As filed with the Securities and Exchange Commission on April 2, 1999
Registration No. 333-25269
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
POST-EFFECTIVE AMENDMENT NO. 2 to
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(Exact name of Registrant)
NEW YORK 63 93-1225432
(State of Incorporation) (Primary Standard (I.R.S.
Employer
Industrial Classification
Identification No.)
Code Number)
125 Wolf Road, Suite 110
Albany, New York 12205
(800) 537-2033
(Address, including zip code, and telephone number,
including area code, or registrant's principal
executive officer)
William T. McCallum
President and Chief Executive Officer
First Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, Colorado 80111
(Name and Address of Agent for Service)
Copy to:
James F. Jorden, Esq.
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W., Suite 400 East
Washington, D.C. 20007-0805
Approximate Date of Proposed Public Offering: Upon the effective date of this
Registration Statement.
It is proposed that this Registration Statement will become effective on May 1,
1999.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following: X
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering:
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement for the same offering:
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box:
<PAGE>
Cross Reference Sheet
Showing Location in Prospectus
and Statement of Additional Information
As Required by Form S-1
<TABLE>
<S> <C>
FORM S-1 PROSPECTUS
CAPTION ITEM
1. Forepart of Registration Statement
and Outside Front Cover Page Cover Page
2. Inside Front and Outside Cover Page;
Back Cover Pages Table of
Contents
3. Summary Information, Risk Factors Key Features of
and Ratio of Earnings the
Annuity; First
to Fixed Charges Great-West
Life &
Annuity
Insurance
Company
4. Use of Proceeds Not Applicable
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution
Distribution of the Contracts
9. Description of Securities The Guarantee
Period
Fund; The
Market Value
Adjustment
10. Interest of Named Experts Legal Matters;
Experts
and Counsel
11. Information with Respect First
Great-Life &
to the Registrant Annuity
Insurance
Company and The
Series Account
Selected
Financial
Data; Legal
Proceedings;
Financial
Statements
12. Disclosure of Commission,
Position on Indemnification
for Securities Act Liabilities Not
Applicable
</TABLE>
<PAGE>
1
The Schwab Variable Annuity(R)
A flexible premium deferred fixed and variable annuity
Distributed by
Charles Schwab & Co., Inc.
---------------------------------------------
Issued by
First Great-West Life & Annuity Insurance Company
Prospectus Supplement dated May 1, 1999
to the Prospectus dated May 1, 1999
This Prospectus supplement describes eight (8) Portfolios that will be closed to
Contributions and Transfers effective May 1, 1999 (the "Deleted Portfolios").
Variable Account Value that you have allocated to the Sub-Accounts corresponding
to the Deleted Portfolios may remain allocated to those Sub-Accounts pending
further developments or your Request to Transfer to other available
Sub-Accounts.
Any Contract owner attempting to make Contributions or effect Transfers,
including those utilizing a custom transfer feature: Dollar Cost Averaging or
Rebalancer Option, involving the Deleted Portfolios should contact the Schwab
Insurance & Annuity Service Center at 1-800-838-0649 or P.O. Box 7806, San
Francisco, California 94120-9327 immediately to make alternate arrangements. If
you fail to make alternate arrangements, Schwab will try to contact you
immediately to request alternative allocation instructions. If Schwab is unable
to contact you immediately, Contributions allocated to the Deleted Portfolios
will be returned to you with a request that you provide alternate allocation
instructions and Transfer Requests, including those utilizing a customer
transfer feature, will not be processed.
Following is a description of the each of the Deleted Portfolios:
Alger American Small Capitalization Portfolio
Seeks long-term capital appreciation by investing at least 65% of its total
assets, except during temporary defensive periods, in equity securities of
companies that, at the time of purchase, have total market capitalization within
the range of companies included in the Russell 2000 Growth Index ("Russell
Index") or the S&P SmallCap 600 Index ("S&P Index"), updated quarterly.
American Century VP Capital Appreciation Portfolio
Seeks capital growth by investing in common stocks (including securities
convertible into common stocks and other equity equivalents) and other
securities that meet certain fundamental and technical standards of selection
and have, in the opinion of the investment manager, better-than-average
potential for appreciation.
INVESCO VIF - Total Return Portfolio
Seeks a high total return on investment through capital appreciation and current
income by investing in a combination of equity securities (consisting of common
stocks and, to a lesser degree, securities convertible into common stock) and
fixed income securities.
Janus Aspen Series Aggressive Growth Portfolio
Seeks long-term growth of capital in a manner consistent with the preservation
of capital by investing at least 50% of its equity assets in securities issued
by medium-sized companies.
(continued on page 2)
<PAGE>
Lexington Emerging Markets Fund
Seeks long-term growth of capital primarily through investment in equity
securities of companies domiciled in, or doing business in emerging countries
and emerging markets.
SteinRoe Variable Investment Trust Special Venture Fund
Seeks capital growth by investing primarily in common stocks, convertible
securities, and other securities selected for prospective capital growth.
Strong Discovery Fund II, Inc.
Seeks capital growth by investing primarily in equity securities, although it
has the flexibility to invest in debt obligations and short-term fixed-income
securities.
Van Eck Worldwide Insurance Trust: Van Eck Worldwide Hard Assets Fund Seeks
long-term capital appreciation by investing in hard asset securities, such as
commodities or securities of firms involved to a significant extent (directly or
indirectly) primarily in the following areas: precious metals, ferrous and
non-ferrous metals, energy, forest products, real estate, and other
non-agricultural commodities.
<PAGE>
Portfolio Annual Expenses1
(as a percentage of Portfolio net assets)
<TABLE>
Management Other Total
<S> <C> <C>
Portfolio Fees Expenses 12b-1 Fees Expenses
Alger American Small Capitalization
American Century VP Capital
Appreciation
INVESCO-VIF Total Return
Janus Aspen Series Aggressive Growth
Lexington Emerging Markets
SteinRoe Special Venture
Strong Discovery Fund II
Van Eck Worldwide Hard Assets
</TABLE>
Examples1
If you retain, annuitize or surrender the Contract at the end of the applicable
time period, you would pay the following fees and expenses on a $1,000
investment, assuming a 5% return on assets. These examples assume that no
Premium Taxes have been assessed.
<TABLE>
<S> <C> <C> <C> <C>
Portfolio 1 year 3 years 5 years 10 years
Alger American Small Capitalization
American Century VP Capital
Appreciation
INVESCO-VIF Total Return
Janus Aspen Series Aggressive Growth
Lexington Emerging Markets
SteinRoe Special Venture
Strong Discovery Fund II
Van Eck Worldwide Hard Assets
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
Performance Data
From time to time, we may advertise average annual total returns for the
Sub-Accounts. These figures will be based on historical information and are not
intended to indicate future performance.
The table on the following page reflects standardized and non-standardized
average annual total return for one-, three-, five- and ten-year periods (or
since inception, as appropriate) ended December 31, 1998 for the Deleted
Portfolios. Average annual total return quotations represent the average annual
compounded rate of return that would equate an initial investment of $1,000 to
the redemption value of that investment (excluding Premium Taxes, if any) as of
the last day of each of the periods for which total return quotations are
provided.
Both the standardized and non-standardized data reflect the deduction of all
fees and charges under the Contract. The standardized data is calculated from
the inception date of the Sub-Account and the non-standardized data is
calculated for periods preceding the inception date of the Sub-Account. Such
data will be provided when it becomes available. For additional information
regarding yields and total returns calculated using the standard formats briefly
described herein, please refer to the Statement of Additional Information.
Performance information and calculations for any Sub-Account are based only on
the performance of a hypothetical Contract under which the Annuity Account Value
is allocated to an Sub-Account during a particular time period. Performance
information should be considered in light of the investment objectives and
policies and characteristics of the Portfolios in which the Sub-Account invests
and the market conditions during the given time period. It should not be
considered as a representation of what may be achieved in the future.
Reports and promotional literature may also contain other information including:
o the ranking of any Sub-Account derived from rankings of variable annuity
separate accounts or their investment products tracked by Lipper Analytical
Services, Inc., VARDS, Morningstar, Value Line, IBC/Donoghue's Money Fund
Report, Financial Planning Magazine, Money Magazine, Bank Rate Monitor,
Standard & Poor's Indices, Dow Jones Industrial Average, and other rating
services, companies, publications or other people who rank separate accounts
or other investment products on overall performance or other criteria, and
o the effect of tax-deferred compounding on investment returns, or returns in
general, which may be illustrated by graphs, charts, or otherwise, and which
may include a comparison, at various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a currently taxable
basis. Other ranking services and indices may be used.
We may from time to time also disclose cumulative (non-annualized) total
returns, yield and standard total returns for the Sub-Accounts.
We may also advertise performance figures for the Sub-Accounts based on the
performance of a Portfolio prior to the time the Series Account commenced
operations.
For additional information regarding the calculation of other performance data,
please refer to the Statement of Additional Information.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Sub-Account 1 year 3 years 5 years 10 years Since Inception Since Inception
Inception of Date of Inception of Date of
Sub-Account Sub-Account Portfolio Portfolio
Alger American Small Capitalization 11/1/96 9/21/88
<PAGE>
American Century VP Capital Appreciation 11/1/96 11/20/87
INVESCO VIF-Total Return 11/1/96 6/2/94
Janus Aspen Aggressive Growth 11/1/96 9/13/93
Lexington Emerging Markets 11/1/96 3/30/94
SteinRoe Special Venture 11/1/96 1/3/89
Strong Discovery Fund II 11/1/96 5/8/92
Van Eck Worldwide Hard Assets 11/1/96 9/1/89
</TABLE>
<PAGE>
The Schwab Variable Annuity(R)
A flexible premium deferred variable and fixed annuity
Distributed by
Charles Schwab & Co., Inc.
Issued by
First Great-West Life & Annuity Insurance Company
<PAGE>
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of the Prospectus. Any representation to the contrary is a
criminal offense. No person is authorized by Great-West to give information or
to make any representation, other than those contained in this Prospectus, in
connection with the offers contained in this Prospectus. This Prospectus does
not constitute an offering in any jurisdiction in which such offering may not
lawfully be made. Please read this Prospectus and keep it for future reference.
The date of this Prospectus is MONTH X, 1999.
2
- -----------------------------------------------------------------------------
Overview
This Prospectus describes The Schwab Variable Annuity--a flexible premium
deferred annuity contract which allows you to accumulate assets on a
tax-deferred basis for retirement or other long-term purposes. This Contract is
issued on a group basis by First Great-West Life & Annuity Insurance Company
(we, us, First Great-West or First GWL&A).
How to Invest
The minimum initial investment (a "Contribution") is:
o $5,000
o $2,000 if an IRA
o $1,000 if subsequent Contributions are made via Automatic
Contribution Plan
The minimum subsequent Contribution is:
o $500 per Contribution
o $100 per Contribution if made via Automatic Contribution Plan
Allocating Your Money
When you contribute money to The Schwab Variable Annuity, you can allocate it
among the Sub-Accounts of the Variable Annuity-1 Series Account which invest in
the following Portfolios: o Alger American Growth Portfolio o American Century
VP International o Berger IPT-Small Company Growth Fund o Federated American
Leaders Fund II o Federated Fund for U.S. Government Securities II o Federated
Utility Fund II o INVESCO VIF-High Yield Portfolio o INVESCO VIF-Industrial
Income Portfolio o Janus Aspen Series Growth Portfolio o Janus Aspen Series
Worldwide Growth Portfolio o Montgomery Variable Series Growth Fund o SAFECO
Resource Series Trust Equity Portfolio o Schwab MarketTrack Growth Portfolio II
o Schwab Money Market Portfolio o Schwab S&P 500 Portfolio o Van Kampen American
Capital LIT-Morgan Stanley Real Estate Securities Portfolio You can also
allocate some or all of the money you contribute to the Guarantee Period Fund.
The Guarantee Period Fund allows you to select one or more Guarantee Periods
that offer specific interest rates for a specific period.
Sales and Surrender Charges
There are no sales, redemption, surrender or withdrawal charges under The Schwab
Variable Annuity.
Free Look Period
After you receive your Contract, you can look it over free of obligation for at
least 10 days (up to 35 days for replacement policies), during which you may
cancel your Contract.
Payout Options
The Schwab Variable Annuity offers a variety of annuity payout and periodic
withdrawal options. Depending on the option you select, income can be guaranteed
for your lifetime, your spouse's and/or beneficiaries' lifetime or for a
specified period of time.
The Contracts are not deposits of, or guaranteed or endorsed by any bank, nor
are the Contracts federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency. The
Contracts involve certain investment risks, including possible loss of
principal.
For account information, please contact:
Schwab Insurance & Annuity Service Center
P.O. Box 7806
San Francisco, California 94120-9327
800-838-0649
This prospectus presents important information you should review before
purchasing The Schwab Variable Annuity. Please read it carefully and keep it for
future reference. You can find more detailed information pertaining to the
Contract in the Statement of Additional Information dated May 1, 1999 (as may be
amended from time to time), and filed with the Securities and Exchange
Commission. The Statement of Additional Information is incorporated by reference
into this prospectus and is legally a part of this prospectus. You may obtain a
copy without charge by contacting the Schwab Insurance & Annuity Service Center
at the above address or phone number. Or, you can obtain it by visiting the
Securities and Exchange Commission's web site at www.sec.gov.
<PAGE>
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.
3
- --------------------------------------------------------------------------------
Table of Contents
<PAGE>
3
Definitions....................................4
Summary........................................6
How to contact Schwab........................6
Variable Annuity Fee Table.....................7
Portfolio Annual Expenses......................8
Fee Examples...................................9
Condensed Financial Information...............10
First Great-West Life & Annuity Insurance
Company.......................................10
The Series Account............................10
The Portfolios................................10
Meeting Investment Objectives...............12
Where to Find More Information About the Portfolios 12
Addition, Deletion or Substitution..........12
The Guarantee Period Fund.....................12
Investments of the Guarantee Period Fund....13
Subsequent Guarantee Periods................13
Breaking a Guarantee Period.................14
Interest Rates..............................14
Market Value Adjustment.....................14
Application and Initial Contributions.........14
Free Look Period..............................14
Subsequent Contributions......................15
Annuity Account Value.........................15
Transfers.....................................16
Possible Restrictions.......................16
Automatic Custom Transfers..................16
Cash Withdrawals..............................17
Withdrawals to Pay Investment Manager or
Financial Advisor Fees......................18
Tax Consequences of Withdrawals.............18
Telephone Transactions........................18
Death Benefit.................................18
Beneficiary.................................19
Distribution of Death Benefit...............19
Charges and Deductions........................20
Mortality and Expense Risk Charge...........20
Contract Maintenance Charge.................21
Transfer Fees...............................21
Expenses of the Portfolios..................21
Premium Tax.................................21
Other Taxes.................................21
Payout Options................................21
Periodic Withdrawals........................21
Periodic Withdrawal Payout Options..........22
Annuity Date................................22
Annuity Options.............................23
Variable Annuity Payout Options.............23
Variable Annuity Payout Provisions..........23
Fixed Annuity Payout Options................24
Seek Tax Advice...............................24
Federal Tax Matters...........................24
Taxation of Annuities.......................25
Individual Retirement Annuities.............25
Assignments or Pledges........................27
Performance Data..............................27
Money Market Yield..........................27
Distribution of the Contracts.................27
Selected Financial Data.......................29
Management's Discussion and Analysis of Financial Conditions and Results of
Operations 30
Voting Rights.................................45
Rights Reserved by First Great-West...........45
Legal Proceedings.............................45
Legal Matters.................................45
Experts.......................................45
Available Information.........................46
Appendix A--Condensed Financial Data...........47
Appendix B--Market Value Adjustments...........49
Appendix C--Net Investment Factor..............51
Consolidated Financial Statements and Independent Auditors' Report 52
<PAGE>
4
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[OBJECT OMITTED]
<PAGE>
6
- -------------------------------------------------------------------------------
Definitions
1035 Exchange--A provision of the Internal Revenue Code that allows for the
tax-free exchange of assets among certain types of insurance contracts.
Accumulation Period--The time period between the Effective Date and the Annuity
Commencement Date. During this period, you're contributing to the annuity.
Annuitant--The person named in the application upon whose life the payout of an
annuity is based and who will receive annuity payouts. If a Contingent Annuitant
is named, the Annuitant will be considered the Primary Annuitant. Annuity
Account--An account established by us in your name that reflects all account
activity under your Contract. Annuity Account Value--The sum of all the
investment options credited to your Annuity Account--less partial withdrawals,
amounts applied to an annuity payout option, periodic withdrawals, charges
deducted under the Contract, and Premium Tax, if any.
Annuity Commencement Date--The date annuity payouts begin.
Annuity Individual Retirement Account (or Annuity IRA)--An annuity contract used
in a retirement savings program that is intended to satisfy the requirements of
Section 408 of the Internal Revenue Code of 1986, as amended.
Annuity Payout Period--The period beginning on the Annuity Commencement Date and
continuing until all annuity payouts have been made under the Contract. During
this period, the Annuitant receives payouts from the annuity.
Annuity Unit--An accounting measure we use to determine the amount of any
variable annuity payout after the first annuity payout is made.
Automatic Contribution Plan--A feature which allows you to make automatic
periodic Contributions. Contributions will be withdrawn from an account you
specify and automatically credited to your Annuity Account.
Beneficiary--The person(s) designated to receive any Death Benefit under the
terms of the Contract.
Contingent Annuitant--The person you may name in the application who becomes the
Annuitant when the Primary Annuitant dies. The Contingent Annuitant must be
designated before the death of the Primary Annuitant.
Contractual Guarantee of a Minimum Rate of Interest - This is the minimum rate
of interest allowed by law and is applicable to the fixed options only It is
subject to change in accordance with changes in applicable law. The minimum
interest rate is equal to an annual effective rate in effect at the time the
Contribution is made. This rate will be reflected in written confirmation of the
Contribution. Currently, under New York law, the minimum rate is 3%.
Contributions--The amount of money you invest or deposit into your annuity.
Death Benefit--The amount payable to the Beneficiary when the Owner or the
Annuitant dies.
Distribution Period--The period starting with your Payout Commencement Date.
The Schwab Variable Annuity Structure
- -------------------------------------------------------------------------
Your total Annuity Account can be made up of a variable and a fixed account.
Your Annuity Account
|
- -------------------------------------------------------------------------
| |
Variable Account Value Fixed Account Value
Contains the money you Contains the money you
contribute to the Sub-Accounts contribute to fixed investment
options
| |
Sub-Accounts Guarantee Period Fund
Shares of the Portfolios are held You can choose a guarantee
in Sub-Accounts. period of one to ten years.
There is one
Sub-Account for each Portfolio.
|
Portfolios
- ---------------------------------------------------------------------------
Effective Date--The date on which the first Contribution is credited to your
Annuity Account.
Fixed Account Value--The value of the fixed investment option credited to you
under the Annuity Account.
Guarantee Period--The number of years available in the Guarantee Period Fund
during which we will credit a stated rate of interest. We may discontinue
offering a period at any time for new Contributions. Amounts allocated to one or
more guaranteed periods may be subject to a Market Value Adjustment.
Guarantee Period Fund--A fixed investment option which pays a stated rate of
interest for a specified time period.
Guarantee Period Maturity Date--The last day of any Guarantee Period.
Market Value Adjustment (or MVA)--An amount added to or subtracted from certain
transactions involving the Guarantee Period Fund to reflect the impact of
changing interest rates.
Non-Qualified Annuity Contract--An annuity contract funded with money outside a
tax qualified retirement plan.
Owner (Joint Owner) or You--The person(s) named in the application who is
entitled to exercise all rights and privileges under the Contract, while the
Annuitant is living. Joint Owners must be husband and wife as of the date the
Contract is issued. The Annuitant will be the Owner unless otherwise indicated
in the application. If a Contract is purchased in an IRA, the Owner and the
Annuitant must be the same individual and a Joint Owner is not allowed.
Payout Commencement Date--The date on which annuity payouts or periodic
withdrawals begin under a payout option. The Payout Commencement Date must be at
least one year after the Effective Date of the Contract. If you do not indicate
a Payout Commencement Date on your application, annuity payouts will begin on
the first day of the month of the Annuitant's 91st birthday.
Portfolio--A registered management investment company, or portfolio, in which
the assets of the Annuity Account may be invested.
Premium Tax--A tax charged by a state or other governmental authority. Varying
by state, the current range of Premium Taxes is 0% to 3.5% and may be assessed
at the time you make a Contribution or when annuity payments begin.
Request--Any written, telephoned, or computerized instruction in a form
satisfactory to First GWL&A and Schwab received at the Schwab Insurance &
Annuity Service Center (or other annuity service center subsequently named) from
you, your designee (as specified in a form acceptable to First GWL&A and Schwab)
or the Beneficiary (as applicable) as required by any provision of the Contract.
Series Account--The segregated account established by First GWL&A under New York
law and registered as a unit investment trust under the Investment Company Act
of 1940, as amended.
Sub-Account--A division of the Seties Account containing the shares of a
Portfolio. There is a Sub-Account for each Portfolio.
Surrender Value--The value of your annuity account with any applicable Market
Value Adjustment on the Effective Date of the surrender, less Premium Tax, if
any.
Transaction Date--The date on which any Contribution or Request from you will be
processed. Contributions and Requests received after 4:00 p.m. EST/EDT will be
deemed to have been received on the next business day. Requests will be
processed and the variable account value will be determined on each day that the
New York Stock Exchange is open for trading.
