<PAGE>
As filed with the Securities and Exchange Commission on May 28, 1997
Registration No. 333-11493
______________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
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
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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: _____
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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, Not Applicable
Position on Indemnification
for Securities Act Liabilities
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THE SCHWAB FIXED ANNUITY
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 prior to maturity. This Contract may not be available in all
states.
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 directly 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 more or 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
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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 June 2, 1997
The Contracts are not deposits of, or guaranteed or endorsed by any bank, nor
are the Contracts federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency. The
Contracts involve certain investment risks, including possible loss of
principal.
To Place Orders and for Annuity Account Information: Contact the Schwab
Annuity Service Center at 800-838-0650 or P.O. Box 7666, San Francisco,
California 94120-7666.
A b o u t 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.
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TABLE OF CONTENTS
Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
KEY FEATURES OF THE ANNUITY . . . . . . . . . . . . . . . . . . . . . 1
FEE TABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY . . . . . . . . . . . . . 4
THE GUARANTEE PERIOD FUND . . . . . . . . . . . . . . . . . . . . . . 4
THE MARKET VALUE ADJUSTMENT . . . . . . . . . . . . . . . . . . . . . 6
APPLICATION AND CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . 8
TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
CASH WITHDRAWALS . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
TELEPHONE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . 10
DEATH BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . 13
PAYMENT OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 17
ASSIGNMENTS OR PLEDGES . . . . . . . . . . . . . . . . . . . . . . . . 21
DISTRIBUTION OF THE CONTRACTS . . . . . . . . . . . . . . . . . . . . 21
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . 22
RIGHTS RESERVED BY THE COMPANY . . . . . . . . . . . . . . . . . . . . 37
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 37
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 38
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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.
_________________________________________________________________
<PAGE>
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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.
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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. Market Value Adjustments 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 6.
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
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satisfy the minimum distribution requirements of the Internal Revenue Code of
1986, as amended, must begin no later than the Owner's attainment of age 70 1/2.
Premium Tax - The amount of tax, if any, charged by a state or other
governmental authority.
Request - Any 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 each
day that the New York Stock Exchange is open for trading.
Transfer - To move money among the Guaranteed Periods.
We, our, us, or GWL&A: Great-West Life & Annuity Insurance Company.
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KEY FEATURES OF THE ANNUITY
The Contract currently allows Owners 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, p.6.) The Contract may not be available in all states or
jurisdictions. Please consult with your representative or call the Schwab
Annuity Service Center for more information.
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 pay by check or instruct us to transfer funds from
your Schwab account. The minimum initial investment is $5,000 (or $2,000 if
in an IRA). Subsequent investments must be at least $500. The minimum
initial investment may be reduced to $1,000 should the Owner agree to make
additional $100 per month minimum recurring deposits through an ACP.
Free Look Period. The Contract provides for a Free Look Period which allows
you to cancel your investment generally within 10 days 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," p. 8.)
Allocation of the Initial Investment. Your initial investment in the
Guarantee Period Fund will be directly 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.
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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," p. 13.)
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," p. 13.)
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 applicable Guarantee Period and the Guaranteed Interest Rate and the
value of the Contribution(s) allocated to the Guarantee Period being less than
the Contribution(s) made. (See "Market Value Adjustment," p. 6.)
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," p. 13.) 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," p. 6.)
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," p. 6.) Amounts
withdrawn also may be subject to a surrender charge. (See "Charges and
Deductions," p. 13.) 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," p. 9.)
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 payment options
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," p. 14.)
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," p. 11.)
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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.
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________________________________________________________________
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
1/ There is a $10 fee for each Transfer in excess of twelve in any
contract year.
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_________________________________________________________________
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 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 be allocated to one or more Guarantee Periods 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
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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 only in those states where the Contract
is available. 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.
T h e 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," p. 6.)
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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
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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," p. 6.)
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.
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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"). A 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;
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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) S u r renders, 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) S u r renders, 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 Schwab 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:
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(1) Contributions allocated to one or more of the then available
Guarantee Periods will be allocated as directed, effective upon
the Transaction Date at the stated rate and Guarantee Period
Maturity Date then effective.
(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.
Additional Contributions may be made at any time prior to the Payment
C o mmencement 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," p. 6.) 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
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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," p. 6.) 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," p. 17.)
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Withdrawal Requests must be in writing to ensure that your instructions
regarding withholding are followed. In the absence of an adequate election,
the Request will not 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.
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_________________________________________________________________
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.
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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):
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(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
b e y o nd 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.
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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).
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_________________________________________________________________
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 Contract 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
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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:
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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," p. 17.)
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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. This selection may be changed, by Request, at any time
up to 30 days before the annuity date. 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," p. 17.)
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
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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.
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Option 5: Any Other Form
This option allows an Owner the ability to choose any other form of
annuity which is acceptable to the Company.
***
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
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<PAGE>
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.
T h e C ontract 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
p a y m ents 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
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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.
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<PAGE>
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/her
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/her 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,
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<PAGE>
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.
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Individual Retirement Annuities
The Contract may be used with IRAs as described in Section 408 of the
Code which 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.
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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.
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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.
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_________________________________________________________________
SELECTED FINANCIAL DATA
_________________________________________________________________
The following is a summary of certain financial data of the Company.
This summary has been derived in part from, and should be read in conjunction
with, the financial statements of the Company included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Three months Years Ended December 31,
Ended
(in Millions) 3/31/97 3/31/96 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Premiums and other income $262 $294 $1,199 $1,067 $1,000 $696 $245
Net investment income 218 206 837 835 768 792 661
Realized investment
gains(losses) (5) 2 (21) 8 (72) 25 (4)
Total Revenues 475 $502 $2,015 $1,910 $1,696 $1,513 $902
Total benefits and expenses $424 $439 $1,824 $1,733 $1,594 $1,417 $844
Income tax and expenses 19 14 56 49 28 31
cumulative effect
of adopting a new
accounting method
for income taxes 0 0 0 0 0 0 (23)
Net income $ 32 $ 49 $ 135 $ 128 $ 74 $65 $ 63
BALANCE SHEET DATA
Investment assets $12,484 $12,292 $12,717 $12,473 $11,791 $11,592 $10,771
Separate account assets 5,854 4,390 5,485 3,999 2,555 1,680 937
Total assets 19,570 17,946 19,351 17,682 15,616 14,296 12,948
Total policy liabilities 11,589 11,397 11,687 11,492 10,929 10,592 10,352
33
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Total shareholder's equity 1,034 1,971 1,034 993 777 821 769
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company
Great-West Life & Annuity Insurance Company (the "Company") is a stock
life insurance company originally organized under the laws of the State of
Kansas in 1907 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, the
Company redomesticated and is now organized under the laws of the State of
Colorado.
The Company 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 in all states in the United
States except New York.
The Company operates in one business segment as a provider of life,
health and annuity products; however, the business operations of the Company
will be discussed in terms of major business units, which are:
Employee
Benefits - life, health, disability income and 401(k) products for group
clients.
Financial
Services - accumulation and payout annuity products for both group and
individual clients, primarily Services in the public/non-profit
sector, as well as insurance products for individual clients.
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<PAGE>
Investment
Operations - management of assets, both general funds and separate accounts
which segregate, from the Company's general account, the assets
and liabilities of contractholders of variable products ("Separate
Accounts")
Management's discussion and analysis of financial condition and results
of operations of the Company for first quarter of 1997 and 1996 and the three
years ended December 31, 1996 follows. In connection with, and because it
desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company cautions readers
regarding certain forward-looking statements contained in the following
discussion and elsewhere in this prospectus and in any other statements made
by, or on behalf of, the Company, whether or not in future filings with the
Securities and Exchange Commission. Forward-looking statements are statements
not based on historical information and which relate to future operations,
strategies, financial results, or other developments. In particular,
statements using verbs such as "expect," "anticipate," "believe," or words of
similar import generally involve forward-looking statements which represent
the Company's beliefs concerning future or projected levels of sales of the
Company's products, investment spreads or yields, or the earnings or
profitability of the Company's activities.
Forward-looking statements are necessarily based upon estimates and
assumptions that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Company's control and many of which, with respect to future business
decisions, are subject to change. These uncertainties and contingencies can
affect actual results and could cause actual results to differ materially from
those expressed in any forward-looking statements made by, or on behalf of,
t h e Company. Whether or not actual results differ materially from
f o r w a r d-looking statements may depend on numerous foreseeable and
unforeseeable events or developments, some of which may be national in scope,
such as general economic conditions and interest rates, some of which may be
related to the insurance industry generally, such as pricing competition,
regulatory developments and industry consolidation, and others of which may
relate to the Company specifically, such as credit, volatility and other risks
associated with the Company's investment portfolio, and other factors.
Readers are also directed to consider other risks and uncertainties discussed
in documents filed with the SEC. The Company disclaims any obligations to
update forward-looking information.
Comparison of First Three Months Ended March 31, 1997 and 1996
Pursuant to a December 31, 1993 agreement between the Company and The
Great-West Life Assurance Company (the "Parent Corporation") 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 $26 million from the provision to reflect the resolution
36
<PAGE>
of 1988 and 1989 tax issues with the Internal Revenue Service. Excluding this
amount from 1996 earnings would have resulted in net income increasing 39%
from 1996 to 1997. The growth in income from recurring operations is
attributable to several factors: higher fee income from assets under
management, higher margins on investment products, and better mortality and
morbidity. Also during the first quarter of 1996, the Company strengthened
reserves in the individual annuity product line which negatively impacted net
income.
Premiums and other income decreased 11% from $294 million in 1996 to
$262 million in 1997. The release of contingent liability discussed above was
included in the premium and other income line in 1996. Excluding this income,
the decrease would have only been 2% which reflects a 4% reduction in group
life and health premiums due to high termination rates associated with price
sensitivity and competition among managed care companies.
Net investment income increased from $206 million in 1996 to $218
million in 1997. This growth in net investment income is a direct result of
the growth of investment assets which was partially offset by a lower
effective yield on investments. The actual earned rate for the first quarter
of 1997 was 7.13% versus 7.27% for the first quarter of 1996.
Realized investment gains (losses) changed from a net realized capital
gain of $2 million in 1996 to a net realized capital loss of $5 million in
1997. The increase in interest rates in the first quarter of 1997 resulted in
realized losses totaling $3 million on the sale of fixed maturities, while
lower interest rates in the first quarter of 1996 contributed to $4 million of
fixed maturity gains. Provisions for asset losses were $2 million in 1997
versus $3 million in 1996.
Total benefits and expenses decreased 3% in 1997 due to the reduction in group
health claims which is consistent with the premium decrease discussed
previously.
The effective income tax rate was reduced in 1996 by the release of the
contingent liability discussed above which was not taxable.
Investment assets decreased from December 31, 1996 to March 31, 1997 by $233
million. At the same time separate account assets increased $369 million.
This reflects the continued trend of contractholders moving to variable
products and away from the more traditional guaranteed products.
Comparison of Years Ended December 31, 1996 and 1995
The Company's consolidated net income increased 5% to $134.6 million,
when compared to 1995.
Premiums and other income increased 12% from $1,067.4 million in 1995 to
$1,199.2 million in 1996. The 1996 premiums included $164.8 million of
reinsurance premium associated with the recapture of a block of participating
individual insurance business from Great-West Life. This transaction did not
impact consolidated net income, as it was offset by an increase in reserves
37
<PAGE>
(see discussion of policy benefits below). Therefore, premiums and other
income from operations were down from 1995 levels, which reflects a 7%
reduction in group life and health premiums due to high termination rates
associated with price sensitivity and competition from managed care companies.
Net investment income increased $1.5 million from $835.1 million in 1995
to $836.6 million in 1996. This change reflected an increase in the amount of
invested assets of $243.8 million, which was largely offset by a lower
effective yield on investments purchased in late 1995 and early 1996. The
increase in invested assets is primarily the result of growth in policy loans
on the Corporate-Owned Life Insurance ("COLI") business.
The Company's realized investment gains (losses) changed from a net
realized gain of $7.5 million in 1995 to a net realized loss of $21.1 million
in 1996. The increase in interest rates in 1996 resulted in realized losses
on the sale of fixed maturities totaling $11.6 million, while lower interest
rates contributed to $28.2 million of fixed maturity gains recorded in 1995.
