<PAGE>
Registration 333-25269
Filed Pursuant to
Rule 424(b)(3)
THE SCHWAB VARIABLE ANNUITY(TM)
A FLEXIBLE PREMIUM DEFERRED FIXED AND
VARIABLE ANNUITY
Distributed by
CHARLES SCHWAB & CO., INC.
---------------------------------------------
Issued by
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
This prospectus describes interests under a flexible premium
deferred annuity contract, The Schwab Variable Annuity
(the "Contract"). The Contract is issued on a group basis by
First Great-West Life & Annuity Assurance Company (the
"Company"). Participation in the Contract will be accounted
for by the issuance of a certificate showing your interest
under the Contract. Your certificate is also hereafter
referred to as the "Contract."
Your investment in the Contract may be allocated among
twenty-four Investment Divisions of the Variable Annuity-1
Series Account ("Series Account") and the available
Guarantee Periods under the Guarantee Period Fund. The
Investment Divisions invest in various underlying funds
(open-end investment companies) offered by fund families
such as Federated, INVESCO, Janus, Lexington, Berger,
Alger, Schwab Funds, Stein Roe, Strong, Montgomery, American
Century, SAFECO and Van Eck. You also have the option of
allocating some or all of your investment in the Contract
to the Guarantee Period Fund which allows you to select
one or more Guarantee Periods, each of which offers you a
specified interest rate for a specified period. There may
be a market value adjustment on the amounts withdrawn
from the Guarantee Period Fund.
The minimum initial investment is $5,000 ($2,000 if an
IRA) or $1,000 if made under an Automatic Contribution
Plan ("ACP"). The minimum subsequent Contribution is $500
(or $100 per month if made under an ACP).
There are no sales charges, redemption, surrender or
withdrawal charges. The Contract provides a Free Look
Period of 10 days from your receipt of the Contract, during
which time you may cancel your investment in the Contract.
During the Free Look Period, all Contributions allocated
<PAGE>
to an Investment Division will be allocated first to
the Schwab Money Market Investment Division and will
remain there until the next Transaction Date following the
end of the Free Look Period. Contributions to the
Guarantee Period Fund will be allocated immediately into the
specified Guarantee Period(s).
Your Variable Account Value will increase or decrease based
on the investment performance of the options you select. You
bear the entire investment risk under the Contract prior
to the annuity commencement date for all amounts in your
Variable Sub-Accounts. While there is a guaranteed death
benefit, there is no guaranteed or minimum Variable Account
Value on amounts allocated to Investment Divisions.
Therefore, the Annuity Account Value you receive could be
less than the total amount of your Contributions.
Amounts allocated to the Guarantee Period Fund may be
subject to a Market Value Adjustment which could result
in receipt of less than your Contributions if you
surrender, Transfer, make a partial withdrawal or apply
amounts to purchase an annuity before a Guarantee Period
Maturity Date. Whether such a result actually occurs
depends on the timing of the transaction, the amount of the
Market Value Adjustment and the interest rate credited.
The interest rate in subsequent Guarantee Periods may be
more or less than the rate of a previous Guarantee Period.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. NO
PERSON IS AUTHORIZED BY THE COMPANY TO GIVE INFORMATION OR
TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THE OFFERS CONTAINED
IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY
NOT LAWFULLY BE MADE. PLEASE READ THIS PROSPECTUS AND KEEP
IT FOR FUTURE REFERENCE.
Prospectus Dated July 7, 1997
The Contracts are not deposits of, or guaranteed or endorsed
by any bank, nor are the Contracts federally insured by
the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. The
Contracts involve certain investment risks, including possible
loss of principal.
To Place Orders and for Account Information: Contact the
Schwab Annuity Service Center at 800-838-0649 or P.O. Box
7806, San Francisco, California 94120-9327.
<PAGE>
About This Prospectus: This Prospectus concisely presents
important information you should have before investing in
the Contract. Please read it carefully and retain it for
future reference. You can find more detailed information
pertaining to the Contract in the Statement of
Additional Information dated July 7, 1997, (as may be
amended from time to time), and filed with the Securities
and Exchange Commission. The Statement of Additional
Information is incorporated by reference into this
Prospectus, and may be obtained without charge by
contacting the Schwab Annuity Service Center at
800-838-0649 or P.O. Box 7806 San Francisco, California
94120-9327.
<PAGE>
TABLE OF CONTENTS
Page
DEFINITIONS .....................................
KEY FEATURES OF THE ANNUITY......................
FIRST GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY AND THE SERIES ACCOUNT........
THE ELIGIBLE FUNDS...............................
THE GUARANTEE PERIOD FUND.......................
THE MARKET VALUE ADJUSTMENT......................
APPLICATION AND CONTRIBUTIONS....................
ANNUITY ACCOUNT VALUE............................
TRANSFERS........................................
CASH WITHDRAWALS.................................
TELEPHONE TRANSACTIONS..........................
DEATH BENEFIT...................................
CHARGES AND DEDUCTIONS...........................
PAYMENT OPTIONS.................................
FEDERAL TAX MATTERS..............................
ASSIGNMENTS OR PLEDGES...........................
PERFORMANCE DATA.................................
DISTRIBUTION OF THE CONTRACTS....................
SELECTED FINANCIAL DATA..........................
VOTING RIGHTS...................................
RIGHTS RESERVED BY THE COMPANY...................
LEGAL PROCEEDINGS................................
LEGAL MATTERS....................................
EXPERTS..........................................
AVAILABLE INFORMATION...........................
EXHIBITS.........................................
FINANCIAL STATEMENTS ...........................
F-1..............................................
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING
IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE. NO DEALER, SALESPERSON, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
ON.
The Contract is not available in all states.
<PAGE>
-----------------------------------------------
DEFINITIONS
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Accumulation Period - The period between the Effective
Date and the Payment Commencement Date.
Annuitant - The person named in the application upon whose
life the payment of an annuity is based and who will
receive annuity payments. If a Contingent Annuitant is
named, then the Annuitant will be considered the Primary
Annuitant. While the Annuitant is living and at least
30 days prior to the annuity commencement date, the Owner
may, by Request, change the Annuitant.
Annuity Account - An account established by the Company in
the name of the Owner that reflects all account activity
under this Contract.
Annuity Account Value - The sum of the Variable and
Fixed Sub-Accounts credited to the Owner under the Annuity
Account; less Transfers, partial withdrawals, amounts
applied to an annuity option, periodic withdrawals,
charges deducted under the Contract and, less Premium Tax,
if any.
Annuity Payment Period - The period beginning on the
annuity commencement date and continuing until all annuity
payments have been made under the Contract.
Annuity Unit - An accounting measure used to determine the
dollar value of any variable annuity payment after the first
annuity payment is made.
Automatic Contribution Plan ("ACP") - A plan which
allows for automatic periodic Contributions. The
Contribution amount will be withdrawn from a designated
pre-authorized account and automatically credited to the
Annuity Account.
Beneficiary - The person(s) designated by the Owner,
in the application, or as subsequently changed by the
Owner by Request, to receive any death benefit which may
become payable under the terms of the Contract. If the
surviving spouse of an Owner is the surviving Joint Owner,
the surviving spouse will become the Beneficiary upon such
Owner's death and may elect to take the death benefit, if
any, or elect to continue the Contract in force. Company -
First Great-West Life & Annuity Insurance Company, the
issuer of this annuity, located at 125 Wolf Road, Suite 110,
Albany, New York 12205.
<PAGE>
Contingent Annuitant - The person named in the application,
unless later changed by the Owner by Request while the
Annuitant is alive and before annuity payments have
commenced, who becomes the Annuitant when the Primary
Annuitant dies. No new Contingent Annuitant may be
designated after the death of the Primary Annuitant.
Contractual Guarantee of a Minimum Rate of Interest - The
minimum interest rate applicable to each Fixed Sub-Account
equal to an annual effective rate in effect at the time
the Contribution is made and as reflected in written
confirmation of the Contribution. This is the minimum rate
allowed by law and is subject to change in accordance with
changes in applicable law. Under current law, the
minimum rate is 3%.
Contributions - Purchase amounts received under the Contract
and allocated to the Fixed or Variable Sub-Account(s)
prior to any Premium Tax or other deductions.
Effective Date - The date on which the first
Contribution is credited to the Annuity Account.
Eligible Fund - A registered management investment
company, or portfolio thereof, in which the assets of the
Series Account may be invested.
Fixed Sub-Accounts - The subdivision(s)of the Owner's Annuity
Account reflecting the value of Contributions made to a
fixed interest investment option available under the Contract
and any Fixed Sub-Account Riders.
Guarantee Period - One of the time intervals available in
the Guarantee Period Fund during which the Company will
credit a stated rate of interest.
The Company may stop offering any time interval at any
time for new Contributions. Amounts allocated to one or
more Guaranteed Periods may be subject to a Market Value
Adjustment.
Guarantee Period Fund - A Fixed Sub-Account in which
amounts allocated will be credited a stated rate of
interest for the applicable Guarantee Period(s).
Guarantee Period Maturity Date - The last day of any
Guarantee Period.
Individual Retirement Annuity (IRA) - An annuity contract
used in a retirement savings program that is intended to
satisfy the requirements of Section 408 of the Internal
Revenue Code of 1986, as amended.
Investment Division - A division of the Series Account
containing the shares of an Eligible Fund. There is an
Investment Division for each Eligible Fund.
<PAGE>
Market Value Adjustment - An adjustment which may be made to
amounts paid out before the Guarantee Period Maturity Date
due to surrenders, partial withdrawals, Transfers, and
amounts applied to the periodic withdrawal option or to
purchase an annuity, as applicable. The Market Value
Adjustment may increase or decrease the amount payable on one
of the above-described distributions. A negative adjustment
may result in an effective interest rate lower than the
applicable Contractual Guarantee of a Minimum Rate of
Interest and the value of the Contribution(s) allocated to
the Guarantee Period being less than the Contribution(s)
made. The Market Value Adjustment is detailed on
page ---.
Net Investment Factor - The Net Investment Factor for each
Variable Sub-Account for any valuation date is
determined by dividing (a) by (b), and subtracting (c)
from the result where: (a) is the net result of (i)
the net asset value per share of underlying fund shares
determined as of the end of the current valuation period,
plus (ii) the per share amount of any dividend (or capital
gain, if applicable) if the "ex-dividend" date occurs
during the current valuation period, minus or plus (iii) a
per unit charge or credit for any taxes incurred by or
provided for in the Variable Sub-Account, which is
determined by First GWL&A to have resulted from the
investment operations of the Variable Sub-Account; and
(b) is the net result of (i) the net asset value per share of
the underlying fund determined as of the end of the
immediately preceding valuation period, minus or plus (ii)
the per unit charge or credit for any taxes incurred by or
provided for in the Variable Sub- Account; and (c) the
mortality risk charge of 0.85%.
Non-Qualified Annuity Contract - An annuity contract which is
not intended to be part of a qualified retirement plan and is
not intended to satisfy the requirements of Section 408 of the
Internal Revenue Code of 1986, as amended.
Owner (Joint Owner) or You - The person(s), while the
Annuitant is living, named in the Contract Data Page who is
entitled to exercise all rights and privileges under the
Contract. Joint Owners must be husband and wife as of the date
the Contract is issued. The Annuitant will be the Owner unless
otherwise indicated in the application. If a Contract is
purchased as an IRA, the Owner and the Annuitant must be the
same individual and no Joint Owner may be named. Any reference
to Owner in the singular tense shall include the plural, and
vice versa, as applicable.
Payment Commencement Date - The date on which annuity payments
or periodic withdrawals commence under a payment option. The
Payment Commencement Date must be at least one year after the
<PAGE>
Effective Date of the Contract. If a Payment Commencement Date
is not shown on the Contract Data Page, annuity payments will
commence on the first day of the month of the Annuitant's 90th
birthday. The Payment Commencement Date may be changed by the
Owner within 60 days prior to commencement of annuity payments
or it may be changed by the Beneficiary upon the death of the
Owner. If this is an IRA, payments which satisfy the minimum
distribution requirements of the Internal Revenue Code of
1986, as amended, must begin no later than the Owner's
attainment of age 70 1/2.
Premium Tax - The amount of tax, if any, charged by a state or
other governmental authority.
Request - Any instruction in a form satisfactory to the
Company and received at the Schwab Annuity Service Center (or
other annuity service center subsequently named) from the
Owner or the Owner's designee (as specified in a form
acceptable to the Company) or the Beneficiary (as applicable)
as required by any provision of the Contract or as required by
the Company. All Requests are subject to any action taken or
payment made by the Company before it was processed.
Schwab Annuity Service Center - P.O. Box 7806, San Francisco,
California 94120-9327, telephone 800-838-0649.
Series Account - The segregated account established by the
Company under New York law and registered as a unit investment
trust under the Investment Company Act of 1940, as amended.
Simplified Employee Pension - An individual retirement annuity
(IRA) which may accept contributions from one or more
employers under a retirement savings program intended to
satisfy the requirements of Section 408(k) of the Internal
Revenue Code of 1986, as amended.
Surrender Value - The Annuity Account Value with a Market
Value Adjustment, if applicable, on the effective date of the
surrender, less Premium Tax, if any.
Transaction Date - The date on which any Contribution or
Request from the Owner will be processed by the Company at the
Schwab Annuity Service Center. Contributions and Requests
received after 4:00 p.m. EST/EDT will be deemed to have been
received on the next business day. Requests will be processed
and the Variable Account Value will be determined on each day
that the New York Stock Exchange is open for trading.
Transfer - The moving of money from among and between the
Investment Division(s) and the Guaranteed Period Fund.
Variable Account Value - The sum of the values of the Variable
Sub-Accounts credited to the Owner under the Annuity Account.
<PAGE>
Variable Sub-Accounts - The sub-division(s) of the Owner's
Annuity Account containing the value credited to the Owner
under the Annuity Account from an Investment Division.
We, our, us, or First GWL&A - First Great-West Life & Annuity
Insurance Company.
<PAGE>
KEY FEATURES OF THE ANNUITY
The Contract currently allows you to invest in your choice of
twenty-four different Investment Divisions offered by thirteen
different mutual fund investment advisers. You can also invest
in the Guarantee Period Fund. Your Annuity Account Value
allocated to an Investment Division will vary with the
investment performance of the Investment Division you select.
You bear the entire investment risk for all amounts invested
in the Investment Division(s). Your Annuity Account Value
could be less than the total amount of your Contributions.
Who should invest. The Contract is designed for investors who
are seeking long-term tax deferred asset accumulation with a
wide range of investment options. The Contract can be used
for retirement or other long-term investment purposes. The
deferral of income taxes is particularly attractive to
investors in high federal and state tax brackets who have
already fully taken advantage of their ability to make IRA
contributions or "pre-tax" contributions to their employer
sponsored retirement or savings plans.
A Wide Range of Variable Investment Choices. The Contract
gives you an opportunity to select among twenty-four different
Investment Divisions. Each Investment Division invests in
shares of an Eligible Fund. The Eligible Funds cover a wide
range of investment objectives as follows:
<TABLE>
<CAPTION>
Investment Objective Eligible Funds
<S> <C>
Aggressive Growth SteinRoe Capital Appreciation Fund
Janus Aspen Aggressive Growth Portfolio
Alger American Small Capitalization Portfolio
American Century VP Capital Appreciation
Berger IPT-Small Company Growth Fund Strong
Discovery Fund II
International Aggressive Growth Montgomery Variable Series: International
Small Cap Fund
Lexington Emerging Markets Fund
Growth Montgomery Variable Series: Growth Fund
Schwab Asset Director - High Growth Portfolio
Janus Aspen Growth Portfolio Alger American
Growth Portfolio
International Growth Janus Aspen Worldwide Growth Portfolio
American Century VP International
-1 -
<PAGE>
Index Schwab S&P 500 Portfolio
Growth & Income SAFECO RST Equity Portfolio
Federated American Leaders Fund II Equity
Income INVESCO VIF-Industrial Income
Portfolio
Balanced/Asset Allocation INVESCO VIF-Total Return Portfolio
Specialized Federated Utility Fund II
Van Eck Worldwide Hard Assets Fund
High Yield Bond INVESCO VIF-High Yield Portfolio
Government Bond Federated Fund for U.S. Government Securities
II
Money Market Schwab Money Market Portfolio
</TABLE>
The distinct investment objectives and policies for each
Eligible Fund are more fully described in their individual
fund prospectuses which are available from the Schwab Annuity
Service Center, P.O. Box 7806, San Francisco, California
94120-9327, or via telephone at 1-800-838-0649.
The Guarantee Period Fund. The Contract also gives you an
opportunity to allocate your Contributions and to transfer
your Annuity Account Value to the Guarantee Period Fund. This
Fixed Sub-Account option is comprised of Guarantee Periods,
each of which has its own stated rate of interest and its own
maturity date. The stated rate of interest for the Guarantee
Period will depend on the date the Guarantee Period is
established and the duration of the Guarantee Period you
select from among those available. The rates declared are
subject to a minimum (Contractual Guarantee of a Minimum Rate
of Interest), but the Company may declare higher rates (the
stated rate of interest). The Contractual Guarantee of a
Minimum Rate of Interest will be disclosed in the written
confirmation. The stated rate of interest will not be less
than the Contractual Guarantee of a Minimum Rate of Interest
and will also be disclosed in the written confirmation.
Amounts withdrawn or transferred from a Guarantee Period prior
to the Guarantee Period Maturity Date may be subject to a
Market Value Adjustment. (See "Market Value Adjustment," page
11.)
How to Invest. You must complete a Contract application form
in order to invest in the Contract and you must pay by check
or instruct us to transfer funds from your Schwab account. The
minimum initial investment is $5,000 (or $2,000 if in an IRA).
