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 Insurance 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-five 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,
Van Eck and Van Kampen. 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the amounts withdrawn from the Guarantee Period Fund.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 (30 days for replacement
policies) 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 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 May 1, 1998
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.
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 May
1, 1998 (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.
You may also obtain the Statement of Additional
Information which has been filed with the Securities and Exchange Commission
(SEC) along with other
related
materials on the SEC's Internet Web site (http://www.sec.gov).
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
<S> <C> <C> <C> <C> <C> <C>
DEFINITIONS...................................................................................iv
KEY FEATURES OF THE
ANNUITY..................................................................1
VARIABLE ANNUITY FEE
TABLE..................................................................4.
CONDENSED FINANCIAL
INFORMATION.............................................................7.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
AND THE SERIES ACCOUNT
............................................................9
THE ELIGIBLE
FUNDS............................................................................9
THE GUARANTEE PERIOD
FUND.....................................................................13
THE MARKET VALUE
ADJUSTMENT...................................................................15
APPLICATION AND
CONTRIBUTIONS.................................................................16
ANNUITY ACCOUNT VALUE
........................................................................17
TRANSFERS.....................................................................................17
CASH
WITHDRAWALS..............................................................................19
TELEPHONE
TRANSACTIONS........................................................................20
DEATH
BENEFIT.................................................................................20
CHARGES AND
DEDUCTIONS........................................................................22
PAYMENT
OPTIONS...............................................................................23
FEDERAL TAX MATTERS
..........................................................................27
ASSIGNMENTS OR
PLEDGES........................................................................30
PERFORMANCE DATA
.............................................................................30
DISTRIBUTION OF THE
CONTRACTS.................................................................32
SELECTED FINANCIAL
DATA.......................................................................33
VOTING
RIGHTS.................................................................................40
RIGHTS RESERVED BY THE
COMPANY................................................................40
LEGAL PROCEEDINGS
............................................................................40
LEGAL
MATTERS.................................................................................41
EXPERTS
......................................................................................41
AVAILABLE
INFORMATION.........................................................................41
APPENDIX
A..................................................................................42
FINANCIAL
STATEMENTS........................................................................44
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON.
The Contract is not available in all states.
<PAGE>
-------------------------------------------------------------------
DEFINITIONS
-------------------------------------------------------------------
Accumulation Period - The period between the Effective Date and the Payment
Commencement Date.
Annuitant - The person named in the application upon whose life the payment of
an annuity is based and who will receive annuity payments. If a Contingent
Annuitant is named, then the Annuitant will be considered the Primary Annuitant.
While the Annuitant is living and at least 30 days prior to the annuity
commencement date, the Owner may, by Request, change the Annuitant.
Annuity Account - An account established by the Company in the name of the Owner
that reflects all account activity under this Contract.
Annuity Account Value - The sum of the Variable and Fixed Sub-Accounts credited
to the Owner under the Annuity Account; less Transfers, partial withdrawals,
amounts applied to an annuity option, periodic withdrawals, charges deducted
under the Contract and, less Premium Tax, if any.
Annuity Payment Period - The period beginning on the annuity commencement date
and continuing until all annuity payments have been made under the Contract.
Annuity Unit - An accounting measure used to determine the dollar value of any
variable annuity payment after the first annuity payment is made.
Automatic Contribution Plan ("ACP") - A plan which allows for automatic periodic
Contributions. The Contribution amount will be withdrawn from a designated
pre-authorized account and automatically credited to the Annuity Account.
Beneficiary - The person(s) designated by the Owner, in the application, or as
subsequently changed by the Owner by Request, to receive any death benefit which
may become payable under the terms of the Contract. If the surviving spouse of
an Owner is the surviving Joint Owner, the surviving spouse will become the
Beneficiary upon such Owner's death and may elect to take the death benefit, if
any, or elect to continue the Contract in force.
Company - First Great-West Life & Annuity Insurance Company, the issuer of this
annuity, located at 125 Wolf Road, Suite 110, Albany, New York 12205.
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.
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 15.
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) is 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 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.
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-five
different Investment Divisions offered by fourteen 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-five 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>
<S> <C> <C> <C> <C> <C> <C>
Investment Objective Eligible Funds
Aggressive Growth SteinRoe Special Venture 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 MarketTrack Growth Portfolio II
Janus Aspen Growth Portfolio
Alger American Growth Portfolio
International Growth Janus Aspen Worldwide Growth Portfolio
American Century VP International
Index Schwab S&P 500 Portfolio
Growth & Income SAFECO RST Equity Portfolio
Federated American Leaders Fund II
Real Estate Van Kampen American Capital Life Insurance
Trust Morgan Stanley Real Estate Securities
Portfolio
Equity Income Federated Utility Fund II
INVESCO VIF-Industrial Income Portfolio
Balanced/Asset Allocation INVESCO VIF-Total Return Portfolio
Hard Assets Van Eck Worldwide Hard Assets Fund
High Yield Bond INVESCO VIF-High Yield Portfolio
Government Bond Federated Fund for U.S. Government
Securities II
Money Market Schwab Money Market Portfolio
66
</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 15.)
How to Invest. You must complete a Contract application form in order to invest
in the Contract and you must pay by check or instruct us to transfer funds from
your Schwab account. The minimum initial investment is $5,000 (or $2,000 if in
an IRA). Subsequent investments must be at least $500. The minimum initial
investment may be reduced to $1,000 should the Owner agree to make additional
$100 per month minimum recurring deposits through an ACP.
Free Look Period. The Contract provides for a Free Look Period which allows you
to cancel your investment generally within 10 days (30 days for replacement
policies) of your receipt of the Contract. You can cancel the Contract during
the Free Look Period by delivering or mailing the Contract to the Schwab Annuity
Service Center. The cancellation is not effective unless we receive a notice
which is postmarked before the end of the Free Look Period. If the Contract is
returned, the Contract will be void from the start and the greater of: (a)
Contributions received less surrenders, withdrawals and distributions, or (b)
the Annuity Account Value less surrenders, withdrawals and distributions, will
be refunded. These procedures may vary where required by state law. (See
"Application and Contributions," page 16.)
Allocation of the Initial Investment. Any initial Contribution allocated to an
Investment Division (other than certain 1035 exchanges - see "Application and
Contributions," page 16) will be allocated to the Schwab Money Market Portfolio
until the next Transaction Date following the end of the Free Look Period. At
that time, the Variable Account Value will be allocated to the Investment
Divisions in accordance with your instructions. (See "Annuity Account Value,"
page 17.) Your initial investment in the Guarantee Period Fund will be
immediately allocated to the Guarantee Period(s) specified in the application.
Charges and Deductions Under the Contract. The Contract is a "no load" variable
annuity and, as such, imposes no sales charges, redemption or withdrawal
charges.
There is a Mortality and Expense Risk Charge at an effective annual rate of
0.85% of the value of the net assets in the Variable Account. A Contract
Maintenance Charge of $25 will be deducted annually from your Annuity Account
Value for policies with less than $50,000 in assets. There will be a transfer
fee of $10 for each Transfer in excess of twelve Transfers per calendar year.
(See "Charges and Deductions," page 22.)
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 22.)
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
Guarantee of a Minimum Rate of Interest and the value of the Guarantee Period
being less than Contribution(s). (See "Market Value Adjustment," page 15.)
Switching Investments. You may switch Contributions among the Investment
Divisions or Guarantee Period Fund as often as you like with no immediate tax
consequences. You may make a Transfer Request to the Schwab Annuity Service
Center. A transfer fee may apply. (See "Charges and Deductions," page 22.)
Amounts Transferred out of a Guarantee Period prior to the Guarantee Period
Maturity Date may be subject to a Market Value Adjustment. (See "Market Value
Adjustment," page 15.)
Full and Partial Withdrawals. You may withdraw all or part of your Annuity
Account Value before the earlier of the annuity commencement date you selected
or the Annuitant's or Owner's death. Withdrawals may be taxable and if made
prior to age 59 1/2 may be subject to a 10% penalty tax. Withdrawals of amounts
allocated to a Guarantee Period prior to the Guarantee Period Maturity Date may
be subject to Market Value Adjustment. (See "Market Value Adjustment," page 15.)
The minimum partial withdrawal prior to the Market Value Adjustment is $500.
There is no limit on the number of withdrawals made. The Company may delay
payment of withdrawals from your Variable Sub-Accounts by up to 7 days and may
delay withdrawals from the Guarantee Period Fund by up to 6 months. (See "Cash
Withdrawals," page 19.)
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 90.) 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
23.)
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 20.)
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.
<PAGE>
VARIABLE ANNUITY FEE TABLE
The purpose of this table and the examples that follow is to assist you
in understanding the various costs and expenses that you will bear directly or
indirectly when investing in the Contract. The table and examples reflect
expenses related to the Investment Divisions as well as of the Eligible Funds.
The table assumes that the entire Annuity Account Value is allocated to one or
more Investment Divisions. The information set forth should be considered
together with the narrative provided under the heading "Charges and Deductions,"
page 22 of this Prospectus, and with the Funds' prospectuses. In addition to the
expenses listed below, Premium Tax may be applicable.
<TABLE>
Contract Owner Transaction Expenses1
<S> <C> <C> <C> <C> <C> <C>
Sales Load None
Surrender Fee None
Transfer Fee (First 12 Per Year)2 None
Annual Contract Maintenance Charge3 $25.00
Investment Division Annual Expenses1
(as a percentage of average Variable
Account assets)
Mortality and Expense Risk Charge 0.85%
Administrative Expense Charge 0.00%
Other Fees and Expenses of the Variable Account 0.00%
-----
Total Investment Division Annual Expenses 0.85%
</TABLE>
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.
<PAGE>
<TABLE>
Eligible Fund Annual Expenses (1)
(as a percentage of Eligible Fund net assets, after expenses reimbursements)
Total
Management Other 12b-1
Eligible Fund
Fees Expenses Fees
Expenses
Portfolio
<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 MarketTrack Growth
Portfolio II .0% .75%
0% .75%
Schwab Money Market Portfolio .25% .25%
0% .50%
Schwab S&P 500 Portfolio .0% .28%
0% .28%
SteinRoe Special Venture Fund .50% .26%
0% .76%
Strong Discovery Fund II 1.00% .21%
0% 1.21%
Van Eck Worldwide Hard Assets Fund3 .90% .17% 0% 1.17%
Van Kampen American Capital Life
Investment Trust-Morgan Stanley Real
Estate Securities Portfolio .83% .27% 0% 1.10%
- ---------------------------------
</TABLE>
(1) The figures given above (other than for the Montgomery Variable Series:
Growth Fund, Montgomery Variable Series: International Small Cap Fund - see note
2, 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: 5.81% 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 MarketTrack Growth Portfolio II. 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 1997. Without such reimbursements, the total
Eligible Fund expenses that would have been incurred for the last completed
fiscal year would be: 1.97% for the Montgomery Variable Series: Growth Fund and
3.50% for the Montgomery Variable Series: International Small-Cap Fund. 3 Other
Expenses are net of soft dollar credits. Without such credits, Other Expenses
would have been .18% and Total Eligible Fund Expenses would have been 1.18%.
<PAGE>
Examples(1)
If you retain, annuitize, or surrender the Contract at the end of the applicable
time period, you would pay the following fees and expenses on a $1,000
investment, assuming a 5% annual return on assets:
<TABLE>
Investment Divisions 1 Year 3 Years 5
Years Ten Years
<S> <C> <C>
<C> <C>
Alger American Growth Portfolio $ 8.30 $27.11
$49.42 $123.72
Alger American Small
Capitalization Portfolio $ 9.35 $30.50
$55.54 $138.69
American Century VP Capital Appreciation $10.50 $34.21
$62.24 $154.99
American Century VP International $15.75 $50.93
$92.21 $226.87
Berger IPT-Small Company Growth Fund $12.08 $39.25
$71.31 $176.93
Federated American Leaders Fund II $ 8.93 $29.14
$53.10 $132.72
Federated Fund for U.S.
