As filed with the Securities and Exchange Commission on November
1 , 1996
Registration No. 333-11493
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
PRE-EFFECTIVE AMENDMENT NO. 1 to
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(Exact name of Registrant)
COLORADO 63
84-0467907
(State of Incorporation) (Primary Standard (I.R.S.
Employer
Industrial
Identification No.)
Classification Code
Number)
8515 East Orchard Road
Englewood, Colorado 80111
(800) 537-2033
(Address, including zip code, and telephone number,
including
area code, or registrant's principal executive officer)
William T. McCallum
President and Chief Executive Officer
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.
If any of the securities being registered on this form are to be
offered on
a delayed or continuous basis pursuant to Rule 415 under the
Securities Act
of 1933, check the following: X
If this Form is filed to register additional securities for an
offering
pursuant to Rule 462(b) under the Securities Act, check the
following box and
list the Securities Act registration statement number of the
earlier
effective registration statement for the same offering:
If this Form is a post-effective amendment filed pursuant to Rule
462(c)
under the Securities Act, check the following box and list the
Securities Act
registration statement for the same offering:
If delivery of the prospectus is expected to be made pursuant to
Rule 434,
check the following box:
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>
Cross Reference Sheet
Showing Location in Prospectus
and Statement of Additional Information
As Required by Form S-1
FORM S-1 PROSPECTUS
CAPTION ITEM
1. Forepart of Registration Statement
and Outside Front Cover Page Cover Page
2. Inside Front and Outside Cover Page;
Back Cover Pages Table of
Contents
3. Summary Information, Risk Factors Key Features of
and Ratio of Earnings the Annuity;
to Fixed Charges Great-West Life
&
Annuity
Insurance
Company
4. Use of Proceeds Not Applicable
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Distribution of
the Contracts
9. Description of Securities The Guarantee
Period Fund; The
Market Value
Adjustment
10. Interest of Named Experts Legal Matters;
and Counsel Experts
11. Information with Respect Selected
Financial
to the Registrant Data; Legal
Proceedings;
Financial
Statements
12. Disclosure of Commission, Distribution of
Position on Indemnification the Contracts
for Securities Act Liabilities
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 THE 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 SCHWAB FIXED ANNUITY (tm)
A FLEXIBLE PREMIUM DEFERRED FIXED ANNUITY
Distributed by
CHARLES SCHWAB & CO., INC.
_____________________________________________
Issued by
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
This prospectus describes interests under a flexible premium
deferred annuity contract, The Schwab Fixed Annuity (the
"Contract"). The Contract is issued either on a group basis or as
individual contracts by Great-West Life & Annuity Insurance Company
(the "Company"). Participation in a group contract will be
accounted for by the issuance of a certificate showing an interest
under the group contract. The certificate and the individual
contract are hereafter both referred to as the "Contract."
Your investment in the Contract may be allocated to the available
Guarantee Periods. You are allowed to select one or more Guarantee
Periods, each of which offers you a specified interest rate for a
specified period. There may be a market value adjustment on the
amounts withdrawn from the Guarantee Period Fund.
The minimum initial investment is $5,000 ($2,000 if an IRA) or
$1,000 if made under an Automatic Contribution Plan ("ACP"). The
minimum subsequent Contribution is $500 (or $100 per month if made
under an ACP).
A maximum surrender charge of three percent may be applicable for
amounts withdrawn in the first three years. 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. Contributions will be allocated
immediately into the specified Guarantee Period(s).
Amounts allocated to a Guarantee Period may be subject to a Market
Value Adjustment which could result in receipt of less than your
Contributions if you surrender, Transfer, make a partial
withdrawal, apply amounts to purchase an annuity or take a
distribution upon the death of the Owner or Annuitant before a
Guarantee Period Maturity Date. Whether such a result actually
occurs depends on the timing of the transaction, the amount of the
Market Value Adjustment and the interest rate credited. The
interest rate in subsequent Guarantee Periods may be more or less
than the rate of a previous Guarantee Period.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFERS
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. PLEASE READ THIS PROSPECTUS AND KEEP IT FOR
FUTURE REFERENCE.
Prospectus Dated November 8, 1996
The Contracts are not deposits of, or guaranteed or endorsed by any
bank, nor are the Contracts federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any
other government agency. The Contracts involve certain investment
risks, including possible loss of principal.
To Place Orders and for Annuity Account Information: Contact the
Schwab Annuity Service Center at 800-838-0650 or P.O. Box 7666, San
Francisco, California 94120-7666.
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.
TABLE OF CONTENTS
Page
DEFINITIONS iv
KEY FEATURES OF THE ANNUITY 1
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY 3
THE GUARANTEE PERIOD FUND 3
THE MARKET VALUE ADJUSTMENT 5
APPLICATION AND CONTRIBUTIONS 6
TRANSFERS 8
CASH WITHDRAWALS 8
TELEPHONE TRANSACTIONS 9
DEATH BENEFIT 10
CHARGES AND DEDUCTIONS 12
PAYMENT OPTIONS 13
FEDERAL TAX MATTERS 16
ASSIGNMENTS OR PLEDGES 20
DISTRIBUTION OF THE CONTRACTS 20
SELECTED FINANCIAL DATA 21
RIGHTS RESERVED BY THE COMPANY 30
LEGAL PROCEEDINGS 30
LEGAL MATTERS 31
EXPERTS 31
AVAILABLE INFORMATION 31
FINANCIAL STATEMENTS F-1
_________________________________________________________________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER,
SALESPERSON, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON.
_________________________________________________________________
The Contract is not available in all states.
_________________________________________________________________
DEFINITIONS
_________________________________________________________________
Accumulation Period - The period between the Effective Date and the
Payment Commencement Date.
Annuitant - The person named in the application upon whose life the
payment of an annuity is based and who will receive annuity
payments. If a Contingent Annuitant is named, then the Annuitant
will be considered the Primary Annuitant. While the Annuitant is
living and at least 30 days prior to the annuity commencement date,
the Owner may, by Request, change the Annuitant.
Annuity Account - An account established by the Company in the name
of the Owner that reflects all account activity under this
Contract.
Annuity Account Value - The sum of the value of all Guarantee
Periods 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.
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 prior
to any Premium Tax or other deductions.
Effective Date - The date on which the first Contribution is
credited to the Annuity Account.
Guarantee Period - One of the periods of time available in the
Guarantee Period Fund during which the Company will credit a stated
rate of interest. The Company may stop offering any term at any
time for new Contributions. Amounts allocated to one or more
Guaranteed Periods may be subject to a Market Value Adjustment.
Guarantee Period Fund - A fixed interest investment option in which
amounts allocated will be credited a stated rate of interest for
the applicable Guarantee Period(s).
Guarantee Period Maturity Date - The last day of any Guarantee
Period.
Guaranteed Interest Rate - The minimum interest rate applicable to
each Guarantee Period equal to an annual effective rate in effect
at the time the Contribution is made and as reflected in written
confirmation of the Contribution. This is the minimum rate allowed
by law and is subject to change in accordance with changes in
applicable law.
Individual Retirement Annuity (IRA) - An annuity contract used in
a retirement savings program that is intended to satisfy the
requirements of Section 408 of the Internal Revenue Code of 1986,
as amended.
Market Value Adjustment - An adjustment which may be made to
amounts paid out before the Guarantee Period Maturity Date due to
surrenders, partial withdrawals, Transfers, amounts applied to the
periodic withdrawal option or to purchase an annuity, and
distributions resulting from death of the Owner or Annuitant, as
applicable. The Market Value Adjustment may increase or decrease
the amount payable on one of the above-described distributions. A
negative adjustment may result in an effective interest rate lower
than the applicable Guaranteed Interest Rate and the value of the
Contribution(s) allocated to the Guarantee Period being less than
the Contribution(s) made. The Market Value Adjustment is detailed
on page 15.
Non-Qualified Annuity Contract - An annuity contract which is not
intended to be part of a qualified retirement plan and is not
intended to satisfy the requirements of Section 408 of the Internal
Revenue Code of 1986, as amended.
Owner (Joint Owner) or You - The person(s), while the Annuitant is
living, named in the Contract Data Page who is entitled to exercise
all rights and privileges under the Contract. Joint Owners must be
husband and wife as of the date the Contract is issued. The
Annuitant will be the Owner unless otherwise indicated in the
application. If a Contract is purchased as an IRA, the Owner and
the Annuitant must be the same individual and no Joint Owner may be
named. Any reference to Owner in the singular tense shall include
the plural, and vice versa, as applicable.
Payment Commencement Date - The date on which annuity payments or
periodic withdrawals commence under a payment option. The Payment
Commencement Date must be at least one year after the Effective
Date of the Contract. If a Payment Commencement Date is not shown
on the Contract Data Page, annuity payments will commence on the
first day of the month of the Annuitant's 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. If this is an IRA,
payments which satisfy the minimum distribution requirements of the
Internal Revenue Code of 1986, as amended, must begin no later than
the Owner's attainment of age 701/2.
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 Schwab
Annuity Service Center (or other annuity service center
subsequently named) from the Owner or the Owner's designee (as
specified in a form acceptable to the Company) or the Beneficiary
(as applicable) as required by any provision of the Contract or as
required by the Company. All Requests are subject to any action
taken or payment made by the Company before it was processed.
Schwab Annuity Service Center - P.O. Box 7666, San Francisco,
California 94120-7666, telephone 800-838-0650.
Simplified Employee Pension - An individual retirement annuity
(IRA) which may accept contributions from one or more employers
under a retirement savings program intended to satisfy the
requirements of Section 408(k) of the Internal Revenue Code of
1986, as amended.
Surrender Value - The Annuity Account Value with a Market Value
Adjustment, if applicable, and/or any surrender charge, if
applicable, on the effective date of the surrender, less Premium
Tax, if any.
Transaction Date - The date on which any Contribution or Request
from the Owner will be processed by the Company at the Schwab
Annuity Service Center. Contributions and Requests received after
4:00 p.m. EST/EDT will be deemed to have been received on the next
business day. Requests will be processed and each day that the New
York Stock Exchange is open for trading.
Transfer - The moving of money among the Guaranteed Periods.
We, our, us, or GWL&A: Great-West Life & Annuity Insurance
Company.
KEY FEATURES OF THE ANNUITY
The Contract currently allows you to invest in the Guarantee Period
Fund which is comprised of Guarantee Periods, each of which has its
own stated rate of interest and its own maturity date. The stated
rate of interest for the Guarantee Period will depend on the date
the Guarantee Period is established and the duration of the
Guarantee Period you select from among those available. The rates
declared are subject to a minimum (Guaranteed Interest Rate), but
the Company may declare higher rates (the stated rate of interest).
The Guaranteed Interest Rate will be disclosed in the written
confirmation. The stated rate of interest will not be less than
the Guaranteed Interest Rate and will also be disclosed in the
written confirmation. Amounts withdrawn or transferred from a
Guarantee Period prior to the Guarantee Period Maturity Date may be
subject to a Market Value Adjustment. (See "Market Value
Adjustment.")
Who should invest. The Contract is designed for investors who are
seeking long-term tax deferred asset accumulation on a fixed
interest rate basis. 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.
How to Invest. You must complete a Contract application form in
order to invest in the Contract and you must pay by check or
instruct us to transfer funds from your Schwab. The minimum
initial investment is $5,000 (or $2,000 if in an IRA). Subsequent
investments must be at least $500. The minimum initial investment
may be reduced to $1,000 should the Owner agree to make additional
$100 per month minimum recurring deposits through an ACP.
Free Look Period. The Contract provides for a Free Look Period
which allows you to cancel your investment generally within 10 days
of your receipt of the Contract. You can cancel the Contract
during the Free Look Period by delivering or mailing the Contract
to the Schwab Annuity Service Center. The cancellation is not
effective unless we receive a notice which is postmarked before the
end of the Free Look Period. If the Contract is returned, the
Contract will be void from the start and the Annuity Account Value
will be refunded. These procedures may vary where required by
state law. (See "Application and Contributions.")
Allocation of the Initial Investment. Your initial investment in
the Guarantee Period Fund will be immediately allocated to the
Guarantee Period(s) specified in the application.
Charges and Deductions Under the Contract. The Contract is a "low
load" annuity and, as such, imposes no sales charge when
Contributions are made, and only a maximum surrender charge of
three percent if funds are withdrawn in the first three Contract
years.
No Contract Maintenance charge will be deducted from your Annuity
Account Value. There will be a transfer fee of $10 for each
Transfer in excess of twelve Transfers per calendar year. (See
"Charges and Deductions.")
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.")
The Market Value Adjustment may increase or decrease the amount
Transferred or withdrawn from the value of a Guarantee Period if
the Guarantee Period is broken prior to the Guarantee Period
Maturity Date. A negative adjustment may result in an effective
interest rate lower than the stated rate of interest for the
Guarantee Period and the Guaranteed Interest Rate and the value of
the Guarantee Period being less than Contribution(s). (See "Market
Value Adjustment.")
Switching Investments. You may switch Contributions among the
Guarantee Periods as often as you like with no immediate tax
consequences. You may make a Transfer Request to the Schwab
Annuity Service Center. A transfer fee may apply. (See "Charges
and Deductions.") Amounts Transferred out of a Guarantee Period
prior to the Guarantee Period Maturity Date may be subject to a
Market Value Adjustment. (See "Market Value Adjustment.")
Full and Partial Withdrawals. You may withdraw all or part of your
Annuity Account Value before the earlier of the annuity
commencement date you selected or the Annuitant's or Owner's death.
Withdrawals may be taxable and if made prior to age 59 1/2 may be
subject to a 10% penalty tax. Withdrawals from a Guarantee Period
prior to the Guarantee Period Maturity Date may be subject to
Market Value Adjustment. (See "Market Value Adjustment.")
Amounts withdrawn also may be subject to a surrender charge. (See
"Charges and Deductions.") The minimum partial withdrawal prior to
the Market Value Adjustment is $500. There is no limit on the
number of withdrawals made. The Company may delay payment of
withdrawals from the Guarantee Period Fund by up to 6 months. (See
"Cash Withdrawals.")
Annuity Options. Beginning on the first day of the month
immediately following the annuity commencement date you select, you
may receive annuity payments on a fixed basis. (The default date
is the first day of the month that the Annuitant attains age 91.)
A wide range of annuity options are available to provide
flexibility in choosing an annuity payment schedule that meets your
particular needs. These annuity options include alternatives
designed to provide payments for life (for either a single or joint
life), with or without a guaranteed minimum number of payments.
(See "Payment Options.")
Death Benefit. The amount of the death benefit, if payable before
annuity payments commence, will be the greater of (a) the Annuity
Account Value with a Market Value Adjustment, if applicable, as of
the date a Request for payment is received, less Premium Tax, if
any; or (b) the sum of Contributions paid, less partial withdrawals
and Periodic Withdrawals, less charges deducted under the Contract,
if any, less Premium Tax, if any. (See "Death Benefit.")
Customer Service. Schwab's professional representatives are
available toll-free to assist you. If you have any questions about
your Contract, please telephone the Schwab Annuity Service Center
(800-838-0650) or write to the Schwab Annuity Service Center at
P.O. Box 7666, San Francisco, California 94120-7666. 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.
_________________________________________________________________
FEE TABLE
_________________________________________________________________
The purpose of this table is to assist you in understanding
the various costs and expenses that you will bear directly or
indirectly when investing in the Contract. The information set
forth should be considered together with the narrative provided
under the heading "Charges and Deductions" In addition to the
expenses listed below, Premium Tax may be applicable.
Contract Owner Transaction Expenses
Sales Load None
Surrender Fee Maximum 3%
Transfer Fee (First 12 Per Year)1
None
Contract Maintenance Charge None
_________________________________________________________________
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
_________________________________________________________________
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 GUARANTEE PERIOD FUND
_________________________________________________________________
Guarantee Period Fund
Contributions under the Contract will be deposited to, and
accounted for, in a non-unitized separate account established by
the Company under Section 10-7-401, et. seq. of the Colorado
Insurance Code. A non-unitized separate account is a separate
account in which the Owner does not participate in the performance
of the assets through unit values. Therefore, Owner's
Contributions do not receive a unit ownership of assets accounted
for in this separate account. The assets accrue solely to the
benefit of the Company and any gain or loss in the separate account
is borne entirely by the Company. For amounts contributed, Owners
will receive the Contract guarantees made by the Company.
Contributions will establish a new Guarantee Period of a
duration selected by the Owner from those currently being offered
by the Company. Every Guarantee Period offered by the Company will
have a duration of at least one year. Contributions will be
credited on the Transaction Date.