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<PAGE>
Subsequent investments must be at least $500. The minimum
initial investment may be reduced to $1,000 should the Owner
agree to make additional $100 per month minimum recurring
deposits through an ACP.
Free Look Period. The Contract provides for a Free Look Period
which allows you to cancel your investment generally within 10
days of your receipt of the Contract. You can cancel the
Contract during the Free Look Period by delivering or mailing
the Contract to the Schwab Annuity Service Center. The
cancellation is not effective unless we receive a notice which
is postmarked before the end of the Free Look Period. If the
Contract is returned, the Contract will be void from the start
and the greater of: (a) Contributions received less
surrenders, withdrawals and distributions, or (b) the Annuity
Account Value less surrenders, withdrawals and distributions,
will be refunded. These procedures may vary where required by
state law. (See "Application and Contributions," page 12.)
Allocation of the Initial Investment. Any initial Contribution
allocated to an Investment Division (other than certain 1035
exchanges - see "Application and Contributions," page 12) will
be allocated to the Schwab Money Market Portfolio until the
next Transaction Date following the end of the Free Look
Period. At that time, the Variable Account Value will be
allocated to the Investment Divisions in accordance with your
instructions. (See "Annuity Account Value," page 13.) Your
initial investment in the Guarantee Period Fund will be
immediately allocated to the Guarantee Period(s) specified in
the application.
Charges and Deductions Under the Contract. The Contract is a
"no load" variable annuity and, as such, imposes no sales
charges, redemption or withdrawal charges.
There is a Mortality and Expense Risk Charge at an effective
annual rate of 0.85% of the value of the net assets in the
Variable Account. A Contract Maintenance Charge of $25 will be
deducted annually from your Annuity Account Value. There will
be a transfer fee of $10 for each Transfer in excess of twelve
Transfers per calendar year. (See "Charges and Deductions,"
page 17.)
Depending on your state of residence, we may deduct a charge
for Premium Tax from purchase payments or amounts withdrawn or
at the Payment Commencement Date. (See "Charges and
Deductions," page 17.)
The Market Value Adjustment may increase or decrease the value
of a Guarantee Period if the Guarantee Period is broken prior
to the Guarantee Period Maturity Date. A negative adjustment
may result in an effective interest rate lower than the stated
rate of interest for the Guarantee Period and the Contractual
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<PAGE>
Guarantee of a Minimum Rate of Interest and the value of the
Guarantee Period being less than Contribution(s). (See "Market
Value Adjustment," page 11.)
Switching Investments. You may switch Contributions among the
Investment Divisions or Guarantee Period Fund as often as you
like with no immediate tax consequences. You may make a
Transfer Request to the Schwab Annuity Service Center. A
transfer fee may apply. (See "Charges and Deductions," page
17.) Amounts Transferred out of a Guarantee Period prior to
the Guarantee Period Maturity Date may be subject to a Market
Value Adjustment. (See "Market Value Adjustment," page 11.)
Full and Partial Withdrawals. You may withdraw all or part of
your Annuity Account Value before the earlier of the annuity
commencement date you selected or the Annuitant's or Owner's
death. Withdrawals may be taxable and if made prior to age 59
1/2 may be subject to a 10% penalty tax. Withdrawals of
amounts allocated to a Guarantee Period prior to the Guarantee
Period Maturity Date may be subject to Market Value
Adjustment. (See "Market Value Adjustment," page 11.) The
minimum partial withdrawal prior to the Market Value
Adjustment is $500. There is no limit on the number of
withdrawals made. The Company may delay payment of withdrawals
from your Variable Sub-Accounts by up to 7 days and may delay
withdrawals from the Guarantee Period Fund by up to 6 months.
(See "Cash Withdrawals," page 15.)
Annuity Options. Beginning on the first day of the month
immediately following the annuity commencement date you
select, you may elect to receive annuity payments on a fixed
or variable basis. (The default date is the first day of the
month that the Annuitant attains age 91.) A wide range of
annuity options are available to provide flexibility in
choosing an annuity payment schedule that meets your
particular needs. These annuity options include alternatives
designed to provide payments for life (for either a single or
joint life), with or without a guaranteed minimum number of
payments. (See "Payment Options," page 19.)
Death Benefit. The amount of the death benefit, if payable
before annuity payments commence, will be the greater of (a)
the Annuity Account Value with a Market Value Adjustment, if
applicable, as of the date a Request for payment is received,
less Premium Tax, if any; or (b) the sum of Contributions
paid, less partial withdrawals and Periodic Withdrawals, less
charges deducted under the Contract, if any, less Premium Tax,
if any. (See "Death Benefit," page 16.)
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<PAGE>
Customer Service. Schwab's professional representatives are
available toll-free to assist you. If you have any questions
about your Contract, please telephone the Schwab Annuity
Service Center (800-838-0649) or write to the Schwab Annuity
Service Center at P.O. Box 7806, San Francisco, California
94120-9327. All inquiries should include the Contract number
and the Owner's name. As a Contract Owner you will receive
periodic statements confirming any transactions relating to
your Contract, as well as a quarterly statement and an annual
report.
VARIABLE ANNUITY FEE TABLE
The purpose of this table and the examples that follow is to
assist you in understanding the various costs and expenses
that you will bear directly or indirectly when investing in
the Contract. The table and examples reflect expenses related
to the Investment Divisions as well as of the Eligible Funds.
The table assumes that the entire Annuity Account Value is
allocated to one or more Investment Divisions. The information
set forth should be considered together with the narrative
provided under the heading "Charges and Deductions," page __
of this Prospectus, and with the Funds' prospectuses. 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 Charge 3 $25.00
Investment Division Annual Expenses1
1/ The Contract Owner Transaction Expenses apply to each
Contract, regardless of how the Annuity Account Value is
allocated. The Investment Division Annual Expenses do not
apply to the Guarantee Period Fund.
2/ There is a $10 fee for each transfer in excess of 12 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 due to a
withdrawal, the Contract Maintenance Charge will be reinstated
until such time as your Annuity Account Value is equal to or
greater than $50,000. This charge may also be waived for
Contracts issued under certain sponsored arrangements.
-5 -
<PAGE>
(as a percentage of average Variable
Account assets)
Mortality and Expense Risk Charge 0.85%
Administrative Expense Charge 0.00%
Other Fees and Expenses of the
Variable Account 0.00%
Total Investment Division Annual
Expenses 0.85%
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<PAGE>
Eligible Fund Annual Expenses (1)
(as a percentage of Eligible Fund net assets, after expenses
reimbursements)
<TABLE>
<CAPTION> Total
Management Other 12b-1 Eligible
Fund
Fees Expenses Fees Expenses
(after (after (after (after
expenses expenses expenses expenses
reimburse- reimburse reimburse reimburse
ment) ment) ment) ment)
<S> <C> <C> <C> <C>
Alger American Growth Portfolio .75% .04% 0% .79%
Alger American Small Capitalization
Portfolio .85% .03% 0% .88%
American Century VP Capital
Appreciation 1.00% 0% 0% 1.00%
American Century VP International 1.50% 0% 0% 1.50%
Berger IPT-Small Company Growth Fund 0% 1.15% 0% 1.15%
Federated American Leaders Fund II .53% .32% 0% .85%
Federated Fund for U.S. Government
Securities II 0% .80% 0% .80%
Federated Utility Fund II .24% .61% 0% .85%
INVESCO VIF-High Yield Portfolio .60% .27% 0% .87%
INVESCO VIF-Industrial Income
Portfolio .75% .20% 0% .95%
INVESCO VIF-Total Return Portfolio .75% .19% 0% .94%
Janus Aspen Aggressive Growth
Portfolio .72% .04% 0% .76%
Janus Aspen Growth Portfolio .65% .04% 0% .69%
Janus Aspen Worldwide Growth Portfolio .66% .14% 0% .80%
Lexington Emerging Markets Fund .85% .79% 0% 1.64%
Montgomery Variable Series: Growth Fund2 1.00% .25% 0% 1.25%
Montgomery Variable Series: International
Small Cap Fund2 1.25% .25% 0% 1.50%
SAFECO RST Equity Portfolio .70% .02% 0% .72%
Schwab Asset Director - High
Growth Portfolio .60% .15% 0% .75%
Schwab Money Market Portfolio .44% .06% 0% .50%
Schwab S&P 500 Portfolio 3 .13% .15% 0% .28%
SteinRoe Capital Appreciation Fund .50% .26% 0% .76%
Strong Discovery Fund II 1.00% .21% 0% 1.21%
Van Eck Worldwide Hard Assets Fund .90% .18% 0% 1.08%
_________________________________
</TABLE>
(1) The figures given above (other than for the Montgomery
Variable Series: Growth Fund, Montgomery Variable Series:
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<PAGE>
International Small Cap Fund and Schwab S&P 500 Portfolio -
see notes 2 and 3, below) reflect the amounts deducted after
expense offset arrangements, if any, from the Eligible Funds
during 1996. From time to time, an Eligible Fund's investment
adviser, in its sole discretion, may waive all or part of its
fees and/or voluntarily assume certain expenses. For a more
complete description of the Eligible Funds' fees and expenses,
see the Eligible Funds' prospectuses. As of the date of this
Prospectus, certain fees are being waived or expenses are
being assumed, in each case on a voluntary basis. Without such
waivers or reimbursements, the total Eligible Fund annual
expenses that would have been incurred for the last completed
fiscal year would be: 8.57% for Berger IPT-Small Company
Growth Fund; 1.07% for Federated American Leaders Fund II;
1.81% for Federated Fund for U.S. Government Securities II;
1.32% for INVESCO VIF-High Yield Portfolio; 1.19% for INVESCO
VIF-Industrial Income Portfolio; 1.30% for INVESCO VIF-Total
Return Portfolio; .83% for Janus Aspen Aggressive Growth
Portfolio; .83% for Janus Aspen Growth Portfolio; .91% for
Janus Aspen Worldwide Growth Portfolio; 2.23% for Lexington
Emerging Markets Fund; and 0.95% for Schwab Money Market
Portfolio; 2.68% for Schwab S&P 500 Portfolio and 3.92% for
Schwab asset Directors-High Growth Portfolio. See the Eligible
Funds' prospectuses for a discussion of fee waiver and expense
reimbursements.
(2) For the Montgomery Variable Series: Growth Fund and
Montgomery Variable Series: International Small-Cap Fund, the
fund manager has agreed to reduce management fees, if
necessary, to keep total annual operating expenses to 1.25%
and 1.50%, respectively. The fund manager may also voluntarily
further reduce management fees and other expenses to increase
the return to the Funds' investors and voluntarily elected to
do so in 1996 so that the actual expenses charged in 1996 for
both of these funds were 0.00%. Without such waivers or
reimbursements, the total Eligible Fund expenses that would
have been incurred for the last completed fiscal year would
be: 6.98% for the Montgomery Variable Series: Growth Fund and
6.30% for the Montgomery Variable Series: International Small-
Cap Fund.
(3) The figures given above reflect a voluntary waiver of a
portion of the management fee for the Schwab S&P 500 Portfolio
effective May 1, 1997. Prior to that date the applicable
management fee was 0.20%.
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<PAGE>
Examples1
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:
<TABLE>
<CAPTION>
Investment Divisions 1 Year 3 Years
<S> <C> <C>
Alger American Growth Portfolio $ 8.26 $27.11
Alger American Small Capitalization Portfolio $ 9.20 $30.16
American Century VP Capital Appreciation $10.45 $34.21
American Century VP International $15.63 $50.93
Berger IPT-Small Company Growth Fund $12.00 $39.25
Federated American Leaders Fund II $ 8.89 $29.14
Federated Fund for U.S. Government
Securities II $ 8.37 $27.45
Federated Utility Fund II $ 8.89 $29.14
INVESCO VIF-High Yield Portfolio $ 9.09 $29.82
INVESCO VIF-Industrial Income Portfolio $ 9.93 $32.52
INVESCO VIF-Total Return Portfolio $ 9.82 $32.19
Janus Aspen Aggressive Growth Portfolio $ 7.95 $26.09
Janus Aspen Growth Portfolio $ 7.22 $23.71
Janus Aspen Worldwide Growth Portfolio $ 8.37 $27.45
Lexington Emerging Markets Fund $17.08 $55.57
Montgomery Variable Series: Growth Fund $13.04 $42.60
Montgomery Variable Series:
International Small-Cap Fund $15.63 $50.93
SAFECO RST Equity Portfolio $ 7.53 $24.73
Schwab Asset Director - High Growth Portfolio $ 7.84 $25.75
Schwab Money Market Portfolio $ 5.24 $17.23
Schwab S&P 500 Portfolio $ 2.94 $ 9.68
SteinRoe Capital Appreciation Fund $ 7.95 $26.09
Strong Discovery Fund II $12.63 $41.26
Van Eck Worldwide Hard Assets Fund $11.28 $36.90
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF
1/ The Eligible Fund Annual Expenses and these examples are
based on data provided by the Eligible Funds. The Company has
no reason to doubt the accuracy or completeness of that data,
but the Company has not verified the Eligible Funds' figures.
In preparing the Eligible Fund Expense table and the Examples
above, the Company has relied on the figures provided by the
Eligible Funds.
-9 -
<PAGE>
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES PAID MAY BE GREATER
OR LESS THAN THOSE SHOWN, SUBJECT TO THE GUARANTEES IN THE
CONTRACT.
These examples assume that no premium taxes have been assessed
(although premium taxes may be applicable - see "Premium
Tax," page __).
-10 -
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY AND THE SERIES ACCOUNT
First Great-West Life & Annuity Insurance Company ("First
GWL&A")
The Company is a stock life insurance company organized
under the laws of the state of New York. First GWL&A was
incorporated on April 9, 1996 and is a wholly owned subsidiary
of Great-West Life & Annuity Insurance Company ("Great-West").
First GWL&A commenced operations upon receipt of its
certificate of authority from the Superintendent of Insurance
of New York on May 28, 1997.
First GWL&A is principally engaged in the sale of life
insurance, accident and health insurance and annuities. It is
admitted to do business in the states of New York and Iowa.
Great-West is a wholly-owned subsidiary of The Great-West
Life Assurance Company ("GWL"). GWL is a subsidiary of Great-
West Lifeco Inc., a holding company. Great-West Lifeco Inc. is
in turn a subsidiary of Power Financial Corporation, a
financial services company. Power Corporation of Canada, a
holding and management company, has voting control of Power
Financial Corporation. Mr. Paul Desmarais, through a group of
private holding companies, which he controls, has voting
control of Power Corporation of Canada.
The Series Account
The Variable Annuity-1 Series Account ("Series Account") was
established by the Company on January 15, 1997 as a separate
account under the laws of the State of New York. The Series
Account is registered with the Securities and Exchange
Commission ("Commission") under the Investment Company Act of
1940, as amended ("1940 Act"), as a unit investment trust. The
Series Account meets the definition of a separate account
under the federal securities laws. However, such registration
does not involve supervision of the management of the Series
Account or the Company by the Commission.
The Company does not guarantee the investment performance of
the Series Account. The portion of the Annuity Account Value
attributable to the Series Account and the amount of variable
annuity payments depend on the investment performance of the
Eligible Funds. Thus, the Contract Owner bears the full
investment risk for all Contributions allocated to the Series
Account.
The Series Account is administered and accounted for as part
of the general business of the Company; but the income,
capital gains, or capital losses of each Investment Division
-11 -
<PAGE>
are credited to or charged against the assets held in that
Investment Division in accordance with the terms of the
Contract, without regard to other income, capital gains or
capital losses of any other Investment Division or arising out
of any other business the Company may conduct. Under New York
law, the assets of the Series Account are not chargeable with
liabilities arising out of any other business the Company may
conduct. Nevertheless, all obligations arising under the
Contracts are generally corporate obligations of the Company.
The Series Account currently has twenty-four Investment
Divisions available for allocation of Contributions. If, in
the future, the Company determines that marketing needs and
investment conditions warrant, it may establish additional
Investment Divisions which will be made available to Owners to
the extent and on a basis to be determined by the Company,
(See "Addition, Deletion, or Substitution"). Each Investment
Division invests in shares of an Eligible Fund, each having a
specific investment objective.
-12 -
<PAGE>
THE ELIGIBLE FUNDS
The Eligible Funds described below are offered exclusively
for use as funding vehicles for insurance products and,
consequently, are not publicly available mutual funds. Each
Eligible Fund has separate investment objectives and policies.
As a result, each Eligible Fund operates as a separate
investment portfolio and the investment performance of one
Eligible Fund has no effect on the investment performance of
any other Eligible Fund. See the Eligible Funds' prospectuses
for more information.
The Alger American Fund
Alger American Small Capitalization Portfolio: Seeks long-term
capital appreciation by investing at least 65% of its total
assets, except during temporary defensive periods, in equity
securities of companies that, at the time of purchase, have
total market capitalization within the range of companies
included in the Russell 2000 Growth Index ("Russell Index") or
the S&P SmallCap 600 Index ("S&P Index"), updated quarterly.
Both indexes are broad indexes of small capitalization stocks.
As of March 31, 1997, the range of market capitalization of
the companies in the Russell Index was $10 million to $1.94
billion; the range of market capitalization of the companies
in the S&P Index at that date was $32 million to $2.579
billion. The combined range as of that date was $10 million to
$2.579 billion. The Portfolio may invest up to 35% of its
total assets in equity securities of companies that, at the
time of purchase, have total market capitalization outside
this combined range, and in excess of that amount (up to 100%
of its assets) during temporary defensive periods.
