Schwab Select Annuity(R)
A flexible premium deferred variable and fixed annuity contract
Distributed by
Charles Schwab & Co., Inc.
Issued by
Great-West Life & Annuity Insurance Company
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Overview
This Prospectus describes the Schwab Select Annuity--a flexible premium deferred
annuity contract which allows you to accumulate assets on a tax-deferred basis
for retirement or other long-term purposes. This Contract is issued either on a
group basis or as individual contracts by Great-West Life & Annuity Insurance
Company ("we, us, Great-West or GWL&A"). Both will be referred to as the
"Contract" throughout this Prospectus.
How to Invest
The minimum initial investment (a "Contribution") is:
o $5,000
o $2,000 if an Individual Retirement Account ("IRA")
o $1,000 if subsequent Contributions are made via Automatic Contribution Plan
The minimum subsequent Contribution is:
o $500 per Contribution
o $100 per Contribution if made via Automatic Contribution Plan
Allocating Your Money
When you contribute money to the Schwab Select Annuity, you can allocate it
among the Sub-Accounts of the Variable Annuity-1 Series Account, (the
"Series Account") which invest in the following Portfolios:
o Alger American Growth Portfolio - Class O Shares
o American Century VP International Fund - Original Class Shares
o Baron Capital Asset Fund: Insurance Shares
o Berger IPT-Small Company Growth Fund
o Dreyfus Variable Investment Fund Appreciation Portfolio - Initial Shares
o Dreyfus Variable Investment Fund Growth and Income Portfolio - Initial Shares
o Federated American Leaders Fund II - Primary Shares
o Federated Fund for U.S. Government Securities II
o Federated Utility Fund II
o INVESCO VIF-Core Equity Fund (formerly INVESCO VIF-Equity Income Fund)
o INVESCO VIF-High Yield Fund
o INVESCO VIF-Technology Fund
o Janus Aspen Series Flexible Income Portfolio - Institutional Shares
o Janus Aspen Series Growth Portfolio - Institutional Shares
o Janus Aspen Series International Growth Portfolio - Institutional Shares
o Janus Aspen Series Worldwide Growth Portfolio - Institutional Shares
o Montgomery Variable Series: Growth Fund
o Prudential Series Fund Equity Class II Portfolio
o SAFECO Resource Series Trust Equity Portfolio
o SAFECO Resource Series Trust Growth Opportunities Portfolio
o Schwab MarketTrack Growth Portfolio II
o Schwab Money Market Portfolio
o Schwab S&P 500 Portfolio
o Scudder Variable Series I
Capital Growth Portfolio - Class A Shares
o Scudder Variable Series I Growth and Income Portfolio - Class A Shares
o Scudder VIT EAFE(R) Equity Index Fund - Class A Shares (formerly Deutsche
Asset Management VIT EAFE(R) Equity Index Fund)
o Scudder VIT Small Cap Index Fund - Class A Shares (formerly Deutsche Asset
Management VIT Small Cap Index Fund)
o Strong Multi Cap Value Fund II
o Van Kampen Universal Institutional Funds U.S. Real Estate Portfolio (formerly
the Morgan Stanley Universal Institutional Fund U.S. Real Estate Portfolio)
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense. No person is authorized by Great-West to give information or
to make any representation, other than those contained in this Prospectus, in
connection with the Contracts contained in this Prospectus. This Prospectus does
not constitute an offering in any jurisdiction in which such offering may not
lawfully be made. Please read this Prospectus and keep it for future reference.
May 1, 2002
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You can also allocate some or all of the money you contribute to the Guarantee
Period Fund. The Guarantee Period Fund allows you to select one or more
Guarantee Periods that offer specific interest rates for a specific period.
Please note that the Guarantee Period Fund may not be available in all states.
However, your Guarantee Period Fund may be subject to a Market Value Adjustment
which may increase or decrease the amount Transferred or withdrawn from the
value of a Guarantee Period if the Guarantee Period is broken prior to the
Guarantee Period Maturity Date. A negative adjustment may result in an effective
interest rate lower than the Guaranteed Interest Rate and the value of the
Contribution(s) allocated to the Guarantee Period being less than the
Contribution(s) made.
Sales and Surrender Charges
There are no sales, redemption, surrender or withdrawal charges under the Schwab
Select Annuity.
Free Look Period
After you receive your Contract, you can look it over free of obligation for at
least 10 days or longer if required by your state law (up to 35 days for
replacement policies), during which you may cancel your Contract.
Payout Options
The Schwab Select Annuity offers a variety of annuity payout and periodic
withdrawal options. Depending on the option you select, income can be guaranteed
for your lifetime, your spouse's and/or beneficiaries' lifetime or for a
specified period of time.
The Contracts are not deposits of, or guaranteed or endorsed by, any bank, nor
are the Contracts federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency. The
Contracts involve certain investment risks, including possible loss of
principal. See "Breaking a Guarantee Period" and "Market Value Adjustment" on
page 15 and page 16.
This Prospectus does not constitute an offering in any jurisdiction in which
such offering may not lawfully be made. No dealer, salesperson or other person
is authorized to give any information or make any representations in connection
with the Contracts other than those contained in this Prospectus, and, if given
or made, such other information or representations must not be relied on.
This Contract is not available in all states.
For account information, please contact:
Annuity Administration Department
P.O. Box 173920
Denver, Colorado 80217-3920
800-838-0650
This Prospectus presents important information you should review before
purchasing the Schwab Select Annuity. Please read it carefully and keep it for
future reference. You can find more detailed information pertaining to the
Contract in the Statement of Additional Information dated May 1, 2002 (as may be
amended from time to time), and filed with the Securities and Exchange
Commission ("SEC"). The Statement of Additional Information is incorporated by
reference into this Prospectus and is legally a part of this Prospectus. The
table of contents for the Statement of Additional Information may be found on
page 34 of this Prospectus. You may obtain a copy without charge by contacting
the Annuity Administration Department at the above address or phone number. Or,
you can obtain it by visiting the SEC's Internet web site (http://www.sec.gov).
This web site also contains material incorporated by reference and other
information about us and other registrants that file electronically.
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Table of Contents
Definitions....................................4
Summary........................................6
How to contact Schwab........................6
Variable Annuity Fee Table.....................7
Portfolio Annual Expenses......................8
Fee Examples...................................9
Condensed Financial Information...............10
Great-West Life & Annuity Insurance
Company.......................................10
The Series Account............................10
The Portfolios................................10
Meeting Investment Objectives...............14
Where to Find More Information About the
Portfolios..................................14
Addition, Deletion or Substitution..........14
The Guarantee Period Fund.....................14
Investments of the Guarantee Period Fund....15
Subsequent Guarantee Periods................15
Breaking a Guarantee Period...................15
Interest Rates..............................15
Market Value Adjustment.....................16
Application and Initial Contributions.........16
Free Look Period..............................16
Subsequent Contributions......................16
Annuity Account Value.........................27
Transfers.....................................17
Possible Restrictions.......................28
Automatic Custom Transfers..................18
Cash Withdrawals..............................19
Withdrawals to Pay Investment Manager or
Financial Advisor Fees......................20
Tax Consequences of Withdrawals.............20
Telephone and Internet Transactions...........20
Death Benefit.................................20
Beneficiary.................................21
Distribution of Death Benefit...............21
Charges and Deductions........................22
Mortality and Expense Risk Charge...........22
Contract Maintenance Charge.................23
Transfer Fees...............................23
Expenses of the Portfolios..................23
Premium Tax.................................23
Other Taxes...................................23
Payout Options................................23
Periodic Withdrawals........................23
Annuity Payouts.............................24
Seek Tax Advice...............................26
Federal Tax Matters...........................26
Taxation of Annuities.......................27
Individual Retirement Annuities.............29
Assignments or Pledges........................29
Performance Data..............................30
Money Market Yield..........................30
Average Annual Total Return.................30
Distribution of the Contracts.................32
Voting Rights.................................32
Rights Reserved by Great-West.................33
Legal Proceedings.............................33
Legal Matters.................................33
Experts.......................................33
Incorporation of Certain Documents by
Reference and Available Information...........33
Table of Contents of Statement of Additional
Information...................................34
Appendix A--Condensed Financial
Information...................................35
Appendix B--Market Value Adjustments..........39
Appendix C--Net Investment Factor.............41
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Definitions
1035 Exchange--A provision of the Internal Revenue Code of 1986, as amended (the
"Code") that allows for the tax-free exchange of certain types of insurance
contracts.
Accumulation Period--The time period between the Effective Date and the Annuity
Commencement Date. During this period, you're contributing to the annuity.
Annuitant--The person named in the application upon whose life the payout of an
annuity is based and who will receive annuity payouts. If a Contingent Annuitant
is named, the Annuitant will be considered the Primary Annuitant.
Annuity Account--An account established by us in your name that reflects all
account activity under your Contract. Annuity Account Value--The sum of all the
investment options credited to your Annuity Account--less partial withdrawals,
amounts applied to an annuity payout option, periodic withdrawals, charges
deducted under the Contract, and Premium Tax, if any.
Annuity Commencement Date--The date annuity payouts begin.
Annuity Individual Retirement Account (or Annuity IRA)--An annuity contract used
in a retirement savings program that is intended to satisfy the requirements of
Section 408 of the Code.
Annuity Payout Period--The period beginning on the Annuity Commencement Date and
continuing until all annuity payouts have been made under the Contract. During
this period, the Annuitant receives payouts from the annuity.
Annuity Unit--An accounting measure we use to determine the amount of any
variable annuity payout after the first annuity payout is made.
Automatic Contribution Plan--A feature which allows you to make automatic
periodic Contributions. Contributions will be withdrawn from an account you
specify and automatically credited to your Annuity Account.
Beneficiary--The person(s) designated to receive any Death Benefit under the
terms of the Contract.
Contingent Annuitant--The person you may name in the application who becomes the
Annuitant when the Primary Annuitant dies. The Contingent Annuitant must be
designated before the death of the Primary Annuitant.
Contributions--The amount of money you invest or deposit into your annuity.
Death Benefit--The amount payable to the Beneficiary when the Owner or the
Annuitant dies.
Distribution Period--The period starting with your Payout Commencement Date.
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Schwab Select Annuity Structure
Your total Annuity Account can be made up of a variable and a fixed account.
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Effective Date--The date on which the first Contribution is credited to your
Annuity Account.
Fixed Account Value--The value of the fixed investment option credited to you
under the Annuity Account.
Guarantee Period--The number of years available in the Guarantee Period Fund
during which Great-West will credit a stated rate of interest. Great-West may
discontinue offering a period at any time for new Contributions. Amounts
allocated to one or more guaranteed periods may be subject to a Market Value
Adjustment.
Guarantee Period Fund--A fixed investment option which pays a stated rate of
interest for a specified time period.
Guarantee Period Maturity Date--The last day of any Guarantee Period.
Guaranteed Interest Rate--The minimum annual interest rate in effect that
applies to each Guarantee Period at the time the Contribution is made.
Market Value Adjustment (or MVA)--An amount added to or subtracted from certain
transactions involving the Guarantee Period Fund to reflect the impact of
changing interest rates.
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Non-Qualified Annuity Contract--An annuity contract funded with money outside a
tax qualified retirement plan.
Owner (Joint Owner) or You--The person(s) named in the application who is
entitled to exercise all rights and privileges under the Contract, while the
Annuitant is living. Joint Owners must be husband and wife as of the date the
Contract is issued. The Annuitant will be the Owner unless otherwise indicated
in the application. If a Contract is purchased in connection with an IRA, the
Owner and the Annuitant must be the same individual and a Joint Owner is not
allowed.
Payout Commencement Date--The date on which annuity payouts or periodic
withdrawals begin under a payout option. The Payout Commencement Date must be at
least one year after the Effective Date of the Contract. If you do not indicate
a Payout Commencement Date on your application, annuity payouts will begin on
the first day of the month of the Annuitant's 91st birthday.
Portfolio--A registered management investment company, or portfolio thereof, in
which the assets of the Annuity Account may be invested.
Premium Tax--A tax charged by a state or other governmental authority. Varying
by state, the current range of Premium Taxes is 0% to 3.5% and may be assessed
at the time you make a Contribution or when annuity payments begin.
Request--Any written, telephoned, or computerized instruction in a form
satisfactory to Great-West and Schwab received at the Annuity Administration
Department at Great-West (or other annuity service center subsequently named)
from you, your designee (as specified in a form acceptable to Great-West and
Schwab) or the Beneficiary (as applicable) as required by any provision of the
Contract.
Series Account--The segregated asset account established by Great-West under
Colorado law and registered as a unit investment trust under the Investment
Company Act of 1940, as amended (the "1940 Act").
Sub-Account--A division of the Series Account containing the shares of a
Portfolio. There is a Sub-Account for each Portfolio.
Surrender Value--The value of your Annuity Account with any applicable Market
Value Adjustment on the Effective Date of the surrender, less Premium Tax, if
any.
Transaction Date--The date on which any Contribution or Request from you will be
processed. Contributions and Requests received after 4:00 p.m. Eastern time will
be deemed to have been received on the next business day. Requests will be
processed and the Variable Account Value will be determined on each day that the
New York Stock Exchange ("NYSE") is open for trading.
Transfer--Moving money from and among the Sub-Account(s) and the Guarantee
Period Fund.
Variable Account Value--The value of the Sub-Accounts credited to you under the
Annuity Account.
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Summary
The Schwab Select Annuity allows you to accumulate assets on a tax-deferred
basis by investing in a variety of variable investment options (the
Sub-Accounts) and a fixed investment option (the Guarantee Period Fund). The
performance of your Annuity Account will vary with the investment performance of
the Portfolios corresponding to the Sub-Accounts you select. You bear the entire
investment risk for all amounts invested in them. Depending on the performance
of the Sub-Accounts you select, your Variable Account Value could be less than
the total amount of your Contributions.
Further, the Guarantee Period Fund may be subject to a Market Value Adjustment
which may increase or decrease the amount Transferred or withdrawn from the
value of a Guarantee Period if the Guarantee Period is broken prior to the
Guarantee Period Maturity Date. A negative adjustment may result in an effective
interest rate lower than the Guaranteed Interest Rate and the value of the
Contribution(s) allocated to a Guarantee Period being less than the
Contribution(s) made.
The Schwab Select Annuity can be purchased on a non-qualified basis or purchased
and used in connection with an IRA. You can also purchase it through a 1035
Exchange from another insurance contract.
Tax deferral under IRAs arises under the Code. Tax deferral under non-qualified
contracts arises under the Contract.
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How to contact Schwab:
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Schwab Insurance Services
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101 Montgomery Street
San Francisco, CA 94104
Attention: Insurance & Annuities Department
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800-838-0650
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Your initial Contribution must be at least $5,000; $2,000 if an IRA; $1,000 if
you are setting up an Automatic Contribution Plan. Subsequent Contributions must
be either $500; or $100 if made through an Automatic Contribution Plan.
The money you contribute to the Contract will be invested at your direction,
except that in some states during your "free look period" your payment will be
allocated to the Schwab Money Market Sub-Account. The duration of your free look
period depends on your state law and is generally 10 days after you receive your
Contract. Free look allocations are described in more detail on page 16 of this
Prospectus.