Government Securities II $ 8.40 $27.45
$50.04 $125.22
Federated Utility Fund II $ 8.93
$29.14 $53.10 $132.72
INVESCO VIF-High Yield Portfolio $ 8.72 $28.47
$51.88 $129.72
INVESCO VIF-Industrial Income Portfolio $ 9.56 $31.17
$56.76 $141.67
INVESCO VIF-Total Return Portfolio $ 9.66 $31.51
$57.37 $143.15
Janus Aspen Aggressive
Growth Portfolio $ 7.98
$26.09 $47.58 $119.19
Janus Aspen Growth Portfolio $ 7.35 $24.05
$43.89 $110.11
Janus Aspen Worldwide
Growth Portfolio $ 7.77 $25.41
$46.35 $116.17
Lexington Emerging Markets Fund $19.32 $62.16
$112.17 $273.73
Montgomery Variable Series: Growth Fund $ 3.57 $11.75
$21.51 $54.44
Montgomery Variable Series:
International Small-Cap Fund $ 0.00
$0.00 $0.00 $0.00
SAFECO RST Equity Portfolio $ 7.88 $25.75
$46.97 $117.68
Schwab MarketTrack Growth Portfolio II $ 7.88 $25.75
$46.97 $117.68
Schwab Money Market Portfolio $ 5.25 $17.23
$31.51 $79.43
Schwab S&P 500 Portfolio $ 2.94 $ 9.68
$17.74 $44.97
SteinRoe Special Venture Fund $ 7.67 $25.07
$45.74 $114.66
Strong Discovery Fund II $12.39 $40.26
$73.11 $181.28
Van Eck Worldwide Hard Assets Fund $12.39 $40.26
$73.11 $181.28
Van Kampen American Capital Life
Investment Trust-Morgan Stanley Real
Estate Securities Portfolio $11.24
$36.57 $66.48 $165.27
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE SHOWN, SUBJECT
TO THE GUARANTEES IN THE CONTRACT.
These examples assume that no premium taxes have been assessed (although premium
taxes may be applicable - see "Premium Tax," page 23.)
(1)The Eligible Fund Annual Expenses and these examples are based on data
provided by the Eligible Funds. The Company has no reason to doubt the
accuracy or completeness of that data, but the Company has not verified the
Eligible Funds' figures. In preparing the Eligible Fund Expense table and
the Examples above, the Company has relied on the figures provided by the
Eligible Funds.
<PAGE>
Condensed Financial Information
Selected Data for Accumulation Units
Outstanding Through Each Period
For the Years Ended December 31,
Investment Division 1997
Alger American Growth
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 11.37
31,803.04
Alger American Small-Cap
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 11.94
8,711.21
American Century VP Capital
Appreciation
Value at beginning of period 10.00
Value at end of period
Number of accumulation units 10.70
outstanding at end of period
0.00
American Century VP International
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 10.40
4,712.98
Federated American Leaders Fund II
Value at beginning of period 10.00
Value at end of period
Number of accumulation units 11.66
outstanding at end of period
67,881.72
Federated Utility Fund II 10.00
Value at beginning of period
Value at end of period 12.05
Number of accumulation units
outstanding at end of period 309.83
Federated Fund for U.S.
Government Securities II
Value at beginning of period 10.00
Value at end of period
Number of accumulation units 10.64
outstanding at end of period
32,658.92
INVESCO VIF - High Yield
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 11.11
58,930.91
INVESCO VIF - Industrial Income
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 11.68
66,563,10
INVESCO VIF - Total Return
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 11.19
14,507.11
Janus Aspen Aggressive Growth
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 12.10
9,781.52
Janus Aspen Growth
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 11.22
42,289.81
Janus Aspen Worldwide Growth
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 10.73
87,156.01
Lexington Emerging Markets
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 8.06
4,677.90
Montgomery Variable Series:
International Small-Cap
Value at beginning of period 10.00
Value at end of period
Number of accumulation units 11.71
outstanding at end of period
20,245.76
Montgomery Variable Series:
Growth
Value at beginning of period 10.00
Value at end of period
Number of accumulation units 8.80
outstanding at end of period
257.15
SAFECO RST Equity
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 11.19
33,470.59
Schwab Market Track Growth
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 11.42
17,849.53
Schwab Money Market
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 10.27
168,197.49
Schwab S&P 500
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 11.58
73,884.33
SteinRoe Special Venture
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 11.07
27,112.37
Strong Discovery Fund II
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 11.31
24,541.58
Van Eck Worldwide Hard Assets
Value at beginning of period
Value at end of period 10.00
Number of accumulation units
outstanding at end of period 9.94
1,195.62
Van Kampen American Capital
LIT-Morgan Stanley Real Estate
Securities Portfolio 10.00
Value at beginning of period
Value at end of period 10.56
Number of accumulation units
outstanding at end of period 273.65
<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 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-five 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.
-------------------------------------------------------------------
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 December 31, 1997, the range of market capitalization of
the companies in the Russell Index was $20 million to $2.97 billion; the
range of market capitalization of the companies in the S&P Index at that
date was $21 million to $2.934 billion. The combined range as of that
date was $20 million to $2.97 billion. The Portfolio may invest up to
35% of its total assets in equity securities of companies that, at the
time of purchase, have total market capitalization outside this combined
range, and in excess of that amount (up to 100% of its assets) during
temporary defensive periods.
Alger American Growth Portfolio: Seeks long-term capital appreciation by
investment of at least 65% of its total assets, except during temporary
defensive periods, in equity securities of companies that, at the time
of purchase of the securities, have total market capitalization of $1
billion or greater. The Portfolio may invest up to 35% of its total
assets in equity securities of companies that, at the time of purchase,
have total market capitalization of less than $1 billion.
American Century Variable Portfolios, Inc.
American Century VP Capital Appreciation: Seeks capital growth by
investing in common stocks (including securities convertible into common
stocks and other equity equivalents) and other securities that meet
certain fundamental and technical standards of selection and have, in
the opinion of the investment manager, better-than-average potential for
appreciation. The Portfolio's investment manager intends to stay fully
invested in such securities, regardless of the movement of stock prices
generally.
American Century VP International: Seeks capital growth by investing
primarily in securities of foreign companies that meet certain
fundamental and technical standards of selection and have, in the
opinion of the investment manager, potential for appreciation. The
Portfolio will invest primarily in common stocks (defined to include
depository receipts for common stock and other equity equivalents) of
such companies. Investment in securities for foreign issues typically
involves a greater degree of risk than an investment in domestic
securities.
Berger Institutional Products Trust
Berger IPT-Small Company Growth Fund: Seeks capital appreciation by
investing primarily in equity securities (including common and preferred
stocks, convertible debt securities and other securities having equity
features) of small growth companies with market capitalization of less
than $1 billion at the time of initial purchase.
Federated Insurance Series
Federated American Leaders Fund II: Seeks to achieve long-term growth of
capital as a primary objective and seeks to provide income as a
secondary objective through investment of at least 65 % of its total
assets (under normal circumstances) in common stocks of "blue chip"
companies.
Federated Fund for U.S. Government Securities II: Seeks to provide
current income through investment of at least 65% of its total assets in
securities which are primary or direct obligations of the U.S.
government or its agencies or instrumentalities or which are guaranteed
as to principal and interest by the U.S. government, its agencies, or
instrumentalities and in certain collateralized mortgage obligations,
and repurchase agreements.
Federated Utility Fund II: Seeks to provide high current income and
moderate capital appreciation by investing in a professionally-managed,
diversified portfolio of utility company equity and debt securities.
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-Industrial Income Portfolio: Seeks the best possible current
income while following sound investment practices. Capital growth
potential is an additional consideration in the selection of portfolio
securities. The Portfolio normally invests at least 65% of its total
assets in dividend-paying common stocks. Up to 10% of the Portfolio's
total assets may be invested in equity securities that do not pay
regular dividends. The remaining assets are invested in other
income-producing securities such as corporate bonds. The Portfolio also
has the flexibility to invest in other types of securities.
INVESCO VIF-Total Return Portfolio: Seeks a high total return on
investment through capital appreciation and current income. The Total
Return Portfolio seeks to achieve its investment objective by investing
in a combination of equity securities (consisting of common stocks and,
to a lesser degree, securities convertible into common stock) and fixed
income securities.
INVESCO VIF-High Yield Portfolio: Seeks a high level of current income
by investing substantially all of its assets in lower rated bonds and
other debt securities and in preferred stock. These bonds and other
securities are sometimes referred to as "junk bonds." The High Yield
Portfolio pursues its investment objective through investment in a
variety of long-term, intermediate-term, and short-term bonds. Potential
capital appreciation is a factor in the selection of investments, but is
secondary to the Portfolio's primary objective.
Janus Aspen Series
Janus Aspen Aggressive Growth Portfolio: Seeks long-term growth of
capital in a manner consistent with the preservation of capital. The
Portfolio normally invests at least 50% of its equity assets in
securities issued by medium-sized companies. Medium-sized companies are
those whose market capitalizations fall within the range of companies in
the S&P MidCap 400 Index (the "MidCap Index"). Companies whose
capitalization falls outside this range after the Portfolio's initial
purchase continue to be considered medium-sized companies for the
purpose of this policy. As of December 31, 1997, the MidCap Index
included companies with capitalizations between approximately $213
million to $13.7 billion. The range of the MidCap Index is expected to
change on a regular basis. Subject to the above policy, the Portfolio
may also invest in smaller or larger issuers.
Janus Aspen Growth Portfolio: Seeks long-term growth of capital in a
manner consistent with the preservation of capital. The Portfolio
pursues its objective by investing in common stocks of companies of any
size. This Portfolio generally invests in larger, more established
issuers.
Janus Aspen Worldwide Growth Portfolio: Seeks long-term growth of
capital in a manner consistent with the preservation of capital. The
Portfolio pursues its objective primarily through investments in common
stocks of foreign and domestic issuers. The Portfolio has the
flexibility to invest on a worldwide basis in companies and
organizations of any size, regardless of country of organization or
place of principal business activity. The Portfolio normally invests in
issuers from at least five different countries, including the United
States; however, it may at times invest in fewer than five countries or
even a single country.
Lexington Emerging Markets Fund, Inc.
Lexington Emerging Markets Fund: Seeks long term growth of capital
primarily through investment in equity securities of companies domiciled
in, or doing business in emerging countries and emerging markets. For
purposes of its investment objective, the Fund considers emerging
country equity securities to be any country whose economy and market the
World Bank or United Nations considers to be emerging or developing. The
Fund may also invest in equity securities and equivalents traded in any
market of companies that derive 50% or more of their total revenue from
either goods or services produced in such emerging countries or markets
or sales made in such countries.
Montgomery Variable Series
Montgomery Growth Fund: Seeks capital appreciation by investing, under
normal conditions, at least 65% of its total assets in the equity
securities of domestic corporations. Although such companies may be of
any size and industry, the Fund targets companies having total market
capitalizations of $1 billion or more. The Fund seeks growth at a
reasonable value, identifying companies with sound fundamental value and
the potential for substantial growth.
Montgomery International Small Cap Fund: Seeks capital appreciation by
investing at least 65% of its total assets (under normal conditions) in
equity securities of companies outside the United States having total
market capitalizations of less than $1 billion, sound fundamental values
and potential for long-term growth at a reasonable price. The Fund
generally invests the remaining 35% of its total assets in a similar
manner but may invest those assets in companies having market
capitalizations of $1 billion or more, or in debt securities, including
up to 5% of its total assets in debt securities rated below investment
grade.
SAFECO Resource Series Trust
SAFECO RST Equity Portfolio: Seeks long-term growth of capital and
reasonable current income. The Portfolio invests principally in common
stocks or securities convertible into common stocks of larger,
established companies that are proven performers. In selecting stocks
for the portfolio, the fund manager looks for companies that have
demonstrated consistent earnings growth as well as attractive dividend
income. This fund may be a good choice if you are seeking attractive
total returns but are uncomfortable with a more aggressive fund.
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 MarketTrack Growth Portfolio II: Seeks to provide high capital
growth with less volatility than an all stock portfolio. The MarketTrack
Growth Portfolio seeks to meet its investment objective by investing in
a mix of stocks, bonds, and cash equivalents, either directly or through
investment in other mutual funds.
Schwab S&P 500 Portfolio: Seeks to track the price and dividend
performance (total return) of common stocks of U.S. companies, as
represented in the Standard & Poor's Composite Index of 500 stocks (the
"Index"). The S&P 500 Fund invests primarily in the common stocks of
companies composing the Index.
SteinRoe Variable Investment Trust
SteinRoe Special Venture Fund: Seeks capital growth by investing
primarily in common stocks, convertible securities, and other securities
selected for prospective capital growth.
Strong Discovery Fund II, Inc.
Strong Discovery Fund II: Seeks capital growth. The Fund's investment
adviser seeks to identify emerging investment trends and attractive
growth opportunities. The Fund normally emphasizes equity investments,
although it has the flexibility to invest in debt obligations and
short-term fixed-income securities.
