As filed with the Securities and Exchange Commission on August 14, 1998
Registration No. 333-44839
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
PRE-EFFECTIVE AMENDMENT NO. 1
( )
POST-EFFECTIVE AMENDMENT NO.
( )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 (X)
Amendment No.
( )
(Check appropriate box or boxes)
MAXIM SERIES ACCOUNT
(Exact name of Registrant)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(Name of Depositor)
8515 East Orchard Road
Englewood, Colorado 80111
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code:
(800) 537-2033
William T. McCallum
President and Chief Executive Officer
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, Colorado 80111
(Name and Address of Agent for Service)
Copy to:
James F. Jorden, Esq.
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W., Suite 400 East
Washington, D.C. 20007-0805
Approximate Date of Proposed Public Offering: Upon the effective date of
this Registration Statement
It is proposed that this filing will become effective on September 1, 1998.
Title of Securities Being Registered: Flexible Premium Deferred Annuity
Contracts.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
<PAGE>
MAXIM SERIES ACCOUNT
Cross Reference Sheet
Showing Location in Prospectus
and Statement of Additional Information
As Required by Form N-4
FORM N-4 ITEM PROSPECTUS CAPTION
1. Cover Page.......................... Cover Page
2. Definitions.........................
Definitions
3. Synopsis............................ Variable
Annuity Fee Table; Key
Features of the Annuity
4. Condensed Financial Information..... Not Applicable
5. General Description of Registrant,
Depositor and Portfolio Companies...............
Great-West Life & Annuity
Insurance Company and the
Series Account; The Eligible
Funds;
Voting Rights
6. Deductions and Expenses............ Charges and
Deductions; Appendix A;
Distribution of the Contracts
7. General Description of Variable
Annuity Contracts........ Key Features
of the Annuity; The
Eligible Funds; The Guarantee
Period Fund; Application and
Contributions; Transfers;
Death
Benefit; Payment Options;
Rights
Reserve by the Company;
Statement of Additional
Information
8. Annuity Period...................... Payment
Options
9. Death Benefit....................... Death
Benefit
10. Purchases and Contract Value........ Application
and Contributions; Annuity
Account Value
11. Redemptions......................... Cash
Withdrawals; Payment
Options; Key Features of the
Annuity
12. Taxes............................... Federal
Tax Matters
13. Legal Proceedings................... Legal
Proceedings
14. Table of Contents of Statement
of Additional Information.......................
Available Information
<PAGE>
STATEMENT OF ADDITIONAL
FORM N-4 ITEM INFORMATION CAPTION
15. Cover Page.......................... Cover Page
16. Table of Contents................... Table of
Contents
17. General Information and
History...........................
General Information; Great-West
Life & Annuity Insurance
Company
and Maxim Series Account
18. Services............................ Services
19. Purchase of Securities
Being Offered..................... Not
Applicable
20. Underwriters........................ Services
- Principal Underwriter
21. Calculation of
Performance Data..................
Calculation of Performance
Data
22. Annuity Payments....................
Calculation of Annuity Payments
23. Financial Statements................ Financial
Statements
<PAGE>
PART A
INFORMATION REQUIRED IN A PROSPECTUS
SUBJECT TO COMPLETION
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO SUCH TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
THE AICPA VARIABLE ANNUITY
A FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
Distributed by
BenefitsCorp Equities, Inc.
---------------------------------------------
Issued by
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
This prospectus describes interests under a flexible premium deferred annuity
contract, The AICPA Variable Annuity (the "Contract"). The Contract is issued as
a group contract by Great-West Life & Annuity Insurance Company (the "Company").
Participation in the group contract will be accounted for by the issuance of a
certificate showing an interest under the group contract. The certificate and
the Contract are hereafter collectively referred to as the "Contract."
Your investment in the Contract may be allocated among 8 Investment Divisions of
the Maxim Series Account ("Series Account"). The Investment Divisions invest in
various underlying funds (open-end investment companies) offered by Maxim Series
Fund, Inc. ("Maxim"), Dreyfus Stock Index Fund ("Dreyfus"), Janus Aspen Series
("Janus Aspen"), Neuberger & Berman Advisers Management Trust ("Neuberger &
Berman") and Templeton Variable Product Series Fund ("Templeton").
The minimum initial investment is $5,000 or $1,000 if made under an Automatic
Contribution Plan ("ACP"). The minimum subsequent Contribution is $250 (or $100
per month if made under an ACP).
There are no sales, redemption, surrender or withdrawal charges. The Contract
provides a Free Look Period of 10 days from your receipt of the Contract (or
longer, if required by state law), during which time you may cancel your
investment in the Contract. During the Free Look Period, all Contributions
allocated to an Investment Division will be allocated first to the Money Market
Investment Division and will remain there until the next Transaction Date
following the end of the Free Look Period plus five calendar days.
Your Annuity Account Value will increase or decrease based on the investment
performance of the options you select. You bear the entire investment risk under
the Contract prior to the Payment Commencement Date for all amounts in your
Variable Sub-Accounts. While there is a guaranteed death benefit, there is no
guaranteed or minimum Annuity Account Value on amounts allocated to Investment
Divisions. Therefore, the Annuity Account Value you receive could be less than
the total amount of your Contributions.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE INFORMATION OR
TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFERS CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
Prospectus Dated , 1998
The Contracts are not deposits of, or guaranteed or endorsed by any bank, nor
are the Contracts federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency. The
Contracts involve certain investment risks, including possible loss of
principal.
About This Prospectus: This Prospectus concisely presents important information
you should have before investing in the Contract. Please read it carefully and
retain it for future reference. You can find more detailed information
pertaining to the Contract in the Statement of Additional Information dated ,
1998 (as may be amended from time to time), and filed with the Securities and
Exchange Commission. The Statement of Additional Information is incorporated by
reference into this Prospectus, and may be obtained without charge by contacting
the Annuity Service Center at 800-355-1608 P.O. Box 1700, Denver, Colorado
80201.
<PAGE>
TABLE OF CONTENTS
Page
DEFINITIONS..................................................................4
KEY FEATURES OF THE ANNUITY................................................. 6
VARIABLE ANNUITY FEE TABLE...................................................8
EXAMPLES.....................................................................9
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
AND THE SERIES ACCOUNT ..........................................10
THE ELIGIBLE FUNDS..........................................................11
APPLICATIONS AND CONTRIBUTIONS..............................................13
ANNUITY ACCOUNT VALUE.......................................................14
TRANSFERS...................................................................15
CASH WITHDRAWALS............................................................17
TELEPHONE TRANSACTIONS......................................................18
DEATH BENEFIT...............................................................18
CHARGES AND DEDUCTIONS......................................................20
PAYMENT OPTIONS.............................................................22
FEDERAL TAX MATTERS ........................................................26
ASSIGNMENTS OR PLEDGES......................................................29
PERFORMANCE DATA ...........................................................30
DISTRIBUTION OF THE CONTRACTS...............................................32
VOTING RIGHTS.............................................................. 32
RIGHTS RESERVED BY THE COMPANY..............................................32
LEGAL PROCEEDINGS ..........................................................33
LEGAL MATTERS...............................................................33
AVAILABLE INFORMATION.......................................................33
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON, OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED ON.
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The Contract is not available in all states.
<PAGE>
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DEFINITIONS
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Accumulation Period - The period between the Effective Date and the Payment
Commencement Date.
Annuitant - The person named in the application upon whose life the payment of
an annuity is based and who will receive annuity payments. If a Contingent
Annuitant is named, then the Annuitant will be considered the Primary Annuitant.
While the Annuitant is living and at least 30 days prior to the annuity
commencement date, the Owner may, by Request, change the Annuitant.
Annuity Account - An account established by the Company in the name of the Owner
that reflects all account activity under this Contract.
Annuity Account Value - The sum of the Variable Sub-Accounts credited to the
Owner under the Annuity Account; less Transfers, partial withdrawals, amounts
applied to an annuity option, periodic withdrawals, charges deducted under the
Contract and, less Premium Tax, if any.
Annuity Payment Period - The period beginning on the annuity commencement date
and continuing until all annuity payments have been made under the Contract.
Annuity Service Center - P.O. Box 1700, Denver, Colorado 80201, telephone
800-355-1608.
Annuity Unit - An accounting measure used to determine the dollar value of any
variable annuity payment after the first annuity payment is made.
Automatic Contribution Plan ("ACP") - A plan which allows for automatic periodic
Contributions. The Contribution amount will be withdrawn from a designated
pre-authorized account and automatically credited to the Annuity Account.
Beneficiary - The person(s) designated by the Owner, in the application, or as
subsequently changed by the Owner by Request, to receive any death benefit which
may become payable under the terms of the Contract. If the surviving spouse of
an Owner is the surviving Joint Owner, the surviving spouse will become the
Beneficiary upon such Owner's death and may elect to take the death benefit, if
any, or elect to continue the Contract in force.
Company - Great-West Life & Annuity Insurance Company, the issuer of this
annuity, located at 8515 East Orchard Road, Englewood, Colorado 80111.
Contingent Annuitant - The person named in the application, unless later changed
by the Owner by Request while the Annuitant is alive and before annuity payments
have commenced, who becomes the Annuitant when the Primary Annuitant dies. No
new Contingent Annuitant may be designated after the death of the Primary
Annuitant.
Contributions - Purchase amounts received under the Contract and allocated to
the Variable Sub-Account(s) prior to any Premium Tax or other deductions.
Effective Date - The date on which the first Contribution is credited to the
Annuity Account.
Eligible Fund - A registered management investment company, or portfolio
thereof, in which the assets of the Series Account may be invested.
Investment Division - A division of the Series Account containing the shares of
an Eligible Fund. There is an Investment Division for each Eligible Fund.
Non-Qualified Annuity Contract - An annuity contract which is not intended to be
part of a qualified retirement plan and is not intended to satisfy the
requirements of Section 408 of the Internal Revenue Code of 1986, as amended.
Owner (Joint Owner) or You - The person(s), while the Annuitant is living, named
in the Contract Data Page who is entitled to exercise all rights and privileges
under the Contract. Joint Owners must be husband and wife as of the date the
Contract is issued. The Annuitant will be the Owner unless otherwise indicated
in the application. Any reference to Owner in the singular tense shall include
the plural, and vice versa, as applicable.
Payment Commencement Date - The date on which annuity payments or periodic
withdrawals commence under a payment option. The Payment Commencement Date must
be at least one year after the Effective Date of the Contract. If a Payment
Commencement Date is not shown on the Contract Data Page, annuity payments will
commence on the first day of the month of the Annuitant's 91st birthday. The
Payment Commencement Date may be changed by the Owner within 60 days prior to
commencement of annuity payments or it may be changed by the Beneficiary upon
the death of the Owner.
Premium Tax - The amount of tax, if any, charged by a state or other
governmental authority.
Request - Any written, telephoned, or computerized instruction in a form
satisfactory to the Company and received at the Annuity Service Center (or other
annuity service center subsequently named) from the Owner or the Owner's
designee (as specified in a form acceptable to the Company) or the Beneficiary
(as applicable) as required by any provision of the Contract or as required by
the Company. All Requests are subject to any action taken or payment made by the
Company before it was processed.
Series Account - The segregated account established by the Company under
Colorado law and registered as a unit investment trust under the Investment
Company Act of 1940, as amended.
Surrender Value - The Annuity Account Value on the effective date of the
surrender, less Premium Tax, if any.
Transaction Date - The date on which any Contribution or Request from the Owner
will be processed by the Company at the Annuity Service Center. Contributions
and Requests received after 4:00 p.m. EST/EDT will be deemed to have been
received on the next business day. Requests will be processed and the Annuity
Account Value will be determined on each day that the New York Stock Exchange is
open for trading.
Transfer - The moving of money from and among the Investment Division(s).
Variable Sub-Accounts - The sub-division(s) of the Owner's Annuity Account
containing the value credited to the Owner under the Annuity Account from an
Investment Division.
We, our, us, or GWL&A: Great-West Life & Annuity Insurance Company.
<PAGE>
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KEY FEATURES OF THE ANNUITY
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The Contract currently allows you to invest in your choice of 8 different
Investment Divisions of the Series Account. The Investment Divisions invest in
various underlying funds offered by Maxim Series Fund, Dreyfus, Janus Aspen,
Neuberger & Berman, and Templeton. Your Annuity Account Value allocated to an
Investment Division will vary with the investment performance of the Investment
Division you select. You bear the entire investment risk for all amounts
invested in the Investment Division(s). Your Annuity Account Value could be less
than the total amount of your Contributions.
Who should invest. The Contract is designed for investors who are seeking
long-term tax deferred asset accumulation with a wide range of investment
options. The Contract can be used for retirement or other long-term investment
purposes. The deferral of income taxes is particularly attractive to investors
in high federal and state tax brackets who have already fully taken advantage of
their ability to make IRA contributions or "pre-tax" contributions to their
employer sponsored retirement or savings plans.
A Wide Range of Variable Investment Choices. The Contract gives you an
opportunity to select among 8 different Investment Divisions. Each Investment
Division invests in shares of an Eligible Fund.
The distinct investment objectives and policies for each Eligible Fund are more
fully described in their individual fund prospectuses which are available from
the Annuity Service Center, P.O. Box 1700, Denver, Colorado 80201, or via
telephone at 800-355-1608.
How to Invest. You must complete a Contract application form in order to invest
in the Contract and you must pay by check. The minimum initial investment is
$5,000. Subsequent investments must be at least $250. The minimum initial
investment may be reduced to $1,000 should the Owner agree to make additional
$100 per month minimum recurring deposits through an ACP.
Free Look Period. The Contract provides for a Free Look Period which allows you
to cancel your investment generally within 10 days of your receipt of the
Contract. You can cancel the Contract during the Free Look Period by delivering
or mailing the Contract to the Annuity Service Center. The cancellation is not
effective unless we receive a notice which is postmarked before the end of the
Free Look Period. If the Contract is returned, the Contract will be void from
the start and the greater of: (a) Contributions received less surrenders,
withdrawals and distributions, or (b) the Annuity Account Value less surrenders,
withdrawals and distributions, will be refunded. These procedures may vary where
required by state law. (See "Application and Contributions.")
Allocation of the Initial Investment. The initial Contribution allocated to
an Investment Division will be allocated to the Maxim Money Market Investment
Division until the next Transaction Date following the end of the Free Look
Period plus five calendar days. At that time, the Annuity Account Value will
be allocated to the Investment Divisions in accordance with your
instructions. (See "Annuity Account Value")
Charges and Deductions Under the Contract. The Contract is a "no load" variable
annuity and, as such, imposes no sales, redemption or withdrawal charges.
For Contracts having an Annuity Account Value of less than $25,000, a Contract
Maintenance Charge of no more than $30 will be deducted annually from your
Annuity Account Value. There will be a transfer fee of $10 for each Transfer in
excess of twenty-four Transfers per calendar year. (See "Charges and
Deductions," for more information.) GWL&A also deducts from the net asset value
of the Series Account an amount, computed daily, equal to and annual rate of
0.50% for mortality and expense risk guarantees. (See "Charges and Deductions"
for more information.)
Depending on your state of residence, we may deduct a charge for Premium Tax
from purchase payments or amounts withdrawn or at the Payment Commencement Date.
(See "Charges and Deductions," for more information.)
Transfers. You may transfer your Annuity Account Value among the Investment
Divisions as often as you like with no immediate tax consequences. You may
make a Transfer Request to the Annuity Service Center. A transfer fee may
apply. (See "Charges and Deductions.")
Full and Partial Withdrawals. You may withdraw all or part of your Annuity
Account Value before the earlier of the annuity commencement date you selected
or the Annuitant's or Owner's death. Withdrawals may be taxable and if made
prior to age 59 1/2 may be subject to a 10% penalty tax. The minimum partial
withdrawal is $250. There is no limit on the number of withdrawals made. The
Company may delay payment of withdrawals from your Variable Sub-Accounts by up
to 7 days. (See "Cash Withdrawals.")
Annuity Options. Beginning on the first day of the month immediately
following the Payment Commencement Date you select, you may elect to receive
annuity payments on a variable basis. (The default date is the first day of
the month that the Annuitant attains age 91.) A wide range of annuity
options are available to provide flexibility in choosing an annuity payment
schedule that meets your particular needs. These annuity options include
alternatives designed to provide payments for life, with or without a
guaranteed minimum number of payments. (See "Payment Options.")
Death Benefit. The amount of the death benefit, if payable before annuity
payments commence, will be the greater of (a) the Annuity Account Value as of
the date a Request for payment is received, less Premium Tax, if any; or (b)
the sum of Contributions paid, less partial withdrawals and Periodic
Withdrawals, less charges deducted under the Contract, if any, less Premium
Tax, if any. (See "Death Benefit.")
Customer Service. Professional representatives are available toll-free to assist
you. If you have any questions about your Contract, please telephone the Annuity
Service Center (800-355-1608) or write to the Annuity Service Center at P.O. Box
1700, Denver, Colorado 80201. All inquiries should include the Contract number
and the Owner's name. As a Contract Owner you will receive periodic statements
confirming any transactions relating to your Contract, as well as a quarterly
statement and an annual report.
<PAGE>
VARIABLE ANNUITY FEE TABLE
The purpose of this table and the examples that follow is to assist you in
understanding the various costs and expenses that you will bear directly or
indirectly when investing in the Contract. The table and examples reflect
expenses related to the Investment Divisions as well as of the Eligible Funds.
The table assumes that the entire Annuity Account Value is allocated to one or
more Investment Divisions. The information set forth should be considered
together with the narrative provided under the heading "Charges and Deductions,"
and with the Eligible Funds' prospectuses. In addition to the expenses listed
below, Premium Tax may be applicable.
Contract Owner Transaction Expenses1
Sales Load None
Surrender Fee None
Transfer Fee (First 24 Per Year)2 None
Annual Contract Maintenance Charge3 $30.00
Investment Division Annual Expenses
(as a percentage of average account value)
Administrative Expense Charge 0.00%
Other Fees and Expenses 0.00%
Mortality and Expense Risk Charge 0.50%
Total Investment Division Annual Expenses0.50%
<PAGE>
Eligible Fund Annual Expenses
(as a percentage of Eligible Fund net assets, after expenses reimbursements
and fee waivers)
Portfolio Management Other 12b-1 Total Eligible
Fees Expenses Fees Fund Expenses
Maxim Money Market Portfolio .46% 0% 0% .46%
Janus Aspen Flexible Income .65% 10% 0% .75%
Portfolio
Maxim T. Rowe Price .80% .11% 0% .91%
Equity/Income Portfolio
Maxim INVESCO Balanced Portfolio 1.00% 0% 0% 1.00%
Dreyfus Stock Index Fund .245% .035% 0% .28%%
Maxim Growth Index Portfolio .60% 0% 0% .60%
Neuberger & Berman AMT Partners .56% 30% 0% .86%%
Investments
Templeton International Fund .69% .19% 0% .88%
(Class 1) (1)
(1) Management Fees and Total Operating Expenses have been restated to reflect
the management fee schedule approved by shareholders and effective May 1, 1997
as though such fees had been in effect the entire year. Actual Management Fees
and Total Fund Operating Expenses before May 1, 1997 were lower. December 31,
1997 year end expenses were .81% for the Templeton International Fund (Class 1).
For a more complete description of the Eligible Funds' fees and expenses, see
their respective prospectuses.
Examples
If you retain, annuitize, or surrender the Contract at the end of the applicable
time period, you would pay the following fees and expenses on a $1,000
investment, assuming a 5% annual return on assets and an assessment of the
mortality and expense risk charge and administrative expense Contract:der any
Investment Divisions
1 Year
3 Years
5 Years
10 Years
Maxim Money Market Portfolio $14 $42 $73 $160
Janus Aspen Flexible Income $17 $51 $88 $192
Portfolio
Maxim T. Rowe Price $18 $56 $97 $209
Equity/Income Portfolio(1)
Maxim INVESCO Balanced $19 $59 $101 $219
Portfolio
Dreyfus Stock Index Fund $12 $37 $63 $140
Maxim Growth Index Portfolio $15 $47 $80 $176
Neuberger & Berman AMT $18 $55 $94 $204
Partners Investments
Templeton International Fund $23 $55 $95 $206
(Class 1)
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.
The purpose of the table shown above is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. For more information pertaining to these costs and
expenses, see "Charges and Deductions."
These examples assume that no premium taxes have been assessed (although premium
taxes may be applicable - see "Premium Tax").
The Eligible Fund Annual Expenses and these examples are based on data provided
by the Eligible Funds. The Company has no reason to doubt the accuracy or
completeness of that data, but the Company has not verified the Eligible Fund's
(other than the Maxim Portfolios) figures. In preparing the Eligible Fund
Expense table and the Examples, the Company has relied on the figures provided
by the Eligible Funds.
<PAGE>
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GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
AND THE SERIES ACCOUNT
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Great-West Life & Annuity
Insurance Company ("GWL&A")
The Company is a stock life insurance company originally organized under
the laws of the state of Kansas as the National Interment Association. Its name
was changed to Ranger National Life Insurance Company in 1963 and to
Insuramerica Corporation prior to changing to its current name in 1982. In
September of 1990, GWL&A redomesticated and is now organized under the laws of
the state of Colorado.
GWL&A is authorized to engage in the sale of life insurance, accident and
health insurance and annuities. It is qualified to do business in the District
of Columbia, Puerto Rico and 49 states in the United States.
GWL&A is a wholly-owned subsidiary of The Great-West Life Assurance Company
("Great-West Life"). Great-West Life is a subsidiary of Great-West Lifeco Inc.,
a holding company. Great-West Lifeco Inc. is in turn a subsidiary of Power
Financial Corporation, a financial services company. Power Corporation of
Canada, a holding and management company, has voting control of Power Financial
Corporation. Mr. Paul Desmarais, through a group of private holding companies,
which he controls, has voting control of Power Corporation of Canada.
The Series Account
The Maxim Series Account ("Series Account") was originally established by
GWL&A under Kansas law on June 24, 1981. The Series Account now exists pursuant
to Colorado law as a result of the redomestication of GWL&A. The Series Account
is registered with the Securities and Exchange Commission ("Commission") under
the Investment Company Act of 1940, as amended ("1940 Act"), as a unit
investment trust. The Series Account meets the definition of a "separate
account" under the federal securities laws. However, such registration does not
involve supervision of the management of the Series Account or the Company by
the Commission.
The Company does not guarantee the investment performance of the Series
Account. Annuity Account Value and the amount of variable annuity payments
depend on the investment performance of the Eligible Funds. Thus, the Contract
Owner bears the full investment risk for all Contributions allocated to the
Series Account.
The Series Account is administered and accounted for as part of the
general business of the Company; but the income, capital gains, or capital
losses of each Investment Division are credited to or charged against the assets
held in that Investment Division in accordance with the terms of the Contract,
without regard to other income, capital gains or capital losses of any other
Investment Division or arising out of any other business the Company may
conduct. Under Colorado law, the assets of the Series Account are not chargeable
with liabilities arising out of any other business the Company may conduct.
Nevertheless, all obligations arising under the Contracts are generally
corporate obligations of the Company.
The Series Account currently has 8 Investment Divisions available for
allocation of Contributions under the Contract. If, in the future, the Company
determines that marketing needs and investment conditions warrant, it may
establish additional Investment Divisions which will be made available to Owners
to the extent and on a basis to be determined by the Company, (See "Addition,
Deletion, or Substitution," for more information). Each Investment Division
invests in shares of an Eligible Fund, each having a specific investment
objective.
<PAGE>
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THE ELIGIBLE FUNDS
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The Eligible Funds described below are offered exclusively for use as
funding vehicles for insurance products and, consequently, are not publicly
available mutual funds. Each Eligible Fund has separate investment objectives
and policies. As a result, each Eligible Fund operates as a separate investment
portfolio and the investment performance of one Eligible Fund has no effect on
the investment performance of any other Eligible Fund. See the Eligible Funds'
prospectuses for more information.
o the Maxim Money Market Portfolio seeks preservation of capital, liquidity and
the highest possible current income consistent with the foregoing objectives
through investments in short-term money market securities. Shares of the Maxim
Money Market Portfolio are neither insured nor guaranteed by the U.S.
Government. Further, there is no assurance that the Portfolio will be able to
maintain a stable asset value of $1.00 per share.
Janus Aspen Flexible Income Portfolio seeks to obtain maximum total return, from
a combination of income and capital appreciaton. The Portfolio pursues its
objective primarily through investments in income-producing securities.
o the Maxim T. Rowe Price Equity/Income Portfolio seeks to provide substantial
dividend income and also capital appreciation by investing primarily in
dividend-paying common stocks of established companies.
o the Maxim INVESCO Balanced Portfolio seeks to achieve a high total return on
investment through capital appreciation and current income. The Portfolio
invests in a combination of common stocks (normally 50% to 70% of total assets)
and fixed income securities (normally 25% or more).
Dreyfus Stock Index Fund's investment objective is to provide investment results
that correspond to the price and yield performance of publicly traded common
stocks in the aggregate, as represented by the Standard & Poor's 500 Composite
Stock Price Index. The Dreyfus Stock Index Fund is neither sponsored by nor
affiliated with Standard & Poor's Corporation.
o the Maxim Growth Index Portfolio seeks to provide investment results, before
fees, that correspond to the total return of the Russell 1000 Growth Index. The
Russell 1000 Growth Index was developed by the Frank Russell Company to track
stock market performance of stocks from the Russell 1000 Index exhibiting
certain characteristics suggesting growth potential. The Frank Russell Company
is not a sponsor of, or in any other way affiliated with the Portfolio or the
Fund.
o the Neuberger & Berman AMT Partners Investments seeks capital growth. This
investment objective is non-fundamental. Neuberger & Berman AMT Partners
Investments invests principally in common stocks of medium to large
capitalization established companies using the value-oriented investment
approach. The Portfolio seeks capital growth through an investment approach that
is designed to increase capital with reasonable risk.
o the Templeton International Fund's investment objective is long-term capital
growth through a flexible policy of investing in stocks and debt obligations of
companies and governments outside the United States. Any income realized will be
incidental.
The investment adviser of Maxim Series Fund, Inc. is GW Capital Management,
LLC. The Maxim T. Rowe Price Equity/Income Portfolio is managed on a
sub-advisory basis by T. Rowe Price Associates, Inc. of Baltimore, Maryland. The
Maxim INVESCO Balanced Portfolio is managed on a sub-advisory basis by INVESCO
Trust Company of Denver, Colorado. The investment adviser of Janus Aspen
Flexible Income Portfolio is Janus Capital Corporation. The investment adviser
of the Dreyfus Stock Index Fund is The Dreyfus Corporation. Neuberger & Berman
AMT Partners Investments is managed by Neuberger & Berman Management
Incorporated. The investment adviser of the Templeton International Fund is
Templeton Investment Counsel, Inc.
***
Meeting investment objectives depends on various factors, including, but
not limited to, how well the Eligible Fund managers anticipate changing economic
and market conditions. THERE IS NO ASSURANCE THAT ANY OF THESE ELIGIBLE FUNDS
WILL ACHIEVE THEIR STATED OBJECTIVES.
Each Eligible Fund is registered with the Commission as an open-end
management investment company or portfolio thereof. The Commission does not
supervise the management or the investment practices and policies of any of the
Eligible Funds.
Since some of the Eligible Funds are available to registered separate
accounts of other insurance companies offering variable annuity and variable
life products, there is a possibility that a material conflict may arise between
the interests of the Series Account and one or more other separate accounts
investing in the Eligible Funds. In the event of a material conflict, the
affected insurance companies are required to take any necessary steps to resolve
the matter, including stopping their separate accounts from investing in the
Eligible Funds. See the Eligible Funds' prospectuses for more details.
Additional information concerning the investment objectives and policies
of all of the Eligible Funds and the investment advisory services and
administrative services and charges can be found in the current prospectuses for
the Eligible Funds, which can be obtained by calling the Annuity Service Center
at 800-355-1608, or by writing to Annuity Service Center, P.O. Box 1700, Denver,
Colorado 80201. The Eligible Funds' prospectuses should be read carefully before
any decision is made concerning the allocation of Contributions to, or Transfers
among, the Investment Divisions.
Addition, Deletion, or
Substitution
GWL&A reserves the right to eliminate the shares of any Eligible Fund held
by an Investment Division and to substitute shares of another Eligible Fund or
of another investment company, for the shares of any Eligible Fund, if the
shares of the Eligible Fund are no longer available for investment or if, in
GWL&A's discretion, it determines to discontinue any Eligible Fund. To the
extent required by the 1940 Act, a substitution of shares attributable to the
Owner's interest in an Investment Division will not be made without prior notice
to the Owners and the prior approval of the Commission. Nothing contained herein
shall prevent the Series Account from purchasing other securities for other
series or classes of variable annuity policies, or from effecting an exchange
between series or classes of variable policies on the basis of Requests made by
you.
New Investment Divisions may be established when, in our discretion,
marketing, tax, investment or other conditions so warrant. Any new Investment
Divisions will be made available to Owners on a basis to be determined by us.
Each additional Investment Division will purchase shares in a Eligible Fund or
in another mutual fund or investment vehicle. We may also eliminate one or more
Investment Divisions if, in our sole discretion, marketing, tax, investment or
other conditions so warrant. In the event any Investment Division is eliminated,
we will notify the Owners and request a re-allocation of the amounts invested in
the eliminated Investment Division.
In the event of any such substitution or change, we may make such changes
to your Contract as may be necessary or appropriate to reflect such substitution
or change. Furthermore, if deemed to be in the best interests of persons having
voting rights under the Contracts, the Series Account may be operated as a
management company under the 1940 Act or any other form permitted by law, may be
de-registered under such Act in the event such registration is no longer
required, or may be combined with one or more other separate accounts. Such
changes will be made in compliance with applicable law.
<PAGE>
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APPLICATION AND CONTRIBUTIONS
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Contributions
All Contributions may be paid at the Annuity Service Center by a check
payable to GWL&A.
The initial Contribution for the Contract must be at least $5,000.
Subsequent Contributions must be at least $250. This minimum initial investment
may be reduced to $1,000, but only if you participate in an Automatic
Contribution Plan and contribute at least $100 per month through a recurring
deposit. A confirmation will be issued to you upon the acceptance of each
Contribution.
Your Contract will be issued and your Contribution generally will be
accepted and credited within two business days after receipt of an acceptable
application and receipt of the initial Contribution at the Annuity Service
Center. All Contributions should be paid to the Annuity Service Center by check
(payable to GWL&A). Acceptance is subject to there being sufficient information
in a form acceptable to us and we reserve the right to reject any application or
Contribution.
The Annuity Service Center will process your application and
Contributions. If your application is complete, then the Contribution will
generally be credited within two business days following receipt of the
application. If your application is incomplete, the Annuity Service Center will
contact you for the additional information.
If your Contribution is by check, and the application is complete, GWL&A
will use its best efforts to credit the Contribution on the day of receipt, but
in all such cases it will be credited to your Contract within two business days
of receipt. If your application is incomplete, the Annuity Service Center will
contact you by telephone to obtain the required information. If your application
remains incomplete for five business days, we will return to you both the check
and the application unless you consent to our retaining the initial Contribution
and crediting it as soon as the requirements are fulfilled.
A Contract may be returned within ten days after receipt, or longer where
required by law ("Free Look Period"). During the Free Look Period, all
contributions will be processed as follows:
(1) Amounts the Owner has directed to be allocated to one or more of the
Investment Divisions will first be allocated to the Money Market Investment
Division until the next Transaction Date following the end of the Free Look
Period plus five calendar days. On that date, the Annuity Account Value
held in the Money Market Investment Division will be allocated to the
Investment Divisions selected by the Owner.
(2) During the Free Look Period, you may change the allocation percentages
among the Investment Divisions and/or your selection of Investment
Divisions to which Contributions will be allocated after the Free Look
Period.
(3) If the Contract is returned, the contract will be void from the start and
the greater of: (a) Contributions received less surrenders, withdrawals and
distributions or (b) the Annuity Account Value less surrenders, withdrawals
and distributions, will be refunded. Exercising the return privilege
requires the return of the Contract to the Company or to the Annuity
Service Center.
Additional Contributions may be made at any time prior to the Payment
Commencement Date, as long as the Annuitant is living. Additional Contributions
must be at least $250 or $100 per month if under an ACP. Additional
contributions will be credited within two days following receipt. Total
Contributions may exceed $1,000,000 with our prior approval.
The Company reserves the right to modify the limitations set forth in this
section.
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ANNUITY ACCOUNT VALUE
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Before the annuity commencement date, the Annuity Account Value is the
total dollar amount of all Accumulation Units under each of your Variable
Sub-Accounts. Initially, the value of each Accumulation Unit was set at $10.00.
Each Variable Sub-Account's value prior to the Payment Commencement Date is
equal to: (a) net Contributions allocated to the corresponding Investment
Division; plus or minus (b) any increase or decrease in the value of the assets
of the Variable Sub-Account due to investment results; less (c) the daily
Mortality and Expense Risk Charge; less (d) reductions for the Contract
Maintenance Charge deducted on the last business day of each Contract Year; less
(e) any applicable Transfer Fees; and less (f) any withdrawals or Transfers from
the Variable Sub-Account.
A Valuation Period is the period between successive Valuation Dates. It
begins at the close of the New York Stock Exchange (generally 4:00 p.m. ET) on
each Valuation Date and ends at the close of the New York Stock Exchange on the
next succeeding Valuation Date. A Valuation Date is each day that the New York
Stock Exchange is open for regular business. The value of an Investment
Division's assets is determined at the end of each Valuation Date. To determine
the value of an asset on a day that is not a Valuation Date, the value of that
asset as of the end of the previous Valuation Date will be used.
The Annuity Account Value is expected to change from Valuation Period to
Valuation Period, reflecting the investment experience of the selected
Investment Division(s) as well as the deductions for charges.
Contributions which you allocate to an Investment Division are used to
purchase Variable Accumulation Units in the Investment Division(s) you select.
The number of Accumulation Units to be credited will be determined by dividing
the portion of each Contribution allocated to the Investment Division by the
value of an Accumulation Unit determined at the end of the Valuation Period
during which the Contribution was received. In the case of the initial
Contribution, Accumulation Units for that payment will be credited to the
Annuity Account Value held in the Money Market Investment Division until the end
of the Free Look Period plus five calendar days (see "Application and
Contributions," for more information). In the case of any subsequent
Contribution, Accumulation Units for that payment will be credited at the end of
the Valuation Period during which we receive the Contribution. The value of an
Accumulation Unit for each Investment Division for a Valuation Period is
established at the end of each Valuation Period and is calculated by multiplying
the value of that unit at the end of the prior Valuation Period by the
Investment Division's Net Investment Factor for the Valuation Period.
The Net Investment Factor is determined by dividing (a) by (b), then
subtracting (c) where.
(a) is the net result of: The net asset value per share of the Eligible Fund
shares held in the Investment Division as of the end of the Valuation
Period; plus or minus The per-share amount of any dividend or capital gain
distributions made by the underlying fund on shares held in the Investment
Division if the "ex-dividend" date occurs in the Valuation Period; plus or
minus A per share charge or credit for any taxes incurred by or provided
for in the Investment Division which is determined by GWL&A to have
resulted from the investment operations of the Investment Division; and
(b) is the net result of: The net asset value per share of the underlying fund
shares held in the Investment Division as of the end of the last prior
Valuation Period; and
(c) is: The daily Mortality and Expense Risk Charge times the number of
calendar days in the
current Valuation period.
The daily Administrative Expense Charge times the number of calendar days
in the current Valuation Period.
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TRANSFERS
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In General
Prior to the Payment Commencement Date you may Transfer all or part of
your Annuity Account Value among the Investment Divisions by telephone or by
sending a Request to the Annuity Service Center. The Request must specify the
amounts being Transferred, the Investment Division(s) from which the Transfer is
to be made, and the Investment Division(s) that will receive the Transfer.
Currently, there is no limit on the number of Transfers you can make among
the Investment Divisions during any calendar year. There is no charge for the
first twenty-four Transfers each calendar year, but there will be a charge of
$10 for each additional Transfer in each calendar year. We reserve the right to
limit the number of Transfers you make. The charge will be deducted from the
amount transferred. All Transfers made on a single Transaction Date will be
aggregated to count as only one Transfer toward the twenty-four 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 Annuity Service Center if received before 4:00 p.m.
Eastern Time. Under current law, there will not be any tax liability to you if
you make a Transfer.
Transfers involving the Investment Divisions will result in the purchase
and/or cancellation of Accumulation Units having a total value equal to the
dollar amount being Transferred to or from a particular Investment Division. The
purchase and/or cancellation of such units generally shall be made using the
Annuity Account Value as of the end of the Valuation Date on which the Transfer
is effective.
Possible Restrictions
We reserve the right without prior notice to modify, restrict, suspend or
eliminate the Transfer privileges (including telephone Transfers) at any time.
For example, restrictions may be necessary to protect Owners from adverse
impacts on portfolio management of large and/or numerous Transfers by market
timers or others. We have determined that the movement of significant amounts
from one Investment Division to another may prevent the underlying Eligible Fund
from taking advantage of investment opportunities because the Eligible Fund must
maintain a significant cash position in order to handle redemptions. Such
movement may also cause a substantial increase in Eligible Fund transaction
costs which must be indirectly borne by Owners. Therefore, we reserve the right
to require that all Transfer Requests be made by the Owner and not by an Owner's
designee and to require that each Transfer Request be made by a separate
communication to us. We also reserve the right to request that each Transfer
Request be submitted in writing and be manually signed by the Owner; facsimile
Transfer Requests may not be allowed. Transfers among the Investment Divisions
may also be subject to such terms and conditions as may be imposed by the
Eligible Funds.
Custom Transfer: Dollar Cost
Averaging (Automatic Transfers)
The Owner may Request to automatically Transfer at regular intervals,
predetermined amounts from one Investment Division selected from among those
being allowed under this option (which may be modified by the Company from time
to time) to any of the other Investment Divisions. The intervals between
Transfers may be monthly, quarterly, semi-annually or annually. The Transfer
will be initiated on the Transaction Date one frequency period following the
date of the Request. Transfers will continue on that same day each interval
unless terminated by you or for other reasons as set forth in the Contract. If
there are insufficient funds in the applicable Variable Sub-Account on the date
of Transfer, no Transfer will be made; however, Dollar Cost Averaging will
resume once there are sufficient funds in the applicable Variable Sub-Account.
Dollar Cost Averaging will terminate automatically upon the annuity commencement
date. Amounts transferred through Dollar Cost Averaging are not counted against
the twenty-four free Transfers allowed in a calendar year.
Automatic Transfers must meet the following conditions:
1. The minimum amount that can be Transferred out of the selected
Investment Division is $100 per month.
2. The Owner must specify dollar amount to be Transferred, designate the
Investment Division(s) to which the Transfer will be made and the percent to be
allocated to such Investment Division(s). The Accumulation Unit values will be
determined on the Transfer Date.
Dollar Cost Averaging may be used to purchase Accumulation Units of the
Investment Divisions over a period of time. The Owner, by Request, may cease
Dollar Cost Averaging at any time. Participation in Dollar Cost Averaging does
not, however, assure a greater profit, nor will it prevent or necessarily
alleviate losses in a declining market. The Company reserves the right to
modify, suspend or terminate Dollar Cost Averaging at any time.
Custom Transfer: Rebalancer
Option
The Owner may Request to automatically Transfer among the Investment
Divisions on a periodic basis by electing the Rebalancer Option. This option
automatically reallocates the Annuity Account Value to maintain a particular
allocation among Investment Divisions selected by the Owner. The amount
allocated to each Investment Division will increase or decrease at different
rates depending on the investment experience of the Investment Division.
The Owner may Request that the rebalancing occur one time only, in which
case the Transfer will take place on the Transaction Date of the Request. This
Transfer will count as one Transfer towards the twenty-four free Transfers
allowed in a calendar year. (See "Transfer Fee," for more information.)
Rebalancing may also be set up on a quarterly, semiannual or annual basis,
in which case the first Transfer will be initiated on the Transaction Date one
frequency period following the date of the Request. On the Transaction Date for
the specified Request, assets will be automatically reallocated to the selected
Investment Divisions. Rebalancing will continue on the same Transaction Date for
subsequent periods. In order to participate in the Rebalancer Option, the entire
Annuity Account Value must be included. Transfers set up with these frequencies
will not count against the twenty-four free Transfers allowed in a calendar
year.
The Owner must specify the percentage of Annuity Account Value to be
allocated to each Investment Division and the frequency of rebalancing. The
Owner, by Request, may modify the allocations or cease the Rebalancer Option at
any time. The Rebalancer Option will terminate automatically upon the Payment
Commencement Date. Participation in the Rebalancer Option and Dollar Cost
Averaging at the same time is not allowed. Participation in the Rebalancer
Option does not assure a greater profit, nor will it prevent or necessarily
alleviate losses in a declining market. The Company reserves the right to
modify, suspend, or terminate the Rebalancer Option at any time.
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CASH WITHDRAWALS
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Withdrawals
You (the Owner) may withdraw from the Contract all or part of your Annuity
Account Value at any time during the life of the Annuitant and prior to the date
annuity payments commence by Request at the Annuity Service Center subject to
the rules below. Federal or state laws, rules or regulations may apply. The
amount payable to you if you surrender your Contract is your Annuity Account
Value, on the effective date of the surrender, and less any applicable Premium
Tax. No withdrawals may be made after the date annuity payments commence. A
Request for a partial withdrawal will result in a reduction in your Annuity
Account Value equal to the sum of the dollar amount withdrawn.
The minimum partial withdrawal is $250. Partial withdrawals are unlimited;
however, you must specify the Investment Division(s) from which the withdrawal
is to be made. After any partial withdrawal, if the remaining Annuity Account
Value is less than $2,000, then a full surrender may be required.
The following terms apply:
(a) No partial withdrawals are permitted after the date annuity payments
commence.
(b) A partial withdrawal will be effective on the Transaction Date.
Withdrawals may be taxable (this includes Periodic Withdrawals, discussed
below). Moreover, the Internal Revenue Code (the "Code") provides that a 10%
penalty tax may be imposed on the taxable portions of certain early withdrawals.
The Code generally requires us to withhold federal income tax from withdrawals.
However, generally you will be entitled to elect, in writing, not to have tax
withholding apply unless withholding is mandatory for your Contract. Withholding
applies to the portion of the withdrawal which is included in your income and
subject to federal income tax. The tax withholding rate is 10% of the taxable
amount of the withdrawal. Withholding applies only if the taxable amount of the
withdrawal is at least $200. Some states also require withholding for state
income taxes. (See "Federal Tax Matters," for more information.)
Withdrawal Requests must be in writing to ensure that your instructions
regarding withholding are followed. If an adequate election is not made, the
Request will be denied and no withdrawal or partial withdrawal will be
processed.
After a withdrawal of all of your Annuity Account Value, or at any time
that your Annuity Account Value is zero, all your rights under the Contract will
terminate.
<PAGE>
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TELEPHONE TRANSACTIONS
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We will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine and if we follow such procedures we will
not be liable for any losses due to unauthorized or fraudulent instructions.
However, we may be liable for such losses if we do not follow those reasonable
procedures. The procedures we will follow for telephone transactions may include
requiring some form of personal identification prior to acting on instructions
received by telephone, providing written confirmation of the transaction, and/or
tape recording the instructions given by telephone.
We reserve the right to suspend telephone transaction privileges at any
time, for some or all Contracts, and for any reason. Withdrawals are not
permitted by telephone.
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DEATH BENEFIT
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Payment of Death Benefit
Before the date annuity payments commence, the death benefit, if any, will
be equal to the greater of: (a) the Annuity Account Value as of the date the
Request for payment is received, less Premium Tax, if any, or (b) the sum of
Contributions paid, less partial withdrawals and/or Periodic Withdrawals, less
Premium Tax, if any. The death benefit will become payable following the
Company's receipt of a Request from the Beneficiary. When an Owner or the
Annuitant dies before the annuity commencement date and a death benefit is
payable to a Beneficiary, the death benefit proceeds will remain invested in
accordance with the allocation instructions given by the Owner(s) until new
allocation instructions are Requested by the Beneficiary or until the death
benefit is actually paid to the Beneficiary. The death benefit will be
determined as of the date payments commence; however, on the date a payment
option is processed, the Annuity Account Value will be Transferred to the Money
Market Investment Division unless the Beneficiary otherwise elects by Request.
