UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For The Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to _____________/
Commission file number 333-1173
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Colorado 84-0467907
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer
Identification No.)
8515 East Orchard Road, Englewood, Colorado 80111
(Address of principal executive offices) (Zip Code)
(303) 689-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of March 1, 1998, the aggregate market value of the registrant's voting stock
held by non-affiliates of the registrant was $0.
As of March 1, 1998, 7,032,000 shares of the registrant's common stock were
outstanding, all of which were owned by the registrant's parent company.
Note: This Form 10-K is filed by the registrant only as a consequence of the
sale by the registrant of a market value adjusted annuity product.
<PAGE>
32
<TABLE>
TABLE OF CONTENTS
Page
PART I
<S> <C> <C>
Item 1. Business........................................................................1
A. Organization and Corporate Structure...................................1
B. Business of the Company ...............................................1
C. Description of Business Units..........................................3
Item 2. Properties......................................................................16
Item 3. Legal Proceedings...............................................................16
Item 4. Submission of Matters to a Vote of Security Holders.............................17
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.............................................................17
A. Equity Security Holders and Market Information.........................17
B. Dividends..............................................................17
Item 6. Selected Financial Data.........................................................18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................................18
A. Company Results of Operations..........................................19
B. Business Unit Results of Operations....................................21
C. Liquidity and Capital Resources........................................28
D. Accounting Pronouncements..............................................28
E. Year 2000 .............................................................30
Item 8. Financial Statements and Supplementary Data.....................................30
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................................56
PART III
Item 10. Directors and Executive Officers of the Registrant..............................56
A. Identification of Directors............................................56
B. Identification of Executive Officers...................................59
Item 11. Executive Compensation..........................................................62
A. Summary Compensation Table.............................................62
B. Options................................................................63
C. Pension Plan Table.....................................................65
D. Compensation of Directors..............................................66
E. Compensation Committee Interlocks and Insider Participation............66
Item 12. Security Ownership of Certain Beneficial Owners and Management..................67
A. Security Ownership of Certain Beneficial Owners........................67
B. Security Ownership of Management.......................................67
Item 13. Certain Relationships and Related Transactions..................................69
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................69
A. Index to Financial Statements..........................................69
B. Index to Exhibits......................................................70
C. Reports on Form 8-K....................................................70
Signatures................................................................................71
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
A. ORGANIZATION AND CORPORATE STRUCTURE
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 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 ranks in the top 2% of all U.S. life insurers in terms of assets.
The Company is a wholly-owned subsidiary of The Great-West Life Assurance
Company ("Great-West Life"), a Canadian life insurance company. Great-West Life
is a subsidiary of Great-West Lifeco Inc. ("Great-West Lifeco"), a Canadian
holding company. Great-West Lifeco is in turn a subsidiary of Power Financial
Corporation ("Power Financial"), a Canadian holding company with substantial
interests in the financial services industry. Power Corporation of Canada
("Power Corporation"), a Canadian holding and management company, has voting
control of Power Financial. Mr. Paul Desmarais, through a group of private
holding companies, which he controls, has voting control of Power Corporation.
Common and preferred shares of Great-West Life, Great-West Lifeco, Power
Financial and Power Corporation are traded publicly in Canada.
B. BUSINESS OF THE COMPANY
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 all states in
the United States except New York, and in the District of Columbia, Puerto Rico
and Guam. The Company conducts business in New York through First Great-West
Life & Annuity Insurance Company, a subsidiary New York life insurance company.
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 its 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 in
the public/non-profit sector, as well as insurance
products for individual clients.
Investment Operations - management of assets, both general
account and separate accounts which segregate, from
the Company's general account, the assets and
liabilities of contractholders of variable products
("Separate Accounts").
The table that follows summarizes premiums and deposits for the years indicated.
For further consolidated financial information concerning the Company, see Item
6 (Selected Financial Data), and Item 8 (Financial Statements and Supplementary
Data). For commentary on the information in the following table, see Item 7(B)
(Management's Discussion and Analysis of Financial Condition and Results of
Operations - Business Unit Results of Operations).
<TABLE>
Millions (1) 1997 1996 1995
----- ---- ----
Employee Benefits
<S> <C> <C> <C>
Group Life $ 123 $ 121 $ 138
Group Health 656 642 679
401(k) 53 41 29
Financial Services
Savings 62 51 50
Individual Insurance 385 (2) 344 (2) 171
--- ------------ ---- ---------- ---- -----------
Premium and other income $ 1,279 $ 1,199 $ 1,067
=== ============ ==== ========== ==== ===========
Deposits for Investment-type
Contracts:
401(k) $ 25 $ 34 $ 47
Savings 219 215 364
Individual Insurance 414 566 457
=== ============ ==== === ====== ==== ===========
Total investment-type deposits $ 658 $ 815 $ 868
=== ============ ==== === ====== ==== ===========
Deposits to Separate Accounts:
401(k) $ 1,403 $ 1,109 $ 883
Savings 329 282
742
=== ============ ==== === ====== ==== ===========
Total separate accounts deposits $ 2,145 $ 1,438 $ 1,165
=== ============ ==== === ====== ==== ===========
=== ============ ==== === ====== ==== ===========
Self-funded equivalents (3) $ 2,039 $ 1,940 $ 2,140
=== ============ ==== === ====== ==== ===========
</TABLE>
(1) All information in the above table and other tables herein is presented
in conformity with generally accepted accounting principles, unless
otherwise indicated.
(2) These amounts include the recapture of $156 million and $164 million for
the years ended December 31, 1997 and 1996, respectively, of
participating policy reserves previously coinsured with Great-West Life
under a participating life coinsurance agreement.
(3) Self-funded equivalents generally represent paid claims under minimum
premium and administrative services only contracts, which amounts
approximate the premiums that would have been earned under such
contracts if they had been written as traditional indemnity or HMO
programs.
C. DESCRIPTION OF BUSINESS UNITS
1. Employee Benefits
Principal Products
The Employee Benefits division is responsible for marketing group life and
health and 401(k) products to employers with 20 or more employees. The Company
offers employers a fully integrated employee benefits package with a single
service contact for multiple products. Through integrated pricing,
administration and funding, the Company helps employers provide cost-effective
benefits aimed at attracting and retaining quality employees.
The Company offers customers a variety of health plan options to help them
maximize the value of their employee benefits investment. These range from
fully-insured products, whereby the Company assumes all or a portion of the
health care cost and utilization risk, to self-funded, whereby the employer
assumes all or a significant portion of the risk. Employee Benefits also
provides administration and claims services and, in many cases, stop-loss
insurance protection.
The Company offers a full range of managed care products and services. These
products include Health Maintenance Organization ("HMO") plans, which provide a
high degree of managed care, Preferred Provider Organization ("PPO") plans and
Point-of-Service ("POS") plans which offer more flexibility in provider choice
than HMO plans. Because many employers want to offer employees a choice in
health plans while containing costs, the Company offers PPO/POS/HMO option
packages. In addition, the Company maintains a fully insured product to meet
customer demand for traditional health care products.
Under HMO plans, health care for the member is coordinated by a primary care
physician who is responsible for managing all aspects of the member's care. HMO
plans offer a broad scope of benefits coverage including routine office visits
and preventive care, as well as lower premiums and low copayments which minimize
out-of-pocket costs. Services for care not coordinated with the primary care
physician are not covered, with the exception of emergency care. There are no
claims to file when services are received through a primary care physician.
Physicians are reimbursed on a monthly capitated rate per HMO patient for most
services.
POS plans also require that a member enroll with a primary care physician who is
responsible for coordinating the member's health care. Similar to an HMO,
members receive the highest benefit coverage and the lowest out-of-pocket costs
when they use their primary care physician to coordinate their health care. In
contrast to an HMO, members can seek care outside of the primary physician's
direction, at a reduced level of benefits in terms of increased cost sharing.
Some benefits may not be covered outside the in-network POS plan.
PPO plans offer members a greater choice of physicians and hospitals. Members do
not need to enroll with a primary care physician - they simply select a
contracted PPO provider at the time of service to receive the highest level of
benefits. If members seek care outside of the PPO network, they receive a lower
level of benefits in terms of increased cost sharing.
A traditional indemnity plan allows complete freedom of choice for covered
services. After meeting an annual deductible, insureds pay their share of
coinsurance for all covered services. These plans are not typically considered
managed care, although they may include some medical management features, such
as inpatient certification, reasonable and customary charges, and some benefits
for preventive care.
The Company continues to develop its One Health Plan subsidiary organization. In
1997, it licensed five One Health Plan HMOs (Massachusetts, Ohio, Oregon,
Tennessee and Washington). This brings the total number of licensed HMO
subsidiaries to ten. Through each One Health Plan subsidiary, the Company
centralizes all network contracting and administration, medical management,
member services, and quality assurance for all of the Company's medical members
(PPO, POS and HMO) in the particular state. In addition to economies of scale,
this "pooling" of PPO, POS, and HMO membership benefits the Company in
negotiating provider reimbursement arrangements, which leads to more competitive
pricing.
The type of coverage provided by the Company continues to move toward the higher
forms of managed care. As of December 31, 1997, of the 1,675,764 lives covered,
414,519 were in POS/HMO type plans, 1,099,439 were in PPO plans, and 161,806
were in fully insured plans. At December 31, 1996, of the 1,554,142 lives
covered, 350,185 were in POS/HMO type plans, 1,003,333 were in PPO plans, and
200,624 were in fully insured plans.
The Company offers group life insurance. Sales of group life insurance consist
principally of renewable term coverage, the amounts of which are usually linked
to individual employee wage levels. The following table shows group life
insurance in force prior to reinsurance ceded for the years indicated:
<TABLE>
Years Ended December 31,
-----------------------------------------------------------
Millions 1997 1996 1995 1994 1993
---------- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
In force, end of year $ 53,211 $ 49,500 $ 50,370 $ 51,051 $ 39,898
</TABLE>
The Company's 401(k) product is offered by way of a group fixed and variable
deferred annuity contract. The product provides a variety of funding and
distribution options for employer-approved retirement plans that qualify under
Internal Revenue Code Section 401(k).
The 401(k) product investment options for the contractholder include guaranteed
interest rates for various lengths of time and variable investment options. For
the fully guaranteed option, the difference between the income earned on
investments in the Company's general account and the interest credited to the
participant's account balance flows through to operating income.
Variable investment options utilize Separate Accounts to provide contractholders
with a vehicle to assume the investment risks. Assets held under these options
are invested, as designated by the participant, in Separate Accounts which in
turn invest in shares of underlying funds managed by a subsidiary of the Company
or by selected external fund managers. The participant currently has up to 32
different variable investment options.
Of the total 401(k) assets under administration in 1997, 93% were allocated to
variable investment options.
The Company is compensated by the Separate Accounts for bearing expense risks
pertaining to the variable annuity contract, and for providing administrative
services to contractholders. A subsidiary of the Company also receives fees for
serving as an investment advisor for underlying funds managed by the subsidiary.
Customer retention is a key factor for the profitability of the Company's 401(k)
product. The annuity contracts impose a charge for termination during a certain
period of time after the contract's inception. The charge is determined in
accordance with a formula in the contract. Existing tax penalties on annuity
distributions prior to age 59 1/2 provide an additional disincentive to
premature surrenders of account balances, but do not impact rollovers to
products of competitors.
Employee Benefits offers a rollover Individual Retirement Annuity which allows
individuals to move retirement funds from a 401(k) plan to a qualified
Individual Retirement Account.
In 1997, the Company introduced a Non-Qualified Deferred Compensation ("NQDC")
supplement to its 401(k) product. NQDC allows highly compensated employees to
defer compensation on a pre-tax basis beyond 401(k) limits until retirement. The
Company offers a unique deferred compensation arrangement which utilizes Orchard
Series Fund, a mutual fund subsidiary of the Company.
In the following table, the amount of 401(k) business in force is measured by
the total of individual account balances:
Millions
Year Ended December 31, Fixed Annuities Variable Annuities
1993 $ 357 $ 868
1994 345 1,324
1995 358 2,227
1996 347 3,229
1997 328 4,568
Method of Distribution
Products are sold principally through local field sales representatives in 33
sales offices in key metropolitan areas throughout the United States. Home
office marketing, actuarial and operations staff support the field sales offices
in new case installation and ongoing client services. The field sales staff work
with independent insurance agents, brokers and consultants who assist in the
production and servicing of business.
Competition
The employee benefits industry is highly competitive. Market share remains
fragmented because of the large number of insurance carriers, third-party
administrators and HMOs serving the various public and private sectors. No one
competitor is dominant across the country. With managed care enrollment expected
to increase dramatically over the remainder of the decade, many indemnity
carriers are transitioning their members into more cost effective managed care
products.
The highly competitive marketplace creates pricing pressures which encourage
employers to seek competitive bids each year. Although most employers are
looking for affordably priced employee benefits products, they want to offer
product choice because employee needs differ. In many cases it is more
cost-effective and efficient for an employer to contract with a carrier such as
the Company, which offers multiple product lines and centralized administration.
In addition to price, there are a number of other factors which influence
employer decision-making. These factors include quality of services; scope,
cost-effectiveness and quality of provider networks; product responsiveness to
customers' needs; cost-containment services; and effectiveness of marketing and
sales.
Reserves
For group whole life and term insurance products, policy reserve liabilities are
equal to the present value of future benefits and expenses less the present
value of future net premiums using best estimate assumptions for interest,
mortality and expenses (including margins for adverse deviation). For disability
waiver of premium and paid up group whole life contracts, the policy reserves
equal the present value of future benefits and expenses using best estimate
assumptions for interest, mortality and expenses (including margins for adverse
deviation). For group universal life, the policy reserves equal the accumulated
fund balance (which reflects cumulative deposits plus credited interest less
charges thereon). Reserves for long-term disability products are established for
lives currently in payment status using industry and Company morbidity factors,
and interest rates based on Company experience. In addition, reserves are held
for lives that have not satisfied their waiting period and for claims that have
been incurred but not reported.
For medical, dental and vision insurance products, reserves reflect the ultimate
cost of claims including, on an estimated basis, (i) claims that have been
reported but not settled, and (ii) claims that have been incurred but not
reported. Claim reserves are based upon factors derived from past experience.
Reserves also reflect retrospective experience rating that is done on certain
types of business.
Reserves for investment contracts (401(k) deferred annuities) are equal to
cumulative deposits, less withdrawals and charges, plus credited interest
thereon.
Assumptions for mortality and morbidity experience are periodically reviewed
against published industry data and company experience.
The above mentioned reserves are computed amounts that, with additions from
premiums and deposits to be received, and with interest on such reserves, are
expected to be sufficient to meet the Company's policy obligations at their
maturities, and pay expected death or retirement benefits or surrender requests.
Reinsurance
The Company has a marketing and administrative services arrangement with New
England Life Insurance Company ("New England"). Under reinsurance agreements,
New England issues group life and health and 401(k) products and then
immediately reinsures 50% of its group life and health business, and nearly 100%
of its guaranteed 401(k) business, with the Company.
2. Financial Services
Principal Products
The Financial Services division markets and administers savings and life
insurance products.
Savings products include (i) individual and group annuity contracts which offer
a variety of funding and distribution options for personal and
employer-sponsored retirement plans that qualify under Internal Revenue Code
Sections 401, 403, 408, and 457, and (ii) individual and group non-qualified
annuity contracts. These contracts may be immediate or deferred and are offered
primarily to individuals and employers of public and non-profit sector
employees. The Company also provides pension plan administrative services
through a subsidiary company, Financial Administrative Services Corporation
("FASCorp"). The Company provides marketing and communication services through
another subsidiary company, Benefits Communication Corporation, and BenefitsCorp
Equities, Inc., a broker-dealer subsidiary of Benefits Communication Corporation
(collectively, "BenefitsCorp").
The primary marketing emphasis for the Company's savings products is the
public/non-profit market for defined contribution retirement savings plans.
Defined contribution plans provide for participant accounts with benefits based
upon the value of contributions to, and investment returns on, the individual's
account. This has been the fastest growing portion of the pension marketplace in
recent years.
The Company's variable annuity products provide the opportunity for
contractholders to assume the risks of, and receive all the benefits from, the
investment of retirement assets. The variable product assets are invested, as
designated by the participant, in Separate Accounts which in turn invest in
shares of underlying funds managed by a subsidiary of the Company or by selected
external fund managers.
Demand for investment diversification for customers and their participants
continued to grow during 1997. The Company continues to expand the annuity
products available through Maxim Series Fund, Inc., a subsidiary of the Company
which is a variable insurance products fund company, and through arrangements
with external fund managers. This array of funds allows customers to diversify
their investments across a wide range of investment products, including fixed
income, stock, and international equity fund offerings.
The Company also offers single premium annuities and guaranteed certificates on
a very limited basis, which provide guarantees of principal and interest with a
fixed maturity date.
The Company has a marketing agreement with Charles Schwab & Co., Inc. to sell
individual fixed and variable qualified and non-qualified deferred annuities.
The variable annuity product offers 25 investment options. The fixed product is
a Guarantee Period Fund which was established as a non-unitized Separate Account
in which the owner does not participate in the performance of the assets. The
assets accrue solely to the benefit of the Company and any gain or loss in the
Guarantee Period Fund is borne entirely by the Company. Guarantee period
durations of one to ten years are currently being offered by the Company.
Distributions from the amounts allocated to a Guarantee Period Fund more than
six months prior to the maturity date results in a market value adjustment
("MVA"). The MVA reflects the relationship as of the time of its calculation
between the current U.S. Treasury Strip ask side yield and the U.S. Treasury
Strip ask side yield at the inception of the contract.
Customer retention is a key factor for the profitability of annuity products. To
encourage customer retention, annuity contracts typically impose a surrender
charge on policyholder balances withdrawn for a period of time after the
contract's inception. The period of time and level of the charge vary by
product. Existing tax penalties on annuity distributions prior to age 59 1/2
provide an additional disincentive to premature surrenders of annuity balances,
but do not impede transfers of those balances to products of competitors.
Savings products generate earnings from the investment spreads on the guaranteed
investment options and from the fees collected for mortality and expense risks
associated with the variable options. The Company also receives fees for
providing administration services to contractholders. A subsidiary of the
Company receives fees for serving as an investment advisor for underlying funds
managed by the subsidiary. The Company's annuity products are supported by the
general account assets of the Company for guaranteed investment options, and the
Separate Accounts for the variable investment options.
The amount of annuity products in force is measured by account balances. The
following table shows guaranteed investment contract and group and individual
annuity account balances for the years indicated:
Millions
Guaranteed
Year Ended December 31, Investment
Contracts Fixed Annuities Variable Annuities
1993 $ 1,263 $ 5,671 $ 812
1994 930 5,672 1,231
1995 664 5,722 1,772
1996 525 5,531 2,256
1997 409 5,227 3,280
In addition to providing administrative services to customers of the Company's
annuities, FASCorp also provides comprehensive third-party administrative and
recordkeeping services for other financial institutions and employer-sponsored
retirement plans. Assets under administration with unaffiliated organizations
totaled $8.5 billion at December 31, 1997 and $4.4 billion at December 31, 1996.
FASCorp also is a registered transfer agent for Orchard Series Fund.
Life insurance products in force include participating and non participating
term life, whole life, and universal life.
Term life provides coverage for a stated period and pays a death benefit only if
the insured dies within the period. Whole life provides guaranteed death
benefits and level premium payments for the life of the insured.
Universal life products include a cash value component that is credited with
interest at regular intervals. The Company's earnings result from the difference
between the investment income and interest credited on customer cash values.
Universal life cash values are charged for the cost of insurance coverage and
for administrative expenses.
At December 31, 1997, the Company had $3.3 billion of policy reserves on
individual insurance products sold to corporations to provide coverage on the
lives of certain employees - so called Corporate-Owned Life Insurance ("COLI").
Due to legislation enacted during 1996 which phases out the interest deductions
on COLI policy loans over a two-year period ending 1998, COLI sales have ceased.
The Company continues to work closely with existing COLI customers to determine
the options available to them and is confident that the effect of the 1996
legislative changes will not be material to the Company's operations.
The Company has shifted its emphasis to the Bank-Owned Life Insurance ("BOLI")
market. BOLI was not affected by the 1996 legislation. This interest-sensitive
whole life product funds post-retirement benefits for bank employees. At
December 31, 1997, the Company had $0.5 billion of BOLI policy reserves.
Sales of life insurance products typically have high initial marketing expenses.
Retention, an important factor in profitability, is encouraged through product
features. For example, the Company's universal and whole life insurance
contracts typically impose a surrender charge on policyholder balances withdrawn
within the first ten years of the contract's inception. The period of time and
level of the charge vary by product. In addition, more favorable credited rates
may be offered after policies have been in force for a period of time.
Certain of the Company's life insurance and group annuity products allow
policyowners to borrow against their policies. At December 31, 1997,
approximately 4% of outstanding policy loans were on individual life policies
that had fixed interest rates ranging from 5% to 8%. The remaining 96% of
outstanding policy loans had variable interest rates averaging 7.69% at December
31, 1997. Investment income from policy loans was $194.8 million for the year
ended December 31, 1997.
The following table summarizes changes in life insurance in force prior to
reinsurance ceded for the years indicated:
<TABLE>
Years Ended December 31,
---------------------------------------------------------------
Millions 1997 1996 1995 1994 1993
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
In force, beginning of $ 26,892 $ 25,865 $ 24,877 $ 20,259 $ 18,192
year
Sales and additions 3,119 2,695 2,520 6,302 2,842
Terminations 1,745 1,668 1,532 1,684 775
---------- ----------- ---------- ---------- ----------
Net 1,374 1,027 988 4,618 2,067
---------- ----------- ---------- ---------- ----------
In Force, end of year 28,266 26,892 25,865 24,877 20,259
</TABLE>
Method of Distribution
Financial Services primarily uses BenefitsCorp to distribute pension products to
the public/non-profit market. BenefitsCorp also provides communication and
enrollment services to employers.
Prior to January 1, 1997, life insurance sold to individuals was distributed
through a general agency system. The Company now distributes universal and joint
survivor life insurance, as well as individual fixed and variable qualified and
non-qualified deferred annuities, through Charles Schwab and Co., Inc.
BOLI products are currently marketed through one broker, Clark/Bardes, Inc.
Competition
The life insurance, savings and investments marketplace is highly competitive.
The Company's competitors include mutual fund companies, insurance companies,
banks, investment advisors, and certain service and professional organizations.
No one competitor or small number of competitors is dominant. Competition
focuses on service, technology, cost, variety of investment options, investment
performance, product features, price and financial strength as indicated by
ratings issued by nationally recognized agencies. For more information on the
Company's ratings see Item 1(B)(5) (Business - Business of the Company Ratings).
Reserves
Reserves for universal life and interest-sensitive whole life products are equal
to cumulative deposits less withdrawals and charges plus credited interest.
Reserves for all fixed individual life insurance contracts are computed on the
basis of assumed investment yield, mortality, morbidity and expenses (including
a margin for adverse deviation). These reserves are calculated as the present
value of future benefits (including dividends) and expenses less the present
value of future net premiums. The assumptions used in calculating the reserves
generally vary by plan, year of issue and policy duration. For all life
insurance contracts (including universal life insurance), reserves are
established for claims that have been incurred but not reported based on factors
derived from past experience.
Reserves for limited payment contracts (immediate annuities with life contingent
payouts) are computed on the basis of assumed investment yield, mortality,
morbidity and expenses. These assumptions generally vary by plan, year of issue
and policy duration. Reserves for investment contracts (deferred annuities and
immediate annuities without life contingent payouts) are equal to cumulative
deposits plus credited interest less withdrawals and other charges.
The above-mentioned reserves are computed amounts that, with additions from
premiums and deposits to be received, and with interest on such reserves, are
expected to be sufficient to meet the Company's policy obligations at their
maturities, and pay expected death or retirement benefits or surrender requests.
Reinsurance
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 coinsurance contracts. The Company retains
a maximum of $1.5 million of coverage per individual life.
<PAGE>
3. Investment Operations
The Company's investment operations division manages the Company's general and
Separate Account funds in support of cash and liquidity requirements of the
Company's insurance and investment products.
Investments under management at year-end 1997 totaled $21.0 billion, comprised
of corporate and insurance-related investments assets ("investment assets") of
$13.2 billion and Separate Account assets of $7.8 billion.
The Company invests in a broad range of asset classes, including domestic and
international fixed maturities and common stocks, mortgage loans, real estate,
and short-term investments. Fixed maturity investments include publicly traded
and private placement corporate bonds, government bonds, publicly traded and
private placement structured assets and redeemable preferred stocks. The
Company's portfolio of structured assets is primarily invested in
mortgage-backed securities and secondarily in other asset-backed securities.
Mortgage-backed securities include collateralized mortgage obligations ("CMOs").
CMO holdings are concentrated in securities with limited prepayment, extension
and default risk, such as planned amortization class bonds.
The Company generally manages the characteristics of its investment assets, such
as liquidity, currency, yield and duration to reflect the underlying
characteristics of related insurance and contractholder liabilities, which vary
among the Company's principal product lines. The Company observes strict asset
and liability matching guidelines, which are designed to ensure that the
investment portfolio will appropriately meet the cash flow and income
requirements of its liabilities. In connection with its investment strategy, the
Company may use derivative instruments in hedging applications to manage market
risk. Derivative instruments are not used for speculative purposes. For more
information on derivatives see Note 6 to the financial statements.
The Company routinely monitors and evaluates the status of its investments in
light of current economic conditions, trends in capital markets, and other
factors. These other factors include investment size, quality, concentration by
industry segment, and other diversification considerations for fixed maturity
investments, and geographic and property-type considerations for mortgage loan
investments.
The Company's fixed maturity investments constituted 67% of investment assets as
of December 31, 1997. The Company reduces credit risk for the portfolio as a
whole by investing primarily in investment grade fixed maturities rated by
either third-party rating agencies, or in the case of securities which may not
be rated by third-parties, by the Company (for private investments). For more
information on the credit rating of the fixed maturity portfolio, see Item
7(B)(3) (Management's Discussion and Analysis of Financial Condition and Results
of Operations - Business Unit Results of Operations - Investment Operations).