Alger American Growth Portfolio: Seeks long-term capital
appreciation by investment of at least 65% of its total
assets, except during temporary defensive periods, in equity
securities of companies that, at the time of purchase of the
securities, have total market capitalization of $1 billion or
greater. The Portfolio may invest up to 35% of its total
assets in equity securities of companies that, at the time of
purchase, have total market capitalization of less than $1
billion.
American Century Variable Portfolios, Inc.
American Century VP Capital Appreciation: Seeks capital growth
by investing in common stocks (including securities
convertible into common stocks and other equity equivalents)
and other securities that meet certain fundamental and
technical standards of selection and have, in the opinion of
the investment manager, better-than-average potential for
-13 -
<PAGE>
appreciation. The Portfolio's investment manager intends to
stay fully invested in such securities, regardless of the
movement of stock prices generally.
American Century VP International: Seeks capital growth by
investing primarily in an internationally diversified
portfolio of securities of foreign companies that meet certain
fundamental and technical standards of selection and have, in
the opinion of the investment manager, potential for capital
appreciation. The Portfolio will invest primarily in common
stocks (defined to include depository receipts for common
stock and other equity equivalents) of such companies.
Investment in securities for foreign issues typically involves
a greater degree of risk than an investment in domestic
securities.
Berger Institutional Products Trust
Berger IPT-Small Company Growth Fund: Seeks capital
appreciation by investing primarily in equity securities
(including common and preferred stocks, convertible debt
securities and other securities having equity features) of
small growth companies with market capitalization of less than
$1 billion at the time of initial purchase.
Federated Insurance Series
Federated American Leaders Fund II: Seeks to achieve long-term
growth of capital as a primary objective and seeks to provide
income as a secondary objective through investment of at least
65 % of its total assets (under normal circumstances) in
common stocks of "blue chip" companies.
Federated Fund for U.S. Government Securities II: Seeks to
provide current income through investment of at least 65% of
its total assets in securities which are primary or direct
obligations of the U.S. government or its agencies or
instrumentalities or which are guaranteed as to principal and
interest by the U.S. government, its agencies, or
instrumentalities and in certain collateralized mortgage
obligations, and repurchase agreements.
Federated Utility Fund II: Seeks to provide high current
income and moderate capital appreciation by investing in a
professionally-managed, diversified portfolio of utility
company equity and debt securities.
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-Industrial Income Portfolio: Seeks the best
possible current income while following sound investment
practices. Capital growth potential is an additional
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<PAGE>
consideration in the selection of portfolio securities. The
Portfolio normally invests at least 65% of its total assets in
dividend-paying common stocks. Up to 10% of the Portfolio's
total assets may be invested in equity securities that do not
pay regular dividends. The remaining assets are invested in
other income-producing securities such as corporate bonds. The
Portfolio also has the flexibility to invest in other types of
securities.
INVESCO VIF-Total Return Portfolio: Seeks a high total return
on investment through capital appreciation and current income.
The Total Return Portfolio seeks to achieve its investment
objective by investing in a combination of equity securities
(consisting of common stocks and, to a lesser degree,
securities convertible into common stock) and fixed income
securities.
INVESCO VIF-High Yield Portfolio: Seeks a high level of
current income by investing substantially all of its assets in
lower rated bonds and other debt securities and in preferred
stock. These bonds and other securities are sometimes referred
to as "junk bonds." The High Yield Portfolio pursues its
investment objective through investment in a variety of long-
term, intermediate-term, and short-term bonds. Potential
capital appreciation is a factor in the selection of
investments, but is secondary to the Portfolio's primary
objective.
Janus Aspen Series
Janus Aspen Aggressive Growth Portfolio: Seeks long-term
growth of capital in a manner consistent with the preservation
of capital. The Portfolio normally invests at least 50% of its
equity assets in securities issued by medium-sized companies.
Medium-sized companies are those whose market capitalizations
fall within the range of companies in the S&P MidCap 400 Index
(the "MidCap Index"). Companies whose capitalization falls
outside this range after the Portfolio's initial purchase
continue to be considered medium-sized companies for the
purpose of this policy. As of December 30, 1996, the MidCap
Index included companies with capitalizations between
approximately $192 million to $6.5 billion. The range of the
MidCap Index is expected to change on a regular basis. Subject
to the above policy, the Portfolio may also invest in smaller
or larger issuers.
Janus Aspen Growth Portfolio: Seeks long-term growth of
capital in a manner consistent with the preservation of
capital. The Portfolio pursues its objective by investing in
common stocks of companies of any size. This Portfolio
generally invests in larger, more established issuers.
-15 -
<PAGE>
Janus Aspen Worldwide Growth Portfolio: Seeks long-term growth
of capital in a manner consistent with the preservation of
capital. The Portfolio pursues its objective primarily through
investments in common stocks of foreign and domestic issuers.
The Portfolio has the flexibility to invest on a worldwide
basis in companies and organizations of any size, regardless
of country of organization or place of principal business
activity. The Portfolio normally invests in issuers from at
least five different countries, including the United States;
however, it may at times invest in fewer than five countries
or even a single country.
Lexington Emerging Markets Fund, Inc.
Lexington Emerging Markets Fund: Seeks long term growth of
capital primarily through investment in equity securities of
companies domiciled in, or doing business in emerging
countries and emerging markets. For purposes of its investment
objective, the Fund considers emerging country equity
securities to be any country whose economy and market the
World Bank or United Nations considers to be emerging or
developing. The Fund may also invest in equity securities and
equivalents traded in any market of companies that derive 50%
or more of their total revenue from either goods or services
produced in such emerging countries or markets or sales made
in such countries.
Montgomery Variable Series
Montgomery Growth Fund: Seeks capital appreciation by
investing at least 65% of its total assets (under normal
conditions) in the equity securities of domestic corporations.
In addition to capital appreciation, this Fund emphasizes
value. While the Fund emphasizes investments in common stock,
it also invests in other types of equity securities (including
options on equity securities, warrants and futures contracts
on equity securities). The Fund may invest up to 35% of its
total
assets in debt securities rated within the three highest
grades of S&P, Moody's or Fitch, or unrated debt securities
deemed to be of comparable quality by its portfolio manager
using guidelines approved by the Board of Trustees.
Montgomery International Small Cap Fund: Seeks capital
appreciation by investing at least 65% of its total assets
(under normal conditions) in equity securities of companies
outside the United States having total market capitalizations
of less than $1 billion, sound fundamental values and
potential for long-term growth at a reasonable price. The Fund
generally invests the remaining 35% of its total assets in a
similar manner but may invest those assets in companies having
market capitalizations of $1 billion or more, or in debt
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<PAGE>
securities, including up to 5% of its total assets in debt
securities rated below investment grade.
SAFECO Resource Series Trust
SAFECO RST Equity Portfolio: Seeks long-term growth of capital
and reasonable current income. The Portfolio ordinarily
invests principally in common stocks or securities convertible
into common stocks.
Schwab Annuity Portfolios
Schwab Money Market Portfolio: Seeks maximum current income
consistent with liquidity and stability of capital. It seeks
to achieve its objective by investing in short-term money
market instruments. This Portfolio is neither insured nor
guaranteed by the United States Government and there can be no
assurance that it will be able to maintain a stable net asset
value of $1.00 per share.
Schwab Asset Director-High Growth Portfolio: Seeks to provide
high capital growth with less volatility than an all stock
portfolio. The High Growth Fund seeks to meet its investment
objective by investing in a mix of stocks, bonds, and cash
equivalents.
Schwab S&P 500 Portfolio: Seeks to track the price and
dividend performance (total return) of common stocks of U.S.
companies, as represented in the Standard & Poor s Composite
Index of 500 stocks (the "Index"). The S&P 500 Fund invests
primarily in the common stocks of companies composing the
Index.
SteinRoe Variable Investment Trust
SteinRoe Capital Appreciation Fund: Seeks capital growth by
investing primarily in common stocks, convertible securities,
and other securities selected for prospective capital growth.
Strong Discovery Fund II, Inc.
Strong Discovery Fund II: Seeks capital growth. The Fund
invests in securities that the Fund's investment adviser
believes represent attractive growth opportunities. The Fund
normally emphasizes equity investments, although it has the
flexibility to invest in any security the Fund's investment
adviser believes has the potential for capital appreciation.
Van Eck Worldwide Insurance Trust
Van Eck Worldwide Hard Assets Fund: Seeks long-term capital
appreciation by investing in hard asset securities; i.e.,
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<PAGE>
commodities or securities of firms involved (directly or
indirectly) in the following areas: precious metals, ferrous
and non-ferrous metals, energy, real estate, and other non-
agricultural commodities. The Fund seeks opportunities in all
the global stock, bond, and commodity markets, including
domestic markets. Current income is not an investment
objective.
The two Alger American Funds are advised by Fred Alger
Management, Inc. of New York, New York. The two American
Century Variable Portfolios, Inc., are advised by American
Century Investment Management of Kansas City, Missouri,
advisers to the American Century family of mutual funds. The
Berger IPT-Small Company Growth Fund is advised by Berger
Associates of Denver, Colorado. The three Federated Insurance
Series Portfolios are advised by Federated Advisers of
Pittsburgh, Pennsylvania. The three INVESCO Variable
Investment Funds, Inc., Portfolios are advised by INVESCO
Funds Group, Inc., of Denver, Colorado. INVESCO Trust Company
is the sub-adviser for the INVESCO VIF-Industrial Income
Portfolio. The three Janus Aspen Series Portfolios are advised
by Janus Capital Corporation of Denver, Colorado. The
Lexington Emerging Markets Fund is advised by Lexington
Management Corporation of Saddle Brook, New Jersey. The two
Montgomery Variable Series Funds are advised by Montgomery
Asset Management, L.P. of San Francisco, California. The
SAFECO RST Equity Portfolio is advised by SAFECO Asset
Management Company of Seattle, Washington. The three Schwab
Annuity Portfolios are advised by Charles Schwab Investment
Management, Inc., of San Francisco, California. The SteinRoe
Capital Appreciation Fund is advised by Stein Roe & Farnham
Incorporated of Chicago, Illinois. Strong Discovery Fund II is
advised by Strong Capital Management, Inc. of Milwaukee,
Wisconsin. The Van Eck Worldwide Hard Assets Fund is advised
by Van Eck Associates Corporation of New York, New York.
***
Meeting investment objectives depends on various factors,
including, but not limited to, how well the Eligible Fund
managers anticipate changing economic and market conditions.
THERE IS NO ASSURANCE THAT ANY OF THESE ELIGIBLE FUNDS WILL
ACHIEVE THEIR STATED OBJECTIVES.
The Contracts are not deposits of, or guaranteed or endorsed
by, any bank, nor are the Contracts federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other government agency. The Contracts involve
certain investment risks, including possible loss of
principal.
Each Eligible Fund is registered with the Commission as an
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<PAGE>
open-end management investment company or portfolio thereof.
The Commission does not supervise the management or the
investment practices and policies of any of the Eligible
Funds.
Since some of the Eligible Funds are available to registered
separate accounts of other insurance companies offering
variable annuity and variable life products, there is a
possibility that a material conflict may arise between the
interests of the Series Account and one or more other separate
accounts investing in the Eligible Funds. In the event of a
material conflict, the affected insurance companies are
required to take any necessary steps to resolve the matter,
including stopping their separate accounts from investing in
the Eligible Funds. See the Eligible Funds' prospectuses for
more details.
Additional information concerning the investment objectives
and policies of all of the Eligible Funds and the investment
advisory services and administrative services and charges can
be found in the current prospectuses for the Eligible Funds,
which can be obtained by calling the Schwab Annuity Service
Center at 800-838-0649, or by writing to Schwab Annuity
Service Center, P.O. Box 7806, San Francisco, California
94120-9327. The Eligible Funds' prospectuses should be read
carefully before any decision is made concerning the
allocation of Contributions to, or Transfers among, the
Investment Divisions.
Addition, Deletion, or Substitution
The Company does not control the Eligible Funds and cannot
guarantee that any of the Eligible Funds will always be
available for allocation of Contributions or Transfers. The
Company retains the right to make changes in the Series
Account and in its investments. Currently, Schwab must approve
certain changes.
First GWL&A and Schwab reserve the right to eliminate the
shares of any Eligible Fund held by an Investment Division and
to substitute shares of another Eligible Fund or of another
investment company, for the shares of any Eligible Fund, if
the shares of the Eligible Fund are no longer available for
investment or if, in First GWL&A's and Schwab's judgment,
investment in any Eligible Fund would be inappropriate in view
of the purposes of the Series Account. To the extent required
by the 1940 Act, a substitution of shares attributable to the
Owner's interest in an Investment Division will not be made
without prior notice to the Owners and the prior approval of
the Commission. Nothing contained herein shall prevent the
Series Account from purchasing other securities for other
series or classes of variable annuity policies, or from
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<PAGE>
effecting an exchange between series or classes of variable
policies on the basis of Requests made by you.
New Investment Divisions may be established when, in our
discretion, marketing, tax, investment or other conditions so
warrant. Any new Investment Divisions will be made available
to Owners on a basis to be determined by us. Each additional
Investment Division will purchase shares in a Eligible Fund or
in another mutual fund or investment vehicle. We may also
eliminate one or more Investment Divisions if, in our sole
discretion, marketing, tax, investment or other conditions so
warrant. In the event any Investment Division is eliminated,
we will notify the Owners and request a re-allocation of the
amounts invested in the eliminated Investment Division.
In the event of any such substitution or change, we may make
such changes to your Contract as may be necessary or
appropriate to reflect such substitution or change.
Furthermore, if deemed to be in the best interests of persons
having voting rights under the Contracts, the Series Account
may be operated as a management company under the 1940 Act or
any other form permitted by law, may be de-registered under
such Act in the event such registration is no longer required,
or may be combined with one or more other separate accounts.
Such changes will be made in compliance with applicable law.
THE GUARANTEE PERIOD FUND
Guarantee Period Fund
Amounts allocated to the Guarantee Period Fund under the
Contract will be deposited to, and accounted for, in a non-
unitized market value separate account established by the
Company under Section 4240 of the New York Insurance Code and
in accordance with New York Regulation 128. These amounts
accordingly, are not part of the Series Account. A non-
unitized market value separate account is a separate account
in which the Owner does not participate in the performance of
the assets through unit values. Therefore, Owners allocating
Contributions do not receive a unit ownership of assets
accounted for in this separate account. The assets accrue
solely to the benefit of the Company and any gain or loss in
the separate account is borne entirely by the Company. For
amounts allocated to the Guarantee Period Fund, Owners will
receive the Contract guarantees made by the Company.
Contributions allocated to or amounts transferred to the
Guarantee Period Fund will establish a new Guarantee Period of
a duration selected by the Owner from those currently being
offered by the Company. Every Guarantee Period offered by the
Company will have a time interval of at least one year.
Contributions allocated to the Guarantee Period Fund will be
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<PAGE>
credited on the Transaction Date.
Each Guarantee Period will have its own stated rate of
interest and Guarantee Period Maturity Date. The stated rate
of interest applicable to a Guarantee Period will depend on
the date the Guarantee Period is established and the duration
chosen by the Owner.
As of the date of this Prospectus, Guarantee Periods with
annual time intervals of 1 to 10 years are offered. The
Guarantee Periods may be changed in the future; however, any
such modification will not have an impact on any Guarantee
Period then in effect.
The value of amounts in each Guarantee Period is the Owner's
Contributions, less Premium Tax, if any, in that Guarantee
Period, plus interest earned, less amounts distributed,
withdrawn (in whole or in part), Transferred or applied to an
annuity option, periodic withdrawals, and charges deducted
under the Contract. If a Guarantee Period is broken, a Market
Value Adjustment may be assessed. Any such amount withdrawn or
Transferred from a Guarantee Period will be paid in accordance
with the MVA formula (See "Market Value Adjustment," page 11.)
-21 -
<PAGE>
Investments
The Company intends to invest in assets which, in the
aggregate, have characteristics, especially cash flow
patterns, reasonably related to the characteristics of its
liabilities. Various techniques will be used to achieve the
objective of close aggregate matching of assets and
liabilities. The Company will primarily invest in investment-
grade fixed income securities including:
Securities issued by the U.S. Government or its agencies or
instrumentalities, which issues may or may not be guaranteed
by the U.S. Government.
Debt securities which have an investment grade, at the time of
purchase, within the four highest grades assigned by Moody's
Investment Services, Inc. (Aaa, Aa, A or Baa), Standard &
Poor's Corporation (AAA, AA, A or BBB) or any other nationally
recognized rating service.
Other debt instruments, including, but not limited to, issues
of banks or bank holding companies and of corporations, which
obligations, although not rated by Moody's, Standard & Poor's,
or other nationally recognized rating firms, are deemed by the
Company's management to have an investment quality comparable
to securities which may be purchased as stated above.
Commercial paper, cash or cash equivalents, and other short-
term investments having a maturity of less than one year which
are considered by the Company's management to have investment
quality comparable to securities which may be purchased as
stated above.
In addition, the Company may invest in futures and options.
Financial futures and related options thereon and options on
securities are purchased solely for non-speculative hedging
purposes. The Company may sell a futures contract or purchase
a put option on futures or securities to protect the value of
securities held in or to be sold for the general account or
the non-unitized separate account in the event the securities
prices are anticipated to decline. Similarly, if securities
prices are expected to rise, the Company may purchase a
futures contract or a call option thereon against anticipated
positive cash flow or may purchase options on securities.
