profit to the Company.
4. COMPONENTS OF NET ASSETS APPLICABLE TO OUTSTANDING UNITS OF
CAPITAL
The following is a summary of the net assets applicable to
outstanding units of capital, at December 31, 1996 for each
investment division:
Units
Unit Price
Total Variable Annuity Contract Liabilities
Net Assets Applicable to Outstanding Units of Capital:
Alger American Growth
1,166.635
10.237435
11,943
Alger American Small-Cap
4,080.464
10.088220
41,164
Federated American Leaders Fund II
65,888.876
10.416610
686,339
Federated Fund for U.S. Government Securities II
9,330.151
9.966103
92,984
INVESCO VIF - High Yield
52,043.524
10.391384
540,804
INVESCO VIF - Industrial Income
68,873.870
10.439394
719,003
INVESCO VIF - Total Return
3,927.308
10.272311
40,343
Janus Aspen Aggressive Growth
6,698.728
9.888536
66,241
Janus Aspen Growth
93,598.791
10.257960
960,133
Janus Aspen Worldwide Growth
51,982.382
10.416953
541,499
Lexington Emerging Markets
18,281.415
10.260961
187,585
Montgomery Variable Series: International Small-Cap
3,230.278
10.508368
33,945
Montgomery Variable Series: Growth
11,226.772
10.352799
116,229
Schwab Asset Director - High Growth
16,525.392
10.354411
171,111
Schwab Money Market
297,045.949
10.067610
2,990,543
Schwab S&P 500
62,674.075
10.515797
659,068
SteinRoe Capital Appreciation
70,715.113
10.273922
726,522
Strong Discovery Fund II
24,613.072
10.440645
256,976
TCI Growth
30,139.129
9.610885
289,664
TCI International
13,399.990
10.485887
140,511
Van Eck Gold & Natural
2,220.846
10.306397
22,887
TOTAL
$9,295,494
5. SELECTED DATA
The following is a summary of selected data for a unit of
capital of the Series Account at the beginning and end of the year
and the number of units outstanding at December 31, 1996:
Alger American Growth
Alger American Small-Cap
Federated American Leaders II
Federated Fund for U.S. Government Securities II
INVESCO VIF - High Yield
INVESCO VIF - Industrial Income
INVESCO VIF - Total Return
Janus Aspen Aggressive Growth
1996
Beginning Unit Value
$10.00
$10.00
$10.00
$10.00
$10.00
$10.00
$10.00
$10.00
Ending Unit Value
$10.24
$10.09
$10.42
$9.97
$10.39
$10.44
$10.27
$9.89
Number of Units Outstanding
1,166.64
4,080.46
65,888.88
9,330.15
52,043.52
68,873.87
3,927.31
6,698.73
Janus Aspen Growth
Janus Aspen Worldwide Growth
Lexington Emerging Markets
Montgomery Variable Series: International Small-Cap
Montgomery Variable Series: Growth
Shwab Asset Director - High Growth
Schwab Money Market
Schwab S&P 500
1996
Beginning Unit Value
$10.00
$10.00
$10.00
$10.00
$10.00
$10.00
$10.00
$10.00
Ending Unit Value
$10.26
$10.42
$10.26
$10.51
$10.35
$10.35
$10.07
$10.52
Number of Units Outstanding
93,598.79
51,982.38
18,281.42
3,230.28
11,226.77
16,525.39
297,045.95
62,674.08
SteinRoe Capital Appreciation
Strong Discovery II
TCI Growth
TCI International
Van Eck Gold & Natural
1996
Beginning Unit Value
$10.00
$10.00
$10.00
$10.00
$10.00
Ending Unit Value
$10.27
$10.44
$9.61
$10.49
$10.31
Number of Units Outstanding
70,715.11
24,613.07
30,139.13
13,399.99
2,220.85
All investment divisions commenced operations on November 1, 1996.
6. CHANGE IN SHARES
The following is a summary of the net change in total investment
shares held in each of the respective mutual funds:
For the Period From November 1, 1996 [inception] to December 31,
1996
Alger American Growth
348
Alger American Small-Cap
1,007
Federated American Leaders Fund II
44,718
Federated Fund for U.S. Government Securities II
7,641
INVESCO VIF - High Yield
44,423
INVESCO VIF - Industrial Income
47,941
INVESCO VIF - Total Return
3,054
Janus Aspen Aggressive Growth
2,508
Janus Aspen Growth
59,080
Janus Aspen Worldwide Growth
24,529
Lexington Emerging Markets
16,328
Montgomery Variable Series: International Small-Cap
3,183
Montgomery Variable Series: Growth
9,190
Schwab Asset Director - High Growth
13,188
Schwab Money Market
2,972,996
Schwab S&P 500
56,788
SteinRoe Capital Appreciation
34,800
Strong Discovery Fund II
20,832
TCI Growth
28,295
TCI International
23,588
Van Eck Gold & Natural
1,370
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The financial statements for Great-West Life & Annuity
Insurance Company for the years ended December
31, 1996, 1995 and 1994 are included in the prospectus.
(b) Exhibits
(1) Certified copy of resolution of Board of Directors
or Depositor establishing Registrant is
incorporated by reference to Registrant's Registration
Statement.
(2) Not applicable.
(3) Copy of distribution contract between Depositor and
Principal Underwriter to be filed by
amendment is incorporated by reference to Registrant's
Pre-Effective Amendment No. 2.
(4) Copy of the form of the variable annuity contract is
incorporated by reference to Registrant's
Pre-Effective Amendment No. 1.
(5) Copy of the form of application to be used with the
variable annuity contract provided pursuant
to (4) is incorporated by reference to Registrant's
Pre-Effective Amendment No. 1.
(6) Copy of Articles of Incorporation and Bylaws of
Depositor is incorporated by reference to
Registrant's Pre-Effective Amendment No. 2.
(7) Not applicable.
(8) Copies of participation agreements with underlying
funds are incorporated by reference to
Registrant's Pre-Effective Amendment No. 2 and attached
as Exhibit 8.
(9) Opinion of counsel and consent of Ruth B. Lurie,
Vice President, Counsel and Associate
Secretary incorporated by referenced to Registrant's
Registration Statement.
(10) (a) Written Consent of Jorden Burt Berenson &
Johnson LLP is attached as Exhibit
10a.
(b) Written Consent of Deloitte & Touche LLP is attached
as Exhibit 10b.
(c) Written Consent of Ruth B. Lurie is attached as
Exhibit 10c.
(11) Not Applicable.
(12) Not Applicable.
(13) Schedule for computation of each performance
quotation provided in response to Item 21 is
incorporated by reference to Registrant's Registration
Statement.
(14) Financial Data Schedule is attached as Exhibit
14.
Item 25. Directors and Officers of the Depositor
Position and
Offices
Name Principal Business Address with Depositor
James Balog 2205 North Southwinds BoulevardDirector
Vero Beach, Florida 32963
James W. Burns, O.C. (4) Director
Orest T. Dackow (3) Director
Paul Desmarais, Jr. (4) Director
Robert G. Graham 574 Spoonbill Drive Director
Sarasota, Florida 34236
Robert Gratton (5) Chairman
N. Berne Hart 2552 East Alameda Avenue, #99 Director
Denver, Colorado 80209
Kevin P. Kavanagh (1) Director
William Mackness 61 Waterloo Street Director
Winnipeg, Manitoba R3N 0S3
William T. McCallum (3) Director,
President and
Chief Executive
Officer
Jerry E.A. NickersonH.B. Nickerson & Sons Limited Director
P.O. Box 130
275 Commercial Street
North Sydney, Nova Scotia B2A 3M2
P. Michael Pitfield, P.C., Q.C.(4) Director
Michel Plessis-Belair, F.C.A.(4) Director
Ross J. Turner Genstar Investment CorporationDirector
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404
Brian E. Walsh Trinity L.P. Director
115 East Putnam Avenue
Greenwich, Connecticut 06830
Glen Derback (3) Vice President
and Controller<PAGE>
Position and
Offices
Name Principal Business Address with Depositor
Robert D. Bond (3) Senior
Vice-President, Financial
Services
John A. Brown (3) Senior
Vice-President, Sales,
Financial
Services
John T. Hughes (3) Senior
Vice-President, Chief
Investment
Officer
Robert E. Kavanagh (2) Senior
Vice-President, Employee
Benefits, Sales
D. Craig Lennox (3) Senior
Vice-President, General
Counsel and
Secretary
Dennis Low (3) Executive
Vice-President,
Financial
Services
Alan D. MacLennan (2) Executive
Vice-President,
Employee Benefits
Steven H. Miller (2) Senior Vice
President, Employee
Benefits, Sales
James D. Motz (2) Executive
Vice-President,
Employee Benefits
Martin L. Rosenbaum (2) Senior
Vice-President, Employee
Benefits
Operations
Douglas L. Wooden (3) Senior
Vice-President,
Financial
Services
______________________________________
(1) 100 Osborne Street North, Winnipeg, Manitoba, Canada R3C 3A5.
(2) 8505 East Orchard Road, Englewood, Colorado 80111.
(3) 8515 East Orchard Road, Englewood, Colorado 80111.
(4) Power Corporation of Canada, 751 Victoria Square, Montreal,
Quebec, Canada H2Y 2J3.
(5) Power Financial Corporation, 751 Victoria Square, Montreal,
Quebec, Canada H2Y 2J3.
<PAGE>
Item 26. Persons controlled by or under common control with the
Depositor or Registrant
Power Corporation of Canada
100% - Marquette Communications Corporation
100% - 171263 Canada Inc.
68.1% - Power Financial Corporation
86.4% - Great-West Lifeco Inc.
99.5% - The Great-West Life Assurance Company
100% - Great-West Life & Annuity Insurance Company
100% First Great-West Life & Annuity Insurance Company
100% - GW Capital Management, Inc.
100% - Financial Administrative Services Corporation
100% - One Corporation
100% - One Health Plan of Illinois, Inc.
100% - One Health Plan of Texas, Inc.
100% - One Health Plan of California, Inc.
100% - One Health Plan of Colorado, Inc.
100% - One Health Plan of Georgia, Inc.
100% - One Health Plan of North Carolina, Inc.
100% - One Health Plan of Washington, Inc.
100% - One Orchard Equities, Inc.
100% - Great-West Benefit Services, Inc.
13% - Private Healthcare Systems, Inc.
100% - Benefits Communication Corporation
100% - BenefitsCorp Equities, Inc.
94% - Maxim Series Fund, Inc.
100% - Greenwood Property Corporation
100% - GWL Properties Inc.
100% - Great-West Realty Investments, Inc.
50% - Westkin Properties Ltd.
100% - Confed Admin Services, Inc.
Item 27. Number of Contractowners
As of March 31, 1997, there were 919 Contractowners.
Item 28. Indemnification
Provisions exist under the Colorado Business Corporation
Act and the Bylaws of GWL&A whereby
GWL&A may indemnify a director, officer, or controlling person of
GWL&A against liabilities arising under the
Securities Act of 1933. The following excerpts contain the
substance of these provisions:
Colorado Business Corporation Act
Article 109 - INDEMNIFICATION
Section 7-109-101. Definitions.
As used in this Article:
(1) "Corporation" includes any domestic or foreign entity
that is a predecessor of the corporation
by reason of a merger, consolidation, or other transaction
in which the predecessor's existence ceased
upon consummation of the transaction.
(2) "Director" means an individual who is or was a director
of a corporation or an individual who,
while a director of a corporation, is or was serving at the
corporation's request as a director, officer,
partner, trustee, employee, fiduciary or agent of another
domestic or foreign corporation or other person
or employee benefit plan. A director is considered to be
serving an employee benefit plan at the
corporation's request if his or her duties to the
corporation also impose duties on or otherwise involve
services by, the director to the plan or to participants in
or beneficiaries of the plan.
(3) "Expenses" includes counsel fees.
(4) "Liability" means the obligation incurred with respect
to a proceeding to pay a judgment,
settlement, penalty, fine, including an excise tax assessed
with respect to an employee benefit plan, or
reasonable expenses.
(5) "Official capacity" means, when used with respect to a
director, the office of director in the
corporation and, when used with respect to a person other
than a director as contemplated in Section
7-109-107, means the office in the corporation held by the
officer or the employment, fiduciary, or agency
relationship undertaken by the employee, fiduciary, or agent
on behalf of the corporation. "Official
capacity" does not include service for any other domestic or
foreign corporation or other person or
employee benefit plan.
(6) "Party" includes a person who was, is, or is threatened
to be made a named defendant or
respondent in a proceeding.
(7) "Proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative and
whether formal or informal.
Section 7-109-102. Authority to indemnify directors.
(1) Except as provided in subsection (4) of this section,
a corporation may indemnify a person made
a party to the proceeding because the person is or was a
director against liability incurred in any
proceeding if:
(a) The person conducted himself or herself in good
faith;
(b) The person reasonably believed:
(I) In the case of conduct in an official
capacity with the corporation, that his or
her conduct was in the corporation's best
interests; or
(II) In all other cases, that his or her conduct
was at least not opposed to the
corporation's best interests; and
(c) In the case of any criminal proceeding, the person
had no reasonable cause to believe
his or her conduct was unlawful.
(2) A director's conduct with respect to an employee
benefit plan for a purpose the director
reasonably believed to be in the interests of the
participants in or beneficiaries of the plan is conduct that
satisfies the requirements of subparagraph (II) of paragraph
(b) of subsection (1) of this section. A
director's conduct with respect to an employee benefit plan
for a purpose that the director did not
reasonably believe to be in the interests of the
participants in or beneficiaries of the plan shall be deemed
not to satisfy the requirements of subparagraph (a) of
subsection (1) of this section.