Subject to the distribution rules set forth below, payment of the death benefit
may be Requested to be made as follows:
1. Payment in a single sum; or
2. Payment under any of the variable annuity options provided
under this Contract.
In any event, no payment of benefits provided under the Contract will be
allowed that does not satisfy the requirements of Section 72(s) of the Code and
any other applicable federal or state laws, rules or regulations.
Distribution Rules
1. Death of Annuitant
Upon the death of the Annuitant while the Owner is living, and before the
annuity commencement date, the Company will pay the death benefit to the
Beneficiary unless there is a Contingent Annuitant.
If a Contingent Annuitant was named by the Owner(s) prior to the
Annuitant's death, and the Annuitant dies before the annuity commencement date
while the Owner and Contingent Annuitant are living, no death benefit will be
payable by reason of the Annuitant's death and the Contingent Annuitant will
become the Annuitant.
If the Annuitant dies after the date annuity payments commence and before
the entire interest has been distributed, any benefit payable must be
distributed to the Beneficiary in accordance with and at least as rapidly as
under the payment option applicable to the Annuitant on the Annuitant's date of
death.
If a corporation or other non-individual is an Owner, or if the deceased
Annuitant is an Owner, the death of the Annuitant will be treated as the death
of an Owner and the Contract will be subject to the "Death of Owner" provisions
described below.
2. Death of Owner
If the Owner is not the
Annuitant:
(1) If there is a Joint Owner who is the surviving spouse of the deceased
Owner, the Joint Owner will become the Owner and Beneficiary and may elect
to take the death benefit or elect to continue the Contract in force.
(2) In all other cases, the Company will pay the death benefit to the
Beneficiary even if a Joint Owner (who was not the Owner's spouse on the
date of the Owner's death), the Annuitant and/or the Contingent Annuitant
are alive at the time of the Owner's death, unless the sole Beneficiary is
the deceased Owner's surviving spouse and the Beneficiary elects to become
the Owner and Annuitant and to continue the Contract in force.
If the Owner is not the Annuitant, and the Owner dies after annuity
payments commence and before the entire interest has been distributed while the
Annuitant is living, any benefit payable will continue to be distributed to the
Annuitant at least as rapidly as under the payment option applicable on the
Owner's death. All rights granted the Owner under the Contract will pass to any
surviving Joint Owner and, if none, to the Annuitant.
If the Owner is the
Annuitant (Owner/Annuitant):
(1) If there is a Joint Owner who is the surviving spouse of the deceased
Owner and a Contingent Annuitant, the Joint Owner will become the Owner
and the Beneficiary, the Contingent Annuitant will become the Annuitant,
and the Contract will continue in force.
(2) If there is a Joint Owner who is the surviving spouse of the deceased
Owner but no Contingent Annuitant, the Joint Owner will become the Owner,
Annuitant and Beneficiary and may elect to take the death benefit or
continue the Contract in force.
(3) In all other cases, the Company will pay the death benefit to the
Beneficiary, even if a Joint Owner (who was not the Owner's spouse on the
date of the Owner's death), or Contingent Annuitant are alive at the time
of the Owner's death, unless the sole Beneficiary is the deceased Owner's
surviving spouse and the Beneficiary Requests to become the Owner and
Annuitant and to continue the Contract in force.
Any death benefit payable
to the Beneficiary upon an
Owner's death will be
distributed as follows:
(1) If the Owner's surviving spouse is the person entitled to receive
benefits upon the Owner's death, the surviving spouse will be treated as
the Owner and will be allowed to take the death benefit or continue the
Contract in force; or
(2) If the Beneficiary is a non-spouse individual, she/he may elect, not
later than one year after the Owner's date of death, to receive the death
benefit in either a single sum or payment under any of the variable
annuity options available under the Contract, provided that (a) such
annuity is distributed in substantially equal installments over the life
or life expectancy of the Beneficiary or over a period not extending
beyond the life expectancy of the Beneficiary; and (b) such distributions
begin not later than one year after the Owner's date of death. If no
election is received by the Company from a non-spouse Beneficiary such
that substantially equal installments have begun not later than one year
after the Owner's date of death, then the entire amount must be
distributed within five years of the Owner's date of death. The death
benefit will be determined as of the date the payments commence; or
(3) If a corporation or other non-individual entity is entitled to receive
benefits upon the Owner's death, the death benefit must be completely
distributed within five years of the Owner's date of death.
Beneficiary
You may select one or more Beneficiaries. If more than one Beneficiary is
selected, unless you indicate otherwise, they will share equally in any death
benefit payable. You may change the Beneficiary any time before the Annuitant's
death.
You may, while the Annuitant is living, change the Beneficiary by Request.
A change of Beneficiary will take effect as of the date the Request is processed
by the Annuity Service Center, unless a certain date is specified by the Owner.
If the Owner dies before the Request was processed, the change will take effect
as of the date the Request was made, unless the Company has already made a
payment or otherwise taken action on a designation or change before receipt or
processing of such Request. A Beneficiary designated irrevocably may not be
changed without the written consent of that Beneficiary, except as allowed by
law.
The interest of any Beneficiary who dies before the Owner or the Annuitant
will terminate at the death of the Beneficiary. The interest of any Beneficiary
who dies at the time of, or within 30 days after, the death of an Owner or the
Annuitant will also terminate if no benefits have been paid to such Beneficiary,
unless the Owner otherwise indicates by Request. The benefits will then be paid
as though the Beneficiary had died before the deceased Owner or Annuitant. If no
Beneficiary survives the Owner or Annuitant, as applicable, the Company will pay
the death benefit proceeds to the Owner's estate.
If the surviving spouse of an Owner is the surviving Joint Owner, the
surviving spouse will become the Beneficiary upon such Owner's death and may
elect to take the death benefit or may elect to continue the Contract in force.
If there is no surviving Joint Owner, and no named Beneficiary is alive at the
time at the time of an Owner's death, any benefits payable will be paid to the
Owner's estate.
Contingent Annuitant
While the Annuitant is living, the Owner(s) may, by Request, designate or
change a Contingent Annuitant from time to time. A change of Contingent
Annuitant will take effect as of the date the Request is processed at the
Annuity Service Center, unless a certain date is specified by the Owner(s).
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CHARGES AND DEDUCTIONS
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No deductions are made from Contributions except for any applicable
Premium Tax. Therefore, the full amount of the Contributions (less any
applicable Premium Tax) are invested in the Contract.
As more fully described below, charges under the Contract are assessed
only as deductions for Premium Tax, if applicable, for certain Transfers, as a
Contract Maintenance Charge and as charges against the assets in the Owner's
Variable Sub-Account(s) for our assumption of mortality and expense risks.
Mortality and Expense Risk Charge
We deduct a Mortality and Expense Risk Charge from your Variable
Sub-Account(s) at the end of each Valuation Period to compensate us for bearing
certain mortality and expense risks under the Contract. This is a daily charge
equal to an effective annual rate of 0.50% of the value of the net assets in
your Variable Sub-Account(s). The approximate portion of this charge
attributable to mortality risks is 0.35%; the approximate portion of this charge
estimated to be attributable to expense risk is 0.15%. We guarantee that this
charge will never increase.
The Mortality and Expense Risk Charge is reflected in the unit values for
each of your Variable Sub-Accounts. Thus, this charge will continue to be
applicable should you choose a variable annuity payment option or the periodic
withdrawal option.
Annuity Account Values and annuity payments are not affected by changes in
actual mortality experience incurred by us. The mortality risks assumed by us
arise from our contractual obligations to make annuity payments determined in
accordance with the annuity tables and other provisions contained in the
Contract. Thus you are assured that neither the Annuitant's longevity nor an
unanticipated improvement in general life expectancy will adversely affect the
annuity payments under the Contract.
We bear substantial risk in connection with the death benefit before the
annuity commencement date, since we will pay a death benefit equal to the
greater of: (1) the Annuity Account Value as of the later of the date of death
or the date the Request for payment is received, less Premium Tax, if any; or,
(2) the sum of the Contributions paid, less partial withdrawals and/or Periodic
Withdrawals, less any charges under Contract less Premium Tax, if any (i.e., we
bear the risk of unfavorable experience in your Variable Sub-Accounts).
The expense risk assumed is the risk that our actual expenses in
administering the Contracts and the Series Account will be greater than
anticipated, or exceed the amount recovered through the Contract Maintenance
Charge plus the amount, if any, recovered through Transfer Fees.
If the Mortality and Expense Risk Charge is insufficient to cover actual
costs and risks assumed, the loss will fall on us. Conversely, if this charge is
more than sufficient, any excess will be profit to us. Currently, we expect a
profit from this charge. Our expenses for distributing the Contracts will be
borne by our general assets, including any profits from this charge.
Contract Maintenance Charge
We currently deduct an annual Contract Maintenance Charge of not more than
$30 from the Annuity Account Value only on each Contract anniversary date. This
charge partially covers our costs for administering the Contracts and the Series
Account. Once you have selected a payment option, this charge will cease to
apply other than for the Periodic Withdrawal Option. The Contract Maintenance
Charge is deducted from your Annuity Account Value allocated to the Money Market
Investment Division. If you do not have sufficient Annuity Account Value
allocated to the Money Market Investment Division to cover the Contract
Maintenance Charge, then the charge or any portion thereof will be deducted on a
pro rata basis from all your Variable Sub-Accounts with current value. The
Contract Maintenance Charge is currently waived for Contracts with an Annuity
Account Value of at least $25,000. If your Annuity Account Value falls below
$25,000 due to a withdrawal, the Contract Maintenance Charge will be reinstated
until such time as your Annuity Account Value is equal to or greater than
$25,000. We do not expect a profit from amounts received from the Contract
Maintenance Charge.
<PAGE>
Premium Tax
We may be required to pay state premium taxes or retaliatory taxes
currently ranging from 0% to 3.5% in connection with Contributions or values
under the Contracts. Depending upon applicable state law, we will deduct charges
for the premium taxes we incur with respect to a particular Contract from the
Contributions, from amounts withdrawn, or from amounts applied on the Payment
Commencement Date. In some states, charges for both direct premium taxes and
retaliatory premium taxes may be imposed at the same or different times with
respect to the same Contribution, depending on applicable state law.
Transfer Fee
There will be a $10 charge for each Transfer in excess of twenty-four
Transfers in any calendar year. We do not expect a profit from the Transfer fee
for excess Transfers.
Other Taxes
Under present laws, we will incur state or local taxes (in addition to the
Premium Tax described above) in several states. No charges are currently made
for taxes other than Premium Tax. However, we reserve the right to deduct
charges in the future for federal, state, and local taxes or the economic burden
resulting from the application of any tax laws that we determine to be
attributable to the Contracts.
Expenses of the Eligible Funds
The value of the assets in the Investment Divisions reflect the value of
Eligible Fund shares and therefore the fees and expenses paid by each Eligible
Fund. A complete description of the fees, expenses, and deductions from the
Eligible Funds are found in the Eligible Funds' prospectuses. (See "The Eligible
Funds.") Current prospectuses for the Funds can be obtained by calling the
Annuity Service Center at 800-355-1608, or by writing to the Annuity Service
Center, P.O. Box 1700, Denver, Colorado 80201.
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PAYMENT OPTIONS
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Periodic Withdrawal Option
The Owner may Request that all or part of the Annuity Account Value be
applied to a Periodic Withdrawal Option. The amount applied to a Periodic
Withdrawal is the Annuity Account Value, less Premium Tax, if any.
In Requesting Periodic Withdrawals, the Owner must elect:
- The withdrawal frequency of either 12-, 6-, 3-, or 1-month intervals;
- A withdrawal amount; a minimum of $100 is required;
- The calendar day of the month on which withdrawals will be made;
- One withdrawal option; and
- The allocation of withdrawals from the Owner's Variable Sub-Account(s)
as follows:
1) Prorate the amount to be paid across all Variable Sub-Accounts in
proportion to the assets in each sub-account; or
2) Select the Variable Sub-Account(s) from which withdrawals will be
made. Once the Variable Sub-Accounts have been depleted, the Company
will automatically prorate the remaining withdrawals against all
remaining available Variable Sub-Accounts unless the Owner Requests
the selection of another Variable Sub-Account.
The Owner may elect to change the withdrawal option and/or the frequency
once each calendar year.
While Periodic Withdrawals are being received:
1. the Owner may continue to exercise all contractual rights that are
available prior to electing an annuity option, except that no
Contributions may be made;
2. the Owner may keep the same investment options as were in force
before periodic withdrawals began; and
3 charges and fees under the Contract continue to apply.
Periodic Withdrawals will cease on the earlier of the date:
1. the amount elected to be paid under the option selected has been
reduced to zero;
2. the Annuity Account Value is zero;
3. the Owner Requests that withdrawals stop; or
4. an Owner or the Annuitant dies.
The Owner must elect one of the following three (3) withdrawal options:
1. Income for a Specified Period for at least thirty-six (36) months
- The Owner elects the duration over which withdrawals will be made.
The amount paid will vary based on the duration; or
2. Income of a Specified Amount for at least thirty-six (36) months
- The Owner elects the dollar amount of the withdrawals. Based on
the amount elected, the duration may vary; or
3. Any other form for a period of at least thirty-six (36) months -
The Owner elects any other form of Periodic Withdrawal which is
acceptable to the Company.
If Periodic Withdrawals cease, the Owner may resume making Contributions.
The Owner may elect to restart a Periodic Withdrawal program; however, the
Company may limit the number of times the Owner may restart a Periodic
Withdrawal program.
Periodic withdrawals may be taxable and subject to withholding and, for
withdrawals made prior to age 59 1/2, may be subject to a 10% federal tax
penalty. A competent tax adviser should be consulted before a Periodic
Withdrawal Option is requested. (See "Federal Tax Matters," for more
information.)
Annuity Date
The date annuity payments commence may be chosen when the Contract is
purchased or at a later date. This date must be at least one year after the
initial Contribution. In the absence of an earlier election, the date annuity
payments commence is the first day of the month of the Annuitant's 91st
birthday.
If an option has not been elected within 30 days of the annuity
commencement date, the Annuity Account Value held in the Variable Sub-Account(s)
will be applied under Variable Annuity Payment Option 1, discussed below, to
provide payments for life with a guaranteed period of 20 years.
Annuity Options
An annuity option may be selected by the Owner when the Contract is
purchased, or at a later date. This selection may be changed, by Request, at any
time up to 30 days before the annuity date. In the absence of an election,
payments will automatically commence on the annuity date as described above. The
amount to be applied is the Annuity Account Value on the annuity date. The
minimum amount that may be withdrawn from the Annuity Account Value to purchase
an annuity payment option is $2,000. If the amount is less than $2,000, the
Company may pay the amount in a single sum subject to the Contract provisions
applicable to a partial withdrawal. Payments may be elected to be received
monthly, quarterly, semi-annually or annually. Payments to be made under the
annuity payment option selected must be at least $50. The Company reserves the
right to make payments using the most frequent payment interval which produces a
payment of not less than $50. The maximum amount that may be applied under any
payment option is $1,000,000, unless prior approval is obtained from the
Company.
A single sum payment may be elected. If it is, then the amount to be paid
is the Surrender Value. If the Owner elects a variable annuity with funds from
the Owner's Variable Sub-Accounts, then the amount to be applied is the Annuity
Account Value held in the Variable Sub-Account(s), as of the annuity
commencement date, less any applicable Premium Tax.
Variable Annuity Payment Options
Option 1: Variable Life
Annuity with Guarantee Period
This option provides for payments during a designated period and
thereafter throughout the life time of the Annuitant. The designated period may
be 5, 10, 15 or 20 years. Upon death of the Annuitant, for each remaining
designated period, the amounts payable under this payment option will be paid to
the Beneficiary.
Option 2: Variable Life
Annuity
This annuity is payable during the lifetime of the Annuitant. The annuity
terminates with the last payment due prior to the death of the Annuitant. Since
no minimum number of payments is guaranteed, this option may offer the maximum
level of monthly payments of the annuity options. It is possible that only one
payment may be made if the Annuitant died before the date on which the second
payment was due. Upon the death of the Annuitant, all payments cease and no
amounts are payable to the Beneficiary.
Option 3: Variable Joint
and One Half Last Survivor
Annuity
This annuity is payable during the joint lifetime of the Annuitant and a
designated second person, and thereafter during the remaining lifetime of the
survivor. After death, and while the survivor is alive, the amount payable will
be one-half the amount paid while both were living. It is possible that only one
payment may be made if both died before the date on which the second payment was
due. Upon the death of the survivor, all payments cease and no amounts are
payable to the Beneficiary.
Option 4: Variable Joint
and One Half Last Survivor
Annuity with Guarantee Period
This annuity is payable during a designated period and thereafter
throughout the joint lifetime of the Annuitant and a designated second person,
and thereafter during the remaining lifetime of the survivor. The designated
period may be 5, 10, 15 or 20 years. Upon death, for each remaining designated
period, the amounts payable will be the full amount paid while both were alive.
After the designated period and while the survivor is alive, the amount payable
will be one-half the amount paid while both were living. It is possible that
only one payment may be made if both died before the date on which the second
payment was due. Upon the death of the survivor, the amounts payable under each
remaining designated period are payable to the Beneficiary. Upon the expiration
of the designated period, all payments cease and no amounts are payable to the
Beneficiary.
Option 5: Variable Joint
and Full Survivor Annuity
This annuity is payable during the joint lifetime of the Annuitant and a
designated second person, and thereafter during the remaining lifetime of the
survivor. Upon the death of the survivor, all payments cease and no amounts are
payable to the Beneficiary.
Option 6: Variable Joint
and Full Survivor Annuity with
Guarantee Period
This annuity is payable during a designated period and thereafter
throughout the joint lifetime of the Annuitant and a designated second person,
and thereafter during the remaining lifetime of the survivor. The designated
period may be 5, 10, 15 or 20 years. Upon death, for each remaining designated
period, the amounts payable will be the full amount paid while both were alive.
Upon the death of the survivor, the amounts payable under each remaining
designated period are payable to the Beneficiary. Upon the expiration of the
designated period, all payments cease and no amounts are payable to the
Beneficiary.
Option 7: Any Other Form
Any other form of variable annuity which is acceptable to the Company.
Variable annuity payment options are subject to the following provisions:
Amount of First Payment
The dollar amount of the first monthly payment under a variable annuity
payment option will be determined by applying the total value of the
Accumulation Units credited under the Contract valued as of the fifth Valuation
Date preceding the annuity commencement date (less any premium taxes) to the
annuity tables contained in the Contract. Amounts shown in the tables are based
on the 1983 Table (a) for Individual Annuity Mortality and modified with
projection scale G with an assumed investment return of 5% per annum. The first
annuity payment is determined by multiplying the benefit per $1,000 of value
shown in the Contract tables by the number of thousands of dollars of value
accumulated under the Contract. These Annuity Tables vary according to the form
of annuity selected and according to the age of the Annuitant at the Annuity
Commencement Date.
At the annuity commencement date, the Annuitant is credited with Annuity
Units for the Variable Sub-Account on which variable annuity payments are based.
The number of Annuity Units to be credited is determined by dividing the amount
of the first monthly payment by the value of an Annuity Unit as of the fifth
Valuation Date prior to the annuity commencement date in each Variable
Sub-Account selected. Although the number of Annuity Units is fixed by this
process, the value of such Units will vary with the value of the various
underlying funds.
The 5% interest rate stated above is the measuring point for subsequent
annuity payments. If the actual Net Investment Factor (annualized) exceeds 5%,
the payment will increase at a rate equal to the amount of such excess.
Conversely, if the actual rate is less than 5%, annuity payments will decrease.
If the assumed rate of interest were to be increased, annuity payments would
start at a higher level but would increase more slowly or decrease more rapidly.
Amount of Payments after
the First
Payments after the first will vary depending upon the investment
experience of the Investment Divisions. The subsequent amount paid from each
sub-account is determined by multiplying (a) by (b) where (a) is the number of
Variable Sub-Account Annuity Units to be paid and (b) is the Variable
Sub-Account Annuity Unit value on the 5th Valuation Date preceding the date the
annuity payment is due. The total amount of each variable annuity payment will
be the sum of the variable annuity payments for each Variable Sub-Account. The
Company guarantees that the dollar amount of each payment after the first will
not be affected by variations in expenses or mortality experience.
Transfers After the Annuity
Commencement Date
Once annuity payments have begun, Transfers may continue to be made among
Investment Divisions. Transfers after the annuity commencement date will be made
by converting the number of Annuity Units being Transferred to the number of
Accumulation Units of the Variable Sub-Account to which the Transfer is made.
The result will be that the next annuity payment, if it were made at that time,
would be the same amount that it would have been without the Transfer.
Thereafter, annuity payments will reflect changes in the value of the new
Annuity Units.
***
For annuity options involving life income, the actual age and/or sex of
the Annuitant will affect the amount of each payment. We reserve the right to
ask for satisfactory proof of the Annuitant's age. We may delay annuity payments
until satisfactory proof is received. Since payments to older Annuitants are
expected to be fewer in number, the amount of each annuity payment under a
selected annuity form will be greater for older Annuitants than for younger
Annuitants.
If the age of the Annuitant has been misstated, the payments established
will be made on the basis of the correct age. If payments were too large because
of misstatement, the difference with interest may be deducted by the Company
from the next payment or payments. If payments were too small, the difference
with interest may be added by the Company to the next payment. This interest is
at an annual effective rate which will not be less than the minimum interest
rate allowed by law.
Once payments start under the annuity form selected by the Owner: (a) no
changes can be made in the annuity form, (b) no additional Contributions will be
accepted under the Contract, and (c) no further withdrawals, other than
withdrawals made to provide annuity benefits, will be allowed.
***
A portion or the entire amount of the annuity payments may be taxable as
ordinary income. If, at the time the annuity payments begin, we have not
received a proper written election not to have federal income taxes withheld, we
must by law withhold such taxes from the taxable portion of such annuity
payments and remit that amount to the federal government (an election not to
have taxes withheld is not permitted for certain Qualified Contracts). State
income tax withholding may also apply. (See "Federal Tax-Matters," below.)
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FEDERAL TAX MATTERS
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Introduction
The following discussion is a general description of federal income tax
considerations relating to the Contracts and is not intended as tax advice.
Further, this discussion is based on the assumption that the Contract qualifies
as an annuity contract for federal income tax purposes. This discussion is not
intended to address the tax consequences resulting from all of the situations in
which a person may be entitled to or may receive a distribution under the
Contract. Any person concerned about these tax implications should consult a
competent tax adviser before initiating any transaction. This discussion is
based upon our understanding of the present federal income tax laws as they are
currently interpreted by the Internal Revenue Service. No representation is made
as to the likelihood of the continuation of the present federal income tax laws
or of the current interpretation by the Internal Revenue Service. Moreover, no
attempt has been made to consider any applicable state or other tax laws.
The Contract may be purchased on a non-tax qualified basis ("Non-Qualified
Contract") only. The ultimate effect of federal income taxes on the amounts held
under a Contract, on annuity payments, and on the economic benefit to you, the
Annuitant, or the Beneficiary may depend on the type of Contract, and on the tax
status of the individual concerned.
Tax Status
The Company is taxed as a life insurance company under Part I of
Subchapter L of the Code.
Taxation of Annuities
In General
Section 72 of the Code governs taxation of annuities in general. An Owner
who is a natural person generally is not taxed on increases (if any) in the
value of an Annuity Account Value until distribution occurs by withdrawing all
or part of the Annuity Account Value (e.g., withdrawals or annuity payments
under the annuity form elected). However, under certain circumstances, the Owner
may be subject to taxation currently. In addition, an assignment, pledge, or
agreement to assign or pledge any portion of the Annuity Account Value generally
will be treated as a distribution. The taxable portion of a distribution (in the
form of a single sum payment or an annuity) is taxable as ordinary income.
The Owner of any annuity contract who is not a natural person (e.g. a
corporation) generally must include in income any increase in the excess of the
Annuity Account Value over the "investment in the contract" (discussed below)
during each taxable year. The rule does not apply where the non-natural person
is the nominal owner of a Contract and the beneficial owner is a natural person.
The rule also does not apply in the following circumstances: (1) where the
annuity Contract is acquired by the estate of a decedent, (2) where the Contract
is a qualified funding asset for a structured settlement, and (3) where the
Contract is purchased on behalf of an employee upon termination of a qualified
plan. A prospective Owner that is not a natural person may wish to discuss these
matters with a competent tax adviser.
The following discussion generally applies to a Contract owned by a
natural person.
Withdrawals
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. Full surrenders are treated as
taxable income to the extent that the amount received exceeds the "investment in
the contract." The taxable portion of any annuity payment is taxed at ordinary
income tax rates.
Annuity Payments
Although the tax consequences may vary depending on the annuity form
elected under the Contract, in general, only the portion of the annuity payment
that represents the amount by which the Annuity Account Value exceeds the
"investment in the contract" will be taxed; after the investment in the contract
is recovered, the full amount of any additional annuity payments is taxable. If
the annuity payments cease as a result of an Annuitant's death before full
recovery of the "investment in the contract," you should consult a competent tax
adviser regarding the deductibility of the unrecovered amount.
Penalty Tax
In the case of a distribution pursuant to a Non-Qualified Contract, there
may be imposed a federal income tax penalty equal to 10% of the amount treated
as taxable income. In general, however, there is no penalty tax on
distributions: (1) made on or after the date on which the recipient of payments
attains age 59 1/2; (2) made as a result of death or disability of the recipient
of payments; or (3) made as part of a series of substantially equal periodic
payments (at least annually) for the life or life expectancy of the Owner or the
joint lives or life expectancies of the Owner and his or her designated
beneficiary.
If the penalty tax does not apply to a distribution as a result of the
application of item (3) above, and the series of payments is subsequently
modified (other than by reason of death or disability) before the Owner reaches
age 59 1/2 or within five (5) years of the date of the first payment, whichever
is later, the Owner is liable for the 10% penalty plus interest on all payments
received before age 59 1/2. This penalty is imposed in the year the modification
or discontinuance occurs. Other exemptions or tax penalties may apply to
distributions from a non-qualified Contract. For more details regarding these
exemptions or penalties consult a competent tax adviser.
Taxation of Death Benefit
Proceeds
Amounts may be distributed from the Contract because of the death of an
Owner or the Annuitant. Generally such amounts are includible in the income of
the recipient as follows: (1) if distributed in a lump sum, they are taxed in
the same manner as a full surrender, as described above, or (2) if distributed
under an annuity form, they are taxed in the same manner as annuity payments, as
described above.
Distribution-at-Death Rules
In order to be treated as an annuity contract, the terms of the Contract
must provide the following two distribution rules: (A) if any Contract Owner
dies on or after the date annuity payments commence, and before the entire
interest in the Contract has been distributed, the remainder of his interest
will not be distributed under a slower distribution schedule than that provided
for in the method in effect on the Contract Owner's death; and (B) if any
Contract Owner dies before the date annuity payments commence, his entire
interest must generally be distributed within five years after the date of death
provided that if such interest is payable to a designated Beneficiary, then such
interest may be made over the life of that designated Beneficiary or over a
period not extending beyond the life expectancy of that Beneficiary, so long as
payments commence within one year after the Contract Owner's death. If the sole
designated Beneficiary is the spouse of the Contract Owner, the Contract may be
continued in the name of the spouse as Contract Owner. The designated
Beneficiary is the natural person designated by the terms of the Contract or by
the Contract Owner as the individual to whom ownership of the contract passes by
reason of the Contract Owner's death. If the Contract Owner is not an
individual, then for purposes of the distribution at death rules, the Primary
Annuitant is considered the Contract Owner. In addition, when the Contract Owner
is not an individual, a change in the Primary Annuitant is treated as the death
of the Contract Owner.
Transfers, Assignments, or
Exchanges
A Transfer of ownership of a Contract, the designation of an Annuitant,
Payee or other Beneficiary who is not also the Owner, or the exchange of a
Contract may result in adverse tax consequences to the Owner that are not
discussed herein. An Owner contemplating any such designation, transfer,
assignment, or exchange of a Contract should contact a competent tax adviser
with respect to the potential tax effects of such a transaction.
Multiple Contracts
All deferred, non-qualified annuity contracts that are issued by the
Company (or our affiliates) to the same Owner during any calendar year will be
treated as one annuity contract for purposes of determining the amount
includible in gross income under section 72(e) of the Code. Amounts received
under any such Contract may be taxable (and may be subject to the 10% Penalty
Tax) to the extent of the combined income in all such Contracts. In addition,
the Treasury Department has specific authority to issue regulations that prevent
the avoidance of section 72(e) through the serial purchase of annuity contracts
or otherwise. Congress has also indicated that the Treasury Department may have
authority to treat the combination purchase of an immediate annuity contract and
separate deferred annuity contracts as a single annuity contract under its
general authority to prescribe rules as may be necessary to enforce the income
tax laws.
Withholding
Annuity distributions generally are subject to withholding for the
recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions.
Possible Changes in Taxation
In past years, legislation has been proposed that would have adversely
modified the federal taxation of certain annuities. For example, one such
proposal would have changed the tax treatment of non-qualified annuities that
did not have "substantial life contingencies" by taxing income as it is credited
to the annuity. There is always the possibility that the tax treatment of
annuities could change by legislation or other means (such as IRS regulations,
revenue rulings, judicial decisions, etc.). Moreover, it is also possible that
any change could be retroactive (that is, effective prior to the date of the
change).
Section 1035 Exchanges
Code Section 1035 provides that no gain or loss shall be recognized on the
exchange of one annuity contract for another. A replacement contract obtained in
a tax-free exchange of contracts succeeds to the status of the original
contract. Special rules apply to Contracts issued prior to August 14, 1982.
Prospective Owners wishing to take advantage of a Section 1035 exchange should
consult their tax adviser.
Seek Tax Advice
The foregoing discussion of the federal income tax consequences is only a
brief summary and is not intended as tax advice. Further, the federal income tax
consequences discussed herein reflect our understanding of current law and the
law may change. Federal estate tax consequences and state and local estate,
inheritance, and other tax consequences of ownership or receipt of distributions
under a Contract depend on the individual circumstances of each Owner or
recipient of the distribution. A COMPETENT TAX ADVISER SHOULD BE CONSULTED FOR
FURTHER INFORMATION.
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ASSIGNMENTS OR PLEDGES
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Generally, rights in the Contract may be assigned or pledged for loans at
any time during the life of the Annuitant.
If a Contract is assigned, the interest of the assignee has priority over
the interest of the Owner and the interest of the Beneficiary. Any amount
payable to the assignee will be paid in a single sum.
A copy of any assignment must be submitted to the Company at the Annuity
Service Center. Any assignment is subject to any action taken or payment made by
the Company before the assignment was processed. The Company is not responsible
for the validity or sufficiency of any assignment.
If any portion of the Annuity Account Value is assigned or pledged for a
loan, it may be treated as a distribution. A competent tax adviser should be
consulted for further information.
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PERFORMANCE DATA
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From time to time, we may advertise yields and average annual total
returns for the Investment Divisions. In addition, we may advertise the
effective yield of the Money Market Investment Division. These figures will be
based on historical information and are not intended to indicate future
performance.
The yield of the Money Market Investment Division refers to the annualized
income generated by an investment in that Investment Division over a specified
seven-day period. The yield is calculated by assuming that the income generated
for that seven-day period is generated each seven-day period over a 52-week
period and is shown as a percentage of the investment. The effective yield is
calculated similarly but, when annualized, the income earned by an investment in
that Investment Division is assumed to be reinvested. The effective yield will
be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
The yield of an Investment Division (other than the Money Market
Investment Division) refers to the annualized income generated by an investment
in that Investment Division over a specified thirty-day period. The yield is
calculated by assuming that the income generated by the investment during that
thirty-day period is generated each thirty-day period over a twelve-month period
and is shown as a percentage of the investment.
The yield calculations do not reflect the effect of any Premium Tax that
may be applicable to a particular Contract. To the extent that premium taxes are
applicable to a particular Contract, the yield of that Contract will be reduced.
For a description of the methods used to determine yield and total returns, see
the Statement of Additional Information.
For the 7 day Period Ended December 31, 1997 Investment Division Yield
Effective Yield Maxim Money Market 4.75% 4.88%
The average annual total return of an Investment Division refers to return
quotations assuming an investment has been held in the Investment Division for
various periods of time including, but not limited to, a period measured from
the date the Investment Division commenced operations. When an Investment
Division has been in operation for 1, 5, and 10 years, respectively, the average
annual total return for these periods will be provided. The average annual total
return quotations will represent the average annual compounded rates of return
that would equate an initial investment of $1,000 to the redemption value of
that investment (excluding Premium Tax) as of the last day of each of the
periods for which total return quotations are provided. For additional
information regarding yields and total returns calculated using the standard
formats briefly described herein, please refer to the Statement of Additional
Information.
The following table illustrates standardized and non-standardized average
annual total return for the one, five and ten year periods (or since inception,
as appropriate) ended December 31, 1997. Both the standardized and the
non-standardized data reflect the deduction of all fees and charges under the
Contract. However, the standardized data are calculated from the inception date
of the Investment Division in the Series Account and the non-standardized data
are calculated for periods preceding the inception date of the Investment
Division in the Series Account. Certain Investment Divisions presently have no
standardized data. Such data will be provided when it becomes available.
<PAGE>
<TABLE>
Since Inception Since Inception
Investment Division Inception Date in Inception Date of
One Five Ten in Investmentof Underlying
Year Years Years Investment Division Underlying Fund
Division Fund
Janus Aspen
<S> <C> <C> <C> <C>
Flexible Income 11.20% N/A N/A N/A 9.48% 9/13/93
Portfolio
Maxim T. Rowe Price
Equity/Income 28.18% N/A N/A 24.32% 11/1/94 24.32% 11/1/94
Maxim INVESCO 25.47% N/A N/A 26.14% 10/1/96 26.14% 10/1/96
Balanced
Dreyfus Stock Index 32.30% 19.11% N/A N/A 15.27% 9/29/89
Fund
Maxim Growth Index 28.26% N/A N/A 20.28% 20.28% 12/1/93
Neuberger & Berman
AMT Partners 30.60% N/A N/A N/A 23.56% 3/22/94
Investments
Templeton
International Fund 13.38% 18.11% N/A N/A 14.46% 5/1/92
(Class 1)
</TABLE>
The Contracts have been offered to the public only since , 1998. However,
total return data may be advertised for as long a period of time as the Series
Account has been active. The results for any period prior to the contracts being
offered would be calculated as if the Contracts had been offered during that
period (which they were not), deducting all recurring charges including the
annual contract maintenance charge of not more than $30, and the daily mortality
and expense risk charge of 0.50%.
Performance information for any Investment Division reflects only the
performance of a hypothetical Contract under which Annuity Account Value is
allocated to an Investment Division during a particular time period on which the
calculations are based. Performance information should be considered in light of
the investment objectives and policies and characteristics of the Eligible Funds
in which the Investment Division invests, and the market conditions during the
given time period, and should not be considered as a representation of what may
be achieved in the future.
Reports and promotional literature may also contain other information
including (1) the ranking of any Investment Division derived from rankings of
variable annuity separate accounts or their investment products tracked by
Lipper Analytical Services, Inc., VARDS, Morningstar, Value Line, IBC/Donoghue's
Money Fund Report, Financial Planning Magazine, Money Magazine, Bank Rate
Monitor, Standard & Poor's Indices, Dow Jones Industrial Average, and other
rating services, companies, publications, or other persons who rank separate
accounts or other investment products on overall performance or other criteria,
and (2) the effect of tax-deferred compounding on investment returns, or returns
in general, which may be illustrated by graphs, charts, or otherwise, and which
may include a comparison, at various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a currently taxable basis.
Other ranking services and indices may be used.
We may from time to time also disclose cumulative (non-annualized) total
returns for the Investment Divisions. We may from time to time also disclose
yield and standard total returns for any or all Investment Divisions.
We may also advertise performance figures for the Investment Divisions
based on the performance of an Eligible Fund prior to the time the Series
Account commenced operations.
For additional information regarding the calculation of other performance
data, please refer to the Statement of Additional Information.
---------------------------------------------------------------------------
DISTRIBUTION OF THE CONTRACTS
----------------------------------------------------------------------------
BenefitsCorp Equities, Inc. ("BCE") is the principal underwriter and
distributor of the Contracts. BCE 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 8515
East Orchard, Englewood, Colorado 80111. BCE is an indirect wholly owned
subsidiary of GWL&A. There are no commissions paid to dealers.
----------------------------------------------------------------------------
VOTING RIGHTS
----------------------------------------------------------------------------
To the extent required by applicable law, all Eligible Fund shares held in
the Series Account will be voted by the Company at regular and special
shareholder meetings of the respective Eligible Funds in accordance with
instructions received from persons having voting interests in the corresponding
Investment Division. If, however, the 1940 Act or any regulation thereunder
should be amended, or if the present interpretation thereof should change, or if
we determine that we are allowed to vote all Eligible Funds shares in our own
right, we may elect to do so.
Before the annuity commencement date, you the Owner, have the voting
interest. The number of votes which are available to you will be calculated
separately for each of your Variable Sub-Accounts. That number will be
determined by applying your percentage interest, if any, in a particular
Investment Division to the total number of votes attributable to that Investment
Division. You hold a voting interest in each Investment Division to which your
Annuity Account Value is allocated. If you select a variable annuity option, the
votes attributable to a Contract will decrease as annuity payments are made.
The number of votes of an Eligible Fund will be determined as of the date
coincident with the date established by that Eligible Fund for determining
shareholders eligible to vote at the meeting of the Eligible Funds. Voting
instructions will be solicited by written communication prior to such meeting in
accordance with procedures established by the respective Eligible Funds.
Shares as to which no timely instructions are received and shares held by
us as to which Owners have no beneficial interest will be voted in proportion to
the voting instructions which are received with respect to all Contracts
participating in the Investment Division. Voting instructions to abstain on any
item to be voted upon will be applied on a pro rata basis to reduce the votes
eligible to be cast.
Each person or entity having a voting interest in a Investment Division
will receive proxy material, reports and other material relating to the
appropriate Eligible Fund.
It should be noted that generally the Eligible Funds are not required to,
and do not intend to, hold annual or other regular meetings of shareholders.
Contract Owners have
no voting rights in the
Company.
----------------------------------------------------------------------------
RIGHTS RESERVED BY THE COMPANY
----------------------------------------------------------------------------
The Company reserves the right to make certain changes if, in its
judgment, they would best serve the interests of Owners and Annuitants or would
be appropriate in carrying out the purposes of the Contracts. Any changes will
be made only to the extent and in the manner permitted by applicable laws. Also,
when required by law, the Company will obtain your approval of the changes and
approval from any appropriate regulatory authority. Such approval may not be
required in all cases, however. Examples of the changes the Company may make
include:
- To operate the Series Account in any form permitted under the Investment
Company Act of 1940 or in any other form permitted by law.
- To transfer any assets in any Investment Division to another Investment
Division, or to one or more separate accounts; or to add, combine or
remove Investment Divisions of the Series Account.
- To substitute, for the Eligible Fund shares in any Investment Division,
the shares of another Eligible Fund or shares of another investment
company or any other investment permitted by law.
- To make any changes required by the Internal Revenue Code or by any
other applicable law in order to continue treatment of the Contract as an
annuity.
- To change the time or time of day at which a Valuation Date is deemed to
have ended.
- To make any other necessary technical changes in the Contract in order
to conform with any action the above provisions permit the Company to
take, including to change the way the Company assesses charges, but
without increasing as to any then outstanding Contract the aggregate
amount of the types of charges which the Company has guaranteed.
----------------------------------------------------------------------------
LEGAL PROCEEDINGS
----------------------------------------------------------------------------
There are at present no material legal proceedings to which the Series
Account is a party or to which the assets of the Series Account are subject. The
Company is not currently a party to, and its property is not currently subject
to, any material legal proceedings. The lawsuits to which the Company is a party
are, in the opinion of management, in the ordinary course of business, and are
not expected to have a material adverse effect on the financial results,
conditions or prospects of the Company.
----------------------------------------------------------------------------
LEGAL MATTERS
----------------------------------------------------------------------------
Advice regarding certain legal matters concerning the federal securities
laws applicable to the issue and sale of the Contract has been provided by
Jorden Burt Boros Cicchetti Berenson & Johnson LLP. The organization of the
Company, the Company's authority to issue the Contract, and the validity of the
form of the Contract have been passed upon by Ruth B. Lurie, Vice President,
Counsel and Associate Secretary of the Company.
----------------------------------------------------------------------------
AVAILABLE INFORMATION
----------------------------------------------------------------------------
We have filed a registration statement ("Registration Statement") with the
Commission under the 1933 Act relating to the Contracts offered by this
Prospectus. This Prospectus has been filed as a part of the Registration
Statement and does not contain all of the information set forth in the
Registration Statement and exhibits thereto. Reference is hereby made to the
Registration Statement and exhibits for further information relating to us and
the Contracts. Statements contained in this Prospectus, as to the content of the
Contracts and other legal instruments, are summaries. For a complete statement
of the terms thereof, reference is made to the instruments as filed as exhibits
to the Registration Statement. The Registration Statement and its exhibits may
be inspected and copied at the offices of the Commission located at 450 Fifth
Street, N.W., Washington, D.C.
The Statement of Additional Information contains more specific information
relating to the Series Account and GWL&A. The Table of Contents of the Statement
of Additional Information is set forth below:
1. General Information
2. Great-West Life & Annuity Insurance Company and Maxim Series Account
3. Calculation of Annuity Payments
4. Postponement of Payments
5. Services
6. Withholding
7. Calculation of Performance Data
8. Financial Statements
The Statement of Additional Information is incorporated in this prospectus
in its entirety.
1 The Contract Owner Transaction Expenses apply to each Contract, regardless
of how the Annuity Account Value is allocated.
2 There is a $10 fee for each transfer in excess of twenty-four in any
calendar year.
3 The Contract Maintenance Charge is a maximum of $30 and is currently
waived for Contracts with an Annuity Account Value of at least $25,000. If your
Annuity Account Value falls below $25,000 due to a withdrawal, the Contract
Maintenance Charge will be reinstated until such time as your Annuity Account
Value is equal to or greater than $25,000.
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
SUBJECT TO COMPLETION
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO SUCH TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONTSITUTE A
PROSPECTUS.
MAXIM SERIES ACCOUNT
Contracts Under
Flexible Premium Deferred
Variable Annuity Contracts
issued by
Great-West Life & Annuity Insurance Company
8515 E. Orchard Road
Englewood, Colorado 80111
Telephone: (800) 468-8661 (Outside Colorado)
(800) 547-4957 (Colorado)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a Prospectus and should
be read in conjunction with the Prospectus, dated , 1998, which is
available without charge by contacting the Annuity Service Center, P.O. Box
1700, Denver Colorado 80201 or at 1-800-xxx-xxxx.
, 1998
<PAGE>
TABLE OF CONTENTS
Page
GENERAL INFORMATION........................................................B-3
GREAT-WEST LIFE & ANNUITY
AND THE MAXIM SERIES ACCOUNT.............................................B-3
CALCULATION OF ANNUITY PAYMENTS............................................B-3
POSTPONEMENT OF PAYMENTS...................................................B-4
SERVICES...................................................................B-4
- Safekeeping of Series Account Assets...............................B-4
- Experts............................................................B-4
- Principal Underwriter..............................................B-5
WITHHOLDING................................................................B-5
CALCULATION OF PERFORMANCE DATA............................................B-5
FINANCIAL STATEMENTS.......................................................B-7
<PAGE>
B-7
GENERAL INFORMATION
In order to supplement the description in the Prospectus, the following provides
additional information about the Contracts and other matters which may be of
interest to you. Terms used in this Statement of Additional Information have the
same meanings as are defined in the Prospectus under the heading "Definitions."