The 50% improvement in the provision for asset losses helped to partially
offset the fixed maturities capital losses, as the change in provision was
reduced from $22.0 million in 1995 to $10.6 million in 1996.
Total benefits and expenses includes life and other policy benefits,
increase in reserves, interest paid or credited to contractholders, expenses,
and dividends to policyholders. The increase of 5% from $1,733.3 million in
1995 to $1,824.3 million in 1996 is primarily the result of the increase in
reserves of $164.8 million associated with the recapture of insurance from
Great-West Life. After this adjustment the total benefits and expenses
actually decreased from 1995 to 1996. This is the result of a reduction in
group health claims which is consistent with the premium decrease discussed
previously.
Net income in 1996 also reflects a $25.6 million release of a previously
recorded contingent liability that the Company assumed from Great-West Life in
1993. The release was triggered by the resolution of 1988 and 1989 tax issues
with the Internal Revenue Service.
The effective income tax rates were reduced in 1996 by the release of
the contingent liability which was not taxable and in 1995 by the release of a
$13.3 million deferred tax valuation allowance in a subsidiary investment
company.
Comparison of Years Ended December 31, 1995 and 1994
The Company's consolidated net income increased 73% in 1995, compared
with 1994. The majority of the increase was in the Financial Services unit
where the asset intensive lines benefited from a combination of lower mortgage
writedowns and capital gains from sales in the fixed maturities portfolio, as
described below.
Premiums and other income increased 7% from $1,000.1 million in 1994 to
$1,067.4 million in 1995, as the result of an increase in group life and
38
<PAGE>
health premiums which were augmented by the acquisition of blocks of business
from Confederation Life Insurance Company and Life of Georgia.
Net investment income increased $67.4 million in 1995 to a total of
$835.1 million reflecting an increase in invested assets from $11.8 billion to
$12.5 billion in 1995. The increase was driven by the growth in policy loans
associated with COLI business.
The Company's realized gains (losses) changed from a net realized loss
of $71.9 million in 1994 to a net realized gain of $7.5 million in 1995. The
provision for asset losses, included in realized losses, continued to decline
as the $22.0 million in 1995 was $12.2 million lower than the $34.2 million
recorded in 1994, as the mortgage portfolio continued to improve. Interest
rates decreased in 1995, leading to capital gains on the sale of fixed
maturities of $28.2 million which were better than the $39.8 million of losses
recorded in 1994.
Total benefits and expenses increased 9% in 1995 to a total of $1,733.3
million. This increase reflects the growth in the group life and health block
of business, and its impact on the increase in group health claims and
operating expenses.
The effective income tax in 1995 and 1994 was lower than the statutory
rate due to a reduction of $13.3 million and $7.1 million, respectively, in
the deferred tax asset valuation allowance held in a real estate subsidiary.
Investment Operations
The Company's primary investment objective is to acquire assets whose
durations and cash flows reflect the characteristics of the Company's
liabilities, while meeting industry, size, issuer and geographic
diversification standards. Formal liquidity and credit quality parameters have
also been established.
The Company follows rigorous procedures to control interest rate risk
and observes strict asset and liability matching guidelines. These guidelines
are designed to ensure that even in changing interest rate environments the
Company's assets will always be able to meet the cash flow and income
r e q u i rements of its liabilities. Through dynamic modeling, using
state-of-the-art software to analyze the effects of a wide range of possible
market changes upon investments and policyholder benefits, the Company ensures
that its investment portfolio is appropriately structured to fulfill financial
obligations to its policyholders.
A summary of the Company's invested assets (Millions) follows:
1996 1995
Fixed maturities, available for sale,
at fair value $ 6,206 $ 6,263
Fixed maturities, held at maturity,
at amortized cost 1,993 2,054
Mortgage loans 1,488 1,713
39
<PAGE>
Real estate and common stock 88 70
Short-term investments 419 135
Policy loans 2,523 2,238
$12,717 $12,473
Fixed Maturities
Fixed maturity investments include publicly traded bonds, privately
placed bonds and public and private structured assets. This latter category
c o n t ains both asset-backed and mortgage-backed securities, including
collateralized mortgage obligations ("CMOs"). The Company's strategy related
to structured assets is to focus on those with lower volatility and minimal
credit risk. The Company does not invest in higher risk CMOs such as
interest-only and principal-only strips, and currently has no plans to invest
in such securities.
Private placement investments are generally less marketable than
publicly traded assets, yet they typically offer covenant protection which
allows the Company, if necessary, to take appropriate action to protect its
investment. The Company believes that the cost of the additional monitoring
and analysis required by private placements is more than offset by their
enhanced yield.
One of the Company's primary objectives is to ensure that its fixed
maturity portfolio is maintained at a high average quality, so as to limit
credit risk. In excess of 85% of the value of the securities in this
portfolio are rated by external rating agencies. If not externally rated, the
securities are rated by the Company on a basis intended to be similar to that
of the rating agencies.
The distribution of the fixed maturity portfolio (both available for
sale and held to maturity) by credit rating is summarized as:
Credit Rating 1996 1995
AAA 45.9% 43.9%
AA 8.1 8.0
A 23.7 26.8
BBB 20.9 19.2
BB and Below (non-investment grade) 1.4 2.1
TOTAL 100.0% 100.0%
At December 31, 1996, the Company had one bond in default in the amount
of $8 million, and one potentially problematic bond, with a carrying value of
$6.4 million, which, although current, is judged by management as likely to
require either restructuring or other types of relief. Both bonds are carried
at their estimated net realizable values. Their combined total of $14.4
million is a relatively low proportion of the total fixed maturity portfolio
(less than .2%) as the high credit quality of the portfolio limits the
40
<PAGE>
Company's exposure to problematic bonds. At December 31, 1995, there were no
bonds in default and only one potentially problematic security, with a
carrying value of $7.4 million.
Mortgage Loans
During 1996, the mortgage portfolio declined 13% to $1.5 billion, net of
i m pairment reserves. The Company has not actively sought new loan
opportunities since 1989 and, as such, has experienced an ongoing reduction in
this portfolio's balance.
The Company follows a comprehensive approach to the management of
mortgage loans which includes ongoing analysis of key mortgage characteristics
such as debt service coverage, net collateral cash flow, property condition,
loan to value ratios and market conditions. Collateral valuations are
performed for those mortgages which, after review, are determined by
management to present possible risks and exposures. These valuations are then
incorporated into the determination of the Company's allowance for credit
losses. Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards Nos. 114 and 118 (see Note 1 to the financial
statements), both of which deal with accounting for impaired loans (defined as
those loans upon which the Company will likely collect less than all amounts
due according to the contractual terms of the agreement). As the Company
already provided for impairment reserves through its allowance procedures, the
adoption of the new standards had no material effect upon the Company's
financial position.
The average balance of impaired loans continued to remain low at $39.1
million in 1996 compared with $29.1 million in 1995, and foreclosures totaled
$14.0 million and $37.0 million in 1996 and 1995, respectively. The low
levels of problematic mortgages relative to the Company's overall balance
sheet are due to the ongoing decrease in the size of the mortgage portfolio,
the Company's active loan management program and improvement in market
conditions.
Occasionally, the Company elects to restructure certain loans if the
economic benefits to the Company are believed to be more advantageous than
those achieved by acquiring the collateral through foreclosure. At December
31, 1996 and 1995, the Company's loan portfolio included $68.3 million and
$89.2 million, respectively, of non-impaired restructured loans.
Real Estate and Common Stock
The Company's real estate portfolio is composed primarily of properties
acquired through the foreclosure of troubled mortgages. The Company operates
a wholly owned real estate subsidiary which attempts to maximize the value of
these properties through rehabilitation, leasing and sale. The Company
anticipates limited, if any, investments in voluntary real estate assets
during 1997.
41
<PAGE>
The common stock portfolio is composed of mutual fund seed money and
some private equity investments. The Company anticipates a limited
participation in the stock markets in 1997.
Derivatives
The Company uses certain derivatives, such as futures, options, and
swaps, for purposes of hedging interest rate and foreign exchange risk. These
derivatives, when taken alone, may subject the Company to varying degrees of
market and credit risk; however, when used for hedging, these instruments
typically reduce risk. The Company controls the credit risk of its financial
contracts through credit approvals, limits and monitoring procedures. Note 6
to the financial statements (page 46) contains a summary of the Company's
outstanding financial hedging derivatives.
Other
General economic conditions improved during 1996, including improvement
or stabilization in many real estate markets. If present market conditions
continue, the Company does not expect to recognize any asset chargeoffs or
restructurings which would result in a material adverse effect upon the
Company's financial condition in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have liquidity requirements that vary among the
principal product lines. Life insurance and pension plan reserves are
primarily long-term liabilities. Accident and health reserves, including
long-term disability, consist of both short-term and long-term liabilities.
Life insurance and pension plan reserve requirements are usually stable and
p r e dictable, and are supported primarily by long-term, fixed income
investments. Accident and health claim demands are stable and predictable but
generally shorter term, requiring greater liquidity.
Generally, the Company has met its operating requirements by maintaining
appropriate levels of liquidity in its investment portfolio and utilizing
positive cash flows from operations. Liquidity for the Company has remained
strong, as evidenced by significant amounts of short-term investments and
cash, which totaled $544.2 million and $225.8 million as of December 31, 1996
and 1995, respectively.
During 1996, cash increased $34.2 million to $125.2 million as of
December 31, 1996. This increase primarily reflects the positive cash flow
from operating activities ($712.4 million). The increase was partially offset
by net investment purchases($127.7 million), contract withdrawals ($413.6
million), net repurchase agreement payments ($88.6 million) and payment of
dividends on stock ($56.7 million).
During 1995, cash decreased $40.7 million due to contract withdrawals
($217.2 million), net repurchase agreement payments ($191.2 million), net
42
<PAGE>
investment purchases ($27.4 million), and payment of dividends on stock
($49.0 million). Cash flow from operating activities was $458.1 million.
The 1994 increase in cash primarily reflects cash flows from operating
activities net of withdrawals and net investment purchases.
Funds provided from premiums and fees, investment income and maturities
of investment assets are reasonably predictable and normally exceed liquidity
requirements for payment of claims, benefits and expenses. However, since the
timing of available funds cannot always be matched precisely to commitments,
imbalances may arise when demands for funds exceed those on hand. Also, a
demand for funds may arise as a result of the Company taking advantage of
current investment opportunities. The Company's capital resources represent
funds available for long-term business commitments and primarily consist of
retained earnings and proceeds from the issuance of commercial paper and
equity securities. Capital resources provide protection for policyholders
and the financial strength to support the underwriting of insurance risks, and
allow for continued business growth. The amount of capital resources that may
be needed is determined by the Company's senior management and Board of
Directors as well as by regulatory requirements. The allocation of
resources to new long-term business commitments is designed to achieve an
attractive return, tempered by considerations of risk and the need to support
the Company's existing business.
The Company's financial strength provides the capacity and flexibility
to enable it to raise funds in the capital markets through the issuance of
commercial paper. The Company continues to be well capitalized, with
sufficient borrowing capacity to meet the anticipated needs of its business.
The Company had $84.7 million of commercial paper outstanding at December 31,
1996, compared with $84.9 million at December 31, 1995. The commercial paper
has been given a rating of A-1+ by Standard & Poor's Corporation and a rating
of P-1 by Moody's Investors Service, each being the highest rating available.
ACCOUNTING PRONOUNCEMENTS
In 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The implementation of this statement
had no material effect on the Company's results of operations, liquidity or
financial condition.
Effective January 1, 1995, the Company adopted 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". 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 condition. See Note 6 to the financial statements
for further information (page 46).
In 1994, the Company implemented SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". The cumulative effect as of
January 1, 1994 of adopting SFAS No. 115 increased the opening balance of
43
<PAGE>
stockholder's equity by $6.5 million to reflect the net unrealized gains on
securities classified as available-for-sale (previously carried at the lower
of aggregated 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.
During the fourth quarter of 1995, the Financial Accounting Standards
Board issued a guide to implementation of SFAS No. 115, which permits a
one-time opportunity to reclassify securities subject to SFAS No. 115.
Consequently, the Company reassessed the classification of its investment
portfolio in December 1995 and reclassed securities totaling $2.1 billion from
held-to-maturity to available-for-sale. In connection with this
reclassification, an unrealized gain, net of related policyholder amounts and
deferred income taxes, of $23.4 million was recognized in stockholder's equity
at the date of transfer.