Each Guarantee Period will have its own stated rate of
interest and Guarantee Period Maturity Date. The stated rate of
interest applicable to a Guarantee Period will depend on the date
the Guarantee Period is established and the duration chosen by the
Owner.
As of the date of this Prospectus, Guarantee Periods with
annual durations of 1 to 10 years are offered. The Guarantee
Periods may be changed in the future; however, any such
modification will not have an impact on any Guarantee Period then
in effect.
The value of amounts in each Guarantee Period is the Owner's
Contributions, less Premium Tax, if any, in that Guarantee Period,
plus interest earned, less amounts distributed, withdrawn (in whole
or in part), Transferred or applied to an annuity option, periodic
withdrawals, and charges deducted under the Contract. If a
Guarantee Period is broken, a Market Value Adjustment may be
assessed. Any such amount withdrawn or Transferred from a
Guarantee Period will be paid in accordance with the MVA formula
(See "Market Value Adjustment.")
Investments
The Company intends to invest in assets which, in the
aggregate, have characteristics, especially cash flow patterns,
reasonably related to the characteristics of its liabilities.
Various techniques will be used to achieve the objective of close
aggregate matching of assets and liabilities. The Company will
primarily invest in investment-grade fixed income securities
including:
Securities issued by the U.S. Government or its agencies
or instrumentalities, which issues may or may not be guaranteed by
the U.S. Government.
Debt securities which have an investment grade, at the
time of purchase, within the four highest grades assigned by
Moody's Investment Services, Inc. (Aaa, Aa, A or Baa), Standard &
Poor's Corporation (AAA, AA, A or BBB) or any other nationally
recognized rating service.
Other debt instruments, including, but not limited to,
issues of banks or bank holding companies and of corporations,
which obligations, although not rated by Moody's, Standard &
Poor's, or other nationally recognized rating firms, are deemed by
the Company's management to have an investment quality comparable
to securities which may be purchased as stated above.
Commercial paper, cash or cash equivalents, and other
short-term investments having a maturity of less than one year
which are considered by the Company's management to have investment
quality comparable to securities which may be purchased as stated
above.
In addition, the Company may invest in futures and options.
Financial futures and related options thereon and options on
securities are purchased solely for non-speculative hedging
purposes. The Company may sell a futures contract or purchase a
put option on futures or securities to protect the value of
securities held in or to be sold for the general account or the
non-unitized separate account in the event the securities prices
are anticipated to decline. Similarly, if securities prices are
expected to rise, the Company may purchase a futures contract or a
call option thereon against anticipated positive cash flow or may
purchase options on securities.
WHILE THE FOREGOING GENERALLY DESCRIBES THE INVESTMENT
STRATEGY FOR THE GUARANTEE PERIOD FUND, THE COMPANY IS NOT
OBLIGATED TO INVEST THE ASSETS ATTRIBUTABLE TO THE GUARANTEE PERIOD
FUND ACCORDING TO ANY PARTICULAR STRATEGY, EXCEPT AS MAY BE
REQUIRED BY COLORADO AND OTHER STATE INSURANCE LAWS, NOR WILL THE
STATED RATE OF INTEREST THAT THE COMPANY ESTABLISHES NECESSARILY
RELATE TO THE PERFORMANCE OF THE NON-UNITIZED SEPARATE ACCOUNT.
Subsequent Guarantee Periods
Prior to the date annuity payments commence, you may invest
the value of amounts held in a maturing Guarantee Period in any
Guarantee Period that we offer at that time. On the quarterly
statement issued prior to the end of any Guarantee Period, we will
notify you of the upcoming maturity of a Guarantee Period. THE
GUARANTEE PERIOD AVAILABLE FOR NEW CONTRIBUTIONS MAY BE CHANGED AT
ANY TIME, INCLUDING BETWEEN THE DATE OF NOTIFICATION OF A MATURING
GUARANTEE PERIOD AND THE DATE A SUBSEQUENT GUARANTEE PERIOD BEGINS.
Information regarding the current Guarantee Periods then available
and their stated rate of interest may be obtained by calling the
Schwab Annuity Service Center at:
1-800-838-0650.
If the Company receives no direction from the Contract
Owner
by the Guarantee Period Maturity Date, the Company will
automatically allocate the amount from the maturing Guarantee
Period to a Guarantee Period equal in duration to the one just
ended. If at that time, the duration previously chosen is no
longer available, the amount will be allocated to the next shortest
available Guarantee Period duration. In any event, a Guarantee
Period will not renew for a term equal in duration to the one just
ended if the Guarantee Period will mature after the Payment
Commencement Date. No Guarantee Period may mature later than six
months after a Payment Commencement Date. For example, if a 3-year
Guarantee Period matures and the Payment Commencement Date begins
1 3/4 years from the Guarantee Period Maturity Date, the matured
value will be transferred to a 2-year Guarantee Period.
Breaking A Guarantee Period
Any Transfer, withdrawal or the selection of an annuity option
prior to the Guarantee Period Maturity Date will be known as
breaking a Guarantee Period. When a Request to break a Guarantee
Period is received, the Guarantee Period that is closest to the
Guarantee Period Maturity Date will be broken first. If a
Guarantee Period is broken, a Market Value Adjustment may be
assessed. The Market Value Adjustment may increase or decrease the
value of the amount Transferred or withdrawn from the Guarantee
Period Fund. The Market Value Adjustment may reduce the value of
amounts held in a Guarantee Period below the amount of your
Contribution(s) allocated to that Guarantee Period. (See "Market
Value Adjustment.")
Interest Rates
Declared rates are effective annual rates of interest. The
rate is guaranteed throughout the Guarantee Period. FOR GUARANTEE
PERIODS NOT YET IN EFFECT, GWL&A MAY DECLARE INTEREST RATES
DIFFERENT THAN THOSE CURRENTLY IN EFFECT. When a subsequent
Guarantee Period begins, the rate applied will not be less than the
rate then applicable to new Contracts of the same type with the
same Guarantee Period.
The stated rate of interest must be at least equal to the
Guaranteed Interest Rate. The Company may declare higher rates.
The Guaranteed Interest Rate is based on the applicable state
standard non-forfeiture law. Please see Appendix A for the
standard non-forfeiture law rate applicable to the state in which
the Contract was issued.
The determination of the stated rate of interest is influenced
by, but does not necessarily correspond to, interest rates
available on fixed income investments which the Company may acquire
using funds deposited into the Guarantee Period Fund. In addition,
the Company will consider other items in determining the stated
rate of interest including regulatory and tax requirements, sales
commissions and administrative expenses borne by the Company,
general economic trends, and competitive factors.
Market Value Adjustment
Distributions from the amounts allocated to a Guarantee Period
due to a full surrender or partial withdrawal, Transfer,
application of amounts to the periodic withdrawal option or to
purchase an annuity, or distributions resulting from the death of
the Owner or Annuitant prior to a Guarantee Period Maturity Date
will be subject to a Market Value Adjustment ("MVA"). An MVA may
increase or decrease the amount payable on one of the above
described distributions. Amounts available for a full surrender or
partial withdrawal is the amount requested plus the MVA less any
applicable surrender charge. The amount available for a Transfer
is the amount requested plus the MVA. The MVA is calculated by
multiplying the amount Requested by the Market Value Adjustment
Factor ("MVAF").
The MVA reflects the relationship as of the time of its
calculation between (a) the U.S. Treasury Strip ask side yield as
published in the Wall Street Journal on the last business day of
the week prior to the date the stated rate of interest was
established for the Guarantee Period; and (b) the U.S. Treasury
Strip ask side yield as published in the Wall Street Journal on the
last business day of the week prior to the week the Guarantee
Period is broken. There would be a downward adjustment if Treasury
rates at the time the Guarantee Period is broken exceed Treasury
rates when the Guarantee Period was created. There would be an
upward adjustment if Treasury rates at the time the Guarantee
Period is broken, are lower than when the Guarantee Period was
created. The MVA factor is the same for all Contracts.
1. The formula used to determine the MVA is:
MVA = (amount applied) X (MVAF)
The Market Value Adjustment Factor (MVAF) is:
MVAF = {[(1 + i)/(1 + j +.10%)] N/12} - 1
where:
a) i is the U.S. Treasury Strip ask side yield as
published in the Wall Street Journal on the last business day of
the week prior to the date the stated rate of interest was
established for the Guarantee Period. The term of i is measured in
years and equals the term of the Guarantee Period;
b) j is the U.S. Treasury Strip ask side yield as
published in the Wall Street Journal on the last business day of
the week prior to the week the Guarantee Period is broken. The
term of j equals the remaining term to maturity of the Guarantee
Period, rounded up to the higher number of years; and
c) N is the number of complete months remaining until
maturity.
If i + j differ by less than .10%, the MVA will equal 0. If
N is less than 6, the MVA will
equal 0.
2. The Market Value Adjustment will apply to any Guarantee Period
six or more months prior to the Guarantee Period Maturity Date in
each of the following situations:
a) Transfer to another Guarantee Period or to an
Investment Division offered under this Contract; or
b) Surrenders, partial withdrawals, annuitization or
Periodic Withdrawals; or
c) A single sum payment upon death of the Owner or
Annuitant.
3. The Market Value Adjustment will not apply to any Guarantee
Period having fewer than six months prior to the Guarantee Period
Maturity Date in each of the following situations:
a) Transfer to an Investment Division offered under
this Contract; or
b) Surrenders, partial withdrawals, annuitization or
Periodic Withdrawals.
c) A single sum payment upon death of the Owner or
Annuitant.
See Appendix B for Illustrations of the MVA.
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APPLICATION AND CONTRIBUTIONS
_________________________________________________________________
Contributions
All Contributions may be paid at the Schwab Annuity Service
Center by a check payable to the Company or by transfer to the
Company of available funds from your Schwab account.
The initial Contribution for the Contract must be at least
$5,000 (or $2,000 if for an IRA). Subsequent Contributions must be
at least $500. This minimum initial investment may be reduced to
$1,000, but only if you participate in an Automatic Contribution
Plan and contribute at least $100 per month through a recurring
deposit. A confirmation will be issued to you upon the acceptance
of each Contribution.
Your Contract will be issued and your Contribution generally
will be accepted and credited within two business days after
receipt of an acceptable application and receipt of the initial
Contribution at the Schwab Annuity Service Center. All
Contributions can be paid to the Schwab Annuity Service Center by
check (payable to GWL&A) or by instructing us to transfer to GWL&A
available funds or amounts from your account with Schwab.
Acceptance is subject to there being sufficient information in a
form acceptable to us and we reserve the right to reject any
application or Contribution.
The Schwab Annuity Service Center will process your
application and Contributions. If your application is complete and
your initial Contribution is being transferred from funds available
in your Schwab account, then the Contribution will generally be
credited within two business days following receipt of the
application. If your application is incomplete, the Schwab Annuity
Service Center will either complete the application from
information Schwab has on file, or contact you for the additional
information. No transfer of funds will be made from your Schwab
account until your application is complete. The funds will be
credited as Contributions to the Contract when they are
transferred.
If your Contribution is by check, and the application is
complete, Schwab will use its best efforts to credit the
Contribution on the day of receipt, but in all such cases it will
be credited to your Contract within two business days of receipt.
If your application is incomplete, the Schwab Annuity Service
Center will complete the application from information Schwab has on
file or contact you by telephone to obtain the required
information. If your application remains incomplete for five
business days, we will return to you both the check and the
application unless you consent to our retaining the initial
Contribution and crediting it as soon as the requirements are
fulfilled.
A Contract may be returned within ten days after receipt, or
longer where required by law ("Free Look Period"). During the Free
Look Period, all contributions will be processed as follows:
(1) Contributions allocated to one or more of the then
available Guarantee Periods will be allocated as directed,
effective upon the Transaction Date.
(2) If the Contract is returned, the contract will be void
from the start and the greater of: (a) Contributions received
or (b) the Annuity Account Value less surrenders, withdrawals and
distributions, will be refunded. Exercising the return privilege
requires the return of the Contract to the Company or to the Schwab
Annuity Service Center.
Amounts the Owner has contributed from a 1035 exchange of the
Schwab Investment Advantage Annuity Contract will be immediately
allocated to the Guarantee Periods selected by the Owner. If the
Contract is returned, it will be void from the start and the
greater of: (a) Contributions received or (b) the Annuity Account
Value less surrenders, withdrawals and distributions, will be
refunded.
Additional Contributions may be made at any time prior to the
Payment Commencement Date, as long as the Annuitant is living.
Additional Contributions must be at least $500 or $100 per month if
under an ACP.
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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TRANSFERS
_________________________________________________________________
In General
Prior to the Payment Commencement Date you may Transfer all or
part of your Annuity Account Value among the available Guarantee
Periods by telephone or by sending a Request to the Schwab Annuity
Service Center. The Request must specify the amounts being
Transferred, the Guarantee Period(s) from which the Transfer is to
be made, and the Guarantee Period(s) that will receive the
Transfer.
Currently, there is no limit on the number of Transfers you
can make during any Contract Year. There is no charge for the
first twelve Transfers each Contract Year, but there will be a
charge of $10 for each additional Transfer in each Contract Year.
We reserve the right to limit the number of Transfers you make.
The charge will be deducted from the amount transferred. All
Transfers made on a single Transaction Date will be aggregated to
count as only one Transfer toward the twelve free Transfers.
A Transfer generally will be effective on the date the Request
for Transfer is received by the Schwab Annuity Service Center if
received before 4:00 p.m. Eastern Time. Under current law, there
will not be any tax liability to you if you make a Transfer.
When a Transfer is made before the Guarantee Period Maturity
Date, the amount Transferred may be subject to a Market Value
Adjustment. (See "Market Value Adjustment.") A Request for
Transfer from amounts in a Guarantee Period made prior to the
Guarantee Period Maturity Date for Transfers on the Guarantee
Period Maturity Date will not be counted for the purpose of
determining any Transfer Fee on Transfers in excess of the twelve
Transfers per year if these Transfers are to take place on the
Guarantee Period Maturity Date.
Possible Restrictions
We reserve the right without prior notice to modify, restrict,
suspend or eliminate the Transfer privileges (including telephone
Transfers) at any time. 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.
_________________________________________________________________
CASH WITHDRAWALS
_________________________________________________________________
Withdrawals
You (the Owner) may withdraw from the Contract all or part of
your Annuity Account Value at any time during the life of the
Annuitant and prior to the date annuity payments commence by
Request at the Schwab Annuity Service Center subject to the rules
below. Federal or state laws, rules or regulations may apply. The
amount payable to you if you surrender your Contract is your
Annuity Account Value, with a Market Value Adjustment, if any, and
a surrender charge, if applicable, on the effective date of the
surrender, and less any applicable Premium Tax. No withdrawals may
be made after the date annuity payments commence.
A Request for a partial withdrawal will result in a reduction
in your Annuity Account Value equal to the sum of the dollar amount
withdrawn. A Market Value Adjustment may apply. (See "Market
Value Adjustment.") In addition, the partial withdrawal may be
subject to a surrender charge. The partial withdrawal proceeds may
be greater or less than the amount requested, depending on the
effect of the Market Value Adjustment, and the surrender charge.
The minimum partial withdrawal before application of the MVA
is $500. Partial withdrawals are unlimited; however, you must
specify the Guarantee Period(s) from which the withdrawal is to be
made. After any partial withdrawal, if the remaining Annuity
Account Value is less than $2,000, then a full surrender may be
required.
The following terms apply:
(a) No partial withdrawals are permitted after the date
annuity payments commence.
(b) A partial withdrawal will be effective upon the
Transaction Date.
(c) A partial withdrawal may be subject to the Market Value
Adjustment provisions, the Guarantee Period Fund provisions of the
Contract, and the terms of the attached Guarantee Period Fund
Rider(s), if any.
(d) A partial withdrawal may be subject to a surrender
charge.
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.")
Withdrawal Requests must be in writing to ensure that your
instructions regarding withholding are followed. If an adequate
election is not made, the Request will be denied and no withdrawal
or partial withdrawal will be processed.
After a withdrawal of all of your total Annuity Account Value,
or at any time that your Annuity Account Value is zero, all your
rights under the Contract will terminate.
Since IRAs are offered by this Prospectus, reference should be
made to the applicable provisions of the Code for any additional
limitations or restrictions on cash withdrawals.
_________________________________________________________________
TELEPHONE TRANSACTIONS
_________________________________________________________________
We will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine and if we follow
such procedures we will not be liable for any losses due to
unauthorized or fraudulent instructions. However, we may be liable
for such losses if we do not follow those reasonable procedures.
The procedures we will follow for telephone transactions may
include requiring some form of personal identification prior to
acting on instructions received by telephone, providing written
confirmation of the transaction, and/or tape recording the
instructions given by telephone.