Transfer--Moving money from and among the Sub-Account(s) and the Guaranteed
Period Fund.
Variable Account Value--The value of the variable Portfolios credited to you
under the Annuity Account.
<PAGE>
10
<PAGE>
- -------------------------------------------------------------------------------
Summary
The Schwab Variable Annuity allows you to accumulate assets on a tax-deferred
basis by investing in a variety of variable Portfolios and a fixed investment
option (the Guarantee Period Fund). The performance of your Annuity Account
Value will vary with the investment performance of the Portfolios you select.
You bear the entire investment risk for all amounts invested in them. Depending
on the performance of the Portfolios you select, your Annuity Account Value
could be less than the total amount of your Contributions.
The Schwab Variable Annuity can be purchased on a non-qualified basis or
purchased and used in connection with an IRA. You can also purchase it through a
1035 Exchange from another insurance contract.
- --------------------------------------------------------------------------------
To contact Schwab:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Schwab Insurance & Annuity Service Center
- -------------------------------------------------------------------------------
P.O. Box 7806
San Francisco, CA 94120-9327
- -------------------------------------------------------------------------------
800-838-0649
- -------------------------------------------------------------------------------
Your initial Contribution must be at least $5,000; $2,000 if an IRA; $1,000 if
you are setting up an Automatic Contribution Plan. Subsequent Contributions must
be either $500; or $100 if made through an Automatic Contribution Plan.
The money you contribute to the annuity will be invested at your direction,
except that during your "free look period" which, depending on your state law,
is generally 10 days after you receive your Contract. During this period your
payment will be allocated to the Schwab Money Market Portfolio.
Prior to the Payout Commencement Date, you can withdraw all or a part of your
Annuity Account Value. There are no surrender or withdrawal charges. Certain
withdrawals may be subject to federal income tax as well as a federal penalty
tax.
When you're ready to start taking money out of your annuity, you can select from
a variety of payout options, including variable and fixed annuity payouts as
well as periodic payouts.
If the Annuitant dies before the Annuity Commencement Date, we will pay the
Death Benefit to the Beneficiary you select. If the Owner dies before the entire
value of the Contract is distributed, the remaining value will be distributed
according to the rules outlined in the "Death Benefit" section on page x.
For accounts under $50,000, we deduct a $25 annual Contract Maintenance Charge
from the Annuity Account Value on each Contract anniversary date. There is no
annual contract maintenance charge for accounts of more than $50,000. We also
deduct a Mortality and Expense Risk Charge from your Sub-Accounts at the end of
each daily valuation period equal to an effective annual rate of 0.85% of the
value of the net assets in your Sub-Accounts. Each Portfolio assesses a charge
for management fees and other expenses. These fees and expenses are detailed in
the Portfolios' prospectuses.
You may cancel your Contract during the "free look period" by sending it to the
Schwab Insurance & Annuity Service Center. If you are replacing an existing
insurance contract with the Contract, the free look period may be extended based
on your state of residence. We will refund the greater of: o Contributions
received, less surrenders, withdrawals and distributions, or o The Annuity
Account Value
This summary highlights some of the more significant aspects of The Schwab
Variable Annuity. You'll find more detailed information about these topics
throughout the prospectus and in your Contract. Please keep them both for future
reference.
<PAGE>
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Variable Annuity Fee Table
The purpose of this table and the examples that follow is to help you understand
the various costs and expenses that you will bear directly or indirectly when
investing in the annuity. The table and examples reflect expenses related to the
Sub-Accounts as well as of the Portfolios. In addition to the expenses listed
below, Premium Tax may be applicable.
Contract Owner transaction expenses2
Sales load None
Surrender fee None
Transfer fee (first 12 per year)3 None
Annual Contract Maintenance Charge4 $25.00
Annual expenses1
(as a percentage of average Variable Account assets) Mortality and expense risk
charge 0.85% Administrative expense charge 0.00% Other fees and expenses of the
variable account 0.00% Total annual expenses 0.85%
<PAGE>
- -------------------------------------------------------------------------------
1The Contract Owner Transaction Expenses apply to each Contract, regardless of
how the Annuity Account Value is allocated. The Sub-Account Annual Expenses do
not apply to the Guarantee Period Fund.
2There is a $10 fee for each Transfer in excess of twelve in any
calendar year.
3The Contract Maintenance Charge is currently waived for Contracts
with an Annuity Account Value of at least $50,000. If your Annuity
Account Value falls below $50,000, the Contract Maintenance Charge
will be reinstated until such time as your Annuity Account Value is
equal to or greater than $50,000.
<TABLE>
Portfolio Annual Expenses
Portfolio Annual Expenses
(as a percentage of Portfolio net assets, before fee waivers and expense reimbursements)
<S> <C> <C>
Portfolio Management Other 12b-1 Total Portfolio
fees expenses fees expenses
Alger American Growth Portfolio
American Century VP International
Berger IPT-Small Company Growth Fund
Federated American Leaders Fund II
Federated Fund for U.S. Government Securities
II
Federated Utility Fund II INVESCO VIF-High Yield Portfolio INVESCO
VIF-Industrial Income Portfolio Janus Aspen Growth Portfolio Janus Aspen
Worldwide Growth Portfolio Montgomery Variable Series: Growth Fund SAFECO RST
Equity Portfolio Schwab MarketTrack Growth Portfolio II Schwab Money Market
Portfolio Schwab S&P 500 Portfolio Van Kampen American Life Investment
Trust-Morgan Stanley Real Estate Securities
Portfolio
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Fee Examples5
If you retain, annuitize or surrender the Contract at the end of the applicable
time period, you would pay the following fees and expenses on a $1,000
investment, assuming a 5% annual return on assets. These examples assume that no
Premium Taxes have been assessed.
PORTFOLIO 1 year 3 years 5 years 10 years
Alger American Growth Portfolio
American Century VP International
Berger IPT-Small Company Growth Fund
Federated American Leaders Fund II
Federated Fund for U.S. Government Securities II Federated Utility Fund II
INVESCO VIF-High Yield Portfolio INVESCO VIF-Industrial Income Portfolio Janus
Aspen Growth Portfolio Janus Aspen Worldwide Growth Portfolio Montgomery
Variable Series: Growth Fund SAFECO RST Equity Portfolio Schwab MarketTrack
Growth Portfolio II Schwab Money Market Portfolio Schwab S&P 500 Portfolio Van
Kampen American Life Investment Trust-Morgan Stanley Real Estate Securities
Portfolio
These examples should not be considered representations of past or future
expenses. Actual expenses paid may be greater or less than those shown, subject
to the guarantees in the Contract.
</TABLE>
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4The Portfolio Annual Expenses and these examples are based on data provided by
the Portfolios. Great-West has no reason to doubt the accuracy or completeness
of that data, but Great-West has not verified the Portfolios' figures. In
preparing the Portfolio Expense table and the Examples above, Great-West has
relied on the figures provided by the Portfolios.
<PAGE>
Condensed Financial Information
Attached as Appendix A is a table showing selected information concerning
accumulation units for each Sub-Account for 1997 and 1998. An accumulation unit
is the unit of measure that we use to calculate the value of your interest in a
Sub-Account. The accumulation unit values do not reflect the deduction of
certain charges that are subtracted from your Annuity Account Value, such as the
Contract Maintenance Charge. The information in the table is included in the
Series Account's financial statements, which have been audited by Deloitte &
Touche LLP, independent auditors. To obtain a more complete picture of each
Sub-Account's finances and performance, you should also review the Series
Account's financial statements, which are in the Series Account's Annual Report
dated as of December 31,1998 and contained in the Statement of Additional
Information.
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First Great-West Life & Annuity Insurance Company
First GWL&A is a stock life insurance company organized under the laws of the
state of New York. We are admitted to do business in New York and Iowa
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The Series Account
We established the Variable Annuity-1 Series Account in accordance with New York
laws on January 15, 1997.
The Series Account is registered with the Securities and Exchange Commission
(the "SEC") under the Investment Company Act of 1940 (the "1940 Act"), as a unit
investment trust. Registration under the 1940 Act does not involve supervision
by the SEC of the management or investment practices or policies of the Series
Account.
We own the assets of the Series Account. The income, gains or losses, realized
or unrealized, from assets allocated to the Series Account are credited to or
charged against the Series Account without regard to our other income gains or
losses.
We will at all times maintain assets in the Series Account with a total market
value at least equal to the reserves and other liabilities relating to the
variable benefits under all Contracts participating in the Series Account. Those
assets may not be charged with our liabilities from our other business. Our
obligations under those Contracts are, however, our general corporate
obligations.
The Series Account is divided into ___ Sub-Accounts. Each Sub-Account invests
exclusively in shares of a corresponding investment Portfolio of a registered
investment company (commonly known as a mutual fund). We may in the future add
new or delete existing Sub-Accounts. The income, gains or losses, realized or
unrealized, from assets allocated to each Sub-Account are credited to or charged
against that Sub-Account without regard to the other income, gains or losses of
the other Sub-Accounts. All amounts allocated to a Sub-Account will at all times
be fully invested in Portfolio shares.
We hold the assets of the Series Account. We keep those assets physically
segregated and held separate and apart from our general account assets. We
maintain records of all purchases and redemptions of shares of the Portfolios.
- --------------------------------------------------------------------------------
The Portfolios
The Contract offers a number of investment options, corresponding to the
Sub-Accounts. Each Sub-Account invests in a single Portfolio. Each Portfolio is
a separate mutual fund registered under the 1940 Act. More comprehensive
information, including a discussion of potential risks, is found in the current
prospectuses for the Portfolios (the "Portfolio Prospectuses"). The Portfolio
Prospectuses should be read in connection with this Prospectus. You may obtain a
copy of the Portfolio Prospectuses without charge by request.
Each Portfolio:
o holds its assets separate from the assets of the other Portfolios,
o has its own distinct investment objective and policy, and
o operates as a separate investment fund
The income, gains and losses of one Portfolio generally have no effect on the
investment performance of any other Portfolio.
The Portfolios are not available to the general public directly. The Portfolios
are only available as investment options in variable annuity contracts or
variable life insurance policies issued by life insurance companies or, in some
cases, through participation in certain qualified pension or retirement plans.
Some of the Portfolios have been established by investment advisers which manage
publicly traded mutual funds having similar names and investment objectives.
While some of the Portfolios may be similar to, and may in fact be modeled after
publicly traded mutual funds, you should understand that the Portfolios are not
otherwise directly related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and any corresponding
Portfolios may differ substantially.
The investment objectives of the current Portfolios are briefly described below:
The Alger American Fund--advised by Fred Alger Management, Inc. of New York, New
York.
Alger American Growth Portfolio seeks long-term capital appreciation by
investment of at least 65% of its total assets, except during temporary
defensive periods, in equity securities of companies that, at the time of
purchase of the securities, have total market capitalization of $1 billion or
greater.
American Century Variable Portfolios, Inc.--advised by American Century
Investment Management, Inc. of Kansas City, Missouri, advisers to the
AmericanCentury family of mutual funds.
American Century VP International seeks capital growth by investing primarily in
equity securities of foreign companies. The Fund invests primarily in securities
of issuers in developed countries.
Berger Institutional Products Trust--advised by Berger Associates of Denver,
Colorado. Berger IPT-Small Company Growth Fund seeks capital appreciation by
investing primarily in equity securities (including common and preferred stocks,
convertible debt securities and other securities having equity features) of
small growth companies with market capitalization of less than $1 billion at the
time of initial purchase.
Federated Insurance Series--advised by Federated Advisers of Pittsburgh,
Pennsylvania. Federated American Leaders Fund II seeks to achieve long-term
growth of capital as a primary objective and seeks to provide income as a
secondary objective through investment of at least 65 % of its total assets
(under normal circumstances) in common stocks of "blue chip" companies.
Federated Fund for U.S. Government Securities II seeks to provide current income
through investment of at least 65% of its total assets in securities which are
primary or direct obligations of the U.S. government or its agencies or
instrumentalities or which are guaranteed as to principal and interest by the
U.S. government, its agencies, or instrumentalities and in certain
collateralized mortgage obligations, and repurchase agreements.
Federated Utility Fund II seeks to provide high current income and moderate
capital appreciation by investing in a professionally-managed, diversified
portfolio of utility company equity and debt securities.
INVESCO Variable Investment Funds, Inc.--advised by INVESCO Funds Group, Denver,
Colorado. INVESCO Trust Company is the sub-adviser for the INVESCO
VIF-Industrial Income Portfolio.
INVESCO VIF-Industrial Income Portfolio is a diversified fund that seeks the
highest possible current income, with the added potential for capital
appreciation. The Fund normally invests at least 65% of its total assets in
dividend paying common stocks. Up to 10% of the Fund's assets may be invested in
common stocks, which do not pay regular dividends. The remaining assets are
invested in other income producing vehicles, such as corporate bonds. The fixed
income portion of the Fund seeks a high level of current income through
investment in U.S. Treasury, mortgage-backed, investment grade and high yield
securities.
INVESCO VIF-High Yield Portfolio seeks a high level of current income. Capital
appreciation is a secondary objective of the Fund. The Fund invests in a
diversified portfolio of high yield bonds which are primarily below investment
grade quality and preferred stocks.
Janus Aspen Series--advised by Janus Capital Corporation of Denver, Colorado.
Janus Aspen Growth Portfolio seeks long-term growth of capital in a manner
consistent with the preservation of capital by investing in common stocks of
companies of any size.
Janus Aspen Worldwide Growth Portfolio seeks long-term growth of capital in a
manner consistent with the preservation of capital by investing in common stocks
of foreign and domestic issuers.
Montgomery Variable Series--advised by Montgomery Asset Management, LLC of San
Francisco, California Montgomery Growth Fund seeks long-term capital
appreciation by investing in growth-oriented U.S. companies. The Fund may invest
in U.S. companies of any size, but invests at least 65% of its total assets in
those companies whose shares have a total stock market value (market
capitalization) of at least $1 billion. The Fund's strategy is to identify
well-managed U.S. companies whose share prices appear to be undervalued relative
to the firm's growth potential.
SAFECO Resource Series Trust--advised by SAFECO Asset Management Company of
Seattle, Washington. SAFECO RST Equity Portfolio seeks long-term growth of
capital and reasonable current income by investing principally in common stocks
or securities convertible into common stocks of larger, established companies
that are proven performers.
Schwab Insurance & Annuity Portfolios--advised by Charles Schwab Investment
Management, Inc. of San Francisco, California. Schwab Money Market Portfolio
seeks maximum current income consistent with liquidity and stability of capital.
This Portfolio is neither insured nor guaranteed by the United States Government
and there can be no assurance that it will be able to maintain a stable net
asset value of $1.00 per share.
Schwab MarketTrack Growth Portfolio II seeks to provide high capital growth with
less volatility than an all stock portfolio by investing in a mix of stocks,
bonds, and cash equivalents either directly or through investment in other
mutual funds.
Schwab S&P 500 Portfolio seeks to track the price and dividend performance
(total return) of common stocks of U.S. companies, as represented in the
Standard & Poor's Composite Index of 500 stocks.
Van Kampen American Capital Life Investment Trust--advised by Van Kampen
American Capital Asset Management, Inc. Van Kampen American Capital LIT-Morgan
Stanley Real Estate Securities Portfolio seeks long-term growth of capital by
investing in securities of companies operating in the real estate industry,
primarily equity securities of real estate investment trusts.
Meeting Investment Objectives
Meeting investment objectives depends on various factors, including, but not
limited to, how well the Portfolio managers anticipate changing economic and
market conditions. There is no guarantee that any of these Portfolios will
achieve their stated objectives.
Where to Find More Information About the Portfolios
Additional information about the investment objectives and policies of all the
Portfolios and the investment advisory and administrative services and charges
can be found in the current Portfolio Prospectuses, which can be obtained from
the Schwab Insurance & Annuity Service.
The Portfolios' Prospectuses should be read carefully before any decision is
made concerning the allocation of Contributions to, or Transfers among, the
Sub-Accounts.
Addition, Deletion or Substitution
First GWL&A does not control the Portfolios and cannot guarantee that any of the
Portfolios will always be available for allocation of Contributions or
Transfers. We retain the right to make changes in the Series Account and in its
investments. Currently, Schwab must approve certain changes.
First GWL&A and Schwab reserve the right to discontinue the offering of any
Portfolio. If a Portfolio is discontinued, we may substitute shares of another
Portfolio or shares of another investment company for the discontinued
Portfolio's shares. Any share substitution will comply with the requirements of
the 1940 Act.
If you are contributing to a Portfolio that is being discontinued, you will be
given notice prior to the Portfolio's elimination.
Based on marketing, tax, investment and other conditions, we may establish new
Sub-Accounts and make them available to Owners at our discretion. Each
additional Sub-Account will purchase shares in a Portfolio or in another mutual
fund or investment vehicle.
If, in our sole discretion, marketing, tax, investment or other conditions
warrant, we may also eliminate one or more Sub-Accounts. If a Sub-Account is
eliminated, we will notify you and request that you to re-allocate the amounts
invested in the eliminated Sub-Account.
- --------------------------------------------------------------------------------
The Guarantee Period Fund
The Guaranteed Period Fund is not part of the Series Account. Amounts allocated
to the Guarantee Period Fund will be deposited to, and accounted for, in a
non-unitized market value separate account. As a result, you do not participate
in the performance of the assets through unit values.
Because your Contributions do not receive a unit ownership of assets accounted
for in the separate account, the assets accrue solely to the benefit of First
GWL&A and any gain or loss in the separate account is borne entirely by First
GWL&A. You will receive the Contract guarantees made by First GWL&A for amounts
you contribute to the Guarantee Period Fund.
When you contribute or Transfer amounts to the Guarantee Period Fund, you select
a new Guarantee Period from those available. All Guarantee Periods will have a
term of at least one year. Contributions allocated to the Guarantee Period Fund
will be credited on the Transaction Date we receive them.
Each Guarantee Period will have its own stated rate of interest and maturity
date determined by the date the Guarantee Period is established and the term you
choose.
Currently, Guarantee Periods with annual terms of 1 to 10 years are offered only
in those states where the Guarantee Period Fund is available. The Guarantee
Periods may change in the future, but this will not have an impact on any
Guarantee Period already in effect.
The value of amounts in each Guarantee Period equals Contributions plus interest
earned, less any Premium Tax, amounts distributed, withdrawn (in whole or in
part), amounts Transferred or applied to an annuity option, periodic withdrawals
and charges deducted under the Contract. If a Guarantee Period is broken, a
Market Value Adjustment may be assessed (please see "Breaking a Guarantee
Period" on page xx). Any amount withdrawn or Transferred prior to the Guarantee
Period Maturity Date will be paid in accordance with the Market Value Adjustment
formula. You can read more about Market Value Adjustments on page 22.
Investments of the Guarantee Period Fund
We use various techniques to invest in assets that have similar characteristics
to our general account assets--especially cash flow patterns. We will primarily
invest in investment-grade fixed income securities including:
o Securities issued by the U.S. Government or its agencies or
instrumentalities, which may or may not be guaranteed by the U.S.
Government.
o Debt securities which have an investment grade, at the time of purchase,
within the four highest grades assigned by Moody's Investment Services, Inc.
(Aaa, Aa, A or Baa), Standard & Poor's Corporation (AAA, AA, A or BBB) or
any other nationally recognized rating service.
o Other debt instruments, including, but not limited to, issues of banks or
bank holding companies and of corporations, which obligations--although not
rated by Moody's, Standard & Poor's, or other nationally recognized rating
firms--are deemed by us to have an investment quality comparable to
securities which may be purchased as stated above.
o Commercial paper, cash or cash equivalents and other short-term investments
having a maturity of less than one year which are considered by us to have
investment quality comparable to securities which may be purchased as stated
above.
In addition, we may invest in futures and options solely for non-speculative
hedging purposes. We may sell a futures contract or purchase a put option on
futures or securities to protect the value of securities held in or to be sold
for the general account or the non-unitized separate if the securities prices
are anticipated to decline. Similarly, if securities prices are expected to
rise, we may purchase a futures contract or a call option against anticipated
positive cash flow or may purchase options on securities.
The above information generally describes the investment strategy for the
Guarantee Period Fund. However, we are not obligated to invest the assets in the
Guarantee Period Fund according to any particular strategy, except as may be
required by New York and other state insurance laws. And, the stated rate of
interest that we establish will not necessarily relate to the performance of the
non-unitized market value separate account.
Subsequent Guarantee Periods
Before annuity payouts begin, you may reinvest the value of amounts in a
maturing Guarantee Period in a new Guarantee Period of any length we offer at
that time. On the quarterly statement issued to you prior to the end of any
Guarantee Period, we will notify you of the upcoming maturity of a Guarantee
Period. The Guarantee Period available for new Contributions may be changed at
any time, including between the date we notify you of a maturing Guarantee
Period and the date a new Guarantee Period begins.
If you do not tell us where you would like the amounts in a maturing Guarantee
Period allocated by the maturity date, we will automatically allocate the amount
to a Guarantee Period of the same length as the maturing period. If the term
previously chosen is no longer available, the amount will be allocated to the
next shortest available Guarantee Period term. If none of the above are
available, the value of matured Guarantee Periods will be allocated to the
Schwab Money Market Sub-Account.
No Guarantee Period may mature later than six months after your Payout
Commencement Date. For example, if a 3-year Guarantee Period matures and the
Payout Commencement Date begins 1 3/4 years from the Guarantee Period maturity
date, the matured value will be transferred to a 2-year Guarantee Period.