The Company's mortgage loan investments constituted 9% of investment assets as
of December 31, 1997. The Company's mortgage investment policy emphasizes a
broadly diversified portfolio of commercial and industrial mortgages. Mortgage
loan investments are subject to underwriting criteria addressing loan-to-value
ratios, debt service coverage, cash flow, tenant quality, leasing, market,
location, and financial strength of borrower. Since 1986, the Company has
reduced the overall weighting of its mortgage portfolio with a greater emphasis
in bond investments. For more information on the mortgage portfolio, see Item
7(B)(3) (Management's Discussion and Analysis of Financial Condition and Results
of Operations - Business Unit Results of Operations - Investment Operations).
At December 31, 1997 only .7% of investment assets were invested in real estate.
The following table sets forth the distribution of invested assets, cash and
accrued investment income as of the end of the years indicated:
<TABLE>
[Carrying Value in 1997 1996 1995 1994 1993
Millions]
----------- ------------ ------------ ----------- -----------
*Debt Securities:
Bonds
U.S. Government
Securities and
obligations of
U.S.
Government
<S> <C> <C> <C> <C> <C>
Agencies $ 2,091 $ 1,947 $ 1,990 $ 1,672 $ 1,553
Corporate bonds 6,544 6,133 6,168 5,079 5,128
Foreign governments 146 119 159 368 375
----------- ------------ ------------ ----------- -----------
Total 8,781 8,199 8,317 7,119 7,056
Common Stock 39 20 9 5 3
Mortgage loans 1,236 1,488 1,713 2,011 2,378
Real estate 94 68 61 44 41
Policy loans 2,657 2,523 2,238 1,905 1,431
Short-term 399 419 135 707 683
investments
----------- ------------ ------------ ----------- -----------
Total 13,206 12,717 12,473 11,791 11,592
investments
Cash 126 125 91 132 86
Accrued investment
income 166 198 212 196 183
</TABLE>
* The majority (in value) of debt securities are carried at fair value in
1997, 1996, 1995, and 1994 due to the adoption of Statement of Financial
Accounting Standards No. 115 at January 1, 1994. For more information, see
Note 6 to the financial statements.
<PAGE>
The following table summarizes general account investment results of the
Company's operations:
Net Earned Net
Investment Investment
[Millions] Income Income Rate
----------------- -----------------
For the year:
$ 897 7.36%
1997
837 7.07
1996
835 7.36
1995
768 7.23
1994
792 7.76
1993
4. Regulation
General
The Company must comply with the insurance laws of all jurisdictions in which it
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 five year period ending December 31, 1995. This examination
produced no significant adverse findings regarding the Company.
Solvency Regulation
The National Association of Insurance Commissioners has adopted risk-based
capital rules for life insurance companies. These rules recommend a specified
level of capital depending upon the types and quality of investments held, the
types of business written, and the types of liabilities maintained. Depending on
the ratio of the insurer's adjusted capital to its risk based capital, the
insurer could be subject to various regulatory actions ranging from increased
scrutiny to conservatorship. Based on the Company's December 31, 1997 statutory
financial reports, the Company was well within these rules.
The National Association of Insurance Commissioners Insurance Regulatory
Information System ratios are another set of tools used by regulators to provide
an "early warning" as to when a company may require special attention. There are
twelve categories of financial data with defined usual ranges for each. For
1997, the Company was within the usual ranges in all categories.
<PAGE>
Insurance Holding Company Regulations
The Company is subject to and complies with insurance holding company
regulations in Colorado. These regulations contain certain restrictions and
reporting requirements for transactions between an insurer and its affiliates,
including the payments of dividends. They also regulate changes in control of an
insurance company.
Securities Laws
The Company is subject to various levels of regulation under federal securities
laws. The Company's broker-dealer subsidiaries are regulated by the Securities
and Exchange Commission ("SEC") and the National Association of Securities
Dealers, Inc. The Company's investment advisor subsidiary and transfer agent
subsidiary are regulated by the SEC. Certain of the Company's Separate Accounts,
mutual funds, and variable insurance and annuity products, are registered under
the Investment Company Act of 1940 and the Securities Act of 1933.
HMO Regulation
The Company's HMO subsidiaries are subject to regulation by various government
agencies in the states in which they are licensed to do business. This involves
the regulation of solvency, contracts, rates, quality assurance, minimum levels
of benefits, and the availability and continuity of care.
Guaranty Funds
Under insurance guaranty fund laws existing in all states, insurers doing
business in those states can be assessed (up to prescribed limits) for certain
obligations of insolvent insurance companies. The Company has established a
reserve of $8.7 million as of December 31, 1997 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, 1997.
Canadian Regulation
Because the Company is a subsidiary of Great-West Life, which is a Canadian
company, the Office of the Superintendent of Financial Institutions Canada
conducts periodic examinations of the Company and approves certain investments
in subsidiary companies.
<PAGE>
5. 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.
<TABLE>
Rating Agency Measurement Rating
- ----------------------------- ------------------------------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
A.M. Best Company Financial Condition and Operating A++ *
Performance
Duff & Phelps Corporation Claims Paying Ability AAA *
Standard & Poor's Claims Paying Ability AA+ **
Corporation
Moody's Investors Service Insurance Financial Strength Aa2 ***
</TABLE>
* Highest ratings available.
** Second highest rating out of 19 rating categories.
*** Third highest rating out of 19 rating categories.
6. Miscellaneous
No customer accounted for 10% or more of the Company's consolidated revenues in
1997. 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 or any of its business units.
The Company had approximately 4,600 employees at December 31, 1997.
ITEM 2. PROPERTIES
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.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1997 to a vote of security
holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. EQUITY SECURITY HOLDERS AND MARKET INFORMATION
All of the Company's outstanding common shares are owned by Great-West Life.
Accordingly, there is no established public trading market for the Company's
common equity.
B. DIVIDENDS
In the two most recent fiscal years, the Company has paid quarterly dividends on
its common shares. Dividends totaled $62.5 million in 1997 and $48.1 million in
1996.
Under Colorado law, the Company cannot, without the approval of the Colorado
Commissioner of Insurance, pay a dividend if, as a result of such payment, the
total of all dividends paid in the preceding twelve months would exceed the
greater of (i) 10% of the Company's surplus as regards policyholders as at the
preceding December 31; or (ii) the Company's net gain from operations as at the
preceding December 31.
<PAGE>
ITEM 6. 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, which are included in Item 8 (Financial
Statements and Supplementary Data).
<TABLE>
Millions ....... Years Ended December 31
-----------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA
<S> <C> <C> <C> <C> <C>
Premiums and other income $1,279 $ 1,199 $ 1,067 $ 1,000 $ 696
Net investment income 897 837 835 768 792
Realized investment gains 10 (21) (72) 25
(losses) 8
----------- ----------- ----------- ----------- -----------
Total Revenues 2,186 2,015 1,910 1,696 1,513
Total benefits and expenses 1,930 1,824 1,733 1,593 1,417
Income tax expense 97 29 31
56 49
=========== =========== =========== =========== ===========
Net Income $ 159 $ 135 $ 128 $ 74 $ 65
=========== =========== =========== =========== ===========
BALANCE SHEET DATA
Investment assets $13,206 $12,717 $12,473 $11,791 $11,592
Separate account assets 7,847 5,485 3,999 2,555 1,680
Total assets 22,078 19,351 17,682 15,616 14,296
Total policyholder liabilities 11,791 11,687 11,492 10,929 10,592
Total shareholder's equity 1,186 993 777 821
1,034
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations of the Company for the three years ended December 31, 1997 follows.
In connection with, and because it desires to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, the
Company cautions readers regarding certain forward-looking statements contained
in the following discussion and elsewhere in this report and in any other
statements made by, or on behalf of, the Company, whether or not in future
filings with the SEC. Forward-looking statements are statements not based on
historical information and which relate to future operations, strategies,
financial results, or other developments. In particular, statements using verbs
such as "expect," "anticipate," "believe," or words of similar import generally
involve forward-looking statements. Without limiting the foregoing,
forward-looking statements include statements which represent the Company's
beliefs concerning future or projected levels of sales of the Company's
products, investment spreads or yields, or the earnings or profitability of the
Company's activities.
Forward-looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company's control
and many of which, with respect to future business decisions, are subject to
change. These uncertainties and contingencies can affect actual results and
could cause actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. Whether or not
actual results differ materially from forward-looking statements may depend on
numerous foreseeable and unforeseeable events or developments, some of which may
be national in scope, such as general economic conditions and interest rates,
some of which may be related to the insurance industry generally, such as
pricing competition, regulatory developments and industry consolidation, and
others of which may relate to the Company specifically, such as credit,
volatility and other risks associated with the Company's investment portfolio,
and other factors. Readers are also directed to consider other risks and
uncertainties discussed in documents filed by the Company with the SEC.
A. COMPANY RESULTS OF OPERATIONS
1. Comparison of Years Ended December 31, 1997 and 1996
----------------------------------------------------
The Company's consolidated net income for 1997 increased $24.4 million or 18% to
$158.8 million, when compared to 1996.
Premiums and other income increased 7% from $1,199.2 million in 1996 to $1,278.9
million in 1997. The increase was primarily due to growth in individual
participating insurance premiums and an increase in fee income from assets under
management.
Net investment income increased $61.0 million from $836.6 million in 1996 to
$897.6 million in 1997. This change reflected improved interest income on
investments and additional investment management fees recognized in prior years
by Great-West Life.
The Company's realized investment gains (losses) changed from a net realized
loss of $21.1 million in 1996 to a net realized gain of $9.8 million in 1997.
The decrease in interest rates in 1997 resulted in realized gains on the sale of
fixed maturities totaling $16.0 million, while higher interest rates contributed
to $11.6 million of fixed maturity losses recorded in 1996. There was also a 28%
improvement in the provision for asset losses as the change in the provision was
reduced from $10.6 million in 1996 to $7.6 million in 1997.
Total benefits and expenses includes life and other policy benefits, increases
in reserves, interest paid or credited to contractholders, expenses, and
dividends to policyholders. The increase of 6% from $1,824.3 million in 1996 to
$1,929.9 million in 1997 was primarily the result of increased operating
expenses associated with the cost of developing HMOs, system enhancements, and
developing FASCorp's business.
In October 1996 the Company recaptured certain pieces of an individual
participating block of business previously reinsured to Great-West Life. In June
1997 the Company recaptured all remaining pieces of that block of business. The
Company recorded various assets and liabilities related to the recaptures as
discussed in Note 2 to the financial statements. In recording the recaptures,
both life insurance premiums and benefits were increased by the amounts
recaptured ($155.8 million and $164.8 million in 1997 and 1996, respectively).
Consequently, the net financial results of the Company were not impacted by
recording the reinsurance transactions.
Included in the 1997 and 1996 results of operations was the effect of a release
of $47.8 million and $25.6 million for 1997 and 1996, respectively, from a
previously recorded contingent tax liability that the Company assumed from
Great-West Life in 1993 (see Note 10 to the financial statements). Of the $47.8
million released in 1997, $15.1 million was attributable to participating
policyholders and reflected as a liability on the balance sheet.
In addition to the contingent tax liability release, the Company also in the
normal course of business reviewed its deferred tax assets and liabilities and
increased its deferred tax liability by $21.6 million in 1997 (of which $10.1
million was attributable to participating policyholders), which resulted in a
$11.5 million reduction in net income.
The effect of the non-recurring transactions described above was to decrease net
income by $4.4 million from 1996 to 1997. Excluding the effect of these
transactions, the growth in net income reflected higher variable fee income from
assets under management, improved investment income, increased realized capital
gains and favorable mortality.
The effective income tax rates were affected by the release of the contingent
tax liability discussed above in 1997 and 1996 as these amounts were not
taxable, although the increase in the deferred tax liability discussed above
negated the impact of the 1997 release.
2. Comparison of Years Ended December 31, 1996 and 1995
----------------------------------------------------
The Company's 1996 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 (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.
B. BUSINESS UNIT RESULTS OF OPERATIONS
The following discussion of results from operations is presented in terms of the
major business units of the Company, and the financial information regarding
such business units, described in Item 1(B) (Business - Business of the
Company).
1. Employee Benefits
Overall, the financial results for 1997 and 1996 improved with 401(k) premiums
and deposits increasing 25% and 23%, respectively. Assets under administration
(including third-party administration) in 401(k) increased 38% over 1996, to
$5.4 billion from $3.9 billion in 1996.
Equivalent revenue premium income for group life and health increased 4% from
1996 levels as the result of improved sales. From 1995 to 1996, equivalent
revenue premium had decreased 9% due to high termination rates. Employee
Benefits' operating income continued to increase in 1997 and 1996 due to
favorable mortality and strong 401(k) asset growth.
Group Life and Health
The Company experienced strong sales growth during 1997 with 1,473 new group
medical customers (versus 1,125 in 1996 and 1,031 in 1995), which added 121,622
new individual members. Much of the medical growth can be attributed to the
introduction of new One Health Plan HMOs in markets with high sales potential,
and the Company's ability to offer a choice of managed care products.
To position itself for the future, the Company is focused on putting in place
the products, strategies and processes that will strengthen its competitive
position in the evolving managed care environment. During 1997, the U.S.
insurance industry continued a pattern of consolidation. The Company
demonstrated its long-term commitment to the group life and health business by
acquiring an additional 150 self-funded group customers (75,000 new members)
through a marketing agreement with a Minneapolis third-party administrator.
With a heightened sensitivity to price comes the demand for more tightly managed
health plans, which is why HMO development remains Employee Benefits' most
important product development initiative. In 1997, the Company licensed HMOs in
Massachusetts, Ohio, Oregon, Tennessee and Washington and applied for licenses
in Florida, Indiana, New Jersey and North Carolina. The Company also entered
into agreements with other companies, which will exclusively market the One
Health Plan HMO product in various states. These types of agreements will
augment growth in the Company's HMO programs in the future.
The Company experienced an 8% increase in total medical membership, from
1,554,142 at the end of 1996 to 1,675,764 at year-end 1997. Gatekeeper (i.e.,
POS and HMO) members grew 18% from 350,185 in 1996 to 414,519 in 1997. The
Company expects this segment of the business to grow as additional HMO licenses
are obtained. Total membership had decreased from 1995 to 1996 by 4% due to
terminations, however, gatekeeper members had grown by 35% (1996 was the first
year the Company offered HMO plans).
401(k)
The number of new 401(k) case sales, including third-party administration
business generated through the Company's marketing and administration
arrangement with New England Life Insurance Company, increased to 1,235 in 1997
from 1,156 in 1996 (960 in 1995). This brings the total 401(k) block of business
under administration to 5,695 employer groups and more than 430,000 individual
participants, compared to 4,857 employer groups and 355,434 individual
participants in 1996, and 4,046 employer groups and 277,168 individual
participants in 1995.
During 1997, the in-force block of 401(k) business continued to perform well,
with persistency of 93.8%. This, combined with strong equity markets, resulted
in a 39% and 38% increase in assets under management during 1997 and 1996,
respectively.
Pension Plan Specialist services, which include drafting of plan documents,
compliance testing, and completion of annual tax forms, were elected in an
additional 900 cases in 1997. This brings the total in-force case count serviced
by this in-house unit to over 2,000. In addition to offering employers the
advantages of one-stop shopping, this program enables the Company and the
employer to reduce costs associated with these services.
To promote long-term asset retention, the Company enhanced its 401(k) product
and services by adding prepackaged "lifestyle" funds (The Profile Series),
expense reductions for high-balance accounts, more effective enrollment
communications, one-on-one retirement planning assistance and personal plan
illustrations. These efforts have led to a high level of customer satisfaction
and persistency in the Company's 401(k) business.
As discussed earlier, during 1997 the Company also introduced a Non-Qualified
Deferred Compensation supplement to its 401(k) product, which allows highly
compensated employees to defer compensation on a pre-tax basis beyond 401(k)
limits until retirement.
Outlook
In 1998, the Company will continue to enhance managed care programs and
services, further HMO development, seek National Committee for Quality Assurance
accreditation for its HMOs, refine quality assurance programs and introduce
member communications directed at health improvements. The Company will enhance
the 401(k) product by placing more emphasis on improved enrollment strategies
for the employer and by online participant education.
2. Financial Services
Savings
The Company's core savings business is the public/non-profit pension market. The
assets of the public/non-profit business, including Separate Accounts, increased
8% and 5% during 1997 and 1996 to $7.2 billion and $6.6 billion, respectively.
Much of the increase came from the variable annuity business which was driven by
excellent sales results and strong investment returns in the equity markets.
The Company's public/non-profit business experienced strong growth in 1997. The
number of lives under administration increased by 181,700 in 1997, compared to a
79,466 increase in 1996 and a 91,009 increase in 1995. BenefitsCorp sold 13 new
large employer cases and increased the penetration of existing cases by
enrolling new employees. The Company again experienced a very high retention
rate in public/non-profit contract renewals in 1997. Part of this customer
loyalty comes from initiatives to provide high-quality service while controlling
expenses.
The Company continued to limit sales of Guaranteed Investment Contracts ("GIC")
and allow this block of business to contract in response to the highly
competitive GIC market. As a result, GIC assets decreased 22% in 1997, to $409
million. In 1996, GIC assets decreased 21% from 1995 to $524.6 million.
Customer demand for investment diversification continued to grow during 1997.
New contributions to variable business represented 69% of the total 1997
premiums. The Company continues to expand the investment products available
through Maxim Series Fund, Inc., and arrangements with external fund managers.
Externally-managed funds offered to participants in 1997 included American
Century, Ariel, Fidelity, Founders, INVESCO, Janus, Loomis Sayles, Templeton, T.
Rowe Price and Vista. In 1997 the Company introduced Profile portfolios for its
public/non-profit variable annuity products. The Profiles provide the
convenience of pre-selected investment mixes based on varying degrees of risk
tolerance. The Profile options allow customers to diversify their investments
across a wide range of investment products, including fixed income, stock and
international equity fund offerings.
Customer participation in guaranteed Separate Accounts increased as many
customers prefer the security of fixed income securities and Separate Account
assets. Assets under management for guaranteed Separate Account funds exceeded
$466.2 million in 1997, compared to $392.8 million in 1996 and $411.5 million in
1995.
FASCorp administered records for approximately 9,200 groups at year-end 1997
(versus 7,700 at year-end 1996 and 7,000 at year-end 1995), representing more
than 1,000,000 participants (800,000 in 1996).
As discussed earlier, the Company offers fixed and variable non-qualified
deferred annuities under its marketing agreement with Charles Schwab & Co., Inc.
Virtually all of the premium income has been variable, totaling $230.8 million
in 1997, compared to the $9.3 million sold late in 1996.
Life Insurance
The Company continued its conservative approach to the manufacture and
distribution of traditional life insurance products, while focusing on customer
retention and expense management. Aggressive expense management and favorable
individual life insurance persistency helped improve unit costs in 1997.
Individual life insurance revenue premiums and deposits of $798.9 million in
1997 decreased 12% from 1996, due to the reduction of COLI premiums associated
with the 1996 legislative changes. Individual life insurance premiums and
deposits had increased 45% from 1995 to 1996 due to the reinsurance premiums of
$164.8 million associated with a recaptured block of business.
As discussed earlier, the Company has shifted its emphasis from COLI business to
new sales in the BOLI market because of the 1996 legislative changes. Although
COLI sales were discontinued in 1996, renewal premiums and deposits totaled
$243.8 million in 1997 compared to $384.2 million in 1996 and $433.4 million in
1995. BOLI revenue premiums and deposits were $235.3 million during 1997,
compared to $190.5 million in 1996 and $97.2 million in 1995.
Outlook
During 1998, the Company expects to continue its growth in the third party
administration area through FASCorp. Emphasis will also be placed in developing
the institutional insurance and annuity markets. Improved communications are
expected to be provided to our customers in the public/non-profit market through
the use of the world wide web. The Company is also seeking certification by the
Insurance Marketplace Standards Association, which relates to ethical market
conduct in the sale of individually sold life and annuity products.
3. 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
requirements of its liabilities. Through dynamic modeling, using
state-of-the-art software to analyze the effects of a wide range of possible
market changes upon investments and policyholder benefits, 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:
<TABLE>
1997 1996
---- ----
Fixed maturities, available for sale,
<S> <C> <C>
at fair value $6,698 $6,206
Fixed maturities, held-to-maturity,
at amortized cost 2,083 1,993
Mortgage loans 1,236 1,488
Real estate and common stock 133 88
Short-term investments 399 419
Policy loans 2,657 2,523
-------- --------
$13,206 $12,717
======= =======
</TABLE>
Fixed Maturities
Fixed maturity investments include publicly traded bonds, privately placed bonds
and public and private structured assets. This latter category contains 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, which are primarily in the held-to-maturity
category, are generally less marketable than publicly traded assets, yet they
typically offer covenant protection which allows 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:
<TABLE>
Credit Rating 1997 1996
------------- ---- ----
<S> <C> <C>
AAA 45.7% 45.9%
AA 8.8 8.1
A 23.8 23.7
BBB 20.7 20.9
BB and Below (non-investment grade) 1.0 1.4
------- -------
TOTAL 100.0% 100.0%
</TABLE>
At December 31, 1997, the Company had no bonds in default. At December 31, 1996,
there was one bond in default with a carrying value of $8 million.
Mortgage Loans
During 1997, the mortgage portfolio declined 17% to $1.2 billion, net of
impairment 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.
The average balance of impaired loans continued to remain low at $37.9 million
in 1997 compared with $39.1 million in 1996, and foreclosures totaled $14.1
million and $13.0 million in 1997 and 1996, 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, 1997 and 1996,
the Company's loan portfolio included $64.4 million and $68.3 million,
respectively, of non-impaired restructured loans.
Real Estate and Common Stock
The Company's real estate portfolio is composed primarily of the Home Office
property ($56.9 million) and 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 real
estate assets during 1998.
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 1998.
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. The Company has also
developed controls within its operations to ensure that only Board authorized
transactions are executed. Note 6 to the financial statements contains a summary
of the Company's outstanding financial hedging derivatives.
Outlook
General economic conditions continued to improve during 1997, including
improvement or stabilization in many real estate markets. 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 1998.
C. 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 predictable, 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 $525.4 million and $544.2 million as of December 31, 1997 and
1996, respectively.
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 $54.1
million of commercial paper outstanding at December 31, 1997, compared with
$84.7 million at December 31, 1996. 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.
D. ACCOUNTING PRONOUNCEMENTS
During the fourth quarter of 1995, the Financial Accounting Standards Board
issued a guide to implementation of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", 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 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.
In connection with the employee transfer discussed in Note 2 to the financial
statements, effective January 1, 1997 the Company implemented SFAS No. 87,
"Employers Accounting for Pensions" and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". 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 had no material effect on the financial
results of the Company.
Effective January 1, 1998, the Company will implement SFAS No. 125, "Accounting
for Transfer and Servicing of Financial Assets and Extinguishments of
Liabilities", as it relates to repurchase agreements and securities lending
arrangements. Management estimates that this change will not have a material
effect on the Company's financial results.
Effective January 1, 1998, the Company will implement SFAS No. 130, "Reporting
Comprehensive Income", which requires the disclosure of comprehensive income and
its components. The Company recognizes unrealized gains and losses, net of
adjustments, on its investments available for sale portfolio. These items will
be disclosed as comprehensive income.
Effective October 1, 1998, the Company will implement the disclosure
requirements of SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". SFAS No. 131 redefines how operating segments are
determined and requires disclosure of certain financial and descriptive
information about a company's operating segments. The Company anticipates, with
the adoption of SFAS No. 131, that it will incorporate segment disclosures of
its current operating units. The Company believes the segment information
required to be disclosed under SFAS No. 131 will be more comprehensive than
previously provided, including expanded disclosures of income statement and
balance sheet items for each of its reportable operating segments.
Effective January 1, 1998, the Company will implement SFAS No. 132, "Employer's
Disclosures About Pensions and Other Postretirement Benefits". The Company
expects to modify its disclosure for its postretirement benefit plans to conform
to the requirements of SFAS No.
132.