We reserve the right to suspend telephone transaction
privileges at any time, for some or all Contracts, and for any
reason. Withdrawals are not permitted by telephone.
_________________________________________________________________
DEATH BENEFIT
_________________________________________________________________
Payment of Death Benefit
Before the date annuity payments commence, the death benefit,
if any, will be equal to the greater of: (a) the Annuity Account
Value with an MVA, if applicable, as of the date the Request for
payment is received, less Premium Tax, if any, or (b) the sum of
Contributions paid, less partial withdrawals and/or Periodic
Withdrawals, less Premium Tax, if any. The death benefit will
become payable following the Company's receipt of a Request from
the Beneficiary. When an Owner or the Annuitant dies before the
annuity commencement date and a death benefit is payable to a
Beneficiary, the death benefit proceeds will remain invested in
accordance with the allocation instructions given by the Owner(s)
until new allocation instructions are Requested by the Beneficiary
or until the death benefit is actually paid to the Beneficiary.
The death benefit will be determined as of the date payments
commence. Subject to the distribution rules set forth below,
payment of the death benefit may be Requested to be made as
follows:
A. Proceeds from the Guarantee Period(s)
1. payment in a single sum with respect to which a
Market Value Adjustment may apply; or
2. payment under any of the annuity options provided
under this Contract with respect to which a Market Value Adjustment
may apply; or
3. payment on the Guarantee Period Maturity Date so
that a Market Value Adjustment will not apply.
In any event, no payment of benefits provided under the
Contract will be allowed that does not satisfy the requirements of
Section 72(s) of the Code and any other applicable federal or state
laws, rules or regulations.
DISTRIBUTION RULES
1. Death of Annuitant
Upon the death of the Annuitant while the Owner is living, and
before the annuity commencement date, the Company will pay the
death benefit to the Beneficiary unless there is a Contingent
Annuitant.
If a Contingent Annuitant was named by the Owner(s) prior to
the Annuitant's death, and the Annuitant dies before the annuity
commencement date while the Owner and Contingent Annuitant are
living, no death benefit will be payable by reason of the
Annuitant's death and the Contingent Annuitant will become the
Annuitant.
If the Annuitant dies after the date annuity payments commence
and before the entire interest has been distributed, any benefit
payable must be distributed to the Beneficiary in accordance with
and at least as rapidly as under the payment option applicable to
the Annuitant on the Annuitant's date of death.
If a corporation or other non-individual is an Owner, or if
the deceased Annuitant is an Owner, the death of the Annuitant will
be treated as the death of an Owner and the Contract will be
subject to the "Death of Owner" provisions described below.
2. Death of Owner
If the Owner is not the Annuitant:
(1) If there is a Joint Owner who is the surviving spouse of
the deceased Owner, the Joint Owner will become the Owner and
Beneficiary and may elect to take the death benefit or elect to
continue the Contract in force.
(2) In all other cases, the Company will pay the death
benefit to the Beneficiary even if a Joint Owner (who was not the
Owner's spouse on the date of the Owner's death), the Annuitant
and/or the Contingent Annuitant are alive at the time of the
Owner's death, unless the sole Beneficiary is the deceased Owner's
surviving spouse and the Beneficiary elects to become the Owner and
Annuitant and to continue the Contract in force.
If the Owner is not the Annuitant, and the Owner dies after
annuity payments commence and before the entire interest has been
distributed while the Annuitant is living, any benefit payable
will continue to be distributed to the Annuitant at least as
rapidly as under the payment option applicable on the Owner's
death. All rights granted the Owner under the Contract will pass
to any surviving Joint Owner and, if none, to the Annuitant.
If the Owner is the Annuitant (Owner/Annuitant):
(1) If there is a Joint Owner who is the surviving spouse of
the deceased Owner and a Contingent Annuitant, the Joint Owner will
become the Owner and the Beneficiary, the Contingent Annuitant will
become the Annuitant, and the Contract will continue in force.
(2) If there is a Joint Owner who is the surviving spouse of
the deceased Owner but no Contingent Annuitant, the Joint Owner
will become the Owner, Annuitant and Beneficiary and may elect to
take the death benefit or continue the Contract in force.
(3) In all other cases, the Company will pay the death
benefit to the Beneficiary, even if a Joint Owner (who was not the
Owner's spouse on the date of the Owner's death), Annuitant and/or
Contingent Annuitant are alive at the time of the Owner's death,
unless the sole Beneficiary is the deceased Owner's surviving
spouse and the Beneficiary Requests to become the Owner and
Annuitant and to continue the Contract in force.
Any death benefit payable to the Beneficiary upon an Owner's
death will be distributed as follows:
(1) If the Owner's surviving spouse is the person entitled to
receive benefits upon the Owner's death, the surviving spouse will
be treated as the Owner and will be allowed to take the death
benefit or continue the Contract in force; or
(2) If the Beneficiary is a non-spouse individual, she/he may
elect, not later than one year after the Owner's date of death, to
receive the death benefit in either a single sum or payment under
any of the fixed annuity options available under the Contract,
provided that (a) such annuity is distributed in substantially
equal installments over the life or life expectancy of the
Beneficiary or over a period not extending beyond the life
expectancy of the Beneficiary; and (b) such distributions begin not
later than one year after the Owner's date of death. If no
election is received by the Company from a non-spouse Beneficiary
such that substantially equal installments have begun not later
than one year after the Owner's date of death, then the entire
amount must be distributed within five years of the Owner's date of
death. The death benefit will be determined as of the date the
payments commence; or
(3) If a corporation or other non-individual entity is
entitled to receive benefits upon the Owner's death, the death
benefit must be completely distributed within five years of the
Owner's date of death.
Beneficiary
You may select one or more Beneficiaries. If more than one
Beneficiary is selected, unless you indicate otherwise, they will
share equally in any death benefit payable. You may change the
Beneficiary any time before the Annuitant's death.
You may, while the Annuitant is living, change the Beneficiary
by Request. A change of Beneficiary will take effect as of the
date the Request is processed by the Schwab Annuity Service Center,
unless a certain date is specified by the Owner. If the Owner dies
before the Request was processed, the change will take effect as of
the date the Request was made, unless the Company has already made
a payment or otherwise taken action on a designation or change
before receipt or processing of such Request. A beneficiary
designated irrevocably may not be changed without the written
consent of that Beneficiary, except as allowed by law.
The interest of any Beneficiary who dies before the Owner or
the Annuitant will terminate at the death of the Beneficiary. The
interest of any Beneficiary who dies at the time of, or within 30
days after, the death of an Owner or the Annuitant will also
terminate if no benefits have been paid to such Beneficiary, unless
the Owner otherwise indicates by Request. The benefits will then
be paid as though the Beneficiary had died before the deceased
Owner or Annuitant. If no Beneficiary survives the Owner or
Annuitant, as applicable, the Company will pay the death benefit
proceeds to the Owner's estate.
If the surviving spouse of an Owner is the surviving Joint
Owner, the surviving spouse will become the Beneficiary upon such
Owner's death and may elect to take the death benefit or may elect
to continue the Contract in force. If there is no surviving Joint
Owner, and no named Beneficiary is alive at the time at the time of
an Owner's death, any benefits payable will be paid to the Owner's
estate.
Contingent Annuitant
While the Annuitant is living, the Owner(s) may, by Request,
designate or change a Contingent Annuitant from time to time. A
change of Contingent Annuitant will take effect as of the date the
Request is processed at the Schwab Annuity Service Center, unless
a certain date is specified by the Owner(s).
_________________________________________________________________
CHARGES AND DEDUCTIONS
_________________________________________________________________
No deductions are made from Contributions except for any
applicable Premium Tax. Therefore, the full amount of the
Contributions (less any applicable Premium Tax) are invested in the
Contract.
As more fully described below, charges under the Contract are
assessed only as deductions for Premium Tax, if applicable, for
certain Transfers, and as a Surrender Charge, if applicable. In
addition, a Market Value Adjustment may apply to withdrawals and
surrenders, Transfers, amounts applied to purchase an annuity, and
distributions resulting from death of the Owner or Annuitant if the
amounts held in a Guarantee Period are paid out prior to the
Guarantee Period Maturity Date.
Surrender Charge
A maximum Surrender Charge of three percent (3%) will be
applied to amounts withdrawn/distributed within the first three
Contact years. The Surrender Charge applies to the amounts
withdrawn/distributed after they have been adjusted by any MVA.
The applicable Surrender Charge will decrease over time as
indicated in the table below.
Years Completed Percentage of Distribution
1 3%
2 2%
3 1%
4+ 0%
The Contract describes specific situations in which there is
no Surrender Charge, such as death, annuitization, other than in a
single sum, and Periodic Withdrawals of at least 36 months.
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
twelve Transfers in any calendar year. We do not expect a profit
from the Transfer fee for excess Transfers.
Other Taxes
Under present laws, we will incur state or local taxes (in
addition to the Premium Tax described above) in 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.
_________________________________________________________________
PAYMENT OPTIONS
_________________________________________________________________
Periodic Withdrawal Option
The Owner may Request that all or part of the Annuity Account
Value be applied to a Periodic Withdrawal Option. The amount
applied to a Periodic Withdrawal is the Annuity Account Value with
an MVA, if applicable, less Premium Tax or Surrender Charges, 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 Guarantee
Period(s) as follows:
1) Prorate the amount to be paid across all Guarantee
Periods in proportion to the assets in each sub-account; or
2) Select the Guarantee Period(s) from which
withdrawals will be made. Once the Guarantee Periods have been
depleted, the Company will automatically prorate the remaining
withdrawals against all remaining available Guarantee Periods
unless the Owner Requests the selection of another Guarantee
Period.
The Owner may elect to change the withdrawal option and/or the
frequency once each calendar year.
While Periodic Withdrawals are being received:
1. the Owner may continue to exercise all contractual rights
that are available prior to electing an annuity option, except that
no Contributions may be made;
2. for Periodic Withdrawals from Guarantee Periods six or
more months prior to its Guarantee Period Maturity Date, a Market
Value Adjustment, if applicable, will be assessed;
3. the Owner may keep the same Guarantee Periods as were in
force before periodic withdrawals began;
4. charges and fees under the Contract continue to apply;
and
5. maturing Guarantee Periods renew into the shortest
Guarantee Period then available.
Periodic Withdrawals will cease on the earlier of the date:
1. the amount elected to be paid under the option selected
has been reduced to zero;
2. the Annuity Account Value is zero; or
3. the Owner Requests that withdrawals stop;
4. an Owner or the Annuitant dies.
The Owner must elect one of the following five (5) withdrawal
options:
1. Income for a Specified Period for at least thirty-six
(36) months - The Owner elects the duration over which withdrawals
will be made. The amount paid will vary based on the duration.
2. Income of a Specified Amount for at least thirty-six (36)
months - The Owner elects the dollar amount of the withdrawals.
Based on the amount elected, the duration may vary; or
3. Interest Only - The withdrawals will be based on the
amount of interest credited to the Guarantee Period Fund between
each withdrawal; or
4. Minimum Distribution - If this is an IRA contract, the
Owner may Request minimum distributions as specified under Code
Section 401(a)(9); or
5. Any Other Form for a period of at least thirty-six (36)
months - Any other form of Periodic Withdrawal which is acceptable
to the Company.
If Periodic Withdrawals cease, the Owner may resume making
Contributions. The Owner may elect to restart a Periodic
Withdrawal program; however, the Company may limit the number of
times the Owner may restart a Periodic Withdrawal program.
Periodic Withdrawals may be taxable, subject to withholding
and subject to the 10% penalty tax. IRAs are subject to complex
rules with respect to restrictions on and taxation of
distributions, including the applicability of penalty taxes. A
competent tax adviser should be consulted before a Periodic
Withdrawal Option is requested. (See "Federal Tax Matters.")
Annuity Date
The date annuity payments commence may be chosen when the
Contract is purchased or at a later date. This date must be at
least one year after the initial Contribution. In the absence of
an earlier election, the annuity date is the first day of the month
of the Annuitant's 91st birthday.
If an option has not been elected within 30 days of the
annuity commencement date, the Annuity Account Value will be
applied under Annuity Payment Option 3, discussed below, to provide
payments for life with a guaranteed period of 20 years.
Under section 401(a)(9) of the Code, a Contract which is
purchased and used in connection with an Individual Retirement
Account or with certain other plans qualifying for special federal
income tax treatment is subject to complex "minimum distribution"
requirements, which require that distributions under such a plan
must begin by a specific date, and also that the entire interest of
the plan participant must be distributed within certain specified
periods under formulas that specify minimum annual distributions.
The application of the minimum distribution requirements to each
person will vary according to the person's age and other
circumstances. A prospective purchaser may wish to consult a
competent tax adviser regarding the application of the minimum
distribution requirements. (See "Federal Tax Matters.")
Annuity Options
An annuity option may be selected by the Owner when the
Contract is purchased, or at a later date. This selection may be
changed, by Request, at any time up to 30 days before the annuity
date. In the absence of an election, payments will automatically
commence on the annuity date as described above. The amount to be
applied is the Annuity Account Value on the annuity date. The
minimum amount that may be withdrawn from the Annuity Account Value
to purchase an annuity payment option is $2,000 with an MVA, if
applicable. If the amount is less than $2,000, the Company may pay
the amount in a single sum subject to the Contract provisions
applicable to a partial withdrawal. Payments may be elected to be
received monthly, quarterly, semi-annually or annually. Payments
to be made under the annuity payment option selected must be at
least $50. The Company reserves the right to make payments using
the most frequent payment interval which produces a payment of not
less than $50. The maximum amount that may be applied under any
payment option is $1,000,000, unless prior approval is obtained
from the Company.
A single sum payment may be elected. If it is, then the
amount to be paid is the Surrender Value. If an owner elects an
annuity option, then the amount to be applied is the Annuity
Account Value, as of the annuity commencement date with an MVA, if
applicable, less any applicable Premium Tax.
Annuity Payment Options
Option 1: Income of Specified Amount
The amount applied under this option may be paid in equal
annual, semiannual, quarterly or monthly installments of the dollar
amount elected for not more than 240 months. Upon death of the
Annuitant, the Beneficiary will begin to receive the remaining
payments at the same interval that was elected by the Owner.
Option 2: Income for a Specified Period
Payments are paid annually, semiannually, quarterly or
monthly, as elected, for a selected number of years not to exceed
240 months. Upon death of the Annuitant, the Beneficiary will
begin to receive the remaining payments at the same interval that
was elected by the Owner.
Option 3: Fixed Life Annuity with Guaranteed Period
This option provides for monthly payments during a designated
period and thereafter throughout the lifetime of the Annuitant.
The designated period may be 5, 10, 15 or 20 years. Upon death of
the Annuitant, for each remaining designated period, the amounts
payable under this payment option will be paid to the Beneficiary.
Option 4: Fixed Life Annuity
This annuity is payable monthly during the lifetime of the
Annuitant, terminating with the last payment due prior to the death
of the Annuitant. Since no minimum number of payments is
guaranteed, this option may offer the maximum level of monthly
payments of the annuity options. It is possible that only one
payment may be made if the Annuitant died before the date on which
the second payment was due. No other payments nor death benefits
would be payable.
Option 5: Any Other Form
This option allows an Owner the ability to choose any other
form of annuity which is acceptable to the Company.
***
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 Guaranteed Interest Rate.
The Payment Commencement Date and annuity options available
for IRAs may also be controlled by endorsements, the plan
documents, or applicable law.
Once payments start under the annuity form selected by the
Owner: (a) no changes can be made in the annuity form, (b) no
additional Contributions will be accepted under the Contract, and
(c) no further withdrawals, other than withdrawals made to provide
annuity benefits, will be allowed.
***
A portion or the entire amount of the annuity payments may be
taxable as ordinary income. If, at the time the annuity payments
begin, we have not received a proper written election not to have
federal income taxes withheld, we must by law withhold such taxes
from the taxable portion of such annuity payments and remit that
amount to the federal government (an election not to have taxes
withheld is not permitted for certain Qualified Contracts). State
income tax withholding may also apply. (See "Federal Tax-Matters,"
below.)
_________________________________________________________________
FEDERAL TAX MATTERS
_________________________________________________________________
Introduction
The following discussion is a general description of federal
income tax considerations relating to the Contracts and is not
intended as tax advice. Further, this discussion is based on the
assumption that the Contract qualifies as an annuity contract for
federal income tax purposes. This discussion is not intended to
address the tax consequences resulting from all of the situations
in which a person may be entitled to or may receive a distribution
under the Contract. Any person concerned about these tax
implications should consult a competent tax adviser before
initiating any transaction. This discussion is based upon our
understanding of the present federal income tax laws as they are
currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of the continuation of
the present federal income tax laws or of the current
interpretation by the Internal Revenue Service. Moreover, no
attempt has been made to consider any applicable state or other tax
laws.
