As filed with the Securities and Exchange Commission on March 1, 1999
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. 3
(X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
(X)
Amendment No. 5
(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 Boros Cicchetti Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W., Suite 400 East
Washington, D.C. 20007-0805
It is proposed that this filing will become effective (check appropriate space)
Immediately upon filing pursuant to paragraph (b) of Rule
485.
On May 1, 1998 , pursuant to paragraph (b) of Rule 485.
X 60 days after filing pursuant to paragraph (a) of Rule 485.
On, pursuant to paragraph (a)(i) of Rule 485. 75 days after
filing pursuant to paragraph (a)(ii) of Rule 485.
On,pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following:
This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<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
<TABLE>
<S> <C>
1. Cover Page.......................... Cover Page
2. Definitions......................... Definitions
3. Synopsis............................ VariableAnnuity Fee Table; Summary
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;
Portfolios; Voting Rights
6. Deductions and Expenses............ Charges and Deductions; Appendix A;
Distribution of the Contracts
7. General Description of
Variable Annuity Contracts........ Summary; The Portfolios; The Guarantee Period
Fund; Application and Contributions; Transfers
Death Benefits, Payout Options; Rights
Benefit; Payment Options; Rights
Reserved by the Company; Statement of
Additional Information
8. Annuity Period...................... Payout Options
9. Death Benefit....................... Death Benefit
10. Purchases and Contract Value........ Application and Contributions; Annuity
Account Value
11. Redemptions......................... Cash Withdrawals; Payout Options;
Summary
12. Taxes............................... Federal Tax Matters
13. Legal Proceedings................... Legal Proceedings
14. Table of Contents of
Statement of Additional
Information....................... Available Information
<PAGE>
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
</TABLE>
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE>
The Schwab Variable Annuity(R)
A flexible premium deferred variable and fixed annuity
Distributed by
Charles Schwab & Co., Inc.
Issued by
Great-West Life & Annuity Insurance Company
<PAGE>
- -------------------------------------------------------------------------------
Overview
This Prospectus describes The Schwab Variable Annuity--a flexible premium
deferred annuity contract which allows you to accumulate assets on a
tax-deferred basis for retirement or other long-term purposes. This Contract is
issued either on a group basis or as individual contracts by Great-West Life &
Annuity Insurance Company (we, us, Great-West or GWL&A) both will be referred to
as the "Contract" throughout this prospectus.
How to Invest
The minimum initial investment (a "Contribution") is:
o $5,000
o $2,000 if an IRA
o $1,000 if subsequent Contributions are made via Automatic Contribution Plan
The minimum subsequent Contribution is:
o $500 per Contribution
o $100 per Contribution if made via Automatic Contribution Plan
Allocating Your Money
When you contribute money to The Schwab Variable Annuity, you can allocate it
among the Sub-Accounts of the Variable Annuity-1 Series Account which invest in
the following Portfolios: o Alger American Growth Portfolio o American Century
VP International o Berger IPT-Small Company Growth Fund o Federated American
Leaders Fund II o Federated Fund for U.S. Government Securities II o Federated
Utility Fund II o INVESCO VIF-High Yield Portfolio o INVESCO VIF-Industrial
Income Portfolio o Janus Aspen Series Growth Portfolio o Janus Aspen Series
Worldwide Growth Portfolio o Montgomery Variable Series Growth Fund o SAFECO
Resource Series Trust Equity Portfolio o Schwab MarketTrack Growth Portfolio II
o Schwab Money Market Portfolio o Schwab S&P 500 Portfolio o Van Kampen American
Capital LIT-Morgan Stanley Real Estate Securities Portfolio You can also
allocate some or all of the money you contribute to the Guarantee Period Fund.
The Guarantee Period Fund allows you to select one or more Guarantee Periods
that offer specific interest rates for a specific period. Please note that the
Guarantee Period Fund may not be available in all states.
Sales and Surrender Charges
There are no sales, redemption, surrender or withdrawal charges under The Schwab
Variable Annuity.
Free Look Period
After you receive your Contract, you can look it over free of obligation for at
least 10 days or longer if required by your state law (up to 35 days for
replacement policies), during which you may cancel your Contract.
Payout Options
The Schwab Variable Annuity offers a variety of annuity payout and periodic
withdrawal options. Depending on the option you select, income can be guaranteed
for your lifetime, your spouse's and/or beneficiaries' lifetime or for a
specified period of time.
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.
For account information, please contact:
Schwab Insurance & Annuity Service Center
P.O. Box 7666
San Francisco, California 94120-7666
800-838-0650
This prospectus presents important information you should review before
purchasing The Schwab Variable Annuity. Please read it carefully and keep it for
future reference. You can find more detailed information pertaining to the
Contract in the Statement of Additional Information dated May 1, 1999 (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 is legally a part of this prospectus. You may obtain a
copy without charge by contacting the Schwab Insurance & Annuity Service Center
at the above address or phone number. Or, you can obtain it by visiting the
Securities and Exchange Commission's web site at www.sec.gov.
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 Great-West 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.
The date of this Prospectus is MONTH X, 1999.
2
<PAGE>
- ------------------------------------------------------------------------------
Table of Contents
<PAGE>
3
Definitions....................................4
Summary........................................6
How to contact Schwab........................6
Variable Annuity Fee Table.....................7
Portfolio Annual Expenses......................8
Fee Examples...................................9
Condensed Financial Information...............10
Great-West Life & Annuity Insurance
Company.......................................10
The Series Account............................10
The Portfolios................................10
Meeting Investment Objectives...............12
Where to Find More Information About the Portfolios 12
Addition, Deletion or Substitution..........12
The Guarantee Period Fund.....................12
Investments of the Guarantee Period Fund....13
Subsequent Guarantee Periods................13
Breaking a Guarantee Period.................14
Interest Rates..............................14
Market Value Adjustment.....................14
Application and Initial Contributions.........14
Free Look Period..............................14
Subsequent Contributions......................15
Annuity Account Value.........................15
Transfers.....................................16
Possible Restrictions.......................16
Automatic Custom Transfers..................16
Cash Withdrawals..............................17
Withdrawals to Pay Investment Manager or
Financial Advisor Fees......................18
Tax Consequences of Withdrawals.............18
Telephone Transactions........................18
Death Benefit.................................18
Beneficiary.................................19
Distribution of Death Benefit...............19
Charges and Deductions........................20
Mortality and Expense Risk Charge...........20
Contract Maintenance Charge.................21
Transfer Fees...............................21
Expenses of the Portfolios..................21
Premium Tax.................................21
Other Taxes.................................21
Payout Options................................21
Periodic Withdrawals........................21
Periodic Withdrawal Payout Options..........22
Annuity Date................................22
Annuity Options.............................23
Variable Annuity Payout Options.............23
Variable Annuity Payout Provisions..........23
Fixed Annuity Payout Options................24
Seek Tax Advice...............................24
Federal Tax Matters...........................24
Taxation of Annuities.......................25
Individual Retirement Annuities.............25
Assignments or Pledges........................27
Performance Data..............................27
Money Market Yield..........................27
Distribution of the Contracts.................27
Selected Financial Data.......................29
Management's Discussion and Analysis of
Financial Conditions and Results of Operations 30
Voting Rights.................................45
Rights Reserved by Great-West.................45
Legal Proceedings.............................45
Legal Matters.................................45
Experts.......................................45
Available Information.........................46
Appendix A--Condensed Financial Data...........47
Appendix B--Market Value Adjustments...........49
Appendix C--Net Investment Factor..............51
Consolidated Financial Statements and Independent Auditor's Report 52
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>
4
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
Definitions
1035 Exchange--A provision of the Internal Revenue Code that allows for the
tax-free exchange of assets among certain types of insurance contracts.
Accumulation Period--The time period between the Effective Date and the Annuity
Commencement Date. During this period, you're contributing to the annuity.
Annuitant--The person named in the application upon whose life the payout of an
annuity is based and who will receive annuity payouts. If a Contingent Annuitant
is named, the Annuitant will be considered the Primary Annuitant. Annuity
Account--An account established by us in your name that reflects all account
activity under your Contract. Annuity Account Value--The sum of all the
investment options credited to your Annuity Account--less partial withdrawals,
amounts applied to an annuity payout option, periodic withdrawals, charges
deducted under the Contract, and Premium Tax, if any.
Annuity Commencement Date--The date annuity payouts begin.
Annuity Individual Retirement Account (or 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.
Annuity Payout Period--The period beginning on the Annuity Commencement Date and
continuing until all annuity payouts have been made under the Contract. During
this period, the Annuitant receives payouts from the annuity.
Annuity Unit--An accounting measure we use to determine the amount of any
variable annuity payout after the first annuity payout is made.
Automatic Contribution Plan--A feature which allows you to make automatic
periodic Contributions. Contributions will be withdrawn from an account you
specify and automatically credited to your Annuity Account.
Beneficiary--The person(s) designated to receive any Death Benefit under the
terms of the Contract.
Contingent Annuitant--The person you may name in the application who becomes the
Annuitant when the Primary Annuitant dies. The Contingent Annuitant must be
designated before the death of the Primary Annuitant.
Contributions--The amount of money you invest or deposit into your annuity.
Death Benefit--The amount payable to the Beneficiary when the Owner or the
Annuitant dies.
Distribution Period--The period starting with your Payout Commencement Date.
- -------------------------------------------------------------------------
The Schwab Variable Annuity Structure
Your total Annuity Account can be made up of a variable and a fixed account.
Your Annuity Account
|
- -------------------------------------------------------------------------
| |
Variable Account Value Fixed Account Value
Contains the money you Contains the money you
contribute to the Sub-Accounts. contribute to fixed investment
options
| |
Sub-Accounts Guarantee Period Fund
Shares of the Portfolios are held You can choose a
in the Sub-Accounts. There is one guarantee period
Sub-Account for each Portfolio of one to ten years.
|
Portfolios
- --------------------------------------------------------------------------
Effective Date--The date on which the first Contribution is credited to your
Annuity Account.
Fixed Account Value--The value of the fixed investment option credited to you
under the Annuity Account.
Guarantee Period--The number of years available in the Guarantee Period Fund
during which Great-West will credit a stated rate of interest. Great-West may
discontinue offering a period 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 investment option which pays a stated rate of
interest for a specified time period.
Guarantee Period Maturity Date--The last day of any Guarantee Period.
Guaranteed Interest Rate--The minimum annual interest rate in effect that
applies to each Guarantee Period at the time the Contribution is made.
Market Value Adjustment (or MVA)--An amount added to or subtracted from certain
transactions involving the Guarantee Period Fund to reflect the impact of
changing interest rates.
Non-Qualified Annuity Contract--An annuity contract funded with money outside a
tax qualified retirement plan.
Owner (Joint Owner) or You--The person(s) named in the application who is
entitled to exercise all rights and privileges under the Contract, while the
Annuitant is living. 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 in an IRA, the Owner and the
Annuitant must be the same individual and a Joint Owner is not allowed.
Payout Commencement Date--The date on which annuity payouts or periodic
withdrawals begin under a payout option. The Payout Commencement Date must be at
least one year after the Effective Date of the Contract. If you do not indicate
a Payout Commencement Date on your application, annuity payouts will begin on
the first day of the month of the Annuitant's 91st birthday.
Portfolio--A registered management investment company, or portfolio, in which
the assets of the Annuity Account may be invested.
Premium Tax--A tax charged by a state or other governmental authority. Varying
by state, the current range of Premium Taxes is 0% to 3.5% and may be assessed
at the time you make a Contribution or when annuity payments begin.
Request--Any written, telephoned, or computerized instruction in a form
satisfactory to Great-West and Schwab received at the Schwab Insurance & Annuity
Service Center (or other annuity service center subsequently named) from you,
your designee (as specified in a form acceptable to Great-West and Schwab) or
the Beneficiary (as applicable) as required by any provision of the Contract.
Series Account--The segregated account established by Great-West under Colorado
law and registered as a unit investment trust under the Investment Company Act
of 1940, as amended.
Sub-Account--A division of the Seties Account containing the shares of a
Portfolio. There is a Sub-Account for each Portfolio.
Surrender Value--The value of your annuity account with any applicable Market
Value Adjustment on the Effective Date of the surrender, less Premium Tax, if
any.
Transaction Date--The date on which any Contribution or Request from you will be
processed. 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--Moving money from and among the Sub-Account(s) and the Guaranteed
Period Fund.
Variable Account Value--The value of the variable Portfolios credited to you
under the Annuity Account.
<PAGE>
- ---------------------------------------------------------------------------
Summary
The Schwab Variable Annuity allows you to accumulate assets on a tax-deferred
basis by investing in a variety of variable Portfolios and a fixed investment
option (the Guarantee Period Fund). The performance of your Annuity Account
Value will vary with the investment performance of the Portfolios you select.
You bear the entire investment risk for all amounts invested in them. Depending
on the performance of the Portfolios you select, your Annuity Account Value
could be less than the total amount of your Contributions.
The Schwab Variable Annuity can be purchased on a non-qualified basis or
purchased and used in connection with an IRA. You can also purchase it through a
1035 Exchange from another insurance contract.
- --------------------------------------------------------------------------
To contact Schwab:
Schwab Insurance & Annuity Service Center
P.O. Box 7666
San Francisco, CA 94120-7666
800-838-0650
- --------------------------------------------------------------------------
Your initial Contribution must be at least $5,000; $2,000 if an IRA; $1,000 if
you are setting up an Automatic Contribution Plan. Subsequent Contributions must
be either $500; or $100 if made through an Automatic Contribution Plan.
The money you contribute to the annuity will be invested at your direction,
except that during your "free look period" which, depending on your state law,
is generally 10 days after you receive your Contract. During this period your
payment will be allocated to the Schwab Money Market Portfolio.
Prior to the Payout Commencement Date, you can withdraw all or a part of your
Annuity Account Value. There are no surrender or withdrawal charges. Certain
withdrawals may be subject to federal income tax as well as a federal penalty
tax.
When you're ready to start taking money out of your annuity, you can select from
a variety of payout options, including variable and fixed annuity payouts as
well as periodic payouts.
If the Annuitant dies before the Annuity Commencement Date, we will pay the
Death Benefit to the Beneficiary you select. If the Owner dies before the entire
value of the Contract is distributed, the remaining value will be distributed
according to the rules outlined in the "Death Benefit" section on page x.
For accounts under $50,000, we deduct a $25 annual Contract Maintenance Charge
from the Annuity Account Value on each Contract anniversary date. There is no
annual contract maintenance charge for accounts of more than $50,000. We also
deduct a Mortality and Expense Risk Charge from your Sub-Accounts at the end of
each daily valuation period equal to an effective annual rate of 0.85% of the
value of the net assets in your Sub-Accounts. Each Portfolio assesses a charge
for management fees and other expenses. These fees and expenses are detailed in
the Portfolios' prospectuses.
You may cancel your Contract during the "free look period" by sending it to the
Schwab Insurance & Annuity Service Center. If you are replacing an existing
insurance contract with the Contract, the free look period may be extended based
on your state of residence. We will refund the greater of: o Contributions
received, less surrenders, withdrawals and distributions, or o The Annuity
Account Value
This summary highlights some of the more significant aspects of The Schwab
Variable Annuity. You'll find more detailed information about these topics
throughout the prospectus and in your Contract. Please keep them both for future
reference.
<PAGE>
- -----------------------------------------------------------------------
Variable Annuity Fee Table
The purpose of this table and the examples that follow is to help you understand
the various costs and expenses that you will bear directly or indirectly when
investing in the annuity. The table and examples reflect expenses related to the
Sub-Accounts as well as of the Portfolios. In addition to the expenses listed
below, Premium Tax may be applicable.
Contract Owner transaction expenses1
Sales load None
Surrender fee None
Transfer fee (first 12 per year)2 None
Annual Contract Maintenance Charge3 $25.00
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 annual expenses 0.85%
1 The Contract Owner Transaction Expenses apply to each Contract, regardless of
how the Annuity Account Value is allocated. The Sub-Account Annual Expenses do
not apply to the Guarantee Period Fund.
2 There is a $10 fee for each Transfer in excess of twelve in any calendar year.
3 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, the Contract Miantenance Charge will be reinstated until such
time as your Annuity Account Value is equal to or greater than $50,000.
<PAGE>
- -------------------------------------------------
Portfolio Annual Expenses
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Portfolio Annual Expenses
(as a percentage of Portfolio net assets, before fee waivers and expense reimbursements)
Portfolio Management Other 12b-1 Total Portfolio
fees expenses fees expenses
</TABLE>
Alger American Growth Portfolio
American Century VP International
Berger IPT-Small Company Growth Fund
Federated American Leaders Fund II
Federated Fund for U.S. Government Securities II
Federated Utility Fund II
INVESCO VIF-High Yield Portfolio
INVESCO VIF-Industrial Income Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
Montgomery Variable Series: Growth Fund
SAFECO RST Equity Portfolio
Schwab MarketTrack Growth Portfolio II
Schwab Money Market Portfolio
Schwab S&P 500 Portfolio
Van Kampen American Life Investment
Trust-Morgan Stanley Real Estate Securities
Portfolio
<PAGE>
- -------------------------------------------------------------------------------
Fee Examples4
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. These examples assume that no
Premium Taxes have been assessed.
PORTFOLIO 1 year 3 years 5 years 10 years
Alger American Growth Portfolio
American Century VP International
Berger IPT-Small Company Growth Fund
Federated American Leaders Fund II
Federated Fund for U.S. Government Securities II
Federated Utility Fund II
INVESCO VIF-High Yield Portfolio
INVESCO VIF-Industrial Income Portfolio
Janus Aspen Growth Portfolio
Janus Aspen Worldwide Growth Portfolio
Montgomery Variable Series: Growth Fund
SAFECO RST Equity Portfolio
Schwab MarketTrack Growth Portfolio II
Schwab Money Market Portfolio
Schwab S&P 500 Portfolio
Van
Kampen American Life Investment
Trust-Morgan Stanley Real Estate
Securities Portfolio
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.