E. YEAR 2000
The Company has a number of existing computer programs that use only two digits
to identify a year in the date field, which creates a problem with the upcoming
change in the century. The Company has developed detailed plans to rectify the
year 2000 issue. These plans include modifying programs where necessary,
replacing certain programs with year 2000 compliant software, and working with
vendors and business partners who need to become year 2000 compliant. Management
estimates that the total cost to implement these plans will not be material, and
has budgeted the expense as part of its computer systems operating costs in 1998
and early 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following are the Company's Consolidated Financial Statements for the Years
Ended December 31, 1997, 1996, and 1995 and the Independent Auditors' Report
thereon.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY (A
wholly-owned subsidiary of The Great-West Life Assurance
Company)
Consolidated Financial Statements for the
Years Ended December 31, 1997, 1996, and 1995
.......and Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
of Great-West Life & Annuity Insurance Company:
We have audited the accompanying consolidated balance sheets of Great-West Life
& Annuity Insurance Company (a wholly-owned subsidiary of The Great-West Life
Assurance Company) and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholder's equity, and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Great-West Life & Annuity Insurance
Company and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
January 23, 1998
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS 1997 1996
- ------
-------------- ---------------
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized cost (fair value $2,151,476
and $ 2,082,716 $ 1,992,681
$2,041,064)
Available-for-sale, at fair value (amortized cost $6,541,422
and 6,698,629 6,206,478
$6,151,519)
Common stock 39,021 19,715
Mortgage loans on real estate, net 1,235,594 1,487,575
Real estate, net 93,775 67,967
Policy loans 2,657,116 2,523,477
Short-term investments, available-for-sale (cost approximates 399,131 419,008
fair value)
-------------- ---------------
Total Investments 13,205,982 12,716,901
Cash 126,278 125,182
Reinsurance receivable 84,364 196,958
Deferred policy acquisition costs 255,442 282,780
Investment income due and accrued 165,827 198,441
Other assets 121,543 57,244
Premiums in course of collection 77,008 74,693
Deferred income taxes 193,820 214,404
Separate account assets 7,847,451 5,484,631
-------------- ---------------
TOTAL ASSETS $ 22,077,715 $ 19,351,234
============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY 1997 1996
- ------------------------------------
-------------- ---------------
POLICY BENEFIT LIABILITIES:
Policy reserves $ 11,102,719 $ 11,022,595
Policy and contract claims 375,499 372,327
Policyholders' funds 165,106 153,867
Experience refunds 84,935 87,399
Provision for policyholders' dividends 62,937 51,279
GENERAL LIABILITIES:
Due to Parent Corporation 126,656 151,431
Repurchase agreements 325,538 286,736
Commercial paper 54,058 84,682
Other liabilities 605,032 488,818
Undistributed earnings on
participating business 141,865 133,255
Separate account liabilities 7,847,451 5,484,631
-------------- ---------------
Total Liabilities 20,891,796 18,317,020
-------------- ---------------
STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value,
50,000,000 shares authorized:
Series A, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
600 shares issued and outstanding 60,000 60,000
Series B, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
200 shares issued and outstanding 20,000 20,000
Series C, cumulative, 1500 shares authorized,
none outstanding
Series D, cumulative, 1500 shares authorized,
none outstanding
Series E, non-cumulative, 2,000,000
shares authorized, issued, and outstanding,
liquidation value of $20.90 per share 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
Additional paid-in capital 690,748 664,265
Unrealized gains (losses) on securities available-for-sale, net 52,807 14,951
Retained earnings 313,532 226,166
-------------- ---------------
Total Stockholder's Equity 1,185,919 1,034,214
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 22,077,715 $ 19,351,234
============== ===============
</TABLE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------
1997 1996 1995
------------- ------------- -------------
REVENUES:
<S> <C> <C> <C>
Annuity contract charges and premiums $ 115,054 $ 91,881 $ 79,816
Life, accident, and health premiums earned (net of
premiums ceded (recaptured) totaling $(94,646),
$(104,250) and $60,880) 1,163,855 1,107,367 987,611
Net investment income 897,572 836,642 835,046
Net realized gains (losses) on investments 9,800 (21,078) 7,465
------------- ------------- -------------
2,186,281 2,014,812 1,909,938
------------- ------------- -------------
BENEFITS AND EXPENSES:
Life and other policy benefits (net of reinsurance
recoveries totaling $44,871, $52,675,
and $43,574) 543,903 515,750 557,469
Increase in reserves 245,811 229,198 98,797
Interest paid or credited to contractholders 527,784 561,786 562,263
Provision for policyholders' share of earnings
(losses)
on participating business 3,753 (7) 2,027
Dividends to policyholders 63,799 49,237 48,150
------------- ------------- -------------
1,385,050 1,355,964 1,268,706
Commissions 102,150 106,561 122,926
Operating expenses 419,616 336,719 314,810
Premium taxes 23,108 25,021 26,884
------------- -------------
-------------
1,929,924 1,824,265 1,733,326
INCOME BEFORE INCOME TAXES 256,357 190,547 176,612
------------- ------------- -------------
PROVISION FOR INCOME TAXES:
Current 103,794 77,134 88,366
Deferred (6,197) (21,162) (39,434)
------------- ------------- -------------
97,597 55,972 48,932
------------- ------------- -------------
NET INCOME $ 158,760 $ 134,575 $ 127,680
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
Net
Additional Unrealized
Preferred Stock Common Stock Paid-In Gains Retained
---------------------- ---------------------
Shares Amount Shares Amount Capital (Losses) Earnings Total
---------- ---------- ----------- -------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 2,000,800 $ 121,800 7,032,000 $ 7,032 $ 657,265 $ (78,427) $ 69,561 $ 777,231
Change in net unrealized
gains (losses) 137,190 137,190
Dividends (48,980) (48,980)
Net income 127,680 127,680
---------- ---------- ----------- -------- ---------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1995 2,000,800 121,800 7,032,000 7,032 657,265 58,763 148,261 993,121
Change in net unrealized
gains (losses) (43,812) (43,812)
Capital contributions 7,000 7,000
Dividends (56,670) (56,670)
Net income 134,575 134,575
---------- ---------- ----------- -------- ---------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1996 2,000,800 121,800 7,032,000 7,032 664,265 14,951 226,166 1,034,214
Change in net unrealized
gains (losses) 37,856 37,856
Capital contributions 26,483 26,483
Dividends (71,394) (71,394)
Net income 158,760 158,760
---------- ---------- ----------- -------- ---------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1997 2,000,800 $ 121,800 7,032,000 $ 7,032 $ 690,748 $ 52,807 $ 313,532 $ 1,185,919
========== ========== =========== ======== ========== =========== ========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------
1997 1996 1995
-------------- ------------- -------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 158,760 $ 134,575 $ 127,680
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain (loss) allocated to participating 3,753 (7) 2,027
policyholders
Amortization of investments 409 15,518 26,725
Realized losses (gains) on disposal of
investments
and provisions for mortgage loans and (9,800) 21,078 (7,465)
real estate
Amortization 46,929 49,454 49,464
Deferred income taxes (6,224) (20,258) (39,763)
Changes in assets and liabilities:
Policy benefit liabilities 498,114 358,393 346,975
Reinsurance receivable 112,594 136,966 (38,776)
Accrued interest and other receivables 30,299 24,778 (17,617)
Other, net 58,865 (8,076) 8,834
-------------- ------------- -------------
Net cash provided by operating 893,699 712,421 458,084
activities
-------------- ------------- -------------
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and
redemptions of investments:
Fixed maturities
Held-to-maturity
Sales 18,821
Maturities and redemptions 359,021 516,838 655,993
Available-for-sale
Sales 3,174,246 3,569,608 4,211,649
Maturities and redemptions 771,737 803,369 253,747
Mortgage loans 248,170 235,907 260,960
Real estate 36,624 2,607 4,401
Common stock 17,211 1,888
Purchases of investments:
Fixed maturities
Held-to-maturity (439,269) (453,787) (490,228)
Available-for-sale (4,314,722) (4,753,154) (4,932,566)
Mortgage loans (2,532) (23,237) (683)
Real estate (64,205) (15,588) (5,302)
Common stock (29,608) (12,113) (4,218)
-------------- ------------- -------------
Net cash used in investing (243,327) (127,662) (27,426)
activities
-------------- ------------- -------------
(Continued)
</TABLE>
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------
1997 1996 1995
------------- ------------- -------------
FINANCING ACTIVITIES:
<S> <C> <C> <C>
Contract withdrawals, net of deposits $ (577,538) $ (413,568) $ (217,190)
Due to Parent Corporation (19,522) 1,457 (9,143)
Dividends paid (71,394) (56,670) (48,980)
Net commercial paper repayments (30,624) (172) (4,832)
Net repurchase agreements (repayments) borrowings 38,802 (88,563) (191,195)
Capital contributions 11,000 7,000
------------- ------------- -------------
Net cash used in financing activities (649,276) (550,516) (471,340)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH 1,096 34,243 (40,682)
CASH, BEGINNING OF YEAR 125,182 90,939 131,621
------------- ------------- -------------
CASH, END OF YEAR $ 126,278 $ 125,182 $ 90,939
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes $ 86,829 $ 103,700 $ 83,841
Interest 15,124 15,414 17,016
See notes to consolidated financial statements. (Concluded)
</TABLE>
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996,
AND 1995 (Amounts in Thousands, except Share Amounts)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Great-West Life & Annuity Insurance Company (the Company)
is a wholly-owned subsidiary of The Great-West Life Assurance Company
(the Parent Corporation). The Company is an insurance company domiciled
in the State of Colorado. The Company offers a wide range of life
insurance, health insurance, and retirement and investment products to
individuals, businesses, and other private and public organizations
throughout the United States.
Basis of Presentation - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The consolidated financial
statements include the accounts of the Company and its subsidiaries. All
material intercompany transactions and balances have been eliminated in
consolidation.
Investments - Investments are reported as follows:
1. Management determines the classification of fixed maturities at
the time of purchase. Fixed maturities are classified as
held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost unless fair value is less
than cost and the decline is deemed to be other than temporary,
in which case they are written down to fair value and a new cost
basis is established.
Fixed maturities not classified as held-to-maturity are
classified as available-for-sale. Available-for-sale securities
are carried at fair value, with the net unrealized gains and
losses reported as a separate component of stockholder's equity.
The net unrealized gains and losses in derivative financial
instruments used to hedge available-for-sale securities are
included in the separate component of stockholder's equity.
The amortized cost of fixed maturities classified as
held-to-maturity or available-for-sale is adjusted for
amortization of premiums and accretion of discounts using the
effective interest method over the estimated life of the related
bonds. Such amortization is included in net investment income.
Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net realized gains (losses)
on investments.
2. Mortgage loans on real estate are carried at their unpaid
balances adjusted for any unamortized premiums or discounts and
any valuation reserves. Interest income is accrued on the unpaid
principal balance. Discounts and premiums are amortized to net
investment income using the effective interest method. Accrual of
interest is discontinued on any impaired loans where collection
of interest is doubtful.
The Company maintains an allowance for credit losses at a level
that, in management's opinion, is sufficient to absorb possible
credit losses on its impaired loans and to provide adequate
provision for any possible future losses in the portfolio.
Management's judgment is based on past loss experience, current
and projected economic conditions, and extensive situational
analysis of each individual loan. The measurement of impaired
loans is based on the fair value of the collateral.
3. Real estate is carried at the lower of cost or fair value, net of
costs of disposal. Effective January 1, 1996, the Company adopted
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". The implementation
of this statement had no material effect on the Company's
financial statements.
4. Investments in common stock are carried at fair value.
5. Policy loans are carried at their unpaid balances.
6. Short-term investments include securities purchased with initial
maturities of one year or less and are carried at amortized cost.
The Company considers short-term investments to be
available-for-sale and amortized cost approximates fair value.
Gains and losses realized on disposal of investments are determined on a
specific identification basis.
Cash - Cash includes only amounts in demand deposit accounts.
Deferred Policy Acquisition Costs - Policy acquisition costs, which
consist of sales commissions and other costs that vary with and are
primarily related to the production of new and renewal business, have
been deferred to the extent recoverable. Deferred costs associated with
the annuity products are being amortized over the life of the contracts
in proportion to the emergence of gross profits. Retrospective
adjustments of these amounts are made when the Company revises its
estimates of current or future gross profits. Deferred costs associated
with traditional life insurance are amortized over the premium paying
period of the related policies in proportion to premium revenues
recognized. Amortization of deferred policy acquisition costs totaled
$44,298, $47,089, and $48,054 in 1997, 1996, and 1995, respectively.
Separate Account - Separate account assets and related liabilities are
carried at fair value. The Company's separate accounts invest in shares
of Maxim Series Fund, Inc. and Orchard Series Fund, Inc., both
diversified, open-end management investment companies which are
affiliates of the Company, shares of other external mutual funds, or
government or corporate bonds.
Life Insurance and Annuity Reserves - Life insurance and annuity policy
reserves with life contingencies of $5,741,596 and $5,242,753, at
December 31, 1997 and 1996, respectively, are computed on the basis of
estimated mortality, investment yield, withdrawals, future maintenance
and settlement expenses, and retrospective experience rating premium
refunds. Annuity contract reserves without life contingencies of
$5,346,516 and $5,766,533, at December 31, 1997 and 1996, respectively,
are established at the contractholder's account value.
Reinsurance - Policy reserves ceded to other insurance companies are
carried as reinsurance receivable on the balance sheet (See Note 3). The
cost of reinsurance related to long-duration contracts is accounted for
over the life of the underlying reinsured policies using assumptions
consistent with those used to account for the underlying policies.
Policy and Contract Claims - Policy and contract claims include
provisions for reported claims in process of settlement, valued in
accordance with the terms of the related policies and contracts, as well
as provisions for claims incurred and unreported based primarily on
prior experience of the Company.
Participating Fund Account - Participating life and annuity policy
reserves are $3,901,297 and $3,591,077 at December 31, 1997 and 1996,
respectively. Participating business approximates 50.5% and 50.3% of the
Company's ordinary life insurance in force and 91.1% and 92.2% of
ordinary life insurance premium income at December 31, 1997 and 1996,
respectively.
The liability for undistributed earnings on participating business was
increased (decreased) by $8,610 and $(3,362) in 1997 and 1996, which
represented $3,753 and $(7) of gains (losses) on participating business,
increases (decreases) of $2,102 and $(2,924) to reflect the net change
in unrealized gains on securities classified as available-for-sale, net
of certain adjustments to policy reserves and income taxes, and
increases (decreases) of $2,755 and $(431) due to reinsurance
transactions (See Note 2).
The amount of dividends to be paid from undistributed earnings on
participating business is determined annually by the Board of Directors.
Amounts allocable to participating policyholders are consistent with
established Company practice.
The Company has established a Participating Policyholder Experience
Account (PPEA) for the benefit of all participating policyholders which
is included in the accompanying consolidated balance sheet. Earnings
associated with the operation of the PPEA are credited to the benefit of
all participating policyholders. In the event that the assets of the
PPEA are insufficient to provide contractually guaranteed benefits, the
Company must provide such benefits from its general assets.
The Company has also established a Participation Fund Account (PFA) for
the benefit of the participating policyholders previously transferred to
the Company from the Parent under an assumption reinsurance transaction.
The PFA is part of the PPEA. Earnings derived from the operation of the
PFA accrue solely for the benefit of the acquired participating
policyholders.
Recognition of Premium Income and Benefits and Expenses - Life insurance
premiums are recognized as earned. Annuity premiums with life
contingencies are recognized as received. Accident and health premiums
are earned on a monthly pro rata basis. Revenues for annuity and other
contracts without significant life contingencies consist of contract
charges for the cost of insurance, contract administration, and
surrender fees that have been assessed against the contract account
balance during the period. Benefits and expenses on policies with life
contingencies are associated with premium income by means of the
provision for future policy benefit reserves, resulting in recognition
of profits over the life of the contracts. The average crediting rate on
annuity products was approximately 6.6%, 6.8%, and 7.2% in 1997, 1996,
and 1995.
Income Taxes - Income taxes are recorded using the asset and liability
approach which requires, among other provisions, the recognition of
deferred tax assets and liabilities for expected future tax consequences
of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, all
expected future events (other than the enactments or changes in the tax
laws or rules) are considered. Although realization is not assured,
management believes it is more likely than not that the deferred tax
asset, net of a valuation allowance, will be realized.
Repurchase Agreements and Securities Lending - The Company enters into
repurchase agreements with third-party broker-dealers in which the
Company sells securities and agrees to repurchase substantially similar
securities at a specified date and price. Such agreements are accounted
for as collateralized borrowings. Interest expense on repurchase
agreements is recorded at the coupon interest rate on the underlying
securities. The repurchase fee received or paid is amortized over the
term of the related agreement and recognized as an adjustment to
investment income.
The Company will implement Statement of Financial Accounting Standards
(SFAS) No. 125 "Accounting for Transfer and Servicing of Financial
Assets and Extinguishments of Liabilities" in 1998 as it relates to
repurchase agreements and securities lending arrangements. Management
estimates the effect of the change will not have a material affect on
the Company's financial statements.
Derivatives - The Company makes limited use of derivative financial
instruments to manage interest rate, market, and foreign exchange risk.
Such hedging activity consists of interest rate swap agreements,
interest rate floors and caps, foreign currency exchange contracts and
equity swaps. The differential paid or received under the terms of these
contracts are recognized as an adjustment to net investment income on
the accrual method. Gains and losses on foreign exchange contracts are
deferred and recognized in net investment income when the hedged
transactions are realized.
Interest rate swap agreements are used to convert the interest rate on
certain fixed maturities from a floating rate to a fixed rate. Interest
rate swap transactions generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying principal amount. Interest rate floors and caps are interest
rate protection instruments that require the payment by a counter-party
to the Company of an interest rate differential. The differential
represents the difference between current interest rates and an
agreed-upon rate, the strike rate, applied to a notional principal
amount. Foreign currency exchange contracts are used to hedge the
foreign exchange rate risk associated with bonds denominated in other
than U.S. dollars. Equity swap transactions generally involve the
exchange of variable market performance of a basket of securities for a
fixed interest rate.
Although derivative financial instruments taken alone may expose the
Company to varying degrees of market and credit risk when used solely
for hedging purposes, these instruments typically reduce overall market
and interest rate risk. The Company controls the credit risk of its
financial contracts through credit approvals, limits, and monitoring
procedures. As the Company generally enters into transactions only with
high quality institutions, no losses associated with non-performance on
derivative financial instruments have occurred or are expected to occur.
2. RELATED-PARTY TRANSACTIONS
On June 30, 1997 the Company recaptured all remaining pieces of an
individual participating insurance block of business previously
reinsured to the Parent Corporation on December 31, 1992. The Company
recorded, at estimated fair value, the following at June 30, 1997 as a
result of this transaction:
<TABLE>
Assets Liabilities and Stockholder's
Equity
-------- -------------------------------
<S> <C> <C>
Cash $ 160,000 Policy reserves $ 155,798
Bonds 17,975 Due to parent corporation 9,373
Other 60 Deferred income taxes 2,719
Undistributed earnings on
participating business (855)
Stockholder's equity 11,000
----------- ----------
$ 178,035 $ 178,035
=========== ==========
</TABLE>
<PAGE>
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>
Assets Liabilities and Stockholder's
Equity
--------- -------------------------------
<S> <C> <C>
Cash $ 162,000 Policy reserves $ 164,839
Mortgages 19,753 Due to parent corporation 9,180
Other 118 Deferred income taxes 1,283
Undistributed earnings on
participating business (431)
Stockholder's equity 7,000
============ ===========
$ 181,871 $ 181,871
============ ===========
</TABLE>
Effective January 1, 1997 all employees of the U.S. operations of the
Parent Corporation and the related benefit plans were transferred to the
Company. All related employee benefit plan assets and liabilities were
also transferred to the Company (see Note 9). The transfer did not have
a material effect on the Company's operating expenses as the costs
associated with the employees and the benefit plans were charged
previously to the Company under administrative service agreements
between the Company and the Parent Corporation.
Prior to January 1997, the Parent Corporation administered, distributed,
and underwrote business for the Company and administered the Company's
investment portfolio under various administrative agreements. As of
January 1, 1997, the Company performs these services for the U.S.
operations of the Parent Corporation. The following represents
allocations between the two companies for services provided pursuant to
these service agreements:
<TABLE>
Years Ended December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Investment management revenue (expense) $ 801 $ (14,800) $ (15,182)
Administrative and underwriting revenue 6,292 (304,599) (301,529)
(payments)
</TABLE>
At December 31, 1997 and 1996, due to Parent Corporation includes $8,957
and $31,639 due on demand and $117,699 and $119,792 of notes payable
which bear interest and mature at various dates through December 31,
2005. These notes may be prepaid in whole or in part at any time without
penalty; the issuer may not demand payment before the maturity date. The
due on demand to the Parent Corporation bears interest at the public
bond rate (7.1% and 7.0% at December 31, 1997 and 1996, respectively)
while the remainder bear interest at various rates ranging from 6.6% to
9.5%.
3. REINSURANCE
In the normal course of business, the Company seeks to limit its
exposure to loss on any single insured and to recover a portion of
benefits paid by ceding risks to other insurance enterprises under
excess coverage and co-insurance contracts. The Company retains a
maximum of $1.5 million of coverage per individual life.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could
result in losses to the Company; consequently, allowances are
established for amounts deemed uncollectible. The Company evaluates the
financial condition of its reinsurers and monitors concentrations of
credit risk arising from similar geographic regions, activities, or
economic characteristics of the reinsurers to minimize its exposure to
significant losses from reinsurer insolvencies. At December 31, 1997 and
1996, the reinsurance receivable had a carrying value of $84,364 and
$196,958, respectively.
Total reinsurance premiums assumed from the Parent Corporation were
$1,712, $1,693, and $1,606 in 1997, 1996, and 1995, respectively.
The Company considers all accident and health policies to be
short-duration contracts. The following schedule details life insurance
in force and life and accident/health premiums:
<TABLE>
Assumed
Ceded Primarily Percentage
Primarily From of Amount
to
Gross the Parent Other Net Assumed to
Amount Corporation Companies Amount Net
------------- ------------ ------------ ------------- -----------
December 31, 1997:
Life insurance in
force:
<S> <C> <C> <C> <C> <C>
Individual $ 24,598,679 $ 4,040,398 $ 3,667,235 $ 24,225,516 15.1%
Group 51,179,343 2,031,477 53,210,820 3.8%
------------- ------------ ------------ -------------
Total $ 75,778,022 $ 4,040,398 $ 5,698,712 $ 77,436,336
============= ============ ============ =============
Premiums:
Life insurance $ 361,093 $ (127,291)$ 19,923 $ 508,307 3.9%
Accident/health 628,398 32,645 59,795 655,548 9.1%
------------- ------------ ------------ -------------
Total $ 989,491 $ (94,646)$ 79,718 $ 1,163,855
============= ============ ============ =============
December 31, 1996:
Life insurance in
force:
Individual $ 23,409,823 $ 5,246,079 $ 3,482,118 $ 21,645,862 16.1%
Group 47,682,237 1,817,511 49,499,748 3.7%
------------- ------------ ------------ -------------
Total $ 71,092,060 $ 5,246,079 $ 5,299,629 $ 71,145,610
============= ============ ============ =============
Premiums:
Life insurance $ 334,127 $ (111,743)$ 19,633 $ 465,503 4.2%
Accident/health 592,577 7,493 56,780 641,864 8.8%
------------- ------------ ------------ -------------
Total $ 926,704 $ (104,250)$ 76,413 $ 1,107,367
============= ============ ============ =============
December 31, 1995:
Life insurance in
force:
Individual $ 22,388,520 $ 7,200,882 $ 3,476,784 $ 18,664,422 18.6%
Group 48,415,592 1,954,313 50,369,905 3.9%
============= ============ ============ =============
Total $ 70,804,112 $ 7,200,882 $ 5,431,097 $ 69,034,327
============= ============ ============ =============
Premiums:
Life insurance $ 339,342 $ 51,688 $ 21,028 $ 308,682 6.8%
Accident/health 623,626 9,192 64,495 678,929 9.5%
------------- ------------ ------------ -------------
Total $ 962,968 $ 60,880 $ 85,523 $ 987,611
============= ============ ============ =============
</TABLE>
<PAGE>
<TABLE>
4. NET INVESTMENT INCOME
Net investment income is summarized as follows:
Years Ended December 31,
------------------------------------------------
1997 1996 1995
--------------- --------------- --------------
Investment income:
Fixed maturities and short-term
<S> <C> <C> <C>
investments $ 633,975 $ 601,913 $ 591,561
Mortgage loans on real estate 118,274 140,823 171,008
Real estate 20,990 5,292 3,936
Policy loans 194,826 175,746 163,547
Other 22,119 3,321
--------------- --------------- --------------
990,184 927,095 930,052
Investment expenses, including
interest on amounts charged
by the Parent Corporation
of $9,758, $11,282, and $10,778 92,612 90,453 95,006
--------------- --------------- --------------
Net investment income $ 897,572 $ 836,642 $ 835,046
=============== =============== ==============
5. NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) on investments are as follows:
Years Ended December 31,
-------------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
Realized gains (losses):
Fixed Maturities $ 15,966 $ (11,624) $ 28,166
Mortgage loans on real estate 1,081 1,143 1,309
Real estate 363 (10)
Provisions (7,610) (10,597) (22,000)
--------------- --------------- ---------------
Net realized gains (losses) on $ 9,800 $ (21,078) $ 7,465
investments
=============== =============== ===============
</TABLE>
<PAGE>
6. SUMMARY OF INVESTMENTS
Fixed maturities owned at December 31, 1997 are summarized as follows:
<TABLE>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
---------- --------- ---------- ----------- -----------
Held-to-Maturity:
U.S. Treasury Securities
<S> <C> <C> <C> <C>
and obligations of U.S. $ $ 1,186 $ 25 $ 27,044 $ 25,883
Government 25,883
Agencies - Other:
Collateralized mortgage 174
obligations 5,006 5,180 5,006
Public utilities 11,214 3
245,394 256,605 245,394
Corporate bonds 1,668,710 57,036 3,069 1,722,677
1,668,710
Foreign governments 659
10,268 10,927 10,268
State and municipalities 1,588
127,455 129,043 127,455
--------- ---------- -----------
---------- -----------
$ 2,082,716 $ 71,857 $ 3,097 $ 2,151,476 $
2,082,716
========== ========= ========== =========== ===========
Available-for-Sale:
U.S. Treasury Securities
and
obligations of U.S.
Government
Agencies
Collateralized mortgage
obligations $ $ 17,339 $ 310 $ $
652,975 670,004 670,004
Direct mortgage
pass-through
certificates 7,911 2,668
917,216 922,459 922,459
Other 1,794 244
297,337 298,887 298,887
Collateralized mortgage
obligations 19,494 1,453
682,158 700,199 700,199
Public utilities 8,716 1,320
549,435 556,831 556,831
Corporate bonds 3,265,039 107,740 4,350
3,368,429 3,368,429
Foreign governments 4,115 60
131,586 135,641 135,641
State and municipalities 503
45,676 46,179 46,179
-----------
---------- --------- ---------- -----------
$ 6,541,422 $ 167,612 $ 10,405 $ $
6,698,629 6,698,629
========== ========= ========== =========== ===========
</TABLE>
<PAGE>
6. SUMMARY OF INVESTMENTS [Continued]
Fixed maturities owned at December 31, 1996 are summarized as follows:
<TABLE>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
---------- ---------- ---------- ---------- -----------
Held-to-Maturity:
U.S. Treasury Securities
and
<S> <C> <C> <C>
obligations of U.S. $ $ 630 $ 106 $ $
Government 10,935 11,459 10,935
Agencies - Other:
Public utilities 12,755 320
284,954 297,389 284,954
Corporate bonds 1,634,745 41,195 7,360 1,668,580
1,634,745
Foreign governments 556 3
12,577 13,130 12,577
State and municipalities 1,051 15
49,470 50,506 49,470
---------- ---------- ----------
---------- -----------
$ 1,992,681 $ 56,187 $ 7,804 $ 2,041,064 $
1,992,681
========== ========== ========== ========== ===========
Available-for-Sale:
U.S. Treasury Securities
and
obligations of U.S.