(3) The termination of any proceeding by judgment, order,
settlement, or conviction, or upon a plea
of nolo contendere or its equivalent, is not, of itself,
determinative that the director did not meet the
standard of conduct described in this section.
(4) A corporation may not indemnify a director under this
section:
(a) In connection with a proceeding by or in the right
of the corporation in which the
director was adjudged liable to the corporation; or
(b) In connection with any proceeding charging that
the director derived an improper
personal benefit, whether or not involving action in
his official capacity, in which proceeding the
director was adjudged liable on the basis that he or
she derived an improper personal benefit.
(5) Indemnification permitted under this section in
connection with a proceeding by or in the right
of a corporation is limited to reasonable expenses incurred
in connection with the proceeding.
Section 7-109-103. Mandatory Indemnification of Directors.
Unless limited by the articles of incorporation, a
corporation shall be required to indemnify a
person who is or was a director of the corporation and who
was wholly successful, on the merits or
otherwise, in defense of any proceeding to which he was a
party, against reasonable expenses incurred
by him in connection with the proceeding.
Section 7-109-104. Advance of Expenses to Directors.
(1) A corporation may pay for or reimburse the reasonable
expenses incurred by a director who is
a party to a proceeding in advance of the final disposition
of the proceeding if:
(a) The director furnishes the corporation a written
affirmation of his good-faith belief that
he has met the standard of conduct described in Section
7-109-102;
(b) The director furnishes the corporation a written
undertaking, executed personally or on
the director's behalf, to repay the advance if it is
ultimately determined that he or she did not
meet such standard of conduct; and
(c) A determination is made that the facts then known
to those making the determination
would not preclude indemnification under this article.
(2) The undertaking required by paragraph (b) of subsection
(1) of this section shall be an unlimited
general obligation of the director, but need not be secured
and may be accepted without reference to
financial ability to make repayment.
(3) Determinations and authorizations of payments under
this section shall be made in the manner
specified in Section 7-109-106.
Section 7-109-105. Court-Ordered Indemnification of Directors.
(1) Unless otherwise provided in the articles of
incorporation, a director who is or was a party to
a proceeding may apply for indemnification to the court
conducting the proceeding or to another court
of competent jurisdiction. On receipt of an application,
the court, after giving any notice the court
considers necessary, may order indemnification in the
following manner:
(a) If it determines the director is entitled to
mandatory indemnification under section 7-
109-103, the court shall order indemnification, in
which case the court shall also order the
corporation to pay the director's reasonable expenses
incurred to obtain court-ordered
indemnification.
(b) If it determines that the director is fairly and
reasonably entitled to indemnification in
view of all the relevant circumstances, whether or not
the director met the standard of conduct
set forth in section 7-109-102 (1) or was adjudged
liable in the circumstances described in Section
7-109-102 (4), the court may order such indemnification
as the court deems proper; except that
the indemnification with respect to any proceeding in
which liability shall have been adjudged
in the circumstances described Section 7-109-102 (4) is
limited to reasonable expenses incurred
in connection with the proceeding and reasonable
expenses incurred to obtain court-ordered
indemnification.
Section 7-109-106. Determination and Authorization of
Indemnification of Directors.
(1) A corporation may not indemnify a director under
Section 7-109-102 unless authorized in the
specific case after a determination has been made that
indemnification of the director is permissible in
the circumstances because he has met the standard of conduct
set forth in Section 7-109-102. A
corporation shall not advance expenses to a director under
Section 7-109-104 unless authorized in the
specific case after the written affirmation and undertaking
required by Section 7-109-104(1)(a) and (1)(b)
are received and the determination required by Section
7-109-104(1)(c) has been made.
(2) The determinations required to be made under subsection
(1) of this section shall be made:
(a) By the board of directors by a majority vote of
those present at a meeting at which a
quorum is present, and only those directors not parties
to the proceeding shall be counted in
satisfying the quorum.
(b) If a quorum cannot be obtained, by a majority vote
of a committee of the board of
directors designated by the board of directors, which
committee shall consist of two or more
directors not parties to the proceeding; except that
directors who are parties to the proceeding
may participate in the designation of directors for the
committee.
(3) If a quorum cannot be obtained as contemplated in
paragraph (a) of subsection (2) of this
section, and the committee cannot be established under
paragraph (b) of subsection (2) of this section,
or even if a quorum is obtained or a committee designated,
if a majority of the directors constituting such
quorum or such committee so directs, the determination
required to be made by subsection (1) of this
section shall be made:
(a) By independent legal counsel selected by a vote of
the board of directors or the
committee in the manner specified in paragraph (a) or
(b) of subsection (2) of this section or,
if a quorum of the full board cannot be obtained and a
committee cannot be established, by
independent legal counsel selected by a majority vote
of the full board of directors; or
(b) By the shareholders.
(4) Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made
in the same manner as the determination that indemnification
is permissible; except that, if the
determination that indemnification is permissible is made by
independent legal counsel, authorization of
indemnification and advance of expenses shall be made by the
body that selected such counsel.
<PAGE>
Section 7-109-107. Indemnification of Officers, Employees,
Fiduciaries, and Agents.
(1) Unless otherwise provided in the articles of
incorporation:
(a) An officer is entitled to mandatory
indemnification under section 7-109-103, and is
entitled to apply for court-ordered indemnification
under section 7-109-105, in each case to the
same extent as a director;
(b) A corporation may indemnify and advance expenses
to an officer, employee, fiduciary,
or agent of the corporation to the same extent as a
director; and
(c) A corporation may indemnify and advance expenses
to an officer, employee, fiduciary,
or agent who is not a director to a greater extent, if
not inconsistent with public policy, and if
provided for by its bylaws, general or specific action
of its board of directors or shareholders, or
contract.
Section 7-109-108. Insurance.
A corporation may purchase and maintain insurance on
behalf of a person who is or was a
director, officer, employee, fiduciary, or agent of the
corporation and who, while a director, officer,
employee, fiduciary, or agent of the corporation, is or was
serving at the request of the corporation as
a director, officer, partner, trustee, employee, fiduciary,
or agent of any other domestic or foreign
corporation or other person or of an employee benefit plan
against any liability asserted against or
incurred by the person in that capacity or arising out of
his or her status as a director, officer, employee,
fiduciary, or agent whether or not the corporation would
have the power to indemnify the person against
such liability under the Section 7-109-102, 7-109-103 or
7-109-107. Any such insurance may be procured
from any insurance company designated by the board of
directors, whether such insurance company is
formed under the laws of this state or any other
jurisdiction of the United States or elsewhere, including
any insurance company in which the corporation has an equity
or any other interest through stock
ownership or otherwise.
Section 7-109-109. Limitation of Indemnification of Directors.
(1) A provision concerning a corporation's indemnification
of, or advance of expenses to, directors
that is contained in its articles of incorporation or
bylaws, in a resolution of its shareholders or board
of directors, or in a contract, except for an insurance
policy or otherwise, is valid only to the extent the
provision is not inconsistent with Sections 7-109-101 to
7-109-108. If the articles of incorporation limit
indemnification or advance of expenses, indemnification or
advance of expenses are valid only to the
extent not inconsistent with the articles of incorporation.
(2) Sections 7-109-101 to 7-109-108 do not limit a
corporation's power to pay or reimburse expenses
incurred by a director in connection with an appearance as
a witness in a proceeding at a time when he
or she has not been made a named defendant or respondent in
the proceeding.
Section 7-109-110. Notice to Shareholders of Indemnification of
Director.
If a corporation indemnifies or advances expenses to a
director under this article in connection
with a proceeding by or in the right of the corporation, the
corporation shall give written notice of the
indemnification or advance to the shareholders with or
before the notice of the next shareholders'
meeting. If the next shareholder action is taken without a
meeting at the instigation of the board of
directors, such notice shall be given to the shareholders at
or before the time the first shareholder signs
a writing consenting to such action.
Bylaws of GWL&A
Article II, Section 11. Indemnification of Directors.
The Company may, by resolution of the Board of
Directors, indemnify and save harmless out of
the funds of the Company to the extent permitted by
applicable law, any director, officer, or employee
of the Company or any member or officer of any committee,
and his heirs, executors and administrators,
from and against all claims, liabilities, costs, charges and
expenses whatsoever that any such director,
officer, employee or any such member or officer sustains or
incurs in or about any action, suit, or
proceeding that is brought, commenced, or prosecuted against
him for or in respect of any act, deed,
matter or thing whatsoever made, done, or permitted by him
in or about the execution of his duties of
his office or employment with the Company, in or about the
execution of his duties as a director or
officer of another company which he so serves at the request
and on behalf of the Company, or in or
about the execution of his duties as a member or officer of
any such Committee, and all other claims,
liabilities, costs, charges and expenses that he sustains or
incurs, in or about or in relation to any such
duties or the affairs of the Company, the affairs of such
Committee, except such claims, liabilities, costs,
charges or expenses as are occasioned by his own wilful
neglect or default. The Company may, by
resolution of the Board of Directors, indemnify and save
harmless out of the funds of the Company to
the extent permitted by applicable law, any director,
officer, or employee of any subsidiary corporation
of the Company on the same basis, and within the same
constraints as, described in the preceding
sentence.
Item 29.Principal Underwriter
(a) Charles Schwab & Co., Inc. ("Schwab") is the
distributor of securities of the Registrant.
(b) Directors and Officers of Schwab
Position and Offices
Name Principal Business Address with Underwriter
Charles R. Schwab (1) Chairman and
Director
David S. Pottruck (1) President and Chief
Executive Officer
and Director
Steven L. Scheid (1) Executive Vice
President and
Chief Financial
Officer and Director
Tom D. Seip (1) Executive Vice
President -
Retail
John P. Coghlan (1) Executive Vice
President,
Schwab Institutional
Linnet Deily (1) Executive Vice
President, Services for
Investment
Managers
Carrie Dwyer (1) Executive Vice
President, Corporate
Oversight
Lon Gorman (1) Executive Vice
President and
President, Schwab
Capital
Markets and Trading
Daniel O. Leemon (1) Executive Vice
President
Business Strategy
Dawn G. Lepore (1) Executive Vice
President, and
Chief Information
Officer - SITE
Timothy F. McCarthy (1) Executive Vice
President and
President, Financial
Products and
International -
Group
Elizabeth G. Sawi (1) Executive Vice
President -
Electronic Brokerage
Richard Tinervin (1) Executive Vice
President -
Retirement Plan
Services
Luis E. Valencia (1) Executive Vice
President and Chief
Administrative
Officer
Suzanne D. Lyons (1) Executive Vice
President -
Retail Marketing
Karen Chang (1) Executive Vice
President -
Head of Branches
William J. Klipp (1) Executive Vice
President -
SchwabFunds
Peter J. McIntosh (1) Executive Vice
President -
Brokerage Operations
and
National Investor
Services
Parkash P. Ahuja (1) Senior Vice
President-
Administrative
Services
Rhet Andrews (1) Senior Vice
President -
Schwab Institutional
Trading
and Operations
William S. Baughman (1) Senior Vice
President -
Strategic
Marketing
Rochelle A. Bays (1) Senior Vice
President -
CM & T Support
Services
Michelle B. Blieberg (1) Senior Vice
President -
HR Support Services
Reid P. Conklin (1) Senior Vice
President -
Southeast Group
John Danton (1) Senior Vice
President, Retail
Financial
Planning
Martha J. Deevy (1) Senior Vice
President -
SITE Specialized
Services
Evelyn S. Dilsaver (1) Senior Vice
President
Christopher V. Dodds (1) Senior Vice
President
and Treasurer
Sidney J. Dorr (1) Senior Vice
President -
Capital Markets and
Trading
Wayne W. Fieldsa (1) Senior Vice
President -
Securities
Operations
Edward V. Garlich, Jr.(1) Senior Vice
President and Managing
Director -
Washington Research
Group
Therese Haberle (1) Senior Vice
President -
Chief Compliance
Officer
James M. Hackley (1) Senior Vice
President -
Active Trader
Gerry L. Hansen (1) Senior Vice
President -
Controller
Barbara R. Heinrich (1) Senior Vice
President -
Fixed Income
Jan K. Hier-King (1) Senior Vice
President -
Schwab Institutional
Technology
Colleen M. Hummer (1) Senior Vice
President -
Mutual Fund
Operations
Daniel J. Keller (1) Senior Vice
President -
Mutual Funds
Technology
Michael S. Knight (1) Senior Vice
President -
Midwest Group
Gloria J. Lau (1) Senior Vice
President -
Schwab International
Thomas N. Lawrie (1) Senior Vice
President -
Electronic Brokerage
Services
James G. Losi (1) Senior Vice
President -
Retail
Jeffrey M. Lyons (1) Senior Vice
President -
Mutual Funds
Marketing
Elinor MacKinnon (1) Senior Vice
President -
Retail Systems
Frederick F. Matteson (1) Senior Vice
President -
SITE Operations and
Infrastructure
John McGonigle (1) Senior Vice
President -
Active Trader
Roger G. Neaves (1) Senior Vice
President -
Production Services
Geoffrey Penney (1) Senior Vice
President -
Financial Products
and International
Technology Solutions
Kenneth W. Perlman (1) Senior Vice
President -
Capital Markets &
Trading -
Regulatory Division
Earlene Perry (1) Senior Vice
President -
Retail Operations
Hugo W. Quackenbush (1) Senior Vice
President -
Corporate
Communications
Edward M. Rodden (1) Senior Vice
President -
Affluent Customer
Enterprise
Myra Rothfield (1) Senior Vice
President -
Customer Development
and
Retention
Louise J. Rothman (1) Senior Vice
President -
Compensation and
Benefits
Gideon Sasson (1) Senior Vice
President -
Electronic Brokerage
Site
Arthur V. Shaw (1) Senior Vice
President -
Electronic Brokerage
<PAGE>
Leonard Short (1) Senior Vice
President -
CRS Advertising and
Brand
Management
Betsy Snow (1) Senior Vice
President -
ISD Technical
Operations
Ray Straka (1) Senior Vice
President -
Finance and
Corporate Administration
Technology Support
Michelle Swenson (1) Senior Vice
President -
Mutual Funds
Marketing and
Development
Mary B. Templeton (1) Senior Vice
President -
General Counsel and
Corporate
Secretary
Mark C. Thompson (1) Senior Vice
President -
Government and
Public Affairs
Daniel J. Voet (1) Senior Vice
President -
Controller
Steven Ward (1) Senior Vice
President -
Investment Officer
- - SchwabFunds
Portfolio
Cynthia K. Holbrook (1) Vice President
______________________________________
(1) 101 Montgomery, San Francisco, California 94104.