Prior to the Payout Commencement Date, you can withdraw all or a part of your
Annuity Account Value. There are no surrender or withdrawal charges. Certain
withdrawals may be subject to federal income tax as well as a federal penalty
tax.
When you're ready to start taking money out of your Contract, you can select
from a variety of payout options, including variable and fixed annuity payouts
as well as periodic withdrawals.
If the Annuitant dies before the Annuity Commencement Date, we will pay the
Death Benefit to the Beneficiary you select. If the Owner dies before the entire
value of the Contract is distributed, the remaining value will be distributed
according to the rules outlined in the "Death Benefit" section on page 20.
For accounts under $50,000 as of each Contract anniversary date, we deduct a $25
annual Contract Maintenance Charge from the Annuity Account Value on each such
Contract anniversary date. There is no annual Contract Maintenance Charge for
accounts of $50,000 or more. We also deduct a Mortality and Expense Risk Charge
from your Sub-Accounts at the end of each daily valuation period equal to an
effective annual rate of 0.85% of the value of the net assets in your
Sub-Accounts. Each Portfolio assesses a charge for management fees and other
expenses. These fees and expenses are detailed in this Prospectus.
You may cancel your Contract during the free look period by sending it to the
Annuity Administration Department at Great-West. If you are replacing an
existing insurance contract with the Contract, the free look period may be
extended based on your state of residence. Free look allocations are
described in more detail on page 16 of this Prospectus.
This summary highlights some of the more significant aspects of the Schwab
Select Annuity. You'll find more detailed information about these topics
throughout the Prospectus and in your Contract. Please keep them both for future
reference.
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Variable Annuity Fee Table
The purpose of the tables and the examples that follow is to help you understand
the various costs and expenses that you will bear directly or indirectly when
investing in the Contract. The tables and examples reflect expenses related to
the Sub-Accounts as well as of the Portfolios. In addition to the expenses
listed below, Premium Tax, if applicable, may be imposed.
Contract Owner Transaction Expenses(1)
Sales load None
Surrender fee None
Annual Contract Maintenance Charge(2) $25.00
Transfer fee $10.00
(no transfer fee is charged for the first
12 transfers in any calendar year)
Separate Account Annual Expenses(1)
(as a percentage of average Variable Account
Value)
Mortality and expense risk charge 0.85%
Administrative expense charge 0.00%
Other fees and expenses of the Variable Account 0.00%
Total Separate Account Annual Expenses 0.85%
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(1)The Contract Owner Transaction Expenses apply to each Contract,
regardless of how the Annuity Account Value is allocated. The Separate Account
Annual Expenses do not apply to the Guarantee Period Fund.
(2)The Contract Maintenance Charge is currently waived for Contracts with
an Annuity Account Value of at least $50,000 as of the applicable Contract
anniversary date. If your Annuity Account Value falls below $50,000, the
Contract Maintenance Charge will be reinstated until such time as your Annuity
Account Value is equal to or greater than $50,000.
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Portfolio Annual Expenses
Portfolio Annual Expenses(1)
(as a percentage of Portfolio average net assets, before and after fee waivers
and expense reimbursements as of December 31, 2001)
Portfolio Management Other 12b-1 fees Total Total Fee Total
fees expenses Portfolio Waivers Portfolio
Expenses expenses
before after
fee fee
waivers waivers
Alger American Growth 0.75% 0.06% None 0.81% N/A 0.81%
American Century VP International(2) 1.26% N/A None 1.26% N/A 1.26%
Baron Capital Asset(3) 1.00% 0.34% 0.25% 1.59% 0.09% 1.50%
Berger IPT-Small Company Growth 0.85% 0.13% None 0.98% N/A 0.98%
Dreyfus Variable Investment Fund: 0.75% 0.03% None 0.78% N/A 0.78%
Appreciation
Dreyfus Variable Investment Fund: 0.75% 0.05% None 0.80% N/A 0.80%
Growth and Income
Federated American Leaders Fund II(4) 0.75% 0.12% None 0.87% N/A 0.87%
Federated Fund for U.S. Government 0.60% 0.14% None 0.74% N/A 0.74%
Securities II(4)
Federated Utility Fund II(4) 0.75% 0.17% None 0.92% N/A 0.92%
INVESCO VIF-Core Equity(5) 0.75% 0.34% None 1.09% N/A 1.09%
INVESCO VIF-High Yield(5) 0.60% 0.42% None 1.02% N/A 1.02%
INVESCO VIF- Technology(5) 0.75% 0.32% None 1.07% N/A 1.07%
Janus Aspen Series Flexible Income 0.64% 0.03% None 0.67% N/A 0.67%
Janus Aspen Series Growth 0.65% 0.01% None 0.66% N/A 0.66%
Janus Aspen Series International Growth 0.65% 0.06% None 0.71% N/A 0.71%
Janus Aspen Series Worldwide Growth 0.65% 0.04% None 0.69% N/A 0.69%
Montgomery Variable Series: Growth 1.00% 1.29% None 2.29% 1.04% 1.25%
Prudential Series Fund Equity Class II 0.45% 0.19% 0.25% 0.89% N/A 0.89%
SAFECO RST Equity 0.74% 0.04% None 0.78% N/A 0.78%
SAFECO RST Growth Opportunities 0.74% 0.04% None 0.78% N/A 0.78%
Schwab MarketTrack Growth II(6) 0.55% 0.23% None 0.78% 0.28% 0.50%
Schwab Money Market(6) 0.48% 0.04% None 0.52% 0.02% 0.50%
Schwab S&P 500(6) 0.20% 0.10% None 0.30% 0.02% 0.28%
Scudder Variable Series I Capital 0.46% 0.04% None 0.50% N/A 0.50%
Growth
Scudder Variable Series I 0.48% 0.08% None 0.56% N/A 0.56%
Growth and Income
Scudder VIT EAFE(R)Equity Index(7) 0.45% 0.36% None 0.81% 0.16% 0.65%
Scudder VIT Small Cap Index(7) 0.35% 0.28% None 0.63% 0.18% 0.45%
Strong Multi Cap Value II 0.75% 0.55% None 1.30% 0.10% 1.20%
Van Kampen Universal Institutional 0.80% 0.35% None 1.15% 0.05% 1.10%
Funds U.S. Real Estate(8)
(1) The expenses shown for all Portfolios are for the fiscal year ended December
31, 2001. Current or future expenses may be greater or less than those
presented.
(2) For the American Century VP International Fund, there is a stepped fee
schedule. As a result, the Fund's management fee rate generally decreases as the
Fund assets increase.
(3) For the Baron Capital Asset Fund, the Fund's advisor is contractually
obligated to reduce its fee to the extent required to limit the Fund's total
operating expenses to 1.50% for the first $250 million of assets in the Fund,
1.35% for Fund assets over $250 million and 1.25% for fund assets over $500
million. Without the expense limitations, total operating expenses for the Fund
for the period January 1, 2001, through December 31, 2001, would have been
1.59%.
(4)For the Federated American Leaders Fund II, Federated Fund for U.S.
Government Securities II and the Federated Utility Fund II, the maximum
shareholder services fee is 0.25%. The Funds did not pay or accrue the
shareholder services fee during the fiscal year ended December 31, 2001. The
Funds have no present intention of paying or accruing the shareholder services
fee during the fiscal year ending December 31, 2002.
(5) For the INVESCO VIF-High Yield, INVESCO VIF-Core Equity and INVESCO
VIF-Technology Funds, Other Expenses were lower than the figures shown, because
their custodian fees were reduced under an expense offset arrangement. For the
INVESCO VIF-Technology Fund, certain expenses were absorbed voluntarily by
INVESCO pursuant to an agreement between the Fund and INVESCO. This commitment
may be changed at any time following consultation with the board of directors.
After absorption, the INVESCO VIF-Technology Fund's Other Expenses for the
fiscal year ended December 31, 2001 were insignificant.
(6) For the Schwab MarketTrack Growth II, Schwab Money Market and Schwab S&P 500
Portfolios, the total Portfolio expenses after fee waivers is guaranteed by
Schwab and the investment adviser through April 30, 2003.
(7) For the Scudder VIT EAFE Equity Index and Scudder VIT Small Cap Index Funds,
the investment adviser, Deutsche Asset Management, Inc., has voluntarily agreed
to waive a portion of its management fee and reimburse certain expenses. These
waivers and reimbursements may be discontinued at any time.
(8) For the Van Kampen Universal Institutional Funds U.S. Real Estate Portfolio,
the management fee has been reduced to reflect a voluntary waiver of the
management fee to the extent total operating expenses exceed 1.10%.
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Fee Examples(1)
If you retain, annuitize or surrender the Contract at the end of the applicable
time period, you would pay the following fees and expenses on a $1,000
investment, assuming a 5% annual return on assets. These examples assume that no
Premium Taxes have been assessed and are based on total Portfolio expenses after
taking fee waivers and reimbursements into account. These examples assume that
such fee waivers and reimbursements will continue for the periods shown.
PORTFOLIO 1 year 3 years 5 years 10 years
Alger American Growth $17 $57 $102 $250
American Century VP International $22 $71 $128 $311
Baron Capital Asset $24 $79 $142 $342
Berger IPT-Small Company Growth $19 $62 $112 $274
Dreyfus Variable Investment Fund Appreciation $17 $56 $100 $246
Dreyfus Variable Investment Fund Growth and $17 $56 $102 $249
Income
Federated American Leaders Fund II $18 $59 $106 $259
Federated Fund for U.S. Government Securities II $17 $54 $98 $241
Federated Utility Fund II $19 $60 $109 $266
INVESCO VIF-Core Equity $20 $66 $119 $289
INVESCO VIF-High Yield $20 $63 $114 $279
INVESCO VIF-Technology $20 $65 $117 $286
Janus Aspen Series Flexible Income $16 $52 $94 $231
Janus Aspen Series Growth $16 $52 $93 $230
Janus Aspen Series International Growth $16 $53 $96 $237
Janus Aspen Series Worldwide Growth $16 $53 $95 $234
Montgomery Variable Series: Growth $22 $71 $128 $311
Prudential Series Fund Equity Class II $18 $59 $107 $261
SAFECO RST Equity $17 $56 $100 $246
SAFECO RST Growth Opportunities $17 $56 $100 $246
Schwab MarketTrack Growth II $14 $46 $84 $207
Schwab Money Market $14 $46 $84 $207
Schwab S&P 500 $12 $39 $71 $175
Scudder Variable Series I Capital Growth $14 $46 $84 $207
Scudder Variable Series I Growth and Income $15 $48 $87 $216
Scudder VIT EAFE(R)Equity Index $16 $51 $93 $228
Scudder VIT Small Cap Index $14 $45 $81 $200
Strong Multi Cap Value II $21 $69 $125 $303
Van Kampen Universal Institutional Funds U.S. $20 $66 $119 $290
Real Estate
These examples, including the assumed rate of return, should not be considered
representations of future performance or past or future expenses. Actual
expenses paid or performance achieved may be greater or less than those shown.
(1) The Portfolio Annual Expenses and these examples are based on
data provided by the Portfolios. Great-West has no reason to doubt the accuracy
or completeness of that data, but Great-West has not verified the Portfolios'
figures.
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Condensed Financial Information
Attached as Appendix A is a table showing selected information concerning
accumulation units for each Sub-Account. An accumulation unit is the unit of
measure that we use to calculate the value of your interest in a Sub-Account.
The accumulation unit values do not reflect the deduction of certain charges
that are subtracted from your Annuity Account Value, such as the Contract
Maintenance Charge. The information in the table is included in the Series
Account's financial statements, which have been audited by Deloitte & Touche
LLP, independent auditors. To obtain a more complete picture of each
Sub-Account's finances and performance, you should also review the Series
Account's financial statements, which are in the Series Account's Annual Report
dated December 31, 2001 and contained in the Statement of Additional
Information.
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Great-West Life & Annuity Insurance Company
Great-West is a stock life insurance company that was originally organized under
the laws of the state of Kansas as the National Interment Association. Our name
was changed to Ranger National Life Insurance Company in 1963 and to
Insuramerica Corporation prior to changing to our current name in 1982. In
September of 1990, we re-domesticated under the laws of the state of Colorado.
Great-West is an indirect, wholly-owned subsidiary of Great-West Lifeco Inc., a
holding company. Great-West Lifeco Inc. is in turn a subsidiary of Power
Financial Corporation, a financial services company. Power Corporation of
Canada, a holding and management company, has voting control of Power Financial
Corporation. Mr. Paul Desmarais, through a group of private holding companies,
which he controls, has voting control of Power Corporation of Canada.
We are authorized to do business in 49 states, the District of Columbia, Puerto
Rico, U.S. Virgin Islands and Guam.
The Series Account
We established the Variable Annuity-1 Series Account in accordance with Colorado
laws on July 24, 1995.
The Series Account is registered with the SEC under the 1940 Act, as a unit
investment trust. Registration under the 1940 Act does not involve supervision
by the SEC of the management or investment practices or policies of the Series
Account.
We own the assets of the Series Account. The income, gains or losses, realized
or unrealized, from assets allocated to the Series Account are credited to or
charged against the Series Account without regard to our other income gains or
losses.
We will at all times maintain assets in the Series Account with a total market
value at least equal to the reserves and other liabilities relating to the
variable benefits under all Contracts participating in the Series Account. Those
assets may not be charged with our liabilities from our other business. Our
obligations under those Contracts are, however, our general corporate
obligations.
The Series Account is divided into 45 Sub-Accounts, 29 of which are available
under the Contract. Each Sub-Account invests exclusively in shares of a
corresponding investment Portfolio of a registered investment company (commonly
known as a mutual fund). We may in the future add new or delete existing
Sub-Accounts. The income, gains or losses, realized or unrealized, from assets
allocated to each Sub-Account are credited to or charged against that
Sub-Account without regard to the other income, gains or losses of the other
Sub-Accounts. All amounts allocated to a Sub-Account will be fully invested in
Portfolio shares.
We hold the assets of the Series Account. We keep those assets physically
segregated and held separate and apart from our general account assets. We
maintain records of all purchases and redemptions of shares of the Portfolios.
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The Portfolios
The Contract offers a number of Portfolios, corresponding to the Sub-Accounts.
Each Sub-Account invests in a single Portfolio. Each Portfolio is a separate
mutual fund registered under the 1940 Act. More comprehensive information,
including a discussion of potential risks, is found in the current prospectuses
for the Portfolios (the "Portfolio Prospectuses"). The Portfolio Prospectuses
should be read in connection with this Prospectus. You may obtain a copy of the
Portfolio Prospectuses without charge by request.
Each Portfolio:
o holds its assets separate from the assets of the other Portfolios,
o has its own distinct investment objective and policy, and
o operates as a separate investment fund.
The income, gains and losses of one Portfolio generally have no effect on the
investment performance of any other Portfolio.
The Portfolios are not available to the general public directly. The Portfolios
are only available as investment options in variable annuity contracts or
variable life insurance policies issued by life insurance companies or, in some
cases, through participation in certain qualified pension or retirement plans.
Some of the Portfolios have been established by investment advisers which manage
publicly available mutual funds having similar names and investment objectives.