WHILE THE FOREGOING GENERALLY DESCRIBES THE INVESTMENT
STRATEGY FOR THE GUARANTEE PERIOD FUND, THE COMPANY IS NOT
OBLIGATED TO INVEST THE ASSETS ATTRIBUTABLE TO THE GUARANTEE
PERIOD FUND ACCORDING TO ANY PARTICULAR STRATEGY, EXCEPT AS
MAY BE REQUIRED BY NEW YORK AND OTHER STATE INSURANCE LAWS,
NOR WILL THE STATED RATE OF INTEREST THAT THE COMPANY
ESTABLISHES NECESSARILY RELATE TO THE PERFORMANCE OF THE NON-
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<PAGE>
UNITIZED MARKET VALUE SEPARATE ACCOUNT.
Subsequent Guarantee Periods
Prior to the date annuity payments commence, you may invest
the value of amounts held in a maturing Guarantee Period in
any Guarantee Period that we offer at that time. On the
quarterly statement issued prior to the end of any Guarantee
Period, we will notify you of the upcoming maturity of a
Guarantee Period. THE GUARANTEE PERIOD AVAILABLE FOR NEW
CONTRIBUTIONS MAY BE CHANGED AT ANY TIME, INCLUDING BETWEEN
THE DATE OF NOTIFICATION OF A MATURING GUARANTEE PERIOD AND
THE DATE A SUBSEQUENT GUARANTEE PERIOD BEGINS. Information
regarding the current Guarantee Periods then available and
their stated rate of interest may be obtained by calling the
Schwab Annuity Service Center at:
1-800-838-0649.
If the Company receives no direction from the Contract Owner
by the Guarantee Period Maturity Date, the Company will
automatically allocate the amount from the maturing Guarantee
Period to a Guarantee Period equal in duration to the one just
ended. If at that time, the duration previously chosen is no
longer available, the amount will be allocated to the next
shortest available Guarantee Period duration. If none of the
above is available, the value of matured Guarantee Periods
will be allocated to the Schwab Money Market Investment
Division. In any event, a Guarantee Period will not renew for
a term equal in duration to the one just ended if the
Guarantee Period will mature after the Payment Commencement
Date. No Guarantee Period may mature later than six months
after a Payment Commencement Date. For example, if a 3-year
Guarantee Period matures and the Payment Commencement Date
begins 1 3/4 years from the Guarantee Period Maturity Date,
the matured value will be transferred to a 2-year Guarantee
Period.
Breaking A Guarantee Period
Any Transfer, withdrawal or the selection of an annuity option
prior to the Guarantee Period Maturity Date will be known as
breaking a Guarantee Period. When a Request to break a
Guarantee Period is received, the Guarantee Period that is
closest to the Guarantee Period Maturity Date will be broken
first. If a Guarantee Period is broken, a Market Value
Adjustment may be assessed. The Market Value Adjustment may
increase or decrease the value of the amount Transferred or
withdrawn from the Guarantee Period Fund. The Market Value
Adjustment may reduce the value of amounts held in a Guarantee
Period below the amount of your Contribution(s) allocated to
that Guarantee Period. (See Market Value Adjustment, page
11.)
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Interest Rates
Declared rates are effective annual rates of interest. The
rate is guaranteed throughout the Guarantee Period. FOR
GUARANTEE PERIODS NOT YET IN EFFECT, FIRST GWL&A MAY DECLARE
INTEREST RATES DIFFERENT THAN THOSE CURRENTLY IN EFFECT. When
a subsequent Guarantee Period begins, the rate applied will
not be less than the rate then applicable to new Contracts of
the same type with the same Guarantee Period.
The stated rate of interest must be at least equal to the
Contractual Guarantee of a Minimum Rate of Interest. The
Company may declare higher rates. The Contractual Guarantee of
a Minimum Rate of Interest is based on the applicable state
standard non-forfeiture law which is currently 3% for the
Contract.
The determination of the stated rate of interest is influenced
by, but does not necessarily correspond to, interest rates
available on fixed income investments which the Company may
acquire using funds deposited into the Guarantee Period Fund.
In addition, the Company will consider other items in
determining the stated rate of interest including regulatory
and tax requirements, sales commissions and administrative
expenses borne by the Company, general economic trends, and
competitive factors.
Market Value Adjustment
Distributions from the amounts allocated to a Guarantee Period
due to a full surrender or partial withdrawal, Transfer,
application of amounts to the periodic withdrawal option or to
purchase an annuity prior to a Guarantee Period Maturity Date
will be subject to a Market Value Adjustment ("MVA"). An MVA
may increase or decrease the amount payable on one of the
above described distributions. Amount available for a full
surrender, partial withdrawal or Transfer = amount Requested +
MVA. The MVA is calculated by multiplying the amount Requested
by the Market Value Adjustment Factor ("MVAF").
The MVA reflects the relationship as of the time of its
calculation between (a) the U.S. Treasury Strip ask side yield
as published in the Wall Street Journal on the last business
day of the week prior to the date the stated rate of interest
was established for the Guarantee Period; and (b) the U.S.
Treasury Strip ask side yield as published in the Wall Street
Journal on the last business day of the week prior to the week
the Guarantee Period is broken. There would be a downward
adjustment if Treasury rates at the time the Guarantee Period
is broken, exceed Treasury rates when the Guarantee Period was
created. There would be an upward adjustment if Treasury rates
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at the time the Guarantee Period is broken, are lower than
when the Guarantee Period was created. The MVA factor is the
same for all Contracts.
1. The formula used to determine the MVA is:
MVA = (amount applied) X (MVAF)
The Market Value Adjustment Factor (MVAF) is:
MVAF = {[(1 + i)/(1 + j)] N/12} - 1
where:
a) i is the U.S. Treasury Strip ask side yield as
published in the Wall Street Journal on the last
business day of the week prior to the date the stated
rate of interest was established for the Guarantee
Period. The term of i is measured in years and equals
the term of the Guarantee Period; b) j is the U.S.
Treasury Strip ask side yield as published in the Wall
Street Journal on the last business day of the week
prior to the week the Guarantee Period is broken. The
term of j equals the remaining term to maturity of the
Guarantee Period, rounded up to the higher number of
years; and
c) N is the number of complete months remaining until
maturity.
If N is less than 6, the MVA will equal 0.
2. The Market Value Adjustment will apply to any Guarantee
Period six or more months prior to the Guarantee Period
Maturity Date in each of the following situations:
a) Transfer to another Guarantee Period or to an
Investment Division offered under this Contract; or
b) Surrenders, partial withdrawals, annuitization or
Periodic Withdrawals.
3. The Market Value Adjustment will not apply to any
Guarantee Period having fewer than six months prior to
the Guarantee Period Maturity Date in each of the
following situations:
a) Transfer to an Investment Division offered under this
Contract; or
b) Surrenders, partial withdrawals, annuitization or
Periodic Withdrawals.
c) A single sum payment upon death of the Owner or
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Annuitant.
See Appendix A for Illustrations of the MVA.
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APPLICATION AND CONTRIBUTIONS
Contributions
All Contributions may be paid at the Schwab Annuity Service
Center by a check payable to the Company or by transfer to the
Company of available funds from your Schwab account.
The initial Contribution for the Contract must be at least
$5,000 (or $2,000 if for an IRA). Subsequent Contributions
must be at least $500. This minimum initial investment may be
reduced to $1,000, but only if you participate in an Automatic
Contribution Plan and contribute at least $100 per month
through a recurring deposit. A confirmation will be issued to
you upon the acceptance of each Contribution.
Your Contract will be issued and your Contribution generally
will be accepted and credited within two business days after
receipt of an acceptable application and receipt of the
initial Contribution at the Schwab Annuity Service Center. All
Contributions should be paid to the Schwab Annuity Service
Center by check (payable to First GWL&A) or by instructing
Schwab to transfer to First GWL&A available funds from your
account with Schwab. Acceptance is subject to there being
sufficient information in a form acceptable to us and we
reserve the right to reject any application or Contribution.
The Schwab Annuity Service Center will process your
application and Contributions. If your application is complete
and your initial Contribution is being transferred from funds
available in your Schwab account, then the Contribution will
generally be credited within two business days following
receipt of the application. If your application is incomplete,
the Schwab Annuity Service Center will either complete the
application from information Schwab has on file, or contact
you for the additional information. No transfer of funds will
be made from your Schwab account until your application is
complete. The funds will be credited as Contributions to the
Contract when they are transferred.
If your Contribution is by check, and the application is
complete, Schwab will use its best efforts to credit the
Contribution on the day of receipt, but in all such cases it
will be credited to your Contract within two business days of
receipt. If your application is incomplete, the Schwab Annuity
Service Center will complete the application from information
Schwab has on file or contact you by telephone to obtain the
required information. If your application remains incomplete
for five business days, we will return to you both the check
and the application unless you consent to our retaining the
initial Contribution and crediting it as soon as the
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requirements are fulfilled.
A Contract may be returned within ten days after receipt
("Free Look Period"). During the Free Look Period, all
contributions will be processed as follows:
(1)Amounts to be allocated to one or more of the then available
Guarantee Periods will be allocated as directed, effective
upon the Transaction Date.
(2)Amounts the Owner has directed to be allocated to one or more
of the Investment Divisions will first be allocated to the
Schwab Money Market Investment Division until the next
Transaction Date following the end of the Free Look Period. On
that date, the Variable Account Value held in the Schwab Money
Market Investment Division will be allocated to the Investment
Divisions selected by the Owner.
(3)During the Free Look Period, you may change the allocation
percentages among the Investment Divisions and/or your
selection of Investment Divisions to which Contributions will
be allocated after the Free Look Period.
(4)If the Contract is returned, the contract will be void from
the start and the greater of: (a) Contributions received less
surrenders, withdrawals and distributions, or (b) the Annuity
Account Value less surrenders, withdrawals and distributions,
will be refunded. Exercising the return privilege requires the
return of the Contract to the Company or to the Schwab Annuity
Service Center.
Amounts the Owner has contributed from a 1035 exchange of the
variable annuity issued by Transamerica Occidental Life
Insurance Company and First Transamerica Occidental Life
Insurance Company distributed by Charles Schwab & Co., Inc.
(previously referred to as the Schwab Investment Advantage
Annuity Contract) will be immediately allocated to the
Investment Divisions selected by the Owner. If the Contract is
returned, it will be void from the start and the greater of:
(a) Contributions received less surrenders, withdrawals and
distributions, or (b) the Annuity Account Value less
surrenders, withdrawals and distributions, will be refunded.
Additional Contributions may be made at any time prior to the
Payment Commencement Date, as long as the Annuitant is living.
Additional Contributions must be at least $500 or $100 per
month if under an ACP. Additional Contributions will be
credited within two days following receipt.
Total Contributions may exceed $1,000,000 with our prior
approval.
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The Company reserves the right to modify the limitations set
forth in this section.
ANNUITY ACCOUNT VALUE
Before the date annuity payments commence, your Annuity Account
Value is the sum of each Variable and Fixed Sub-Account
established under your Contract.
Before the annuity commencement date, the Variable Account Value
is the total dollar amount of all Accumulation Units under
each of your Variable Sub-Accounts. Initially, the value of
each Accumulation Unit was set at $10.00. Each Variable Sub-
Account's value prior to the Payment Commencement Date is
equal to: (a) net Contributions allocated to the corresponding
Investment Division; plus or minus (b) any increase or
decrease in the value of the assets of the Variable Sub-
Account due to investment results; less (c) the daily
Mortality and Expense Risk Charge; less (d) reductions for the
Contract Maintenance Charge deducted on the last business day
of each Contract Year; less (e) any applicable Transfer Fees;
and less (f) any withdrawals or Transfers from the Variable
Sub-Account.
A Valuation Period is the period between successive Valuation
Dates. It begins at the close of the New York Stock Exchange
(generally 4:00 p.m. ET) on each Valuation Date and ends at
the close of the New York Stock Exchange on the next
succeeding Valuation Date. A Valuation Date is each day that
the New York Stock Exchange is open for regular business. The
value of an Investment Division's assets is determined at the
end of each Valuation Date. To determine the value of an asset
on a day that is not a Valuation Date, the value of that asset
as of the end of the previous Valuation Date will be used.
The Variable Account Value is expected to change from Valuation
Period to Valuation Period, reflecting the investment
experience of the selected Investment Division(s) as well as
the deductions for charges.
Contributions which you allocate to an Investment Division are
used to purchase Variable Accumulation Units in the Investment
Division(s) you select. The number of Accumulation Units to be
credited will be determined by dividing the portion of each
Contribution allocated to the Investment Division by the value
of an Accumulation Unit determined at the end of the Valuation
Period during which the Contribution was received. In the case
of the initial Contribution, Accumulation Units for that
payment will be credited to the Variable Account Value (and,
except for certain 1035 exchanges), held in the Schwab Money
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Market Investment Division until the end of the Free Look
Period (see "Application and Contributions," page __). In the
case of any subsequent Contribution, Accumulation Units for
that payment will be credited at the end of the Valuation
Period during which we receive the Contribution. The value of
an Accumulation Unit for each Investment Division for a
Valuation Period is established at the end of each Valuation
Period and is calculated by multiplying the value of that unit
at the end of the prior Valuation Period by the Investment
Division's Net Investment Factor for the Valuation Period.
Unlike a brokerage account, amounts held under a Contract are not
covered by the Securities Investor Protection Corporation
("SIPC") .
TRANSFERS
In General
Prior to the Payment Commencement Date you may Transfer all or
part of your Annuity Account Value among and between the
Investment Divisions and the available Guarantee Periods by
sending a Request to the Schwab Annuity Service Center. The
Request must specify the amounts being Transferred, the
Investment Division(s) and/or Guarantee Period(s) from which
the Transfer is to be made, and the Investment Division(s)
and/or Guarantee Period(s) that will receive the Transfer.
Currently, there is no limit on the number of Transfers you can
make among the Investment Divisions during any calendar year.
There is no charge for the first twelve Transfers per calendar
year, but there will be a charge of $10 for each additional
Transfer in each calendar year. We reserve the right to limit
the number of Transfers you make. The charge will be deducted
from the amount transferred. All Transfers made on a single
Transaction Date will be aggregated to count as only one
Transfer toward the twelve free Transfers; however, if a one
time rebalancing Transfer also occurs on the Transaction Date,
it will be counted as a separate and additional Transfer.
Transfers involving the Guarantee Period Fund (including
Transfers to or from the Investment Division(s)) are not
limited during any calendar year. These Guarantee Period Fund
Transfers are counted against your twelve free Transfers as
discussed above. The $10 charge will apply to each Transfer
made in excess of the first twelve Transfers each calendar
year.
A Transfer generally will be effective on the date the Request
for Transfer is received by the Schwab Annuity Service Center
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if received before 4:00 p.m. Eastern Time. Under current law,
there will not be any tax liability to you if you make a
Transfer.
Transfers involving the Investment Divisions will result in the
purchase and/or cancellation of Accumulation Units having a
total value equal to the dollar amount being Transferred to or
from a particular Investment Division. The purchase and/or
cancellation of such units generally shall be made using the
Variable Account Value as of the end of the Valuation Date on
which the Transfer is effective.
When a Transfer is made from amounts in a Guarantee Period before
the Guarantee Period Maturity Date, the amount Transferred may
be subject to a Market Value Adjustment. (See "Market Value
Adjustment," page 11.) A Request for Transfer from amounts in
a Guarantee Period made prior to the Guarantee Period Maturity
Date for Transfers on the Guarantee Period Maturity Date will
not be counted for the purpose of determining any Transfer Fee
on Transfers in excess of the twelve Transfers per calendar
year if these Transfers are to take place on the Guarantee
Period Maturity Date.
Possible Restrictions
We reserve the right without prior notice to modify, restrict,
suspend or eliminate the Transfer privileges at any time. For
example, restrictions may be necessary to protect Owners from
adverse impacts on portfolio management of large and/or
numerous Transfers by market timers or others. We have
determined that the movement of significant amounts from one
Investment Division to another may prevent the underlying
Eligible Fund from taking advantage of investment
opportunities because the Eligible Fund must maintain a
significant cash position in order to handle redemptions. Such
movement may also cause a substantial increase in Eligible
Fund transaction costs which must be indirectly borne by
Owners. Therefore, we reserve the right to require that all
Transfer Requests be made by the Owner and not by an Owner's
designee and to require that each Transfer Request be made by
a separate communication to us. We also reserve the right to
request that each Transfer Request be submitted in writing and
be manually signed by the Owner; facsimile Transfer Requests
may not be allowed. Transfers among the Investment Divisions
may also be subject to such terms and conditions as may be
imposed by the Eligible Funds.
Custom Transfer: Dollar Cost Averaging (Automatic Transfers)
The Owner may Request to automatically Transfer at regular
intervals, predetermined amounts from one Investment Division
selected from among those being allowed under this option
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(which may be modified by the Company from time to time) to
any of the other Investment Divisions. The intervals between
Transfers may be monthly, quarterly, semi-annually or
annually. The Transfer will be initiated on the Transaction
Date one frequency period following the date of the Request.
Transfers will continue on that same day each interval unless
terminated by you or for other reasons as set forth in the
Contract. If there are insufficient funds in the applicable
Variable Sub-Account on the date of Transfer, no Transfer will
be made; however, Dollar Cost Averaging will resume once there
are sufficient funds in the applicable Variable Sub-Account.
Dollar Cost Averaging will terminate automatically upon the
annuity commencement date. Amounts transferred through Dollar
Cost Averaging are not counted against the twelve free
Transfers allowed in a calendar year.
Automatic Transfers must meet the following conditions:
1. The minimum amount that can be Transferred out of the
selected Investment Division is $100 per month.
2. The Owner must specify dollar amount to be Transferred,
designate the Investment Division(s) to which the Transfer
will be made and the percent to be allocated to such
Investment Division(s). The Accumulation Unit values will be
determined on the Transfer Date.