(c) Commissions and other compensation received by
Principal Underwriter during registrant's last fiscal
year:
Net
Name of Underwriting Compensation
Principal Discounts and on Brokerage
Underwriter Commissions Redemption
CommissionsCompensation
Schwab $23,000 -0- -0- -0-
<PAGE>
Item 30.Location of Accounts and Records
All accounts, books, or other documents required to be
maintained by Section 31(a) of the 1940 Act and
the rules promulgated thereunder are maintained by the
registrant through GWL&A, 8515 E. Orchard
Road, Englewood, Colorado 80111.
Item 31.Management Services
Not Applicable.
Item 32.Undertakings
(a) Registrant undertakes to file a post-effective
amendment to this Registration Statement as
frequently as is 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 to 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 postcard or similar
written communication affixed to or included
in the Prospectus that the applicant can remove to send
for a Statement of Additional
Information.
(c) Registrant undertakes to deliver any Statement of
Additional Information and any financial
statements required to be made available under this
form promptly upon written or oral request.
(d) 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 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 of the registrant in the successful
defense of any action, suit or proceeding)
is asserted by such director, officer or controlling
person in connection with the securities being
registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the
final adjudication of such issue.
(e) GWL&A represents that the fees and charges deducted
under the Contracts, in the aggregate,
are reasonable in relation to the services rendered,
the expenses to be incurred, and the risks
assumed by GWL&A.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused
this Post-Effective Amendment No. 1 to the Registration Statement
on Form N-4 to be signed on its behalf, in the City of Englewood,
State of Colorado, on this 25th day of April , 1997.
VARIABLE ANNUITY-1 SERIES ACCOUNT
(Registrant)
By: /s/ W.T. McCallum
William T. McCallum, President
and Chief Executive Officer of
Great-West Life & Annuity
Insurance Company
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
(Depositor)
By: /s/ W.T. McCallum
William T. McCallum, President
and Chief Executive Officer
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the
capacities with Great-West Life & Annuity Insurance Company and on
the dates indicated:
Signature and Title Date
/s/ R. Gratton* 4/25 , 1997
Director and Chairman of the
Board (Robert Gratton)
/s/ W.T. McCallum 4/25 , 1997
Director, President and Chief Executive
Officer (William T. McCallum)
Signature and Title Date
/s/ G.R. Derback 4/25 , 1997
Vice President and Controller
(Glen R. Derback)
/s/ J. Balog* 4/25 , 1997
Director, (James Balog)
/s/ J.W. Burns* 4/25 , 1997
Director, (James W. Burns)
/s/ O.T. Dackow* 4/25 , 1997
Director (Orest T. Dackow)
/s/ P. Desmarais, Jr.* 4/25 , 1997
Director (Paul Desmarais, Jr.)
/s/ R.G. Graham* 4/25 , 1997
Director (Robert G. Graham)
/s/ N.B. Hart* 4/25 , 1997
Director (N. Berne Hart)
/s/ K.P. Kavanagh* 4/25 , 1997
Director (Kevin P. Kavanagh)
/s/ W. Mackness* 4/25 , 1997
Director (William Mackness)
<PAGE>
Signature and Title Date
/s/ J.E.A. Nickerson* 4/25 , 1997
Director (Jerry E.A. Nickerson)
/s/ P.M. Pitfield* 4/25 , 1997
Director (P. Michael Pitfield)
/s/ Michell Plessis-Belair 4/25 , 1997
Director (Michel Plessis-Belair)
/s/ R.J. Turner* 4/25 , 1997
Director (Ross J. Turner)
/s/ B.E. Walsh* 4/25 , 1997
Director (Brian E. Walsh)
*By: /s/ D.C. Lennox 4/25 , 1997
D. C. Lennox
Attorney-in-fact pursuant to Powers of Attorney filed with the
Registration Statement and Pre-Effective Amendment No. 1
thereto.
EXHIBIT 8<PAGE>
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares . . . . . . . . . . . . . . . .3
ARTICLE II. Representations and Warranties. . . . . . . . . . .7
ARTICLE III. Prospectuses and Proxy Statements; Voting . . . . 11
ARTICLE IV. Sales Material and Information. . . . . . . . . . 13
ARTICLE V. Fees and Expenses . . . . . . . . . . . . . . . . 16
ARTICLE VI. Diversification and Qualification . . . . . . . . 17
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order . . . . 20
ARTICLE VIII.Indemnification . . . . . . . . . . . . . . . . . 23
ARTICLE IX. Applicable Law. . . . . . . . . . . . . . . . . . 35
ARTICLE X. Termination . . . . . . . . . . . . . . . . . . . 35
ARTICLE XI. Notices . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XII. Miscellaneous . . . . . . . . . . . . . . . . . . 40
SCHEDULE A Contracts . . . . . . . . . . . . . . . . . . . . 44
SCHEDULE B Designated Portfolios . . . . . . . . . . . . . . 45
SCHEDULE C Administrative Services . . . . . . . . . . . . . 46
SCHEDULE D Reports per Section 6.6 . . . . . . . . . . . . . 47
SCHEDULE E Expenses. . . . . . . . . . . . . . . . . . . . . 50
<PAGE>
PARTICIPATION AGREEMENT
Among
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
FEDERATED INSURANCE SERIES,
FEDERATED ADVISERS,
FEDERATED SECURITIES CORP.
and
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this ____ day of
_______________, 1996 by and among GREAT-WEST LIFE & ANNUITY
INSURANCE
COMPANY (hereinafter "GWL&A"), a Colorado life insurance company,
on its own behalf
and on behalf of its Separate Account Variable Annuity-1 Series
Account (the "Account");
FEDERATED INSURANCE SERIES,a business trust organized under the
laws of
Massachusetts (hereinafter the "Fund"); FEDERATED ADVISERS
(hereinafter the
"Adviser"), a Delaware business trust; FEDERATED SECURITIES CORP.
(the
"Distributor"), a Pennsylvania corporation; and CHARLES SCHWAB &
CO., INC., a
California corporation (hereinafter "Schwab").
WHEREAS, the Fund engages in business as an open-end
management investment
company and is available to act as the investment vehicle for
separate accounts established
for variable life insurance policies and/or variable annuity
contracts (collectively, the
"Variable Insurance Products") to be offered by insurance
companies, including GWL&A,
which have entered into participation agreements similar to this
Agreement (hereinafter
"Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares,
each designated a "Portfolio" and representing the interest in a
particular managed portfolio
of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities
and Exchange
Commission (hereinafter the "SEC"), dated December 29, 1993 (File
No. 812-8620), granting
Participating Insurance Companies and variable annuity and variable
life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a),
15(a), and 15(b) of the
Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund
to be sold to and held by variable annuity and variable life
insurance separate accounts of
life insurance companies that may or may not be affiliated with one
another (hereinafter the
"Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company
under the 1940 Act and shares of the Portfolio(s) are registered
under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment
adviser under the
Investment Advisers Act of 1940, as amended, and any applicable
state securities laws; and
WHEREAS, the Distributor is duly registered as a broker-dealer
under the Securities
Exchange Act of 1934, as amended, (the "1934 Act") and is a member
in good standing of
the National Association of Securities Dealers, Inc. (the "NASD");
and
WHEREAS, GWL&A has registered or will register certain
variable annuity contracts
supported wholly or partially by the Account (the "Contracts")
under the 1933 Act and said
Contracts are listed in Schedule A attached hereto and incorporated
herein by reference,
as it may be amended from time to time by mutual written agreement;
and
WHEREAS, the Account is a duly organized, validly existing
segregated asset
account, established by resolution of the Board of Directors of
GWL&A on July 24, 1995,
to set aside and invest assets attributable to the Contracts; and
WHEREAS, GWL&A has registered the Account as a unit investment
trust under
the 1940 Act and has registered the securities deemed to be issued
by the Account under
the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
GWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto
and incorporated herein by reference, as it may be amended from
time to time by mutual
written agreement (the "Designated Portfolio(s)"), on behalf of the
Account to fund the Con-
tracts, and the Fund is authorized to sell such shares to unit
investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations,
the Account also intends to purchase shares in other open-end
investment companies or
series thereof not affiliated with the Fund (the "Unaffiliated
Funds") on behalf of the
Account to fund the Contracts; and
WHEREAS, Schwab will perform certain services for the Fund in
connection with
the Contracts;
NOW, THEREFORE, in consideration of their mutual promises,
GWL&A, Schwab,
the Fund, the Distributor and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to GWL&A those shares of the
Designated
Portfolio(s) which the Account orders, executing such orders on
each Business Day at the
net asset value next computed after receipt by the Fund or its
agent of the order for the
shares of the Portfolios. For purposes of this Section 1.1, GWL&A
shall be the agent of the
Fund for receipt of such orders and receipt by such agent shall
constitute receipt by the
Fund, provided that the Fund receives notice of any such order by
9:00 a.m. Eastern time
on the next following Business Day. "Business Day" shall mean any
day on which the New
York Stock Exchange is open for trading and on which the Fund
calculates its net asset
value pursuant to the rules of the SEC.
1.2. The Fund agrees to make shares of the Designated
Portfolio(s) available for
purchase at the applicable net asset value per share by GWL&A and
the Account on those
days on which the Fund calculates its Designated Portfolio(s)' net
asset value pursuant to
rules of the SEC, and the Fund shall calculate such net asset value
on each day which the
New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board
of Trustees of the Fund (hereinafter the "Board") may refuse to
sell shares of any Portfolio
to any person, 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 Board 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.
1.3. The Fund will not sell shares of the Designated
Portfolio(s) to any other
Participating Insurance Company, separate account or any Qualified
Plan unless an
agreement containing provisions substantially the same as Sections
2.1, 3.5, 3.6, and Article
VII of this Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on GWL&A's request,
any full or
fractional shares of the Fund held by GWL&A, executing such
requests on each Business
Day at the net asset value next computed after receipt by the Fund
or its agent of the
request for redemption. Requests for redemption identified by
GWL&A, or its agent, as
being in connection with surrenders, annuitizations, or death
benefits under the Contracts,
upon prior written notice, may be executed within seven (7)
calendar days after receipt by
the Fund or its agent of the requests for redemption. This Section
1.4 may be amended, in
writing, by the parties consistent with the requirements of the
1940 Act and interpretations
thereof. For purposes of this Section 1.4, GWL&A shall be the agent
of the Fund for receipt
of requests for redemption and receipt by such agent shall
constitute receipt by the Fund,
provided that the Fund receives notice of any such request for
redemption by 10:00 A.M.
Eastern time on the next following Business Day.
1.5. The Parties hereto acknowledge that the arrangement
contemplated by this
Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance
Companies (subject to Section 1.3 and Article VI hereof) and the
cash value of the Con-
tracts may be invested in other investment companies.
1.6. GWL&A shall pay for Fund shares by 3:00 p.m. Eastern time
on the next
Business Day after an order to purchase Fund shares is made in
accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal
funds transmitted by wire
and/or by a credit for any shares redeemed the same day as the
purchase.
1.7. The Fund shall pay and transmit the proceeds of
redemptions of Fund shares
by 11:00 a.m. Eastern Time on the next Business Day after a
redemption order is received
in accordance with Section 1.4 hereof. Payment shall be in federal
funds transmitted by wire
and/or a credit for any shares purchased the same day as the
redemption.
1.8. Issuance and transfer of the Fund's shares will be by
book entry only. Stock
certificates will not be issued to GWL&A or the Account. Shares
ordered from the Fund
will be recorded in an appropriate title for the Account or the
appropriate sub-account of
the Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by
written confirmation) to GWL&A of any income, dividends or capital
gain distributions
payable on the Designated Portfolio(s)' shares. GWL&A hereby
elects to receive all such
income dividends and capital gain distributions as are payable on
the Portfolio shares in
additional shares of that Portfolio. GWL&A reserves the right to
revoke this election and
to receive all such income dividends and capital gain distributions
in cash. The Fund shall
notify GWL&A by the end of the next following Business Day of the
number of shares so
issued as payment of such dividends and distributions.