In connection with the employee transfer discussed in Note 2 to the
financial statements on page 42, the Company in 1997 will apply the provisions
of SFAS No. 87, "Employers Accounting for Pensions, SFAS No. 106,
"Employers' Accounting for Post Retirement Benefits Other Than Pensions, and
SFAS No. 123, "Accounting for Stock-Based Compensation". Previously employee
expenses (including costs for benefit plans) were transferred from Great-West
Life to the Company through administrative services agreements. Accordingly,
the implementation of these standards will have no material effect on the
financial results of the Company.
Regulation
General
The Company must comply with the insurance laws of all jurisdictions in
which its is licensed to do business. Although the intent of regulation
varies, most jurisdictions have laws and regulations governing rates,
solvency, standards of business conduct and various insurance and investment
products. The form and content of statutory financial reports and the type
and concentration of investments are also regulated.
The Company's operations and accounts are subject to examination by the
Colorado Insurance Division and other regulators at specified intervals. The
latest financial examination by the Colorado Insurance Division was completed
in 1997, and covered the 5-year period ending December 31, 1995. This
examination produced no significant adverse findings regarding the Company.
Solvency Regulation
T h e National Association of Insurance Commissioners has adopted
risk-based capital rules for life insurance companies. These rules recommend
a specified level of capital depending upon the types and quality of
investments held, the types of business written, and the types of liabilities
maintained. Depending on the ratio of the insurer's adjusted capital to its
risk based capital, the insurer could be subject to various regulatory actions
44
<PAGE>
ranging from increased scrutiny to conservatorship. Based on the Company's
December 31, 1996 statutory financial reports, the Company was well within
these rules.
The National Association of Insurance Commissioners Insurance Regulatory
Information System ratios are another set of tools used by regulators to
provide an "early warning" as to when a company may require special attention.
There are twelve categories of financial data with defined usual ranges for
each. For 1996, the Company was within the usual ranges in all categories.
Insurance Holding Company Regulations
The Company is subject to insurance holding company regulations in
Colorado. These regulations contain certain restrictions and reporting
requirements for transactions between an insurer and its affiliates, including
payment of dividends. They also regulate changes in control of an insurance
company.
Securities Laws
The Company is subject to various levels of regulation under federal
securities laws. Certain of the Company's Separate Accounts and the mutual
funds used as funding vehicles for those Separate Accounts, and variable
insurance and annuity products are registered under the Investment Company Act
of 1940 and the Securities Act of 1933.
Guaranty Funds
Under insurance guaranty fund laws existing in all states, insurers
doing business in those states can be assess (up to prescribed limits) for
certain obligations of insolvent insurance companies. The Company has
established a reserve of $9.1 million as of December 31, 1996 to cover future
assessments of known insolvencies. The Company has historically recovered
more than half of the guaranty fund assessments through statutorily permitted
premium tax offsets. The Company has a prepaid asset associated with guaranty
fund assessments of $5.6 million at December 31, 1996.
Canadian Regulation
Because the Company is a subsidiary of Great-West Life, which is a
Canadian company, the Office of Superintendent of Financial Institutions
Canada conducts periodic examinations of the Company and approves certain
investments in subsidiary companies.
Ratings
The Company is rated by a number of nationally recognized rating
agencies. The ratings represent the opinion of the rating agencies on the
financial strength of the Company and its ability to meet the obligations of
its insurance policies.
45
<PAGE>
Rating Agency Measurement Rating
A.M. Best Company Financial Condition
and Operating Performance A++*
Duff & Phelps Corporation Claims Paying Ability AAA*
Standard & Poor's Corporation Claims Paying Ability AA+**
Moody's Investors Service Insurance Financial Strength Aa2***
* Highest ratings available
** Second highest rating out of 17 rating categories
*** Third highest rating out of 19 rating categories
Miscellaneous
A portion of the Company's business is "seasonal" in nature in the sense
that reported claims in the group health line of business are generally higher
in the first quarter.
No customer accounted for 10% or more of the Company's consolidated
revenues in 1996. In addition, no unit of the Company's business is dependent
on a single customer or a few customers, the loss of which would have a
significant effect on the Company or any of its business units. The loss of
business from any one, or a few, independent brokers or agents would not have
a material adverse effect on the Company of any of its business units.
The Company had approximately 4,200 employees at January 1, 1997.
The executive offices of the Company consist of a 517,633 square foot
office complex located in Englewood, Colorado. The office complex is owned by
a subsidiary of the Company. The Company leases sales and claims offices
throughout the United States.
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 Lifeco(1) and
Great-West Life; Deputy Chairman,
PCC (2)
46
<PAGE>
Orest T. Dackow President and Chief Executive
Officer, Lifeco
Paul Desmarais, Jr. C h airman and Co-Chief Executive
Officer, PCC; Chairman, PFC/3/
Robert G. Graham C o mpany 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
of the Company; 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-Be'lair,
F.C.A. Vice-Chairman and Chief Financial Officer,
PCC; Executive Vice-President and Chief
Financial Officer, 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
47
<PAGE>
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
President and Chief Executive Officer, of GWL&A; President and
Officer Chief Executive Officer (U.S.
Operations), Great-West Life
Dennis Low Executive Vice President, Financial
Executive Vice President, Services, GWL&A and Great-West Life
Financial Services
Alan D. MacLennan Executive Vice President, Employee
Executive Vice President, Benefits, GWL&A and Great-West Life
Employee Benefits
Robert D. Bond Senior Vice President, Financial
Senior Vice President, Services, GWL&A and Great-West Life;
Financial Services prior to May 1992, National Director,
Public Marketing, Aetna Life
Insurance Company
John A. Brown Senior Vice President, Sales,
Senior Vice President, Financial Services, GWL&a and Great-
Sales, Financial Services West Life
John T. Hughes Senior Vice President, Chief
Senior Vice President, Chief Investment Officer, GWL&A; Senior
Investment Officer Vice President, Chief Investment
Officer (U.S. Operations), Great-West
Life
Robert E. Kavanagh Senior Vice President, Employee
Senior Vice President, Benefits, Sales, GWL&A and Great-West
Employee Benefits, Sales Life
D. Craig Lennox Senior Vice President, General
Senior Vice President, Counsel and Secretary, GWL&A; Senior
General Counsel and Secretary Vice President and Chief U.S. Legal
Officer, Great-West Life
Steve H. Miller Senior Vice President, Employee
Senior Vice President, Benefits, Sales, GWL&A and Great-West
Employee Benefits, Sales Life
48
<PAGE>
James D. Motz Executive Vice President, Employee
Executive Vice President, Benefits Operations, GWL&A and Great-
Employee Benefits Operations West Life
Martin L. Rosenbaum Senior Vice President, Employee
Senior Vice President, Benefits Operations, GWL&A and Great-
Employee Benefits, Operations West Life
Douglas L. Wooden Senior Vice President, Financial
Senior Vice President, Services, GWL&A and Great-West Life
Financial Services
49
<PAGE>
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, 1996,
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 1994, 1995 and 1996 respectively.
<TABLE>
<CAPTION>
Name and Year Annual Long-Term
Principal Compensation(1) Compensation Awards
Position Salary Bonus Securities Under
($) ($) Options Granted (2)
<S> <C> <C> <C> <C>
W.T. McCallum, 1996 561,818 370,500 300,000
President and 1995 523,958 351,000
Chief Executive 225,000(3) None
Officer 1994 476,750 318,500 None
D. Low, 1996 325,000 146,250 150,000
Executive Vice 1995 305,000 152,500 None
President,
Financial
Services 1994 285,000 142,500 None
J. T. Hughes, 1996 312,000 136,968 80,000
Senior Vice 1995 301,000 150,500 None
President,
Chief Investment
Officer 1994 290,000 145,000 None
A.D. McLennan, 1996 325,000 115,000 150,000
Executive Vice 1995 312,000 125,000 None
President,
Employee 1994 300,000 97,890 None
Benefits
D.L. Wooden, 1996 287,000 143,500 100,000
Senior Vice 1995 275,500 137,500 None
President,
Financial 1994 265,000 142,500 None
Services
</TABLE>
(1) The aggregate of perquisites and other personal benefits, securities or
property provided to each Named Executive Officer in 1996 did not exceed the
50
<PAGE>
lesser of $50,000 and 10% of the total of the individual's annual salary and
bonus.
(2) The options are for common shares of Great-West Lifeco ("Lifeco
Options"). Lifeco Options are granted by Great-West Lifeco pursuant to the
Great-West Lifeco Stock Option Plan which was approved by the Great-West
Lifeco shareholders on April 24, 1996. Lifeco Options become exercisable 20%
per year commencing on the first anniversary of the date of the grant and
expire 10 years after the date of the grant.
(3) A special one-time bonus payment with respect to long-term performance.
The following table describes options granted to the Named Executive
Officers during the most recently completed fiscal year. All options are
Lifeco Options granted pursuant to the Great-West Lifeco Stock Option Plan.
Lifeco Options are issued with an exercise price in Canadian dollars.
Canadian dollar amounts have been translated to U.S. dollars at a rate of
1/1.37.
51
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Potential realizable
Individual Grants value at assumed
annual rates of stock
price appreciation for
term
Name Options Percent Exercise Expiration 5 % 10%
granted of total or base date ($) ($)
options
granted to
employees
in fiscal
year
W. T. McCallum 300,000 10.42 12.376697 July 22, 2,335,080 5,917,950
2006
D. Low 150,000 5.21 12.376697 July 22, 1,167,540 2,958,795
2006
J. T. Hughes 80,000 2.78 12.376697 July 22, 622,688 1,578,024
2006
A. D. MacLennan 150,000 5.21 12.376697 July 22, 1,167,540 2,958,795
2006
D. L. Wooden 100,000 3.47 12.376697 July 22, 778,360 1,972,530
2006
</TABLE>
Prior to April 24, 1996, the Named Executive Officers participated in the
Power Financial Employee Share Option Plan pursuant to which options to
acquire common shares of Power Financial ("PFC Options") were granted. The
following table describes all Lifeco Options and all PFC Options exercised in
1996, and all unexercised Lifeco Options and PFC Options held as of December
31, 1996, by the Named Executive Officers. PFC Options and Lifeco Options are
issued with an exercise price in Canadian dollars. Canadian dollar amounts
have been translated to U.S. dollars at a rate of 1/1.37.
52
<PAGE>
<TABLE>
<CAPTION>
Name Securities Aggregate Unexercised Options at Value of Unexercised -in-the-
Acquired Value FY-End the-Money Options at
on Realized ($)
Exercise ($)
Exercisable Unexer- Exer- Unexer-
ciseable cisable cisable
<S> <C> <C> <C> <C> <C > <C>
W. T. McCallum 26,000(1) 300,000(2) 658,659(1) 940,276(2)
D. Low 6,700(1) 100,892 37,300(1) 150,000(2) 944,922(1) 470,138(2)
J. T. Hughes 60,000(1) 80,000(2) 1,214,781(1) 250,740(2)
A. D. MacLennan 150,000(2) 470,138(2)
D. L. Wooden 44,000(1) 100,000(2) 911,916(1) 313,425(2)
</TABLE>
(1) PFC Options
(2) Lifeco Options
Pension Plan Tables
The following table sets out the pension benefits payable to
the Named Executive Officers by Great-West Life or the
Company, as of December 31, 1996.
<TABLE>
<CAPTION>
Employees' Pension Plan
Renumeration($) Years of Service
<S> <C> <C> <C> <C> <C>
15 20 25 30 35
400,000 120,000 160,000 200,000 240,000 240,000
53
<PAGE>
500,000 150,000 200,000 250,000 300,000 300,000
600,000 180,000 240,000 300,000 360,000 360,000
700,000 210,000 280,000 350,000 420,000 420,000
800,000 240,000 320,000 400,000 480,000 480,000
900,000 270,000 360,000 450,000 540,000 540,000
1,000,000 300,000 400,000 500,000 600,000 600,000
</TABLE>
The Named Executive Officers have the following years of service:
Name Years of Service
W. T. McCallum 30
D. Low 31
J. T. Hughes 6
A. D. MacLennan 30
D. L. Wooden 5
For W.T. McCallum, the benefits shown are payable commencing December 31,
2000, and remuneration is the average of the highest 36 consecutive months of
compensation during the last 86 months of employment. For D. Low, J.T.