Breaking a Guarantee Period
If you begin annuity payouts, Transfer or withdraw prior to the Guarantee Period
maturity date, you are breaking a Guarantee Period. When we receive a request to
break a Guarantee Period and you have another Guarantee Period that is closer to
its maturity date, we will break that Guarantee Period first.
If you break a Guarantee Period, you may be assessed an interest rate adjustment
called a Market Value Adjustment.
Interest Rates
The declared annual rates of interest are guaranteed throughout the Guarantee
Period. For Guarantee Periods not yet in effect, First GWL&A may declare
interest rates different than those currently in effect. When a subsequent
Guarantee Period begins, the rate applied will be equal to or more than the rate
currently in effect for new Contracts with the same Guarantee Period.
The stated rate of interest must be at least equal to the Contractual Guarantee
of a Minimum Rate of Interest, but First GWL&A may declare higher rates. The
Contractual Guarantee of a Minimum Rate of Interest is based on the applicable
state standard non-forfeiture law. The standard nonforfeiture rate in all states
is 3%, except in for Florida, Mississippi and Oklahoma, where it is 0%.
The determination of the stated interest rate is influenced by, but does not
necessarily correspond to, interest rates available on fixed income investments
which First GWL&A may acquire using funds deposited into the Guarantee Period
Fund. In addition, First GWL&A considers regulatory and tax requirements, sales
commissions and administrative expenses, general economic trends and competitive
factors in determining the stated interest rate.
Market Value Adjustment
Amounts you allocate to the Guarantee Period Fund may be subject to an interest
rate adjustment called a Market Value Adjustment if, six months or more before
the fund's maturity date, you: o surrender your investment in the fund, o
transfer money from the fund, o partially withdraw money from the fund, or o
apply amounts from the fund to purchase an annuity to receive payouts from your
account.
The Market Value Adjustment will not apply to any Guarantee Period having fewer
than six months prior to the Guarantee Period maturity date in each of the
following situations:
o Transfer to a Sub-Account offered under this Contract o Surrenders, partial
withdrawals, annuitization or periodic withdrawals o A single sum payout upon
death of the Owner or Annuitant
A Market Value Adjustment may increase or decrease the amount payable on the
above-described distributions. The formula for calculating Market Value
Adjustments is detailed in Appendix B. Appendix B also includes examples of how
Market Value Adjustments work.
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Application and Initial Contributions
The first step to purchasing The Schwab Variable Annuity is to complete your
Contract application and submit it with your initial minimum Contribution of
$5,000; $2,000 if an IRA; or $1,000 if you are setting up an Automatic
Contribution Plan. Initial Contributions can be made by check (payable to GWL&A)
or transferred from a Schwab brokerage account.
If your application is complete, your Contract will be issued and your
Contribution will be credited within two business days after receipt at the
Schwab Insurance & Annuity Service Center. Acceptance is subject to sufficient
information in a form acceptable to us. We reserve the right to reject any
application or Contribution.
If your application is incomplete, the Schwab Insurance & Annuity Service Center
will complete the application from information Schwab has on file or contact you
by telephone to obtain the required information. If the information necessary to
complete your application is not received within five business days, we will
return to you both your check and the application. If you provide consent we
will retain the initial Contribution and credit it as soon as we have completed
your application.
If your application is incomplete solely because you have not provided any
allocation instructions, we will deem your application to be complete and
allocate your Contribution to the Schwab Money Market Sub-Account. Your initial
Contribution will remain in, and future Contributions will be allocated to, the
Schwab Money Market Sub-Account until we receive complete allocation
instructions from you.
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Free Look Period
During the ten-day free look period (or longer where required by law), you may
cancel your Contract. During the free look period, all Contributions will be
processed as follows: o Amounts you specify to be allocated to one or more of
the available Guarantee Periods
will be allocated as directed, effective upon the Transaction Date.
o Amounts you specify to be allocated to one or more of the Sub-Accounts will
first be allocated to the Schwab Money Market Sub-Account until the end of
the free look period. After the free look period is over, the Variable
Account Value held in the Schwab Money Market Sub-Account will be allocated
to the Sub-Accounts you selected on the application.
During the free look period, you may change the Sub-Accounts in which you'd like
to invest as well as your allocation percentages. Any changes you make during
the free look period will take effect after the free look period has expired.
Any returned Contracts will be void from the date we issued the Contract and the
greater of the following will be refunded:
o Contributions less withdrawals and distributions, or
o The Annuity Account Value.
If you exercise the free look privilege, you must return the Contract to First
GWL&A or to the Schwab Insurance & Annuity Service Center.
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Subsequent Contributions
Once your application is complete and we have received your initial
Contribution, you can make subsequent Contributions at any time prior to the
Payout Commencement Date, as long as the Annuitant is living. Additional
Contributions must be at least $500; or $100 if made via an Automatic
Contribution Plan. Total Contributions may exceed $1,000,000 with our prior
approval.
Subsequent Contributions can be made by check or via an Automatic Contribution
plan directly from your bank or savings account. You can designate the date
you'd like your subsequent Contributions deducted from your account each month.
If you make subsequent Contributions by check, your check should be payable to
GWL&A.
You'll receive a confirmation of each Contribution you make upon its acceptance.
First GWL&A reserves the right to modify the limitations set forth in this
section.
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Annuity Account Value
Before the date annuity payouts begin, your Annuity Account Value is the sum of
your Variable and Fixed Accounts established under your Contract.
Before your Annuity Commencement Date, the Variable Account Value is the total
dollar amount of all accumulation units credited to you for each Sub-Account.
Initially, the value of each accumulation unit was set at $10.00. Each
Sub-Account's value prior to the Payout Commencement Date is equal to: o net
Contributions allocated to the corresponding Sub-Account, o plus or minus any
increase or decrease in the value of the assets of the Sub-Account
due to investment results,
o minus the daily mortality and expense risk charge,
o minus reductions for the Contract Maintenance Charge deducted on the
contract anniversary
o minus any applicable Transfer fees and
o minus any withdrawals or Transfers from the Sub-Account.
The value of a Sub-Account's assets is determined at the end of each day that
the New York Stock Exchange is open for regular business (a valuation date). A
valuation period is the period between successive valuation dates. It begins at
the close of the New York Stock Exchange (generally 4:00 p.m. Eastern time) on
each valuation date and ends at the close of the New York Stock Exchange on the
next succeeding valuation date.
The Variable Account Value is expected to change from valuation period to
valuation period, reflecting the investment experience of the selected
Sub-Account(s), as well as the deductions for applicable charges.
Upon allocating Variable Account Values to a Sub-Account you will be credited
with variable accumulation units in that Sub-Account. The number of accumulation
units you will be credited is determined by dividing the portion of each
Contribution allocated to the Sub-Account by the value of an accumulation unit.
The value of the accumulation unit is determined and credited at the end of the
valuation period during which the Contribution was received.
Each Sub-Account's accumulation unit value is established at the end of each
valuation period. It is calculated by multiplying the value of that unit at the
end of the prior valuation period by the Sub-Account's Net Investment Factor for
the valuation period. The formula used to calculate the Net Investment Factor is
discussed in Appendix C.
Unlike a brokerage account, amounts held under a Contract are not covered by the
Securities Investor Protection Corporation ("SIPC").
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Transfers
Prior to the Annuity Commencement Date you may Transfer all or part of your
Annuity Account Value among and between the Sub-Accounts and the available
Guarantee Periods by telephone, by sending a Request to the Schwab Insurance &
Annuity Service Center or by calling our touch-tone account and trading service.
Your Request must specify:
o the amounts being Transferred,
o the Sub-Account(s) and/or Guarantee Period(s) from which the Transfer is to
be made, and
o the Sub-Account(s) and/or Guarantee Period(s) that will receive the
Transfer.
Currently, there is no limit on the number of Transfers you can make among the
Sub-Accounts and the Guarantee Period Fund during any calendar year. However, we
reserve the right to limit the number of Transfers you make.
There is no charge for the first twelve Transfers each calendar year, but there
will be a charge of $10 for each additional Transfer made. The charge will be
deducted from the amount Transferred. All Transfers made on a single Transaction
Date will count as only one Transfer toward the twelve free Transfers. However,
if a one-time rebalancing Transfer also occurs on the Transaction Date, it will
be counted as a separate and additional Transfer.
A Transfer generally will be effective on the date the Request for Transfer is
received by the Schwab Insurance & Annuity Service Center if received before
4:00 p.m. Eastern time. Under current tax law, there will not be any tax
liability to you if you make a Transfer.
Transfers involving the Sub-Accounts will result in the purchase and/or
cancellation of accumulation units having a total value equal to the dollar
amount being Transferred. The purchase and/or cancellation of such units is made
using the Variable Account Value as of the end of the valuation date on which
the Transfer is effective.
When you make a Transfer from amounts in a Guarantee Period before the Guarantee
Period maturity date, the amount Transferred may be subject to a Market Value
Adjustment as discussed on page 22. If you request in advance to Transfer
amounts from a maturing Guarantee Period upon maturity, your Transfer will not
count toward the 12 free Transfers and no Transfer fees will be charged.
Possible Restrictions
We reserve the right without prior notice to modify, restrict, suspend or
eliminate the Transfer privileges (including telephone Transfers) at any time.
For example, Transfer restrictions may be necessary to protect you from the
negative effect large and/or numerous Transfers can have on portfolio
management. Moving significant amounts from one Sub-Account to another may
prevent the underlying Portfolio from taking advantage of long-term investment
opportunities because the Portfolio must maintain enough cash to cover the
cancellation of accumulation units that results from a Transfer out of a
Sub-Account. Moving large amounts of money may also cause a substantial increase
in Portfolio transaction costs which must be indirectly borne by you.
As a result, we reserve the right to require that all Transfer requests be made
by you and not by your designee and to require that each Transfer request be
made by a separate communication to us. We also reserve the right to require
that each Transfer request be submitted in writing and be signed by you.
Transfers among the Sub-Accounts may also be subject to such terms and
conditions as may be imposed by the Portfolios.
Automatic Custom Transfers
Dollar Cost Averaging
Dollar cost averaging allows you to make systematic Transfers from one Portfolio
to any other of the Portfolios. Dollar cost averaging allows you to buy more
units when the price is low and fewer units when the price is high. Over time,
your average cost per unit may be less than if you invested all your money at
one time. However, dollar cost averaging does not assure a greater profit, or
any profit, and will not prevent or necessarily alleviate losses in a declining
market.
You can set up automatic dollar cost averaging on a monthly, quarterly,
semi-annual or annual basis. Your Transfer will be initiated on the Transaction
Date one frequency period following the date of the request. For example, if you
request quarterly Transfers on January 9, your first Transfer will be made on
April 9 and every three months on the 9th thereafter. Transfers will continue on
that same day each interval unless terminated by you or for other reasons as set
forth in the Contract.
If there are insufficient funds in the applicable Sub-Account on the date your
Transfer is scheduled, your Transfer will not be made. However, your dollar cost
averaging Transfers will resume once there are sufficient funds in the
applicable Sub-Account. Dollar cost averaging will terminate automatically when
you start taking payouts from the annuity. Dollar cost averaging Transfers are
not included in the twelve free Transfers allowed in a calendar year.
Dollar cost averaging Transfers must meet the following conditions:
o [OBJECT OMITTED]
The minimum amount that can be Transferred out of the selected Sub-Account is
$100.
o You must: (1) specify the dollar amount to be Transferred, (2) designate
the Sub-Account(s) to which the Transfer will be made, and (3) the percent
of the dollar amount to be allocated to each Sub-Account into which you are
Transferring money. The accumulation unit values will be determined on the
Transfer date.
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Here's how dollar cost averaging works:
-------- --------- -------- --------
[OBJECT OContributiUnits Price
Month Purchasedper
unit
-------- --------- -------- --------
-------- --------- -------- --------
Jan. $250 10 $25.00
-------- --------- -------- --------
-------- --------- -------- --------
Feb. 250 12 20.83
-------- --------- -------- --------
-------- --------- -------- --------
Mar. 250 20 12.50
-------- --------- -------- --------
-------- --------- -------- --------
Apr. 250 20 12.50
-------- --------- -------- --------
-------- --------- -------- --------
May 250 15 16.67
-------- --------- -------- --------
-------- --------- -------- --------
June 250 12 20.83
-------- --------- -------- --------
Average market value per unit
$18.06
Investor's average cost per unit
$16.85
In the chart above, if all units had been purchased at one time at the highest
unit value of $25.00, only 60 units could have been purchased with $1500. By
contributing smaller amounts over time, dollar cost averaging allowed 89 units
to be purchased with $1500 at an average unit price of $16.85. This investor
purchased 29 more units at $1.21 less per unit that the average market value per
unit of $18.06.
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You may not participate in dollar cost averaging and rebalancer at the same
time.
First GWL&A reserves the right to modify, suspend or terminate dollar cost
averaging at any time.
Rebalancer
Over time, variations in each Sub-Account's investment results will change your
asset allocation plan percentages. Rebalancer allows you to automatically
reallocate your Variable Account Value to maintain your desired asset
allocation. Participation in Rebalancer does not assure a greater profit, or any
profit, nor will it prevent or necessarily alleviate losses in a declining
market.
You can set up rebalancer as a one-time Transfer or on a quarterly, semi-annual
or annual basis. If you select to rebalance only once, the Transfer will take
place on the Transaction Date of the request. One-time rebalancer Transfers
count toward the twelve free Transfers allowed in a calendar year.
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Here's how rebalancer works:
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Suppose you purchased your annuity by allocating 60% of your initial
contribution to stocks; 30% to bonds and 10% to cash equivalents as in the first
pie chart below.
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Now assume that stock portfolios outperform bond portfolios and cash equivalents
over a certain period of time. Over this period, the unequal performance may
alter the asset allocation of the above hypothetical plan to look like this:
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Rebalancer automatically reallocates your Variable Account Value to maintain
your desired asset allocation. In this example, the portfolio would be
re-allocated back to 60% in stocks; 30% in bonds; 10% in cash equivalents.
- --------------------------------------------------------------------------------
If you select to rebalance on a quarterly, semi-annual or annual basis, the
first Transfer will be initiated on the Transaction Date one frequency period
following the date of the request. For example, if you request quarterly
Transfers on January 9, your first Transfer will be made on April 9 and every
three months on the 9th thereafter. Transfers will continue on that same day
each interval unless terminated by you or for other reasons as set forth in the
Contract. Quarterly, semi-annual and annual Transfers will not count toward the
12 free Transfers.
On the Transaction Date for the specified request, assets will be automatically
reallocated to the Sub-Accounts you selected. The rebalancer option will
terminate automatically when you start taking payouts from the annuity.
Rebalancer Transfers must meet the following conditions:
o Your entire Variable Account Value must be included.
o You must specify the percentage of your Variable Account Value you'd like
allocated to each Sub-Account and the frequency of rebalancing. You may
modify the allocations or stop the rebalancer option at any time.
o You may not participate in dollar cost averaging and rebalancer at the same
time.
First GWL&A reserves the right to modify, suspend, or terminate the rebalancer
option at any time.
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Cash Withdrawals
You may withdraw all or part of your Annuity Account Value at any time during
the life of the Annuitant and prior to the date annuity payouts begin by
submitting a written withdrawal request to the Schwab Insurance & Annuity
Service Center. Withdrawals are subject to the rules below and federal or state
laws, rules or regulations may also apply. The amount payable to you if you
surrender your Contract is your Annuity Account Value, with any applicable
Market Value Adjustment on the Effective Date of the surrender, less any
applicable Premium Tax. No withdrawals may be made after the date annuity
payouts begin.
If you request a partial withdrawal, your Annuity Account Value will be reduced
by the dollar amount withdrawn. A Market Value Adjustment may apply. Market
Value Adjustments are discussed on page 22.
Partial withdrawals are unlimited. However, you must specify the Sub-Account(s)
or Guarantee Period(s) from which the withdrawal is to be made. After any
partial withdrawal, if your remaining Annuity Account Value is less than $2,000,
then a full surrender may be required. The minimum partial withdrawal (before
application of the MVA) is $500.
The following terms apply to withdrawals:
o Partial withdrawals or surrenders are not permitted after the date annuity
payouts begin.
o A partial withdrawal or a surrender will be effective upon the Transaction
Date.
o A partial withdrawal or a surrender from amounts in a Guarantee Period may
be subject to the Market Value Adjustment provisions, and the Guarantee
Period Fund provisions of the Contract.
Withdrawal requests must be in writing with your original signature. If your
instructions are not clear, your request will be denied and no withdrawal or
partial withdrawal will be processed.
After a withdrawal of all of your Annuity Account Value, or at any time that
your Annuity Account Value is zero, all your rights under the Contract will
terminate.
Withdrawals to Pay Investment Manager or Financial Advisor Fees
You may request partial withdrawals from your Annuity Account Value and direct
us to remit the amount withdrawn directly to your designated Investment Manager
or Financial Advisor (collectively "Consultant"). A withdrawal request for this
purpose must meet the $500 minimum withdrawal requirements and comply with all
terms and conditions applicable to partial withdrawals, as described above. Tax
consequences of withdrawals are detailed below, but you should consult a
competent tax advisor prior to authorizing a withdrawal from your Annuity
Account to pay Consultant fees.
Tax Consequences of Withdrawals
Withdrawals made for any purpose may be taxable--including payments made by us
directly to your Consultant.
In addition, the Internal Revenue Code may require us to withhold federal income
taxes from withdrawals and report such withdrawals to the IRS. If you request
partial withdrawals to pay Consultant fees, your Annuity Account Value will be
reduced by the sum of the fees paid to the Consultant and the related
withholding.
You may elect, in writing, to have us not withhold federal income tax from
withdrawals, unless withholding is mandatory for your Contract. If you are
younger than 59 1/2, the taxable portion of any withdrawal is generally
considered to be an early withdrawal and is subject to an additional federal
penalty tax of 10%.
Withholding applies only if the taxable amount of the withdrawal is at least
$200. Some states also require withholding for state income taxes. For details
about state withholding, please see "Federal Tax Matters" on page XX.
If you are interested in this Contract as an IRA, please refer to Section 408 of
the Internal Revenue Code of 1986, as amended, for limitations and restrictions
on cash withdrawals.
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Telephone Transactions
You may make Portfolio Transfer requests by telephone. Telephone Transfer
requests received before 4:00 p.m. Eastern time will be made on that day at that
day's unit value. Calls completed after 4:00 p.m. Eastern time will be made on
the next business day we and the NYSE are open for business, at that day's unit
value.
We will use reasonable procedures to confirm that instructions communicated by
telephone are genuine, such as: o requiring some form of personal identification
prior to acting on instructions, o providing written confirmation of the
transaction and/or o tape recording the instructions given by telephone.
If we follow such procedures we will not be liable for any losses due to
unauthorized or fraudulent instructions.
We reserve the right to suspend telephone transaction privileges at any time,
for some or all Contracts, and for any reason. Withdrawals are not permitted by
telephone.
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Death Benefit
Before the date when annuity payouts begin, the Death Benefit, if any, will be
equal to the greater of:
o the Annuity Account Value with an MVA, if applicable, as of the date the
request for payout is received, less any Premium Tax, or
o the sum of Contributions, less partial withdrawals and/or periodic
withdrawals, less any Premium Tax.
The Death Benefit will become payable following our receipt of the Beneficiary's
claim in good order. When an Owner or the Annuitant dies before the Annuity
Commencement Date and a Death Benefit is payable to a Beneficiary, the Death
Benefit proceeds will remain invested according to the allocation instructions
given by the Owner(s) until new allocation instructions are requested by the
Beneficiary or until the Death Benefit is actually paid to the Beneficiary.
The amount of the Death Benefit will be determined as of the date payouts begin.
However, on the date a payout option is processed, the Variable Account Value
will be Transferred to the Money Market Sub-Account unless the Beneficiary
elects otherwise.
Subject to the distribution rules below, payout of the Death Benefit may be made
as follows:
Variable Account Value:
o payout in a single sum, or
o payout under any of the variable annuity options provided under this Contract.
Fixed Account Value:
o payout in a single sum that may be subject to a Market Value Adjustment, or
o payout under any of the annuity options provided under this Contract that
may be subject to a Market Value Adjustment
Any payment within 6 months of the Guarantee Period Maturity Date will not be
subject to a Market Value Adjustment.
In any event, no payout of benefits provided under the Contract will be allowed
that does not satisfy the requirements of the Internal Revenue Code and any
other applicable federal or state laws, rules or regulations.
Beneficiary
You may select one or more Beneficiaries. If more than one Beneficiary is
selected, they will share equally in any Death Benefit payable unless you
indicate otherwise. You may change the Beneficiary any time before the
Annuitant's death.
A change of Beneficiary will take effect as of the date the request is processed
by the Schwab Insurance & Annuity Service Center, unless a certain date is
specified by the Owner. If the Owner dies before the request is processed, the
change will take effect as of the date the request was made, unless we have
already made a payout or otherwise taken action on a designation or change
before receipt or processing of such request. A Beneficiary designated
irrevocably may not be changed without the written consent of that Beneficiary,
except as allowed by law.
The interest of any Beneficiary who dies before the Owner or the Annuitant will
terminate at the death of the Beneficiary. The interest of any Beneficiary who
dies at the time of, or within 30 days after the death of an Owner or the
Annuitant will also terminate if no benefits have been paid to such Beneficiary,
unless the Owner otherwise indicates by request. The benefits will then be paid
as though the Beneficiary had died before the deceased Owner or Annuitant. If no
Beneficiary survives the Owner or Annuitant, as applicable, we will pay the
Death Benefit proceeds to the Owner's estate.