1.10.The Fund shall make the net asset value per share for
each Designated
Portfolio available to GWL&A on each Business Day as soon as
reasonably practical 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 6:00 p.m. Eastern time. In the
event of an error in the
computation of a Designated Portfolio's net asset value per share
("NAV") or any dividend
or capital gain distribution (each, a "pricing error"), the Adviser
or the Fund shall
immediately notify GWL&A as soon as possible after discovery of the
error. Such
notification may be verbal, but shall be confirmed promptly in
writing in accordance with
Article XI of this Agreement. A pricing error shall be corrected
as follows: (a) if the
pricing error results in a difference between the erroneous NAV and
the correct NAV of
less than $0.01 per share, then no corrective action need be taken;
(b) if the pricing error
results in a difference between the erroneous NAV and the correct
NAV equal to or greater
than $0.01 per share, but less than 1/2 of 1% of the Designated
Portfolio's NAV at the time
of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after
taking into consideration any positive effect of such error;
however, no adjustments to
Contractowner accounts need be made; and (c) if the pricing error
results in a difference
between the erroneous NAV and the correct NAV equal to or greater
than 1/2 of 1% of the
Designated Portfolio's NAV at the time of the error, then the
Adviser shall reimburse the
Designated Portfolio for any loss (without taking into
consideration any positive effect of
such error) and shall reimburse GWL&A for the costs of adjustments
made to correct
Contractowner accounts in accordance with the provisions of
Schedule E. If an adjustment
is necessary to correct a material error which has caused
Contractowners to receive less than
the amount to which they are entitled, the number of shares of the
applicable sub-account
of such Contractowners will be adjusted and the amount of any
underpayments shall be
credited by the Adviser to GWL&A for crediting of such amounts to
the applicable
Contractowners accounts. Upon notification by the Adviser of any
overpayment due to a
material error, GWL&A or Schwab, as the case may be, shall promptly
remit to Adviser any
overpayment that has not been paid to Contractowners; however,
Adviser acknowledges that
Schwab and GWL&A do not intend to seek additional payments from any
Contractowner
who, because of a pricing error, may have underpaid for units of
interest credited to his/her
account. In no event shall Schwab or GWL&A be liable to
Contractowners for any such
adjustments or underpayment amounts. A pricing error within
categories (b) or (c) above
shall be deemed to be "materially incorrect" or constitute a
"material error" for purposes of
this Agreement.
The standards set forth in this Section 1.10 are based on the
Parties' understanding
of the views expressed by the staff of the Securities and Exchange
Commission ("SEC") as
of the date of this Agreement. In the event the views of the SEC
staff are later modified
or superseded by SEC or judicial interpretation, the parties shall
amend the foregoing
provisions of this Agreement to comport with the appropriate
applicable standards, on terms
mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. GWL&A represents and warrants that the securities deemed
to be issued by
the Account under the Contracts are or will be registered under the
1933 Act; that the
Contracts will be issued and sold in compliance in all material
respects with all applicable
federal and state laws and that the sale of the Contracts shall
comply in all material respects
with state insurance suitability requirements. GWL&A further
represents and warrants that
it is an insurance company duly organized and in good standing
under applicable law and
that it has legally and validly established the Account prior to
any issuance or sale of units
thereof as a segregated asset account under Section 10-7-401, et.
seq. of the Colorado
Insurance Law and has registered the Account as a unit investment
trust in accordance with
the provisions of the 1940 Act to serve as a segregated investment
account for the Contracts.
2.2. The Fund represents and warrants that Designated
Portfolio(s) shares sold
pursuant to this Agreement shall be registered under the 1933 Act,
duly authorized for
issuance and sold in compliance with all applicable federal
securities laws including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act and that
the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the
registration statement for
its shares under the 1933 Act and the 1940 Act from time to time as
required in order to
effect the continuous offering of its shares.
2.3. The Fund reserves the right to adopt a plan pursuant to
Rule 12b-1 under the
1940 Act and to impose an asset-based or other charge to finance
distribution expenses as
permitted by applicable law and regulation. In any event, the Fund
and Adviser agree to
comply with applicable provisions and SEC staff interpretations of
the 1940 Act to assure
that the investment advisory or management fees paid to the Adviser
by the Fund are in
accordance with the requirements of the 1940 Act. To the extent
that the Fund decides to
finance distribution expenses pursuant to Rule 12b-1, the Fund
undertakes to have its Board,
a majority of whom are not interested persons of the Fund,
formulate and approve any plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses.
2.4. The Fund represents and warrants that it will make every
effort to ensure that
the investment policies, fees and expenses of the Designated
Portfolio(s) are and shall at all
times remain in compliance with the insurance and other applicable
laws of the State of -
Colorado and any other applicable state to the extent required to
perform this Agreement.
The Fund further represents and warrants that it will make every
effort to ensure that
Designated Portfolio(s) shares will be sold in compliance with the
insurance laws of the State
of Colorado and all applicable state insurance and securities laws.
The Fund shall register
and qualify the shares for sale in accordance with the laws of the
various states if and to the
extent required by applicable law. GWL&A and the Fund will
endeavor to mutually
cooperate with respect to the implementation of any modifications
necessitated by any
change in state insurance laws, regulations or interpretations of
the foregoing that affect the
Designated Portfolio(s) (a "Law Change"), and to keep each other
informed of any Law
Change that becomes known to either party. In the event of a Law
Change, the Fund
agrees that it will implement the change, except in those
circumstances where the Fund has
advised GWL&A that its Board of Directors has determined that
implementation of a
particular Law Change is not in the best interest of all of the
Fund's shareholders.
2.5. The Fund represents and warrants that it is lawfully
organized and validly
existing under the laws of the Commonwealth of Massachusetts and
that it does and will
comply in all material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall
remain duly registered
under all applicable federal and state securities laws and that it
shall perform its obligations
for the Fund in compliance in all material respects with the laws
of the Commonwealth of
Pennsylvania and any applicable state and federal securities laws.
2.7. The Distributor represents and warrants that it is and
shall remain duly
registered under all applicable federal and state securities laws
and that it shall perform its
obligations for the Fund in compliance in all material respects
with the laws of the
Commonwealth of Pennsylvania and any applicable state and federal
securities laws.
2.8. The Fund, the Distributor and the Adviser represent and
warrant that all of
their respective officers, employees, investment advisers, and
other individuals or entities
dealing with the 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 minimal coverage required by Rule 17g-1
under the 1940 Act
or related provisions as may be promulgated from time to time. The
aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued
by a reputable bonding
company.
2.9. Schwab represents and warrants that it has completed,
obtained and
performed, in all material respects, all registrations, filings,
approvals, and authorizations,
consents and examinations required by any government or
governmental authority as may
be necessary to perform this Agreement. Schwab does and will
comply, in all material
respects, with all applicable laws, rules and regulations in the
performance of its obligations
under this Agreement.
2.10.The Fund will provide GWL&A with as much advance notice
as is reasonably
practicable of any material change affecting the Designated
Portfolio(s) (including, but not
limited to, any material change in the registration statement or
prospectus affecting the
Designated Portfolio(s)) and any proxy solicitation affecting the
Designated Portfolio(s) and
consult with GWL&A in order to implement any such change in an
orderly manner,
recognizing the expenses of changes and attempting to minimize such
expenses by
implementing them in conjunction with regular annual updates of the
prospectus for the
Contracts. The Fund agrees to share equitably in expenses incurred
by GWL&A as a result
of actions taken by the Fund, consistent with the allocation of
expenses contained in
Schedule E attached hereto and incorporated herein by reference.
2.11.GWL&A represents and warrants, for purposes other than
diversification
under Section 817 of the Internal Revenue Code of 1986 as amended
("the Code"), that the
Contracts are currently treated as annuity contracts under
applicable provisions of the Code,
and that it will make every effort to maintain such treatment and
that it will notify Schwab,
the Fund, the Distributor and the Adviser immediately upon having
a reasonable basis for
believing that the Contracts have ceased to be so treated or that
they might not be so
treated in the future. In addition, GWL&A represents and warrants
that the Account is a
"segregated asset account" and that interests in the Account are
offered exclusively through
the purchase of or transfer into a "variable contract" within the
meaning of such terms under
Section 817 of the Code and the regulations thereunder. GWL&A will
use every effort to
continue to meet such definitional requirements, and it will notify
Schwab, the Fund, the
Distributor, and the Adviser immediately upon having a reasonable
basis for believing that
such requirements have ceased to be met or that they might not be
met in the future.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. At least annually, the Distributor shall provide GWL&A
and Schwab with as
many copies of the Fund's current prospectus for the Designated
Portfolio(s) as GWL&A
and Schwab may reasonably request for marketing purposes (including
distribution to
Contractowners with respect to new sales of a Contract). If
requested by GWL&A in lieu
thereof, the Distributor or Fund shall provide such documentation
(including a camera-ready
copy and computer diskette of the current prospectus for the
Designated Portfolio(s)) and
other assistance as is reasonably necessary in order for GWL&A once
each year (or more
frequently if the prospectuses for the Designated Portfolio(s) are
amended) to have the
prospectus for the Contracts and the Fund's prospectus for the
Designated Portfolio(s)
printed together in one document. The Fund and Adviser agree that
the prospectuses (and
semi-annual and annual reports) for the Designated Portfolio(s)
will describe only the
Designated Portfolio(s) and will not name or describe any other
portfolios or series that may
be in the Fund unless required by law.
3.2. If applicable state or federal laws or regulations
require that the Statement of
Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the
Fund and/or the Distributor shall provide GWL&A with copies of the
Fund's SAI or docu-
mentation thereof for the Designated Portfolio(s) in such
quantities, with expenses to be
borne in accordance with Schedule E hereof, as GWL&A may reasonably
require to permit
timely distribution thereof to Contractowners. The Distributor
and/or the Fund shall also
provide SAIs to any Contractowner or prospective owner who requests
such SAI from the
Fund (although it is anticipated that such requests will be made to
GWL&A or Schwab).
3.3. The Fund and/or the Distributor shall provide GWL&A and
Schwab with
copies of the Fund's proxy material, reports to stockholders and
other communications to
stockholders for the Designated Portfolio(s) in such quantity, with
expenses to be borne in
accordance with Schedule E hereof, as GWL&A may reasonably require
to permit timely
distribution thereof to Contractowners.
3.4. It is understood and agreed that, except with respect to
information regarding
GWL&A or Schwab provided in writing by that party, neither GWL&A
nor Schwab are
responsible for the content of the prospectus or SAI for the
Designated Portfolio(s). It is
also understood and agreed that, except with respect to information
regarding the Fund, the
Distributor, Adviser or the Designated Portfolio(s) provided in
writing by the Fund, the
Distributor or Adviser, neither the Fund, the Distributor nor
Adviser are responsible for the
content of the prospectus or SAI for the Contracts.
3.5. If and to the extent required by law GWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares in
accordance with instructions
received from Contractowners: and
(iii)vote Designated Portfolio shares for which no
instructions have been
received in the same proportion as Designated
Portfolio(s) shares for
which instructions have been received from
Contractowners, so long as
and to the extent that the SEC continues to
interpret the 1940 Act to
require pass-through voting privileges for variable
contract owners.
3.6. GWL&A shall be responsible for assuring that each of its
separate accounts
holding shares of a Designated Portfolio calculates voting
privileges as directed by the Fund
and agreed to by GWL&A and the Fund. The Fund agrees to promptly
notify GWL&A of
any changes of interpretations or amendments of the Mixed and
Shared Funding Exemptive
Order.
3.7. The Fund will comply with all provisions of the 1940 Act
requiring voting by
shareholders, and in particular the Fund will either provide for
annual meetings (except
insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings)
or, as the Fund currently intends, comply with Section 16(c) of the
1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with
respect to periodic elections
of directors or trustees and with whatever rules the Commission may
promulgate with
respect thereto.
3.8. To the extent allowed under applicable federal and state
law, neither GWL&A
nor Schwab shall in any way recommend or oppose or interfere with
the solicitation of
proxies for Fund shares held by the Account on behalf of
Contractowners without the prior
written consent of the Fund, which consent may be withheld in the
Fund's sole discretion.
Neither GWL&A nor Schwab will initiate or solicit Contractowners to
initiate any proxy
solicitation except to the extent that the failure by GWL&A or
Schwab to so initiate or
solicit would, under the circumstances, be in contravention with
applicable federal or state
law.
ARTICLE IV. Sales Material and Information
4.1. GWL&A and Schwab shall furnish, or shall cause to be
furnished, to the Fund
or its designee, a copy of each piece of sales literature or other
promotional material that
GWL&A or Schwab, respectively, develops or proposes to use and in
which the Fund (or
a Portfolio thereof), its Adviser or one of its sub-advisers or the
Distributor is named in con-
nection with the Contracts, at least ten (10) Business Days prior
to its use. No such material
shall be used if the Fund objects in writing to such use within
five (5) Business Days after
receipt of such material.
4.2. GWL&A and Schwab shall not give any information or make
any
representations or statements on behalf of the Fund in connection
with the sale of the Con-
tracts other than the information or representations contained in
the registration statement
or prospectus for the Fund shares, as such registration statement
and prospectus may be
amended or supplemented from time to time, or in reports or proxy
statements for the
Fund, or in sales literature or other promotional material approved
by the Fund or by the
Distributor, except with the permission of the Fund or the
Distributor.
4.3. The Fund shall furnish, or shall cause to be furnished,
to GWL&A and
Schwab, a copy of each piece of sales literature or other
promotional material in which
GWL&A and/or its separate account(s), or Schwab is named at least
ten (10) Business Days
prior to its use. No such material shall be used if GWL&A or
Schwab objects in writing to
such use within five (5) Business Days after receipt of such
material.