The Contract may be purchased on a non-tax qualified basis
("Non-Qualified Contract") or purchased and used in connection with
IRAs. The ultimate effect of federal income taxes on the amounts
held under a Contract, on annuity payments, and on the economic
benefit to you, the Annuitant, or the Beneficiary may depend on the
type of Contract, and on the tax status of the individual
concerned. In addition, certain requirements must be satisfied in
purchasing an IRA and receiving distributions from an IRA in order
to continue receiving favorable tax treatment. Therefore,
purchasers of IRAs should seek competent legal and tax advice
regarding the suitability of the Contract for their situation, the
applicable requirements, and the tax treatment of the rights and
benefits of the Contract. The following discussion assumes that an
IRA is purchased with proceeds from and/or Contributions that
qualify for the intended special federal income tax treatment.
Tax Status
The Company is taxed as a life insurance company under Part I
of Subchapter L of the Code.
Taxation of Annuities
In General
Section 72 of the Code governs taxation of annuities in
general. An Owner who is a natural person generally is not taxed
on increases (if any) in the value of an Annuity Account Value
until distribution occurs by withdrawing all or part of the Annuity
Account Value (e.g., withdrawals or annuity payments under the
annuity form elected). However, under certain circumstances, the
Owner may be subject to taxation currently. In addition, an
assignment, pledge, or agreement to assign or pledge any portion of
the Annuity Account Value generally will be treated as a
distribution. The taxable portion of a distribution (in the form
of a single sum payment or an annuity) is taxable as ordinary
income. An IRA Contract may not be assigned as collateral.
The Owner of any annuity contract who is not a natural person
(e.g. a corporation) generally must include in income any increase
in the excess of the Annuity Account Value over the "investment in
the contract" (discussed below) during each taxable year. The rule
does not apply where the non-natural person is the nominal owner of
a Contract and the beneficial owner is a natural person. The rule
also does not apply in the following circumstances: (1) where the
annuity Contract is acquired by the estate of a decedent, (2) where
the Contract is held under an IRA, (3) where the Contract is a
qualified funding asset for a structured settlement, and (4) where
the Contract is purchased on behalf of an employee upon termination
of a qualified plan. A prospective Owner that is not a natural
person may wish to discuss these matters with a competent tax
adviser.
The following discussion generally applies to a Contract owned
by a natural person.
Withdrawals
In the case of a withdrawal under an IRA, including
withdrawals under the Periodic Withdrawal Option, a ratable portion
of the amount received may be non-taxable. The amount of the
non-taxable portion is generally determined by the ratio of the
"investment in the contract" to the individual's total accrued
benefit under the retirement plan. The "investment in the
contract" generally equals the amount of any nondeductible
Contributions paid by or on behalf of any individual. Special tax
rules may be available for certain distributions from an IRA.
With respect to Non-Qualified Contracts, partial withdrawals,
including Periodic Withdrawals, are generally treated as taxable
income to the extent that the Annuity Account Value immediately
before the withdrawal exceeds the "investment in the contract" at
that time. If a partial withdrawal is made from a Guarantee Period
which is subject to a Market Value Adjustment, then the Annuity
Account Value immediately before the withdrawal will not be altered
to take into account the Market Value Adjustment. As a result, for
purposes of determining the taxable portion of the partial
withdrawal, the Annuity Account Value will not reflect the amount,
if any, deducted from or added to the Guarantee Period due to the
Market Value Adjustment. Full surrenders are treated as taxable
income to the extent that the amount received exceeds the
"investment in the contract." The taxable portion of any annuity
payment is taxed at ordinary income tax rates.
Annuity Payments
Although the tax consequences may vary depending on the
annuity form elected under the Contract, in general, only the
portion of the annuity payment that represents the amount by which
the Annuity Account Value exceeds the "investment in the contract"
will be taxed; after the investment in the contract is recovered,
the full amount of any additional annuity payments is taxable. For
fixed annuity payments, in general there is no tax on the portion
of each payment which represents the same ratio that the
"investment in the contract" bears to the total expected value of
the annuity payments for the term of the payments; however, the
remainder of each annuity payment is taxable. Once the investment
in the Contract has been fully recovered, the full amount of any
additional annuity payments is taxable. If the annuity payments
cease as a result of an Annuitant's death before full recovery of
the "investment in the contract," you should consult a competent
tax adviser regarding the deductibility of the unrecovered amount.
Penalty Tax
In the case of a distribution pursuant to a Non-Qualified
Contract, there may be imposed a federal income tax penalty equal
to 10% of the amount treated as taxable income. In general,
however, there is no penalty tax on distributions: (1) made on or
after the date on which the Owner attains age 59 1/2; (2) made as
a result of death or disability of the Owner; or (3) received in
substantially equal periodic payments as a life annuity or a joint
and survivor annuity for the lives or life expectancies of the
Owner and a "designated beneficiary." Other exemptions or tax
penalties may apply to certain distributions pursuant to an IRA.
For more details regarding these exemptions or penalties consult a
competent tax adviser.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the Contract because of the
death of an Owner or the Annuitant. Generally such amounts are
includible in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a
full surrender, as described above, or (2) if distributed under an
annuity form, they are taxed in the same manner as annuity
payments, as described above.
Distribution-at-Death Rules
In order to be treated as an annuity contract, the terms of
the Contract must provide the following two distribution rules:
(A) if any Contract Owner dies on or after the date annuity
payments commence, and before the entire interest in the Contract
has been distributed, the remainder of his interest will not be
distributed under a slower distribution schedule than that provided
for in the method in effect on the Contract Owner's death; and (B)
if any Contract Owner dies before the date annuity payments
commence, his entire interest must generally be distributed within
five years after the date of death provided that if such interest
is payable to a designated Beneficiary, then such interest may be
made over the life of that designated Beneficiary or over a period
not extending beyond the life expectancy of that Beneficiary, so
long as payments commence within one year after the Contract
Owner's death. If the sole designated Beneficiary is the spouse of
the Contract Owner, the Contract may be continued in the name of
the spouse as Contract Owner. The designated Beneficiary is the
natural person designated by the terms of the Contract or by the
Contract Owner as the individual to whom ownership of the contract
passes by reason of the Contract Owner's death. If the Contract
Owner is not an individual, then for purposes of the distribution
at death rules, the Primary Annuitant is considered the Contract
Owner. In addition, when the Contract Owner is not an individual,
a change in the Primary Annuitant is treated as the death of the
Contract Owner.
Transfers, Assignments, or Exchanges
A Transfer of ownership of a Contract, the designation of an
Annuitant, Payee or other Beneficiary who is not also the Owner, or
the exchange of a Contract may result in adverse tax consequences
to the Owner that are not discussed herein. An Owner contemplating
any such designation, transfer, assignment, or exchange of a
Contract should contact a competent tax adviser with respect to the
potential tax effects of such a transaction.
Multiple Contracts
All deferred, non-qualified annuity contracts that are issued
by the Company (or our affiliates) to the same Owner during any
calendar year will be treated as one annuity contract for purposes
of determining the amount includible in gross income under section
72(e) of the Code. Amounts received under any such Contract may be
taxable (and may be subject to the 10% Penalty Tax) to the extent
of the combined income in all such Contracts. In addition, the
Treasury Department has specific authority to issue regulations
that prevent the avoidance of section 72(e) through the serial
purchase of annuity contracts or otherwise. Congress has also
indicated that the Treasury Department may have authority to treat
the combination purchase of an immediate annuity contract and
separate deferred annuity contracts as a single annuity contract
under its general authority to prescribe rules as may be necessary
to enforce the income tax laws.
Withholding
Annuity distributions generally are subject to withholding for
the recipient's federal income tax liability at rates that vary
according to the type of distribution and the recipient's tax
status. Recipients, however, generally are provided the
opportunity to elect not to have tax withheld from distributions.
Certain distributions from IRAs are subject to mandatory federal
income tax withholding.
Possible Changes in Taxation
In past years, legislation has been proposed that would have
adversely modified the federal taxation of certain annuities. For
example, one such proposal would have changed the tax treatment of
non-qualified annuities that did not have "substantial life
contingencies" by taxing income as it is credited to the annuity.
There is always the possibility that the tax treatment of annuities
could change by legislation or other means (such as IRS
regulations, revenue rulings, judicial decisions, etc.). Moreover,
it is also possible that any change could be retroactive (that is,
effective prior to the date of the change).
Section 1035 Exchanges
Code Section 1035 provides that no gain or loss shall be
recognized on the exchange of one annuity contract for another. A
replacement contract obtained in a tax-free exchange of contracts
succeeds to the status of the original contract. Special rules
apply to Contracts issued prior to August 14, 1982. Prospective
Owners wishing to take advantage of a Section 1035 exchange should
consult their tax adviser.
Individual Retirement Annuities
The Contract may be used with IRAs as described in Section 408
of the Code. Section 408 of the Code permits eligible individuals
to contribute to an individual retirement program known as an
Individual Retirement Annuity. Also, certain kinds of
distributions from certain types of qualified and non-qualified
retirement plans may be "rolled over" following the rules set out
in the Code to maintain favorable tax treatment, to an Individual
Retirement Annuity. The sale of a Contract for use with an IRA may
be subject to special disclosure requirements of the Internal
Revenue Service. Purchasers of the Contract for use with IRA's
will be provided with supplemental information required by the
Internal Revenue Service or other appropriate agency. Such
purchasers will have the right to revoke their purchase within
seven days of purchase of the IRA Contract.
Various tax penalties may apply to contributions in excess of
specified limits, aggregate distributions in excess of $150,000
annually, distributions that do not satisfy specified requirements,
and certain other transactions. The Contract will be amended as
necessary to conform to the requirements of the Code. Purchasers
should seek competent advice as to the suitability of the Contract
for use with IRA's.
If a Contract is issued in connection with an employer's
Simplified Employee Pension ("SEP") plan, Owners, Annuitants and
Beneficiaries are cautioned that the rights of any person to any of
the benefits under the Contract may be subject to the terms and
conditions of the plan itself, regardless of the terms and
conditions of the Contract.
If a Contract is purchased to fund an IRA the Annuitant must
also be the Owner. In addition, if a Contract is purchased to fund
an IRA, minimum distributions must commence not later than April
1st of the calendar year following the calendar year in which you
attain age 70 1/2. You should consult your tax adviser concerning
these matters.
The Contract and prototype IRA endorsement have been submitted
for IRS approval and determination that they are acceptable under
Section 408 of the Code, so that each individual who purchases a
Contract with an IRA endorsement will be considered to have adopted
a retirement savings program that satisfies the requirements of
Section 408 of the Code. The IRS approval is a determination only
as to the form of the Contract and does not represent a
determination of the merits of the Contract.
At the time the Initial Contribution is paid, a prospective
purchaser must specify whether he or she is purchasing a
Non-Qualified Contract or an IRA. If the initial Contribution is
derived from an exchange or surrender of another annuity contract,
we may require that the prospective purchaser provide information
with regard to the federal income tax status of the previous
annuity contract. We will require that persons purchase separate
Contracts if they desire to invest monies qualifying for different
annuity tax treatment under the Code. Each such separate Contract
would require the minimum initial Contribution stated above.
Additional Contributions under a Contract must qualify for the same
federal income tax treatment as the initial Contribution under the
Contract; we will not accept an additional Contribution under a
Contract if the federal income tax treatment of such Contribution
would be different from that of the initial Contribution.
Seek Tax Advice
The foregoing discussion of the federal income tax
consequences is only a brief summary and is not intended as tax
advice. Further, the federal income tax consequences discussed
herein reflect our understanding of current law and the law may
change. Federal estate tax consequences and state and local
estate, inheritance, and other tax consequences of ownership or
receipt of distributions under a Contract depend on the individual
circumstances of each Owner or recipient of the distribution. A
COMPETENT TAX ADVISER SHOULD BE CONSULTED FOR FURTHER INFORMATION.
_________________________________________________________________
ASSIGNMENTS OR PLEDGES
_________________________________________________________________
Generally, rights in the Contract may be assigned or pledged
for loans at any time during the life of the Annuitant; however, if
the Contract is an IRA, the Owner may not assign the Contract as
collateral.
If a non-IRA Contract is assigned, the interest of the
assignee has priority over the interest of the Owner and the
interest of the Beneficiary. Any amount payable to the assignee
will be paid in a single sum.
A copy of any assignment must be submitted to the Company at
the Schwab Annuity Service Center. Any assignment is subject to
any action taken or payment made by the Company before the
assignment was processed. The Company is not responsible for the
validity or sufficiency of any assignment.
If any portion of the Annuity Account Value is assigned or
pledged for a loan, it may be treated as a distribution. A
competent tax adviser should be consulted for further information.
_________________________________________________________________
DISTRIBUTION OF THE CONTRACTS
_________________________________________________________________
Charles Schwab & Co., Inc. ("Schwab") is the distributor of
the Contracts. Schwab is registered with the Securities and
Exchange Commission as a broker/dealer and is a member of the
National Association of Securities Dealers, Inc. ("NASD"). Its
principal offices are located at 101 Montgomery, San Francisco,
California 94104, telephone 800-838-0650.
Certain administrative services are provided by Schwab to
assist the Company in the processing of the Contracts, which
services are described in written agreements between Schwab and the
Company.
The Company has agreed to indemnify Schwab (and its agents,
employees, and controlling persons) for certain damages arising out
of the sale of the Contracts, including those arising under the
securities laws.
_________________________________________________________________
SELECTED FINANCIAL DATA
_________________________________________________________________
The following is a summary of certain financial data of the
Company. This summary has been derived in part from, and should be
read in conjunction with, the financial statements of the Company
included elsewhere in this Prospectus.
Nine Months Ended
Years Ended December 31,
(in Millions)
9/30/96
9/30/95
1995
1994
1993
1992
1991
INCOME STATEMENT DATA
Premiums and other income
$ 785
$ 793
$ 1,067
$ 1,000
$ 696
$ 245
$ 58
Net investment income
623
622
835
768
792
661
599
Realized investment gains (losses)
(31)
2
8
(72)
25
(4)
(30)
Total Revenues
$ 1,377
$ 1,417
$ 1,910
$ 1,696
$ 1,513
$ 902
$ 627
Total benefits and expenses
$ 1,239
$ 1,290
$ 1,733
$ 1,594
$ 1,417
$ 844
$ 596
Income tax and expenses
39
45
49
28
31
18
7
cumulative effect of adopting a
new accounting method for income taxes
0
0
0
0
0
(23)
0
Net income
$ 99
$ 82
$ 128
$ 74
$ 65
$ 63
$ 24
BALANCE SHEET DATA
Investment assets
$ 12,572
$ 12,148
$ 12,473
$ 11,791
$ 11,592
$ 10,771
$ 8,483
Separate account assets
5,039
3,728
3,999
2,555
1,680
937
550
Total assets
18,907
17,067
17,682
15616
14,296
12,948
9,571
Total policy liabilities
11,640
11,399
11,492
10,929
10,592
10,352
7,808
Total shareholder's equity
989
903
993
777
821
769
624
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company
The Company operates in one business segment as a provider of
life, health and annuity products to groups of individuals
associated with employers or distributors; however, the business
operations of GWL&A will be discussed in terms of its major
business units: the Employee Benefits Division, which distributes
life, health, disability income insurance and 401(k) products to
employee groups, primarily to small to mid-sized corporations; and
the Financial Services Division, which distributes accumulation and
payout annuity products for both group and individual clients,
primarily in the public\non-profit sector, as well as insurance
products for individual clients.
GWL&A recognized the potential problems of mortgage loans in
the late 1980's and adjusted its investment policy accordingly.
The impact of problem mortgage and real estate accounts showed
marked improvement in the last few years as the Company curtailed
any new investment in mortgage loans. The emphasis of quality over
yield in the bond portfolio certainly has proved to be beneficial
to the overall strength of the investment assets.
Going forward, GWL&A intends to increase the percentage of
assets and liabilities funded on a separate account basis.
Management believes this emphasis is in the best interests of its
customers and shareholders. GWL&A intends to continue to improve
its administrative and distribution systems in order to compete
with insurers, mutual fund companies, and other money managers.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Results of Operations
Net income increased to $98.7 million as of September 30,
1996, compared to $82.1 million for the same period in 1995. The
growth in earnings is being driven by good results from operations.
Increased Employee Benefits Division earnings reflected an
improvement in group health morbidity and expense gains associated
with the large growth in 401(k). The Financial Services Division
net income increased as a result of effective expense management
and increased interest margins on annuity products.