Van Eck Worldwide Insurance Trust
Van Eck Worldwide Hard Assets Fund: Seeks long-term capital appreciation
by investing in hard asset securities; i.e., commodities or securities
of firms involved to a significant extent (directly or indirectly)
primarily in the following areas: precious metals, ferrous and
non-ferrous metals, energy, forest products, real estate, and other
non-agricultural commodities. The Fund seeks opportunities in all the
global stock, bond, and commodity markets, including domestic markets.
Income is a secondary consideration.
Van Kampen American Capital Life Investment Trust
Van Kampen American Capital LIT-Morgan Stanley Real Estate Securities
Portfolio: Seeks long-term growth of capital. Current income is a
secondary consideration. The Portfolio seeks to achieve its objectives
by investing principally in securities of companies operating in the
real estate industry ("Real Estate Securities"). Under normal market
conditions, at least 65% of the Portfolio's total assets will be
invested in Real Estate Securities, primarily equity securities of real
estate investment trusts.
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, Inc. 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, LLC 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 Special Venture 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. The Van Kampen American Capital LIT-Morgan Stanley Real
Estate Securities Portfolio is advised by Van Kampen American Capital Asset
Management, Inc.
***
Meeting investment objectives depends on various factors, including, but
not limited to, how well the Eligible Fund managers anticipate changing economic
and market conditions. THERE IS NO ASSURANCE THAT ANY OF THESE ELIGIBLE FUNDS
WILL ACHIEVE THEIR STATED OBJECTIVES.
The Contracts are not deposits of, or guaranteed or endorsed by, any
bank, nor are the Contracts federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency. The
Contracts involve certain investment risks, including possible loss of
principal.
Each Eligible Fund is registered with the Commission as an open-end
management investment company or portfolio thereof. The Commission does not
supervise the management or the investment practices and policies of any of the
Eligible Funds.
Since some of the Eligible Funds are available to registered separate
accounts of other insurance companies offering variable annuity and variable
life products, there is a possibility that a material conflict may arise between
the interests of the Series Account and one or more other separate accounts
investing in the Eligible Funds. In the event of a material conflict, the
affected insurance companies are required to take any necessary steps to resolve
the matter, including stopping their separate accounts from investing in the
Eligible Funds. See the Eligible Funds' prospectuses for more details.
Additional information concerning the investment objectives and policies
of all of the Eligible Funds and the investment advisory services and
administrative services and charges can be found in the current prospectuses for
the Eligible Funds, which can be obtained by calling the Schwab Annuity Service
Center at 800-838-0649, 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, First GWL&A and Schwab, in their discretion, determine to discontinue any
Eligible Fund. To the extent required by the 1940 Act, a substitution of shares
attributable to the Owner's interest in an Investment Division will not be made
without prior notice to the Owners and the prior approval of the Commission.
Nothing contained herein shall prevent the Series Account from purchasing other
securities for other series or classes of variable annuity policies, or from
effecting an exchange between series or classes of variable policies on the
basis of Requests made by you.
New Investment Divisions may be established when, in our discretion,
marketing, tax, investment or other conditions so warrant. Any new Investment
Divisions will be made available to Owners on a basis to be determined by us.
Each additional Investment Division will purchase shares in a Eligible Fund or
in another mutual fund or investment vehicle. We may also eliminate one or more
Investment Divisions if, in our sole discretion, marketing, tax, investment or
other conditions so warrant. In the event any Investment Division is eliminated,
we will notify the Owners and request a re-allocation of the amounts invested in
the eliminated Investment Division.
In the event of any such substitution or change, we may make such
changes to your Contract as may be necessary or appropriate to reflect such
substitution or change. Furthermore, if deemed to be in the best interests of
persons having voting rights under the Contracts, the Series Account may be
operated as a management company under the 1940 Act or any other form permitted
by law, may be de-registered under such Act in the event such registration is no
longer required, or may be combined with one or more other separate accounts.
Such changes will be made in compliance with applicable law.
-------------------------------------------------------------------
THE GUARANTEE PERIOD FUND
-------------------------------------------------------------------
Guarantee Period Fund
Amounts allocated to the Guarantee Period Fund under the Contract will
be deposited to, and accounted for, in a non-unitized market value separate
account established by the Company under Section 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 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 15.)
Investments
The Company intends to invest in assets which, in the aggregate, have
characteristics, especially cash flow patterns, reasonably related to the
characteristics of its liabilities. Various techniques will be used to achieve
the objective of close aggregate matching of assets and liabilities. The Company
will primarily invest in investment-grade fixed income securities including:
Securities issued by the U.S. Government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the
U.S. Government.
Debt securities which have an investment grade, at the time of
purchase, within the four highest grades assigned by Moody's Investment
Services, Inc. (Aaa, Aa, A or Baa), Standard & Poor's Corporation (AAA,
AA, A or BBB) or any other nationally recognized rating service.
Other debt instruments, including, but not limited to, issues of
banks or bank holding companies and of corporations, which obligations,
although not rated by Moody's, Standard & Poor's, or other nationally
recognized rating firms, are deemed by the Company's management to have
an investment quality comparable to securities which may be purchased as
stated above.
Commercial paper, cash or cash equivalents, and other short-term
investments having a maturity of less than one year which are considered
by the Company's management to have investment quality comparable to
securities which may be purchased as stated above.
In addition, the Company may invest in futures and options. Financial
futures and related options thereon and options on securities are purchased
solely for non-speculative hedging purposes. The Company may sell a futures
contract or purchase a put option on futures or securities to protect the value
of securities held in or to be sold for the general account or the non-unitized
separate account in the event the securities prices are anticipated to decline.
Similarly, if securities prices are expected to rise, the Company may purchase a
futures contract or a call option thereon against anticipated positive cash flow
or may purchase options on securities.
WHILE THE FOREGOING GENERALLY DESCRIBES THE INVESTMENT STRATEGY FOR THE
GUARANTEE PERIOD FUND, THE COMPANY IS NOT OBLIGATED TO INVEST THE ASSETS
ATTRIBUTABLE TO THE GUARANTEE PERIOD FUND ACCORDING TO ANY PARTICULAR STRATEGY,
EXCEPT AS MAY BE REQUIRED BY 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-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 15.)
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 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 Annuitant.
See Appendix A for Illustrations of the MVA.
<PAGE>
-------------------------------------------------------------------
APPLICATION AND CONTRIBUTIONS
-------------------------------------------------------------------
Contributions
All Contributions may be paid at the Schwab Annuity Service Center by a
check payable to 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 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.
The Company reserves the right to modify the limitations set forth in
this section.
-------------------------------------------------------------------
ANNUITY ACCOUNT VALUE
-------------------------------------------------------------------
Before the date annuity payments commence, your Annuity Account Value is
the sum of each Variable and Fixed Sub-Account established under your Contract.
Before the annuity commencement date, the Variable Account Value is the
total dollar amount of all Accumulation Units under each of your Variable
Sub-Accounts. Initially, the value of each Accumulation Unit was set at $10.00.
Each Variable Sub-Account's value prior to the Payment Commencement Date is
equal to: (a) net Contributions allocated to the corresponding Investment
Division; plus or minus (b) any increase or decrease in the value of the assets
of the Variable Sub-Account due to investment results; less (c) the daily
Mortality and Expense Risk Charge; less (d) reductions for the Contract
Maintenance Charge deducted on the last business day of each Contract Year; less
(e) any applicable Transfer Fees; and less (f) any withdrawals or Transfers from
the Variable Sub-Account.
A Valuation Period is the period between successive Valuation Dates. It
begins at the close of the New York Stock Exchange (generally 4:00 p.m. ET) on
each Valuation Date and ends at the close of the New York Stock Exchange on the
next succeeding Valuation Date. A Valuation Date is each day that the New York
Stock Exchange is open for regular business. The value of an Investment
Division's assets is determined at the end of each Valuation Date. To determine
the value of an asset on a day that is not a Valuation Date, the value of that
asset as of the end of the previous Valuation Date will be used.
The Variable Account Value is expected to change from Valuation Period
to Valuation Period, reflecting the investment experience of the selected
Investment Division(s) as well as the deductions for charges.
Contributions which you allocate to an Investment Division are used to
purchase Variable Accumulation Units in the Investment Division(s) you select.
The number of Accumulation Units to be credited will be determined by dividing
the portion of each Contribution allocated to the Investment Division by the
value of an Accumulation Unit determined at the end of the Valuation Period
during which the Contribution was received. In the case of the initial
Contribution, Accumulation Units for that payment will be credited to the
Variable Account Value (and, except for certain 1035 exchanges), held in the
Schwab Money Market Investment Division until the end of the Free Look Period
(see "Application and Contributions," page __). 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 or by calling the voice response unit @ 1-800-838-0649 (KeyTalk). 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 if received before
4:00 p.m. Eastern Time. Under current law, there will not be any tax liability
to you if you make a Transfer.
Transfers involving the Investment Divisions will result in the purchase
and/or cancellation of Accumulation Units having a total value equal to the
dollar amount being Transferred to or from a particular Investment Division. The
purchase and/or cancellation of such units generally shall be made using the
Variable Account Value as of the end of the Valuation Date on which the Transfer
is effective.
When a Transfer is made from amounts in a Guarantee Period before the
Guarantee Period Maturity Date, the amount Transferred may be subject to a
Market Value Adjustment. (See "Market Value Adjustment," page 15.) A Request for
Transfer from amounts in a Guarantee Period made prior to the Guarantee Period
Maturity Date for Transfers on the Guarantee Period Maturity Date will not be
counted for the purpose of determining any Transfer Fee on Transfers in excess
of the twelve Transfers per 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 (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 23.)
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 15.) The
partial withdrawal proceeds may be greater or less than the amount requested,
depending on the effect of the Market Value Adjustment.
The minimum partial withdrawal before application of the MVA is $500.
Partial withdrawals are unlimited; however, you must specify the Investment
Division(s) or Guarantee Period(s) from which the withdrawal is to be made.
After any partial withdrawal, if the remaining Annuity Account Value is less
than $2,000, then a full surrender may be required.
The following terms apply:
(a) No partial withdrawals are permitted after the date annuity payments
commence.
(b) A partial withdrawal will be effective upon the Transaction Date.
(c) A partial withdrawal from amounts in a Guarantee Period may be
subject to the Market Value Adjustment provisions, the Guarantee
Period Fund provisions of the Contract, and the terms of the attached
Guarantee Period Fund Rider(s), if any.
You may Request partial withdrawals from your Annuity Account Value and
direct the Company to remit such withdrawn amounts directly to your designated
Investment Manager or Financial Advisor (collectively "Consultant"). Any such
withdrawal Requests must meet the minimum withdrawal requirements and company
with all terms and conditions applicable to partial withdrawals, as described
above. If your Annuity Account Value exceeds your "investment in the Contract,"
then you may b subject to income tax on withdrawals made from your Annuity
Account even though payments are made by the Company directly to your
Consultant. In addition, the Code may require us to withhold federal income
taxes from withdrawals and report such withdrawals to the IRS. If you Request
partial withdrawals to pay Consultant fees, your Annuity Account Value will be
reduced by the sum of the fees paid to the Consultant and the related
withholding, although you may elect, in writing, to have the Company not
withhold federal income tax from withdrawals, unless withholding is mandatory
for your Contract. If you are younger than 59 1/2, the taxable portion of any
withdrawals made to pay Consultant fees will also generally be considered early
withdrawals under the Code subjecting you to a 10% additional tax on the taxable
portion of such withdrawals. You should consult a competent tax advisor prior to
authorizing the withdrawal of any amounts from your Annuity Account to pay
Consultant fees.
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 27.)
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 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.
In any event, no payment of benefits provided under the Contract will be
allowed that does not satisfy the requirements of Section 72(s) of the Code and
any other applicable federal or state laws, rules or regulations.
Distribution Rules
1. Death of Annuitant
Upon the death of the Annuitant while the Owner is living, and before
the annuity commencement date, the Company will pay the death benefit to the
Beneficiary unless there is a Contingent Annuitant.
If a Contingent Annuitant was named by the Owner(s) prior to the
Annuitant's death, and the Annuitant dies before the annuity commencement date
while the Owner and Contingent Annuitant are living, no death benefit will be
payable by reason of the Annuitant's death and the Contingent Annuitant will
become the Annuitant.
If the Annuitant dies after the date annuity payments commence and
before the entire interest has been distributed, any benefit payable must be
distributed to the Beneficiary in accordance with and at least as rapidly as
under the payment option applicable to the Annuitant on the Annuitant's date of
death.
If a corporation or other non-individual is an Owner, or if the deceased
Annuitant is an Owner, the death of the Annuitant will be treated as the death
of an Owner and the Contract will be subject to the "Death of Owner" provisions
described below.