While some of the Portfolios may be similar to, and may in fact be modeled after
publicly available mutual funds, you should understand that the Portfolios are
not otherwise directly related to any publicly available mutual fund.
Consequently, the investment performance of publicly available mutual funds and
any corresponding Portfolios may differ. The investment objectives of the
Portfolios are briefly described below:
The Alger American Fund--advised by Fred Alger Management, Inc. of New York, New
York.
Alger American Growth Portfolio - Class O Shares seeks long-term capital
appreciation. It focuses on growing companies that generally have broad product
lines, markets, financial resources and depth of management. Under normal
circumstances, the Portfolio invests primarily in the equity securities of large
companies. The Portfolio considers a large company to have a market
capitalization of $1 billion or greater.
American Century Variable Portfolios, Inc.--advised by American Century
Investment Management, Inc. of Kansas City, Missouri, advisers to the American
Century family of mutual funds.
American Century VP International Fund - Original Class Shares seeks long-term
capital growth by investing primarily in common stocks of fast growing,
medium-to-large-sized foreign companies. The Fund invests primarily in
securities of issuers in developed countries.
Baron Capital Asset Fund--advised by BAMCO, Inc. of New York, New York.
Baron Capital Asset Fund: Insurance Shares seeks capital appreciation through
investments in small and medium sized companies with undervalued assets or
favorable growth prospects. The Fund invests primarily in small sized companies
with market capitalizations of approximately $100 million to $1.5 billion and
medium sized companies with market values of $1.5 billion to $5 billion.
Berger Institutional Products Trust--advised by Berger Financial Group LLC of
Denver, Colorado.
Berger IPT-Small Company Growth Fund seeks capital appreciation by investing
primarily in the common stocks of small companies with the potential for rapid
revenue and earnings growth. Under normal circumstances, the Fund invests at
least 65% of its assets in equity securities whose market capitalization, at the
time of initial purchase, is less than the 12-month average of the maximum
market capitalization for companies included in the Russell 2000 Index. This
average is updated monthly.
Dreyfus Variable Investment Fund--advised by The Dreyfus Corporation of New
York, New York. The Dreyfus Variable Investment Fund Appreciation Portfolio is
sub-advised by Fayez Sarofim & Co.
Dreyfus Variable Investment Fund Appreciation Portfolio - Initial Shares seeks
long-term capital growth consistent with the preservation of capital; current
income is its secondary goal. To pursue these goals, the portfolio invests in
common stocks focusing on "blue-chip" companies with total market values of more
than $5 billion at the time of purchase. Current income is a secondary goal.
Fayez Sarofim & Co. is the sub-adviser to this Portfolio and, as such, provides
day-to-day management.
Dreyfus Variable Investment Fund Growth and Income Portfolio - Initial Shares
seeks long-term capital growth, current income and growth of income consistent
with reasonable investment risk. To pursue this goal, it invests in stocks,
bonds and money market instruments of domestic and foreign issuers.
Federated Insurance Series--advised by Federated Investment Management Company
of Pittsburgh, Pennsylvania.
Federated American Leaders Fund II - Primary Shares seeks to achieve long-term
growth of capital as a primary objective and seeks to provide income as a
secondary objective by investing primarily (under normal circumstances) in
common stocks of "blue chip" companies.
Federated Fund for U.S. Government Securities II seeks to provide current income
by investing primarily in securities which are primary or direct obligations of
the U.S. government or its agencies or instrumentalities or which are guaranteed
as to principal and interest by the U.S. government, its agencies, or
instrumentalities and in certain collateralized mortgage obligations, and
repurchase agreements.
Federated Utility Fund II seeks to provide high current income and moderate
capital appreciation by investing primarily in equity securities of companies
engaged in providing utility services.
INVESCO Variable Investment Funds, Inc.--advised by INVESCO Funds Group, Denver,
Colorado.
INVESCO VIF-Core Equity Fund (formerly the INVESCO VIF-Equity Income Fund) seeks
high total return through both growth and current income. The Fund normally
invests in at least 65% (80% effective July 31, 2002) of its assets in a
combination of common stocks of companies with a history of paying regular
dividends and debt securities. Debt securities include corporate obligations and
obligations of the U.S. government and government agencies. The remaining assets
of the Fund are allocated to other investments at INVESCO's discretion, based
upon current business, economic, and market conditions. The Fund was formerly
called the Industrial Income Portfolio and The Equity Income Fund.
INVESCO VIF-High Yield Fund seeks a high level of current income by investing
primarily in bonds and other debt instruments. It also seeks capital
appreciation. The Fund invests in bonds and other debt securities, as well as in
preferred stocks. The Fund normally invests at least 65% (80% effective July 31,
2002) of its assets in a diversified portfolio of high yield corporate bonds
rated below investment grade, commonly known as "junk bonds" and preferred
stocks with investment grade and below investment grade ratings. These
investments generally offer higher rates of return, but are riskier than
investments in securities of issuers with higher credit ratings. A portion of
the Fund's assets may be invested in other securities such as corporate
short-term notes, repurchase agreements, and money market funds. There are no
limitations on the maturities held by the Fund, and the Fund's average maturity
will vary as INVESCO responds to interest rates.
INVESCO VIF-Technology Fund seeks capital appreciation and normally invests at
least 80% of its total assets in equity securities and equity-related
instruments of companies engaged in technology-related industries. These
include, but are not limited to, applied technologies, biotechnologies,
communications, computers, electronics, Internet, IT services and consulting,
software, telecommunications equipment and services, IT infrastructure, and
networking companies. Many of these products and services are subject to rapid
obsolescence, which may lower the market value of the securities of the
companies in this sector. While the Fund's investments are diversified across
the technology sector the Fund's investments are not as diversified as most
mutual funds, and far less diversified than the broad securities markets because
the Fund's portfolio is limited to a comparatively narrow segment of the
economy. This means that the Fund tends to be more volatile than other mutual
funds, and the value of its portfolio investments tends to go up and down more
rapidly. As a result, the value of a Fund share may rise or fall rapidly.
Janus Aspen Series--advised by Janus Capital Management LLC of Denver, Colorado.
Janus Aspen Series Flexible Income Portfolio - Institutional Shares seeks to
obtain maximum total return, consistent with preservation of capital. The
Portfolio invests in a wide variety of income-producing securities such as
corporate bonds and notes, government securities and preferred stock. As a
fundamental policy, the Portfolio will invest at least 80% of its assets in
income-producing securities. The Portfolio may own an unlimited amount of
high-yield/high-risk fixed income securities.
Janus Aspen Series Growth Portfolio - Institutional Shares seeks long-term
growth of capital in a manner consistent with the preservation of capital. The
Portfolio invests primarily in common stocks selected for their growth
potential. Although the Portfolio can invest in companies of any size, it
generally invests in larger, more established companies.
Janus Aspen Series International Growth Portfolio - Institutional Shares seeks
long-term growth of capital. The Portfolio invests under normal circumstances at
least 80% of its net assets in securities of issuers from at least five
different countries, excluding the U.S. Although the Portfolio intends to invest
substantially all of its assets in issuers located outside the U.S., it may at
times invest in U.S. issuers and it may at times invest all of its assets in
fewer than five countries or even a single country.
Janus Aspen Series Worldwide Growth Portfolio - Institutional Shares seeks
long-term growth of capital in a manner consistent with the preservation of
capital. The Portfolio invests primarily in common stocks of any size throughout
the world. The Portfolio normally invests in issuers from at least five
different countries, including the U.S. The Portfolio may at times invest in
fewer than five countries or even a single country.
Montgomery Variable Series--advised by Montgomery Asset Management, LLC of San
Francisco, California.
Montgomery Variable Series: Growth Fund seeks long-term capital appreciation by
investing in U.S. growth companies. The Fund may invest in stocks of U.S.
companies of any size, but invests at least 65% of its total assets in those
companies whose shares have a total stock market value (market capitalization)
of at least $1 billion. The Fund's strategy is to identify well-managed U.S.
companies that are expected to increase their sales and corporate earnings on a
sustained basis.
Prudential Series Fund--advised by Prudential Investments LLC of Newark, New
Jersey.
Prudential Series Fund Equity Class II Portfolio seeks capital appreciation
through investment primarily in common stocks of companies, including major
established corporations as well as smaller capitalization companies, that
appear to offer attractive prospects of price appreciation that is superior to
broadly-based stock indices. Current income, if any, is incidental.
SAFECO Resource Series Trust--advised by SAFECO Asset Management Company of
Seattle, Washington.
SAFECO RST Equity Portfolio has as its investment objective to seek long-term
capital growth and reasonable current income. The Portfolio typically invests in
common stocks of large established companies that are proven performers.
SAFECO RST Growth Opportunities Portfolio has as its investment objective to
seek growth of capital. The Portfolio invests most of its assets in common
stocks selected primarily for potential growth at a reasonable price.
Schwab Annuity Portfolios--advised by Charles Schwab Investment Management, Inc.
of San Francisco, California.
Schwab MarketTrack Growth Portfolio II seeks to provide high capital growth with
less volatility than an all stock portfolio by investing in a mix of stocks,
bonds, and cash equivalents either directly or through investment in other
mutual funds.
Schwab Money Market Portfolio seeks the highest current income consistent with
liquidity and stability of capital. This Portfolio is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. There can be no assurance that it will be able to maintain a stable net
asset value of $1.00 per share.
Schwab S&P 500 Portfolio seeks to track the price and dividend performance
(total return) of common stocks of U.S. companies, as represented in the
Standard & Poor's Composite Index of 500 stocks.
Scudder Variable Life Investment Fund--advised by Deutsche Investment Management
Americas Inc. of New York, New York.
Scudder Variable Series I Capital Growth Portfolio - Class A Shares seeks to
maximize long-term capital growth through a broad and flexible investment
program. The Portfolio invests at least 65% of its total assets in common stocks
of U.S. companies. Although the Portfolio can invest in companies of any size,
it generally focuses on established companies that are similar in size to the
companies in the S&P 500 Index (as of December 31, 2001, the S&P 500 Index had a
median market capitalization of $8.3 billion). In choosing stocks, the portfolio
manager looks for individual companies that have competitive positions,
prospects for consistent growth, exceptional management and strong balance
sheets.
Scudder Variable Series I Growth and Income Portfolio - Class A Shares seeks
long-term growth of capital, current income and growth of income. The Portfolio
invests at least 65% of its total assets in equities, mainly common stocks.
Although the Portfolio can invest in companies of any size and from any country,
it invests primarily in large U.S. companies. The Portfolio may invest up to 25%
of its total assets in foreign securities. In choosing stocks for the Portfolio,
the managers consider both yield and other valuation and growth factors, meaning
that they focus the Portfolio's investments on securities of U.S. companies
whose dividend and earnings prospects are believed to be attractive relative to
the Portfolio's benchmark index, the S&P 500. The Portfolio may invest in
dividend paying and non-dividend paying stocks.
The Scudder VIT Funds --- (formerly, Deutsche Asset Management VIT Funds) are
part of the Deutsche Asset Management VIT Funds and are advised by Deutsche
Asset Management, Inc.
Scudder VIT EAFE(R) Equity Index Fund - Class A Shares (formerly, Deutsche
Asset Management VIT EAFE(R) Equity Index Fund) seeks to match, as closely as
possible, before expenses, the performance of the Morgan Stanley Capital
International EAFE(R) Index. The EAFE Index emphasizes stocks of companies in
major markets in Europe, Australia, and the Far East and is a widely accepted
benchmark of international stock performance.
Scudder VIT Small Cap Index Fund - Class A Shares (formerly, Deutsche Asset
Management VIT Small Cap Index Fund) seeks to match, as closely as possible,
before expenses, the performance of the Russell 2000 Small Stock Index. The
Russell 2000 Index emphasizes stocks of small U.S. companies and is a widely
accepted benchmark of small-company stock performance.
The Strong Multi Cap Value Fund II--advised by Strong Capital Management, Inc.
of Milwaukee, Wisconsin.
The Strong Multi Cap Value Fund II seeks long-term capital appreciation. Current
income is a secondary objective. The Fund invests primarily in common stocks of
medium- and large-size companies.
The Universal Institutional Funds, Inc.--advised by Morgan Stanley Investment
Management Inc. ("MSIM") of New York, New York. MSIM does business in certain
instances under the name "Van Kampen."
Van Kampen Universal Institutional Funds U.S. Real Estate Portfolio (formerly
the Morgan Stanley Universal Institutional Fund U.S. Real Estate Portfolio)
seeks above-average current income and long-term capital appreciation by
investing primarily in equity securities of companies engaged in the U.S. real
estate industry, including real estate investment trusts.
Meeting Investment Objectives
Meeting investment objectives depends on various factors, including, but not
limited to, how well the Portfolio managers anticipate changing economic and
market conditions. There is no guarantee that any of these Portfolios will
achieve their stated objectives.
Where to Find More Information About the Portfolios
Additional information about the investment objectives and policies of all the
Portfolios and the investment advisory and administrative services and charges
can be found in the current Portfolio Prospectuses, which can be obtained
without charge from the Schwab Insurance Center.
The Portfolio Prospectuses should be read carefully before any decision is made
concerning the allocation of Contributions to, or Transfers among, the
Sub-Accounts.
14
Addition, Deletion or Substitution
Great-West does not control the Portfolios and cannot guarantee that any of the
Portfolios will always be available for allocation of Contributions or
Transfers. We retain the right to make changes in the Series Account and in its
investments. Currently, Schwab must approve certain changes.
Great-West and Schwab reserve the right to discontinue the offering of any
Portfolio. If a Portfolio is discontinued, we may substitute shares of another
Portfolio or shares of another investment company for the discontinued
Portfolio's shares. Any share substitution will comply with the requirements of
the 1940 Act.
If you are contributing to a Sub-Account corresponding to a Portfolio that is
being discontinued, you will be given notice prior to the Portfolio's
elimination.
Based on marketing, tax, investment and other conditions, we may establish new
Sub-Accounts and make them available to Owners at our discretion. Each
additional Sub-Account will purchase shares in a Portfolio or in another mutual
fund or investment vehicle.
If, in our sole discretion, marketing, tax, investment or other conditions
warrant, we may also eliminate one or more Sub-Accounts. If a Sub-Account is
eliminated, we will notify you and request that you to re-allocate the amounts
invested in the eliminated Sub-Account.
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The Guarantee Period Fund
The Guarantee Period Fund is not part of the Series Account. Amounts allocated
to the Guarantee Period Fund will be deposited to, and accounted for, in a
non-unitized market value separate account. As a result, you do not participate
in the performance of the assets through unit values.
Consequently, these assets accrue solely to the benefit of Great-West and any
gain or loss in the non-utilized market value separate account is borne entirely
by Great-West. You will receive the Contract guarantees made by Great-West for
amounts you contribute to the Guarantee Period Fund.
When you contribute or Transfer amounts to the Guarantee Period Fund, you select
a new Guarantee Period from those available. All Guarantee Periods will have a
term of at least one year. Contributions allocated to the Guarantee Period Fund
will be credited on the Transaction Date we receive them.
Each Guarantee Period will have its own stated rate of interest and maturity
date determined by the date the Guarantee Period is established and the term you
choose.