Hughes, A.D. MacLennan and D.L. Wooden, the benefits shown are payable upon
the attainment of age 62, and remuneration is the average of the highest 60
consecutive months of compensation during the last 86 months of employment.
Compensation includes salary and bonuses prior to any deferrals. The normal
form of pension is a life only annuity. Other optional forms of pension
payment are available on an actuarially equivalent basis. The benefits listed
in the table are subject to deduction for social security and other retirement
benefits.
Directors of the Company
The following sets out remuneration paid by the Company to its
directors.
For each director of the Company who is not also a director of
Great-West Life, the Company pays an annual fee of $12,500, and a meeting fee
of $1,000 for each meeting of the Board of Directors or a committee thereof
attended. With the exception of the President and Chief Executive Officer of
Great-West Lifeco, and the President and Chief Executive Officer of the
Company, for each director of the Company who is also a director of Great-West
Life, the Company pays a meeting fee of $1,000 for each meeting of the Board
of Directors or a committee thereof attended which is not coincident with a
Great-West Life meeting. In addition, all directors are reimbursed for
incidental expenses.
54
<PAGE>
The above amounts are paid in the currency of the country of residence
of the director.
Compensation Committee Interlocks and Insider Participation
Prior to January 1, 1997, all of the Company's executive officers were
employees of Great-West Life (effective January 1, 1997, they became employees
of the Company). For 1996, executive officer compensation was paid by
Great-West Life and compensation was determined by the United States Executive
Committee of the Board of Directors of Great-West Life (the "U.S. Executive
Committee"). The following individuals served as members of the U.S.
Executive Committee during 1996.
R. Gratton N.B. Hart
J.W. Burns K.P. Kavanagh
O.T. Dackow W. Mackness
P. Desmarais, Jr. W.T. McCallum
R.G. Graham P.M. Pitfield
W.T. McCallum, President and Chief Executive Officer of the Company, is
a member of the U.S. Executive Committee. Mr. McCallum participated in
executive compensation matters generally but was not present when his own
compensation was discussed or determined.
Security Ownership of Certain Beneficial Owners
As of March 1, 1997, the following sets out the beneficial owners of
more than 5% of the Company's voting securities:
(1) 100% of the Company's 7,032,000 outstanding common shares are owned by
The Great-West Life Assurance Company, 100 Osborne Street North, Winnipeg,
Manitoba, Canada R3C 3A5.
(2) 99.5% of the outstanding common shares of The Great-West Life Assurance
Company are owned by Great-West Lifeco Inc., 100 Osborne Street North,
Winnipeg, Manitoba, Canada R3C 3A5.
(3) 86.5% of the outstanding common shares of Great-West Lifeco Inc. are
owned by Power Financial Corporation, 751 Victoria Square, Montreal, Quebec,
Canada H2Y 2J3.
(4) 68.1% of the outstanding common shares of Power Financial Corporation
are owned by 171263 Canada Inc., 751 Victoria Square, Montreal, Quebec, Canada
H2Y 2J3.
(5) 100% of the outstanding common shares of 171263 Canada Inc. are owned by
Marquette Communications Corporation, 751 Victoria Square, Montreal, Quebec,
Canada H2Y 2J3.
(6) 100% of the outstanding common shares of Marquette Communications
Corporation are owned by Power Corporation of Canada, 751 Victoria Square,
Montreal, Quebec, Canada H2Y 2J3.
55
<PAGE>
(7) Mr. Paul Desmarais, 751 Victoria Square, Montreal, Quebec, Canada H2Y
2J3, through a group of private holding companies, which he controls, has
voting control of Power Corporation of Canada.
Security Ownership of Management
The following table sets out the number of equity securities, and
exercisable options for equity securities, of the Company or any of its
parents or subsidiaries, beneficially owned, as of March 1, 1997, by (i) the
directors of the Company; (ii) the Named Executive Officers; and (iii) the
directors and executive officers of the Company as a group.
56
<PAGE>
<TABLE>
<CAPTION>
Company
The
Great-
West Great- Power Power
Life West Financial Corporation
Assurance Lifeco Corporation of Canada
Company Inc.
(1) (2) (3) (4)
Directors
<S> <C> <C> <C> <C>
J. Balog - - - -
J. W. Burns 50 56,000 4,000 203,320
165,500 options
O. T. Dackow 16 35,089 5,400 -
40,000 options
P. Desmarais, Jr. 50 30,000 - 120,000
188,250 options
R. G. Graham - - - -
R. Gratton - 165,000 155,000 2,500
150,000 options
N. B. Hart - - - -
K. P. Kavanagh 50 23,626 - -
W. Mackness - - - -
W. T. McCallum 17 34,202 16,000 -
52,000 options
J.E. A. Nickerson - - - -
P. M. Pitfield - 50,000 40,000 80,000
99,500 options
M.Plessis-Be'lair - 10,000 1,000 32,900
58,250 options
R. J. Turner - - - -
B. E. Walsh - - - -
Named Executive Officers
57
<PAGE>
W. T. McCallum 17 34,200 16,000 -
52,000 options
D. Low - 7,846 74,600 options -
J. T. Hughes - 4,467 120,000 options -
A. D. MacLennan - 9,011 - -
D. L. Wooden - - 88,000 options -
Directors and Executive
Officers as a Group
183 484,381 221,400 438,720
494,600 options 660,500 options
</TABLE>
(1) All holdings are common shares of The Great-West Life Assurance Company.
(2) All holdings are common shares of Great-West Lifeco Inc.
(3) All holdings are common shares, or where indicated, exercisable options
for common shares, of Power Financial Corporation.
(4) All holdings are subordinate voting shares, or where indicated,
exercisable options for subordinate voting shares, of Power Corporation
of Canada.
None of the share holdings set out above exceed 1% of the total shares of the
class outstanding.
_________________________________________________________________
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.
58
<PAGE>
_________________________________________________________________
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, 1996 and 1995, and for each of the three
years in the period ended December 31, 1996 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.
59
<PAGE>
_________________________________________________________________
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.
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith
we file reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information can be
inspected and copied at the public reference facilities on the Commission at
Room 1024, 450 Fifth Street, N.W., Washington D.C., and at the Commission's
Regional Offices located at 75 Park Place, New York, New York, and
Northwestern Atrium Center, 500 West Madison Street, Site 1400, Chicago,
Illinois. Copies of such materials also can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The commission maintains a Web Site that
contains reports and information statements and other information regarding
the Company, which files such documents electronically with the Commission, at
the following address: http://www.sec.gov.
60
<PAGE>
Appendix A
The standard nonforfeiture rate in all states, other than those listed below
is 3%
Florida 0%
Mississippi 0%
Oklahoma 0%
61
<PAGE>
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)
62
<PAGE>
= ($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)
63
<PAGE>
= ($10,000 + $0) x (1 - 0)
= $10,000
64
<PAGE>
ITEM 1 FINANCIAL STATEMENTS
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
<S> <C> <C>
1997 1996
REVENUES:
Annuity contract charges and premiums $28,196 $22,773
Life, accident, and health premiums earned 233,381 271,668
Net investment income 218,016 205,542
Net realized (losses) gains on investments (4,943) 1,733
474,650 501,716
BENEFITS AND EXPENSES:
Life and other policy benefits 123,821 128,477
Increase in reserves 15,829 36,749
Interest paid or credited to contractholders 138,865 148,436
Provision for policyholders' share of earnings
on participating business 857 1,689
Dividends to policyholders 19,460 10,128
_________ _________
298,832 325,479
Commissions 25,577 27,938
Operating expenses 95,614 81,536
Premium taxes 3,791 3,991
________ ________
423,814 438,944
<PAGE>
INCOME BEFORE INCOME TAXES 50,836 62,772
PROVISION FOR INCOME TAXES:
Current 13,369 14,594
Deferred 5,618 (622)
_________ ________
18,987 13,972
NET INCOME $31,849 $48,800
</TABLE>
See notes to consolidated financial statements.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
<S> <C> <C>
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized cost $2,039,956 $1,992,681
(fair value $2,045,982 and $2,041,064)
Available-for-sale, at fair value 6,041,357 6,206,478
(amortized cost $6,075,596 and $6,151,519)
Mortgage loans on real estate, net 1,424,901 1,487,575
Common stock 45,840 19,715
Real estate, net 74,391 67,967
Policy loans 2,515,880 2,523,477
Short-term investments, available-for-sale
(cost approximates fair value) 341,386 419,008
---------- -----------
Total Investments 12,483,711 12,716,901
Cash 108,564 125,182
Reinsurance receivable 204,851 196,958
Deferred policy acquisition costs 286,762 282,780
Investment income due and accrued 174,799 198,441
Other assets 161,978 57,244
Premiums in course of collection 69,478 74,693
Deferred income taxes 226,784 214,404
Separate account assets 5,853,547 5,484,631
--------- ----------
TOTAL ASSETS $19,570,474 $19,351,234
</TABLE>
See notes to consolidated financial statements.
(Continued)
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1997 1996
<S> <C> <C>
POLICY BENEFIT LIABILITIES:
Policy reserves $10,909,215 $11,022,595
Policy and contract claims 384,135 372,327
Policyholders' funds 170,115 153,867
Experience refunds 65,092 87,399
Provision for policyholders' dividends 60,093 51,279
GENERAL LIABILITIES:
Due to Parent Corporation 126,154 151,431
Repurchase agreements 285,134 286,736
Commercial paper 89,319 84,682
Other liabilities 459,914 488,818
Undistributed earnings on
participating business 133,470 133,255
Separate account liabilities 5,853,547 5,484,631
--------- ---------
Total Liabilities 18,536,188 18,317,020
STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value,
50,000,000 shares authorized:
Series A, cumulative, 1500 shares
authorized,
liquidation value of $100,000 per share,
600 shares issued and outstanding 60,000 60,000
Series B, cumulative, 1500 shares
authorized,
liquidation value of $100,000 per
share,
200 shares issued and outstanding 20,000 20,000
Series C, cumulative, 1500 shares authorized,
none outstanding
Series D, cumulative, 1500 shares authorized,
none outstanding
Series E, non-cumulative, 2,000,000
shares authorized, liquidation value of $20.90 41,800 41,800
per share, issued, and outstanding
<PAGE>
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 679,748 664,265
Net unrealized gains on securities
available-for-sale, net (14,761) 14,951
Retained earnings 240,467 226,166
Total Stockholder's Equity 1,034,286 1,034,214
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY $19,570,474 $19,351,234
</TABLE>
See notes to consolidated financial statements.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $31,849 $48,800
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain allocated to participating policyholders 4,466 1,689
Amortization of investments 2,165 6,452
Realized losses (gains) on disposal of
investments
and write-downs of mortgage loans and real
estate 4,943 (1,732)
Amortization 8,627 9,219
Deferred income taxes 5,869 (724)
Changes in assets and liabilities:
Policy benefit liabilities 156,118 172,039
Reinsurance receivable (7,893) (1,045)
Accrued interest and other receivables 28,857 (12,186)
Other, net (129,792) 11,775
--------- --------
Net cash provided by operating activities 105,209 234,287
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and
redemptions of investments:
Fixed maturities
Held-to-maturity
Maturities and redemptions 82,772 129,720
Available-for-sale
Sales 649,743 995,472
Maturities and redemptions 209,557 180,989
Mortgage loans 50,485 75,502
Real estate 3,898 187
Common stock 842 1,714
<PAGE>
Purchases of investments:
Fixed maturities
Held-to-maturity (129,067) (59,259)
Available-for-sale (712,737) (1,301,551)
Real estate (1,486) (755)
Common stock (26,961)
--------- -----------
Net cash provided by investing activities 127,046 22,019(Continued)
</TABLE>
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
FINANCING ACTIVITIES:
Contract withdrawals, net of deposits $(224,566) $(217,667)
Due to Parent Corporation (25,277) (16,214)
Dividends paid (17,548) (13,557)
Net commercial paper borrowings (repayments 4,637 (9,098)
Net repurchase agreements repayments (1,602) (6,530)
Capital contributions 15,483
---------- ----------
Net cash used in financing activities (248,873) (263,066)
---------- ----------
NET DECREASE IN CASH (16,618) (6,760)
CASH, BEGINNING OF YEAR 125,182 90,939
-------- -------
CASH, END OF PERIOD $108,564 $84,179
See notes to consolidated financial statements.