2. Death of Owner
If the Owner is not the Annuitant:
(1) If there is a Joint Owner who is the surviving spouse of the
deceased Owner, the Joint Owner will become the Owner and Beneficiary
and may elect to take the death benefit or elect to continue the
Contract in force.
(2) In all other cases, the Company will pay the death benefit to the
Beneficiary even if a Joint Owner (who was not the Owner's spouse on the
date of the Owner's death), the Annuitant and/or the Contingent
Annuitant are alive at the time of the Owner's death, unless the sole
Beneficiary is the deceased Owner's surviving spouse and the Beneficiary
elects to become the Owner and Annuitant and to continue the Contract in
force.
If the Owner is not the Annuitant, and the Owner dies after annuity
payments commence and before the entire interest has been distributed while the
Annuitant is living, any benefit payable will continue to be distributed to the
Annuitant at least as rapidly as under the payment option applicable on the
Owner's death. All rights granted the Owner under the Contract will pass to any
surviving Joint Owner and, if none, to the Annuitant.
If the Owner is the Annuitant (Owner/Annuitant):
(1) If there is a Joint Owner who is the surviving spouse of the
deceased Owner and a Contingent Annuitant, the Joint Owner will become
the Owner and the Beneficiary, the Contingent Annuitant will become the
Annuitant, and the Contract will continue in force.
(2) If there is a Joint Owner who is the surviving spouse of the
deceased Owner but no Contingent Annuitant, the Joint Owner will become
the Owner, Annuitant and Beneficiary and may elect to take the death
benefit or continue the Contract in force.
(3) In all other cases, the Company will pay the death benefit to the
Beneficiary, even if a Joint Owner (who was not the Owner's spouse on
the date of the Owner's death), Annuitant and/or Contingent Annuitant
are alive at the time of the Owner's death, unless the sole Beneficiary
is the deceased Owner's surviving spouse and the Beneficiary Requests to
become the Owner and Annuitant and to continue the Contract in force.
Any death benefit payable to the Beneficiary upon an Owner's death will
be distributed as follows:
(1) If the Owner's surviving spouse is the person entitled to receive
benefits upon the Owner's death, the surviving spouse will be treated as
the Owner and will be allowed to take the death benefit or continue the
Contract in force; or
(2) If the Beneficiary is a non-spouse individual, she/he may elect, not
later than one year after the Owner's date of death, to receive the
death benefit in either a single sum or payment under any of the
variable or fixed annuity options available under the Contract, provided
that (a) such annuity is distributed in substantially equal installments
over the life or life expectancy of the Beneficiary or over a period not
extending beyond the life expectancy of the Beneficiary; and (b) such
distributions begin not later than one year after the Owner's date of
death. If no election is received by the Company from a non-spouse
Beneficiary such that substantially equal installments have begun not
later than one year after the Owner's date of death, then the entire
amount must be distributed within five years of the Owner's date of
death. The death benefit will be determined as of the date the payments
commence; or
(3) If a corporation or other non-individual entity is entitled to
receive benefits upon the Owner's death, the death benefit must be
completely distributed within five years of the Owner's date of death.
Beneficiary
You may select one or more Beneficiaries. If more than one Beneficiary
is selected, unless you indicate otherwise, they will share equally in any death
benefit payable. You may change the Beneficiary any time before the Annuitant's
death.
You may, while the Annuitant is living, change the Beneficiary by
Request. A change of Beneficiary will take effect as of the date the Request is
processed by the Schwab Annuity Service Center, unless a certain date is
specified by the Owner. If the Owner dies before the Request was processed, the
change will take effect as of the date the Request was made, unless the Company
has already made a payment or otherwise taken action on a designation or change
before receipt or processing of such Request. A beneficiary designated
irrevocably may not be changed without the written consent of that Beneficiary,
except as allowed by law.
The interest of any Beneficiary who dies before the Owner or the
Annuitant will terminate at the death of the Beneficiary. The interest of any
Beneficiary who dies at the time of, or within 30 days after, the death of an
Owner or the Annuitant will also terminate if no benefits have been paid to such
Beneficiary, unless the Owner otherwise indicates by Request. The benefits will
then be paid as though the Beneficiary had died before the deceased Owner or
Annuitant. If no Beneficiary survives the Owner or Annuitant, as applicable, the
Company will pay the death benefit proceeds to the Owner's estate.
If the surviving spouse of an Owner is the surviving Joint Owner, the
surviving spouse will become the Beneficiary upon such Owner's death and may
elect to take the death benefit or may elect to continue the Contract in force.
If there is no surviving Joint Owner, and no named Beneficiary is alive at the
time at the time of an Owner's death, any benefits payable will be paid to the
Owner's estate.
Contingent Annuitant
While the Annuitant is living, the Owner(s) may, by Request, designate
or change a Contingent Annuitant from time to time. A change of Contingent
Annuitant will take effect as of the date the Request is processed at the Schwab
Annuity Service Center, unless a certain date is specified by the Owner(s).
-------------------------------------------------------------------
CHARGES AND DEDUCTIONS
-------------------------------------------------------------------
No deductions are made from Contributions except for any applicable
Premium Tax. Therefore, the full amount of the Contributions (less any
applicable Premium Tax) are invested in the Contract.
As more fully described below, charges under the Contract are assessed
only as deductions for Premium Tax, if applicable, for certain Transfers, as a
Contract Maintenance Charge, and as charges against the assets in the Owner's
Variable Sub-Account(s) for our assumption of mortality and expense risks. In
addition, a Market Value Adjustment may apply to withdrawals and surrenders,
Transfers, amounts applied to purchase an annuity, and distributions resulting
from death of the Owner or Annuitant if the amounts held in a Guarantee Period
are paid out prior to the Guarantee Period Maturity Date.
Mortality and Expense Risk Charge
We deduct a Mortality and Expense Risk Charge from your Variable
Sub-Account(s) at the end of each Valuation Period to compensate us for bearing
certain mortality and expense risks under the Contract. This is a daily charge
equal to an effective annual rate of 0.85% of the value of the net assets in
your Variable Sub-Account(s). The approximate portion of this charge
attributable to mortality risks is 0.68%; the approximate portion of this charge
estimated to be attributable to expense risk is 0.17% of the value of the net
assets in your Variable Sub-Account(s). We guarantee that this charge will never
increase beyond 0.85%.
The Mortality and Expense Risk Charge is reflected in the Accumulation
Unit Values for each of your Variable Sub-Accounts. Thus, this charge will
continue to be applicable should you choose a variable annuity payment option or
the periodic withdrawal option.
Annuity Account Values and annuity payments are not affected by changes
in actual mortality experience incurred by us. The mortality risks assumed by us
arise from our contractual obligations to make annuity payments determined in
accordance with the annuity tables and other provisions contained in the
Contract. Thus you are assured that neither the Annuitant's longevity nor an
unanticipated improvement in general life expectancy will adversely affect the
annuity payments under the Contract.
We bear substantial risk in connection with the death benefit before the
annuity commencement date, since we will pay a death benefit equal to the
greater of 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 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.
<PAGE>
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 9.) 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.
-------------------------------------------------------------------
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.
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 stop the owner purchases an
annuity option; 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 27.)
You may Request a Periodic Withdrawal to remit fees paid to your
Investment Manager or Financial Advisor; however, any such Periodic Withdrawal
Requests must meet the requirements and comply with all terms and conditions
applicable to Periodic Withdrawals, as described above. As well, there may be
income tax consequences to any Periodic Withdrawal made for this purpose. (See
"Cash Withdrawals," page 19.)
Annuity Date
The date annuity payments commence may be chosen when the Contract is
purchased or at a later date. This date must be at least one year after the
initial Contribution. In the absence of an earlier election, the annuity date is
the first day of the month of the Annuitant's 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 27.)
Annuity Options
An annuity option may be selected by the Owner when the Contract is
purchased, or at a later date. This selection may be changed, by Request, at any
time up to 30 days before the annuity date. In the absence of an election,
payments will automatically commence on the annuity date as described above. The
amount to be applied is the Annuity Account Value on the annuity date. The
minimum amount that may be withdrawn from the Annuity Account Value to purchase
an annuity payment option is $2,000 with an MVA, if applicable. If the amount is
less than $2,000, the Company may pay the amount in a single sum subject to the
Contract provisions applicable to a partial withdrawal. Payments may be elected
to be received monthly, quarterly, semi-annually or annually. Payments to be
made under the annuity payment option selected must be at least $50. The Company
reserves the right to make payments using the most frequent payment interval
which produces a payment of not less than $50. The maximum amount that may be
applied under any payment option is $1,000,000, unless prior approval is
obtained from the Company.
A single sum payment may be elected. If it is, then the amount to be
paid is the Surrender Value. If the Owner elects a variable annuity with funds
from the Owner's Variable Sub-Accounts, then the amount to be applied is the
Annuity Account Value held in the Variable Sub-Account(s), as of the annuity
commencement date, less any applicable Premium Tax. If the Owner elects a fixed
annuity with funds from the Fixed Sub-Accounts, then the amount to be applied is
the Annuity Account Value held in the Fixed Sub-Account(s), as of the annuity
commencement date with an MVA, if applicable, less any applicable Premium Tax.
Fixed Annuity Payment Options
Option 1: Income of Specified Amount
The amount applied under this option may be paid in equal annual,
semiannual, quarterly or monthly installments of the dollar amount elected for
not more than 240 months. Upon death of the Annuitant, the Beneficiary will
begin to receive the remaining payments at the same interval that was elected by
the Owner.
Option 2: Income for a Specified Period
Payments are paid annually, semiannually, quarterly or monthly, as
elected, for a selected number of years not to exceed 240 months. Upon death of
the Annuitant, the Beneficiary will begin to receive the remaining payments at
the same interval that was elected by the Owner.
Option 3: Fixed Life Annuity with Guaranteed Period
This option provides for monthly payments during a designated period and
thereafter throughout the lifetime of the Annuitant. The designated period may
be 5, 10, 15 or 20 years. Upon death of the Annuitant, for each remaining
designated period, the amounts payable under this payment option will be paid to
the Beneficiary.
Option 4: Fixed Life Annuity
This annuity is payable monthly during the lifetime of the Annuitant,
terminating with the last payment due prior to the death of the Annuitant. Since
no minimum number of payments is guaranteed, this option may offer the maximum
level of monthly payments of the annuity options. It is possible that only one
payment may be made if the Annuitant died before the date on which the second
payment was due. Upon the death of the Annuitant, all payments cease and no
amounts are payable to the Beneficiary.
Option 5: Any Other Form
This option allows an Owner the ability to choose any other form of
annuity which is acceptable to the Company.
Variable Annuity Payment Options
Option 1: Variable Life Annuity with Guarantee Period
This option provides for payments during a designated period and
thereafter throughout the life time of the Annuitant. The designated period may
be 5, 10, 15 or 20 years. Upon death of the Annuitant, for each remaining
designated period, the amounts payable under this payment option will be paid to
the Beneficiary.
Option 2: Variable Life Annuity
This annuity is payable during the lifetime of the Annuitant. The
annuity terminates with the last payment due prior to the death of the
Annuitant. Since no minimum number of payments is guaranteed, this option may
offer the maximum level of monthly payments of the annuity options. It is
possible that only one payment may be made if the Annuitant died before the date
on which the second payment was due. Upon the death of the Annuitant, all
payments cease and no amounts are payable to the Beneficiary.
Variable annuity payment options are subject to the following
provisions:
Amount of First Payment
The first payment under a variable annuity payment option will be based
on the value of the amounts held in each Variable Sub-Account on the 5th
Valuation Date preceding the annuity commencement date. It will be determined by
applying the appropriate rate to the amount applied under the payment option.
Annuity Units
The number of Annuity Units paid to the Annuitant for each Variable
Sub-Account is determined by dividing the amount of the first monthly payment by
its Accumulation Unit Value on the 5th Valuation Date preceding the date the
first payment is due. The number of Annuity Units used to calculate each payment
for a Variable Sub-Account remains fixed during the Annuity Payment Period.
Amount of Payments after the First
Payments after the first will vary depending upon the investment
experience of the Investment Divisions. The subsequent amount paid from each
sub-account is determined by multiplying (a) by (b) where (a) is the number of
sub-account Annuity Units to be paid and (b) is the sub-account Annuity Unit
value on the 5th Valuation Date preceding the date the annuity payment is due.
The total amount of each variable annuity payment will be the sum of the
variable annuity payments for each Variable Sub-Account. The Company guarantees
that the dollar amount of each payment after the first will not be affected by
variations in expenses or mortality experience.