If the Beneficiary is not the Owner's surviving spouse, she/he may elect, not
later than one year after the Owner's date of death, to receive the Death
Benefit in either a single sum or payout under any of the variable or fixed
annuity options available under the Contract, provided that: o such annuity is
distributed in substantially equal installments over the life or life expectancy
of the Beneficiary or over a period not extending beyond the life expectancy of
the Beneficiary and
o such distributions begin not later than one year after the Owner's date of
death. If an election is not received by First GWL&A from a non-spouse
Beneficiary and substantially equal installments begin no later than one year
after the Owner's date of death, then the entire amount must be distributed
within five years of the Owner's date of death. The Death Benefit will be
determined as of the date the payouts begin.
If a corporation or other non-individual entity is entitled to receive benefits
upon the Owner's death, the Death Benefit must be completely distributed within
five years of the Owner's date of death.
Distribution of Death Benefit
Death of Annuitant
Upon the death of the Annuitant while the Owner is living, and before the
Annuity Commencement Date, we will pay the Death Benefit to the Beneficiary
unless there is a Contingent Annuitant.
If a Contingent Annuitant was named by the Owner(s) prior to the Annuitant's
death, and the Annuitant dies before the Annuity Commencement Date while the
Owner and Contingent Annuitant are living, no Death Benefit will be payable and
the Contingent Annuitant will become the Annuitant.
If the Annuitant dies after the date annuity payouts begin and before the entire
interest has been distributed, any benefit payable must be distributed to the
Beneficiary according to and as rapidly as under the payout option which was in
effect on the Annuitant's date of death.
If the deceased Annuitant is an Owner, or if a corporation or other
non-individual is an Owner, the death of the Annuitant will be treated as the
death of an Owner and the Contract will be subject to the "Death of Owner"
provisions described below.
Death of Owner Who Is Not the Annuitant
If there is a Joint Owner who is the surviving spouse and the Beneficiary of the
deceased Owner, the Joint Owner becomes the Owner and Beneficiary and the Death
Benefit will be paid to the Joint Owner or the Joint Owner may elect to take the
Death Benefit or to continue the Contract in force.
- --------------------------------------------------------
Contingent Annuitant
While the Annuitant is living, you may, by Request,
designate or change a Contingent Annuitant from time
to time. A change of Contingent Annuitant will take
effect as of the date the request is processed at the
Schwab Insurance & Annuity Service Center, unless a
certain date is specified by the Owner(s). Please
note,
you are not required to designate a Contingent
Annuitant.
- --------------------------------------------------------
If the Owner dies after annuity payouts commence and before the entire interest
has been distributed while the Annuitant is living, any benefit payable will
continue to be distributed to the Annuitant as rapidly as under the payout
option applicable on the Owner's date of death. All rights granted the Owner
under the Contract will pass to any surviving Joint Owner and, if none, to the
Annuitant.
In all other cases, we will pay the Death Benefit to the Beneficiary even if a
Joint Owner (who was not the Owner's spouse on the date of the Owner's death),
the Annuitant and/or the Contingent Annuitant are alive at the time of the
Owner's death, unless the sole Beneficiary is the deceased Owner's surviving
spouse who may elect to become the Owner and Annuitant and to continue the
Contract in force.
Death of Owner Who Is the Annuitant
If there is a Joint Owner who is the surviving spouse of the deceased Owner and
a Contingent Annuitant, the Joint Owner becomes the Owner and the Beneficiary,
the Contingent Annuitant will become the Annuitant, and the Contract will
continue in force.
If there is a Joint Owner who is the surviving spouse and the Beneficiary of the
deceased Owner but no Contingent Annuitant, the Joint Owner will become the
Owner, Annuitant and Beneficiary and may elect to take the Death Benefit or
continue the Contract in force.
In all other cases, we will pay the Death Benefit to the Beneficiary, even if a
Joint Owner (who was not the Owner's spouse on the date of the Owner's death),
Annuitant and/or Contingent Annuitant are alive at the time of the Owner's
death, unless the sole Beneficiary is the deceased Owner's surviving spouse who
may elect to become the Owner and Annuitant and to continue the Contract in
force.
- -------------------------------------------------------------------------------
Charges and Deductions
No amounts will be deducted from your Contributions except for any applicable
Premium Tax. As a result, the full amount of your Contributions (less any
applicable Premium Tax) are invested in the Contract.
As more fully described below, charges under the Contract are assessed only as
deductions for:
o Premium Tax, if applicable,
o Certain Transfers,
o a Contract Maintenance Charge, and
o charges against your Variable Account Value for our assumption of mortality
and expense risks.
Mortality and Expense Risk Charge
We deduct a Mortality and Expense Risk Charge from in your Variable Account
Value at the end of each valuation period to compensate us for bearing certain
mortality and expense risks under the Contract. This is a daily charge equal to
an effective annual rate of 0.85%. The approximate portion of this charge
attributable to mortality risks is 0.68%. The approximate portion of this charge
estimated to be attributable to expense risk is 0.17%. We guarantee that this
charge will never increase beyond 0.85%.
The Mortality and Expense Risk Charge is reflected in the unit values of each of
your variable options. Thus, this charge will continue to be applicable should
you choose a variable annuity payout option or the periodic withdrawal option.
Annuity Account Values and annuity payouts are not affected by changes in actual
mortality experience incurred by us. The mortality risks assumed by us arise
from our contractual obligations to make annuity payouts determined in
accordance with the annuity tables and other provisions contained in the
Contract. This means that you can be sure that neither the Annuitant's longevity
nor an unanticipated improvement in general life expectancy will adversely
affect the annuity payouts under the Contract.
We bear substantial risk in connection with the Death Benefit before the Annuity
Commencement Date.
The expense risk assumed is the risk that our actual expenses in administering
the Contracts and the Series Account will be greater than anticipated or that
they will exceed the amount recovered through the Contract Maintenance Charge
plus the amount, if any, recovered through Transfer fees.
If the Mortality and Expense Risk Charge is insufficient to cover actual costs
and risks assumed, the loss will fall on us. If this charge is more than
sufficient, any excess will be profit to us. Currently, we expect a profit from
this charge. Our expenses for distributing the Contracts will be borne by our
general assets, including any profits from this charge.
Contract Maintenance Charge
We currently deduct a $25 annual Contract Maintenance Charge from the Annuity
Account Value on each Contract anniversary date for accounts under $50,000. This
charge partially covers our costs for administering the Contracts and the Series
Account. Once you have started receiving payouts from the annuity, this charge
will stop unless you choose the periodic withdrawal option.
The Contract Maintenance Charge is deducted from the portion of your Annuity
Account Value allocated to the Schwab Money Market Sub-Account. If the portion
of your Annuity Account Value in this Sub-Account is not sufficient to cover the
Contract Maintenance Charge, then the charge or any portion of it will be
deducted on a pro rata basis from all your Sub-Accounts with current value. If
the entire Annuity Account is held in the Guarantee Period Fund or there are not
enough funds in any Sub-Account to pay the entire charge, then the Contract
Maintenance Charge will be deducted on a pro rata basis from amounts held in all
Guarantee Periods. There is no MVA on amounts deducted from a Guarantee Period
for the Contract Maintenance Charge.
The Contract Maintenance Charge is currently waived for Contracts with an
Annuity Account Value of at least $50,000. If your Annuity Account Value falls
below $50,000, the Contract Maintenance Charge will be reinstated until such
time as your Annuity Account Value is equal to or greater than $50,000. We do
not expect a profit from amounts received from the Contract Maintenance Charge.
Transfer Fee
There will be a $10 charge for each Transfer in excess of 12 Transfers in any
calendar year. We do not expect a profit from the Transfer fee.
Expenses of the Portfolios
The value of the assets in the Sub-Accounts reflect the value of Portfolio
shares and therefore the fees and expenses paid by each Portfolio. A complete
description of the fees, expenses, and deductions from the Portfolios are found
in the Portfolios' Prospectuses.
Premium Tax
We may be required to pay state Premium Taxes or retaliatory taxes currently
ranging from 0% to 3.5% in connection with Contributions or values under the
Contracts. Currently, the premium tax rate in New York for annuities is 0%.
Depending upon applicable state law, we will deduct charges for the Premium
Taxes we incur with respect to your Contributions, from amounts withdrawn, or
from amounts applied on the Payout Commencement Date. In some states, charges
for both direct Premium Taxes and retaliatory Premium Taxes may be imposed at
the same or different times with respect to the same Contribution, depending on
applicable state law.
Other Taxes
Under present laws, we will incur state or local taxes (in addition to the
Premium Tax described above) in 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
Contract.
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Payout Options
During the Distribution Period, you can choose to receive payouts in four
ways--through periodic withdrawals, variable annuity payouts, fixed annuity
payouts or in a single, lump-sum payment.
You may change the Payout Commencement Date within 60 days prior to commencement
of payouts or your Beneficiary may change it upon the death of the Owner.
If this is an IRA, payouts which satisfy the minimum distribution requirements
of the Internal Revenue Code must begin no later than when you become age 70
1/2.
Periodic Withdrawals
You may request that all or part of the Annuity Account Value be applied to a
periodic withdrawal option. The amount applied to a periodic withdrawal is the
Annuity Account Value with any applicable MVA, less Premium Tax, if any.
In requesting periodic withdrawals, you must elect:
o The withdrawal frequency of either 1-, 3-, 6- or 12-month intervals o A
minimum withdrawal amount of at least $100 o The calendar day of the month on
which withdrawals will be made o One of the periodic withdrawal payout options
discussed below-- you may change the
withdrawal option and/or the frequency once each calendar year
Your withdrawals may be prorated across the Guarantee Period Fund (if
applicable) and the Sub-Accounts in proportion to their assets. Or, they can be
made specifically from the Guarantee Period Fund and specific Sub-Account(s)
until they are depleted. Then, we will automatically prorate the remaining
withdrawals against any remaining Guarantee Period Fund and Sub-Account assets
unless you request otherwise.
While periodic withdrawals are being received:
o You may continue to exercise all contractual rights, except that no
Contributions may be made.
o A Market Value Adjustment, if applicable, will be assessed for periodic
withdrawals from Guarantee Periods six or more months prior to its Guarantee
Period maturity date.
o You may keep the same investment options as were in force before periodic
withdrawals began.
o Charges and fees under the Contract continue to apply.
o Maturing Guarantee Periods renew into the shortest Guarantee Period then
available.
Periodic withdrawals will cease on the earlier of the date:
o the amount elected to be paid under the option selected has been reduced to
zero.
o the Annuity Account Value is zero.
o You request that withdrawals stop.
o You purchase an annuity option.
o The Owner or the Annuitant dies.
If periodic withdrawals stop, you may resume making Contributions. However, we
may limit the number of times you may restart a periodic withdrawal program.
Periodic withdrawals made for any purpose may be taxable, subject to withholding
and to the 10% federal penalty tax if you are younger than age 59 1/2. IRAs are
subject to complex rules with respect to restrictions on and taxation of
distributions, including penalty taxes.
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If you choose to receive payouts from your annuity through periodic withdrawals,
you may select from the following payout options: o Income for a specified
period (at least 36 months)--You elect the length of time over which withdrawals
will be made. The amount paid will vary based on the duration you choose.
- -------------------------------------------------------------------------------
o Income of a specified amount (at least 36 months)--You elect the dollar
amount of the withdrawals. Based on the amount elected, the duration may
vary.
o Interest only--Your withdrawals will be based on the amount of interest
credited to the Guarantee Period Fund between withdrawals. Available only if
100% of your Account Value is invested in the Guarantee Period Fund.
o Minimum distribution--If you are using this Contract as an IRA, you may
request minimum distributions as specified under Internal Revenue Code
Section 401(a)(9).
o Any other form of periodic withdrawal acceptable to First GWL&A which is for
a period of at least 36 months.
- ------------------------------------------------------------------------------
In accordance with the provisions outlined in this section, you may request a
periodic withdrawal to remit fees paid to your Investment Manager or Financial
Advisor. There may be income tax consequences to any periodic withdrawal made
for this purpose. Please see "Cash Withdrawals" on page XX.
Annuity Payout Information
You can choose the date you'd like annuity payouts to start either when you
purchase the Contract or at a later date. The date you choose must be at least
one year after your initial Contribution. If you do not select a payout start
date, payouts will begin on the first day of the month of the Annuitant's 91st
birthday. You can change your selection at any time up to 30 days before the
annuity date you selected.
If you have not elected a payout option within 30 days of the Annuity
Commencement Date, the portion of your Annuity Account Value held in your Fixed
Account will be paid out as a fixed life annuity with a guarantee period of 20
years. The Annuity Account Value held in the Sub-Account(s) will be paid out as
a variable life annuity with a guarantee period of 20 years.
The amount to be paid out is the Annuity Account Value on the Annuity
Commencement Date. The minimum amount that may be withdrawn from the Annuity
Account Value to purchase an annuity payout option is $2,000 with a Market Value
Adjustment, if applicable. If after the Market Value Adjustment, your Annuity
Account Value is less than $2,000, we may pay the amount in a single sum subject
to the Contract provisions applicable to a partial withdrawal.
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If you choose to receive variable annuity payouts from your annuity, you may
select from the following payout options: o Variable life annuity with
guaranteed period--This option provides for monthly payouts
during a guaranteed period or for the lifetime of the Annuitant, whichever
is longer. The guaranteed period may be 5, 10, 15 or 20 years.
o Variable life annuity--This option provides for monthly payouts during the
lifetime of the Annuitant. The annuity terminates with the last payout due
prior to the death of the Annuitant. Since no minimum number of payouts is
guaranteed, this option may offer the maximum level of monthly payouts. It
is possible that only one payout may be made if the Annuitant died before
the date on which the second payout is due.
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Under an annuity payout option, you can receive payouts monthly, quarterly,
semi-annually or annually in payments which must be at least $50. We reserve the
right to make payouts using the most frequent payout interval which produces a
payout of at least $50.
Amount of First Variable Payout
The first payout under a variable annuity payout option will be based on the
value of the amounts held in each Sub-Account on the 5th valuation date
preceding the Annuity Commencement Date. It will be determined by applying the
appropriate rate to the amount applied under the payout option.
For annuity options involving life income, the actual age and/or gender of the
Annuitant will affect the amount of each payout. We reserve the right to ask for
satisfactory proof of the Annuitant's age. We may delay annuity payouts until
satisfactory proof is received. Since payouts to older Annuitants are expected
to be fewer in number, the amount of each annuity payout under a selected
annuity form will be greater for older Annuitants than for younger Annuitants.
If the age or gender of the Annuitant has been misstated, the payouts
established will be made on the basis of the correct age or gender. If payouts
were too large because of misstatement, the difference with interest may be
deducted by us from the next payout or payouts. If payouts were too small, the
difference with interest may be added by us to the next payout. This interest is
at an annual effective rate which will not be less than the Contractual
Guarantee of a Minimum Rate of Interest.
Variable Annuity Units
The number of Annuity Units paid for each Sub-Account is determined by dividing
the amount of the first monthly payout by its Annuity Unit value on the 5th
valuation date preceding the date the first payout is due. The number of Annuity
Units used to calculate each payout for a Sub-Account remains fixed during the
Annuity Payout Period.
Amount of variable payouts after the first payout
Payouts after the first will vary depending upon the investment performance of
the Sub-Accounts. The subsequent amount paid from each Sub-Account is determined
by multiplying (a) by (b) where (a) is the number of Sub-Account Annuity Units
to be paid and (b) is the Sub-Account Annuity Unit value on the 5th valuation
date preceding the date the annuity payout is due. The total amount of each
variable annuity payout will be the sum of the variable annuity payouts for each
Sub-Account. We guarantee that the dollar amount of each payout after the first
will not be affected by variations in expenses or mortality experience.
Transfers after the variable Annuity Commencement Date
Once annuity payouts have begun, no Transfers may be made from a fixed annuity
payout option to a variable annuity payout option, or vice versa. However, for
variable annuity payout options, Transfers may be made within the variable
annuity payout option among the Sub-Accounts. Transfers after the Annuity
Commencement Date will be made by converting the number of Annuity Units being
Transferred to the number of Annuity Units of the Sub-Account to which the
Transfer is made. The result will be that the next annuity payout, if it were
made at that time, would be the same amount that it would have been without the
Transfer. Thereafter, annuity payouts will reflect changes in the value of the
new Annuity Units.
Other restrictions
Once payouts start under the annuity payout option you select:
o no changes can be made in the payout option,
o no additional Contributions will be accepted under the Contract and
o no further withdrawals, other than withdrawals made to provide annuity
benefits, will be allowed.
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If you choose to receive fixed annuity payouts from your annuity, you may select
from the following payout options: o Income of specified amount--The amount
applied under this option may be paid in equal
annual, semi-annual, quarterly or monthly installments in the dollar amount
elected for not more than 240 months.
o Income for a specified period--Payouts are paid annually, semi-annually,
quarterly or monthly, as elected, for a selected number of years not to
exceed 240 months.
o Fixed life annuity with guaranteed period--This option provides monthly
payouts during a guaranteed period or for the lifetime of the Annuitant,
whichever is longer. The guaranteed period may be 5, 10, 15 or 20 years.
o Fixed life annuity--This option provides for monthly payouts during the
lifetime of the Annuitant. The annuity ends with the last payout due prior
to the death of the Annuitant. Since no minimum number of payouts is
guaranteed, this option may offer the maximum level of monthly payouts. It
is possible that only one payout may be made if the Annuitant died before
the date on which the second payout is due.
o Any other form of a fixed annuity acceptable to us.
- -----------------------------------------------------------------------------
A portion or the entire amount of the annuity payouts may be taxable as ordinary
income. If, at the time the annuity payouts begin, we have not received a proper
written election not to have federal income taxes withheld, we must by law
withhold such taxes from the taxable portion of such annuity payouts and remit
that amount to the federal government (an election not to have taxes withheld is
not permitted for certain Qualified Contracts). State income tax withholding may
also apply. Please see "Federal Tax-Matters" below for details.
Annuity IRAs
The annuity date and options available for IRAs may be controlled by
endorsements, the plan documents, or applicable law.
Under the Internal Revenue Code, a Contract purchased and used in connection
with an Individual Retirement Account or with certain other plans qualifying for
special federal income tax treatment is subject to complex "minimum
distribution" requirements. Under a minimum distribution plan, distributions
must begin by a specific date and the entire interest of the plan participant
must be distributed within a certain specified period of time. The application
of the minimum distribution requirements vary according to your age and other
circumstances.
- --------------------------------------------------------------------------------
Seek Tax Advice
The following discussion of the federal income tax consequences is only a brief
summary and is not intended as tax advice. The federal income tax consequences
discussed here reflect our understanding of current law and the law may change.
Federal estate tax consequences and state and local estate, inheritance, and
other tax consequences of ownership or receipt of distributions under a Contract
depend on your individual circumstances or the circumstances of the person who
receives the distribution. A tax adviser should be consulted for further
information.
- --------------------------------------------------------------------------------
Federal Tax Matters
The following discussion is a general description of federal income tax
considerations relating to the Contracts and is not intended as tax advice. This
discussion assumes that the Contract qualifies as an annuity contract for
federal income tax purposes. This discussion is not intended to address the tax
consequences resulting from all situations. If you are concerned about these tax
implications relating to the ownership or use of the Contract, you should
consult a competent tax adviser before initiating any transaction.
- --------------------------------------------------------------------------------
Because tax laws, rules and regulations are constantly changing, we do not make
any guarantees about the Contract's tax status.
- --------------------------------------------------------------------------------
This discussion is based upon our understanding of the present federal income
tax laws as they are currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of the continuation of the present
federal income tax laws or of the current interpretation by the Internal Revenue
Service. Moreover, no attempt has been made to consider any applicable state or
other tax laws.
The Contract may be purchased on a non-tax qualified basis ("Non-Qualified
Contract") or purchased and used in connection with IRAs. The ultimate effect of
federal income taxes on the amounts held under a Contract, on annuity payouts,
and on the economic benefit to you, the Annuitant, or the Beneficiary may depend
on the type of Contract, and on the tax status of the individual concerned.
Certain requirements must be satisfied in purchasing an Annuity IRA and
receiving distributions from an Annuity IRA in order to continue receiving
favorable tax treatment. As a result, purchasers of Annuity IRAs should seek
competent legal and tax advice regarding the suitability of the Contract for
their situation, the applicable requirements and the tax treatment of the rights
and benefits of the Contract. The following discussion assumes that an Annuity
IRA is purchased with proceeds and/or Contributions that qualify for the
intended special federal income tax treatment.
Taxation of Annuities
Section 72 of the Internal Revenue Code governs taxation of annuities. You, as a
"natural person" will not generally be taxed on increases, if any, in the value
of your Annuity Account Value until a distribution occurs by withdrawing all or
part of the Annuity Account Value (for example, withdrawals or annuity payouts
under the annuity payout option elected). However, under certain circumstances,
you may be subject to taxation currently. In addition, an assignment, pledge, or
agreement to assign or pledge any portion of the Annuity Account Value generally
will be treated as a distribution. The taxable portion of a distribution (in the
form of a single sum payout or an annuity) is taxable as ordinary income. An IRA
Contract may not be assigned as collateral.
If the Contract is not owned by a natural person (for example, a corporation or
certain trusts), you generally must include in income any increase in the excess
of the Annuity Account Value over the "investment in the Contract" (discussed
below) during each taxable year. The rule does not apply where the non-natural
person is the stated Owner of a Contract and the beneficial Owner is a natural
person.