Government
Agencies:
Collateralized mortgage
obligations $ $ 8,058 $ 3,700 $ $
658,612 662,970 662,970
Direct mortgage
pass-through
certificates 5,093 10,908
844,291 838,476 838,476
Other 596 2,686
359,220 357,130 357,130
Collateralized mortgage
obligations 13,619 3,553
614,773 624,839 624,839
Public utilities 6,523 5,375
628,382 629,530 629,530
Corporate bonds 2,907,875 56,551 5,250 2,959,176
2,959,176
Foreign governments 1,762 5,673
110,013 106,102 106,102
State and municipalities 21 119
28,353 28,255 28,255
-----------
---------- ---------- ---------- ----------
$ 6,151,519 $ 92,223 $ 37,264 $ 6,206,478 $
6,206,478
========== ========== ========== ========== ===========
</TABLE>
The collateralized mortgage obligations consist primarily of sequential
and planned amortization classes with final stated maturities of two to
thirty years and average lives of less than one to fifteen years.
Prepayments on all mortgage-backed securities are monitored monthly and
amortization of the premium and/or the accretion of the discount
associated with the purchase of such securities is adjusted by such
prepayments.
In November 1995, the Financial Accounting Standards Board issued a
special report entitled "A Guide to Implementation of Statement of
Financial Accounting Standards No. 115 (SFAS No. 115) on Accounting for
Certain Investments in Debt and Equity Securities". In accordance with
the adoption of this guidance, the Company reassessed the classification
of its investment portfolio in December 1995 and reclassed securities
totalling $2,119,814 from held-to-maturity to available-for-sale. In
connection with this reclassification, an unrealized gain, net of
related adjustments, of $23,449 was recognized in stockholder's equity
at the date of transfer.
See Note 8 for additional information on policies regarding estimated
fair value of fixed maturities.
The amortized cost and estimated fair value of fixed maturity
investments at December 31, 1997, by projected maturity, are shown
below. Actual maturities will likely differ from these projections
because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties.
<TABLE>
Held-to-Maturity Available-for-Sale
------------------------- -------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 286,088 $ 290,164 $ 447,703 $ 462,719
Due after one year through five 787,376 809,237 1,182,390 1,209,692
years
Due after five years through ten 718,818 751,753 842,019 865,153
years
Due after ten years 129,957 137,190 447,642 466,949
Mortgage-backed securities 5,006 5,180 2,252,349 2,292,662
Asset-backed securities 155,471 157,952 1,369,319 1,401,454
------------ -----------
=========== ============ ===========
$ 2,082,716 $ 2,151,476 $ 6,541,422 $ 6,698,629
============ =========== ============ ===========
</TABLE>
Proceeds from sales of securities available-for-sale were $3,174,246,
$3,569,608, and $4,211,649 during 1997, 1996, and 1995, respectively.
The realized gains on such sales totaled $20,543, $24,919, and $39,755
for 1997, 1996, and 1995, respectively. The realized losses totaled
$10,643, $40,748, and $15,516 for 1997, 1996, and 1995, respectively.
During 1997, 1996, and 1995 held-to-maturity securities with an
amortized cost of $0, $0, and $18,087 were sold due to credit
deterioration with insignificant realized gains and losses.
At December 31, 1997 and 1996, pursuant to fully collateralized
securities lending arrangements, the Company had loaned $162,817 and
$230,419 of fixed maturities, respectively.
The Company engages in hedging activities to manage interest rate and
exchange risk. The following table summarizes the 1997 financial hedge
instruments:
<TABLE>
Notional Strike/Swap
December 31, 1997 Amount Rate Maturity
--------------------------------- --------------- ---------------------- -----------------
<S> <C> <C> <C>
Interest Rate Floor $ 100,000 4.5% (LIBOR) 1999
Interest Rate Caps 565,000 6.75% to 11.82%(CMT) 1999 to 2002
Interest Rate Swaps 212,139 6.20% to 9.35% 01/98 to 02/2003
Foreign Currency
Exchange Contracts 57,168 N/A 09/98 to 07/2006
Equity Swap 100,000 5.64% 12/98
</TABLE>
<PAGE>
The following table summarizes the 1996 financial hedge instruments:
<TABLE>
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%[CMT] 2000 to 2001
Interest Rate Swaps 187,847 6.20% to 9.35% 01/98 to 02/2003
Foreign Currency
Exchange Contracts 61,012 N/A 09/98 to 03/2003
</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, 1997 approximately 32%
and 10% of the Company's mortgage loans were collateralized by real
estate located in California and Michigan, respectively.
The following represents impairments and other information with respect
to impaired loans:
<TABLE>
1997 1996
----------- -----------
<S> <C> <C> <C>
Loans with related allowance for credit losses of $2,493 and $ 13,193 $ 16,443
$2,793
Loans with no related allowance for credit losses 20,013 31,709
Average balance of impaired loans during the year 37,890 39,064
Interest income recognized [while impaired] 2,428 923
Interest income received and recorded [while impaired] using
the 2,484 1,130
cash basis method of recognition
</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 $64,406, and $68,254 at December
31, 1997, and 1996, respectively.
The following table presents changes in the allowance for credit losses:
<TABLE>
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance, beginning of year $ 65,242 63,994 $ 57,987 $
Provision for loan losses 4,521 4,470 15,877
Chargeoffs (2,521) (3,468) (10,480)
Recoveries 246 610
================ ================ ================
Balance, end of year $ 67,242 65,242 $ 63,994 $
================ ================ ================
</TABLE>
<PAGE>
7. COMMERCIAL PAPER
The Company has a commercial paper program which is partially supported
by a $50,000 standby letter-of-credit. At December 31, 1997, commercial
paper outstanding has maturities ranging from 41 to 99 days and interest
rates ranging from 5.6% to 5.8%. At December 31, 1996, maturities ranged
from 49 to 123 days and interest rates ranged from 5.4% to 5.6%.
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>
December 31,
-------------------------------------------------------
1997 1996
---------------------------- --------------------------
Estimated
Carrying Estimated Carrying Fair
Amount Fair Value Amount Value
------------ -------------- ----------- -------------
ASSETS:
Fixed maturities and
short-
<S> <C> <C> <C> <C>
term investments $ 9,180,476 $ 9,249,235 $ 8,618,167 $ 8,666,550
Mortgage loans on
real estate 1,235,594 1,261,949 1,487,575 1,506,162
Policy loans 2,657,116 2,657,116 2,523,477 2,523,477
Common stock 39,021 39,021 19,715 19,715
LIABILITIES:
Annuity contract reserves
without life 5,346,516 5,373,818 5,766,533 5,808,095
contingencies
Policyholders' funds 165,106 165,106 153,867 153,867
Due to Parent Corporation 126,656 124,776 151,431 154,479
Repurchase agreements 325,538 325,538 286,736 286,736
Commercial paper 54,058 54,058 84,682 84,682
HEDGE CONTRACTS:
Interest rate floor 25 25 62 124
Interest rate cap 130 130 173 173
Interest rate swaps 4,265 4,265 4,746 4,746
Foreign currency
exchange contracts 3,381 3,381 (8,954) (8,954)
Equity swaps 856 856
</TABLE>
The estimated fair value of financial instruments has been determined
using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
The estimated fair value of fixed maturities that are publicly traded
are obtained from an independent pricing service. To determine fair
value for fixed maturities not actively traded, the Company utilized
discounted cash flows calculated at current market rates on investments
of similar quality and term.
Mortgage loans fair value estimates generally are based on a discounted
cash flow basis. A discount rate "matrix" is incorporated whereby the
discount rate used in valuing a specific mortgage generally corresponds
to that mortgage's remaining term. The rates selected for inclusion in
the discount rate "matrix" reflect rates that the Company would quote if
placing loans representative in size and quality to those currently in
the portfolio.
Policy loans accrue interest generally at variable rates with no fixed
maturity dates and, therefore, estimated fair value approximates
carrying value.
The fair value of annuity contract reserves without life contingencies
is estimated by discounting the cash flows to maturity of the contracts,
utilizing current credited rates for similar products.
The estimated fair value of policyholders' funds is the same as the
carrying amount as the Company can change the crediting rates with 30
days notice.
The estimated fair value of due to Parent Corporation is based on
discounted cash flows at current market spread rates on high quality
investments.
The carrying value of repurchase agreements and commercial paper is a
reasonable estimate of fair value due to the short-term nature of the
liabilities.
The estimated fair value of financial hedge instruments, all of which
are held for other than trading purposes, is the estimated amount the
Company would receive or pay to terminate the agreement at each
year-end, taking into consideration current interest rates and other
relevant factors. Included in the net gain position for interest rates
swaps are $0 and $160 of unrealized losses in 1997 and 1996,
respectively. Included in the net loss position for foreign currency
exchange contracts are $0 and $8,954 of loss exposures in 1997 and 1996,
respectively.
9. EMPLOYEE BENEFIT PLANS
Effective January 1, 1997, all employees of the U.S. operations of the
Parent Corporation and the related benefit plans were transferred to
the Company. See Note 2 for further discussion.
The Company's defined benefit pension plan (pension plan) covers
substantially all of its employees. The benefits are based on years of
service, age at retirement, and the compensation during the last seven
years of employment. The Company's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes. Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be earned
in the future. Investments of the pension plan are managed by the
Company and invested primarily in investment contracts and separate
accounts.
The Company's Parent had previously accounted for the pension plan under
the Canadian Institute of Chartered Accountants (CICA) guidelines and
had recorded a prepaid pension asset of $19,091. As generally accepted
accounting principles do not materially differ from CICA guidelines and
the transfer is between related parties, the prepaid pension asset was
transferred at cost. As a result, the Company recorded the following
effective January 1, 1997:
<TABLE>
<S> <C> <C>
Prepaid pension cost $ 19,091 Undistributed earnings $ 3,608
on
participating
business
Stockholder's equity 15,483
=============== ==============
$ 19,091 $ 19,091
=============== ==============
</TABLE>
<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 at December 31, 1997, in
accordance with SFAS No. 87:
<TABLE>
Actuarial present value of accumulated benefit obligation,
<S> <C> <C>
including vested benefits of $88,235 $ 91,387
Actuarial present value of projected benefit obligation
for service rendered to date 112,331
Plan assets at fair value 162,422
--------------
Plan assets in excess of projected benefit obligation 50,091
Unrecognized net (gain) loss from past experience
different from that assumed (8,595)
Unrecognized net obligation being recognized over 15 years (21,198)
--------------
Prepaid pension cost included in other assets $ 20,298
==============
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation were 7.0% and 4.5%, respectively.
Components of net pension cost for the year ended December 31, 1997 were
as follows:
Service cost - benefits earned during the period $ 5,491
Interest accrued on projected benefit obligation 7,103
Return on plan assets (28,072)
Net amortization and deferral 14,271
---------------
Net pension benefit $ (1,207)
===============
</TABLE>
The Company also sponsors a post-retirement medical plan (medical plan)
which provides health benefits to employees who have worked for 15 years
and attained age 65 while in service with the Company. The medical plan
is contributory and contains other cost sharing features which may be
adjusted annually for the expected general inflation rate. The Company's
policy will be to fund the cost of the medical plan benefits in amounts
determined at the discretion of management. The Plan as of January 1,
1997 was not funded. The Parent Company was not required under CICA
guidelines to record any liability related to the Plan.
Effective January 1, 1997, on the date of transfer, the Company has
adopted SFAS No. 106, "Post-retirement Benefits Other Than Pensions."
The Company has elected to delay recognition of the unfunded accumulated
post-retirement benefit obligation and has set up a transition
obligation to be amortized over 20 years.
<PAGE>
The following table sets forth the medical plan status of December 31, 1997:
<TABLE>
Accumulated post-retirement benefit obligation:
<S> <C>
Retirees $ 4,985
Fully eligible active plan participants 2,438
Other active plan participants 12,031
---------------
19,454
Unrecognized net gain (loss) from past experience different from (1,500)
that assumed
Unrecognized net transition obligation at December 31, 1997,
being recognized over 20 years (15,352)
---------------
Accrued post-retirement benefit obligation included in other $ 2,602
liabilities
===============
</TABLE>
For measurement purposes, a 7.5% annual rate of increase in the per
capita cost of covered health care benefits was assumed. The health care
cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend
rates by 1% in each year would increase the accumulated post-retirement
benefit obligation as of December 31, 1997 by $3,847.
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.0%.
Components of net other post-retirement benefit cost for the year ended
December 31, 1997 were as follows:
<TABLE>
<S> <C>
Service cost - benefits earned during the year $ 1,158
Interest accrued on benefits obligation 1,191
Net amortization and deferral 808
---------------
Net other post-retirement benefit cost $ 3,157
===============
</TABLE>
The Company sponsors a defined contribution 401(k) retirement plan which
provides eligible participants with the opportunity to defer up to 15%
of compensation. The Company matches 50% of the first 5% of participant
contributions. Company contributions for the year ended December 31,
1997 totalled $3,475.
10. FEDERAL INCOME TAXES
The following is a reconciliation between the federal income tax rate
and the Company's effective rate:
<TABLE>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Federal tax rate 35.0 % 35.0 % 35.0 %
Change in tax rate resulting from:
Settlement of prior years tax (6.5) (4.7)
Provision for contingencies 8.4
Change in valuation allowance 0.8 (7.8)
Investment income not subject to (0.3) (1.0) (0.5)
federal tax
State and environmental taxes 0.6 0.7 0.7
Other, net 0.9 (1.4) 0.3
======== ======== ========
Total 38.1 % 29.4 % 27.7 %
======== ======== ========
</TABLE>
<PAGE>
Temporary differences which give rise to the deferred tax assets and liabilities
as of December 31, 1997 and 1996 are as follows:
<TABLE>
1997 1996
-------------------------- --------------------------
Deferred Deferred Tax Deferred Deferred Tax
Tax Asset Liability Tax Asset Liability
----------- ------------- ----------- -------------
<S> <C> <C> <C>
Policyholder reserves $ 163,975 $ $ 151,239 $
Deferred policy acquisition 47,463 57,031
costs
Deferred acquisition cost
proxy tax 79,954 70,413
Investment assets 2,226 35,658
Net operating loss 9,427 12,295
carryforwards
Other 10,729 5,366
----------- ------------ ---------- ------------
Subtotal 255,582 58,192 274,971 57,031
Valuation allowance (3,570) (3,536)
=========== ============ ========== ============
Total Deferred Taxes $ 252,012 $ 58,192 $ 271,435 $ 57,031
=========== ============ ========== ============
</TABLE>
Amounts related to investment assets above include $30,085 and $8,530
related to the unrealized gains on the Company's fixed maturities
available-for-sale at December 31, 1997 and 1996, respectively.
The Company files a separate tax return and, therefore, losses incurred
by subsidiaries cannot be offset against operating income of the
Company. At December 31, 1997, the Company's subsidiaries have
approximately $26,934 of net operating loss carryforwards, expiring
through the year 2011. The tax benefit of subsidiaries' net operating
loss carryforwards, net of a valuation allowance of $3,570 and $3,536
are included in the deferred tax assets at December 31, 1997 and 1996,
respectively.
The Company's valuation allowance was increased/(decreased) in 1997,
1996, and 1995 by $34, $1,463, and $(13,145), respectively, as a result
of the re-evaluation by management of future estimated taxable income in
the subsidiaries.
Under pre-1984 life insurance company income tax laws, a portion of life
insurance company gain from operations was not subject to current income
taxation but was accumulated, for tax purposes, in a memorandum account
designated as "policyholders' surplus account." The aggregate
accumulation in the account is $7,742 and the Company does not
anticipate any transactions which would cause any part of the amount to
become taxable. Accordingly, no provision has been made for possible
future federal income taxes on this accumulation.
Pursuant to a December 31, 1993 agreement between the Company and its
Parent whereby the Company assumed responsibility for the Parent
Corporation's income tax liability for fiscal years prior to 1994, the
Company had previously recorded a contingent liability provision. The
Company's 1997 and 1996 results of operations include a release of
$47,750 and $25,600 from the provision, to reflect the resolution of
certain tax issues related to 1990 - 1991 and 1988 - 1989 audit years,
respectively, with the Internal Revenue Service (IRS). In addition, in
1997 the tax provision was increased for contingent items related to
open tax years. The IRS is currently auditing tax years 1992 and 1993.
In the opinion of Company management, the amounts paid or accrued are
adequate; however, it is possible that the Company's accrued amounts may
change as a result of the completion of the IRS audits.
<PAGE>
11. STOCKHOLDER'S EQUITY, DIVIDEND RESTRICTIONS, AND OTHER MATTERS
All of the Company's outstanding series of preferred stock are owned by
the Parent Corporation. The dividend rate on the Series A Stated Rate
Auction Preferred Stock (STRAPS) is 7.3% through December 30, 2002. The
Series A STRAPS are redeemable at the option of the Company on or after
December 29, 2002 at a price of $100,000 per share, plus accumulated and
unpaid dividends.
Through December 30, 1997, the Series B STRAPS had a dividend rate of
5.8%. Thereafter, short-term dividend periods of approximately 49 days
will be in effect. The dividend rate for each short-term dividend period
will be determined in accordance with a formula set out in the share
conditions. The Series B STRAPS are redeemable at the option of the
Company at the end of any short-term dividend period, at a price of
$100,000 per share, plus accumulated and unpaid dividends.
The Company's Series E 7.5% non-cumulative, non-redeemable preferred
shares are redeemable by the Company after April 1, 1999. The shares are
convertible into common shares at the option of the holder on or after
September 30, 1999, at a conversion price negotiated between the holder
and the Company or at a formula determined conversion price in
accordance with the share conditions.
The Company's net income and capital and surplus, as determined in
accordance with statutory accounting principles and practices for
December 31 are as follows:
<TABLE>
1997 1996 1995
-------------- -------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Net Income $ 181,312 $ 180,634 $ 114,931
Capital and Surplus 759,429 713,324 653,479
</TABLE>
The maximum amount of dividends which can be paid to stockholders by
insurance companies domiciled in the State of Colorado is subject to
restrictions relating to statutory surplus and statutory net gain from
operations. Statutory surplus and net gains from operations at December
31, 1997 were $759,429 and $180,834 (unaudited), respectively. The
Company should be able to pay up to $180,834 (unaudited) of dividends in
1998.
Dividends of $8,854, $8,587, and $9,217, were paid on preferred stock in
1997, 1996, and 1995, respectively. In addition, dividends of $62,540,
$48,083, and $39,763, were paid on common stock in 1997, 1996 and 1995,
respectively. Dividends are paid as determined by the Board of
Directors.
The Company is involved in various legal proceedings which arise in the ordinary
course of its business. In the opinion of management, after consultation with
counsel, the resolution of these proceedings should not have a material adverse
effect on its financial position or results of operations.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In the two most recent fiscal years or any subsequent interim period, there has
been no change in the Company's independent accountants or resulting
disagreements on accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
A. IDENTIFICATION OF DIRECTORS
Director Age Served as Principal Occupation(s) For
Director From Last Five Years
<S> <C> <C>
James Balog 69 1993 Company Director
(1)(2)
James W. Burns, O.C. 68 1991 Chairman of the Boards of Great-West
(1)(2) Lifeco, Great-West Life, London
Insurance Group Inc. and London Life
Insurance Company; Deputy Chairman,
Power Corporation
Orest T. Dackow 61 1991 President and Chief Executive
(1)(2) Officer, Great-West Lifeco
Andre Desmarais 41 1997 President and Co-Chief Executive
(3) Officer, Power Corporation; Deputy
Chairman, Power Financial
Paul Desmarais, Jr. 43 1991 Chairman and Co-Chief Executive
(1)(2) Officer, Power Corporation;
Chairman, Power Financial
Robert G. Graham 66 1991 Company Director since January 1996;
(1)(2) previously Chairman and Chief
Executive Officer, Inter-City Products Corporation
(a company engaged in the manufacture and distribution of
air conditioning, heating and related products)
Robert Gratton 54 1991 Chairman of the Board of the
(1)(2) Company; President and Chief
Executive Officer, Power Financial
N. Berne Hart 68 1991 Company Director
(1)(2)(3)
Kevin P. Kavanagh 65 1986 Company Director
(1)(3)
William Mackness 59 1991 Company Director since July 1995;
(1)(2) previously Dean, Faculty of
Management, University of Manitoba
William T. McCallum 55 1990 President and Chief Executive
(1)(2) Officer of the Company; President
and Chief Executive Officer, United
States Operations, Great-West Life
Jerry E.A. Nickerson 61 1994 Chairman of the Board, H.B.
(3) Nickerson & Sons Limited (a
management and holding company)
The Honourable 60 1991 Vice-Chairman, Power Corporation;
P. Michael Pitfield, P.C., Q.C. Member of the Senate of Canada
(1)(2)
Michel Plessis-Belair, F.C.A. 55 1991 Vice-Chairman and Chief Financial
(1)(2)(3) Officer, Power Corporation;
Executive Vice-President and Chief
Financial Officer, Power Financial
Brian E. Walsh 44 1995 Co-Founder and Managing Partner,
(1)(2) Veritas Capital Management, LLC
since September 1997 (a merchant banking
company); previously Partner, Trinity L.P.
from January 1996 (an investment company);
previously Managing Director and Co-Head, Global
Investment Bank, Bankers Trust Company (an
investment/commercial bank)
</TABLE>
(1) Member of the Executive Committee
(2) Member of the Investment and Credit Committee
(3) Member of the Audit Committee
Unless otherwise indicated, all of the directors have been engaged for not less
than five years in their present principal occupations or in another executive
capacity with the companies or firms identified.
Directors are elected annually to serve until the following annual meeting of
shareholders.
The following lists directorships held by the directors of the Company, on
companies whose securities are traded publicly in the United States or that are
investment companies registered under the Investment Company Act of 1940.
J. Balog .......Elan plc
........ .......Euclid Mutual Funds
........ .......Transatlantic Holdings
........ .......Zweig Series Trust
A. Desmarais The Seagram Company Limited
P. Desmarais, Jr......Petrofina S.A.
J.E.A. Nickerson......Bank of Montreal
<PAGE>
B.......IDENTIFICATION OF EXECUTIVE OFFICERS
<TABLE>
Executive Officer Age Served as Executive Principal Occupation(s) For
Officer From Last Five Years
<S> <C> <C>
William T. McCallum 55 1984 President and Chief Executive
President and Chief Officer of the Company; President
Executive Officer and Chief Executive Officer, United
States Operations, Great-West Life
Dennis Low 54 1988 Executive Vice President, Financial
Executive Vice President, Services of the Company and
Financial Services Great-West Life
Alan D. MacLennan 54 1992 Executive Vice President, Employee
Executive Vice President, Benefits of the Company and
Employee Benefits Great-West Life
James D. Motz 48 1992 Executive Vice President, Employee
Executive Vice President, Benefits of the Company and
Employee Benefits Great-West Life
Douglas L. Wooden 41 1991 Executive Vice President, Financial
Executive Vice President, Services of the Company and
Financial Services Great-West Life
John A. Brown 50 1992 Senior Vice President, Sales,
Senior Vice President, Financial Services of the Company
Sales, Financial Services and Great-West Life
Donna A. Goldin 50 1996 Executive Vice President and Chief
Executive Vice President Operating Officer, One Corporation
and Chief Operating since June 1996; previously
Officer, Executive Vice President and Chief
One Corporation Operating Officer, Harris Methodist
Health Plan since March 1995 (a
health maintenance organization);
previously Executive Vice President
and Chief Operating Officer, Private
Healthcare Systems, Inc. (a managed
care company)
Mitchell T.G. Graye 42 1997 Senior Vice President, Chief
Senior Vice President, Financial Officer of the Company;
Chief Financial Officer Senior Vice President, Chief
Financial Officer, United States,
Great-West Life
John T. Hughes 61 1989 Senior Vice President, Chief
Senior Vice President, Investment Officer of the Company;
Chief Investment Officer Senior Vice President, Chief
Investment Officer, United States,
Great-West Life
D. Craig Lennox 50 1984 Senior Vice President, General
Senior Vice President, Counsel and Secretary of the
General Counsel and Company; Senior Vice President and
Secretary Chief U.S. Legal Officer,
Great-West Life
Steve H. Miller 45 1997 Senior Vice President, Employee
Senior Vice President, Benefits Sales of the Company and
Employee Benefits Sales Great-West Life
Charles P. Nelson 37 1998 Senior Vice President,
Senior Vice President, Public Non-Profit Markets of the
Public Non-Profit Markets Company and Great-West Life
Martin Rosenbaum 45 1997 Senior Vice President, Employee
Senior Vice President, Benefits Operations of the Company
Employee Benefits and Great-West Life
Operations
Robert K. Shaw 42 1998 Senior Vice President, Individual
Senior Vice President, Markets of the Company and
Individual Markets Great-West Life
</TABLE>
Unless otherwise indicated, all of the 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.
The appointments of executive officers are confirmed annually.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
A. SUMMARY COMPENSATION TABLE
The following table sets out all compensation paid to the individuals who were,
at December 31, 1997, the Chief Executive Officer and the other four most highly
compensated executive officers of the Company (collectively the "Named Executive
Officers") for services rendered to the Company and its subsidiaries, and
Great-West Life, in all capacities for fiscal years ended 1995, 1996 and 1997,
respectively.