4.4. The Fund, the Distributor, and the Adviser shall not give
any information or
make any representations on behalf of GWL&A or concerning GWL&A,
the Account, or
the Contracts other than the information or representations
contained in a registration state-
ment or prospectus for the Contracts, as such registration
statement and prospectus may be
amended or supplemented from time to time, or in reports for the
Account, or in sales
literature or other promotional material approved by GWL&A or its
designee, except with
the permission of GWL&A.
4.5. GWL&A, the Fund, the Distributor and the Adviser shall
not give any
information or make any representations on behalf of or concerning
Schwab, or use
Schwab's name except with the permission of Schwab.
4.6. The Fund will provide to GWL&A and Schwab at least one
complete copy of
all registration statements, prospectuses, SAIs, reports, proxy
statements, sales literature and
other promotional materials, applications for exemptions, requests
for no-action letters, and
all amendments to any of the above, that relate to the Designated
Portfolio(s), contem-
poraneously with the filing of such document(s) with the SEC or
NASD or other regulatory
authorities.
4.7. GWL&A or Schwab will provide to the Fund at least one
complete copy of
all registration statements, prospectuses, SAIs, reports,
solicitations for voting instructions,
sales literature and other promotional materials, applications for
exemptions, requests for
no-action letters, and all amendments to any of the above, that
relate to the Contracts or
the Account, contemporaneously with the filing of such document(s)
with the SEC, NASD,
or other regulatory authority.
4.8. For purposes of Articles IV and VIII, the phrase "sales
literature and other
promotional material" includes, but is not limited to,
advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other
periodical, radio,
television, telephone or tape recording, videotape display, signs
or billboards, motion
pictures, or other public media; e.g., on-line networks such as the
Internet or other electronic
media) sales literature (i.e., any written communication
distributed or made generally
available to customers or the public, including brochures,
circulars, research reports, market
letters, form letters, seminar texts, reprints or excerpts of any
other advertisement, sales
literature, or published article), educational or training
materials or other communications
distributed or made generally available to some or all agents or
employees, and registration
statements, prospectuses, SAIs, shareholder reports, and proxy
materials and any other
material constituting sales literature or advertising under the
NASD rules, the 1933 Act or
the 1940 Act.
4.9. At the request of any party to this Agreement, each other
party will make
available to the other party's independent auditors and/or
representative of the appropriate
regulatory agencies, all records, data and access to operating
procedures that may be
reasonably requested in connection with compliance and regulatory
requirements related to
this Agreement or any party's obligations under this Agreement.
<PAGE>
ARTICLE V. Fees and Expenses
5.1. The Fund shall pay no fee or other compensation to GWL&A
under this
Agreement, and GWL&A shall pay no fee or other compensation to the
Fund or Adviser
under this Agreement, although the parties hereto will bear certain
expenses in accordance
with Schedule E, Articles III, V, and other provisions of this
Agreement.
5.2. All expenses incident to performance by the Fund, the
Adviser and the
Distributor under this Agreement shall be paid by the appropriate
party, as further provided
in Schedule E. The Fund shall see to it that all shares of the
Designated Portfolio(s) are
registered and authorized for issuance in accordance with
applicable federal law and, if and
to the extent required, in accordance with applicable state laws
prior to their sale.
5.3. The parties shall bear the expenses of routine annual
distribution (mailing
costs) of the Fund's prospectus and distribution (mailing costs) of
the Fund's proxy materials
and reports to owners of Contracts offered by GWL&A, in accordance
with Schedule E.
5.4. The Fund, the Distributor and the Adviser acknowledge
that a principal fea-
ture of the Contracts is the Contractowner's ability to choose from
a number of unaffiliated
mutual funds (and portfolios or series thereof), including the
Designated Portfolio(s) and the
Unaffiliated Funds, and to transfer the Contract's cash value
between funds and portfolios.
The Fund, the Distributor and the Adviser agree to cooperate with
GWL&A and Schwab
in facilitating the operation of the Account and the Contracts as
described in the prospectus
for the Contracts, including but not limited to cooperation in
facilitating transfers between
Unaffiliated Funds.
5.5. Schwab agrees to provide certain administrative services,
specified in Schedule
C attached hereto and incorporated herein by reference, in
connection with the
arrangements contemplated by this Agreement. The parties
acknowledge and agree that the
services referred to in this Section 5.5 are recordkeeping,
shareholder communication, and
other transaction facilitation and processing, and related
administrative services only and are
not the services of an underwriter or a principal underwriter of
the Fund and that Schwab
is not an underwriter for the shares of the Designated
Portfolio(s), within the meaning of
the 1933 Act or the 1940 Act.
5.6. As compensation for the services specified in Schedule C
hereto, the Adviser
agrees to pay Schwab a monthly Administrative Service Fee based on
the percentage per
annum on Schedule C hereto applied to the average daily value of
the shares of the
Designated Portfolio(s) held in the Account with respect to
Contracts sold by Schwab. This
monthly Administrative Service Fee is due and payable before the
15th (fifteenth) day
following the last day of the month to which it relates.
ARTICLE VI. Diversification and Qualification
6.1. The Fund, the Adviser and the Distributor represent and
warrant that the
Fund will at all times sell its shares and invest its assets in
such a manner as to ensure that
the Contracts will be treated as annuity contracts under the Code,
and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Fund,
Distributor and Adviser
represent and warrant that the Fund and each Designated Portfolio
thereof will at all times
comply with Section 817(h) of the Code and Treasury Regulation
1.817-5, as amended from
time to time, and any Treasury interpretations thereof, relating to
the diversification
requirements for variable annuity, endowment, or life insurance
contracts and any
amendments or other modifications or successor provisions to such
Section or Regulations.
The Fund and the Distributor agree that shares of the Designated
Portfolio(s) will be sold
only to Participating Insurance Companies and their separate
accounts and certain Qualified
Plans.
6.2. No shares of any Designated Portfolio of the Fund will be
sold to the general
public.
6.3. The Fund, the Distributor and the Adviser represent and
warrant that the
Fund and each Designated Portfolio is currently qualified as a
Regulated Investment
Company under Subchapter M of the Code, and that each Designated
Portfolio will maintain
such qualification (under Subchapter M or any successor or similar
provisions) as long as this
Agreement is in effect.
6.4. The Fund, the Distributor or the Adviser will notify
GWL&A immediately
upon having a reasonable basis for believing that the Fund or any
Designated Portfolio has
ceased to comply with the aforesaid Section 817(h) diversification
or Subchapter M
qualification requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.3,
8.4 and 8.5 hereof and
without in any way limiting or restricting any other remedies
available to GWL&A or
Schwab, the Adviser or the Distributor will pay all costs
associated with or arising out of any
failure, or any anticipated or reasonably foreseeable failure, of
the Fund or any Designated
Portfolio to comply with Sections 6.1, 6.2, or 6.3 hereof,
including all costs associated with
reasonable and appropriate corrections or responses to any such
failure; such costs may
include, but are not limited to, the costs involved in creating,
organizing, and registering a
new investment company as a funding medium for the Contracts and/or
the costs of
obtaining whatever regulatory authorizations are required to
substitute shares of another
investment company for those of the failed Portfolio (including but
not limited to an order
pursuant to Section 26(b) of the 1940 Act); such costs are to
include, but are not limited to,
fees and expenses of legal counsel and other advisors to GWL&A and
any federal income
taxes or tax penalties and interest thereon (or "toll charges" or
exactments or amounts paid
in settlement) incurred by GWL&A with respect to itself or owners
of its Contracts in
connection with any such failure or anticipated or reasonably
foreseeable failure.
6.6. The Fund at the Fund's expense shall provide GWL&A or its
designee with
reports certifying compliance with the aforesaid Section 817(h)
diversification and
Subchapter M qualification requirements, at the times provided for
and substantially in the
form attached hereto as Schedule D and incorporated herein by
reference; provided,
however, that providing such reports does not relieve the Fund of
its responsibility for such
compliance or of its liability for any non-compliance.
6.7. GWL&A agrees that if the Internal Revenue Service ("IRS")
asserts in writing
in connection with any governmental audit or review of GWL&A or, to
GWL&A's
knowledge, or any Contractowner that any Designated Portfolio has
failed to comply with
the diversification requirements of Section 817(h) of the Code or
GWL&A otherwise
becomes aware of any facts that could give rise to any claim
against the Fund, the Adviser
or the Distributor as a result of such a failure or alleged
failure:
(a) GWL&A shall promptly notify the Fund, the Adviser and the
Distributor of such
assertion or potential claim;
(b) GWL&A shall consult with the Fund, the Adviser and the
Distributor as to how
to minimize any liability that may arise as a result of such
failure or alleged failure;
(c) GWL&A shall use its best efforts to minimize any
liability of the Fund, the
Adviser and the Distributor resulting from such failure,
including, without limitation,
demonstrating, pursuant to Treasury Regulations, Section
1.817-5(a)(2), to the
commissioner of the IRS that such failure was inadvertent;
(d) any written materials to be submitted by GWL&A to the
IRS, any
Contractowner or any other claimant in connection with any of
the foregoing
proceedings or contests (including, without limitation, any
such materials to be
submitted to the IRS pursuant to Treasury Regulations, Section
1.817-5(a)(2)) shall
be provided by GWL&A to the Fund, the Distributor and the
Adviser (together with
any supporting information or analysis) within at least two
(2) business days prior to
submission;
(e) GWL&A shall provide the Fund, the Distributor and the
Adviser with such
cooperation as the Fund, the Distributor and the Adviser shall
reasonably request
(including, without limitation, by permitting the Fund, the
Distributor and the Adviser
to review the relevant books and records of GWL&A) in order to
facilitate review
by the Fund, the Distributor and the Adviser of any written
submissions provided to
it or its assessment of the validity or amount of any claim
against it arising from such
failure or alleged failure;
(f) GWL&A shall not with respect to any claim of the IRS or
any Contractowner that
would give rise to a claim against the Fund, the Distributor
and the Adviser (i)
compromise or settle any claim, (ii) accept any adjustment on
audit, or (iii) forego
any allowable administrative or judicial appeals, without the
express written consent
of the Fund, the Distributor and the Adviser, which shall not
be unreasonably
withheld; provided that, GWL&A shall not be required to appeal
any adverse judicial
decision unless the Fund, the Distributor and the Adviser
shall have provided an
opinion of independent counsel to the effect that a reasonable
basis exists for taking
such appeal; and further provided that the Fund, the
Distributor and the Adviser
shall bear the costs and expenses, including reasonable
attorney's fees, incurred by
GWL&A in complying with this clause (f).
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order
7.1. The Board will monitor the Fund for the existence of any
material
irreconcilable conflict between the interests of the contract
owners of all separate accounts
investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons,
including: (a) an action by any state insurance regulatory
authority; (b) a change in
applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any
similar action by insurance, tax,
or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant
proceeding; (d) the manner in which the investments of any
Portfolio are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life
insurance contract owners or by contract owners of different
Participating Insurance
Companies; or (f) a decision by a Participating Insurance Company
to disregard the voting
instructions of contract owners. The Board shall promptly inform
GWL&A if it determines
that an irreconcilable material conflict exists and the
implications thereof.
7.2. GWL&A will report any potential or existing conflicts of
which it is aware to
the Board. GWL&A will assist the Board in carrying out its
responsibilities under the Mixed
and Shared Funding Exemptive Order, by providing the Board with all
information
reasonably necessary for the Board to consider any issues raised.
This includes, but is not
limited to, an obligation by GWL&A to inform the Board whenever
contract owner voting
instructions are to be disregarded. Such responsibilities shall be
carried out by GWL&A
with a view only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a
majority of its directors who
are not interested persons of the Fund, the Distributor, the
Adviser or any sub-adviser to
any of the Designated Portfolios (the "Independent Directors"),
that a material irreconcilable
conflict exists, GWL&A and other Participating Insurance Companies
shall, at their expense
and to the extent reasonably practicable (as determined by a
majority of the Independent
Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable
material conflict, up to and including: (1) withdrawing the assets
allocable to some or all
of the separate accounts from the Fund or any Designated Portfolio
and reinvesting such
assets in a different investment medium, including (but not limited
to) another portfolio of
the Fund, or submitting the question whether such segregation
should be implemented to
a vote of all affected contract owners and, as appropriate,
segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance
contract owners, or variable
contract owners of one or more Participating Insurance Companies)
that votes in favor of
such segregation, or offering to the affected contract owners the
option of making such a
change; and (2) establishing a new registered management investment
company or managed
separate account.
7.4. If a material irreconcilable conflict arises because of
a decision by GWL&A
to disregard contract owner voting instructions and that decision
represents a minority
position or would preclude a majority vote, GWL&A may be required,
at the Fund's
election, to withdraw the Account's investment in the Fund and
terminate this Agreement;
provided, however that such withdrawal and termination shall be
limited to the extent re-
quired by the foregoing material irreconcilable conflict as
determined by a majority of the
Independent Directors. Any such withdrawal and termination must
take place within six (6)
months after the Fund gives written notice that this provision is
being implemented, and
until the end of that six month period, and subject to section 1.2,
the Distributor and the
Fund shall continue to accept and implement orders by GWL&A for the
purchase (and
redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance
regulator's decision applicable to GWL&A conflicts with the
majority of other state regulat-
ors, then GWL&A will withdraw the Account's investment in the Fund
and terminate this
Agreement within six months after the Board informs GWL&A in
writing that it has
determined that such decision has created an irreconcilable
material conflict; provided,
however, that such withdrawal and termination shall be limited to
the extent required by the
foregoing material irreconcilable conflict as determined by a
majority of the Independent
Directors. Until the end of the foregoing six month period or the
completion of the
termination and withdrawal of the Account's investment in the Fund,
whichever first occurs,
and subject to section 1.2, the Fund shall continue to accept and
implement orders by
GWL&A for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this
Agreement, a majority of the
Independent Trustees shall determine whether any proposed action
adequately remedies any
irreconcilable material conflict, but in no event will the Fund,
the Distributor or the Adviser
be required to establish a new funding medium for the Contracts.