The Company also benefited from a $25.6 million release of
a provision on a contingent liability it assumed from Great-West
Life
in 1993. This was largely offset by capital losses of $21.5
million incurred on the sales of bonds in the first nine months of
1996. The Company had realized capital gains on bond sales of
$16.8 million through the first half of 1995. The bond capital
gains and losses are included in the realized investment gains
[losses] in the income statement.
YEARS ENDED DECEMBER 31, 1995 and 1994
Results of Operations
The net income of $128 million in 1995 is up significantly
from the $74 million recorded in 1994. The growth in earnings is
related to the Company's continued investment philosophy of
replacing mortgage loans with higher quality bonds which ultimately
resulted in a reduction of mortgage writedowns. This is very
apparent in the Financial Services Division where the asset
intensive lines benefited from a combination of lower mortgage
writedowns and capital gains in the bond portfolio. The Company's
strategy of increasing fee income and reducing interest rate
exposure is apparent in the growth of the separate accounts. The
Employee Benefits Division's net income from operations increased
in 1995, largely due to low healthcare inflation, favorable
mortality, outstanding 401(k) growth and effective expense
management.
Life, accident, and health premium increased $49 million from
1994 to a total of $988 million primarily due to an increase in
group health premium, which primarily reflects the acquisition of
a block of group life and health business from Confederation Life
Insurance Company.
Net investment income increased $67 million to a total of $835
million in 1995 reflecting higher earned rates and growth in policy
loans associated with corporate owned life insurance (COLI)
business.
The net realized gains and losses improved significantly over
last year as the $8 million of gains in 1995 was substantially
better than the $72 million of losses recorded in 1994. Provisions
for asset losses, included in realized losses, continued to decline
as the $22 million in 1995 were $12 million better than the $34
million recorded in 1994. Interest rates decreased in 1995,
leading to bond capital gains of $28 million which were better than
the $39 million of losses recorded in 1994.
The capital gains and losses recorded in 1994 and 1995 were
somewhat mitigated by adjustments to the amortization of deferred
acquisition costs and premium deficiency reserves totaling $(10)
million in 1995 and $19 million in 1994.
Policyholder benefits increased to $1.2 billion, up $76
million, which is a combination of an increase in interest credits
to policyholders and higher group life and health claims.
The commissions and operating expense increase of $56 million
to a total of $465 million includes expense increases associated
with managed care and the acquisition of a block of group life and
health business from Confederation Life Insurance Company.
The effective income tax rate in 1995 and 1994 was lower than
the statutory rate due to a reduction of $13 million and $7
million, respectively, in the deferred tax asset valuation
allowance held in a subsidiary company, GWL Properties Inc.
Balance Sheet
Total assets grew approximately $2.1 billion to a total of
$17.7 billion, reflecting continued growth in the separate accounts
of $1.4 billion and a $333 million increase in policy loans
associated with COLI business.
It is important to recognize the continued shift away from
mortgages as the portfolio dropped $298 million during 1995. The
mortgage portfolio of $1.7 billion at December 31, 1995 represented
13.7% of total investment assets, compared to 17.1% at December 31,
1994.
Stockholder's equity at December 31, 1995 of $993 million
increased substantially from December 31, 1994, as the result of
higher earnings and a significant increase in the unrealized gains
on the bond portfolio that is available for sale.
YEARS ENDED DECEMBER 31, 1994 and 1993
Results of Operations
Net income in 1994 of $74 million increased from $65 million
in 1993. The higher group life and health earnings more than
offset the lower asset intensive earnings associated with the
capital losses on the bond portfolio.
Premiums and other income consist primarily of life, accident,
and health premiums which increased 48% over 1993 to a total of
$939 million. The $306 million increase was primarily the result
of group life and health, which was up $248 million as none of the
premium was reinsured to The Great-West Life during 1994, compared
to $179 million reinsured in 1993.
Net investment income decreased $24 million to a total of $768
million. The decrease was associated with a 0.68% drop in the
yield on investments as higher yielding mortgages and bonds
continued to be replaced by lower yielding, higher quality bonds.
The net realized losses of $72 million were significantly
worse than the $25 million of net gains recorded in 1993,
reflecting the decline in bond prices during 1994. However,
provisions for asset losses in 1994 of $34 million showed
improvement over the $43 million in 1993, reflecting the overall
decrease in mortgage investments and the reduction in problem
mortgages.
The capital losses in 1994 were somewhat mitigated by
adjustments to the amortization of deferred acquisition costs and
premium deficiency reserves totaling $19 million. The same
components were adjusted by $44 million in 1993.
The increase in benefits and expenses was primarily related to
a $69 million increase in policy benefits and a $98 million
increase in commission and operating expenses, both the result of
the group life and health business not being reinsured at all
during 1994. In 1993 the business had been reinsured to Great-West
Life for part of the year.
The 1994 effective income tax rate of 27.7% is lower than the
1993 rate of 32.5% as the result of a $7 million reduction in the
deferred income tax asset valuation allowance being held in a
subsidiary company, GWL Properties Inc.
Balance Sheet
Total assets increased $1.3 billion in 1994 to a total of
$15.6 billion. The only growth in the general account was the
acquisition of corporate owned life insurance (COLI) policies from
Confederation Life Insurance Company which increased assets $250
million. The majority of the increase is associated with separate
account assets which grew by $875 million over 1993 to a total of
$2.6 billion. The growth in separate accounts is derived from a
combination of good sales in both the 401(k) and the public
non-profit business units and good investment performance.
The mortgage loans on real estate portfolio reduced $367
million bringing the total portfolio to $2.0 billion or 17.1% of
total investment assets. The reduction is related to a combination
of prepayments, renewals refinanced with other lenders, and the
Company's policy of not initiating any new mortgage loans.
Liquidity and Capital Resources
The principal short- and long-term liquidity needs of the
Company are to satisfy policyholder benefits. The liquidity needs
of the Company are closely managed through cash flow matching of
assets and liabilities, and the forecasting of earned and required
yields to ensure consistency between policyholder requirements and
the yield of assets. Over 88.1% of policy liabilities are
non-cashable prior to maturity or subject to market value
adjustments or withdrawal penalties.
Investments in highly marketable securities at the end of 1995
totaled $6.4 billion, including short-term investments of $135
million which have minimal market risk. For several years, the
Company has followed an investment policy that has emphasized
high-quality bonds and de-emphasized high-yield, lower quality
bonds and mortgage loans. At December 31, 1995, mortgages
represented 13.7% of investments, compared to 25.2% at December 31,
1991. Bonds rated below investment grade were only 1.4% of
investments at December 31, 1995. The Company's investments in
mortgage-backed and asset-backed bonds do not include highly
volatile issues. The Company limits its use of derivative
financial instruments to contracts which change the interest rate
characteristics of certain bonds from variable to fixed rates or
which effectively change interest paid in foreign currencies to
U.S. dollars.
Additional liquidity is available through the Company's
commercial paper program which is partially supported by a standby
letter of credit. At December 31, 1995, the program had an
outstanding balance of $85 million with maturities ranging from 25
to 160 days and interest rates ranging from 5.7% to 5.9%.
The National Association of Insurance Commissioners (NAIC)
utilizes risk-based capital standards to determine the capital
requirements of a life insurance company based upon its inherent
operating risks. These standards require the computation of a
risk-based capital amount which is then compared to the Company's
actual adjusted capital. Based on current calculations of the
risk-based capital standards, the Company's percentage to total
adjusted capital is well in excess of ratios that would require
regulatory attention.
Great-West Life owns all of the Company's $122 million of
preferred shares and all of its common stock. The shareholder's
equity was $993 million as of December 31, 1995 compared to $777
million as of December 31, 1994. Most of the increase was related
to the increase in fair value of the Company's available-for-sale
bond portfolio, including $23 million related to the Company's
reclassification on December 31, 1995 of $2.1 billion of bonds from
the held-to-maturity portfolio.
Ratings
The Company operates in a very competitive market place,
and
therefore its ratings from various rating agencies are very
important to its ability to distribute certain products. A.M. Best
Company 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.
These ratings represent the rating agency's independent
opinion of the Company's financial strength and ability to meet its
policyholder obligations, but have no relevance to the performance
or quality of the assets in the Series Account.
Regulation and Reserves
The Company is subject to regulation and supervision by the
insurance departments of the state in which it is licensed. This
regulation covers a variety of areas, including policy reserve
requirements, adequacy of company capital and surplus, operational
standards, and financial accounting policies and procedures.
Pursuant to state insurance laws and regulations, the Company
is obligated to hold policy reserves to meet its obligations under
all outstanding insurance contracts. These reserves are based on
a number of assumptions as to future experience. Neither the
reserve requirements nor the other aspects of state insurance
regulation provide absolute protection to holders of insurance
contracts if the Company were to experience unexpected losses
(e.g., infectious diseases or catastrophic investment losses).
Competition
The Company is engaged in a business that is highly
competitive due to the large number of insurance companies and
other entities competing in marketing, administering, and selling
insurance products. There are approximately 2,300 insurers in the
life insurance business in the United States.
Segment Information
The Company operates in one business segment as a provider of
life, health and annuity products to groups of individuals
associated with employers or distributors.
Employees and Facilities
The Company has an administrative services agreement with
Great-West Life, to provide total administrative support for all
aspects of the Company's business. Great-West Life has
approximately 4,300 employees in its U.S. operations. The home
office facilities are in Englewood, Colorado which includes 517,633
square feet in a three building complex. As well, there are sales
and claims offices located in several states.
State Regulation
As a life insurance company organized and operated under
Colorado law, GWL&A is subject to provisions governing such
companies and regulation by the Colorado Division of Insurance.
GWL&A's books and accounts are subject to review and
examination by the Colorado Division of Insurance at any time, and
a full examination of its operations is conducted triennially.
In addition, GWL&A is subject to comprehensive and detailed
regulation and supervision by the supervisory agencies in each
jurisdiction in which it conducts business. Each state's
supervisory agency has broad administrative authority which
includes, but is not limited to, the power to regulate licenses to
transact business, trade practices, agent licensing, policy forms,
claims practices, underwriting practices, reserve requirements,
fixing maximum interest rates on life insurance policy loans and
minimum rates for accumulation of surrender values, the form and
content of required financial statements and the type and amounts
of investments permitted. GWL&A is required to file detailed
annual reports with supervisory agencies in each of the
jurisdictions in which it does business and its accounts are
subject to examination by such agencies at regular intervals.
Under insurance guaranty fund laws in most states, insurers
can be assessed up to prescribed limits for insurance contract
losses incurred by insolvent companies. GWL&A has estimated that
the $9 million reserve being held at December 31, 1995 is adequate
to cover any obligations of known insolvencies.
In addition, most jurisdictions, including Colorado, regulate
affiliated groups of insurers such as GWL&A and its affiliates
under insurance holding company legislation. Under such laws,
intercorporate transfers of assets and dividend payments from
insurance subsidiaries may be subject to prior notice or approval,
depending on the size of such transfers and payments in relation to
the financial position of the company making the transfer. Changes
in control also are regulated under these laws.
Although the federal government generally does not directly
regulate the business of insurance, federal initiatives often have
an impact on the business in a variety of ways. Current and
proposed federal measures which may significantly affect GWL&A's
insurance business include employee benefits regulation, controls
on medical care costs, insurance reform, managed care regulation,
medical entitlement programs (e.g., Medicare), removal of barriers
preventing banks from engaging in the insurance and mutual fund
businesses, the taxation of insurance companies and the tax
treatment of insurance products.
The Securities and Exchange Commission regulates certain
separate accounts of GWL&A and the mutual funds used as funding
vehicles for those accounts.
Directors and Officers
Set forth below is information concerning the Company's
directors and executive officers, together with their principal
occupation for the past five years. Unless otherwise indicated,
all of the directors and executive officers have been engaged for
not less than five years in their present principal occupations or
in another executive capacity with the companies or firms
identified.
Directors Principal Occupation Last 5 Years
James Balog Company Director since March 1993;
previously Chairman, Lambert Brussels Capital Corporation
James W. Burns, O.C. Chairman of the Boards of
Lifeco1 and Great-West Life; Deputy Chairman, PCC2
Orest T. Dackow President and Chief Executive
Officer, Lifeco since April 1992; previously President, Great-West
Life
Paul Desmarais, Jr. Chairman and Co-Chief Executive
Officer, PCC; Chairman, PFC3
Robert G. Graham Company Director since January 1996;
previously Chairman and Chief Executive Officer, Inter-City
Products Corporation
Robert Gratton Chairman of the Board of GWL&A;
President and Chief Executive Officer, PFC
N. Berne Hart Company Director since February 1992;
previously Chairman of the Board, United Banks of Colorado, Inc.
Kevin P. Kavanagh Company Director since April 1992;
previously President and Chief Executive Officer, Lifeco
William Mackness Company Director since July 1995;
previously Dean, Faculty of Management, University of Manitoba
William T. McCallum President and Chief Executive
Officer, GWL&A; President and Chief Executive Officer (U.S.
Operations), Great-West Life
Jerry E.A. Nickerson Chairman of the Board, H.B.
Nickerson & Sons Limited
The Honourable
P. Michael Pitfield, P.C., Q.C. Vice-Chairman, PCC; Member
of the Senate of Canada
Michel Plessis-Belair, F.C.A. Executive Vice-President and
Chief Financial Officer, PCC; Senior Vice-President, Finance, PFC
Ross J. Turner Chairman, Genstar Investment
Corporation
Brian E. Walsh Partner, Trinity L.P. since January
1996; previously Managing Director and Co-head, Global Investment
Bank, Bankers Trust Company
1 Great-West Lifeco, Inc.
2 Power Corporation of Canada
3 Power Financial Corporation
Executive Officers Principal Occupation Last 5 Years
William T. McCallum President and Chief Executive
Officer, GWL&A;
President and Chief President and Chief Executive
Officer (U.S. Operations),
Executive Officer Great-West Life
Dennis Low Executive Vice President, Financial
Services, GWL&A
Executive Vice President, and Great-West Life
Financial Services
Alan D. MacLennan Executive Vice President, Employee
Benefits, GWL&A
Executive Vice President, and Great-West Life
Employee Benefits
John T. Hughes Senior Vice President, Chief
Investment Officer, GWL&A;
Senior Vice President, Senior Vice President, Chief
Investment Officer (U.S.
Chief Investment Officer Operations), Great-West Life
D. Craig Lennox Senior Vice President, General
Counsel and Secretary,
Senior Vice President, GWL&A; Senior Vice President and
General Counsel,
General Counsel and Secretary Great-West Life
James D. Motz Senior Vice President, Employee
Benefits Operations,
Senior Vice President, GWL&A and Great-West Life
Employee Benefits Operations
Douglas L. Wooden Senior Vice President, Financial
Services, GWL&A and
Senior Vice President, Great-West Life
Financial Services
Executive Compensation
The following table sets out all compensation paid by
Great-West Life and its subsidiaries in respect of the individuals
who were, at December 31, 1995, the Chief Executive Officer and the
other four most highly compensated executive officers of GWL&A
(collectively the "Named Executive Officers") for services rendered
to GWL&A and Great-West Life in all capacities for fiscal years
ended 1993, 1994 and 1995 respectively.
Name and
Principal Position
Year
Annual
Compensation(1)
Salary Bonus
($) ($)
Long-Term Compensation Awards
Securities Under Options Granted
(2)
W.T. McCallum,
President and
Chief Executive Officer
1995
1994
1993
523,958 351,000
225,000(3)
476,750 318,500
426,383 295,750
None
None
None
D. Low, Executive
Vice President,
Financial Services
1995
1994
1993
305,000 152,500
285,000 142,500
263,479 121,750
None
None
None
J.T. Hughes, Senior
Vice President, Chief
Investment Officer
1995
1994
1993
301,000 150,500
290,000 145,000
275,000 137,500
None
None
None
A.D. MacLennan,
Executive Vice President, Employee Benefits
1995
1994
1993
312,000 125,000
300,000 97,890
283,000 113,426
None
None
None
D.L. Wooden, Senior
Vice President, Financial Services
1995
1994
1993
275,500 137,500
265,000 142,500
250,000 125,000
None
None
None
1) The aggregate of perquisites and other personal benefits,
securities or property provided to each Named Executive Officer in
1995 did not exceed the lesser of $50,000 and 10% of the total of
the individual's annual salary and bonus.
(2) The options are for common shares of Power Financial
Corporation ("PFC Options"). PFC Options are granted by, and in
the sole discretion of, Power Financial Corporation. (For
additional information on Power Financial Corporation, see
"Ownership of Securities" in this prospectus.)