4 The Portfolio Annual Expenses and these examples are based on data provided by
the Portfolios. Great-West has no reason to doubt the accuracy or completeness
of that data, but Great-West has not verified the Portfolios' figures. In
preparing the Portfolio Expense table and the Examples above, Great-West has
relied on the figures provided by the Portfolios.
<PAGE>
- -----------------------------------------
Condensed Financial Information
Attached as Appendix A is a table showing selected information concerning
accumulation units for each Sub-Account for 1996, 1997 and 1998. An accumulation
unit is the unit of measure that we use to calculate the value of your interest
in a Sub-Account. The accumulation unit values do not reflect the deduction of
certain charges that are subtracted from your Annuity Account Value, such as the
Contract Maintenance Charge. The information in the table is included in the
Series Account's financial statements, which have been audited by Deloitte &
Touche LLP, independent auditors. To obtain a more complete picture of each
Sub-Account's finances and performance, you should also review the Series
Account's financial statements, which are in the Series Account's Annual Report
dated as of December 31,1998 and contained in the Statement of Additional
Information.
- -----------------------------------------------------------------------
Great-West Life & Annuity Insurance Company
Great-West is a stock life insurance company that was originally organized under
the laws of the state of Kansas as the National Interment Association. Our name
was changed to Ranger National Life Insurance Company in 1963 and to
Insuramerica Corporation prior to changing to our current name in 1982. In
September of 1990, we re-domesticated under the laws of the state of Colorado.
We are authorized to do business in 49 states, the District of Columbia, Puerto
Rico, U.S. Virgin Islands and Guam.
- -----------------------------------------------------------------
The Series Account
We established the Variable Annuity-1 Series Account in accordance with Colorado
laws on July 24, 1995.
The Series Account is registered with the Securities and Exchange Commission
(the "SEC") under the Investment Company Act of 1940 (the "1940 Act"), as a unit
investment trust. Registration under the 1940 Act does not involve supervision
by the SEC of the management or investment practices or policies of the Series
Account.
We own the assets of the Series Account. The income, gains or losses, realized
or unrealized, from assets allocated to the Series Account are credited to or
charged against the Series Account without regard to our other income gains or
losses.
We will at all times maintain assets in the Series Account with a total market
value at least equal to the reserves and other liabilities relating to the
variable benefits under all Contracts participating in the Series Account. Those
assets may not be charged with our liabilities from our other business. Our
obligations under those Contracts are, however, our general corporate
obligations.
The Series Account is divided into ___ Sub-Accounts. Each Sub-Account invests
exclusively in shares of a corresponding investment Portfolio of a registered
investment company (commonly known as a mutual fund). We may in the future add
new or delete existing Sub-Accounts. The income, gains or losses, realized or
unrealized, from assets allocated to each Sub-Account are credited to or charged
against that Sub-Account without regard to the other income, gains or losses of
the other Sub-Accounts. All amounts allocated to a Sub-Account will at all times
be fully invested in Portfolio shares.
We hold the assets of the Series Account. We keep those assets physically
segregated and held separate and apart from our general account assets. We
maintain records of all purchases and redemptions of shares of the Portfolios.
- --------------------------------------------------------------
The Portfolios
The Contract offers a number of investment options, corresponding to the
Sub-Accounts. Each Sub-Account invests in a single Portfolio. Each Portfolio is
a separate mutual fund registered under the 1940 Act. More comprehensive
information, including a discussion of potential risks, is found in the current
prospectuses for the Portfolios (the "Portfolio Prospectuses"). The Portfolio
Prospectuses should be read in connection with this Prospectus. You may obtain a
copy of the Portfolio Prospectuses without charge by request.
Each Portfolio:
o holds its assets separate from the assets of the other Portfolios,
o has its own distinct investment objective and policy, and
o operates as a separate investment fund
The income, gains and losses of one Portfolio generally have no effect on the
investment performance of any other Portfolio.
The Portfolios are not available to the general public directly. The Portfolios
are only available as investment options in variable annuity contracts or
variable life insurance policies issued by life insurance companies or, in some
cases, through participation in certain qualified pension or retirement plans.
Some of the Portfolios have been established by investment advisers which manage
publicly traded mutual funds having similar names and investment objectives.
While some of the Portfolios may be similar to, and may in fact be modeled after
publicly traded mutual funds, you should understand that the Portfolios are not
otherwise directly related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and any corresponding
Portfolios may differ substantially.
The investment objectives of the current Portfolios are briefly described below:
The Alger American Fund--advised by Fred Alger Management, Inc. of New York, New
York.
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.
American Century Variable Portfolios, Inc.--advised by American Century
Investment Management, Inc. of Kansas City, Missouri, advisers to the
AmericanCentury family of mutual funds.
American Century VP International seeks capital growth by investing primarily in
equity securities of foreign companies. The Fund invests primarily in securities
of issuers in developed countries.
Berger Institutional Products Trust--advised by Berger Associates of Denver,
Colorado. 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--advised by Federated Advisers of Pittsburgh,
Pennsylvania. 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.--advised by INVESCO Funds Group, Denver,
Colorado. INVESCO Trust Company is the sub-adviser for the INVESCO
VIF-Industrial Income Portfolio.
INVESCO VIF-Industrial Income Portfolio is a diversified fund that seeks the
highest possible current income, with the added potential for capital
appreciation. The Fund normally invests at least 65% of its total assets in
dividend paying common stocks. Up to 10% of the Fund's assets may be invested in
common stocks, which do not pay regular dividends. The remaining assets are
invested in other income producing vehicles, such as corporate bonds. The fixed
income portion of the Fund seeks a high level of current income through
investment in U.S. Treasury, mortgage-backed, investment grade and high yield
securities.
INVESCO VIF-High Yield Portfolio seeks a high level of current income. Capital
appreciation is a secondary objective of the Fund. The Fund invests in a
diversified portfolio of high yield bonds which are primarily below investment
grade quality and preferred stocks.
Janus Aspen Series--advised by Janus Capital Corporation of Denver, Colorado.
Janus Aspen Growth Portfolio seeks long-term growth of capital in a manner
consistent with the preservation of capital by investing in common stocks of
companies of any size.
Janus Aspen Worldwide Growth Portfolio seeks long-term growth of capital in a
manner consistent with the preservation of capital by investing in common stocks
of foreign and domestic issuers.
Montgomery Variable Series--advised by Montgomery Asset Management, LLC of San
Francisco, California Montgomery Growth Fund seeks long-term capital
appreciation by investing in growth-oriented U.S. companies. The Fund may invest
in U.S. companies of any size, but invests at least 65% of its total assets in
those companies whose shares have a total stock market value (market
capitalization) of at least $1 billion. The Fund's strategy is to identify
well-managed U.S. companies whose share prices appear to be undervalued relative
to the firm's growth potential.
SAFECO Resource Series Trust--advised by SAFECO Asset Management Company of
Seattle, Washington. SAFECO RST Equity Portfolio seeks long-term growth of
capital and reasonable current income by investing principally in common stocks
or securities convertible into common stocks of larger, established companies
that are proven performers.
Schwab Insurance & Annuity Portfolios--advised by Charles Schwab Investment
Management, Inc. of San Francisco, California. Schwab Money Market Portfolio
seeks maximum current income consistent with liquidity and stability of capital.
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 MarketTrack Growth Portfolio II seeks to provide high capital growth with
less volatility than an all stock portfolio by investing in a mix of stocks,
bonds, and cash equivalents either directly or through investment in other
mutual funds.
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.
Van Kampen American Capital Life Investment Trust--advised by Van Kampen
American Capital Asset Management, Inc. Van Kampen American Capital LIT-Morgan
Stanley Real Estate Securities Portfolio seeks long-term growth of capital by
investing in securities of companies operating in the real estate industry,
primarily equity securities of real estate investment trusts.
Meeting Investment Objectives
Meeting investment objectives depends on various factors, including, but not
limited to, how well the Portfolio managers anticipate changing economic and
market conditions. There is no guarantee that any of these Portfolios will
achieve their stated objectives.
Where to Find More Information About the Portfolios
Additional information about the investment objectives and policies of all the
Portfolios and the investment advisory and administrative services and charges
can be found in the current Portfolio Prospectuses, which can be obtained from
the Schwab Insurance & Annuity Service.
The Portfolios' Prospectuses should be read carefully before any decision is
made concerning the allocation of Contributions to, or Transfers among, the
Sub-Accounts.
Addition, Deletion or Substitution
Great-West does not control the Portfolios and cannot guarantee that any of the
Portfolios will always be available for allocation of Contributions or
Transfers. We retain the right to make changes in the Series Account and in its
investments. Currently, Schwab must approve certain changes.
Great-West and Schwab reserve the right to discontinue the offering of any
Portfolio. If a Portfolio is discontinued, we may substitute shares of another
Portfolio or shares of another investment company for the discontinued
Portfolio's shares. Any share substitution will comply with the requirements of
the 1940 Act.
If you are contributing to a Portfolio that is being discontinued, you will be
given notice prior to the Portfolio's elimination.
Based on marketing, tax, investment and other conditions, we may establish new
Sub-Accounts and make them available to Owners at our discretion. Each
additional Sub-Account will purchase shares in a Portfolio or in another mutual
fund or investment vehicle.
If, in our sole discretion, marketing, tax, investment or other conditions
warrant, we may also eliminate one or more Sub-Accounts. If a Sub-Account is
eliminated, we will notify you and request that you to re-allocate the amounts
invested in the eliminated Sub-Account.
- ----------------------------------------------------------------------
The Guarantee Period Fund
The Guaranteed Period Fund is not part of the Series Account. Amounts allocated
to the Guarantee Period Fund will be deposited to, and accounted for, in a
non-unitized market value separate account. As a result, you do not participate
in the performance of the assets through unit values.
Because your Contributions do not receive a unit ownership of assets accounted
for in the separate account, the assets accrue solely to the benefit of
Great-West and any gain or loss in the separate account is borne entirely by
Great-West. You will receive the Contract guarantees made by Great-West for
amounts you contribute to the Guarantee Period Fund.
When you contribute or Transfer amounts to the Guarantee Period Fund, you select
a new Guarantee Period from those available. All Guarantee Periods will have a
term of at least one year. Contributions allocated to the Guarantee Period Fund
will be credited on the Transaction Date we receive them.
Each Guarantee Period will have its own stated rate of interest and maturity
date determined by the date the Guarantee Period is established and the term you
choose.
Currently, Guarantee Periods with annual terms of 1 to 10 years are offered only
in those states where the Guarantee Period Fund is available. The Guarantee
Periods may change in the future, but this will not have an impact on any
Guarantee Period already in effect.
The value of amounts in each Guarantee Period equals Contributions plus interest
earned, less any Premium Tax, amounts distributed, withdrawn (in whole or in
part), amounts 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 (please see "Breaking a Guarantee
Period" on page xx). Any amount withdrawn or Transferred prior to the Guarantee
Period Maturity Date will be paid in accordance with the Market Value Adjustment
formula. You can read more about Market Value Adjustments on page 22.
Investments of the Guarantee Period Fund We use various techniques to invest in
assets that have similar characteristics to our general account
assets--especially cash flow patterns. We will primarily invest in
investment-grade fixed income securities including: o Securities issued by the
U.S. Government or its agencies or instrumentalities, which may or may not be
guaranteed by the U.S. Government. o 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. o 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 us to have an investment quality comparable to securities
which may be purchased as stated above. o Commercial paper, cash or cash
equivalents and other short-term investments having a maturity of less than one
year which are considered by us to have investment quality comparable to
securities which may be purchased as stated above.
In addition, we may invest in futures and options solely for non-speculative
hedging purposes. We 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 if the securities prices
are anticipated to decline. Similarly, if securities prices are expected to
rise, we may purchase a futures contract or a call option against anticipated
positive cash flow or may purchase options on securities.
The above information generally describes the investment strategy for the
Guarantee Period Fund. However, we are not obligated to invest the assets in the
Guarantee Period Fund according to any particular strategy, except as may be
required by Colorado and other state insurance laws. And, the stated rate of
interest that we establish will not necessarily relate to the performance of the
non-unitized market value separate account.
Subsequent Guarantee Periods
Before annuity payouts begin, you may reinvest the value of amounts in a
maturing Guarantee Period in a new Guarantee Period of any length we offer at
that time. On the quarterly statement issued to you 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 we notify you of a maturing Guarantee
Period and the date a new Guarantee Period begins.
If you do not tell us where you would like the amounts in a maturing Guarantee
Period allocated by the maturity date, we will automatically allocate the amount
to a Guarantee Period of the same length as the maturing period. If the term
previously chosen is no longer available, the amount will be allocated to the
next shortest available Guarantee Period term. If none of the above are
available, the value of matured Guarantee Periods will be allocated to the
Schwab Money Market Sub-Account.
No Guarantee Period may mature later than six months after your Payout
Commencement Date. For example, if a 3-year Guarantee Period matures and the
Payout 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
If you begin annuity payouts, Transfer or withdraw prior to the Guarantee Period
maturity date, you are breaking a Guarantee Period. When we receive a request to
break a Guarantee Period and you have another Guarantee Period that is closer to
its maturity date, we will break that Guarantee Period first.
If you break a Guarantee Period, you may be assessed an interest rate adjustment
called a Market Value Adjustment.
Interest Rates
The declared annual rates of interest are guaranteed throughout the Guarantee
Period. For Guarantee Periods not yet in effect, Great-West may declare interest
rates different than those currently in effect. When a subsequent Guarantee
Period begins, the rate applied will be equal to or more than the rate currently
in effect for new Contracts with the same Guarantee Period.
The stated rate of interest must be at least equal to the Guaranteed Interest
Rate, but Great-West may declare higher rates. The Guaranteed Interest Rate is
based on the applicable state standard non-forfeiture law. The standard
nonforfeiture rate in all states is 3%, except in for Florida, Mississippi and
Oklahoma, it's 0%.
The determination of the stated interest rate is influenced by, but does not
necessarily correspond to, interest rates available on fixed income investments
which Great-West may acquire using funds deposited into the Guarantee Period
Fund. In addition, Great-West considers regulatory and tax requirements, sales
commissions and administrative expenses, general economic trends and competitive
factors in determining the stated interest rate.
Market Value Adjustment
Amounts you allocate to the Guarantee Period Fund may be subject to an interest
rate adjustment called a Market Value Adjustment if, six months or more before
the fund's maturity date, you: o surrender your investment in the fund, o
transfer money from the fund, o partially withdraw money from the fund, o apply
amounts from the fund to purchase an annuity to receive payouts from your
account, or
o take a distribution from the fund upon the death of the Owner or the
Annuitant.
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:
o Transfer to a Sub-Account offered under this Contract
o Surrenders, partial withdrawals, annuitization or periodic withdrawals
o A single sum payout upon death of the Owner or Annuitant
A Market Value Adjustment may increase or decrease the amount payable on the
above-described distributions. The formula for calculating Market Value
Adjustments is detailed in Appendix B. Appendix B also includes examples of how
Market Value Adjustments work.
- ---------------------------------------------------------------
Application and Initial Contributions
The first step to purchasing The Schwab Variable Annuity is to complete your
Contract application and submit it with your initial minimum Contribution of
$5,000; $2,000 if an IRA; or $1,000 if you are setting up an Automatic
Contribution Plan. Initial Contributions can be made by check (payable to GWL&A)
or transferred from a Schwab brokerage account.
If your application is complete, your Contract will be issued and your
Contribution will be credited within two business days after receipt at the
Schwab Insurance & Annuity Service Center. Acceptance is subject to sufficient
information in a form acceptable to us. We reserve the right to reject any
application or Contribution.
If your application is incomplete, the Schwab Insurance & Annuity Service Center
will complete the application from information Schwab has on file or contact you
by telephone to obtain the required information. If the information necessary to
complete your application is not received within five business days, we will
return to you both your check and the application. If you provide consent we
will retain the initial Contribution and credit it as soon as we have completed
your application.
If your application is incomplete solely because you have not provided any
allocation instructions, we will deem your application to be complete and
allocate your Contribution to the Schwab Money Market Sub-Account. Your initial
Contribution will remain in, and future Contributions will be allocated to, the
Schwab Money Market Sub-Account until we receive complete allocation
instructions from you.
- -----------------------------------------------------------------
Free Look Period
During the ten-day free look period (or longer where required by law), you may
cancel your Contract. During the free look period, all Contributions will be
processed as follows: o Amounts you specify to be allocated to one or more of
the available Guarantee Periods
will be allocated as directed, effective upon the Transaction Date.
o Amounts you specify to be allocated to one or more of the Sub-Accounts will
first be allocated to the Schwab Money Market Sub-Account until the end of
the free look period. After the free look period is over, the Variable
Account Value held in the Schwab Money Market Sub-Account will be allocated
to the Sub-Accounts you selected on the application.
During the free look period, you may change the Sub-Accounts in which you'd like
to invest as well as your allocation percentages. Any changes you make during
the free look period will take effect after the free look period has expired.
Any returned Contracts will be void from the date we issued the Contract and the
greater of the following will be refunded:
o Contributions less withdrawals and distributions, or
o The Annuity Account Value.
If you exercise the free look privilege, you must return the Contract to
Great-West or to the Schwab Insurance & Annuity Service Center.
- --------------------------------------------------------------
Subsequent Contributions
Once your application is complete and we have received your initial
Contribution, you can make subsequent Contributions at any time prior to the
Payout Commencement Date, as long as the Annuitant is living. Additional
Contributions must be at least $500; or $100 if made via an Automatic
Contribution Plan. Total Contributions may exceed $1,000,000 with our prior
approval.
Subsequent Contributions can be made by check or via an Automatic Contribution
plan directly from your bank or savings account. You can designate the date
you'd like your subsequent Contributions deducted from your account each month.
If you make subsequent Contributions by check, your check should be payable to
GWL&A.