GWL&A shall not be
required by Section 7.3 to establish a new funding medium for the
Contracts if an offer to
do so has been declined by vote of a majority of Contractowners
affected by the
irreconcilable material conflict. In the event that the Board
determines that any proposed
action does not adequately remedy any irreconcilable material
conflict, then GWL&A will
withdraw the Account's investment in the Fund and terminate this
Agreement within six (6)
months after the Board informs GWL&A in writing of the foregoing
determination;
provided, however, that such withdrawal and termination shall be
limited to the extent
required by any such material irreconcilable conflict as determined
by a majority of the
Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules
promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed
and Shared Funding Exemptive Order) on terms and conditions
materially different from
those contained in the Mixed and Shared Funding Exemptive Order,
then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall
take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as
adopted, to the extent such rules are applicable: and (b) Sections
3.5, 3.6, 3.7, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the
extent that terms and con-
ditions substantially identical to such Sections are contained in
such Rule(s) as so amended
or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By GWL&A
8.1(a). GWL&A agrees to indemnify and hold harmless the
Fund, the
Distributor and the Adviser and each of their officers and
directors or trustees and each
person, if any, who controls the Fund, Distributor or Adviser
within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.1)
against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in
settlement with the written consent of GWL&A) or litigation
(including reasonable legal and
other expenses) to which the Indemnified Parties may become subject
under any statute or
regulation, at common law or otherwise, insofar as such losses,
claims, expenses, damages,
liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue
statements of any material fact contained in the
registration statement or pro-
spectus or SAI covering the Contracts or contained in the
Contracts or sales
literature for the Contracts (or any amendment or
supplement to any of the
foregoing), or arise out of or are based upon the
omission or the alleged
omission to state therein a material fact required to be
stated therein or nec-
essary to make the statements therein not misleading,
provided that this
Agreement to indemnify shall not apply as to any
Indemnified Party if such
statement or omission or such alleged statement or
omission was made in
reliance upon and in conformity with information
furnished in writing to
GWL&A or Schwab by or on behalf of the Adviser,
Distributor or Fund for
use in the registration statement or prospectus for the
Contracts or in the
Contracts or sales literature (or any amendment or
supplement) or otherwise
for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement, pro-
spectus or sales literature of the Fund not supplied by
GWL&A or persons
under its control) or wrongful conduct of GWL&A or
persons under its
control, with respect to the sale or distribution of the
Contracts or Fund
Shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
or sales literature of the
Fund, or any amendment thereof or supplement thereto, or
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, if such a
statement or omission was made in reliance upon
information furnished in
writing to the Fund by or on behalf of GWL&A; or
(iv) arise as a result of any failure by GWL&A to provide the
services and furnish
the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or
warranty made by GWL&A in this Agreement or arise out of
or result from
any other material breach of this Agreement by GWL&A,
including without
limitation Section 2.11 and Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections
8.1(b) and 8.1(c) hereof.
8.1(b). GWL&A shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.1(c). GWL&A shall not be liable under this
indemnification provision with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall
have notified GWL&A in writing within a reasonable time after the
summons or other first
legal process giving information of the nature of the claim shall
have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service
on any designated agent), but failure to notify GWL&A of any such
claim shall not relieve
GWL&A from any liability which it may have to the Indemnified Party
against whom such
action is brought otherwise than on account of this indemnification
provision, except to the
extent that GWL&A has been prejudiced by such failure to give
notice. In case any such
action is brought against the Indemnified Parties, GWL&A shall be
entitled to participate,
at its own expense, in the defense of such action. GWL&A also
shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named
in the action. After notice
from GWL&A to such party of GWL&A's election to assume the defense
thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it,
and GWL&A will not be liable to such party under this Agreement for
any legal or other
expenses subsequently incurred by such party independently in
connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify
GWL&A of the
commencement of any litigation or proceedings against them in
connection with the issuance
or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by Schwab
8.2(a). Schwab agrees to indemnify and hold harmless
the Fund, the
Distributor and the Adviser and each of their officers and
directors or trustees and each
person, if any, who controls the Fund, Distributor or Adviser
within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 8.2)
against any and all losses, claims, expenses, damages and
liabilities (including amounts paid
in settlement with the written consent of Schwab) or litigation
(including reasonable legal
and other expenses), to which the Indemnified Parties may become
subject under any statute
or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are
related to the sale or acqu-
isition of the Fund's shares or the Contracts and:
(i) arise out of Schwab's dissemination of information
regarding the Fund that is
both (A) materially incorrect and (B) that was neither
contained in the Fund's
registration statement or sales literature nor other
promotional material of the
Fund prepared by the Fund or provided in writing to
Schwab, or approved
in writing, by or on behalf of the Fund, the Distributor
or the Adviser; or
(ii) arise out of or are based upon any untrue statements or
alleged untrue
statements of any material fact contained in sales
literature or other
promotional material prepared by Schwab for the Contracts
or arise out of or
are based upon the omission or the alleged omission to
state therein a
material fact required to be stated therein or necessary
to make the
statements therein not misleading, provided that this
Agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or
such alleged statement or omission was made in reliance
upon and in
conformity with information furnished in writing to GWL&A
or Schwab by or
on behalf of the Adviser, the Distributor or Fund or to
Schwab by GWL&A
for use in the registration statement or prospectus for
the Contracts or in the
Contracts or sales literature (or any amendment or
supplement) or otherwise
for use in connection with the sale of the Contracts; or
(iii)arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus or sales literature of the Fund not supplied
by Schwab or persons
under its control) or wrongful conduct of Schwab or
persons under its control,
with respect to the sale or distribution of the
Contracts; or
(iv) arise as a result of any failure by Schwab to provide the
services and furnish
the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or
warranty made by Schwab in this Agreement or arise out of
or result from any
other material breach of this Agreement by Schwab;
as limited by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.
8.2(b). Schwab shall not be liable under this
indemnification provision with
respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party
would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, bad
faith, or negligence in the performance of such Indemnified Party's
duties or by reason of
such Indemnified Party's reckless disregard of obligations or
duties under this Agreement
or to any of the Indemnified Parties.
8.2(c). Schwab shall not be liable under this
indemnification provision with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall
have notified Schwab in writing within a reasonable time after the
summons or other first
legal process giving information of the nature of the claim shall
have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service
on any designated agent), but failure to notify Schwab of any such
claim shall not relieve
Schwab from any liability which it may have to the Indemnified
Party against whom such
action is brought otherwise than on account of this indemnification
provision, except to the
extent that Schwab has been prejudiced by such failure to give
notice. In case any such
action is brought against the Indemnified Parties, Schwab shall be
entitled to participate, at
its own expense, in the defense of such action. Schwab also shall
be entitled to assume the
defense thereof, with counsel satisfactory to the party named in
the action. After notice
from Schwab to such party of Schwab's election to assume the
defense thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it,
and Schwab will not be liable to such party under this Agreement
for any legal or other ex-
penses subsequently incurred by such party independently in
connection with the defense
thereof other than reasonable costs of investigation.
8.2(d). The Indemnified Parties will promptly notify
Schwab of the
commencement of any litigation or proceedings against them in
connection with the issuance
or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.3. Indemnification by the Adviser
8.3(a). The Adviser agrees to indemnify and hold
harmless GWL&A and
Schwab and each of their directors and officers and each person, if
any, who controls
GWL&A or Schwab within the meaning of Section 15 of the 1933 Act
(collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any
and all losses, claims,
expenses, damages, liabilities (including amounts paid in
settlement with the written consent
of the Adviser) or litigation (including reasonable legal and other
expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in
respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund, Adviser or the Distributor (or
any amendment
or supplement to any of the foregoing), or arise out of
or are based upon the
omission or the alleged omission to state therein a
material fact required to
be stated therein or necessary to make the statements
therein not misleading,
provided that this Agreement to indemnify shall not apply
as to any
Indemnified Party if such statement or omission or such
alleged statement or
omission was made in reliance upon and in conformity with
information fur-
nished in writing to the Adviser, the Distributor or the
Fund by or on behalf
of GWL&A or Schwab for use in the registration statement
or prospectus for
the Fund or in sales literature (or any amendment or
supplement) or
otherwise for use in connection with the sale of the
Contracts or the Fund
shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI or sales literature or other promotional
material for the
Contracts not supplied by the Adviser or persons under
its control) or
wrongful conduct of the Fund, the Distributor or Adviser
or persons under
their control, with respect to the sale or distribution
of the Contracts or Fund
shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, or sales literature
covering the Contracts, or any amendment thereof or
supplement thereto, or
the omission or alleged omission to state therein a
material fact required to
be stated therein or necessary to make the statement or
statements therein
not misleading, if such statement or omission was made in
reliance upon
information furnished in writing to GWL&A or Schwab by or
on behalf of the
Adviser, the Distributor or the Fund; or
(iv) arise as a result of any failure by the Fund, the Adviser
or the Distributor to
provide the services and furnish the materials under the
terms of this
Agreement (including a failure, whether unintentional or
in good faith or
otherwise, to comply with the diversification and other
qualification
requirements specified in Article VI of this Agreement);
or
(v) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund, the Adviser or the Distributor
in this Agreement
or arise out of or result from any other material breach
of this Agreement by
the Adviser, the Fund or the Distributor; or
(vi) arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.3(b) and 8.3(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Adviser specified in Article VI hereof.
8.3(b). The Adviser shall not be liable under this
indemnification provision
with respect to any losses, claims, expenses, damages, liabilities
or litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.3(c). The Adviser shall not be liable under this
indemnification provision
with respect to any claim made against an Indemnified Party unless
such Indemnified Party
shall have notified the Adviser in writing within a reasonable time
after the summons or
other first legal process giving information of the nature of the
claim shall have been served
upon such Indemnified Party (or after such Indemnified Party shall
have received notice of
such service on any designated agent), but failure to notify the
Adviser of any such claim
shall not relieve the Adviser from any liability which it may have
to the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Adviser has been
prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified
Parties, the Adviser will
be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel
satisfactory to the party named in
the action. After notice from the Adviser to such party of the
Adviser's election to assume
the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional
counsel retained by it, and the Adviser will not be liable to such
party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). GWL&A and Schwab agree promptly to notify the Adviser
of the
commencement of any litigation or proceedings against it or any of
its officers or directors
in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.4. Indemnification By the Fund
8.4(a). The Fund agrees to indemnify and hold harmless GWL&A
and Schwab and
each of their directors and officers and each person, if any, who
controls GWL&A or
Schwab within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified
Parties" for purposes of this Section 8.4) against any and all
losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with the
written consent of the
Fund) or litigation (including reasonable legal and other expenses)
to which the Indemnified
Parties may be required to pay or become subject under any statute
or regulation, at
common law or otherwise, insofar as such losses, claims, expenses,
damages, liabilities or
expenses (or actions in respect thereof) or settlements, are
related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish
the materials under the terms of this Agreement
(including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification
and other qualification requirements specified in Article
VI of this Agree-
ment); or
(ii) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund in this Agreement or arise out
of or result from
any other material breach of this Agreement by the Fund;
or
(iii)arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.4(b) and 8.4(c) hereof.
8.4(b). The Fund shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.4(c). The Fund shall not be liable under this
indemnification provision with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall
have notified the Fund in writing within a reasonable time after
the summons or other first
legal process giving information of the nature of the claim shall
have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service
on any designated agent), but failure to notify the Fund of any
such claim shall not relieve
it from any liability which it may have to the Indemnified Party
against whom such action
is brought otherwise than on account of this indemnification
provision, except to the extent
that the Fund has been prejudiced by such failure to give notice.
In case any such action
is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own
expense, in the defense thereof. The Fund shall also be entitled
to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from the
Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Fund
will not be liable to such party under this Agreement for any legal
or other expenses
subsequently incurred by such party independently in connection
with the defense thereof
other than reasonable costs of investigation.
8.4(d). GWL&A and Schwab each agree promptly to notify
the Fund of the
commencement of any litigation or proceeding against itself or any
of its respective officers
or directors in connection with the Agreement, the issuance or sale
of the Contracts, the
operation of the Account, or the sale or acquisition of shares of
the Fund.