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
AND THE MAXIM SERIES ACCOUNT
Great-West Life & Annuity Insurance Company (the "Company"), the issuer of the
Contract, is a Colorado corporation qualified to sell life insurance and annuity
contracts in Puerto Rico, the District of Columbia and all states except New
York. The Company is a wholly-owned subsidiary of The Great-West Life Assurance
Company, a stock life insurance company incorporated under the laws of Canada.
The Great-West Life Assurance Company is in turn owned 86.4% by Great-West
Lifeco Inc., a holding company. Great-West Lifeco Inc. is owned 68.1% by Power
Financial Corporation of Canada, a financial services company. Power Corporation
of Canada, a holding and management company, has voting control of Power
Financial Corporation of Canada. Mr. Paul Desmarais, through a group of private
holding companies, which he controls, has voting control of Power Corporation of
Canada.
The assets allocated to the Series Account are the exclusive property of
the Company. Registration of the Series Account under the Investment Company Act
of 1940 does not involve supervision of the management or investment practices
or policies of the Series Account or of the Company by the Securities and
Exchange Commission. The Company may accumulate in the Series Account proceeds
from charges under the Contracts and other amounts in excess of the Series
Account assets representing reserves and liabilities under the Contract and
other variable annuity contracts issued by the Company. The Company may from
time to time transfer to its general account any of such excess amounts. Under
certain remote circumstances, the assets of one Investment Division may not be
insulated from liability associated with another Investment Division
Best's Insurance Reports has assigned the Company its highest financial
strength and operating performance rating of A++. Duff & Phelps Corporation has
assigned the Company their highest claims paying ability rating of AAA. Standard
& Poor's Corporation has assigned the Company its second highest rating of AA+
for claims paying ability. Moody's Investors Service has assigned the Company an
insurance and financial strength rating of Aa2.
CALCULATION OF ANNUITY PAYMENTS
The Company converts the Accumulation Units for each of the Owner's
Variable Sub-Accounts into Annuity Units for each Variable Sub-Account at their
values determined as of the end of the Valuation Period which contains the
Payment Commencement Date. The number of Annuity Units paid for each Variable
Sub-Account is determined by dividing the amount of the first monthly payment by
the sub-account's Annuity Unit Value on the fifth Valuation Date preceding the
date the first payment is due. The number of Annuity Units used to calculate
each payment for a Variable Sub-Account remains fixed during the annuity payment
period.
The first payment under a variable annuity payment option will be
based on the value of each Variable Sub-Account on the fifth Valuation Date
preceding the Payment Commencement Date. It will be determined by applying the
appropriate rate to the amount applied under the Payment Option. Payments after
the first will vary depending upon the investment experience of the Variable
Sub-Accounts. The subsequent amount paid from each sub-account is determined by
multiplying (a) by (b) where (a) is the number of sub-account Annuity Units to
be paid and (b) is the sub-account Annuity Unit value on the fifth Valuation
Date preceding the date the annuity payment is due. The total amount of each
Variable Annuity Payment will be the sum of the Variable Annuity Payments for
each Variable Sub-Account.
POSTPONEMENT OF PAYMENTS
With respect to amounts allocated to the Series Account, payment of
any amount due upon a total or partial surrender, death or under an annuity
option will ordinarily be made within seven days after all documents required
for such payment are received by the Annuity Service Center. However, the
determination, application or payment of any death benefit, Transfer, full
surrender, partial withdrawal or annuity payment may be deferred to the extent
dependent on Accumulation or Annuity Unit Values, for any period during which
the New York Stock Exchange is closed (other than customary weekend and holiday
closings) or trading on the New York Stock Exchange is restricted as determined
by the Securities and Exchange Commission, for any period during which any
emergency exists as a result of which it is not reasonably practicable for the
Company to determine the investment experience, of such Accumulation or Annuity
Units or for such other periods as the Securities and Exchange Commission may by
order permit for the protection of investors.
SERVICES
A. Safekeeping of Series Account Assets
The assets of Maxim Series Account (the "Series Account") are held
by Great-West Life & Annuity Insurance Company ("GWL&A"). The assets of the
Series Account are kept physically segregated and held separate and apart from
the general account of GWL&A. GWL&A maintains records of all purchases and
redemptions of shares of the underlying funds. Additional protection for the
assets of the Series Account is afforded by blanket fidelity bonds issued to The
Great-West Life Assurance Company in the amount of $30 million (Canadian), which
covers all officers and employees of GWL&A.
B. Experts
Deloitte & Touche LLP performs certain accounting and auditing
services for GWL&A and the Series Account. The principal business address of
Deloitte & Touche LLP is 555 Seventeenth Street, Suite 3600, Denver, Colorado
80202.
The consolidated financial statements of GWL&A at December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997,
and the statement of assets and liabilities of Maxim Series Account as of
December 31, 1997 and the related statement of operations for the year then
ended and statements of changes in net assets for each of the two years in the
period ended December 31, 1997 included in the prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as set forth in their report
appearing therein and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
C. Principal Underwriter
The offering of the Contracts is made on a continuous basis by
BenefitsCorp Equities, Inc. ("BCE"). BCE is a Delaware corporation and is a
member of the National Association of Securities Dealers ("NASD"). The Company
does not anticipate discontinuing the offering of the Contract, although it
reserves the right to do so. The Contract generally will be issued for
Annuitants from birth to age ninety.
WITHHOLDING
Annuity payments and other amounts received under the Contract are
subject to income tax withholding unless the recipient elects not to have taxes
withheld. The amounts withheld will vary among recipients depending on the tax
status of the individual and the type of payments from which taxes are withheld.
Notwithstanding the recipient's election, withholding may be
required with respect to certain payments to be delivered outside the United
States and, with respect to certain distributions from certain types of
qualified retirement plans, unless the proceeds are transferred directly to
another qualified retirement plan. Moreover, special "backup withholding" rules
may require the Company to disregard the recipient's election if the recipient
fails to supply the Company with a "TIN" or taxpayer identification number
(social security number for individuals), or if the Internal Revenue Service
notifies the Company that the TIN provided by the recipient is incorrect.
CALCULATION OF PERFORMANCE DATA
A. Yield and Effective Yield Quotations for the Money Market Investment
Division
The yield quotation for the Money Market Investment Division will be for
the seven-day period and is computed by determining the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account having a
balance of one Accumulation Unit in the Money Market Investment Division at the
beginning of the period, subtracting a hypothetical charge reflecting deductions
from Participant accounts, and dividing the difference by the value of the
account at the beginning of the base period to obtain the base period return,
and then multiplying the base period return by (365/7) with the resulting yield
figure carried to the nearest hundredth of one percent.
The effective yield quotation for the Money Market Investment Division
will be for the seven-day period and is carried to the nearest hundredth of one
percent, computed by determining the net change, exclusive of capital changes,
in the value of a hypothetical pre-existing account having a balance of one
Accumulation Unit in the Money Market Investment Division at the beginning of
the period, subtracting a hypothetical charge reflecting deductions from
Participant accounts, and dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN +1)365/7]-1.
For purposes of the yield and effective yield computations, the
hypothetical charge reflects all deductions that are charged to all Participant
accounts in proportion to the length of the base period, and for any fees that
vary with the size of the account, the account size is assumed to be the Money
Market Investment Division's mean account size. The specific percentage
applicable to a particular withdrawal would depend on a number of factors
including the length of time the Contract Owner has participated under the
Contracts. (See "Charges and Deductions" in the Prospectus.) No deductions or
sales loads are assessed upon annuitization under the Contracts. Realized gains
and losses from the sale of securities and unrealized appreciation and
depreciation of the Money Market Investment Division and the Fund are excluded
from the calculation of yield.
B. Total Return and Yield Quotations for All Investment Divisions (Other
than Money Market)
The total return quotations for all Investment Divisions, other than the
Money Market, will be average annual total return quotations for the one-year
period. The quotations are computed by finding the average annual compounded
rates of return over the relevant periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
N = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the particular
period at the end of the particular period
For purposes of the total return quotations for these Investment Divisions, the
calculations take into effect all fees that are charged to the Contract Value ,
and for any fees that vary with the size of the account, the account size is
assumed to be the respective Investment Divisions' mean account size. The
calculations also assume a complete redemption as of the end of the particular
period.
The yield quotations for these Investment Divisions set forth in the
Prospectus are based on the thirty-day period ended on December 31, 1997, and
are computed by dividing the net investment income per Accumulation Unit earned
during the period by the maximum offering price per unit on the last day of the
period, according to the following formula:
YIELD = 2[((a-b)cd +1)6 -1]
Where: a = net investment income earned during the period by the
corresponding portfolio of the Fund attributable to
shares owned by the Investment Division.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of Accumulation Units
outstanding during the period.
d = the maximum offering price per Accumulation Unit on
the last day of the period.
For purposes of the yield quotations for these Investment Divisions, the
calculations take into effect all fees that are charged to the Contract Value,
and for any fees that vary with the size of the account, the account size is
assumed to be the respective Investment Divisions' mean account size.
FINANCIAL STATEMENTS
The financial statements of GWL&A as contained herein should be considered
only as bearing upon GWL&A's ability to meet its obligations under the
Contracts, and they should not be considered as bearing on the investment
performance of the Series Account. The interest of Contract Owners under the
Contracts are affected solely by the investment results of the Series Account.
MAXIM SERIES ACCOUNT
Financial Statements
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Financial Statements for the Years
Ended December 31, 1997 and 1996
and Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Contract Owners of Maxim Series Account of
Great-West Life & Annuity Insurance Company:
We have audited the accompanying statements of assets and liabilities of Maxim
Series I, Maxim Series II and Maxim Series III of Maxim Series Account of
Great-West Life & Annuity Insurance Company as of December 31, 1997, the related
statements of operations for the year then ended and the statements of changes
in net assets for each of the two years in the period then ended, including each
of the investment divisions. These financial statements are the responsibility
of the Series Account's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Maxim Series I, Maxim Series II and Maxim
Series III of Maxim Series Account of Great-West Life & Annuity Insurance
Company at December 31, 1997, the results of its operations for the year then
ended, and the changes in its net assets for each of the two years in the period
then ended in conformity with generally accepted accounting principles.
February 12, 1998
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------
Maxim Series I
ASSETS: Shares Cost Value
---------------- --------------- ----------------
Investments in the underlying funds:
Maxim Series Fund, Inc. (Affiliate):
<S> <C> <C> <C>
Money Market\Non-Qualified 31,599 $ 31,646 $ 31,620
Bond\Non-Qualified 80,409 100,817 97,450
Bond\Qualified 5,004 5,994 6,065
Stock Index\Qualified 3,921 20,921 11,558
Total Return\Non-Qualified 34,979 41,259 55,056
--------------- ----------------
Total investments $ 200,637 201,749
===============
Other assets and liabilities:
Premiums due and accrued 387
Due to Great-West Life & Annuity Insurance Company (499)
Other liabilities (30)
----------------
NET ASSETS APPLICABLE TO OUTSTANDING UNITS OF CAPITAL (Note 5) $ 201,607
================
</TABLE>
See notes to financial statements.
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------
Maxim Series II
ASSETS: Shares Cost Value
---------------- ---------------- ----------------
Investments in the underlying funds:
Maxim Series Fund, Inc. (Affiliate):
<S> <C> <C> <C>
Money Market\Non-Qualified 831,689 $ 831,384 $ 832,252
Money Market\Qualified 967,076 977,797 967,730
Bond\Non-Qualified 1,125,869 1,369,526 1,364,480
Bond\Qualified 1,198,889 1,460,779 1,452,975
Stock Index\Non-Qualified 2,824,433 4,831,180 8,324,693
Stock Index\Qualified 3,543,051 5,801,289 10,442,738
U.S. Government 5,633,192 6,172,134 6,150,139
Securities/Non-Qualified
U.S. Government 3,289,464 3,626,615 3,591,332
Securities/Qualified
Total Return/Non-Qualified 3,286,654 4,050,267 5,173,089
American Century VP Funds -
VP Capital Appreciation 33,813 376,403 327,309
American Century VP Funds - VP 51,473 356,557 424,138
Balanced
---------------- ----------------
Total investments $ 29,853,931 39,050,875
================
Other assets and liabilities:
Premiums due and accrued 933
Due to Great-West Life & Annuity Insurance (90,499)
Company
Other liabilities (1,045)
----------------
=============================================================================
NET ASSETS APPLICABLE TO OUTSTANDING UNITS OF CAPITAL (Note 5) $ 38,960,264
============================================================================= ================
</TABLE>
See notes to financial statements.
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------
Maxim Series III
ASSETS: Shares Cost Value
--------------- ---------------- ---------------
Investments in the underlying funds:
Maxim Series Fund, Inc. (Affiliate):
<S> <C> <C> <C>
Bond 74,004 $ 88,815 $ 89,687
Corporate Bond 285,497 339,697 342,055
INVESCO ADR 321,828 440,682 476,436
INVESCO Balanced 329,826 407,287 415,183
INVESCO Small-Cap Growth 535,120 844,011 853,787
Mid-Cap 503,122 731,797 781,461
Money Market 609,251 609,663 609,663
Small-Cap Index 196,606 249,982 247,487
Small-Cap Value 56,847 61,000 52,037
Stock Index 1,178,639 2,850,938 3,473,903
Total Return 368,125 516,374 579,418
T. Rowe Price Equity/Income 1,174,067 1,733,470 2,066,560
U.S. Government Securities 138,390 148,658 151,090
American Century VP Funds -
VP Capital Appreciation 20,049 203,292 194,075
American Century VP Funds - VP 37,121 268,650 305,875
Balanced
================ ---------------
Total investments $ 9,494,316 10,638,717
================
Other assets and liabilities:
Premiums due and accrued 83
Due to Great-West Life & Annuity Insurance Company (11,642)
---------------
NET ASSETS APPLICABLE TO OUTSTANDING UNITS OF CAPITAL (Note 5) $ 10,627,158
============================================================================== ===============
</TABLE>
See notes to financial statements.
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Money Stock Index Total
Market Return
Investment Bond Investment Investment
Division Investment Division Division Division Total
------------ ------------------------- ------------ ------------
Non-QualifiedNon-Qualified Qualified Qualified Non-Qualified Maxim I
------------ ------------ ----------- ------------ ------------ -------------
Maxim Series I
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME $ 1,590 5,955 $ 370 649 $ 2,684 11,248
EXPENSES- mortality and expense
risks (Note 3) 387 1,178 75 132 629 2,401
------------ ------------ ----------- ------------ ------------ -------------
NET INVESTMENT INCOME 1,203 4,777 295 517 2,055 8,847
------------ ------------ ----------- ------------ ------------ -------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain (loss) on investments 161 (84) 72 194 343
Net change in unrealized appreciation
on investments 350 116 2,114 7,647 10,227
------------ ------------ ----------- ------------ ------------ -------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 0 511 32 2,186 7,841 10,570
------------ ------------ ----------- ------------ ------------ -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,203 5,288 $ 327 2,703 $ 9,896 19,417
============ ============ =========== ============ ============ =============
</TABLE>
See notes to financial statements. (Continued)
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Money Market Bond Stock Index
Investment Division Investment Division Investment Division
------------------------- ------------------------- -------------------------
Non-Qualified Qualified Non-Qualified Qualified Non-Qualified Qualified
------------ ------------ ------------ ------------ ------------ ------------
Maxim Series II
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME $ 50,600 51,204 $ 91,880 106,367 $ 468,277 588,149
EXPENSES- mortality and expense
risks (Note 3) 13,839 13,985 20,899 24,757 106,417 134,474
------------ ------------ ------------ ------------ ------------ ------------
NET INVESTMENT INCOME 36,761 37,219 70,981 81,610 361,860 453,675
------------ ------------ ------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain (loss) on investments (17,212) (76,854) 280,879 503,901
Net change in unrealized appreciation
on investments 26,710 81,299 1,335,382 1,563,542
------------ ------------ ------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 0 0 9,498 4,445 1,616,261 2,067,443
------------ ------------ ------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 36,761 37,219 $ 80,479 86,055 $ 1,978,121 2,521,118
============ ============ ============ ============ ============ ============
</TABLE>
See notes to financial statements. (Continued)
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
VP
U.S. Government Total Return Capital VP
Securities Investment Appreciation Balanced
Investment Division Division Investment Investment Total
------------------------------ --------------
Non-Qualified Qualified Non-Qualified Division Division Maxim II
--------------- ------------- -------------- ------------- -------------- -------------
Maxim Series II
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME $ 401,071 $ 244,718 $ 253,304 $ 5,904 $ 20,469 $ 2,281,943
EXPENSES- mortality and expense
risks (Note 3) 87,267 54,133 67,286 4,449 5,727 533,233
--------------- ------------- -------------- ------------- -------------- -------------
NET INVESTMENT INCOME 313,804 190,585 186,018 1,455 14,742 1,748,710
--------------- ------------- -------------- ------------- -------------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on (29,726) (24,598) 125,689 3,706 21,377 787,162
investments
Net change in unrealized
appreciation
(depreciation) on investments 138,013 90,538 625,603 (25,944) 17,382 3,852,525
--------------- ------------- -------------- ------------- -------------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 108,287 65,940 751,292 (22,238) 38,759 4,639,687
--------------- ------------- -------------- ------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 422,091 $ 256,525 $ 937,310 $ (20,783) $ 53,501 $ 6,388,397
=============== ============= ============== ============= ============== =============
</TABLE>
See notes to financial statements. (Continued)
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate INVESCO INVESCO INVESCO
Bond Bond ADR Balanced Small-Cap Mid-Cap
Growth
Investment Investment Investment Investment Investment Investment
Division Division Division Division Division Division
--------------- ------------- ------------- -------------- -------------- -------------
Maxim Series III
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME $ 5,161 $ 25,652 $ 10,207 $ 14,365 $ 49,971 $ 30,767
EXPENSES- mortality and expense
risks (Note 3) 1,006 2,757 4,435 1,731 8,766 11,065
--------------- ------------- ------------- -------------- -------------- -------------
NET INVESTMENT INCOME 4,155 22,895 5,772 12,634 41,205 19,702
--------------- ------------- ------------- -------------- -------------- -------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain (loss) on (217) 898 11,495 296 7,796 (19,901)
investments
Net change in unrealized
appreciation
(depreciation) on 1,001 (690) 13,460 8,044 58,307 50,491
investments
--------------- ------------- ------------- -------------- -------------- -------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 784 208 24,955 8,340 66,103 30,590
--------------- ------------- ------------- -------------- -------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 4,939 $ 23,103 $ 30,727 $ 20,974 $ 107,308 $ 50,292
=============== ============= ============= ============== ============== =============
</TABLE>
See notes to financial (Continued)
statements.
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Money Small-Cap Small-Cap Stock Total T. Rowe
Price
Market Index Value Index Return Equity/Income
Investment Investment Investment Investment Investment Investment
Division Division Division Division Division Division
--------------- ------------- ------------- -------------- -------------- -------------
Maxim Series III
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME $ 28,084 $ 37,588 $ 21,755 $ 191,528 $ 28,327 $ 110,825
EXPENSES- mortality and expense
risks (Note 3) 6,802 2,533 430 34,695 6,450 18,728
--------------- ------------- ------------- -------------- -------------- -------------
NET INVESTMENT INCOME 21,282 35,055 21,325 156,833 21,877 92,097
--------------- ------------- ------------- -------------- -------------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain on 5 6,399 94 80,860 21,955 25,531
investments
Net change in unrealized
appreciation
(depreciation) on (5) (4,664) (12,340) 485,887 59,714 237,954
investments
--------------- ------------- ------------- -------------- -------------- -------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 1,735 (12,246) 566,747 81,669 263,485
--------------- ------------- ------------- -------------- -------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 21,282 $ 36,790 $ 9,079 $ 723,580 $ 103,546 $ 355,582
=============== ============= ============= ============== ============== =============
</TABLE>
See notes to financial (Continued)
statements.
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. VP VP Capital Total
Government
Securities Balanced Appreciation Maxim
Investment Investment Investment Series
Division Division Division III
--------------- --------------- ------------- --------------
Maxim Series III
<S> <C> <C> <C> <C>
INVESTMENT INCOME $ 8,125 $ 14,883 $ 5,543 $ 582,781
EXPENSES- mortality and expense
risks (Note 3) 1,622 3,588 2,825 107,433
--------------- --------------- ------------- --------------
NET INVESTMENT INCOME 6,503 11,295 2,718 475,348
--------------- --------------- ------------- --------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on (630) 2,743 (18,558) 118,766
investments
Net change in unrealized
appreciation
on investments 2,279 23,884 10,242 933,564
--------------- --------------- ------------- --------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 1,649 26,627 (8,316) 1,052,330
--------------- --------------- ------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 8,152 $ 37,922 $ (5,598) $ 1,527,678
=============== =============== ============= ==============
</TABLE>
See notes to financial (Concluded)
statements.
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 and 1996
- ----------------------------------------------------------------------------------------------------------
Money Market Bond
Investment Division Investment Division
--------------------------------------------------------------------------
Non-Qualified Non-Qualified Qualified
------------------------ ------------------------ ---------------------
1997 1996 1997 1996 1997 1996
----------- ---------- ----------- ----------- ---------- ---------
Maxim Series I
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 1,203 $ 1,523 $ 4,777 $ 4,387 $ 295 $ 757
Net realized gain (loss)
on investments (11) 161 142 (84) (3)
Net change in unrealized
appreciation
(depreciation)
on investments 11 350 (1,884) 116 (298)
----------- ---------- ----------- ----------- ---------- ---------
Increase in net assets
resulting from 1,203 1,523 5,288 2,645 327 456
operations
----------- ---------- ----------- ----------- ---------- ---------
FROM UNIT TRANSACTIONS:
Variable annuity contract:
Purchase payments
Redemptions (79) (13,393) (60) (90) (10,200) (54)
Net transfers
----------- ---------- ----------- ----------- ---------- ---------
Decrease in net assets
resulting from unit (79) (13,393) (60) (90) (10,200) (54)
transactions
----------- ---------- ----------- ----------- ---------- ---------
INCREASE (DECREASE) IN
NET ASSETS 1,124 (11,870) 5,228 2,555 (9,873) 402
NET ASSETS:
Beginning of year 30,443 42,313 92,013 89,458 15,998 15,596
----------- ---------- ----------- ----------- ---------- ---------
End of year $ 31,567 $ 30,443 $ 97,241 $ 92,013 $ 6,125 $ 15,998
=========== ========== =========== =========== ========== =========
See notes to financial (Continued)
statements.
</TABLE>
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Stock Index Total Return
Investment Division Investment Division Total
----------------------- -----------------------
Qualified Non-Qualified Maxim I
----------------------- ----------------------- ------------------------
1997 1996 1997 1996 1997 1996
----------- ---------- ---------- ---------- ---------- -----------
Maxim Series I
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 517 $ 60 $ 2,055 $ 2,866 $ 8,847 $ 9,593
Net realized gain on
investments 72 40 194 142 343 310
Net change in unrealized
appreciation
on investments 2,114 1,396 7,647 1,229 10,227 454
----------- ---------- ---------- ---------- ---------- -----------
Increase in net assets
resulting from 2,703 1,496 9,896 4,237 19,417 10,357
operations
----------- ---------- ---------- ---------- ---------- -----------
FROM UNIT TRANSACTIONS:
Variable annuity contract:
Purchase payments
Redemptions (38) (26) (30) (30) (10,407) (13,593)
Net transfers
----------- ---------- ---------- ---------- ---------- -----------
Decrease in net assets
resulting from unit (38) (26) (30) (30) (10,407) (13,593)
transactions
----------- ---------- ---------- ---------- ---------- -----------
INCREASE (DECREASE) IN
NET ASSETS 2,665 1,470 9,866 4,207 9,010 (3,236)
NET ASSETS:
Beginning of year 9,066 7,596 45,077 40,870 192,597 195,833
----------- ---------- ---------- ---------- ---------- -----------
End of year $ 11,731 $ 9,066 $ 54,943 $ 45,077 $ 201,607 $ 192,597
=========== ========== ========== ========== ========== ===========
See notes to financial (Continued)
statements.
</TABLE>
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Bond
Investment Division Investment Division
-------------------------------------------------- ----------------------------------------------------
Non-Qualified Qualified Non-Qualified Qualified
------------------------ ------------------------- -------------------------- ------------------------
1997 1996 1997 1996 1997 1996 1997 1996
----------- ----------- ----------- ------------ ----------- ------------ ----------- -----------
Maxim Series II
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income 36,761 $ 45,979 $ 37,219 $ 40,293 $ 70,981 $ 82,503 $ 81,610 $ 110,809
Net realized loss
on investments (17,212) (28,915) (76,854) (18,981)
Net change in unrealized
appreciation
(depreciation) on
investments 26,710 (7,476) 81,299 (27,583)
----------- ----------- ----------- ------------ ----------- ------------ ----------- -----------
Increase in net
assets
resulting from 36,761 45,979 37,219 40,293 80,479 46,112 86,055 64,245
operations
----------- ----------- ----------- ------------ ----------- ------------ ----------- -----------
FROM UNIT TRANSACTIONS:
Variable annuity
contract:
Purchase payments 3,719 10,602 11,347 2,107 2,174 2,642 8,847 9,722
Redemptions (260,301) (456,051) (81,095) (779,060) (252,043) (308,314) (564,184) (369,922)
Net transfers (49,859) (117,915) (42,689) 64,102 (70,940) (68,278) (312,933) (68,489)
----------- ----------- ----------- ------------ ----------- ------------ ----------- -----------
Decrease in net
assets
resulting from (306,441) (563,364) (112,437) (712,851) (320,809) (373,950) (868,270) (428,689)
unit transactions
----------- ----------- ----------- ------------ ----------- ------------ ----------- -----------
DECREASE IN
NET ASSETS (269,680) (517,385) (75,218) (672,558) (240,330) (327,838) (782,215) (364,444)
NET ASSETS:
Beginning of year 1,100,066 1,617,451 1,040,950 1,713,508 1,601,544 1,929,382 2,231,683 2,596,127
----------- ----------- ----------- ------------ ----------- ------------ ----------- -----------
End of year 830,386 $ 1,100,066 $ 965,732 $ 1,040,950 $ 1,361,214 $ 1,601,544 $ 1,449,468 $ 2,231,683
=========== =========== =========== ============ =========== ============ =========== ===========
See notes to financial (Continued)
statements.
</TABLE>
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Stock Index U.S. Government Securities
Investment Division Investment Division
-------------------------------------------------- --------------------------------------------------
Non-Qualified Qualified Non-Qualified Qualified
------------------------ ------------------------ ------------------------ ------------------------
1997 1996 1997 1996 1997 1996 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Maxim Series II
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income $ 361,860 $ 36,421 $ 453,675 $ 46,707 $ 313,804 $ 327,841 $ 190,585 $ 220,465
Net realized gain (loss)
on investments 280,879 298,857 503,901 327,464 (29,726) (52,580) (24,598) (21,782)
Net change in unrealized
appreciation
(depreciation) on
investments 1,335,382 828,550 1,563,542 1,121,694 138,013 (120,325) 90,538 (95,024)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Increase in net
assets
resulting from 1,978,121 1,163,828 2,521,118 1,495,865 422,091 154,936 256,525 103,659
operations
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
FROM UNIT TRANSACTIONS:
Variable annuity
contract:
Purchase payments 55,239 33,011 111,519 67,790 3,320 3,477 9,937 17,606
Redemptions (452,450) (857,902) (995,067) (939,004) (679,764) (1,009,686) (824,566) (897,604)
Net transfers 118,562 339,927 260,903 19,945 1,070 (206,183) (107,087) (140,529)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Decrease in net
assets
resulting from (278,649) (484,964) (622,645) (851,269) (675,374) (1,212,392) (921,716) (1,020,527)
unit transactions
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN
NET ASSETS 1,699,472 678,864 1,898,473 644,596 (253,283) (1,057,456) (665,191) (916,868)
NET ASSETS:
Beginning of year 6,606,105 5,927,241 8,520,268 7,875,672 6,388,820 7,446,276 4,247,972 5,164,840
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
End of year $ 8,305,577 $ 6,606,105 $ 10,418,741 $ 8,520,268 $ 6,135,537 $ 6,388,820 $ 3,582,781 $ 4,247,972
=========== =========== =========== =========== =========== =========== =========== ===========
See notes to financial (Continued)
statements.
</TABLE>
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return VP Capital
Investment Division Appreciation VP Balanced Total
Non-Qualified Investment Division Investment Division Maxim II
---------------------- ------------------------- ----------------------- -------------------------
1997 1996 1997 1996 1997 1996 1997 1996
---------- ----------- ------------- ----------- ----------- ---------- ------------ ------------
Maxim Series II
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income $ 186,018 $ 274,904 $ 1,455 $ 42,026 $ 14,742 $ 11,028 $ 1,748,710 $ 1,238,976
Net realized gain
on investments 125,689 147,014 3,706 12,701 21,377 14,357 787,162 678,135
Net change in unrealized
appreciation
(depreciation) on
investments 625,603 1,201 (25,944) (79,472) 17,382 5,880 3,852,525 1,627,445
---------- ---------- ------------- ---------- ----------- ---------- ------------ -----------
Increase (decrease)
in net assets
resulting from 937,310 423,119 (20,783) (24,745) 53,501 31,265 6,388,397 3,544,556
operations
---------- ---------- ------------- ---------- ----------- ---------- ------------ -----------
FROM UNIT TRANSACTIONS:
Variable annuity contract:
Purchase payments 151,378 27,548 14,599 64,306 15,243 6,330 387,322 245,141
Redemptions (458,152) (497,539) (25,916) (69,788) (68,363) (63,230) (4,661,901) (6,248,100)
Net transfers 119,510 89,819 8,223 25,652 75,240 61,949
---------- ---------- ------------- ---------- ----------- ---------- ------------ -----------
Increase (decrease)
in net assets
resulting from (187,264) (380,172) (3,094) 20,170 22,120 5,049 (4,274,579) (6,002,959)
unit transactions
---------- ---------- ------------- ---------- ----------- ---------- ------------ -----------
INCREASE (DECREASE) IN
NET ASSETS 750,046 42,947 (23,877) (4,575) 75,621 36,314 2,113,818 (2,458,403)
NET ASSETS:
Beginning of year 4,411,091 4,368,144 350,408 354,983 347,539 311,225 36,846,446 39,304,849
---------- ---------- ------------- ---------- ----------- ---------- ------------ -----------
End of year $ 5,161,137 $ 4,411,091 $ 326,531 $ 350,408 $ 423,160 $ 347,539 $ 38,960,264 $ 36,846,446
========== ========== ============= ========== =========== ========== ============ ===========
See notes to financial (Continued)
statements.
</TABLE>
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Bond Corporate Bond INVESCO ADR INVESCO Balanced
Investment Division Investment Division Investment Division Investment Division
(A)
----------------------- ------------------------ ----------------------- -----------------------
1997 1996 1997 1996 1997 1996 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------------------
Maxim Series III
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income $ 4,155 $ 2,198 22,895 $ 10,161 $ 5,772 359 $ 12,634 $ 74
Net realized gain (loss)
on investments (217) 339 898 202 11,495 2,274 296
Net change in unrealized
appreciation
(depreciation) on
investments 1,001 (519) (690) 2,860 13,460 18,790 8,044 (148)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Increase (decrease) in
net assets
resulting from 4,939 2,018 23,103 13,223 30,727 21,423 20,974 (74)
operations
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
FROM UNIT TRANSACTIONS:
Variable annuity contract:
Purchase payments 35,790 41,713 138,392 142,965 225,162 135,916 190,216 3,658
Redemptions (6,161) (13) (4,961) (1,089) (8,885) (1,932) (203)
Net transfers (4,377) (2,926) 21,382 (946) 25,246 18,762 190,529 9,660
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Increase in net assets
resulting
from unit transactions 25,252 38,774 154,813 140,930 241,523 152,746 380,542 13,318
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
INCREASE IN NET ASSETS 30,191 40,792 177,916 154,153 272,250 174,169 401,516 13,244
NET ASSETS:
Beginning of year 59,395 18,603 163,773 9,620 203,668 29,499 13,244
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
End of year $ 89,586 $ 59,395 341,689 $ 163,773 $ 475,918 203,668 $ 414,760 $ 13,244
=========== =========== =========== =========== =========== =========== =========== ==========
(A) The Investment Division commenced
operations on October 31, 1996.
See notes to financial statements. (Continued)
</TABLE>
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------------------------
INVESCO
Small-Cap Growth Mid-Cap Money Market Small-Cap Index
Investment Division Investment Division Investment Division Investment Division
----------------------- ----------------------- ------------------------ -----------------------
1997 1996 1997 1996 1997 1996 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Maxim Series III
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 41,205 58,727 $ 19,702 $ (9,118) 21,282 $ 9,298 $ 35,055 $ 10,974
Net realized gain (loss)
on investments 7,796 13,572 (19,901) 39,570 5 6,399 3,379
Net change in unrealized
appreciation
(depreciation) on
investments 58,307 (53,489) 50,491 (36,244) (5) 5 (4,664) (1,228)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Increase (decrease) in
net assets
resulting from 107,308 18,810 50,292 (5,792) 21,282 9,303 36,790 13,125
operations
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
FROM UNIT TRANSACTIONS:
Variable annuity contract:
Purchase payments 187,569 368,120 93,958 931,515 342,544 303,515 55,155 119,823
Redemptions (9,025) (654) (33,886) (13,648) (47,563) (2,904) (367) (6)
Net transfers 9,949 111,723 (507,078) (64,886) (24,558) (150,207) 3,422 (13,677)
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Increase (decrease) in
net assets
resulting from unit 188,493 479,189 (447,006) 852,981 270,423 150,404 58,210 106,140
transactions
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
INCREASE (DECREASE) IN
NET ASSETS 295,801 497,999 (396,714) 847,189 291,705 159,707 95,000 119,265
NET ASSETS:
Beginning of year 557,059 59,060 1,177,308 330,119 317,355 157,648 152,215 32,950
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
End of year $ 852,860 557,059 $ 780,594 $ 1,117,308 609,060 $ 317,355 $ 247,215 $ 152,215
=========== =========== =========== =========== =========== =========== =========== ==========
See notes to financial (Continued)
statements.
</TABLE>
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Small-Cap Value Stock Index Total Return T. Rowe Price
Equity/Income
Investment Division Investment Division Investment Division Investment Division
----------------------- ------------------------ ----------------------- ----------------------
1997 1996 1997 1996 1997 1996 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Maxim Series III
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 21,325 (54) $ 156,833 $ 19,350 21,877 $ 24,233 $ 92,097 26,491
Net realized gain
on investments 94 20 80,860 9,347 21,955 1,683 25,531 9,095
Net change in unrealized
appreciation
(depreciation) on
investments (12,340) 2,935 485,887 123,478 59,714 812 237,954 76,299
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Increase in net assets
resulting from 9,079 2,901 723,580 152,175 103,546 26,728 355,582 111,885
operations
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
FROM UNIT TRANSACTIONS:
Variable annuity contract:
Purchase payments 16,272 9,987 591,844 1,502,538 154,095 233,246 469,165 574,980
Redemptions (213) (20) (103,538) (12,057) (3,673) (935) (32,432) (7,079
Net transfers 5,879 201,638 189,433 (65,868) 18,009 244,718 95,467
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
Increase in net assets
resulting
from unit transactions 21,938 9,967 689,944 1,679,914 84,554 250,320 681,451 663,368
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
INCREASE IN NET ASSETS 31,017 12,868 1,413,524 1,832,089 188,100 277,048 1,037,033 775,253
NET ASSETS:
Beginning of year 20,965 8,097 2,056,563 224,474 390,671 113,623 1,027,276 252,023
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
End of year $ 51,982 20,965 $ 3,470,087 $ 2,056,563 578,771 $ 390,671 $ 2,064,309 1,027,276
=========== =========== =========== =========== =========== =========== =========== ==========
See notes to financial (Continued
statements.
</TABLE>
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31, 1997 and 1996
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government VP Balanced VP Capital Growth Total
Securities Appreciation
Investment Division Investment Division Investment Division Maxim Series III
----------------------- ----------------------- ----------------------- -----------------------
1997 1996 1997 1996 1997 1996 1997 1996
---------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
Maxim Series III
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income $ 6,503 $ 8,160 $ 11,295 $ 5,792 $ 2,718 $ 13,893 475,348 $ 180,538
Net realized gain (loss)
on investments (630) (3,256) 2,743 1,350 (18,558) (2,953) 118,766 74,622
Net change in unrealized
appreciation (depreciation)
on investments 2,279 (1,320) 23,884 12,300 10,242 (22,156) 933,564 122,375
---------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
Increase (decrease) in
net assets
resulting from 8,152 3,584 37,922 19,442 (5,598) (11,216) 1,527,678 377,535
operations
---------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
FROM UNIT TRANSACTIONS:
Variable annuity contract:
Purchase payments 61,892 166,825 30,157 171,225 95,085 156,340 2,687,296 4,862,366
Redemptions (12,877) (2,318) (1,230) (2,946) (42,473) (3,325) (307,487) (48,926)
Net transfers (86,296) (152,683) (15,956) (24,394) (43,902) (30,160) (45,272) 3,175
---------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
Increase (decrease) in
net assets
resulting from unit (37,281) 11,824 12,971 143,885 8,710 122,855 2,334,537 4,816,615
transactions
---------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
INCREASE (DECREASE) IN NET (29,129) 15,408 50,893 163,327 3,112 111,639 3,862,215 5,194,150
ASSETS
NET ASSETS:
Beginning of year 180,067 164,659 254,642 91,315 190,742 79,103 6,764,943 1,570,793
---------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
End of year $ 150,938 $ 180,067 $ 305,535 $ 254,642 $ 193,854 $ 190,742 10,627,158 $ 6,764,943
========== =========== =========== ========== =========== =========== =========== ==========
See notes to financial statements. (Concluded
</TABLE>
<PAGE>
MAXIM SERIES ACCOUNT OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
- -------------------------------------------------------------------
1. HISTORY OF THE SERIES ACCOUNT
The Maxim Series Account of Great-West Life & Annuity Insurance Company
(the Series Account) is a separate account of Great-West Life & Annuity
Insurance Company (the Company) and was established under Kansas law on
June 24, 1981. In 1990, the Series Account was amended to conform to and
comply with Colorado law in connection with the Company's
redomestication to the State of Colorado. The Series Account is
registered with the Securities and Exchange Commission as a unit
investment trust under the provisions of the Investment Company Act of
1940, as amended.
The Series Account has various investment divisions which invest in
shares of open-end management investment companies as follows:
<TABLE>
Investment Division Underlying Fund Investment
-------------------------------- -----------------------------------------------------
Maxim Series I:
<S> <C> <C> <C> <C> <C> <C>
Money Market Maxim Series Fund, Inc. - Money Market
Bond Maxim Series Fund, Inc. - Bond
Stock Index Maxim Series Fund, Inc. - Stock Index
Total Return Maxim Series Fund, Inc. - Total Return
U.S. Government Securities Maxim Series Fund, Inc. - U.S. Government
Securities
Maxim Series II:
Money Market Maxim Series Fund, Inc. - Money Market
Bond Maxim Series Fund, Inc. - Bond
Stock Index Maxim Series Fund, Inc. - Stock Index
U.S. Government Securities Maxim Series Fund, Inc. - U.S. Government
Securities
Total Return Maxim Series Fund, Inc. - Total Return
VP Capital Appreciation American Century VP Funds - VP Capital
Appreciation
VP Balanced American Century VP Funds - VP Balanced
Maxim Series III:
Bond Maxim Series Fund, Inc. - Bond
Corporate Bond Maxim Series Fund, Inc. - Corporate Bond
INVESCO ADR Maxim Series Fund, Inc. - INVESCO ADR
INVESCO Balanced Maxim Series Fund, Inc. - INVESCO Balanced
INVESCO Small-Cap Growth Maxim Series Fund, Inc. - INVESCO Small-Cap
Growth
Mid-Cap Maxim Series Fund, Inc. - Mid-Cap
Money Market Maxim Series Fund, Inc. - Money Market
Small-Cap Index Maxim Series Fund, Inc. - Small-Cap Index
Small-Cap Value Maxim Series Fund, Inc. - Small-Cap Value
Stock Index Maxim Series Fund, Inc. - Stock Index
Total Return Maxim Series Fund, Inc. - Total Return
T. Rowe Price Equity/Income Maxim Series Fund, Inc. - T. Rowe Price
Equity/Income
U.S. Government Securities Maxim Series Fund, Inc. - U.S. Government
Securities
VP Balanced American Century VP Funds - VP Balanced
VP Capital Appreciation American Century VP Funds - VP Capital
Appreciation
</TABLE>
<PAGE>
As of September 24, 1984, the administrative charges of the Series
Account were changed by a vote of the Board of Directors. Contracts
purchased through September 24, 1984 (Maxim I Series) were and will
remain subject to the previous charges while contracts purchased after
September 24, 1984 (Maxim II Series) are charged with the new amounts
(see Note 3). As a result of changes in the administrative charges, the
contracts purchased after September 24, 1984 are being accounted for
separately.
As of September 19, 1994, the Company began offering a new contract in
the Series Account (Maxim III Series or MVP contracts). The
administrative charges for these contracts differ from the
administrative charges for contracts in the Maxim I Series and the Maxim
II Series (see Note 3) and are therefore, accounted for separately.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies of the
Series Account which are in accordance with the accounting principles
generally accepted in the investment company industry:
a. Security Transactions - Security transactions are recorded on the
trade date. Cost of investments sold is determined on the basis
of identified cost.
Dividend income is accrued as of the ex-dividend date and
expenses are accrued on a daily basis.
b. Security Valuation - The investments in shares of the underlying
funds are valued at the closing net asset value per share as
determined by each portfolio at year end.
The cost of investments represents shares of the underlying funds
which were purchased by the Series Account. Purchases are made at
the net asset value from net purchase payments or through
reinvestment of all distributions from the underlying funds.
c. Federal Income Taxes - The Series Account income is automatically
applied to increase contract reserves. Under existing federal
income tax law, this income is not taxed to the extent it is
applied to increase reserves under a contract. The Company
reserves the right to charge the Series Account for federal
income taxes attributable to the Series Account if such taxes are
imposed in the future.
d. Net Transfers - Net transfers include transfers between
investment divisions of the Series Account as well as transfers
between other investment options of the Company.
3. CHARGES UNDER THE CONTRACTS
a. Contract Maintenance Charge - On the last valuation date of each
contract year before the retirement date, the Company deducts
from each participant account a maintenance charge of $30 for
contracts purchased before September 24, 1984 and $35 for
contracts purchased after September 24, 1984, as compensation for
the administrative services provided to contract owners. To
compensate the Company for administrative services for contracts
issued after September 19, 1994, a contract maintenance charge of
$27 is deducted from each participant account on the first day of
each calendar year. If the account is established after the
beginning of the year, the charge is deducted on the first day of
the next calendar quarter and prorated for the portion of the
year remaining.
<PAGE>
b. Charges Incurred for Total or Partial Surrenders - Certain
contracts contain provisions relating to a contingent deferred
sales charge. In such contracts, charges will be made for total
or partial surrender of a participant annuity account in excess
of the "free amount" before the retirement date by a deduction
from a participant's account. The "free amount" for contracts
purchased after September 19, 1994, is an amount equal to 10% of
the participant account value at December 31 of the calendar year
prior to the partial or total surrender.
c. Deductions for Assumption of Mortality and Expense Risks - The
Company deducts an amount, computed daily, from the
--------------------------------------------------------
net asset value of the Series Account investments, equal to an
annual rate of 1.25% (1.00% allocable to mortality risk and .25%
allocable to expense risk) for the contracts purchased before
September 24, 1984. For contracts purchased after September 24,
1984 and through September 19, 1994, the annual rate is 1.4%
(1.0% allocable to the mortality risk and .4% allocable to the
expense risk). For contracts purchased after September 19, 1994,
the annual rate is 1.25% (.85% allocable to the mortality risk
and .4% allocable to the expense risk). This charge is designed
to compensate the Company for its assumption of certain
mortality, death benefit and expense risks. The level of this
charge is guaranteed and will not change.
d. Deductions for Premium Taxes - The Company currently will pay any
applicable premium tax or other tax, levied by any government,
when due. If the contract value is used to purchase an annuity
under the annuity options, the dollar amount of any premium tax
previously paid or payable upon annuitization by the Company will
be charged against the contract value.