You'll receive a confirmation of each Contribution you make upon its acceptance.
Great-West reserves the right to modify the limitations set forth in this
section.
- ---------------------------------------------------------------------------
Annuity Account Value
Before the date annuity payouts begin, your Annuity Account Value is the sum of
your Variable and Fixed Accounts established under your Contract.
Before your Annuity Commencement Date, the Variable Account Value is the total
dollar amount of all accumulation units credited to you for each Sub-Account.
Initially, the value of each accumulation unit was set at $10.00. Each
Sub-Account's value prior to the Payout Commencement Date is equal to: o net
Contributions allocated to the corresponding Sub-Account, o plus or minus any
increase or decrease in the value of the assets of the Sub-Account due to
investment results,
o minus the daily mortality and expense risk charge,
o minus reductions for the Contract Maintenance Charge deducted on the contract
anniversary
o minus any applicable Transfer fees and
o minus any withdrawals or Transfers from the Sub-Account.
The value of a Sub-Account's assets is determined at the end of each day that
the New York Stock Exchange is open for regular business (a valuation date). 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. Eastern time) on
each valuation date and ends at the close of the New York Stock Exchange on the
next succeeding valuation date.
The Variable Account Value is expected to change from valuation period to
valuation period, reflecting the investment experience of the selected
Sub-Account(s), as well as the deductions for applicable charges.
Upon allocating Variable Account Values to a Sub-Account you will be credited
with variable accumulation units in that Sub-Account. The number of accumulation
units you will be credited is determined by dividing the portion of each
Contribution allocated to the Sub-Account by the value of an accumulation unit.
The value of the accumulation unit is determined and credited at the end of the
valuation period during which the Contribution was received.
Each Sub-Account's accumulation unit value is established at the end of each
valuation period. It is calculated by multiplying the value of that unit at the
end of the prior valuation period by the Sub-Account's Net Investment Factor for
the valuation period. The formula used to calculate the Net Investment Factor is
discussed in Appendix C.
Unlike a brokerage account, amounts held under a Contract are not covered by the
Securities Investor Protection Corporation ("SIPC").
- -------------------------------------------------------------------------
Transfers
Prior to the Annuity Commencement Date you may Transfer all or part of your
Annuity Account Value among and between the Sub-Accounts and the available
Guarantee Periods by telephone, by sending a Request to the Schwab Insurance &
Annuity Service Center or by calling our touch-tone account and trading service.
Your Request must specify: o the amounts being Transferred,
o the Sub-Account(s) and/or Guarantee Period(s) from which the Transfer is to be
made, and
o the Sub-Account(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
Sub-Accounts and the Guarantee Period Fund during any calendar year. However, we
reserve the right to limit the number of Transfers you make.
There is no charge for the first twelve Transfers each calendar year, but there
will be a charge of $10 for each additional Transfer made. The charge will be
deducted from the amount Transferred. All Transfers made on a single Transaction
Date will 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.
A Transfer generally will be effective on the date the Request for Transfer is
received by the Schwab Insurance & Annuity Service Center if received before
4:00 p.m. Eastern time. Under current tax law, there will not be any tax
liability to you if you make a Transfer.
Transfers involving the Sub-Accounts will result in the purchase and/or
cancellation of accumulation units having a total value equal to the dollar
amount being Transferred. The purchase and/or cancellation of such units is made
using the Variable Account Value as of the end of the valuation date on which
the Transfer is effective.
When you make a Transfer from amounts in a Guarantee Period before the Guarantee
Period maturity date, the amount Transferred may be subject to a Market Value
Adjustment as discussed on page 22. If you request in advance to Transfer
amounts from a maturing Guarantee Period upon maturity, your Transfer will not
count toward the 12 free Transfers and no Transfer fees will be charged.
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, Transfer restrictions may be necessary to protect you from the
negative effect large and/or numerous Transfers can have on portfolio
management. Moving significant amounts from one Sub-Account to another may
prevent the underlying Portfolio from taking advantage of long-term investment
opportunities because the Portfolio must maintain enough cash to cover the
cancellation of accumulation units that results from a Transfer out of a
Sub-Account. Moving large amounts of money may also cause a substantial increase
in Portfolio transaction costs which must be indirectly borne by you.
As a result, we reserve the right to require that all Transfer requests be made
by you and not by your designee and to require that each Transfer request be
made by a separate communication to us. We also reserve the right to require
that each Transfer request be submitted in writing and be signed by you.
Transfers among the Sub-Accounts may also be subject to such terms and
conditions as may be imposed by the Portfolios.
Automatic Custom Transfers
Dollar Cost Averaging
Dollar cost averaging allows you to make systematic Transfers from one Portfolio
to any other of the Portfolios. Dollar cost averaging allows you to buy more
units when the price is low and fewer units when the price is high. Over time,
your average cost per unit may be less than if you invested all your money at
one time. However, dollar cost averaging does not assure a greater profit, or
any profit, and will not prevent or necessarily alleviate losses in a declining
market.
You can set up automatic dollar cost averaging on a monthly, quarterly,
semi-annual or annual basis. Your Transfer will be initiated on the Transaction
Date one frequency period following the date of the request. For example, if you
request quarterly Transfers on January 9, your first Transfer will be made on
April 9 and every three months on the 9th thereafter. 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 Sub-Account on the date your
Transfer is scheduled, your Transfer will not be made. However, your dollar cost
averaging Transfers will resume once there are sufficient funds in the
applicable Sub-Account. Dollar cost averaging will terminate automatically when
you start taking payouts from the annuity. Dollar cost averaging Transfers are
not included in the twelve free Transfers allowed in a calendar year.
Dollar cost averaging Transfers must meet the following conditions:
The minimum amount that can be Transferred out of the selected Sub-Account is
$100.
You must:
(1) specify the dollar amount to be Transferred,
(2) designate the Sub-Account(s) to which the Transfer will be made, and
(3) the percent of the dollar amount to be allocated to each Sub-Account into
which you are Transferring money. The accumulation unit values will be
determined on the Transfer date.
- --------------------------------------------------------------------
Here's how dollar cost averaging works:
-------- --------- -------- --------
[OBJECT OContributiUnits Price
Month Purchasedper
unit
-------- --------- -------- --------
-------- --------- -------- --------
Jan. $250 10 $25.00
-------- --------- -------- --------
-------- --------- -------- --------
Feb. 250 12 20.83
-------- --------- -------- --------
-------- --------- -------- --------
Mar. 250 20 12.50
-------- --------- -------- --------
-------- --------- -------- --------
Apr. 250 20 12.50
-------- --------- -------- --------
-------- --------- -------- --------
May 250 15 16.67
-------- --------- -------- --------
-------- --------- -------- --------
June 250 12 20.83
-------- --------- -------- --------
Average market value per unit
$18.06
Investor's average cost per unit
$16.85
In the chart above, if all units had been purchased at one time at the highest
unit value of $25.00, only 60 units could have been purchased with $1500. By
contributing smaller amounts over time, dollar cost averaging allowed 89 units
to be purchased with $1500 at an average unit price of $16.85. This investor
purchased 29 more units at $1.21 less per unit that the average market value per
unit of $18.06.
You may not participate in dollar cost averaging and rebalancer at the same
time.
Great-West reserves the right to modify, suspend or terminate dollar cost
averaging at any time.
Rebalancer
Over time, variations in each Sub-Account's investment results will change your
asset allocation plan percentages. Rebalancer allows you to automatically
reallocate your Variable Account Value to maintain your desired asset
allocation. Participation in Rebalancer does not assure a greater profit, or any
profit, nor will it prevent or necessarily alleviate losses in a declining
market.
You can set up rebalancer as a one-time Transfer or on a quarterly, semi-annual
or annual basis. If you select to rebalance only once, the Transfer will take
place on the Transaction Date of the request. One-time rebalancer Transfers
count toward the twelve free Transfers allowed in a calendar year.
- ------------------------------------------------------------------------
Here's how rebalancer works:
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Suppose you purchased your annuity by allocating 60% of your initial
contribution to stocks; 30% to bonds and 10% to cash equivalents as in the first
pie chart below.
[OBJECT OMITTED] Stocks - 60%
Bonds - 30%
Cash - 10%
- -------------------------------------------
Now assume that stock portfolios outperform bond portfolios and cash equivalents
over a certain period of time. Over this period, the unequal performance may
alter the asset allocation of the above hypothetical plan to look like this:
[OBJECT OMITTED} Stocks 67%
Bonds 24%
Cash - 9%
- -------------------------------------------------------------------------
Rebalancer automatically reallocates your Variable Account Value to maintain
your desired asset allocation. In this example, the portfolio would be
re-allocated back to 60% in stocks; 30% in bonds; 10% in cash equivalents.
- -----------------------------------------------------------------------------
If you select to rebalance on a quarterly, semi-annual or annual basis, the
first Transfer will be initiated on the Transaction Date one frequency period
following the date of the request. For example, if you request quarterly
Transfers on January 9, your first Transfer will be made on April 9 and every
three months on the 9th thereafter. Transfers will continue on that same day
each interval unless terminated by you or for other reasons as set forth in the
Contract. Quarterly, semi-annual and annual Transfers will not count toward the
12 free Transfers.
On the Transaction Date for the specified request, assets will be automatically
reallocated to the Sub-Accounts you selected. The rebalancer option will
terminate automatically when you start taking payouts from the annuity.
Rebalancer Transfers must meet the following conditions:
o Your entire Variable Account Value must be included.
o You must specify the percentage of your Variable Account Value you'd like
allocated to each Sub-Account and the frequency of rebalancing. You may
modify the allocations or stop the rebalancer option at any time.
o You may not participate in dollar cost averaging and rebalancer at the same
time.
Great-West reserves the right to modify, suspend, or terminate the rebalancer
option at any time.
- -------------------------------------------------------------------------------
Cash Withdrawals
You may withdraw all or part of your Annuity Account Value at any time during
the life of the Annuitant and prior to the date annuity payouts begin by
submitting a written withdrawal request to the Schwab Insurance & Annuity
Service Center. Withdrawals are subject to the rules below and federal or state
laws, rules or regulations may also apply. The amount payable to you if you
surrender your Contract is your Annuity Account Value, with any applicable
Market Value Adjustment on the Effective Date of the surrender, less any
applicable Premium Tax. No withdrawals may be made after the date annuity
payouts begin.
If you request a partial withdrawal, your Annuity Account Value will be reduced
by the dollar amount withdrawn. A Market Value Adjustment may apply. Market
Value Adjustments are discussed on page 22.
Partial withdrawals are unlimited. However, you must specify the Sub-Account(s)
or Guarantee Period(s) from which the withdrawal is to be made. After any
partial withdrawal, if your remaining Annuity Account Value is less than $2,000,
then a full surrender may be required. The minimum partial withdrawal (before
application of the MVA) is $500.
The following terms apply to withdrawals:
o Partial withdrawals or surrenders are not permitted after the date annuity
payouts begin.
o A partial withdrawal or a surrender will be effective upon the Transaction
Date.
o A partial withdrawal or a surrender from amounts in a Guarantee Period may be
subject to the Market Value Adjustment provisions, and the Guarantee Period Fund
provisions of the Contract.
Withdrawal requests must be in writing with your original signature. If your
instructions are not clear, your request will be denied and no withdrawal or
partial withdrawal will be processed.
After a withdrawal of all of your Annuity Account Value, or at any time that
your Annuity Account Value is zero, all your rights under the Contract will
terminate.
Withdrawals to Pay Investment Manager or Financial Advisor Fees
You may request partial withdrawals from your Annuity Account Value and direct
us to remit the amount withdrawn directly to your designated Investment Manager
or Financial Advisor (collectively "Consultant"). A withdrawal request for this
purpose must meet the $500 minimum withdrawal requirements and comply with all
terms and conditions applicable to partial withdrawals, as described above. Tax
consequences of withdrawals are detailed below, but you should consult a
competent tax advisor prior to authorizing a withdrawal from your Annuity
Account to pay Consultant fees.
Tax Consequences of Withdrawals
Withdrawals made for any purpose may be taxable--including payments made by us
directly to your Consultant.
In addition, the Internal Revenue Code may require us to withhold federal income
taxes from withdrawals and report such withdrawals to the IRS. If you request
partial withdrawals to pay Consultant fees, your Annuity Account Value will be
reduced by the sum of the fees paid to the Consultant and the related
withholding.
You may elect, in writing, to have us not withhold federal income tax from
withdrawals, unless withholding is mandatory for your Contract. If you are
younger than 59 1/2, the taxable portion of any withdrawal is generally
considered to be an early withdrawal and is subject to an additional federal
penalty tax of 10%.
Withholding applies only if the taxable amount of the withdrawal is at least
$200. Some states also require withholding for state income taxes. For details
about state withholding, please see "Federal Tax Matters" on page XX.
If you are interested in this Contract as an IRA, please refer to Section 408 of
the Internal Revenue Code of 1986, as amended, for limitations and restrictions
on cash withdrawals.
- --------------------------------------------------------------------------------
Telephone Transactions
You may make Portfolio Transfer requests by telephone. Telephone Transfer
requests received before 4:00 p.m. Eastern time will be made on that day at that
day's unit value. Calls completed after 4:00 p.m. Eastern time will be made on
the next business day we and the NYSE are open for business, at that day's unit
value.
We will use reasonable procedures to confirm that instructions communicated by
telephone are genuine, such as: o requiring some form of personal identification
prior to acting on instructions, o providing written confirmation of the
transaction and/or o tape recording the instructions given by telephone.
If we follow such procedures we will not be liable for any losses due to
unauthorized or fraudulent instructions.
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.
- --------------------------------------------------------------------------------
Death Benefit
Before the date when annuity payouts begin, the Death Benefit, if any, will be
equal to the greater of:
o the Annuity Account Value with an MVA, if applicable, as of the date the
request for payout is received, less any Premium Tax, or
o the sum of Contributions, less partial withdrawals and/or periodic
withdrawals, less any Premium Tax.
The Death Benefit will become payable following our receipt of the Beneficiary's
claim in good order. 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 according to 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 amount of the Death Benefit will be determined as of the date payouts begin.
However, on the date a payout option is processed, the Variable Account Value
will be Transferred to the Money Market Sub-Account unless the Beneficiary
elects otherwise.
Subject to the distribution rules below, payout of the Death Benefit may be made
as follows:
Variable Account Value:
o payout in a single sum, or
o payout under any of the variable annuity options provided under this Contract.
Fixed Account Value:
o payout in a single sum that may be subject to a Market Value Adjustment, or
o payout under any of the annuity options provided under this Contract that
may be subject to a Market Value Adjustment
Any payment within 6 months of the Guarantee Period Maturity Date will not be
subject to a Market Value Adjustment.
In any event, no payout of benefits provided under the Contract will be allowed
that does not satisfy the requirements of the Internal Revenue Code and any
other applicable federal or state laws, rules or regulations.
Beneficiary
You may select one or more Beneficiaries. If more than one Beneficiary is
selected, they will share equally in any Death Benefit payable unless you
indicate otherwise. You may change the Beneficiary any time before the
Annuitant's death.
A change of Beneficiary will take effect as of the date the request is processed
by the Schwab Insurance & Annuity Service Center, unless a certain date is
specified by the Owner. If the Owner dies before the request is processed, the
change will take effect as of the date the request was made, unless we have
already made a payout 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, we will pay the
Death Benefit proceeds to the Owner's estate.
If the Beneficiary is not the Owner's surviving spouse, 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 payout under any of the variable or fixed
annuity options available under the Contract, provided that: o 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
o such distributions begin not later than one year after the Owner's date of
death. If an election is not received by Great-West from a non-spouse
Beneficiary and substantially equal installments begin no 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 payouts begin.
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.
Distribution of Death Benefit
Death of Annuitant
Upon the death of the Annuitant while the Owner is living, and before the
Annuity Commencement Date, we 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 and
the Contingent Annuitant will become the Annuitant.
If the Annuitant dies after the date annuity payouts begin and before the entire
interest has been distributed, any benefit payable must be distributed to the
Beneficiary according to and as rapidly as under the payout option which was in
effect on the Annuitant's date of death.
If the deceased Annuitant is an Owner, or if a corporation or other
non-individual 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.
Death of Owner Who Is Not the Annuitant
If there is a Joint Owner who is the surviving spouse and the Beneficiary of the
deceased Owner, the Joint Owner becomes the Owner and Beneficiary and the Death
Benefit will be paid to the Joint Owner or the Joint Owner may elect to take the
Death Benefit or to continue the Contract in force.
- --------------------------------------------------------
Contingent Annuitant
While the Annuitant is living, you 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 Insurance & Annuity Service Center, unless a
certain date is specified by the Owner(s). Please
note, you are not required to designate a
Contingent Annuitant.
- --------------------------------------------------------
If the Owner dies after annuity payouts 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 as rapidly as under the payout
option applicable on the Owner's date of death. All rights granted the Owner
under the Contract will pass to any surviving Joint Owner and, if none, to the
Annuitant.
In all other cases, we 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 who may elect to become the Owner and Annuitant and to continue the
Contract in force.
Death of Owner Who Is the Annuitant
If there is a Joint Owner who is the surviving spouse of the deceased Owner and
a Contingent Annuitant, the Joint Owner becomes the Owner and the Beneficiary,
the Contingent Annuitant will become the Annuitant, and the Contract will
continue in force.
If there is a Joint Owner who is the surviving spouse and the Beneficiary 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.
In all other cases, we 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 who
may elect to become the Owner and Annuitant and to continue the Contract in
force.
- --------------------------------------------------------------------------------
Charges and Deductions
No amounts will be deducted from your Contributions except for any applicable
Premium Tax. As a result, the full amount of your 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:
o Premium Tax, if applicable,
o Certain Transfers,
o a Contract Maintenance Charge, and
o charges against your Variable Account Value for our assumption of mortality
and expense risks.
Mortality and Expense Risk Charge
We deduct a Mortality and Expense Risk Charge from in your Variable Account
Value 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%. 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%. We guarantee that this
charge will never increase beyond 0.85%.