Currently, Guarantee Periods with annual terms of 1 to 10 years are offered only
in those states where the Guarantee Period Fund is available. The Guarantee
Periods may change in the future, but this will not have an impact on any
Guarantee Period already in effect.
The value of amounts in each Guarantee Period equals Contributions plus interest
earned, less any Premium Tax, amounts distributed, withdrawn (in whole or in
part), amounts Transferred or applied to an annuity option, periodic withdrawals
and charges deducted under the Contract. If a Guarantee Period is broken, a
Market Value Adjustment may be assessed (please see "Breaking a Guarantee
Period" on page 15). Any amount withdrawn or Transferred prior to the Guarantee
Period Maturity Date will be paid in accordance with the Market Value Adjustment
formula. You can read more about Market Value Adjustments on page 16.
Investments of the Guarantee
Period Fund
We use various techniques to invest in assets that have similar characteristics
to our general account assets--especially cash flow patterns. We will primarily
invest in investment-grade fixed income securities including:
o Securities issued by the U.S. Government or its agencies or
instrumentalities, which may or may not be guaranteed by the U.S.
Government.
o Debt securities which have an investment grade, at the time of purchase,
within the four highest grades assigned by Moody's Investment Services,
Inc. (Aaa, Aa, A or Baa), Standard & Poor's Corporation (AAA, AA, A or BBB)
or any other nationally recognized rating service.
o Other debt instruments, including, but not limited to, issues of banks or
bank holding companies and of corporations, which obligations--although not
rated by Moody's, Standard & Poor's, or other nationally recognized rating
firms--are deemed by us to have an investment quality comparable to
securities which may be purchased as stated above.
o Commercial paper, cash or cash equivalents and other short-term investments
having a maturity of less than one year which are considered by us to have
investment quality comparable to securities which may be purchased as
stated above.
14
In addition, we may invest in futures and options solely for non-speculative
hedging purposes. We may sell a futures contract or purchase a put option on
futures or securities to protect the value of securities held in or to be sold
for the general account or the non-unitized market value separate account if the
securities prices are anticipated to decline. Similarly, if securities prices
are expected to rise, we may purchase a futures contract or a call option
against anticipated positive cash flow or may purchase options on securities.
The above information generally describes the investment strategy for the
Guarantee Period Fund. However, we are not obligated to invest the assets in the
Guarantee Period Fund according to any particular strategy, except as may be
required by Colorado and other state insurance laws. The stated rate of interest
that we establish will not necessarily relate to the performance of the
non-unitized market value separate account.
Subsequent Guarantee Periods
Before annuity payouts begin, you may reinvest the value of amounts in a
maturing Guarantee Period in a new Guarantee Period of any length we offer at
that time. On the quarterly statement you receive prior to the end of any
Guarantee Period, we will notify you of the upcoming maturity of a Guarantee
Period. The Guarantee Period available for new Contributions may be changed at
any time, including between the date we notify you of a maturing Guarantee
Period and the date a new Guarantee Period begins.
If you do not tell us where you would like the amounts in a maturing Guarantee
Period allocated by the maturity date, we will automatically allocate the amount
to a Guarantee Period of the same length as the maturing period. If the term
previously chosen is no longer available, the amount will be allocated to the
next shortest available Guarantee Period term. If none of the above are
available, the value of matured Guarantee Periods will be allocated to the
Schwab Money Market Sub-Account.
No Guarantee Period may mature later than six months after your Payout
Commencement Date. For example, if a 3-year Guarantee Period matures and the
Payout Commencement Date begins 1 3/4 years following its Guarantee Period
Maturity Date, the matured value will be transferred to a 2-year Guarantee
Period.
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Breaking a Guarantee Period
If you begin annuity payouts, Transfer or withdraw prior to the Guarantee Period
Maturity Date, you are breaking a Guarantee Period. When we receive a request to
break a Guarantee Period and you have another Guarantee Period that is closer to
its maturity date, we will break that Guarantee Period first.
If you break a Guarantee Period, you may be assessed an interest rate adjustment
called a Market Value Adjustment.
Interest Rates
The declared annual rates of interest are guaranteed throughout the Guarantee
Period. For Guarantee Periods not yet in effect, Great-West may declare interest
rates different than those currently in effect. When a subsequent Guarantee
Period begins, the rate applied will be equal to or more than the rate currently
in effect for new Contracts with the same Guarantee Period.
The stated rate of interest must be at least equal to the Guaranteed Interest
Rate, but Great-West may declare higher rates. The Guaranteed Interest Rate is
based on the applicable state standard non-forfeiture law. The standard
non-forfeiture rate in all states is 3%, except in Florida and Mississippi it's
0%.
The determination of the stated interest rate is influenced by, but does not
necessarily correspond to, interest rates available on fixed income investments
which Great-West may acquire using funds deposited into the Guarantee Period
Fund. In addition, Great-West considers regulatory and tax requirements, sales
and administrative expenses, general economic trends and competitive factors in
determining the stated interest rate.
16
Market Value Adjustment
Amounts you allocate to the Guarantee Period Fund may be subject to an interest
rate adjustment called a Market Value Adjustment if, six months or more before a
Guarantee Period Fund's Maturity Date, you: o surrender your investment in the
Guarantee Period Fund, o transfer money from the Guarantee Period Fund, o
partially withdraw money from the Guarantee Period Fund, o take a periodic
withdrawal, o apply amounts from the Guarantee Period Fund to purchase an
annuity to receive payouts from your
account, or
o take a distribution from the Guarantee Period Fund upon the death of the
Owner or the Annuitant.
The Market Value Adjustment will not apply to any Guarantee Period having fewer
than six months prior to the Guarantee Period Maturity Date in each of the
following situations:
o transfer to a Sub-Account offered under this Contract, o surrenders,
partial withdrawals, annuitization or periodic withdrawals, or o a single
sum payout upon death of the Owner or Annuitant.
A Market Value Adjustment may increase or decrease the amount payable on the
above-described distributions. The formula for calculating Market Value
Adjustments is detailed in Appendix B. Appendix B also includes examples of how
Market Value Adjustments work.
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Application and Initial Contributions
The first step to purchasing the Schwab Select Annuity is to complete your
Contract application and submit it with your initial minimum Contribution of
$5,000; $2,000 if an IRA; or $1,000 if you are setting up an Automatic
Contribution Plan. Initial Contributions can be made by check (payable to GWL&A)
or transferred from a Schwab brokerage account.
If your application is complete, your Contract will be issued and your
Contribution will be credited within two business days after receipt at the
Annuity Administration Department at Great-West. Acceptance is subject to
sufficient information in a form acceptable to us. We reserve the right to
reject any application or Contribution.
If your application is incomplete, the Annuity Administration Department will
complete the application from information Schwab has on file or contact you by
telephone to obtain the required information. If the information necessary to
complete your application is not received within five business days at the
Annuity Administration Department, we will return to you both your check and the
application. If you provide consent we will retain the initial Contribution and
credit it as soon as we have completed your application.
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Free Look Period
During the free look period (ten days or longer where required by law), you may
cancel your Contract. If you exercise the free look privilege, you must return
the Contract to the Annuity Administration Department at Great-West.
Generally, Contributions will be allocated to the Sub-Accounts you selected on
the application, effective upon the Transaction Date. During the free look
period, you may change your Sub-Account allocations as well as your allocation
percentages.
Contracts returned during the free look period will be void from the date we
issued the Contract. In the majority of states, we will refund your current
Annuity Account Value. This amount may be higher or lower than your
Contributions, which means you bear the investment risk during the free look
period.
Certain states require that we return the greater of your Annuity Account Value
(less any surrenders, withdrawals, and distributions already received) or the
amount of Contributions received. During the free look period, all Contributions
will be processed as follows:
o Amounts you specify to be allocated to one or more of the available
Guarantee Periods will be allocated as directed, effective upon the
Transaction Date.
o Amounts you specify to be allocated to one or more of the
Sub-Accounts will first be allocated to the Schwab Money Market Sub-Account
until the end of the free look period. After the free look period is over,
the Variable Account Value held in the Schwab Money Market Sub-Account will
be allocated to the Sub-Accounts you selected on the application.
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Subsequent Contributions
Once your application is complete and we have received your initial
Contribution, you can make subsequent Contributions at any time prior to the
Payout Commencement Date, as long as the Annuitant is living. Additional
Contributions must be at least $500; or $100 if made via an Automatic
Contribution Plan. Total Contributions may exceed $1,000,000 with our prior
approval.
Subsequent Contributions can be made by check or via an Automatic Contribution
Plan directly from your bank or savings account. You can designate the date
you'd like your subsequent Contributions deducted from your account each month.
If you make subsequent Contributions by check, your check should be payable to
GWL&A.
You'll receive a confirmation of each Contribution you make upon its acceptance.
Great-West reserves the right to modify the limitations set forth in this
section.
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Annuity Account Value
Prior to the Annuity Commencement Date, your Annuity Account Value is the sum of
your Variable and Fixed Account Values established under your Contract.
Before your Annuity Commencement Date, the Variable Account Value is the total
dollar amount of all accumulation units credited to you for each Sub-Account.
Initially, the value of each accumulation unit was set at $10.00. Each
Sub-Account's value prior to the Annuity Commencement Date is equal to: o net
Contributions allocated to the corresponding Sub-Account, o plus or minus any
increase or decrease in the value of the assets of the Sub-Account due to
investment results,
o minus the daily mortality and expense risk charge,
o minus any applicable reductions for the Contract Maintenance Charge
deducted on the Contract anniversary date,
o minus any applicable Transfer fees, and
o minus any withdrawals or Transfers from the Sub-Account.
The value of a Sub-Account's assets is determined at the end of each day that
the NYSE is open for regular business (a "valuation date"). A valuation period
is the period between successive valuation dates. It begins at the close of the
NYSE (generally 4:00 p.m. Eastern time) on each valuation date and ends at the
close of the NYSE on the next succeeding valuation date.
The Variable Account Value is expected to change from valuation period to
valuation period, reflecting the investment experience of the selected
Sub-Account(s), as well as the deductions for applicable charges.
Upon allocating Variable Account Values to a Sub-Account you will be credited
with variable accumulation units in that Sub-Account. The number of accumulation
units you will be credited is determined by dividing the portion of each
Contribution allocated to the Sub-Account by the value of an accumulation unit.
The value of the accumulation unit is determined and credited at the end of the
valuation period during which the Contribution was received.
Each Sub-Account's accumulation unit value is established at the end of each
valuation period. It is calculated by multiplying the value of that unit at the
end of the prior valuation period by the Sub-Account's Net Investment Factor for
the valuation period. The formula used to calculate the Net Investment Factor is
discussed in Appendix C.
Unlike a brokerage account, amounts held under a Contract are not covered by the
Securities Investor Protection Corporation ("SIPC").
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Transfers
Prior to the Annuity Commencement Date you may Transfer all or part of your
Annuity Account Value among and between the Sub-Accounts and the available
Guarantee Periods by Request to the Annuity Administration Department at
Great-West.
Your Request must specify:
o the amounts being Transferred,
o the Sub-Account(s) and/or Guarantee Period(s) from which the Transfer
is to be made, and o the Sub-Account(s) and/or Guarantee Period(s) that will
receive the Transfer.
Currently, there is no limit on the number of Transfers you can make among the
Sub-Accounts and the Guarantee Period Fund during any calendar year. However, we
reserve the right to limit the number of Transfers you make.
There is no charge for the first twelve Transfers each calendar year, but there
will be a charge of $10 for each additional Transfer made. The charge will be
deducted from the amount Transferred. All Transfers made on a single Transaction
Date will count as only one Transfer toward the twelve free Transfers. However,
if a one-time rebalancing Transfer also occurs on the Transaction Date, it will
be counted as a separate and additional Transfer.
A Transfer generally will be effective on the date the Request for Transfer is
received by the Annuity Administration Department at Great-West if received
before 4:00 p.m. Eastern time. Requests received after 4:00 p.m. Eastern time
will be effective on the next business day we and the NYSE are open for
business. Under current tax law, there will not be any tax liability to you if
you make a Transfer.
Transfers involving the Sub-Accounts will result in the purchase and/or
cancellation of accumulation units having a total value equal to the dollar
amount being Transferred. The purchase and/or cancellation of such units is made
using the Variable Account Value as of the end of the valuation date on which
the Transfer is effective.
When you make a Transfer from amounts in a Guarantee Period before the Guarantee
Period Maturity Date, the amount Transferred may be subject to a Market Value
Adjustment as discussed on page 16. If you request in advance to Transfer
amounts from a maturing Guarantee Period upon maturity, your Transfer will not
count toward the 12 free Transfers and no Transfer fees will be charged.
17
Possible Restrictions
We reserve the right without prior notice to modify, restrict, suspend or
eliminate the Transfer privileges (including telephone Transfers) at any time.
For example, Transfer restrictions may be necessary to protect you from the
negative effect large and/or numerous Transfers can have on portfolio
management. Moving significant amounts from one Sub-Account to another may
prevent the underlying Portfolio from taking advantage of long-term investment
opportunities because the Portfolio must maintain enough cash to cover the
cancellation of accumulation units that results from a Transfer out of a
Sub-Account. Moving large amounts of money may also cause a substantial increase
in Portfolio transaction costs which must be indirectly borne by you.
As a result, we reserve the right to require that all Transfer Requests be made
by you and not by your designee and to require that each Transfer Request be
made by a separate communication to us. We also reserve the right to require
that each Transfer Request be submitted in writing and be signed by you.
Transfers among the Sub-Accounts may also be subject to such terms and
conditions as may be imposed by the Portfolios.
Automatic Custom Transfers
Dollar Cost Averaging
You may arrange for systematic Transfers from any Sub-Account to any other
Sub-Account. These systematic Transfers may be used to Transfer values from the
Schwab Money Market Sub-Account to the other Sub-Accounts as part of a dollar
cost averaging strategy. Dollar cost averaging allows you to buy more units when
the price is low and fewer units when the price is high. Over time, your average
cost per unit may be more or less than if you invested all your money at one
time. However, dollar cost averaging does not assure a greater profit, or any
profit, and will not prevent or necessarily alleviate losses in a declining
market.
You can set up automatic dollar cost averaging on a monthly, quarterly,
semi-annual or annual basis. Your Transfer will be initiated on the Transaction
Date one frequency period following the date of the Request. For example, if you
request quarterly Transfers on January 9, your first Transfer will be made on
April 9 and every three months on the 9th thereafter. Transfers will continue on
that same day each interval unless terminated by you or for other reasons as set
forth in the Contract.
If there are insufficient funds in the applicable Sub-Account on the date your
Transfer is scheduled, your Transfer will not be made. However, your dollar cost
averaging Transfers will resume once there are sufficient funds in the
applicable Sub-Account. Dollar cost averaging will terminate automatically when
you start taking payouts from the Contract. Dollar cost averaging Transfers are
not included in the twelve free Transfers allowed in a calendar year.
Dollar cost averaging Transfers must meet the following conditions:
o The minimum amount that can be Transferred out of the selected Sub-Account
is $100.
o You must: (1) specify the dollar amount to be Transferred, (2) designate
the Sub-Account(s) to which the Transfer will be made, and (3) designate
the percent of the dollar amount to be allocated to each Sub-Account into
which you are Transferring money. The accumulation unit values will be
determined on the Transfer date.