(Concluded)
</TABLE>
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, except Share Amounts)
(Unaudited)
1. GENERAL
The consolidated financial statements and related notes of Great-West
Life & Annuity Insurance Company (the Company) have been prepared in
accordance with generally accepted accounting principles applicable to interim
financial reporting and do not include all of the information and footnotes
required for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation 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, 1996. The results of operations
for the quarter ended are not necessarily indicative of the results that may
be expected for the year ended December 31, 1997.
2. TRANSFER OF EMPLOYEES
Effective January 1, 1997, all employees of the U.S. Operations of the
Company's Parent, The Great-West Life Assurance Company, were transferred to
the Company. All related employee benefit plan assets and liabilities were
also transferred from the Parent Corporation to the Company. The transfer did
not have a material effect on the Company's operating expenses as the costs
associated with the employees and benefit plans were charged previously to the
Company under the administrative service agreements between the Company and
its Parent.
3. EMPLOYEE BENEFIT PLANS
The Company's defined benefit pension plan (pension plan) covers
substantially all of its employees. The benefits are based on years of
service, age at retirement, and the compensation during the last seven years
of employment. The Company's funding policy is to contribute annually the
maximum amount that can be deducted for federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
Investments of the pension plan are managed by the Company and invested
primarily in investment contracts and separate accounts.
The Company's Parent had previously accounted for the pension plan under
the Canadian Institute of Chartered Accountants (CICA) guidelines and had
recorded a prepaid pension asset of $19,091. As generally accepted accounting
principles do not materially differ from CICA guidelines and the transfer is
between related parties, the prepaid pension asset was transferred at cost.
As a result, the Company recorded the following effective January 1, 1997:
<PAGE>
Prepaid Undistribued
pension cost $19,091 earnings on $3,608
participating business
Stockholder's Equity 15,483
_ _ _ _ _ _ _
$ 19,091 $ 19,091
<PAGE>
The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 87, "Employers Accounting for Pensions"
effective January 1, 1997 immediately following the transfer.
The following table sets forth the pension plan's funded status
and amounts recognized in the Company's statement of financial
position at January 1, 1997 in accordance with SFAS No. 87:
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of $74,386 $(77,500)
Projected benefit obligation for service
rendered to date (95,175)
Plan assets at fair value 139,690
__________
Plan assets in excess of projected
benefit obligation 44,515
Unrecognized net obligation at January 1,
1997 being recognized over 15 years (25,422)
Prepaid pension cost included in other ___________
assets $ 19,091
The weighted-average discount rate and rate of increase in
future compensation levels used in determining the actuarial
present value of the projected benefit obligation were 7.5% and
5.0%, respectively.
The Company also sponsors a post-retirement medical plan
(medical plan) which provides health benefits to employees who
have worked for 15 years and attained age 65 while in service
with the Company. The medical plan is contributory and contains
other cost sharing features which may be adjusted annually for
the expected general inflation rate. The Company's policy will
be to fund the cost of the medical plan benefits in amounts
determined at the discretion of management. The Plan as of
January 1, 1997 was not funded. The Parent Company was not
required under CICA guidelines to record any liability related to
the Plan.
Effective January 1, 1997 on the date of transfer, the
Company has adopted SFAS No. 106, "Post-retirement Benefits Other
Than Pensions." The Company has elected to delay recognition of
the unfunded accumulated post-retirement benefit obligation and
has set up a transition obligation to amortize over 20 years.
<PAGE>
The following table sets forth the medical plan status of
December 31, 1996:
Accumulated post-retirement benefit obligation:
Retirees $(4,939)
Fully eligible active plan participants (1,751)
Other active plan participants (9,470)
_________
(16,160)
Unrecognized net transition obligation
at January 1, 1997 being recognized
over 20 years 16,160
___________
Accrued post-retirement benefit cost $ 0
____________
____________
For measurement purposes, a 7.5% annual rate of increase in
the per capita cost of covered health care benefits was assumed.
The health care cost trend rate assumption has a significant
effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by 1% point in each year
would increase the accumulated post-retirement benefit obligation
as of January 1, 1997 by $2,977.
The weighted average discount rate used in determining the
accumulated post-retirement benefit obligation was 7.5%.
4. OTHER
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>
Deloitte & Touche LLP
Suite 3600 555 Seventeenth Street
Denver, Colorado 80202-3942
Tel: (303) 292-5400
Fax: (303) 312-4000
INDEPENDENT AUDITORS S 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, 1996 and 1995, and the related
consolidated statements of income, stockholder's equity, and cash
flows for each of the three years in the period ended December
32, 1996. 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 of
the December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
January 25, 1997
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized cost (fair $ 1,992,681 $2,054,204
value $2,041,064 and $2,158,043)
Available-for-sale, at fair value 6,206,478 6,263,187
(amortized
cost $6,151,519 and $6,087,969)
Common stock 19,715 9,440
Mortgage loans on real estate, net 1,487,575 1,713,195
Real estate, net 67,967 60,454
Policy loans 2,523,477 2,237,745
Short-term investments, available-for-sale 419,008 134,835
(cost approximates fair value)
Total Investments 12,716,901 12,473,060
Cash 125,182 90,939
Reinsurance receivable 196,958 333,924
Deferred policy acquisition costs 282,780 278,526
Investment income due and accrued 198,441 211,922
Other assets 57,244 40,038
Premiums in course of collection 74,693 85,990
Deferred income taxes 214,404 168,941
Separate account assets 5,484,631 3,998,878
TOTAL ASSETS $ 19,351,234 $17,682,218
See notes to consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1995
<S> <C> <C>
POLICY BENEFIT LIABILITIES:
Policy reserves $11,022,595 $10,845,935
Policy and contract claims 372,327 359,791
Policyholders' funds 153,867 154,872
Experience refunds 87,399 83,562
Provision for policyholders' dividends 51,279 47,760
GENERAL LIABILITIES:
Due to Parent Corporation 151,431 149,974
Repurchase agreements 286,736 375,299
Commercial paper 84,682 84,854
Other liabilities 488,818 451,555
Undistributed earnings on
participating business 133,255 136,617
Separate account liabilities 5,484,631 3,998,878
Total Liabilities 18,317,020 16,689,097
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 per share, issued,
and outstanding 41,800 41,800
Common stock, $1 par value; 50,000,000
shares authorized;
7,032,000 shares issued and
outstanding 7,032 7,032
<PAGE>
Additional paid-in capital 664,265 657,265
Net unrealized gains on securities 14,951 58,763
available-for-sale, net
Retained earnings 226,166 148,261
Total Stockholder's Equity 1,034,214 993,121
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $19,351,234 $ 17,682,218
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996,
1995, AND 1994
(Dollars in Thousands)
1996 1995 1994
<S> <C> <C> <C>
REVENUES:
Annuity contract charges and $91,881 $ 79,816 $ 61,122
premiums
Life, accident, and health
premiums earned (net of
premiums ceded totaling
$(104,250) , $60,880
and $48,115) 1,107,367 987,611 938,947
Net investment income 836,642 835,046 767,646
Net realized gains (losses) on (21,078) 7,465 (71,939)
investments
2,014,812 1,909,938 1,695,776
BENEFITS AND EXPENSES:
Life and other policy benefits
(net of reinsurance
recoveries totaling $52,675,
$43,574, and $18,937) 515,750 557,469 548,950
Increase in reserves 229,198 98,797 64,834
Interest paid or credited to
contractholders 561,786 562,263 529,118
Provision for policyholders'
share of earnings (losses)
on participating business (7) 2,027 (725)
Dividends to policyholders 49,237 48,150 42,094
1,355,964 1,268,706 1,184,271
Commissions 106,561 122,926 120,058
Operating expenses 336,719 314,810 261,311
Premium taxes 25,021 26,884 27,402
1,824,265 1,733,326 1,593,042
<PAGE>
INCOME BEFORE INCOME TAXES 190,547 176,612 102,734
PROVISION FOR INCOME TAXES:
Current 77,134 88,366 65,070
Deferred (21,162) (39,434) (36,614)
55,972 48,932 28,456
NET INCOME $134,575 $ 127,680 $ 74,278
See notes to consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands)
Preferred Stock
Shares Amount
<S> <C> <C>
BALANCE, JANUARY 1, 1994 2,000,800 $121,800
Adjustment to beginning balance for
change in accounting method
for investment securities
Change in net unrealized gains
(losses)
Capital contributions
Dividends
Net income
BALANCE, DECEMBER 31, 1994 2,000,800 121,800
Change in net realized gains
(losses)
Dividends
Net income
BALANCE, DECEMBER 31, 1995 2,000,800 121,800
Change in net unrealized gains
(losses)
Capital contributions
Dividends
Net income
BALANCE, DECEMBER 31, 1996 2,000,800 $121,800
See notes to consolidated financial
statements.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands) (continued)
Common Stock
Shares Amount
<S> <C> <C>
BALANCE, JANUARY 1, 1994 7,032,000 $7,032
Adjustment to beginning balance for
change in accounting method
for investment securities
Change in net unrealized gains
(losses)
Capital contributions
Dividends
Net income
BALANCE, DECEMBER 31, 1994 7,032,000 7,032
Change in net realized gains
(losses)
Dividends
Net income
BALANCE, DECEMBER 31, 1995 7,032,000 7,032
Change in net unrealized gains
(losses)
Capital contributions
<PAGE>
Dividends
Net income
BALANCE, DECEMBER 31, 1996 7,032,000 $7,032
See notes to consolidated financial
statements.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands) (Continued)
Net
Additional Unrealized
Paid-In Gains
Capital (Losses)
<S> <C> <C>
BALANCE, JANUARY 1, 1994 $ 656,793 $ 0
Adjustment to beginning balance for
change in accounting method
for investment securities 6,515
Change in net unrealized gains
(losses) (84,942)
Capital contributions 472
Dividends
Net income
BALANCE, DECEMBER 31, 1994 657,265 (78,427)
Change in net realized gains
(losses) 137,190
Dividends
Net income
BALANCE, DECEMBER 31, 1995 657,265 58,763
Change in net unrealized gains
(losses) (43,812)
Capital contributions 7,000
Dividends
Net income
BALANCE, DECEMBER 31, 1996 664,265 $14,951
See notes to consolidated financial
statements.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands) (Continued)
Retained
Earnings
(Deficit) Total
<S> <C> <C>
BALANCE, JANUARY 1, 1994 $ 35,721 $821,346
Adjustment to beginning balance for
change in accounting method
for investment securities 6,515
Change in net unrealized gains
(losses) (84,942)
Capital contributions 472
Dividends (40,438) (40,438)
Net income 74,278 74,278
BALANCE, DECEMBER 31, 1994 69,561 777,231
Change in net realized gains
(losses) 137,190
Dividends (48,980) (48,980)
Net income 127,680 127,680
BALANCE, DECEMBER 31, 1995 148,261 993,121
Change in net unrealized gains
(losses) (43,812)
Capital contributions 7,000
Dividends (56,670) (56,670)
Net income 134,575 134,575
BALANCE, DECEMBER 31, 1996 $226,166 $1,034,214
See notes to consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND
1994
(Dollars in Thousands)
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 134,575 $127,680 $ 74,278
Adjustments to reconcile net
income to net cash provided by
operating activities:
Gain (loss) allocated to
participating policyholders (7) 2,027 (725)
Amortization of investments 15,518 26,725 36,978
Realized losses (gains) on
disposal of investments
and write-downs of mortgage
loans and real estate 21,078 (7,465) 71,939
Amortization 49,454 49,464 29,197
Deferred income taxes (20,258) (39,763) (38,631)
Changes in assets and
liabilities:
Policy benefit liabilities 358,393 346,975 93,998
Reinsurance receivable 136,966 (38,776) (25,868)
Accrued interest and other
receivables 24,778 (17,617) (26,032)
Other, net (8,076) 8,834 96,950
Net cash provided by
operating activities 712,421 458,084 312,084
INVESTING ACTIVITIES:
Proceeds from sales,
maturities, and redemption of
investments:
Fixed maturities
Held-to-maturity
Sales 18,821 16,014
<PAGE>
Maturities and
redemptions 516,838 655,993 1,034,324
Available-for-sale
Sales 3,569,608 4,211,649 1,753,445
Maturities and
redemptions 803,369 253,747 141,299
Mortgage loans 235,907 260,960 291,102
Real estate 2,607 4,401 29,868
Common stock 1,888 178
Purchases of investments:
Fixed maturities
Held-to-maturity (453,787) (490,228) (673,567)
Available-for-sale (4,753,154) (4,932,566) (2,606,028)
Mortgage loans (23,237) (683) (9)
Real estate (15,588) (5,302) (9,253)
Common stock (12,113) (4,218) (2,063)
Net cash used in
investing activities (127,662) (27,426) (24,690)
(Continued)
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands)
1996 1995 1994
FINANCING ACTIVITIES:
Contract withdrawals, net of $(413,568) $ (217,190) $(238,166)
deposits
Due to Parent Corporation 1,457 (9,143) (13,078)
Dividends paid (56,670) (48,980) (40,438)
Net commercial paper (172) (4,832) 89,686
(repayments) borrowings
Net repurchase agreements (88,563) (191,195) (39,244)
repayments
Capital contributions 7,000
Net cash used in financing (550,516) (471,340) (241,240)
activities
NET INCREASE (DECREASE) IN CASH 34,243 (40,682) 46,154
CASH, BEGINNING OF YEAR 90,939 131,621 85,467
CASH, END OF YEAR $125,182 $ 90,939 $131,621
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for:
Income taxes $103,700 $ 83,841 $68,892
Interest 15,414 17,016 12,229
See notes to consolidated financial statements. (Concluded)
</TABLE>
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Amounts in Thousands, except Share Amounts)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Great-West Life & Annuity Insurance
Company (the Company) is a wholly-owned subsidiary of The
Great-West Life Assurance Company (the Parent
Corporation). The Company is an insurance company
domiciled in the State of Colorado. The Company offers a
wide range of life insurance, health insurance, and
retirement and investment products to individuals,
businesses, and other private and public organizations
throughout the United States.