The Mortality and Expense Risk Charge is reflected in the unit values of each of
your variable options. Thus, this charge will continue to be applicable should
you choose a variable annuity payout option or the periodic withdrawal option.
Annuity Account Values and annuity payouts 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 payouts determined in
accordance with the annuity tables and other provisions contained in the
Contract. This means that you can be sure that neither the Annuitant's longevity
nor an unanticipated improvement in general life expectancy will adversely
affect the annuity payouts under the Contract.
We bear substantial risk in connection with the Death Benefit before the Annuity
Commencement Date.
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 that
they will 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. 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 on each Contract anniversary date for accounts under $50,000. This
charge partially covers our costs for administering the Contracts and the Series
Account. Once you have started receiving payouts from the annuity, this charge
will stop unless you choose the periodic withdrawal option.
The Contract Maintenance Charge is deducted from the portion of your Annuity
Account Value allocated to the Schwab Money Market Sub-Account. If the portion
of your Annuity Account Value in this Sub-Account is not sufficient to cover the
Contract Maintenance Charge, then the charge or any portion of it will be
deducted on a pro rata basis from all your 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 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, the Contract Maintenance Charge will be reinstated until such
time as your Annuity Account Value is equal to or greater than $50,000. We do
not expect a profit from amounts received from the Contract Maintenance Charge.
Transfer Fee
There will be a $10 charge for each Transfer in excess of 12 Transfers in any
calendar year. We do not expect a profit from the Transfer fee.
Expenses of the Portfolios
The value of the assets in the Sub-Accounts reflect the value of Portfolio
shares and therefore the fees and expenses paid by each Portfolio. A complete
description of the fees, expenses, and deductions from the Portfolios are found
in the Portfolios' Prospectuses.
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 your Contributions, from amounts
withdrawn, or from amounts applied on the Payout 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.
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 Contract.
- --------------------------------------------------------------------------------
Payout Options
During the Distribution Period, you can choose to receive payouts in four
ways--through periodic withdrawals, variable annuity payouts, fixed annuity
payouts or in a single, lump-sum payment.
You may change the Payout Commencement Date within 60 days prior to commencement
of payouts or your Beneficiary may change it upon the death of the Owner.
If this is an IRA, payouts which satisfy the minimum distribution requirements
of the Internal Revenue Code must begin no later than when you become age 70
1/2.
Periodic Withdrawals
You 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 any applicable MVA, less Premium Tax, if any.
In requesting periodic withdrawals, you must elect:
o The withdrawal frequency of either 1-, 3-, 6- or 12-month intervals
o A minimum withdrawal amount of at least $100 o The calendar day of the month
on which withdrawals will be made
o One of the periodic withdrawal payout options discussed below-- you may change
the withdrawal option and/or the frequency once each calendar year
Your withdrawals may be prorated across the Guarantee Period Fund (if
applicable) and the Sub-Accounts in proportion to their assets. Or, they can be
made specifically from the Guarantee Period Fund and specific Sub-Account(s)
until they are depleted. Then, we will automatically prorate the remaining
withdrawals against any remaining Guarantee Period Fund and Sub-Account assets
unless you request otherwise.
While periodic withdrawals are being received:
o You may continue to exercise all contractual rights, except that no
Contributions may be made.
o A Market Value Adjustment, if applicable, will be assessed for periodic
withdrawals from Guarantee Periods six or more months prior to its Guarantee
Period maturity date.
o You may keep the same investment options as were in force before periodic
withdrawals began.
o Charges and fees under the Contract continue to apply.
o Maturing Guarantee Periods renew into the shortest Guarantee Period then
available.
Periodic withdrawals will cease on the earlier of the date:
o the amount elected to be paid under the option selected has been reduced
to zero.
o the Annuity Account Value is zero.
o You request that withdrawals stop.
o The Owner or the Annuitant dies.
If periodic withdrawals stop, you may resume making Contributions. However, we
may limit the number of times you may restart a periodic withdrawal program.
Periodic withdrawals made for any purpose may be taxable, subject to withholding
and to the 10% federal penalty tax if you are younger than age 59 1/2. IRAs are
subject to complex rules with respect to restrictions on and taxation of
distributions, including penalty taxes.
- --------------------------------------------------------------------------------
If you choose to receive payouts from your annuity through periodic withdrawals,
you may select from the following payout options: o Income for a specified
period (at least 36 months)--You elect the length of time over
which withdrawals will be made. The amount paid will vary based on the duration
you choose.
- --------------------------------------------------------------------------------
o Income of a specified amount (at least 36 months)--You elect the dollar
amount of the withdrawals. Based on the amount elected, the duration may
vary.
o Interest only--Your withdrawals will be based on the amount of interest
credited to the Guarantee Period Fund between withdrawals. Available only if
100% of your Account Value is invested in the Guarantee Period Fund.
o Minimum distribution--If you are using this Contract as an IRA, you may
request minimum distributions as specified under Internal Revenue Code
Section 401(a)(9).
o Any other form of periodic withdrawal acceptable to Great-West which is for
a period of at least 36 months.
- --------------------------------------------------------------------------------
In accordance with the provisions outlined in this section, you may request a
periodic withdrawal to remit fees paid to your Investment Manager or Financial
Advisor. There may be income tax consequences to any periodic withdrawal made
for this purpose. Please see "Cash Withdrawals" on page XX. Annuity Payout
Information You can choose the date you'd like annuity payouts to start either
when you purchase the Contract or at a later date. The date you choose must be
at least one year after your initial Contribution. If you do not select a payout
start date, payouts will begin on the first day of the month of the Annuitant's
91st birthday. You can change your selection at any time up to 30 days before
the annuity date you selected.
If you have not elected a payout option within 30 days of the Annuity
Commencement Date, the portion of your Annuity Account Value held in your Fixed
Account will be paid out as a fixed life annuity with a guarantee period of 20
years. The Annuity Account Value held in the Sub-Account(s) will be paid out as
a variable life annuity with a guarantee period of 20 years.
The amount to be paid out is the Annuity Account Value on the Annuity
Commencement Date. The minimum amount that may be withdrawn from the Annuity
Account Value to purchase an annuity payout option is $2,000 with a Market Value
Adjustment, if applicable. If after the Market Value Adjustment, your Annuity
Account Value is less than $2,000, we may pay the amount in a single sum subject
to the Contract provisions applicable to a partial withdrawal.
- --------------------------------------------------------------------------------
If you choose to receive variable annuity payouts from your annuity, you may
select from the following payout options:
o Variable life annuity with guaranteed period--This option provides for monthly
payouts during a guaranteed period or for the lifetime of the Annuitant,
whichever is longer. The guaranteed period may be 5, 10, 15 or 20 years.
o Variable life annuity--This option provides for monthly payouts during the
lifetime of the Annuitant. The annuity terminates with the last payout due
prior to the death of the Annuitant. Since no minimum number of payouts is
guaranteed, this option may offer the maximum level of monthly payouts. It
is possible that only one payout may be made if the Annuitant died before
the date on which the second payout is due.
- --------------------------------------------------------------------------------
Under an annuity payout option, you can receive payouts monthly, quarterly,
semi-annually or annually in payments which must be at least $50. We reserve the
right to make payouts using the most frequent payout interval which produces a
payout of at least $50.
Amount of First Variable Payout
The first payout under a variable annuity payout option will be based on the
value of the amounts held in each 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 payout option.
For annuity options involving life income, the actual age and/or gender of the
Annuitant will affect the amount of each payout. We reserve the right to ask for
satisfactory proof of the Annuitant's age. We may delay annuity payouts until
satisfactory proof is received. Since payouts to older Annuitants are expected
to be fewer in number, the amount of each annuity payout 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 payouts established will be
made on the basis of the correct age. If payouts were too large because of
misstatement, the difference with interest may be deducted by us from the next
payout or payouts. If payouts were too small, the difference with interest may
be added by us to the next payout. This interest is at an annual effective rate
which will not be less than the Guaranteed Interest Rate.
Variable Annuity Units
The number of Annuity Units paid for each Sub-Account is determined by dividing
the amount of the first monthly payout by its Annuity Unit value on the 5th
valuation date preceding the date the first payout is due. The number of Annuity
Units used to calculate each payout for a Sub-Account remains fixed during the
Annuity Payout Period.
Amount of variable payouts after the first payout
Payouts after the first will vary depending upon the investment performance of
the 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 5th valuation
date preceding the date the annuity payout is due. The total amount of each
variable annuity payout will be the sum of the variable annuity payouts for each
Sub-Account. We guarantee that the dollar amount of each payout after the first
will not be affected by variations in expenses or mortality experience.
Transfers after the variable Annuity Commencement Date
Once annuity payouts have begun, no Transfers may be made from a fixed annuity
payout option to a variable annuity payout option, or vice versa. However, for
variable annuity payout options, Transfers may be made within the variable
annuity payout option among the Sub-Accounts. Transfers after the Annuity
Commencement Date will be made by converting the number of Annuity Units being
Transferred to the number of Annuity Units of the Sub-Account to which the
Transfer is made. The result will be that the next annuity payout, if it were
made at that time, would be the same amount that it would have been without the
Transfer. Thereafter, annuity payouts will reflect changes in the value of the
new Annuity Units.
Other restrictions
Once payouts start under the annuity payout option you select:
o no changes can be made in the payout option,
o no additional Contributions will be accepted under the Contract and
o no further withdrawals, other than withdrawals made to provide annuity
benefits, will be allowed.
- --------------------------------------------------------------------------------
If you choose to receive fixed annuity payouts from your annuity, you may select
from the following payout options:
o Income of specified amount--The amount applied under this option may
be paid in equal annual, semi-annual, quarterly or monthly installments in
the dollar amount elected for not more than 240 months.
o Income for a specified period--Payouts are paid annually, semi-annually,
quarterly or monthly, as elected, for a selected number of years not to
exceed 240 months.
o Fixed life annuity with guaranteed period--This option provides monthly
payouts during a guaranteed period or for the lifetime of the Annuitant,
whichever is longer. The guaranteed period may be 5, 10, 15 or 20 years.
o Fixed life annuity--This option provides for monthly payouts during the
lifetime of the Annuitant. The annuity ends with the last payout due prior
to the death of the Annuitant. Since no minimum number of payouts is
guaranteed, this option may offer the maximum level of monthly payouts. It
is possible that only one payout may be made if the Annuitant died before
the date on which the second payout is due.
o Any other form of a fixed annuity acceptable to us.
- --------------------------------------------------------------------------------
A portion or the entire amount of the annuity payouts may be taxable as ordinary
income. If, at the time the annuity payouts 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 payouts 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. Please see "Federal Tax-Matters" below for details.
Annuity IRAs
The annuity date and options available for IRAs may be controlled by
endorsements, the plan documents, or applicable law.
Under the Internal Revenue Code, a Contract 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. Under a minimum distribution plan, distributions
must begin by a specific date and the entire interest of the plan participant
must be distributed within a certain specified period of time. The application
of the minimum distribution requirements vary according to your age and other
circumstances.
- --------------------------------------------------------------------------------
Seek Tax Advice
The following discussion of the federal income tax consequences is only a brief
summary and is not intended as tax advice. The federal income tax consequences
discussed here 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 your individual circumstances or the circumstances of the person who
receives the distribution. A tax adviser should be consulted for further
information.
- --------------------------------------------------------------------------------
Federal Tax Matters
The following discussion is a general description of federal income tax
considerations relating to the Contracts and is not intended as tax advice. This
discussion assumes 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 situations. If you are concerned about these tax
implications relating to the ownership or use of the Contract, you should
consult a competent tax adviser before initiating any transaction.
- --------------------------------------------------------------------------------
Because tax laws, rules and regulations are constantly changing, we do not make
any guarantees about the Contract's tax status.
- --------------------------------------------------------------------------------
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 payouts,
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.
Certain requirements must be satisfied in purchasing an Annuity IRA and
receiving distributions from an Annuity IRA in order to continue receiving
favorable tax treatment. As a result, purchasers of Annuity 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 Annuity
IRA is purchased with proceeds and/or Contributions that qualify for the
intended special federal income tax treatment.
Taxation of Annuities
Section 72 of the Internal Revenue Code governs taxation of annuities. You, as a
"natural person" will not generally be taxed on increases, if any, in the value
of your Annuity Account Value until a distribution occurs by withdrawing all or
part of the Annuity Account Value (for example, withdrawals or annuity payouts
under the annuity payout option elected). However, under certain circumstances,
you 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 payout or an annuity) is taxable as ordinary income. An IRA
Contract may not be assigned as collateral.
If the Contract is not owned by a natural person (for example, a corporation or
certain trusts), you 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 stated Owner of a Contract and the beneficial Owner is a natural
person.
The rule also does not apply where:
o The annuity Contract is acquired by the estate of a decedent
o The Contract is held under an IRA.
o The Contract is a qualified funding asset for a structured settlement.
o The Contract is purchased on behalf of an employee upon termination of a
qualified plan.
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 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 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 payout is taxed at ordinary income tax rates.
Annuity payouts
Although the tax consequences may vary depending on the annuity form elected
under the Contract, in general, only the portion of the annuity payout 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 payouts is taxable. For
fixed annuity payouts, in general there is no tax on the portion of each payout
which represents the same ratio that the "investment in the Contract" bears to
the total expected value of the annuity payouts for the term of the payouts.
However, the remainder of each annuity payout is taxable. Once the investment in
the Contract has been fully recovered, the full amount of any additional annuity
payouts is taxable.
Penalty tax
For distributions from a Non-Qualified Contract, there may be a federal income
tax penalty imposed equal to 10% of the amount treated as taxable income. In
general, however, there is no penalty tax on distributions:
o Made on or after the date on which the Owner reaches age 59 1/2.
o Made as a result of death or disability of the Owner.
o Received in substantially equal periodic payouts (at least annually) for your
life expectancy or the joint life expectancies of you and the Beneficiary.
Other exemptions or tax penalties may apply to distributions from a
Non-Qualified Contract or certain distributions from 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 included in the income of the
recipient as follows:
If distributed in a lump sum, they are taxed in the same manner as a full
surrender, as described above.
If distributed under an annuity form, they are taxed in the same manner as
annuity payouts, as described above.
Distribution at death
In order to be treated as an annuity contract, the terms of the Contract must
provide the following two distribution rules:
If the Owner dies before the date annuity payouts start, your entire interest
must generally be distributed within five years after the date of your death. If
payable to a designated Beneficiary, the distributions may be paid over the life
of that designated Beneficiary or over a period not extending beyond the life
expectancy of that Beneficiary, so long as payouts start within one year of your
death. If the sole designated Beneficiary is your spouse, the Contract may be
continued in the name of the spouse as Owner.
If the Owner dies on or after the date annuity payouts start, and before the
entire interest in the Contract has been distributed, the remainder of your
interest will be distributed on the same or on a more rapid schedule than that
provided for in the method in effect on the date of death.
If the Owner is not an individual, then for purposes of the distribution at
death rules, the Primary Annuitant is considered the Owner. In addition, when
the Owner is not an individual, a change in the Primary Annuitant is treated as
the death of the Owner.
Distributions made to a Beneficiary upon the Owner's death from an IRA must be
made pursuant to the rules in Section 401(a)(9) of the Internal Revenue Code.
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 that are not discussed in this Prospectus.
Multiple Contracts
All deferred, Non-Qualified Annuity Contracts that are issued by Great-West (or
our affiliates) to the same Owner during any calendar year will be treated as
one annuity contract for purposes of determining the taxable amount.
Withholding
Annuity distributions generally are subject to withholding 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.
Section 1035 Exchanges
Internal Revenue Code Section 1035 provides that no gain or loss shall be
recognized on the exchange of one insurance contract for another. Generally,
contracts issued in an exchange for another annuity contract are treated as new
for purposes of the penalty and distribution at death rules.
Individual Retirement Annuities
The Contract may be used with IRAs as described in Section 408 of the Internal
Revenue Code. Section 408 of the Internal Revenue 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 Internal Revenue Code. If you purchase this
Contract for use with an IRA, you will be provided with supplemental
information. And, you have the right to revoke your purchase within seven days
of purchase of the IRA 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.
Various tax penalties may apply to Contributions in excess of specified limits,
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 Internal Revenue Code if there is a change in the law.
Purchasers should seek competent advice as to the suitability of the Contract
for use with IRAs.
When you make your initial Contribution, you must specify whether you are
purchasing a Non-Qualified Contract or an IRA. If the initial Contribution is
made as a result of an exchange or surrender of another annuity contract, we may
require that you provide information with regard to the federal income tax
status of the previous annuity contract.
We will require that you purchase separate Contracts if you want to invest money
qualifying for different annuity tax treatment under the Internal Revenue Code.
For each separate Contract you will need to make the required minimum initial
Contribution. Additional Contributions under the 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 the Contribution would be different from the
initial Contribution.
If a Contract is issued in connection with an employer's Simplified Employee
Pension plan, Owners, Annuitants and Beneficiaries are cautioned that the rights
of any person to any of the benefits under the Contract will be subject to the
terms and conditions of the plan itself, regardless of the terms and conditions
of the Contract.
<PAGE>
- --------------------------------------------------------------------------------
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, you
may not assign the Contract as collateral.
If a non-IRA Contract is assigned, the interest of the assignee has priority
over your interest 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 Schwab Insurance & Annuity
Service Center. All assignments are subject to any action taken or payout made
by Great-West before the assignment was processed. We are 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. Please consult a competent tax adviser for
further information.
- --------------------------------------------------------------------------------
Performance Data
From time to time, we may advertise yields and average annual total returns for
the Sub-Accounts. In addition, we may advertise the effective yield of the
Schwab Money Market Sub-Account. These figures will be based on historical
information and are not intended to indicate future performance.