Dollar Cost Averaging may be used to purchase Accumulation Units
of the Investment Divisions over a period of time. The Owner,
by Request, may cease Dollar Cost Averaging at any time.
Participation in Dollar Cost Averaging does not, however,
assure a greater profit, nor will it prevent or necessarily
alleviate losses in a declining market. The Company reserves
the right to modify, suspend or terminate Dollar Cost
Averaging at any time.
Custom Transfer: Rebalancer Option
The Owner may Request to automatically Transfer among the
Investment Divisions on a periodic basis by electing the
Rebalancer Option. This option automatically reallocates the
Variable Account Value to maintain a particular allocation
among Investment Divisions selected by the Owner. The amount
allocated to each Investment Division will increase or
decrease at different rates depending on the investment
experience of the Investment Division.
The Owner may Request that the rebalancing occur one time only,
in which case the Transfer will take place on the Transaction
Date of the Request. This Transfer will count as one Transfer
towards the twelve free Transfers allowed in a calendar year.
(See "Transfer Fee," page 13.)
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Rebalancing may also be set up on a quarterly, semiannual or
annual basis, in which case the first Transfer will be
initiated on the Transaction Date one frequency period
following the date of the Request. On the Transaction Date for
the specified Request, assets will be automatically
reallocated to the selected Investment Divisions. Rebalancing
will continue on the same Transaction Date for subsequent
periods. In order to participate in the Rebalancer Option, the
entire Variable Account Value must be included. Transfers set
up with these frequencies will not count against the twelve
free Transfers allowed in a calendar year.
The Owner must specify the percentage of Variable Account Value
to be allocated to each Investment Division and the frequency
of rebalancing. The Owner, by Request, may modify the
allocations or cease the Rebalancer Option at any time. The
Rebalancer Option will terminate automatically upon the
Payment Commencement Date. Participation in the Rebalancer
Option and Dollar Cost Averaging at the same time is not
allowed. Participation in the Rebalancer Option does not
assure a greater profit, nor will it prevent or necessarily
alleviate losses in a declining market. The Company reserves
the right to modify, suspend, or terminate the Rebalancer
Option at any time.
CASH WITHDRAWALS
Withdrawals
You (the Owner) may withdraw from the Contract all or part of
your Annuity Account Value at any time during the life of the
Annuitant and prior to the date annuity payments commence by
Request at the Schwab Annuity Service Center subject to the
rules below. Federal or state laws, rules or regulations may
apply. The amount payable to you if you surrender your
Contract is your Annuity Account Value, with a Market Value
Adjustment, if applicable, on the effective date of the
surrender, and less any applicable Premium Tax. No withdrawals
may be made after the date annuity payments commence.
A Request for a partial withdrawal will result in a reduction in
your Annuity Account Value equal to the sum of the dollar
amount withdrawn. A Market Value Adjustment may apply. (See
"Market Value Adjustment," page 11.) The partial withdrawal
proceeds may be greater or less than the amount requested,
depending on the effect of the Market Value Adjustment.
The minimum partial withdrawal before application of the MVA is
$500. Partial withdrawals are unlimited; however, you must
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specify the Investment Division(s) or Guarantee Period(s) from
which the withdrawal is to be made. After any partial
withdrawal, if the remaining Annuity Account Value is less
than $2,000, then a full surrender may be required.
The following terms apply:
(a) No partial withdrawals are permitted after the date
annuity payments commence.
(b) A partial withdrawal will be effective upon the
Transaction Date.
(c) A partial withdrawal from amounts in a Guarantee Period
may be subject to the Market Value Adjustment provisions,
the Guarantee Period Fund provisions of the Contract, and
the terms of the attached Guarantee Period Fund Rider(s), if
any.
Withdrawals may be taxable (this includes Periodic
Withdrawals, discussed below). Moreover, the Internal Revenue
Code (the "Code") provides that a 10% penalty tax may be
imposed on the taxable portions of certain early withdrawals.
The Code generally requires us to withhold federal income tax
from withdrawals. However, generally you will be entitled to
elect, in writing, not to have tax withholding apply unless
withholding is mandatory for your Contract. Withholding
applies to the portion of the withdrawal which is included in
your income and subject to federal income tax. The tax
withholding rate is 10% of the taxable amount of the
withdrawal. Withholding applies only if the taxable amount of
the withdrawal is at least $200. Some states also require
withholding for state income taxes. (See "Federal Tax
Matters," page 21.)
Withdrawal Requests must be in writing to ensure that your
instructions regarding withholding are followed. If an
adequate election is not made, the Request will be denied and
no withdrawal or partial withdrawal will be processed.
After a withdrawal of all of your total Annuity Account Value,
or at any time that your Annuity Account Value is zero, all
your rights under the Contract will terminate.
Since IRAs are offered by this Prospectus, reference should be
made to the applicable provisions of the Code for any
additional limitations or restrictions on cash withdrawals.
TELEPHONE TRANSACTIONS
We will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine and if we
follow such procedures we will not be liable for any losses
due to unauthorized or fraudulent instructions. However, we
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may be liable for such losses if we do not follow those
reasonable procedures. The procedures we will follow for
telephone transactions may include requiring some form of
personal identification prior to acting on instructions
received by telephone, providing written confirmation of the
transaction, and/or tape recording the instructions given by
telephone.
We reserve the right to suspend telephone transaction
privileges at any time, for some or all Contracts, and for any
reason. Withdrawals are not permitted by telephone.
DEATH BENEFIT
Payment of Death Benefit
Before the date annuity payments commence, the death benefit,
if any, will be equal to the greater of: (a) the Annuity
Account Value with an MVA, if applicable, as of the date the
Request for payment is received, less Premium Tax, if any, or
(b) the sum of Contributions paid, less partial withdrawals
and/or Periodic Withdrawals, less Premium Tax, if any. The
death benefit will become payable following the Company's
receipt of a Request from the Beneficiary. When an Owner or
the Annuitant dies before the annuity commencement date and a
death benefit is payable to a Beneficiary, the death benefit
proceeds will remain invested in accordance with the
allocation instructions given by the Owner(s) until new
allocation instructions are Requested by the Beneficiary or
until the death benefit is actually paid to the Beneficiary.
The death benefit will be determined as of the date payments
commence; however, on the date a payment option is processed,
amounts in the Variable Sub-Account will be Transferred to the
Money Market Investment Division unless the Beneficiary
otherwise elects by Request. Subject to the distribution rules
set forth below, payment of the death benefit may be Requested
to be made as follows:
A. Proceeds from the Variable Sub-Account(s)
1. payment in a single sum; or
2.payment under any of the variable annuity options
provided under this Contract.
B. Proceeds from the Guarantee Period(s)
1.payment in a single sum; or
2.payment under any of the annuity options provided under
this Contract.
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In any event, no payment of benefits provided under the
Contract will be allowed that does not satisfy the
requirements of Section 72(s) of the Code and any other
applicable federal or state laws, rules or regulations.
Distribution Rules
1. Death of Annuitant
Upon the death of the Annuitant while the Owner is living, and
before the annuity commencement date, the Company will pay the
death benefit to the Beneficiary unless there is a Contingent
Annuitant.
If a Contingent Annuitant was named by the Owner(s) prior to
the Annuitant's death, and the Annuitant dies before the
annuity commencement date while the Owner and Contingent
Annuitant are living, no death benefit will be payable by
reason of the Annuitant's death and the Contingent Annuitant
will become the Annuitant.
If the Annuitant dies after the date annuity payments
commence and before the entire interest has been distributed,
any benefit payable must be distributed to the Beneficiary in
accordance with and at least as rapidly as under the payment
option applicable to the Annuitant on the Annuitant's date of
death.
If a corporation or other non-individual is an Owner, or if
the deceased Annuitant is an Owner, the death of the Annuitant
will be treated as the death of an Owner and the Contract will
be subject to the "Death of Owner" provisions described below.
2. Death of Owner
If the Owner is not the Annuitant:
(1) If there is a Joint Owner who is the surviving spouse
of the deceased Owner, the Joint Owner will become the Owner
and Beneficiary and may elect to take the death benefit or
elect to continue the Contract in force.
(2)In all other cases, the Company will pay the death benefit
to the Beneficiary even if a Joint Owner (who was not the
Owner's spouse on the date of the Owner's death), the
Annuitant and/or the Contingent Annuitant are alive at the
time of the Owner's death, unless the sole Beneficiary is the
deceased Owner's surviving spouse and the Beneficiary elects
to become the Owner and Annuitant and to continue the Contract
in force.
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If the Owner is not the Annuitant, and the Owner dies after
annuity payments commence and before the entire interest has
been distributed while the Annuitant is living, any benefit
payable will continue to be distributed to the Annuitant at
least as rapidly as under the payment option applicable on the
Owner's death. All rights granted the Owner under the Contract
will pass to any surviving Joint Owner and, if none, to the
Annuitant.
If the Owner is the Annuitant (Owner/Annuitant):
(1) If there is a Joint Owner who is the surviving spouse of
the deceased Owner and a Contingent Annuitant, the Joint Owner
will become the Owner and the Beneficiary, the Contingent
Annuitant will become the Annuitant, and the Contract will
continue in force.
(2)If there is a Joint Owner who is the surviving spouse of the
deceased Owner but no Contingent Annuitant, the Joint Owner
will become the Owner, Annuitant and Beneficiary and may elect
to take the death benefit or continue the Contract in force.
(3)In all other cases, the Company will pay the death benefit
to the Beneficiary, even if a Joint Owner (who was not the
Owner's spouse on the date of the Owner's death), Annuitant
and/or Contingent Annuitant are alive at the time of the
Owner's death, unless the sole Beneficiary is the deceased
Owner's surviving spouse and the Beneficiary Requests to
become the Owner and Annuitant and to continue the Contract in
force.
Any death benefit payable to the Beneficiary upon an Owner's
death will be distributed as follows:
(1) If the Owner's surviving spouse is the person entitled
to receive benefits upon the Owner's death, the surviving
spouse will be treated as the Owner and will be allowed to
take the death benefit or continue the Contract in force; or
(2) If the Beneficiary is a non-spouse individual, she/he may
elect, not later than one year after the Owner's date of
death, to receive the death benefit in either a single sum or
payment under any of the variable or fixed annuity options
available under the Contract, provided that (a) such annuity
is distributed in substantially equal installments over the
life or life expectancy of the Beneficiary or over a period
not extending beyond the life expectancy of the Beneficiary;
and (b) such distributions begin not later than one year after
the Owner's date of death. If no election is received by the
Company from a non-spouse Beneficiary such that substantially
equal installments have begun not later than one year after
the Owner's date of death, then the entire amount must be
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distributed within five years of the Owner's date of death.
The death benefit will be determined as of the date the
payments commence; or
(3) If a corporation or other non-individual entity is entitled
to receive benefits upon the Owner's death, the death benefit
must be completely distributed within five years of the
Owner's date of death.
Beneficiary
You may select one or more Beneficiaries. If more than one
Beneficiary is selected, unless you indicate otherwise, they
will share equally in any death benefit payable. You may
change the Beneficiary any time before the Annuitant's death.
You may, while the Annuitant is living, change the Beneficiary
by Request. A change of Beneficiary will take effect as of the
date the Request is processed by the Schwab Annuity Service
Center, unless a certain date is specified by the Owner. If
the Owner dies before the Request was processed, the change
will take effect as of the date the Request was made, unless
the Company has already made a payment or otherwise taken
action on a designation or change before receipt or processing
of such Request. A beneficiary designated irrevocably may not
be changed without the written consent of that Beneficiary,
except as allowed by law.
The interest of any Beneficiary who dies before the Owner or
the Annuitant will terminate at the death of the Beneficiary.
The interest of any Beneficiary who dies at the time of, or
within 30 days after, the death of an Owner or the Annuitant
will also terminate if no benefits have been paid to such
Beneficiary, unless the Owner otherwise indicates by Request.
The benefits will then be paid as though the Beneficiary had
died before the deceased Owner or Annuitant. If no Beneficiary
survives the Owner or Annuitant, as applicable, the Company
will pay the death benefit proceeds to the Owner's estate.
If the surviving spouse of an Owner is the surviving Joint
Owner, the surviving spouse will become the Beneficiary upon
such Owner's death and may elect to take the death benefit or
may elect to continue the Contract in force. If there is no
surviving Joint Owner, and no named Beneficiary is alive at
the time at the time of an Owner's death, any benefits payable
will be paid to the Owner's estate.
Contingent Annuitant
While the Annuitant is living, the Owner(s) may, by Request,
designate or change a Contingent Annuitant from time to time.
A change of Contingent Annuitant will take effect as of the
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date the Request is processed at the Schwab Annuity Service
Center, unless a certain date is specified by the Owner(s).
CHARGES AND DEDUCTIONS
No deductions are made from Contributions except for any
applicable Premium Tax. Therefore, the full amount of the
Contributions (less any applicable Premium Tax) are invested
in the Contract.
As more fully described below, charges under the Contract are
assessed only as deductions for Premium Tax, if applicable,
for certain Transfers, as a Contract Maintenance Charge, and
as charges against the assets in the Owner's Variable Sub-
Account(s) for our assumption of mortality and expense risks.
In addition, a Market Value Adjustment may apply to
withdrawals and surrenders, Transfers, amounts applied to
purchase an annuity, and distributions resulting from death of
the Owner or Annuitant if the amounts held in a Guarantee
Period are paid out prior to the Guarantee Period Maturity
Date.
Mortality and Expense Risk Charge
We deduct a Mortality and Expense Risk Charge from your
Variable Sub-Account(s) at the end of each Valuation Period to
compensate us for bearing certain mortality and expense risks
under the Contract. This is a daily charge equal to an
effective annual rate of 0.85% of the value of the net assets
in your Variable Sub-Account(s). The approximate portion of
this charge attributable to mortality risks is 0.68%; the
approximate portion of this charge estimated to be
attributable to expense risk is 0.17% of the value of the net
assets in your Variable Sub-Account(s). We guarantee that this
charge will never increase beyond 0.85%.
The Mortality and Expense Risk Charge is reflected in the
Accumulation Unit Values for each of your Variable Sub-
Accounts. Thus, this charge will continue to be applicable
should you choose a variable annuity payment option or the
periodic withdrawal option.
Annuity Account Values and annuity payments are not affected
by changes in actual mortality experience incurred by us. The
mortality risks assumed by us arise from our contractual
obligations to make annuity payments determined in accordance
with the annuity tables and other provisions contained in the
Contract. Thus you are assured that neither the Annuitant's
longevity nor an unanticipated improvement in general life
expectancy will adversely affect the annuity payments under
the Contract.
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We bear substantial risk in connection with the death benefit
before the annuity commencement date, since we will pay a
death benefit equal to the greater of the Annuity Account
Value with a Market Value Adjustment, if applicable, as of the
later of the date of death or the date the Request for payment
is received, less Premium Tax, if any; or the sum of the
Contributions paid, less partial withdrawals and/or Periodic
Withdrawals, less any charges under Contract less Premium Tax,
if any (i.e., we bear the risk of unfavorable experience in
your Variable Sub-Accounts).
The expense risk assumed is the risk that our actual expenses
in administering the Contracts and the Series Account will be
greater than anticipated, or exceed the amount recovered
through the Contract Maintenance Charge plus the amount, if
any, recovered through Transfer Fees.
If the Mortality and Expense Risk Charge is insufficient to
cover actual costs and risks assumed, the loss will fall on
us. Conversely, if this charge is more than sufficient, any
excess will be profit to us. Currently, we expect a profit
from this charge. Our expenses for distributing the Contracts
will be borne by our general assets, including any profits
from this charge.
Contract Maintenance Charge
We currently deduct a $25 annual Contract Maintenance Charge
from the Annuity Account Value only on each Contract
anniversary date. This charge partially covers our costs for
administering the Contracts and the Series Account. Once you
have selected a payment option, this charge will cease to
apply other than for the Periodic Withdrawal Option. The
Contract Maintenance Charge is deducted from your Annuity
Account Value allocated to the Schwab Money Market Investment
Division. If you do not have sufficient Annuity Account Value
allocated to the Schwab Money Market Investment Division to
cover the Contract Maintenance Charge, then the charge or any
portion thereof will be deducted on a pro rata basis from all
your Variable Sub-Accounts with current value. If the entire
Annuity Account is held in the Guarantee Period Fund or there
are not enough funds in any Variable Sub-Account to pay the
entire charge, then the Contract Maintenance Charge will be
deducted on a pro rata basis from amounts held in all
Guarantee Periods. There is no MVA on amounts deducted from a
Guarantee Period for the Contract Maintenance Charge. The
Contract Maintenance Charges is currently waived for Contracts
with an Annuity Account Value of at least $50,000. If your
Annuity Account Value falls below $50,000 due to a withdrawal,
the Contract Maintenance Charge will be reinstated until such
time as your Annuity Account Value is equal to or greater than
$50,000. This charge may also be waived for Contracts issued
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under certain sponsored arrangements. We do not expect a
profit from amounts received from the Contract Maintenance
Charge.
Premium Tax
We may be required to pay state premium taxes or retaliatory
taxes currently ranging from 0% to 3.5% in connection with
Contributions or values under the Contracts. Currently, the
premium tax rate in New York for annuities is 0%. Depending on
applicable state law, we will deduct charges for the premium
taxes we incur with respect to a particular Contract from the
Contributions, from amounts withdrawn, or from amounts applied
on the Payment Commencement Date. In some states, charges for
both direct premium taxes and retaliatory premium taxes may be
imposed at the same or different times with respect to the
same Contribution, depending on applicable state law.
Transfer Fee
There will be a $10 charge for each Transfer in excess of
twelve Transfers in any calendar year. We do not expect a
profit from the Transfer fee for excess Transfers.