Basis of Presentation - The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates. The consolidated
financial statements include the accounts of the Company
and its subsidiaries. All material intercompany
transactions and balances have been eliminated in
consolidation.
Certain reclassifications have been made to the 1995 and
1994 financial statements to conform with the basis of
presentation used in 1996.
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
<PAGE>
the net unrealized gains and losses reported as a
separate component of stockholder's equity. The net
unrealized gains and losses in derivative financial
instruments used to hedge available-for-sale
securities are included in the separate component of
stockholder s equity.
The amortized cost of fixed maturities classified as
held-to-maturity or available-for-sale is adjusted
for amortization of premiums and accretion of
discounts using the effective interest method over
the estimated life of the related bonds. Such
amortization is included in net investment income.
Realized gains and losses, and declines in value
judged to be other-than-temporary are included in
net realized gains (losses) on investments.
2. Mortgage loans on real estate are carried at their
unpaid balances adjusted for any unamortized
premiums or discounts and any valuation reserves.
Interest income is accrued on the unpaid principal
balance. Discounts and premiums are amortized to
net investment income using the effective interest
method. Accrual of interest is discontinued on any
impaired loans where collection of interest is
doubtful.
The Company maintains an allowance for credit losses
at a level that, in management s opinion, is
sufficient to absorb possible credit losses on its
impaired loans and to provide adequate provision for
any possible future losses in the portfolio.
Management s judgement is based on past loss
experience, current and projected economic
conditions, and extensive situational analysis of
each individual loan.
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
<PAGE>
statements had no material effect on the Company's
financial statements.
3. Real estate is carried at the lower of cost or fair
value, net of costs of disposal. Effective January
1, 1996, the Company adopted SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". The
implementation of this statement had no material
effect on the Company s financial statements.
4. Investments in common stock are carried at fair
value.
5. Policy loans are carried at their unpaid balances.
6. Short-term investments include securities purchased
with initial maturities of one year or less and are
carried at amortized cost. The Company considers
short-term investments to be available-for-sale and
amortized cost approximates fair value.
Gains and losses realized on disposal of investments are
determined on a specific identification basis.
Cash - Cash includes only amounts in demand deposit
accounts.
Deferred Policy Acquisition Costs - Policy acquisition
costs, which consist of sales commissions and other costs
that vary with and are primarily related to the
production of new and renewal business, have been
deferred to the extent recoverable. Deferred costs
associated with the annuity products are being amortized
over the life of the contracts in proportion to the
emergence of gross profits. Retrospective adjustments of
these amounts are made when the Company revises its
estimates of current or future gross profits. Deferred
costs associated with traditional life insurance are
amortized over the premium paying period of the related
policies in proportion to premium revenues recognized.
Amortization of deferred policy acquisition costs totaled
$47,089, $48,054, and $28,199 in 1996, 1995, and 1994,
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.
<PAGE>
Life Insurance and Annuity Reserves - Life insurance and
annuity policy reserves with life contingencies of
$5,242,753, and $4,675,175 at December 31, 1996 and 1995,
respectively, are computed on the basis of estimated
mortality, investment yield, withdrawals, future
maintenance and settlement expenses, and retrospective
experience rating premium refunds. Annuity contract
reserves without life contingencies of $5,779,842 and
$6,170,760, at December 31, 1996 and 1995, 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 $3,591,077 and $3,339,316 at
December 31, 1996 and 1995, respectively. Participating
business approximates 50.3% of the Company's ordinary
life insurance in force and 92.2% of ordinary life
insurance premium income at December 31, 1996.
The liability for undistributed earnings on participating
business was decreased by $3,362 in 1996, which
represented $7 of losses on participating business, a
reduction of $2,924 to reflect the net change in
unrealized gains on securities classified as available-
for-sale, net of certain adjustments to policy reserves
and income taxes, and a decrease of $431 due to
reinsurance transactions (See Note 2).
The amount of dividends to be paid from undistributed
earnings on participating business is determined annually
by the Board of Directors. Amounts allocable to
participating policyholders are consistent with
established Company practice.
The Company has established a Participating Policyholder
Experience Account (PPEA) for the benefit of all
participating policyholders which is included in the
accompanying consolidated balance sheet. Earnings
<PAGE>
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. Earnings derived from
the operation of the PFA accrue solely for the benefit of
the acquired participating policyholders.
Recognition of Premium Income and Benefits and Expenses -
Life insurance premiums are recognized as earned.
Annuity premiums with life contingencies are recognized
as received. Accident and health premiums are earned on
a monthly pro rata basis. Revenues for annuity and other
contracts without significant life contingencies consist
of contract charges for the cost of insurance, contract
administration, and surrender fees that have been
assessed against the contract account balance during the
period. Benefits and expenses on policies with life
contingencies are associated with premium income by means
of the provision for future policy benefit reserves,
resulting in recognition of profits over the life of the
contracts. The average crediting rate on annuity
products was approximately 6.8% in 1996.
Income Taxes - Income taxes are recorded using the asset
and liability approach which requires, among other
provisions, the recognition of deferred tax assets and
liabilities for expected future tax consequences of
events that have been recognized in the Company's
financial statements or tax returns. In estimating
future tax consequences, all expected future events
(other than the enactments or changes in the tax laws or
rules) are considered. Although realization is not
assured, management believes it is more likely than not
that the deferred tax asset, net of a valuation
allowance, will be realized.
Repurchase Agreements and Securities Lending - The
Company enters into repurchase agreements with third-
party broker-dealers in which the Company sells
securities and agrees to repurchase substantially similar
securities at a specified date and price. Such
agreements are accounted for as collateralized
borrowings. Interest expense on repurchase agreements is
<PAGE>
recorded at the coupon interest rate on the underlying
securities. The repurchase fee received or paid is
amortized over the term of the related agreement and
recognized as an adjustment to investment income.
The Company will implement Statement of Financial
Accounting Standards (SFAS) No. 125 Accounting for
Transfer and Servicing of Financial Assets and
Extinguishments of Liabilities in 1998 as it relates to
repurchase agreements and securities lending
arrangements. Management estimates the effect of the
change will not be material.
Derivatives - The Company engages in hedging activities
to manage interest rate and foreign exchange risk (See
Note 6).
2. RELATED-PARTY TRANSACTIONS
On October 31, 1996 the Company recaptured certain pieces
of an individual participating insurance block of
business previously reinsured to the Parent Corporation
on December 31, 1992. The Company recorded, at estimated
fair value, the following at October 31, 1996 as a result
of this transaction:
<TABLE>
<CAPTION>
Assets Liabilities and
Stockholder s Equity
<S> <C> <C> <C>
Cash $ 162,000 Policy reserves $ 164,839
Mortgages 19,753 Due to parent 9,180
corporation
Other 118 Deferred income taxes 1,283
Undistributed Stockholder s equity 7,000
earnings
on participating 431
business
$182,302 182,302
</TABLE>
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:
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Investment management expense
(included in net investment
income) $ 14,800 $ 15,182 $ 13,841
Administrative and
underwriting payments
(included in operating
expenses) 304,599 301,529 269,020
</TABLE>
Effective January 1, 1997 all employees of the U.S.
operations of the Parent Corporation and the related
benefit plans were transferred to the Company. All
related employee benefit plan assets and liabilities were
transferred from the Parent Corporation to the Company
with no material impact on the Company s financial
position. There will not be any material effect on the
Company s operating expenses as the costs associated with
the employees and these benefit plans are reflected in
the present service agreements.
At December 31, 1996 and 1995, due to Parent Corporation
includes $31,639 and $27,814 due on demand and $119,792
and $122,160 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 (7.0%
and 6.4% at December 31, 1996 and 1995, 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.
<PAGE>
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, 1996 and 1995, reinsurance
receivables with a carrying value of $196,958 and
$333,924, respectively, were due primarily from the
Parent Corporation.