Money Market Yield
The yield of the Schwab Money Market Sub-Account refers to the annualized income
generated by an investment in that Sub-Account over a specified 7-day period. It
is calculated by assuming that the income generated for that seven-day period is
generated each 7-day period over a period of 52 weeks 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 Sub-Account is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of the assumed reinvestment.
Average Annual Total Return
The table on the following page illustrates standardized and non-standardized
average annual total return for one-, three-, five- and ten-year periods (or
since inception, as appropriate) ended December 31, 1998. Average annual total
return quotations represent the average annual compounded rate of return that
would equate an initial investment of $1,000 to the redemption value of that
investment (excluding Premium Taxes, if any) as of the last day of each of the
periods for which total return quotations are provided.
Both the standardized and non-standardized data reflect the deduction of all
fees and charges under the Contract. The standardized data is calculated from
the inception date of the Sub-Account and the non-standardized data is
calculated for periods preceding the inception date of the Sub-Account. Some of
the Sub-Accounts do not have standardized performance information. Such data
will be provided when it becomes available. For additional information regarding
yields and total returns calculated using the standard formats briefly described
herein, please refer to the Statement of Additional Information.
<PAGE>
<TABLE>
Performance Data
Sub-Account 1 year 3 years 5 years 10 years Since Inception Date Since Inception
Inception of of Inception of Date of
Sub-Account Sub-Account Underlying Underlying
Portfolio Portfolio
<S> <C> <C> <C> <C>
Alger American Growth Portfolio 11/1/96 1/9/89
American Century VP International 11/1/96 5/1/94
Berger IPT-Small Company Growth Fund 4/30/97 5/1/96
Federated American Leaders Fund II 11/1/96 2/1/94
Federated Fund for U.S. Government 11/1/96 3/29/94
Securities II
Federated Utility Fund II 4/30/97 4/14/94
INVESCO VIF-High Yield Portfolio 11/1/96 5/27/94
INVESCO VIF-Industrial Income 11/1/96 8/10/94
Portfolio
Janus Aspen Growth Portfolio 11/1/96 9/13/93
Janus Aspen Worldwide Growth 11/1/96 9/13/93
Portfolio
Montgomery Variable Series: Growth 11/1/96 2/9/96
Fund
SAFECO RST Equity Portfolio 4/30/97 4/3/87
Schwab MarketTrack Growth Portfolio 11/1/96 11/1/96
II
Schwab S&P 500 Portfolio 11/1/96 11/1/96
Van Kampen American Capital 9/15/97 7/3/95
LIT-Morgan Stanley Real Estate
Securities Portfolio
</TABLE>
<PAGE>
Performance information and calculations for any Sub-Account are based only on
the performance of a hypothetical Contract under which the Annuity Account Value
is allocated to a Sub-Account during a particular time period. Performance
information should be considered in light of the investment objectives and
policies and characteristics of the Portfolios in which the Sub-Account invests
and the market conditions during the given time period. It 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:
o the ranking of or asset allocation/investment strategy any Sub-Account
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 people who rank separate accounts or other
investment products on overall performance or other criteria, and
o 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, yield and standard total returns for the Sub-Accounts.
We may also advertise performance figures for the Sub-Accounts based on the
performance of a Portfolio 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 Great-West in
processing the Contracts. These services are described in written agreements
between Schwab and Great-West. Great-West 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.
<PAGE>
- --------------------------------------------------------------------------------
Selected Financial Data
The following is a summary of certain financial data of Great-West. This summary
has been derived in part from, and should be read in conjunction with, the
financial statements of Great-West included at the end this Prospectus.
<PAGE>
<TABLE>
Selected financial data
Years ended December 31
(in millions)
1997 1996 1995 1994 1993
Income statement data
<S> <C> <C> <C> <C> <C>
Premiums and other income $1,279 $ 1,199 $ 1,067 $ 1,000 $ 696
Net investment income 897 837 835 768 792
Realized investment gains (losses) 10 (21) 8 (72) 25
----------- ----------- ----------- ----------- -----------
Total Revenues 2,186 2,015 1,910 1,696 1,513
Total benefits and expenses 1,930 1,824 1,733 1,593 1,417
Income tax expense 97 56 49 29 31
----------- ----------- ----------- ----------- -----------
Net Income $ 159 $ 135 $ 128 $ 74 $ 65
Balance sheet data
Investment assets $13,206 $12,717 $12,473 $11,791 $11,592
Separate account assets 7,847 5,485 3,999 2,555 1,680
Total assets 22,078 19,351 17,682 15,616 14,296
Total policyholder liabilities 11,791 11,687 11,492 10,929 10,592
Total shareholder's equity 1,186 1,034 993 777 821
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations Great-West Life & Annuity Insurance Company Great-West Life & Annuity
Insurance 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 and to
Insuramerica Corporation prior to changing to its current name in 1982. In
September of 1990, Great-West re-domesticated and is now organized under the
laws of the State of Colorado. Great-West ranks in the top 2% of all U.S. life
insurers in terms of assets.
Great-West is authorized to engage in the sale of life insurance, accident and
health insurance and annuities. It is qualified to do business in all states in
the United States except New York, and in the District of Columbia, Puerto Rico,
U.S. Virgin Islands and Guam. Great-West conducts business in New York through
First Great-West Life & Annuity Insurance Company, a subsidiary New York life
insurance company.
Great-West is an indirect wholly owned subsidiary of The Great-West Life
Assurance Company. The Great-West Life Assurance Company 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.
Great-West operates in one business segment as a provider of life, health and
annuity products; however, the business operations of Great-West will be
discussed in terms of its major business units, which are:
Employee Benefits--Life, health, disability income and 401(k) products for group
clients.
Financial Services--Accumulation and payout annuity products for both group and
individual clients, primarily in the public/non-profit sector, as well as
insurance products for individual clients.
Investment Operations--Management of assets, both general account and separate
accounts which segregate, from Great-West'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 Great-West for the three years ended December 31, 1997 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, Great-West
cautions readers regarding certain forward-looking statements contained in the
following discussion and elsewhere in this report and in any other statements
made by, or on behalf of, Great-West, whether or not in future filings with the
SEC. 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. Without limiting the foregoing, forward-looking
statements include statements which represent Great-West's beliefs concerning
future or projected levels of sales of Great-West's products, investment spreads
or yields, or the earnings or profitability of Great-West'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 Great-West'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, Great-West. 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 Great-West specifically, such as credit,
volatility and other risks associated with Great-West's investment portfolio,
and other factors. Other risks and uncertainties are discussed in documents
filed by Great-West with the SEC.
Comparison of Years Ended December 31, 1997 and 1996
Great-West's consolidated net income for 1997 increased $24.4 million or 18% to
$158.8 million, when compared to 1996.
Premiums and other income increased 7% from $1,199.2 million in 1996 to $1,278.9
million in 1997. The increase was primarily due to growth in individual
participating insurance premiums and an increase in fee income from assets under
management.
Net investment income increased $61.0 million from $836.6 million in 1996 to
$897.6 million in 1997. This change reflected improved interest income on
investments and additional investment management fees recognized in prior years
by Great-West Life.
Great-West's realized investment gains (losses) changed from a net realized loss
of $21.1 million in 1996 to a net realized gain of $9.8 million in 1997. The
decrease in interest rates in 1997 resulted in realized gains on the sale of
fixed maturities totaling $16.0 million, while higher interest rates contributed
to $11.6 million of fixed maturity losses recorded in 1996. There was also a 28%
improvement in the provision for asset losses as the change in the provision was
reduced from $10.6 million in 1996 to $7.6 million in 1997.
Total benefits and expenses includes life and other policy benefits, increases
in reserves, interest paid or credited to contractholders, expenses, and
dividends to policyholders. The increase of 6% from $1,824.3 million in 1996 to
$1,929.9 million in 1997 was primarily the result of increased operating
expenses associated with the cost of developing HMOs, system enhancements, and
developing FASCorp's business.
In October 1996 Great-West recaptured certain pieces of an individual
participating block of business previously reinsured to Great-West Life. In June
1997 Great-West recaptured all remaining pieces of that block of business.
Great-West recorded various assets and liabilities related to the recaptures as
discussed in Note 2 to the financial statements. In recording the recaptures,
both life insurance premiums and benefits were increased by the amounts
recaptured ($155.8 million and $164.8 million in 1997 and 1996, respectively).
Consequently, the net financial results of Great-West were not impacted by
recording the reinsurance transactions.
Included in the 1997 and 1996 results of operations was the effect of a release
of $47.8 million and $25.6 million for 1997 and 1996, respectively, from a
previously recorded contingent tax liability that Great-West assumed from
Great-West Life in 1993 (see Note 10 to the financial statements). Of the $47.8
million released in 1997, $15.1 million was attributable to participating
policyholders and reflected as a liability on the balance sheet.
In addition to the contingent tax liability release, Great-West also in the
normal course of business reviewed its deferred tax assets and liabilities and
increased its deferred tax liability by $21.6 million in 1997 (of which $10.1
million was attributable to participating policyholders), which resulted in a
$11.5 million reduction in net income.
The effect of the non-recurring transactions described above was to decrease net
income by $4.4 million from 1996 to 1997. Excluding the effect of these
transactions, the growth in net income reflected higher variable fee income from
assets under management, improved investment income, increased realized capital
gains and favorable mortality.
The effective income tax rates were affected by the release of the contingent
tax liability discussed above in 1997 and 1996 as these amounts were not
taxable, although the increase in the deferred tax liability discussed above
negated the impact of the 1997 release.
Comparison of Years Ended December 31, 1996 and 1995
Great-West's 1996 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).As a result, 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.
Great-West'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 Great-West 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.
Investment Operations
Great-West's primary investment objective is to acquire assets whose duration
and cash flow reflects the characteristics of Great-West's liabilities, while
meeting industry, size, issuer and geographic diversification standards. Formal
liquidity and credit quality parameters have also been established.
Great-West 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,
Great-West'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, Great-West ensures
that its investment portfolio is appropriately structured to fulfill financial
obligations to its policyholders.
<PAGE>
Summary of Great-West's invested assets
<TABLE>
(in millions)
1997 1996
<S> <C> <C>
Fixed maturities, available for sale, at fair $6,698 $6,206
value
Fixed maturities, held-to-maturity, at amortized 2,083 1,993
cost
Mortgage loans 1,236 1,488
Real estate and common stock 133 88
Short-term investments 399 419
Policy loans 2,657 2,523
----- -----
$13,206 $12,717
</TABLE>
<PAGE>
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). Great-West's strategy related to
structured assets is to focus on those with lower volatility and minimal credit
risk. Great-West 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, which are primarily in the held-to-maturity
category, are generally less marketable than publicly traded assets, yet they
typically offer covenant protection which allows Great-West, if necessary, to
take appropriate action to protect its investment. Great-West believes that the
cost of the additional monitoring and analysis required by private placements is
more than offset by their enhanced yield.
One of Great-West'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
Great-West 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 1997 1996
AAA 45.7% 45.9%
AA 8.8 8.1
A 23.8 23.7
BBB 20.7 20.9
BB and Below
(non-investment grade) 1.0 1.4
---- ------
TOTAL 100.0% 100.0%
At December 31, 1997, Great-West had no bonds in default. At December 31, 1996,
there was one bond in default with a carrying value of $8 million.
Mortgage Loans--During 1997, the mortgage portfolio declined 17% to $1.2
billion, net of impairment reserves. Great-West has not actively sought new loan
opportunities since 1989 and, as such, has experienced an ongoing reduction in
this portfolio's balance.
Great-West 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 Great-West's allowance for credit losses.
The average balance of impaired loans continued to remain low at $37.9 million
in 1997 compared with $39.1 million in 1996, and foreclosures totaled $14.1
million and $13.0 million in 1997 and 1996, respectively. The low levels of
problematic mortgages relative to Great-West's overall balance sheet are due to
the ongoing decrease in the size of the mortgage portfolio, Great-West's active
loan management program and improvement in market conditions.
Occasionally, Great-West elects to restructure certain loans if the economic
benefits to Great-West are believed to be more advantageous than those achieved
by acquiring the collateral through foreclosure. At December 31, 1997 and 1996,
Great-West's loan portfolio included $64.4 million and $68.3 million,
respectively, of non-impaired restructured loans.
Real Estate and Common Stock--Great-West's real estate portfolio is composed
primarily of the Home Office property ($56.9 million) and properties acquired
through the foreclosure of troubled mortgages. Great-West operates a wholly
owned real estate subsidiary which attempts to maximize the value of these
properties through rehabilitation, leasing and sale. Great-West anticipates
limited, if any, investments in real estate assets during 1998.
The common stock portfolio is composed of mutual fund seed money and some
private equity investments. Great-West anticipates a limited participation in
the stock markets in 1998.
Derivatives--Great-West 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 Great-West to varying degrees of
market and credit risk; however, when used for hedging, these instruments
typically reduce risk. Great-West controls the credit risk of its financial
contracts through credit approvals, limits and monitoring procedures. Great-West
has also developed controls within its operations to ensure that only Board
authorized transactions are executed. Note 6 to the financial statements
contains a summary of Great-West's outstanding financial hedging derivatives.
Outlook--General economic conditions continued to improve during 1997, including
improvement or stabilization in many real estate markets. Great-West does not
expect to recognize any asset chargeoffs or restructurings which would result in
a material adverse effect upon Great-West's financial condition in 1998.
Liquidity and Capital Resources
Great-West'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, Great-West has met its operating requirements by maintaining
appropriate levels of liquidity in its investment portfolio and utilizing
positive cash flows from operations. Liquidity for Great-West has remained
strong, as evidenced by significant amounts of short-term investments and cash,
which totaled $525.4 million and $544.2 million as of December 31, 1997 and
1996, respectively.
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 Great-West taking advantage of current
investment opportunities. Great-West'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 Great-West'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 Great-West's existing business.
Great-West's financial strength provides the capacity and flexibility to enable
it to raise funds in the capital markets through the issuance of commercial
paper. Great-West continues to be well capitalized, with sufficient borrowing
capacity to meet the anticipated needs of its business. Great-West had $54.1
million of commercial paper outstanding at December 31, 1997, compared with
$84.7 million at December 31, 1996. 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
During the fourth quarter of 1995, the Financial Accounting Standards Board
issued a guide to implementation of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", which permits a one-time opportunity
to reclassify securities subject to SFAS No. 115. Consequently, Great-West
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 1996, Great-West 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 Great-West's results of operations, liquidity or financial condition.
In connection with the employee transfer discussed in Note 2 to the financial
statements, effective January 1, 1997 Great-West implemented SFAS No. 87,
"Employers Accounting for Pensions" and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". Previously, employee expenses
(including costs for benefit plans) were transferred from Great-West Life to
Great-West through administrative services agreements. Accordingly, the
implementation of these standards had no material effect on the financial
results of Great-West.
Effective January 1, 1998, Great-West will implement SFAS No. 125, "Accounting
for transfer and Servicing of Financial Assets and Extinguishments of
Liabilities", as it relates to repurchase agreements and securities lending
arrangements. Management estimates that this change will not have a material
effect on Great-West's financial results.
Effective January 1, 1998, Great-West will implement SFAS No. 130, "Reporting
Comprehensive Income", which requires the disclosure of comprehensive income and
its components. Great-West recognizes unrealized gains and losses, net of
adjustments, on its investments available for sale portfolio. These items will
be disclosed as comprehensive income.
Effective October 1, 1998, Great-West will implement the disclosure requirements
of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 131 redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about a
company's operating segments. Great-West anticipates, with the adoption of SFAS
No. 131, that it will incorporate segment disclosures of its current operating
units. Great-West believes the segment information required to be disclosed
under SFAS No. 131 will be more comprehensive than previously provided,
including expanded disclosures of income statement and balance sheet items for
each of its reportable operating segments.
Effective January 1, 1998, Great-West will implement SFAS No. 132, "Employer's
Disclosures About Pensions and Other Postretirement Benefits". Great-West
expects to modify its disclosure for its postretirement benefit plans to conform
to the requirements of SFAS No.
132.
Year 2000
Great-West has a number of existing computer programs that use only two digits
to identify a year in the date field, which creates a problem with the upcoming
change in the century. Great-West has developed detailed plans that it expects
to rectify the year 2000 problem. These plans include modifying programs where
necessary, replacing certain programs with year 2000 compliant software, and
working with vendors and business partners, including banks, custodians and
investment managers, who need to become year 2000 compliant. The resources that
are being devoted to this effort are substantial. Management estimates that the
total cost to implement these plans will not be material, and has budgeted the
expense as part of its computer systems operating costs in 1998 and early 1999.
Great-West anticipates that its systems will be year 2000 compliant on or about
first quarter 1999, but there can be no assurance that Great-West will be
successful, or that interaction with other service providers will not impair
Great-West's services at that time.
Regulation
Great-West must comply with the insurance laws of all jurisdictions in which it
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.
Great-West'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 five year period ending December 31, 1995. This examination
produced no significant adverse findings regarding Great-West.
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 Great-West's
December 31, 1997 statutory financial reports, Great-West 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
1997, Great-West was within the usual ranges in all categories.
Insurance Holding Company Regulations--Great-West is subject to and complies
with insurance holding company regulations in Colorado. These regulations
contain certain restrictions and reporting requirements for transactions between
an insurer and its affiliates, including the payments of dividends. They also
regulate changes in control of an insurance company.
Securities Laws--Great-West is subject to various levels of regulation under
federal securities laws. Great-West's broker-dealer subsidiaries are regulated
by the Securities and Exchange Commission ("SEC") and the National Association
of Securities Dealers, Inc. Great-West's investment advisor subsidiary and
transfer agent subsidiary are regulated by the SEC. Certain of Great-West's
Separate Accounts and mutual funds are registered under the Investment Company
Act of 1940 and the offerings of certain of Great-West's variable insurance and
annuity products are registered under the Securities Act of 1933.
HMO Regulation--Great-West's HMO subsidiaries are subject to regulation by
various government agencies in the states in which they are licensed to do
business. This involves the regulation of solvency, contracts, rates, quality
assurance, minimum levels of benefits, and the availability and continuity of
care.