8.5. Indemnification by the Distributor
8.5(a).The Distributor agrees to indemnify and hold harmless
GWL&A and
Schwab and each of their directors and officers and each person, if
any, who controls
GWL&A or Schwab within the meaning of Section 15 of the 1933 Act
(collectively, the
"Indemnified Parties" for purposes of this Section 8.5) against any
and all losses, claims,
expenses, damages, liabilities (including amounts paid in
settlement with the written consent
of the Distributor) or litigation (including reasonable legal and
other expenses) to which the
Indemnified Parties may become subject under any statute or
regulation, at common law or
otherwise, insofar as such losses, claims, expenses, damages,
liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares
or the contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue
statement of any material fact contained in the
registration statement or
prospectus or SAI or sales literature or other
promotional material of the
Fund prepared by the Fund, Adviser or Distributor (or any
amendment or
supplement to any of the foregoing), or arise out of or
are based upon the
omission or the alleged omission to state therein a
material fact required to
be stated therein or necessary to make the statements
therein not misleading,
provided that this Agreement to indemnify shall not apply
as to any
Indemnified Party if such statement or omission or such
alleged statement or
omission was made in reliance upon and in conformity with
information fur-
nished in writing to the Adviser, the Distributor or Fund
by or on behalf of
GWL&A or Schwab for use in the registration statement or
SAI or prospectus
for the Fund or in sales literature or other promotional
material (or any
amendment or supplement) or otherwise for use in
connection with the sale
of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than
statements or representations contained in the
registration statement,
prospectus, SAI, sales literature or other promotional
material for the
Contracts not supplied by the Distributor or persons
under its control) or
wrongful conduct of the Fund, the Distributor or Adviser
or persons under
their control, with respect to the sale or distribution
of the Contracts or Fund
shares; or
(iii)arise out of any untrue statement or alleged untrue
statement of a material
fact contained in a registration statement, prospectus,
SAI, sales literature or
other promotional material covering the Contracts, or any
amendment thereof
or supplement thereto, or the omission or alleged
omission to state therein a
material fact required to be stated therein or necessary
to make the statement
or statements therein not misleading, if such statement
or omission was made
in reliance upon information furnished in writing to
GWL&A or Schwab by
or on behalf of the Adviser, the Distributor or Fund; or
(iv) arise as a result of any failure by the Fund, Adviser or
Distributor to provide
the services and furnish the materials under the terms of
this Agreement
(including a failure, whether unintentional or in good
faith or otherwise, to
comply with the diversification and other qualification
requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or
warranty made by the Fund, Adviser or Distributor in this
Agreement or arise
out of or result from any other material breach of this
Agreement by the
Fund, Adviser or Distributor; or
(vi) arise out of or result from the incorrect or untimely
calculation or reporting
of the daily net asset value per share or dividend or
capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections
8.5(b) and 8.5(c) hereof.
This indemnification is in addition to and apart from the
responsibilities and obligations of
the Distributor specified in Article VI hereof.
8.5(b).The Distributor shall not be liable under this
indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or
litigation to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful
misfeasance, bad faith, or negligence in the performance or such
Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this
Agreement or to any of the Indemnified Parties.
8.5(c)The Distributor shall not be liable under this
indemnification provision with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall
have notified the Distributor in writing within a reasonable time
after the summons or other
first legal process giving information of the nature of the claim
shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have
received notice of such
service on any designated agent), but failure to notify the
Distributor of any such claim shall
not relieve the Distributor from any liability which it may have to
the Indemnified Party
against whom such action is brought otherwise than on account of
this indemnification
provision, except to the extent that the Distributor has been
prejudiced by such failure to
give notice. In case any such action is brought against the
Indemnified Parties, the
Distributor will be entitled to participate, at its own expense, in
the defense thereof. The
Distributor also shall be entitled to assume the defense thereof,
with counsel satisfactory to
the party named in the action. After notice from the Distributor
to such party of the
Distributor's election to assume the defense thereof, the
Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the
Distributor will not be
liable to such party under this Agreement for any legal or other
expenses subsequently
incurred by such party independently in connection with the defense
thereof other than
reasonable costs of investigation.
8.5(d)GWL&A and Schwab agree to promptly notify the
Distributor of the
commencement of any litigation or proceedings against it or any of
its officers or directors
in connection with the issuance or sale of the Contracts or the
operation of the Account.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions
hereof interpreted under
and in accordance with the laws of the State of Colorado, without
regard to the Colorado
Conflict of Laws provisions.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940
Acts, and the rules and regulations and rulings thereunder,
including such exemptions from
those statutes, rules and regulations as the Securities and
Exchange Commission may grant
(including, but not limited to, the Mixed and Shared Funding
Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1.This Agreement shall terminate:
(a) at the option of any party, with or without cause,
with respect to some or
all Portfolios, upon six (6) months advance written
notice delivered to the
other parties; provided, however, that such notice shall
not be given earlier
than six (6) months following the date of this Agreement;
or
(b) at the option of GWL&A or Schwab by written notice
to the other parties
with respect to any Portfolio based upon GWL&A's or
Schwab's
determination that shares of such Portfolio are not
reasonably available to
meet the requirements of the Contracts; or
(c) at the option of GWL&A or Schwab by written notice
to the other parties
with respect to any Portfolio in the event any of the
Portfolio's shares are not
registered, issued or sold in accordance with applicable
state and/ or federal
law or such law precludes the use of such shares as the
underlying investment
media of the Contracts issued or to be issued by GWL&A;
or
(d) at the option of the Fund in the event that formal
administrative
proceedings are instituted against GWL&A or Schwab by the
NASD, the SEC,
the Insurance Commissioner or like official of any state
or any other
regulatory body regarding GWL&A's or Schwab's duties
under this Agreement
or related to the sale of the Contracts, the operation of
any Account, or the
purchase of the Fund shares, if, in each case, the Fund
reasonably determines
in its sole judgment exercised in good faith, that any
such administrative
proceedings will have a material adverse effect upon the
ability of GWL&A
or Schwab to perform its obligations under this
Agreement; or
(e) at the option of GWL&A or Schwab in the event that
formal
administrative proceedings are instituted against the
Fund, the Distributor or
Adviser by the NASD, the SEC, or any state securities or
insurance
department or any other regulatory body, if Schwab or
GWL&A reasonably
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of the Fund, the Distributor or Adviser to perform their
obligations under this
Agreement; or
(f) at the option of GWL&A by written notice to the Fund
with respect to
any Portfolio if GWL&A reasonably believes that the
Portfolio will fail to
meet the Section 817(h) diversification requirements or
Subchapter M
qualifications specified in Article VI hereof; or
(g) at the option of either the Fund, the Distributor or
the Adviser, if (i) the
Fund or Adviser, respectively, shall determine, in their
sole judgment
reasonably exercised in good faith, that either GWL&A or
Schwab has
suffered a material adverse change in their business or
financial condition or
is the subject of material adverse publicity and that
material adverse change
or publicity will have a material adverse impact on
GWL&A's or Schwab's
ability to perform its obligations under this Agreement,
(ii) the Fund, the
Distributor or Adviser notifies GWL&A or Schwab, as
appropriate, of that
determination and its intent to terminate this Agreement,
and (iii) after
considering the actions taken by GWL&A or Schwab and any
other changes
in circumstances since the giving of such a notice, the
determination of the
Fund, the Distributor or Adviser shall continue to apply
on the sixtieth (60th)
day following the giving of that notice, which sixtieth
day shall be the effective
date of termination; or
(h) at the option of either GWL&A or Schwab, if (i)
GWL&A or Schwab,
respectively, shall determine, in its sole judgment
reasonably exercised in good
faith, that either the Fund, the Distributor or the
Adviser has suffered a
material adverse change in its business or financial
condition or is the subject
of material adverse publicity and that material adverse
change or publicity will
have a material adverse impact on the Fund's, the
Distributor's or Adviser's
ability to perform its obligations under this Agreement,
(ii) GWL&A or
Schwab notifies the Fund, the Distributor or Adviser, as
appropriate, of that
determination and its intent to terminate this Agreement,
and (iii) after
considering the actions taken by the Fund, the
Distributor or Adviser and any
other changes in circumstances since the giving of such
a notice, the determi-
nation of GWL&A or Schwab shall continue to apply on the
sixtieth (60th)
day following the giving of that notice, which sixtieth
day shall be the effective
date of termination; or
(i) at the option of GWL&A in the event that formal
administrative
proceedings are instituted against Schwab by the NASD,
the Securities and
Exchange Commission, or any state securities or insurance
department or any
other regulatory body regarding Schwab's duties under
this Agreement or
related to the sale of the Fund's shares or the
Contracts, the operation of any
Account, or the purchase of the Fund shares, provided,
however, that
GWL&A determines in its sole judgment exercised in good
faith, that any such
administrative proceedings will have a material adverse
effect upon the ability
of Schwab to perform its obligations related to the
Contracts; or
(j) at the option of Schwab in the event that formal
administrative
proceedings are instituted against GWL&A by the NASD, the
Securities and
Exchange Commission, or any state securities or insurance
department or any
other regulatory body regarding GWL&A's duties under this
Agreement or
related to the sale of the Fund's shares or the
Contracts, the operation of any
Account, or the purchase of the Fund shares, provided,
however, that Schwab
determines in its sole judgment exercised in good faith,
that any such
administrative proceedings will have a material adverse
effect upon the ability
of GWL&A to perform its obligations related to the
Contracts; or
(k) at the option of any non-defaulting party hereto in
the event of a material
breach of this Agreement by any party hereto (the
"defaulting party") other
than as described in 10.1(a)-(j); provided, that the
non-defaulting party gives
written notice thereof to the defaulting party, with
copies of such notice to all
other non-defaulting parties, and if such breach shall
not have been remedied
within thirty (30) days after such written notice is
given, then the non-
defaulting party giving such written notice may terminate
this Agreement by
giving thirty (30) days written notice of termination to
the defaulting party.
10.2.Notice Requirement. No termination of this Agreement
shall be effective
unless and until the party terminating this Agreement gives prior
written notice to all other
parties of its intent to terminate, which notice shall set forth
the basis for the termination.
Furthermore,
(a) in the event any termination is based upon the provisions
of Article VII, or the
provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this
Agreement, the prior written
notice shall be given in advance of the effective date of
termination as required by
those provisions unless such notice period is shortened by
mutual written agreement
of the parties;
(b) in the event any termination is based upon the provisions
of Section 10.1(d),
10.1(e), 10.1(i) or 10.1(j) of this Agreement, the prior
written notice shall be given
at least sixty (60) days before the effective date of
termination; and
(c) in the event any termination is based upon the provisions
of Section 10.1(b),
10.1(c) or 10.1(f), the prior written notice shall be given in
advance of the effective
date of termination, which date shall be determined by the
party sending the notice.
10.3.Effect of Termination. Notwithstanding any termination
of this Agreement,
other than as a result of a failure by either the Fund or GWL&A to
meet Section 817(h)
of the Code diversification requirements, the Fund, the Adviser and
the Distributor shall,
at the option of GWL&A or Schwab, continue to make available
additional shares of the
Designated Portfolios pursuant to the terms and conditions of this
Agreement, for all
Contracts in effect on the effective date of termination of this
Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without
limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in
the Designated Portfolios,
redeem investments in the Designated Portfolios and/or invest in
the Designated Portfolios
upon the making of additional purchase payments under the Existing
Contracts. The parties
agree that this Section 10.3 shall not apply to any terminations
under Article VII and the
effect of such Article VII terminations shall be governed by
Article VII of this Agreement.
10.4.Surviving Provisions. Notwithstanding any termination of
this Agreement, each
party's obligations under Article VIII to indemnify other parties
shall survive and not be
affected by any termination of this Agreement. In addition, with
respect to Existing
Contracts, all provisions of this Agreement shall also survive and
not be affected by any
termination of this Agreement.
10.5.Survival of Agreement. A termination by Schwab shall
terminate this
Agreement only as to Schwab, and this Agreement shall remain in
effect as to the other par-
ties; provided, however, that in the event of a termination by
Schwab the other parties shall
have the option to terminate this Agreement upon 60 (sixty) days
notice, rather than the six
(6) months specified in Section 10.1(a).
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by
registered or certified mail
to the other party at the address of such party set forth below or
at such other address as
such party may from time to time specify in writing to the other
party.
If to the Fund:
Federated Insurance Series
Federated Investors Towers
Pittsburgh, PA 15222-3779
Attention: John W. McGonigle, Esq.
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention:Assistant Vice President, Savings Products
<PAGE>
If to the Adviser:
Federated Advisers
Federated Investors Towers
Pittsburgh, PA 15222-3779
Attention: John W. McGonigle, Esq.
If to the Distributor:
Federated Securities Corp.
Federated Investors Towers
Pittsburgh, PA 15222-3779
Attention: John W. McGonigle, Esq.
If to Schwab:
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
Attention: General Counsel
ARTICLE XII. Miscellaneous
12.1.Subject to the requirements of legal process and
regulatory authority, each
party hereto shall treat as confidential the names and addresses of
the owners of the
Contracts and all information reasonably identified as confidential
in writing by any other
party hereto and, except as permitted by this Agreement, shall not
disclose, disseminate or
utilize such names and addresses and other confidential information
without the express
written consent of the affected party until such time as such
information may come into the
public domain. Without limiting the foregoing, no party hereto
shall disclose any
information that another party has designated as proprietary.
12.2.The captions in this Agreement are included for
convenience of reference only
and in no way define or delineate any of the provisions hereof or
otherwise affect their
construction or effect.
12.3.This Agreement may be executed simultaneously in two or
more counterparts,
each of which taken together shall constitute one and the same
instrument.
12.4.If any provision of this Agreement shall be held or made
invalid by a court
decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected
thereby.
12.5.Each party hereto shall cooperate with each other party
and all appropriate
governmental authorities (including without limitation the SEC, the
NASD and state
insurance regulators) 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. Notwithstanding the generality
of the foregoing, each
party hereto further agrees to furnish the Colorado Insurance
Commissioner with any
information or reports in connection with services provided under
this Agreement which such
Commissioner may request in order to ascertain whether the variable
annuity operations of
GWL&A are being conducted in a manner consistent with the Colorado
Variable Annuity
Regulations and any other applicable law or regulations.
12.6.Any controversy or claim arising out of or relating to
this Agreement, or
breach thereof, may be settled by arbitration in a forum jointly
selected by the relevant
parties (but if applicable law requires some other forum, then such
other forum) in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association,
and judgment upon the award rendered by the arbitrators may be
entered in any court
having jurisdiction thereof.