(3) A special one-time bonus payment with respect to long-term
performance.
The following table describes all PFC Options exercised in
1995, and unexercised PFC Options held as of December 31, 1995, by
the Named Executive Officers.
Name
Securities
Acquired on
Exercise
Aggregate
Value
Realized
($)
Unexercised Options at FY-End
Exercisable
Unexercisable
Value of Unexercised in-the-Money Options at FY-End ($)
Exercisable Unexercisable
W.T. McCallum
34,000
418,290
26,000 None
371,002 None
D. Low
None
None
44,000 None
627,849 None
J.T. Hughes
20,000
175,551
60,000 None
548,713 None
A.D. MacLennan
32,000
389,430
None None
None None
D.L. Wooden
None
None
44,000 None
423,621 None
Pension Plan Tables
The following discussion relates to pension benefits payable
to the Named Executive Officers as of December 31, 1995.
Great-West Life has a non-contributory pension plan covering
substantially all of its employees. Great-West Life contributes
such amounts as are necessary, on an actuarial basis, to provide
the plan with assets sufficient to meet the benefits to be paid to
plan members. Contributions under the plan are based on length of
service and average annual compensation. Compensation includes
normal salary and wages and does not include bonuses, overtime pay,
reimbursements or special pay.
The directors of Great-West Life or of GWL&A determine the
eligibility for, and the amount of, supplemental executive
retirement benefits.
The President and Chief Executive Officer is entitled to the
benefits shown in Table #1 has have 30 years of service. The
Executive Vice President, Financial Services; Senior Vice
President, Chief Investment Officer; Executive Vice President,
Employee Benefits; and Senior Vice President, Financial Services,
are entitled to the benefits shown in Table #1 and Table #2, and
have 31, 6, 30 and 5 years of service respectively.
Table #1 - Employees' Pension Plan
Remuneration ($)
Years of Service
_________________________________________________________________
_________________
5 15 20 25
30 35 40
200,000
18,875 56,625 75,500 94,375 113,250
120,000 120,000
300,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
400,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
500,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
600,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
700,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
800,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
The benefits shown in Table #1 are payable upon the attainment
of age 65, the normal retirement date, or age 62 with 35 years of
service. Remuneration is the average of the highest 60 consecutive
months of regular salary during the last 84 months of employment.
The determination of remuneration and the pension amount are
limited by Internal Revenue Service maximums for qualified plans.
The normal form of pension is a life only annuity. Other optional
forms of pension payment are available on an actuarially equivalent
basis. The benefits listed in the table are not subject to
deduction for social security or other offset amounts.
Table #2 - Supplemental Executive Retirement Benefits
Remuneration ($)
Years of Service
_________________________________________________________________
__________________
5 15 20 25
30 35 40
200,000
None None None None None
None None
300,000
401 15,123 22,664 30,205 52,500
52,500 52,500
400,000
10,401 45,123 62,664 80,205 112,500
112,500 112,500
500,000
20,401 75,123 102,664 130,205 172,500
172,500 172,500
600,000
30,401 105,123 142,664 180,205 232,500
232,500 232,500
700,000
40,401 135,123 182,664 230,205 292,500
292,500 292,500
800,000
50,401 165,123 222,664 280,205 352,500
352,500 352,500
The benefits shown in Table #2 are payable upon the attainment
of age 62, the normal retirement date. Remuneration is the average
of the highest 60 consecutive months of compensation during the
last 84 months of employment. Compensation includes salary and
bonuses prior to any deferrals. The normal form of pension is a
life only annuity. Other optional forms of pension payment are
available on an actuarially equivalent basis. The benefits listed
in the table are not subject to deduction for social security or
other offset amounts.
Ownership of Securities
All of the Company's outstanding shares are owned by The
Great-West Life Assurance Company, 100 Osborne Street North,
Winnipeg, Manitoba, Canada R3C 3A5. The Great-West Life Assurance
Company is owned 99.5% by Great-West Lifeco Inc., both of which
share the same address. Great-West Lifeco Inc. is owned 86.5% by
Power Financial Corporation of Canada, 751 Victoria Square,
Montreal, Quebec, Canada H2Y 2J3. It is owned 68.3% by 171263
Canada Inc., which is owned 100% by Power Corporation of Canada,
both of which share the same address as Power Financial
Corporation. Mr. Paul Desmarais, 751 Victoria Square, Montreal,
Quebec, Canada H2Y 2J3, through a group of private holding
companies, which he controls, has voting control of Power
Corporation of Canada.
_________________________________________________________________
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 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 make any other necessary technical changes in the
Contract in order to conform with any action the above provisions
permit the Company to take, including to change the way the Company
assess charges, but without increasing as to any then outstanding
Contract the aggregate amount of the types of charges which the
Company has guaranteed.
_________________________________________________________________
LEGAL PROCEEDINGS
_________________________________________________________________
The Company is currently not a party to, and its property is
not currently subject to, any material legal proceedings. The
lawsuits to which the Company is a party are, in the opinion of
management, in the ordinary course of business, and are not
expected to have a material adverse effect on the financial
results, conditions or prospects of the Company.
_________________________________________________________________
LEGAL MATTERS
_________________________________________________________________
Advice regarding certain legal matters concerning the federal
securities laws applicable to the issue and sale of the Contract
has been provided by Jorden Burt Berenson & Johnson LLP. The
organization of the Company, the Company's authority to issue the
Contract, and the validity of the form of the Contract have been
passed upon by Ruth B. Lurie, Vice President, Counsel and Associate
Secretary of the Company.
_________________________________________________________________
EXPERTS
_________________________________________________________________
The consolidated financial statements of Great-West Life &
Annuity Insurance Company at December 31, 1995 and 1994, and for
each of the three years in the period ended December 31, 1995
included in this prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
_________________________________________________________________
AVAILABLE INFORMATION
_________________________________________________________________
We have filed a registration statement ("Registration
Statement") with the Commission under the 1933 Act relating to the
Contracts offered by this Prospectus. This Prospectus has been
filed as a part of the Registration Statement and does not contain
all of the information 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.
Appendix A
The standard nonforfeiture rate in all states, other than those
listed below is 3%
Florida 0%
Mississippi 0%
Oklahoma 0%
Appendix B
On the following pages are four examples of Market Value
Adjustments illustrating (1) increasing interest rates, (2)
decreasing interest rates, (3) flat interest rates (i and j are
within .10% of each other), and (4) less than 6 months to maturity.
Example #1 - Increasing Interest Rates
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period: 10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2000
j: 7.00%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.071]65/12} - 1
= .952885 - 1
= -.047115
MVA = (amount Transferred or surrendered) x MVAF
= $10,000 x - .047115
= - $471.15
Surrender Value = (amount Transferred or surrendered +
MVA) x (1 - Surrender Charge)
= ($10,000 + - $471.15) x (1 - 0)
= $9,528.85
Example #2 - Decreasing Interest Rates
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period: 10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2000
j: 5.00%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.05]65/12} - 1
= .0055323
MVAF = (amount Transferred or surrendered) x MVAF
= $10,000 x .0055323
= $553.23
Surrender Value = (amount Transferred or surrendered +
MVA)
= ($10,000 + $553.23) x (1 - Surrender
Charge)
= $10,553.23 x (1 - 0)
Example #3 - Flat Interest Rates (i and j are within .10% of
each other)
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period: 10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2000
j: 6.24%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.0634]65/12} - 1
= .99036 - 1
= -.00964
However, [i-j] <.10%, so MVAF = 0
MVAF = (amount Transferred or surrendered) x MVAF
= $10,000 x 0
= $0
Surrender Value = (amount Transferred or surrendered +
MVA) x (1 - Surrender Charge)
= ($10,000 + $0) x (1 - 0)
= $10,000
Example #4 - N<6 (less than 6 months to maturity)
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period: 10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2005
j: 7.00%
Amount Surrendered: $10,000
N: 5
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.071]5/12} - 1
= .99629 - 1
= -.00371
However, N<6, so MVAF = 0
MVAF = (amount Transferred or surrendered) x MVAF
= $10,000 x 0
= $0
Surrender Value = (amount Transferred or surrendered + MVA) x
(1 - Surrender Charge)
= ($10,000 + $0) x (1 - 0)
= $10,000
1 There is a $10 fee for each transfer in excess of twelve in
any contract year.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 1995, 1994 AND 1993
AND INDEPENDENT AUDITORS' REPORT
AND
UNAUDITED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED
SEPTEMBER 30, 1996
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 1995, 1994 AND 1993
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, 1995 and 1994, 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,
1995. 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, 1995 and 1994, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
January 19, 1996
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Dollars in Thousands)
ASSETS
1995
1994
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized cost
(fair value $2,158,043 and $4,135,248)
$ 2,054,204
$4,293,985
Available for sale, at fair value
(amortized cost $6,087,969 and $2,997,087)
6,263,187
2,824,703
Common stock
9,440
5,222
Mortgage loans on real estate
1,713,195
2,011,059
Real estate
60,454
43,663
Policy loans
2,237,745
1,905,013
Short-term investments
134,835
706,920
Total Investments
12,473,060
11,790,565
Cash
90,939
131,621
Reinsurance receivable
333,924
295,148
Deferred policy acquisition costs
278,526
297,092
Investment income due and accrued
211,922
195,817
Other assets
40,038
55,579
Premiums in course of collection
85,990
84,478
Deferred income taxes
168,941
210,407
Separate account assets
3,998,878
2,554,836
TOTAL ASSETS
$17,682,218
$15,615,543
See notes to consolidated financial statements.
LIABILITIES AND STOCKHOLDER'S EQUITY
1995
1994
POLICY BENEFIT LIABILITIES:
Policy reserves
$10,845,935
$10,334,456
Policy and contract claims
359,791
338,515
Policyholders' funds
154,872
144,262
Experience refunds
83,562
70,359
Provision for policyholders'dividends
47,760
41,840
GENERAL LIABILITIES:
Due to Parent Corporation
149,974
159,117
Repurchase agreements
372,965
564,160
Commercial paper
84,854
89,686
Other liabilities
453,889
420,154
Undistributed earnings on
participating business
136,617
120,927
Separate account liabilities
3,998,878
2,554,836
Total Liabilities
16,689,097
14,838,312
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,
liquidation value of $20.90
41,800 41,800
per share, issued, and outstanding
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
657,265
657,265
Net unrealized gains (losses) on
securities available-for-sale
58,763
(78,427)
Retained earnings
148,261
69,561
Total Stockholder's Equity
993,121
777,231
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY
$17,682,218
$15,615,543
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994,
AND 1993
(Dollars in Thousands)
1995
1994
1993
REVENUES:
Annuity contract charges and
premiums
$79,816
$61,122
$63,210
Life, accident, and health premiums
earned (net of premiums ceded totaling
$60,880,
$48,115
and $254,969)
987,611
938,947
632,961
Net investment income
835,046
767,646
791,424
Net realized gains (losses) on
investments
7,465
(71,939)
25,342
1,909,938
1,695,776
1,512,937
BENEFITS AND EXPENSES:
Life and other policy benefits (net
of reinsurance recoveries totaling
$43,574,
$18,937,
and $151,598)
557,469
548,950
390,562
Increase in reserves
98,797
64,834
59,873
Interest paid or credited to
contractholders
562,263
529,118
623,417
Provision for policyholders' share
of earnings (losses)
on participating business
2,027
(725)
(1,498)
Dividends to policyholders
48,150
42,094
34,474
1,268,706
1,184,271
1,106,828
Commissions
122,926
120,058
90,472
Operating expenses
314,810
261,311
196,820
Premium taxes
26,884
27,402
23,129
1,733,326
1,593,042
1,417,249
INCOME BEFORE INCOME TAXES
176,612
102,734
95,688
PROVISION FOR INCOME TAXES:
Current
88,366
65,070
76,672
Deferred
(39,434)
(36,614)
(45,620)
48,932
28,456
31,052
NET INCOME
$127,680
$74,278
$64,636
See notes to consolidated financial
statements.
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S
EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND
1993 (Dollars in Thousands)
Net Additional
Unrealized Retained
Preferred Stock
Common Stock
Paid-In
Gains
Earnings
Shares
Amount
Shares
Amount
Capital
(Losses)
(Deficit)
Total
BALANCE, JANUARY 1, 1993
2,000,800
$121,800
7,028,217
$7,028
$647,199
$0
$(7,063)
$768,964
Issuance of common stock
3,783
4
496
500
Capital contributions
9,098
9,098
Dividends
(21,852)
(21,852)
Net income
64,636
64,636
BALANCE, DECEMBER 31, 1993
2,000,800
121,800
7,032,000
7,032
656,793
0
35,721
821,346
Adjustment to beginning
balance for change in
accounting method for investment
securities
6,515
6,515
Change in net unrealized
gains (losses)
(84,942)
(84,942)
Capital contributions
472
472
Dividends
(40,438)
(40,438)
Net income
74,278
74,278
BALANCE, DECEMBER 31, 1994
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
See notes to consolidated financial
statements.
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994,
AND 1993
(Dollars in Thousands)
1995
1994
1993
OPERATING ACTIVITIES:
Net income
$127,680
$74,278
$64,636
Adjustments to reconcile net
income to net cash provided by
operating activities:
Gain (loss) allocated to
par policyholders
2,027
(725)
(1,498)
Amortization of
investments
26,725
36,978
36,782
Realized losses (gains) on
disposal of investments
and write-downs of
mortgage loans and real estate
(7,465)
71,939
(25,342)
Amortization
49,464
29,197
34,115
Deferred income taxes
(39,763)
(38,631)
(56,959)
Changes in assets and
liabilities:
Policy benefit
liabilities
346,975
93,998
438,809
Reinsurance receivable
(38,776)
(25,868)
352,106
Accrued interest and
other receivables
(17,617)
(26,032)
(19,817)
Other, net
8,834
96,950
119,284
Net cash provided by operating activities
458,084
312,084
942,116
INVESTING ACTIVITIES:
Proceeds from sales,
maturities, and redemptions of
investments:
Fixed maturities
4,744,309
Held-to-maturity
Sales
18,821
16,014
Maturities and redemptions
655,993
1,034,324
Available-for-sale
Sales
4,211,649
1,753,445
Maturities and redemptions
253,747
141,299
Mortgage loans
260,960
291,102
339,406
Real estate
4,401
29,868
22,974
Common stock
178
Purchases of investments:
Fixed maturities
(5,494,534)
Held-to-maturity
(490,228)
(673,567)
Available-for-sale
(4,932,566)
(2,606,028)
Mortgage loans
(683)
(9)
(52,917)
Real estate
(5,302)
(9,253)
(14,303)
Common stock
(4,218)
(2,063)
Net cash used in
investing activities
(27,426)
(24,690)
(455,065)
(Continued)
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994,
AND 1993
(Dollars in Thousands)
1995
1994
1993
FINANCING ACTIVITIES:
Contract withdrawals, net of
deposits
$(217,190)
$(238,166)
$(590,118)
Due to Parent Corporation
(9,143)
(13,078)
(149,510)
Dividends paid
(48,980)
(40,438)
(21,852)
Net commercial paper (repayments)
borrowings
(4,832)
89,686
Net repurchase agreements
(repayments) borrowings
(191,195)
(39,244)
311,937
Net cash used in
financing activities
(471,340)
(241,240)
(449,543)
NET INCREASE IN CASH
(40,682)
46,154
37,508
CASH, BEGINNING OF YEAR
131,621
85,467
47,959
CASH, END OF YEAR
$90,939
$131,621
$85,467
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes
$83,841
$68,892
$87,778
Interest
17,016
12,229
7,438
See notes to consolidated financial
statements.
(Concluded)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
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 equires 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.
Certain reclassifications have been made to the 1994 and 1993
financial statements to conform with the basis of presentation
used in 1995.
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 is 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 life of the related bonds. Such
amortization is included in interest income from investments.
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 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.
Effective January 1, 1995, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 114 "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan-Income Recognition and
Disclosures". In accordance with these standards, a mortgage loan
is considered to be impaired when it is probable that the Company
will be unable to collect all amounts due according to the
contractual terms of the loan agreement. The measurement of
impaired loans is based on the fair value of the collateral. As
the Company was already providing for impairment of loans through
an allowance for credit losses, the implementation of these
statements had no material effect on the Company's financial
statements.
3. Real estate is carried at the lower of cost or fair
value. In March 1995, the FASB issued SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" to be effective for fiscal years beginning after
December 15, 1995. The effect of adopting this statement is not
expected to be material.