Total reinsurance premiums assumed from the Parent
Corporation were $1,693, $1,606 and $2,438, in 1996,
1995, and 1994, 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:
<TABLE>
<CAPTION>
Ceded
Primarily
to
Gross the Parent
Amount Corporation
<S> <C> <C>
December 31, 1996:
Life insurance in force:
Individual $23,409,823 $5,246,079
Group 47,682,237
Total $71,092,060 $5,246,079
Premiums:
Life insurance $334,127 $(111,743)
Accident/health 592,577 7,493
Total $926,704 $(104,250)
<PAGE>
December 31, 1995:
Life insurance in force:
Individual $22,388,520 $7,200,882
Group $48,415,592 $
Total $ 70,804,112 $ 7,200,882
Premiums:
Life insurance $339,342 $51,688
Accident/health 623,626 9,192
Total $962,968 $60,880
December 31, 1994:
Life insurance in force:
Individual $21,461,590 $7,411,811
Group 48,948,669
Total $70,410,259 $7,411,811
Premiums:
Life insurance $322,263 $42,946
Accident/health 579,650 5,169
Total $901,913 $48,115
<PAGE>
(Continued)
Assumed
Primarily Percentage
From of Amount
Other Net Assumed to
Companies Amount Net
<S> <C> <C> <C>
December 31, 1996:
Life insurance in force:
Individual $3,482,118 $21,645,862 16.1%
Group 1,817,511 49,499,748 3.7%
Total $5,299,629 $71,145,610
Premiums:
Life insurance $19,633 $465,503 4.2%
Accident/health 56,780 641,864 8.8%
Total $76,413 $1,107,367
December 31, 1995:
Life insurance in force:
Individual $3,476,784 $18,664,422 18.6%
Group 1,954,313 50,369,905 3.9%
Total $5,431,097 69,034,327
Premiums:
Life insurance $21,028 $308,682 6.8%
Accident/health 64,495 678,929 9.5%
Total $85,523 $987,611
December 31, 1994:
Life insurance in force:
Individual $3,415,596 $17,465,375 19.6%
Group 2,102,228 51,050,897 4.1%
Total $5,517,824 $68,516,272
<PAGE>
Premiums:
Life insurance $22,009 $301,326 7.3%
Accident/health 63,140 637,621 9.9%
Total $85,149 $938,947
</TABLE>
<PAGE>
4. NET INVESTMENT INCOME
Net investment income is summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Investment income:
Fixed maturities and short-term
investments $ 601,913 $ 591,561 $555,103
Mortgage loans on real estate 140,823 171,008 182,544
Real estate 5,292 3,936 5,700
Policy loans 175,746 163,547 116,060
Other 3,319
927,095 930,052 859,407
Investment expenses, including
interest on amounts charged
by the Parent Corporation
of $11,282, $10,778, and $11,145 90,453 95,006 91,761
Net investment income $ 836,642 $ 835,046 $767,646
</TABLE>
<PAGE>
5. NET REALIZED GAINS (LOSSES) ON INVESTMENTS
<TABLE>
<CAPTION>
Net realized gains (losses) on investments are as follows:
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Realized gains (losses):
Fixed Maturities $ (11,624) $28,166 $(39,775)
Mortgage loans on real 1,143 1,309 2,120
estate
Real estate (10) (102)
Provisions (10,597) (22,000) (34,182)
Net realized gains
(losses) on investments $ (21,078) $7,465 $(71,939)
</TABLE>
<PAGE>
6. SUMMARY OF INVESTMENTS
<TABLE>
<CAPTION>
Fixed maturities owned at December 31, 1996 are summarized as follows:
Gross
Amortized Unrealized
Cost Gains
<S> <C> <C>
Held-to-Maturity:
U.S. Treasury Securities
and obligations
of U.S. Government
Agencies:
Collateralized mortgage $ $
obligations
Direct mortgage pass-
through certificates
Other 10,935 630
Collateralized mortgage
obligations
Public utilities 284,954 12,755
Corporate bonds 1,634,745 41,195
Foreign governments 12,577 556
State and municipalities 49,470 1,051
$1,992,681 $56,187
<PAGE>
Available-for-Sale:
U.S. Treasury Securities
and obligations
of U.S. Government
Agencies:
Collateralized mortgage
obligations $658,612 $8,058
Direct mortgage pass-
through certificates 844,291 5,093
Other 359,220 596
Collateralized mortgage
obligations 614,773 13,619
Public utilities 628,382 6,523
Corporate bonds 2,907,875 56,551
Foreign governments 110,013 1,762
State and municipalities 28,353 21
$6,151,519 $92,223
<PAGE>
SUMMARY OF INVESTMENTS (continued)
Gross Estimated
Unrealized Fair Carrying
Losses Value Value
<S> <C> <C> <C>
Held-to-Maturity:
U.S. Treasury Securities
and obligations
of U.S. Government
Agencies:
Collateralized mortgage $ $ $
obligations
Direct mortgage pass-through
certificates
Other 106 11,459 10,935
Collateralized mortgage
obligations
Public utilities 320 297,389 284,954
Corporate bonds 7,360 1,668,580 1,634,745
Foreign governments 3 13,130 12,577
State and municipalities 15 50,506 49,470
7,804 $ 2,041,064 $1,992,681
Available-for-Sale:
U.S. Treasury Securities and
obligations
of U.S. Government Agencies:
Collateralized mortgage
obligations 3,700 $ 662,970 $662,970
Direct mortgage pass-
through certificates 10,908 838,476 838,476
Other 2,686 357,130 357,130
Collateralized mortgage
obligations 3,553 624,839 624,839
Public utilities 5,375 629,530 629,530
Corporate bonds 5,250 2,959,176 2,959,176
Foreign governments 5,673 106,102 106,102
State and municipalities 119 28,255 28,255
37,264 $ 6,206,478 $6,206,478
</TABLE>
<PAGE>
6. SUMMARY OF INVESTMENTS [Continued]
<TABLE>
<CAPTION>
Fixed maturities owned at December 31, 1995 are summarized as follows:
Gross
Amortized Unrealized
Cost Gains
<S> <C> <C>
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
Collateralized mortgage obligations
Public utilities 269,671 22,084
Corporate bonds 1,732,046 83,583
Foreign governments 18,596 1,087
State and municipalities 22,784 1,966
$2,054,204 $109,813
Available-for-Sale:
U.S. Treasury Securities and
obligations of U.S. Government
Agencies:
Collateralized mortgage obligations $561,475 $9,983
Direct mortgage pass-through
certificates 794,056 11,980
Other 561,736 7,703
Collateralized mortgage obligations 490,074 18,044
Public utilities 581,482 16,607
Corporate bonds 2,943,918 121,537
Foreign governments 141,362 5,021
State and municipalities 13,866 22
$6,087,969 $190,897
<PAGE>
6. SUMMARY OF INVESTMENTS (Continued)
Gross Estimated
Unrealized Fair Carrying
Losses Value Value
<S> <C> <C> <C>
Held-to-Maturity:
U.S. Treasury Securities
and obligations
of U.S. Government
Agencies:
Collateralized mortgage $ $ $
obligations
Direct mortgage pass-through
certificates
Other 12,200 11,107
Collateralized mortgage
obligations
Public utilities 95 291,660 269,671
Corporate bonds 5,867 1,809,762 1,732,046
Foreign governments 12 19,671 18,596
State and municipalities 24,750 22,784
$5,974 $2,158,043 $2,054,204
<PAGE>
Available-for-Sale:
U.S. Treasury Securities
and obligations
of U.S. Government
Agencies:
Collateralized mortgage $1,948 $569,510 $569,510
obligations
Direct mortgage pass-through
certificates 2,233 803,803 803,803
Other 39 569,400 569,400
Collateralized mortgage
obligations 3,304 504,814 504,814
Public utilities 2,425 595,664 595,664
Corporate bonds 26 3,065,429 3,065,429
Foreign governments 5,644 140,739 140,739
State and municipalities 60 13,828 13,828
$15,679 $6,263,187 $6,263,187
</TABLE>
Most of the collateralized mortgage obligations
consist of planned amortization classes with final
stated maturities of two to thirty years and average
lives of less than one to fourteen 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
<PAGE>
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 calculated at current market rates on investments
of similar quality and term.
The amortized cost and estimated fair value of fixed
maturity investments at December 31, 1996, 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.
<TABLE>
<CAPTION>
Held-to-Maturity
Amortized Estimated
Cost Fair Value
<S> <C> <C>
Due in one year or less $197,135 $ 200,356
Due after one year through five
years 840,192 860,192
Due after five years through ten
years 621,900 641,103
Due after ten years 140,061 145,287
Mortgage-backed securities
Asset-backed securities 193,393 194,126
$1,992,681 $ 2,041,064
Available-for-Sale
Amortized Estimated
Cost Fair Value
<S> <C> <C>
Due in one year or less $294,236 $308,805
Due after one year through five
years 1,294,892 1,300,473
<PAGE>
Due after five years through ten
years 934,312 940,880
Due after ten years 422,179 432,721
Mortgage-backed securities 2,117,676 2,126,285
Asset-backed securities 1,088,224 1,097,314
$6,151,519 $6,206,478
</TABLE>
Proceeds from sales of securities available-for-sale were
$3,569,608, $4,211,649, and $1,753,445 during 1996, 1995,
and 1994, respectively. The realized gains on such sales
totaled $24,919, $39,755, and $7,030 for 1996, 1995, and
1994, respectively. The realized losses totaled $40,748,
$15,516, and $50,612 for 1996, 1995, and 1994,
respectively. During 1996, 1995, and 1994 held-to-
maturity securities with an amortized cost of $0,
$18,087, and $15,300 were sold due to credit
deterioration with insignificant realized gains and
losses.
At December 31, 1996 and 1995, pursuant to fully
collateralized securities lending arrangements, the
Company had loaned $230,419 and $343,351 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
<PAGE>
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
into transactions only with high quality institutions, no
losses associated with non-performance on derivative
financial instruments have occurred or are expected to
occur.
<PAGE>
The following table summarizes the financial hedge
instruments:
<TABLE>
<CAPTION>
Notional Strike/Swap
December 31, 1996 Amount Rate Maturity
<S> <C> <C> <C>
Interest Rate Floor 100,000 4.5% [LIBOR] 1999
Interest Rate Caps 260,000 11.0% to 11.82% 2000 to 2001
[CMT]
Interest Rate Swaps 187,847 6.203% to 9.35% 01/98 to 02/2003
Foreign Currency 61,012 N/A 09/98 to 03/2003
Exchange Contracts
Notional Strike/Swap
December 31, 1995 Amount Rate Maturity
<S> <C> <C> <C>
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
</TABLE>
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, 1996 approximately 32% and
10% of the Company's mortgage loans were collateralized by
real estate located in California and Michigan, respectively.
The following represents impairments and other information
under SFAS No. 114:
<PAGE>
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Impaired Loans
Loans with related allowance for
credit losses of $2,793 and $654 $16,443 $3,254
Loans with no related allowance for
credit losses 31,709 20,424
Average balance of impaired loans
during the year 39,064 29,150
Interest income recognized [while 923 675
impaired]
Interest income received and recorded
[while impaired] using the cash
basis method of recognition 1,130 857
</TABLE>
As part of an active loan management policy and in the
interest of maximizing the future return of each
individual loan, the Company may from time to time alter
the original terms of certain loans. These restructured
loans, all performing in accordance with their modified
terms that are not impaired, aggregated $68,254, and
$89,160 at December 31, 1996, and 1995, respectively.
The following table presents changes in the allowance for
credit losses since January 1, 1995 (date of the adoption
of SFAS No. 114):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Balance, beginning of year $63,994 $57,987
Provision for loan losses 4,470 15,877
Chargeoffs (3,468) (10,480)
Recoveries 246 610
Balance, end of year $65,242 $63,994
</TABLE>
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, 1996, commercial paper
<PAGE>
outstanding has maturities ranging from 49 to 123 days
and interest rates ranging from 5.4% to 5.6%. At
December 31, 1995, maturities ranged from 25 to 160 days
and interest rates ranged from 5.7% to 5.9%.
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:
<TABLE>
<CAPTION>
December 31,
1996
Carrying Estimated
Amount Fair Value
<S> <C> <C>
ASSETS:
Fixed maturities and short-term
investments $8,618,167 $8,666,550
Mortgage loans on real estate 1,487,575 1,506,162
Policy loans 2,523,477 2,523,477
Common stock 19,715 19,715
LIABILITIES:
Annuity contract reserves
without life contingencies 5,779,842 5,821,404
Policyholders' funds 153,867 153,867
Due to Parent Corporation 151,431 154,479
Repurchase agreements 286,736 286,736
Commercial paper 84,682 84,682
HEDGE CONTRACTS:
Interest rate floor 62 124
Interest rate cap 173 173
Interest rate swaps 4,746 4,746
Foreign currency exchange (8,954) (8,954)
contracts
<PAGE>
December 31,
1995
Carrying Estimated
Amount Fair Value
<S> <C> <C>
ASSETS:
Fixed maturities and short-term
investments $8,452,226 $8,556,065
Mortgage loans on real estate 1,713,195 1,749,514
Policy loans 2,237,745 2,237,745
Common stock 9,440 9,440
LIABILITIES:
Annuity contract reserves
without life contingencies 6,170,760 6,268,749
Policyholders' funds 154,872 154,872
Due to Parent Corporation 149,974 152,347
Repurchase agreements 375,299 375,299
Commercial paper 84,854 84,854
HEDGE CONTRACTS:
Interest rate floor 84 1,320
Interest rate cap 90 90
Interest rate swaps 10,052 10,052
Foreign currency
exchange contracts (4,604) (4,604)
</TABLE>
<PAGE>
The estimated fair value of financial instruments
has been determined using available market information
and appropriate valuation methodologies. However,
considerable judgment is necessarily required to
interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented are not
necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of
different market assumptions and/or estimation
methodologies may have a material effect on the estimated
fair value amounts.
Mortgage loans fair value estimates generally are based
on a discounted cash flow basis. A discount rate
"matrix" is incorporated whereby the discount rate used
in valuing a specific mortgage generally corresponds to
that mortgage's remaining term. The rates selected for
inclusion in the discount rate "matrix" reflect rates
that the Company would quote if placing loans
representative in size and quality to those currently in
the portfolio.
Policy loans accrue interest generally at variable rates
with no fixed maturity dates and, therefore, estimated
fair value approximates carrying value.
The fair value of annuity contract reserves without life
contingencies is estimated by discounting the cash flows
to maturity of the contracts, utilizing current credited
rates for similar products.
The estimated fair value of policyholders funds is the
same as the carrying amount as the Company can change the
crediting rates with 30 days notice.
The estimated fair value of due to Parent Corporation is
based on discounted cash flows at current market spread
rates on high quality investments.
The carrying value of repurchase agreements and
commercial paper is a reasonable estimate of fair value
due to the short-term nature of the liabilities.