<TABLE>
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------- =========================
Annual compensation Long-term compensation
awards
- ---------------------------------------------------------------------- =========================
- ------------------------- ------------- ------------- ---------------- =========================
Name and Year Salary Bonus Options (1)
principal position ($) ($) (#)
- ------------------------- ------------- ------------- ---------------- =========================
- ------------------------- ------------- ------------- ---------------- =========================
<S> <C> <C> <C> <C> <C>
W.T. McCallum, 1997 608,708 406,250 300,000 (3)
President and 1996 561,818 370,500 300,000 (2)
Chief Executive Officer 1995 523,958 351,000 -
225,000(4)
- ------------------------- ------------- ------------- ---------------- =========================
- ------------------------- ------------- ------------- ---------------- =========================
J.T. Hughes, 1997 324,000 162,000 -
Senior Vice President, 1996 312,000 136,968 80,000 (2)
Chief Investment Officer 1995 301,000 150,500 -
- ------------------------- ------------- ------------- ---------------- =========================
- ------------------------- ------------- ------------- ---------------- =========================
D. Low, Executive Vice 1997 340,000 132,000 50,000 (3)
President, Financial 1996 325,000 146,250 150,000 (2)
Services 1995 305,000 150,500 -
- ------------------------- ------------- ------------- ---------------- =========================
- ------------------------- ------------- ------------- ---------------- =========================
A.D. MacLennan, 1997 340,000 132,000 50,000 (3)
Executive Vice 1996 325,000 115,000 150,000 (2)
President, Employee 1995 312,000 125,000 -
Benefits
- ------------------------- ------------- ------------- ---------------- =========================
- ------------------------- ------------- ------------- ---------------- =========================
D.L. Wooden 1997 300,000 150,000 150,000 (3)
Executive Vice 1996 287,000 143,500 100,000 (2)
President, Financial 1995 275,500 137,500 -
Services
- ------------------------- ------------- ------------- ---------------- =========================
</TABLE>
(1) The options set out are options for common shares of Great-West Lifeco
which are granted by Great-West Lifeco pursuant to the Great-West Lifeco
Stock Option Plan ("Lifeco Options").
(2) These Lifeco Options become exercisable 20% per year commencing on the
first anniversary of the grant and expire ten years after the date of
the grant.
(3) All or portions of these Lifeco Options become exercisable if certain
financial targets are attained. If exercisable, the exercise period runs
from April 1, 2002 to June 26, 2007.
(4) A special one-time bonus payment with respect to long-term performance.
B. OPTIONS
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 1/1.43.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------ ==========================
Potential realizable
value at assumed annual
Individual grants rates of stock price
appreciation for option
term
- ------------------------------------------------------------------------ ==========================
Percent of
total
Options options Exercise
Name granted granted to or base Expiration date 5% 10%
(#) employees in price ($) ($)
fiscal year ($/share)
- ---------------- ----------- -------------- ----------- ---------------- ------------ =============
- ---------------- ----------- -------------- ----------- ---------------- ------------ =============
<S> <C> <C> <C> <C> <C> <C> <C>
W.T. McCallum 300,000 19.43 22.70 June 26, 2007 4,282,772 10,853,386
- ---------------- ----------- -------------- ----------- ---------------- ------------ =============
- ---------------- ----------- -------------- ----------- ---------------- ------------ =============
J.T. Hughes - - - - - -
- ---------------- ----------- -------------- ----------- ---------------- ------------ =============
- ---------------- ----------- -------------- ----------- ---------------- ------------ =============
D. Low 50,000 3.24 22.70 June 26, 2007 713,795 1,808,898
- ---------------- ----------- -------------- ----------- ---------------- ------------ =============
- ---------------- ----------- -------------- ----------- ---------------- ------------ =============
A.D. MacLennan 50,000 3.24 22.70 June 26, 2007 713,795 1,808,898
- ---------------- ----------- -------------- ----------- ---------------- ------------ =============
D.L. Wooden 150,000 9.72 22.70 June 26, 2007 2,141,386 5,426,693
- ---------------- ----------- -------------- ----------- ---------------- ------------ =============
</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 PFC Options exercised in 1997, and all unexercised PFC Options
held as of December 31, 1997, by the Named Executive Officers. PFC Options are
issued with an exercise price in Canadian dollars. Canadian dollar amounts have
been translated to U.S. dollars at a rate of 1/1.43.
<PAGE>
<TABLE>
AGGREGATED PFC OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
- ----------------------------------------------- --------------------------- ============================
Unexercised options at Value of unexercised
fiscal year-end in-the-money options at
(#) fiscal year-end
($)
- ----------------------------------------------- --------------------------- ============================
Shares
acquired Value
Name on exercise realized Exercisable Exercisable
(#) ($) Unexercisable Unexercisable
================= --------------- ------------- ------------- ------------- -------------- =============
<S> <C> <C> <C> <C>
W.T. McCallum 12,000 240,445 40,000 - 1,201,486 -
------------- =============
================= --------------- ------------- ------------- ------------- -------------- =============
J.T. Hughes - - 120,000 - 3,312,063 -
------------- =============
================= --------------- ------------- ------------- ------------- -------------- =============
D. Low 74,600 1,123,970 - - - -
------------- =============
================= --------------- ------------- ------------- ------------- -------------- =============
A.D. MacLennan - - - - - -
------------- =============
================= =============== ============= ============= ============= ============== =============
D.L. Wooden - - 88,000 - 2,449,038 -
================= =============== ============= ============= ============= ============== =============
</TABLE>
Commencing April 24,1996, the Named Executive Officers began participating in
the Great-West Lifeco Stock Option Plan. The following table describes all
Lifeco Options exercised in 1997, and all unexercised Lifeco Options held as of
December 31, 1997, by the Named Executive Officers. 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 1/1.43.
<TABLE>
AGGREGATED LIFECO OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
- ----------------------------------------------- --------------------------- ============================
Unexercised options at Value of unexercised
fiscal year-end in-the-money options at
(#) fiscal year-end
($)
- ----------------------------------------------- --------------------------- ============================
Shares
acquired Value
Name on exercise realized Exercisable Exercisable
(#) ($) Unexercisable Unexercisable
================= --------------- ------------- ------------- ------------- -------------- =============
<S> <C> <C> <C> <C>
W.T. McCallum - - 60,000 540,000 903,941 4,881,489
------------- =============
================= --------------- ------------- ------------- ------------- -------------- =============
J.T. Hughes - - 16,000 64,000 241,051 964,204
------------- =============
================= --------------- ------------- ------------- ------------- -------------- =============
D. Low - - 30,000 170,000 451,970 2,018,836
------------- =============
================= --------------- ------------- ------------- ------------- -------------- =============
A.D. MacLennan - - 30,000 170,000 451,970 2,018,836
------------- =============
================= =============== ============= ============= ============= ============== =============
D.L. Wooden - - 20,000 230,000 301,314 1,838,117
================= =============== ============= ============= ============= ============== =============
</TABLE>
C. PENSION PLAN TABLE
The following table sets out the pension benefits payable to the Named Executive
Officers by Great-West Life or the Company.
<TABLE>
PENSION PLAN TABLE
========================= =============================================================
Years of service
=============================================================
Remuneration
($)
15 20 25 30 35
========================= =============================================================
<S> <C> <C> <C> <C> <C>
400,000 120,000 160,000 200,000 240,000 240,000
========================= =============================================================
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 31
J.T. Hughes 7
D. Low 32
A.D. MacLennan 31
D.L. Wooden 6
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 84 months of employment. For J.T. Hughes, D. Low,
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 84 months of employment.
Compensation includes salary and bonuses prior to any deferrals. The normal form
of pension is a life only annuity. Other optional forms of pension payment are
available on an actuarially equivalent basis. The benefits listed in the table
are subject to deduction for social security and other retirement benefits.
<PAGE>
D. COMPENSATION OF DIRECTORS
1. Great-West Life Directors
The following sets out remuneration paid by Great-West Life to its directors.
Great-West Life pays an annual fee of $15,000 to each director. Great-West Life
pays an annual fee of $10,000 to the Chairman of each of the Audit Committee,
the Conduct Review Committee and the Corporate Management Committee, $20,000 to
the Chairman of each of the Canadian Investment and Credit Committee and the
United States Investment and Credit Committee, $25,000 to the Chairman of each
of the Canadian Executive Committee and the United States Executive Committee,
and $25,000 to the Chairman of the Board. With the exception of the President
and Chief Executive Officer of Great-West Lifeco, the President and Chief
Executive Officer of Great-West Life and the President and Chief Executive
Officer of the Company, Great-West Life pays a meeting fee of $1,000 to each
director for each meeting of the Board of Directors or a committee thereof
attended. In addition, all directors are reimbursed for incidental expenses.
The above amounts are paid in the currency of the country of residence of the
director.
2. 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 $15,000, 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.
The above amounts are paid in the currency of the country of residence of the
director.
E. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Executive compensation is determined by the Company's Board of Directors. W.T.
McCallum, President and Chief Executive Officer of the Company, is a member of
the Board of Directors. Mr. McCallum participated in executive compensation
matters generally but was not present when his own compensation was discussed or
determined.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of March 1, 1998, the following sets out the beneficial owners of more than
5% of the Company's voting securities:
(1) 100% of the Company's 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) 81.2% of the outstanding common shares of Great-West Lifeco Inc. are
controlled by Power Financial Corporation, 751 Victoria Square,
Montreal, Quebec, Canada H2Y 2J3.
(4) 67.7% of the outstanding common shares of Power Financial Corporation
are owned by 171263 Canada Inc., 751 Victoria Square, Montreal, Quebec,
Canada H2Y 2J3.
(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.
(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.
B. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets out the number of equity securities, and exercisable
options for equity securities, of the Company or any of its parents or
subsidiaries, beneficially owned, as of March 1, 1998, by (i) the directors of
the Company; (ii) the Named Executive Officers; and (iii) the directors and
executive officers of the Company as a group.
<PAGE>
<TABLE>
- ------------------------ ------------------------------------------------------------------------
Company
------------------------------------------------------------------------
----------------- ---------------- ----------------- -------------------
The Great-West Great-West Power Financial Power Corporation
Life Assurance Lifeco Inc. Corporation of Canada
Company
(1) (2) (3) (4)
----------------- ---------------- ----------------- -------------------
Directors
- -------------------------------------------------------------------------------------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
J. Balog - - - -
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C>
J. W. Burns 50 56,000 4,000 200,320
101,750 options
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
O.T. Dackow 16 35,881 10,000 options -
100,000 options
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
A. Desmarais 50 20,000 10,800 170,800
306,750 options
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
P. Desmarais, Jr. 50 30,000 - 306,750 options
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
R.G. Graham - - - -
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
R. Gratton - 165,000 155,000 2,500
2,160,000 150,000 options
options
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
N.B. Hart - - - -
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
K. P. Kavanagh - 27,584 - -
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
W. Mackness - - - -
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
W.T. McCallum 17 35,133 52,000 -
60,000 options
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
J.E.A. Nickerson - - - -
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
P.M. Pitfield - 45,000 35,000 50,000
121,750 options
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
M. Plessis-Belair - 10,000 1,000 7,900
21,750 options
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
B.E. Walsh - - - 3,700
- ------------------------ ----------------- ---------------- ----------------- -------------------
- -------------------------------------------------------------------------------------------------
Named Executive Officers
- -------------------------------------------------------------------------------------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
W.T. McCallum 17 35,133 52,000 -
60,000 options
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
J.T. Hughes - 4,788 120,000 options -
16,000 options
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
D. Low - 8,266 64,600 -
30,000 options
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
A.D. MacLennan - 9,502 - -
30,000 options
- ------------------------ ----------------- ---------------- ----------------- -------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
D.L. Wooden - 20,000 options 88,000 options -
- ------------------------ ----------------- ---------------- ----------------- -------------------
- -------------------------------------------------------------------------------------------------
Directors and Executive
Officers as a Group
- -------------------------------------------------------------------------------------------------
- ------------------------ ----------------- ---------------- ----------------- -------------------
183 470,520 322,400 435,220
353,600 options 2,378,000 1,008,750 options
options
- ------------------------ ----------------- ---------------- ----------------- -------------------
</TABLE>
(1) All holdings are common shares of The Great-West Life Assurance Company.
(2) All holdings are common shares, or where indicated, exercisable options
for common shares, of Great-West Lifeco Inc.
(3) All holdings are common shares, or where indicated, exercisable options
for common shares, of Power Financial Corporation.
(4) All holdings are subordinate voting shares, or where indicated,
exercisable options for subordinate voting shares, of Power Corporation
of Canada.
The number of common shares and exercisable options for common shares of Power
Financial Corporation held by R. Gratton represents 1.31% of the total number of
common shares and exercisable options for common shares of Power Financial
Corporation outstanding. The number of common shares and exercisable options for
common shares of Power Financial Corporation held by the directors and executive
officers as a group represents 1.53% of the total number of common shares and
exercisable options for common shares of Power Financial Corporation
outstanding. The number of subordinate voting shares and exercisable options for
subordinate voting shares of Power Corporation of Canada held by the directors
and executive officers as a group represents 1.44% of the total number of
subordinate voting shares and exercisable options for subordinate voting shares
of Power Corporation of Canada outstanding. None of the remaining holdings set
out above exceed 1% of the total number of shares and exercisable options for
shares of the class outstanding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The documents identified below are filed as a part of this report:
<TABLE>
Page
<S> <C> <C> <C> <C> <C> <C>
A. INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report On Consolidated Financial Statements 32 for
the Years Ended December 31, 1997, 1996, and 1995
Consolidated Balance Sheets as of December 31, 1997 and 1996 33
Consolidated Statements of Income for the Years Ended 35
December 31, 1997, 1996, and 1995
Consolidated Statements of Stockholder's Equity for the Years Ended 36
December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows for the Years Ended 37
December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements for the Years Ended 39
December 31, 1997, 1996, and 1995
</TABLE>
All schedules and separate financial statements of the Registrant are omitted
because they are not applicable, or not required, or because the required
information is included in the financial statements or notes thereto.
<PAGE>
B. INDEX TO EXHIBITS
<TABLE>
Exhibit Number Title Page
<S> <C>
3(i) Articles of Redomestication of Great-West Life &
Annuity Insurance Company
Filed as Exhibit 3(i) to Registrant's Form 10-K for
the year ended December 31, 1996 and incorporated
herein by reference.
3(ii) Bylaws of Great-West Life & Annuity Insurance 74
Company, as amended June 17, 1997
Material Contracts
10.1 - Description of Executive Officer Annual 84
Incentive Bonus Program
10.2 - Great-West Lifeco Inc. Stock Option Plan 86
10.3 - Supplemental Executive Retirement Plan 94
10.4 - Executive Deferred Compensation Plan 112
21 Subsidiaries of Great-West Life & Annuity 130
Insurance Company
24 Directors' Powers of Attorney 132
Directors' Powers of Attorney for Andre Desmarais
and Robert G. Graham filed herewith. Remaining
Directors' Powers of Attorney filed as Exhibit 24 to
Registrant's Form 10-K for the year ended December
31, 1996 and incorporated herein by reference.
27 Financial Data Schedule 135
</TABLE>
C. REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the fourth quarter of 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By: /s/ W.T. McCallum
William T. McCallum
President and Chief Executive Officer
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature and Title Date
/s/ William T. McCallum March 27, 1998
William T. McCallum
President and Chief Executive Officer
and a Director
/s/ Mitchell T.G. Graye March 27, 1998
Mitchell T.G. Graye
Senior Vice President, Chief Financial Officer
/s/ Glen R. Derback March 27, 1998
Glen R. Derback
Vice President and Controller
<PAGE>
Signature and Title Date
/s/ James Balog * March 27, 1998
James Balog, Director
/s/ James W. Burns * March 27, 1998
- --------------------
James W. Burns, Director
/s/ Orest T. Dackow * March 27, 1998
- ---------------------
Orest T. Dackow, Director
/s/ Andre Desmarais* March 27, 1998
Andre Desmarais, Director
/s/ Paul Desmarais, Jr. * March 27, 1998
- -------------------------
Paul Desmarais, Jr., Director
/s/ Robert G. Graham * March 27, 1998
- ------------------------
Robert G. Graham, Director
/s/ Robert Gratton * March 27, 1998
Robert Gratton, Director
/s/ N. Berne Hart * March 27, 1998
- -------------------
N. Berne Hart, Director
/s/ Kevin P. Kavanagh * March 27, 1998
- -----------------------
Kevin P. Kavanagh, Director
/s/ William Mackness * March 27, 1998
William Mackness, Director
/s/ Jerry E.A. Nickerson * March 27, 1998
- --------------------------
Jerry E.A. Nickerson, Director
Signature and Title Date
/s/ P. Michael Pitfield * March 27, 1998
- -------------------------
P. Michael Pitfield, Director
/s/ Michel Plessis-Belair * March 27, 1998
Michel Plessis-Belair, Director
/s/ Brian E. Walsh * March 27, 1998
- --------------------
Brian E. Walsh, Director
* By: /s/ D. Craig Lennox March 27, 1998
---------------------
D. Craig Lennox
Attorney-in-fact pursuant to Powers of Attorney filed herewith.
EXHIBIT 3(ii)
AMENDED BYLAWS OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<PAGE>
As amended - June 17, 1997
BYLAWS OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
ARTICLE I
SHAREHOLDERS' MEETING
SECTION 1. Annual Meeting. The Annual Meeting of the Shareholders for the
election of the Directors and for the transaction of any other business
pertaining to the corporation (whether or not stated in the notice of the
meeting) shall be held at such time, date and place as the Board of Directors,
by resolution, shall determine and set forth in the notice of the meeting.
SECTION 2. Special Meetings. Special Meetings of the Shareholders shall be
called whenever ordered by the Chairman of the Board, the President, a quorum of
the Board of Directors, or the holders of at least one-quarter (1/4) of the
total amount of stock issued and outstanding. Notice of the meeting may be
waived and neither the business to be transacted at, nor the purpose of the
meeting, need be specified in the waiver of notice. In the absence of waiver of
notice, the purposes for which the meeting is called shall be stated in the
notice and no other corporate action shall be taken without the consent of all
Shareholders entitled to vote.
SECTION 3. Place of Meetings. All meetings of the Shareholders shall be held at
the office of the corporation in Englewood, Colorado, or at such other place or
places, within or without the State of Colorado, as shall from time to time be
designated by the Board of Directors.
SECTION 4. Notice of Meetings. Notice of all meetings, regular or special, shall
be given by mailing to each Shareholder entitled to vote thereat, directed to
his address as it appears on the records of the corporation, at least ten days
and not more than fifty days before such meeting, a written or printed notice of
the time, place, and purpose or purposes thereof.
SECTION 5. Quorum. The holders of a majority of the outstanding stock of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum for all purposes. In the absence of a quorum, the
Shareholders entitled to vote thereat, represented in person or by proxy, may
adjourn the meeting to a day certain.
SECTION 6. Voting. At all meetings of Shareholders each share of stock held by a
Shareholder, represented in person or by proxy, shall be entitled to one vote.
Proxies shall be in writing and shall be signed by the Shareholder. Two judges
of election shall be appointed by the Chairman of the meeting at any
Shareholders' Meeting at which judges are required. The Directors shall be
elected by ballot, and each full-paid share of stock shall be entitled to one
vote. Shares may be voted by proxy, signed by the person legally entitled to
vote the same. Each Shareholder shall have the right to cast as many votes in
the aggregate as shall equal the number of shares of stock held by him,
multiplied by the number of Directors to be elected.
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Number and Authority. The business and property of this corporation
shall be conducted and managed by a Board of Directors consisting of not more
than 25 Directors and not less than 5 Directors, the exact number thereof to be
fixed and determined by action taken from time to time by the Board of
Directors.
SECTION 2. Election. At each annual meeting of Shareholders, the Shareholders
shall elect Directors to hold office until the next succeeding annual meeting.
Each Director shall hold office for the term for which he is elected and until
his successor has been elected and qualified, subject to removal as hereinafter
provided.
SECTION 3. Removal and Vacancies. Any or all Directors may be removed at any
time, with or without cause, by a majority vote of the Shareholders who shall
thereupon elect a successor Director or Directors to fill the vacancy or
vacancies and in which case the election of such successor Directors may be at a
Special Meeting of Shareholders called for such purpose. A vacancy in the Board
of Directors, other than one occurring by reason of removal by Shareholders,
shall be filled by the Board of Directors to serve until the next annual meeting
of the Shareholders. Where the number of Directors is increased additional
Directors may be elected by the Board of Directors to serve until the next
annual meeting of the Shareholders.
SECTION 4. Regular Meeting. The Regular Meeting of the Board of Directors shall
be held immediately following the Annual Meeting of the Shareholders.
SECTION 5. Special Meetings. Special Meetings of the Board of Directors may be
called by order of the Chairman of the Board, the President, or the Secretary.
SECTION 6. Place of Meetings. Meetings of the Board of Directors shall be held
at the office of the corporation in Englewood, Colorado, or at such other place
within or without the State of Colorado as may be designated in the notice
thereof.
SECTION 7. Notice of Meetings. Notice of meetings of the Board of Directors,
except the regular meeting of the Board, shall be given by mailing to each
member at least two days before such meeting, a written or printed notice of the
time, and place thereof. Such notice may also be given by telegram sent at least
one day before such meeting.
SECTION 8. Business Transacted at Meetings. Any business may be transacted and
any corporate action taken at any meeting of the Board of Directors whether
stated in the notice of such meeting or not, except as otherwise expressly
required by law.
SECTION 9. Quorum. A majority of the number of Directors fixed by Section 1
shall constitute a quorum for the transaction of business at any meeting of the
Board of Directors, but if less than such majority is present at a meeting, a
majority of the Directors present may adjourn the meeting from time to time
without further notice, for a period not to exceed 60 days at any one
adjournment.
SECTION 10. Interest of Directors. Except as prohibited by statute, any Director
may vote or act on behalf of the corporation in contracting with any other
company although he may be a Shareholder, Director, or Officer of such other
company.
SECTION 11. Indemnification.
(1) In this section, the following terms shall have the following meanings:
(a) "expenses" means reasonable expenses incurred in a proceeding,
including expenses of investigation and preparation, expenses in
connection with an appearance as a witness, and fees and
disbursement of counsel, accountants or other experts;
(b) "liability" means an obligation incurred with respect to a
proceeding to pay a judgment, settlement, penalty or fine;
(c) "party" includes a person who was, is, or is threatened to be
made a named defendant or respondent in a proceeding;
(d) "proceeding" means any threatened, pending or completed action,
suit, or proceeding whether civil, criminal, administrative or
investigative, and whether formal or informal.
(2) Subject to applicable law, if any person who is or was a director,
officer or employee of the corporation is made a party to a proceeding
because the person is or was a director, officer or employee of the
corporation, the corporation shall indemnify the person, or the estate
or personal representative of the person, from and against all liability
and expenses incurred by the person in the proceeding (and advance to
the person expenses incurred in the proceeding) if, with respect to the
matter(s) giving rise to the proceeding:
(a) the person conducted himself or herself in good faith; and
(b) the person reasonably believed that his or her conduct was in the
corporation's best interests; and
(c) in the case of any criminal proceeding, the person had no
reasonable cause to believe that his or her conduct was unlawful;
and
(d) if the person is or was an employee of the corporation, the
person acted in the ordinary course of the person's employment
with the corporation.
(3) Subject to applicable law, if any person who is or was serving as a
director, officer or employee of another company or entity at the
request of the corporation is made a party to a proceeding because the
person is or was serving as a director, officer or employee of the other
company or entity, the corporation shall indemnify the person, or the
estate or personal representative of the person, from and against all
liability and expenses incurred by the person in the proceeding (and
advance to the person expenses incurred in the proceeding) if:
(i) the person is or was appointed to serve at the request of the
corporation as a director, officer or employee of the other
company or entity in accordance with Indemnification Procedures
approved by the Board of Directors of the corporation; and
(ii) with respect to the matter(s) giving rise to the proceeding:
(a) the person conducted himself or herself in good faith; and
(b) the person reasonably believed 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 that his or her conduct was
unlawful; and
(d) if the person is or was an employee of the other company
or entity, the person acted in the ordinary course of the
person's employment with the other company or entity.
ARTICLE III
EXECUTIVE COMMITTEE
SECTION 1. Membership. The Board of Directors shall elect from its own number an
Executive Committee, to serve at the pleasure of the Board, consisting of not
less than three members, the exact number to be fixed and determined by action
taken from time to time by the Board of Directors. The Executive Committee shall
elect from among its members a Chairman, and shall appoint a Secretary.
SECTION 2. Powers of the Executive Committee. The Executive Committee shall have
and may exercise all the powers of the Board with respect to the conduct and
management of the business and property of the Company, except that the
Executive Committee shall not have power to declare dividends on or
distributions of the capital stock of the corporation, amend the Bylaws, fill
vacancies in the Committee or the Board of Directors, or exercise any powers
prohibited by C.R.S. ss.7-5-107 or which the Board of Directors may from time to
time, by proper resolution, reserve to itself.
SECTION 3. Meetings. The Committee may determine the times and places for the
holding of meetings. The Committee shall prepare regular minutes of the
transactions at its meetings and shall cause them to be recorded in books kept
for that purpose. All actions of the Committee shall be reported to the Board of
Directors at its next meeting succeeding the date of such action.
SECTION 4. Place of Meetings. Meetings of the Executive Committee shall be held
at the office of the corporation in Englewood, Colorado, or at such other place,
within or without the State of Colorado, as may be designated in the notice or
waiver of notice of the meeting.
SECTION 5. Notice of Meetings. Notice of all meetings shall be given by mailing
to each member at least two days before such meeting, a written or printed
notice of the time and place thereof. Such notice may also be given by telegram
at least one day before such meeting.
SECTION 6. Quorum. A quorum shall consist of two members of the Committee.
<PAGE>
ARTICLE IV
INVESTMENT AND CREDIT COMMITTEE
SECTION 1. Membership. The Board of Directors shall elect from its own number an
Investment and Credit Committee, to serve at the pleasure of the Board,
consisting of not less than three members, the exact number to be fixed and
determined by action taken from time to time by the Board of Directors. The
Investment and Credit Committee shall elect from among its members a Chairman,
and shall appoint a Secretary.
SECTION 2. Powers of the Investment and Credit Committee. The Investment and
Credit Committee shall have the authority to approve the investments of the
funds of the corporation, except for all or any part of that authority which the
Board of Directors may from time to time, by proper resolution, reserve to
itself.
SECTION 3. Meetings. The Committee may determine the times and places for the
holding of meetings. The Committee shall prepare regular minutes of the
transactions at its meetings and shall cause them to be recorded in books kept
for that purpose. All actions of the Committee shall be reported to the Board of
Directors at its next meeting succeeding the date of such action.