4. Policy loans are carried at their unpaid balances.
5. 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 totalled $48,054,
$28,199, and $32,611 in 1995, 1994, and 1993, 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., a
diversified, open-end management investment company which is an
affiliate 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 $4,675,175, and
$3,995,927 at December 31, 1995 and 1994, 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 $6,170,760, and $6,338,529
at December 31, 1995 and 1994, 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 $3,339,316 and $2,917,273 at December 31, 1995
and 1994, respectively. Participating business approximates 46%
of the Company's ordinary life insurance in force and 84% of
ordinary life insurance premium income at December 31, 1995.
The liability for undistributed earnings on participating
business was increased by $15,690 in 1995, which represented $2,027
of earnings on participating business and adjustments of $13,663
to reflect the net unrealized gains on securities classified as
available-for-sale, net of certain adjustments to policy reserves
and income taxes.
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. The assets
and liabilities associated with these policies are segregated in
the accounting records of the Company to assure the continuation of
current policyholder dividend expectations. 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 7.2% in 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.
Deferred tax assets are recorded net of a valuation allowance to
the extent that management estimates that recovery of the asset is
not more likely than not.
Repurchase Agreements - 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.
Derivatives - The Company engages in hedging activities to
manage interest rate and foreign exchange risk (See Note 6).
2. RELATED-PARTY TRANSACTIONS
Reinsurance Transactions - The Company entered into a series
of reinsurance transactions with the Parent Corporation during 1993
and prior years intended to make the Company the underwriter and
administrator of all life and health insurance, annuity products,
and related services with respect to United States policyholders.
A May 1, 1993, reinsurance transaction resulted in the Company
recapturing certain group life and health business previously ceded
to the Parent under a coinsurance agreement, as follows:
Assets
Liabilities and
Stockholder's Equity
Bonds
$217,254
Policy reserves
$253,479
Mortgage loans
27,182
Cash and short-term
investments
5,607
Investment income
due & accrued
3,436
$253,479
$253,479
In addition, effective December 31, 1993, the Company
recaptured certain participating life business also previously
ceded to the Parent Corporation, as follows:
Assets
Liabilities and
Stockholder's Equity
Bonds
$171,005
Policy reserves
$180,000
Cash and short-term
investments
8,087
Investment income
due & accrued
908
$180,000
$180,000
From 1989 to 1993, the Company has assumed most of the United
States business of the Parent Corporation. During this period, the
Parent Corporation had recorded estimated tax liabilities for
certain United States federal income taxes in its financial
statements. On December 31, 1993 and December 30, 1994, the Parent
Corporation transferred assets with an estimated fair value of
$82,800 and $9,391, respectively, to the Company in exchange for
the Company agreeing to assume the estimated tax liabilities of the
Parent Corporation, and the issuance of shares of the Company's
common stock.
Fees and Expenses - The Company and the Parent Corporation
have a number of service agreements whereby the Parent Corporation
administers, distributes, and underwrites business for the Company
and administers the Company's investment portfolio. Certain
operating expenses represent allocations made by the Parent
Corporation to the Company for services provided pursuant to these
service agreements. These transactions are summarized as follows:
Years Ended December 31,
1995
1994
1993
Investment management expense
(included in net
investment income)
$15,182
$13,841
$17,767
Administrative and underwriting
payments (included
in operating expenses)
301,529
269,020
199,947
Other - At December 31, 1995 and 1994, due to Parent
Corporation includes $27,814 and $35,388 due on demand and $122,160
and $123,729 of notes payable which bear interest and mature at
various dates. 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 Company also has available an arrangement
to obtain advances from the Parent Corporation to fund short-term
liquidity needs. The due on demand to the Parent Corporation bears
interest at the public bond rate (6.4% and 8.5% at December 31,
1995 and 1994, respectively) while the remainder bear interest at
various rates.
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, 1995 and 1994, reinsurance
receivables with a carrying value of $333,924, and $295,148,
respectively, were due primarily from the Parent Corporation.
Total reinsurance premiums assumed from the Parent Corporation
were $1,606 and $2,438, and $0, in 1995, 1994, and 1993,
respectively.
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:
Assumed
Ceded
Primarily
Percentage
Primarily to
From
of
Amount
Gross
the Parent
Other
Net
Assumed
to
Amount
Corporation
Companies
Amount
Net
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
December 31, 1994:
Life insurance in force:
Individual
$21,461,590
$7,411,811
$3,415,596
$17,465,375
19.6%
Group
48,948,669
2,102,228
51,050,897
4.1%
Total
$70,410,259
$7,411,811
$5,517,824
$68,516,272
Premiums:
Life insurance
$322,263
$42,946
$22,009
$301,326
7.3%
Accident/health
579,650
5,169
63,140
637,621
9.9%
Total
$901,913
$48,115
$85,149
$938,947
December 31, 1993:
Life insurance in force:
Individual
$17,131,994
$7,797,389
$3,142,723
$12,477,328
25.2%
Group
37,789,859
2,108,314
39,898,173
5.3%
Total
$54,921,853
$7,797,389
$5,251,037
$52,375,501
Premiums:
Life insurance
$283,707
$112,798
$18,753
$189,662
9.9%
Accident/health
524,747
142,171
60,723
443,299
13.7%
Total
$808,454
$254,969
79,476
$632,961
4. NET INVESTMENT INCOME
Net investment income is summarized as follows:
Years Ended December 31,
1995
1994
1993
Investment income:
Bonds and short-term
investments
$592,062
$555,103
$545,926
Mortgage loans on real
estate
171,008
182,544
220,477
Real estate
3,936
5,700
9,265
Policy loans
163,547
116,060
91,529
930,553
859,407
867,197
Investment expenses,
including interest on
amounts charged by the
Parent Corporation
of $10,778, $11,145, and
$7,250
95,507
91,761
75,773
Net investment income
$835,046
$767,646
$791,424
5. NET REALIZED GAINS (LOSSES) ON
INVESTMENTS
Net realized gains (losses) on
investments are as follows:
Years Ended December 31,
1995
1994
1993
Net realized gains
(losses):
Bonds
$28,166
$(39,775)
$68,884
Mortage loans on real
estate
1,309
2,120
(98)
Real estate
(10)
(102)
(102)
Bond provisions
(5,000)
(3,200)
(4,456)
Mortgage loan provisions
(15,877)
(27,918)
(38,089)
Real estate provisions
(1,123)
(3,064)
(797)
Net realized gains
(losses) on investments
$7,465
$(71,939)
$25,342
6. SUMMARY OF INVESTMENTS
Fixed maturities owned at December 31,
1995 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 Agencies:
Collateralized
mortgage obligations
$
$
$
$
$
Direct mortgage pass-through
certificates
Other
11,107
1,093
12,200
11,107
Collateralized
mortgage obligations
Public utilities
269,671
22,084
95
291,660
269,671
Corporate bonds
1,732,046
83,583
5,867
1,809,762
1,732,046
Foreign governments
18,596
1,087
12
19,671
18,596
State and
municipalities
22,784
1,966
24,750
22,784
$2,054,204
$109,813
$5,974
$2,158,043
$2,054,204
Available-for-Sale:
U.S. Treasury
Securities and
obligations
of U.S.
Government Agencies:
Collateralized
mortgage obligations
$561,475
$9,983
$1,948
$569,510
$569,510
Direct mortgage pass-through
certificates
794,056
11,980
2,233
803,803
803,803
Other
561,736
7,703
39
569,400
569,400
Collateralized
mortgage obligations
490,074
18,044
3,304
504,814
504,814
Public utilities
581,482
16,607
2,425
595,664
595,664
Corporate bonds
2,943,918
121,537
26
3,065,429
3,065,429
Foreign governments
141,362
5,021
5,644
140,739
140,739
State and
municipalities
13,866
22
60
13,828
13,828
$6,087,969
$190,897
$15,679
$6,263,187
$6,263,187
6.SUMMARY OF INVESTMENTS (Continued)
Fixed maturities owned at December 31, 1994 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 Agencies:
Collateralized
mortgage obligations
$521,408
$389
$33,018
$488,779
$521,408
Direct
mortgage pass-through
certificates
69,559
617
1,001
69,175
69,559
Other
85,406
246
923
84,729
85,406
Collateralized
mortgage obligations
309,869
1,205
14,208
296,866
309,869
Public utilities
457,758
2,898
14,340
446,316
457,758
Corporate bonds
2,757,612
14,701
111,410
2,660,903
2,757,612
Foreign governments
90,690
47
3,950
86,787
90,690
State and
municipalities
1,683
10
1,693
1,683
$4,293,985
$20,113
$178,850
$4,135,248
$4,293,985
Available-for-Sale:
U.S. Treasury
Securities and
obligations
of U.S.
Government Agencies:
Collateralized
mortgage obligations
$80,531
$
$3,798
$76,733
$76,733
Direct
mortgage pass-through
certificates
759,815
871
49,462
711,224
711,224
Other
198,651
9
2,654
196,006
196,006
Collateralized
mortgage obligations
203,036
6,379
196,657
196,657
Public utilities
325,383
193
26,379
299,197
299,197
Corporate bonds
1,119,726
3,253
65,398
1,057,581
1,057,581
Foreign governments
298,597
17
21,826
276,788
276,788
State and
municipalities
11,348
831
10,517
10,517
$2,997,087
$4,343
$176,727
$2,824,703
$2,824,703
Most of the collateralized mortgage obligations consist of
planned amortization classes with final stated maturities of three
to thirty years and average lives of less than one to twelve
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.
The cumulative effect as of January 1, 1994 of adopting SFAS
No. 115 "Accounting for Certain Investments in Debt and Equity
Securities," increased the opening balance of stockholders'
equity by $6,515 to reflect the net unrealized gains on securities
classified as available-for-sale (previously carried at the
lower of aggregate amortized cost or fair value) and the
corresponding adjustments to deferred policy acquisition costs,
policy reserves, and amounts allocable to the liability for
undistributed earnings on participating business, all net of income
taxes.
In November 1995, the Financial Accounting Standards Board
issued a special report entitled A Guide to Implementation of SFAS
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 (see above), of $23,449 was recognized in stockholder's
equity at the date of transfer.
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 at determined current market
spread rates on investments of similar quality and term.
The amortized cost and estimated fair value of fixed maturity
investments at December 31, 1995, 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.
Held-to-
Maturity
Available-
for-Sale
Amortized
Estimated
Amortized
Estimated
Cost
Fair Value Cost
Fair Value Due in one year or
less
$287,565
$293,666
$326,032
$337,792
Due after one year
through five years
838,993
877,949
1,452,442
1,495,755
Due after five years
through ten years
537,365
575,896
1,023,894
1,064,871
Due after ten years
159,064
173,487
522,002
542,559
Mortgage-backed
securities
1,845,605
1,878,127
Asset-backed
securities
231,217
237,045
917,994
944,083
$2,054,204
$2,158,043
$6,087,969
$6,263,187
During the years ended December 31, 1995 and 1994,
available-for-sale securities with a fair value at the date of sale
of $4,211,649 and $1,753,445 were sold. The realized gains and
losses on such sales totaled $39,755 and $15,516 for 1995 and
$7,030 and $50,612 for 1994. During 1995 and 1994,
held-to-maturity securities with an amortized cost of $18,087 and
$15,300 were sold due to credit deterioration with insignificant
realized gains and losses. Gains on securities which were called
for redemption by the respective issuers prior to maturity were
$2,990 and $3,093 in 1995 and 1994, respectively.
At December 31, 1995 and 1994, pursuant to fully
collateralized securities lending arrangements, the Company had
loaned $343,351 and $0 of fixed maturities, respectively.
The Company makes limited use of derivative financial
instruments to manage interest rate and foreign exchange risk.
Such hedging activity consists of interest rate swap agreements,
interest rate floors and caps, and foreign currency exchange
contracts. Interest rate floors and caps are interest rate
protection instruments that require the payment by a counter-party
to the Company of an interest differential. This differential
represents the difference between current interest rates and an
agreed-upon rate, the strike rate, applied to a notional principal
amount. 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
amounts. Foreign currency exchange contracts are used to hedge the
foreign exchange rate risk associated with bonds denominated in
other than U.S. dollars. The differential paid or received on
interest rate and amounts received under interest rate floor and
cap agreements 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.
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 nto transactions only with high quality
institutions, no losses associated with non-performance on
derivative financial instruments have occurred or are expected to
occur.
The following table summarizes the financial hedge
instruments:
Notional
Strike/Swap
December 31, 1995
Amount
Rate
Maturity
Interest Rate Floor
$100,000
4.5%
[LIBOR]
1999
Interest Rate Cap
100,000
11.0% [CMT]
2000
Interest Rate Swaps
165,000
6.203% to
9.35%
01/98 to
2/2002
Foreign Currency
Exchange Contracts
66,650
N/A
10/96 to
09/98
Notional
Strike
December 31, 1994
Amount
Rate
Maturity
Interest Rate Floor
$100,000
4.5%
[LIBOR]
1999
Interest Rate Swaps
150,000
6.275% to
10.644%
01/95 -
01/2000
Foreign Currency
Exchange Contracts
70,991
N/A
10/96 -
09/98
LIBOR - London Interbank Offered Rate
CMT - Constant Maturity Treasury Rate
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, 1995 approximately 28% and 11% of the Company's
mortgage loans were collateralized by real estate located in
California and Illinois, respectively.
At December 31, 1995, the recorded investment in loans that
were considered to be impaired under SFAS No. 114 was $23,678
including $3,254 of loans with a related allowance for credit
losses of $654. Additionally, loans totaling $6,481 were on a
non-accrual basis. The average recorded investment in impaired
loans during the year ended December 31, 1995 was approximately
$29,150. For the year ended December 31, 1995, the Company
recognized interest income on those impaired loans of $675.
Interest income received and recorded using the cash basis method
of recognition during 1995 totalled $857.
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, aggregated $89,160 and
$102,538 at December 31, 1995 and 1994, respectively.
The following table presents changes in the allowance for
credit losses since January 1, 1995 (date of the adoption of SFAS
No. 114):
Balance at January 1, 1995
$57,987
Provision for loan losses
15,877
Direct chargeoffs
(10,480)
Recoveries
610
Balance at December 31, 1995
$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,
1995, commercial paper outstanding has maturities ranging from 25
to 160 days and interest rates ranging from 5.7% to 5.9%. At
December 31, 1994, maturities ranged from 40 to 120 days and
interest rates ranged from 5.4% to 6.4%
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,
1995
1994
Estimated
Carrying
Estimated
Carrying
Fair
Amount
Fair
Value
Amount
Value
ASSETS:
Fixed maturities
and short-term
investments
$8,452,226
$8,556,065
$7,825,608
$7,666,871
Mortgage loans
on real estate
1,713,195
1,749,514
2,011,059
2,037,694
Policy loans
2,237,745
2,237,745
1,905,013
1,905,013
Common stock
9,440
9,440
5,222
5,222
LIABILITIES:
Annuity contract
reserves
without life
contingencies
6,170,760
6,268,749
6,338,529
6,286,966
Policyholders'
funds
154,872
154,872
144,262
144,262
Due to Parent
Corporation
149,974
152,347
159,117
159,334
Repurchase agreements
372,965
372,965
564,160
564,160
Commercial paper
84,854
84,854
89,686
89,686
HEDGE CONTRACTS:
Interest rate
floor
84
1,320
88
76
Interest rate cap
90
90
Interest rate swaps
10,052
10,052
(771)
(771)
Foreign currency
exchange contracts
(4,604)
(4,604)
(4,345)
(4,345)
The estimated fair value of financial instruments has been
determined using available market information and appropriate
valuation methodologies. However, considerable judgement 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.
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 policyholder's 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 (loss) position for interest rates swaps are $0 and $2,985 of
unrealized losses in 1995 and 1994, respectively. Included in the
net loss position for foreign currencies exchange contracts are
$5,497 and $4,504 loss exposures in 1995 and 1994, respectvely.
See note 6 for additional information on policies regarding
estimated fair value of fixed maturities.