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.
The Payment Commencement Date and annuity options available for IRAs may
also be controlled by endorsements, the plan documents, or applicable law.
Once payments start under the annuity form selected by the Owner: (a) no
changes can be made in the annuity form, (b) no additional Contributions will be
accepted under the Contract, and (c) no further withdrawals, other than
withdrawals made to provide annuity benefits, will be allowed.
***
A portion or the entire amount of the annuity payments may be taxable as
ordinary income. If, at the time the annuity payments begin, we have not
received a proper written election not to have federal income taxes withheld, we
must by law withhold such taxes from the taxable portion of such annuity
payments and remit that amount to the federal government (an election not to
have taxes withheld is not permitted for certain Qualified Contracts). State
income tax withholding may also apply. (See "Federal Tax-Matters," below.)
-------------------------------------------------------------------
FEDERAL TAX MATTERS
-------------------------------------------------------------------
Introduction
The following discussion is a general description of federal income tax
considerations relating to the Contracts and is not intended as tax advice.
Further, this discussion is based on the assumption that the Contract qualifies
as an annuity contract for federal income tax purposes. This discussion is not
intended to address the tax consequences resulting from all of the situations in
which a person may be entitled to or may receive a distribution under the
Contract. Any person concerned about these tax implications should consult a
competent tax adviser before initiating any transaction. This discussion is
based upon our understanding of the present federal income tax laws as they are
currently interpreted by the Internal Revenue Service. No representation is made
as to the likelihood of the continuation of the present federal income tax laws
or of the current interpretation by the Internal Revenue Service. Moreover, no
attempt has been made to consider any applicable state or other tax laws.
The Contract may be purchased on a non-tax qualified basis
("Non-Qualified Contract") or purchased and used in connection with IRAs. The
ultimate effect of federal income taxes on the amounts held under a Contract, on
annuity payments, and on the economic benefit to you, the Annuitant, or the
Beneficiary may depend on the type of Contract, and on the tax status of the
individual concerned. In addition, certain requirements must be satisfied in
purchasing an IRA and receiving distributions from an IRA in order to continue
receiving favorable tax treatment. Therefore, purchasers of IRAs should seek
competent legal and tax advice regarding the suitability of the Contract for
their situation, the applicable requirements, and the tax treatment of the
rights and benefits of the Contract. The following discussion assumes that an
IRA is purchased with proceeds from and/or Contributions that qualify for the
intended special federal income tax treatment.
Tax Status
The Company is taxed as a life insurance company under Part I of
Subchapter L of the Code.
Taxation of Annuities
In General
Section 72 of the Code governs taxation of annuities in general. An
Owner who is a natural person generally is not taxed on increases (if any) in
the value of an Annuity Account Value until distribution occurs by withdrawing
all or part of the Annuity Account Value (e.g., withdrawals or annuity payments
under the annuity form elected). However, under certain circumstances, the Owner
may be subject to taxation currently. In addition, an assignment, pledge, or
agreement to assign or pledge any portion of the Annuity Account Value generally
will be treated as a distribution. The taxable portion of a distribution (in the
form of a single sum payment or an annuity) is taxable as ordinary income. An
IRA Contract may not be assigned as collateral.
The Owner of an annuity contract who is not a natural person (e.g. a
corporation) generally must include in income any increase in the excess of the
Annuity Account Value over the "investment in the contract" (discussed below)
during each taxable year. The rule does not apply where the non-natural person
is the nominal owner of a Contract and the beneficial owner is a natural person.
The rule also does not apply in the following circumstances: (1) where the
annuity Contract is acquired by the estate of a decedent, (2) where the Contract
is held under an IRA, (3) where the Contract is a qualified funding asset for a
structured settlement, and (4) where the Contract is purchased on behalf of an
employee upon termination of a qualified plan. A prospective Owner that is not a
natural person may wish to discuss these matters with a competent tax adviser.
The following discussion generally applies to a Contract owned by a
natural person.
Withdrawals
In the case of a withdrawal under an IRA, including withdrawals under
the Periodic Withdrawal Option, a ratable portion of the amount received may be
non-taxable. The amount of the non-taxable portion is generally determined by
the ratio of the "investment in the contract" to the individual's total accrued
benefit under the retirement plan. The "investment in the contract" generally
equals the amount of any nondeductible Contributions paid by or on behalf of any
individual. Special tax rules may be available for certain distributions from an
IRA.
With respect to Non-Qualified Contracts, partial withdrawals, including
Periodic Withdrawals, are generally treated as taxable income to the extent that
the Annuity Account Value immediately before the withdrawal exceeds the
"investment in the contract" at that time. If a partial withdrawal is made from
a Guarantee Period which is subject to a Market Value Adjustment, then the
Annuity Account Value immediately before the withdrawal will not be altered to
take into account the Market Value Adjustment. As a result, for purposes of
determining the taxable portion of the partial withdrawal, the Annuity Account
Value will not reflect the amount, if any, deducted from or added to the
Guarantee Period due to the Market Value Adjustment. Full surrenders are treated
as taxable income to the extent that the amount received exceeds the "investment
in the contract." The taxable portion of any annuity payment is taxed at
ordinary income tax rates.
Annuity Payments
Although the tax consequences may vary depending on the annuity form
elected under the Contract, in general, only the portion of the annuity payment
that represents the amount by which the Annuity Account Value exceeds the
"investment in the contract" will be taxed; after the investment in the contract
is recovered, the full amount of any additional annuity payments is taxable. For
fixed annuity payments, in general there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the annuity payments for the term of the
payments; however, the remainder of each annuity payment is taxable. Once the
investment in the Contract has been fully recovered, the full amount of any
additional annuity payments is taxable. If the annuity payments cease as a
result of an Annuitant's death before full recovery of the "investment in the
contract," you should consult a competent tax adviser regarding the
deductibility of the unrecovered amount.
Penalty Tax
In the case of a distribution pursuant to a Non-Qualified Contract,
there may be imposed a federal income tax penalty equal to 10% of the amount
treated as taxable income. In general, however, there is no penalty tax on
distributions: (1) made on or after the date on which the recipient of payments
under the Contract attains age 59 1/2; (2) made as a result of death or
disability of the recipient of payments under the Contract; or (3) received in
substantially equal periodic payments (at least annually) for life or life
expectancy of the Owner or the joint lives or life expectancies of the Owner and
a "designated beneficiary." Other exemptions or tax penalties may apply to
distributions for a Non-Qualified Contract or to certain distributions pursuant
to an IRA. For more details regarding these exemptions or penalties consult a
competent tax adviser.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the Contract because of the death of an
Owner or the Annuitant. Generally such amounts are includible in the income of
the recipient as follows: (1) if distributed in a lump sum, they are taxed in
the same manner as a full surrender, as described above, or (2) if distributed
under an annuity form, they are taxed in the same manner as annuity payments, as
described above.
Distribution-at-Death Rules
In order to be treated as an annuity contract, the terms of the Contract
must provide the following two distribution rules: (A) if any Contract Owner
dies on or after the date annuity payments commence, and before the entire
interest in the Contract has been distributed, the remainder of his interest
will not be distributed under a slower distribution schedule than that provided
for in the method in effect on the Contract Owner's death; and (B) if any
Contract Owner dies before the date annuity payments commence, his entire
interest must generally be distributed within five years after the date of death
provided that if such interest is payable to a designated Beneficiary, then such
interest may be made over the life of that designated Beneficiary or over a
period not extending beyond the life expectancy of that Beneficiary, so long as
payments commence within one year after the Contract Owner's death. If the sole
designated Beneficiary is the spouse of the Contract Owner, the Contract may be
continued in the name of the spouse as Contract Owner. The designated
Beneficiary is the natural person designated by the terms of the Contract or by
the Contract Owner as the individual to whom ownership of the contract passes by
reason of the Contract Owner's death. If the Contract Owner is not an
individual, then for purposes of the distribution at death rules, the Primary
Annuitant is considered the Contract Owner. In addition, when the Contract Owner
is not an individual, a change in the Primary Annuitant is treated as the death
of the Contract Owner. Distributions made to a Beneficiary upon the Owner's
death from an IRA must be made pursuant to the rules in Section 401(a)(9) of the
Code.
Transfers, Assignments, or Exchanges
A Transfer of ownership of a Contract, the designation of an Annuitant,
Payee or other Beneficiary who is not also the Owner, or the exchange of a
Contract may result in adverse tax consequences to the Owner that are not
discussed herein. An Owner contemplating any such designation, transfer,
assignment, or exchange of a Contract should contact a competent tax adviser
with respect to the potential tax effects of such a transaction.
Multiple Contracts
All deferred, non-qualified annuity contracts that are issued by the
Company (or our affiliates) to the same Owner during any calendar year will be
treated as one annuity contract for purposes of determining the amount
includible in gross income under section 72(e) of the Code. Amounts received
under any such Contract may be taxable (and may be subject to the 10% Penalty
Tax) to the extent of the combined income in all such Contracts. In addition,
the Treasury Department has specific authority to issue regulations that prevent
the avoidance of section 72(e) through the serial purchase of annuity contracts
or otherwise. Congress has also indicated that the Treasury Department may have
authority to treat the combination purchase of an immediate annuity contract and
separate deferred annuity contracts as a single annuity contract under its
general authority to prescribe rules as may be necessary to enforce the income
tax laws.
Withholding
Annuity distributions generally are subject to withholding for the
recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. Certain distributions from IRAs are subject to mandatory federal
income tax withholding.
Possible Changes in Taxation
In past years, legislation has been proposed that would have adversely
modified the federal taxation of certain annuities. For example, one such
proposal would have changed the tax treatment of non-qualified annuities that
did not have "substantial life contingencies" by taxing income as it is credited
to the annuity. There is always the possibility that the tax treatment of
annuities could change by legislation or other means (such as IRS regulations,
revenue rulings, judicial decisions, etc.). Moreover, it is also possible that
any change could be retroactive (that is, effective prior to the date of the
change).
Section 1035 Exchanges
Code Section 1035 provides that no gain or loss shall be recognized on
the exchange of one annuity contract for another. Contracts issued on or after
January 19, 1985 in an exchange for another annuity contract are treated as new
contracts for purposes of the penalty and distribution at death rules. 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, distributions that do not satisfy specified requirements, and certain
other transactions. The Contract will be amended as necessary to conform to the
requirements of the Code. Purchasers should seek competent advice as to the
suitability of the Contract for use with IRA's.
If a Contract is issued in connection with an employer's Simplified
Employee Pension ("SEP") plan, Owners, Annuitants and Beneficiaries are
cautioned that the rights of any person to any of the benefits under the
Contract may be subject to the terms and conditions of the plan itself,
regardless of the terms and conditions of the Contract.
If a Contract is purchased to fund an IRA the Annuitant must also be the
Owner. In addition, if a Contract is purchased to fund an IRA, minimum
distributions must commence not later than April 1st of the calendar year
following the calendar year in which you attain age 70 1/2. You should consult
your tax adviser concerning these matters.
At the time the Initial Contribution is paid, a prospective
purchaser must specify whether he or she is purchasing a Non-Qualified Contract
or an IRA. If the initial Contribution is derived from an exchange or surrender
of another annuity contract, we may require that the prospective purchaser
provide information with regard to the federal income tax status of the previous
annuity contract. We will require that persons purchase separate Contracts if
they desire to invest monies qualifying for different annuity tax treatment
under the Code. Each such separate Contract would require the minimum initial
Contribution stated above. Additional Contributions under a Contract must
qualify for the same federal income tax treatment as the initial Contribution
under the Contract; we will not accept an additional Contribution under a
Contract if the federal income tax treatment of such Contribution would be
different from that of the initial Contribution.
Seek Tax Advice
The foregoing discussion of the federal income tax consequences is only a
brief summary and is not intended as tax advice. Further, the federal income tax
consequences discussed herein reflect our understanding of current law and the
law may change. Federal estate tax consequences and state and local estate,
inheritance, and other tax consequences of ownership or receipt of distributions
under a Contract depend on the individual circumstances of each Owner or
recipient of the distribution. A COMPETENT TAX ADVISER SHOULD BE CONSULTED FOR
FURTHER INFORMATION.
- -------------------------------------------------------------------
ASSIGNMENTS OR PLEDGES
- -------------------------------------------------------------------
Generally, rights in the Contract may be assigned or pledged for loans
at any time during the life of the Annuitant; however, if the Contract is an
IRA, the Owner may not assign the Contract as collateral.