The rule also does not apply where:
o The annuity Contract is acquired by the estate of a decedent
o The Contract is held under an IRA.
o The Contract is a qualified funding asset for a structured settlement.
o The Contract is purchased on behalf of an employee upon termination of a
qualified plan.
The following discussion generally applies to a Contract owned by a natural
person. Withdrawals In the case of a withdrawal under an IRA, including
withdrawals under the periodic withdrawal option, a portion of the amount
received may be non-taxable. The amount of the non-taxable portion is generally
determined by the ratio of the "investment in the Contract" to the individual's
total accrued benefit under the plan. The "investment in the Contract" generally
equals the amount of any nondeductible Contributions paid by or on behalf of any
individual. Special tax rules may be available for certain distributions from an
IRA.
With respect to Non-Qualified Contracts, partial withdrawals, including periodic
withdrawals, are generally treated as taxable income to the extent that the
Annuity Account Value immediately before the withdrawal exceeds the "investment
in the Contract" at that time. If a partial withdrawal is made from a Guarantee
Period which is subject to a Market Value Adjustment, then the Annuity Account
Value immediately before the withdrawal will not be altered to take into account
the Market Value Adjustment. As a result, for purposes of determining the
taxable portion of the partial withdrawal, the Annuity Account Value will not
reflect the amount, if any, deducted from or added to the Guarantee Period due
to the Market Value Adjustment. Full surrenders are treated as taxable income to
the extent that the amount received exceeds the "investment in the Contract."
The taxable portion of any annuity payout is taxed at ordinary income tax rates.
Annuity payouts
Although the tax consequences may vary depending on the annuity form elected
under the Contract, in general, only the portion of the annuity payout that
represents the amount by which the Annuity Account Value exceeds the "investment
in the Contract" will be taxed. After the investment in the Contract is
recovered, the full amount of any additional annuity payouts is taxable. For
fixed annuity payouts, in general there is no tax on the portion of each payout
which represents the same ratio that the "investment in the Contract" bears to
the total expected value of the annuity payouts for the term of the payouts.
However, the remainder of each annuity payout is taxable. Once the investment in
the Contract has been fully recovered, the full amount of any additional annuity
payouts is taxable.
Penalty tax
For distributions from a Non-Qualified Contract, there may be a federal income
tax penalty imposed equal to 10% of the amount treated as taxable income. In
general, however, there is no penalty tax on distributions:
o Made on or after the date on which the Owner reaches age 59 1/2.
o Made as a result of death or disability of the Owner.
o Received in substantially equal periodic payouts (at least annually) for
your life expectancy or the joint life expectancies of you and the
Beneficiary.
Other exemptions or tax penalties may apply to distributions from a
Non-Qualified Contract or certain distributions from an IRA. For more details
regarding these exemptions or penalties consult a competent tax adviser.
Taxation of Death Benefit proceeds
Amounts may be distributed from the Contract because of the death of an Owner or
the Annuitant. Generally such amounts are included in the income of the
recipient as follows:
If distributed in a lump sum, they are taxed in the same manner as a full
surrender, as described above.
If distributed under an annuity form, they are taxed in the same manner as
annuity payouts, as described above.
Distribution at death
In order to be treated as an annuity contract, the terms of the Contract must
provide the following two distribution rules:
If the Owner dies before the date annuity payouts start, your entire interest
must generally be distributed within five years after the date of your death. If
payable to a designated Beneficiary, the distributions may be paid over the life
of that designated Beneficiary or over a period not extending beyond the life
expectancy of that Beneficiary, so long as payouts start within one year of your
death. If the sole designated Beneficiary is your spouse, the Contract may be
continued in the name of the spouse as Owner.
If the Owner dies on or after the date annuity payouts start, and before the
entire interest in the Contract has been distributed, the remainder of your
interest will be distributed on the same or on a more rapid schedule than that
provided for in the method in effect on the date of death.
If the Owner is not an individual, then for purposes of the distribution at
death rules, the Primary Annuitant is considered the Owner. In addition, when
the Owner is not an individual, a change in the Primary Annuitant is treated as
the death of the Owner.
Distributions made to a Beneficiary upon the Owner's death from an IRA must be
made pursuant to the rules in Section 401(a)(9) of the Internal Revenue Code.
Transfers, assignments or exchanges
A transfer of ownership of a Contract, the designation of an Annuitant, Payee or
other Beneficiary who is not also the Owner, or the exchange of a Contract may
result in adverse tax consequences that are not discussed in this Prospectus.
Multiple Contracts
All deferred, Non-Qualified Annuity Contracts that are issued by First GWL&A (or
our affiliates) to the same Owner during any calendar year will be treated as
one annuity contract for purposes of determining the taxable amount.
Withholding
Annuity distributions generally are subject to withholding at rates that vary
according to the type of distribution and the recipient's tax status.
Recipients, however, generally are provided the opportunity to elect not to have
tax withheld from distributions. Certain distributions from IRAs are subject to
mandatory federal income tax withholding.
Section 1035 Exchanges
Internal Revenue Code Section 1035 provides that no gain or loss shall be
recognized on the exchange of one insurance contract for another. Generally,
contracts issued in an exchange for another annuity contract are treated as new
for purposes of the penalty and distribution at death rules.
Individual Retirement Annuities
The Contract may be used with IRAs as described in Section 408 of the Internal
Revenue Code. Section 408 of the Internal Revenue Code permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity. Also, certain kinds of distributions from certain
types of qualified and non-qualified retirement plans may be "rolled over"
following the rules set out in the Internal Revenue Code. If you purchase this
Contract for use with an IRA, you will be provided with supplemental
information. And, you have the right to revoke your purchase within seven days
of purchase of the IRA Contract.
If a Contract is purchased to fund an IRA, the Annuitant must also be the Owner.
In addition, if a Contract is purchased to fund an IRA, minimum distributions
must commence not later than April 1st of the calendar year following the
calendar year in which you attain age 70 1/2. You should consult your tax
adviser concerning these matters.
Various tax penalties may apply to Contributions in excess of specified limits,
distributions that do not satisfy specified requirements, and certain other
transactions. The Contract will be amended as necessary to conform to the
requirements of the Internal Revenue Code if there is a change in the law.
Purchasers should seek competent advice as to the suitability of the Contract
for use with IRAs.
When you make your initial Contribution, you must specify whether you are
purchasing a Non-Qualified Contract or an IRA. If the initial Contribution is
made as a result of an exchange or surrender of another annuity contract, we may
require that you provide information with regard to the federal income tax
status of the previous annuity contract.
We will require that you purchase separate Contracts if you want to invest money
qualifying for different annuity tax treatment under the Internal Revenue Code.
For each separate Contract you will need to make the required minimum initial
Contribution. Additional Contributions under the Contract must qualify for the
same federal income tax treatment as the initial Contribution under the
Contract. We will not accept an additional Contribution under a Contract if the
federal income tax treatment of the Contribution would be different from the
initial Contribution.
If a Contract is issued in connection with an employer's Simplified Employee
Pension plan, Owners, Annuitants and Beneficiaries are cautioned that the rights
of any person to any of the benefits under the Contract will be subject to the
terms and conditions of the plan itself, regardless of the terms and conditions
of the Contract.
- --------------------------------------------------------------------------------
Assignments or Pledges
Generally, rights in the Contract may be assigned or pledged for loans at any
time during the life of the Annuitant. However, if the Contract is an IRA, you
may not assign the Contract as collateral.
If a non-IRA Contract is assigned, the interest of the assignee has priority
over your interest and the interest of the Beneficiary. Any amount payable to
the assignee will be paid in a single sum.
A copy of any assignment must be submitted to the Schwab Insurance & Annuity
Service Center. All assignments are subject to any action taken or payout made
by First GWL&A before the assignment was processed. We are not responsible for
the validity or sufficiency of any assignment.
If any portion of the Annuity Account Value is assigned or pledged for a loan,
it may be treated as a distribution. Please consult a competent tax adviser for
further information.
- --------------------------------------------------------------------------------
Performance Data
From time to time, we may advertise yields and average annual total returns for
the Sub-Accounts. In addition, we may advertise the effective yield of the
Schwab Money Market Sub-Account. These figures will be based on historical
information and are not intended to indicate future performance.
Money Market Yield
The yield of the Schwab Money Market Sub-Account refers to the annualized income
generated by an investment in that Sub-Account over a specified 7-day period. It
is calculated by assuming that the income generated for that seven-day period is
generated each 7-day period over a period of 52 weeks and is shown as a
percentage of the investment.
The effective yield is calculated similarly but, when annualized, the income
earned by an investment in that Sub-Account is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of the assumed reinvestment.
Average Annual Total Return
The table on the following page illustrates standardized and non-standardized
average annual total return for one-, three-, five- and ten-year periods (or
since inception, as appropriate) ended December 31, 1998. Average annual total
return quotations represent the average annual compounded rate of return that
would equate an initial investment of $1,000 to the redemption value of that
investment (excluding Premium Taxes, if any) as of the last day of each of the
periods for which total return quotations are provided.
Both the standardized and non-standardized data reflect the deduction of all
fees and charges under the Contract. The standardized data is calculated from
the inception date of the Sub-Account and the non-standardized data is
calculated for periods preceding the inception date of the Sub-Account. Some of
the Sub-Accounts do not have standardized performance information. Such data
will be provided when it becomes available. For additional information regarding
yields and total returns calculated using the standard formats briefly described
herein, please refer to the Statement of Additional Information.
<PAGE>
<TABLE>
Performance Data
<S> <C> <C> <C> <C>
Sub-Account 1 year 3 years 5 years 10 years Since Inception Date Since Inception
Inception of of Inception of Date of
Sub-Account Sub-Account Underlying Underlying
Portfolio Portfolio
Alger American Growth Portfolio 11/1/96 1/9/89
American Century VP International 11/1/96 5/1/94
Berger IPT-Small Company Growth Fund 4/30/97 5/1/96
Federated American Leaders Fund II 11/1/96 2/1/94
Federated Fund for U.S. Government 11/1/96 3/29/94
Securities II
Federated Utility Fund II 4/30/97 4/14/94
INVESCO VIF-High Yield Portfolio 11/1/96 5/27/94
INVESCO VIF-Industrial Income 11/1/96 8/10/94
Portfolio
Janus Aspen Growth Portfolio 11/1/96 9/13/93
Janus Aspen Worldwide Growth 11/1/96 9/13/93
Portfolio
Montgomery Variable Series: Growth 11/1/96 2/9/96
Fund
SAFECO RST Equity Portfolio 4/30/97 4/3/87
Schwab MarketTrack Growth Portfolio 11/1/96 11/1/96
II
Schwab S&P 500 Portfolio 11/1/96 11/1/96
Van Kampen American Capital 9/15/97 7/3/95
LIT-Morgan Stanley Real Estate
Securities Portfolio
</TABLE>
<PAGE>
45
Performance information and calculations for any Sub-Account are based only on
the performance of a hypothetical Contract under which the Annuity Account Value
is allocated to a Sub-Account during a particular time period. Performance
information should be considered in light of the investment objectives and
policies and characteristics of the Portfolios in which the Sub-Account invests
and the market conditions during the given time period. It should not be
considered as a representation of what may be achieved in the future.
Reports and promotional literature may also contain other information including:
o the ranking of or asset allocation/investment strategy any Sub-Account
derived from rankings of variable annuity separate accounts or their
investment products tracked by Lipper Analytical Services, Inc., VARDS,
Morningstar, Value Line, IBC/Donoghue's Money Fund Report, Financial
Planning Magazine, Money Magazine, Bank Rate Monitor, Standard & Poor's
Indices, Dow Jones Industrial Average, and other rating services,
companies, publications or other people who rank separate accounts or other
investment products on overall performance or other criteria, and
o the effect of tax-deferred compounding on investment returns, or returns in
general, which may be illustrated by graphs, charts, or otherwise, and which
may include a comparison, at various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a currently taxable
basis. Other ranking services and indices may be used.
We may from time to time also disclose cumulative (non-annualized) total
returns, yield and standard total returns for the Sub-Accounts.
We may also advertise performance figures for the Sub-Accounts based on the
performance of a Portfolio prior to the time the Series Account commenced
operations.
For additional information regarding the calculation of other performance data,
please refer to the Statement of Additional Information.
- --------------------------------------------------------------------------------
Distribution of the Contracts
Charles Schwab & Co., Inc. (Schwab) is the principal underwriter and distributor
of the Contracts. Schwab is registered with the Securities and Exchange
Commission as a broker/dealer and is a member of the National Association of
Securities Dealers, Inc. (NASD). Its principal offices are located at 101
Montgomery, San Francisco, California 94104, telephone 800-838-0649.
Certain administrative services are provided by Schwab to assist First GWL&A in
processing the Contracts. These services are described in written agreements
between Schwab and First GWL&A. First GWL&A 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 First GWL&A. This
summary has been derived in part from, and should be read in conjunction with,
the consolidated financial statements of First GWL&A included in Item 8
(Financial Statements and Supplementary Data).
<TABLE>
(Dollars in Thousands)
For the Period From
April 4, 1997
(Inception) through
December 31, 1998 December 31, 1997
-------------------- --------------------------
INCOME STATEMENT DATA
<S> <C> <C>
Premium and fee income $ 78 $ 21
Net investment income 3,367 243
Realized investment gains 74
-------------------- --------------------------
-------------------- --------------------------
Total Revenues 3,519 264
-------------------- --------------------------
-------------------- --------------------------
Total benefits and expenses 2,124 213
Income tax expense 603 18
==================== ==========================
Net Income $ 792 $ 33
==================== ==========================
BALANCE SHEET DATA
Investment assets $ 80,353 $ 5,381
Separate account assets 23,836 9,045
Total assets 107,095 16,154
Total policyholder 64,445 84
liabilities
Total stockholder's equity 16,642 6,538
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company
First Great-West Life & Annuity Insurance Company ("First GWL&A") is a stock
life insurance company organized under the laws of the State of New York in
1996.
First GWL&A is a wholly-owned subsidiary of Great-West Life & Annuity Insurance
Company ("GWL&A"), a life insurance company domiciled in Colorado. GWL&A is a
wholly-owned subsidiary of GWL&A Financial Inc. ("GWL&A Financial"), a Delaware
holding company. GWL&A Financial is an indirect wholly-owned subsidiary of The
Great-West Life Assurance Company ("Great-West Life"), a Canadian life insurance
company. Great-West Life is a subsidiary of Great-West Lifeco Inc. ("Great-West
Lifeco"), a Canadian holding company. Great-West Lifeco is a subsidiary of Power
Financial Corporation ("Power Financial"), a Canadian holding company with
substantial interests in the financial services industry. Power Financial
Corporation is a subsidiary of Power Corporation of Canada ("Power
Corporation"), a Canadian holding and management company. Mr. Paul Desmarais,
through a group of private holding companies, which he controls, has voting
control of Power Corporation.
First GWL&A is authorized to engage in the sale of life insurance, annuities,
and accident and health insurance. First GWL&A became licensed to do business in
New York and Iowa in 1997. First GWL&A's business is currently limited to the
sale of individual life and annuity products.
The following discussion contains forward-looking statements. 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 First GWL&A's beliefs concerning future or projected levels of sales
of First GWL&A's products, investment spreads or yields, or the earnings or
profitability of First GWL&A'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 First GWL&A'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, First GWL&A. 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 First
GWL&A specifically, such as credit, volatility and other risks associated with
First GWL&A's investment portfolio, and other factors. Readers are also directed
to consider other risks and uncertainties discussed in documents filed by First
GWL&A with the Securities and Exchange Commission.
Management's discussion and analysis of financial condition and results of
operations of First GWL&A for the year ended December 31, 1998 and the period
April 4, 1997 through December 31, 1997 follows.
COMPANY RESULTS OF OPERATIONS
Annuity contract charges and premiums were $78 thousand in 1998 versus $21
thousand in 1997 (sales of the annuity product began in the second half of
1997). Interest for BOLI account balances is credited directly to the balance
sheet and accordingly, only the cost of insurance and contract administration
fees related to the policies are included in premiums on the income statement.
During 1998 First GWL&A received approval from the New York Department of
Insurance to market its BOLI product. First GWL&A is authorized to sell up to
$100 million of BOLI.
BOLI deposits in 1998 totaled $62.5 million.
First GWL&A'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.
Net investment income grew from $243 thousand in 1997 to $3.4 million in 1998,
primarily due to BOLI sales as well as a capital infusion from GWL&A of $8.6
million in December 1998.
Net income grew from $33 thousand in 1997 to $792 thousand in 1998. The increase
in 1998 was primarily due to higher investment income. First GWL&A's effective
tax rate was 43.2% in 1998 compared to 35% in 1997, due to the effect of state
income taxes on the higher level of income.
It is expected that the sale of individual annuities and BOLI will continue and
increase during 1999. First GWL&A intends to begin marketing group life and
health and 401(k) products in 1999.
INVESTMENT OPERATIONS
First GWL&A's primary investment objective is to acquire assets whose durations
and cash flows reflect the characteristics of First GWL&A's liabilities, while
meeting industry, size, issuer and geographic diversification standards. Formal
liquidity and credit quality parameters have also been established.
First GWL&A follows rigorous procedures to control interest rate risk and
observes strict asset and liability matching guidelines. These guidelines are
designed to ensure that even in changing interest rate environments, First
GWL&A's assets will always be able to meet the cash flow and income requirements
of its liabilities. Through dynamic modeling, using state-of-the-art software to
analyze the effects of a wide range of possible market changes upon investments
and policyholder benefits, First GWL&A ensures that its investment portfolio is
appropriately structured to fulfill financial obligations to its policyholders.
A summary of First GWL&A's general account invested assets follows:
<PAGE>
<TABLE>
(Dollars in Thousands)
1998 1997
--------------- ----------------
<S> <C> <C>
Fixed maturities, available for sale, at fair $ 65,154 $ 4,995
value
Fixed maturities, held-to-maturity, at amortized 14,500
cost
Short-term investments 699 386
=============== ================
Total invested assets $ 80,353 $ 5,381
=============== ================
Fixed maturity investments include public and privately placed corporate bonds,
public and privately placed structured assets and government bonds. Private
placement investments, which are primarily in the held-to-maturity category, are
generally less marketable than publicly traded assets, yet they typically offer
covenant protection which allows First GWL&A, if necessary, to take appropriate
action to protect its investment. First GWL&A believes that the cost of the
additional monitoring and analysis required by private placements is more than
offset by their enhanced yield.
One of First GWL&A's primary objectives is to ensure that its fixed maturity
portfolio is maintained at a high average quality, so as to limit credit risk.
If not externally rated, the securities are rated by First GWL&A on a basis
intended to be similar to that of the rating agencies.
The distribution of the fixed maturity portfolio (both available-for-sale and
held-to-maturity) by credit rating is summarized as:
Credit Rating 1998 1997
-------------
-------------- --------------
AAA 62.7% 100.0%
AA 6.5
A 13.1
BBB 17.7
BB and Below (non-investment grade)
============== ==============
TOTAL 100.0% 100.0%
============== ==============
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
First GWL&A's operations have liquidity requirements that are dependent upon the
principal product lines currently offered. Life insurance and pension plan
reserves are primarily long-term liabilities. Life insurance and pension plan
reserve requirements are usually stable and predictable, and are supported by
long-term, fixed income investments.
Generally, First GWL&A has met its operating requirements by maintaining
appropriate levels of liquidity in its investment portfolio. Liquidity for First
GWL&A is strong, as evidenced by significant amounts of short-term investments
and cash, which totaled $1.4 million and $2.0 million as of December 31, 1998
and December 31, 1997, respectively.
As discussed above, First GWL&A and GWL&A have an agreement whereby GWL&A has
undertaken to provide First GWL&A with certain financial support related to
maintaining required statutory surplus and liquidity.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and for Hedging Activities". This Statement provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. This Statement is effective for First GWL&A beginning
January 1, 2000, and earlier adoption is encouraged. First GWL&A has not adopted
this Statement as of December 31, 1998. Management has not determined the impact
of the Statement on First GWL&A's financial position or results of operations.
YEAR 2000 ISSUE
The Year 2000 ("Y2K") problem arises when a computer performing date-based
computations or operations produces erroneous results due to the historical
practice of using two digit years within computer hardware and software. This
causes errors or misinterpretations of the century in date calculations.
Virtually all businesses, including First GWL&A, are required to determine the
extent of their Y2K problems. Systems that have a Y2K problem must then be
converted or replaced by systems that will operate correctly with respect to the
year 2000 and beyond.
As mentioned previously, GWL&A provides all administrative services to First
GWL&A. GWL&A has a written plan that encompasses all computer hardware,
software, networks, facilities (embedded systems) and telephone systems. The
plan also includes provisions for identifying and verifying that major vendors
and business partners are Y2K compliant. GWL&A is developing contingency plans
to address the possibility of both internal and external failures as well. The
plan calls for full Y2K compliance for core systems by June 30, 1999 and full
Y2K compliance for all Company systems by October 31, 1999.
GWL&A's plan establishes five phases for becoming Y2K compliant. Phase 1 is
"impact analysis" which includes initial inventory and preliminary assessment of
Y2K impact. Phase 2 is "solution planning" which includes system by system
planning to outline the approach and timing for reaching compliance. Phase 3 is
"conversion/renovation" which means the actual process of replacing or repairing
non-compliant systems. Phase 4 is "testing" to ensure that the systems function
correctly under a variety of different date scenarios including current dates,
year 2000 and leap year dates. Phase 5 is "implementation" which means putting
Y2K compliant systems back into production.