SECTION 4. Place of Meetings. Meetings of the Investment and Credit Committee
shall be held at the office of the corporation in Englewood, Colorado, or at
such other place, within or without the State of Colorado, as may be designated
in the notice thereof.
SECTION 5. Notice of Meetings. Notice of all meetings shall be given by mailing
to each member at least two days before such meetings, a written or printed
notice of the time and place thereof. Such notice may also be given by telegram
at least one day before such meetings.
SECTION 6. Quorum. A quorum shall consist of three members of the Committee.
ARTICLE V
OFFICERS
SECTION 1. Duties in General. All Officers of the corporation, in addition to
the duties prescribed by the Bylaws, shall perform such duties in the conduct
and management of the business and property of the corporation as may be
determined by the Board of Directors. In the case of more than one person
holding an office of the same title, any one of them may perform the duties of
the office except insofar as the Board of Directors, or the President may
otherwise direct.
SECTION 2. Number and Designation. The Officers of the corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, one or more
Secretaries, one or more Treasurers, one or more Assistant Secretaries, one or
more Assistant Treasurers, and such other Officers and Committees as the Board
of Directors may from time to time deem advisable. It shall be permissible for
the same person to hold more than one office, except that the offices of
President and Secretary shall not be held by the same person.
SECTION 3. Election and Term of Office. The Board of Directors shall elect from
their number a President and Vice President, and shall appoint a Secretary,
Treasurer, and such other Officers as shall be prescribed in the Bylaws, and
shall fill any vacancy that may occur.
SECTION 4. Chairman of the Board. The Chairman of the Board of Directors shall
preside at all meetings of the Shareholders and at all meetings of the Board and
shall perform such other duties as the Board of Directors may from time to time
prescribe.
SECTION 5. President. The President, in the absence of the Chairman of the
Board, shall preside at all meetings of the Shareholders and of the Board of
Directors. He shall have the powers and perform the duties usually pertaining to
the Office of President.
SECTION 6. Vice Presidents. The Vice Presidents shall have such powers and
perform such duties as may be assigned to them from time to time by the Board of
Directors or by the President. The Board of Directors or the President may from
time to time determine the order of priority as between two or more Vice
Presidents.
SECTION 7. Secretary. The Secretary shall keep the minutes of the meetings of
the Shareholders, of the Board of Directors, and of the Executive and Investment
Committees; shall issue notices of meetings; shall have custody of the
corporation's seal and corporate books and records; shall have charge of the
issuance, transfer, and cancellation of stock certificates; shall have authority
to attest and affix the corporate seal of any instruments executed on behalf of
the corporation; and shall perform such other duties as are incident to his
office and as are required by the Board of Directors or the President.
SECTION 8. Assistant Secretaries. The Assistant Secretaries in order of their
priority shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary, and shall have such other
powers and perform such other duties as may be assigned to them from time to
time by the Board of Directors or the President.
SECTION 9. Treasurer. The Treasurer shall have custody of the funds and
securities of the corporation and shall deposit the same in such banks or
depositories as the Board of Directors or the President may direct. The
Treasurer may, under the direction of the Board of Directors, disburse all
monies and sign checks or other instruments drawn on or payable out of the funds
of the corporation, which, however, shall be countersigned by the President, a
Vice President, the Secretary, or an Assistant Secretary, or an Assistant
Treasurer. He shall also make such transfers of the securities of the
corporation as may be ordered by the Board of Directors or the President. In
general, the Treasurer shall perform all of the duties incident to his office
and such other duties as are required of him by the Board of Directors or the
President.
SECTION 10. Assistant Treasurers. The Assistant Treasurers in order of their
priority shall, in the absence or disability of the Treasurer, perform the
duties and exercise the powers of the Treasurer, and shall have such other
powers and perform such other duties as may be assigned to them from time to
time by the Board of Directors or the President.
SECTION 11. Other Officers. Other Officers who may from time to time be elected
by the Board of Directors shall have such powers and perform such duties as may
be assigned to them by the Board of Directors or the President.
SECTION 12. Compensation. The compensation of the Officers shall be fixed by the
Chairman of the Board and the President.
SECTION 13. Emergency Management Committee. Notwithstanding anything to the
contrary contained in these Bylaws, during any period of emergency as
contemplated by C.R.S. ss.7-5-118 or when the Board of Directors shall be unable
to function by reason of vacancies therein and there shall be no Director
remaining and able to fill such vacancies, the first two of the following who
are readily available shall constitute an Emergency Management Committee:
(a) Vice Presidents in order of priority based upon their period of
service in such offices;
(b) Other Officers in order of priority based upon their
period of service in such offices.
The Emergency Management Committee shall manage and control the business and
property of the corporation and shall have and exercise all of the powers,
rights, and prerogatives of the corporation until a Board of Directors shall
have been duly constituted. The decisions of the Committee shall be final and
shall be superior to the decisions of any other Officer of the corporation.
In addition to, and not in modification or limitation of, its authority as
stated above, the Emergency Management Committee shall have the power and
authority:
(a) To call meetings of Shareholders whether Annual or Special;
(b) To elect and appoint Officers to fill vacancies;
(c) To make rules and regulations of procedure for its operation.
Any vacancy which occurs on the Emergency Management Committee shall be filled
by the next Vice President or other Officers (as the case may be) in order of
priority as provided above.
ARTICLE VI
CAPITAL STOCK
SECTION 1. Certificates. Every Shareholder shall be entitled at his request to a
certificate signed by the President or a Vice President, and also by the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
and under the seal of the corporation, certifying the number of shares to which
he is entitled.
SECTION 2. Transfers. Transfers of stock may be made on the books of the
corporation only by the holder thereof in person or by his attorney duly
authorized thereto in writing and upon surrender and cancellation of the
certificate therefor duly assigned or accompanied by a duly executed stock
power.
SECTION 3. Lost or Destroyed Certificates. The Board of Directors may order a
new certificate to be issued in place of a certificate lost or destroyed upon
proof of such loss or destruction and upon tender to the corporation by the
Shareholder of a bond in such amount and in such form and with or without surety
as may be ordered, indemnifying the corporation against any liability, claim,
loss, cost, or damage by reason of such loss or destruction and the issuance of
a new certificate.
SECTION 4. Dividends. Dividends may be declared from the legally available
surplus of the corporation at such times and in such amounts as the Board of
Directors may determine. Such dividends on the capital stock of the corporation
may not be declared by a committee of the Board.
ARTICLE VII
CORPORATE FUNDS
SECTION 1. Deposits. Checks, drafts, bills, notes, negotiable instruments or any
other orders for the payment of money or evidence of indebtedness payable to and
received by the corporation may be endorsed for deposit to the credit of the
corporation by such Officers or agents of the corporation as the Board of
Directors may determine and may be endorsed for deposit to the credit of agents
of the corporation in such manner as the Board of Directors may direct.
SECTION 2. Withdrawals. All disbursements of the funds of the corporation shall
be made by check, draft, or other order signed by such Officers or other persons
as the Board of Directors may from time to time authorize to sign the same.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 1. Voting Stock of Other Corporations. The President, any Vice
President, or any other Officer designated by the Board of Directors may execute
in the name of the corporation and attach the corporate seal to any proxy or
power of attorney authorizing the proxy or proxies or attorney or attorneys
named therein to vote the stock of any corporation held in this corporation on
any matter on which such stock may be voted. If any stock owned by this
corporation is held in any name other than the name of this corporation,
instructions as to the manner in which such stock is to be voted on behalf of
this corporation may be given to the holder of record by the President, any Vice
President, or any other Officer designated by the Board of Directors.
SECTION 2. Notices. Any notice under these Bylaws may be given by mail by
depositing the same in a post office or postal letter box or postal mail chute
in a sealed postpaid wrapper addressed to the person entitled thereto at his
address as the same appears upon the books or records of the corporation or at
such other address as may be designated by such person except that notice which
may be given by telegram may be telegraphed to such person at such address; and
such notice shall be deemed to be given at the time such notice is mailed or
telegraphed.
SECTION 3. Waiver of Notice. Any Shareholder, Director, or member of the
Executive or Investment Committees may at any time waive any notice required to
be given under these Bylaws in accordance with the provisions of C.R.S.
ss.7-4-119 and ss.7-5-108, including written waiver executed before, at, or
after the meeting or by presence at the meeting.
ARTICLE IX
AMENDMENTS
The Bylaws may be amended in whole or in part by the Board of Directors. No
Bylaws shall be in conflict with the laws of the State of Colorado or with the
Regulations of the Colorado Commissioner of Insurance.
<PAGE>
ARTICLE X
EFFECTIVE DATE AND RESTATEMENT
These Bylaws become effective immediately upon the redomestication of the
corporation from the State of Kansas to the State of Colorado. They thereafter
constitute an amendment and restatement of all prior Bylaws of the corporation
under the laws of the State of Kansas.
**************************
EXHIBIT 10.1
DESCRIPTION OF EXECUTIVE OFFICER ANNUAL INCENTIVE BONUS PROGRAM
<PAGE>
Description of Executive Officer Annual Incentive Bonus Program
To relate the compensation of the executive officers of Great-West to the
performance of Great-West, an annual incentive bonus program is provided. Bonus
opportunity is expressed as a percentage of base salary, with actual bonus
amounts determined on the basis of the following three elements:
(i) actual earnings of Great-West and/or a business unit within
Great-West; and/or
(ii) other performance objectives of Great-West and/or a business unit
within Great-West; and
(iii) the individual's personal performance.
These elements are designed to be integrated with Great-West's overall goals and
initiatives.
EXHIBIT 10.2
GREAT-WEST LIFECO INC. STOCK OPTION PLAN
<PAGE>
GREAT-WEST LIFECO INC.
STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of the Plan is to provide, on a selective basis, certain officers
and employees (the "Participants") of the Corporation and/or its Subsidiaries
with an opportunity to purchase Common Shares and to benefit from the
appreciation thereof. This will provide an increased incentive for these persons
to contribute to the future success and prosperity of the Corporation, thus
enhancing the value of the Common Shares for the benefit of all the shareholders
and increasing the ability of the Corporation and its Subsidiaries to attract
and retain individuals of exceptional skill.
2. Defined Terms
Where used herein, the following terms shall have the following meanings,
respectively:
2.1 "Board" means the board of directors of the Corporation.
2.2 "Common Shares" means the common shares of the Corporation or, in the
event of an adjustment contemplated by Article 8 hereof, such other
common shares to which a Participant may be entitled upon the exercise
of an Option as a result of such adjustment.
2.3 "Corporation" means Great-West Lifeco Inc. and includes any successor
corporation thereto.
2.4 "Administrative Committee" means the Stock Option Plan Administrative
Committee of the Board.
2.5 "Exchanges" means The Toronto Stock Exchange and The Montreal Exchange
or, if the Common Shares are not then listed and posted for trading on
such Exchanges, such stock exchange or exchanges in Canada on which such
shares are listed and posted for trading as may be selected for such
purpose by the Board.
2.6 "Market Price per Common Share" at any date means the weighted average
trading price per Common Share on the Exchanges for the five trading
days preceding the date of the grant. If no trades are reported on any
one or more of such five trading days, the trades occurring on the last
five trading days on which trades occurred will be used in the
computation.
2.7 "Option(s)" means an option to purchase Common Shares granted by the
Corporation to Participants, subject to the provisions contained herein.
2.8 "Option Price" means the price per share at which Common Shares may be
purchased under an Option, as the same may be adjusted in accordance
with Articles 4 and 8 hereof.
2.9 "Participants" means those officers and employees of the Corporation
and/or its Subsidiaries to whom Options have been granted, provided that
such Options or a portion thereof have not been exercised and have not
terminated.
2.10 "Plan" means the Stock Option Plan of the Corporation, as the same may
be amended or varied from time to time.
2.11 "Subsidiary" means any corporation that is a subsidiary of the
Corporation, as such term is defined in subsection 2(5) of the Canada
Business Corporations Act, as such provision is from time to time
amended, varied or re-enacted.
3. Administration of the Plan
3.1 The Plan shall be administered by the Administrative Committee. The
Corporation shall effect the grant of Options under the Plan in
accordance with determinations made by the Administrative Committee
pursuant to the provisions of the Plan as to:
(a) the officers and employees of the Corporation and its
Subsidiaries to whom Options will be granted;
(b) the number of Common Shares which shall be the subject of
such Options; and
(c) the terms of such Options;
by the execution and delivery of a stock option agreement in writing in
form approved by the Administrative Committee.
3.2 The Board or Administrative Committee may, from time to time, adopt such
rules and regulations for administering the Plan as it may deem proper
and in the best interests of the Corporation and the Board may, subject
to applicable law, delegate its powers hereunder to administer the Plan
to a committee of the Board.
4. Granting of Options
4.1 The Administrative Committee may from time to time grant Options to
officers and employees of the Corporation and/or of its Subsidiaries.
The grant of Options will be subject to the terms and conditions
contained herein and may be subject to additional terms and conditions
determined by the Administrative Committee from time to time including,
without limiting the generality of the foregoing, a condition requiring
that a Participant also be a participant in a specified stock purchase
plan of the Corporation and/or its Subsidiaries.
4.2 Subject to adjustment pursuant to paragraph 8, the aggregate number of
Common Shares reserved for issuance under the Plan shall not exceed
3,000,000 Common Shares. The aggregate number of Common Shares reserved
for issuance to any one person under the Plan shall not exceed 5% of the
outstanding Common Shares. The Common Shares in respect of which Options
are not exercised shall be available for subsequent options. No
fractional shares may be purchased or issued hereunder. The
aforementioned limits of Common Shares reserved for issuance may be
formulated on a diluted basis with the consent of the Exchanges.
4.3 The Option Price shall be fixed by the Administrative Committee but
under no circumstances shall any Option Price at the time of the grant
be lower than the Market Price per Common Share.
4.4 At the discretion of the Administrative Committee, the Option Price may
increase, throughout the period or for any part of the period that the
Option or a portion thereof remains unexercised, by an amount per annum
fixed by the Administrative Committee at the time the Option is granted.
5. Option Period
5.1 Each Option shall be exercisable during a period (the "Option Period")
established by the Administrative Committee which shall commence not
earlier than the date of the granting of the Option and shall in no
event terminate later than the earlier of ten (10) years after such date
or:
(a) in the event of the death of the Participant either before or
after retirement, the Option Period for the Options outstanding
to such Participant at the date of death shall terminate on the
earlier of:
(i) the date of termination specified in the terms of such
Option, and
(ii) 24 months after the date of death;
(b) if a Participant's employment terminates or has terminated
because of retirement at or subsequent to normal retirement age,
or because of retirement prior to normal retirement age with the
approval of the President and Chief Executive Officer of the
Corporation or of a Subsidiary, as the case may be, the Option
Period for Options then outstanding to such Participant shall
terminate at the earlier of:
(i) the date of termination specified in the terms of such
Option, and
(ii) the date which is five years after the date upon
which such Participant retired;
(c) if a Participant's employment terminates by reason of his
dismissal for fraud or willful fault or neglect, the Option
Period for Options then outstanding to such Participant shall
terminate on the date of such dismissal;
(d) in the case of a Participant with less than one year's
service at the date of the granting of the Option, the Option
Period shall commence, unless the Administrative Committee
otherwise determines, not earlier than the first anniversary of
the date of commencement of his employment, and if such
Participant's employment terminates for any cause other than
death or disability prior to such first anniversary, the Option
Period shall terminate on the date of such termination of
employment; and
(e) if a Participant's employment terminates for any cause other
than the reasons set forth in paragraphs (a), (b), (c) or (d)
herein, the Option Period for Options then outstanding to such
Participant shall terminate:
(i) on the earlier of the date of termination
specified in the terms of such Option or 12 months after
the date of termination of employment, or
(ii) such later date as the Administrative
Committee may fix (but not later than the date of
termination specified in the terms of such Option).
All rights under an Option unexercised at the termination of the Option Period
shall be forfeited, and all rights under an Option for which the Option Period
has not commenced prior to the date of termination of employment shall, unless
otherwise determined by the Committee, be forfeited. Where used in this Clause
5, the word "month" means a period of 30 consecutive days.
6. Exercise of Options
Subject to the provisions of the Plan and the terms of the granting of the
Option, an Option or a portion thereof may be exercised from time to time by
delivery to the Corporation at its registered office of a notice in writing in
form and content satisfactory to the Corporation signed by the Participant or by
the Participant's legal personal representative. The notice shall state the
intention of the Participant or the Participant's legal personal representative
to exercise the said Option or portion thereof and shall be accompanied by
payment of the Option Price for the Common Shares which are the subject of the
exercise, in a manner satisfactory to the Corporation.
7. Non-Assignable
No Option or any interest therein shall be transferable or assignable by a
Participant otherwise than by will or pursuant to the laws of succession.
8. Adjustments in Shares
Appropriate adjustments in the number of Common Shares subject to the Plan and,
as regards Options granted or to be granted, in the number of Common Shares
optioned and in the Option Price, shall be deemed to be made to give effect to
adjustments in the number of Common Shares resulting from subdivisions,
consolidations or reclassifications of the Common Shares, the payment of stock
dividends by the Corporation (other than dividends in the ordinary course) or
other relevant changes in the authorized or issued capital of the Corporation,
which changes occur subsequent to the approval of the Plan by the Board and the
Corporation shall take all necessary action so as to give effect to such
changes.
9. Decisions of the Administrative Committee
Except for the contractual provisions of any stock option agreements, all
decisions and interpretations of the Administrative Committee respecting the
Plan or Options granted hereunder shall be conclusive and binding on the
Corporation and the Participants and their respective legal personal
representatives and on all officers and employees of the Corporation and/or its
Subsidiaries eligible under the provisions of the Plan to participate therein.
10. Amendment or Discontinuance of Plan
Subject to regulatory approval, the Board may amend or terminate the Plan or the
terms of Options granted hereunder at any time without the consent of the
Participants provided that such amendment shall not alter or impair any of the
Participants' rights under any stock option agreements or any Option previously
granted under the Plan.
11. Government Regulation
The Corporation's obligation to issue and deliver Common Shares under any Option
is subject to:
(a) the satisfaction of all requirements under applicable securities
laws in respect thereof and the obtaining of all regulatory approvals as
the Corporation shall determine to be necessary or advisable in
connection with the authorization, issuance or sale thereof;
(b) the admission of the Common Shares to listing on the Exchanges; and
(c) the receipt from the Participant of such representations, agreements
and undertakings as to future dealings in such Common Shares as the
Corporation determines to be necessary or advisable in order to
safeguard against the violation of the securities laws of any
jurisdiction.
In this connection, the Corporation shall take all reasonable steps to obtain
such approvals and registrations as may be necessary for the issuance of such
Common Shares in compliance with applicable securities laws and for the listing
of such Common Shares on the Exchanges.
12. Participants' Rights
A Participant shall not have rights as a shareholder of the Corporation until a
certificate for Common Shares has been issued to such Participant upon the
exercise of an Option or a portion thereof, and then only with respect to the
Common Shares represented by such certificate or certificates and for so long as
the Participant holds said Common Shares.
No employee, officer, or Participant is entitled to be granted Options, or
additional Options, under the Plan. Neither any period of notice of termination
of employment, payment in lieu thereof, nor combination thereof, shall extend
the period of employment for the purposes of the Plan. Neither the Plan, nor any
action taken hereunder, shall interfere with the right of the employer of a
Participant to terminate a Participant's employment at any time.
13. Approvals
13.1 The Plan shall be subject to:
(a) the approval of the shareholders of the Corporation to be given
by a resolution at a meeting of the shareholders of the
Corporation; and
(b) acceptance by the Exchanges.
13.2 Any Options granted prior to such approval and acceptance shall be
conditional upon such approval and acceptance being given and no such
Options may be exercised unless such approval and acceptance is given.
<PAGE>
14. Laws
The Plan in all matters to which reference is made herein shall be governed by
and interpreted in accordance with the laws of the Province of Manitoba and
those of Canada insofar as the latter may be applicable.
Furthermore, no Option may be exercised nor will the Corporation have any
obligation to issue Common Shares pursuant thereto if such exercise or issue
would be contrary to or violate any applicable law or any applicable regulation
of a duly constituted authority.
EXHIBIT 10.3
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AMENDMENT NO. 2
This Amendment No. 2 to the Great-West Life & Annuity Insurance Company
Supplemental Executive Retirement Plan is effective as of January 1, 1998 and
has been executed as of this 27th day of January, 1998.
WHEREAS, pursuant to Section 9.1 of the Plan, the Board of Directors of
Great-West Life & Annuity Insurance Company (the "Board" ) has the right to
amend the Plan; and
WHEREAS, the Board wishes to provide for additional annuity forms of
payment, allow an early retirement age, and allow a deferral of commencement of
benefits to age 70 1/2 ;
NOW, THEREFORE, the Plan shall be amended as follows:
FIRST, Section 5.5 shall be amended to add the following:
(c) Any other form of payment option available under the "Qualified
Plan," as amended from time to time, and which form of payment is allowable for
use under this Plan pursuant to the Internal Revenue Code.
SECOND, Section 2.9 Early Retirement Date shall be amended in its
entirety to read as follows:
"Early Retirement Date" means the first day of the month coincident with
or next following the month in which a Participant terminates employment with
Employer, if such termination date occurs on or after (1) the earlier of a date
mutually agreed to between the Employer and the Participant or such
Participant's attainment of age fifty-seven (57) and (2) the completion of
fifteen (15) Years of Service, but prior to the Participant's Normal Retirement
Date.
THIRD, Section 5.6 shall be amended to add the following:
Notwithstanding the above, a Participant may elect to defer the
commencement of payments to any later age up to age 70 1/2 by making such
election on a form and pursuant to any Plan requirements prior to the
commencement of payments outlined in this section.
IN WITNESS WHEREOF this Amendment No. 2 has been executed as of the date
first written above.
<PAGE>
AMENDMENT NO. 1
TO THE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
THIS IS AN AMENDMENT to Great-West Life & Annuity Company Supplemental
Executive Retirement Plan (the "Plan") made this 26th day of November, 1996
pursuant to the discretion of the Executive Committee of the Board of Directors
of Great-West Life & Annuity Insurance Company (the "Company").
BACKGROUND STATEMENT
The Company desires to amend the Plan to recognize the transfer of the
U.S. employees covered by the Plan from The Great-West Life Assurance Company to
the Company and to conform the Plan with such transfer. Therefore, the Plan is
amended in the following respects, effective on January 1, 1997:
1. Section 2.10 shall be amended by substituting for the current text the
following:
"2.10 Employer. `Employer' means Great-West Life & Annuity Insurance Company
and/or any subsidiary or affiliate of the Employer designated by the Board."
<PAGE>
2. Section 2.11 shall be amended by substituting for the current text the
following:
"2.10 Executive Deferred Compensation Plan. `Executive Deferred
Compensation Plan' means Great-West Life & Annuity Insurance Company
Executive Deferred Compensation Plan, formerly known as The Great-West Life
Assurance Company United States Employees' Executive Deferred Compensation
Plan, a nonqualified deferred compensation plan established by the Employer
for a select group of highly compensated and management employees of
Employer.
3. Section 2.19 shall be amended by substituting for the current text the
following:
"2.19 Qualified Plan. `Qualified Plan' means the Employees' and Agents'
Pension Benefits Plan for the Great-West Life & Annuity Insurance Company,
or any predecessor or successor defined benefit plan maintained by Employer
that qualifies under Section 401(a) of the Internal Revenue Code."
IN WITNESS WHEREOF, the Company has caused this amendment to be adopted
by resolution of the Executive Committee of its Board of Directors, a copy of
which is attached hereto.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
ARTICLE I--PURPOSE; EFFECTIVE DATE
The purpose of this Supplemental Executive Retirement Plan (the "Plan")
is to provide supplemental retirement benefits for certain key officers of the
Company. It is intended that the Plan will aid in retaining and attracting
individuals of exceptional ability by providing them with these benefits. This
Plan shall be effective as of January 1, 1993.
ARTICLE II--DEFINITIONS
Whenever used in this document, the following terms shall have the
meanings set forth in this Article unless a contrary or different meaning is
expressly provided:
2.1 Actuarial Equivalent
"Actuarial Equivalent" means equivalence in value between two (2) or
more forms and/or times of payment based on the 1984 Unisex Pension Mortality
Table (UP84) and an interest rate equal to the rate used by the Pension Benefit
Guaranty Corporation (PBGC) for valuing immediate annuities under terminating
pension plans. Such rate shall be the rate in effect on January 1 of the year of
determination.
2.2 Beneficiary
"Beneficiary" means the person, persons or entity entitled under Article
VI to receive any Plan benefits payable after a Participant's death.
2.3 Board
"Board" means the Board of Directors of the Company.
2.4 Cause
"Cause" means:
(a) The willful and continued failure by the Participant to
substantially perform the Participant's duties with Employer (other than
any such failure resulting from the Participant's incapacity due to
physical or mental illness), after a demand for substantial performance
is delivered to the Participant in writing by the Board or the Chief
Executive Officer of Employer which specifically identifies the manner
in which such executive or the Board believes that the Participant has
not substantially performed the Participant's duties; or
<PAGE>
(b) The willful engaging by the Participant in gross misconduct
which is demonstrably injurious to Employer and its affiliates, taken as
a whole. For purposes of this paragraph, no act or failure to act, on
the Participant's part shall be considered "willful" unless done, or
omitted to be done, by the Participant not in good faith and without
reasonable belief that the Participant's action or omission was in the
best interest of Employer.
Notwithstanding the foregoing, the Participant shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to the Participant a copy of a notice of termination from the Board or the Chief
Executive Officer of Employer after reasonable notice to the Participant and an
opportunity for the Participant, together with the Participant's counsel, to be
heard before the Board or the Chief Executive Officer, and a finding that in the
good faith opinion of such executive or the Board, the Participant was guilty of
conduct set forth above in clauses (a) or (b) of the first sentence of this
Section and specifying the particulars thereof in detail. A Participant who is
terminated for Cause shall forfeit any right to receive benefits under the Plan.
2.5 Committee
"Committee" means the committee appointed by the Board to administer the
Plan pursuant to Article VII.