Other Taxes
Under present laws, we will incur state or local taxes (in
addition to the Premium Tax described above) in New York. No
charges are currently made for taxes other than Premium Tax.
However, we reserve the right to deduct charges in the future
for federal, state, and local taxes or the economic burden
resulting from the application of any tax laws that we
determine to be attributable to the Contracts.
Expenses of the Eligible Funds
The value of the assets in the Investment Divisions reflect
the value of Eligible Fund shares and therefore the fees and
expenses paid by each Eligible Fund. A complete description of
the fees, expenses, and deductions from the Eligible Funds are
found in the Eligible Funds' prospectuses. (See "The Eligible
Funds," page 6.) Current prospectuses for the Funds can be
obtained by calling the Schwab Annuity Service Center at 800-
838-0649, or by writing to the Schwab Annuity Service Center,
P.O. Box 7806, San Francisco, California 94120-9327.
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PAYMENT OPTIONS
Periodic Withdrawal Option
The Owner may Request that all or part of the Annuity Account
Value be applied to a Periodic Withdrawal Option. The amount
applied to a Periodic Withdrawal is the Annuity Account Value
with an MVA, if applicable, less Premium Tax, if any.
In Requesting Periodic Withdrawals, the Owner must elect:
-The withdrawal frequency of either 12-, 6-, 3-, or 1-month
intervals;
-A withdrawal amount; a minimum of $100 is required;
-The calendar day of the month on which withdrawals will be
made;
-One withdrawal option; and
-The allocation of withdrawals from the Owner's Variable and/or
Fixed Sub-Account(s) as follows:
1) Prorate the amount to be paid across all Variable and
Fixed Sub-Accounts in proportion to the assets in each sub-
account; or
2) Select the Variable and/or Fixed Sub-Account(s) from
which withdrawals will be made. Once the Variable and/or
Fixed Sub-Accounts have been depleted, the Company will
automatically prorate the remaining withdrawals against all
remaining available Variable and/or Fixed Sub-Accounts
unless the Owner Requests the selection of another Variable
and/or Fixed Sub-Account.
The Owner may elect to change the withdrawal option and/or the
frequency once each calendar year.
While Periodic Withdrawals are being received:
1.the Owner may continue to exercise all contractual rights
that are available prior to electing an annuity option,
except that no Contributions may be made;
2.for Periodic Withdrawals from Guarantee Periods six or more
months prior to its Guarantee Period Maturity Date, a Market
Value Adjustment, if applicable, will be assessed;
3.the Owner may keep the same investment options as were in
force before periodic withdrawals began;
4.charges and fees under the Contract continue to apply; and
5.maturing Guarantee Periods renew into the shortest Guarantee
Period then available.
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Periodic Withdrawals will cease on the earlier of the date:
1.the amount elected to be paid under the option selected has
been reduced to zero;
2.the Annuity Account Value is zero;
3.the Owner Requests that withdrawals stop; or
4.an Owner or the Annuitant dies.
The Owner must elect one of the following five (5)
withdrawal options:
1.Income for a Specified Period for at least thirty-six (36)
months - The Owner elects the duration over which
withdrawals will be made. The amount paid will vary based on
the duration; or
2.Income of a Specified Amount for at least thirty-six (36)
months - The Owner elects the dollar amount of the
withdrawals. Based on the amount elected, the duration may
vary; or
3.Interest Only - The withdrawals will be based on the amount
of interest credited to the Guarantee Period Fund between
each withdrawal. Available only if 100% of the account value
is invested in the Guarantee Period Fund; or
4.Minimum Distribution - If this is an IRA contract, the Owner
may Request minimum distributions as specified under Code
Section 401(a)(9); or
5.Any Other Form for a period of at least thirty-six (36)
months - Any other form of Periodic Withdrawal which is
acceptable to the Company.
If Periodic Withdrawals cease, the Owner may resume making
Contributions. The Owner may elect to restart a Periodic
Withdrawal program; however, the Company may limit the number
of times the Owner may restart a Periodic Withdrawal program.
Periodic withdrawals may be taxable, subject to withholding
and subject to the 10% penalty tax. IRAs are subject to
complex rules with respect to restrictions on and taxation of
distributions, including the applicability of penalty taxes. A
competent tax adviser should be consulted before a Periodic
Withdrawal Option is requested. (See "Federal Tax Matters,"
page 21.)
Annuity Date
The date annuity payments commence may be chosen when the
Contract is purchased or at a later date. This date must be at
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least one year after the initial Contribution. In the absence
of an earlier election, the annuity date is the first day of
the month of the Annuitant's 90th birthday.
If an option has not been elected within 30 days of the
annuity commencement date, the Annuity Account Value held in
the Fixed Sub-Account(s) will be applied under Fixed Annuity
Payment Option 3, discussed below, to provide payments for
life with a guaranteed period of 20 years. The Annuity Account
Value held in the Variable Sub-Account(s) will be applied
under Variable Annuity Payment Option 1, discussed below, to
provide payments for life with a guaranteed period of 20
years.
Under section 401(a)(9) of the Code, a Contract which is
purchased and used in connection with an Individual Retirement
Account or with certain other plans qualifying for special
federal income tax treatment is subject to complex "minimum
distribution" requirements, which require that distributions
under such a plan must begin by a specific date, and also that
the entire interest of the plan participant must be
distributed within certain specified periods under formulas
that specify minimum annual distributions. The application of
the minimum distribution requirements to each person will vary
according to the person's age and other circumstances. A
prospective purchaser may wish to consult a competent tax
adviser regarding the application of the minimum distribution
requirements. (See "Federal Tax Matters," page 21.)
Annuity Options
An annuity option may be selected by the Owner when the
Contract is purchased, or at a later date. This selection may
be changed, by Request, at any time up to 30 days before the
annuity date. In the absence of an election, payments will
automatically commence on the annuity date as described above.
The amount to be applied is the Annuity Account Value on the
annuity date. The minimum amount that may be withdrawn from
the Annuity Account Value to purchase an annuity payment
option is $2,000 with an MVA, if applicable. If the amount is
less than $2,000, the Company may pay the amount in a single
sum subject to the Contract provisions applicable to a partial
withdrawal. Payments may be elected to be received monthly,
quarterly, semi-annually or annually. Payments to be made
under the annuity payment option selected must be at least
$50. The Company reserves the right to make payments using the
most frequent payment interval which produces a payment of not
less than $50. The maximum amount that may be applied under
any payment option is $1,000,000, unless prior approval is
obtained from the Company.
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A single sum payment may be elected. If it is, then the amount
to be paid is the Surrender Value. If the Owner elects a
variable annuity with funds from the Owner's Variable Sub-
Accounts, then the amount to be applied is the Annuity Account
Value held in the Variable Sub-Account(s), as of the annuity
commencement date, less any applicable Premium Tax. If the
Owner elects a fixed annuity with funds from the Fixed Sub-
Accounts, then the amount to be applied is the Annuity Account
Value held in the Fixed Sub-Account(s), as of the annuity
commencement date with an MVA, if applicable, less any
applicable Premium Tax.
Fixed Annuity Payment Options
Option 1: Income of Specified Amount
The amount applied under this option may be paid in equal
annual, semiannual, quarterly or monthly installments of the
dollar amount elected for not more than 240 months. Upon death
of the Annuitant, the Beneficiary will begin to receive the
remaining payments at the same interval that was elected by
the Owner.
Option 2: Income for a Specified Period
Payments are paid annually, semiannually, quarterly or
monthly, as elected, for a selected number of years not to
exceed 240 months. Upon death of the Annuitant, the
Beneficiary will begin to receive the remaining payments at
the same interval that was elected by the Owner.
Option 3: Fixed Life Annuity with Guaranteed Period
This option provides for monthly payments during a
designated period and thereafter throughout the lifetime of
the Annuitant. The designated period may be 5, 10, 15 or 20
years. Upon death of the Annuitant, for each remaining
designated period, the amounts payable under this payment
option will be paid to the Beneficiary.
Option 4: Fixed Life Annuity
This annuity is payable monthly during the lifetime of the
Annuitant, terminating with the last payment due prior to the
death of the Annuitant. Since no minimum number of payments is
guaranteed, this option may offer the maximum level of monthly
payments of the annuity options. It is possible that only one
payment may be made if the Annuitant died before the date on
which the second payment was due. Upon the death of the
Annuitant, all payments cease and no amounts are payable to
the Beneficiary.
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Option 5: Any Other Form
This option allows an Owner the ability to choose any other
form of annuity which is acceptable to the Company.
Variable Annuity Payment Options
Option 1: Variable Life Annuity with Guarantee Period
This option provides for payments during a designated period
and thereafter throughout the life time of the Annuitant. The
designated period may be 5, 10, 15 or 20 years. Upon death of
the Annuitant, for each remaining designated period, the
amounts payable under this payment option will be paid to the
Beneficiary.
Option 2: Variable Life Annuity
This annuity is payable during the lifetime of the
Annuitant. The annuity terminates with the last payment due
prior to the death of the Annuitant. Since no minimum number
of payments is guaranteed, this option may offer the maximum
level of monthly payments of the annuity options. It is
possible that only one payment may be made if the Annuitant
died before the date on which the second payment was due. Upon
the death of the Annuitant, all payments cease and no amounts
are payable to the Beneficiary.
Variable annuity payment options are subject to the following
provisions:
Amount of First Payment
The first payment under a variable annuity payment option will
be based on the value of the amounts held in each Variable
Sub-Account on the 5th Valuation Date preceding the annuity
commencement date. It will be determined by applying the
appropriate rate to the amount applied under the payment
option.
Annuity Units
The number of Annuity Units paid to the Annuitant for each
Variable Sub-Account is determined by dividing the amount of
the first monthly payment by its Accumulation Unit Value on
the 5th Valuation Date preceding the date the first payment is
due. The number of Annuity Units used to calculate each
payment for a Variable Sub-Account remains fixed during the
Annuity Payment Period.
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Amount of Payments after the First
Payments after the first will vary depending upon the
investment experience of the Investment Divisions. The
subsequent amount paid from each sub-account is determined by
multiplying (a) by (b) where (a) is the number of sub-account
Annuity Units to be paid and (b) is the sub-account Annuity
Unit value on the 5th Valuation Date preceding the date the
annuity payment is due. The total amount of each variable
annuity payment will be the sum of the variable annuity
payments for each Variable Sub-Account. The Company guarantees
that the dollar amount of each payment after the first will
not be affected by variations in expenses or mortality
experience.
Transfers After the Annuity Commencement Date
Once annuity payments have begun, no Transfers may be made
from a fixed annuity payment option to a variable annuity
payment option, or vice versa; however, for variable annuity
payment options, Transfers may be made among Investment
Divisions. Transfers after the annuity commencement date will
be made by converting the number of Annuity Units being
Transferred to the number of Accumulation Units of the
Variable Sub-Account to which the Transfer is made. The result
will be that the next annuity payment, if it were made at that
time, would be the same amount that it would have been without
the Transfer. Thereafter, annuity payments will reflect
changes in the value of the new Annuity Units.
***
For annuity options involving life income, the actual age
and/or sex of the Annuitant will affect the amount of each
payment. We reserve the right to ask for satisfactory proof of
the Annuitant's age. We may delay annuity payments until
satisfactory proof is received. Since payments to older
Annuitants are expected to be fewer in number, the amount of
each annuity payment under a selected annuity form will be
greater for older Annuitants than for younger Annuitants.
If the age or sex of the Annuitant has been misstated, the
payments established will be made on the basis of the correct
age or sex. If payments were too large because of
misstatement, the difference with interest may be deducted by
the Company from the next payment or payments. If payments
were too small, the difference with interest may be added by
the Company to the next payment. This interest is at an annual
effective rate which will not be less than the Contractual
Guarantee of a Minimum Rate of Interest.
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The Payment Commencement Date and annuity options available
for IRAs may also be controlled by endorsements, the plan
documents, or applicable law.
Once payments start under the annuity form selected by the
Owner: (a) no changes can be made in the annuity form, (b) no
additional Contributions will be accepted under the Contract,
and (c) no further withdrawals, other than withdrawals made to
provide annuity benefits, will be allowed.
***
A portion or the entire amount of the annuity payments may be
taxable as ordinary income. If, at the time the annuity
payments begin, we have not received a proper written election
not to have federal income taxes withheld, we must by law
withhold such taxes from the taxable portion of such annuity
payments and remit that amount to the federal government (an
election not to have taxes withheld is not permitted for
certain Qualified Contracts). State income tax withholding may
also apply. (See "Federal Tax-Matters," below.)
FEDERAL TAX MATTERS
Introduction
The following discussion is a general description of federal
income tax considerations relating to the Contracts and is not
intended as tax advice. Further, this discussion is based on
the assumption that the Contract qualifies as an annuity
contract for federal income tax purposes. This discussion is
not intended to address the tax consequences resulting from
all of the situations in which a person may be entitled to or
may receive a distribution under the Contract. Any person
concerned about these tax implications should consult a
competent tax adviser before initiating any transaction. This
discussion is based upon our understanding of the present
federal income tax laws as they are currently interpreted by
the Internal Revenue Service. No representation is made as to
the likelihood of the continuation of the present federal
income tax laws or of the current interpretation by the
Internal Revenue Service. Moreover, no attempt has been made
to consider any applicable state or other tax laws.
The Contract may be purchased on a non-tax qualified basis
("Non-Qualified Contract") or purchased and used in connection
with IRAs. The ultimate effect of federal income taxes on the
amounts held under a Contract, on annuity payments, and on the
economic benefit to you, the Annuitant, or the Beneficiary may
depend on the type of Contract, and on the tax status of the
individual concerned. In addition, certain requirements must
be satisfied in purchasing an IRA and receiving distributions
from an IRA in order to continue receiving favorable tax
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treatment. Therefore, purchasers of IRAs should seek competent
legal and tax advice regarding the suitability of the Contract
for their situation, the applicable requirements, and the tax
treatment of the rights and benefits of the Contract. The
following discussion assumes that an IRA is purchased with
proceeds from and/or Contributions that qualify for the
intended special federal income tax treatment.
Tax Status
The Company is taxed as a life insurance company under Part I
of Subchapter L of the Code.
Taxation of Annuities
In General
Section 72 of the Code governs taxation of annuities in
general. An Owner who is a natural person generally is not
taxed on increases (if any) in the value of an Annuity Account
Value until distribution occurs by withdrawing all or part of
the Annuity Account Value (e.g., withdrawals or annuity
payments under the annuity form elected). However, under
certain circumstances, the Owner may be subject to taxation
currently. In addition, an assignment, pledge, or agreement to
assign or pledge any portion of the Annuity Account Value
generally will be treated as a distribution. The taxable
portion of a distribution (in the form of a single sum payment
or an annuity) is taxable as ordinary income. An IRA Contract
may not be assigned as collateral.
The Owner of any annuity contract who is not a natural person
(e.g. a corporation) generally must include in income any
increase in the excess of the Annuity Account Value over the
"investment in the contract" (discussed below) during each
taxable year. The rule does not apply where the non-natural
person is the nominal owner of a Contract and the beneficial
owner is a natural person. The rule also does not apply in the
following circumstances: (1) where the annuity Contract is
acquired by the estate of a decedent, (2) where the Contract
is held under an IRA, (3) where the Contract is a qualified
funding asset for a structured settlement, and (4) where the
Contract is purchased on behalf of an employee upon
termination of a qualified plan. A prospective Owner that is
not a natural person may wish to discuss these matters with a
competent tax adviser.
The following discussion generally applies to a Contract owned
by a natural person.
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Withdrawals
In the case of a withdrawal under an IRA, including
withdrawals under the Periodic Withdrawal Option, a ratable
portion of the amount received may be non-taxable. The amount
of the non-taxable portion is generally determined by the
ratio of the "investment in the contract" to the individual's
total accrued benefit under the retirement plan. The
"investment in the contract" generally equals the amount of
any nondeductible Contributions paid by or on behalf of any
individual. Special tax rules may be available for certain
distributions from an IRA.
With respect to Non-Qualified Contracts, partial withdrawals,
including Periodic Withdrawals, are generally treated as
taxable income to the extent that the Annuity Account Value
immediately before the withdrawal exceeds the "investment in
the contract" at that time. If a partial withdrawal is made
from a Guarantee Period which is subject to a Market Value
Adjustment, then the Annuity Account Value immediately before
the withdrawal will not be altered to take into account the
Market Value Adjustment. As a result, for purposes of
determining the taxable portion of the partial withdrawal, the
Annuity Account Value will not reflect the amount, if any,
deducted from or added to the Guarantee Period due to the
Market Value Adjustment. Full surrenders are treated as
taxable income to the extent that the amount received exceeds
the "investment in the contract." The taxable portion of any
annuity payment is taxed at ordinary income tax rates.
Annuity Payments
Although the tax consequences may vary depending on the
annuity form elected under the Contract, in general, only the
portion of the annuity payment that represents the amount by
which the Annuity Account Value exceeds the "investment in the
contract" will be taxed; after the investment in the contract
is recovered, the full amount of any additional annuity
payments is taxable. For fixed annuity payments, in general
there is no tax on the portion of each payment which
represents the same ratio that the "investment in the
contract" bears to the total expected value of the annuity
payments for the term of the payments; however, the remainder
of each annuity payment is taxable. Once the investment in the
Contract has been fully recovered, the full amount of any
additional annuity payments is taxable. If the annuity
payments cease as a result of an Annuitant's death before full
recovery of the "investment in the contract," you should
consult a competent tax adviser regarding the deductibility of
the unrecovered amount.