Guaranty Funds--Under insurance guaranty fund laws existing in all states,
insurers doing business in those states can be assessed (up to prescribed
limits) for certain obligations of insolvent insurance companies. Great-West has
established a reserve of $8.7 million as of December 31, 1997 to cover future
assessments of known insolvencies. Great-West has historically recovered more
than half of the guaranty fund assessments through statutorily permitted Premium
Tax offsets. Great-West has a prepaid asset associated with guaranty fund
assessments of $5.6 million at December 31, 1997.
Canadian Regulation--Because Great-West is a subsidiary of Great-West Life,
which is a Canadian company, the Office of the Superintendent of Financial
Institutions Canada conducts periodic examinations of Great-West and approves
certain investments in subsidiary companies.
Ratings
Great-West is rated by a number of nationally recognized rating agencies. The
ratings represent the opinion of the rating agencies on the financial strength
of Great-West and its ability to meet the obligations of its insurance policies;
however, these ratings and Great-West's financial strength do not extend to the
investment return or principal value of Great-West's separate accounts.
A++ (Superior) for financial strength, Financial condition and operating
performance and ability to meet policyholder obligations. A.M. Best Company5
AAA Highest claims-paying ability. Duff & Phelps6
AA+ Insurer financial strength. Standard & Poor's Corporation6
Aa2 Excellent for overall financial strength. Moody's Investors Service7
Miscellaneous
No customer accounted for 10% or more of Great-West's consolidated revenues in
1997. In addition, no unit of Great-West's business is dependent on a single
customer or a few customers, the loss of which would have a significant effect
on Great-West 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 Great-West or any of its business units. Great-West had approximately 4,600
employees at December 31, 1997.
The executive offices of Great-West consist of a 517,633 square foot office
complex located in Englewood, Colorado. The office complex is owned by a
subsidiary of Great-West. Great-West leases sales and claims offices throughout
the United States.
5 Top rating possible.
6 Second highest of 19 ratings.
7 Third highest of 19 ratings.
<PAGE>
Directors and Officers
Below is information concerning Great-West's directors and executive officers,
together with their principal occupation for the past five years. Unless
otherwise indicated, all of the directors 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 and Officers
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Director Principal occupation(s) for last five years
James Balog Company Director
James W. Burns, O.C. Chairman of the Boards of Great-West Lifeco, Great-West
Life, London Insurance Group Inc. and London Life
Insurance Company; Deputy Chairman, Power Corporation
Orest T. Dackow President and Chief Executive Officer, Great-West
Lifeco
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 Great-West; President and
Chief Executive Officer, Power Financial
N. Berne Hart Company Director
Kevin P. Kavanagh Company Director
William Mackness Company Director since July 1995; previously Dean,
Faculty of Management, University of Manitoba
William T. McCallum President and Chief Executive Officer of Great-West;
President and Chief Executive Officer, United States
Operations, Great-West Life
Jerry E.A. Nickerson Chairman of the Board, H.B. Nickerson & Sons Limited
The Honourable P. Michael Pitfield, P.C., Vice-Chairman, Power Corporation; Member of the Senate
Q.C. of Canada
Michel Plessis-Belair, F.C.A. Vice-Chairman and Chief Financial Officer, Power
Corporation; Executive Vice-President and Chief
Financial Officer, Power Financial
Brian E. Walsh Co-Founder and Managing Partner, Veritas Capital
Management, LLC since September 1997; previously
Partner, Trinity L.P. from January 1996;previously
Managing Director and Co-Head, Global Investment Bank,
Bankers Trust Company
Executive Officers Principal occupation(s) for last five years
William T. McCallum President and Chief President and Chief Executive Officer of Great-West;
Executive Officer President and Chief Executive Officer, United States
Operations, Great-West Life
Dennis Low Executive Vice President, Financial Services of
Executive Vice President, Financial Services Great-West and Great-West Life
Alan D. MacLennan Executive Vice President, Employee Benefits of
Executive Vice President, Employee Benefits Great-West and Great-West Life
James D. Motz Executive Vice President, Employee Benefits of
Executive Vice President, Employee Benefits Great-West and Great-West Life
Douglas L. Wooden Executive Vice President, Financial Services of
Executive Vice President, Financial Services Great-West and Great-West Life
John A. Brown Senior Vice President, Sales, Financial Services of
Senior Vice President, Sales, Financial Great-West and Great-West Life
Services
Donna A. Goldin Executive Vice President and Chief Operating Officer,
Executive Vice President and Chief One Corporation since June 1996; previously Executive
Operating Officer, One Corporation Vice President and Chief Operating Officer, Harris
Methodist Health Plan since March
1995; previously Executive Vice
President and Chief Operating
Officer, Private Healthcare
Systems, Inc.
</TABLE>
Mitchell T.G. Graye Senior Vice President, Chief Financial Officer of Senior
Vice President, Chief Financial Great-West; Senior Vice President, Chief
Financial Officer Officer, United States, Great-West Life
John T. Hughes Senior
Vice President, Chief Investment Officer of Senior Vice President, Chief
Investment Great-West; Senior Vice President, Chief Investment Officer Officer,
United States, Great-West Life
D. Craig Lennox Senior Vice President, General
Counsel and Secretary of Senior Vice President, General Counsel and Great-West;
Senior Vice President and Chief U.S. Legal Secretary Officer, Great-West Life
Steve H. Miller Senior Vice President, Employee Benefits Sales of Senior Vice
President, Employee Benefits Great-West and Great-West Life Sales
Charles P.
Nelson Senior Vice President, Public Non-Profit Markets of Senior Vice
President, Public Non-Profit Great-West and Great-West Life Markets Martin
Rosenbaum Senior Vice President, Employee Benefits Operations of Senior Vice
President, Employee Benefits Great-West and Great-West Life Operations
Robert K.
Shaw Senior Vice President, Individual Markets of Great-West Senior Vice
President, Individual Markets and Great-West Life Executive Compensation
The
following table sets out all compensation paid to the individuals who were, at
December 31, 1997, the Chief Executive Officer and the other four most highly
compensated executive officers of Great-West (collectively the "Named Executive
Officers") for services rendered to Great-West and its subsidiaries, and
Great-West Life, in all capacities for fiscal years ended 1995, 1996 and 1997,
respectively.
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------
Executive Compensation
- -------------------------------------------------------------------------------------------------------
- -------------------------------------- ----------------------------------------- ----------------------
Name and Annual Long-term
principal position compensation compensation awards
- -------------------------------------- ----------------------------------------- ----------------------
- -------------------------------------- -------------- ------------- ------------ ----------------------
Year Salary ($) Bonus ($) Options (#)8
- -------------------------------------- -------------- ------------- ------------ ----------------------
- -------------------------------------- -------------- ------------- ------------ ----------------------
<S> <C> <C> <C> <C>
W.T. McCallum, President and Chief 1997 608,708 406,250 300,00010
Executive Officer 1996 561,818 370,500 300,00011
1995 523,958 351,000 --
225,0009
- -------------------------------------- -------------- ------------- ------------ ----------------------
- -------------------------------------- -------------- ------------- ------------ ----------------------
J.T. Hughes, Senior Vice President, 1997 324,000 162,000 --
Chief Investment Officer 1996 312,000 136,968 80,00012
1995 301,000 150,500 --
- -------------------------------------- -------------- ------------- ------------ ----------------------
- -------------------------------------- -------------- ------------- ------------ ----------------------
D. Low, Executive Vice President, 1997 340,000 132,000 50,00011
Financial Services 1996 325,000 146,250 150,00012
1995 305,000 150,500 --
- -------------------------------------- -------------- ------------- ------------ ----------------------
- -------------------------------------- -------------- ------------- ------------ ----------------------
A.D. MacLennan, Executive Vice 1997 340,000 132,000 50,00011
President, Employee Benefits 1996 325,000 115,000 150,00012
1995 312,000 125,000 --
- -------------------------------------- -------------- ------------- ------------ ----------------------
- -------------------------------------- -------------- ------------- ------------ ----------------------
D.L. Wooden 1997 300,000 150,000 150,00011
Executive Vice President, Financial 1996 287,000 143,500 100,00012
Services 1995 275,500 137,500 --
- -------------------------------------- -------------- ------------- ------------ ----------------------
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 1/1.43.
- ------------------------------------------------------------------------- ------------------------------
Individual grants Potential realizable value
at assumed annual rates of
stock price appreciation for
option term
- ------------------------------------------------------------------------- ------------------------------
Name Options Percent of Exercise Expiration date 5% ($) 10% ($)
granted total or base
(#) options price
granted to ($/share)
employees in
fiscal year
----------- -------------- ----------- ---------------- ------------
- ----------------- -----------------
W.T. McCallum 300,000 19.43 22.70 June 26, 2007 4,282,772 10,853,386
- ----------------- ----------- -------------- ----------- ---------------- ------------ -----------------
----------- -------------- ----------- ---------------- ------------
J.T. Hughes -- -- -- -- -- --
- ----------------- ----------- -------------- ----------- ---------------- ------------ -----------------
- ----------------- ----------- -------------- ----------- ---------------- ------------ -----------------
D. Low 50,000 3.24 22.70 June 26, 2007 713,795 1,808,898
- ----------------- ----------- -------------- ----------- ---------------- ------------ -----------------
- ----------------- ----------- -------------- ----------- ---------------- ------------ -----------------
A.D. MacLennan 50,000 3.24 22.70 June 26, 2007 713,795 1,808,898
-----------------
- ----------------- ----------- -------------- ----------- ---------------- ------------ -----------------
D.L. Wooden 150,000 9.72 22.70 June 26, 2007 2,141,386 5,426,693
- ----------------- ----------- -------------- ----------- ---------------- ------------ -----------------
- --------------------------
8 The options set out are options for common shares of Great-West Lifeco which
are granted by Great-West Lifeco pursuant to the Great-West Lifeco Stock Option
Plan ("Lifeco Options").
9 A special one-time bonus payment with respect to long-term performance.
10 All or portions of these Lifeco Options become exercisable if certain
financial targets are attained. If exercisable, the exercise period runs from
April 1, 2002 to June 26, 2007.
11 These Lifeco Options become exercisable 20% per year commencing on the first
anniversary of the grant and expire ten years after the date of the grant.
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 PFC Options exercised in 1997, and all unexercised PFC Options
held as of December 31, 1997, by the Named Executive Officers. PFC Options are
issued with an exercise price in Canadian dollars. Canadian dollar amounts have
been translated to U.S. dollars at a rate of 1/1.43.
- --------------------------------------------- ---------------------------- -----------------------------
Unexercised options at Value of unexercised
fiscal year-end (#) in-the-money options at
fiscal year-end ($)
- --------------------------------------------- ---------------------------- -----------------------------
Name Shares Value Exercisable Unexercisable Exercisable Unexercisable
acquired realized
on ($)
exercise(#)
- ------------------- ------------ ------------ ------------ --------------- ------------- ---------------
12,000 240,445 40,000 -- 1,201,486 --
W.T. McCallum
------------ --------------- ------------- ---------------
- ------------------- ------------ ------------ ------------ --------------- ------------- ---------------
-- -- 120,000 -- 3,312,063 --
J.T. Hughes
------------ --------------- ------------- ---------------
- ------------------- ------------ ------------ ------------ --------------- ------------- ---------------
74,600 1,123,970 -- -- -- --
D. Low
------------ --------------- ------------- ---------------
- ------------------- ------------ ------------ ------------ --------------- ------------- ---------------
-- -- -- -- -- --
A.D. MacLennan
------------ --------------- ------------- ---------------
- ------------------- ------------ ------------ ------------ --------------- ------------- ---------------
-- -- 88,000 -- 2,449,038 --
D.L. Wooden
- ------------------- ------------ ------------ ------------ --------------- ------------- ---------------
Commencing April 24,1996, the Named Executive Officers began participating in
the Great-West Lifeco Stock Option Plan. The following table describes all
Lifeco Options exercised in 1997, and all unexercised Lifeco Options held as of
December 31, 1997, by the Named Executive Officers. 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 1/1.43.
- --------------------------------------------- ---------------------------- -----------------------------
Unexercised options at Value of unexercised
fiscal year-end (#) in-the-money options at
fiscal year-end ($)
- --------------------------------------------- ---------------------------- -----------------------------
Name Shares Value Exercisable Unexercisable Exercisable Unexercisable
acquired realized
on ($)
exercise(#)
- ------------------- ------------ ------------ ------------ --------------- ------------- ---------------
-- -- 60,000 540,000 903,941 4,881,489
W.T. McCallum
------------ --------------- ------------- ---------------
- ------------------- ------------ ------------ ------------ --------------- ------------- ---------------
-- -- 16,000 64,000 241,051 964,204
J.T. Hughes
------------ --------------- ------------- ---------------
- ------------------- ------------ ------------ ------------ --------------- ------------- ---------------
-- -- 30,000 170,000 451,970 2,018,836
D. Low
------------ --------------- ------------- ---------------
- ------------------- ------------ ------------ ------------ --------------- ------------- ---------------
-- -- 30,000 170,000 451,970 2,018,836
A.D. MacLennan
------------ --------------- ------------- ---------------
- ------------------- ------------ ------------ ------------ --------------- ------------- ---------------
-- -- 20,000 230,000 301,314 1,838,117
D.L. Wooden
- ------------------- ------------ ------------ ------------ --------------- ------------- ---------------
The following table sets out the pension benefits payable to the Named Executive
Officers by Great-West Life or Great-West.
- -------------------------------------------------------------------------------------------------------
Pension plan
- -------------------------------------------------------------------------------------------------------
- ------------------------- -------------- --------------- --------------- --------------- --------------
Remuneration ($) 15 years of 20 years of 25 years of 30 years of 35 years of
service service service service service
- ------------------------- -------------- --------------- --------------- --------------- --------------
- ------------------------- -------------- --------------- --------------- --------------- --------------
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
- ------------------------- -------------- --------------- --------------- --------------- --------------
</TABLE>
The Named Executive Officers have the following years of service:
- ---------------------------- ----------------------
Name Years of service
- ---------------------------- ----------------------
- ---------------------------- ----------------------
W.T. McCallum 31
- ---------------------------- ----------------------
- ---------------------------- ----------------------
J.T. Hughes 7
- ---------------------------- ----------------------
- ---------------------------- ----------------------
D. Low 32
- ---------------------------- ----------------------
- ---------------------------- ----------------------
A.D. MacLennan 31
- ---------------------------- ----------------------
- ---------------------------- ----------------------
D.L. Wooden 6
- ---------------------------- ----------------------
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 84 months of employment. For J.T. Hughes, D. Low,
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 84 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 Great-West
The following sets out remuneration paid by Great-West to its directors. For
each director of Great-West who is not also a director of Great-West Life,
Great-West pays an annual fee of $15,000, 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 Great-West, for each director of
Great-West who is also a director of Great-West Life, Great-West 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 Executive
compensation is determined by Great-West's Board of Directors. W.T. McCallum,
President and Chief Executive Officer of Great-West, is a member of the Board of
Directors. 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, 1998, the following sets out the beneficial owners of more than
5% of Great-West's voting securities:
100% of Great-West'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.
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.
81.2% of the outstanding common shares of Great-West Lifeco Inc. are controlled
by Power Financial Corporation, 751 Victoria Square, Montreal, Quebec, Canada
H2Y 2J3.
67.7% of the outstanding common shares of Power Financial Corporation are owned
by 171263 Canada Inc., 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3.
100% of the outstanding common shares of 171263 Canada Inc. are owned by
Marquette Communications Corporation, 751 Victoria Square, Montreal, Quebec,
Canada H2Y 2J3.
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.
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.
<PAGE>
Security Ownership of Management
The following table sets out the number of equity securities, and exercisable
options for equity securities, of Great-West or any of its parents or
subsidiaries, beneficially owned, as of March 1, 1998, by (i) the directors of
Great-West; (ii) the Named Executive Officers; and (iii) the directors and
executive officers of Great-West as a group.
<PAGE>
<TABLE>
- ---------------------- ---------------------------------------------------------------------------------
Company
---------------------------------------------------------------------------------
---------------------- ------------------- ---------------- ---------------------
The Great-West Life Great-West Lifeco Power Power Corporation
Assurance Company12 Inc.13 Financial of Canada15
Corporation14
- ---------------------- ---------------------- ------------------- ---------------- ---------------------
Directors
- --------------------------------------------------------------------------------------------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
J. Balog -- -- -- --
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
J. W. Burns 50 56,000 4,000 200,320
101,750 options
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
O.T. Dackow 16 35,881 10,000 options --
100,000 options
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
A. Desmarais 50 20,000 10,800 170,800
306,750 options
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
P. Desmarais, Jr. 50 30,000 -- 306,750 options
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
R.G. Graham -- -- -- --
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
R. Gratton -- 165,000 155,000 2,500
2,160,000 150,000 options
options
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
N.B. Hart -- -- -- --
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
K. P. Kavanagh -- 27,584 -- --
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
W. Mackness -- -- -- --
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
W.T. McCallum 17 35,133 52,000 --
60,000 options
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
J.E.A. Nickerson -- -- -- --
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
P.M. Pitfield -- 45,000 35,000 50,000
121,750 options
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
M. Plessis-Belair -- 10,000 1,000 7,900
21,750 options
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
B.E. Walsh -- -- -- 3,700
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
<PAGE>
- --------------------------------------------------------------------------------------------------------
Named executive officers
- --------------------------------------------------------------------------------------------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
W.T. McCallum 17 35,133 52,000 --
60,000 options
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
J.T. Hughes -- 4,788 120,000 options --
16,000 options
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
D. Low -- 8,266 64,600 --
30,000 options
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
A.D. MacLennan -- 9,502 -- --
30,000 options
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
D.L. Wooden -- 20,000 options 88,000 options --
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
- --------------------------------------------------------------------------------------------------------
Directors and executive officers as a group
- --------------------------------------------------------------------------------------------------------
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
183 470,520 322,400 435,220
353,600 options 2,378,000 1,008,750 options
options
- ---------------------- ----------------------- ----------------- ----------------- ---------------------
</TABLE>
The number of common shares and exercisable options for common shares of Power
Financial Corporation held by R. Gratton represents 1.31% of the total number of
common shares and exercisable options for common shares of Power Financial
Corporation outstanding. The number of common shares and exercisable options for
common shares of Power Financial Corporation held by the directors and executive
officers as a group represents 1.53% of the total number of common shares and
exercisable options for common shares of Power Financial Corporation
outstanding. The number of subordinate voting shares and exercisable options for
subordinate voting shares of Power Corporation of Canada held by the directors
and executive officers as a group represents 1.44% of the total number of
subordinate voting shares and exercisable options for subordinate voting shares
of Power Corporation of Canada outstanding. None of the remaining holdings set
out above exceed 1% of the total number of shares and exercisable.