The estimated fair value of financial hedge instruments,
all of which are held for other than trading purposes, is
the estimated amount the Company would receive or pay to
terminate the agreement at each year-end, taking into
consideration current interest rates and other relevant
factors. Included in the net gain position for interest
<PAGE>
rates swaps are $160 and $0 of unrealized losses in 1996
and 1995, respectively. Included in the net loss
position for foreign currencies exchange contracts are
$8,954 and $5,497 loss exposures in 1996 and 1995,
respectively.
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:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal tax rate 35.0% 35.0% 35.0%
Change in tax rate resulting from:
Investment income not subject to (1.0) (0.5) (1.0)
federal tax
Release of contingent liability (4.7)
Change in valuation allowance 0.8 (7.8) (6.9)
State and environmental taxes 0.7 0.7 0.9
Other, net (1.4) 0.3 (0.3)
Total
29.4% 27.7% 27.7%
</TABLE>
Temporary differences which give rise to the deferred tax
assets and liabilities as of December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1996
Deferred Deferred Tax
Tax Asset Liability
<S> <C> <C>
Policyholder reserves $ 151,239 $
Deferred policy acquisition costs 57,031
Deferred acquisition cost proxy tax 70,413
Investment assets 35,658
Net operating loss carryforwards 12,295
<PAGE>
Tax credits and other 5,366
Subtotal
274,971 57,031
Valuation allowance (3,536)
Total Deferred Taxes $271,435 $57,031
1995
Deferred Deferred Tax
Tax Asset Liability
<S> <C> <C>
Policyholder reserves $ 162,073 $
Deferred policy acquisition costs 55,542
Deferred acquisition cost proxy tax 58,481
Investment assets 16,372
Net operating loss carryforwards 17,588
Tax credits and other 4,786
Subtotal 242,928 71,914
Valuation allowance (2,073)
Total Deferred Taxes $ 240,855 $71,914
</TABLE>
Amounts related to investment assets above include $8,530 and
$33,735 related to the unrealized gains on the Company's fixed
maturities available-for-sale at December 31, 1996 and 1995,
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, 1996, the Company s subsidiaries
have approximately $35,128 of net operating loss carryforwards,
expiring through the year 2011. The tax benefit of subsidiaries
net operating loss carryforwards, net of a valuation allowance of
$1,612 are included in the deferred tax assets.
The Company's valuation allowance was increased/(decreased) in 1996,
1995, and 1994 by $1,463, $(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
<PAGE>
the amount to become taxable. Accordingly, no provision has been
made for possible future federal income taxes on this accumulation.
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 the provision, to reflect the resolution of 1988 and l989 tax
issues with the Internal Revenue Service (IRS). Audits of tax years
1990 and 1991 are in the process of being finalized. The IRS is
currently auditing tax years 1992 and 1993. In the opinion of
Company management, the amounts paid or accrued are adequate;
however, it is possible that the Company s accrued amounts may change
as a result of the completion of the IRS audits.
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.
The dividend rate on the Series B Straps is 5.8% through December 30,
1997. The Series B STRAPS are redeemable at the option of the
Company on or after December 29, 1997 at a price of $100,000 per
share, plus accumulated and unpaid dividends.
The Company's Series E 7.5% non-cumulative, non-redeemable preferred
shares are redeemable by the Company after April 1, 1999. The shares
are convertible into common shares at the option of the holder on or
after September 30, 1999, at a conversion price negotiated between
the holder and the Company or at a formula determined conversion
price in accordance with the share conditions.
The Company received $472 of contributed capital in the form of
deferred tax assets from the Parent Corporation during 1994 in
connection with reinsurance transactions with the Parent.
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:
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
(Unaudited)
<S> <C> <C> <C>
Net Income $ 180,635 $ 114,931 $ 70,091
Capital and Surplus 713,324 653,479 621,589
</TABLE>
The maximum amount of dividends which can be paid to
stockholders by insurance companies domiciled in the
State of Colorado is subject to restrictions relating to
statutory surplus and statutory net gain from operations.
Statutory surplus and net gains from operations at
December 31, 1996 were $584,492 and $182,044 (unaudited),
respectively. The Company should be able to pay up to
$182,044 (unaudited) of dividends without regulatory
approval in 1997.
Dividends of $8,587, $9,217, and $7,475, were paid on
preferred stock in 1996, 1995, and 1994, respectively.
In addition, dividends of $48,083, $39,763, and $32,963,
were paid on common stock in 1996, 1995 and 1994,
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>
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,
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
(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;
<PAGE>
(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.
<PAGE>
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.
<PAGE>
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Form of Principal Underwriter and Distribution 11
Agreement incorporated by reference.
2. Not applicable.
3. (a) Articles of Incorporation of Great-West Life &1
Annuity Insurance Company incorporated by reference.
(b) Bylaws of Great-West Life & Annuity Insurance 1
Company incorporated by reference.
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.is attached
as Exhibit 5
6. Not applicable.
7. Not applicable.
8. Not applicable.
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.
<PAGE>
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 reference.
22. Not applicable.
23. (a) Consent of Jorden Burt Berenson & Johnson LLP was
filed electronically with the Registration Statement on
September 6, 1996.is attached as Exhibit 23a
(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-Be'lair, Turner and Walsh, Graham and Kavanagh
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.
<PAGE>
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 is attached as Exhibit 27.
Item 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of 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
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to the Registration
Statement on Form S-1 to be signed on its behalf, in the City of Englewood,
State of Colorado, on this 23rd day of May , 1997.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
(Depositor)
By: /s/ William T. McCallum
William T. McCallum, President
and Chief Executive Officer
As required by the Securities Act of 1933, this Amendment No. 1 to
the 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* May 23, 1997
Director, Chairman of the Board
(Robert Gratton)
/s/ William T. McCallum May 23, 1997
Director, President and Chief Executive
Officer (William T. McCallum)
/s/ Glen R. Derback May 23, 1997
Vice President, Financial Control
and Controller (Glen R. Derback)
<PAGE>
Signature and Title Date
/s/ James Balog* May 23,1997
Director, (James Balog)
/s/ James W. Burns* May 23, 1997
Director, (James W. Burns)
/s/ Orest T. Dackow* May 23, 1997
Director (Orest T. Dackow)
/s/ Paul Desmarais, Jr.* May 23, 1997
Director (Paul Desmarais, Jr.)
/s/ Robert G. Graham* May 23, 1997
Director (Robert G. Graham)
/s/ N. Berne Hart * May 23, 1997
Director (N. Berne Hart)
/s/ Kevin P. Kavanagh * May 23, 1997
Director (Kevin P. Kavanagh)
/s/ William Mackness* May 23, 1997
Director (William Mackness)
/s/ Jerry E.A. Nickerson * May 23, 1997
Director (Jerry E.A. Nickerson)
<PAGE>
Signature and Title Date
/s/ P. Michael Pitfield* May 23, 1997
Director (P. Michael Pitfield)
/s/ Michel Plessis-Be lair* May 23, 1997
Director (Michel Plessis-Be lair)
/s/ Ross J. Turner* May 23, 1997
Director (Ross J. Turner)
/s/ Brian E. Walsh * May 23, 1997
Director (Brian E. Walsh)
*By: /s/ D.C. Lennox May 23, 1997
D.C. Lennox
Attorney-in-fact pursuant to Powers of Attorney filed with the
Registration Statement on September 6, 1996 and incorporated herein by
reference.
<PAGE>
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>
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. 3
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 3
(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-Be'laire, 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 herein and attached.
<PAGE>
EXHIBIT 99-5
Opinion and Consent
Ruth B. Lurie
<PAGE>
May 20, 1997
Securities and Exchange Commission
450 Fifth St., N.W.
Washington, D.C. 20549
Re: Opinion of Counsel - Amendment No. 1
Registration Statement File No.333-11493
Gentlemen:
This letter is furnished as the requisite opinion of counsel
described in Form S-1, Part II, Item 16(5). Under said
registration statement, Great-West Life & Annuity Insurance
Company (the Company ) has previously registered $62,500,000 of
securities under the Securities Act of 1933, as amended.
I am the Vice President, Counsel and Associate Secretary of
the Company. In so acting, I have made such examination of the
law, records and documents as in my judgment are necessary or
appropriate to enable me to render the opinion expressed below.
For purposes of such examination, I have assumed the genuineness
of all signatures and the conformity to the original of all
copies.
I am a member of the Colorado Bar and do not purport to be
an expert on the laws of any other state. My opinion herein as
to any other law is based upon a limited inquiry thereof which I
have deemed appropriate under the circumstances.
My opinion herein assumes that the securities will be issued
and sold in accordance with the provisions of the Form S-1
amendment to the registration statement with which this opinion
accompanies. Based on the foregoing, I am of the opinion that
these securities will be legally issued, and will represent
binding obligations of the Company.
I consent to the use of this opinion as an exhibit to this
amendment to the registration statement and to the reference to
my name under the description Legal Matters in the prospectus.
Sincerely,
/s/ Ruth B. Lurie
Ruth B. Lurie
Vice President, Counsel
and Associate Secretary
<PAGE>
EXHIBT 99.23A
Consent of
Jorden Burt Berenson & Johnson LLP
<PAGE>
May 27, 1997
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, Colorado 80111
Re: Registration Statement on Form S-1 Registration Number
333-11493
Dear Ladies and Gentlemen:
We have acted as counsel to Great-West Life & Annuity
Insurance Company, a Colorado corporation, regarding the federal
securities laws applicable to the issuance and sale of the
Contract described therein. We hereby consent to the reference
to us under the heading "Legal Matters" in the prospectus.
Very truly yours,
JORDEN BURT BERENSON & JOHNSON LLP
<PAGE>
EXHIBIT 23b
Consent of
Deloitte & Touche LLP
<PAGE>
INDEPENDENT AUDITORS CONSENT
We consent to the use in this Amendment No.1 to Registration No.
333-11493 on Form S-1 of Great-West Life & Annuity Insurance
Company of our report, dated January 25th, 1997, on the financial
statements of Great-West Life & Annuity Insurance Company
appearing in the Prospectus, which is a part of such Registration
Statement, and to the reference to us under the heading "Experts"
appearing in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
May 21, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 6,206,478
<DEBT-CARRYING-VALUE> 1,992,681
<DEBT-MARKET-VALUE> 2,041,064
<EQUITIES> 19,715
<MORTGAGE> 1,487,575
<REAL-ESTATE> 0
<TOTAL-INVEST> 12,716,901
<CASH> 125,182
<RECOVER-REINSURE> 196,958
<DEFERRED-ACQUISITION> 282,780
<TOTAL-ASSETS> 19,351,234
<POLICY-LOSSES> 11,394,922
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 425,800
<NOTES-PAYABLE> 84,682
0
121,800
<COMMON> 7,032
<OTHER-SE> 905,382
<TOTAL-LIABILITY-AND-EQUITY> 19,351,234
1,199,248
<INVESTMENT-INCOME> 836,642
<INVESTMENT-GAINS> (21,078)
<OTHER-INCOME> 0
<BENEFITS> 1,355,964
<UNDERWRITING-AMORTIZATION> 47,089
<UNDERWRITING-OTHER> 421,212
<INCOME-PRETAX> 190,547
<INCOME-TAX> 55,972
<INCOME-CONTINUING> 134,575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,575
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 6,041,357
<DEBT-CARRYING-VALUE> 2,039,956
<DEBT-MARKET-VALUE> 2,045,982
<EQUITIES> 45,840
<MORTGAGE> 1,424,901
<REAL-ESTATE> 12,483,711
<TOTAL-INVEST> 108,564
<CASH> 204,851
<RECOVER-REINSURE> 286,762
<DEFERRED-ACQUISITION> 19,570,474
<TOTAL-ASSETS> 0
<POLICY-LOSSES> 11,293,350
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 428,770
<NOTES-PAYABLE> 89,319
0
121,800
<COMMON> 7,032
<OTHER-SE> 905,454
<TOTAL-LIABILITY-AND-EQUITY> 19,570,474
261,577
<INVESTMENT-INCOME> 218,016
<INVESTMENT-GAINS> (4,943)
<OTHER-INCOME> 0
<BENEFITS> 298,832
<UNDERWRITING-AMORTIZATION> 7,794
<UNDERWRITING-OTHER> 416,020
<INCOME-PRETAX> 50,836
<INCOME-TAX> 18,987
<INCOME-CONTINUING> 31,849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,849
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