If a non-IRA Contract is assigned, the interest of the assignee has
priority over the interest of the Owner and the interest of the Beneficiary. Any
amount payable to the assignee will be paid in a single sum.
A copy of any assignment must be submitted to the Company at the Schwab
Annuity Service Center. Any assignment is subject to any action taken or payment
made by the Company before the assignment was processed. The Company is not
responsible for the validity or sufficiency of any assignment.
If any portion of the Annuity Account Value is assigned or pledged for a
loan, it may be treated as a distribution. A competent tax adviser should be
consulted for further information.
-------------------------------------------------------------------
PERFORMANCE DATA
-------------------------------------------------------------------
From time to time, we may advertise yields and average annual total
returns for the Investment Divisions. In addition, we may advertise the
effective yield of the Schwab Money Market Investment Division. These figures
will be based on historical information and are not intended to indicate future
performance.
The yield of the Schwab Money Market Investment Division refers to the
annualized income generated by an investment in that Investment Division over a
specified seven-day period. The yield is calculated by assuming that the income
generated for that seven-day period is generated each seven-day period over a
52-week period and is shown as a percentage of the investment. The effective
yield is calculated similarly but, when annualized, the income earned by an
investment in that Investment Division is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
The yield of an Investment Division (other than the Schwab Money Market
Investment Division) refers to the annualized income generated by an investment
in that Investment Division over a specified thirty-day period. The yield is
calculated by assuming that the income generated by the investment during that
thirty-day period is generated each thirty-day period over a twelve-month period
and is shown as a percentage of the investment.
The yield calculations do not reflect the effect of any Premium Tax that
may be applicable to a particular Contract. To the extent that premium taxes are
applicable to a particular Contract, the yield of that Contract will be reduced.
For a description of the methods used to determine yield and total returns, see
the Statement of Additional Information.
Investment Division Yield Effective Yield
Money Market 5.13% 5.27%
The following table illustrates standardized and non-standardized
average annual total return for the one, three, five and ten year periods (or
since inception, as appropriate) ended December 31, 1997. Average annual total
return quotations represent the average annual compounded rate of return that
would equate an initial investment of $1,000 to the redemption value of that
investment (excluding Premium Taxes, if any) as of the last day of each of the
periods for which total return quotations are provided. Both the standardized
and non-standardized data reflect the deduction of all fees and charges under
the Contract; however, the standardized data is calculated form the inception
date of the Investment Division and the non-standardized data is calculated for
periods preceding the inception date of the Investment Division. certain of the
Investment Divisions presently have no standardized data. Such data will
provided when it becomes available. For additional information regarding yields
and total returns calculated using the standard formats briefly described
herein, please refer to the Statement of Additional Information.
<PAGE>
<TABLE>
Since Since
Investment Division One Three Five Ten Inception Inception
Inception of Inception
Year Year Year Year of Date
of Underlying Date of
Investment Investment
Fund Underlying
Division Division Fund
---- ---- ---- ---- ---
- -------------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
<C> <C> <C> <C>
Alger American 26.79% 23.74% 18.29% NA 13.74% 5/1/97
18.43% 1/9/89
Growth Portfolio
Alger American Small
Capitalization 10.46% 17.74% 11.68% NA 19.42% 5/1/97
18.21% 9/21/88
Portfolio
<PAGE>
American Century VP
Capital -4.08% 5.76% 4.86% 7.77% 28.59%
5/1/97 8.41% 11/20/87
Appreciation
American Century VP
International 17.67% 14.10% NA NA 16.63%
5/1/97 9.67% 5/1/94
Berger IPT-Small
Company Growth
Fund 20.32% NA NA NA 6.38%
5/1/97 10.95% 5/1/96
Federated American
Leaders Fund II 31.23% 27.99% NA NA 20.46%
5/1/97 20.37% 2/1/94
Federated Fund for
U.S. Government 7.68% 6.26% NA NA 11.14%
5/1/97 5.48% 3/29/94
Securities II
Federated Utility
Fund II 25.58% 19.58% NA NA 16.81%
5/1/97 15.55% 4/14/94
INVESCO VIF-High
Yield Portfolio 16.34% 16.88% NA NA 11.87%
5/1/97 13.92% 5/27/94
INVESCO VIF-
Industrial Income 27.08% 25.46% NA NA 20.95% 5/1/97
22.52% 8/10/94
Portfolio
INVESCO VIF-Total
Return Portfolio 21.90% 18.19% NA NA 12.19%
5/1/97 15.33% 6/2/94
Janus Aspen
Aggressive Growth 11.71% 14.76% NA NA 7.31% 5/1/97
18.21% 9/13/93
Portfolio
Janus Aspen 21.71% 22.63% NA NA -19.44%
5/1/97 16.68% 9/13/93
Growth Portfolio
Janus Aspen Worldwide 21.12% 25.08% NA NA 17.07% 5/1/97
21.88% 9/13/93
Growth Portfolio
Lexington Emerging
Markets Fund -12.31% -3.82% NA NA -11.97%
5/1/97 -2.67% 3/30/94
Montgomery Variable
Series: 27.49% NA NA NA 11.93%
5/1/97 28.62% 2/9/96
Growth Fund
Montgomery Variable
Series: -5.91% NA NA NA 14.17%
5/1/97 -0.97% 9/30/96
International Small -Cap Fund
SAFECO RST
Equity Portfolio 23.79% 25.00% 21.76% 18.23% 15.80% 5/1/97
15.18% 4/3/87
Schwab Market
Track Growth 23.53% NA NA NA 10.67%
5/1/97 23.56% 11/1/96
Portfolio II
Schwab S&P 500
Portfolio 31.34% NA NA NA 13.10%
5/1/97 31.99% 11/1/96
SteinRoe Special
Venture Fund 6.89% 14.24% 15.02% NA 6.98%
5/1/97 15.46% 1/3/89
Strong Discovery
Fund II 10.45% 13.98% 10.94% NA 4.05%
5/1/97 11.18% 5/8/92
Van Eck Worldwide
Hard Assets Fund -2.56% 7.68% 14.14% NA -0.57%
5/1/97 6.27% 9/1/89
Van Kampen American
Capital 20.44% NA NA NA 5.55%
9/15/97 26.82% 7/3/95
LIT-Morgan Stanley
Real Estate Securities Portfolio
</TABLE>
<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
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.
<PAGE>
SELECTED FINANCIAL DATA
The following is a summary of certain financial data of the Company.
This summary has been derived in part from, and should be read in conjunction
with, the financial statements of the Company included elsewhere in this
Prospectus. <TABLE>
(Dollars in
Thousands) For the Period from
April 4, 1997
(Inception)
through December 31, 1997
INCOME STATEMENT DATA
<S> <C>
Premiums and other $ 21
income
Net investment income 243
Total Revenues 264
Total benefits and expenses 213
Income tax expense 18
===============
Net Income $ 33
===============
BALANCE SHEET DATA
Investment assets $ 5,381
Separate account assets 9,045
Total assets 16,154
Total policyholder liabilities 84
Total shareholder's equity 6,538
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company
The Company is authorized to engage in the sale of life insurance,
annuities, and accident and health insurance. The Company became licensed to do
business in New York and Iowa in 1997. The Company's business is currently
limited to the sale of individual annuity products.
The Company was capitalized on April 4, 1997. The table that follows
summarizes premiums and deposits for the period April 4, 1997 through December
31, 1997. For further information concerning the Company.
(Dollars in Thousands)
Premiums and other income $
21
Deposits for Investment-type contracts
84
Deposits to Separate Accounts
9,121
Management's discussion and analysis of financial condition and results
of operations of the Company for the period from April 4, 1997 (inception) to
December 31, 1997 follows. In connection with, and because it desires to take
advantage of, the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, the Company cautions readers regarding certain
forward-looking statements contained in the following discussion and elsewhere
in this report and in any other statements made by, or on behalf of, the
Company, whether or not in future filings with the SEC. Forward-looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results, or other developments. In
particular, statements using verbs such as "expect," "anticipate," "believe," or
words of similar import generally involve forward-looking statements. Without
limiting the foregoing, forward-looking statements include statements which
represent the Company's beliefs concerning future or projected levels of sales
of the Company's products, investment spreads or yields, or the earnings or
profitability of the Company's activities.
Forward-looking statements are necessarily based upon estimates and
assumptions that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Company's control and many of which, with respect to future business decisions,
are subject to change. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any forward-looking statements made by, or on behalf of, the Company. Whether
or not actual results differ materially from forward-looking statements may
depend on numerous foreseeable and unforeseeable events or developments, some of
which may be national in scope, such as general economic conditions and interest
rates, some of which may be related to the insurance industry generally, such as
pricing competition, regulatory developments and industry consolidation, and
others of which may relate to the Company specifically, such as credit,
volatility and other risks associated with the Company's investment portfolio,
and other factors. Readers are also directed to consider other risks and
uncertainties discussed in documents filed by the Company with the SEC.
Results of Operations
The Company's operations during the period April 4, 1997 (inception) to
December 31, 1997 were focused on obtaining a New York insurance license (which
occurred May 28, 1997), and preliminary marketing activities.
Sales have been limited to individual fixed and variable qualified and
non-qualified deferred annuities marketed through Charles Schwab & Co., Inc.
Although sales of fixed annuities have been minimal ($84 thousand),
contributions received for variable annuities were $9.1 million for the period
the Company has been licensed.
The net income of $33 thousand was the result of investment income on
surplus less operating expenses associated with establishing the Company.
It is expected that the sale of individual annuities will continue and
increase during 1998. The Company will continue to focus its efforts on
individual annuity sales while continuing to develop other products for
submission to the New York Department of Insurance for approval.
The Company's investment strategies and portfolios are intended to match
the duration of the related liabilities and provide sufficient cash flow to meet
obligations while maintaining a competitive rate of return. At December 31,
1997, $5.0 million of the Company's general funds were invested in a U.S.
Treasury Note with a maturity date of May 31, 1998, and the remainder in short
term investments.
Liquidity and Capital Resources
The Company meets its operating requirements by maintaining appropriate
levels of liquidity in its investment portfolio. Liquidity for the Company is
strong, as evidenced by significant amounts of short-term investments and cash,
which totaled $2.0 million as of December 31, 1997. As discussed above, the
Company and GWL&A have an agreement whereby GWL&A has undertaken to provide the
Company with certain financial support related to maintaining required statutory
surplus and liquidity.
Accounting Pronouncements
Effective January 1, 1998, the Company will implement SFAS No. 130,
"Reporting Comprehensive Income", which requires the disclosure of comprehensive
income and its components. The Company recognizes unrealized gains and losses,
net of adjustments, on its investments available for sale portfolio. These items
are considered to be comprehensive income.
Effective October 1, 1998, the Company will implement the disclosure
requirements of SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". SFAS No. 131 redefines how operating segments are
determined and requires disclosure of certain financial and descriptive
information about a company's operating segments. The Company anticipates, with
the adoption of SFAS No. 131, that it will incorporate segment disclosures of
its current operating units. The Company believes the segment information
required to be disclosed under SFAS No. 131 will be more comprehensive than
previously provided, including expanded disclosures of income statement and
balance sheet items for each of its reportable operating segments.
Year 2000
As mentioned, GWL&A provides administrative services to the Company.
GWL&A has a number of existing computer programs that use only two digits to
identify a year in the date field, which creates a problem with the upcoming
change in the century. GWL&A has developed detailed plans that it expects to
rectify the year 2000 problem. These plans include modifying programs where
necessary, replacing certain programs with year 2000 compliant software, and
working with vendors and business partners, including banks, custodians and
investment managers, who need to become year 2000 compliant. The resources that
are being devoted to this effort are substantial. Management estimates that the
total cost to implement these plans will not be material, and has budgeted the
expense as part of its computer systems operating costs in 1998 and early 1999.
GWL&A anticipates that its systems will be year 2000 compliant on or about first
quarter 1999, but there can be no assurance that GWL&A will be successful, or
that interaction with other service providers will not impair the Company's
services at that time.
Reserves
Reserves for deferred annuities are equal to cumulative deposits plus
credited interest less withdrawals and other charges. With additions from
deposits to be received and interest, such reserves are expected to be
sufficient to meet the Company's contract obligations at their maturities, and
pay expected death or retirement benefits or surrender requests.
Investments
GWL&A manages the Company's general and Separate Account funds.
Investments under management at year-end 1997 totaled $14.4 million, comprised
of $5.4 million of general funds and $9.0 million of Separate Account assets.
The limited size of the Company's investment portfolio makes it
difficult to diversify and avoid industry concentration at this time. At
December 31, 1997, $5.0 million of the Company's general funds were invested in
a U.S. Treasury Note with a maturity date of May 31, 1998, and the remainder in
short term investments.