- ----------------------------
12 All holdings are common shares of The Great-West Life Assurance Company.
13 All holdings are common shares, or where indicated, exercisable options
for common shares, of Great-West Lifeco Inc.
14 All holdings are common shares, or where indicated, exercisable options
for common shares, of Power Financial Corporation.
15 All holdings are subordinate voting shares, or where indicated,
exercisable options for subordinate voting shares, of Power Corporation of
Canada.
<PAGE>
- ------------------------------------------------------------------------------
Voting Rights
In general, you do not have a direct right to vote the Portfolio shares held in
the Series Account. However, under current law, you are entitled to give us
instructions on how to vote the shares. We will vote the shares according to
those instructions at regular and special shareholder meetings. If the law
changes and we can vote the shares in our own right, we may elect to do so.
Before the Annuity Commencement Date, you have the voting interest. The number
of votes available to you will be calculated separately for each of your
Sub-Accounts. That number will be determined by applying your percentage
interest, if any, in a particular Sub-Account to the total number of votes
attributable to that Sub-Account. You hold a voting interest in each Sub-Account
to which your Annuity Account Value is allocated. If you select a variable
annuity option, the votes attributable to your Contract will decrease as annuity
payouts are made.
The number of votes of a Portfolio will be determined as of the date established
by that Portfolio for determining shareholders eligible to vote at the meeting
of the Portfolios. Voting instructions will be solicited by written
communication prior to such meeting in accordance with procedures established by
the respective Portfolios.
If we do not receive timely instructions and Owners have no beneficial interest
in shares held by us, we will vote according to the voting instructions as a
proportion of all Contracts participating in the Sub-Account. If you indicate in
your instructions that you do not wish to vote an item, we will apply your
instructions on a pro rata basis to reduce the votes eligible to be cast.
Each person or entity having a voting interest in a Sub-Account will receive
proxy material, reports and other material relating to the appropriate
Portfolio.
Please note, generally the Portfolios are not required to, and do not intend to,
hold annual or other regular meetings of shareholders.
Contract Owners have no voting rights in Great-West.
- --------------------------------------------------------------------------------
Rights Reserved by Great-West
We reserve the right to make certain changes we feel 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, we will
obtain your approval of the changes and approval from any appropriate regulatory
authority. Approval may not be required in all cases, however.
Examples of the changes we 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 Sub-Account to another Sub-Account, or to one or
more separate accounts, or to a Guarantee Period; or to add, combine or remove
Sub-Accounts of the Series Account.
To substitute, for the Portfolio shares in any Sub-Account, the shares of
another Portfolio 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 us to take, including
changing the way we assess charges, without increasing them for any outstanding
Contract beyond the aggregate amount guaranteed.
- --------------------------------------------------------------------------------
Legal Proceedings
Currently, the Series Account is not a party to, and its assets are not subject
to any material legal proceedings. And, Great-West is not currently a party to,
and its property is not currently subject to, any material legal proceedings.
The lawsuits to which Great-West 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 Great-West.
- -------------------------------------------------------------------------------
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 Boros Cicchetti Berenson & Johnson LLP.
- --------------------------------------------------------------------------------
Experts
The consolidated financial statements of Great-West Life & Annuity Insurance
Company at December 31, 1998 and 1997, and for each of the three years in the
period ended December 31, 1998 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 contained in the
Registration Statement and its exhibits. Additionally, statements in this
Prospectus about the content of the Contract and other legal instruments are
summaries. Please refer to the Registration Statement and its exhibits for
further information. You can review the Registration Statement and its exhibits
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 Great-West, such as:
o general information
o information about Great-West Life & Annuity Insurance Company and the Variable
Annuity-1 Series Account
o the calculation of annuity payouts
o postponement of payouts
o services
o withholding
o calculation of performance data
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
Appendix A--Condensed Financial Information
Selected data for accumulation units
Outstanding through each period ending 12/31/98
<S> <C> <C> <C> <C> <C> <C>
Sub-Account 1998 1997 1996
Alger American Growth
Value at beginning of period $10.24 $10.00
Value at end of period $12.76 $10.24
Number of accumulation units outstanding at end 417,162.09 1,166.64
of period
American Century VP International
Value at beginning of period $10.49 $10.00
Value at end of period $12.35 $10.49
Number of accumulation units outstanding at end 298,156.62 13,399.99
of period
Berger Small Company Growth
Value at beginning of period $10.00
Value at end of period $13.75
Number of accumulation units outstanding at end 124,653.31
of period
Federated American Leaders Fund II
Value at beginning of period $10.42 $10.00
Value at end of period $13.67 $10.42
Number of accumulation units outstanding at end 1,426,437.13 65,888.88
of period
Federated Utility Fund II
Value at beginning of period $10.00
Value at end of period $12.45
Number of accumulation units outstanding at end 168,289.28
of period
Federated Fund for U.S. Government Securities II
Value at beginning of period $9.97 $10.00
Value at end of period $10.71 $9.97
Number of accumulation units outstanding at end 815,966.27 9,330.15
of period
INVESCO VIF - High Yield
Value at beginning of period $10.39 $10.00
Value at end of period $12.09 $10.39
Number of accumulation units outstanding at end 1,360,680.67 52,043.52
of period
INVESCO VIF - Industrial Income
Value at beginning of period $10.44 $10.00
Value at end of period $13.27 $10.44
Number of accumulation units outstanding at end 1,271,028.35 68,873.87
of period
Janus Aspen Growth
Value at beginning of period $10.26 $10.00
Value at end of period $12.49 $10.26
Number of accumulation units outstanding at end 1,335,813.25 93,598.79
of period
Janus Aspen Worldwide Growth
Value at beginning of period $10.42 $10.00
Value at end of period $12.62 $10.42
Number of accumulation units outstanding at end 2,208,663.79 51,892.38
of period
Montgomery Variable Series Growth Fund
Value at beginning of period $10.35 $10.00
Value at end of period $13.20 $10.35
Number of accumulation units outstanding at end 643,624.38 11,226.77
of period
SAFECO RST Equity
Value at beginning of period $10.00
Value at end of period $11.83
Number of accumulation units outstanding at end 357,176.26
of period
Schwab MarketTrack Growth
Value at beginning of period $10.35 $10.00
Value at end of period $12.79 $10.35
Number of accumulation units outstanding at end 284,530.36 16,525.39
of period
Schwab Money Market
Value at beginning of period $10.07 $10.00
Value at end of period $10.49 $10.07
Number of accumulation units outstanding at end 4,114,002.58 297,045.95
of period
Schwab S&P 500
Value at beginning of period $10.52 $10.00
Value at end of period $13.81 $10.52
Number of accumulation units outstanding at end 2,115,859.53 62,674.08
of period
Van Kampen American Capital LIT-Morgan Stanley
Real Estate Securities Portfolio
Value at beginning of period $10.00
Value at end of period $10.56
Number of accumulation units outstanding at end 176,075.27
of period
Condensed financial information for formerly offered
Sub-Accounts Outstanding through each period ending 12/31/98
Sub-Account 1998 1997 1996
Alger American Small-Cap
Value at beginning of period $10.09 $10.00
Value at end of period $11.14 $10.09
Number of accumulation units outstanding at end 337,576.93 4,080.46
of period
American Century VP Capital Appreciation
Value at beginning of period $9.61 $10.00
Value at end of period $9.22 $9.61
Number of accumulation units outstanding at end 82,255.58 30,139.13
of period
INVESCO VIF - Total Return
Value at beginning of period $10.27 $10.00
Value at end of period $12.52 $10.27
Number of accumulation units outstanding at end 996,949.40 3,927.31
of period
Janus Aspen Aggressive Growth
Value at beginning of period $9.89 $10.00
Value at end of period $11.05 $9.89
Number of accumulation units outstanding at end 331,141.90 6,698.73
of period
Lexington Emerging Markets
Value at beginning of period $10.26 $10.00
Value at end of period $9.00 $10.26
Number of accumulation units outstanding at end 309,521.91 18,281.42
of period
SteinRoe Special Venture
Value at beginning of period $10.27 $10.00
Value at end of period $10.98 $10.27
Number of accumulation units outstanding at end 952,879.99 70,715.11
of period
Strong Discovery Fund II
Value at beginning of period $10.44 $10.00
Value at end of period $11.53 $10.44
Number of accumulation units outstanding at end 211,488.12 24,613.07
of period
Van Eck Worldwide Hard Assets
Value at beginning of period $10.31 $10.00
Value at end of period $10.04 $10.31
Number of accumulation units outstanding at end 132,622.35 2,220.85
of period
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------
Appendix B--Market Value Adjustments
The amount available for a full surrender, partial withdrawal or Transfer equals
the amount requested plus the Market Value Adjustment (MVA). The MVA is
calculated by multiplying the amount requested by the Market Value Adjustment
Factor (MVAF).
The MVA formula
The MVA is determined using the following formula:
MVA = (amount applied) X (Market Value Adjustment Factor) The Market Value
Adjustment Factor is:
{[(1 + i)/(1 + j +.10%)] N/12} - 1
Where:
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
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
N is the number of complete months remaining until maturity
The MVA will equal 0 if:
if i and j differ by less than .10%
N is less than 6.
Examples
Following 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 10 years
Period
- -------------------- -------------------------------
- -------------------- -------------------------------
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 10 years
Period
- --------------------- ------------------------------
- --------------------- ------------------------------
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 = {[1.0615/1.051]65/12} - 1 =
.055323
MVA = (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
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 10 years
Period
- --------------------- ------------------------------
- --------------------- ------------------------------
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] is less than .10%, so MVAF = 0
MVA = (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 equals less than 6 months to maturity
- --------------------- ------------------------------
Deposit $25,000 on November 1, 1996
- --------------------- ------------------------------
- --------------------- ------------------------------
Maturity date December 31, 2005
- --------------------- ------------------------------
- --------------------- ------------------------------
Interest Guarantee 10 years
Period
- --------------------- ------------------------------
- --------------------- ------------------------------
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 is less than 6, so MVAF = 0
MVA = (amount transferred or surrendered) x MVAF
= $10,000 x 0
= $0
Surrender Value = (amount transferred or surrendered + MVA)
= ($10,000 + $0)
= $10,000
<PAGE>
- ---------------------------------------------------------------------------
<PAGE>
Appendix C--Net Investment Factor
The Net Investment Factor is determined by dividing (a) by (b), and subtracting
(c) from the result where:
(a) is the net result of:
1) the net asset value per share of the Portfolio shares determined as of the
end of the current Valuation Period, plus
2) the per share amount of any dividend (or, if applicable, capital gain
distributions) made by the Portfolio on shares if the "ex-dividend" date
occurs during the current Valuation Period, minus or plus
3) a per unit charge or credit for any taxes incurred by or provided for in
the Sub-Account, which is determined by GWL&A to have resulted from the
investment operations of the Sub-Account, and
(b) is the net asset value per share of the Portfolio shares determined as of
the end of the immediately preceding Valuation Period, and
(c) is an amount representing the Risk Charge deducted from each Sub-Account on
a daily basis. Such amount is equal to 0.85%.
The Net Investment Factor may be greater than, less than, or equal to one.
Therefore, the Accumulation Unit Value may increase, decrease or remain
unchanged.
The net asset value per share referred to in paragraphs (a)(1) and (b) above,
reflect the investment performance of the Portfolio as well as the payment of
Portfolio expenses.
- --------------------------------------------------------------------------------
<PAGE>
Consolidated Financial Statements and Independent Auditor's Report
On the following pages, you'll find the consolidated financial statement and the
independent auditor's report for Great-West Life & Annuity Insurance Company for
the years ending December 1998, 1997 and 1996.
- --------------------------------------------------------------------------------
<PAGE>
Back Cover
The Securities and Exchange Commission maintains an Internet web site
(http://www.sec.gov) that contains additional information about Great-West Life
& Annuity Insurance Company, the Contract and the Series Account which may be of
interest to you. The web site also contains additional information about the
Portfolios.
<PAGE>
The Schwab Variable Annuity(R)
A flexible premium deferred fixed and variable annuity
Distributed by
Charles Schwab & Co., Inc.
---------------------------------------------
Issued by
Great-West Life & Annuity Insurance Company
Prospectus Supplement dated May 1, 1999
to the Prospectus dated May 1, 1999
This Prospectus supplement describes eight (8) Portfolios that will be closed to
Contributions and Transfers effective May 1, 1999 (the "Deleted Portfolios").
Variable Account Value that you have allocated to the Sub-Accounts corresponding
to the Deleted Portfolios may remain allocated to those Sub-Accounts pending
further developments or your Request to Transfer to other available
Sub-Accounts.
Any Contract owner attempting to make Contributions or effect Transfers,
including those utilizing a custom transfer feature: Dollar Cost Averaging or
Rebalancer Option, involving the Deleted Portfolios should contact the Schwab
Insurance & Annuity Service Center at 1-800-838-0650 or P.O. Box 7666, San
Francisco, California 94120-7666 immediately to make alternate arrangements. If
you fail to make alternate arrangements, Schwab will try to contact you
immediately to request alternative allocation instructions. If Schwab is unable
to contact you immediately, Contributions allocated to the Deleted Portfolios
will be returned to you with a request that you provide alternate allocation
instructions and Transfer Requests, including those utilizing a customer
transfer feature, will not be processed.
Following is a description of the each of the Deleted Portfolios:
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.
American Century VP Capital Appreciation Portfolio
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.
INVESCO VIF - Total Return Portfolio
Seeks a high total return on investment through capital appreciation and current
income 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.
Janus Aspen Series Aggressive Growth Portfolio
Seeks long-term growth of capital in a manner consistent with the preservation
of capital by investing at least 50% of its equity assets in securities issued
by medium-sized companies.
(continued on page 2)
<PAGE>
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.
SteinRoe Variable Investment Trust Special Venture 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.
Seeks capital growth by investing primarily in equity securities, although it
has the flexibility to invest in debt obligations and short-term fixed-income
securities.
Van Eck Worldwide Insurance Trust: Van Eck Worldwide Hard Assets Fund Seeks
long-term capital appreciation by investing in hard asset securities, such as
commodities or securities of firms involved to a significant extent (directly or
indirectly) primarily in the following areas: precious metals, ferrous and
non-ferrous metals, energy, forest products, real estate, and other
non-agricultural commodities.
<PAGE>
Portfolio Annual Expenses1
(as a percentage of Portfolio net assets)
<TABLE>
Management Other Total
<S> <C> <C>
Portfolio Fees Expenses 12b-1 Fees Expenses
Alger American Small Capitalization
American Century VP Capital
Appreciation
INVESCO-VIF Total Return
Janus Aspen Series Aggressive Growth
Lexington Emerging Markets
SteinRoe Special Venture
Strong Discovery Fund II
Van Eck Worldwide Hard Assets
Examples ++++
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% return on assets. These examples assume that no
Premium Taxes have been assessed.
Portfolio 1 year 3 years 5 years 10 years
Alger American Small Capitalization
American Century VP Capital
Appreciation
INVESCO-VIF Total Return
Janus Aspen Series Aggressive Growth
Lexington Emerging Markets
SteinRoe Special Venture
Strong Discovery Fund II
Van Eck Worldwide Hard Assets
</TABLE>
++++ The Portfolio Annual Expenses and these examples are based on data
provided by the Portfolios. We have no reason to doubt the accuracy or
completeness of that data, but we have not verified the Portfolios'
figures. In preparing the Expense and Examples tables, above, We have
relied on the figures provided by the Portfolios.
- -------------------------------------------------------------------------------
<PAGE>
Performance Data
From time to time, we may advertise average annual total returns for the
Sub-Accounts. These figures will be based on historical information and are not
intended to indicate future performance.
The table on the following page reflects standardized and non-standardized
average annual total return for one-, three-, five- and ten-year periods (or
since inception, as appropriate) ended December 31, 1998 for the Deleted
Portfolios. Average annual total return quotations represent the average annual
compounded rate of return that would equate an initial investment of $1,000 to
the redemption value of that investment (excluding Premium Taxes, if any) as of
the last day of each of the periods for which total return quotations are
provided.
Both the standardized and non-standardized data reflect the deduction of all
fees and charges under the Contract. The standardized data is calculated from
the inception date of the Sub-Account and the non-standardized data is
calculated for periods preceding the inception date of the Sub-Account. Such
data will be provided when it becomes available. For additional information
regarding yields and total returns calculated using the standard formats briefly
described herein, please refer to the Statement of Additional Information.
Performance information and calculations for any Sub-Account are based only on
the performance of a hypothetical Contract under which the Annuity Account Value
is allocated to an Sub-Account during a particular time period. Performance
information should be considered in light of the investment objectives and
policies and characteristics of the Portfolios in which the Sub-Account invests
and the market conditions during the given time period. It 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:
o the ranking of any Sub-Account 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 people who rank separate accounts
or other investment products on overall performance or other criteria, and
o 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, yield and standard total returns for the Sub-Accounts.