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How dollar cost averaging works:
-------- --------- -------- --------
Month Contributi Units Price
Purchased per
unit
-------- --------- -------- --------
-------- --------- -------- --------
Jan. $250 10 $25.00
-------- --------- -------- --------
-------- --------- -------- --------
Feb. 250 12 20.83
-------- --------- -------- --------
-------- --------- -------- --------
Mar. 250 20 12.50
-------- --------- -------- --------
-------- --------- -------- --------
Apr. 250 20 12.50
-------- --------- -------- --------
-------- --------- -------- --------
May 250 15 16.67
-------- --------- -------- --------
-------- --------- -------- --------
June 250 12 20.83
-------- --------- -------- --------
Average market value per unit $18.06
Investor's average cost per unit $16.85
In the chart above, if all units had been purchased at one time at the highest
unit value of $25.00, only 60 units could have been purchased with $1500. By
contributing smaller amounts over time, dollar cost averaging allowed 89 units
to be purchased with $1500 at an average unit price of $16.85. This investor
purchased 29 more units at $1.21 less per unit than the average market value per
unit of $18.06.
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You may not participate in dollar cost averaging and Rebalancer at the same
time.
Great-West reserves the right to modify, suspend or terminate dollar cost
averaging at any time.
18
Rebalancer
Over time, variations in each Sub-Account's investment results will change your
asset allocation plan percentages. Rebalancer allows you to automatically
reallocate your Variable Account Value to maintain your desired asset
allocation. Participation in Rebalancer does not assure a greater profit, or any
profit, nor will it prevent or necessarily alleviate losses in a declining
market.
You can set up Rebalancer as a one-time Transfer or on a quarterly, semi-annual
or annual basis. If you select to rebalance only once, the Transfer will take
place on the Transaction Date of the Request. One-time Rebalancer Transfers
count toward the twelve free Transfers allowed in a calendar year.
If you select to rebalance on a quarterly, semi-annual or annual basis, the
first Transfer will be initiated on the Transaction Date one frequency period
following the date of the Request. For example, if you request quarterly
Transfers on January 9, your first Transfer will be made on April 9 and every
three months on the 9th thereafter. Transfers will continue on that same day
each interval unless terminated by you or for other reasons as set forth in the
Contract. Quarterly, semi-annual and annual Transfers will not count toward the
12 free Transfers.
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How rebalancer works:
- --------------------------------------------------------------------------------
Suppose you purchased your annuity and you decided to allocate 60% of your
initial contribution to stocks; 30% to bonds and 10% to cash equivalents as in
this pie chart:
[GRAPHIC OMITTED]
Stocks 60%
Large Company 30%
Small Company 15%
International 15%
Bonds 30%
Cash 10%
Now assume that stock portfolios outperform bond portfolios and cash equivalents
over a certain period of time. Over this period, the unequal performance may
alter the asset allocation of the above hypothetical plan to look like this:
[OBJECT OMITTED]
Stocks 75%
Large Company 35%
Small Company 20%
International 20%
Bonds 20%
Cash 5%
19
Rebalancer automatically reallocates your Variable Account Value to maintain
your desired asset allocation. In this example, the portfolio would be
re-allocated back to 60% in stocks; 30% in bonds; 10% in cash equivalents.
- --------------------------------------------------------------------------------
On the Transaction Date for the specified Request, assets will be automatically
reallocated to the Sub-Accounts you selected. The Rebalancer option will
terminate automatically when you start taking payouts from the Contract.
Rebalancer Transfers must meet the following conditions: o Your entire Variable
Account Value must be included.
o You must specify the percentage of your Variable Account Value you'd
like allocated to each Sub-Account and the frequency of rebalancing. You may
modify the allocations or stop the rebalancer option at any time.
o You may not participate in dollar cost averaging and rebalancer at the
same time.
Great-West reserves the right to modify, suspend, or terminate the Rebalancer
option at any time.
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Cash Withdrawals
You may withdraw all or part of your Annuity Account Value at any time during
the life of the Annuitant and prior to the date Annuity Commencement Date by
submitting a written withdrawal request to the Annuity Administration Department
at Great-West. Withdrawals are not permitted by telephone. Withdrawals are
subject to the rules below and federal or state laws, rules or regulations may
also apply. The amount payable to you if you surrender your Contract is your
Annuity Account Value, with any applicable Market Value Adjustment on the
Effective Date of the surrender, less any applicable Premium Tax. No withdrawals
may be made after the date annuity payouts begin.
If you request a partial withdrawal, your Annuity Account Value will be reduced
by the dollar amount withdrawn. A Market Value Adjustment may apply. Market
Value Adjustments are discussed on page 16.
Partial withdrawals are unlimited. However, you must specify the Sub-Account(s)
or Guarantee Period(s) from which the withdrawal is to be made. After any
partial withdrawal, if your remaining Annuity Account Value is less than $2,000,
then a full surrender may be required. The minimum partial withdrawal (before
application of the MVA) is $500.
The following terms apply to withdrawals:
o Partial withdrawals or surrenders are not permitted after the Annuity
Commencement Date.
o A partial withdrawal or a surrender will be effective upon the Transaction
Date.
o A partial withdrawal or a surrender from amounts in a Guarantee Period may
be subject to the Market Value Adjustment provisions, and the Guarantee
Period Fund provisions of the Contract.
19
Withdrawal Requests must be in writing with your original signature. If your
instructions are not clear, your Request will be denied and no surrender or
partial withdrawal will be processed.
After a withdrawal of all of your Annuity Account Value, or at any time that
your Annuity Account Value is zero, all your rights under the Contract will
terminate.
Withdrawals to Pay Investment Manager or Financial Advisor Fees
You may request partial withdrawals from your Annuity Account Value and direct
us to remit the amount withdrawn directly to your designated Investment Manager
or Financial Advisor (collectively "Consultant"). A withdrawal Request for this
purpose must meet the $500 minimum withdrawal requirements and comply with all
terms and conditions applicable to partial withdrawals, as described above. Tax
consequences of withdrawals are detailed below, but you should consult a
competent tax advisor prior to authorizing a withdrawal from your Annuity
Account Value to pay Consultant fees.
Tax Consequences of Withdrawals
Withdrawals made for any purpose may be taxable--including payments made by us
directly to your Consultant.
In addition, the Code may require us to withhold federal income taxes from
withdrawals and report such withdrawals to the IRS. If you request partial
withdrawals to pay Consultant fees, your Annuity Account Value will be reduced
by the sum of the fees paid to the Consultant and the related withholding.
You may elect, in writing, to have us not withhold federal income tax from
withdrawals, unless withholding is mandatory for your Contract. If you are
younger than 59 1/2, the taxable portion of any withdrawal is generally
considered to be an early withdrawal and is subject to an additional federal
penalty tax of 10%.
Some states also require withholding for state income taxes. For details about
withholding, please see "Federal Tax Matters" on page 26.
If you are interested in this Contract as an IRA, please refer to Section 408 of
the Code for limitations and restrictions on cash withdrawals.
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Telephone and Internet Transactions
You may make Transfer requests by telephone, fax and/or Internet. Transfer
requests received before 4:00 p.m. Eastern time will be made on that day at that
day's unit value. Those completed after 4:00 p.m. Eastern time will be made on
the next business day we and the NYSE are open for business, at that day's unit
value.
We will use reasonable procedures to confirm that instructions communicated by
telephone, fax and/or Internet are genuine, such as: o requiring some form of
personal identification prior to acting on instructions, o providing written
confirmation of the transaction and/or o tape recording the instructions given
by telephone.
If we follow such procedures we will not be liable for any losses due to
unauthorized or fraudulent instructions.
We reserve the right to suspend telephone, fax and/or Internet transaction
privileges at any time, for some or all Contracts, and for any reason.
Withdrawals are not permitted by telephone.
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Death Benefit
Before the Annuity Commencement Date, the Death Benefit, if any, will be equal
to the greater of:
o the Annuity Account Value with an MVA, if applicable, as of the date a
Request for payout is received, less any Premium Tax, or
o the sum of Contributions, less partial withdrawals and/or periodic
withdrawals, less any Premium Tax.
The Death Benefit will become payable following our receipt of the Beneficiary's
claim in good order. When an Owner or the Annuitant dies before the Annuity
Commencement Date and a Death Benefit is payable to a Beneficiary, the Death
Benefit proceeds will remain invested according to the allocation instructions
given by the Owner(s) until new allocation instructions are requested by the
Beneficiary or until the Death Benefit is actually paid to the Beneficiary.
The amount of the Death Benefit will be determined as of the date payouts begin.
However, on the date a payout option is processed, the Variable Account Value
will be Transferred to the Schwab Money Market Sub-Account unless the
Beneficiary elects otherwise.
Subject to the distribution rules below, payout of the Death Benefit may be made
as follows:
Variable Account Value
o payout in a single sum, or
o payout under any of the variable annuity options provided under this
Contract.
Fixed Account Value
o payout in a single sum that may be subject to a Market Value Adjustment, or
o payout under any of the annuity options provided under this Contract that
may be subject to a Market Value Adjustment.
20
Any payment within 6 months of the Guarantee Period Maturity Date will not be
subject to a Market Value Adjustment.
In any event, no payout of benefits provided under the Contract will be allowed
that does not satisfy the requirements of the Code and any other applicable
federal or state laws, rules or regulations.
Beneficiary
You may select one or more Beneficiaries. If more than one Beneficiary is
selected, they will share equally in any Death Benefit payable unless you
indicate otherwise. You may change the Beneficiary any time before the
Annuitant's death.
A change of Beneficiary will take effect as of the date the request is processed
by the Annuity Administration Department, unless a certain date is specified by
the Owner. If the Owner dies before the Request is processed, the change will
take effect as of the date the request was made, unless we have already made a
payout or otherwise taken action on a designation or change before receipt or
processing of such Request. A Beneficiary designated irrevocably may not be
changed without the written consent of that Beneficiary, except as allowed by
law.
The interest of any Beneficiary who dies before the Owner or the Annuitant will
terminate at the death of the Beneficiary. The interest of any Beneficiary who
dies at the time of, or within 30 days after the death of an Owner or the
Annuitant, will also terminate if no benefits have been paid to such
Beneficiary, unless the Owner otherwise indicates by Request. The benefits will
then be paid as though the Beneficiary had died before the deceased Owner or
Annuitant. If no Beneficiary survives the Owner or Annuitant, as applicable, we
will pay the Death Benefit proceeds to the Owner's estate.
If the Beneficiary is not the Owner's surviving spouse, she/he may elect, not
later than one year after the Owner's date of death, to receive the Death
Benefit in either a single sum or payout under any of the variable or fixed
annuity options available under the Contract, provided that:
o such annuity is distributed in substantially equal installments over the
life or life expectancy of the Beneficiary or over a period not extending
beyond the life expectancy of the Beneficiary and
o such distributions begin not later than one year after the Owner's date of
death.
If an election is not received by Great-West from a non-spouse Beneficiary and
substantially equal installments begin no later than one year after the Owner's
date of death, then the entire amount must be distributed within five years of
the Owner's date of death. The Death Benefit will be determined as of the date
the payouts begin.
If a corporation or other non-individual entity is entitled to receive benefits
upon the Owner's death, the Death Benefit must be completely distributed within
five years of the Owner's date of death.
Distribution of Death Benefit
Death of Annuitant
Upon the death of the Annuitant while the Owner is living, and before the
Annuity Commencement Date, we will pay the Death Benefit to the Beneficiary
unless there is a Contingent Annuitant.
If a Contingent Annuitant was named by the Owner(s) prior to the Annuitant's
death, and the Annuitant dies before the Annuity Commencement Date while the
Owner and Contingent Annuitant are living, no Death Benefit will be payable and
the Contingent Annuitant will become the Annuitant.
If the Annuitant dies after the Annuity Commencement Date and before the entire
interest has been distributed, any benefit payable must be distributed to the
Beneficiary according to and as rapidly as under the payout option which was in
effect on the Annuitant's date of death.
If the deceased Annuitant is an Owner, or if a corporation or other
non-individual is an Owner, the death of the Annuitant will be treated as the
death of an Owner and the Contract will be subject to the "Death of Owner"
provisions described below.
- --------------------------------------------------------------------------------
Contingent Annuitant
While the Annuitant is living, you may, by Request, designate or change a
Contingent Annuitant from time to time. A change of Contingent Annuitant will
take effect as of the date the request is processed at the Annuity
Administration Department at Great-West, unless a certain date is specified by
the Owner(s). Please note, you are not required to designate a Contingent
Annuitant.
- --------------------------------------------------------------------------------
21
Death of Owner Who Is Not the Annuitant
If there is a Joint Owner who is the surviving spouse and the Beneficiary of the
deceased Owner, the Joint Owner becomes the Owner and Beneficiary and the Joint
Owner may elect to take the Death Benefit or to continue the Contract in force.
If the Owner dies after the Annuity Commencement Date and before the entire
interest has been distributed while the Annuitant is living, any benefit payable
will continue to be distributed to the Annuitant as rapidly as under the payout
option applicable on the Owner's date of death. All rights granted the Owner
under the Contract will pass to any surviving Joint Owner and, if none, to the
Annuitant.
In all other cases, we will pay the Death Benefit to the Beneficiary even if a
Joint Owner (who was not the Owner's spouse on the date of the Owner's death),
the Annuitant and/or the Contingent Annuitant are alive at the time of the
Owner's death, unless the sole Beneficiary is the deceased Owner's surviving
spouse who may elect to become the Owner and Annuitant and to continue the
Contract in force.
Death of Owner Who Is the Annuitant
If there is a Joint Owner who is the surviving spouse of the deceased Owner and
a Contingent Annuitant, the Joint Owner becomes the Owner and the Beneficiary,
the Contingent Annuitant will become the Annuitant, and the Contract will
continue in force.
If there is a Joint Owner who is the surviving spouse and the Beneficiary of the
deceased Owner but no Contingent Annuitant, the Joint Owner will become the
Owner, Annuitant and Beneficiary and may elect to take the Death Benefit or
continue the Contract in force.
In all other cases, we will pay the Death Benefit to the Beneficiary, even if a
Joint Owner (who was not the Owner's spouse on the date of the Owner's death),
Annuitant and/or Contingent Annuitant are alive at the time of the Owner's
death, unless the sole Beneficiary is the deceased Owner's surviving spouse who
may elect to become the Owner and Annuitant and to continue the Contract in
force.
- --------------------------------------------------------------------------------
Charges and Deductions
No amounts will be deducted from your Contributions except for any applicable
Premium Tax. As a result, the full amount of your Contributions (less any
applicable Premium Tax) are invested in the Contract.
As more fully described below, charges under the Contract are assessed only as
deductions for:
o Premium Tax, if applicable,
o Certain Transfers,
o a Contract Maintenance Charge, and
o charges against your Variable Account Value for our assumption of mortality
and expense risks.
Mortality and Expense Risk Charge
We deduct a Mortality and Expense Risk Charge from your Variable Account Value
at the end of each valuation period to compensate us for bearing certain
mortality and expense risks under the Contract. This is a daily charge equal to
an effective annual rate of 0.85%. We guarantee that this charge will never
increase beyond 0.85%.