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Penalty Tax
In the case of a distribution pursuant to a Non-Qualified
Contract, there may be imposed a federal income tax penalty
equal to 10% of the amount treated as taxable income. In
general, however, there is no penalty tax on distributions:
(1) made on or after the date on which the recipient of
payments under the Contract attains age 59 1/2; (2) made as a
result of death or disability of the recipient of payments
under the Contract; or (3) received in substantially equal
periodic payments as a life annuity or a joint and survivor
annuity for the lives or life expectancies of the Owner and a
"designated beneficiary." Other exemptions or tax penalties
may apply to certain distributions pursuant to an IRA. For
more details regarding these exemptions or penalties consult a
competent tax adviser.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the Contract because of the
death of an Owner or the Annuitant. Generally such amounts are
includible in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner
as a full surrender, as described above, or (2) if distributed
under an annuity form, they are taxed in the same manner as
annuity payments, as described above.
Distribution-at-Death Rules
In order to be treated as an annuity contract, the terms of
the Contract must provide the following two distribution
rules: (A) if any Contract Owner dies on or after the date
annuity payments commence, and before the entire interest in
the Contract has been distributed, the remainder of his
interest will not be distributed under a slower distribution
schedule than that provided for in the method in effect on the
Contract Owner's death; and (B) if any Contract Owner dies
before the date annuity payments commence, his entire interest
must generally be distributed within five years after the date
of death provided that if such interest is payable to a
designated Beneficiary, then such interest may be made over
the life of that designated Beneficiary or over a period not
extending beyond the life expectancy of that Beneficiary, so
long as payments commence within one year after the Contract
Owner's death. If the sole designated Beneficiary is the
spouse of the Contract Owner, the Contract may be continued in
the name of the spouse as Contract Owner. The designated
Beneficiary is the natural person designated by the terms of
the Contract or by the Contract Owner as the individual to
whom ownership of the contract passes by reason of the
Contract Owner's death. If the Contract Owner is not an
individual, then for purposes of the distribution at death
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<PAGE>
rules, the Primary Annuitant is considered the Contract Owner.
In addition, when the Contract Owner is not an individual, a
change in the Primary Annuitant is treated as the death of the
Contract Owner.
Transfers, Assignments, or Exchanges
A Transfer of ownership of a Contract, the designation of an
Annuitant, Payee or other Beneficiary who is not also the
Owner, or the exchange of a Contract may result in adverse tax
consequences to the Owner that are not discussed herein. An
Owner contemplating any such designation, transfer,
assignment, or exchange of a Contract should contact a
competent tax adviser with respect to the potential tax
effects of such a transaction.
Multiple Contracts
All deferred, non-qualified annuity contracts that are issued
by the Company (or our affiliates) to the same Owner during
any calendar year will be treated as one annuity contract for
purposes of determining the amount includible in gross income
under section 72(e) of the Code. Amounts received under any
such Contract may be taxable (and may be subject to the 10%
Penalty Tax) to the extent of the combined income in all such
Contracts. In addition, the Treasury Department has specific
authority to issue regulations that prevent the avoidance of
section 72(e) through the serial purchase of annuity contracts
or otherwise. Congress has also indicated that the Treasury
Department may have authority to treat the combination
purchase of an immediate annuity contract and separate
deferred annuity contracts as a single annuity contract under
its general authority to prescribe rules as may be necessary
to enforce the income tax laws.
Withholding
Annuity distributions generally are subject to withholding
for the recipient's federal income tax liability at rates that
vary according to the type of distribution and the recipient's
tax status. Recipients, however, generally are provided the
opportunity to elect not to have tax withheld from
distributions. Certain distributions from IRAs are subject to
mandatory federal income tax withholding.
Possible Changes in Taxation
In past years, legislation has been proposed that would have
adversely modified the federal taxation of certain annuities.
For example, one such proposal would have changed the tax
treatment of non-qualified annuities that did not have
"substantial life contingencies" by taxing income as it is
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<PAGE>
credited to the annuity. There is always the possibility that
the tax treatment of annuities could change by legislation or
other means (such as IRS regulations, revenue rulings,
judicial decisions, etc.). Moreover, it is also possible that
any change could be retroactive (that is, effective prior to
the date of the change).
Section 1035 Exchanges
Code Section 1035 provides that no gain or loss shall be
recognized on the exchange of one annuity contract for
another. A replacement contract obtained in a tax-free
exchange of contracts succeeds to the status of the original
contract. Special rules apply to Contracts issued prior to
August 14, 1982. Prospective Owners wishing to take advantage
of a Section 1035 exchange should consult their tax adviser.
Individual Retirement Annuities
The Contract may be used with IRAs as described in Section 408
of the Code. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program
known as an Individual Retirement Annuity. Also, certain kinds
of distributions from certain types of qualified and non-
qualified retirement plans may be "rolled over" following the
rules set out in the Code to maintain favorable tax treatment,
to an Individual Retirement Annuity. The sale of a Contract
for use with an IRA may be subject to special disclosure
requirements of the Internal Revenue Service. Purchasers of
the Contract for use with IRA's will be provided with
supplemental information required by the Internal Revenue
Service or other appropriate agency. Such purchasers will have
the right to revoke their purchase within seven days of
purchase of the IRA Contract.
Various tax penalties may apply to contributions in excess of
specified limits, aggregate distributions in excess of
$150,000 annually, distributions that do not satisfy specified
requirements, and certain other transactions. The Contract
will be amended as necessary to conform to the requirements of
the Code. Purchasers should seek competent advice as to the
suitability of the Contract for use with IRA's.
If a Contract is issued in connection with an employer's
Simplified Employee Pension ("SEP") plan, Owners, Annuitants
and Beneficiaries are cautioned that the rights of any person
to any of the benefits under the Contract may be subject to
the terms and conditions of the plan itself, regardless of the
terms and conditions of the Contract.
If a Contract is purchased to fund an IRA the Annuitant must
also be the Owner. In addition, if a Contract is purchased to
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<PAGE>
fund an IRA, minimum distributions must commence not later
than April 1st of the calendar year following the calendar
year in which you attain age 70 1/2. You should consult your
tax adviser concerning these matters.
The Contract and prototype IRA endorsement have been submitted
for IRS approval and determination that they are acceptable
under Section 408 of the Code, so that each individual who
purchases a Contract with an IRA endorsement will be
considered to have adopted a retirement savings program that
satisfies the requirements of Section 408 of the Code. The IRS
approval is a determination only as to the form of the
Contract and does not represent a determination of the merits
of the Contract.
At the time the Initial Contribution is paid, a prospective
purchaser must specify whether he or she is purchasing a Non-
Qualified Contract or an IRA. If the initial Contribution is
derived from an exchange or surrender of another annuity
contract, we may require that the prospective purchaser
provide information with regard to the federal income tax
status of the previous annuity contract. We will require that
persons purchase separate Contracts if they desire to invest
monies qualifying for different annuity tax treatment under
the Code. Each such separate Contract would require the
minimum initial Contribution stated above. Additional
Contributions under a Contract must qualify for the same
federal income tax treatment as the initial Contribution under
the Contract; we will not accept an additional Contribution
under a Contract if the federal income tax treatment of such
Contribution would be different from that of the initial
Contribution.
Seek Tax Advice
The foregoing discussion of the federal income tax
consequences is only a brief summary and is not intended as
tax advice. Further, the federal income tax consequences
discussed herein reflect our understanding of current law and
the law may change. Federal estate tax consequences and state
and local estate, inheritance, and other tax consequences of
ownership or receipt of distributions under a Contract depend
on the individual circumstances of each Owner or recipient of
the distribution. A COMPETENT TAX ADVISER SHOULD BE CONSULTED
FOR FURTHER INFORMATION.
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<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, the Owner may not assign
the Contract as collateral.
If a non-IRA Contract is assigned, the interest of the
assignee has priority over the interest of the Owner and the
interest of the Beneficiary. Any amount payable to the
assignee will be paid in a single sum.
A copy of any assignment must be submitted to the Company at
the Schwab Annuity Service Center. Any assignment is subject
to any action taken or payment made by the Company before the
assignment was processed. The Company is not responsible for
the validity or sufficiency of any assignment.
If any portion of the Annuity Account Value is assigned or
pledged for a loan, it may be treated as a distribution. A
competent tax adviser should be consulted for further
information.
PERFORMANCE DATA
From time to time, we may advertise yields and average annual
total returns for the Investment Divisions. In addition, we
may advertise the effective yield of the Schwab Money Market
Investment Division. These figures will be based on historical
information and are not intended to indicate future
performance.
The yield of the Schwab Money Market Investment Division
refers to the annualized income generated by an investment in
that Investment Division over a specified seven-day period.
The yield is calculated by assuming that the income generated
for that seven-day period is generated each seven-day period
over a 52-week period and is shown as a percentage of the
investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment in that
Investment Division is assumed to be reinvested. The effective
yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
The yield of an Investment Division (other than the Schwab
Money Market Investment Division) refers to the annualized
income generated by an investment in that Investment Division
over a specified thirty-day period. The yield is calculated by
assuming that the income generated by the investment during
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<PAGE>
that thirty-day period is generated each thirty-day period
over a twelve-month period and is shown as a percentage of the
investment.
The yield calculations do not reflect the effect of any
Premium Tax that may be applicable to a particular Contract.
To the extent that premium taxes are applicable to a
particular Contract, the yield of that Contract will be
reduced. For a description of the methods used to determine
yield and total returns, see the Statement of Additional
Information.
Investment Division Effective Yield
Money Market 4.10%
The average annual total return of an Investment Division
refers to return quotations assuming an investment has been
held in the Investment Division for various periods of time
including, but not limited to, a period measured from the date
the Investment Division commenced operations. When an
Investment Division has been in operation for 1, 5, and 10
years, respectively, the average annual total return for these
periods will be provided. The average annual total return
quotations will represent the average annual compounded rates
of return that would equate an initial investment of $1,000 to
the redemption value of that investment (excluding Premium
Tax) as of the last day of each of the periods for which total
return quotations are provided. For additional information
regarding yields and total returns calculated using the
standard formats briefly described herein, please refer to the
Statement of Additional Information.
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<PAGE>
<TABLE>
<CAPTION>
Investment Division One Three Five Since Inception
Year Year Year Inception Date of
Underlying
Fund
<S> <C> <C> <C> <C> <C>
Alger American Growth 12.39% 15.18% 15.60% 17.58% 1/9/89
Portfolio
Alger American Small 3.30% 11.89% 10.04% 17.70% 9/21/88
Capitalization Portfolio
American Century VP Capital -5.11% 6.49% 5.23% 9.78% 11/20/87
Appreciation
American Century VP 13.35% N/A N/A 12.17% 5/1/94
International
Berger IPT-Small Company N/A N/A N/A -1.73% 4/15/96
Growth Fund
Federated American Leaders 20.55% N/A N/A 17.01% 2/10/94
Fund II
Federated Fund for U.S. 3.32% N/A N/A 4.71% 3/28/94
Government Securities II
Federated Utility Fund II 10.62% N/A N/A 9.67% 2/10/94
INVESCO VIF-High Yield 15.60% N/A N/A 12.61% 5/1/94
Portfolio
INVESCO VIF-Industrial 21.25% N/A N/A 20.41% 8/1/94
Income Portfolio
INVESCO VIF-Total Return 11.23% N/A N/A 12.98% 6/1/94
Portfolio
Janus Aspen Aggressive 7.04% 15.97% N/A 20.27% 9/13/93
Growth Portfolio
Janus Aspen Growth 17.45% 15.57% N/A 15.21% 9/13/93
Portfolio
Janus Aspen Worldwide 27.95% 17.59% N/A 22.13% 9/13/93
Growth Portfolio
Lexington Emerging Markets 6.55% N/A N/A 0.56% 3/30/94
Fund
Montgomery Variable Series: N/A N/A N/A 26.14% 2/9/96
Growth Fund
Montgomery Variable Series: N/A N/A N/A -2.54% 11/27/96
International Small-Cap
Fund
SAFECO RST Equity Portfolio 23.73% 19.44% 18.25% 13.45% 7/21/87
Schwab Asset Director-High N/A N/A N/A 3.54% 11/1/96
Growth Portfolio
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<PAGE>
Schwab S&P 500 Portfolio N/A N/A N/A 5.16% 11/1/96
SteinRoe Capital 25.87% 11.84% 16.37% 16.50% 1/1/89
Appreciation Fund
Strong Discovery Fund II -0.04% 7.92% N/A 11.30% 5/8/92
Van Eck Worldwide Hard 17.04% 6.72% 13.54% 7.25% 9/1/89
Assets Fund
</TABLE>
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<PAGE>
Performance information for any Investment Division reflects
only the performance of a hypothetical Contract under which
Annuity Account Value is allocated to an Investment Division
during a particular time period on which the calculations are
based. Performance information should be considered in light
of the investment objectives and policies and characteristics
of the Eligible Funds in which the Investment Division
invests, and the market conditions during the given time
period, and should not be considered as a representation of
what may be achieved in the future.
Reports and promotional literature may also contain other
information including (1) the ranking of any Investment
Division derived from rankings of variable annuity separate
accounts or their investment products tracked by Lipper
Analytical Services, Inc., VARDS, Morningstar, Value Line,
IBC/Donoghue's Money Fund Report, Financial Planning Magazine,
Money Magazine, Bank Rate Monitor, Standard & Poor's Indices,
Dow Jones Industrial Average, and other rating services,
companies, publications, or other persons who rank separate
accounts or other investment products on overall performance
or other criteria, and (2) the effect of tax-deferred
compounding on investment returns, or returns in general,
which may be illustrated by graphs, charts, or otherwise, and
which may include a comparison, at various points in time, of
the return from an investment in a Contract (or returns in
general) on a tax-deferred basis (assuming one or more tax
rates) with the return on a currently taxable basis. Other
ranking services and indices may be used.
We may from time to time also disclose cumulative (non-
annualized) total returns for the Investment Divisions. We may
from time to time also disclose yield and standard total
returns for any or all Investment Divisions.
We may also advertise performance figures for the Investment
Divisions based on the performance of an Eligible Fund prior
to the time the Series Account commenced operations.
For additional information regarding the calculation of other
performance data, please refer to the Statement of Additional
Information.
DISTRIBUTION OF THE CONTRACTS
Charles Schwab & Co., Inc. ("Schwab") is the principal
underwriter and distributor of the Contracts. Schwab is
registered with the Securities and Exchange Commission as a
broker/dealer and is a member of the National Association of
Securities Dealers, Inc. ("NASD"). Its principal offices are
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<PAGE>
located at 101 Montgomery, San Francisco, California 94104,
telephone 800-838-0649.
Certain administrative services are provided by Schwab to
assist the Company in the processing of the Contracts, which
services are described in written agreements between Schwab
and the Company. The Company has agreed to indemnify Schwab
(and its agents, employees, and controlling persons) for
certain damages arising out of the sale of the Contracts,
including those arising under the securities laws.
SELECTED FINANCIAL DATA
First GWL&A was incorporated on April 9, 1996 and had no
operations until receipt of its certificate of authority from
the Superintendent of Insurance of New York on May 28, 1997.
Please see the financial statements of First Great-West Life &
Annuity Insurance Company included elsewhere in this
Prospectus for information related to its financial condition.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company
The Company commenced operations as a New York domiciled life
insurer as of May 28, 1997. Accordingly, as of the date of
this Prospectus, the Company has not had a significant
operating history. The Company will operate in one business
segment as a provider of life, health and annuity products to
groups of individuals associated with employers or
distributors; however, the business operations of First GWL&A
will be segregated into two major business units: the Employee
Benefits division, which distributes life, health, disability
income insurance and 401(k) products to employee groups,
primarily to small-to-mid-sized corporations; and the
Financial Services Division, which distributes accumulation
and payout annuity products for both group and individual
clients, primarily in the public/non-profit sectors, as well
as insurance products for individual clients.
Liquidity and Capital Resources
The principal short- and long-term liquidity needs of the
Company will be closely managed to satisfy policyholder
benefits. The liquidity needs of the Company will be closely
managed through cash flow matching of assets and liabilities,
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<PAGE>
and the forecasting of earned and required yields to ensure
consistency between policyholder requirements and the yield of
assets.
Regulation and Reserves
The Company is subject to regulation and supervision by the
insurance departments of the state in which it is licensed.
This regulation covers a variety of areas, including policy
reserve requirements, adequacy of company capital and surplus,
operational standards, and financial accounting policies and
procedures.
Pursuant to state insurance laws and regulations, the Company
is obligated to hold policy reserves to meet its obligations
under all outstanding insurance contracts. These reserves are
based on a number of assumptions as to future experience.
Neither the reserve requirements nor the other aspects of
state insurance regulation provide absolute protection to
holders of insurance contracts if the Company were to
experience unexpected losses (e.g., infectious diseases or
catastrophic investment losses).
Competition
The Company is engaged in a business that is highly
competitive due to the large number of insurance companies and
other entities competing in marketing, administering, and
selling insurance products. There are approximately 2,300
insurers in the life insurance business in the United States.
Segment Information
The Company operates in one business segment as a provider of
life, health and annuity products to groups of individuals
associated with employers or distributors.
Employees and Facilities
The Company has an administrative services agreement with
Great-West Life & Annuity Insurance Company, to provide
administrative support for all aspects of the Company s
business. Great-West Life & Annuity has approximately 4,300
employees in its U.S. operations. The Company's executive
offices are located at 125 Wolf Road, Suite 110, Albany, New
York 12205.
State Regulation
As a life insurance company organized and operated under New
York law, First GWL&A is subject to provisions governing such
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<PAGE>
companies and regulation by the New York Superintendent of
Insurance.