9. FEDERAL INCOME TAXES
The following is a reconciliation between the federal income
tax
rate and the Company's effective rate:
1995
1994
1993
Federal tax rate
35.0%
35.0%
35.0%
Change in tax rate resulting
from:
Investment income not
subject to federal tax
(0.5)
(1.0)
(1.2)
Effect of tax rate change
on net deferred tax assets
(1.8)
Change in valuation
allowance
(7.8)
(6.9)
1.0
State and environmental
taxes
0.7
0.9
Other, net
0.3
(0.3)
(0.5)
Total
27.7%
27.7%
32.5%
Temporary differences which give rise to the deferred tax
assets
and liabilities as of December 31, 1995 and 1994 are as
follows:
1995
1994
Deferred Tax
Asset
Deferred Tax
Liability
Deferred Tax
Asset
Deferred Tax
Liability
Policyholder
reserves
$162,073
$
$119,764
$
Deferred policy
acquisition costs
55,542
62,040
Deferred acquisition
cost proxy tax
58,481<PAGE>
45,422
Investment assets
16,372
97,249
Net operating loss
carryforwards
17,588
22,666
Tax credits and
other
4,786
2,564
Subtotal
242,928
71,914
287,665
62,040
Valuation allowance
(2,073)
(15,218)
Total Deferred Taxes
$240,855
$71,914
$272,447
$62,040
Amounts related to investment assets above include $33,735 and
$(47,493) related to the unrealized gains (losses) on the Company's
fixed maturities available-for-sale at December 31, 1995 and 1994,
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, 1995, the Company's subsidiaries
have approximately $50,251 of net operating loss carryforwards,
expiring through the year 2010. The tax benefit of subsidiaries'
net operating loss carryforwards, net of a valuation allowance of
$419 are included in the deferred tax assets.
The Company's valuation allowance was decreased in 1995 and
1994 by $13,145 and $6,278, respectively, primarily as a result of
taxable income in subsidiaries which was greater than expected and
the resulting 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.
The Internal Revenue Service is currently auditing tax years
1988 to 1991, inclusive. In the opinion of Company management,
amounts paid or accrued are adequate, however, it is possible that
the Company's estimate may change as a result of the completion of
the IRS audits.
10. 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, 1995, the Series B STRAPS had a 7%
dividend rate. Thereafter, the Company will, at its option, select
future dividend periods. Future dividend rates will be fixed by a
market auction process with dividend rates dependent upon the
Company. If auctions are undersubscribed or otherwise
unsuccessful, the dividend rate is fixed by formula. The Company
has the flexibility of specifying, before each auction, the rights
of redemption which it has during the succeeding dividend period.
These redemption rights are factored into the auctions which set
dividend rates.
The Series B STRAPS are redeemable at the option of the
Company at a price of $100,000 per share, plus accumulated and
unpaid dividends.
The Company's Series E 7.5% non-cumulative preferred shares
are redeemable by the Company after April 1, 1999. The shares are
not redeemable at the option of the holder at any time. 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.
On December 31, 1993, the Company issued 3,783 shares of
common stock to the Parent Corporation in connection with an
assumption of estimated tax liabilities. The Company also received
$472 and $9,098 of contributed capital in the form of deferred tax
assets from the Parent Corporation during 1994 and 1993,
respectively, in connection with the 1993 reinsurance transactions
(see Note 2).
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:
1995
1994
1993
(Unaudited)
Net Income
$114,931
$70,091
$55,995
Capital and Surplus
653,479
621,589
628,944
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, 1995 were $524,647 and
$119,299 (unaudited), respectively. The Company should be able to
pay up to $119,299 (unaudited) of dividends without regulatory
approval in 1996.
Dividends of $9,217, $7,475, and $9,335, were paid on
preferred stock in 1995, 1994, and 1993, respectively. In
addition, dividends of $39,763, $32,963, and $12,517 were paid on
common stock in 1995, 1994 and 1993, 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.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996
[Unaudited] (Dollars in Thousands)
ASSETS 1996
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized
cost (fair value $2,006,053) $1,977,771
Available for sale, at fair
value (amortized cost $5,981,777) 5,992,295
Common stock 9,583
Mortgage loans on real estate 1,516,393
Real estate 62,763
Policy loans 2,506,789
Short-term investments 506,129
Total Investments 12,571,723
Cash 81,791
Reinsurance receivable 359,673
Deferred policy acquisition costs 286,502
Investment income due and accrued 218,402
Other assets 35,428
Premiums in course of collection 92,181
Deferred income taxes 222,437
Separate account assets 5,039,240
TOTAL ASSETS $18,907,377
(Continued)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996
[Unaudited] (Dollars in Thousands)
LIABILITIES AND STOCKHOLDER'S EQUITY 1996
POLICY BENEFIT LIABILITIES:
Policy reserves $10,985,700
Policy and contract claims 380,547
Policyholders' funds 139,153
Experience refunds 84,837
Provision for policyholders' dividends 50,151
GENERAL LIABILITIES:
Due to Parent Corporation 134,051
Repurchase agreements 395,735
Commercial paper 84,488
Other liabilities 490,029
Undistributed earnings on
participating business 134,374
Separate account liabilities 5,039,240
Total Liabilities 17,918,305
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
Series B, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
200 shares issued and outstanding 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, liquidation value of $20.90
per share, issued, and outstanding 41,800
Common stock, $1 par value; 50,000,000 shares authorized;
7,032,000 shares issued and outstanding 7,032
Additional paid-in capital 657,265
Net unrealized gains (losses) on
securities available-for-sale (1,797)
Retained earnings 204,772
Total Stockholder's Equity 989,072
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $18,907,377
See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Dollars in Thousands)
Nine Months Ended
September 30,
1996 1995
REVENUES:
Annuity contract charges and premiums $67,430 $57,362
Life, accident, and health premiums earned
(net of premiums ceded totaling $43,542
and $47,077) 717,528 735,859
Net investment income 622,703 622,044
Net realized gains (losses) on investments(30,692) 1,906
1,376,969 1,417,171
BENEFITS AND EXPENSES:
Life and other policy benefits (net of
reinsurance recoveries totaling
$38,981 and $26,463) 381,420 410,712
Increase in reserves 63,056 91,258
Interest paid or credited to
contractholders 422,697 417,745
Provision for policyholders' share
of earnings (losses)
on participating business 1,813 313
Dividends to policyholders 32,081 31,268
901,067 951,296
Commissions 77,866 93,465
Operating expenses 242,233 226,135
Premium taxes 17,526 19,256
1,238,692 1,290,152
INCOME BEFORE INCOME TAXES 138,277 127,019
PROVISION FOR INCOME TAXES:
Current 58,001 61,980
Deferred (18,394) (17,104)
39,607 44,876
NET INCOME $98,670 $82,143
See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Dollars in Thousands)
Nine Months Ended
September 30,
1996 1995
OPERATING ACTIVITIES:
Net income $98,670 $82,143
Adjustments to reconcile net income to
net cash provided by operating
activities:
Gain allocated to par policyholders 1,814 313
Amortization of investments 18,562 20,886
Realized losses (gains) on disposal
of investments and write-downs of
mortgage loans and real estate 30,692 (1,694)
Amortization 24,741 35,472
Deferred income taxes (18,676) (17,330)
Changes in assets and liabilities:
Policy benefit liabilities 206,966 222,687
Reinsurance receivable (25,749) (26,667)
Accrued interest and other
receivables (12,671) (20,527)
Other, net 28,593 (70,263)
Net cash provided by
operating activities 352,942 225,020
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and
redemptions of investments:
Fixed maturities
Held-to-maturity
Sales 11,466
Maturities and redemptions 409,012 504,168
Available-for-sale
Sales 2,664,867 2,846,901
Maturities and redemptions 621,231 90,020
Mortgage loans 188,398 191,009
Real estate 2,111 4,239
Common stock 1,773 0
Purchases of investments:
Fixed maturities
Held-to-maturity (336,291) (698,794)
Available-for-sale (3,590,988)(2,849,310)
Mortgage loans (3,485) (683)
Real estate (5,923) (4,594)
Common stock (1,904) (1,387)
Net cash (used in)
provided by investing
activities (51,199) 93,035
(Continued)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Dollars in Thousands)
Nine Months Ended
September 30,
1996 1995
FINANCING ACTIVITIES:
Contract withdrawals, net of deposits $(275,213)$(75,477)
Due to Parent Corporation (15,923) (24,039)
Dividends paid (42,159) (35,262)
Net commercial paper (repayments) borrowings (366) (5,472)
Net repurchase agreements (repayments)
borrowings 22,770 (247,224)
Net cash (used in) provided by
financing activities (310,891)(387,474)
NET DECREASE IN CASH (9,148) (69,419)
CASH, BEGINNING OF YEAR 90,939 131,621
CASH, END OF PERIOD $ 81,791 $ 62,202
See notes to consolidated financial statements.
(Concluded)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Amounts in Thousands, except Share Amounts)
1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements and related notes have
been prepared in accordance with generally accepted accounting
principles for interim financial reporting. Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. In the
opinion of management, all adjustments [consisting of only normal
recurring accruals] considered necessary for fair presentation of
the Company's financial position, results of operations, and cash
flows have been included. These financial statements should be
read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended December 31, 1995.
The results of operations for the periods presented are not
necessarily indicative of the results for a full year.
2. OTHER
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 1996 results of operations include a
release of $25,600 from that provision, to reflect the resolution
of 1988 and 1989 tax issues with the Internal Revenue Service. In
the opinion of Company management, the remaining amounts paid or
accrued are adequate, however, it is possible that the Company's
estimate may change as a result of the completion of the IRS
audits.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of the issuance and distribution of the
Contracts, other than commissions on sales of the Contracts are as
follows:
Securities and Exchange Commission fee $ 21,551.72
Accounting fees and expenses $ 5,000.00
Legal fees and expenses $ 20,000.00
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Provisions exist under the 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 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Form of Principal Underwriter and Distribution
Agreement
incorporated by reference1.
2. Not applicable.
3. (a) Articles of Incorporation of Great-West Life &
Annuity Insurance Company incorporated by reference1.
(b) Bylaws of Great-West Life & Annuity Insurance Company
incorporated by reference1.
4. (a) Form of Fixed Group Annuity Contract was filed
electronically with the Registration Statement on September 6,
1996.
(b) Form of Fixed Individual Annuity Contract was
filed
electronically with the Registration Statement on September 6,
1996.
(c) Form of IRA Endorsement was filed electronically
with the
Registration Statement on September 6, 1996.
5. Opinion and consent of Ruth B. Lurie, Vice President,
Counsel
and Associate Secretary as to the legality of the securities being
registered was filed electronically with the Registration Statement
on September 6, 1996.
6. Not applicable.
7. Not applicable.
8. Not applicable.
9. Not applicable.
10. Not applicable.
11. Not applicable.
12. Not applicable.
13. Not applicable.
14. Not applicable.
15. Not applicable.
16. Not applicable.
17. Not applicable.
18. Not applicable.
19. Not applicable.
20. Not applicable.
21. List of significant subsidiaries of Great-West Life & Annuity
Insurance Company, the state of incorporation or organization or
each, and the names under which such subsidiaries do business is
incorporated by reference1.
22. Not applicable.
23. (a) Consent of Jorden Burt Berenson & Johnson LLP was filed
electronically with the Registration Statement on September 6,
1996.
(b) Consent of Deloitte & Touche LLP is attached as
Exhibit 23b.
24. Power of Attorney for Messrs. Balog, Burns, Dackow, Desmarais,
Jr., Gratton, Hart, Mackness, McCallum, Nickerson, Pitfield,
Plessis-Belair, Turner and Walsh, Graham and Kavanagh were filed
electronically with the Registration Statement on September 6,
1996.
25. Not applicable.
26. Not applicable.
27. Financial Data Schedule for Great-West Life & Annuity
Insurance Company.
1 Filed electronically on October 29, 1996 with Amendment No. 2
of
the Registration Statement on Form N-4 (File No. 333-01153 and
811-07549) and Amendment No. 2 of the Registration Statement on
Form S-1 (File No. 333-01173) and incorporated by reference herein.
1 Filed electronically on October 29, 1996 with Amendment No. 2 of
the Registration Statement on Form N-4 (File No. 333-01153 and
811-07549) and Amendment No. 2 of the Registration Statement on
Form S-1 (File No. 333-01173) and incorporated herein by
reference.
Item 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in this registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration
statement or any material change to such information, including
(but not limited to) any addition or deletion of a managing
underwriter.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Registration Statement on Form
S-1 to be signed on its behalf, in the City of Englewood, State of
Colorado, on this 1 day of November , 1996.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
(Depositor)
By: /s/ W.T. McCallum
William T. McCallum, President
and Chief Executive Officer
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the
capacities with Great-West Life & Annuity Insurance Company and on
the dates indicated:
Signature and Title Date
/s/ Robert Gratton* November 1, 1996
Director, Chairman of the
Board (Robert Gratton)
/s/ W.T. McCallum November 1, 1996
Director, President and Chief Executive
Officer (William T. McCallum)
/s/ G.R. Derback November 1, 1996
Vice President, Financial Control
and Controller (Glen R. Derback)
<PAGE>
Signature and Title Date
/s/ James Balog* November 1, 1996
Director, (James Balog)
/s/ James W. Burns* November 1, 1996
Director, (James W. Burns)
/s/ Orest T. Dackow* November 1, 1996
Director (Orest T. Dackow)
/s/ Paul Desmarais, Jr.* November 1, 1996
Director (Paul Desmarais, Jr.)
/s/ Robert G. Graham* November 1, 1996
Director (Robert G. Graham)
/2/ N. Berne Hart* November 1, 1996
Director (N. Berne Hart)
/s/ Kevin P. Kavanagh* November 1, 1996
Director (Kevin P. Kavanagh)
/s/ William Mackness* November 1, 1996
Director (William Mackness)
/s/ Jerry E.A. Nickerson* November 1, 1996
Director (Jerry E.A. Nickerson)
<PAGE>
Signature and Title Date
/s/ P. Michael Pitfield* November 1, 1996
Director (P. Michael Pitfield)
/s/ Michel Plessis-Belair* November 1, 1996
Director (Michel Plessis-Belair)
/s/ Ross J. Turner* November 1, 1996
Director (Ross J. Turner)
/s/ Brian E. Walsh* November 1, 1996
Director (Brian E. Walsh)
*By: /s/ G.R. Derback November 1, 1996
G. R. Derback
Attorney-in-fact pursuant to Powers of Attorney filed with
this Registration Statement.
<PAGE>
Exhibit Table
Form S-1
Exhibit
1. Form of Underwriting Agreement
and Distribution Agreement 1
3. (i) Articles of Incorporation 1
(ii) Bylaws 1
4. (i) Form of Fixed Group
Annuity Contract 2
(ii) Form of Fixed Individual
Annuity Contract 2
(iii) Form of IRA Endorsement 2
5. Opinion and consent of Ruth B. Lurie,
Vice President, Counsel and Associate
Secretary, as to the legality of the
securities being registered. 2
21. List of significant subsidiaries of
Great-West Life & Annuity Insurance
Company, the state of incorporation or
organization of each, and the names under
which such subsidiaries do business 1
23. (a) Consent of Jorden Burt
Berenson & Johnson LLP 2
(b) Consent of Deloitte & Touche, LLP 3
24. Power of Attorney for Messr. Balog,
Burns, Dackow, Desmarais, Jr.,
Graham, Gratton, Hart, Kavanagh,
Mackness, McCallum, Nickerson,
Pitfield, Plessis-Belaire, Turner and Walsh 2
27. Financial Data Schedule 3
1 Filed on October 29, 1996 with Amendment No. 2 to Registration
Statement on Form N-4 (File No. 333-01153 and 811-07549) and
Amendment No. 2 on Form S-1 (File No. 333-01173) and incorporated
herein by reference.
2 Filed on September 6, 1996 with Registration Statement and
incorporated herein by reference.
3 Filed on November 1, 1996 with Amendment No. 1 to Registration
Statement and incorporated herein by reference.
EXHIBIT 23b
<PAGE>
Independent Auditors' Consent
We consent to the use in this Pre-Effective Amendment No. 1 to the
Registration Statement of Great-West Life & Annuity Insurance
Company on Form S-1 of our report dated January 19, 1996, appearing
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Experts"
in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
October 31, 1996
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 5,992,295
<DEBT-CARRYING-VALUE> 1,977,771
<DEBT-MARKET-VALUE> 2,006,053
<EQUITIES> 9,583
<MORTGAGE> 1,516,393
<REAL-ESTATE> 0
<TOTAL-INVEST> 12,571,723
<CASH> 81,791
<RECOVER-REINSURE> 359,673
<DEFERRED-ACQUISITION> 286,502
<TOTAL-ASSETS> 18,907,377
<POLICY-LOSSES> 11,366,247
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 408,515
<NOTES-PAYABLE> 84,488
0
121,800
<COMMON> 7,032
<OTHER-SE> 860,240
<TOTAL-LIABILITY-AND-EQUITY> 18,907,377
784,958
<INVESTMENT-INCOME> 622,703
<INVESTMENT-GAINS> (30,692)
<OTHER-INCOME> 0
<BENEFITS> 901,067
<UNDERWRITING-AMORTIZATION> 23,190
<UNDERWRITING-OTHER> 314,435
<INCOME-PRETAX> 138,277
<INCOME-TAX> 39,607
<INCOME-CONTINUING> 98,670
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,670
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
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