Regulation
General
The Company must comply with the insurance laws of New York and
Iowa. This includes regulations governing rates, solvency, standards of business
conduct and various insurance and investment products. The form and content of
statutory financial reports and the type and concentration of investments are
also regulated.
The Company's operations and accounts are subject to examination by the
New York Insurance Division at specified intervals.
Solvency Regulation
The National Association of Insurance Commissioners has adopted
risk-based capital rules for life insurance companies. These rules recommend a
specified level of capital depending upon the types and quality of investments
held, the types of business written, and the types of liabilities maintained.
Depending on the ratio of the insurer's adjusted capital to its risk based
capital, the insurer could be subject to various regulatory actions ranging from
increased scrutiny to conservatorship. Based on the Company's December 31, 1997
statutory financial reports, the Company was well within these rules.
The National Association of Insurance Commissioners Insurance Regulatory
Information System ratios are another set of tools used by regulators to provide
an "early warning" as to when a company may require special attention. There are
twelve categories of financial data with defined usual ranges for each. For
1997, the Company anticipates that it will fall outside of the usual ranges for
several categories due to the start-up nature of its operations.
<PAGE>
Insurance Holding Company Regulations
The Company is subject to and complies with insurance holding company
regulations in New York. These regulations contain certain restrictions and
reporting requirements for transactions between an insurer and its affiliates,
including the payments of dividends. They also regulate changes in control of an
insurance company.
Securities Laws
The Company is subject to various levels of regulation under federal
securities laws. The Company's Separate Accounts are registered under the
Investment Company Act of 1940 and the offerings of the Company's annuity
products are registered under the Securities Act of 1933.
Ratings
The Company is rated by a number of nationally recognized rating
agencies. The ratings represent the opinion of the rating agencies on the
financial strength of the Company and its ability to meet the obligations of its
insurance policies. The ratings take into account an agreement whereby GWL&A has
undertaken to provide the Company with certain financial support related to
maintaining required statutory surplus and liquidity; however, these ratings and
the Company's financial strength do not extend to the investment return or
principal value of the Company's separate accounts.
<TABLE>
Rating Agency Measurement Rating
- ----------------------------- ------------------------------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
A.M. Best Company Financial Condition and Operating AA+ *
Performance
Duff & Phelps Corporation Claims Paying Ability AAA *
Standard & Poor's Claims Paying Ability
AA **
Corporation
Moody's Investors Service Insurance Financial Strength Aa3 ***
* Highest ratings available.
** Third highest rating out of 19 rating categories.
*** Fourth highest rating out of 19 rating categories.
</TABLE>
Miscellaneous
No customer accounted for 10% or more of the Company's consolidated
revenues in 1997. The Company's business is not dependent on a single customer
or a few customers, the loss of which would have a significant effect on the
Company.
As mentioned, the Company distributes its annuity products through
Charles Schwab and Co., Inc. pursuant to a marketing agreement. The loss of
business from this agent would have a material effect on the Company's
distribution process.
The Company and GWL&A have an administration service agreement whereby
GWL&A administers, distributes, and underwrites business for the Company and
administers the Company's investment portfolio The Company leases its home
office in Albany, New York.
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 have been engaged for
not less than five identified. <TABLE>
Director Principal Occupation(s) For
Last Five Years
<S> <C> <C> <C> <C> <C> <C>
Marcia D. Alazraki Partner, Kalkines, Arky, Zall & Bernstein LLP
since January, 1998; previously Counsel,
Simpson
Thacher & Bartlett
James Balog Company Director
James W. Burns, O.C. Chairman of the Boards of Great-West Lifeco,
Great-West Life, London Insurance Group
Inc. and
London Life Insurance Company; Deputy
Chairman,
Power Corporation
Paul Desmarais, Jr. Chairman and Co-Chief Executive Officer, Power
Corporation; Chairman, Power Financial
Robert Gratton Chairman of the Board of GWL&A; President and
Chief Executive Officer, Power Financial
N. Berne Hart (1) Company Director
Stuart Z. Katz Partner, Fried, Frank, Harris, Shriver & Jacobson
William T. McCallum Chairman, President and Chief Executive Officer
of the Company; President and Chief
Executive
Officer, GWL&A; President and Chief
Executive
Officer, United States Operations,
Great-West Life
Brian E. Walsh (1) Co-Founder and Managing Partner, Veritas Capital
Management, LLC since September 1997;
previously
Partner, Trinity L.P. from January 1996;
previously Managing Director and Co-Head,
Global
Investment Bank, Bankers Trust Company
Executive Officers Principal Occupation(s) For
Last Five Years
William T. McCallum Chairman, Chairman, President and Chief Executive Officer
President and Chief Executive of the Company; President and Chief Executive
Officer Officer, GWL&A; President and Chief
Executive
Officer, United States Operations,
Great-West Life
Dennis Low Executive Vice President, Financial Services of
Executive Vice President, the Company, GWL&A and Great-West Life
Financial Services
James D. Motz Executive Vice President, Employee Benefits of
Executive Vice President, the Company, GWL&A and Great-West Life
Employee Benefits
Douglas L. Wooden Executive Vice President, Financial Services of
Executive Vice President, the Company, GWL&A and Great-West Life
Financial Services
Mitchell T.G. Graye Senior Vice President, Chief Financial Officer
Senior Vice President, of the Company and GWL&A; Senior Vice President,
Chief Financial Officer Chief Financial Officer, United States,
Great-West Life
<PAGE>
John T. Hughes Senior Vice President, Chief Investment Officer
Senior Vice President, of the Company and GWL&A; Senior Vice President,
Chief Investment Officer Chief Financial Officer, United States,
Great-West Life
D. Craig Lennox Senior Vice President, General Counsel and
Senior Vice President, General Secretary of the Company and GWL&A; Senior Vice
Counsel and Secretary President and Chief U.S. Legal Officer,
Great-West Life
Martin Rosenbaum Senior Vice President, Employee Benefits
Senior Vice President, Employee Operations of the Company, GWL&A and Great-West Life
Benefits Operations
Robert K. Shaw Senior Vice President, Individual Markets of the
Senior Vice President, Company, GWL&A and Great-West Life
Individual Markets
</TABLE>
Compensation of Executive Officers
The executive officers of the Company are not compensated for their
services to the Company. They are compensated as executive officers of GWL&A.
Compensation of Directors
For each director of the Company who is not also a director of GWL&A,
Great-West Life or Great-West Lifeco, the Company pays an annual fee of $10,000.
For each director of the Company who is also a director of GWL&A, Great-West
Life or Great-West Lifeco, the Company pays an annual fee of $5,000. The Company
pays each director a meeting fee of $1,000 for each meeting of the Board of
Directors or a committee thereof attended. In addition, all directors are
reimbursed for incidental expenses. The above amounts are paid in the currency
of the country of residence of the director.
Security Ownership of Certain Beneficial Owners
As of March 1, 1998, the following sets out the beneficial owners of
more than 5% of the Company's voting securities:
(1) 100% of the Company's 2,500 outstanding common shares are owned by
Great-West Life & Annuity Insurance Company, 8515 East Orchard Road,
Englewood, Colorado 80111.
(2) 100% of GWL&A's outstanding common shares are owned by The Great-West
Life Assurance Company, 100 Osborne Street North, Winnipeg, Manitoba,
Canada R3C 3A5.
(3) 99.5% of the outstanding common shares of The Great-West Life
Assurance Company are owned by Great-West Lifeco Inc., 100 Osborne
Street North, Winnipeg, Manitoba, Canada R3C 3A5.
(4) 81.2% of the outstanding common shares of Great-West Lifeco Inc. are
controlled by Power Financial Corporation, 751 Victoria Square,
Montreal, Quebec, Canada H2Y 2J3.
(5) 67.7% of the outstanding common shares of Power Financial Corporation
are owned by 171263 Canada Inc., 751 Victoria Square, Montreal,
Quebec, Canada H2Y 2J3.
(6) 100% of the outstanding common shares of 171263 Canada Inc. are owned
by Marquette Communications Corporation, 751 Victoria Square,
Montreal, Quebec, Canada H2Y 2J3.
(7) 100% of the outstanding common shares of Marquette Communications
Corporation are owned by Power Corporation of Canada, 751 Victoria
Square, Montreal, Quebec, Canada H2Y 2J3.
(8) Mr. Paul Desmarais, 751 Victoria Square, Montreal, Quebec, Canada H2Y
2J3, through a group of private holding companies, which he controls,
has voting control of Power Corporation of Canada.
Security Ownership of Management
The following table sets out the number of equity securities, and
exercisable options for equity securities, of the Company or any of its parents
or subsidiaries, beneficially owned, as of March 1, 1998, by (i) the directors
of the Company; and (ii) the directors and executive officers of the Company as
a group.
<PAGE>
<TABLE>
- ----------------------
- --------------------------------------------------------------------------
Company
- --------------------------------------------------------------------------
------------- ---------------- --------------------
- ----------------------
<S> <C> <C> <C> <C> <C> <C>
The Great-West Power Financial Power Corporation
of
Great-West Lifeco Inc. Corporation Canada
Life
Assurance
Company
(1) (2) (3) (4)
------------- ---------------- --------------------
- ----------------------
Directors
- -------------------------------------------------------------------------------------------------
- ---------------------- ------------- ---------------- --------------------
- ----------------------
M.D. Alazraki - - - -
- ---------------------- ------------- ---------------- --------------------
- ----------------------
- ---------------------- ------------- ---------------- --------------------
- ----------------------
J. Balog - - - -
- ---------------------- ------------- ---------------- --------------------
- ----------------------
- ---------------------- ------------- ---------------- --------------------
- ----------------------
J. W. Burns 50 56,000 4,000 200,320
101,750 options
- ---------------------- ------------- ---------------- --------------------
- ----------------------
- ---------------------- ------------- ---------------- --------------------
- ----------------------
P. Desmarais, Jr. 50 30,000 - 306,750 options
- ---------------------- ------------- ---------------- --------------------
- ----------------------
- ---------------------- ------------- ---------------- --------------------
- ----------------------
R. Gratton - 165,000 155,000 2,500
2,160,000 options 150,000 options
- ---------------------- ------------- ---------------- --------------------
- ----------------------
- ---------------------- ------------- ---------------- --------------------
- ----------------------
N.B. Hart - - - -
- ---------------------- ------------- ---------------- --------------------
- ----------------------
- ---------------------- ------------- ---------------- --------------------
- ----------------------
S.Z. Katz - - - -
- ---------------------- ------------- ---------------- --------------------
- ----------------------
- ---------------------- ------------- ---------------- --------------------
- ----------------------
W.T. McCallum 17 35,133 52,000 -
60,000 options
- ---------------------- ------------- ---------------- --------------------
- ----------------------
- ---------------------- ------------- ---------------- --------------------
- ----------------------
B.E. Walsh - - - 3,700
- ---------------------- ------------- ---------------- --------------------
- ----------------------
- -------------------------------------------------------------------------------------------------
Directors and Executive
Officers as a Group
- -------------------------------------------------------------------------------------------------
- ---------------------- ------------- ---------------- --------------------
- ----------------------
117 317,635 275,600 206,520
185,600 options 2,368,000 options 558,500 options
- ---------------------- ------------- ---------------- --------------------
- ----------------------
</TABLE>
(1) All holdings are common shares of The Great-West Life Assurance Company. (2)
All holdings are common shares, or where indicated, exercisable options for
common shares, of Great-West Lifeco Inc. (3) All holdings are common shares, or
where indicated, exercisable options for common shares, of Power Financial
Corporation. (4) All holdings are subordinate voting shares, or where indicated,
exercisable options for subordinate voting shares, of Power Corporation of
Canada.
The number of common shares and exercisable options for common shares of
Power Financial Corporation held by R. Gratton represents 1.31% of the total
number of common shares and exercisable options for common shares of Power
Financial Corporation outstanding. The number of common shares and exercisable
options for common shares of Power Financial Corporation held by the directors
and executive officers as a group represents 1.50% of the total number of common
shares and exercisable options for common shares of Power Financial Corporation
outstanding. None of the remaining holdings set out above exceed 1% of the total
number of shares and exercisable options for shares of the class outstanding.
Certain Relationships and Related Transactions
M.D. Alazraki, a director of the Company, was an attorney with two law
firms which provided legal services to the Company. From January 1, 1997 through
March 16, 1998, the amount of such services was approximately $218,000.