4. RELATED-PARTY SERVICES
The Company's parent, The Great-West Life Assurance Company, served as
investment advisor to Maxim Series Fund, Inc. through October 31, 1996.
Effective November 1, 1996, a wholly-owned subsidiary of the Company, GW
Capital Management, Inc., serves as investment advisor. Fees are
assessed against the average daily net asset value of the Funds to
compensate GW Capital Management, Inc. for investment advisory services.
5. COMPONENTS OF NET ASSETS APPLICABLE TO OUTSTANDING UNITS OF CAPITAL
The following is a summary of the net assets applicable to outstanding
units of capital at December 31, 1997, for each investment division.
<TABLE>
Total Maxim
I
Variable
Annuity
Maxim Series I Contract
Units Unit Value Liabilities
------------- --------------- --------------
NET ASSETS APPLICABLE TO
OUTSTANDING UNITS OF CAPITAL:
Investment Division:
<S> <C> <C> <C>
Money Market\Non-Qualified 1,398.9073 $ 22.565418 $ 31,567
Bond\Non-Qualified 2,727.8729 35.647170 97,241
Bond\Qualified 188.9743 32.411372 6,125
Stock Index\Qualified 175.1807 66.965596 11,731
Total Return\Non-Qualified 2,299.9252 23.889028 54,943
--------------
TOTAL $ 201,607
==============
</TABLE>
<PAGE>
5. COMPONENTS OF NET ASSETS APPLICABLE TO OUTSTANDING UNITS OF CAPITAL
[Continued]
The following is a summary of the net assets applicable to outstanding
units of capital at December 31, 1997, for each investment division.
<PAGE>
<TABLE>
Total Maxim
II
Variable
Annuity
Maxim Series II Contract
Units Unit Value Liabilities
------------- --------------- --------------
NET ASSETS APPLICABLE TO
OUTSTANDING
UNITS OF CAPITAL:
Investment Division:
<S> <C> <C>
Money Market\Non-Qualified 46,577.9056$ 17.827890 $ 830,386
Money Market\Qualified 54,854.4038 17.605361 965,732
Bond\Non-Qualified 51,635.7422 26.361862 1,361,214
Bond\Qualified 54,547.8778 26.572392 1,449,468
Stock Index\Non-Qualified 153,561.6091 54.086283 8,305,577
Stock Index\Qualified 189,804.0565 54.892088 10,418,741
U.S. Government 244,602.7910 25.083675 6,135,537
Securities/Non-Qualified
U.S. Government 144,275.8577 24.832852 3,582,781
Securities/Qualified
Total Return/Non-Qualified 211,352.1375 24.419609 5,161,137
VP Capital Appreciation 25,957.2366 12.579566 326,531
VP Balanced 26,379.4943 16.041242 423,160
--------------
TOTAL $ 38,960,264
==============
Total Maxim
III
Variable
Annuity
Maxim Series III Contract
Units Unit Value Liabilities
------------- --------------- --------------
NET ASSETS APPLICABLE TO
OUTSTANDING UNITS OF CAPITAL:
Investment Division:
Bond 7,412.5558 $ 12.085751 $ 89,586
Corporate Bond 23,403.3005 14.600039 341,689
INVESCO ADR 31,948.0450 14.896622 475,918
INVESCO Balanced 32,937.6908 12.592263 414,760
INVESCO Small-Cap Growth 44,396.7174 19.209978 852,860
Mid-Cap 49,565.3827 15.748774 780,594
Money Market 55,509.8768 10.972105 609,060
Small-Cap Index 14,918.0143 16.571551 247,215
Small-Cap Value 3,045.8716 17.066458 51,982
Stock Index 169,289.2268 20.497983 3,470,087
Total Return 36,689.1064 15.775021 578,771
T. Rowe Price Equity/Income 106,469.2588 19.388777 2,064,309
U.S. Government Securities 12,345.7811 12.225859 150,938
VP Balanced 20,447.2741 14.942560 305,535
VP Capital Appreciation 16,591.5938 11.683859 193,854
--------------
TOTAL $ 10,627,158
==============
<PAGE>
6. SELECTED DATA
The following is a summary of selected data for a unit of capital of the
Series Account at the beginning and end of the year and the number of
units outstanding at December 31, 1997, 1996, 1995, 1994, and 1993, by
investment division:
Money Market Money Market Bond Bond Stock Index Total Return
Maxim Series I Non-Qualified Qualified Non-Qualified Qualified Qualified Non-Qualified
--------------
-------------------------------------------------------------------------------------------------
1997
Beginning Unit Value $ 21.71 $ 33.71 $ 30.69 $ 51.56 $ 19.59
=================================================================================================
Ending Unit Value $ 22.57 $ 35.65 $ 32.41 $ 66.97 $ 23.89
=================================================================================================
Number of Units 1,398.91 2,727.87 188.97 175.18 2,299.93
Outstanding
=================================================================================================
1996
Beginning Unit Value $ 20.92 $ 32.74 $ 29.81 $ 43.05 $ 17.75
=================================================================================================
Ending Unit Value $ 21.71 $ 33.71 $ 30.69 $ 51.56 $ 19.59
=================================================================================================
Number of Units 1,402.43 2,729.57 521.33 175.85 2,301.42
Outstanding
=================================================================================================
1995
Beginning Unit Value $ 20.04 $ 20.01 $ 28.77 $ 26.21 $ 32.29 $ 14.65
=================================================================================================
Ending Unit Value $ 20.92 $ 0.00 $ 32.74 $ 29.81 $ 43.05 $ 17.75
=================================================================================================
Number of Units 2,022.86 0.00 2,732.24 523.12 176.42 2,301.96
Outstanding
=================================================================================================
1994
Beginning Unit Value $ 19.54 $ 19.51 $ 29.84 $ 27.18 $ 32.65 $ 15.24
=================================================================================================
Ending Unit Value $ 20.04 $ 20.01 $ 28.77 $ 26.21 $ 32.29 $ 14.65
=================================================================================================
Number of Units 2,027.25 718.03 2,735.02 2,001.77 1,700.61 2,303.69
Outstanding
=================================================================================================
1993
Beginning Unit Value $ 19.23 $ 19.21 $ 27.83 $ 25.36 $ 30.10 $ 13.75
=================================================================================================
Ending Unit Value $ 19.54 $ 19.51 $ 29.84 $ 27.18 $ 32.65 $ 15.24
=================================================================================================
Number of Units 2,031.80 720.03 2,738.15 2,004.45 2,221.73 1,192.30
Outstanding
=================================================================================================
</TABLE>
(Continued)
<PAGE>
6. SELECTED DATA (continued)
The following is a summary of selected data for a unit of capital of the
Series Account at the beginning and end of the year and the number of
units outstanding at December 31, 1997, 1996 1995, 1994, and 1993, by
investment division:
<TABLE>
Money Market Money Market Bond Bond Stock Index Stock Index
Maxim Series II Non-Qualified Qualified Non-Qualified Qualified Non-Qualified Qualified
- ---------------
-----------------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C> <C> <C>
Beginning Unit Value $ 17.18 $ 16.96 $ 24.97 $ 25.17 $ 41.48 $ 42.10
==========================================================================================
Ending Unit Value $ 17.83 $ 17.61 $ 26.36 $ 26.57 $ 54.09 $ 54.89
==========================================================================================
Number of Units Outstanding 46,577.91 54,854.40 51,635.74 54,547.88 153,561.61 189,804.06
==========================================================================================
1996
Beginning Unit Value $ 16.58 $ 16.37 $ 24.29 $ 24.48 $ 34.53 $ 35.04
==========================================================================================
Ending Unit Value $ 17.18 $ 16.96 $ 24.97 $ 25.17 $ 41.48 $ 42.10
==========================================================================================
Number of Units Outstanding 64,049.31 61,373.56 64,147.08 88,677.28 159,266.26 202,398.63
==========================================================================================
1995
Beginning Unit Value $ 15.90 $ 15.71 $ 21.37 $ 21.54 $ 25.81 $ 26.19
==========================================================================================
Ending Unit Value $ 16.58 $ 16.37 $ 24.29 $ 24.48 $ 34.53 $ 35.04
==========================================================================================
Number of Units Outstanding 97,581.56 104,679.99 79,442.17 106,047.41 171,678.12 224,763.46
==========================================================================================
1994
Beginning Unit Value $ 15.53 $ 15.33 $ 22.20 $ 22.38 $ 26.13 $ 26.52
==========================================================================================
Ending Unit Value $ 15.90 $ 15.71 $ 21.37 $ 21.54 $ 25.81 $ 26.19
==========================================================================================
Number of Units Outstanding 125,420.05 127,897.77 95,366.99 113,313.38 219,588.42 263,158.31
==========================================================================================
1993
Beginning Unit Value $ 15.31 $ 15.12 $ 20.74 $ 20.90 $ 24.12 $ 24.48
==========================================================================================
Ending Unit Value $ 15.53 $ 15.33 $ 22.20 $ 22.38 $ 26.13 $ 26.52
==========================================================================================
Number of Units Outstanding 135,293.72 105,196.10 154,786.15 147,002.74 284,941.95 332,747.75
==========================================================================================
</TABLE>
<TABLE>
U.S. U.S.
Government Government VP
Securities Securities Total Return Capital VP
Non-Qualified Qualified Non-Qualified Appreciation Balanced
---------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Beginning Unit Value $ 23.44 $ 23.20 $ 20.05 $ 13.19 $ 14.04
============================================= ===========================
Ending Unit Value $ 25.08 $ 24.83 $ 24.42 $ 12.58 $ 16.04
============================================= ===========================
Number of Units Outstanding 244,602.79 144,275.86 211,352,14 25,957.24 26,379.49
============================================= ===========================
1996
Beginning Unit Value $ 22.88 $ 22.65 $ 18.20 $ 14.00 $ 12.69
============================================= ===========================
Ending Unit Value $ 23.44 $ 23.20 $ 20.05 $ 13.19 $ 14.04
============================================= ===========================
Number of Units Outstanding 272,571.17 183,063.52 219,989.41 26,567.31 24,745.20
============================================= ===========================
1995
Beginning Unit Value $ 19.98 $ 19.78 $ 15.04 $ 10.82 $ 10.62
============================================= ===========================
Ending Unit Value $ 22.88 $ 22.65 $ 18.20 $ 14.00 $ 12.69
============================================= ===========================
Number of Units Outstanding 325,518.95 228,062.15 239,974.08 25,359.37 24,517.40
============================================= ===========================
1994
Beginning Unit Value $ 20.93 $ 20.72 $ 15.67 $ 11.11 $ 10.71
============================================= ===========================
Ending Unit Value $ 19.98 $ 19.78 $ 15.04 $ 10.82 $ 10.62
============================================= ===========================
Number of Units Outstanding 415,446.66 284,597.25 335,713.57 21,121.89 27,124.38
============================================= ===========================
1993
Beginning Unit Value $ 19.41 $ 19.21 $ 14.16 $ 10.20 $ 10.08
============================================= ===========================
Ending Unit Value $ 20.93 $ 20.72 $ 15.67 $ 11.11 $ 10.71
============================================= ===========================
Number of Units Outstanding 649,198.60 417,423.10 438,337.99 44,619.57 33,951.49
============================================= ===========================
</TABLE>
<PAGE>
6. SELECTED DATA (continued)
The following is a summary of selected data for a unit of capital of the
Series Account at the beginning and end of the year and the number of
units outstanding at December 31, 1997, 1996 1995, 1994, and 1993, by
investment division:
<TABLE>
INVESCO
Corporate INVESCO INVESCO Small-Cap Money Small-Cap
Maxim Series III Bond Bond ADR Balanced Growth Mid-Cap Market Index
----------------
---------------------------------------------------------------------------------------
(A) (F) (B) (G) (B) (A) (E) (A)
1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Unit Value $ 11.43 $ 13.12 $ 13.46 $ 10.13 $ 16.39 $ 14.12 $ 10.55 $ 13.87
=======================================================================================
Ending Unit Value $ 12.09 $ 14.60 $ 14.90 $ 12.59 $ 19.21 $ 15.75 $ 10.97 $ 16.57
=======================================================================================
Number of Units Outstanding 7,412.56 23,403.30 31,948.04 32,937.69 44,396.72 49,565.38 55,509.88 14,918.01
=======================================================================================
1996
Beginning Unit Value $ 11.10 $ 12.03 $ 11.25 $ 10.00 $ 13.09 $ 13.49 $ 10.17 $ 12.18
=======================================================================================
Ending Unit Value $ 11.43 $ 13.12 $ 13.46 $ 10.13 $ 16.39 $ 14.12 $ 10.55 $ 13.87
=======================================================================================
Number of Units Outstanding 5,196.46 12,487.29 15,132.95 1,307.11 33,993.67 83,389.90 30,070.95 10,975.88
=======================================================================================
1995
Beginning Unit Value $ 9.76 $ 10.00 $ 10.00 $ 10.00 $ 10.80 $ 10.00 $ 9.77
=======================================================================================
Ending Unit Value $ 11.10 $ 12.03 $ 11.25 $ 13.09 $ 13.49 $ 10.17 $ 12.18
=======================================================================================
Number of Units Outstanding 1,675.75 799.35 2,623.01 4,511.19 24,467.21 15,499.45 2,705.63
=======================================================================================
1994
Beginning Unit Value $ 10.00 $ 10.00 $ 10.00
=======================================================================================
Ending Unit Value $ 9.76 $ 10.80 $ 9.77
=======================================================================================
Number of Units Outstanding 455.62 4,508.26 986.29
=======================================================================================
</TABLE>
(A) The Investment Division commenced
operations on September 19, 1994, at a
unit value of $10.00. (B) The Investment
Division commenced operations on January
6, 1995, at a unit value of $10.00. (E)
The Investment Division commenced
operations on August 4, 1995, at a unit
value of $10.00. (F) The Investment
Division commenced operations on August
8, 1995, at a unit value of $10.00. (G)
The Investment Division commenced
operations on October 31, 1996, at a unit
value of $10.00.
(Continued)
<PAGE>
6. SELECTED DATA (continued)
The following is a summary of selected data for a unit of capital of the
Series Account at the beginning and end of the year and the number of
units outstanding at December 31, 1997, 1996 1995, 1994, and 1993, by
investment division:
<TABLE>
T. Rowe
Price U.S. VP
Small-Cap Stock Total Equity/ Government VP Capital
Maxim Series III Value Index Return Income Securities Balanced Appreciation
----------------
------------------------------------------------------------------------------
(D) (A) (A) (B) (C) (A) (C)
1997
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning Unit Value $ 13.51 $ 15.70 $ 12.94 $ 15.24 $ 11.41 $ 13.06 $ 12.23
====================================================== ======================
Ending Unit Value $ 17.07 $ 20.50 $ 15.78 $ 19.39 $ 12.23 $ 14.94 $ 11.68
====================================================== ======================
Number of Units Outstanding 3,045.87 169,289.23 36,689.11 106,469.26 12,345.78 20,447.27 16,591.59
====================================================== ======================
1996
Beginning Unit Value $ 11.60 $ 13.05 $ 11.72 $ 12.92 $ 11.12 $ 11.79 $ 12.94
====================================================== ======================
Ending Unit Value $ 13.51 $ 15.70 $ 12.94 $ 15.24 $ 11.41 $ 13.06 $ 12.23
====================================================== ======================
Number of Units Outstanding 1,551.40 130,996.47 30,202.42 67,415.13 15,784.10 19,490.47 15,595.65
====================================================== ======================
1995
Beginning Unit Value $ 10.00 $ 9.74 $ 9.67 $ 10.00 $ 10.00 $ 9.85 $ 10.00
====================================================== ======================
Ending Unit Value $ 11.60 $ 13.05 $ 11.72 $ 12.92 $ 11.12 $ 11.79 $ 12.94
====================================================== ======================
Number of Units Outstanding 697.92 17,200.32 9,694.71 19,500.37 14,812.67 7,745.10 6,110.86
====================================================== ======================
1994
Beginning Unit Value $ 10.00 $ 10.00 $ 10.00
====================================================== ======================
Ending Unit Value $ 9.74 $ 9.67 $ 9.85
====================================================== ======================
Number of Units Outstanding 2,306.48 2,085.24 199.55
====================================================== ======================
</TABLE>
(A) The Investment Division commenced operations on September 19, 1994, at a
unit value of $10.00. (B) The Investment Division commenced operations on
January 6, 1995, at a unit value of $10.00. (C) The Investment Division
commenced operations on January 18, 1995, at a unit value of $10.00. (D) The
Investment Division commenced operations on March 9, 1995, at a unit value of
$10.00.
(Concluded)
<PAGE>
7. CHANGE IN SHARES
The following is a summary of the net change in the total investment
shares held in each of the respective underlying funds:
<TABLE>
For the year ended
December 31,
--------------------------
1997 1996
------------ ------------
Maxim Series I
<S> <C> <C>
Maxim Series Fund, - Money Market/Non-Qualified 1,148 (11,832)
Inc.
Maxim Series Fund, - Bond/Non-Qualified 4,016 3,659
Inc.
Maxim Series Fund, - Bond/Qualified (8,218) 600
Inc.
Maxim Series Fund, - Stock Index/Qualified 166 17
Inc.
Maxim Series Fund, - Total Return/Non-Qualified 1,332 2,133
Inc.
Maxim Series II
Maxim Series Fund, - Money Market/Non-Qualified (269,108) (515,801)
Inc.
Maxim Series Fund, - Money Market/Qualified (74,449) (670,956)
Inc.
Maxim Series Fund, - Bond/Non-Qualified (203,925) (238,899)
Inc.
Maxim Series Fund, - Bond/Qualified (653,984) (257,873)
Inc.
Maxim Series Fund, - Stock Index/Non-Qualified 27,647 (197,576)
Inc.
Maxim Series Fund, - Stock Index/Qualified (64,079) (371,549)
Inc.
Maxim Series Fund, - U.S. Government (324,104) (811,859)
Inc. Securities/Non-Qualified
Maxim Series Fund, - U.S. Government (671,370) (734,240)
Inc. Securities/Qualified
Maxim Series Fund, - Total Return/Non-Qualified (6,329) (75,371)
Inc.
American Century - VP Balanced (449) 4,825
VP Funds
American Century - VP Capital Appreciation 5,323 1,939
VP Funds
Maxim Series III
Maxim Series Fund, - Bond 24,697 40,149
Inc.
Maxim Series Fund, - Corporate Bond 144,376 132,764
Inc.
Maxim Series Fund, - INVESCO ADR 171,026 124,589
Inc.
Maxim Series Fund, - INVESCO Balanced 317,094 12,732
Inc.
Maxim Series Fund, - INVESCO Small-Cap Growth 145,977 349,181
Inc.
Maxim Series Fund, - Mid-Cap (319,575) 590,752
Inc.
Maxim Series Fund, - Money Market 291,754 159,940
Inc.
Maxim Series Fund, - Small-Cap Index 73,420 94,971
Inc.
Maxim Series Fund, - Small-Cap Value 40,030 9,228
Inc.
Maxim Series Fund, - Stock Index 308,321 774,415
Inc.
Maxim Series Fund, - Total Return 76,513 203,992
Inc.
Maxim Series Fund, - T. Rowe Price Equity/Income 464,415 516,525
Inc.
Maxim Series Fund, - U.S. Government Securities (29,483) 47,132
Inc.
American Century - VP Balanced 3,312 27,455
VP Funds
American Century - VP Capital Appreciation 1,401 12,712
VP Funds
</TABLE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Financial Statements
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
- -------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
AND INDEPENDENT AUDITORS' STATEMENT
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY (A
wholly-owned subsidiary of The Great-West Life Assurance
Company)
Consolidated Financial Statements for the
Years Ended December 31, 1997, 1996, and 1995
and Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
of Great-West Life & Annuity Insurance Company:
We have audited the accompanying consolidated balance sheets of Great-West Life
& Annuity Insurance Company (a wholly-owned subsidiary of The Great-West Life
Assurance Company) and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholder's equity, and cash flows
for each of the three years in the period ended December 31, 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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Great-West Life & Annuity Insurance
Company and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
January 23, 1998
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS 1997 1996
- ------
-------------- ---------------
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized cost (fair value $2,151,476 and $ 2,082,716 $ 1,992,681
$2,041,064)
Available-for-sale, at fair value (amortized cost $6,541,422 6,698,629 6,206,478
and $6,151,519)
Common stock 39,021 19,715
Mortgage loans on real estate, net 1,235,594 1,487,575
Real estate, net 93,775 67,967
Policy loans 2,657,116 2,523,477
Short-term investments, available-for-sale (cost approximates 399,131 419,008
fair value)
-------------- ---------------
Total Investments 13,205,982 12,716,901
Cash 126,278 125,182
Reinsurance receivable 84,364 196,958
Deferred policy acquisition costs 255,442 282,780
Investment income due and accrued 165,827 198,441
Other assets 121,543 57,244
Premiums in course of collection 77,008 74,693
Deferred income taxes 193,820 214,404
Separate account assets 7,847,451 5,484,631
-------------- ---------------
TOTAL ASSETS $ 22,077,715 $ 19,351,234
============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY 1997 1996
- ------------------------------------
-------------- ---------------
POLICY BENEFIT LIABILITIES:
Policy reserves $ 11,102,719 $ 11,022,595
Policy and contract claims 375,499 372,327
Policyholders' funds 165,106 153,867
Experience refunds 84,935 87,399
Provision for policyholders' dividends 62,937 51,279
GENERAL LIABILITIES:
Due to Parent Corporation 126,656 151,431
Repurchase agreements 325,538 286,736
Commercial paper 54,058 84,682
Other liabilities 605,032 488,818
Undistributed earnings on
participating business 141,865 133,255
Separate account liabilities 7,847,451 5,484,631
-------------- ---------------
Total Liabilities 20,891,796 18,317,020
-------------- ---------------
STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value,
50,000,000 shares authorized:
Series A, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
600 shares issued and outstanding 60,000 60,000
Series B, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
200 shares issued and outstanding 20,000 20,000
Series C, cumulative, 1500 shares authorized,
none outstanding
Series D, cumulative, 1500 shares authorized,
none outstanding
Series E, non-cumulative, 2,000,000
shares authorized, issued, and outstanding, 41,800 41,800
liquidation value of $20.90 per share
Common stock, $1 par value; 50,000,000 shares authorized;
7,032,000 shares issued and outstanding 7,032 7,032
Additional paid-in capital 690,748 664,265
Unrealized gains (losses) on securities available-for-sale, net 52,807 14,951
Retained earnings 313,532 226,166
-------------- ---------------
Total Stockholder's Equity 1,185,919 1,034,214
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 22,077,715 $ 19,351,234
============== ===============
</TABLE>
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------
1997 1996 1995
------------- ------------- -------------
REVENUES:
<S> <C> <C> <C>
Annuity contract charges and premiums $ 115,054 $ 91,881 $ 79,816
Life, accident, and health premiums earned (net of
premiums
ceded (recaptured) totaling $(94,646), $(104,250)
and $60,880) 1,163,855 1,107,367 987,611
Net investment income 897,572 836,642 835,046
Net realized gains (losses) on investments 9,800 (21,078) 7,465
------------- ------------- -------------
2,186,281 2,014,812 1,909,938
------------- ------------- -------------
BENEFITS AND EXPENSES:
Life and other policy benefits (net of reinsurance
recoveries totaling $44,871, $52,675,
and $43,574) 543,903 515,750 557,469
Increase in reserves 245,811 229,198 98,797
Interest paid or credited to contractholders 527,784 561,786 562,263
Provision for policyholders' share of earnings
(losses)
on participating business 3,753 (7) 2,027
Dividends to policyholders 63,799 49,237 48,150
------------- ------------- -------------
1,385,050 1,355,964 1,268,706
Commissions 102,150 106,561 122,926
Operating expenses 419,616 336,719 314,810
Premium taxes 23,108 25,021 26,884
------------- -------------
-------------
1,929,924 1,824,265 1,733,326
INCOME BEFORE INCOME TAXES 256,357 190,547 176,612
------------- ------------- -------------
PROVISION FOR INCOME TAXES:
Current 103,794 77,134 88,366
Deferred (6,197) (21,162) (39,434)
------------- ------------- -------------
97,597 55,972 48,932
------------- ------------- -------------
NET INCOME $ 158,760 $ 134,575 $ 127,680
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
Net
Additional Unrealized
Preferred Stock Common Stock Paid-In Gains Retained
---------------------- ---------------------
Shares Amount Shares Amount Capital (Losses) Earnings Total
---------- ---------- ----------- -------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 2,000,800 $ 121,800 7,032,000 $ 7,032 $ 657,265 $ (78,427) $ 69,561 $ 777,231
Change in net unrealized
gains (losses) 137,190 137,190
Dividends (48,980) (48,980)
Net income 127,680 127,680
---------- ---------- ----------- -------- ---------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1995 2,000,800 121,800 7,032,000 7,032 657,265 58,763 148,261 993,121
Change in net unrealized
gains (losses) (43,812) (43,812)
Capital contributions 7,000 7,000
Dividends (56,670) (56,670)
Net income 134,575 134,575
---------- ---------- ----------- -------- ---------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1996 2,000,800 121,800 7,032,000 7,032 664,265 14,951 226,166 1,034,214
Change in net unrealized
gains (losses) 37,856 37,856
Capital contributions 26,483 26,483
Dividends (71,394) (71,394)
Net income 158,760 158,760
---------- ---------- ----------- -------- ---------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1997 2,000,800 $ 121,800 7,032,000 $ 7,032 $ 690,748 $ 52,807 $ 313,532 $ 1,185,919
========== ========== =========== ======== ========== =========== ========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------
1997 1996 1995
-------------- ------------- -------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 158,760 $ 134,575 $ 127,680
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain (loss) allocated to participating 3,753 (7) 2,027
policyholders
Amortization of investments 409 15,518 26,725
Realized losses (gains) on disposal of
investments
and provisions for mortgage loans and (9,800) 21,078 (7,465)
real estate
Amortization 46,929 49,454 49,464
Deferred income taxes (6,224) (20,258) (39,763)
Changes in assets and liabilities:
Policy benefit liabilities 498,114 358,393 346,975
Reinsurance receivable 112,594 136,966 (38,776)
Accrued interest and other receivables 30,299 24,778 (17,617)
Other, net 58,865 (8,076) 8,834
-------------- ------------- -------------
Net cash provided by operating 893,699 712,421 458,084
activities
-------------- ------------- -------------
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and
redemptions of investments:
Fixed maturities
Held-to-maturity
Sales 18,821
Maturities and redemptions 359,021 516,838 655,993
Available-for-sale
Sales 3,174,246 3,569,608 4,211,649
Maturities and redemptions 771,737 803,369 253,747
Mortgage loans 248,170 235,907 260,960
Real estate 36,624 2,607 4,401
Common stock 17,211 1,888
Purchases of investments:
Fixed maturities
Held-to-maturity (439,269) (453,787) (490,228)
Available-for-sale (4,314,722) (4,753,154) (4,932,566)
Mortgage loans (2,532) (23,237) (683)
Real estate (64,205) (15,588) (5,302)
Common stock (29,608) (12,113) (4,218)
-------------- ------------- -------------
Net cash used in investing (243,327) (127,662) (27,426)
activities
-------------- ------------- -------------
(Continued)
</TABLE>
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------
1997 1996 1995
------------- ------------- -------------
FINANCING ACTIVITIES:
<S> <C> <C> <C>
Contract withdrawals, net of deposits $ (577,538) $ (413,568) $ (217,190)
Due to Parent Corporation (19,522) 1,457 (9,143)
Dividends paid (71,394) (56,670) (48,980)
Net commercial paper repayments (30,624) (172) (4,832)
Net repurchase agreements (repayments) borrowings 38,802 (88,563) (191,195)
Capital contributions 11,000 7,000
------------- ------------- -------------
Net cash used in financing activities (649,276) (550,516) (471,340)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH 1,096 34,243 (40,682)
CASH, BEGINNING OF YEAR 125,182 90,939 131,621
------------- ------------- -------------
CASH, END OF YEAR $ 126,278 $ 125,182 $ 90,939
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes $ 86,829 $ 103,700 $ 83,841
Interest 15,124 15,414 17,016
</TABLE>
See notes to consolidated financial statements. (Concluded)
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996,
AND 1995 (Amounts in Thousands, except Share Amounts)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Great-West Life & Annuity Insurance Company (the Company)
is a wholly-owned subsidiary of The Great-West Life Assurance Company
(the Parent Corporation). The Company is an insurance company domiciled
in the State of Colorado. The Company offers a wide range of life
insurance, health insurance, and retirement and investment products to
individuals, businesses, and other private and public organizations
throughout the United States.
Basis of Presentation - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The consolidated financial
statements include the accounts of the Company and its subsidiaries. All
material intercompany transactions and balances have been eliminated in
consolidation.
Investments - Investments are reported as follows:
1. Management determines the classification of fixed maturities at
the time of purchase. Fixed maturities are classified as
held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost unless fair value is less
than cost and the decline is deemed to be other than temporary,
in which case they are written down to fair value and a new cost
basis is established.
Fixed maturities not classified as held-to-maturity are
classified as available-for-sale. Available-for-sale securities
are carried at fair value, with the net unrealized gains and
losses reported as a separate component of stockholder's equity.
The net unrealized gains and losses in derivative financial
instruments used to hedge available-for-sale securities are
included in the separate component of stockholder's equity.
The amortized cost of fixed maturities classified as
held-to-maturity or available-for-sale is adjusted for
amortization of premiums and accretion of discounts using the
effective interest method over the estimated life of the related
bonds. Such amortization is included in net investment income.
Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net realized gains (losses)
on investments.
2. Mortgage loans on real estate are carried at their unpaid
balances adjusted for any unamortized premiums or discounts and
any valuation reserves. Interest income is accrued on the unpaid
principal balance. Discounts and premiums are amortized to net
investment income using the effective interest method. Accrual of
interest is discontinued on any impaired loans where collection
of interest is doubtful.
The Company maintains an allowance for credit losses at a level
that, in management's opinion, is sufficient to absorb possible
credit losses on its impaired loans and to provide adequate
provision for any possible future losses in the portfolio.
Management's judgement is based on past loss experience, current
and projected economic conditions, and extensive situational
analysis of each individual loan. The measurement of impaired
loans is based on the fair value of the collateral.
<PAGE>
3. Real estate is carried at the lower of cost or fair value, net of
costs of disposal. Effective January 1, 1996, the Company adopted
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". The implementation
of this statement had no material effect on the Company's
financial statements.
4. Investments in common stock are carried at fair value.
5. Policy loans are carried at their unpaid balances.
6. Short-term investments include securities purchased with initial
maturities of one year or less and are carried at amortized cost.
The Company considers short-term investments to be
available-for-sale and amortized cost approximates fair value.
Gains and losses realized on disposal of investments are determined on a
specific identification basis.
Cash - Cash includes only amounts in demand deposit accounts.
Deferred Policy Acquisition Costs - Policy acquisition costs, which
consist of sales commissions and other costs that vary with and are
primarily related to the production of new and renewal business, have
been deferred to the extent recoverable. Deferred costs associated with
the annuity products are being amortized over the life of the contracts
in proportion to the emergence of gross profits. Retrospective
adjustments of these amounts are made when the Company revises its
estimates of current or future gross profits. Deferred costs associated
with traditional life insurance are amortized over the premium paying
period of the related policies in proportion to premium revenues
recognized. Amortization of deferred policy acquisition costs totaled
$44,298, $47,089, and $48,054 in 1997, 1996, and 1995, respectively.
Separate Account - Separate account assets and related liabilities are
carried at fair value. The Company's separate accounts invest in shares
of Maxim Series Fund, Inc. and Orchard Series Fund, Inc., both
diversified, open-end management investment companies which are
affiliates of the Company, shares of other external mutual funds, or
government or corporate bonds.
Life Insurance and Annuity Reserves - Life insurance and annuity policy
reserves with life contingencies of $5,741,596 and $5,242,753, at
December 31, 1997 and 1996, respectively, are computed on the basis of
estimated mortality, investment yield, withdrawals, future maintenance
and settlement expenses, and retrospective experience rating premium
refunds. Annuity contract reserves without life contingencies of
$5,346,516 and $5,766,533, at December 31, 1997 and 1996, respectively,
are established at the contractholder's account value.
Reinsurance - Policy reserves ceded to other insurance companies are
carried as reinsurance receivable on the balance sheet (See Note 3). The
cost of reinsurance related to long-duration contracts is accounted for
over the life of the underlying reinsured policies using assumptions
consistent with those used to account for the underlying policies.
Policy and Contract Claims - Policy and contract claims include
provisions for reported claims in process of settlement, valued in
accordance with the terms of the related policies and contracts, as well
as provisions for claims incurred and unreported based primarily on
prior experience of the Company.
Participating Fund Account - Participating life and annuity policy
reserves are $3,901,297 and $3,591,077 at December 31, 1997 and 1996,
respectively. Participating business approximates 50.5% and 50.3% of the
Company's ordinary life insurance in force and 91.1% and 92.2% of
ordinary life insurance premium income at December 31, 1997 and 1996,
respectively.
<PAGE>
The liability for undistributed earnings on participating business was
increased (decreased) by $8,610 and $(3,362) in 1997 and 1996, which
represented $3,753 and $(7) of gains (losses) on participating business,
increases (decreases) of $2,102 and $(2,924) to reflect the net change
in unrealized gains on securities classified as available-for-sale, net
of certain adjustments to policy reserves and income taxes, and
increases (decreases) of $2,755 and $(431) due to reinsurance
transactions (See Note 2).
The amount of dividends to be paid from undistributed earnings on
participating business is determined annually by the Board of Directors.
Amounts allocable to participating policyholders are consistent with
established Company practice.
The Company has established a Participating Policyholder Experience
Account (PPEA) for the benefit of all participating policyholders which
is included in the accompanying consolidated balance sheet. Earnings
associated with the operation of the PPEA are credited to the benefit of
all participating policyholders. In the event that the assets of the
PPEA are insufficient to provide contractually guaranteed benefits, the
Company must provide such benefits from its general assets.
The Company has also established a Participation Fund Account (PFA) for
the benefit of the participating policyholders previously transferred to
the Company from the Parent under an assumption reinsurance transaction.
The PFA is part of the PPEA. Earnings derived from the operation of the
PFA accrue solely for the benefit of the acquired participating
policyholders.
Recognition of Premium Income and Benefits and Expenses - Life insurance
premiums are recognized as earned. Annuity premiums with life
contingencies are recognized as received. Accident and health premiums
are earned on a monthly pro rata basis. Revenues for annuity and other
contracts without significant life contingencies consist of contract
charges for the cost of insurance, contract administration, and
surrender fees that have been assessed against the contract account
balance during the period. Benefits and expenses on policies with life
contingencies are associated with premium income by means of the
provision for future policy benefit reserves, resulting in recognition
of profits over the life of the contracts. The average crediting rate on
annuity products was approximately 6.6%, 6.8%, and 7.2% in 1997, 1996,
and 1995.
Income Taxes - Income taxes are recorded using the asset and liability
approach which requires, among other provisions, the recognition of
deferred tax assets and liabilities for expected future tax consequences
of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, all
expected future events (other than the enactments or changes in the tax
laws or rules) are considered. Although realization is not assured,
management believes it is more likely than not that the deferred tax
asset, net of a valuation allowance, will be realized.
Repurchase Agreements and Securities Lending - The Company enters into
repurchase agreements with third-party broker-dealers in which the
Company sells securities and agrees to repurchase substantially similar
securities at a specified date and price. Such agreements are accounted
for as collateralized borrowings. Interest expense on repurchase
agreements is recorded at the coupon interest rate on the underlying
securities. The repurchase fee received or paid is amortized over the
term of the related agreement and recognized as an adjustment to
investment income.
The Company will implement Statement of Financial Accounting Standards
(SFAS) No. 125 "Accounting for Transfer and Servicing of Financial
Assets and Extinguishments of Liabilities" in 1998 as it relates to
repurchase agreements and securities lending arrangements. Management
estimates the effect of the change will not have a material affect on
the Company's financial statements.
<PAGE>
Derivatives - The Company makes limited use of derivative financial
instruments to manage interest rate, market, and foreign exchange risk.
Such hedging activity consists of interest rate swap agreements,
interest rate floors and caps, foreign currency exchange contracts and
equity swaps. The differential paid or received under the terms of these
contracts are recognized as an adjustment to net investment income on
the accrual method. Gains and losses on foreign exchange contracts are
deferred and recognized in net investment income when the hedged
transactions are realized.
Interest rate swap agreements are used to convert the interest rate on
certain fixed maturities from a floating rate to a fixed rate. Interest
rate swap transactions generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying principal amount. Interest rate floors and caps are interest
rate protection instruments that require the payment by a counter-party
to the Company of an interest rate differential. The differential
represents the difference between current interest rates and an
agreed-upon rate, the strike rate, applied to a notional principal
amount. Foreign currency exchange contracts are used to hedge the
foreign exchange rate risk associated with bonds denominated in other
than U.S. dollars. Equity swap transactions generally involve the
exchange of variable market performance of a basket of securities for a
fixed interest rate.
Although derivative financial instruments taken alone may expose the
Company to varying degrees of market and credit risk when used solely
for hedging purposes, these instruments typically reduce overall market
and interest rate risk. The Company controls the credit risk of its
financial contracts through credit approvals, limits, and monitoring
procedures. As the Company generally enters into transactions only with
high quality institutions, no losses associated with non-performance on
derivative financial instruments have occurred or are expected to occur.
2. RELATED-PARTY TRANSACTIONS
On June 30, 1997 the Company recaptured all remaining pieces of an
individual participating insurance block of business previously
reinsured to the Parent Corporation on December 31, 1992. The Company
recorded, at estimated fair value, the following at June 30, 1997 as a
result of this transaction:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Assets Liabilities and Stockholder's
Equity
------- -------------------------------
Cash $ 160,000 Policy reserves $ 155,798
Bonds 17,975 Due to parent corporation 9,373
Other 60 Deferred income taxes 2,719
Undistributed earnings on
participating business (855)
Stockholder's equity 11,000
----------- ----------
$ 178,035 $ 178,035
=========== ==========
On October 31, 1996 the Company recaptured certain pieces of an
individual participating insurance block of business previously
reinsured to the Parent Corporation on December 31, 1992. The Company
recorded, at estimated fair value, the following at October 31, 1996 as
a result of this transaction:
Assets Liabilities and Stockholder's
Equity
------- -------------------------------
Cash $ 162,000 Policy reserves $ 164,839
Mortgages 19,753 Due to parent corporation 9,180
Other 118 Deferred income taxes 1,283
Undistributed earnings on
participating business (431)
Stockholder's equity 7,000
=========== ==========
$ 181,871 $ 181,871
=========== ==========
</TABLE>
<PAGE>
Effective January 1, 1997 all employees of the U.S. operations of the
Parent Corporation and the related benefit plans were transferred to the
Company. All related employee benefit plan assets and liabilities were
also transferred to the Company (see Note 9). The transfer did not have
a material effect on the Company's operating expenses as the costs
associated with the employees and the benefit plans were charged
previously to the Company under administrative service agreements
between the Company and the Parent Corporation.
Prior to January 1997, the Parent Corporation administered, distributed,
and underwrote business for the Company and administered the Company's
investment portfolio under various administrative agreements. As of
January 1, 1997, the Company performs these services for the U.S.
operations of the Parent Corporation. The following represents
allocations between the two companies for services provided pursuant to
these service agreements:
<TABLE>
Years Ended December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Investment management revenue (expense) $ 801 $ (14,800) $ (15,182)
Administrative and underwriting revenue 6,292 (304,599) (301,529)
(payments)
</TABLE>
At December 31, 1997 and 1996, due to Parent Corporation includes $8,957
and $31,639 due on demand and $117,699 and $119,792 of notes payable
which bear interest and mature at various dates through December 31,
2005. These notes may be prepaid in whole or in part at any time without
penalty; the issuer may not demand payment before the maturity date. The
due on demand to the Parent Corporation bears interest at the public
bond rate (7.1% and 7.0% at December 31, 1997 and 1996, respectively)
while the remainder bear interest at various rates ranging from 6.6% to
9.5%.
3. REINSURANCE
In the normal course of business, the Company seeks to limit its
exposure to loss on any single insured and to recover a portion of
benefits paid by ceding risks to other insurance enterprises under
excess coverage and co-insurance contracts. The Company retains a
maximum of $1.5 million of coverage per individual life.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could
result in losses to the Company; consequently, allowances are
established for amounts deemed uncollectible. The Company evaluates the
financial condition of its reinsurers and monitors concentrations of
credit risk arising from similar geographic regions, activities, or
economic characteristics of the reinsurers to minimize its exposure to
significant losses from reinsurer insolvencies. At December 31, 1997 and
1996, the reinsurance receivable had a carrying value of $84,364 and
$196,958, respectively.
Total reinsurance premiums assumed from the Parent Corporation were
$1,712, $1,693, and $1,606 in 1997, 1996, and 1995, respectively.