12.7.The rights, remedies and obligations contained in this
Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in
equity, which the parties hereto are entitled to under state and
federal laws.
12.8.This Agreement or any of the rights and obligations
hereunder may not be
assigned by any party without the prior written consent of all
parties hereto.
12.9.Schwab and GWL&A are hereby expressly put on notice of
the limitation of
liability as set forth in the Declarations of Trust of the Fund and
the Adviser and agree that
the obligations assumed by the Fund and the Adviser pursuant to
this Agreement shall be
limited in any case to the Fund and Adviser and their respective
assets and neither Schwab
nor GWL&A shall seek satisfaction of any such obligation from the
shareholders of the
Fund or the Adviser, the Trustees, officers, employees or agents of
the Fund or Adviser, or
any of them, except to the extent permitted under this Agreement.
12.10.The Fund, Adviser and Distributor agree that the
obligations assumed by
GWL&A and Schwab pursuant to this Agreement shall be limited in any
case to GWL&A
and Schwab and their respective assets and neither the Fund,
Distributor nor Adviser shall
seek satisfaction of any such obligation from the shareholders of
the GWL&A or Schwab,
the directors, officers, employees or agents of the GWL&A or
Schwab, or any of them,
except to the extent permitted under this Agreement.
12.11.No provision of this Agreement may be deemed or
construed to modify or
supersede any contractual rights, duties, or indemnifications, as
between the Distributor and
the Fund, and as between the Adviser and the Fund.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to
be executed in its name and on its behalf by its duly authorized
representative and its seal
to be hereunder affixed hereto as of the date specified below.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By:______________________________
Title:
Date:
FEDERATED INSURANCE SERIES
By its authorized officer,
By:______________________________
Title:
Date:
FEDERATED ADVISERS
By its authorized officer,
By:____________________________
Title:
Date:
FEDERATED SECURITIES CORP.
By its authorized officer,
By:____________________________
Title:
Date:
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By:___________________________
Title:
Date: <PAGE>
Schwab Variable Annuity
SCHEDULE A
Contracts Form Numbers
Great-West Life & Annuity Insurance Company
Group Variable/Fixed Annuity Contract J434
Individual Variable/Fixed Annuity Contract J434IND
<PAGE>
SCHEDULE B
Designated Portfolios
Federated American Leaders Fund II
Federated Fund for U.S. Government Securities II
Federated Utility Fund II <PAGE>
SCHEDULE C
Administrative Services
To be performed by Charles Schwab & Co., Inc.
A. Schwab will provide the properly registered and licensed
personnel and systems
needed for all customer servicing and support - for both fund and
annuity information
and questions - including:
respond to Contractowner inquiries
delivery of prospectus - both fund and annuity;
entry of initial and subsequent orders;
transfer of cash to insurance company and/or funds;
explanations of fund objectives and characteristics;
entry of transfers between funds;
fund balance and allocation inquiries;
mail fund prospectus.
B. For the services, Schwab shall receive a fee of 0.25% per
annum applied to the
average daily value of the shares of the fund held by Schwab's
customers, payable by the
Adviser directly to Schwab, such payments being due and payable
within 15 (fifteen) days
after the last day of the month to which such payment relates.
C. The Fund will calculate and Schwab will verify with GWL&A the
asset balance for
each day on which the fee is to be paid pursuant to this Agreement
with respect to each
Designated Portfolio.
D. Schwab will communicate all purchase, withdrawal, and exchange
orders it
receives from its customers to GWL&A who will retransmit them to
each fund.<PAGE>
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing
of compliance with the
requirements of Section 817(h) and Subchapter M under the Internal
Revenue Code (the
"Code") and the regulations thereunder, the Fund shall provide
within twenty (20)
Business Days of the close of the calendar quarter a report to
GWL&A in the Form D1
attached hereto and incorporated herein by reference, regarding the
status under such
sections of the Code of the Designated Portfolio(s), and if
necessary, identification of any
remedial action to be taken to remedy non-compliance.
With regard to the reports relating to the year-end testing of
compliance with the
requirements of Subchapter M of the Code, referred to hereinafter
as "RIC status," the
Fund will provide the reports on the following basis: (i) the last
quarter's quarterly
reports can be supplied within the 20-day period, and (ii) a
year-end report will be
provided 45 days after the end of the calendar year. However, if
a problem with regard
to RIC status, as defined below, is identified in the third quarter
report, on a weekly
basis, starting the first week of December, additional interim
reports will be provided
specially addressing the problems identified in the third quarter
report. If any interim
report memorializes the cure of the problem, subsequent interim
reports will not be
required.
A problem with regard to RIC status is defined as any
violation of the following
standards, as referenced to the applicable sections of the Code:
(a) Less than ninety percent of gross income is derived from
sources of income
specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from
the sale or disposition
of assets specified in Section 851(b)(3);
(c) Less than fifty percent of the value of total assets
consists of assets specified in
Section 851(b)(4)(A); and
(d) No more than twenty-five percent of the value of total
assets is invested in the
securities of one issuer, as that requirement is set forth in
Section 851(b)(4)(B).<PAGE>
FORM D1
CERTIFICATE OF COMPLIANCE
I, , a duly authorized officer,
director or agent of
Fund hereby swear and affirm that Fund is in
compliance with all
requirements of Section 817(h) and Subchapter M of the Internal
Revenue Code (the
"Code") and the regulations thereunder as required in the Fund
Participation Agreement
among Great-West Life & Annuity Insurance Company, Charles Schwab
& Co., Inc. and
other than the exceptions discussed below:
Exceptions Remedial Action
If no exception to report, please indicate "None."
Signed this day of
, .
(Signature)
By:
(Type or Print Name and
Title/Position)
<PAGE>
SCHEDULE E
EXPENSES
The Fund and/or Distributor and/or Adviser, and GWL&A will
coordinate the
functions and pay the costs of the completing these functions based
upon an
allocation of costs in the tables below. Costs shall be allocated
to reflect the
Fund's share of the total costs determined according to the number
of pages of
the Fund's respective portions of the documents.
Item<PAGE>
Function Party Responsible for
Coordination<PAGE>
Party Responsible
for Expense<PAGE>
Mutual Fund
Prospectus<PAGE>
Printing of combined
prospectuses<PAGE>
GWL&A Fund or
Distributor, as
applicable<PAGE>
Distributor shall supply
GWL&A with such
numbers of the
Designated Portfolio(s)
prospectus(es) as
GWL&A shall
reasonably request<PAGE>
GWL&A Fund or
Distributor, as
applicable<PAGE>
Distribution to New
and Inforce Clients<PAGE>
GWL&A GWL&A Distribution to
Prospective Clients<PAGE>
Schwab Schwab Product Prospectus Printing for Inforce
Clients <PAGE>
GWL&A GWL&A Printing for Prospective
Clients<PAGE>
GWL&A Schwab Distribution to New
and Inforce Clients<PAGE>
GWL&A GWL&A Distribution to
Prospective Clients<PAGE>
Schwab SchwabMutual Fund
Prospectus Update &
Distribution<PAGE>
If Required by Fund or
Distributor<PAGE>
Fund or Distributor Fund or
Distributor<PAGE>
If Required by
GWL&A<PAGE>
GWL&A GWL&A If Required by Schwab Schwab Schwab Product Prospectus
Update & Distribution<PAGE>
If Required by Fund or
Distributor<PAGE>
GWL&A Fund or
Distributor<PAGE>
Item Function Party Responsible for
Coordination<PAGE>
Party Responsible
for Expense
<PAGE>
If Required by
GWL&A<PAGE>
GWL&A GWL&A If Required by Schwab Schwab Schwab Mutual Fund SAI Printing
<PAGE>
Fund or Distributor Fund or
Distributor<PAGE>
Distribution GWL&A GWL&A Product SAI Printing GWL&A GWL&A <PAGE>
Distribution<PAGE>
GWL&A GWL&A
Item<PAGE>
Function Party Responsible for
Coordination<PAGE>
Party Responsible
for Expense<PAGE>
Proxy Material for
Mutual Fund:<PAGE>
Printing if proxy
required by Law<PAGE>
Fund or Distributor Fund or
Distributor<PAGE>
Distribution (including
labor) if proxy required
by Law<PAGE>
GWL&A Fund or
Distributor<PAGE>
Printing & distribution
if required by GWL&A<PAGE>
GWL&A GWL&A Printing & distribution
if required by Schwab<PAGE>
GWL&A Schwab
Item<PAGE>
Function Party Responsible for
Coordination<PAGE>
Party Responsible
for Expense<PAGE>
Mutual Fund Annual &
Semi-Annual Report<PAGE>
Printing of combined
reports<PAGE>
GWL&A Fund or
Distributor<PAGE>
Distribution GWL&A GWL&A and
Schwab<PAGE>
Other communication
to New and Prospective
clients<PAGE>
If Required by the
Fund or Distributor<PAGE>
Schwab Fund or
Distributor<PAGE>
If Required by
GWL&A<PAGE>
Schwab GWL&A Item Function Party Responsible for
Coordination<PAGE>
Party Responsible
for Expense<PAGE>
If Required by Schwab Schwab Schwab Other communication
to inforce<PAGE>
Distribution (including
labor) if required by
the Fund or Distributor<PAGE>
GWL&A Fund or
Distributor<PAGE>
If Required by
GWL&A<PAGE>
GWL&A GWL&A If Required by Schwab GWL&A Schwab
Item<PAGE>
Function Party Responsible for
Coordination<PAGE>
Party Responsible
for Expense<PAGE>
Errors in Share Price
calculation pursuant to
Section 1.10 <PAGE>
Cost of error to
participants<PAGE>
GWL&A Fund or Adviser Cost of administrative
work to correct error<PAGE>
GWL&A Fund or Adviser Operations of the Fund
<PAGE>
All operations and
related expenses,
including the cost of
registration and
qualification of shares,
taxes on the issuance or
transfer of shares, cost
of management of the
business affairs of the
Fund, and expenses
paid or assumed by the
fund pursuant to any
Rule 12b-1 plan <PAGE>
Fund or Distributor Fund or Adviser Operations of the
Account<PAGE>
Federal registration of
units of separate
account (24f-2 fees)<PAGE>
GWL&A GWL&A
EXHIBIT 10(a)
Consent of Jorden Burt Berenson & Johnson LLP
April 24, 1997
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, Colorado 801111
Re: Registration Statement on Form N-4 Registration Number
333-01153
Dear Ladies and Gentlemen:
We have acted as counsel to Great-West Life & Annuity
Insurance Company, a Colorado corporation, regarding the federal
securities laws applicable to the issuance and sale of the Contract
described herein. We hereby consent to the reference to us under
the heading "Legal Matters" in the prospectus.
Very truly yours,
/s/ Jorden Burt Berenson & Johnson LLP
JORDEN BURT BERENSON & JOHNSON LLP
EXHIBIT 10(b)
Consent of Deloitte & Touche LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4 (Registration No. 333-01153) of
Variable Annuity-1 Series Account of our reports on Variable
Annuity-1 Series Account dated February 7, 1997 and on Great-West
Life & Annuity Insurance Company dated January 25, 1997, and to the
reference to us under the heading "Experts" appearing in the
prospectus and Statement of Additional Information, which are a
part of such Registration Statement.
/s Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
April 16, 1997
EXHIBIT 10(c)
Consent of Ruth B. Lurie
April 25, 1997
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, Colorado 80111
Re: Variable Annuity-1 Series Account
Ladies and Gentlemen:
I hereby consent to the use of my name under the caption "Legal
Opinions" in the Prospectus for Variable Annuity-1 Series Account
contained in the Registration Statement Form N-4 filed by
Great-West Life & Annuity Insurance Company and Variable Annuity-1
Series Account with the Securities and Exchange Commission under
the Securities Act of 1933, the Investment Company Act of 1940 and
the amendments thereto.
Sincerely,
/s/ Ruth B. Lurie
Ruth B. Lurie
Vice President, Counsel
and Associate Secretary
EXHIBIT 14
Financial Data Schedule
??
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 6206478
<DEBT-CARRYING-VALUE> 1992681
<DEBT-MARKET-VALUE> 2041064
<EQUITIES> 19715
<MORTGAGE> 1487575
<REAL-ESTATE> 0
<TOTAL-INVEST> 12716901
<CASH> 125182
<RECOVER-REINSURE> 196958
<DEFERRED-ACQUISITION> 282780
<TOTAL-ASSETS> 19351234
<POLICY-LOSSES> 11394922
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 425800
<NOTES-PAYABLE> 84682
0
121800
<COMMON> 7032
<OTHER-SE> 905382
<TOTAL-LIABILITY-AND-EQUITY> 19351234
1199248
<INVESTMENT-INCOME> 836642
<INVESTMENT-GAINS> (21078)
<OTHER-INCOME> 0
<BENEFITS> 1355964
<UNDERWRITING-AMORTIZATION> 47089
<UNDERWRITING-OTHER> 421212
<INCOME-PRETAX> 190547
<INCOME-TAX> 55972
<INCOME-CONTINUING> 134575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134575
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 9004114
<INVESTMENTS-AT-VALUE> 8922093
<RECEIVABLES> 376213
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9298306
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2812
<TOTAL-LIABILITIES> 2812
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (82021)
<NET-ASSETS> 9295494
<DIVIDEND-INCOME> 111843
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 3097
<NET-INVESTMENT-INCOME> 108746
<REALIZED-GAINS-CURRENT> (5207)
<APPREC-INCREASE-CURRENT> (82021)
<NET-CHANGE-FROM-OPS> 21518
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9295494
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