As of December 31, 1998, GWL&A had completed impact analysis (phase 1) and
solution planning (phase 2) for all of its core systems and was more than 95%
complete for phases 1 and 2 with respect to its systems as a whole. In addition,
GWL&A was approximately 87% complete with respect to conversion and renovation
(phase 3), 79% complete with respect to testing (phase 4), and 78% complete with
respect to implementation (phase 5).
In addition to ensuring that GWL&A's own systems are Y2K compliant, GWL&A has
identified third parties with which GWL&A has significant business relationships
in order to assess the potential impact on GWL&A of the third parties' Y2K
issues and plans. GWL&A expects to complete this process during the first
quarter of 1999 and will conduct system testing with third parties throughout
1999. GWL&A does not have control over these third parties and cannot make any
representations as to what extent GWL&A's and First GWL&A's future operating
results may be adversely affected by the failure of any third party to address
successfully its own Y2K issues.
On the basis of currently available information, the expense incurred by GWL&A,
including anticipated future expenses, related to the Y2K issue has not and is
not expected to be material to GWL&A's financial condition or results of
operations. GWL&A has spent approximately $9.7 million on its Y2K project
through the end of December 1998 and expects to spend up to approximately $15.3
million on its Y2K project. All of these funds will come from GWL&A's cash flow
from operations. GWL&A has continued other scheduled non-Y2K information systems
changes and upgrades. Although work on Y2K issues may have resulted in minor
delays on the other projects, the delays are not expected to have a material
adverse effect on First GWL&A's financial condition or results of operations.
The most reasonably likely worst case Y2K scenario is that GWL&A and/or First
GWL&A will experience isolated internal or third party computer failures and
will be temporarily unable to process insurance and annuity benefit
transactions. All of GWL&A's Y2K efforts have been designed to prevent such an
occurrence. However, if GWL&A identifies internal or third party Y2K issues
which cannot be timely corrected, there can be no assurance that GWL&A and/or
First GWL&A can avoid Y2K problems or that the cost of curing the problem will
not be material.
In an effort to mitigate risks associated with Y2K failures, GWL&A is in the
process of developing contingency plans to address core functions, including
relations with third parties. It is GWL&A's expectation that contingency plans
will address possible failures generated internally, by vendors or business
partners, and by customers. Possible general approaches include manual
processing, payments on an estimated basis and use of disaster recovery
facilities.
REGULATION
1. Insurance Regulation
First GWL&A must comply with the insurance laws of New York and Iowa. These laws
govern the admittance of assets, premium rating methodology, policy forms,
establishing reserve requirements and solvency standards, maximum interest rates
on life insurance policy loans and minimum rates for accumulation of surrender
values and the type, amounts and valuation of investments permitted.
First GWL&A's operations and accounts are subject to examination by the New York
Insurance Division at specified intervals.
The National Association of Insurance Commissioners has adopted risk-based
capital rules and other financial ratios for life insurance companies. Based on
First GWL&A's December 31, 1998 statutory financial reports, First GWL&A has
risk-based capital well in excess of that required; however, First GWL&A did
fall outside the usual range of some of the ratios due to the start-up nature of
its operations.
2. Insurance Holding Company Regulations
First GWL&A 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.
3. Securities Law
First GWL&A is subject to various levels of regulation under federal securities
laws. First GWL&A's separate accounts and annuity products are registered under
the Investment Company Act of 1940 and the Securities Act of 1933.
4. Potential Legislation
United States legislation and administrative developments in various areas,
including pension regulation, financial services regulation, health care
legislation and the insurance industry could significantly and adversely affect
First GWL&A in the future. For example, Congress is currently considering
legislation relating to health care reform and managed care issues (including
patients' rights, privacy of medical records and managed care plan or enterprise
liability), and legislation relating to the taxation of policyholder surplus
accounts and the capitalization of deferred acquisition costs. Congress has from
time to time also considered the deferral of taxation on the accretion of value
within certain annuities and life insurance products, financial services reform
legislation establishing frameworks for banks engaging in the insurance
business, changes in regulation for the Employee Retirement Income Security Act
of 1974 and the availability of Section 401(k) for individual retirement
accounts.
It is not possible to predict whether future legislation or regulation adversely
affecting the business of First GWL&A will be enacted and, if enacted, the
extent to which such legislation or regulation will have an effect on First
GWL&A and its competitors.
RATINGS
First GWL&A is rated by a number of nationally recognized rating agencies. The
ratings represent the opinion of the rating agencies on the financial strength
of First GWL&A 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 First GWL&A with certain financial support related to
maintaining required statutory surplus and liquidity.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Rating Agency Measurement Rating
----------------------------------- ----------------------------- --------------
A.M. Best Company Financial Condition and AA+ *
Operating Performance
Duff & Phelps Corporation Claims Paying Ability AAA *
Standard & Poor's Corporation Claims Paying Ability AA **
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>
G. MISCELLANEOUS
Significant BOLI deposits were received during 1998. Although First GWL&A's BOLI
business is comprised of two major customers, which account for the majority of
the total deposits, the BOLI contracts allow for no more than 20% surrenders in
any given year.
First GWL&A distributes its annuity products through Charles Schwab & Co., Inc.
pursuant to a marketing agreement. First GWL&A's BOLI product is currently
marketed through one broker, Clark/Bardes, Inc. Loss of business from either of
these agents would have a material effect on First GWL&A's distribution process.
First GWL&A and GWL&A have an administration service agreement whereby GWL&A
administers, distributes, and underwrites business for First GWL&A and
administers First GWL&A's investment portfolio.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Following is information concerning First GWL&A's directors and executive
officers, together with their principal occupation for the past five years.
Unless otherwise indicated all of the directors and executive officers have been
engaged for not less than five years in their present principal occupations or
in another executive capacity with the companies or firms identified.
Directors are elected annually to serve until the following annual meeting of
shareholders. The appointments of executive officers are confirmed annually.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Director Served as Principal Occupation(s) For
Director From Last Five Years
Marcia D. Alazraki 1996 Partner, Kalkines, Arky, Zall &
Bernstein LLP (a law firm) since
January, 1998; previously Counsel,
Simpson Thacher & Bartlett (a law
firm)
James Balog (1) 1997 Company Director
James W. Burns, O.C. 1997 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. 1997 Chairman and Co-Chief Executive
Officer, Power Corporation; Chairman,
Power Financial
Robert Gratton 1997 Chairman of the Board of GWL&A;
President and Chief Executive
Officer, Power Financial
N. Berne Hart (1) 1997 Company Director
Stuart Z. Katz 1997 Partner, Fried, Frank, Harris,
Shriver & Jacobson (a law firm)
William T. McCallum 1997 Chairman, President and Chief
Executive Officer of First GWL&A;
President and Chief Executive
Officer, GWL&A; President and Chief
Executive Officer, United States
Operations, Great-West Life
Brian E. Walsh (1) 1997 Co-Founder and Managing Partner,
Veritas Capital Management, LLC (a
merchant banking company) since
September 1997; previously Partner,
Trinity L.P. (an investment company)
from January 1996; previously
Managing Director and Co-Head,
Global Investment Bank, Bankers
Trust Company (an
investment/commercial bank)
(1) Member of the Audit Committee
The following lists directorships held by the directors of First GWL&A, on
companies whose securities are traded publicly in the United States or that are
investment companies registered under the Investment Company Act of 1940.
J. Balog Elan plc
........ Euclid Mutual Fund
........ Transatlantic Holdings
........ Zweig-Glaser Mutual Fund
P. Desmarais, Jr. Petrofina S.A.
EXECUTIVE OFFICERS
Executive Officer Served as Executive Principal Occupation(s) For
Officer From Last Five Years
William T. McCallum 1997 Chairman, President and Chief
Chairman, President and Executive Officer of First GWL&A;
Chief Executive Officer President and Chief Executive
Officer, GWL&A; President and Chief
Executive Officer, United States
Operations, Great-West Life
Mitchell T.G. Graye 1997 Executive Vice President and Chief
Executive Vice President and Financial Officer of First GWL&A and
Chief Financial Officer GWL&A; Executive Vice President and
Chief Financial Officer, United
States, Great-West Life
James D. Motz 1997 Executive Vice President, Employee
Executive Vice President, Benefits of First GWL&A, GWL&A and
Employee Benefits Great-West Life
Douglas L. Wooden 1997 Executive Vice President, Financial
Executive Vice President, Services of the Company, GWL&A and
Financial Services Great-West Life
John T. Hughes 1997 Senior Vice President, Chief
Senior Vice President, Investment Officer of the Company
Chief Investment Officer and GWL&A; Senior Vice President,
ChiefInvestment Officer, United
States, Great-West Life
D. Craig Lennox 1997 Senior Vice President, General
Senior Vice President, Counsel and Secretary of the Company
General Counsel and Secretary and GWL&A; Senior Vice President and
Chief U.S. Legal Officer, Great-West
Life
Martin Rosenbaum 1997 Senior Vice President, Employee
Senior Vice President, Benefits Operations of the Company,
Employee Benefits Operations GWL&A and Great-West Life
Gregory E. Seller 1997 Senior Vice President, Major
Senior Vice President, Major Accounts of the Company, GWL&A and
Accounts Great-West Life
Robert K. Shaw 1997 Senior Vice President, Individual
Senior Vice President, Markets of the Company, GWL&A and
Individual Markets Great-West Life
</TABLE>
EXECUTIVE COMPENSATION
The executive officers of First GWL&A are not compensated for their services to
First GWL&A. They are compensated as executive officers of GWL&A.
COMPENSATION OF DIRECTORS
For each director of First GWL&A who is not also a director of GWL&A, Great-West
Life or Great-West Lifeco, First GWL&A pays an annual fee of $10,000. For each
director of First GWL&A who is also a director of GWL&A, Great-West Life or
Great-West Lifeco, First GWL&A pays an annual fee of $5,000. First GWL&A 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
Set forth below is certain information, as of February 1, 1999, concerning
beneficial ownership of the voting securities of First GWL&A by entities and
persons who beneficially own more than 5% of the voting securities of First
GWL&A. The determinations of "beneficial ownership" of voting securities are
based upon Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). This rule provides that securities will be deemed to be
"beneficially owned" where a person has, either solely or in conjunction with
others, (1) the power to vote or to direct the voting of securities and/or the
power to dispose or to direct the disposition of, the securities or (2) the
right to acquire any such power within 60 days after the date such "beneficial
ownership" is determined.
(1) 100% of First GWL&A'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 the outstanding common shares of Great-West Life & Annuity
Insurance Company's are owned by GWL&A Financial Inc., 8515 East Orchard
Road, Englewood, Colorado 80111.
(3) 100% of the outstanding common shares of GWL&A Financial Inc. are owned by
GWL&A Financial (Nova Scotia) Co., Suite 800, 1959 Upper Water Street,
Halifax, Nova Scotia, Canada B3J 2X2.
(4) 100% of the outstanding common shares of GWL&A Financial (Nova Scotia)
Co. are owned by The Great-West Life Assurance Company, 100 Osborne
Street North, Winnipeg, Manitoba, Canada R3C 3A5.
(5) 99.6% 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.
(6) 81.1% of the outstanding common shares of Great-West Lifeco Inc. are
controlled by Power Financial Corporation, 751 Victoria Square,
Montreal, Quebec, Canada H2Y 2J3.
(7) 67.5% of the outstanding common shares of Power Financial Corporation
are owned by 171263 Canada Inc., 751 Victoria Square, Montreal, Quebec,
Canada H2Y 2J3.
(8) 100% of the outstanding common shares of 171263 Canada Inc. are owned by
2795957 Canada Inc., 751 Victoria Square, Montreal, Quebec, Canada H2Y
2J3.
(9) 100% of the outstanding common shares of 2795957 Canada Inc. are owned
by Power Corporation of Canada, 751 Victoria Square, Montreal, Quebec,
Canada H2Y 2J3.
(10) 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.
As a result of the chain of ownership described in paragraphs (1) through (10)
above, each of the entities and persons listed in paragraphs (1) through (10)
would be considered under Rule 13d-3 of the Exchange Act to be a "beneficial
owner" of 100% of the outstanding voting securities of the Company.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets out the number of equity securities, and exercisable
options (including options which will become exercisable within 60 days) for
equity securities, of First GWL&A or any of its parents or subsidiaries,
beneficially owned, as of February 1, 1999, by (i) the directors of the Company;
and (ii) the directors and executive officers of First GWL&A 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 50 112,000 8,000 400,640
200,000 options
- ----------------------- ------------- ---------------- -------------------- ----------------------
- ----------------------- ------------- ---------------- -------------------- ----------------------
P. Desmarais, Jr. 50 32,000 - 890,500 options
- ----------------------- ------------- ---------------- -------------------- ----------------------
- ----------------------- ------------- ---------------- -------------------- ----------------------
R. Gratton - 330,000 310,000 5,000
5,280,000 options 300,000 options
- ----------------------- ------------- ---------------- -------------------- ----------------------
- ----------------------- ------------- ---------------- -------------------- ----------------------
N.B. Hart - - - -
- ----------------------- ------------- ---------------- -------------------- ----------------------
- ----------------------- ------------- ---------------- -------------------- ----------------------
S.Z. Katz - - - -
- ----------------------- ------------- ---------------- -------------------- ----------------------
- ----------------------- ------------- ---------------- -------------------- ----------------------
W.T. McCallum 17 71,362 80,000 -
240,000 options
- ----------------------- ------------- ---------------- -------------------- ----------------------
- ----------------------- ------------- ---------------- -------------------- ----------------------
B.E. Walsh - - - -
- ----------------------- ------------- ---------------- -------------------- ----------------------
- --------------------------------------------------------------------------------------------------
Directors and Executive
Officers as a Group
- --------------------------------------------------------------------------------------------------
- ----------------------- ------------- ---------------- -------------------- ----------------------
117 596,167 398,000 406,440
678,000 options 5,635,054 options 1,390,500 options
- ----------------------- ------------- ---------------- -------------------- ----------------------
(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.
</TABLE>
The number of common shares and exercisable options for common shares of Power
Financial Corporation held by R. Gratton represents 1.6% 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 1.7% 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, is an attorney with a law firm which
provided legal services to the Company. From January 1, 1998 through March 17,
1999, the amount of such services was approximately $72,300.
- -------------------------------------------------------------------------------
Voting Rights
In general, you do not have a direct right to vote the Portfolio shares held in
the Series Account. However, under current law, you are entitled to give us
instructions on how to vote the shares. We will vote the shares according to
those instructions at regular and special shareholder meetings. If the law
changes and we can vote the shares in our own right, we may elect to do so.
Before the Annuity Commencement Date, you have the voting interest. The number
of votes available to you will be calculated separately for each of your
Sub-Accounts. That number will be determined by applying your percentage
interest, if any, in a particular Sub-Account to the total number of votes
attributable to that Sub-Account. You hold a voting interest in each Sub-Account
to which your Annuity Account Value is allocated. If you select a variable
annuity option, the votes attributable to your Contract will decrease as annuity
payouts are made.
The number of votes of a Portfolio will be determined as of the date established
by that Portfolio for determining shareholders eligible to vote at the meeting
of the Portfolios. Voting instructions will be solicited by written
communication prior to such meeting in accordance with procedures established by
the respective Portfolios.
If we do not receive timely instructions and Owners have no beneficial interest
in shares held by us, we will vote according to the voting instructions as a
proportion of all Contracts participating in the Sub-Account. If you indicate in
your instructions that you do not wish to vote an item, we will apply your
instructions on a pro rata basis to reduce the votes eligible to be cast.
Each person or entity having a voting interest in a Sub-Account will receive
proxy material, reports and other material relating to the appropriate
Portfolio.
Please note, generally the Portfolios are not required to, and do not intend to,
hold annual or other regular meetings of shareholders.
Contract Owners have no voting rights in First GWL&A.
- -------------------------------------------------------------------------------
Rights Reserved by First Great-West
We reserve the right to make certain changes we feel would best serve the
interests of Owners and Annuitants or would be appropriate in carrying out the
purposes of the Contracts. Any changes will be made only to the extent and in
the manner permitted by applicable laws. Also, when required by law, we will
obtain your approval of the changes and approval from any appropriate regulatory
authority. Approval may not be required in all cases, however.
Examples of the changes we may make include:
To operate the Series Account in any form permitted under the Investment Company
Act of 1940 or in any other form permitted by law.
To Transfer any assets in any Sub-Account to another Sub-Account, or to one or
more separate accounts, or to a Guarantee Period; or to add, combine or remove
Sub-Accounts of the Series Account.
To substitute, for the Portfolio shares in any Sub-Account, the shares of
another Portfolio or shares of another investment company or any other
investment permitted by law.
To make any changes required by the Internal Revenue Code or by any other
applicable law in order to continue treatment of the Contract as an annuity.
To change the time or time of day at which a valuation date is deemed to have
ended.
To make any other necessary technical changes in the Contract in order to
conform with any action the above provisions permit us to take, including
changing the way we assess charges, without increasing them for any outstanding
Contract beyond the aggregate amount guaranteed.
- -------------------------------------------------------------------------------
Legal Proceedings
Currently, the Series Account is not a party to, and its assets are not subject
to any material legal proceedings. And, First GWL&A is not currently a party to,
and its property is not currently subject to, any material legal proceedings.
The lawsuits to which First GWL&A 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 First GWL&A.
- --------------------------------------------------------------------------------
Legal Matters
Advice regarding certain legal matters concerning the federal securities laws
applicable to the issue and sale of the Contract has been provided by Jorden
Burt Boros Cicchetti Berenson & Johnson LLP.
- --------------------------------------------------------------------------------
Experts
The consolidated financial statements of First Great-West Life & Annuity
Insurance Company at December 31, 1998 and 1997, and for each of the three years
in the period ended December 31, 1998 included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
- --------------------------------------------------------------------------------
Available Information
We have filed a registration statement ("Registration Statement") with the
Commission under the 1933 Act relating to the Contracts offered by this
Prospectus. This Prospectus has been filed as a part of the Registration
Statement and does not contain all of the information contained in the
Registration Statement and its exhibits. Additionally, statements in this
Prospectus about the content of the Contract and other legal instruments are
summaries. Please refer to the Registration Statement and its exhibits for
further information. You can review the Registration Statement and its exhibits
at the offices of the Commission located at 450 Fifth Street, N.W., Washington,
D.C.
The Statement of Additional Information contains more specific information
relating to the Series Account and First GWL&A, such as: o general information o
information about First Great-West Life & Annuity Insurance Company and the
Variable
Annuity-1 Series Account
o the calculation of annuity payouts
o postponement of payouts
o services
o withholding
o calculation of performance data
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
<PAGE>
Appendix A--Condensed Financial Information
Selected data for accumulation units
Outstanding through each period ending 12/31/98
<TABLE>
<S> <C> <C>
Sub-Account 1998 1997
Alger American Growth
Value at beginning of period $10.00
Value at end of period $11.37
Number of accumulation units outstanding at end 31,803.04
of period
American Century VP International
Value at beginning of period $10.00
Value at end of period $10.40
Number of accumulation units outstanding at end 4,712.98
of period
Berger Small Company Growth
Value at beginning of period
Value at end of period
Number of accumulation units outstanding at end
of period
Federated American Leaders Fund II
Value at beginning of period $10.00
Value at end of period $11.66
Number of accumulation units outstanding at end 67,881.72
of period
Federated Utility Fund II
Value at beginning of period $10.00
Value at end of period $12.05
Number of accumulation units outstanding at end 309.83
of period
Federated Fund for U.S. Government Securities II
Value at beginning of period $10.00
Value at end of period $10.64
Number of accumulation units outstanding at end 32,658.92
of period
INVESCO VIF - High Yield
Value at beginning of period $10.00
Value at end of period $11.11
Number of accumulation units outstanding at end 58,930.91
of period
INVESCO VIF - Industrial Income
Value at beginning of period $10.00
Value at end of period $11.68
Number of accumulation units outstanding at end 66,563.10
of period
Janus Aspen Growth
Value at beginning of period $10.00
Value at end of period $11.22
Number of accumulation units outstanding at end 42,289.81
of period
Janus Aspen Worldwide Growth
Value at beginning of period $10.00
Value at end of period $10.73
Number of accumulation units outstanding at end 87,156.01
of period
Montgomery Variable Series Growth Fund
Value at beginning of period $10.00
Value at end of period $8.80
Number of accumulation units outstanding at end 257.15
of period
SAFECO RST Equity
Value at beginning of period $10.00
Value at end of period $11.19
Number of accumulation units outstanding at end 33,470.59
of period
Schwab MarketTrack Growth
Value at beginning of period $10.00
Value at end of period $11.42
Number of accumulation units outstanding at end 17,849.53
of period
Schwab Money Market
Value at beginning of period $10.00
Value at end of period $10.27
Number of accumulation units outstanding at end 168,197.49
of period
Schwab S&P 500
Value at beginning of period $10.00
Value at end of period $11.58
Number of accumulation units outstanding at end 73,884.33
of period
Van Kampen American Capital LIT-Morgan Stanley
Real Estate Securities Portfolio
Value at beginning of period $10.00
Value at end of period $10.56
Number of accumulation units outstanding at end 273.65
of period
Condensedfinancial information for formerly offered Sub-Accounts
Outstanding through each period ending 12/31/98
Sub-Account 1998 1997
Alger American Small-Cap
Value at beginning of period $10.00
Value at end of period $11.94
Number of accumulation units outstanding at end 8,711.21
of period
American Century VP Capital Appreciation
Value at beginning of period $10.00
Value at end of period $10.70
Number of accumulation units outstanding at end 0.00
of period
<PAGE>
INVESCO VIF - Total Return
Value at beginning of period $10.00
Value at end of period $11.19
Number of accumulation units outstanding at end 14,507.11
of period
<PAGE>
Janus Aspen Aggressive Growth
Value at beginning of period $10.00
Value at end of period $12.10
Number of accumulation units outstanding at end 9,781.52
of period
Lexington Emerging Markets
Value at beginning of period $10.00
Value at end of period $8.06
Number of accumulation units outstanding at end 4,677.90
of period
SteinRoe Special Venture
Value at beginning of period $10.00
Value at end of period $11.07
Number of accumulation units outstanding at end 27,112.37
of period
Strong Discovery Fund II
Value at beginning of period $10.00
Value at end of period $11.31
Number of accumulation units outstanding at end 24,541.58
of period
Van Eck Worldwide Hard Assets
Value at beginning of period $10.00
Value at end of period $9.94
Number of accumulation units outstanding at end 1,195.62
of period
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
- ------------------------------------------------------------------------------
Appendix B--Market Value Adjustments
The amount available for a full surrender, partial withdrawal or Transfer equals
the amount requested plus the Market Value Adjustment (MVA). The MVA is
calculated by multiplying the amount requested by the Market Value Adjustment
Factor (MVAF).