2.6 Company
"Company" means Great-West Life & Annuity Insurance Company, a Colorado
corporation, its successors, and any U.S. affiliate of the Company designated by
the Board.
2.7 Compensation
"Compensation" means the Salary, bonuses and commissions paid to a
Participant by Employer and considered to be "wages" for purposes of federal
income tax withholding. Compensation shall be calculated before reduction for
any amounts deferred by the Participant pursuant to the Company's tax qualified
plans which may be maintained under Section 401(k) or Section 125 of the
Internal Revenue Code, or under the Executive Deferred Compensation Plan.
Compensation does not include expense reimbursements or any form of noncash
compensation or benefits.
2.8 Disability
"Disability" means a physical or mental condition which prevents the
Participant from satisfactorily performing the Participant's usual duties for
Employer. The Committee shall determine the existence of Disability and may rely
upon advice from a medical examiner satisfactory to the Committee in making the
determination.
2.9 Early Retirement Date
"Early Retirement Date" means the first day of the month coincident with
or next following the month in which a Participant terminates employment with
Employer, if such termination date occurs on or after such Participant's
attainment of age fifty-seven (57) and completion of fifteen (15) Years of
Service, but prior to the Participant's Normal Retirement Date.
2.10 Employer
"Employer" means The Great-West Life Assurance Company, a Canadian stock
life insurance company, and/or any subsidiary or affiliate of the Employer
designated by the Board.
2.11 Executive Deferred Compensation Plan
"Executive Deferred Compensation Plan" means The Great-West Life
Assurance Company United States Employees' Executive Deferred Compensation Plan,
a nonqualified deferred compensation plan established by the Employer for a
select group of highly compensated and management employees of Employer.
2.12 Final Annual Compensation
"Final Annual Compensation" means the Participant's Compensation earned
during the twelve (12) consecutive complete months of employment with Employer
prior to the Participant's Disability.
2.13 Final Average Compensation
"Final Average Compensation" means the Participant's Compensation earned
during the sixty (60) consecutive complete months out of the eighty-four (84)
months of employment with Employer during which the Participant's Compensation
is the highest, divided by sixty (60).
2.14 Final Average Salary
"Final Average Salary" means the Participant's Salary earned during the
sixty (60) consecutive complete months out of the last eighty-four (84) months
of employment with Employer during which the Participant's Salary is the
highest, divided by sixty (60).
2.15 Normal Retirement Date
"Normal Retirement Date" means the first day of the month coincident
with or next following the month in which a Participant terminates employment
with Employer, if such termination occurs on or after such Participant's
attainment of age sixty-two (62) and completion of fifteen (15) Years of
Service.
2.16 Participant
"Participant" means any individual who is participating in or has
participated in this Plan, and who has not yet received full benefits hereunder,
as provided in Article III.
2.17 Participation Agreement
"Participation Agreement" means the agreement filed by a Participant and
approved by the Board pursuant to Article III.
2.18 Plan
"Plan" means this Supplemental Executive Retirement Plan as amended from
time to time.
<PAGE>
2.19 Qualified Plan
"Qualified Plan" means Part AA - United States Employees' and Agents'
Pension Benefits Plan for The Great-West Life Assurance Company, or any
successor defined benefit plan maintained by Employer and/or the Company that
qualifies under Section 401(a) of the Internal Revenue Code.
2.20 Qualified Plan Offset
"Qualified Plan Offset" means the Participant's benefit in the form of a
monthly single life annuity under the Qualified Plan less any amounts
attributable to the Guaranteed Fund or Surplus Fund, as those terms are defined
by the Qualified Plan, or any Participant voluntary contributions.
2.21 Retirement
"Retirement" means a Participant's termination from employment with
Employer at an Early Retirement Date or Normal Retirement Date, as applicable.
2.22 Salary
"Salary" means periodic payments made by Employer to the Participant on
a bi-monthly basis. Salary does not include commissions, bonuses, expense
reimbursements or any form of noncash compensation or benefits.
2.23 Supplemental Retirement Benefit
"Supplemental Retirement Benefit" means the benefit determined under
Article V of this Plan.
2.24 Target Amount
"Target Amount" means sixty percent (60%) of Final Average Compensation
multiplied by a fraction, the numerator of which is the Participant's actual
Years of Credited Service, not to exceed thirty (30), and the denominator of
which is thirty (30).
2.25 Termination Target Amount
"Termination Target Amount" means sixty percent (60%) of Final Average
Salary multiplied by a fraction, the numerator of which is the Participant's
actual Years of Credited Service, not to exceed thirty (30), and the denominator
of which is thirty (30), reduced by the early retirement factor at age sixty-two
(62) under the Qualified Plan.
2.26 Years of Credited Service
"Years of Credited Service" means the number of years of credited
service determined in accordance with the provisions of the Qualified Plan,
whether or not the Participant is a participant in such Plan.
<PAGE>
2.27 Years of Service
"Years of Service" means the number of years of service determined in
accordance with the provisions of the Qualified Plan, whether or not the
Participant is a participant in such plan.
ARTICLE III--PARTICIPATION AND VESTING
3.1 Eligibility and Participation
(a) Eligibility. Eligibility to participate in the Plan shall be
limited to those key officers of the Company who are designated, from
time to time, by the Board.
(b) Participation. An employee's participation in the Plan shall be
effective upon notification to the employee by the Committee of
eligibility to participate, completion of a Participation Agreement and
acceptance of the Participation Agreement by the Company. Subject to
Section 3.2, participation in the Plan shall continue until such time as
the Participant terminates employment with Employer and as long
thereafter as the Participant is eligible to receive benefits under this
Plan.
3.2 Change in Employment Status
If the Board determines that a Participant's employment performance is
no longer at a level that deserves reward through participation in this Plan,
but does not terminate the Participant's employment with Employer, participation
herein and eligibility to receive benefits hereunder shall be limited to the
Participant's vested interest in such benefits as of the date designated by the
Board ("Participation Termination Date"). Such benefits shall be based solely on
the Participant's Years of Service, Years of Credited Service and Compensation
as of the Participation Termination Date.
3.3 Vesting
A Participant shall be one hundred percent (100%) vested after fifteen
(15) Years of Service with Employer.
ARTICLE IV--SURVIVOR BENEFITS
4.1 Pretermination Survivor Benefit
If a Participant dies while employed by Employer, Employer shall pay a
survivor benefit to the Participant's Beneficiary as follows:
(a) Amount. The amount of the survivor benefit shall be the
Actuarial Equivalent lump sum present value of the Participant's
Supplemental Retirement Benefit determined under the section of Article
V which gives the Beneficiary the most valuable accrued benefit the
Participant would have been entitled to as of the date of death.
(b) Time and Form of Payment. The survivor benefit shall be paid to
the Beneficiary in the basic form provided below unless the Participant
elects an alternative form in the Form of Payment Designation. Any
alternative form shall be the Actuarial Equivalent of the basic form of
benefit payment. All payments shall be made on the date(s) the
Participant would have received payment under Article V, assuming the
Participant retired or terminated on the date of death. The basic and
alternative forms of payment are as follows:
(i) Basic Form of Benefit Payment. A lump sum payment.
(ii) Alternative Forms of Payment. Equal monthly installments
of the benefit over a period certain of sixty (60) or one hundred
twenty (120) months.
4.2 Posttermination Survivor Benefit
(a) Death Prior to Commencement of Benefits. If a Participant dies
following termination of employment with Employer and prior to the
commencement of benefits hereunder, Employer shall pay a survivor
benefit to the Participant's Beneficiary as follows:
(i) Amount. The amount of the survivor benefit shall be equal
to the Actuarial Equivalent lump sum present value of the
Participant's Supplemental Retirement Benefit determined under the
section of Article V which gives the Beneficiary the most valuable
accrued benefit the Participant would have been entitled to as of
the date of death.
(ii) Time and Form of Payment. The survivor benefit shall be
paid to the Beneficiary in the basic form provided below unless the
Participant elects an alternative form in the Form of Payment
Designation. Any alternative form shall be the Actuarial Equivalent
of the basic form of benefit payment. All payments shall be made on
the date(s) the Participant would have received payment under
Article V, assuming the Participant retired or terminated on the
date of death. The basic and alternative forms of payment are as
follows:
a) Basic Form of Benefit Payment. A lump sum payment.
b) Alternative Forms of Payment. Equal monthly
installments of the benefit over a period certain of sixty
(60) or one hundred twenty (120) months.
(b) Death After Commencement of Benefits. If a Participant dies
following the Participant's termination of employment with Employer and
after payments have commenced, a survivor benefit will be paid only if,
and to the extent, provided for under Section 5.6.
4.3 Suicide; Misrepresentation
No benefit shall be paid to a Beneficiary if the Participant's death
occurs as a result of suicide during the twelve (12) calendar months beginning
with the calendar month following commencement of participation in this Plan.
The Committee may deny payment if death occurs within twenty-four (24) months
beginning with the calendar month following commencement of participation in
this Plan if the Participant has made a material misrepresentation in any form
or document provided by the Participant to or for the benefit of Employer.
ARTICLE V--SUPPLEMENTAL RETIREMENT BENEFIT
5.1 Normal Retirement Benefit
If a Participant retires at a Normal Retirement Date, Employer shall pay
to the Participant a Supplemental Retirement Benefit equal to the Target Amount,
less:
(a) Fifty percent (50%) of the Participant's monthly primary Social
Security benefit payable at Retirement; and
(b) The Qualified Plan Offset at Retirement.
5.2 Early Retirement Benefit
If a Participant retires at an Early Retirement Date, Employer shall pay
to the Participant the monthly Supplemental Retirement Benefit calculated under
Section 5.1 except:
(a) Any bonus amounts which are treated as Compensation shall be
reduced by five-sixths percent (5/6%) for each month by which the
Participant's Early Retirement Date precedes the Participant's Normal
Retirement Date;
(b) The Target Amount shall be reduced by five-twelfths percent
(5/12%) for each month by which the Participant's Early Retirement Date
precedes the Participant's Normal Retirement Date;
(c) The offset required by Section 5.1(a) shall only reduce the
Participant's Supplemental Retirement Benefit commencing with the Normal
Retirement Date. The offset shall be determined at Retirement using the
Social Security Act in effect at Retirement and assuming zero (0) future
earnings from the Participant's Early Retirement Date to the
Participant's Normal Retirement Date; and
(d) The offset required by Section 5.1(b) shall be the amount
payable at the Early Retirement Date.
5.3 Termination Benefit
If a Participant terminates employment with Employer prior to
Retirement, death or Disability, Employer shall pay to the Participant a
Supplemental Retirement Benefit equal to the Termination Target Amount, less:
(a) Fifty percent (50%) of the Participant's monthly primary Social
Security benefit payable at the Participant's Normal Retirement Date.
This offset shall be determined at termination using the Social Security
Act in effect at termination and assuming earnings from the date of
termination to the Participant's Normal Retirement Date are equal to the
Participant's Salary at termination; and
(b)The Qualified Plan Offset at the Participant's Normal Retirement Date.
<PAGE>
5.4 Disability Retirement Benefit
If a Participant terminates employment prior to Retirement as a result
of Disability, Employer shall pay to the Participant the monthly Supplemental
Retirement Benefit calculated under Section 5.1 or 5.2, whichever is applicable,
except that Years of Service and Years of Credited Service shall continue to
accrue during the period of Disability up to the date of actual Retirement. For
purposes of determining Final Average Compensation under this section, the
Participant shall be deemed to have earned an amount equal to Final Annual
Compensation during each year the Disability continues.
5.5 Form of Benefit Payment
The Supplemental Retirement Benefit under Sections 5.1, 5.2, 5.3 and 5.4
shall be paid in the basic form provided below unless the Participant elects an
alternative form in the Form of Payment Designation. Any alternative form shall
be the Actuarial Equivalent of the basic form of benefit payment. The basic and
alternative forms of payment are as follows:
(a) Basic Form of Benefit Payment. A monthly single life annuity
for the Participant's life.
(b) Alternative Forms of Benefit Payment.
(i) A lump sum payment.
(ii) A monthly joint and survivor annuity with payment
continued to the survivor at one hundred percent (100%) or fifty
percent (50%) of the amount paid to the Participant.
(iii) Equal monthly installments of the benefit over a period
certain of sixty (60), one hundred twenty (120) or one hundred
eighty (180) months.
5.6 Commencement of Benefit Payments
Benefits payable to a Participant under Sections 5.1, 5.2 and 5.4 as a
result of Normal or Early Retirement shall commence as soon as practicable after
the appropriate application for benefits has been made but not later than sixty
(60) days after all information necessary to calculate the benefit amount has
been received by Employer. Benefits payable to a Participant under Section 5.3
as a result of termination shall commence on the first day of the month
coincident with or following the date on which the Participant attains age
sixty-two (62). All payments shall be made as of the last day of the month.
5.7 Withholding; Payroll Taxes
Employer shall withhold from payments hereunder any taxes required to be
withheld from such payments under federal, state or local law. A Beneficiary,
however, may elect not to have withholding of federal income tax pursuant to
Section 3405(a)(2) of the Internal Revenue Code, or any successor provision
thereto.
<PAGE>
5.8 Payment to Guardian
If a Plan benefit is payable to a minor or a person declared incompetent
or to a person incapable of handling the disposition of property, the Committee
may direct payment to the guardian, legal representative or person having the
care and custody of such minor, incompetent or person. The Committee may require
proof of incompetency, minority, incapacity or guardianship as it may deem
appropriate prior to distribution. Such distribution shall completely discharge
the Committee and Employer from all liability with respect to such benefit.
ARTICLE VI--BENEFICIARY DESIGNATION
6.1 Beneficiary Designation
Each Participant shall have the right, at any time, to designate one (1)
or more persons or an entity as Beneficiary (both primary as well as secondary)
to whom benefits under this Plan shall be paid in the event of a Participant's
death prior to complete distribution to the Participant of the benefits due
under the Plan. Each Beneficiary designation shall be in a written form
prescribed by the Committee and will be effective only when filed with the
Committee during the Participant's lifetime. Designation by a married
Participant of a Beneficiary other than the Participant's spouse shall not be
effective without spousal execution of a written consent acknowledging the
effect of the designation, unless such consent cannot be obtained because the
spouse cannot be located.
6.2 Changing Beneficiary
Any Beneficiary designation may be changed by an unmarried Participant
without the consent of the previously named Beneficiary by the filing of a new
designation with the Committee. A married Participant's Beneficiary designation
may be changed with the consent of the Participant's spouse as provided for in
Section 6.1 by the filing of a new designation with the Committee. The filing of
a new designation shall cancel all designations previously filed.
6.3 Change in Marital Status
If the Participant's marital status changes after the Participant has
designated a Beneficiary, the following shall apply:
(a) If the Participant is married at death but was unmarried when
the designation was made, the designation shall be void unless the
spouse has consented to it in the manner prescribed above.
(b) If the Participant is unmarried at death but was married when
the designation was made:
(i) The designation shall be void if the spouse was named as
Beneficiary.
(ii) The designation shall remain valid if a nonspouse
Beneficiary was named.
(c) If the Participant was married when the designation was made and
is married to a different spouse at death, the designation shall be void
unless the new spouse has consented to it in the manner prescribed
above.
6.4 No Beneficiary Designation
If any Participant fails to designate a Beneficiary in the manner
provided above, if the designation is void, or if the Beneficiary designated by
a deceased Participant dies before the Participant or before complete
distribution of the Participant's benefits, the Participant's Beneficiary shall
be the person in the first of the following classes in which there is a
survivor:
(a) The Participant's surviving spouse;
(b) The Participant's children in equal shares, except that if any
of the children predeceases the Participant but leave issue surviving,
then such issue shall take by right of representation the share the
parent would have taken if living;
(c) The Participant's estate.
6.5 Effect of Payment
Payment to the Beneficiary shall completely discharge the Employer's
obligations under this Plan.
ARTICLE VII--ADMINISTRATION
7.1 Committee; Duties
The Plan shall be administered by the Committee. The Committee shall
have the authority to make, amend, interpret, and enforce all appropriate rules
and regulations for the administration of the Plan and decide or resolve any and
all questions, including interpretations of the Plan, as may arise in such
administration. Members of the Committee may be Participants under the Plan.
7.2 Agents
The Committee may, from time to time, employ agents and delegate to them
such administrative duties as it sees fit, and may from time to time consult
with counsel who may be counsel to the Company.
7.3 Binding Effect of Decisions
The decision or action of the Committee with respect to any question
arising out of or in connection with the administration, interpretation and
application of the Plan and the rules and regulations promulgated hereunder
shall be final, conclusive and binding upon all persons having any interest in
the Plan.
7.4 Indemnity of Committee
The Company shall indemnify and hold harmless the members of the
Committee against any and all claims, loss, damage, expense or liability arising
from any action or failure to act with respect to the Plan on account of such
member's service on the Committee, except in the case of gross negligence or
willful misconduct.
ARTICLE VIII--CLAIMS PROCEDURE
8.1 Claim
Any person claiming a benefit, requesting an interpretation or ruling
under the Plan, or requesting information under the Plan shall present the
request in writing to the Committee which shall respond in writing as soon as
practicable.
8.2 Denial of Claim
If the claim or request is denied, the written notice of denial shall
state:
(a) The reason for denial, with specific reference to the Plan
provisions on which the denial is based.
(b) A description of any additional material or information required
and an explanation of why it is necessary.
(c) An explanation of the Plan's claims review procedure.
8.3 Review of Claim
Any person whose claim or request is denied or who has not received a
response within thirty (30) days may request a review by notice given in writing
to the Committee. The claim or request shall be reviewed by the Committee which
may, but shall not be required to, grant the claimant a hearing. On review, the
claimant may have representation, examine pertinent documents, and submit issues
and comments in writing.
8.4 Final Decision
The decision on review shall normally be made within sixty (60) days. If
an extension of time is required for a hearing or other special circumstances,
the claimant shall be notified and the time shall be one hundred twenty (120)
days. The decision shall be in writing and shall state the reason and the
relevant Plan provisions. All decisions on review shall be final and bind all
parties concerned.
ARTICLE IX--TERMINATION, SUSPENSION OR AMENDMENT
9.1 Termination, Suspension or Amendment of Plan
The Board may, in its sole discretion, terminate or suspend the Plan at
any time, in whole or in part. The Board may amend the Plan at any time. Any
amendment may provide different benefits or amounts of benefits from those
herein set forth. No such termination, suspension or amendment, however, shall
adversely affect the accrued benefits of Participants (determined as of the day
prior to such action), the benefits of any Participant who has previously
retired, or the benefits of any Beneficiary of a Participant who has previously
died, except as otherwise determined by the Board under Section 10.1 with
respect to any Participant. Furthermore, no suspension or amendment shall alter
the applicability of the vesting schedule in Section 3.3 with respect to a
Participant's accrued benefit at the time of such suspension or amendment. Upon
termination of the Plan, however, all Participants shall be one hundred percent
(100%) vested in their accrued Supplemental Retirement Benefits.
ARTICLE X--MISCELLANEOUS
10.1 Unfunded Plan
This Plan is an unfunded plan maintained primarily to provide deferred
compensation benefits for a select group of "management or highly-compensated
employees" within the meaning of Sections 201, 301, and 401 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and therefore is
exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. Accordingly,
the Board may terminate the Plan and make no further benefit payments or remove
certain employees as Participants if it is determined by the United States
Department of Labor, a court of competent jurisdiction, or an opinion of counsel
that the Plan constitutes an employee pension benefit plan within the meaning of
Section 3(2) of ERISA (as currently in effect or hereafter amended) which is not
so exempt.
10.2 Unsecured General Creditor
Participants and their Beneficiaries, heirs, successors, and assigns
shall have no secured legal or equitable rights, interest or claims in any
property or assets of Employer, nor shall they be Beneficiaries of, or have any
rights, claims or interests in any life insurance policies, annuity contracts or
the proceeds therefrom owned or which may be acquired by Employer. Except as
provided in Section 10.3, such policies, annuity contracts or other assets of
Employer shall not be held under any trust for the benefit of Participants,
their Beneficiaries, heirs, successors or assigns, or held in any way as
collateral security for the fulfilling of the obligations of Employer under this
Plan. Any and all of Employer's assets and policies shall be, and remain, the
general, unpledged, unrestricted assets of Employer. Employer's obligation under
the Plan shall be that of an unfunded and unsecured promise to pay money in the
future.
10.3 Trust Fund
Employer shall be responsible for the payment of all benefits provided
under the Plan. At its discretion, Employer may establish one (1) or more
trusts, with such trustees as the Board may approve, for the purpose of
providing for the payment of such benefits. Although such a trust shall be
irrevocable, its assets shall be held for payment of all Employer's general
creditors in the event of insolvency. To the extent any benefits provided under
the Plan are paid from any such trust, Employer shall have no further obligation
to pay them. If not paid from the trust, such benefits shall remain the
obligation of Employer.
10.4 Nonassignability
Neither a Participant nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise
encumber, transfer, hypothecate or convey in advance of actual receipt the
amounts, if any, payable hereunder, or any part thereof, which are, and all
rights to which are, expressly declared to be unassignable and nontransferable.
No part of the amounts payable shall, prior to actual payment, be subject to
seizure or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency.
<PAGE>
10.5 Not a Contract of Employment
This Plan shall not constitute a contract of employment between Employer
and the Participant. Nothing in this Plan shall give a Participant the right to
be retained in the service of Employer or to interfere with the right of
Employer to discipline or discharge a Participant at any time.
10.6 Protective Provisions
A Participant shall cooperate with Employer by furnishing any and all
information requested by Employer in order to facilitate the payment of benefits
hereunder, and by taking such physical examinations as Employer may deem
necessary and by taking such other action as may be requested by Employer.
10.7 Governing Law
The provisions of this Plan shall be construed and interpreted according
to the laws of the State of Colorado, except as preempted by federal law.
10.8 Validity
If any provision of this Plan shall be held illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining parts
hereof, but this Plan shall be construed and enforced as if such illegal and
invalid provision had never been inserted herein.
10.9 Notice
Any notice or filing required or permitted under the Plan shall be
sufficient if in writing and hand delivered or sent by registered or certified
mail. Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the receipt
for registration or certification. Mailed notice to the Committee shall be
directed to the Company's address. Mailed notice to a Participant or Beneficiary
shall be directed to the individual's last known address in Employer's records.
10.10 Successors
The provisions of this Plan shall bind and inure to the benefit of
Employer and its successors and assigns. The term successors as used herein
shall include any corporate or other business entity which shall, whether by
merger, consolidation, purchase or otherwise acquire all or substantially all of
the business and assets of Employer, and successors of any such corporation or
other business entity.
EXHIBIT 10.4
EXECUTIVE DEFERRED COMPENSATION PLAN
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
EXECUTIVE DEFERRED COMPENSATION PLAN
AMENDMENT NO. 2
This Amendment No. 2 to the Great-West Life & Annuity Insurance Company United
States Employees' Executive Deferred Compensation Plan is effective as of
January 1, 1998 and has been executed as of this 27th day of January, 1997.
WHEREAS, pursuant to Section 9.1 of the Plan, the United States
Executive Committee of the Board of Directors of the Great-West Life & Annuity
Insurance Company (the "Board") has the right to amend the Plan; and
WHEREAS, the Board would like to allow participants to receive benefits
pursuant to the same option for payment available in the Great-West Life &
Annuity Staff and Agents Pension Plan;
NOW, THEREFORE, the Plan shall be amended as follows:
FIRST: Section 5.4 shall amended to add the following section 5.4 (c):
(c) Any other form of payment option available under the "Qualified
Plan", as amended from time to time, and which form of payment is allowable to
this Plan pursuant to the Internal Revenue Code. .
IN WITNESS WHEREOF, this Amendment No. 2 has been executed as
of the date first written above.
<PAGE>
AMENDMENT NO. 1
TO THE
THE GREAT-WEST LIFE ASSURANCE COMPANY
EXECUTIVE DEFERRED COMPENSATION PLAN
THIS IS AN AMENDMENT to The Great-West Life Assurance Company Executive
Deferred Compensation Plan (the "Plan") made this 26th day of November, 1996,
pursuant to the discretion of the Executive Committee of the Board of Directors
of The Great-West Life Assurance Company (the "Company").
BACKGROUND STATEMENT
The Company desires to amend the Plan to recognize the transfer of the
U.S. employees covered by the Plan from the Company to Great-West Life & Annuity
Insurance Company and to conform the Plan with such transfer. Therefore, the
Plan is amended in the following respects, effective on January 1, 1997:
1.
Section 2.3 shall be amended by substituting for the current text the following:
"2.3 Board. `Board' means the Executive Committee of the Board of Directors
of the Company." 2.
Section 2.5 shall be amended by substituting for the current text the following:
"2.5 Company. `Company' means Great-West Life & Annuity Insurance Company,
a Colorado corporation, its successors, and any U.S. affiliate of the
Company designated by the Board."
<PAGE>
3. Section 2.14 shall be amended by substituting for the current text the
following:
"2.14 Other Plan. `Other Plan' means Great-West Life & Annuity Insurance
Company Deferred Compensation Plan for Regional Group Managers and
Individual Field Sales Managers, formerly known as The Great-West Life
Assurance Company Deferred Compensation Plan for Regional Group Managers
and Individual Field Sales Managers."
4. Section 2.18 shall be amended by substituting for the current text the
following:
"2.18 Qualified Pension Plan. `Qualified Pension Plan' means the Employees'
and Agents' Pension Benefits Plan Great-West Life & Annuity Insurance
Company, or any predecessor or successor defined benefit plan maintained by
the Employer that qualifies under Section 401(a) of the Internal Revenue
Code."
IN WITNESS WHEREOF, the Company has caused this amendment to be adopted
by resolution of its Board of Directors, a copy of which is attached hereto.