<PAGE>
-------------------------------------------------------------------
VOTING RIGHTS
-------------------------------------------------------------------
To the extent required by applicable law, all Eligible Fund shares held
in the Series Account will be voted by the Company at regular and special
shareholder meetings of the respective Eligible Funds in accordance with
instructions received from persons having voting interests in the corresponding
Investment Division. If, however, the 1940 Act or any regulation thereunder
should be amended, or if the present interpretation thereof should change, or if
we determine that we are allowed to vote all Eligible Funds shares in our own
rights, we may elect to do so.
Before the annuity commencement date, you the Owner, have the voting
interest. The number of votes which are available to you will be calculated
separately for each of your Variable Sub-Accounts. That number will be
determined by applying your percentage interest, if any, in a particular
Investment Division to the total number of votes attributable to that Investment
Division. You hold a voting interest in each Investment Division to which your
Annuity Account Value is allocated. If you select a variable annuity option, the
votes attributable to a Contract will decrease as annuity payments are made.
The number of votes of an Eligible Fund will be determined as of the
date coincident with the date established by that Eligible Fund for determining
shareholders eligible to vote at the meeting of the Eligible Funds. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established by the respective Eligible Funds.
Shares as to which no timely instructions are received and shares held
by us as to which Owners have no beneficial interest will be voted in proportion
to the voting instructions which are received with respect to all Contracts
participating in the Investment Division. Voting instructions to abstain on any
item to be voted upon will be applied on a pro rata basis to reduce the votes
eligible to be cast.
Each person or entity having a voting interest in a Investment Division
will receive proxy material, reports and other material relating to the
appropriate Eligible Fund.
It should be noted that generally the Eligible Funds are not required
to, and do not intend to, hold annual or other regular meetings of shareholders.
Contract Owners have no voting rights in the Company.
-------------------------------------------------------------------
RIGHTS RESERVED BY THE COMPANY
-------------------------------------------------------------------
The Company reserves the right to make certain changes if, in its
judgment, they would best serve the interests of Owners and Annuitants or would
be appropriate in carrying out the purposes of the Contracts. Any changes will
be made only to the extent and in the manner permitted by applicable laws. Also,
when required by law, the Company will obtain your approval of the changes and
approval from any appropriate regulatory authority. Such approval may not be
required in all cases, however. Examples of the changes the Company may make
include:
-To operate the Series Account in any form permitted under the
Investment Company Act of 1940 or in any other form permitted by law.
- To transfer any assets in any Investment Division to another
Investment Division, or to one or more separate accounts, or to a
Guarantee Period; or to add, combine or remove Investment Divisions of
the Series Account.
- To substitute, for the Eligible Fund shares in any Investment
Division, the shares of another Eligible Fund or shares of another
investment company or any other investment permitted by law.
- To make any changes required by the Internal Revenue Code or by any
other applicable law in order to continue treatment of the Contract as
an annuity.
- To change the time or time of day at which a Valuation Date is
deemed to have ended.
- To make any other necessary technical changes in the Contract in order
to conform with any action the above provisions permit the Company to
take, including to change the way the Company assess charges, but
without increasing as to any then outstanding Contract the aggregate
amount of the types of charges which the Company has guaranteed.
-------------------------------------------------------------------
LEGAL PROCEEDINGS
-------------------------------------------------------------------
There are at present no material legal proceedings to which the Series
Account is a party or to which the assets of the Series Account are subject. The
Company is not currently a party to, and its property is not currently subject
to, any material legal proceedings. The lawsuits to which the Company is a party
are, in the opinion of management, in the ordinary course of business, and are
not expected to have a material adverse effect on the financial results,
conditions or prospects of the Company.
-------------------------------------------------------------------
LEGAL MATTERS
-------------------------------------------------------------------
Advice regarding certain legal matters concerning the federal securities
laws applicable to the issue and sale of the Contract has been provided by
Jorden Burt Boros Cicchetti 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 consolidated financial statements of First Great-West Life & Annuity
Insurance Company for the period from April 4, 1997 (inception) to December 31,
1997, included in this prospectus have 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 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
<PAGE>
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
Surrender Value = (amount Transferred or surrendered + MVA)x(1-CDSC)
= ($10,000 + $607.78)x(1-0)
= $10,607.78
<PAGE>
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 is less than 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 is less than 6, so MVAF = 0
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
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
PERIOD FROM APRIL 4, 1997 (INCEPTION)
TO DECEMBER 31, 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
Tothe 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 and
Annuity Insurance Company) as of December 31, 1997, and the related statements
of income, stockholder's equity, and cash flows for the period from April 4,
1997 [inception] to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of First Great-West Life & Annuity Insurance
Company as of December 31, 1997, and the results of its operations and its cash
flows for the period from April 4, 1997 [inception] to December 31, 1997 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
January 23, 1998
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
BALANCE SHEET
DECEMBER 31, 1997
- ----------------------------------------------------
[Dollars in thousands except for share information.]
ASSETS
<TABLE>
INVESTMENTS:
Fixed maturities, available-for-sale, at fair value (amortized cost $4,987) $ 4,995
Short-term investments, available-for-sale (cost approximates fair value) 386
- --------------
Total Investments 5,381
<S> <C>
Cash 1,648
Investment income due and accrued 24
Other assets 6
Deferred income taxes 50
Separate account assets 9,045
- --------------
TOTAL ASSETS $ 16,154
==============
LIABILITIES AND STOCKHOLDER'S EQUITY
POLICY BENEFIT LIABILITIES:
Policy reserves $ 84
GENERAL LIABILITIES:
Due to Parent Corporation 155
Other liabilities 332
Separate account liabilities 9,045
- --------------
Total Liabilities 9,616
- --------------
STOCKHOLDER'S EQUITY:
Common stock, $1,000 par value, 2,500 shares authorized,
issued and outstanding 2,500
Additional paid-in capital 4,000
Net unrealized gain on securities available-for-sale 5
Retained earnings 33
- --------------
Total Stockholder's Equity 6,538
- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 16,154
==============
</TABLE>
See notes to financial statements.
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENT OF INCOME
FOR THE PERIOD APRIL 4, 1997 [INCEPTION] TO DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------
[Dollars in Thousands]
REVENUES:
<S> <C>
Annuity contract charges and premiums $ 21
Net investment income 243
- ---------------
264
- ---------------
EXPENSES:
Commissions 9
Operating expenses 204
- ---------------
213
- ---------------
INCOME BEFORE INCOME TAXES 51
PROVISION FOR INCOME TAXES:
Current 71
Deferred (53)
- ---------------
18
- ---------------
NET INCOME $ 33
===============
</TABLE>
See notes to financial statements.
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE PERIOD APRIL 4, 1997 [INCEPTION] TO DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
[Dollars in Thousands]
Additional
Net
Paid-in
Unrealized Retained
Shares Amount Capital
Gains Earnings Total
------------- ------------ -------------
- ------------- ------------- -------------
<S> <C> <C> <C>
<C>
Capital contribution 2,500 $ 2,500 $ 4,000
$ $ $ 6,500
Change in net unrealized
gains
5 5
Net
income
33 33
------------- ------------ -------------
- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 2,500 $ 2,500 $ 4,000
$ 5 $ 33 $ 6,538
============= ============ =============
============= ============= =============
</TABLE>
See notes to financial statements.
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENT OF CASH FLOWS
FOR THE PERIOD APRIL 4, 1997 [INCEPTION] TO DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------
[Dollars in Thousands]
OPERATING ACTIVITIES:
<S> <C>
Net income $ 33
Adjustments to reconcile net income to
net cash provided by operating activities -
Amortization of investments
(19)
Deferred income taxes
(53)
Changes in assets and liabilities:
Investment income due and accrued
(24)
Other, net 326
- -------------
Net cash provided by operating activities 263
- -------------
INVESTING ACTIVITIES:
Purchases of fixed maturity investments -
Available-for-sale
(5,354)
- -------------
Net cash used in investing activities
(5,354)
- -------------
FINANCING ACTIVITIES:
Contract deposits 84
Due to Parent Corporation 155
Capital contributions 6,500
- -------------
Net cash provided by financing activities 6,739
- -------------
NET INCREASE IN CASH 1,648
CASH, BEGINNING OF PERIOD 0
- -------------
CASH, END OF PERIOD $ 1,648
=============
</TABLE>
See notes to financial statements.
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD APRIL 4, 1997 [INCEPTION] TO DECEMBER 31,1997
- ----------------------------------------------------------------------
[Dollars in Thousands, except Share Amounts]
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 in the State of New York and was
capitalized on April 4, 1997, through a $6,000 cash investment from the
Parent Corporation for 2,000 shares of common stock. On December 29,
1997, the Company issued an additional 500 shares of common stock to the
Parent Corporation for $500. The Company was licensed as an insurance
company in the State of New York on May 28, 1997.
Basis of Presentation - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING PRINCIPLES
Cash - Cash includes only amounts in demand deposit accounts.
Investments - Fixed maturity investments available-for-sale are carried
at fair value, with the net unrealized gain or loss included as a
component of stockholder's equity. If a decline in fair value is
determined to be other than temporary, the investment will be written
down and a realized loss recognized. The fair values of publicly traded
fixed maturities are obtained from an independent pricing service.
The amortized cost of fixed maturities available-for-sale is adjusted
for the amortization of premium and accretion of discounts using the
effective interest method over the estimated life of the related bonds.
Such amortization is included in net investment income.
At December 31, 1997, the fixed maturity investment consisted of one
U.S. Treasury Note with a maturity date of May 31, 1998.
<PAGE>
Short-term investments include securities purchased with initial
maturities of one year or less and are carried at amortized cost. The
Company considers short-term investments to be available-for-sale and
amortized cost approximates fair value.
At December 31, 1997, the short-term investment consisted of one
commercial paper with a maturity date of August 17, 1998.
Separate Account - Separate Account assets and related liabilities are
carried at fair value. The Company's Separate Accounts invest in shares
of various external mutual funds.
Due to Parent Corporation - Due to Parent Corporation includes amounts
due on demand.
Policy Reserves - Annuity contract reserves without life contingencies
of $84 are carried at contractholders' account value. The carrying value
of policy reserves is a reasonable estimate of fair value.
Recognition of Premium Income and Expenses - Revenues for annuity and
other contracts without significant life contingencies are recognized as
received. They consist of contract charges for the cost of insurance,
contract administration, and surrender fees that have been assessed
against the contract account balance during the period.
Income Taxes - Income taxes are recorded using an asset and liability
approach which requires, among other provisions, the recognition of
deferred tax assets and liabilities for expected future tax consequences
of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, all
expected future events (other than the enactments or changes in the tax
laws or rules) are considered.
Temporary differences which give rise to the deferred tax assets and
liabilities as of December 31, 1997, are as follows:
<TABLE>
Deferred Deferred Tax
Tax Asset Liability
----------------- ----------------
<S> <C> <C>
Deferred acquisition cost proxy tax $ 53 $
Investment assets 3
----------------- ----------------
Total deferred taxes $ 53 $ 3
================= ================
</TABLE>
Amounts related to investment assets above include $3 related to the
unrealized gains on the Company's fixed maturities available-for-sale at
December 31, 1997.
The Company and its Parent have entered into an income tax allocation
agreement whereby the Parent could file a consolidated federal income
tax return. Under the agreement the Company is responsible for and will
receive the benefits of any income tax liability or benefit computed on
a separate basis. In 1997 the Company will not file on a consolidated
basis with its Parent.
3. RELATED-PARTY TRANSACTIONS
The Company and the Parent Corporation have service agreements whereby
the Parent Corporation administers, distributes, and underwrites
business for the Company and administers the Company's investment
portfolio and the Company provides services for the Parent Corporation.
Certain operating expenses represent allocations made between the Parent
Corporation and the Company for services provided pursuant to these
service agreements. These transactions are summarized as follows:
Investment management expense (included in net investment income) $ 4
Administrative and underwriting payments (included in operating expenses) (14)
The Company and the Parent Corporation have an agreement whereby the
Parent Corporation provides certain financial support related to
maintaining adequate regulatory surplus and liquidity.
4. DIVIDEND RESTRICTIONS
The Company's net income and capital and surplus, as determined in
accordance with statutory accounting principles and practices for
December 31, 1997, are as follows (unaudited):
Net Loss $ (19)
Capital and Surplus 6,469
As an insurance company domiciled in the State of New York, the Company
is required to maintain a minimum of $6,000 of capital and surplus. In
addition, the maximum amount of dividends which can be paid to
stockholders is subject to restrictions relating to statutory surplus
and statutory adjusted net investment income. The Company should be able
to pay dividends of $242 in 1998. The Company paid no dividends in 1997.