The MVA formula
The MVA is determined using the following formula:
MVA = (amount applied) X (Market Value Adjustment Factor) The Market Value
Adjustment Factor is:
{[(1 + i)/(1 + j +.10%)] N/12} - 1
Where:
i is the U.S. Treasury Strip ask side yield as published in the Wall Street
Journal on the last business day of the week prior to the date the stated rate
of interest was established for the Guarantee Period. The term of i is measured
in years and equals the term of the Guarantee Period
j is the U.S. Treasury Strip ask side yield as published in the Wall Street
Journal on the last business day of the week prior to the week the Guarantee
Period is broken. The term of j equals the remaining term to maturity of the
Guarantee Period, rounded up to the higher number of years
N is the number of complete months remaining until maturity
The MVA will equal 0 if:
if i and j differ by less than .10%
N is less than 6.
Examples
Following are four examples of Market Value Adjustments illustrating (1)
increasing interest rates, (2) decreasing interest rates, (3) flat interest
rates (i and j are within .10% of each other), and (4) less than 6 months to
maturity.
Example 1--Increasing Interest Rates
- -------------------- -------------------------------
Deposit $25,000 on November 1, 1996
- -------------------- -------------------------------
- -------------------- -------------------------------
Maturity date December 31, 2006
- -------------------- -------------------------------
- -------------------- -------------------------------
Interest Guarantee 10 years
Period
- -------------------- -------------------------------
- -------------------- -------------------------------
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 + .10%)]N/12} - 1 = {[1.0615/1.071]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)
= ($10,000 + - $422.82)
= $9,577.18
Example 2--Decreasing Interest Rates
- --------------------- ------------------------------
Deposit $25,000 on November 1, 1996
- --------------------- ------------------------------
- --------------------- ------------------------------
Maturity date December 31, 2006
- --------------------- ------------------------------
- --------------------- ------------------------------
Interest Guarantee 10 years
Period
- --------------------- ------------------------------
- --------------------- ------------------------------
i assumed to be 6.15%
- --------------------- ------------------------------
- --------------------- ------------------------------
Surrender date July 1, 2000
- --------------------- ------------------------------
- --------------------- ------------------------------
j 5.00%
- --------------------- ------------------------------
- --------------------- ------------------------------
Amount surrendered $10,000
- --------------------- ------------------------------
- --------------------- ------------------------------
N 65
- --------------------- ------------------------------
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1 = {[1.0615/1.051]65/12} - 1 =
.055323
MVA = (amount transferred or surrendered) x MVAF
= $10,000 x .0055323
= $553.23
Surrender Value = (amount transferred or surrendered + MVA)
= ($10,000 + $553.23)
= $10,553.23
Example 3--Flat Interest Rates (i and j are within .10% of each other)
- --------------------- ------------------------------
Deposit $25,000 on November 1, 1996
- --------------------- ------------------------------
- --------------------- ------------------------------
Maturity date December 31, 2006
- --------------------- ------------------------------
- --------------------- ------------------------------
Interest Guarantee 10 years
Period
- --------------------- ------------------------------
- --------------------- ------------------------------
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 + .10%)]N/12} - 1 = {[1.0615/1.0624]65/12} - 1 =
.995420 - 1 = -.004580
However, [i-j] less than .10%, so MVAF = 0
MVA = (amount transferred or surrendered) x MVAF
= $10,000 x -.004589
= -$45.80
Surrender Value = (amount transferred or surrendered + MVA)
= ($10,000 -$45.80) x (1-0)
= $9,954.20
Example 4--N equals less than 6 months to maturity
- --------------------- ------------------------------
Deposit $25,000 on November 1, 1996
- --------------------- ------------------------------
- --------------------- ------------------------------
Maturity date December 31, 2006
- --------------------- ------------------------------
- --------------------- ------------------------------
Interest Guarantee 10 years
Period
- --------------------- ------------------------------
- --------------------- ------------------------------
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 + .10%)]N/12} - 1 = {[1.0615/1.071]5/12} - 1 = .99629
- 1 = -.00371
However, N less than 6, so MVAF = 0
MVA = (amount transferred or surrendered) x MVAF
= $10,000 x 0
= $0
Surrender Value = (amount transferred or surrendered + MVA)
= ($10,000 + $0)
= $10,000
<PAGE>
- --------------------------------------------------------------------------------
<PAGE>
Appendix C--Net Investment Factor
The Net Investment Factor is determined by dividing (a) by (b), and subtracting
(c) from the result where:
(a) is the net result of:
1) the net asset value per share of the Portfolio shares determined as of the
end of the current Valuation Period, plus
2) the per share amount of any dividend (or, if applicable, capital gain
distributions) made by the Portfolio on shares if the "ex-dividend" date
occurs during the current Valuation Period, minus or plus
3) a per unit charge or credit for any taxes incurred by or provided for in
the Sub-Account, which is determined by GWL&A to have resulted from the
investment operations of the Sub-Account, and
(b) is the net asset value per share of the Portfolio shares determined as of
the end of the immediately preceding Valuation Period, and
(c) is an amount representing the Risk Charge deducted from each Sub-Account on
a daily basis. Such amount is equal to 0.85%.
The Net Investment Factor may be greater than, less than, or equal to one.
Therefore, the Accumulation Unit Value may increase, decrease or remain
unchanged.
The net asset value per share referred to in paragraphs (a)(1) and (b) above,
reflect the investment performance of the Portfolio as well as the payment of
Portfolio expenses.
- --------------------------------------------------------------------------
<PAGE>
Consolidated Financial Statements and Independent Auditors' Report
On the following pages, you'll find the consolidated financial statements and
the independent auditors' report for First Great-West Life & Annuity Insurance
Company for the years ending December 1998 and 1997.
- -------------------------------------------------------------------------------
<PAGE>
First Great-West Life & Annuity Insurance Company
(A wholly-owned subsidiary of
Great-West Life & Annuity Insurance Company)
Financial Statements for the Year Ended December 31, 1998
and the Period from April 4, 1997 (Inception) to December
31, 1997 and Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of First Great-West Life & Annuity
Insurance Company:
We have audited the accompanying balance sheets of First Great-West Life &
Annuity Insurance Company (a wholly-owned subsidiary of Great-West Life &
Annuity Insurance Company) as of December 31, 1998 and 1997, and the related
statements of income, stockholder's equity, and cash flows for the year ended
December 31, 1998 and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of First Great-West Life & Annuity Insurance
Company as of December 31, 1998 and 1997, and the results of its operations and
its cash flows for the year ended December 31, 1998 and the period from April 4,
1997 [inception] to December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
January 25, 1999
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
[Dollars in thousands except for share information]
<TABLE>
<S> <C> <C>
ASSETS 1998 1997
- ------
----------------- ----------------
INVESTMENTS:
Fixed maturities:
Held-to-maturity, at amortized cost
(fair value $15,044) $ 14,500 $
Available-for-sale, at fair value
(amortized cost $63,321 and $4,987) 65,154 4,995
Short-term investments, available-for-sale (cost
approximates fair value) 699 386
----------------- ----------------
Total Investments 80,353 5,381
Cash 705 1,648
Reinsurance receivable 123
Deferred acquisition costs 381
Investment income due and accrued 695 24
Other assets 19 6
Deferred income taxes 983 50
Separate account assets 23,836 9,045
----------------- ----------------
TOTAL ASSETS $ 107,095 $ 16,154
================= ================
LIABILITIES AND STOCKHOLDER'S EQUITY
POLICY BENEFIT LIABILITIES:
Policy reserves $ 64,320 $ 84
Policy and contract claims 125
GENERAL LIABILTIES:
Due to Parent Corporation 2,077 155
Other liabilities 95 332
Separate account liabilities 23,836 9,045
----------------- ----------------
Total Liabilities 90,453 9,616
----------------- ----------------
STOCKHOLDER'S EQUITY:
Common stock, $1,000 par value, 10,000 shares
authorized, 2,500 shares issued, and outstanding 2,500 2,500
Additional paid-in capital 12,600 4,000
Accumulated other comprehensive income 717 5
Retained earnings 825 33
----------------- ----------------
Total Stockholder's Equity 16,642 6,538
----------------- ----------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 107,095 $ 16,154
================= ================
</TABLE>
See notes to financial statements.
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE PERIOD FROM APRIL 4, 1997 [INCEPTION] TO DECEMBER 31, 1997
[Dollars in thousands]
<TABLE>
<S> <C> <C>
1998 1997
------------------ -----------------
REVENUES:
Premiums and fee income $ 78 $ 21
Net investment income 3,367 243
Net realized gains on investments 74
------------------ -----------------
3,519 264
------------------ -----------------
BENEFITS AND EXPENSES:
Life and other policy benefits 50
Interest paid or credited to contractholders 1,687
General and administrative expenses 387 213
------------------ -----------------
2,124 213
------------------ -----------------
INCOME BEFORE INCOME TAXES 1,395 51
PROVISION FOR INCOME TAXES:
Current 1,920 71
Deferred (1,317) (53)
------------------ -----------------
603 18
------------------ -----------------
NET INCOME $ 792 $ 33
================== =================
</TABLE>
See notes to financial statements.
<PAGE>
17
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE PERIOD FROM APRIL 4, 1997 [INCEPTION] TO DECEMBER 31, 1997 [Dollars in
thousands except for share information]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Additional Other
Paid-in Comprehensive Retained
Shares Amount Capital Income Earnings Total
------------- ------------- ------------- ---------------- ------------- -------------
Capital contribution 2,500 $ 2,500 $ 4,000 $ 6,500
Net income $ 33 33
Other comprehensive income $ 5 5
-------------
Comprehensive income 38
------------- ------------- ------------- ---------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 2,500 2,500 4,000 5 33 6,538
Net income 792 792
Other comprehensive income 712 712
-------------
Comprehensive income 1,504
-------------
Capital contribution 8,600 8,600
------------- ------------- ------------- ---------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 2,500 $ 2,500 $ 12,600 $ 717 $ 825 $ 16,642
============= ============= ============= ================ ============= =============
</TABLE>
See notes to financial statements.
<PAGE>
38
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE PERIOD FROM APRIL 4, 1997 [INCEPTION] TO DECEMBER 31, 1997
[Dollars in thousands]
<TABLE>
<S> <C> <C>
1998 1997
------------------ -----------------
OPERATING ACTIVITIES:
Net income $ 792 $ 33
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization of investments 12 (19)
Realized gains on sale of investments (74)
Deferred income taxes (1,317) (53)
Changes in assets and liabilities:
Investment income due and accrued (671) (24)
Policy benefit liabilities 1,859
Reinsurance receivable (123)
Other, net (1,361) 326
------------------ -----------------
Net cash (used in) provided by operating activities (883) 263
------------------ -----------------
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and redemptions of investments:
Fixed maturities:
Available-for-sale 73,340
Purchases of investments:
Fixed maturities:
Held-to-maturity (14,500)
Available-for-sale (131,924) (5,354)
------------------ -----------------
Net cash used in investing activities (73,084) (5,354)
------------------ -----------------
FINANCING ACTIVITIES:
Contract deposits, net of withdrawals 62,502 84
Due to Parent Corporation 1,922 155
Capital contributions 8,600 6,500
------------------ -----------------
Net cash provided by financing activities 73,024 6,739
------------------ -----------------
NET (DECREASE) INCREASE IN CASH (943) 1,648
CASH, BEGINNING OF PERIOD 1,648 0
------------------ -----------------
CASH, END OF PERIOD $ 705 $ 1,648
================== =================
</TABLE>
See notes to financial statements.
<PAGE>
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE PERIOD FROM APRIL 4, 1997 [INCEPTION] TO DECEMBER 31, 1997 [Dollars in
thousands except for share information]
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. The Company operates
in one business segment.
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 POLICIES
Cash - Cash includes only amounts in demand deposit accounts.
Investments - Management determines the classification of fixed
maturities at the time of purchase. Fixed maturities are classified as
held-to-maturity when the Company has the positive intent and ability to
hold the securities to maturity. Held-to-maturity securities are stated
at amortized cost unless fair value is less than cost and the decline is
deemed to be other than temporary, in which case they are written down
to fair value and a new cost basis is established.
Fixed maturities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are carried at fair
value, with the net unrealized gains and losses reported as accumulated
other comprehensive income in stockholder's equity.
The amortized cost of fixed maturities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and
accretion of discounts using the effective interest method over the
estimated life of the related bonds. Such amortization is included in
net investment income. Realized gains and losses, and declines in value
judged to be other-than-temporary are included in net realized gains
(losses) on investments.
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.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting
for Derivative Instruments and for Hedging Activities". This Statement
provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. This Statement is
effective for the Company beginning January 1, 2000, and earlier
adoption is encouraged. The Company has not adopted this Statement as of
December 31, 1998. Management has not determined the impact of the
Statement on the financial statements.
Deferred Policy Acquisition Costs - Policy acquisition costs, which
consist of sales commissions related to the production of new and
renewal business, have been deferred to the extent recoverable. Deferred
costs associated with the annuity products are being amortized over the
life of the contracts in proportion to the emergence of gross profits.
Retrospective adjustments of these amounts are made when the Company
revises its estimates of current or future gross profits. Deferred costs
associated with traditional life insurance are amortized over the
premium paying period of the related policies in proportion to premium
revenues recognized. Amortization of deferred policy acquisition costs
was immaterial to the financial statements in 1998.
Separate Accounts - Separate account assets and related liabilities are
carried at fair value. The Company's separate accounts invest in shares
of various external mutual funds. Investment income and realized capital
gains and losses of the separate accounts accrue directly to the
contractholders and, therefore, are not included in the Company's
statements of income. Revenues to the Company from the separate accounts
consist of contract maintenance fees, administration fees, and mortality
and expense risk charges.
Due to Parent Corporation - Due to Parent Corporation includes amounts
due on demand.
Policy Reserves - Life insurance reserves of $64,228 at December 31,
1998 are computed on the basis of estimated mortality, investment yield,
withdrawals, future maintenance and settlement expenses, and
retrospective experience rating premium refunds. Annuity contract
reserves without life contingencies of $92 and $84 are carried at
contractholders' account value at December 31, 1998 and 1997,
respectively. The carrying value of policy reserves is a reasonable
estimate of fair value.
Reinsurance - Policy reserves ceded to other insurance companies are
carried as a reinsurance receivable on the balance sheet. The cost of
reinsurance related to long-duration contracts is accounted for over the
life of the underlying reinsured policies using assumptions consistent
with those used to account for the underlying policies.
Policy and Contract Claims - Policy and contract claims include
provisions for reported claims in process of settlement, valued in
accordance with the terms of the related policies and contracts, as well
as provisions for claims incurred and unreported based primarily on
prior experience of the Company.
Recognition of Premium Income and Expenses - Life insurance premiums are
recognized when due. 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. Fee income is derived primarily from assets
under management, consisting of contract maintenance fees,
administration fees and mortality and expense risk charges, and is
recognized when due. Benefits and expenses on policies with life
contingencies impact premium income by means of the provision for future
policy benefit reserves, resulting in recognition of profits over the
life of the contracts.
During 1998, the Company sold life insurance policies to two customers
and collected deposits of $50,000 and $12,500, respectively, which are
included as a component of policy reserves on the balance sheet. These
two customers accounted for 49% and 12%, respectively, of the Company's
net income during 1998.
Regulatory Requirements - In accordance with the requirements of the
State of New York, the Company must demonstrate adequate capital. At
December 31, 1998, the Company was in compliance with the requirement.
The Company is also required to maintain an investment deposit in the
amount of $5,000 in cash or investment certificates with the New York
Insurance Commissioner for the protection of policyholders in the event
the Company is unable to satisfactorily meet its contractual
obligations. A United States Treasury obligation, whose cost
approximates market value, was designated to meet this requirement at
December 31, 1998.
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.
The amounts recorded are based upon management's best estimate of actual
costs incurred and resources expended based upon number of policies
and/or certificates in force. These transactions are summarized as
follows:
Years Ended
December 31,
------------------------
1998 1997
----------- -----------
Investment management expense
(included in net investment income) 47 4
Administrative and underwriting revenue
(included in operating expenses) (48) (15)
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. REINSURANCE
In the normal course of business, the Company seeks to limit its
exposure to loss on any single insured and to recover a portion of
benefits paid by ceding risks to other insurance enterprises under
excess coverage and co-insurance contracts. The Company retains 100% of
the first $50 of coverage per individual life and has a maximum
retention of $250 per individual life. Life insurance policies are first
reinsured to the Parent Corporation up to a maximum of $1,250 of
coverage per individual life.
Any excess amount is reinsured to a third party.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could
result in losses to the Company; consequently, allowances are
established for amounts deemed uncollectible. The Company evaluates the
financial condition of its reinsurers and monitors concentrations of
credit risk arising from similar geographic regions, activities, or
economic characteristics of the reinsurers to minimize its exposure to
significant losses from reinsurer insolvencies. At December 31, 1998 and
1997, the reinsurance receivable had a carrying value of $123 and $0,
respectively.
Total reinsurance premiums ceded to the Parent Corporation in 1998 and
1997 were $61 and $0, respectively.
<PAGE>
5. SUMMARY OF INVESTMENTS
Fixed maturities owned at December 31, 1998 are summarized as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
---------- ----------- ------------ ---------- ----------
Held-to-Maturity:
Corporate bonds $ 14,500 $ 544 $ $ 15,044 $ 14,500
---------- ----------- ------------ ---------- ----------
$ 14,500 $ 544 $ $ 15,044 $ 14,500
========== =========== ============ ========== ==========
Available-for-Sale:
U.S. Treasury
Securities and
obligations of U.S.
Government Agencies:
Collateralized
mortgage
obligations $ 17,963 $ 1,063 $ $ 19,026 $ 19,026
Other 4,999 59 5,058 5,058
Collateralized
mortgage
obligations 19,956 331 20,287 20,287
Corporate bonds 20,403 380 20,783 20,783
---------- ----------- ------------ ---------- ----------
$ 63,321 $ 1,833 $ $ 65,154 $ 65,154
========== =========== ============ ========== ==========
Fixed maturities owned at December 31, 1997 are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
----------- ----------- ------------ ----------- -----------
Available-for-Sale:
U.S. Treasury
Securities and
obligations of U.S.
Government Agencies $ 4,987 $ 8 $ $ 4,995 $ 4,995
----------- ----------- ------------ ----------- -----------
$ 4,987 $ 8 $ $ 4,995 $ 4,995
=========== =========== ============ =========== ===========
</TABLE>
The collateralized mortgage obligations consist primarily of sequential
and planned amortization classes with final stated maturities of two to
thirty years and average lives of less than one to fifteen years.
Prepayments on all mortgage-backed securities are monitored monthly and
amortization of the premium and/or the accretion of the discount
associated with the purchase of such securities is adjusted by such
prepayments.
See Note 6 for additional information on policies regarding estimated
fair value of fixed maturities.
The amortized cost and estimated fair value of fixed maturity
investments at December 31, 1998, by projected maturity, are shown
below. Actual maturities will likely differ from these projections
because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Held-to-Maturity Available-for-Sale
------------------------ ------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
----------- ----------- ----------- -----------
Due in one year or less $ 217 $ 226 $ $
Due after one year through five 1,510 1,573 4,999 5,058
years
Due after five years through ten 8,509 8,805 10,007 10,264
years
Due after ten years 4,264 4,440
Mortgage-backed securities 37,919 39,314
Asset-backed securities 10,396 10,518
=========== =========== =========== ===========
$ 14,500 $ 15,044 $ 63,321 $ 65,154
=========== =========== =========== ===========
</TABLE>
Proceeds from sales of securities available-for-sale were $73,340 and $0
during 1998, and 1997, respectively. The realized gains on such sales
totaled $201 and $0 for 1998 and 1997, respectively. The realized losses
totaled $127 and $0 for 1998 and 1997, respectively. During 1998, no
held-to-maturity securities were sold.
6. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<S> <C>
December 31,
-------------------------------------------------
1998 1997
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
ASSETS:
Fixed maturities and short-term
investments $ 80,353 $ 80,897 $ 5,381 $ 5,381
LIABILITIES:
Annuity contract reserves without
life contingencies 92 92 84 84
Due to Parent Corporation 2,077 2,077 155 155
</TABLE>
The estimated fair value of financial instruments have been determined
using available information and appropriate valuation methodologies.
However, considerable judgement is necessarily required to interpret
market data to develop estimates of fair value. Accordingly, the
estimates presented are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
The estimated fair value of fixed maturities that are publicly traded
are obtained from an independent pricing service. To determine fair
value for fixed maturities not actively traded, the Company utilized
discounted cash flows calculated at current market rates on investments
of similar quality and term.
The fair value of annuity contract reserves without life contingencies
are estimated by discounting the cash flows to maturity of the
contracts, utilizing current credited rates for similar products.
The estimated fair value of due to Parent Corporation is based on
discounted cash flows at current market spread rates on high quality
investments.
7. FEDERAL INCOME TAXES
Income taxes are recorded using and 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.
The following is a reconciliation between the federal income tax rate
and the Company's effective rate:
1998 1997
---------------- --------------
Federal tax rate 35.0 % 35.0 %
Change in tax rate resulting from:
State taxes 6.8 %
Prior year tax adjustment 1.4 %
================ ==============
Total 43.2 % 35.0 %
================ ==============
Temporary differences, which give rise to the deferred tax assets and
liabilities as of December 31, 1998 and 1997, are as follows:
<TABLE>
<S> <C> <C>
1998 1997
---------------------------- ----------------------------
Deferred Deferred
Deferred Tax Deferred Tax
Tax Asset Liability Tax Asset Liability
------------- ------------- ------------- -------------
Policy reserves $ $ 175 $ $
Deferred policy
acquisition costs 134
Deferred acquisition
cost proxy tax 1,720 53
Investment assets 642 3
State taxes 214
------------- ------------- ------------- -------------
Total deferred taxes $ 1,934 $ 951 $ 53 $ 3
============= ============= ============= =============
</TABLE>
Amounts related to investment assets above include $642 and $3 related
to the unrealized gains on the Company's fixed maturities
available-for-sale at December 31, 1998 and 1997, respectively. Although
realization is not assured, management believes that it is more likely
than not that all of the deferred tax asset will be realized.
The Company and the Parent Corporation have entered into an income tax
allocation agreement whereby the Parent Corporation 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 1998, the Company
will not file on a consolidated basis with the Parent Corporation.
8. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income".
This Statement establishes new rules for reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net income or stockholder's
equity. This Statement requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to adoption were
reported separately in stockholder's equity, to be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130.
<PAGE>
Other comprehensive income at December 31, 1998 is summarized as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
-------------- --------------- --------------
Unrealized gains on securities:
Unrealized holding gains
arising during the period $ 1,826 $ (639) $ 1,187
-------------- --------------- --------------
Net unrealized gains 1,826 (639) 1,187
Reserve and DAC adjustment (730) 255 (475)
-------------- --------------- --------------
Other comprehensive income $ 1,096 $ (384) $ 712
============== =============== ==============
</TABLE>
Other comprehensive income at December 31, 1997 is summarized as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
-------------- --------------- --------------
Unrealized gains on securities:
Unrealized holding gains
arising during the period $ 8 $ (3) $ 5
-------------- --------------- --------------
Net unrealized gains 8 (3) 5
-------------- --------------- --------------
Other comprehensive income $ 8 $ (3) $ 5
============== =============== ==============
</TABLE>
9. DIVIDEND RESTRICTIONS
The Company's net income and capital and surplus, as determined in
accordance with statutory accounting principles and practices for
December 31 are as follows (unaudited):
Unaudited
1998 1997
------------ ------------
Net loss $ (2,182) $ (19)
Capital and surplus 12,808 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 $1,281 in
1999. The Company paid no dividends in 1998 and 1997. Dividends are paid as
determined by the Board of Directors.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in the Company's independent accountants or resulting
disagreements on accounting and financial disclosure.
Back Cover
The Securities and Exchange Commission maintains an Internet web site
(http://www.sec.gov) that contains additional information about First Great-West
Life & Annuity Insurance Company, the Contract and the Series Account which may
be of interest to you. The web site also contains additional information about
the Portfolios.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of the issuance and distribution of the
Contracts, other than commissions on sales of the Contracts are as follows:
Securities and Exchange Commission fee $ 303.03
---------
Accounting fees and expenses $ 5,000.00
---------
Legal fees and expenses $ 20,000.00
---------
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Provisions exist under the laws of the state of New York and the
Bylaws of First GWL&A whereby First GWL&A may indemnify a director, officer, or
controlling person of First GWL&A against liabilities arising under the
Securities Act of 1933. The following excerpts contain the substance of these
provisions:
New York Corporate Code
Section 721. Nonexclusivity of statutory provisions for indemnification of
directors and officers.
The indemnification and advancement of expenses granted pursuant to, or provided
by, this article shall not be deemed exclusive of any other rights to which a
director or officer seeking indemnification or advancement of expenses may be
entitled, whether contained in the certificate of incorporation or the by-laws
or, when authorized by such certificate of incorporation or by-laws, (i) a
resolution of shareholders, (ii) a resolution of directors, or (iii) an
agreement providing for such indemnification, provided that no indemnification
may be made to or on behalf of any director or officer if a judgment or other
final adjudication adverse to the director or officer establishes that his acts
were committed in bad faith or were the result of active and deliberate
dishonesty and were material to the cause of action so adjudicated, or that he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled. Nothing contained in this article shall affect any rights
to indemnification to which corporate personnel other than directors and
officers may be entitled by contract or otherwise under law.
Section 722. Authorization for indemnification of directors and officers.
(a) A corporation may indemnify any person made, or threatened to be made, a
party to an action or proceeding ( other than one by or in the right of the
corporation to procure a judgment in its favor), whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
(b) The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such director or
officer did not act, in good faith, for a purpose which he reasonably believed
to be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation or that he had reasonable
cause to believe that his conduct was unlawful.
(c) A corporation may indemnify any person made, or threatened to be made, a
party to an action by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he, his testator or intestate, is or was
a director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of any other corporation of any type or
kind, domestic or foreign, of any partnership, joint venture, trust, employee
benefit plan or other enterprise, against amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him in connection with the defense or settlement of such action, or
in connection with an appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation, except that no indemnification under this paragraph shall be
made in respect of (1) a threatened action, or a pending action which is settled
or otherwise disposed of, or (2) any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation, unless and only
to the extent that the court in which the action was brought, or, if no action
was brought, any court of competent jurisdiction, determines upon application
that, in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as the court deems proper.
(d) For the purpose of this section, a corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to applicable law shall be considered fines; and
action taken or omitted by a person with respect to an employee benefit plan in
the performance of such person's duties for a purpose reasonably believed by
such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interests of the corporation.
Section 723. Payment of indemnification other than by court award.
(a) A person who has been successful, on the merits or otherwise, in the defense
of a civil or criminal action or proceeding of the character described in
section 722 shall be entitled to indemnification as authorized in such section.
(b) Except as provided in paragraph (a), any indemnification under section 722
or otherwise permitted by section 721, unless ordered by a court under section
724 (Indemnification of directors and officers by a court), shall be made by the
corporation, only if authorized in the specific case:
(1) By the board acting by a quorum consisting of directors who are not parties
to such action or proceeding upon a finding that the director or officer has met
the standard of conduct set forth in section 722 or established pursuant to
section 721, as the case may be, or,
(2) If a quorum under subparagraph (1) is not obtainable or, even if obtainable,
a quorum of disinterested directors so directs; (A) By the board upon the
opinion in writing of independent legal counsel that indemnification is proper
in the circumstances because the applicable standard of conduct set forth in
such sections has been met by such director or officer, or (B) By the
shareholders upon a finding that the director or officer has met the applicable
standard of conduct set forth in such sections.
(c) Expenses incurred in defending a civil or criminal action or proceeding may
be paid by the corporation in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount as, and to the extent, required by paragraph (a) of
section 725.
Section 724. Indemnification of directors and officers by a court.
(a) Notwithstanding the failure of a corporation to provide indemnification, and
despite any contrary resolution of the board or of the shareholders in the
specific case under section 723 (Payment of indemnification other than by court
award), indemnification shall be awarded by a court to the extent authorized
under section 722 (Authorization for indemnification of directors and officers),
and paragraph (a) of section 723. Application therefor may be made, in every
case, either:
(1) In the civil action or proceeding in which the expenses were incurred or
other amounts were paid, or
(2) To the supreme court in a separate proceeding, in which case the application
shall set forth the disposition of any previous application made to any court
for the same or similar relief and also reasonable cause for the failure to make
application for such relief in the action or proceeding in which the expenses
were incurred or other amounts were paid.
(b) The application shall be made in such manner and form as may be required by
the applicable rules of court or, in the absence thereof, by direction of a
court to which it is made. Such application shall be upon notice to the
corporation. The court may also direct that notice be given at the expense of
the corporation to the shareholders and such other persons as it may designate
in such manner as it may require.
(c) Where indemnification is sought by judicial action, the court may allow a
person such reasonable expenses, including attorneys' fees, during the pendency
of the litigation as are necessary in connection with his defense therein, if
the court shall find that the defendant has by his pleadings or during the
course of the litigation raised genuine issues of fact or law.
Section 725. Other provisions affecting indemnification of directors and
officers.
(a) All expenses incurred in defending a civil or criminal action or proceeding
which are advanced by the corporation under paragraph (c) of section 723
(Payment of indemnification other than by court award) or allowed by a court
under paragraph (c) of section 724 (Indemnification of directors and officers by
a court) shall be repaid in case the person receiving such advancement or
allowance is ultimately found, under the procedure set forth in this article,
not to be entitled to indemnification or, where indemnification is granted, to
the extent the expenses so advanced by the corporation or allowed by the court
exceed the indemnification to which he is entitled.
(b) No indemnification, advancement or allowance shall be made under this
article in any circumstance where it appears:
(1) That the indemnification would be inconsistent with the law of the
jurisdiction of incorporation of a foreign corporation which prohibits or
otherwise limits such indemnification;
(2) That the indemnification would be inconsistent with a provision of the
certificate of incorporation, a by-law, a resolution of the board or of the
shareholders, an agreement or other proper corporate action, in effect at the
time of the accrual of the alleged cause of action asserted in the threatened or
pending action or proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(3) If there has been a settlement approved by the court, that the
indemnification would be inconsistent with any condition with respect to
indemnification expressly imposed by the court in approving the settlement.
(c) If any expenses or other amounts are paid by way of indemnification,
otherwise than by court order or action by the shareholders, the corporation
shall, not later than the next annual meeting of shareholders unless such
meeting is held within three months from the date of such payment, and, in any
event, within fifteen months from the date of such payment, mail to its
shareholders of record at the time entitled to vote for the election of
directors a statement specifying the persons paid, the amounts paid, and the
nature and status at the time of such payment of the litigation or threatened
litigation.
(d) If any action with respect to indemnification of directors and officers is
taken by way of amendment of the by-laws, resolution of directors, or by
agreement, then the corporation shall, not later than the next annual meeting of
shareholders, unless such meeting is held within three months from the date of
such action, and, in any event, within fifteen months from the date of such
action, mail to its shareholders of record at the time entitled to vote for the
election of directors a statement specifying the action taken.
(e) Any notification required to be made pursuant to the foregoing paragraph (c)
or (d) of this section by any domestic mutual insurer shall be satisfied by
compliance with the corresponding provisions of section one thousand two hundred
sixteen of the insurance law.
(f) The provisions of this article relating to indemnification of directors and
officers and insurance therefor shall apply to domestic corporations and foreign
corporations doing business in this state, except as provided in section 1320
(Exemption from certain provisions).
Section 726. Insurance for indemnification of directors and officers.
(a) Subject to paragraph (b), a corporation shall have power to purchase and
maintain insurance:
(1) To indemnify the corporation for any obligation which it incurs as a result
of the indemnification of directors and officers under the provisions of this
article, and
(2) To indemnify directors and officers in instances in which they may be
indemnified by the corporation under the provisions of this article, and
(3) To indemnify directors and officers in instances in which they may not
otherwise be indemnified by the corporation under the provisions of this article
provided the contract of insurance covering such directors and officers
provides, in a manner acceptable to the superintendent of insurance, for a
retention amount and for co-insurance.
(b) No insurance under paragraph (a) may provide for any payment, other than
cost of defense, to or on behalf of any director or officer:
(1) if a judgment or other final adjudication adverse to the insured director or
officer establishes that his acts of active and deliberate dishonesty were
material to the cause of action so adjudicated, or that he personally gained in
fact a financial profit or other advantage to which he was not legally entitled,
or
(2) in relation to any risk the insurance of which is prohibited under the
insurance law of this state.
(c) Insurance under any or all subparagraphs of paragraph (a) may be included in
a single contract or supplement thereto. Retrospective rated contracts are
prohibited.
(d) The corporation shall, within the time and to the persons provided in
paragraph (c) of section 725 (Other provisions affecting indemnification of
directors or officers), mail a statement in respect of any insurance it has
purchased or renewed under this section, specifying the insurance carrier, date
of the contract, cost of the insurance, corporate positions insured, and a
statement explaining all sums, not previously reported in a statement to
shareholders, paid under any indemnification insurance contract.
(e) This section is the public policy of this state to spread the risk of
corporate management, notwithstanding any other general or special law of this
state or of any other jurisdiction including the federal government.
Bylaws of First GWL&A
Article II, Section 11. Indemnification of Directors.
The corporation may, by resolution of the Board of Directors, indemnify and save
harmless out of the funds of the Company to the extent permitted by applicable
law, any Director, Officer, or employee of the corporation or any member or
officer of any Committee, and his or her heirs, executors and administrators,
from and against all claims, liabilities, costs, charges, and expenses
whatsoever that any such Director, Officer, employee or any such member or
officer sustains or incurs in or about any action, suit, or proceeding that is
brought, commenced, or prosecuted against him or her for or in respect of any
act, deed, matter or thing whatsoever made, done, or permitted by him or her in
or about the execution of the duties of his or her office or employment with the
corporation, or in or about the execution of his or her duties as a Director or
Officer of another company which he or she so serves at the request and on
behalf of the corporation, or in or about the execution of his or her duties as
a member or officer of any such Committee, and all other claims, liabilities,
costs, charges and expenses that he or she sustains or incurs, in or about or in
relation to any such duties or the affairs of the corporation, the affairs of
such other company which he or she so serves or the affairs of such Committee,
except such claims, liabilities, costs, charges or expenses as are occasioned by
acts of omissions which were in bad faith, involved intentional misconduct, a
violation of the New York Insurance Law or a knowing violation of any other law
or which resulted in such person gaining in fact a financial profit or other
advantage to which he or she was not entitled. The corporation may, by
resolution of the Board of Directors, indemnify and save harmless out of the
funds of the corporation to the extent permitted by applicable law, any
Director, Officer, or employee of any subsidiary corporation of the corporation
on the same basis, and within the same constraints as, described in the
preceding sentence. No payment of indemnification shall be made unless notice
has been filed with the Superintendent of Insurance pursuant to Section 1216 of
the New York Insurance Law.
Item 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Form of Principal Underwriter and Distribution Agreement is incorporated by
reference to Registrant's Registration Statement.
2. Not applicable.
3. (a) Articles of Incorporation of First Great-West Life & Annuity
Insurance Company is filed herewith as Exhibit 3(i).
(b) Bylaws of First Great-West Life & Annuity Insurance Company is
incorporated by reference to Registrant's Registration Statement.
4. (a) Form of Combination Fixed and Variable Group Annuity is
incorporated by reference to Registrant's Pre-Effective Amendment No.
1 to the Registration Statement.
(b) Form of IRA Endorsement is incorporated by reference to
Registrant's Registration Statement.
5. Opinion and consent of W. Kay Adam as to the legality of the
securities being registered is incorporated by reference to
Registrant's Pre-Effective Amendment No. 1 to the Registration
Statement.
6. Not applicable.
7. Not applicable.
8. Not applicable.
9. Not applicable.
10. Administrative Services Agreement between First Great-West Life &
Annuity Insurance Company and Great-West Life & Annuity Insurance
Company is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 to the Registration Statement.
11. Not applicable.
12. Not applicable.
13. Not applicable.
14. Not applicable.
15. Not applicable.
16. Not applicable.
17. Not applicable.
18. Not applicable.
19. Not applicable.
20. Not applicable.
21. Not applicable.
22. Not applicable.
23. (a) Consent of Jorden Burt Boros Cicchetti Berenson & Johnson LLP, is
filed herewith as Exhibit 23(a).
(b) Consent of Deloitte & Touche LLP, is filed herewith as Exhibit
23(b).
(c) Consent of W. Kay Adam filed herewith as Exhibit 23(c).
24. Power of Attorney for Ms. Alazraki, Messrs. Balog, Burns, Desmarais, Jr.,
Gratton, Hart, Katz and Walsh are incorporated by reference to Registrant's
Registration Statement.
25. Not applicable.
26. Not applicable.
27. Financial Data Schedule for First Great-West Life & Annuity Insurance
Company is filed herewith as Exhibit 27.
Item 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement, including (but not limited to) any addition or deletion of
a managing underwriter.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Pre-Effective Amendment No. 1 to its
Registration Statement on Form S-1 to be signed on its behalf, in the City of
Englewood, State of Colorado, on this 2nd day of April , 1999.
FIRST GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
(Depositor)
By: /s/ William T. McCallum
W.T. McCallum, President
and Chief Executive Officer
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities with First Great-West
Life & Annuity Insurance Company and on the dates indicated:
Signature and Title Date
/s/ Robert Gratton* 4/2 , 1999
Director, Chairman of the
Board (Robert Gratton)
/s/ William T. McCallum 4/2 , 1999
- ------------------------------------ ------
Director, President and Chief Executive
Officer (William T. McCallum)
/s/ M.T.G. Graye 4/2 , 1999
Executive Vice President and
Chief Financial Officer
(M.T.G. Graye)
<PAGE>
Signature and Title Date
/s/ Marcia D. Alazraki* 4/2 , 1999
Director (Marcia D. Alazraki)
/s/ James Balog* 4/2 , 1999
Director (James Balog)
/s/ James W. Burns* 4/2 , 1999
Director (James W. Burns)
/s/ Paul Desmarais, Jr.* 4/2 , 1999
Director (Paul Desmarais, Jr.)
/s/ N. Berne Hart* 4/2 , 1999
Director (N. Berne Hart)
/s/ Stuart Z. Katz* 4/2 , 1999
Director (Stuart Z. Katz)
/s/ Brian E. Walsh* 4/2 , 1999
Director (Brian E. Walsh)
*By: /s/ D.C. Lennox 4/2 , 1999
D. C. Lennox
Attorney-in-fact pursuant to Powers of Attorney filed with the
Registration Statement.
<PAGE>
Exhibit Table
Form S-1
Exhibit
1. Form of Underwriting agreement and
and Distribution Agreement 1
3. (i) Articles of Incorporation 3
(ii) Bylaws 1
4. (i) Form of Combination Fixed and
Variable Annuity Contract 2
(ii) Form of IRA Endorsement 1
5. Opinion and consent of W. Kay Adam 2
10. Administrative Services Agreement between First
Great-West Life & Annuity Insurance Company,
and Great-West Life & Annuity Insurance Company 2
23. (a) Consent of Jorden Burt Berenson & Johnson LLP 4
(b) Consent of Deloitte & Touche LLP 4
24. Powers of Attorney for Ms. Alazraki and Messrs. Balog,
Burns, Desmarais, Jr., Gratton, Hart, Katz, and Walsh 1
27. Financial Data Schedule 4
1 Filed with Registration Statement.
2 Filed with Pre-Effective Amendment No. 1 to the Registration Statement.
3 Filed with Post-Effective Amendment No. 1 to the Registration Statement.
4 Filed with this Post-Effective Amendment No. 2 to the Registration Statement.
<PAGE>
Exhibit 23(a)
<PAGE>
Jorden Burt Boros Cicchetti Berenson & Johnson
Suite 400 East
1025 Thomas Jefferson St., N.W.
Washington, D.C. 20007
April 2, 1999
First Great-West Life & Annuity Insurance Company
125 Wolf Road
Albany, NY 12205
Re: Amendment No. 2 to the Registration Statement on Form S-1
File No. 333-25269
Ladies and Gentlemen:
We have acted as counsel to First Great-West Life & Annuity Insurance Company, a
New York corporation, regarding the federal securities laws applicable to the
issuance and sale of the Contracts described therein. We hereby consent to the
reference to us under the heading "Legal Matters" in the prospectus filed today
with the Securities and Exchange Commission.
Very truly yours,
/s/ Jorden Burt Boros Cicchetti Berenson & Johnson LLP JORDEN BURT BOROS
CICCHETTI BERENSON & JOHNSON LLP
Exhibit 23(b)
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post Effective Amendment No. 2 to Registration
Statement No. 333-25269 of First Great-West Life & Annuity Insurance Company of
our reports on the financial statements of First Great-West Life & Annuity
Insurance Company dated January 25, 1999 and on the financial statements of
Variable Annuity-1 Series Account of First Great-West Life & Annuity Insurance
Company dated March 25, 1999 appearing in the Prospectus, which is part of such
registration statement, and to the reference to us under the heading "Experts"
in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
March 31, 1999
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EXHIBIT 27
FINANCIAL DATA SCHEDULE
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<NAME> First Great-West Life & Annuity Insurance Company
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