<PAGE>
THE GREAT-WEST LIFE ASSURANCE COMPANY
UNITED STATES EMPLOYEES'
EXECUTIVE DEFERRED COMPENSATION PLAN
<PAGE>
THE GREAT-WEST LIFE ASSURANCE COMPANY
UNITED STATES EMPLOYEES'
EXECUTIVE DEFERRED COMPENSATION PLAN
ARTICLE I--PURPOSE; EFFECTIVE DATE
The purpose of this Executive Deferred Compensation Plan is to provide
current tax planning opportunities as well as supplemental funds for retirement
or death for certain employees of Employer. It is intended that the Plan will
aid in attracting and retaining employees of exceptional ability by providing
them with these benefits. The Plan shall be effective as of January 1, 1993.
ARTICLE II--DEFINITIONS
Whenever used in this document, the following terms shall have the
meanings set forth in this Article unless a contrary or different meaning is
expressly provided:
2.1 Account
"Account" means the device used by Employer to measure and determine the
amounts to be paid to a Participant under the Plan.
2.2 Beneficiary
"Beneficiary" means the person, persons or entity entitled under Article
VI to receive any Plan benefits payable after a Participant's death.
2.3 Board
"Board" means the United States Executive Committee of the Board of
Directors of the Company.
2.4 Committee
"Committee" means the committee appointed by the Board to administer the
Plan pursuant to Article VII.
2.5 Company
"Company" means The Great-West Life Assurance Company, a Canadian stock
life insurance company, its successors, and any U.S. affiliate of the
Company designated by the Board.
2.6 Compensation
"Compensation" means the salary and bonuses payable by Employer,
determined before reduction for amounts deferred under this Plan.
2.7 Deferral Commitment
"Deferral Commitment" means a commitment made by a Participant to defer
Compensation pursuant to Article III.
2.8 Deferral Period
"Deferral Period" means each calendar year.
2.9 Determination Date
"Determination Date" means the last day of each calendar month.
2.10 Disability
"Disability" means a physical or mental condition which prevents the
Participant from satisfactorily performing the Participant's usual duties for
Employer. The Committee shall determine the existence of Disability and may rely
upon advise from a medical examiner satisfactory to the Committee in making the
determination.
2.11 Earnings
"Earnings" means the rate of growth credited to an Account on each
Determination Date in a calendar year which shall be equal to one and one-half
(1-1/2) percentage points higher than the nominal annual yield on over ten (10)
year composite Government Securities for the previous calendar month, as
published by the Federal Reserve Board (or any successor thereto), or, if such
index is no longer published, a substantially similar index selected by the
Board.
2.12 Employer
"Employer" means the Company and any subsidiary or affiliate of the Company
designated by the Board.
2.13 Financial Hardship
"Financial Hardship" means a severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent of the Participant, loss of the Participant's
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant. Financial Hardship shall be determined by the Committee on the
basis of information supplied by the Participant in accordance with uniform
guidelines promulgated from time to time by the Committee.
2.14 Other Plan
"Other Plan" means The Great-West Life Assurance Company Deferred
Compensation Plan for Regional Group Managers and Individual Field Sales
Managers.
<PAGE>
2.15 Participant
"Participant" means any eligible individual who has elected to defer
Compensation under this Plan.
2.16 Participation Agreement
"Participation Agreement" means the agreement submitted by a Participant
to the Committee prior to the beginning of a Deferral Period, with respect to a
Deferral Commitment made for such Deferral Period.
2.17 Plan
"Plan" means this Executive Deferred Compensation Plan as amended from
time to time.
2.18 Qualified Pension Plan
"Qualified Pension Plan" means Part AA--United States Employees' and
Agents' Pension Benefits Plan for The Great-West Life Assurance Company, or any
successor defined benefit plan maintained by the Employer that qualifies under
Section 401(a) of the Internal Revenue Code.
2.19 Retirement
"Retirement" means a Participant's termination from employment with
Employer on or after the Participant's attainment of age fifty-seven (57) and
the completion of fifteen (15) Years of Service.
2.20 Years of Service
"Years of Service" means the number of years of service determined in
accordance with the provisions of the Qualified Pension Plan, whether or not the
Participant is a Participant in such plan.
ARTICLE III--PARTICIPATION AND DEFERRAL COMMITMENTS
3.1 Eligibility and Participation
(a) Eligibility. Eligibility to participate in the Plan shall be
limited to those key employees of Employer who are designated, from time
to time, by the Board.
(b) Participation. An eligible individual may elect to participate
in the Plan with respect to any Deferral Period by submitting a
Participation Agreement to the Committee by the December 31 immediately
preceding the beginning of the Deferral Period.
(c) Part-Year Participation. When an individual first becomes
eligible to participate during a Deferral Period, a Participation
Agreement may be submitted to the Committee no later than thirty (30)
days after the Committee notifies the individual of eligibility to
participate. Such Participation Agreement will be effective only with
regard to Compensation earned following submission to the Committee.
3.2 Form of Deferral
A Participant may elect Deferral Commitments in the Participation
Agreement as follows:
(a) Salary Deferral Commitment. A salary Deferral Commitment shall
be the salary payable by Employer to a Participant during the Deferral
Period. The amount to be deferred shall be stated as a flat percentage
or as a flat dollar amount.
(b) Bonus Deferral Commitment. A bonus Deferral Commitment shall be
the annual bonuses payable by Employer to a Participant for the Deferral
Period. In no event shall a Participant defer bonuses earned from any
long-term incentive plan which currently exists or may exist in the
future. The amount to be deferred shall be stated as a flat percentage,
as a flat dollar amount of the total bonus amount, or as a flat
percentage above an amount designated by the Participant in the
Participation Agreement.
3.3 Limitations on Deferral Commitments
The following limitations shall apply to Deferral Commitments:
(a) Maximum. The maximum percentage of Compensation deferred shall
be fifty percent (50%) in a salary Deferral Commitment and one hundred
percent (100%) in a bonus Deferral Commitment.
(b) Minimum. The minimum salary deferral amount shall be two hundred
dollars ($200) for each month in the Deferral Period. The minimum bonus
deferral amount shall be five percent (5%) or twenty-four hundred
dollars ($2,400), whichever is greater.
(c) Changes in Minimum or Maximum. The Committee may change the
minimum or maximum deferral amounts from time to time by giving written
notice to all Participants. No such change may affect a Deferral
Commitment made prior to the Committee's action.
3.4 Commitment Limited by Termination
If a Participant terminates employment with Employer or service on the
Board prior to the end of the Deferral Period, the Deferral Period shall end at
the date of termination. The minimum deferral for the Deferral Period shall be
based on the number of months to the date of termination.
3.5 Period of Deferral Commitment; Modification
Once a Participant has made a Deferral Commitment, that Commitment shall
remain in effect for that Deferral Period. Deferral Commitments shall be
irrevocable except that the Committee may reduce the amount to be deferred or
waive the remainder of the Deferral Commitment upon a finding that the
Participant has suffered a Financial Hardship.
3.6 Change in Employment Status
If the Board determines that a Participant's performance is no longer at
a level that deserves reward through participation in the Plan, but does not
terminate the Participant's employment with Employer, no new Deferral
Commitments may be made by such Participant after notice of such determination
is given by the Board.
ARTICLE IV--DEFERRED COMPENSATION ACCOUNT
4.1 Account
The amounts deferred by a Participant under the Plan, any Employer
contributions and Earnings shall be credited to the Participant's Account.
Separate subaccounts may be maintained to reflect different forms of payment.
The Account shall be a bookkeeping device utilized for the sole purpose of
determining the benefits payable under the Plan and shall not constitute a
separate fund of assets. On the effective date of the Plan, each Participant
shall have an Account balance equal to the amounts held for the Participant
pursuant to the Other Plan.
4.2 Timing of Credits; Withholding
A Participant's deferred Compensation shall be credited to the Account
at the time it would have been payable to the Participant. Any withholding of
taxes or other amounts with respect to deferred Compensation that is required by
state, federal or local law shall be withheld from the Participant's
corresponding nondeferred Compensation to the maximum extent possible and any
remaining amount shall reduce the amount credited to the Participant's Account.
4.3 Pension Make-Up
Employer shall restore an amount equal to any reduction in a
Participant's Qualified Pension Plan benefits because of deferrals under this
Plan to the extent that the Qualified Pension Plan benefits are not restored by
any other Employer-provided plan or agreement.
4.4 Discretionary Contributions
Employer may make discretionary contributions to a Participant's
Account. Discretionary contributions shall be credited at such times and in such
amounts as the Board in its sole discretion shall determine.
4.5 Determination of Accounts
Each Participant's Account as of each Determination Date shall consist
of the balance of the Account as of the immediately preceding Determination
Date, adjusted as follows:
(a) New Deferrals. The Account shall be increased by any deferred
Compensation credited since such Determination Date.
(b) Employer Contributions. The Account shall be increased by any
discretionary contributions credited since such Determination Date.
(c) Distributions. The Account shall be reduced by any benefits
distributed to the Participant since such Determination Date.
(d) Earnings. The Account shall be increased by the Earnings on the
average daily balance in the Account since such Determination Date.
4.6 Vesting of Accounts
Each Participant shall be one hundred percent (100%) vested at all times
in the amounts credited to such Participant's Account and Earnings thereon.
4.7 Statement of Accounts
The Committee shall give to each Participant a statement showing the
balances in the Participant's Account on an annual basis and at such times as
may be determined by the Committee.
ARTICLE V--PLAN BENEFITS
5.1 Withdrawals
A Participant's Account may be distributed to the Participant before
termination of employment as follows:
(a) Early Withdrawals. A Participant may elect in a Participation
Agreement to withdraw all or any portion of the amount deferred by that
Participation Agreement as of a date specified in the election. Such
date shall not be sooner than seven (7) years after the date the
Deferral Period commences. The amount withdrawn shall not exceed the
amount of Compensation deferred, without Earnings.
(b) Hardship Withdrawals. Upon a finding that a Participant or a
Beneficiary has suffered a Financial Hardship, the Committee may, in its
sole discretion, make distributions from the Participant's Account. The
amount of such a withdrawal shall be limited to the amount reasonably
necessary to meet the Participant's or Beneficiary's needs resulting
from the Financial Hardship. If payment is made due to Financial
Hardship under this Plan, the Participant's deferrals shall cease for a
twelve (12) month period. Any resumption of the Participant's deferrals
under the Plan after such twelve (12) month period shall be made only at
the election of the Participant in accordance with Article III herein.
(c) Form of Payment. Withdrawals shall be paid in a lump sum and
shall be charged to the Participant's Account as a distribution.
5.2 Retirement and Termination Benefits
If a Participant terminates employment with Employer for any reason
except death, Employer shall pay to the Participant benefits equal to the
balance in the Account.
<PAGE>
5.3 Death Benefit
(a) Preretirement. If a Participant dies while employed by Employer,
Employer shall pay to the Participant's Beneficiary benefits equal to
the balance in the Account.
(b) Postretirement. If a Participant dies following the
Participant's Retirement from the Company, Employer shall pay to the
Participant's Beneficiary benefits equal to the balance, if any, in the
Account.
5.4 Form of Benefits
Except as provided below, benefits due to a Participant as a result of
Retirement, Disability, termination or death shall be paid in the form elected
by the Participant prior to the beginning of the Deferral Period in the Form of
Payment Designation. Forms of benefit payment shall be:
(a) A lump sum amount which is equal to the applicable Account
balance.
(b) Equal monthly installments of the Account amortized over a
period of sixty (60), one hundred twenty (120), or one hundred eighty
(180) months. Earnings on the unpaid balance shall be equal to the
average rate of Earnings on the Account over the thirty-six (36) months
immediately preceding the commencement of benefit payments.
Notwithstanding Section 5.4(b), if the Participant's Account is one
hundred thousand dollars ($100,000) or less on the valuation date, the benefit
shall be paid in a lump sum.
5.5 Accelerated Distribution
Notwithstanding any other provision of the Plan, a Participant at any
time shall be entitled to receive, upon written request to the Committee, a lump
sum distribution equal to ninety percent (90%) of the vested Account balance as
of the Determination Date immediately preceding the date on which the Committee
receives the written request. The remaining balance shall be forfeited by the
Participant and the Participant shall no longer be eligible to participate in
the Plan from that date forward. The amount payable under this section shall be
paid in a lump sum within sixty-five (65) days following the receipt of the
notice by the Committee from the Participant.
5.6 Withholding; Payroll Taxes
Employer shall withhold from payments hereunder any taxes required to be
withheld from such payments under federal, state or local law. A Beneficiary,
however, may elect not to have withholding of federal income tax pursuant to
Section 3405(a)(2) of the Internal Revenue Code, or any successor provision
thereto.
5.7 Valuation
The last day of the month following the month of retirement, termination
or death shall be the valuation date. The amount of all payments shall be based
on the value of the Participant's Account on the valuation date. Payments shall
be made or commence within thirty-one (31) days after the valuation date.
5.8 Payment to Guardian
If a distribution is payable to a minor or a person declared incompetent
or to a person incapable of handling the disposition of property, the Committee
may direct payment to the guardian, legal representative or person having the
care and custody of such minor, incompetent or person. The Committee may require
proof of incompetency, minority, incapacity or guardianship as it may deem
appropriate prior to distribution. Such distribution shall completely discharge
the Committee from all liability with respect to such benefit.
ARTICLE VI--BENEFICIARY DESIGNATION
6.1 Beneficiary Designation
Each Participant shall have the right, at any time, to designate one (1)
or more persons or an entity as Beneficiary (both primary as well as secondary)
to whom benefits under this Plan shall be paid in the event of a Participant's
death prior to complete distribution of the Participant's Account. Each
Beneficiary designation shall be in a written form prescribed by the Committee
and will be effective only when filed with the Committee during the
Participant's lifetime. Designation by a married Participant of a Beneficiary
other than the Participant's spouse shall not be effective unless the spouse
executes a written consent that acknowledges the effect of the designation and
is witnessed by a notary public, or the consent cannot be obtained because the
spouse cannot be located.
6.2 Amendments
Except as provided below, any nonspousal designation of Beneficiary may
be changed by a Participant without the consent of such Beneficiary by the
filing of a new designation with the Committee. The filing of a new designation
shall cancel all designations previously filed.
6.3 Change in Marital Status
If the Participant's marital status changes after the Participant has
designated a Beneficiary, the following shall apply:
(a) If the Participant is married at death but was unmarried when
the designation was made, the designation shall be void unless the
spouse has consented to it in the manner prescribed above.
(b) If the Participant is unmarried at death but was married when
the designation was made:
(i) The designation shall be void if the spouse was named as
Beneficiary.
(ii) The designation shall remain valid if a nonspouse
Beneficiary was named.
(c) If the Participant was married when the designation was made and
is married to a different spouse at death, the designation shall be void
unless the new spouse has consented to it in the manner prescribed
above.
6.4 No Beneficiary Designation
If any Participant fails to designate a Beneficiary in the manner
provided above, or if the Beneficiary designated by a deceased Participant dies
before the Participant or before complete distribution of the Participant's
benefits, the Participant's Beneficiary shall be the person in the first of the
following classes in which there is a survivor:
(a) The Participant's surviving spouse;
(b) The Participant's children in equal shares, except that if any
of the children predeceases the Participant but leaves issue surviving,
then such issue shall take by right of representation the share the
parent would have taken if living;
(c) The Participant's estate.
ARTICLE VII--ADMINISTRATION
7.1 Committee; Duties
This Plan shall be administered by the Committee. The Committee shall
have the authority to make, amend, interpret and enforce all appropriate rules
and regulations for the administration of the Plan and decide or resolve any and
all questions, including interpretations of the Plan, as may arise in such
administration. A majority vote of the Committee members shall control any
decision. Members of the Committee may be Participants under this Plan.
7.2 Agents
The Committee may, from time to time, employ agents and delegate to them
such administrative duties as it sees fit, and may from time to time consult
with counsel who may be counsel to the Company.
7.3 Binding Effect of Decisions
The decision or action of the Committee with respect to any question
arising out of or in connection with the administration, interpretation and
application of the Plan and the rules and regulations promulgated hereunder
shall be final, conclusive and binding upon all persons having any interest in
the Plan.
7.4 Indemnity of Committee
The Company shall indemnify and hold harmless the members of the
Committee against any and all claims, loss, damage, expense or liability arising
from any action or failure to act with respect to this Plan on account of such
person's service on the Committee, except in the case of gross negligence or
willful misconduct.
<PAGE>
ARTICLE VIII--CLAIMS PROCEDURE
8.1 Claim
Any person claiming a benefit, requesting an interpretation or ruling
under the Plan, or requesting information under the Plan shall present the
request in writing to the Committee, which shall respond in writing as soon as
practicable.
8.2 Denial of Claim
If the claim or request is denied, the written notice of denial shall
state:
(a) The reasons for denial, with specific reference to the Plan
provisions on which the denial is based.
(b) A description of any additional material or information required
and an explanation of why it is necessary.
(c) An explanation of the Plan's claim review procedure.
8.3 Review of Claim
Any person whose claim or request is denied or who has not received a
response within thirty (30) days may request review by notice given in writing
to the Committee. The claim or request shall be reviewed by the Committee which
may, but shall not be required to, grant the claimant a hearing. On review, the
claimant may have representation, examine pertinent documents, and submit issues
and comments in writing.
8.4 Final Decision
The decision on review shall normally be made within sixty (60) days. If
an extension of time is required for a hearing or other special circumstances,
the claimant shall be notified and the time limit shall be one hundred twenty
(120) days. The decision shall be in writing and shall state the reasons and the
relevant Plan provisions. All decisions on review shall be final and bind all
parties concerned.
ARTICLE IX--AMENDMENT AND TERMINATION OF PLAN
9.1 Amendment
The Board may at any time amend the Plan by written instrument, notice
of which shall be given to all Participants and to Beneficiaries receiving
installment payments, subject to the following:
(a) Preservation of Account Balance. No amendment shall reduce the
amount accrued in any Account to the date such notice of the amendment
is given.
(b) Changes in Earnings Rate. No amendment shall reduce the rate of
Earnings to be credited, after the date of the amendment, to the amount
already accrued in any Account and any deferred Compensation credited to
the Account under Deferral Commitments already in effect on that date.
9.2 Employer's Right to Terminate
The Board may at any time partially or completely terminate the Plan if,
in its judgment, the tax, accounting or other effects of the continuance of the
Plan, or potential payments thereunder would not be in the best interests of
Employer.
(a) Partial Termination. The Board may partially terminate the Plan
by instructing the Committee not to accept any additional Deferral
Commitments. If such a partial termination occurs, the Plan shall
continue to operate and be effective with regard to Deferral Commitments
entered into prior to the effective date of such partial termination.
(b) Complete Termination. The Board may completely terminate the
Plan by instructing the Committee not to accept any additional Deferral
Commitments, and by terminating all ongoing Deferral Commitments. If
such a complete termination occurs, the Plan shall cease to operate and
Employer shall pay out each Account. Payment shall be made as a lump sum
or in equal monthly installments over the following period, based on the
Account balance:
Account Balance Payout Period
------------------------------------------------------------
Less than $100,000 Lump Sum
$100,000 but less than $500,000 3 Years
$500,000 or more 5 Years
============================================================
Earnings at the appropriate rate shall continue to be credited on the
unpaid balance in each Account.
ARTICLE X--MISCELLANEOUS
10.1 Unfunded Plan
This plan is an unfunded plan maintained primarily to provide deferred
compensation benefits for a select group of "management or highly-compensated
employees" within the meaning of Sections 201, 301 and 401 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and therefore is
exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. Accordingly,
the Board may terminate the Plan and make no further benefit payments or remove
certain employees as Participants if it is determined by the United States
Department of Labor, a court of competent jurisdiction, or an opinion of counsel
that the Plan constitutes an employee pension benefit plan within the meaning of
Section 3(2) of ERISA (as currently in effect or hereafter amended) which is not
so exempt.
10.2 Unsecured General Creditor
Participants and their Beneficiaries, heirs, successors, and assigns
shall have no secured legal or equitable rights, interest or claims in any
property or assets of Employer, nor shall they be Beneficiaries of, or have any
rights, claims or interests in any life insurance policies, annuity contracts or
the proceeds therefrom owned or which may be acquired by Employer. Except as
provided in Section 10.3, such policies, annuity contracts or other assets of
Employer shall not be held under any trust for the benefit of Participants,
their Beneficiaries, heirs, successors or assigns, or held in any way as
collateral security for the fulfilling of the obligations of Employer under this
Plan. Any and all of Employer's assets and policies shall be, and remain, the
general, unpledged, unrestricted assets of Employer. Employer's obligation under
the Plan shall be that of an unfunded and unsecured promise to pay money in the
future.
10.3 Trust Fund
At its discretion, Employer may establish one (1) or more trusts, with
such trustees as the Board may approve, for the purpose of providing for the
payment of benefits owed under the Plan. Although such a trust shall be
irrevocable, its assets shall be held for payment of all Employer's general
creditors in the event of insolvency. To the extent any benefits provided under
the Plan are paid from any such trust, Employer shall have no further obligation
to pay them. If not paid from the trust, such benefits shall remain the
obligation of Employer.
10.4 Nonassignability
Neither a Participant nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise
encumber, transfer, hypothecate or convey in advance of actual receipt the
amounts, if any, payable hereunder, or any part thereof, which are, and all
rights to which are, expressly declared to be unassignable and nontransferable.
No part of the amounts payable shall, prior to actual payment, be subject to
seizure or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency.
10.5 Not a Contract of Employment
This Plan shall not constitute a contract of employment between Employer
and the Participant. Nothing in this Plan shall give a Participant the right to
be retained in the service of Employer or to interfere with the right of
Employer to discipline or discharge a Participant at any time.
10.6 Protective Provisions
A Participant will cooperate with Employer by furnishing any and all
information requested by Employer, in order to facilitate the payment of
benefits hereunder, and by taking such physical examinations as Employer may
deem necessary and taking such other action as may be requested by Employer.
10.7 Governing Law
The provisions of this Plan shall be construed and interpreted according
to the laws of the State of Colorado, except as preempted by federal law.
10.8 Validity
In case any provision of this Plan shall be held illegal or invalid for
any reason, said illegality or invalidity shall not affect the remaining parts
hereof, but this Plan shall be construed and enforced as if such illegal and
invalid provision had never been inserted herein.
<PAGE>
10.9 Notice
Any notice required or permitted under the Plan shall be sufficient if
in writing and hand delivered or sent by registered or certified mail. Such
notice shall be deemed as given as of the date of delivery or, if delivery is
made by mail, as of the date shown on the postmark on the receipt for
registration or certification. Mailed notice to the Committee shall be directed
to the Company's address. Mailed notice to a Participant or Beneficiary shall be
directed to the individual's last known address in Employer's records.
10.10 Successors
The provisions of this Plan shall bind and inure to the benefit of
Employer and its successors and assigns. The term successors as used herein
shall include any corporate or other business entity which shall, whether by
merger, consolidation, purchase or otherwise acquire all or substantially all of
the business and assets of Employer, and successors of any such corporation or
other business entity.
EXHIBIT 21
SUBSIDIARIES OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<PAGE>
SUBSIDIARIES OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
JURISDICTION OF INCORPORATION OR
ORGANIZATION
SUBSIDIARY
Benefits Communication Corporation (1) Delaware
BenefitsCorp Equities, Inc. Delaware
Confed Admin Services, Inc. Delaware
Financial Administrative Services Corporation (2) Colorado
First Great-West Life & Annuity Insurance Company New York
Great-West Benefit Services, Inc. Delaware
Great-West Realty Investments, Inc. Delaware
Greenwood Property Corporation Colorado
GW Capital Management, LLC Colorado
GWL Properties, Inc. Colorado
Maxim Series Fund, Inc. Maryland
One Corporation Colorado
One Health Plan of Arizona, Inc. Arizona
One Health Plan of California, Inc. California
One Health Plan of Colorado, Inc. Colorado
One Health Plan of Florida, Inc. Florida
One Health Plan of Georgia, Inc. Georgia
One Health Plan of Illinois, Inc. Illinois
One Health Plan of Indiana, Inc. Indiana
One Health Plan of Massachusetts, Inc. Massachusetts
One Health Plan of North Carolina, Inc. North Carolina
One Health Plan of Ohio, Inc. Ohio
One Health Plan of Oregon, Inc. Oregon
One Health Plan of Tennessee, Inc. Tennessee
One Health Plan of Texas, Inc. Texas
One Health Plan of Washington, Inc. Washington
One Orchard Equities, Inc. Colorado
Orchard Capital Management, LLC Colorado
Orchard Series Fund Delaware
(1) Also doing business as Benefits Insurance Services, Inc.
(2) Also doing business as Financial Administrative Services Corporation of
Colorado.
<PAGE>
EXHIBIT 24
DIRECTORS' POWERS OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, Andre Desmarais, a Member of the Board
of Directors of Great-West Life & Annuity Insurance Company, a Colorado
corporation, do hereby constitute and appoint each of D.C. Lennox and G.R.
Derback as my true and lawful attorney and agent for me and in my name and on my
behalf to, individually and without the concurrence of the other attorney and
agent, sign my name, in my capacity as a Member of the Board of Directors of
Great-West Life & Annuity Insurance Company, on Form 10-K Annual Reports of
Great-West Life & Annuity Insurance Company to be filed with the Securities and
Exchange Commission from time to time, and to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of March, 1998.
/s/ Andre Desmarais
Member, Board of Directors of
Great-West Life & Annuity Insurance
Company
Witness:
/s/ Lisa Gagnon
Signature
Lisa Gagnon
Name Printed
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, Robert G. Graham, a Member of the Board
of Directors of Great-West Life & Annuity Insurance Company, a Colorado
corporation, do hereby constitute and appoint each of D.C. Lennox and G.R.
Derback as my true and lawful attorney and agent for me and in my name and on my
behalf to, individually and without the concurrence of the other attorney and
agent, sign my name, in my capacity as a Member of the Board of Directors of
Great-West Life & Annuity Insurance Company, on Form 10-K Annual Reports of
Great-West Life & Annuity Insurance Company to be filed with the Securities and
Exchange Commission from time to time, and to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March, 1997.
/s/ R.G. Graham
Member, Board of Directors of
Great-West Life & Annuity Insurance Company
Witness:
/s/ Robin Graham
Signature
Robin Graham
Name Printed
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EXHIBIT 27
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