We may also advertise performance figures for the Sub-Accounts based on the
performance of a Portfolio 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.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Sub-Account 1 year 3 years 5 years 10 years Since Inception Since Inception
Inception of Date of Inception of Date of
Sub-Account Sub-Account Portfolio Portfolio
Alger American Small Capitalization 11/1/96 9/21/88
<PAGE>
American Century VP Capital Appreciation 11/1/96 11/20/87
INVESCO VIF-Total Return 11/1/96 6/2/94
Janus Aspen Aggressive Growth 11/1/96 9/13/93
Lexington Emerging Markets 11/1/96 3/30/94
SteinRoe Special Venture 11/1/96 1/3/89
Strong Discovery Fund II 11/1/96 5/8/92
Van Eck Worldwide Hard Assets 11/1/96 9/1/89
</TABLE>
<PAGE>
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 May 1, 1999, which is
available without charge by contacting the Schwab Insurance & Annuity Service
Center, P.O. Box 7666, San Francisco, California 94120-9420 or at
1-800-838-0650.
May 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
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-5
WITHHOLDING................................................................................B-5
CALCULATION OF PERFORMANCE DATA............................................................B-6
FINANCIAL STATEMENTS.......................................................................B-7
</TABLE>
<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, U.S. Virgin Islands, Guam, the District of Columbia
and all states except New York. The Company is an indirect 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 99.6% by Great-West Lifeco Inc., a holding company.
Great-West Lifeco Inc. is owned 81.2% 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 Sub-Account may not be insulated
from liability associated with another Sub-Account
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.
B. Variable Annuity Options
To the extent a variable annuity option has been selected, the
Company converts the Accumulation Units for each of Sub-Account held by you into
Annuity Units 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 Sub-Account is determined by dividing the amount of the first monthly
payment by the 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 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 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 Sub-Accounts. The
subsequent amount paid is determined by multiplying (a) by (b) where (a) is the
number of Annuity Units to be paid and (b) is the 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 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 Insurance & 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 $50
million (Canadian), 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,
1998, 1997 and 1996 for each of the three years in the period ended December 31,
1998, included in the prospectus and the financial statements of Variable
Annuity-1 Series Account at December 31, 1998, 1997 and 1996 included in this
Statement of Additional Information 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 Sub-Account
The yield quotation for the Money Market Sub-Account 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 Sub-Account 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 Sub-Account 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 Sub-Account 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 Sub-Account'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
Sub-Account and the Fund are excluded from the calculation of yield.
B. Total Return and Yield Quotations for All Sub-Accounts (Other than Money
Market)
The total return quotations for all Sub-Accounts, 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 Sub-Accounts, 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 Sub-Accounts' mean account size. The calculations
also assume a complete redemption as of the end of the particular period.
The yield quotations for these Sub-Accounts set forth in the Prospectus
are based on the thirty-day period ended on December 31, 1998, 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]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Where: a = net investment income earned during the period by the
corresponding portfolio of the Fund attributable to shares
owned by the Sub-Account.
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.
</TABLE>
For purposes of the yield quotations for these Sub-Accounts, 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 Sub-Accounts' 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 variable interest of
Contract Owners under the Contracts are affected solely by the investment
results of the Series Account.
<PAGE>
VARIABLE ANNUITY-1 SERIES ACCOUNT
Financial Statements
<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, 1998, 1997, and 1996 are to be filed by
amendment. The financial statements for Variable Annuity-1 Series
Account are to be filed by amendment.
(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 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 Registrant's Post-Effective Amendment No. 2.
(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 Boros Cicchetti Berenson &
Johnson LLP to be filed by amendment.
(b) Written Consent of Deloitte & Touche LLP to be filed by
amendment.
(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.
Item 25. Directors and Officers of the Depositor
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Name Principal Business Address Position and Offices
with Depositor
James Balog 2205 North Southwinds Boulevard Director
Vero Beach, Florida 32963
James W. Burns, O.C. (4) Director
Orest T. Dackow (3) Director
Andre Desmarais (4) 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. Nickerson H.B. Nickerson & Sons Limited Director
P.O. Box 130
265 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
Brian E. Walsh Veritas Capital Management, LLC
115 East Putnam Avenue
Greenwich, Connecticut 06830
John A. Brown (3) Senior Vice-President,
Sales, Financial Services
Donna A. Goldin (2) Executive Vice-President
and Chief Operating
Officer, One Corporation
Mitchell T.G. Graye (3) Executive Vice-President,
Chief Financial Officer
John T. Hughes (3) Senior Vice-President,
Chief Investment Officer
D. Craig Lennox (3) Senior Vice-President,
General Counsel and
Secretary
<PAGE>
Steven H. Miller (2) Senior Vice President,
Employee Benefits, Sales
James D. Motz (2) Executive Vice-President,
Employee Benefits
Charles P. Nelson (3) Senior Vice-President,
Public Non-Profit Markets
Martin L. Rosenbaum (2) Senior Vice-President,
Employee Benefits Operations
Gregory E. Seller (3) Senior Vice-President,
Major Accounts
Robert K. Shaw (3) Senior Vice-President,
Individual Markets
Douglas L. Wooden (3) Executive 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.
</TABLE>
Item 26. Persons controlled by or under common control with the Depositor or
Registrant
See Page C-4.
Item 27. Number of Contractowners
As of March 31, 1999, there were____ Contractowners.
<PAGE>
<TABLE>
ORGANIZATIONAL CHART
<S> <C> <C> <C> <C> <C> <C>
Power Corporation of Canada
100% - 2795957 Canada Inc.
100% - 171263 Canada Inc.
67.7% - Power Financial Corporation
81.2% - Great-West Lifeco Inc.
99.6% - The Great-West Life Assurance Company
100% - Great-West Life & Annuity Insurance Company
100% - Anthem Health & Life Insurance Company
100% - First Great-West Life & Annuity Insurance Company
100% - GW Capital Management, LLC
100% - Orchard Capital Management, LLC
100% - Greenwood Investments, 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 Health Plan of Ohio, Inc.
100% - One Health Plan of Tennessee, Inc.
100% - One Health Plan of Oregon, Inc.
100% - One Health Plan of Florida, Inc.
100% - One Health Plan of Indiana, Inc.
100% - One Health Plan of Massachusetts, Inc.
100% - One Health Plan of Michigan, Inc.
100% - One Health Plan of Minnesota, Inc.
100% - One Health Plan of New York, Inc.
100% - One Health Plan, Inc.
100% - One Health Plan of Alaska, Inc.
100% - One Health Plan of Arizona, Inc.
100% - One of Arizona, Inc.
100% - One Health Plan of Maine, Inc.
100% - One Health Plan of Nevada, Inc.
100% - One Health Plan of New Hampshire, Inc.
100% - One Health Plan of New Jersey, Inc.
100% - One Health Plan of South Carolina, Inc.
100% - One Health Plan of Wisconsin, Inc.
100% - One Health Plan of Wyoming, Inc.
100% - One Orchard Equities, Inc.
100% - Great-West Benefit Services, Inc.
100% - Benefits Communication Corporation
100% - BenefitsCorp Equities, Inc.
100% - Greenwood Property Corporation
95% - Maxim Series Fund,
Inc.* 100% - GWL Properties Inc.
100% - Great-West Realty Investments, Inc.
50% - Westkin Properties Ltd.
92%**- Orchard Series Fund
100% - Orchard Trust Company
* 5% New England Life Insurance Company
** 8% New England Life Insurance Company
</TABLE>
<PAGE>
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.
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
<TABLE>
Position and Offices
<S> <C> <C> <C> <C> <C> <C>
Name Principal Business Address with Underwriter
Charles R. Schwab (1) Chairman
David S. Pottruck (1) Chief Executive Officer
Linnet F. Deily (1) President - Schwab Retail Group
Steven L. Scheid (1) Enterprise President - Financial
Products and Services and Chief Financial Officer
Daniel O. Leemon (1) Executive Vice President and Chief
Strategy Officer
Dawn G. Lepore (1) Executive Vice President and Chief
Information Officer
Luis E. Valencia (1) Executive Vice President -
International and Chief
Administrative Officer
Elizabeth Sawi (1) Executive Vice President
Karen W. Chang (1) Enterprise President - General
Investor Services
John P. Coghlan (1) Enterprise President - Retirement Plan
Services and
Services for Investment Managers
Wayne W. Fieldsa (1) Enterprise President - Brokerage
Operations
Lon Gorman (1) Enterprise President - Capital Markets
and Trading
Susanne D. Lyons (1) Enterprise President - Retail Investor
Specialized
Services
Gideon Sasson (1) Enterprise President - Brokerage
Operations
Christopher V. Dodds (1) Executive Vice President - Finance
James M. Hackley (1) Executive Vice President and Head of
Branches
Frederick E. Matteson (1) Executive Vice President - Schwab
Technology Services
John P. McGonigle (1) Executive Vice President - Third Party
Funds
William J. Klipp (1) Executive Vice President - SchwabFunds
Geoffrey Penney (1) Executive Vice President - Financial
Products
International Technology
George Rich (1) Executive Vice President - Human
Resources
Leonard Short (1) Executive Vice President -
CRS
Advertising and Brand
Management
Carrie Dwyer (1) Executive Vice President -
Corporate
Oversight and Corporate
Secretary
Parkash P. Ahuja (1) Senior Vice President - Administrative
Services
Michael J. Alexander (1) Senior Vice President - Trading
Operations
Robert J. Almeida (1) Senior Vice President - Internal Audit
Department
Rhet L. Andrews (1) Senior Vice President - Schwab
Institutional
Trading and Operations
Rochelle A. Bays (1) Senior Vice President - Exchange
Trading and Support
Services
Michael Bentivoglio (1) Senior Vice President - Planning,
Reporting and
Taxation
Michelle B. Blieberg (1) Senior Vice President - Schwab
University, Employee Relations and Policy Consulting
W. Hardy Callcott (1) Senior Vice President and General
Counsel
Ron Carter (1) Senior Vice President - Mutual Fund
Operations
Sally L. Chester (1) Senior Vice President - Retail
Operations and
Processing
Bernard J. Clark (1) Senior Vice President - Trading &
Operations
Dennis P. Clark (1) Senior Vice President - Fund Relations
Reid P. Conklin (1) Senior Vice President - Southeast
Group Manager
John Danton, Jr. (1) Senior Vice President - Retail
Financial Planning
Martha J. Deevy (1) Senior Vice President -Electronic
Brokerage,
Business Development and Marketing
Neil T. Dellacava (1) Senior Vice President - Administrative
Strategy
and Operations
Evelyn S. Dilsaver (1) Senior Vice President
Sidney J. Dorr (1) Senior Vice President - Capital
Markets & Trading
Katherine B. Dundale (1) Senior Vice President - Service Center
Robert S. Duste (1) Senior Vice President - International
Technology
Stephen W. Eckels (1) Senior Vice President - Brand
Development &
Communications
Robert C. Errico (1) Senior Vice President -
Capital Markets
Oversight
James R. Freeman (1) Senior Vice President - Risk Management
and Investigations
Kirsten E. Garen (1) Senior Vice President - Enterprise
Technology
Edward V. Garlich, Jr. (1) Senior Vice President - Schwab Research
Elizabeth W. Graves (1) Senior Vice President - SIM Marketing
Gerald J. Graves (1) Senior Vice President - Manager SIM
Sales
Edward A. Greene (1) Senior Vice President - Services to
Institutions
Therese M. Haberle (1) Senior Vice President and Chief
Compliance Officer
Edward D. Hall (1) Senior Vice President - Production
Services
Gerry L. Hansen (1) Senior Vice President
Jan K. Hier (1) Senior Vice President - Schwab
Institutional
Technology
Jacqueline B. Hipps (1) Senior Vice President - Risk and Credit
Services
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
Manager
Fred Krieger (1) Senior Vice President - Global Compliance
J William J. Klipp (1) Executive Vice President - SchwabFunds
John P. Ladensack (1) Senior Vice President - Fixed Income
Gloria J. Lau (1) Senior Vice President - Schwab
International
Stanley D. Lauchner (1) Senior Vice President - Securities
Processing and
Custody Services
Thomas N. Lawrie (1) Senior Vice President - Electronic Brokerage
Robyn F. Leonard (1) Senior Vice President - Brokerage Operations and
Consumer
Product Technology
Albert W. Lietz (1) Senior Vice President - Branch Network
James G. Losi (1) Senior Vice President - Community Relations
Jeffrey M. Lyons (1) Senior Vice President - Mutual Funds
Marketing
Elinor Mackinnon (1) Senior Vice President - Y2K Project
Joseph R. Martinetto (1) Senior Vice President and Treasurer
James S. McCaffrey (1) Senior Vice President - Enterprise
Controller
Benjamin McMahan (1) Senior Vice President - Service Center
Gregory J. Miller (1) Senior Vice President - RISS, Head of
Trading
Jamie Moldafsky (1) Senior Vice President - Segment
Marketing
Roger G. Neaves (1) Senior Vice President - Y2K Project
Earlene Perry (1) Senior Vice President - Y2K Project
Bradley J. Peterson (1) Senior Vice President - Retail
Technology
Mark A. Phillips (1) Senior Vice President - Branch Network
Hugo W. Quackenbush (1) Senior Vice President - Corporate
Communications
Edward M. Rodden (1) Senior Vice President - Affluent
Customer Enterprise
Katherine B. Rohrbach (1) Senior Vice President - Corporate
Communications
Myra J. Rothfeld (1) Senior Vice President - Customer
Development and
Retention
Louise J. Rothman (1) Senior Vice President -
Compensation & Benefit
Andrew M. Salesky (1) Senior Vice President - Retail Sales
Strategy
Pierre V. Samec (1) Senior Vice President - Retail
Technology
Kathryn R. Sederholm (1) Senior Vice President - Branch Network
Richardo Segura (1) Senior Vice President - Enterprise
Controller
David W. Shaver (1) Senior Vice President - Marketing
Arthur V. Shaw (1) Senior Vice President - Electronic
Brokerage
Betsy C. Snow (1) Senior Vice President - SITE Operations
Maurisa Sommerfield (1) Senior Vice President - Affluent
Customer Segment
Paul Schott Stevens (1) Senior Vice President and Chief
Counsel -
Mutual Funds
Ray Straka (1) Senior Vice President - Finance and
Corporate
Administration Technology Support
Alan B. Stevenson (1) Senior Vice President - Tax
William C. Struyk (1) Senior Vice President - International
Compliance
Michelle M. Swenson (1) Senior Vice President - Mutual Funds
Marketing and
Development
Mark C. Thompson (1) Senior Vice President - Consumer
Education
Lisa K. Villarreal (1) Senior Vice President - Data and
Access Systems
Daniel J. Voet (1) Senior Vice President and Enterprise
Controller
William A. Wells (1) Senior Vice President - SITE Finance &
Planning
Patricia M. Wuthrich (1) Senior Vice President - Human Resources
Lawrence Yu (1) Senior Vice President - Asia Pacific
Services
Eddie L. Zeitler (1) Senior Vice President - Information
Security
Philip L. Zimmerman (1) Senior Vice President - Risk and
Credit Management
</TABLE>
--------------------------------------
(1) 101 Montgomery, San Francisco, California 94104.
(c) Commissions and other compensation received by Principal
Underwriter during registrant's last fiscal year:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net
Name of Underwriting Compensation
Principal Discounts and on Brokerage
Underwriter Commissions Redemption Commissions Compensation
Schwab -0- -0- -0- -0-
</TABLE>
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 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. 3 to the Registration Statement on Form N-4 to be
signed on its behalf, in the City of Englewood, State of Colorado, on this 1st
day of March, 1999.
VARIABLE ANNUITY-1 SERIES ACCOUNT
(Registrant)
By: /s/ William 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/ William 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/ Robert Gratton* March 1 , 1999
- -------------------------------------- ----------
Director and Chairman of the
Board (Robert Gratton)
/s/ William T. McCallum March 1 , 1999
- -------------------------------------- ----------
Director, President and Chief Executive
Officer (William T. McCallum)
<PAGE>
Signature and Title Date
/s/ M.T.G. Graye March 1 , 1999
- ------------------------------------- ---------
Senior Vice President, Chief
Financial Officer(M.T.G. Graye)
/s/ James Balog* March 1 , 1999
- -------------------------------------- ---------
Director, (James Balog)
/s/ James W. Burns* March 1 , 1999
- -------------------------------------- ---------
Director, (James W. Burns)
/s/ Orest T. Dackow* March 1 , 1999
- -------------------------------------- ---------
Director (Orest T. Dackow)
- -------------------------------------- , 1999
Director (Andre Desmarais)
/s/ Paul Desmarais, Jr.* March 1 , 1999
- -------------------------------------- ---------
Director (Paul Desmarais, Jr.)
/s/ Robert G. Graham* March 1 , 1999
- -------------------------------------- ---------
Director (Robert G. Graham)
/s/ N. Berne Hart* March 1 , 1999
- -------------------------------------- ---------
Director (N. Berne Hart)
/s/ Kevin P. Kavanagh* March 1 , 1999
- -------------------------------------- ---------
Director (Kevin P. Kavanagh)
<PAGE>
Signature and Title Date
/s/ William Mackness* March 1 , 1999
- -------------------------------------- ---------
Director (William Mackness)
/s/ Jerry E.A. Nickerson* March 1 , 1999
- -------------------------------------- ---------
Director (Jerry E.A. Nickerson)
/s/ P.M. Pitfield* March 1 , 1999
- -------------------------------------- ---------
Director (P. Michael Pitfield)
/s/ Michel Plessis-Belair March 1 , 1999
- -------------------------------------------- ---------
Director (Michel Plessis-Belair)
/s/ Brian E. Walsh* March 1 , 1999
- ----------------------------------------- ---------
Director (Brian E. Walsh)
*By: /s/ D.C. Lennox March 1 , 1999
D. C. Lennox
Attorney-in-fact pursuant to Powers of Attorney filed with the Registration
Statement and Pre-Effective Amendment No. 1 thereto.