<PAGE>
The Company considers all accident and health policies to be
short-duration contracts. The following schedule details life insurance
in force and life and accident/health premiums:
<TABLE>
Assumed
Ceded Primarily Percentage
Primarily From of Amount
to
Gross the Parent Other Net Assumed to
Amount Corporation Companies Amount Net
------------- ------------ ------------ ------------- -----------
December 31, 1997:
Life insurance in
force:
<S> <C> <C> <C> <C> <C>
Individual $ 24,598,679 $ 4,040,398 $ 3,667,235 $ 24,225,516 15.1%
Group 51,179,343 2,031,477 53,210,820 3.8%
------------- ------------ ------------ -------------
Total $ 75,778,022 $ 4,040,398 $ 5,698,712 $ 77,436,336
============= ============ ============ =============
Premiums:
Life insurance $ 361,093 $ (127,291)$ 19,923 $ 508,307 3.9%
Accident/health 628,398 32,645 59,795 655,548 9.1%
------------- ------------ ------------ -------------
Total $ 989,491 $ (94,646)$ 79,718 $ 1,163,855
============= ============ ============ =============
December 31, 1996:
Life insurance in
force:
Individual $ 23,409,823 $ 5,246,079 $ 3,482,118 $ 21,645,862 16.1%
Group 47,682,237 1,817,511 49,499,748 3.7%
------------- ------------ ------------ -------------
Total $ 71,092,060 $ 5,246,079 $ 5,299,629 $ 71,145,610
============= ============ ============ =============
Premiums:
Life insurance $ 334,127 $ (111,743)$ 19,633 $ 465,503 4.2%
Accident/health 592,577 7,493 56,780 641,864 8.8%
------------- ------------ ------------ -------------
Total $ 926,704 $ (104,250)$ 76,413 $ 1,107,367
============= ============ ============ =============
December 31, 1995:
Life insurance in
force:
Individual $ 22,388,520 $ 7,200,882 $ 3,476,784 $ 18,664,422 18.6%
Group 48,415,592 1,954,313 50,369,905 3.9%
============= ============ ============ =============
Total $ 70,804,112 $ 7,200,882 $ 5,431,097 $ 69,034,327
============= ============ ============ =============
Premiums:
Life insurance $ 339,342 $ 51,688 $ 21,028 $ 308,682 6.8%
Accident/health 623,626 9,192 64,495 678,929 9.5%
------------- ------------ ------------ -------------
Total $ 962,968 $ 60,880 $ 85,523 $ 987,611
============= ============ ============ =============
<PAGE>
4. NET INVESTMENT INCOME
Net investment income is summarized as follows:
Years Ended December 31,
------------------------------------------------
1997 1996 1995
--------------- --------------- --------------
Investment income:
Fixed maturities and short-term $ 633,975 $ 601,913 $ 591,561
investments
Mortgage loans on real estate 118,274 140,823 171,008
Real estate 20,990 5,292 3,936
Policy loans 194,826 175,746 163,547
Other 22,119 3,321
--------------- --------------- --------------
990,184 927,095 930,052
Investment expenses, including
interest on amounts charged
by the Parent Corporation
of $9,758, $11,282, and $10,778 92,612 90,453 95,006
--------------- --------------- --------------
Net investment income $ 897,572 $ 836,642 $ 835,046
=============== =============== ==============
5. NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) on investments are as follows:
Years Ended December 31,
-------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
Realized gains (losses):
Fixed Maturities $ 15,966 $ (11,624) $ 28,166
Mortgage loans on real estate 1,081 1,143 1,309
Real estate 363 (10)
Provisions (7,610) (10,597) (22,000)
--------------- --------------- ---------------
Net realized gains (losses) on $ 9,800 $ (21,078) $ 7,465
investments
=============== =============== ===============
<PAGE>
6. SUMMARY OF INVESTMENTS
Fixed maturities owned at December 31, 1997 are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
---------- --------- ---------- --------- ----------
Held-to-Maturity:
U.S. Treasury Securities
and obligations
of U.S. Government $ 25,883 $ 1,186 $ 25 $ 27,044 25,883
Agencies - Other:
Collateralized mortgage 5,006 174 5,180 5,006
obligations
Public utilities 245,394 11,214 3 256,605 245,394
Corporate bonds 1,668,710 57,036 3,069 1,722,677 1,668,710
Foreign governments 10,268 659 10,927 10,268
State and municipalities 127,455 1,588 129,043 127,455
--------- ---------- ---------
---------- ----------
$ 2,082,716 $ 71,857 $ 3,097 $ 2,151,476 2,082,716
Available-for-Sale:
U.S. Treasury Securities
and obligations
of U.S. Government
Agencies:
Collateralized $ 652,975 $ 17,339 $ 310 $ 670,004 670,004
mortgage obligations
Direct mortgage
pass-through
certificates 917,216 7,911 2,668 922,459 922,459
Other 297,337 1,794 244 298,887 298,887
Collateralized mortgage 682,158 19,494 1,453 700,199 700,199
obligations
Public utilities 549,435 8,716 1,320 556,831 556,831
Corporate bonds 3,265,039 107,740 4,350 3,368,429 3,368,429
Foreign governments 131,586 4,115 60 135,641 135,641
State and municipalities 45,676 503 46,179 46,179
----------
---------- --------- ---------- ---------
$ 6,541,422 $ 167,612 $ 10,405 $ 6,698,629 6,698,629
========== ========= ========== ========= ==========
<PAGE>
6. SUMMARY OF INVESTMENTS [Continued]
Fixed maturities owned at December 31, 1996 are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
---------- --------- ---------- --------- ---------
Held-to-Maturity:
U.S. Treasury Securities
and obligations
of U.S. Government $ 10,935 $ 630 $ 106 $ 11,459 $ 10,935
Agencies - Other:
Public utilities 284,954 12,755 320 297,389 284,954
Corporate bonds 1,634,745 41,195 7,360 1,668,580 1,634,745
Foreign governments 12,577 556 3 13,130 12,577
State and municipalities 49,470 1,051 15 50,506 49,470
--------- ---------- ---------
---------- ---------
$ 1,992,681 $ 56,187 $ 7,804 $ 2,041,064$ 1,992,681
========== ========= ========== ========= =========
Available-for-Sale:
U.S. Treasury Securities
and obligations
of U.S. Government
Agencies:
Collateralized $ 658,612 $ 8,058 $ 3,700 $ 662,970 $ 662,970
mortgage obligations
Direct mortgage
pass-through
certificates 844,291 5,093 10,908 838,476 838,476
Other 359,220 596 2,686 357,130 357,130
Collateralized mortgage 614,773 13,619 3,553 624,839 624,839
obligations
Public utilities 628,382 6,523 5,375 629,530 629,530
Corporate bonds 2,907,875 56,551 5,250 2,959,176 2,959,176
Foreign governments 110,013 1,762 5,673 106,102 106,102
State and municipalities 28,353 21 119 28,255 28,255
---------
---------- --------- ---------- ---------
$ 6,151,519 $ 92,223 $ 37,264 $ 6,206,478$ 6,206,478
========== ========= ========== ========= =========
</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.
In November 1995, the Financial Accounting Standards Board issued a
special report entitled "A Guide to Implementation of Statement of
Financial Accounting Standards No. 115 (SFAS No. 115) on Accounting for
Certain Investments in Debt and Equity Securities". In accordance with
the adoption of this guidance, the Company reassessed the classification
of its investment portfolio in December 1995 and reclassed securities
totalling $2,119,814 from held-to-maturity to available-for-sale. In
connection with this reclassification, an unrealized gain, net of
related adjustments, of $23,449 was recognized in stockholder's equity
at the date of transfer.
See Note 8 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, 1997, 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>
Held-to-Maturity Available-for-Sale
------------------------- -------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 286,088 $ 290,164 $ 447,703 $ 462,719
Due after one year through five 787,376 809,237 1,182,390 1,209,692
years
Due after five years through ten 718,818 751,753 842,019 865,153
years
Due after ten years 129,957 137,190 447,642 466,949
Mortgage-backed securities 5,006 5,180 2,252,349 2,292,662
Asset-backed securities 155,471 157,952 1,369,319 1,401,454
------------ -----------
=========== ============ ===========
$ 2,082,716 $ 2,151,476 $ 6,541,422 $ 6,698,629
============ =========== ============ ===========
</TABLE>
Proceeds from sales of securities available-for-sale were $3,174,246,
$3,569,608, and $4,211,649 during 1997, 1996, and 1995, respectively.
The realized gains on such sales totaled $20,543, $24,919, and $39,755
for 1997, 1996, and 1995, respectively. The realized losses totaled
$10,643, $40,748, and $15,516 for 1997, 1996, and 1995, respectively.
During 1997, 1996, and 1995 held-to-maturity securities with an
amortized cost of $0, $0, and $18,087 were sold due to credit
deterioration with insignificant realized gains and losses.
At December 31, 1997 and 1996, pursuant to fully collateralized
securities lending arrangements, the Company had loaned $162,817 and
$230,419 of fixed maturities, respectively.
The Company engages in hedging activities to manage interest rate and
exchange risk. The following table summarizes the 1997 financial hedge
instruments:
<TABLE>
Notional Strike/Swap
December 31, 1997 Amount Rate Maturity
--------------------------------- --------------- ---------------------- ---------------
<S> <C> <C> <C>
Interest Rate Floor $ 100,000 4.5% (LIBOR) 1999
Interest Rate Caps 565,000 6.75% to 11.82%(CMT) 1999 to 2002
Interest Rate Swaps 212,139 6.20% to 9.35% 01/98 to
02/2003
Foreign Currency Exchange 57,168 N/A 09/98 to
Contracts 07/2006
Equity Swap 100,000 5.64% 12/98
The following table summarizes the 1996 financial hedge instruments:
Notional Strike/Swap
December 31, 1996 Amount Rate Maturity
--------------------------------- --------------- ---------------------- ---------------
Interest Rate Floor $ 100,000 4.5% [LIBOR] 1999
Interest Rate Caps 260,000 11.0% to 11.82%[CMT] 2000 to 2001
Interest Rate Swaps 187,847 6.20% to 9.35% 01/98 to
02/2003
Foreign Currency Exchange 61,012 N/A 09/98 to
Contracts 03/2003
LIBOR - London Interbank Offered Rate
CMT - Constant Maturity Treasury Rate
</TABLE>
<PAGE>
The Company has established specific investment guidelines designed to
emphasize a diversified and geographically dispersed portfolio of
mortgages collateralized by commercial and industrial properties located
in the United States. The Company's policy is to obtain collateral
sufficient to provide loan-to-value ratios of not greater than 75% at
the inception of the mortgages. At December 31, 1997 approximately 32%
and 10% of the Company's mortgage loans were collateralized by real
estate located in California and Michigan, respectively.
The following represents impairments and other information with respect
to impaired loans:
<TABLE>
1997 1996
----------- -----------
<S> <C> <C> <C>
Loans with related allowance for credit losses of $2,493 and $ 13,193 $ 16,443
$2,793
Loans with no related allowance for credit losses 20,013 31,709
Average balance of impaired loans during the year 37,890 39,064
Interest income recognized [while impaired] 2,428 923
Interest income received and recorded [while impaired] using
the cash
basis method of recognition 2,484 1,130
As part of an active loan management policy and in the interest of
maximizing the future return of each individual loan, the Company may
from time to time alter the original terms of certain loans. These
restructured loans, all performing in accordance with their modified
terms that are not impaired, aggregated $64,406, and $68,254 at December
31, 1997, and 1996, respectively.
The following table presents changes in the allowance for credit losses:
1997 1996 1995
---------------- ---------------- ----------------
Balance, beginning of year $ 65,242 63,994 $ 57,987 $
Provision for loan losses 4,521 4,470 15,877
Chargeoffs (2,521) (3,468) (10,480)
Recoveries 246 610
================ ================ ================
Balance, end of year $ 67,242 65,242 $ 63,994 $
================ ================ ================
7. COMMERCIAL PAPER
The Company has a commercial paper program which is partially supported
by a $50,000 standby letter-of-credit. At December 31, 1997, commercial
paper outstanding has maturities ranging from 41 to 99 days and interest
rates ranging from 5.6% to 5.8%. At December 31, 1996, maturities ranged
from 49 to 123 days and interest rates ranged from 5.4% to 5.6%.
<PAGE>
8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table provides estimated fair value for all assets and
liabilities and hedge contracts considered to be financial instruments:
December 31,
-------------------------------------------------------
1997 1996
---------------------------- --------------------------
Estimated
Carrying Estimated Carrying Fair
Amount Fair Value Amount Value
------------ -------------- ----------- -------------
ASSETS:
Fixed maturities and
short-term
investments $ 9,180,476 $ 9,249,235 $ 8,618,167 $ 8,666,550
Mortgage loans on real 1,235,594 1,261,949 1,487,575 1,506,162
estate
Policy loans 2,657,116 2,657,116 2,523,477 2,523,477
Common stock 39,021 39,021 19,715 19,715
LIABILITIES:
Annuity contract reserves
without life 5,346,516 5,373,818 5,766,533 5,808,095
contingencies
Policyholders' funds 165,106 165,106 153,867 153,867
Due to Parent Corporation 126,656 124,776 151,431 154,479
Repurchase agreements 325,538 325,538 286,736 286,736
Commercial paper 54,058 54,058 84,682 84,682
HEDGE CONTRACTS:
Interest rate floor 25 25 62 124
Interest rate cap 130 130 173 173
Interest rate swaps 4,265 4,265 4,746 4,746
Foreign currency exchange 3,381 3,381 (8,954) (8,954)
contracts
Equity swaps 856 856
</TABLE>
The estimated fair value of financial instruments has been determined
using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
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.
Mortgage loans fair value estimates generally are based on a discounted
cash flow basis. A discount rate "matrix" is incorporated whereby the
discount rate used in valuing a specific mortgage generally corresponds
to that mortgage's remaining term. The rates selected for inclusion in
the discount rate "matrix" reflect rates that the Company would quote if
placing loans representative in size and quality to those currently in
the portfolio.
Policy loans accrue interest generally at variable rates with no fixed
maturity dates and, therefore, estimated fair value approximates
carrying value.
The fair value of annuity contract reserves without life contingencies
is estimated by discounting the cash flows to maturity of the contracts,
utilizing current credited rates for similar products.
The estimated fair value of policyholders' funds is the same as the
carrying amount as the Company can change the crediting rates with 30
days notice.
The estimated fair value of due to Parent Corporation is based on
discounted cash flows at current market spread rates on high quality
investments.
The carrying value of repurchase agreements and commercial paper is a
reasonable estimate of fair value due to the short-term nature of the
liabilities.
The estimated fair value of financial hedge instruments, all of which
are held for other than trading purposes, is the estimated amount the
Company would receive or pay to terminate the agreement at each
year-end, taking into consideration current interest rates and other
relevant factors. Included in the net gain position for interest rates
swaps are $0 and $160 of unrealized losses in 1997 and 1996,
respectively. Included in the net loss position for foreign currency
exchange contracts are $0 and $8,954 of loss exposures in 1997 and 1996,
respectively.
9. EMPLOYEE BENEFIT PLANS
Effective January 1, 1997, all employees of the U.S. operations of the
Parent Corporation and the related benefit plans were transferred to the
Company. See Note 2 for further discussion.
The Company's defined benefit pension plan (pension plan) covers
substantially all of its employees. The benefits are based on years of
service, age at retirement, and the compensation during the last seven
years of employment. The Company's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes. Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be earned
in the future. Investments of the pension plan are managed by the
Company and invested primarily in investment contracts and separate
accounts.
The Company's Parent had previously accounted for the pension plan under
the Canadian Institute of Chartered Accountants (CICA) guidelines and
had recorded a prepaid pension asset of $19,091. As generally accepted
accounting principles do not materially differ from CICA guidelines and
the transfer is between related parties, the prepaid pension asset was
transferred at cost. As a result, the Company recorded the following
effective January 1, 1997:
<TABLE>
<S> <C> <C>
Prepaid pension cost $ 19,091 Undistributed earnings $ 3,608
on
participating
business
Stockholder's equity 15,483
=============== ==============
$ 19,091 $ 19,091
=============== ==============
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 87, "Employers Accounting for Pensions" effective January 1, 1997,
immediately following the transfer. The following table sets forth the
pension plan's funded status and amounts at December 31, 1997, in
accordance with SFAS No. 87:
Actuarial present value of accumulated benefit obligation,
including vested benefits of $88,235 $ 91,387
Actuarial present value of projected benefit obligation
for service rendered to date 112,331
Plan assets at fair value 162,422
--------------
Plan assets in excess of projected benefit obligation 50,091
Unrecognized net (gain) loss from past experience
different from that assumed (8,595)
Unrecognized net obligation being recognized over 15 years (21,198)
--------------
Prepaid pension cost included in other assets $ 20,298
==============
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation were 7.0% and 4.5%, respectively.
<PAGE>
Components of net pension cost for the year ended December 31, 1997 were
as follows:
Service cost - benefits earned during the period $ 5,491
Interest accrued on projected benefit obligation 7,103
Return on plan assets (28,072)
Net amortization and deferral 14,271
---------------
Net pension benefit $ (1,207)
===============
The Company also sponsors a post-retirement medical plan (medical plan)
which provides health benefits to employees who have worked for 15 years
and attained age 65 while in service with the Company. The medical plan
is contributory and contains other cost sharing features which may be
adjusted annually for the expected general inflation rate. The Company's
policy will be to fund the cost of the medical plan benefits in amounts
determined at the discretion of management. The Plan as of January 1,
1997 was not funded. The Parent Company was not required under CICA
guidelines to record any liability related to the Plan.
Effective January 1, 1997, on the date of transfer, the Company has
adopted SFAS No. 106, "Post-retirement Benefits Other Than Pensions."
The Company has elected to delay recognition of the unfunded accumulated
post-retirement benefit obligation and has set up a transition
obligation to be amortized over 20 years.
The following table sets forth the medical plan status of December 31,
1997:
Accumulated post-retirement benefit obligation:
Retirees $ 4,985
Fully eligible active plan participants 2,438
Other active plan participants 12,031
---------------
19,454
Unrecognized net gain (loss) from past experience different from (1,500)
that assumed
Unrecognized net transition obligation at December 31, 1997,
being recognized over 20 years (15,352)
---------------
Accrued post-retirement benefit obligation included in other $ 2,602
liabilities
===============
For measurement purposes, a 7.5% annual rate of increase in the per
capita cost of covered health care benefits was assumed. The health care
cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend
rates by 1% in each year would increase the accumulated post-retirement
benefit obligation as of December 31, 1997 by $3,847.
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.0%.
Components of net other post-retirement benefit cost for the year ended
December 31, 1997 were as follows:
Service cost - benefits earned during the year $ 1,158
Interest accrued on benefits obligation 1,191
Net amortization and deferral 808
---------------
Net other post-retirement benefit cost $ 3,157
===============
The Company sponsors a defined contribution 401(k) retirement plan which
provides eligible participants with the opportunity to defer up to 15%
of compensation. The Company matches 50% of the first 5% of participant
contributions. Company contributions for the year ended December 31,
1997 totalled $3,475.
</TABLE>
<PAGE>
10. FEDERAL INCOME TAXES
The following is a reconciliation between the federal income tax rate
and the Company's effective rate:
<TABLE>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Federal tax rate 35.0 % 35.0 % 35.0 %
Change in tax rate resulting from:
Settlement of prior years tax (6.5) (4.7)
Provision for contingencies 8.4
Change in valuation allowance 0.8 (7.8)
Investment income not subject to (0.3) (1.0) (0.5)
federal tax
State and environmental taxes 0.6 0.7 0.7
Other, net 0.9 (1.4) 0.3
======== ======== ========
Total 38.1 % 29.4 % 27.7 %
======== ======== ========
Temporary differences which give rise to the deferred tax assets and
liabilities as of December 31, 1997 and 1996 are as follows:
1997 1996
-------------------------- --------------------------
Deferred Deferred Tax Deferred Deferred Tax
Tax Asset Liability Tax Asset Liability
----------- ------------- ----------- -------------
Policyholder reserves 163,975 $ $ 151,239 $
Deferred policy acquisition 47,463 57,031
costs
Deferred acquisition cost 79,954 70,413
proxy tax
Investment assets 2,226 35,658
Net operating loss 9,427 12,295
carryforwards
Other 10,729 5,366
----------- ------------- ----------- -------------
Subtotal 255,582 58,192 274,971 57,031
Valuation allowance (3,570) (3,536)
=========== ============= =========== =============
Total Deferred Taxes 252,012 $ 58,192 $ 271,435 $ 57,031
=========== ============= =========== =============
</TABLE>
Amounts related to investment assets above include $30,085 and $8,530
related to the unrealized gains on the Company's fixed maturities
available-for-sale at December 31, 1997 and 1996, respectively.
The Company files a separate tax return and, therefore, losses incurred
by subsidiaries cannot be offset against operating income of the
Company. At December 31, 1997, the Company's subsidiaries have
approximately $26,934 of net operating loss carryforwards, expiring
through the year 2011. The tax benefit of subsidiaries' net operating
loss carryforwards, net of a valuation allowance of $3,570 and $3,536
are included in the deferred tax assets at December 31, 1997 and 1996,
respectively.
The Company's valuation allowance was increased/(decreased) in 1997,
1996, and 1995 by $34, $1,463, and $(13,145), respectively, as a result
of the re-evaluation by management of future estimated taxable income in
the subsidiaries.
Under pre-1984 life insurance company income tax laws, a portion of life
insurance company gain from operations was not subject to current income
taxation but was accumulated, for tax purposes, in a memorandum account
designated as "policyholders' surplus account." The aggregate
accumulation in the account is $7,742 and the Company does not
anticipate any transactions which would cause any part of the amount to
become taxable. Accordingly, no provision has been made for possible
future federal income taxes on this accumulation.
<PAGE>
Pursuant to a December 31, 1993 agreement between the Company and its
Parent whereby the Company assumed responsibility for the Parent
Corporation's income tax liability for fiscal years prior to 1994, the
Company had previously recorded a contingent liability provision. The
Company's 1997 and 1996 results of operations include a release of
$47,750 and $25,600 from the provision, to reflect the resolution of
certain tax issues related to 1990 - 1991 and 1988 - 1989 audit years,
respectively, with the Internal Revenue Service (IRS). In addition, in
1997 the tax provision was increased for contingent items related to
open tax years. The IRS is currently auditing tax years 1992 and 1993.
In the opinion of Company management, the amounts paid or accrued are
adequate; however, it is possible that the Company's accrued amounts may
change as a result of the completion of the IRS audits.
11. STOCKHOLDER'S EQUITY, DIVIDEND RESTRICTIONS, AND OTHER MATTERS
All of the Company's outstanding series of preferred stock are owned by
the Parent Corporation. The dividend rate on the Series A Stated Rate
Auction Preferred Stock (STRAPS) is 7.3% through December 30, 2002. The
Series A STRAPS are redeemable at the option of the Company on or after
December 29, 2002 at a price of $100,000 per share, plus accumulated and
unpaid dividends.
Through December 30, 1997, the Series B STRAPS had a dividend rate of
5.8%. Thereafter, short-term dividend periods of approximately 49 days
will be in effect. The dividend rate for each short-term dividend period
will be determined in accordance with a formula set out in the share
conditions. The Series B STRAPS are redeemable at the option of the
Company at the end of any short-term dividend period, at a price of
$100,000 per share, plus accumulated and unpaid dividends.
The Company's Series E 7.5% non-cumulative, non-redeemable preferred
shares are redeemable by the Company after April 1, 1999. The shares are
convertible into common shares at the option of the holder on or after
September 30, 1999, at a conversion price negotiated between the holder
and the Company or at a formula determined conversion price in
accordance with the share conditions.
The Company's net income and capital and surplus, as determined in
accordance with statutory accounting principles and practices for
December 31 are as follows:
<TABLE>
1997 1996 1995
-------------- -------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Net Income $ 181,312 $ 180,634 $ 114,931
Capital and Surplus 759,429 713,324 653,479
</TABLE>
The maximum amount of dividends which can be paid to stockholders by
insurance companies domiciled in the State of Colorado is subject to
restrictions relating to statutory surplus and statutory net gain from
operations. Statutory surplus and net gains from operations at December
31, 1997 were $759,429 and $180,834 (unaudited), respectively. The
Company should be able to pay up to $180,834 (unaudited) of dividends in
1998.
Dividends of $8,854, $8,587, and $9,217, were paid on preferred stock in
1997, 1996, and 1995, respectively. In addition, dividends of $62,540,
$48,083, and $39,763, were paid on common stock in 1997, 1996 and 1995,
respectively. Dividends are paid as determined by the Board of
Directors.
The Company is involved in various legal proceedings which arise in the
ordinary course of its business. In the opinion of management, after
consultation with counsel, the resolution of these proceedings should
not have a material adverse effect on its financial position or results
of operations.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
The financial statements for Great-West Life & Annuity Insurance Company
for the years ended December 31, 1997, 1996 and 1995 and the financial
statements for Maxim Series Account for the years ended December 31, 1997 and
1996 are attached to the statement of additional information filed herewith.
(b) Exhibits
(1) Certified copy of resolution of Board of Directors or Depositor
establishing Registrant is incorporated by reference to Registrant's
Registration Statement.
(2) Not applicable.
(3) Copy of distribution contract between Depositor and Principal
Underwriter and Distribution Agreement is attached as Exhibit 3.
(4) Copy of the form of the variable annuity contract is attached as
Exhibit 4.
(5) Copy of the form of application to be used with the variable
annuity contract provided pursuant to (4) is attached as Exhibit 5.
(6)Copy of Articles of Incorporation and Bylaws of Depositor are
incorporated by reference to Amendment No. 2 to the Registration
Statement filed by Depositor on Form N-4 on October 29, 1996,
Registration No. 333-01153.
(7) Not applicable.
(8) A Copy of a sample participation agreement with underlying funds
is attached as Exhibit 8.
(9) Opinion of counsel and consent of Ruth B. Lurie, Vice President,
Counsel and Associate Secretary is attached as Exhibit 9.
(10)(a) Written Consent of Jorden Burt Boros Cicchetti Berenson &
Johnson LLP is attached as Exhibit 10a.
(b) Written Consent of Deloitte & Touche LLP is attached as Exhibit
10b.
(c) Written Consent of Ruth B. Lurie is attached as Exhibit 10c.
(11) Not Applicable.
(12) Not Applicable.
(13) Schedule for computation of each performance quotation provided
in response to Item 21 is attached as Exhibit 13.
Item 25. Directors and Officers of the Depositor
Position and Offices
Name Principal Business Address with
Depositor
James Balog 2205 North Southwinds Boulevard Director
Vero Beach, Florida 32963
James W. Burns, O.C. (4) Director
Position and Offices
Name Principal Business Address with
Depositor
Orest T. Dackow (3) Director
Andre Desmarais (4) Director
Paul Desmarais, Jr. (4) Director
Robert G. Graham 574 Spoonbill Drive Director
Sarasota, Florida 34236
Robert Gratton (5) Chairman
N. Berne Hart 2552 East Alameda Avenue, #99 Director
Denver, Colorado 80209
Kevin P. Kavanagh (1) Director
William Mackness 61 Waterloo Street Director
Winnipeg, Manitoba R3N 0S3
William T. McCallum (3) Director,
President and
Chief Executive
Officer
Jerry E.A. Nickerson H.B. Nickerson & Sons Limited Director
P.O. Box 130
275 Commercial Street
North Sydney, Nova Scotia B2A 3M2
P. Michael Pitfield, P.C., Q.C. (4) Director
Michel Plessis-Belair, F.C.A. (4) Director
Brian E. Walsh Veritas Capital Management, LLC
Director
115 East Putnam Avenue
Greenwich, Connecticut 06830
John A. Brown (3) Senior
Vice-President, Sales,
Financial Services
Donna A. Goldin (2) Executive Vice
President, Chief
Operations Officer,
One Corporation
Mitchell T. Graye (3) Senior
Vice-President, Chief
Financial Officer
John T. Hughes (3) Senior
Vice-President, Chief
Investment Officer
D. Craig Lennox (3) Senior
Vice-President, General
Counsel and Secretary
Dennis Low (3) Executive
Vice-President,
Financial Services
Alan D. MacLennan (2) Executive
Vice-President,
Employee Benefits
Steven H. Miller (2) Senior Vice
President,
Employee Benefits,
Sales
Position and Offices
Name Principal Business Address with
Depositor
James D. Motz (2) Executive
Vice-President,
Employee Benefits
Charles P. Nelson (3) Senior
Vice-President
Public Non-Profit
Markets
Martin L. Rosenbaum (2) Senior
Vice-President,
Employee Benefits
Operations
Douglas L. Wooden (3) Executive
Vice-President,
Financial Services
Robert K. Shaw (3) Senior
Vice-President
Individual Markets
- --------------------------------------
(1) 100 Osborne Street North, Winnipeg, Manitoba, Canada R3C 3A5.
(2) 8505 East Orchard Road, Englewood, Colorado 80111.
(3) 8515 East Orchard Road, Englewood, Colorado 80111.
(4) Power Corporation of Canada, 751 Victoria Square, Montreal, Quebec, Canada
H2Y 2J3.
(5) Power Financial Corporation, 751 Victoria Square, Montreal, Quebec, Canada
H2Y 2J3.
Item 26. Persons controlled by or under common control with the Depositor or
Registrant
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Power Corporation of Canada
100% - 795957 Canada Inc.
100% - 171263 Canada Inc.
67.7% - Power Financial Corporation
81.2% - Great-West Lifeco Inc.
99.5% - The Great-West Life Assurance Company
100% - Great-West Life & Annuity Insurance Company
100% First Great-West Life & Annuity Insurance
Company
100% - GW Capital Management, LLC
100% - Orchard Capital Management, LLC
100% - Financial Administrative Services Corporation
100% - One Corporation
100% - One Health Plan of Illinois, Inc.
100% - One Health Plan of Texas, Inc.
100% - One Health Plan of California, Inc.
100% - One Health Plan of Colorado, Inc.
100% - One Health Plan of Georgia, Inc.
100% - One Health Plan of North Carolina, Inc.
100% - One Health Plan of Washington, Inc.
100% - One Health Plan of Ohio, Inc.
100% - One Health Plan of Oregon, Inc.
100% - One Health Plan of Tennessee, Inc.
100% - One Health Plan of Florida, Inc.
100% - One Health Plan of Massachusetts, Inc.
100% - One Health Plan of Indiana, Inc.
100% - One Health Plan of New Jersey, Inc.
100% - One Orchard Equities, Inc.
100% - Great-West Benefit Services, Inc.
12% - Private Healthcare
Systems, Inc.
100% - Benefits Communication Corporation
100% - BenefitsCorp Equities, Inc.
95% - Maxim Series Fund, Inc.
100% - Greenwood Property Corporation
100% - GWL Properties Inc.
100% - Great-West Realty Investments, Inc.
50% - Westkin Properties Ltd.
100% - Confed Admin Services, Inc.
92% - Orchard Series Fund
100% - Orchard Trust Company
100%Anthem Health & Life Insurance Company
</TABLE>
Item 27. Number of Contract Owners
As of , 1998, there were Contract Owners.
Item 28. Indemnification
Provisions exist under the Colorado Business Corporation Act and the
Bylaws of GWL&A whereby GWL&A may indemnify a director, officer, or controlling
person of GWL&A against liabilities arising under the Securities Act of 1933.
The following excerpts contain the substance of these provisions:
Colorado Business Corporation Act
Article 109 - INDEMNIFICATION
Section 7-109-101. Definitions.
As used in this Article:
(1) "Corporation" includes any domestic or foreign entity that is a
predecessor of the corporation by reason of a merger, consolidation, or
other transaction in which the predecessor's existence ceased upon
consummation of the transaction.
(2) "Director" means an individual who is or was a director of a
corporation or an individual who, while a director of a corporation, is
or was serving at the corporation's request as a director, officer,
partner, trustee, employee, fiduciary or agent of another domestic or
foreign corporation or other person or employee benefit plan. A
director is considered to be serving an employee benefit plan at the
corporation's request if his or her duties to the corporation also
impose duties on or otherwise involve services by, the director to the
plan or to participants in or beneficiaries of the plan.
(3) "Expenses" includes counsel fees.
(4) "Liability" means the obligation incurred with respect to a
proceeding to pay a judgment, settlement, penalty, fine, including an
excise tax assessed with respect to an employee benefit plan, or
reasonable expenses.
(5) "Official capacity" means, when used with respect to a director,
the office of director in the corporation and, when used with respect
to a person other than a director as contemplated in Section 7-109-107,
means the office in the corporation held by the officer or the
employment, fiduciary, or agency relationship undertaken by the
employee, fiduciary, or agent on behalf of the corporation. "Official
capacity" does not include service for any other domestic or foreign
corporation or other person or employee benefit plan.
(6) "Party" includes a person who was, is, or is threatened to be made
a named defendant or respondent in a proceeding.
(7) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
Section 7-109-102. Authority to indemnify directors.
(1) Except as provided in subsection (4) of this section, a corporation
may indemnify a person made a party to the proceeding because the
person is or was a director against liability incurred in any
proceeding if:
(a) The person conducted himself or herself in good faith;
(b) The person reasonably believed:
(I) In the case of conduct in an official capacity with the
corporation, that his or her conduct was in the
corporation's best interests; or
(II) In all other cases, that his or her conduct was at
least not opposed to the corporation's best interests; and
(c) In the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit plan for a
purpose the director reasonably believed to be in the interests of the
participants in or beneficiaries of the plan is conduct that satisfies
the requirements of subparagraph (II) of paragraph (b) of subsection
(1) of this section. A director's conduct with respect to an employee
benefit plan for a purpose that the director did not reasonably believe
to be in the interests of the participants in or beneficiaries of the
plan shall be deemed not to satisfy the requirements of subparagraph
(a) of subsection (1) of this section.
(3) The termination of any proceeding by judgment, order, settlement,
or conviction, or upon a plea of nolo contendere or its equivalent, is
not, of itself, determinative that the director did not meet the
standard of conduct described in this section.
(4) A corporation may not indemnify a director under this section:
(a) In connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the
corporation; or
(b) In connection with any proceeding charging that the director
derived an improper personal benefit, whether or not involving
action in his official capacity, in which proceeding the director
was adjudged liable on the basis that he or she derived an
improper personal benefit.
(5) Indemnification permitted under this section in connection with a
proceeding by or in the right of a corporation is limited to reasonable
expenses incurred in connection with the proceeding.
Section 7-109-103. Mandatory Indemnification of Directors.
Unless limited by the articles of incorporation, a corporation
shall be required to indemnify a person who is or was a director of the
corporation and who was wholly successful, on the merits or otherwise,
in defense of any proceeding to which he was a party, against
reasonable expenses incurred by him in connection with the proceeding.
Section 7-109-104. Advance of Expenses to Directors.
(1) A corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of the
final disposition of the proceeding if:
(a) The director furnishes the corporation a written affirmation
of his good-faith belief that he has met the standard of conduct
described in Section 7-109-102;
(b) The director furnishes the corporation a written undertaking,
executed personally or on the director's behalf, to repay the
advance if it is ultimately determined that he or she did not
meet such standard of conduct; and
(c) A determination is made that the facts then known to those
making the determination would not preclude indemnification under
this article.
(2) The undertaking required by paragraph (b) of subsection (1) of this
section shall be an unlimited general obligation of the director, but
need not be secured and may be accepted without reference to financial
ability to make repayment.
(3) Determinations and authorizations of payments under this section
shall be made in the manner specified in Section 7-109-106.
Section 7-109-105. Court-Ordered Indemnification of Directors.
(1) Unless otherwise provided in the articles of incorporation, a
director who is or was a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another
court of competent jurisdiction. On receipt of an application, the
court, after giving any notice the court considers necessary, may order
indemnification in the following manner:
(a) If it determines the director is entitled to mandatory
indemnification under section 7-109-103, the court shall order
indemnification, in which case the court shall also order the
corporation to pay the director's reasonable expenses incurred to
obtain court-ordered indemnification.
(b) If it determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant
circumstances, whether or not the director met the standard of
conduct set forth in section 7-109-102 (1) or was adjudged liable
in the circumstances described in Section 7-109-102 (4), the
court may order such indemnification as the court deems proper;
except that the indemnification with respect to any proceeding in
which liability shall have been adjudged in the circumstances
described Section 7-109-102 (4) is limited to reasonable expenses
incurred in connection with the proceeding and reasonable
expenses incurred to obtain court-ordered indemnification.
Section 7-109-106. Determination and Authorization of Indemnification of
Directors.
(1) A corporation may not indemnify a director under Section 7-109-102
unless authorized in the specific case after a determination has been
made that indemnification of the director is permissible in the
circumstances because he has met the standard of conduct set forth in
Section 7-109-102. A corporation shall not advance expenses to a
director under Section 7-109-104 unless authorized in the specific case
after the written affirmation and undertaking required by Section
7-109-104(1)(a) and (1)(b) are received and the determination required
by Section 7-109-104(1)(c) has been made.
(2) The determinations required to be made under subsection (1) of this
section shall be made:
(a) By the board of directors by a majority vote of those present
at a meeting at which a quorum is present, and only those
directors not parties to the proceeding shall be counted in
satisfying the quorum.
(b) If a quorum cannot be obtained, by a majority vote of a
committee of the board of directors designated by the board of
directors, which committee shall consist of two or more directors
not parties to the proceeding; except that directors who are
parties to the proceeding may participate in the designation of
directors for the committee.
(3) If a quorum cannot be obtained as contemplated in paragraph (a) of
subsection (2) of this section, and the committee cannot be established
under paragraph (b) of subsection (2) of this section, or even if a
quorum is obtained or a committee designated, if a majority of the
directors constituting such quorum or such committee so directs, the
determination required to be made by subsection (1) of this section
shall be made:
(a) By independent legal counsel selected by a vote of the board
of directors or the committee in the manner specified in
paragraph (a) or (b) of subsection (2) of this section or, if a
quorum of the full board cannot be obtained and a committee
cannot be established, by independent legal counsel selected by a
majority vote of the full board of directors; or
(b) By the shareholders.
(4) Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made in the same manner as the
determination that indemnification is permissible; except that, if the
determination that indemnification is permissible is made by
independent legal counsel, authorization of indemnification and advance
of expenses shall be made by the body that selected such counsel.
Section 7-109-107. Indemnification of Officers, Employees, Fiduciaries,
and Agents.
(1) Unless otherwise provided in the articles of incorporation:
(a) An officer is entitled to mandatory indemnification under
section 7-109-103, and is entitled to apply for court-ordered
indemnification under section 7-109-105, in each case to the same
extent as a director;
(b) A corporation may indemnify and advance expenses to an
officer, employee, fiduciary, or agent of the corporation to the
same extent as a director; and
(c) A corporation may indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a
greater extent, if not inconsistent with public policy, and if
provided for by its bylaws, general or specific action of its
board of directors or shareholders, or contract.
Section 7-109-108. Insurance.
A corporation may purchase and maintain insurance on behalf of a
person who is or was a director, officer, employee, fiduciary, or agent
of the corporation and who, while a director, officer, employee,
fiduciary, or agent of the corporation, is or was serving at the
request of the corporation as a director, officer, partner, trustee,
employee, fiduciary, or agent of any other domestic or foreign
corporation or other person or of an employee benefit plan against any
liability asserted against or incurred by the person in that capacity
or arising out of his or her status as a director, officer, employee,
fiduciary, or agent whether or not the corporation would have the power
to indemnify the person against such liability under the Section
7-109-102, 7-109-103 or 7-109-107. Any such insurance may be procured
from any insurance company designated by the board of directors,
whether such insurance company is formed under the laws of this state
or any other jurisdiction of the United States or elsewhere, including
any insurance company in which the corporation has an equity or any
other interest through stock ownership or otherwise.
Section 7-109-109. Limitation of Indemnification of Directors.
(1) A provision concerning a corporation's indemnification of, or
advance of expenses to, directors that is contained in its articles of
incorporation or bylaws, in a resolution of its shareholders or board
of directors, or in a contract, except for an insurance policy or
otherwise, is valid only to the extent the provision is not
inconsistent with Sections 7-109-101 to 7-109-108. If the articles of
incorporation limit indemnification or advance of expenses,
indemnification or advance of expenses are valid only to the extent not
inconsistent with the articles of incorporation.
(2) Sections 7-109-101 to 7-109-108 do not limit a corporation's power
to pay or reimburse expenses incurred by a director in connection with
an appearance as a witness in a proceeding at a time when he or she has
not been made a named defendant or respondent in the proceeding.
Section 7-109-110. Notice to Shareholders of Indemnification of Director.
If a corporation indemnifies or advances expenses to a director
under this article in connection with a proceeding by or in the right
of the corporation, the corporation shall give written notice of the
indemnification or advance to the shareholders with or before the
notice of the next shareholders' meeting. If the next shareholder
action is taken without a meeting at the instigation of the board of
directors, such notice shall be given to the shareholders at or before
the time the first shareholder signs a writing consenting to such
action.
Bylaws of GWL&A
Article II, Section 11. Indemnification of Directors.
The Company may, by resolution of the Board of Directors,
indemnify and save harmless out of the funds of the Company to the
extent permitted by applicable law, any director, officer, or employee
of the Company or any member or officer of any committee, and his
heirs, executors and administrators, from and against all claims,
liabilities, costs, charges and expenses whatsoever that any such
director, officer, employee or any such member or officer sustains or
incurs in or about any action, suit, or proceeding that is brought,
commenced, or prosecuted against him for or in respect of any act,
deed, matter or thing whatsoever made, done, or permitted by him in or
about the execution of his duties of his office or employment with the
Company, in or about the execution of his duties as a director or
officer of another company which he so serves at the request and on
behalf of the Company, or in or about the execution of his duties as a
member or officer of any such Committee, and all other claims,
liabilities, costs, charges and expenses that he sustains or incurs, in
or about or in relation to any such duties or the affairs of the
Company, the affairs of such Committee, except such claims,
liabilities, costs, charges or expenses as are occasioned by his own
wilful neglect or default. The Company may, by resolution of the Board
of Directors, indemnify and save harmless out of the funds of the
Company to the extent permitted by applicable law, any director,
officer, or employee of any subsidiary corporation of the Company on
the same basis, and within the same constraints as, described in the
preceding sentence.
Item 29. Principal Underwriter
(a) BenefitsCorp Equities, Inc.("BCE")is the distributor of securities
of the Registrant.
(b) Directors and Officers of BCE
Position and Offices
Name Principal Business Address with
Underwriter
Charles P. Nelson (1) Director and
President
John A. Brown (1) Director
Dennis Low (1) Director
Gregory E. Seller 18101 Von Karman Ave., Suite 1460 Director and
Vice-President,
Irvine, CA 92612 Major Accounts
Robert K. Shaw (1) Director
Douglas L. Wooden (1) Director
Jack Baker (1) Vice President,
Licensing and
Contracts
Glen R. Derback (1) Treasurer
Beverly A. Byrne (1) Secretary and
Compliance Officer
(1) 8515 East Orchard Road, Englewood, CO 80111
(c) Commissions and other compensation received by Principal
Underwriter during registrant's last fiscal year:
Net
Name of Underwriting Compensation
Principal Discounts and on Brokerage
Underwriter Commissions Redemption Commissions
Compensation
BCE -0- -0- -0-
-0-
Item 30. Location of Accounts and Records
All accounts, books, or other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder are
maintained by the registrant through GWL&A, 8515 E. Orchard Road,
Englewood, Colorado 80111.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Registrant undertakes to file a post-effective amendment to this
Registration Statement as frequently as is necessary to ensure
that the audited financial statements in the Registration
Statement are never more than 16 months old for so long as
payments under the variable annuity contracts may be accepted.
(b) Registrant undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a
space that an applicant can check to request a Statement of
Additional Information, or (2) a postcard or similar written
communication affixed to or included in the Prospectus that the
applicant can remove to send for a Statement of Additional
Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made
available under this form promptly upon written or oral request.
(d) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(e)GWL&A represents that the fees and charges deducted under the
Contracts, in the aggregate, are reasonable in relation to the
services rendered, the expenses to be incurred, and the risks
assumed by GWL&A.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-4 to be signed on its behalf, in the City of Englewood,
State of Colorado, on this 12th day of August 1998.
MAXIM SERIES ACCOUNT
(Registrant)
/s/
By:
William T. McCallum, President
and Chief Executive Officer of
Great-West Life & Annuity
Insurance Company
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
(Depositor)
/s/
By:
William T. McCallum, President
and Chief Executive Officer
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities with Great-West Life &
Annuity Insurance Company and on the dates indicated:
Signature and Title Date
/s/ August 12, 1998
Director and Chairman of the
Board (Robert Gratton)
/s/ August 12, 1998
Director, President and Chief Executive
Officer (William T. McCallum)
Signature and Title Date
/s/ August 12, 1998
Senior Vice President, Chief
Financial Officer
(Mitchell T.G. Graye)
/s/ August 12, 1998
Director, (James Balog)
/s/ August 12, 1998
Director, (James W. Burns)
/s/ August 12, 1998
Director (Orest T. Dackow)
/s/ August 12, 1998
Director (Andre Desmarais)
/s/ August 12, 1998
Director (Paul Desmarais, Jr.)
/s/ August 12, 1998
Director (Robert G. Graham)
/s/ August 12, 1998
Director (N. Berne Hart)
/s/ August 12, 1998
Director (Kevin P. Kavanagh)
Signature and Title Date
/s/ August 12, 1998
Director (William Mackness)
/s/ August 12, 1998
Director (Jerry E.A. Nickerson)
/s/ August 12, 1998
Director (P. Michael Pitfield)
/s/ August 12, 1998
Director (Michel Plessis-Belair)
/s/ August 12, 1998
Director (Brian E. Walsh)
*By: /s/ August 12, 1998
D. C. Lennox
Attorney-in-fact pursuant to Powers of Attorney filed with this
Registration Statement.
EXHIBIT 3
Distribution Agreement
<PAGE>
UNDERWRITING AGREEMENT
THIS UNDERWRITING AGREEMENT made this 1st day of December 1996, by and
between BenefitsCorp Equities, Inc. (the "Underwriter") and Great-West Life &
Annuity Insurance Company (the "Insurance Company"), on its own behalf and on
behalf of the Maxim Series Account of Great-West Life & Annuity Insurance
Company (the "Series Account"), as follows:
WHEREAS, the Insurance Company has registered the Series Account as a unit
investment trust under the Investment Company Act of 1940, as amended (the "1940
Act") and has registered the Contracts under the Securities Act of 1933;
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission (the "SEC") under the Securities Exchange Act
of 1934, as amended (the "1934 Act"), and is a member of the National
Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the Insurance Company and the Series Account desire to have the
Contracts sold and distributed through the Underwriter, and the Underwriter is
willing to sell and distribute such Contracts under the terms stated herein;
NOW THEREFORE, the parties hereto agree as follows:
1. Representations, Responsibilities and Warranties of Insurance Company
1.01 The Insurance Company represents that it has the authority, and
hereby agrees to, grant the Underwriter the right to serve as the distributor
and principal underwriter of the Contracts during the term of this Agreement.