The Mortality and Expense Risk Charge is reflected in the unit values of each of
the Sub-Accounts you have selected. Thus, this charge will continue to be
applicable should you choose a variable annuity payout option or the periodic
withdrawal option.
Annuity Account Values and annuity payouts are not affected by changes in actual
mortality experience incurred by us. The mortality risks assumed by us arise
from our contractual obligations to make annuity payouts determined in
accordance with the annuity tables and other provisions contained in the
Contract. This means that you can be sure that neither the Annuitant's longevity
nor an unanticipated improvement in general life expectancy will adversely
affect the annuity payouts under the Contract.
We bear substantial risk in connection with the Death Benefit before the Annuity
Commencement Date.
The expense risk assumed is the risk that our actual expenses in administering
the Contracts and the Series Account will be greater than we anticipated.
If the Mortality and Expense Risk Charge is insufficient to cover actual costs
and risks assumed, the loss will fall on us. If this charge is more than
sufficient, any excess will be profit to us. Currently, we expect a profit from
this charge. Our expenses for distributing the Contracts will be borne by our
general assets, including any profits from this charge.
22
Contract Maintenance Charge
We currently deduct a $25 annual Contract Maintenance Charge from the Annuity
Account Value on each Contract anniversary date for accounts under $50,000 as of
such anniversary date. This charge partially covers our costs for administering
the Contracts and the Series Account. Once you have started receiving payouts
from the Contract, this charge will stop unless you choose the periodic
withdrawal option.
The Contract Maintenance Charge is deducted from the portion of your Annuity
Account Value allocated to the Schwab Money Market Sub-Account. If the portion
of your Annuity Account Value in this Sub-Account is not sufficient to cover the
Contract Maintenance Charge, then the charge or any portion of it will be
deducted on a pro rata basis from all your Sub-Accounts with current value. If
the entire Annuity Account is held in the Guarantee Period Fund or there are not
enough funds in any Sub-Account to pay the entire charge, then the Contract
Maintenance Charge will be deducted on a pro rata basis from amounts held in all
Guarantee Periods. There is no MVA on amounts deducted from a Guarantee Period
for the Contract Maintenance Charge.
The Contract Maintenance Charge is currently waived for Contracts with an
Annuity Account Value of at least $50,000 as of such Contract anniversary date.
If your Annuity Account Value falls below $50,000, the Contract Maintenance
Charge will be reinstated until an anniversary date on which your Annuity
Account Value is equal to or greater than $50,000. We do not expect a profit
from amounts received from the Contract Maintenance Charge.
Transfer Fees
There will be a $10 charge for each Transfer in excess of 12 Transfers in any
calendar year. We do not expect a profit from the Transfer fees.
Expenses of the Portfolios
The value of the assets in the Sub-Accounts reflect the value of Portfolio
shares and therefore the fees and expenses paid by each Portfolio. A complete
description of the fees, expenses, and deductions from the Portfolios is
included in this Prospectus under the Variable Annuity Fee Table and Portfolio
Annual Expenses on pages 7 and 8.
Premium Tax
We may be required to pay state Premium Taxes or retaliatory taxes currently
ranging from 0% to 3.5% in connection with Contributions or values under the
Contracts. Depending upon applicable state law, we will deduct charges for the
Premium Taxes we incur with respect to your Contributions, from amounts
withdrawn, or from amounts applied on the Payout Commencement Date. In some
states, charges for both direct Premium Taxes and retaliatory Premium Taxes may
be imposed at the same or different times with respect to the same Contribution,
depending on applicable state law.
Other Taxes
Under present laws, we will incur state or local taxes (in addition to the
Premium Tax described above) in several states. No charges are currently made
for taxes other than Premium Tax. However, we reserve the right to deduct
charges in the future for federal, state, and local taxes or the economic burden
resulting from the application of any tax laws that we determine to be
attributable to the Contract.
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Payout Options
During the Distribution Period, you can choose to receive payouts in four
ways--through periodic withdrawals, variable annuity payouts, fixed annuity
payouts or in a single sum payment. The Payout Commencement Date must be at
least one year after the Effective Date of the Contract. If you do not select a
Payout Commencement Date, payouts will begin on the first day of the month of
the Annuitant's 91st birthday.
You may change the Payout Commencement Date within 30 days prior to commencement
of payouts or your Beneficiary may change it upon the death of the Owner.
If this is an IRA, payouts which satisfy the minimum distribution requirements
of the Code must begin no later than April 1 of the calendar year following the
calendar year in which you become age 70 1/2.
Periodic Withdrawals
You may request that all or part of the Annuity Account Value be applied to a
periodic withdrawal option. The amount applied to a periodic withdrawal is the
Annuity Account Value with any applicable MVA, less Premium Tax, if any.
In requesting periodic withdrawals, you must elect:
o The withdrawal frequency of either 1-, 3-, 6- or 12-month intervals.
o A minimum withdrawal amount of at least $100.
o The calendar day of the month on which withdrawals will be made.
o One of the periodic withdrawal payout options discussed below-- you may
change the withdrawal option and/or the frequency once each calendar year.
23
Your withdrawals may be prorated across the Guarantee Period Fund, if
applicable, and the Sub-Accounts in proportion to their assets. Or, they can be
made specifically from the Guarantee Period Fund and specific Sub-Account(s)
until they are depleted. Then, we will automatically prorate the remaining
withdrawals against any remaining Guarantee Period Fund and Sub-Account assets
unless you request otherwise.
While periodic withdrawals are being received:
o You may continue to exercise all contractual rights, except that no
Contributions may be made.
o A Market Value Adjustment, if applicable, will be assessed for periodic
withdrawals from Guarantee Periods made six or more months prior to their
Guarantee Period Maturity Date.
o You may keep the same Sub-Accounts as you had selected before periodic
withdrawals began.
o Charges and fees under the Contract continue to apply.
o Maturing Guarantee Periods renew into the shortest Guarantee Period then
available.
Periodic withdrawals will cease on the earlier of the date:
o The amount elected to be paid under the option selected has been reduced to
zero,
o The Annuity Account Value is zero,
o You request that withdrawals stop, or
o The Owner or the Annuitant dies.
If periodic withdrawals stop, you may resume making Contributions. However, we
may limit the number of times you may restart a periodic withdrawal program.
Periodic withdrawals made for any purpose may be taxable, subject to withholding
and to the 10% federal penalty tax if you are younger than age 59 1/2. IRAs are
subject to complex rules with respect to restrictions on and taxation of
distributions, including penalty taxes.
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If you choose to receive payouts from your Contract through periodic
withdrawals, you may select from the following payout options: Income for a
specified period (at least 36 months)--You elect the length of time over which
withdrawals will be made. The amount paid will vary based on the duration you
choose.
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Income of a specified amount (at least 36 months)--You elect the dollar amount
of the withdrawals. Based on the amount elected, the duration may vary. Interest
only--Your withdrawals will be based on the amount of interest credited to the
Guarantee Period Fund between withdrawals. Available only if 100% of your
Account Value is invested in the Guarantee Period Fund.
Minimum distribution--If you are using this Contract as an IRA, you may request
minimum distributions as specified under Code Section 401(a)(9). Any other form
of periodic withdrawal acceptable to Great-West which is for a period of at
least 36 months.
In accordance with the provisions outlined in this section, you may request a
periodic withdrawal to remit fees paid to your Consultant. There may be income
tax consequences to any periodic withdrawal made for this purpose. Please see
"Cash Withdrawals" on page 19 and "Federal Tax Matters" on page 26.
Annuity Payouts
You can choose the Annuity Commencement Date either when you purchase the
Contract or at a later date. The date you choose must be at least one year after
the Effective Date of the Contribution. If you do not select an Annuity
Commencement Date, payouts will begin on the first day of the month of the
Annuitant's 91st birthday. You can change your selection at any time up to 30
days before the Annuity Commencement Date you selected.
If you have not elected a payout option within 30 days of the Annuity
Commencement Date, the portion of your Annuity Account Value held in your Fixed
Account will be paid out as a fixed life annuity with a guarantee period of 20
years. The Annuity Account Value held in the Sub-Account(s) will be paid out as
a variable life annuity with a guarantee period of 20 years.
The amount to be paid out is the Annuity Account Value on the Annuity
Commencement Date. The minimum amount that may be withdrawn from the Annuity
Account Value to purchase an annuity payout option is $2,000 with a Market Value
Adjustment, if applicable. If after the Market Value Adjustment, your Annuity
Account Value is less than $2,000, we may pay the amount in a single sum subject
to the Contract provisions applicable to a partial withdrawal.
24
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If you choose to receive variable annuity payouts from your Contract, you may
select from the following payout options: Variable life annuity with guaranteed
period--This option provides for monthly payouts during a guaranteed period or
for the lifetime of the Annuitant, whichever is longer. The guaranteed period
may be 5, 10, 15 or 20 years.
Variable life annuity--This option provides for monthly payouts during the
lifetime of the Annuitant. The annuity terminates with the last payout due prior
to the death of the Annuitant. Since no minimum number of payouts is guaranteed,
this option may offer the maximum level of monthly payouts. It is possible that
only one payout may be made if the Annuitant died before the date on which the
second payout is due.
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Under an annuity payout option, you can receive payouts monthly, quarterly,
semi-annually or annually in payments which must be at least $50. We reserve the
right to make payouts using the most frequent payout interval which produces a
payout of at least $50.
If you elect to receive a single sum payment, the amount paid is the Surrender
Value.
Amount of First Variable Payout
The first payout under a variable annuity payout option will be based on the
value of the amounts held in each Sub-Account you have selected on the 5th
valuation date preceding the Annuity Commencement Date. It will be determined by
applying the appropriate rate to the amount applied under the payout option. The
rate set by Contract and applied reflects an assumed investment return ("AIR")
of 5%.
For annuity options involving life income, the actual age, year in which
annuitization commences, and/or gender of the Annuitant will affect the amount
of each payout. We reserve the right to ask for satisfactory proof of the
Annuitant's age. We may delay annuity payouts until satisfactory proof is
received. Since payouts to older Annuitants are expected to be fewer in number,
the amount of each annuity payout under a selected annuity form will be greater
for older Annuitants than for younger Annuitants.
If the age of the Annuitant has been misstated, the payouts established will be
made on the basis of the correct age. If payouts were too large because of
misstatement, the difference with interest may be deducted by us from the next
payout or payouts. If payouts were too small, the difference with interest may
be added by us to the next payout. This interest is at an annual effective rate
which will not be less than the Guaranteed Interest Rate.
Variable Annuity Units
The number of Annuity Units paid for each Sub-Account is determined by dividing
the amount of the first monthly payout by its Annuity Unit value on the 5th
valuation date preceding the date the first payout is due. The number of Annuity
Units used to calculate each payout for a Sub-Account remains fixed during the
Annuity Payout Period.
Amount of Variable Payouts After the
First Payout
Payouts after the first will vary depending upon the investment performance of
the Sub-Accounts. Your payments will increase in amount over time if the
Sub-Account(s) you select earn more than the 5% AIR. Likewise, your payments
will decrease in amount over time if the Sub-Account(s) you select earn less
than the 5% AIR. The subsequent amount paid from each Sub-Account is determined
by multiplying (a) by (b) where (a) is the number of Sub-Account Annuity Units
to be paid and (b) is the Sub-Account Annuity Unit value on the 5th valuation
date preceding the date the annuity payout is due. The total amount of each
variable annuity payout will be the sum of the variable annuity payouts for each
Sub-Account you have selected. We guarantee that the dollar amount of each
payout after the first will not be affected by variations in expenses or
mortality experience.
Transfers After the Variable Annuity
Commencement Date
Once annuity payouts have begun, no Transfers may be made from a fixed annuity
payout option to a variable annuity payout option, or vice versa. However, for
variable annuity payout options, Transfers may be made within the variable
annuity payout option among the available Sub-Accounts. Transfers after the
Annuity Commencement Date will be made by converting the number of Annuity Units
being Transferred to the number of Annuity Units of the Sub-Account to which the
Transfer is made. The result will be that the next annuity payout, if it were
made at that time, would be the same amount that it would have been without the
Transfer. Thereafter, annuity payouts will reflect changes in the value of the
new Annuity Units.
25
Other Restrictions
Once payouts start under the annuity payout option you select:
o no changes can be made in the payout option,
o no additional Contributions will be accepted under the Contract, and
o no further withdrawals, other than withdrawals made to provide annuity
benefits, will be allowed.
A portion or the entire amount of the annuity payouts may be taxable as ordinary
income. If, at the time the annuity payouts begin, we have not received a proper
written election not to have federal income taxes withheld, we must by law
withhold such taxes from the taxable portion of such annuity payouts and remit
that amount to the federal government (an election not to have taxes withheld is
not permitted for certain distributions from Qualified Contracts). State income
tax withholding may also apply. Please see "Federal Tax Matters" below for
details.
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If you choose to receive fixed annuity payouts from your Contract, you may
select from the following payout options: Income of specified amount--The amount
applied under this option may be paid in equal annual, semi-annual, quarterly or
monthly installments in the dollar amount elected for not more than 240 months.
Income for a specified period--Payouts are paid annually, semi-annually,
quarterly or monthly, as elected, for a selected number of years not to exceed
240 months. Fixed life annuity with guaranteed period--This option provides
monthly payouts during a guaranteed period or for the lifetime of the Annuitant,
whichever is longer. The guaranteed period may be 5, 10, 15 or 20 years.
Fixed life annuity--This option provides for monthly payouts during the lifetime
of the Annuitant. The annuity ends with the last payout due prior to the death
of the Annuitant. Since no minimum number of payouts is guaranteed, this option
may offer the maximum level of monthly payouts. It is possible that only one
payout may be made if the Annuitant died before the date on which the second
payout is due.
Any other form of a fixed annuity acceptable to us.
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Annuity IRAs
The annuity date and options available for IRAs may be controlled by
endorsements, the plan documents, or applicable law.
Under the Code, a Contract purchased and used in connection with an Individual
Retirement Account or with certain other plans qualifying for special federal
income tax treatment is subject to complex "minimum distribution" requirements.
Under a minimum distribution plan, distributions must begin by a specific date
and the entire interest of the plan participant must be distributed within a
certain specified period of time. The application of the minimum distribution
requirements vary according to your age and other circumstances.
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Seek Tax Advice
The following discussion of the federal income tax consequences is only a brief
summary and is not intended as tax advice. The federal income tax consequences
discussed here reflect our understanding of current law and the law may change.
Federal estate tax consequences and state and local estate, inheritance, and
other tax consequences of ownership or receipt of distributions under a Contract
depend on your individual circumstances or the circumstances of the person who
receives the distribution. A tax adviser should be consulted for further
information.
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Federal Tax Matters
The following discussion is a general description of federal income tax
considerations relating to the Contracts and is not intended as tax advice. This
discussion assumes that the Contract qualifies as an annuity contract for
federal income tax purposes. This discussion is not intended to address the tax
consequences resulting from all situations. If you are concerned about these tax
implications relating to the ownership or use of the Contract, you should
consult a competent tax adviser before initiating any transaction.