First GWL&A's books and accounts are subject to review and
examination by the New York Division of Insurance at any time,
and a full examination of its operations is conducted
triennially.
In addition, First GWL&A is subject to comprehensive and
detailed regulation and supervision by the supervisory
agencies in each jurisdiction in which it conducts business.
Each state's supervisory agency has broad administrative
authority which includes, but is not limited to, the power to
regulate licenses to transact business, trade practices, agent
licensing, policy forms, claims practices, underwriting
practices, reserve requirements, fixing maximum interest rates
on life insurance policy loans and minimum rates for
accumulation of surrender values, the form and content of
required financial statements and the type and amounts of
investments permitted. First GWL&A is required to file
detailed annual reports with supervisory agencies in each of
the jurisdictions in which it does business and its accounts
are subject to examination by such agencies at regular
intervals. Under insurance guaranty fund laws in most states,
insurers can be assessed up to prescribed limits for insurance
contract losses incurred by insolvent companies.
In addition, most jurisdictions, including New York, regulate
affiliated groups of insurers such as First GWL&A and its
affiliates under insurance holding company legislation. Under
such laws, intercorporate transfers of assets and dividend
payments from insurance subsidiaries may be subject to prior
notice or approval, depending on the size of such transfers
and payments in relation to the financial position of the
company making the transfer. Changes in control also are
regulated under these laws.
Although the federal government generally does not directly
regulate the business of insurance, federal initiatives often
have an impact on the business in a variety of ways. Current
and proposed federal measures which may significantly affect
First GWL&A's insurance business include employee benefits
regulation, controls on medical care costs, insurance reform,
managed care regulation, medical entitlement programs (e.g.,
Medicare), removal of barriers preventing banks from engaging
in the insurance and mutual fund businesses, the taxation of
insurance companies and the tax treatment of insurance
products.
The Securities and Exchange Commission regulates certain
separate accounts of First GWL&A and the mutual funds used as
funding vehicles for those accounts.
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<PAGE>
Directors and Officers
Set forth below is information concerning the Company's
directors and executive officers, together with their
principal occupation for the past five years. Unless otherwise
indicated, all of the directors and executive officers have
been engaged for not less than five years in their present
principal occupation or in another executive capacity with the
companies or firms identified.
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<PAGE>
Directors Principal Occupation Last 5 Years
Marcia D. Alazraki Partner, Simpson Thacher & Bartlett
James Balog Director of Great-West since March
1993; previously Chairman, Lambert
Brussels Capital Corporation
James W. Burns, O.C. Chairman of the Boards of Lifeco1 and
GWL; Deputy Chairman, PCC2
Paul Desmarais, Jr. Chairman and Co-Chief Executive
Officer, PCC; Chairman, PFC3
Robert Gratton Chairman of the Board of Great-West;
President and Chief Executive Officer,
PFC
N. Berne Hart Director of Great-West since February
1992; previously Chairman, United Banks
of Colorado, Inc.
Stuart Z. Katz Partner, Fried, Frank, Harris, Shriver
& Jacobson
William T. McCallum President and Chief Executive Officer,
Great-West; President and Chief
Executive Officer (U.S. Operations),
GWL
Brian E. Walsh Partner, Trinity L.P. since January
1996; previously Managing Director and
Co-head, Global Investment Bank,
Bankers Trust Company
1 Great-West Lifeco Inc.
2 Power Corporation of Canada
3 Power Financial Corporation
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<PAGE>
Executive Officers Principal Occupation Last 5 Years
William T. McCallum President and Chief Executive Officer
of the Company and Great-West;
President and Chief Executive Officer
(U.S. Operations), GWL
Dennis Low Executive Vice President, Financial
Services of the Company, Great-West and
GWL
James D. Motz Executive Vice President, Employee
Benefits of the Company, Great-West and
GWL
Robert D. Bond Senior Vice President, Financial
Services of the Company, Great-West and
GWL; prior to May 1992, National
Director, Public Marketing, Aetna Life
Insurance Company
John T. Hughes Senior Vice President, Chief Investment
Officer of the Company, Great-West and
GWL
D. Craig Lennox Senior Vice President, General Counsel
and Secretary of the Company and Great-
West; Senior Vice President and Chief
U.S. Legal Officer, GWL
Martin L. Rosenbaum Senior Vice President, Employee
Benefits Operations of the Company,
Great-West and GWL
Douglas L. Wooden Senior Vice President, Financial
Services of the Company, Great-West and
GWL
Executive Compensation
Executive officers of the Company may also serve one or more
affiliated companies of First GWL&A. Allocations have been
made as to each individual's time devoted to his duties as an
executive officer of the Company. The following table shows
the cash compensation paid, based on these allocations, to the
Chief Executive Officer and the other four most highly
compensated executive officers (collectively, the "Named
Executive Officers") whose allocated compensation exceeded
$60,000, for services rendered in all capacities to the
C o m p a n y i n 1 9 9 6 .
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<PAGE>
Compensation Table
<TABLE>
<CAPTION>
Name and Year Annual Compensation(1) Long-Term
Compensation
Awards
<S> <C> <C> <C> <C>
Principal Position Salary Bonus Securities Under
($) ($) Options Granted
(2)
W.T. McCallum, 1996 0 0 None
President and
Chief Executive Officer
D. Low, 1996 0 0 None
Executive Vice President,
Financial Services
J.T. Hughes, 1996 0 0 None
Senior Vice President,
Chief Investment Officer
D.L. Wooden, 1996 0 0 None
Senior Vice President,
Financial Services
J.D. Motz, 1996 0 0 None
Executive Vice President,
Employee Benefits
</TABLE>
(1) The aggregate of perquisites and other personal benefits,
securities or property provided to each Named Executive
Officer in 1996 did not exceed the lesser of $50,000 and 10%
of the total of the individual's annual salary and bonus.
(2) Options are for common shares of Lifeco ("Lifeco
Options"). Lifeco options are granted by Great-West Lifeco
pursuant to the Great-West Lifeco Inc. Stock Option Plan which
was approved by Great-West Lifeco shareholders on April 24,
1996. Lifeco options become exercisable 20% per year
commencing on the first anniversary date of the grant and
expire 10 years after the date of the grant.
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Pension Plan Table
The following table sets out the pension benefits payable to
the Named Executive Officers by Great-West Life or the
Company, as of December 31, 1996.
<TABLE>
<CAPTION>
Employees' Pension Plan
Remuneration Years of Service
<S> <C> <C> <C> <C> <C>
($) 15 20 25 30 35
120,000 160,000 200,000 240,000 240,000400,000
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 30
D. Low 31
J.T. Hughes 6
D.L. Wooden 5
J.D. Motz 27
For W.T. McCallum, the benefits shown are payable commencing
December 31, 2000, and remuneration is the average of the
highest 36 consecutive months of compensation during the last
86 months of employment. For D. Low, J.T. Hughes, D.L. Wooden
and J.D. Motz, the benefits shown are payable upon the
attainment of age 62, and remuneration is the average of the
highest 60 consecutive months of compensation during the last
86 months of employment. Compensation includes salary and
bonuses prior to any deferrals. The normal form of pension is
a life only annuity. Other optional forms of pension payment
are available on an actuarially equivalent basis. The benefits
listed in the table are subject to deduction for social
security and other retirement benefits.
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<PAGE>
Ownership of Securities
All of the Company's outstanding shares are owned by Great-
West Life & Annuity Insurance Company, 8515 East Orchard Road,
Englewood, CO 80111. GWL&A is in turn owned 100% by the Great-
West Life Assurance Company, 100 Osborne Street North,
Winnipeg, Manitoba, Canada R3C 3A5. The Great-West Life
Assurance Company is owned 99.5% by Great-West Lifeco Inc.,
both of which share the same address. Great-West Lifeco Inc.
is owned 86.5% by Power Financial Corporation, 751 Victoria
Square, Montreal, Quebec, Canada H2Y 2J3. It is owned 68.3% by
171263 Canada Inc., which is owned 100% by Power Corporation
of Canada, both of which share the same address as Power
Financial Corporation. 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.
VOTING RIGHTS
To the extent required by applicable law, all Eligible Fund
shares held in the Series Account will be voted by the Company
at regular and special shareholder meetings of the respective
Eligible Funds in accordance with instructions received from
persons having voting interests in the corresponding
Investment Division. If, however, the 1940 Act or any
regulation thereunder should be amended, or if the present
interpretation thereof should change, or if we determine that
we are allowed to vote all Eligible Funds shares in our own
rights, we may elect to do so.
Before the annuity commencement date, you the Owner, have the
voting interest. The number of votes which are available to
you will be calculated separately for each of your Variable
Sub-Accounts. That number will be determined by applying your
percentage interest, if any, in a particular Investment
Division to the total number of votes attributable to that
Investment Division. You hold a voting interest in each
Investment Division to which your Annuity Account Value is
allocated. If you select a variable annuity option, the votes
attributable to a Contract will decrease as annuity payments
are made.
The number of votes of an Eligible Fund will be determined as
of the date coincident with the date established by that
Eligible Fund for determining shareholders eligible to vote at
the meeting of the Eligible Funds. Voting instructions will be
solicited by written communication prior to such meeting in
accordance with procedures established by the respective
Eligible Funds.
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<PAGE>
Shares as to which no timely instructions are received and
shares held by us as to which Owners have no beneficial
interest will be voted in proportion to the voting
instructions which are received with respect to all Contracts
participating in the Investment Division. Voting instructions
to abstain on any item to be voted upon will be applied on a
pro rata basis to reduce the votes eligible to be cast.
Each person or entity having a voting interest in a Investment
Division will receive proxy material, reports and other
material relating to the appropriate Eligible Fund.
It should be noted that generally the Eligible Funds are not
required to, and do not intend to, hold annual or other
regular meetings of shareholders.
Contract Owners have no voting rights in the Company.
RIGHTS RESERVED BY THE COMPANY
The Company reserves the right to make certain changes if, in
its judgment, they would best serve the interests of Owners
and Annuitants or would be appropriate in carrying out the
purposes of the Contracts. Any changes will be made only to
the extent and in the manner permitted by applicable laws.
Also, when required by law, the Company will obtain your
approval of the changes and approval from any appropriate
regulatory authority. Such approval may not be required in all
cases, however. Examples of the changes the Company may make
include:
- To operate the Series Account in any form permitted under
the Investment Company Act of 1940 or in any other form
permitted by law.
- To transfer any assets in any Investment Division to
another Investment Division, or to one or more separate
accounts, or to a Guarantee Period; or to add, combine or
remove Investment Divisions of the Series Account.
- To substitute, for the Eligible Fund shares in any
Investment Division, the shares of another Eligible Fund or
shares of another investment company or any other investment
permitted by law.
- To make any changes required by the Internal Revenue Code
or by any other applicable law in order to continue treatment
of the Contract as an annuity.
- To change the time or time of day at which a Valuation
Date is deemed to have ended.
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- To make any other necessary technical changes in the
Contract in order to conform with any action the above
provisions permit the Company to take, including to change the
way the Company assess charges, but without increasing as to
any then outstanding Contract the aggregate amount of the
types of charges which the Company has guaranteed.
LEGAL PROCEEDINGS
There are at present no material legal proceedings to which
the Series Account is a party or to which the assets of the
Series Account are subject. The Company is not currently a
party to, and its property is not currently subject to, any
material legal proceedings. The lawsuits to which the Company
is a party are, in the opinion of management, in the ordinary
course of business, and are not expected to have a material
adverse effect on the financial results, conditions or
prospects of the Company.
LEGAL MATTERS
Advice regarding certain legal matters concerning the federal
securities laws applicable to the issue and sale of the
Contract has been provided by Jorden Burt Berenson & Johnson
LLP. The organization of the Company, the Company's authority
to issue the Contract, and the validity of the form of the
Contract have been passed upon by W. Kay Adam, Vice President,
Counsel and Associate Secretary of the Company.
EXPERTS
The balance sheet of First Great-West Life & Annuity Insurance
Company as of April 4, 1997 included in this prospectus has
been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report appearing herein, and is included in
reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement ("Registration
Statement") with the Commission under the 1933 Act relating to
the Contracts offered by this Prospectus. This Prospectus has
been filed as a part of the Registration Statement and does
not contain all of the information set forth in the
Registration Statement and exhibits thereto. Reference is
hereby made to the Registration Statement and exhibits for
further information relating to us and the Contracts.
Statements contained in this Prospectus, as to the content of
the Contracts and other legal instruments, are summaries. For
a complete statement of the terms thereof, reference is made
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to the instruments as filed as exhibits to the Registration
Statement. The Registration Statement and its exhibits may be
inspected and copied at the offices of the Commission located
at 450 Fifth Street, N.W., Washington, D.C.
The Statement of Additional Information contains more specific
information relating to the Series Account and First GWL&A.
The Table of Contents of the Statement of Additional
Information is set forth below:
1. General Information
2. First Great-West Life & Annuity Insurance Company
and the Variable Annuity-1 Series Account
3. Calculation of Annuity Payments
4. Postponement of Payments
5. Services
6. Withholding
7. Calculation of Performance Data
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Appendix A
On the following pages are four examples of Market Value
Adjustments illustrating (1) increasing interest rates, (2)
decreasing interest rates, (3) flat interest rates (i and j
are within .10% of each other), and (4) less than 6 months to
maturity.
Example #1 - Increasing Interest Rates
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2006
Interest Guarantee Period: 10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2001
j: 7.00%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j)]N/12} - 1
= {[1.0615/1.07]65/12} - 1
= .957718 - 1
= -.042282
MVA = (amount Transferred or surrendered) x MVAF
= $10,000 x - .042282
= - $422.82
Surrender Value = (amount Transferred or surrendered +
MVA)x(1-CDSC)
= ($10,000 + - $422.82)x(1-0)
= $9,577.18
Example #2 - Decreasing Interest Rates
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2006
Interest Guarantee Period: 10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2001
j: 5.00%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j)]N/12} - 1
= {[1.0615/1.05]65/12} - 1
= .060778
MVAF = (amount Transferred or surrendered) x MVAF
= $10,000 x .060778
= $607.78
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Surrender Value = (amount Transferred or surrendered +
MVA)x(1-CDSC)
= ($10,000 + $607.78)x(1-0)
= $10,607.78
Example #3 - Flat Interest Rates
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2006
Interest Guarantee Period: 10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2001
j: 6.24%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j)]N/12} - 1
= {[1.0615/1.0624]65/12} - 1
= .995420 - 1
= -.004580
MVA = (amount Transferred or surrendered) x MVAF
= $10,000 x -.004589
= $45.80
Surrender Value = (amount Transferred or surrendered +
MVA)x(1-CDSC)
= ($10,000 - $45.80)x(1-0)
= $9,954.20
Example #4 - N<6 (less than 6 months to maturity)
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2006
Interest Guarantee Period: 10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2006
j: 7.00%
Amount Surrendered: $10,000
N: 5
MVAF = {[(1 + i)/(1 + j)]N/12} - 1
= {[1.0615/1.07]5/12} - 1
= .99668 - 1
= -.00332
However, N<6, so MVAF = 0
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MVAF = (amount Transferred or surrendered) x MVAF
= $10,000 x 0
= $0
Surrender Value = (amount Transferred or surrendered +
MVA)x(1-CDSC)
= ($10,000 + $0)x(1-0)
= $10,000
The Contract Owner Transaction Expenses apply to each
Contract, regardless of how the Annuity Account Value is
allocated. The Investment Division Annual Expenses do not
apply to the Guarantee Period Fund. There is a $10 fee for
each transfer in excess of 12 in any calendar year. The
Contract Maintenance Charge is currently waived for Contracts
with an Annuity Account Value of at least $50,000. If your
Annuity Account Value falls below $50,000 due to a withdrawal,
the Contract Maintenance Charge will be reinstated until such
time as your Annuity Account Value is equal to or greater than
$50,000. This charge may also be waived for Contracts issued
under certain sponsored arrangements.
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FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(A wholly-owned subsidiary of
Great-West Life & Annuity Insurance Company)
Balance Sheet as of April 4, 1997 and
Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
of First Great-West Life & Annuity Insurance Company:
We have audited the accompanying balance sheet of First
Great-West Life & Annuity Insurance Company (a wholly-owned
subsidiary of Great-West Life & Annuity Insurance Company) as
of April 4, 1997. This financial statement is the
responsibility of the Company's management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted
standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An
audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all
material respects, the financial position of First Great-West
Life & Annuity Insurance Company as of April 4, 1997 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Denver, Colorado
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April 14, 1997
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
BALANCE SHEET
APRIL 4, 1997
ASSETS
Cash
$6,000,000
TOTAL ASSETS
$6,000,000
STOCKHOLDER'S EQUITY
Common stock, $1,000 par value, 2,000 shares authorized,
$2,000,000
issued and outstanding
Additional paid-in capital
$4,000,000
TOTAL STOCKHOLDER'S EQUITY
$6,000,000
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
APRIL 4, 1997
1. ORGANIZATION
Organization - First Great-West Life & Annuity Insurance
Company (the Company) is a wholly-owned subsidiary of
Great-West Life & Annuity Insurance Company (The Parent
Corporation). The Company was incorporated as a stock life
insurance company on April 9, 1996 in the State of New York
and was capitalized on April 4, 1997 through a $6,000,000 cash
investment from its Parent for 2,000 shares of common stock.
The Company is currently seeking licensure as an insurance
company in the State of New York.
Basis of Presentation - The preparation of financial
statements in conformity with generally accepted accounting
principles which requires management to make estimates and
assumptions that affected the reported amounts of assets and
liabilities at the date of the financial statements. Actual
results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING PRINCIPLES
Cash - cash includes only amounts in demand deposit accounts.
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