1.02 The Insurance Company represents and warrants that it is duly
licensed as an insurance company under the laws of the State of Colorado and
that it has taken all appropriate actions to establish the Series Account in
accordance with state and federal laws.
1.03 The Insurance Company agrees to update and maintain a current
prospectus for the Contracts as required by law.
1.04 The Insurance Company represents that it reserves the right to
appoint or refuse to appoint, any proposed associated person of the Underwriter
as an agent or broker of the Insurance Company. The Insurance Company also
retains the right to terminate such agents or brokers once appointed.
1.05 On behalf of the Series Account, the Insurance Company shall furnish
the Underwriter with copies of all financial statements and other documents
which the Underwriter reasonably requests for use in connection with the
distribution of the contracts.
2. Representations, Responsibilities and Warranties of Underwriter
2.01 Underwriter represents that it has the authority and hereby agrees to
serve as distributor and principal underwriter of the Contracts during the term
of this Agreement.
2.02 The Underwriter represents that it is duly registered as a
broker-dealer under the 1934 Act and is a member in good standing of the NASD
and to the extent necessary to offer the Contracts, shall be duly registered or
otherwise qualified under the securities laws of any state or other
jurisdiction.
2.03 The Underwriter agrees to use its best efforts to solicit
applications for the Contracts, and to undertake, at its own expense, to provide
all sales services relative to the Contracts and otherwise to perform all duties
and functions which are necessary and proper for the distribution of the
Contracts.
2.04 The Underwriter agrees to offer the Contracts for sale in accordance
with the prospectus therefor, then in effect. The Underwriter represents and
agrees that it is not authorized to give any information or make any
representations concerning the Contracts other than those contained in the
current prospectus as filed with the SEC or in such sales literature as may be
authorized by the Insurance Company.
2.05. The Underwriter shall be fully responsible for carrying out its
sales, underwriting and compliance supervisory obligations hereunder in
compliance with the NASD Conduct Rules and all other relevant federal and state
securities laws and regulations. Without limiting the generality of the
foregoing, the Underwriter agrees that it shall have full responsibility for:
(a) ensuring that no person shall offer or sell the Contracts on its
behalf until such person is duly registered as a representative of the
Underwriter, and duly licensed and appointed by the Insurance Company;
(b) ensuring that no person shall offer or sell the Contracts on its
behalf until the Underwriter has confirmed that the Insurance Company is
appropriately licensed, or otherwise qualified to offer and sell such
Contracts under the federal securities laws and any applicable state or
jurisdictional securities and/or insurance laws in each state or
jurisdiction in which such Contracts may be lawfully sold;
(c) continually training, supervising, and controlling all
registered representatives and other agents of the Underwriter for
purposes of complying with the NASD Conduct Rules and with federal and
state securities laws which may be applicable to the offering and sale of
the Contracts. In this respect, the Underwriter shall:
(1) conduct training programs (including the preparation and
utilization of training materials) as is necessary, in the
Underwriter's opinion, to comply with applicable laws and
regulations;
(2) establish and implement reasonable written procedures for
the supervision of the sales practices of agents, representatives or
brokers who sell the Contracts; and
(3) take reasonable steps to ensure that its associated
persons shall not make recommendations to an applicant to purchase a
Contract in the absence of reasonable grounds to believe that the
purchase of the Contract is suitable for such applicants; and
(d) supervising and ensuring compliance with NASD rules of all
administrative functions performed by the Underwriter with respect to the
offering and sale of the Contracts and representations with respect to the
Series Account.
2.06 The Underwriter, or its affiliates, on behalf of the Insurance
Company, shall apply for the proper insurance licenses in the appropriate states
or jurisdictions for the designated persons associated with the Underwriter or
with independent broker-dealers which have entered into agreements with the
Underwriter for the sale of the Contracts. The Underwriter agrees to pay all
licensing or other fees necessary to properly authorize such persons for the
sale of the Contracts.
2.07 The Underwriter shall have the responsibility for paying (i) all
commissions or other fees to its associated persons which are due for the sale
of the Contracts and (ii) any compensation to independent broker-dealers and
their associated persons due under the terms of any sales agreements between the
Underwriter and such broker-dealers. Provided, however, the Insurance Company
retains the ultimate right to reject any commission rate allowed by the
Underwriter. Furthermore, no associated person or independent broker-dealer
shall have an interest in the surrender charges, deductions or other fees
payable to Underwriter as set forth herein. The Underwriter shall have the
responsibility for calculating and furnishing periodic reports to the Insurance
Company as to the sale of the Contracts, and as to the commissions and service
fees payable to persons selling the Contracts.
3. Records and Confidentiality
3.01 The Insurance Company and the Underwriter shall cause to be
maintained and preserved for the periods prescribed, such accounts, books,
records, files and other documents and materials ("Records") as are required of
it by the 1940 Act and any other applicable laws and regulations. The Records of
the Insurance Company, the Series Account and the Underwriter as to all
transactions hereunder shall be maintained so as to disclose clearly and
accurately the nature and details of the transactions.
3.02 The Underwriter shall cause the Insurance Company to be furnished
with such Records, or copies thereof, as the Insurance Company may reasonably
request for the purpose of meeting its reporting and recordkeeping requirements
under the insurance laws of the State of Colorado and any other applicable
states or jurisdictions.
3.03 The Insurance Company shall cause the Underwriter to be furnished
with any Records, or copies thereof, as the Underwriter may reasonably request
for the purpose of meeting its reporting and recordkeeping requirements under
the federal securities laws or the securities laws of any inquiring
jurisdiction.
3.04 The Underwriter agrees and understands that all Records shall be the
sole property of the Insurance Company and that such property shall be held by
the Underwriter, or its agents during the term of this agreement. Upon
termination, all Records shall be returned to the Insurance Company.
3.05 Insurance Company agrees and understands that the Underwriter may
maintain copies of the Records as is required by any relevant securities law,
the SEC, the NASD or any other self regulatory agency.
3.06 Underwriter shall establish and maintain facilities and procedures
for the safekeeping of all Records relative to this Agreement.
3.07 The parties hereto agree that all Records pertaining to the business
of the other party which are exchanged or received pursuant to this Agreement,
shall remain confidential and shall not be voluntarily disclosed to any other
person, except to the extent disclosure thereof may be required by law. All such
confidential information in the possession of each of the parties hereto shall
be returned to the party from whom it was obtained upon the termination or
expiration of this Agreement.
4. Relationship of the Parties
4.01 Notwithstanding anything in this Agreement to the contrary, the
Underwriter or the Insurance Company may enter into sales agreements with
independent broker-dealers for the sale of the Contracts.
4.02 All such sales agreements as described in 4.01, above, which are
entered into by the Insurance Company or the Underwriter shall provide that each
independent broker-dealer will assume full responsibility for continued
compliance by itself and its associated persons with NASD Conduct Rules and
applicable federal and state securities laws. All associated persons of such
independent broker-dealers soliciting applications for the Contracts shall be
duly and appropriately licensed and/or appointed for the sale of the Contracts
under the insurance laws of the applicable state or jurisdiction in which the
Contracts may be lawfully sold.
4.03 The services of the Underwriter to the Series Account hereunder are
not to be deemed exclusive and the Underwriter shall be free to render similar
services to others so long as the services rendered hereunder are not interfered
with or impaired.
<PAGE>
5. Term and Termination
5.01 Subject to termination, the Agreement shall remain in full force and
effect for one year, and shall continue in full force and effect from year to
year until terminated as provided below. Each additional year shall be an
additional term of this Agreement.
5.02 This Agreement may be terminated:
(a) by either party upon sixty (60) days written notice to the other
party;
(b) immediately, upon written notice in the event of bankruptcy or
insolvency of one party;
(c) at any time upon mutual written consent of the parties;
(d) immediately in the event of its assignment; provided however,
"assigned" shall not include any transaction exempted from section
15(b)(2) of the 1940 Act;
(e) immediately in the event that the Underwriter no longer
qualifies as a broker-dealer under applicable federal law; and
(f) immediately in the event of fraud, misrepresentation, conversion
or unlawful withholding of funds by a party.
5.03 Upon termination of this Agreement, all authorization, rights, and
obligations shall cease except the obligations to settle accounts hereunder,
including payments or premiums or contributions subsequently received for
Contracts in effect at the time of termination or issued pursuant to
applications received by the Insurance Company prior to termination.
5.04 After notice of termination, the parties agree to cooperate to
effectuate an orderly transition of all accounts, payments and Records.
6. Miscellaneous
6.01 This Agreement shall be subject to the provisions of the 1940 Act,
the 1934 Act and the rules, regulations and rulings thereunder. In addition it
shall be subject to the rulings of the NASD, as issued from time to time, and
any exemptions from the 1940 Act the SEC may grant. All terms of this Agreement
will be interpreted and construed in accordance with compliance of this section
6.01.
6.02 Except as otherwise provided, Underwriter acknowledges that Insurance
Company retains the overall right and responsibility to direct and control the
activities of the Underwriter.
6.03 If any provisions of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall remain in full force and effect.
6.04 This Agreement constitutes the entire Agreement between the parties
hereto and may not be modified except in a written instrument executed by all
the parties hereto.
6.05 This Agreement shall be governed by the internal laws of the State of
Colorado.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective duly authorized officers and have caused their respective seals
to be affixed hereto, as of the day and year first written above.
Great-West Life & Annuity Insurance
Company
/s/ Joan Preyer /s/
______________________ By: ________________________________
Witness: William T. McCallum
President and Chief Executive
Officer
BenefitsCorp Equities, Inc.
/s/ Shelley R. Fredrick /s/
______________________ By: ________________________________
Witness: Charles P. Nelson
President
EXHIBIT 4
Variable Annuity Contract
<PAGE>
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Great-West Life & Annuity Insurance Company
A Stock Company
8515 East Orchard Road Englewood, CO 80111
FLEXIBLE PREMIUM VARIABLE DEFERRED
GROUP ANNUITY
PLEASE READ THIS ANNUITY CERTIFICATE CAREFULLY.
ALL PAYMENTS AND VALUES BASED ON THE INVESTMENT EXPERIENCE OF THE ANNUITY
ACCOUNT VALUE ARE NOT GUARANTEED AS TO AMOUNT; THEY ARE VARIABLE AND MAY
INCREASE OR DECREASE ACCORDINGLY. THE ANNUITY ACCOUNT PROVISIONS ARE DESCRIBED
ON PAGE 8.
FREE LOOK PERIOD
10 DAY RIGHT TO EXAMINE CERTIFICATE. IF NOT SATISFIED WITH THE CERTIFICATE,
RETURN IT TO THE COMPANY WITHIN 10 DAYS OF RECEIVING IT. THE CERTIFICATE WILL BE
VOID FROM THE START, AND THE COMPANY WILL REFUND THE GREATER OF: 1)
CONTRIBUTIONS RECEIVED; OR 2) THE VARIABLE ACCOUNT VALUE LESS SURRENDERS,
WITHDRAWALS, AND DISTRIBUTIONS.
DURING THE FREE LOOK PERIOD, AND FOR A PERIOD OF 5 DAYS THEREAFTER, ALL
CONTRIBUTIONS WILL BE ALLOCATED TO THE MONEY MARKET SUB-ACCOUNT. REFER TO THE
ALLOCATION OF CONTRIBUTIONS PROVISION ON PAGE 7 FOR DETAILS.
FLEXIBLE PREMIUM VARIABLE DEFERRED GROUP ANNUITY.
Contributions may be made until the Payment Commencement Date or until the death
benefit is payable to a Beneficiary. The Owner is as shown on the Certificate
Data Page unless changed as provided for in this Certificate. The Company will
pay the Annuitant the first of a series of annuity payments on the annuity
commencement date by applying the Variable Account Value of the Owner's Annuity
Account according to the Payment Options Provisions. Subsequent payments will be
paid on the same day of each frequency period according to the provisions of
this Certificate. Non-Participating. Not eligible to share in the Company's
divisible surplus.
Signed for Great-West Life & Annuity Insurance Company on the issuance of this
Certificate.
[OBJECT OMITTED]
/s/ D.C. Lennox, /s/ W.T. McCallum,
Secretary President and Chief Executive Officer
Updated July 30, 1998
J434 (98)
<PAGE>
TABLE OF CONTENTS
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Use this Table of Contents to locate specific topics in this annuity
Certificate.
DEFINITIONS.............................................................3
GENERAL PROVISIONS
Certificate Modification.............................................4
Currency.............................................................5
Entire Contract......................................................4
Misstatement of Age and/or Sex.......................................5
Non-Participating....................................................5
Notice and Proof.....................................................5
Reports..............................................................5
Tax Consequences of Payments.........................................5
Voting Rights........................................................5
OWNERSHIP PROVISIONS
Annuitant............................................................6
Beneficiary..........................................................6
Change of Beneficiary................................................6
Change of Ownership..................................................6
Collateral Assignment................................................7
Contingent Annuitant.................................................6
Death of Beneficiary.................................................6
Designation of Beneficiary...........................................6
Ownership of Series Account..........................................7
Rights of Owner......................................................6
Successive Beneficiaries.............................................6
CONTRIBUTIONS PROVISIONS
Allocation of Contributions..........................................7
Contributions........................................................7
Effective Date.......................................................7
VARIABLE ACCOUNT VALUE
Accumulation Units...................................................8
Accumulation Unit Value..............................................8
Certificate Maintenance Charge.......................................8
Net Investment Factor................................................8
Risk Charge..........................................................8
Variable Account Value...............................................8
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Use this Table of Contents to locate specific topics in this annuity
Certificate.
TRANSFER PROVISIONS
Dollar Cost Averaging................................................9
The Rebalancer Option................................................9
Transfers............................................................9
DEATH BENEFIT PROVISIONS
Compliance with Code Section 72(s)..................................11
Distribution Rules..................................................10
Payment of Death Benefit............................................10
SURRENDERS AND PARTIAL WITHDRAWALS
Partial Withdrawals.................................................12
Postponement........................................................12
Surrender Benefit...................................................12
PAYMENT OPTIONS
How to Elect........................................................12
How to Elect Periodic Withdrawals...................................14
Periodic Withdrawal Option..........................................14
Periodic Withdrawal Options Available...............................14
Selection of Payment Options........................................12
Variable Annuity Payment Options....................................13
<PAGE>
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J438 Page 3
Definitions
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J438 Page 1
Accumulation Period - the period between the Effective Date and the Payment
Commencement Date.
Accumulation Unit - an accounting measure used to determine the Annuity Account
Value before the date annuity payments commence.
Annuitant - the person named in the application and on the Certificate Data Page
upon whose life the payment of an annuity is based and who will receive annuity
payments. If a Contingent Annuitant is named, then the Annuitant will be
considered the Primary Annuitant.
Annuity Account - an account that reflects the total value of the Owner's
Variable Sub-Accounts.
Annuity Account Value - the sum of the values of the Variable Sub-Accounts
credited to the Owner. The Annuity Account Value is credited with a return based
upon the investment experience of the Investment Division(s) selected by the
Owner and will increase or decrease accordingly.
Annuity Payment Period - the period beginning on the Payment Commencement Date
and continuing until all annuity payments have been made under this Certificate.
Annuity Service Center - Post Office Box 1700, Denver, CO 80201. The toll-free
telephone number is 1-800-XXX-XXXX.
Annuity Unit - an accounting measure used to determine the dollar value of any
variable annuity payment after the first annuity payment is made.
Automatic Contribution Plan - a plan provided to the Owner to allow for
automatic payment of Contributions. The Contributions will be withdrawn from a
pre-authorized account and automatically credited to the Annuity Account.
Beneficiary - the person(s) designated by the Owner to receive death proceeds
which may become payable upon the death of an Owner or the Annuitant. If the
surviving spouse of an Owner is the surviving Joint Owner, the surviving spouse
will be deemed to be the Beneficiary upon such Owner's death and may take the
death benefit or elect to continue this Certificate in force. The Beneficiary is
shown on the Certificate Data Page unless later changed by Request by the Owner.
Certificate - the document issued to the Owner which specifies the rights and
obligations of the Owner. Company - Great-West Life & Annuity Insurance Company,
the underwriter for this annuity, located at 8515 East Orchard Road, Englewood,
Colorado 80111.
Contingent Annuitant - the person named in the application who will become the
Annuitant upon the death of the Primary Annuitant. The Contingent Annuitant is
the person named on the Certificate Data Page, unless later changed by Request
while the Primary Annuitant is alive and before annuity payments have commenced.
Contract - the document issued to the Policyholder which specifies the rights
and obligations of the Policyholder.
Contributions - purchase amounts received and allocated to the Variable
Sub-Account(s) prior to any Premium Tax or other deductions.
Effective Date - the date on which the first Contribution is credited to the
Annuity Account.
Eligible Fund - a registered management investment company in which the assets
of the Series Account may be invested.
Investment Division - a division of the Series Account containing the shares of
a specific portfolio of the Eligible Fund. There is an Investment Division for
each portfolio of the Eligible Fund.
Non-qualified Annuity Certificate - an annuity Certificate which is not intended
to be a part of a qualified retirement plan and is not intended to satisfy the
requirements of Section 408 of the Internal Revenue Code of 1986, as amended.
This Certificate may only be issued as a non-qualified annuity.
Owner (Joint Owners) - the person or persons named on the Certificate Data Page.
The Owner is entitled to exercise all rights and privileges under the
Certificate, while the Annuitant is living, except as reserved by the
Policyholder. Joint Owners must be husband and wife as of the Effective Date.
The Annuitant will be the Owner unless otherwise indicated in the application.
<PAGE>
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J434 8/12/98 Page 4
Definitions (continued)
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<PAGE>
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J438 Page 5 Policyholder - the organization entering into the Contract and whose
name appears on the Contract Data Page as the Policyholder.
Premium Tax - the amount of tax, if any, charged by a state or other
governmental authority.
Request - any instruction in a form, written, telephoned or computerized,
satisfactory to the Company and received at the Annuity Service Center from the
Owner or the Owner's designee (as specified in a form acceptable to the Company)
or the Beneficiary, (as applicable) as required by any provision of this
Contract or as required by the Company. The Request is subject to any action
taken or payment made by the Company before it was processed.
Series Account - the account into which Contributions may be paid under this
Contract, net of fees and charges described herein. The Company owns the assets
in the Series Account. The investments held in the Series Account provide
variable annuity benefits under this Contract and the Series Account is used for
other purposes permitted by applicable laws and regulations. This account is
kept separate from the general account and other series accounts the Company may
have.
The Series Account was established by the Company as a separate account under
Colorado law. The name of the separate account is the _________ Series Account.
It is not treated as an investment company under Federal securities laws. It is
not registered with the Securities and Exchange Commission (SEC) under the
Investment Company Act of 1940, as amended.
Surrender Value - will be equal to:
(a) Annuity Account Value on the effective date of the surrender; less (b)
Premium Tax, if any.
Transaction Date - the date on which any Contribution or Request from the Owner
will be processed by the Company at the Annuity Service Center. Contributions
and Requests received after 4:00 p.m. EST/EDT will be deemed to have been
received on the next business day. Requests will be processed and the Annuity
Account will be valued on each date that the New York Stock Exchange is open for
trading.
Underlying Fund - a portfolio of securities managed in accordance with a
specified investment objective.
Valuation Date - the date on which the net asset value of each Eligible Fund is
determined.
Valuation Period - the period between two successive Valuation Dates.
Variable Sub-Accounts - sub-division(s) of the Owner's Annuity Account
containing the value credited to the Owner from an Investment Division.
<PAGE>
General Provisions
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<PAGE>
What is your agreement with us?
ENTIRE CONTRACT
This Contract, Contract Data Page, tables, riders and amendments, if any, form
the Entire Contract between the Owner and the Company. This Entire Contract
supersedes all prior representations, statements, warranties, promises and
agreements of any kind, whether oral or written, relating to the subject matter
of this Contract. All statements in the application, made by an Owner or the
Annuitant, in the absence of fraud, will be considered representations and not
warranties.
How can this Contract be modified?
CONTRACT MODIFICATION
This Contract may be modified only by written agreement between the Company and
the Policyholder, except that upon 30 days notice to the Policyholder, the
Company may at any time and without the consent of the Policyholder or any other
person, modify this Contract as needed to conform to changes in tax or other
law. Such modifications will become part of this Contract.
<PAGE>
General Provisions (continued)
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<PAGE>
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J438 Page 5 The Company may terminate certain Investment Divisions. In that
event, the Owner, by Request, may change the allocation of the Contributions. If
no Request is made by the date the Investment Division is terminated, future
Contributions will be allocated to the Money Market Investment Division. Any
modification will not affect the terms, provisions or conditions which are, or
may be, applicable to Contributions previously made to any such Investment
Division.
The Company may cease offering existing variable annuity payment options.
ONLY THE PRESIDENT, A VICE-PRESIDENT, OR THE SECRETARY OF THE COMPANY CAN MODIFY
OR WAIVE ANY PROVISION OF THIS CERTIFICATE.
NON-PARTICIPATING
This Certificate is non-participating. It is not eligible to share in the
Company's divisible surplus.
What if the Annuitant's age and/or sex is
misstated?
MISSTATEMENT OF AGE AND/OR SEX
If the age and/or sex of the Annuitant has been misstated, the annuity payments
established will be made on the basis of the correct age and/or sex. If payments
were too large because of misstatement, the difference with interest may be
deducted by the Company from the next payment or payments. If payments were too
small, the difference with interest may be added by the Company to the next
payment. This interest is at an annual effective rate which will not be less
than the minimum interest rate allowed by law.
How will the Contract values be reported?
REPORTS
The Company will furnish the Owner, at least annually, a statement of the
Annuity Account Value and the Surrender Value. The Company will furnish the
Owner copies of any other notices, reports or documents required by law.
What are the notice and proof requirements?
NOTICE AND PROOF
Any notice or demand by the Company to or upon the Owner, or any other person
may be given by mailing it to that person's last known address as stated in the
Company's file. In the event of the death of an Owner or the Annuitant, the
Company will require proof of death.
Any application, report, Request, election, direction, notice or demand by the
Owner, or any other person, must be made in a form satisfactory to the Company.
What are the tax consequences?
TAX CONSEQUENCES OF PAYMENTS
The Owner or Beneficiary, as the case may be, must determine the timing and
amount of any benefit payable. Payments elected by the Owner in the form of
periodic withdrawals, surrenders or partial withdrawals will be tax reported to
the Owner. Annuity payments are payable to the Annuitant and will be tax
reported to the Annuitant. Payments made to a Beneficiary will be tax reported
to the Beneficiary.
It is recommended that a competent tax adviser be consulted prior to obtaining
any distribution from, or changing the ownership of, this Certificate. A 10%
federal tax penalty may apply if a surrender, withdrawal, or distribution is
taken prior to the taxpayer's attainment of age 59 1/2.
Nothing contained herein will be construed to be tax or legal advice. Neither
the Policyholder nor the Company assumes any responsibility or liability for any
damages or costs, including but not limited to taxes, penalties, interest or
attorney's fees incurred by the Owner, the Annuitant, the Beneficiary, or any
other person arising out of any such determination.
CURRENCY
All Contributions and all transactions will be in the currency of the United
States of America.
What are the voting rights?
VOTING RIGHTS
The Company will vote the shares of an Eligible Fund. To the extent required by
law, the Company will vote according to the instructions of the Owner in
proportion to the interest in the Investment Division. In such event, the
Company will send proxy materials and form(s) to the Owner for a reply. If no
reply is received by the date specified in the proxy materials, the Company will
vote shares of the appropriate Eligible Fund in the same proportion as shares of
the Eligible Fund for which replies have been received.
During the Annuity Payment Period, the number of votes will decrease as the
assets held to fund annuity payments decrease. The Owner will be entitled to
receive the proxy materials and form(s).
<PAGE>
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J438 Page 6
Ownership Provisions
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<PAGE>
What are the Owner's rights?
RIGHTS OF OWNER
While the Annuitant is living, the Owner has the sole and absolute power to
exercise all rights and privileges in this Certificate. Upon the death of an
Owner or the Annuitant, the Death Benefit Provisions section will apply.
How is the Beneficiary determined?
BENEFICIARY
The Owner may, while the Annuitant is living, designate or change a Beneficiary
by Request from time to time as provided below. If an Owner dies and the
surviving Joint Owner is the surviving spouse of the deceased Owner, such
surviving spouse will become the Beneficiary and may take the death benefit or
elect to continue this Certificate in force.
DESIGNATION OF BENEFICIARY
Unless changed as provided below, or as otherwise required by law, the
Beneficiary will be as shown on the Certificate Data Page. Unless otherwise
indicated, if more than one Beneficiary is designated, then each such
Beneficiary so designated will share equally in any benefits and/or rights
granted by the Contract to such Beneficiary or allowed by the Company. If the
Beneficiary is a partnership, any benefits will be paid to the partnership as it
existed at the time of an Owner's or the Annuitant's death. The Company may rely
on an affidavit by any responsible person to identify a Beneficiary or verify
the non-existence of a Beneficiary not identified by name.
CHANGE OF BENEFICIARY
The Owner may, while the Annuitant is living, change the Beneficiary by Request.
The Company shall not be bound by any change of Beneficiary unless it is made in
writing and recorded at the Annuity Service Center. A change of Beneficiary will
take effect as of the date the Request is processed at the Annuity Service
Center, unless a certain date is specified by the Owner.
If an Owner dies before the date the Request was processed, the change will take
effect as of the date of the Request, unless the Company has already made a
payment or has 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 to the extent
required by law.
DEATH OF BENEFICIARY
The interest of any Beneficiary who dies before an Owner or the Annuitant will
terminate at the death of such 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 has indicated otherwise by Request. The benefits will then be
paid as though the Beneficiary had died before the deceased Owner or Annuitant.
SUCCESSIVE BENEFICIARIES
If an Owner dies, and the surviving Joint Owner is the surviving spouse of the
deceased Owner, the surviving spouse will become the Beneficiary and may take
the death benefit or elect to continue this Certificate in force. If there is no
surviving Joint Owner, and no named Beneficiary is alive at the time of an
Owner's death, any benefits payable will be paid to the Owner's estate.
ANNUITANT
While the Annuitant is living and at least 30 days prior to the annuity
commencement date, the Owner may, by Request, change the Annuitant. A change of
Annuitant will take effect as of the date the Request is processed at the
Annuity Service Center.
How is the Contingent Annuitant determined?
CONTINGENT ANNUITANT
While the Annuitant is alive, the Owner 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 Annuity Service
Center, unless a certain date is specified by the Owner.
Can the ownership of this Certificate be changed?
CHANGE OF OWNERSHIP
Since this is a non-qualified Certificate, the Owner may change the ownership
while the Annuitant is living. Any change of ownership must be made by Request
on a form satisfactory to the Company. The change will take effect as of the
date the Request is processed at the Annuity Service Center, unless a certain
date is specified by the Owner, and is subject to any action taken or payment
made by the Company before it was processed.
<PAGE>
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J438 Page 7
Ownership Provisions (continued)
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<PAGE>
Can this Certificate be assigned?
COLLATERAL ASSIGNMENT
Since this is a non-qualified Certificate, the Owner can assign this Certificate
as collateral while the Annuitant is living. The interest of the assignee has
priority over the interest of the Owner and the interest of any Beneficiary. Any
amounts payable to the assignee will be paid in a single sum.
A copy of any assignment must be submitted to the Company at the Annuity Service
Center. Any assignment is subject to any action taken or payment made by the
Company before the assignment was processed. The Company is not responsible for
the validity of any assignment. An assignment, pledge or agreement to assign or
pledge any portion of the Annuity Account Value generally will be treated as a
distribution. It is recommended that a competent tax adviser be consulted prior
to making such a change to this Certificate.
Who owns the Series Account?
OWNERSHIP OF SERIES ACCOUNT
The Company has absolute ownership of the assets of the Series Account. The
portion of the assets of the Series Account equal to the reserves and other
Certificate liabilities with respect to the Series Account are not chargeable
with liabilities arising out of any other business the Company may conduct.
Income and realized and unrealized gains or losses from the assets in the Series
Account are credited to or charged against the account without regard to other
income, gains or losses arising out of any other business the Company may
conduct.
<PAGE>
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J434 8/12/98 Page 8
Contributions Provisions
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<PAGE>
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J434 Page 7
What is the Effective Date?
EFFECTIVE DATE
The Effective Date, shown on the Certificate Data Page, is the date the initial
Contribution is credited to the Annuity Account.
How may Contributions be made?
CONTRIBUTIONS
Contributions should be payable to Great-West Life & Annuity Insurance Company
(the Company) at any time during the Accumulation Period. All Contributions must
be paid in a form acceptable to the Company, during the lifetime of the
Annuitant and before the Payment Commencement Date. Coverage will begin on the
Effective Date.
At any time after the Effective Date, the Owner may make additional
Contributions. The minimum amount accepted after the initial Contribution is
$250 except subsequent payments made via an Automatic Contribution Plan have a
minimum of $100 per month. Total Contributions while this Certificate is in
force may exceed $1,000,000 with prior approval from the Company. The Company
may modify these limitations.
How are Contributions allocated?
ALLOCATION OF CONTRIBUTIONS
During the Free Look Period, all Contributions will be allocated to the Money
Market Investment Division and will remain there until the next Transaction Date
following the end of the Free Look Period plus five calendar days. On that date,
the Annuity Account Value held in the Money Market Investment Division will be
allocated to the Variable Investment Divisions selected by the Owner. During the
Free Look Period, the Owner may change the allocation percentages among the
Investment Divisions and/or selection of Investment Divisions to which
Contributions will be allocated after the Free Look Period.
If the Certificate is returned during the Free Look Period, it will be void from
the start, and the Company will refund the greater of: 1) Contributions
received; or 2) the Annuity Account Value less surrenders, withdrawals, and
distributions.
After the Free Look Period, subsequent Contributions will be allocated in the
Investment Divisions as Requested by the Owner. If there are no accompanying
instructions, then allocations will be made in accordance with standing
instructions.
Allocations will be effective upon the Transaction Date.
<PAGE>
Annuity Account Provisions
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<PAGE>
What is the annual Certificate Maintenance
Charge?
CERTIFICATE MAINTENANCE CHARGE
The following charge is applicable to a Certificate having a Variable Account
Value of less than $25,000. Each year, beginning on the first anniversary of the
Certificate Effective Date, a Certificate Maintenance Charge of not more than
$30 will be deducted from the Annuity Account. This charge will be deducted from
the Money Market Sub-Account. If there is not sufficient value in the Money
Market Sub-Account to cover all of the Certificate Maintenance Charge, the
remainder will be deducted proportionately from the other Variable Sub-Accounts
based on their relative values.
How is the Annuity Account Value determined?
ANNUITY ACCOUNT VALUE
The Annuity Account Value for the Owner on any date during the Accumulation
Period will be the sum of the values of the Variable Sub-Accounts.
The value of the Owner's interest in a Variable Sub-Account will be determined
by multiplying the number of the Owner's Accumulation Units by the accumulation
unit value for that Variable Sub-Account.
ACCUMULATION UNITS
For each Contribution, the number of Accumulation Units credited for the Owner
to a Variable Sub-Account will be determined by dividing the amount of the
Contribution, less Premium Tax, if any, by the accumulation unit value for that
Variable Sub-Account on the applicable Transaction Date.
ACCUMULATION UNIT VALUE
The initial accumulation unit value of each Variable Sub-Account was established
at $10. The accumulation unit value of a Variable Sub-Account on a Valuation
Date is calculated by multiplying the accumulation unit value as of the
immediately preceding Valuation Date by the net investment factor as described
in the Net Investment Factor provision below.
The dollar value of an Accumulation Unit will vary in amount depending on the
investment experience of the Eligible Fund and charges taken from the Variable
Sub-Account.
NET INVESTMENT FACTOR
The net investment factor for any Variable Sub-Account for any Valuation Period
is determined by dividing (a) by (b), and subtracting (c) from the result where:
(a) is the net result of:
(i) the net asset value per share of the Eligible Fund shares held in the
Investment Division determined as of the end of the current Valuation
Period; plus
(ii) the per share amount of any dividend (or, if applicable, capital gain
distributions) made by the applicable Eligible Fund on shares held in
the Investment Division if the "ex-dividend" date occurs during the
current Valuation Period; minus or plus
(iii)a per unit charge or credit for any taxes incurred by or reserved for
in the Investment Division, which is determined by the Company to have
resulted from the investment operations of the Investment Division.
(b) is the net result of:
(i) the net asset value per share of the Eligible Fund shares held in the
Investment Division determined as of the end of the immediately
preceding Valuation Period; minus or plus
(ii) the per unit charge or credit for any taxes incurred by or reserved for
in the Investment Division for the immediately preceding Valuation
Period.
(c) is an amount representing the risk charge deducted from each Investment
Division on a daily basis, equal to an annual rate as shown in the table
below as a percentage of the daily net asset value of each Investment
Division. This charge will not exceed:
Mortality: Expense: Total:
.68% maximum .17% maximum.85% maximum
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 per share amount of any dividend referred to in paragraph (a)(ii) includes a
deduction for an investment advisory fee. This fee compensates the investment
adviser for services provided to the Eligible Fund. The fee may differ between
Eligible Funds and may be renegotiated each year.
RISK CHARGE
The risk charge compensates the Company for its assumption of certain mortality
and expense risks. This charge is set forth above in the Net Investment Factor
provision.
<PAGE>
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J438 Page 9
Transfer Provisions
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<PAGE>
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J438 Page 10
Can Transfers be made between the Variable
<PAGE>
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J438 Page 10
Sub-Accounts?
TRANSFERS
The Owner may make Transfers by Request. The following provisions apply:
(a)At any time prior to the date annuity payments begin, the Owner, by Request,
may
Transfer all or a portion of the Annuity Account Value among the Investment
Divisions currently offered by the Company. Once a variable annuity payment
option is elected, the Owner may continue to make Transfers from one
Investment Division to another.
(b) A Transfer will be effective upon the Transaction Date.
(c)There is no administrative charge for the first twenty-four Transfers made
in a calendar year. There is a $10 administrative fee for each subsequent
Transfer. All Transfers made on a single Transaction Date will be aggregated
to count as only one Transfer toward the twenty-four Transfers; however, if a
one time rebalancing Transfer also occurs on the Transaction Date, it will be
counted as a separate and additional Transfer.
Is Dollar Cost Averaging offered?
DOLLAR COST AVERAGING
By Request, the Owner may elect Dollar Cost Averaging in order to purchase units
of the Investment Divisions over a period of time.
The Owner may Request to automatically Transfer a predetermined dollar amount,
subject to the Company's minimum, at regular intervals from any one or more
designated Investment Division to one or more of the remaining, then available,
Investment Division(s). The unit value will be determined on the dates of the
Transfers. The Owner must specify the percentage to be Transferred into each
designated Investment Division. Transfers may be set up on any one of the
following frequency periods: monthly, quarterly, semiannually, or annually. The
Transfer will be initiated on the Transaction Date one frequency period
following the date of the Request. If there are insufficient funds in the
applicable Variable Sub-Account on the date of Transfer, no Transfer will be
made; however, Dollar Cost Averaging will resume once there are sufficient funds
in the applicable Variable Sub-Account. The Company will provide a list of
Investment Divisions eligible for Dollar Cost Averaging which may be modified
from time to time. Amounts Transferred through Dollar Cost Averaging are not
counted against the twenty-four free Transfers allowed in a calendar year.
The Owner may terminate Dollar Cost Averaging at any time by Request. Dollar
Cost Averaging will terminate automatically upon the annuity commencement date.
Participation in Dollar Cost Averaging and the Rebalancer Option at the same
time is not allowed. Participation in Dollar Cost Averaging does not assure a
greater profit, or any profit, nor will it prevent or necessarily alleviate
losses in a declining market. The Company reserves the right to modify, suspend,
or terminate Dollar Cost Averaging at any time.
Is rebalancing available?
THE REBALANCER OPTION
By Request, the Owner may elect the Rebalancer Option in order to automatically
Transfer among the Investment Divisions on a periodic basis. This type of
automatic Transfer program automatically reallocates the Annuity Account Value
to maintain a particular percentage allocation among Investment Divisions
selected by the Owner. The amount allocated to each Investment Division will
grow or decline at different rates depending on the investment experience of the
Investment Division.
The Owner may Request that rebalancing occur one time only, in which case the
Transfer will take place on the Transaction Date of the Request. This Transfer
will count as one Transfer towards the twenty-four free Transfers allowed in a
calendar year.
Rebalancing may also be set up on a quarterly, semiannual, or annual basis, in
which case the first Transfer will be initiated on the Transaction Date one
frequency period following the date of the Request. On the Transaction Date for
the specified Request, assets will be automatically reallocated to the selected
funds. Rebalancing will continue on the same Transaction Date for subsequent
periods. In order to participate in the Rebalancer Option, the entire Annuity
Account Value must be included. Transfers set up with these frequencies will not
count against the twenty-four free Transfers allowed in a calendar year.
The Owner must specify the percentage of Annuity Account Value to be allocated
to each Investment Division and the frequency of rebalancing. The Owner may
terminate the Rebalancer Option at any time by Request. The Rebalancer Option
will terminate automatically upon the annuity commencement date.
Participation in the Rebalancer Option and Dollar Cost Averaging at the same
time is not allowed.
<PAGE>
Death Benefit Provisions
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<PAGE>
Participation in the Rebalancer Option does not assure a greater profit, nor
will it prevent or necessarily alleviate losses in a declining market. The
Company reserves the right to modify, suspend, or terminate the Rebalancer
Option at any time.
How is the death benefit paid?
PAYMENT OF DEATH BENEFIT
Upon the death of an Owner or the Annuitant, the death benefit will become
payable in accordance with these death benefit provisions following the
Company's receipt of a Request, while this Certificate is in force.
The amount of the death benefit will be as follows:
If the Owner or Annuitant dies after the date annuity payments commence and
before the entire interest has been distributed, the remaining annuity payments
will be paid to the Beneficiary under the payment option applicable on the date
of death. The Beneficiary will not be allowed to change the method of
distribution in effect on the date of the Owner's or Annuitant's death or to
elect a new payment option; or
If the Owner or Annuitant dies before the date annuity payments commence, the
Company will pay proceeds to the Beneficiary the greater of: the Annuity Account
Value as of the date the Request for payment is received, less Premium Tax, if
any; or the sum of Contributions paid, less partial surrenders and Periodic
Withdrawals, less
Premium Tax, if any.
When an Owner or the Annuitant dies before the annuity commencement date and a
death benefit is payable to a Beneficiary, the death benefit proceeds will
remain invested in accordance with the allocation instructions given by the
Owner until new allocation instructions are Requested by the Beneficiary or
until the death benefit is actually paid to the Beneficiary. The death benefit
will be determined as of the date payments commence; however, on the date a
payment option is processed, the Annuity Account Value will be Transferred to
the Money Market Fund Investment Division unless the Beneficiary otherwise
elects by Request. Distribution of the death benefit may be Requested to be made
as follows (subject to the distribution rules set forth below): (1) payment in a
single sum; or (2) payment under any of the variable annuity options provided
under the Certificate.
DISTRIBUTION RULES
If Annuitant Dies Before Annuity Commencement Date
Upon the death of the Annuitant while the Owner is living, and before the
annuity commencement date, the death benefit provided under the Certificate will
be paid to the Beneficiary unless there is a surviving Contingent Annuitant.
If a Contingent Annuitant was named by the Owner prior to the Annuitant's death,
and the Annuitant dies before the annuity commencement date, while the Owner and
Contingent Annuitant are living, no death benefit will be payable by reason of
the Annuitant's death and the Contingent Annuitant will become the Annuitant.
If a corporation or other non-individual is an Owner, or if the deceased
Annuitant is an Owner, the death of the Annuitant will be treated as the death
of an Owner and the Certificate will be subject to the death of an Owner
provisions described below.
If an Owner Dies Before Annuity Commencement Date
If an Owner dies before the annuity commencement date, and such Owner was the
Annuitant, the following provisions shall apply: (1) If there is a Joint Owner
(who is the surviving spouse of the deceased Owner)
and a Contingent Annuitant, the Joint Owner will become the Owner and the
Beneficiary, the Contingent Annuitant will become the Annuitant, and the
Certificate will continue in force;
(2)If there is a Joint Owner who is the surviving spouse of the deceased Owner
but no Contingent Annuitant, the Joint Owner will become the Owner, the
Annuitant and the Beneficiary, and may take the death benefit or elect to
continue this Certificate in force;
(3)In all other cases, the Company will pay the death benefit to the
Beneficiary even if a former spouse Joint Owner or the Contingent Annuitant
are alive at the time of an Owner's death, unless the sole Beneficiary is the
deceased Owner's surviving spouse and the Beneficiary Requests to become the
Owner and the Annuitant, and to continue the Certificate in force.
<PAGE>
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J438 Page 11
Death Benefit Provisions (continued)
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<PAGE>
J307 Page 5 If an Owner dies before the annuity commencement date, and such
Owner was not the Annuitant, the following provisions shall apply: (1) If there
is a Joint Owner who is the surviving spouse of the deceased Owner, the
Joint Owner will become the Owner and Beneficiary and may take the death
benefit or elect to continue this Certificate in force.
(2)In all other cases, the Company will pay the death benefit to the
Beneficiary even if a former spouse Joint Owner, the Annuitant and/or the
Contingent Annuitant are alive at the time of the Owner's death, unless the
sole Beneficiary is the deceased Owner's surviving spouse and such
Beneficiary Requests to become the Owner and the Annuitant and to continue
the Certificate in force.
To whom and when is the death benefit
payable?
Any death benefit payable to the Beneficiary upon an Owner's death will be
distributed as follows:
(1)If the Owner's surviving spouse is the person entitled to receive benefits
upon the Owner's death, the surviving spouse will be treated as the Owner and
will be allowed to take the death benefit or continue the Certificate in
force.
(2)If a non-spouse individual is the person entitled to receive benefits upon
the Owner's death, such individual may elect, not later than one year after
the Owner's date of death, to receive the death benefit in either a single
sum or payment under any of the variable options available under the
Certificate, provided that: (a) such annuity is distributed in substantially
equal installments over the life or life expectancy of such Beneficiary; and
(b) such distributions begin not later than one year after the Owner's date
of death. If no election is received by the Company from an individual
non-spouse Beneficiary such that substantially equal installments have begun
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; or
(3)If a corporation or other non-individual entity is entitled to receive
benefits upon the Owner's death, the death benefit must be completely
distributed within five years of the Owner's date of death.
The death benefit will be determined as of the date the payments commence.
If Annuitant Dies After Annuity Commencement Date
Upon the death of the Annuitant (or any Owner/Annuitant) after the annuity
commencement date, any benefit payable must be distributed to the Beneficiary in
accordance with and at least as rapidly as under the annuity option then in
effect.
If an Owner Dies After Annuity Commencement Date and While the Annuitant is
Living Upon the death of an Owner after the annuity commencement date and while
the Annuitant is living, any benefit payable will continue to be distributed to
the Annuitant at least as rapidly as under the annuity option then in effect.
All of the Owner's rights granted under the Certificate or allowed by the
Company will pass to any surviving Joint Owner and, if none, to the Annuitant.
COMPLIANCE WITH CODE SECTION 72(s)
In any event, no payment of benefits provided under the Certificate will be
allowed that does not satisfy the requirements of Code Section 72(s), as amended
from time to time, and any other applicable federal or state law, rules or
regulations. These death benefit provisions will be interpreted and administered
in accordance with such requirements.
<PAGE>
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J438 Page 12
Surrenders And Partial Withdrawals
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<PAGE>
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J438 Page 13
Can withdrawals be made from this Certificate?
SURRENDER BENEFIT
At any time prior to the date annuity payments commence and subject to the
provisions of this Certificate, the Owner may surrender this Certificate for the
Surrender Value which will be computed as of the Transaction Date. The Company
will make the distribution, paid in a single sum, within 7 business days after
receipt of the Request.