This discussion is based upon our understanding of the present federal income
tax laws as they are currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of the continuation of the present
federal income tax laws or of the current interpretation by the Internal Revenue
Service. Moreover, no attempt has been made to consider any applicable state or
other tax laws.
26
The Contract may be purchased on a non-tax qualified basis ("Non-Qualified
Contract") or purchased and used in connection with IRAs. The ultimate effect of
federal income taxes on the amounts held under a Contract, on annuity payouts,
and on the economic benefit to you, the Annuitant, or the Beneficiary may depend
on the type of Contract, and on the tax status of the individual concerned.
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Because tax laws, rules and regulations are constantly changing, we do not make
any guarantees about the Contract's tax status.
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Certain requirements must be satisfied in purchasing an Annuity IRA and
receiving distributions from an Annuity IRA in order to continue receiving
favorable tax treatment. As a result, purchasers of Annuity IRAs should seek
competent legal and tax advice regarding the suitability of the Contract for
their situation, the applicable requirements and the tax treatment of the rights
and benefits of the Contract. The following discussion assumes that an Annuity
IRA is purchased with proceeds and/or Contributions that qualify for the
intended special federal income tax treatment.
Taxation of Annuities
Section 72 of the Code governs taxation of annuities and distributions from
IRAs. You, as a "natural person" will not generally be taxed on increases, if
any, in the value of your Annuity Account Value until a distribution occurs by
withdrawing all or part of the Annuity Account Value (for example, withdrawals
or annuity payouts under the annuity payout option elected). However, under
certain circumstances, you may be subject to current taxation. In addition, an
assignment, pledge, or agreement to assign or pledge any portion of the
Non-Qualified Annuity Account Value will be treated as a withdrawal of such
portion. An IRA Contract may not be assigned as collateral for a loan. The
taxable portion of a withdrawal (in the form of a single sum payout or an
annuity) is taxable as ordinary income.
As a general rule, if the Non-Qualified Contract is not owned by a natural
person (for example, a corporation or certain trusts), the Contract will not be
treated as an annuity contract for federal tax purposes. The Owner generally
must include in income any increase in the excess of the Annuity Account Value
over the "investment in the Contract" (discussed below) during each taxable
year. The rule generally does not apply, however, where the non-natural person
is only the nominal Owner of a Contract and the beneficial Owner is a natural
person.
The rule also does not apply where:
o The annuity Contract is acquired by the estate of a decedent.
o The Contract is held under an IRA.
o The Contract is a qualified funding asset for a structured settlement.
o The Contract is purchased on behalf of an employee upon termination of a
qualified plan.
The following discussion generally applies to a Contract owned by a natural
person.
Withdrawals
In the case of a withdrawal under a Non-Qualified Contract, partial withdrawals,
including periodic withdrawals that are not part of an annuity payout, are
generally treated as taxable income to the extent that the Annuity Account Value
immediately before the withdrawal exceeds the "investment in the Contract" at
that time. The "investment in the Contract" generally equals the amount of any
nondeductible Contributions paid by or on behalf of any individual less any
withdrawals that were excludable from income. If a partial withdrawal is made
from a Guarantee Period which is subject to a Market Value Adjustment, then
the Annuity Account Value immediately before the withdrawal will not be altered
to take into account the Market Value Adjustment. As a result, for purposes of
determining the taxable portion of the partial withdrawal, the Annuity Account
Value will not reflect the amount, if any, deducted from or added to the
Guarantee Period due to the Market Value Adjustment. Full surrenders are treated
as taxable income to the extent that the amount received exceeds the "investment
in the Contract." The taxable portion of any withdrawal is taxed at ordinary
income tax rates.
In the case of a withdrawal under an Annuity IRA, including withdrawals under
the periodic withdrawal option, a portion of the amount received may be
non-taxable. The amount of the non-taxable portion is generally determined by
the ratio of the "investment in the Contract" to the individual's Annuity
Account Value. Special tax rules may be available for certain distributions from
an IRA.
Annuity Payouts
Although the tax consequences may vary depending on the annuity form elected
under the Contract, in general, only the portion of the annuity payout that
represents the amount by which the Annuity Account Value exceeds the "investment
in the Contract" will be taxed. For fixed annuity payouts, in general there is
no tax on the portion of each payout which represents the same ratio that the
"investment in the Contract" allocated to the fixed annuity payouts bears to the
total expected value of the annuity payouts for the term of the payouts
(determined under Treasury Department regulations). For variable annuity
payouts, in general there is no tax on the portion of each payout which
represents the same ratio that the "investment in the Contract" allocated to the
variable annuity payouts bears to the number of payments expected to be made
(determined by Treasury Department regulations which take into account the
annuitant's life expectancy and the form of annuity benefit selected.) However,
the remainder of each annuity payout is taxable at ordinary income tax rates.
Once the "investment in the Contract" has been fully recovered, the full amount
of any additional annuity payouts is taxable.
Penalty Tax
For distributions from a Non-Qualified Contract, there may be a federal income
tax penalty imposed equal to 10% of the amount treated as taxable income. In
general, however, there is no penalty tax on distributions:
o Made on or after the date on which the Owner reaches age 59 1/2.
o Made as a result of death or disability of the Owner.
o Received in substantially equal periodic payouts (at least annually) for
your life (or life expectancy) or the joint lives (or joint life
expectancies) of you and the Beneficiary.
Other exceptions may apply to distributions from a Non-Qualified Contract.
Similar exceptions from the penalty tax on distributions are provided for
distributions from an Annuity IRA. For more details regarding this penalty tax
and other exceptions that may be applicable, consult a competent tax adviser.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the Contract because of the death of an Owner or
the Annuitant. Generally such amounts are included in the income of the
recipient as follows:
o If distributed in a lump sum, they are taxed in the same manner as a full
withdrawal, as described above.
o If distributed under an annuity form, they are taxed in the same manner as
annuity payouts, as described above.
Distribution at Death
In order to be treated as an annuity contract, the terms of the Contract must
provide the following two distribution rules:
o If the Owner dies before the date annuity payouts start, the entire
interest in the Contract must generally be distributed within five years
after the date of the Owner's death. If payable to a designated
Beneficiary, the distributions may be paid over the life of that designated
Beneficiary or over a period not extending beyond the life expectancy of
that Beneficiary, so long as payouts start within one year of the Owner's
death. If the sole designated Beneficiary is your spouse, the Contract may
be continued in the name of the spouse as Owner.
o If the Owner dies on or after the date annuity payouts start, and before
the entire interest in the Contract has been distributed, the remainder of
the interest in the Contract will be distributed on the same or on a more
rapid schedule than that provided for in the method in effect on the date
of death.
If the Owner is not an individual, then for purposes of the distribution at
death rules, the Primary Annuitant is considered the Owner. In addition, when
the Owner is not an individual, a change in the Primary Annuitant is treated as
the death of the Owner.
Distributions made to a Beneficiary upon the Owner's death from an IRA must be
made pursuant to similar rules in Section 401(a)(9) of the Code.
Diversification of Investments
For a Non-Qualified Contract to be treated as an annuity for federal income tax
purposes, the investments of the Sub-accounts must be "adequately diversified"
in accordance with Treasury Department Regulations. The diversification
requirements do not apply to Annuity IRAs. If the Series Account or a
Sub-account failed to comply with these diversification standards, a
Non-Qualified Contract would not be treated as an annuity contract for federal
income tax purposes and the Owner would generally be taxable currently on the
excess of the Annuity Account Value over the Contributions to the Contract.
Although the Company may not control the investments of the Sub-accounts or the
Portfolios, it expects that the Sub-accounts and the Portfolios will comply with
such regulations so that the Sub-accounts will be considered "adequately
diversified." Contract Owners bear the risk that the entire Non-Qualified
Contract could be disqualified as an annuity under the Code due to the failure
of the Series Account or a Sub-account to be deemed to be adequately
diversified.
Owner Control
In three Revenue Rulings issued between 1977 and 1982, the IRS held that where a
variable annuity contract holder had certain forms of actual or potential
control over the investments that were held by the insurance company under the
contract, the Owner would be taxable on the income and gains produced by those
investments. The Company does not believe that an Owner of a Non-Qualified
Contract will have any of the specific types of control that were described in
those Rulings. However, because the current scope and application of these three
Revenue Rulings are unclear, we reserve the right to modify the Non-Qualified
Contract as may be required to maintain favorable tax treatment.
Transfers, Assignments or Exchanges
A transfer of ownership of a Contract, the designation of an Annuitant, Payee or
other Beneficiary who is not also the Owner, or the exchange of a Contract may
result in adverse tax consequences that are not discussed in this Prospectus.
Multiple Contracts
All deferred, Non-Qualified Annuity Contracts that are issued by Great-West (or
our affiliates) to the same Owner during any calendar year will be treated as
one annuity contract for purposes of determining the taxable amount.
Withholding
Non-Qualified Annuity Contract and Annuity IRA distributions generally are
subject to withholding at rates that vary according to the type of distribution
and the recipient's tax status. Recipients, however, generally are provided the
opportunity to elect not to have tax withheld from distributions. Certain
distributions from IRAs are subject to mandatory federal income tax withholding.
Section 1035 Exchanges
Code Section 1035 provides that no gain or loss shall be recognized on the
exchange of one insurance contract for another. Generally, contracts issued in
an exchange for another annuity contract are treated as new for purposes of the
penalty and distribution at death rules.
Individual Retirement Annuities
The Contract may be used with IRAs as described in Section 408 of the Code which
permits eligible individuals to contribute to an individual retirement program
known as an Individual Retirement Annuity. Also, certain kinds of distributions
from certain types of qualified and non-qualified retirement plans may be
"rolled over" into an Annuity IRA following the rules set out in the Code and
your Contract and IRA endorsement. If you purchase this Contract for use with an
IRA, you will be provided with supplemental information. You also have the right
to revoke your purchase within seven days of purchase of the IRA Contract. If a
Contract is purchased to fund an IRA, the Annuitant must also be the Owner. In
addition, if a Contract is purchased to fund an IRA, minimum distributions must
commence not later than April 1st of the calendar year following the calendar
year in which you attain age 70 1/2. You should consult your tax adviser
concerning these matters.
Various tax penalties may apply to Contributions in excess of specified limits,
distributions that do not satisfy specified requirements, and certain other
transactions. The Contract will be amended as necessary to conform to the
requirements of the Code if there is a change in the law. Purchasers should seek
competent advice as to the suitability of the Contract for use with IRAs.
When you make your initial Contribution, you must specify whether you are
purchasing a Non-Qualified Contract or an IRA. If the initial Contribution is
made as a result of an exchange or surrender of another annuity contract, we may
require that you provide information with regard to the federal income tax
status of the previous annuity contract.
We will require that you purchase separate Contracts if you want to invest money
qualifying for different annuity tax treatment under the Code. For each separate
Contract you will need to make the required minimum initial Contribution.
Additional Contributions under the Contract must qualify for the same federal
income tax treatment as the initial Contribution under the Contract. We will not
accept an additional Contribution under a Contract if the federal income tax
treatment of the Contribution would be different from the initial Contribution.
If a Contract is issued in connection with an employer's Simplified Employee
Pension plan, Owners, Annuitants and Beneficiaries are cautioned that the rights
of any person to any of the benefits under the Contract will be subject to the
terms and conditions of the plan itself, regardless of the terms and conditions
of the Contract.
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Assignments or Pledges
Generally, rights in the Non-Qualified Contract may be assigned or pledged for
loans at any time during the life of the Annuitant. However, if the Contract is
an IRA, you may not assign the Contract as collateral.
If a Non-Qualified Contract is assigned, the interest of the assignee has
priority over your interest and the interest of the Beneficiary. Any amount
payable to the assignee will be paid in a single sum.
A copy of any assignment must be submitted to the Annuity Administration
Department at Great-West. All assignments are subject to any action taken or
payout made by Great-West before the assignment was processed. We are not
responsible for the validity or sufficiency of any assignment.
If any portion of the Annuity Account Value is assigned or pledged for a loan,
it will be treated as a withdrawal as discussed above under Taxation of
Annuities. Please consult a competent tax adviser for further information.
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Performance Data
From time to time, we may advertise yields and average annual total returns for
the Sub-Accounts. In addition, we may advertise the effective yield of the
Schwab Money Market Sub-Account. These figures will be based on historical
information and are not intended to indicate future performance.
Money Market Yield
The yield of the Schwab Money Market Sub-Account refers to the annualized income
generated by an investment in that Sub-Account over a specified 7-day period. It
is calculated by assuming that the income generated for that seven-day period is
generated each 7-day period over a period of 52 weeks and is shown as a
percentage of the investment.
The effective yield is calculated similarly but, when annualized, the income
earned by an investment in that Sub-Account is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of the assumed reinvestment.
Average Annual Total Return
The table on the following page illustrates standardized and non-standardized
average annual total return for one-, three-, five- and ten-year periods (or
since inception, if less than ten years) ended December 31, 2001. Average annual
total return quotations represent the average annual compounded rate of return
that would equate an initial investment of $1,000 to the redemption value of
that investment (excluding Premium Taxes, if any) as of the last day of each of
the periods for which total return quotations are provided.
Both the standardized and non-standardized data utilize the same calculation
method which reflects the deduction of all fees and charges under the Contract.
The standardized data is calculated from the inception date of the Sub-Account
and the non-standardized data is calculated for periods preceding the inception
date of the Sub-Account. For additional information regarding yields and total
returns calculated using the standard methodologies briefly described herein,
please refer to the Statement of Additional Information.