PARTIAL WITHDRAWALS
The Owner may make a partial withdrawal from the Annuity Account at any time, by
Request, prior to the date annuity payments commence and subject to the terms of
this Certificate. The minimum partial withdrawal amount is $250. After any
partial withdrawal, if the remaining value of the Annuity Account is less than
$2,000, then a full surrender may be required.
By Request, the Owner must elect the Variable Sub-Account(s), or a combination
of them, from which a partial withdrawal is to be made and the amount to be
withdrawn from each Variable Sub-Account. The Variable Account Value will be
reduced by the partial withdrawal amount. The following terms apply: (a) No
partial withdrawals are permitted after the date annuity payments commence. (b)
If a partial withdrawal is made within 30 days of the date annuity payments are
scheduled to commence, the Company may delay the Payment Commencement
Date by 30 days.
(c) A partial withdrawal will be effective upon the Transaction Date.
POSTPONEMENT
In accordance with state law, if the Company receives a Request for surrender or
partial withdrawal, the Company may postpone any cash payment from the Annuity
Account for no more than 7 business days.
During the postponement period the Annuity Account will continue to be subject
to the investment experience (gains or losses) of the underlying Eligible
Fund(s) and all applicable charges.
<PAGE>
Payment Options
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<PAGE>
How are annuity payment options and the Periodic Withdrawal Option elected? HOW
TO ELECT The Request of the Owner is required to elect, or change the election
of, a payment option and must be received by the Company at least 30 days prior
to the Payment
Commencement Date.
At any time prior to the Payment Commencement Date, the Owner may Transfer
between Variable Sub-Account options, subject to the Transfer provisions of this
Certificate.
On the Payment Commencement Date the Annuity Account Value may be applied to any
of the variable annuity payment options available.
If an option has not been elected within 30 days of the Payment Commencement
Date, the Annuity Account Value will be applied under Variable Annuity Payment
Option 1 to provide payments for life with a guaranteed period of 20 years.
What guidelines apply to annuity payment options?
SELECTION OF PAYMENT OPTIONS
(a)A single sum payment may be elected. If so, the amount to be paid is the
Surrender Value.
(b)A variable annuity payment option may be elected. If so, the amount to be
applied is the Annuity Account Value as of the Payment Commencement Date,
less Premium Tax, if any.
(c)The minimum amount that may be withdrawn from the Account Value to purchase
an annuity payment option is $2,000. If the amount is less than $2,000, the
Company may pay the amount in a single sum subject to the Partial Withdrawals
Provision. Payments may be elected to be received on any of the following
frequency periods:
monthly, quarterly, semiannually, or annually.
(d)Payments to be made under the annuity payment option selected must be at
least $50. The Company reserves the right to make the payments using the most
frequent payment interval which produces a payment of not less than $50.
<PAGE>
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J438 Page 13
Payment Options (continued)
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<PAGE>
(e)The maximum amount that may be applied under any annuity payment option is
$1,000,000, unless prior approval is obtained from the Company.
(f)For information on electing periodic withdrawals, refer to the Periodic
Withdrawal Option section on Page 14.
What variable annuity payment options are
available?
VARIABLE ANNUITY PAYMENT OPTIONS
The guaranteed annuity table is based on mortality from the 1983 Table (a)
modified with Projection Scale G for Individual Annuity Valuation and a
guaranteed interest rate of 5% per year. The Company may offer a better rate
than the guaranteed rate shown.
The following variable annuity payment options are available:
(a) Option 1: Variable Life Annuity with Guaranteed Period
Payments for the guaranteed Annuity Payment Period elected or the lifetime of
the Annuitant whichever is longer. The guaranteed Annuity Payment Period
elected may be 5, 10, 15, or 20 years. Upon death of the Annuitant, the
Beneficiary will begin to receive the remaining payments at the same interval
elected by the Owner. See Table A or B, as applicable.
(b) Option 2: Variable Life Annuity
Payments for the Annuitant's lifetime, without a guaranteed period. See Table
A or B, as applicable.
(c) Option 3: Any Other Form
Any other form of variable annuity which is acceptable to the Company.
These variable annuity payment options are subject to the following provisions:
(1) Amount of First Payment
The first payment under a variable annuity payment option will be based on
the value of each Variable Sub-Account on the 5th Valuation Date preceding
the date annuity payments commence. It will be determined by applying the
appropriate rate from Table A to the amount applied under the payment option.
(2) Annuity Units
The number of Annuity Units paid to the Annuitant for each Variable
Sub-Account is determined by dividing the amount of the first payment by the
Variable Sub-Account's annuity unit value on the 5th Valuation Date preceding
the date the first payment is due. The number of Annuity Units used to
calculate each payment for a Variable Sub-Account remains fixed during the
Annuity Payment Period.
(3) Amount of Payments After the First
Payments after the first will vary depending upon the investment experience
of the Variable Sub-Accounts. The subsequent amount paid from each Variable
Sub-Account is determined by multiplying (a) by (b) where (a) is the number
of Variable Sub-Account Annuity Units to be paid and (b) is the Variable
Sub-Account annuity unit value on the 5th Valuation Date preceding the date
the annuity payment is due. The total amount of each variable annuity payment
will be the sum of the variable annuity payments for each Variable
Sub-Account. The Company guarantees that the dollar amount of each payment
after the first will not be affected by variations in expenses or mortality
experience.
(4) Transfers After the Payment Commencement Date
Once variable annuity payments have begun, the Owner may Transfer all or part
of the Annuity Account from one Variable Sub-Account to another. Transfers
after the Payment Commencement Date will be made by converting the number of
Annuity Units being Transferred to the number of Annuity Units of the
Variable Sub-Account to which the Transfer is made. The result will be that
the next annuity payment, if it were made at that time, would be the same
amount that it would have been without the Transfer. Thereafter, annuity
payments will reflect changes in the value of the new Annuity Units. The
Certificate's Transfer provisions will apply.
<PAGE>
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J438 Page 14
Payment Options (continued)
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<PAGE>
What guidelines apply to periodic withdrawals?
PERIODIC WITHDRAWAL OPTION
The Owner must Request that all or part of the Annuity Account Value be applied
to a Periodic Withdrawal Option. Premium Tax, if applicable, will be deducted
before applying the amount Requested. While periodic withdrawals are being
received:
the Owner may keep the same Variable Sub-Accounts as were in force before
periodic
withdrawals began;
Charges and fees under this Certificate continue to apply; and
the Owner may continue to exercise all contractual rights that are available
prior to electing a payment option, except that no Contributions may be made.
HOW TO ELECT PERIODIC WITHDRAWALS
The Request of the Owner is required to elect, or change the election of, the
Periodic
Withdrawal Option. The Owner must Request:
the withdrawal frequency of either 12-, 6-, 3-, or 1-month intervals; a
withdrawal amount; a minimum of $100 is required; the calendar month, day,
and year on which withdrawals are to begin; one Periodic Withdrawal Option;
and the allocation of withdrawals from the Variable Sub-Account(s) as
follows:
(1)Prorate the amount to be paid across all Variable Sub-Accounts in proportion
to the assets in each Variable Sub-Account; or
(2)Select the Variable Sub-Account(s) from which withdrawals will be made. Once
the Variable Sub-Accounts(s) have been depleted, the Company will
automatically prorate the remaining withdrawals against all remaining
available Variable Sub-Accounts, unless the Owner Requests the selection of
another Variable Sub-Account.
The Owner may elect to change the withdrawal option and/or frequency once each
calendar year.
Periodic Withdrawals will cease on the earlier of the date:
the amount elected to be paid under the option selected has been reduced to
zero; the Annuity Account Value is zero; the Owner Requests that withdrawals
stop; the Owner purchases an annuity option; or of death of an Owner or the
Annuitant.
PERIODIC WITHDRAWAL OPTIONS
AVAILABLE
The Owner must elect one of these withdrawal options:
(1) Income for a Specified Period for at least thirty-
six (36) months - The Owner elects the duration over which withdrawals
will be
made. The amount paid will vary based on the duration; or
(2)Income of a Specified Amount for at least thirty-six (36) months - The Owner
elects the dollar amount of the withdrawals. Based on the amount elected, the
duration may vary.
(3)Any other form for a period of at least thirty-six (36) months - The Owner
elects any other form of Periodic Withdrawal which is acceptable to the
Company.
<PAGE>
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J438 Page 15
TABLE B - Life Annuity
MALE
Monthly Payment for Each $1,000
of Variable Account Value
<PAGE>
J401 Page 19
Without With Guaranteed Period
Period
Age of Guaranteed 5 10 15 20
Annuitant Period Years Years Years Years
20 4.32 4.32 4.32 4.31 4.31
21 4.32
4.34 4.34 4.33 4.33
22 4.33
4.35 4.35 4.34 4.34
23
4.36 4.36 4.36 4.35 4.35
24
4.38 4.38 4.37 4.37 4.36
25
4.39 4.39 4.39 4.38 4.37
26
4.41 4.41 4.40 4.40 4.39
27
4.42 4.42 4.42 4.41 4.40
28
4.44 4.44 4.43 4.43 4.42
29
4.46 4.46 4.45 4.45 4.44
30
4.48 4.48 4.47 4.46 4.46
31
4.50 4.50 4.49 4.48 4.48
32
4.52 4.52 4.51 4.51 4.50
33
4.54 4.54 4.54 4.53 4.52
34
4.57 4.57 4.56 4.55 4.54
35
4.59 4.59 4.59 4.58 4.56
36
4.62 4.62 4.61 4.60 4.59
37
4.65 4.65 4.64 4.63 4.61
38
4.69 4.68 4.67 4.66 4.64
39
4.72 4.72 4.71 4.69 4.67
40
4.76 4.75 4.74 4.72 4.70
41
4.79 4.79 4.78 4.76 4.73
42
4.83 4.83 4.82 4.79 4.76
43
4.88 4.87 4.86 4.83 4.80
44
4.92 4.92 4.90 4.87 4.83
45
4.97 4.96 4.94 4.91 4.87
46
5.02 5.01 4.99 4.95 4.91
47
5.07 5.06 5.04 5.00 4.95
48
5.13 5.12 5.09 5.05 4.99
49
5.18 5.17 5.14 5.09 5.03
50
5.25 5.23 5.20 5.15 5.08
51 5.31 5.30 5.26 5.20 5.13
52
5.38 5.36 5.32 5.26 5.17
53
5.45 5.43 5.39 5.32 5.22
54
5.53 5.51 5.45 5.38 5.28
55
5.61 5.59 5.53 5.44 5.33
56
5.69 5.67 5.61 5.51 5.38
57
5.79 5.76 5.69 5.58 5.44
58
5.88 5.85 5.78 5.66 5.50
59
5.99 5.96 5.87 5.73 5.55
60
6.10 6.07 5.97 5.81 5.61
61
6.22 6.18 6.07 5.90 5.67
62
6.36 6.31 6.18 5.98 5.73
63
6.50 6.45 6.30 6.07 5.79
64
6.65 6.59 6.42 6.16 5.85
65
6.82 6.75 6.55 6.25 5.91
66
6.99 6.91 6.68 6.35 5.96
67
7.18 7.09 6.82 6.44 6.02
68
7.39 7.27 6.97 6.54 6.07
69
7.60 7.47 7.12 6.63 6.12
70
7.84 7.68 7.27 6.73 6.17
71
8.09 7.90 7.43 6.82 6.22
72
8.35 8.14 7.59 6.92 6.26
73
8.63 8.38 7.76 7.01 6.29
74
8.94 8.64 7.93 7.09 6.33
75
9.27 8.92 8.10 7.17 6.36
76
9.62 9.21 8.28 7.25 6.39
77
10.00 9.52 8.45 7.33 6.41
78
10.40 9.84 8.62 7.39 6.43
79
10.84 10.18 8.79 7.46 6.45
80
11.31 10.53 8.96 7.51 6.46
<PAGE>
If payments commence on any other date than the exact age of the Annuitant as
shown above, the amount of the monthly payment shall be determined by the
Company on the actuarial basis used in determining the above amounts.
<PAGE>
J401 Page 3
TABLE A - Variable Life Annuity
FEMALE
Monthly Payment for Each $1,000
of Annuity Account Value
Without With Guaranteed Period
Period
Age of Guaranteed 5 10 15 20
Annuitant Period Years Years Years Years
20 4.25 4.25 4.25 4.24 4.24
21 4.26 4.26 4.26 4.25 4.25
22 4.27 4.27 4.27 4.26 4.26
23 4.28 4.28 4.28 4.27 4.27
24 4.29 4.29 4.29 4.28 4.28
25 4.30 4.30 4.30 4.29 4.29
26 4.31 4.31 4.31 4.31 4.30
27 4.32 4.32 4.32 4.32 4.31
28 4.34 4.34 4.33 4.33 4.33
29 4.35 4.35 4.35 4.34
4.34
30 4.36 4.36 4.36 4.36 4.35
31 4.38 4.38 4.38 4.37 4.37
32 4.40 4.39 4.39 4.39 4.38
33 4.41 4.41 4.41 4.40 4.40
34 4.43 4.43 4.43 4.42 4.42
35 4.45 4.45 4.45 4.44 4.44
36 4.47 4.47 4.47 4.46 4.45
37 4.49 4.49 4.49 4.48 4.47
38 4.51 4.51 4.51 4.50 4.50
39 4.54 4.54 4.53 4.53 4.52
40 4.56 4.56 4.56 4.55 4.54
41 4.59 4.59 4.58 4.58 4.57
42 4.62 4.62 4.61 4.60 4.59
43 4.65 4.65 4.64 4.63 4.62
44 4.68 4.68 4.67 4.66 4.65
45 4.72 4.71 4.71 4.69 4.68
46 4.75 4.75 4.74 4.73 4.71
47 4.79 4.79 4.78 4.76 4.74
48 4.83 4.83 4.82 4.80 4.77
49 4.87 4.87 4.86 4.84 4.81
50 4.92 4.92 4.90 4.88 4.85
51 4.97 4.96 4.95 4.92 4.89
52 5.02 5.01 5.00 4.97 4.93
53 5.07 5.07 5.05 5.02 4.97
54 5.13 5.12 5.10 5.07 5.02
55 5.19 5.18 5.16 5.12 5.07
56 5.26 5.25 5.22 5.18 5.12
57 5.33 5.32 5.28 5.23 5.17
58 5.40 5.39 5.35 .30 5.22
59 5.48 5.47 5.43 5.36
5.28
60 5.56 5.55 5.50 5.43 5.33
61 5.65 5.64 5.59 5.50 5.39
62 5.75 5.73 5.67 5.58 5.46
63 5.86 5.83 5.77 5.66 5.52
64 5.97 5.94 5.87 5.75 5.58
65 6.09 6.06 5.97 5.83 5.65
66 6.22 6.18 6.08 5.92 5.71
67 6.35 6.31 6.20 6.02 5.78
68 6.50 6.46 6.33 6.12 5.84
69 6.66 6.61 6.46 6.22 5.91
70 6.84 6.78 6.60 6.32 5.97
71 7.03 6.96 6.75 6.03
6.42
72 7.24 7.16 6.91 6.53 6.09
73 7.47 7.37 7.07 6.64 6.14
74 7.72 7.59 7.24 6.75 6.19
75 7.98 7.83 7.42 6.85 6.24
76 8.27 8.09 7.61 6.96 6.28
77 8.59 8.37 7.80 7.05 6.32
78 8.93 8.67 7.99 7.15 6.35
79 9.30 8.98 8.19 7.24 6.38
80 9.70 9.31 8.38 7.32 6.41
<PAGE>
If payments commence on any other date than the exact age of the Annuitant as
shown above, the amount of the monthly payment shall be determined by the
Company on the actuarial basis used in determining the above amounts.
<PAGE>
FLEXIBLE PREMIUM VARIABLE DEFERRED GROUP ANNUITY.
Contributions may be made until the Payment Commencement Date or until the death
benefit is payable to a Beneficiary. The Owner is as shown on the Certificate
Data Page unless changed as provided for in this Certificate. The Company will
pay the Annuitant the first of a series of annuity payments on the annuity
commencement date by applying the Variable Account Value of the Owner's Annuity
Account according to the Payment Options Provisions. Subsequent payments will be
paid on the same day of each frequency period according to the provisions of
this Certificate. Non-Participating. Not eligible to share in the Company's
divisible surplus.
CORPORATE HEADQUARTERS - Englewood, Colorado
J438
<PAGE>
- ------------------------------------------------------------------------
J438 Page i
CERTIFICATE DATA PAGE
<PAGE>
ANNUITY INFORMATION OWNER INFORMATION
<PAGE>
Annuity Certificate Number: 1234567
Effective Date: March 1, 1999
Status of Annuity: Non-Qualified
Initial Contribution: $5,000
Payment Commencement Date: March 1, 2009
Owner: JOHN C. DOE
Date of Birth: April 1, 1944
Tax ID Number: 111-11-1111
Joint Owner: JANE B. DOE
Date of Birth: November 12, 1948
Tax ID Number: ###-##-####
<PAGE>
ANNUITANT INFORMATION
<PAGE>
Annuitant: JOHN C. DOE
Date of Birth: March 22, 1942
Tax ID Number: ###-##-####
Contingent Annuitant: DAVID J. DOE
Date of Birth: June 6, 1964
Tax ID Number: ###-##-####
<PAGE>
- ------------------------------------------------------------------------
J438 Page ii
CERTIFICATE INFORMATION
This Certificate Data Page, together with the Initial Contribution Allocation
Confirmation, reflects the information with which your Certificate has been
established as of the Effective Date. If you wish to change or correct any
information on this page, please call the Annuity Service Center immediately at
1-800-XXX-XXXX.
CHARGES: Charges at the time we issued this Certificate are shown below.
Risk Charge:
Mortality: Expense: Total:
.35% maximum .15% maximum .50% maximum
Certificate Maintenance Charge: $30.00 maximum annually
PAYMENT COMMENCEMENT DATE: The date on which annuity payments or periodic
withdrawals will start. This Certificate Data Page indicates the date that
you selected, or if no date is specified, the latest date on which payments
can start. (You may change the Payment Commencement Date prior to
commencement of annuity payments, or it may be changed by the Beneficiary
upon the death of an Owner.)
ANNUITY SERVICE CENTER:
Great-West Life & Annuity Insurance Company
Annuity Service Center
P.O. Box 1700
Denver, CO 80201
1-800-XXX-XXXX
POLICYHOLDER INFORMATION
Policyholder
<PAGE>
BENEFICIARY INFORMATION
Beneficiary: Sally Smith
Date of Birth: January 17, 1956
Tax ID Number: ###-##-####
EXHIBIT 5
Form of Application
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
- ------------------------------------------------------------------------
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY APPLICATION
Please complete and sign this application and return it in the
enclosed postage paid envelope. Please take a moment to review the
application to make sure all sections are completed and you have
signed where indicated.
Thank You!
- -------------------------------------------------------------------------
Have Questions?
Call Us!
Annuity Service Center
1-800-XXX-XXXX
6:30am - 4:00 pm, Monday-Friday Mountain Standard Time
- ---------------------------------------------------
J438aicpaapp
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
- -------------------------
1. Who will own the annuity? The Owner is the person entitled to all rights
under the annuity. If the Owner is a Trust, additional forms may be required
and certain restrictions may apply. Call the Annuity Service Center at
1-800-XXX-XXXX for assistance.
- --------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------
Name (First/Middle/Last)
Home Address
City State Zip
Birth Date Male/Female
Social Security/Tax I.D. Number
( ) ( )
Daytime Telephone Number Evening Telephone Number
<PAGE>
- -----------------------------------------------------------------------------
2. Who will be the Joint Owner? This is optional, and only a spouse may be a
Joint Owner of this annuity.
- ----------------------------------------------------------------------------
<PAGE>
Name (First/Middle/Last)
Home Address
City State Zip
Birth Date Male/Female
Social Security/Tax I.D. Number
( ) ( )
Daytime Telephone Number Evening Telephone Number
<PAGE>
- -----------------------------------------------------------------------------
3.
Primary Annuitant. The Annuitant is the person on whose life the annuity
payments are based. The Annuitant must be age 90 or younger. If the Annuitant
and the Owner are the same, check the appropriate box below and skip to question
#5.
- ----------------------------------------------------------------
<PAGE>
Same as Owner or The person listed below
Name (First/Middle/Last)
Home Address
City State Zip
Birth Date Male/Female
Social Security/Tax I.D. Number
( ) ( )
Daytime Telephone Number Evening Telephone Number
<PAGE>
- ------------------------------------------------------------------------
4. Contingent Annuitant. This is optional. The Contingent Annuitant is the
person who will become the Annuitant upon the death of the Primary Annuitant.
The Contingent Annuitant must be age 90 or younger. If the Contingent Annuitant
and the Owner are the same, check the appropriate box below and skip to question
#5.
- -------------------------------------------------------------------------
<PAGE>
Same as Owner or The person listed below
Name (First/Middle/Last)
Home Address
City State Zip
Birth Date Male/Female
Social Security/Tax I.D. Number
( ) ( )
Daytime Telephone Number Evening Telephone Number
<PAGE>
- -----------------------------------------------------------------------------
J438aicpaapp
Page 1 (Continued on Next
Page)
<PAGE>
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY APPLICATION (continued)
- ---------------------------------------------------------------------------
5. Beneficiary(ies). Who would you like to receive the benefits payable upon the
death of the Owner or Annuitant (as applicable)? You may name a person, a trust,
a charity, or other entity as Beneficiary. You may name one or more
Beneficiaries, indicating the percentage for each (whole percentages only). If
you need additional space, please use a separate sheet.
- -------------------------------------------------------------------------------
<PAGE>
Name (First/Middle/Last) Social Security No. Birth Date
Percentage
Name (First/Middle/Last) Social Security No. Birth Date
Percentage
Name (First/Middle/Last) Social Security No. Birth Date
Percentage
Must = 100%
- --------------------------------------------------------------------------------
6. Citizenship Status. Is each individual named on this application a citizen
of the United States?
- --------------------------------------------------------------------------------
YES NO If "No" give details below.
Name(s) Country of Legal Residence
Country of Citizenship
- --------------------------------------------------------------------------------
7. When would you like periodic withdrawals or annuity payments to begin? If
you want payments to begin on a certain date, indicate the month and year. If
no date is indicated, annuity payments will begin on the first day of the month
of the Annuitant's 91st birthday.
- -----------------------------------------------------------------------------
I would like the payments to begin on (month) (year) Periodic
Withdrawals OR
Annuity Payments
- --------------------------------------------------------------------------------
8. You must meet one of the following criteria to be eligible for this
coverage.
- --------------------------------------------------------------------------------
I am a member of AICPA. (AICPA Member
number: .)
I am the spouse of an AICPA member. (AICPA Member
number: .)
I am an active, full time employee of the AICPA.
- --------------------------------------------------------------------------------
9. How will you pay for this annuity? Minimum initial contribution is $5,000,
or $1,000 if paid through an Automatic Contribution Plan. Subsequent minimum
contributions are $500, $100 if paid through an Automatic Contribution Plan. To
establish an Automatic Contribution Plan, please call the Annuity Service
Center for appropriate forms.
- -------------------------------------------------------------------------------
Check is attached. (Make check payable to Great-West Life & Annuity Insurance
Company)
Transfer the entire balance from my existing annuity or life insurance
policy. (Complete enclosed Replacement forms.)
- --------------------------------------------------------------------------------
10. Compliance Information. The Securities Exchange Act of 1934 requires that
we have reasonable grounds to believe, based upon the information provided by
you, that your investment selections are suitable given your objectives and
financial situation. Please answer the following questions relating to the
suitability of your investment choices.
- -------------------------------------------------------------------------------
<PAGE>
Overall Investment Objective
Capital Preservation
Income
Growth
Speculation
Federal Income Tax Bracket
15%
28%
31% or more
Annual Income
Under $15,000
$15,000 to $24,999
$25,000 to $49,999
$50,000 to $99,999
$100,000 or more
Liquid Net Worth
Under $15,000
$15,000 to $49,999
$50,000 to $99,999
$100,000 or more
<PAGE>
- --------------------------------------------------------------------------------
J438aicpaapp
Page 2 (Continued on Next
Page)
<PAGE>
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY APPLICATION (continued)
- --------------------------------------------------------------------------------
11. How would you like to allocate your payment? You may either choose one
investment option from the list below or combine your payment among several.
Please write the name of each investment option you choose and indicate the
whole percentage of your contribution for each investment option you select.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE: If no allocation is given, all contributions will be placed in the Maxim
Money Market Fund
- --------------------------------------------------------------------------------
until we receive further instructions.
Name of Investment Option Allocation %
- ----------------------------------------------------------------------------
%
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
%
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
TOTAL =100%
- ------------------------------------------------------------------------------
<PAGE>
INVESTMENT DIVISIONS
<PAGE>
Investment Objective
- ---------------------------------------------------------------------------
Aggressive Growth
Growth
International
- ---------------------------------------------------------------------------
Index
- ---------------------------------------------------------------------------
Equity Income
- ---------------------------------------------------------------------------
Balanced
Bond
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Money Market
Eligible Investment Options
- -----------------------------------------------------------------------------
Nueberger & Berman AMT Patners Fund
- -----------------------------------------------------------------------------
Maxim Growth Fund
Templeton Variable Product Series International Fund
Dreyfus Stock Index
Maxim T. Rowe Equity-Income Fund
Maxim Invesco Balanced
Janus Aspen Flexible Income
Maxim Money Market
<PAGE>
- -------------------------------------------------------------------------------
12. Signatures Please send me a copy of the Statement of Additional
Information to the prospectus.
- ----------------------------------------------------------------------------
I understand that I am applying for a Flexible Premium Variable Deferred
Annuity, Contract Form J438, issued by Great-West Life & Annuity Insurance
Company. I declare that all statements made on this application are true to
the best of my knowledge and belief. I acknowledge receipt of the prospectus
for the variable annuity contract. I believe the contract is suitable for my
retirement and insurance needs.
I understand that all amounts are based on the investment experience of the
annuity account value and are not guaranteed as to amount; they are variable
and may increase or decrease accordingly.
I hereby direct that my telephone instructions to the Annuity Service Center
be honored for transactions unless otherwise notified by me in writing. I
understand that telephone calls may be recorded to monitor the quality of
service I receive and to verify contract transaction information. I certify
under penalty of perjury that the taxpayer identification numbers listed on
this application are correct. The Internal Revenue Service does not require
your consent to any provision of this document other than the certifications
required to avoid backup withholding.
Owner's Signature Date
Joint Owner's Signature (if applicable) Date
- ------------------------------------------------------------------------------
For Internal Use Only
Licensed Representative Rep Code Source Code Date
<PAGE>
J438aicpaapp Page 3
EXHIBIT 8
Sample Mutual Fund Participation Agreement
<PAGE>
FUND PARTICIPATION AGREEMENT
<PAGE>
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares.........................................3
ARTICLE II. Representations and Warranties..............................7
ARTICLE III. Prospectuses and Proxy Statements; Voting..................11
ARTICLE IV. Sales Material and Information.............................13
ARTICLE V. Fees and Expenses..........................................15
ARTICLE VI. Diversification and Qualification..........................16
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order ..................19
ARTICLE VIII. Indemnification ...........................................22
ARTICLE IX. Applicable Law.............................................31
ARTICLE X. Termination................................................32
ARTICLE XI. Notices....................................................35
ARTICLE XII. Miscellaneous..............................................36
SCHEDULE A Contracts..................................................39
SCHEDULE B Designated Portfolios......................................40
SCHEDULE C Reports per Section 6.6....................................41
SCHEDULE D Expenses...................................................43
<PAGE>
18
PARTICIPATION AGREEMENT
<PAGE>
Among
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
XYZ FUNDS,
XYZ INVESTMENT ADVISER,
and
XYZ DISTRIBUTOR
THIS AGREEMENT, made and entered into as of this ____ day of
_______________, 1997 by and among GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(hereinafter "GWL&A"), a Colorado life insurance company, on its own behalf and
on behalf of its Separate Account Maxim Series Account (the "Account"); XYZ
FUND, a organized under the laws of
(hereinafter the "Fund"); XYZ INVESTMENT ADVISER (hereinafter the
"Adviser"), a organized under the laws of ; and
XYZ DISTRIBUTOR, a organized under the laws of
(hereinafter the "Distributor").
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and/or variable annuity
contracts (collectively, the "Variable Insurance Products") to be offered by
insurance companies, including GWL&A, which have entered into participation
agreements similar to this Agreement (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (hereinafter the "SEC"), dated (File No.
), granting Participating Insurance Companies and variable annuity and
variable life insurance separate accounts exemptions from the provisions of
sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as
amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
life insurance companies that may or may not be affiliated with one another and
qualified pension and retirement plans ("Qualified Plans") (hereinafter the
"Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolio(s) are registered under
the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Distributor is duly registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended, (the "1934 Act") and is a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD"); and
WHEREAS, GWL&A has registered certain variable annuity contracts supported
wholly or partially by the Account (the "Contracts") under the 1933 Act and said
Contracts are listed in Schedule A attached hereto and incorporated herein by
reference, as such Schedule may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of GWL&A on
June 24, 1981, under the insurance laws of the State of Colorado, to set aside
and invest assets attributable to the Contracts; and
WHEREAS, GWL&A has registered the Account as a unit investment trust under
the 1940 Act and has registered the securities deemed to be issued by the
Account under the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, GWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto and incorporated herein by reference, as such
Schedule may be amended from time to time by mutual written agreement (the
"Designated Portfolio(s)"), on behalf of the Account to fund the Contracts, and
the Fund is authorized to sell such shares to unit investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Account also intends to purchase shares in other open-end
investment companies or series thereof not affiliated with the Fund (the
"Unaffiliated Funds") on behalf of the Account to fund the Contracts; and
NOW, THEREFORE, in consideration of their mutual promises, GWL&A, the
Fund, the Distributor and the Adviser agree as follows:
ARTICLE I. Sale of Fund SharesI. Sale of Fund Shares.
Sale of Fund Shares. Sale of Fund Shares
1.1. The Fund agrees to sell to GWL&A those shares of the Designated
Portfolio(s) which the Account orders, executing such orders on each Business
Day at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Portfolios. For purposes of this
Section 1.1, GWL&A shall be the designee of the Fund for receipt of such orders
and receipt by such designee shall constitute receipt by the Fund, provided that
the Fund receives notice of any such order by 12:00 noon Eastern time on the
next following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the SEC.
1.2. The Fund agrees to make shares of the Designated Portfolio(s)
available for purchase at the applicable net asset value per share by GWL&A and
the Account on those days on which the Fund calculates its Designated
Portfolio(s)' net asset value pursuant to rules of the SEC, and the Fund shall
calculate such net asset value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Trustees of the
Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
1.3. The Fund will not sell shares of the Designated Portfolio(s) to any
other Participating Insurance Company separate account unless an agreement
containing provisions substantially the same as Sections 2.1, 3.5, 3.6, 3.7, and
Article VII of this Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on GWL&A's request, any full or
fractional shares of the Fund held by GWL&A, executing such requests on each
Business Day at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. Requests for redemption identified
by GWL&A, or its agent, as being in connection with surrenders, annuitizations,
or death benefits under the Contracts, upon prior written notice, may be
executed within seven (7) calendar days after receipt by the Fund or its
designee of the requests for redemption. This Section 1.4 may be amended, in
writing, by the parties consistent with the requirements of the 1940 Act and
interpretations thereof. For purposes of this Section 1.4, GWL&A shall be the
designee of the Fund for receipt of requests for redemption and receipt by such
designee shall constitute receipt by the Fund, provided that the Fund receives
notice of any such request for redemption by 12:00 noon Eastern time on the next
following Business Day.
1.5. The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance Companies (subject to Section 1.3 and Article VI hereof)
and the cash value of the Contracts may be invested in other investment
companies.
1.6. GWL&A shall pay for Fund shares by 3:00 p.m. Eastern time on the next
Business Day after an order to purchase Fund shares is made in accordance with
the provisions of Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire and/or by a credit for any shares redeemed the same day as
the purchase.
1.7. The Fund shall pay and transmit the proceeds of redemptions of Fund
shares by 12:00 noon Eastern Time on the next Business Day after a redemption
order is received in accordance with Section 1.4 hereof. Payment shall be in
federal funds transmitted by wire and/or a credit for any shares purchased the
same day as the redemption.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to GWL&A or the Account. Shares
ordered from the Fund will be recorded in an appropriate title for the Account
or the appropriate sub-account of the Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to GWL&A of any income, dividends or capital
gain distributions payable on the Designated Portfolio(s)' shares. GWL&A hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio.
GWL&A reserves the right to revoke this election and to receive all such income
dividends and capital gain distributions in cash. The Fund shall notify GWL&A by
the end of the next following Business Day of the number of shares so issued as
payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Designated Portfolio available to GWL&A on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:00
p.m. Eastern time. In the event of an error in the computation of a Designated
Portfolio's net asset value per share ("NAV") or any dividend or capital gain
distribution (each, a "pricing error"), the Adviser or the Fund shall
immediately notify GWL&A as soon as possible after discovery of the error. Such
notification may be verbal, but shall be confirmed promptly in writing in
accordance with Article XI of this Agreement. A pricing error shall be corrected
as follows: (a) if the pricing error results in a difference between the
erroneous NAV and the correct NAV of less than $0.01 per share, then no
corrective action need be taken; (b) if the pricing error results in a
difference between the erroneous NAV and the correct NAV equal to or greater
than $0.01 per share, but less than 1/2 of 1% of the Designated Portfolio's NAV
at the time of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after taking into consideration any positive effect of
such error; however, no adjustments to Contractowner accounts need be made; and
(c) if the pricing error results in a difference between the erroneous NAV and
the correct NAV equal to or greater than 1/2 of 1% of the Designated Portfolio's
NAV at the time of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss (without taking into consideration any positive effect of
such error) and shall reimburse GWL&A for the costs of adjustments made to
correct Contractowner accounts in accordance with the provisions of Schedule D.
If an adjustment is necessary to correct a material error which has caused
Contractowners to receive less than the amount to which they are entitled, the
number of shares of the applicable sub-account of such Contractowners will be
adjusted and the amount of any underpayments shall be credited by the Adviser to
GWL&A for crediting of such amounts to the applicable Contractowners accounts.
Upon notification by the Adviser of any overpayment due to a material error,
GWL&A shall promptly remit to Adviser any overpayment that has not been paid to
Contractowners; however, Adviser acknowledges that GWL&A does not intend to seek
additional payments from any Contractowner who, because of a pricing error, may
have underpaid for units of interest credited to his/her account. In no event
shall GWL&A be liable to Contractowners for any such adjustments or underpayment
amounts. A pricing error within categories (b) or (c) above shall be deemed to
be "materially incorrect" or constitute a "material error" for purposes of this
Agreement. 1.10. The Fund shall make the net asset value per share for each
Designated Portfolio available to GWL&A on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:00
p.m. Eastern time. In the event of an error in the computation of a Designated
Portfolio's net asset value per share ("NAV") or any dividend or capital gain
distribution (each, a "pricing error"), the Adviser or the Fund shall
immediately notify GWL&A as soon as possible after discovery of the error. Such
notification may be verbal, but shall be confirmed promptly in writing in
accordance with Article XI of this Agreement. A pricing error shall be corrected
as follows: (a) if the pricing error results in a difference between the
erroneous NAV and the correct NAV of less than $0.01 per share, then no
corrective action need be taken; (b) if the pricing error results in a
difference between the erroneous NAV and the correct NAV equal to or greater
than $0.01 per share, but less than 1/2 of 1% of the Designated Portfolio's NAV
at the time of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after taking into consideration any positive effect of
such error; however, no adjustments to Contractowner accounts need be made; and
(c) if the pricing error results in a difference between the erroneous NAV and
the correct NAV equal to or greater than 1/2 of 1% of the Designated Portfolio's
NAV at the time of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss (without taking into consideration any positive effect of
such error) and shall reimburse GWL&A for the costs of adjustments made to
correct Contractowner accounts in accordance with the provisions of Schedule D.
If an adjustment is necessary to correct a material error which has caused
Contractowners to receive less than the amount to which they are entitled, the
number of shares of the applicable sub-account of such Contractowners will be
adjusted and the amount of any underpayments shall be credited by the Adviser to
GWL&A for crediting of such amounts to the applicable Contractowners accounts.
Upon notification by the Adviser of any overpayment due to a material error,
GWL&A shall promptly remit to Adviser any overpayment that has not been paid to
Contractowners; however, Adviser acknowledges that GWL&A does not intend to seek
additional payments from any Contractowner who, because of a pricing error, may
have underpaid for units of interest credited to his/her account. In no event
shall GWL&A be liable to Contractowners for any such adjustments or underpayment
amounts. A pricing error within categories (b) or (c) above shall be deemed to
be "materially incorrect" or constitute a "material error" for purposes of this
Agreement. 1.10. The Fund shall make the net asset value per share for each
Designated Portfolio available to GWL&A on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:00
p.m. Eastern time. In the event of an error in the computation of a Designated
Portfolio's net asset value per share ("NAV") or any dividend or capital gain
distribution (each, a "pricing error"), the Adviser or the Fund shall
immediately notify GWL&A as soon as possible after discovery of the error. Such
notification may be verbal, but shall be confirmed promptly in writing in
accordance with Article XI of this Agreement. A pricing error shall be corrected
as follows: (a) if the pricing error results in a difference between the
erroneous NAV and the correct NAV of less than $0.01 per share, then no
corrective action need be taken; (b) if the pricing error results in a
difference between the erroneous NAV and the correct NAV equal to or greater
than $0.01 per share, but less than 1/2 of 1% of the Designated Portfolio's NAV
at the time of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after taking into consideration any positive effect of
such error; however, no adjustments to Contractowner accounts need be made; and
(c) if the pricing error results in a difference between the erroneous NAV and
the correct NAV equal to or greater than 1/2 of 1% of the Designated Portfolio's
NAV at the time of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss (without taking into consideration any positive effect of
such error) and shall reimburse GWL&A for the costs of adjustments made to
correct Contractowner accounts in accordance with the provisions of Schedule D.
If an adjustment is necessary to correct a material error which has caused
Contractowners to receive less than the amount to which they are entitled, the
number of shares of the applicable sub-account of such Contractowners will be
adjusted and the amount of any underpayments shall be credited by the Adviser to
GWL&A for crediting of such amounts to the applicable Contractowners accounts.
Upon notification by the Adviser of any overpayment due to a material error,
GWL&A shall promptly remit to Adviser any overpayment that has not been paid to
Contractowners; however, Adviser acknowledges that GWL&A does not intend to seek
additional payments from any Contractowner who, because of a pricing error, may
have underpaid for units of interest credited to his/her account. In no event
shall GWL&A be liable to Contractowners for any such adjustments or underpayment
amounts. A pricing error within categories (b) or (c) above shall be deemed to
be "materially incorrect" or constitute a "material error" for purposes of this
Agreement. 1.10. The Fund shall make the net asset value per share for each
Designated Portfolio available to GWL&A on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:00
p.m. Eastern time. In the event of an error in the computation of a Designated
Portfolio's net asset value per share ("NAV") or any dividend or capital gain
distribution (each, a "pricing error"), the Adviser or the Fund shall
immediately notify GWL&A as soon as possible after discovery of the error. Such
notification may be verbal, but shall be confirmed promptly in writing in
accordance with Article XI of this Agreement. A pricing error shall be corrected
as follows: (a) if the pricing error results in a difference between the
erroneous NAV and the correct NAV of less than $0.01 per share, then no
corrective action need be taken; (b) if the pricing error results in a
difference between the erroneous NAV and the correct NAV equal to or greater
than $0.01 per share, but less than 1/2 of 1% of the Designated Portfolio's NAV
at the time of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after taking into consideration any positive effect of
such error; however, no adjustments to Contractowner accounts need be made; and
(c) if the pricing error results in a difference between the erroneous NAV and
the correct NAV equal to or greater than 1/2 of 1% of the Designated Portfolio's
NAV at the time of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss (without taking into consideration any positive effect of
such error) and shall reimburse GWL&A for the costs of adjustments made to
correct Contractowner accounts in accordance with the provisions of Schedule D.
If an adjustment is necessary to correct a material error which has caused
Contractowners to receive less than the amount to which they are entitled, the
number of shares of the applicable sub-account of such Contractowners will be
adjusted and the amount of any underpayments shall be credited by the Adviser to
GWL&A for crediting of such amounts to the applicable Contractowners accounts.
Upon notification by the Adviser of any overpayment due to a material error,
GWL&A shall promptly remit to Adviser any overpayment that has not been paid to
Contractowners; however, Adviser acknowledges that GWL&A does not intend to seek
additional payments from any Contractowner who, because of a pricing error, may
have underpaid for units of interest credited to his/her account. In no event
shall GWL&A be liable to Contractowners for any such adjustments or underpayment
amounts. A pricing error within categories (b) or (c) above shall be deemed to
be "materially incorrect" or constitute a "material error" for purposes of this
Agreement.
The standards set forth in this Section 1.10 are based on the Parties'
understanding of the views expressed by the staff of the SEC as of the date of
this Agreement. In the event the views of the SEC staff are later modified or
superseded by SEC or judicial interpretation, the parties shall amend the
foregoing provisions of this Agreement to comport with the appropriate
applicable standards, on terms mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. GWL&A represents and warrants that the Contracts and the securities
deemed to be issued by the Account under the Contracts are or will be registered
under the 1933 Act; that the Contracts will be issued and sold in compliance in
all material respects with all applicable federal and state laws and that the
sale of the Contracts shall comply in all material respects with state insurance
suitability requirements. GWL&A further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law and
that it has legally and validly established the Account prior to any issuance or
sale of units thereof as a segregated asset account under Section 10-7-401, et.
seq. of the Colorado Insurance Law and has registered the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts and that it will maintain such
registration for so long as any Contracts are outstanding as required by
applicable law.
2.2. The Fund represents and warrants that Designated Portfolio(s) shares
sold pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with all applicable federal
securities laws including without limitation the 1933 Act, the 1934 Act, and the
1940 Act and that the Fund is and shall remain registered under the 1940 Act.
The Fund shall amend the registration statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
2.3. The Fund reserves the right to adopt a plan pursuant to Rule 12b-1
under the 1940 Act and to impose an asset-based or other charge to finance
distribution expenses as permitted by applicable law and regulation. In any
event, the Fund and Adviser agree to comply with applicable provisions and SEC
staff interpretations of the 1940 Act to assure that the investment advisory or
management fees paid to the Adviser by the Fund are in accordance with the
requirements of the 1940 Act. To the extent that the Fund decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have its
Board, a majority of whom are not interested persons of the Fund, formulate and
approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4. The Fund represents and warrants that it will make every effort to
ensure that the investment policies, fees and expenses of the Designated
Portfolio(s) are and shall at all times remain in compliance with the insurance
and other applicable laws of the State of Colorado and any other applicable
state to the extent required to perform this Agreement. The Fund further
represents and warrants that it will make every effort to ensure that Designated
Portfolio(s) shares will be sold in compliance with the insurance laws of the
State of Colorado and all applicable state insurance and securities laws. The
Fund shall register and qualify the shares for sale in accordance with the laws
of the various states if and to the extent required by applicable law. GWL&A and
the Fund will endeavor to mutually cooperate with respect to the implementation
of any modifications necessitated by any change in state insurance laws,
regulations or interpretations of the foregoing that affect the Designated
Portfolio(s) (a "Law Change"), and to keep each other informed of any Law Change
that becomes known to either party. In the event of a Law Change, the Fund
agrees that, except in those circumstances where the Fund has advised GWL&A that
its Board of Directors has determined that implementation of a particular Law
Change is not in the best interest of all of the Fund's shareholders with an
explanation regarding why such action is lawful, any action required by a Law
Change will be taken.
2.5. The Fund represents and warrants that it is lawfully organized and
validly existing under the laws of the State of and that it does and will comply
in all material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Fund in compliance in all material
respects with the laws of the State of and any applicable state and federal
securities laws.
2.7. The Distributor represents and warrants that it is and shall remain
duly registered under all applicable federal and state securities laws and that
it shall perform its obligations for the Fund in compliance in all material
respects with the laws of the State of and any applicable state and federal
securities laws.
2.8. The Fund and the Adviser represent and warrant that all of their
respective officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are, and shall
continue to be at all times, covered by one or more blanket fidelity bonds or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage required by Rule 17g-1 under the 1940 Act or related provisions
as may be promulgated from time to time. The aforesaid bonds shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company.
2.9. The Fund will provide GWL&A with as much advance notice as is
reasonably practicable of any material change affecting the Designated
Portfolio(s) (including, but not limited to, any material change in the
registration statement or prospectus affecting the Designated Portfolio(s)) and
any proxy solicitation affecting the Designated Portfolio(s) and consult with
GWL&A in order to implement any such change in an orderly manner, recognizing
the expenses of changes and attempting to minimize such expenses by implementing
them in conjunction with regular annual updates of the prospectus for the
Contracts. The Fund agrees to share equitably in expenses incurred by GWL&A as a
result of actions taken by the Fund, consistent with the allocation of expenses
contained in Schedule D attached hereto and incorporated herein by reference.
2.10. GWL&A represents and warrants, for purposes other than
diversification under Section 817 of the Internal Revenue Code of 1986 as
amended ("the Code"), that the Contracts are currently and at the time of
issuance will be treated as annuity contracts under applicable provisions of the
Code, and that it will make every effort to maintain such treatment and that it
will notify the Fund, the Distributor and the Adviser immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future. In addition, GWL&A
represents and warrants that the Account is a "segregated asset account" and
that interests in the Account are offered exclusively through the purchase of or
transfer into a "variable contract" within the meaning of such terms under
Section 817 of the Code and the regulations thereunder. GWL&A will use every
effort to continue to meet such definitional requirements, and it will notify
the Fund, the Distributor and the Adviser immediately upon having a reasonable
basis for believing that such requirements have ceased to be met or that they
might not be met in the future. GWL&A represents and warrants that it will not
purchase Fund shares with assets derived from tax-qualified retirement plans
except, indirectly, through Contracts purchased in connection with such plans.
ARTICLE III. Prospectuses and Proxy Statements; VotingIII.
Prospectuses and Proxy Statements; Voting. Prospectuses and Proxy
Statements; Voting. Prospectuses and Proxy Statements; Voting
3.1. At least annually, the Adviser or Distributor shall provide GWL&A
with as many copies of the Fund's current prospectus for the Designated
Portfolio(s) as GWL&A may reasonably request for marketing purposes (including
distribution to Contractowners with respect to new sales of a Contract), with
expenses to be borne in accordance with Schedule D hereof. If requested by GWL&A
in lieu thereof, the Adviser, Distributor or Fund shall provide such
documentation (including a camera-ready copy and computer diskette of the
current prospectus for the Designated Portfolio(s)) and other assistance as is
reasonably necessary in order for GWL&A once each year (or more frequently if
the prospectuses for the Designated Portfolio(s) are amended) to have the
prospectus for the Contracts and the Fund's prospectus for the Designated
Portfolio(s) printed together in one document. The Fund and Adviser agree that
the prospectus (and semi-annual and annual reports) for the Designated
Portfolio(s) will describe only the Designated Portfolio(s) and will not name or
describe any other portfolios or series that may be in the Fund unless required
by law.
3.2. If applicable state or federal laws or regulations require that the
Statement of Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the Fund, Distributor and/or the Adviser shall provide
GWL&A with copies of the Fund's SAI or documentation thereof for the Designated
Portfolio(s) in such quantities, with expenses to be borne in accordance with
Schedule D hereof, as GWL&A may reasonably require to permit timely distribution
thereof to Contractowners. The Adviser, Distributor and/or the Fund shall also
provide SAIs to any Contractowner or prospective owner who requests such SAI
from the Fund (although it is anticipated that such requests will be made to
GWL&A).
3.3. The Fund, Distributor and/or Adviser shall provide GWL&A with copies
of the Fund's proxy material, reports to stockholders and other communications
to stockholders for the Designated Portfolio(s) in such quantity, with expenses
to be borne in accordance with Schedule D hereof, as GWL&A may reasonably
require to permit timely distribution thereof to Contractowners.
3.4. It is understood and agreed that, except with respect to information
regarding GWL&A provided in writing by that party, GWL&A is not responsible for
the content of the prospectus or SAI for the Designated Portfolio(s). It is also
understood and agreed that, except with respect to information regarding the
Fund, the Distributor, the Adviser or the Designated Portfolio(s) provided in
writing by the Fund, the Distributor or the Adviser, neither the Fund, the
Distributor nor Adviser are responsible for the content of the prospectus or SAI
for the Contracts.
3.5. If and to the extent required by law GWL&A shall: (i) solicit voting
instructions from Contractowners; (ii) vote the Designated
Portfolio(s) shares held in the Account
in accordance with instructions received from
Contractowners: and
(iii) vote Designated Portfolio shares held in the Account for which
no instructions have been received in the same proportion as
Designated Portfolio(s) shares for which instructions have
been received from Contractowners, so long as and to the
extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract
owners. GWL&A reserves the right to vote Fund shares held in
any segregated asset account in its own right, to the extent
permitted by law.
3.6. GWL&A shall be responsible for assuring that each of its separate
accounts holding shares of a Designated Portfolio calculates voting privileges
as directed by the Fund and agreed to by GWL&A and the Fund. The Fund agrees to
promptly notify GWL&A of any changes of interpretations or amendments of the
Mixed and Shared Funding Exemptive Order.
3.7. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends, comply with
Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors or trustees and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and InformationIV. Sales Material and
InformSales Material and Information. Sales Material and Information
4.1. GWL&A shall furnish, or shall cause to be furnished, to the Fund or
its designee, a copy of each piece of sales literature or other promotional
material that GWL&A, respectively, develops or proposes to use and in which the
Fund (or a Portfolio thereof), its Adviser or one of its sub-advisers or the
Distributor is named in connection with the Contracts, at least ten (10)
Business Days prior to its use. No such material shall be used if the Fund
objects to such use within five (5) Business Days after receipt of such
material.
4.2. GWL&A shall not give any information or make any representations or
statements on behalf of the Fund in connection with the sale of the Contracts
other than the information or representations contained in the registration
statement, prospectus or SAI for the Fund shares, as the same may be amended or
supplemented from time to time, or in sales literature or other promotional
material approved by the Fund, Distributor or Adviser, except with the
permission of the Fund, Distributor or Adviser.
4.3. The Fund or the Adviser shall furnish, or shall cause to be
furnished, to GWL&A, a copy of each piece of sales literature or other
promotional material in which GWL&A and/or its separate account(s), is named at
least ten (10) Business Days prior to its use. No such material shall be used if
GWL&A objects to such use within five (5) Business Days after receipt of such
material.
4.4. The Fund, the Distributor and the Adviser shall not give any
information or make any representations on behalf of GWL&A or concerning GWL&A,
the Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus or SAI for the Contracts, as
the same may be amended or supplemented from time to time, or in sales
literature or other promotional material approved by GWL&A or its designee,
except with the permission of GWL&A.
4.5. The Fund will provide to GWL&A at least one complete copy of all
registration statements, prospectuses, SAIs, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Designated
Portfolio(s), contemporaneously with the filing of such document(s) with the SEC
or NASD or other regulatory authorities.
4.7. GWL&A will provide to the Fund at least one complete copy of all
registration statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, contemporaneously with the
filing of such document(s) with the SEC, NASD, or other regulatory authority.
4.8. For purposes of Articles IV and VIII, the phrase "sales literature
and other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media; e.g.,
on-line networks such as the Internet or other electronic media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and shareholder reports, and proxy
materials (including solicitations for voting instructions) and any other
material constituting sales literature or advertising under the NASD rules, the
1933 Act or the 1940 Act.
4.9. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested in connection with
compliance and regulatory requirements related to this Agreement or any party's
obligations under this Agreement.
ARTICLE V. Fees and ExpensesV. Fees and Expenses. Fees and
Expenses. Fees and Expenses
5.1. The Fund and the Adviser shall pay no fee or other compensation to
GWL&A under this Agreement, and GWL&A shall pay no fee or other compensation to
the Fund or Adviser under this Agreement, although the parties hereto will bear
certain expenses in accordance with Schedule D, Articles III, V, and other
provisions of this Agreement.
5.2. All expenses incident to performance by the Fund, the Distributor and
the Adviser under this Agreement shall be paid by the appropriate party, as
further provided in Schedule D. The Fund shall see to it that all shares of the
Designated Portfolio(s) are registered and authorized for issuance in accordance
with applicable federal law and, if and to the extent required, in accordance
with applicable state laws prior to their sale.
5.3. The parties shall bear the expenses of routine annual distribution
(mailing costs) of the Fund's prospectus and distribution (mailing costs) of the
Fund's proxy materials and reports to owners of Contracts offered by GWL&A, in
accordance with Schedule D.
5.4. The Fund, the Distributor and the Adviser acknowledge that a
principal feature of the Contracts is the Contractowner's ability to choose from
a number of unaffiliated mutual funds (and portfolios or series thereof),
including the Designated Portfolio(s) and the Unaffiliated Funds, and to
transfer the Contract's cash value between funds and portfolios. The Fund, the
Distributor and the Adviser agree to cooperate with GWL&A in facilitating the
operation of the Account and the Contracts as described in the prospectus for
the Contracts, including but not limited to cooperation in facilitating
transfers between Unaffiliated Funds.
ARTICLE VI. Diversification and QualificationVI. Diversification and
Qualification. Diversification and Qualification. Diversification and
Qualification
6.1. The Fund, the Distributor and the Adviser represent and warrant that
the Fund will at all times sell its shares and invest its assets in such a
manner as to ensure that the Contracts will be treated as annuity contracts
under the Code, and the regulations issued thereunder. Without limiting the
scope of the foregoing, the Fund, Distributor and Adviser represent and warrant
that the Fund and each Designated Portfolio thereof will at all times comply
with Section 817(h) of the Code and Treasury Regulation ss.1.817-5, as amended
from time to time, and any Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications or successor provisions to
such Section or Regulations. The Fund, the Distributor and the Adviser agree
that shares of the Designated Portfolio(s) will be sold only to Participating
Insurance Companies and their separate accounts and to Qualified Plans.
6.2. No shares of any Designated Portfolio of the Fund will be sold to the
general public.
6.3. The Fund, the Distributor and the Adviser represent and warrant that
the Fund and each Designated Portfolio is currently qualified as a Regulated
Investment Company under Subchapter M of the Code, and that each Designated
Portfolio will maintain such qualification (under Subchapter M or any successor
or similar provisions) as long as this Agreement is in effect.
6.4. The Fund, Distributor or Adviser will notify GWL&A immediately upon
having a reasonable basis for believing that the Fund or any Designated
Portfolio has ceased to comply with the aforesaid Section 817(h) diversification
or Subchapter M qualification requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.2, 8.3 and 8.4
hereof and without in any way limiting or restricting any other remedies
available to GWL&A, the Adviser or Distributor will pay all costs associated
with or arising out of any failure, or any anticipated or reasonably foreseeable
failure, of the Fund or any Designated Portfolio to comply with Sections 6.1,
6.2, or 6.3 hereof, including all costs associated with reasonable and
appropriate corrections or responses to any such failure; such costs may
include, but are not limited to, the costs involved in creating, organizing, and
registering a new investment company as a funding medium for the Contracts
and/or the costs of obtaining whatever regulatory authorizations are required to
substitute shares of another investment company for those of the failed
Portfolio (including but not limited to an order pursuant to Section 26(b) of
the 1940 Act); such costs are to include, but are not limited to, fees and
expenses of legal counsel and other advisors to GWL&A and any federal income
taxes or tax penalties and interest thereon (or "toll charges" or exactments or
amounts paid in settlement) incurred by GWL&A with respect to itself or owners
of its Contracts in connection with any such failure or anticipated or
reasonably foreseeable failure.
6.6. The Fund at the Fund's expense shall provide GWL&A or its designee
with reports certifying compliance with the aforesaid Section 817(h)
diversification and Subchapter M qualification requirements, at the times
provided for and substantially in the form attached hereto as Schedule C and
incorporated herein by reference; provided, however, that providing such reports
does not relieve the Fund of its responsibility for such compliance or of its
liability for any non-compliance.
6.7. GWL&A agrees that if the Internal Revenue Service ("IRS") asserts in
writing in connection with any governmental audit or review of GWL&A or, to
GWL&A's knowledge, or any Contractowner that any Designated Portfolio has failed
to comply with the diversification requirements of Section 817(h) of the Code or
GWL&A otherwise becomes aware of any facts that could give rise to any claim
against the Fund, Distributor or Adviser as a result of such a failure or
alleged failure:
(a) GWL&A shall promptly notify the Fund, the Distributor and the Adviser
of such assertion or potential claim;
(b) GWL&A shall consult with the Fund, the Distributor and the Adviser as
to how to minimize any liability that may arise as a result of such
failure or alleged failure;
(c) GWL&A shall use its best efforts to minimize any liability of the
Fund, the Distributor and the Adviser resulting from such failure,
including, without limitation, demonstrating, pursuant to Treasury
Regulations, Section 1.817-5(a)(2), to the commissioner of the IRS that
such failure was inadvertent;
(d) any written materials to be submitted by GWL&A to the IRS, any
Contractowner or any other claimant in connection with any of the
foregoing proceedings or contests (including, without limitation, any such
materials to be submitted to the IRS pursuant to Treasury Regulations,
Section 1.817-5(a)(2)) shall be provided by GWL&A to the Fund, the
Distributor and the Adviser (together with any supporting information or
analysis) within at least two (2) business days prior to submission;
(e) GWL&A shall provide the Fund, the Distributor and the Adviser with
such cooperation as the Fund, the Distributor and the Adviser shall
reasonably request (including, without limitation, by permitting the Fund,
the Distributor and the Adviser to review the relevant books and records
of GWL&A) in order to facilitate review by the Fund, the Distributor and
the Adviser of any written submissions provided to it or its assessment of
the validity or amount of any claim against it arising from such failure
or alleged failure;
(f) GWL&A shall not with respect to any claim of the IRS or any
Contractowner that would give rise to a claim against the Fund, the
Distributor and the Adviser (i) compromise or settle any claim, (ii)
accept any adjustment on audit, or (iii) forego any allowable
administrative or judicial appeals, without the express written consent of
the Fund, the Distributor and the Adviser, which shall not be unreasonably
withheld; provided that, GWL&A shall not be required to appeal any adverse
judicial decision unless the Fund and the Adviser shall have provided an
opinion of independent counsel to the effect that a reasonable basis
exists for taking such appeal; and further provided that the Fund, the
Distributor and the Adviser shall bear the costs and expenses, including
reasonable attorney's fees, incurred by GWL&A in complying with this
clause (f).
ARTICLE VII. Potential Conflicts and Compliance WithVII.
Potential Conflicts and Compliance With. Potential Conflicts and Compliance
With. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners or by
contract owners of different Participating Insurance Companies; or (f) a
decision by a Participating Insurance Company to disregard the voting
instructions of contract owners. The Board shall promptly inform GWL&A if it
determines that an irreconcilable material conflict exists and the implications
thereof.
7.2. GWL&A will report any potential or existing conflicts of which it is
aware to the Board. GWL&A will assist the Board in carrying out its
responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by GWL&A to inform the Board whenever contract owner voting instructions are to
be disregarded. Such responsibilities shall be carried out by GWL&A with a view
only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Fund, the Distributor, the
Adviser or any sub-adviser to any of the Designated Portfolios (the "Independent
Directors"), that a material irreconcilable conflict exists, GWL&A and other
Participating Insurance Companies shall, at their expense and to the extent
reasonably practicable (as determined by a majority of the Independent
Directors), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Designated Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
GWL&A to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, GWL&A may be
required, at the Fund's election, to withdraw the Account's investment in the
Fund and terminate this Agreement; provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Independent
Directors. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented, and until the end of that six month period the Adviser, the
Distributor and the Fund shall continue to accept and implement orders by GWL&A
for the purchase (and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to GWL&A conflicts with the
majority of other state regulators, then GWL&A will withdraw the Account's
investment in the Fund and terminate this Agreement within six months after the
Board informs GWL&A in writing that it has determined that such decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Fund shall continue to accept and implement orders by GWL&A for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. GWL&A shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contractowners affected by the irreconcilable material conflict. In
the event that the Board determines that any proposed action does not adequately
remedy any irreconcilable material conflict, then GWL&A will withdraw the
Account's investment in the Fund and terminate this Agreement within six (6)
months after the Board informs GWL&A in writing of the foregoing determination;
provided, however, that such withdrawal and termination shall be limited to the
extent required by any such material irreconcilable conflict as determined by a
majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable: and (b) Sections 3.5, 3.6, 3.7, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to such Sections are contained in
such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By GWL&A.1. Indemnification By GWL&A.1.
Indemnification By GWL&A.1. Indemnification By GWL&A
8.1(a). GWL&A agrees to indemnify and hold harmless the Fund, the
Distributor and the Adviser and each of their respective officers and directors
or trustees and each person, if any, who controls the Fund, Distributor or
Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, expenses, damages and liabilities (including amounts paid in
settlement with the written consent of GWL&A) or litigation (including
reasonable legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, expenses, damages or liabilities (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus or SAI covering the
Contracts or contained in the Contracts or sales literature or
other promotional material for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this
--------
Agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished in writing to GWL&A by or on behalf of the
Adviser, Distributor or Fund for use in the registration
statement or prospectus for the Contracts or in the Contracts or
sales literature or other promotional material (or any amendment
or supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature or other promotional
material of the Fund not supplied by GWL&A or persons under its
control) or wrongful conduct of GWL&A or persons under its control,
with respect to the sale or distribution of the Contracts or Fund
Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus,
SAI, or sales literature or other promotional material of the Fund,
or any amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, if such a statement or omission was made in reliance
upon information furnished in writing to the Fund by or on behalf of
GWL&A; or
(iv) arise as a result of any failure by GWL&A to provide the services
and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by GWL&A in this Agreement or
arise out of or result from any other material breach of this
Agreement by GWL&A, including without limitation Section 2.11 and
Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). GWL&A shall not be liable under this indemnification provision
with respect to any losses, claims, expenses, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.1(c). GWL&A shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified GWL&A in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify GWL&A of any such claim shall not relieve GWL&A
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision,
except to the extent that GWL&A has been prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified Parties,
GWL&A shall be entitled to participate, at its own expense, in the defense of
such action. GWL&A also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from GWL&A
to such party of GWL&A's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and GWL&A will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify GWL&A of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by the Adviser.2. Indemnification by the
AdviseIndemnification by the Adviser.2. Indemnification by the Adviser
8.2(a). The Adviser agrees to indemnify and hold harmless GWL&A and
its directors and officers and each person, if any, who controls GWL&A within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of the Adviser) or litigation (including reasonable legal and
other expenses) to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or SAI or sales literature
or other promotional material of the Fund prepared by the Fund,
the Distributor or the Adviser (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this Agreement to indemnify
--------
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished in
writing to the Adviser, the Distributor or the Fund by or on
behalf of GWL&A for use in the registration statement, prospectus
or SAI for the Fund or in sales literature or other promotional
material (or any amendment or supplement to any of the foregoing)
or otherwise for use in connection with the sale of the Contracts
or the Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, SAI or sales literature or
other promotional material for the Contracts not supplied by the
Adviser or persons under its control) or wrongful conduct of the
Fund, the Distributor or the Adviser or persons under their
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus,
SAI, or sales literature or other promotional material covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or omission was
made in reliance upon information furnished in writing to GWL&A by
or on behalf of the Adviser, the Distributor or the Fund; or
(iv) arise as a result of any failure by the Fund, the Distributor or the
Adviser to provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the diversification
and other qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund, the Distributor or
the Adviser in this Agreement or arise out of or result from any
other material breach of this Agreement by the Adviser, the
Distributor or the Fund; or
(vi) arise out of or result from the incorrect or untimely calculation or
reporting by the Fund, the Distributor or the Adviser of the daily
net asset value per share or dividend or capital gain distribution
rate;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the Adviser specified in Article VI hereof.
8.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision, except to the extent that the Adviser
has been prejudiced by such failure to give notice. In case any such action is
brought against the Indemnified Parties, the Adviser will be entitled to
participate, at its own expense, in the defense thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Adviser to such party of the
Adviser's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Adviser will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
<PAGE>
8.2(d). GWL&A agrees to promptly notify the Adviser of the commencement of
any litigation or proceedings against it or any of its officers or directors in
connection with the issuance or sale of the Contracts or the operation of the
Account.
8.3. Indemnification By the Fund.3. Indemnification By the Fund.3.
Indemnification By the Fund.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless GWL&A and its
directors and officers and each person, if any, who controls GWL&A within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of this Section 8.3) against any and all losses, claims, expenses,
damages and liabilities (including amounts paid in settlement with the written
consent of the Fund) or litigation (including reasonable legal and other
expenses) to which the Indemnified Parties may be required to pay or become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, expenses, damages, liabilities or expenses (or actions in
respect thereof) or settlements, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification and other
qualification requirements specified in Article VI of this
Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or
arise out of or result from any other material breach of this
Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, expenses, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve it from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this indemnification
provision, except to the extent that the Fund has been prejudiced by such
failure to give notice. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund shall also be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). GWL&A each agrees to promptly notify the Fund of the commencement
of any litigation or proceeding against itself or any of its respective officers
or directors in connection with the Agreement, the issuance or sale of the
Contracts, the operation of the Account, or the sale or acquisition of shares of
the Fund.
8.4. Indemnification by the Distributor.4. Indemnification by the
Distributor.4. Indemnification by the Distributor.4. Indemnification by the
Distributor
8.4(a). The Distributor agrees to indemnify and hold harmless GWL&A and
its directors and officers and each person, if any, who controls GWL&A within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.4) against any and all losses, claims,
expenses, damages and liabilities (including amounts paid in settlement with the
written consent of the Distributor) or litigation (including reasonable legal
and other expenses) to which the Indemnified Parties may become subject under
any statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or SAI or sales literature
or other promotional material of the Fund prepared by the Fund,
Adviser or Distributor (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not
--------
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to the
Adviser, the Distributor or Fund by or on behalf of GWL&A for use
in the registration statement or SAI or prospectus for the Fund
or in sales literature or other promotional material (or any
amendment or supplement to any of the foregoing) or otherwise for
use in connection with the sale of the Contracts or Fund shares;
or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, SAI, sales literature or
other promotional material for the Contracts not supplied by the
Distributor or persons under its control) or wrongful conduct of
the Fund, the Distributor or Adviser or persons under their
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus,
SAI, sales literature or other promotional material covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or omission was
made in reliance upon information furnished in writing to GWL&A by
or on behalf of the Adviser, the Distributor or Fund; or
(iv) arise as a result of any failure by the Fund, Adviser or Distributor
to provide the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification and
other qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund, Adviser or
Distributor in this Agreement or arise out of or result from any
other material breach of this Agreement by the Fund, Adviser or
Distributor; or
(vi) arise out of or result from the incorrect or untimely calculation or
reporting of the daily net asset value per share or dividend or
capital gain distribution rate;
as limited by and in accordance with the provisions of Sections 8.4(b) and
8.4(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the Distributor specified in Article VI
hereof.
8.4(b). The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.4(c) The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Distributor in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Distributor of
any such claim shall not relieve the Distributor from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision, except to the extent that the
Distributor has been prejudiced by such failure to give notice. In case any such
action is brought against the Indemnified Parties, the Distributor will be
entitled to participate, at its own expense, in the defense thereof. The
Distributor also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Distributor
to such party of the Distributor's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Distributor will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.4(d) GWL&A agrees to promptly notify the Distributor of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issuance or sale of the Contracts or the operation of the
Account.
ARTICLE IX. Applicable LawIX. Applicable Law. Applicable Law.
Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Colorado,
without regard to the Colorado Conflict of Laws provisions.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TerminationX. Termination. Termination. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party, with or without cause, with respect
to some or all Portfolios, upon six (6) months advance written
notice delivered to the other parties; provided, however, that such
notice shall not be given earlier than six (6) months following the
date of this Agreement; or
(b) at the option of GWL&A by written notice to the other parties
with respect to any Portfolio based upon GWL&A's determination that
shares of such Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) at the option of GWL&A by written notice to the other parties
with respect to any Portfolio in the event any of the Portfolio's
shares are not registered, issued or sold in accordance with
applicable state and/ or federal law or such law precludes the use
of such shares as the underlying investment media of the Contracts
issued or to be issued by GWL&A; or
(d) at the option of the Fund, Distributor or Adviser in the event
that formal administrative proceedings are instituted against GWL&A
by the NASD, the SEC, the Insurance Commissioner or like official of
any state or any other regulatory body regarding GWL&A's duties
under this Agreement or related to the sale of the Contracts, the
operation of any Account, or the purchase of the Fund shares, if, in
each case, the Fund, Distributor or Adviser, as the case may be,
reasonably determines in its sole judgment exercised in good faith,
that any such administrative proceedings will have a material
adverse effect upon the ability of GWL&A to perform its obligations
under this Agreement; or
(e) at the option of GWL&A in the event that formal administrative
proceedings are instituted against the Fund, the Distributor or the
Adviser by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body, if GWL&A reasonably
determines in its sole judgment exercised in good faith, that any
such administrative proceedings will have a material adverse effect
upon the ability of the Fund, the Distributor or the Adviser to
perform their obligations under this Agreement; or
(f) at the option of GWL&A by written notice to the Fund with
respect to any Portfolio if GWL&A reasonably believes that the
Portfolio will fail to meet the Section 817(h) diversification
requirements or Subchapter M qualifications specified in Article VI
hereof; or
(g) at the option of either the Fund, the Distributor or the
Adviser, if (i) the Fund, Distributor or Adviser, respectively,
shall determine, in its sole judgment reasonably exercised in good
faith, that GWL&A has suffered a material adverse change in its
business or financial condition or is the subject of material
adverse publicity and that material adverse change or publicity will
have a material adverse impact on GWL&A's ability to perform its
obligations under this Agreement, (ii) the Fund, Distributor or
Adviser notifies GWL&A of that determination and its intent to
terminate this Agreement, and (iii) after considering the actions
taken by GWL&A and any other changes in circumstances since the
giving of such a notice, the determination of the Fund, Distributor
or Adviser shall continue to apply on the sixtieth (60th) day
following the giving of that notice, which sixtieth day shall be the
effective date of termination; or
(h) at the option of either GWL&A, if (i) GWL&A shall determine, in
its sole judgment reasonably exercised in good faith, that the Fund,
Distributor or Adviser has suffered a material adverse change in its
business or financial condition or is the subject of material
adverse publicity and that material adverse change or publicity will
have a material adverse impact on the Fund's, Distributor's or
Adviser's ability to perform its obligations under this Agreement,
(ii) GWL&A notifies the Fund, Distributor or Adviser, as
appropriate, of that determination and its intent to terminate this
Agreement, and (iii) after considering the actions taken by the
Fund, Distributor or Adviser and any other changes in circumstances
since the giving of such a notice, the determination of GWL&A shall
continue to apply on the sixtieth (60th) day following the giving of
that notice, which sixtieth day shall be the effective date of
termination; or
(i) at the option of any non-defaulting party hereto in the event of
a material breach of this Agreement by any party hereto (the
"defaulting party") other than as described in 10.1(a)-(j);
provided, that the non-defaulting party gives written notice thereof
to the defaulting party, with copies of such notice to all other
non-defaulting parties, and if such breach shall not have been
remedied within thirty (30) days after such written notice is given,
then the non-defaulting party giving such written notice may
terminate this Agreement by giving thirty (30) days written notice
of termination to the defaulting party.
10.2. Notice Requirement..2. Notice Requirement..2. Notice No termination
of this Agreement shall be effective unless and until the
party terminating this Agreement gives prior written notice to all other
parties of its intent to terminate, which notice shall set forth the basis
for the termination. Furthermore,
(a) in the event any termination is based upon the provisions of Article
VII, or the provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this
Agreement, the prior written notice shall be given in advance of the
effective date of termination as required by those provisions unless such
notice period is shortened by mutual written agreement of the parties; (b)
in the event any termination is based upon the provisions of Section
10.1(d), 10.1(e), 10.1(i) or 10.1(j) of this Agreement, the prior written
notice shall be given at least sixty (60) days before the effective date
of termination; and (c) in the event any termination is based upon the
provisions of Section 10.1(b), 10.1(c) or 10.1(f), the prior written
notice shall be given in advance of the effective date of termination,
which date shall be determined by the party sending the notice.
10.3. Effect of Termination..3. Effect of Termination..3.
Notwithstanding any termination of this Agreement, other than as a result
of a failure by either the Fund or GWL&A to meet Section 817(h) of the Code
diversification requirements, the Fund, the Distributor and the Adviser shall,
at the option of GWL&A, continue to make available additional shares of the
Designated Portfolio(s) pursuant to the terms and conditions of this Agreement,
for all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Designated Portfolio(s), redeem investments in the
Designated Portfolio(s) and/or invest in the Designated Portfolio(s) upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.3 shall not apply to any terminations under Article
VII and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement.
10.3. Surviving Provisions. Notwithstanding any termination of this
Agreement, each party's obligations under Article VIII to indemnify other
parties shall survive and not be affected by any termination of this Agreement.
In addition, with respect to Existing Contracts, all provisions of this
Agreement shall also survive and not be affected by any termination of this
Agreement.
ARTICLE XI. NoticesXI. NoticesXI. Notices. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
XYZ Fund
Attention:
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention: Vice President, Institutional Insurance
If to the Adviser:
XYZ Investment Adviser
Attention:
If to the Distributor:
XYZ Distributor
Attention:
<PAGE>
ARTICLE XII. MiscellaneousXII. Miscellaneous. Miscellaneous. Miscellaneous
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain. Without limiting the foregoing, no party hereto shall disclose
any information that another party has designated as proprietary.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Colorado Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of GWL&A are being conducted in a manner consistent with the Colorado
Variable Annuity Regulations and any other applicable law or regulations.
12.6. Any controversy or claim arising out of or relating to this
Agreement, or breach thereof, shall be settled by arbitration in a forum jointly
selected by the relevant parties (but if applicable law requires some other
forum, then such other forum) in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
12.9. GWL&A is hereby expressly put on notice of the limitation of
liability as set forth in the Declarations of Trust of the Fund and agree that
the obligations assumed by the Fund, Distributor and the Adviser pursuant to
this Agreement shall be limited in any case to the Fund, Distributor and Adviser
and their respective assets and GWL&A shall not seek satisfaction of any such
obligation from the shareholders of the Fund, Distributor or the Adviser, the
Trustees, officers, employees or agents of the Fund, Distributor or Adviser, or
any of them.
12.10. The Fund, the Distributor and the Adviser agree that the
obligations assumed by GWL&A pursuant to this Agreement shall be limited in any
case to GWL&A and its assets and neither the Fund, Distributor nor Adviser shall
seek satisfaction of any such obligation from the shareholders of GWL&A, the
directors, officers, employees or agents of GWL&A, or any of them, except to the
extent permitted under this Agreement.
12.11. No provision of this Agreement may be deemed or construed to modify
or supersede any contractual rights, duties, or indemnifications, as between the
Adviser and the Fund, and the Distributor and the Fund.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By:______________________________
Title:
Date:
XYZ FUND
By its authorized officer,
By:______________________________
Title:
Date:
XYZ INVESTMENT ADVISER
By its authorized officer,
By:____________________________
Title:
Date:
XYZ DISTRIBUTOR
By its authorized officer,
By:____________________________
Title:
Date:
<PAGE>
SCHEDULE AA
Contracts Form Numbers
<PAGE>
SCHEDULE BB
Designated Portfolios
<PAGE>
SCHEDULE CC
Reports per Section 6.6
With regard to the reports relating to the quarterly testing of compliance
with the requirements of Section 817(h) and Subchapter M under the Internal
Revenue Code (the "Code") and the regulations thereunder, the Fund shall provide
within twenty (20) Business Days of the close of the calendar quarter a report
to GWL&A in the Form D1 attached hereto and incorporated herein by reference,
regarding the status under such sections of the Code of the Designated
Portfolio(s), and if necessary, identification of any remedial action to be
taken to remedy non-compliance.
With regard to the reports relating to the year-end testing of compliance
with the requirements of Subchapter M of the Code, referred to hereinafter as
"RIC status," the Fund will provide the reports on the following basis: (i) the
last quarter's quarterly reports can be supplied within the 20-day period, and
(ii) a year-end report will be provided 45 days after the end of the calendar
year. However, if a problem with regard to RIC status, as defined below, is
identified in the third quarter report, on a weekly basis, starting the first
week of December, additional interim reports will be provided specially
addressing the problems identified in the third quarter report. If any interim
report memorializes the cure of the problem, subsequent interim reports will not
be required.
A problem with regard to RIC status is defined as any violation of the
following standards, as referenced to the applicable sections of the Code:
(a) Less than ninety percent of gross income is derived from sources of
income specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from the sale or
disposition of assets specified in Section 851(b)(3);
(c) Less than fifty percent of the value of total assets consists of
assets specified in Section 851(b)(4)(A); and
(d) No more than twenty-five percent of the value of total assets is
invested in the securities of one issuer, as that requirement is set forth
in Section 851(b)(4)(B).
<PAGE>
50
FORM C1
CERTIFICATE OF COMPLIANCE
For the quarter ended:
I, , a duly authorized officer, director or
agent of Fund hereby swear and affirm that
Fund is in compliance with all requirements of Section 817(h) and
Subchapter M of the Internal Revenue Code (the "Code") and the regulations
thereunder as required in the Fund Participation Agreement among Great-West Life
& Annuity Insurance Company, and
other than the exceptions discussed below:
Exceptions Remedial Action
If no exception to report, please indicate "None."
Signed this day of ,
.
(Signature)
By:
(Type or Print Name and Title/Position)
<PAGE>
SCHEDULE D
EXPENSES
The Fund and/or the Distributor and/or Adviser, and GWL&A will coordinate the
functions and pay the costs of the completing these functions based upon an
allocation of costs in the tables below. Costs shall be allocated to reflect the
Fund's share of the total costs determined according to the number of pages of
the Fund's respective portions of the documents.
- --------------------------------------------------------------------------
Item Function Party Responsible Party
for Coordination Responsible
for Expense
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Mutual Fund Printing of GWL&A Fund,
Prospectus combined Distributor
prospectuses or Adviser,
as applicable
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Fund, Distributor GWL&A Fund,
or Adviser shall Distributor
supply GWL&A with or Adviser,
such numbers of as applicable
the Designated
Portfolio(s)
prospectus(es) as
GWL&A shall
reasonably request
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Distribution to GWL&A GWL&A
New and Inforce
Clients
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Distribution to GWL&A GWL&A
Prospective
Clients
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Product Prospectus Printing for GWL&A GWL&A
Inforce Clients
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Printing for GWL&A GWL&A
Prospective
Clients
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Distribution to GWL&A GWL&A
New and Inforce
Clients
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Distribution to GWL&A GWL&A
Prospective
Clients
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Item Function Party Responsible Party
for Coordination Responsible
for Expense
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Mutual Fund If Required by Fund, Distributor Fund,
Prospectus Update Fund, Distributor or Adviser Distributor
& Distribution or Adviser or Adviser
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
If Required by GWL&A GWL&A
GWL&A
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Product Prospectus If Required by GWL&A Fund,
Update & Fund, Distributor Distributor
Distribution or Adviser or Adviser
- --------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------
Item Function Party Responsible Party
for Coordination Responsible
for Expense
- --------------------------------------------------------------------------
If Required by GWL&A GWL&A
GWL&A
- --------------------------------------------------------------------------
Mutual Fund SAI Printing Fund, Distributor Fund,
or Adviser Distributor
or Adviser
- --------------------------------------------------------------------------
Distribution GWL&A GWL&A
- --------------------------------------------------------------------------
Product SAI Printing GWL&A GWL&A
- --------------------------------------------------------------------------
Distribution GWL&A GWL&A
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Item Function Party Responsible Party
for Coordination Responsible
for Expense
- --------------------------------------------------------------------------
Proxy Material for Printing if proxy Fund, Distributor Fund,
Mutual Fund: required by Law or Adviser Distributor
or Adviser
- --------------------------------------------------------------------------
Distribution GWL&A Fund,
(including labor) Distributor
if proxy required or Adviser
by Law
===========================================================---------------
Printing & GWL&A GWL&A
distribution if
required by GWL&A
===========================================================---------------
- --------------------------------------------------------------------------
Item Function Party Responsible Party
for Coordination Responsible
for Expense
- --------------------------------------------------------------------------
Mutual Fund Annual Printing of GWL&A Fund,
& Semi-Annual combined reports Distributor
Report or Adviser
- --------------------------------------------------------------------------
Distribution GWL&A GWL&A
- --------------------------------------------------------------------------
Other If Required by GWL&A Fund,
communication to the Fund, Distributor
New and Distributor or or Adviser
Prospective clients Adviser
- --------------------------------------------------------------------------
If Required by GWL&A GWL&A
GWL&A
- --------------------------------------------------------------------------
Item Function Party Responsible Party
for Responsible
Coordination for Expense
- --------------------------------------------------------------------------
Other Distribution GWL&A Fund,
communication to (including labor Distributor
inforce and printing) if or Adviser
required by the
Fund, Distributor
or Adviser
===========================================================---------------
Distribution GWL&A GWL&A
(including labor
and printing)if
required by GWL&A
===========================================================---------------
<PAGE>
- --------------------------------------------------------------------------
Item Function Party Responsible Party
for Coordination Responsible
for Expense
- --------------------------------------------------------------------------
Errors in Share Cost of error to GWL&A Fund or
Price calculation participants Adviser
pursuant to
Section 1.10
- --------------------------------------------------------------------------
Cost of GWL&A Fund or
administrative Adviser
work to correct
error
- --------------------------------------------------------------------------
Operations of the All operations Fund, Distributor Fund or
Fund and related or Adviser Adviser
expenses, including the cost of registration and
qualification of shares, taxes on the issuance or transfer
of shares, cost of management of the business affairs of the
Fund, and expenses paid or assumed by the fund pursuant to
any Rule 12b-1 plan
- --------------------------------------------------------------------------
Operations of the Federal GWL&A GWL&A
Account registration of
units of separate
account (24f-2
fees)
- --------------------------------------------------------------------------
EXHIBIT 9
Opinion of Counsel
<PAGE>
August 14, 1998
Securities and Exchange Commission
450 Fifth St., N.W.
Washington, D.C. 20549
Re: Opinion of Counsel
Ladies and Gentlemen:
This letter is furnished as the requisite opinion of counsel described in Form
N-4, Part C, Item 24(9). Great-West Life & Annuity Insurance Company (the
"Company") as depositor, has registered an indefinite amount of securities under
the Securities Act of 1933, as amended, as provided in Rule 24f-2 of the
Investment Company Act of 1940.
I am the Vice President, Counsel and Associate Secretary of the Company. In so
acting, I have made such examination of the law, records and documents as in my
judgment are necessary or appropriate to enable me to render the opinion
expressed below. For purposes of such examination, I have assumed the
genuineness of all signatures and the conformity to the original of all copies.
I am a member of the Colorado Bar and do not purport to be an expert on the laws
of any other state. My opinion herein as to any other law is based upon a
limited inquiry thereof which I have deemed appropriate under the circumstances.
Based on the foregoing, I am of the opinion that the securities, assuming that
they will be issued and sold in accordance with the provisions of the
registration statement, to which the Form N-4 registration statement is
applicable and with which this opinion accompanies, will be legally issued,
fully paid and nonassessable.
I consent to the use of this opinion as an exhibit to the registration
statement.
Sincerely,
/s/
Ruth B. Lurie
Vice President, Counsel
and Associate Secretary
EXHIBIT 10a
Consent of Jorden Burt Boros Cicchetti and Johnson, LLP
<PAGE>
August 14, 1998
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, Colorado 80111
Re: Maxim Series Account
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-4 File No. 333-44839
Ladies and Gentlemen:
We have acted as counsel to Great-West Life & Annuity Insurance Company, a
Colorado corporation, regarding the federal securities laws applicable to the
issuance and sale of the Contracts described herein. 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 10b
Consent of Deloitte & Touche, LLP
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-effective Amendment No. 1 to Registration
Statement No. 333-44839 of Maxim Series Account of Great-West Life & Annuity
Insurance Company of our report dated February 12, 1998 on the financial
statements of Maxim Series Account and our report dated January 23, 1998 on the
financial statements of Great-West Life & Annuity Insurance Company appearing in
the Statement of Additional Information, which is part of such Registration
Statement, and to the reference to us under the headng "Experts" in such
Statement of Additional Information
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
August 14, 1998
EXHIBIT 10c
Consent of Ruth B. Lurie
<PAGE>
August 14, 1998
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, Colorado 80111
Re: Maxim Series Account
Ladies and Gentlemen:
I hereby consent to the use of my name under the caption "Legal Opinions" in the
Prospectus for Maxim Series Account contained in the Registration Statement Form
N-4 filed by Great-West Life & Annuity Insurance Company and Maxim Series
Account with the Securities and Exchange Commission under the Securities Act of
1933, the Investment Company Act of 1940 and the amendments thereto.
Sincerely,
/s/
Ruth B. Lurie
Vice President, Counsel
and Associate Secretary
EXHIBIT 13
Computation of Performance Quotations
<PAGE>
YIELD AND EFFECTIVE YIELD CALCULATIONS
Money Market Investment Division
Yield for the Money Market Investment Division is calculated on a seven day
period.
The current yield formula = base period return x (365/7).
The effective yield formula = [(1 + base period return) 365/7] - 1.
Base period return is calculated as follows:
Ending account value
- Beginning account value
- Expenses accrued for the period
Net change in account value
Net change in account value/Beginning account value = base period return
Following is an example of these calculations:
a = Value of one accumulation unit at beginning of period = 16.23525 b = Value
of one accumulation unit at end of period = 16.24946 c = Annual maintenance
charges accrued in period = $3.91 d = Average number of units outstanding in
period = 1000.00 e = Base period return
Yield = (b-a-c/d)
a
= 16.24946/unit - 16.23525/unit - ($3.91/1000.00 units)
16.23525/unit
= 0.000635
f = annualized yield
e x (365/7) = 3.31%
g = effective yield
{[1 + e] 365/7} - 1 = 3.36%
<PAGE>
Other Investment Divisions
The yield calculation for all other investment divisions is based on a 30-day
period.
FORMULA: Yield = 2 [(a - b) / (cd) +1] 6 - 1
Where: a = net investment income earned during the period attributable
to the Investment
Divisions
b = expenses accrued for the period (net of reimbursements)
c = average daily number of accumulation units outstanding
during the period
d = maximum offering price per accumulation unit on the last
day of the period
Following is an example of this yield calculation:
a = $6,000
b = $2,000
c = 50,000.00
d = $13.00
Yield = 2[(6,000 - 2,000 +1) 6 - 1]
50,000.00 x $13.00
= 7.50%
<PAGE>
TOTAL RETURN CALCULATION
FORMULA: P (1 + T) to the power of N = ERV
Where:
T = Average annual total return
N = The number of years including portions of years where applicable for
which the
performance is being measured
ERV = Ending redeemable value of a hypothetical $1,000 payment
made at the
beginning of the applicable period
P = A hypothetical $1,000 initial payment made at the inception
of the Investment
Division
(Assumed expenses = 0.85% mortality and expense risk charge and $30 contract
maintenance charge)
The above formula can be restate to solve for T as follows:
T = [(ERV/P) to the power of 1/N] - 1
Following are examples of this calculation on a 1 year, 5 year10 year and since
inception basis:
1 year total return:
ERV = 1,344.50
N = 1.00
P = 1,000.00
Therefore, 1 year total return is 34.45 %.
5 year total return:
ERV = 1,792.44
N = 5.00
P = 1,000.00
Therefore, 5 year total return is 12.38 %.
10 year total return:
ERV = 2,857.38
N = 10.00
P = 1,000.00
Therefore, 10 year total return is 11.07%.
Since inception total return:
ERV = 4,595.67
N = 13.50
P = 1,000.00
Therefore, since inception total return is 11.96 %.