30
Performance Data
Standardized Performance Data Non-Standardized Performance Data
Sub-Account 1 year 5 years Since Inception 1 Year 3 years 5 years 10 years Since Inception
Inception Date of Inception of Date of
of Sub-Account Underlying Underlying
Sub-Account Portfolio Portfolio
(if less than
10 years)
Alger American Growth -12.57% 12.34% 12.42% 11/1/1996 N/A -0.70% N/A 13.99% N/A 1/9/1989
American Century VP International -29.79% 5.45% 6.23% 11/1/1996 N/A -1.98% N/A N/A 5.89% 5/1/1994
Baron Capital Asset 11.38% N/A 7.90% 5/3/1999 N/A 13.09% N/A N/A 22.09% 10/1/1998
Berger IPT-Small Company Growth -34.05% N/A 10.71% 5/1/1997 N/A 5.07% 7.10% N/A 6.03% 5/1/1996
Dreyfus Variable Investment Fund -10.09% N/A -3.61% 5/3/1999 N/A -0.72% 9.91% N/A 12.80% 4/5/1993
Appreciation
Dreyfus Variable Investment Fund -6.65% N/A -1.70% 5/3/1999 N/A 1.05% 5.68% N/A 12.63% 5/2/1994
Growth and Income
Federated American Leaders Fund II -5.03% 9.28% 9.82% 11/1/1996 N/A 0.65% N/A N/A 11.99% 2/10/1994
Federated Fund for U.S. Government 6.12% 5.67% 5.40% 11/1/1996 N/A 4.79% N/A N/A 5.29% 3/28/1994
Securities II
Federated Utility Fund II -14.46% N/A 1.93% 5/1/1997 N/A -8.01% 2.01% N/A 4.76% 2/10/1994
INVESCO VIF-Core Equity -9.72% 9.18% 9.77% 11/1/1996 N/A 2.24% N/A N/A 12.79% 8/10/1994
INVESCO VIF-High Yield -15.66% -1.40% -0.63% 11/1/1996 N/A -7.17% -1.37% N/A 3.33% 5/27/1994
INVESCO VIF-Technology -46.29% N/A -48.03% 3/1/2000 N/A 1.54% N/A N/A 9.03% 5/21/1997
Janus Aspen Series Flexible Income 6.82% N/A 4.34% 5/3/1999 N/A 4.27% 6.32% N/A 7.22% 9/13/1993
Janus Aspen Series Growth -25.38% 8.08% 8.34% 11/1/1996 N/A -3.37% N/A N/A 10.84% 9/13/1993
Janus Aspen Series International Growth -23.90% N/A 2.94% 5/3/1999 N/A 4.65% 9.37% N/A 12.50% 5/2/1994
Janus Aspen Series Worldwide Growth -23.11% 10.14% 10.65% 11/1/1996 N/A 1.58% N/A N/A 14.75% 9/13/1993
Montgomery Variable Series: Growth -21.44% 1.96% 2.57% 11/1/1996 N/A -5.34% N/A N/A 5.80% 2/9/1996
Prudential Series Fund Equity -12.33% N/A -4.67% 5/3/1999 N/A N/A N/A N/A -4.63% 5/4/1999
Class II
SAFECO RST Equity -10.17% N/A 5.06% 5/1/1997 N/A -4.87% 5.71% 11.82% N/A 4/3/1987
SAFECO RST Growth Opportunities 18.13% N/A 8.94% 5/3/1999 N/A 4.79% 10.74% N/A 18.42% 1/7/1993
Schwab MarketTrack Growth II -9.19% 7.04% 7.51% 11/1/1996 N/A 0.55% N/A N/A 7.67% 11/1/1996
Schwab S&P 500 -12.91 9.26% 10.00% 11/1/1996 N/A -2.22% 9.29% N/A 10.06% 11/1/1996
Scudder Variable Series I Capital -20.05% N/A -3.77% 5/3/1999 N/A -1.44% 9.51% 10.48% N/A 7/16/1985
Growth
Scudder Variable Series I Growth and -12.06% N/A -8.08% 5/3/1999 N/A -3.62% 4.24% N/A 9.69% 5/2/1994
Income
Scudder VIT EAFE(R)Equity Index -25.34% N/A -10.68% 5/3/1999 N/A -7.93% N/A N/A -3.00% 8/22/1997
Scudder VIT Small Cap Index 1.25% N/A 4.46% 5/3/1999 N/A 4.76% N/A N/A 3.64% 8/22/1997
Strong Multi Cap Value II 3.23% N/A -1.78% 5/3/1999 N/A 2.05% N/A N/A 1.53% 10/10/1997
Van Kampen Universal Institutional 8.91% N/A 5.75% 9/17/1997 N/A 10.88% N/A N/A 7.37% 3/3/1997
Funds U.S. Real Estate*
*On September 22, 2000, the net assets of the Van Kampen Life Investment Trust
Morgan Stanley Real Estate Securities Portfolio ("LIT Portfolio") were merged
into the Van Kampen Universal Institutional Funds U.S. Real Estate Portfolio
("UIF Portfolio"). The LIT Portfolio was terminated following the merger. The
Sub-Account that had invested in the LIT Portfolio until that time began
investing in the UIF Portfolio. As a result, both the standardized and
non-standardized performance shown above reflect only the performance of the UIF
Portfolio and not that of the LIT Portfolio.
31
Performance information and calculations for any Sub-Account are based only on
the performance of a hypothetical Contract under which the Annuity Account Value
is allocated to a Sub-Account during a particular time period. Performance
information should be considered in light of the investment objectives and
policies and characteristics of the Portfolios in which the Sub-Account invests
and the market conditions during the given time period. It should not be
considered as a representation of what may be achieved in the future.
Reports and promotional literature may also contain other information including:
o the ranking of or asset allocation/investment strategy of any Sub-Account
derived from rankings of variable annuity separate accounts or their
investment products tracked by Lipper Analytical Services, Inc., VARDS,
Morningstar, Value Line, IBC/Donoghue's Money Fund Report, Financial
Planning Magazine, Money Magazine, Bank Rate Monitor, Standard & Poor's
Indices, Dow Jones Industrial Average, and other rating services,
companies, publications or other people who rank separate accounts or other
investment products on overall performance or other criteria, and
o the effect of tax-deferred compounding on investment returns, or returns in
general, which may be illustrated by graphs, charts, or otherwise, and
which may include a comparison, at various points in time, of the return
from an investment in a Contract (or returns in general) on a tax-deferred
basis (assuming one or more tax rates) with the return on a currently
taxable basis. Other ranking services and indices may be used.
We may from time to time also advertise cumulative (non-annualized) total
returns, yield and standard total returns for the Sub-Accounts.
We may also advertise performance figures for the Sub-Accounts based on the
performance of a Portfolio prior to the time the Series Account commenced
operations.
For additional information regarding the calculation of other performance data,
please refer to the Statement of Additional Information.
- --------------------------------------------------------------------------------
Distribution of the Contracts
Charles Schwab & Co., Inc. ("Schwab") is the principal underwriter and
distributor of the Contracts. Schwab is registered with the SEC as a
broker/dealer and is a member of the National Association of Securities Dealers,
Inc. ("NASD"). Its principal offices are located at 101 Montgomery Street, San
Francisco, California 94104, telephone 800-838-0650.
Certain administrative services are provided by Schwab to assist Great-West in
processing the Contracts. These services are described in written agreements
between Schwab and Great-West. Great-West has agreed to indemnify Schwab (and
its agents, employees, and controlling persons) for certain damages arising out
of the sale of the Contracts, including those arising under the securities laws.
- --------------------------------------------------------------------------------
Voting Rights
In general, you do not have a direct right to vote the Portfolio shares held in
the Series Account. However, under current law, you are entitled to give us
instructions on how to vote the shares. We will vote the shares according to
those instructions at regular and special shareholder meetings. If the law
changes and we can vote the shares in our own right, we may elect to do so.
Before the Annuity Commencement Date, you have the voting interest. The number
of votes available to you will be calculated separately for each of your
Sub-Accounts. That number will be determined by applying your percentage
interest, if any, in a particular Sub-Account to the total number of votes
attributable to that Sub-Account. You hold a voting interest in each Sub-Account
to which your Annuity Account Value is allocated. If you select a variable
annuity option, the votes attributable to your Contract will decrease as annuity
payouts are made.
The number of votes of a Portfolio will be determined as of the date established
by that Portfolio for determining shareholders eligible to vote at the meeting
of the Portfolios. Voting instructions will be solicited by written
communication prior to such meeting in accordance with procedures established by
the respective Portfolios.
If we do not receive timely instructions and Owners have no beneficial interest
in shares held by us, we will vote according to the voting instructions as a
proportion of all Contracts participating in the Sub-Account. If you indicate in
your instructions that you do not wish to vote an item, we will apply your
instructions on a pro rata basis to reduce the votes eligible to be cast.
Each person or entity having a voting interest in a Sub-Account will receive
proxy material, reports and other material relating to the appropriate
Portfolio.
Please note, generally the Portfolios are not required to, and do not intend to,
hold annual or other regular meetings of shareholders.
Owners have no voting rights in Great-West.
32
- --------------------------------------------------------------------------------
Rights Reserved by Great-West
We reserve the right to make certain changes we believe would best serve the
interests of Owners and Annuitants or would be appropriate in carrying out the
purposes of the Contracts. Any changes will be made only to the extent and in
the manner permitted by applicable laws. Also, when required by law, we will
obtain your approval of the changes and approval from any appropriate regulatory
authority. Approval may not be required in all cases, however. Examples of the
changes we may make include: o To operate the Series Account in any form
permitted under the Investment Company Act of 1940
or in any other form permitted by law.
o To Transfer any assets in any Sub-Account to another Sub-Account, or
to one or more separate accounts, or to a Guarantee Period; or to add,
combine or remove Sub-Accounts of the Series Account.
o To substitute, for the Portfolio shares in any Sub-Account, the
shares of another Portfolio or shares of another investment company or any
other investment permitted by law.
o To make any changes required by the Code or by any other applicable
law in order to continue treatment of the Contract as an annuity.
o To change the time or time of day at which a valuation date is deemed
to have ended.
o To make any other necessary technical changes in the Contract
in order to conform with any
action the above provisions permit us to take, including changing the way we
assess charges, without increasing them for any outstanding Contract beyond
the aggregate amount guaranteed.
- --------------------------------------------------------------------------------
Legal Proceedings
Currently, the Series Account is not a party to, and its assets are not subject
to, any material legal proceedings. And, Great-West is not currently a party to,
and its property is not currently subject to, any material legal proceedings.
The lawsuits to which Great-West is a party are, in the opinion of management,
in the ordinary course of business, and are not expected to have a material
adverse effect on the financial results, conditions or prospects of Great-West.
- --------------------------------------------------------------------------------
Legal Matters
Advice regarding certain legal matters concerning the federal securities laws
applicable to the issue and sale of the Contract has been provided by Jorden
Burt LLP.
- --------------------------------------------------------------------------------
Experts
The consolidated financial statements incorporated by reference from Great-West
Life & Annuity Insurance Company's Annual Report on Form 10-K for the year ended
December 31, 2001, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is incorporated herein by reference
and has been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
- --------------------------------------------------------------------------------
Incorporation of Certain Documents by Reference and Available Information
Great-West's Annual Report on Form 10-K for the year ended December 31, 2001 is
incorporated herein by reference, which means that it is legally a part of this
Prospectus. All documents or reports filed by Great-West under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
after the effective date of this Prospectus are also incorporated by reference.
Such documents or reports will be part of this Prospectus from the date such
documents are filed.
Great-West files its Exchange Act documents and reports, including its annual
and quarterly annual reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000744455.
We have filed a registration statement ("Registration Statement") with the SEC
under the 1933 Act relating to the Contracts offered by this Prospectus. This
Prospectus has been filed as a part of the Registration Statement and does not
contain all of the information contained in the Registration Statement and its
exhibits. Please refer to the registration statement and its exhibits for
further information.
You may request a free copy of any or all of the information incorporated by
reference into the Prospectus (other than exhibits not specifically incorporated
by reference into the text of such documents). Please direct any oral or written
request for such documents to:
Annuity Administration Department
P. O. Box 173920
Denver, Colorado 80217-3920
1-800-838-0650
33
The SEC maintains an Internet web site (http://www.sec.gov) that contains the
Statement of Additional Information, information incorporated by reference and
other information filed electronically by Great-West concerning the Contract and
the Series Account.
You also can review and copy any materials filed with the SEC at its Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference room by calling the SEC at
1-800-SEC-0330.
Table of Contents of Statement of Additional Information
The Statement of Additional Information contains more specific information
relating to the Series Account and Great-West, such as:
o general information
o information about Great-West Life & Annuity Insurance Company and the
Variable Annuity-1 Series Account
o the calculation of annuity payouts
o postponement of payouts
o services
o withholding
o calculation of performance data
- --------------------------------------------------------------------------------
Appendix A--Condensed Financial Information
Selected data for accumulation units
Outstanding through each period ending December 31
Federated
Alger American Baron Berger IPT Dreyfus VIF Dreyfus Federated Fund for
American Century VP Capital Small Capital VIF Growth American U.S.
Growth International Asset Company Appreciation & Income Leaders II Government
Growth Securities
II
-----------------------------------------------------------------------------------------------------
Date Sub-Account 11/01/96 11/01/96 05/03/99 05/01/97 05/03/99 5/3/99 11/01/96 11/01/96
Commenced Operations
2001
Beginning Unit Value $20.99 $19.51 $11.00 $24.43 $10.09 $10.24 $17.12 $12.40
=====================================================================================================
Ending Unit Value $18.35 13.70 $12.25 $16.11 $9.07 $9.56 $16.26 $13.16
=====================================================================================================
Number of Units 2,859,914 756,485 1,057,192 1,702,960 880,333 778,050 1,491,691 4,482,043
Outstanding
=====================================================================================================
Net Assets (000's) $52,489 $10,364 $12,954 $27,440 $7,987 $7,440 $24,283 $58,968
=====================================================================================================
2000
Beginning Unit Value $24.84 $23.66 $11.40 $26.37 $10.24 $10.73 $16.87 $11.27
=====================================================================================================
Ending Unit Value $20.99 $19.51 $11.00 $24.43 $10.09 $10.24 $17.12 $12.40
=====================================================================================================
Number of Units 3,090,861 808,346 655,329 1,876,729 474,144 264,684 1,211,956 3,179,462
Outstanding
=====================================================================================================
Net Assets (000's) $64,886 $15,773 $7,209 $45,853 $4,784 $2,714 $20,780 $39,417
=====================================================================================================
1999
Beginning Unit Value $18.74 $14.54 $10.00 $13.89 $10.00 $10.00 $15.95 $11.43
=====================================================================================================
Ending Unit Value $24.84 $23.66 $11.40 $26.37 $10.24 $10.73 $16.87 $11.27
=====================================================================================================
Number of Units 2,200,675 602,867 502,097 1,072,037 245,395 49,371 1,441,835 2,809,027
Outstanding
=====================================================================================================
Net Assets (000's) $54,671 $14,264 $5,723 $28,268 $2,513 $534 $24,346 $31,648
=====================================================================================================
1998
Beginning Unit Value $12.76 $12.35 $13.75 $13.67 $10.71
=====================================================================================================
Ending Unit Value $18.74 $14.54 $13.89 $15.95 $11.43
===================================================
=====================================================================================================
Number of Units 1,306,403 560,117 428,983 1,761,482 2,136,709
Outstanding
===================================================
=====================================================================================================
Net Assets (000's) $24,487 $8,147 $5,959 $28,117 $24,427
=====================================================================================================
1997
Beginning Unit Value $10.24 $10.49 $10.00 $10.42 $9.97
===================================================
==================================================
Ending Unit Value $12.76 $12.35 $13.75 $13.67 $10.71
============================================================================
========================= ===================================================
Number of Units 417,062 298,157 124,653 1,424,891 815,966
Outstanding
===================================================
=====================================================================================================
Net Assets (000's) $5 $3,683 $1,714 $19,505 $8,737
=====================================================================================================
1996
Beginning Unit Value $10.00 $10.00
============================================================================
=========================
Ending Unit Value $10.42 $9.97
============================================================================
=====================================================================================================
Number of Units 64,343 9,330
Outstanding
============================================================================
=====================================================================================================
Net Assets (000's) $686 $93
=====================================================================================================
(Continued)
Janus Janus Aspen
Janus Aspen Aspen Series
Federated INVESCO INVESCO VIF INVESCO Series Janus Aspen Series Worldwide
Utility II VIF Core High Yield VIF Flexible Series International Growth
Equity Technology Income Growth Growth
-----------------------------------------------------------------------------------------------------
Date Sub-Account 5/1/97 11/1/96 11/1/96 03/01/00 05/03/99 11/01/96 05/03/99 11/01/96
Commenced Operations
2001
Beginning Unit Value $12.81 $17.97 $11.51 $5.60 $10.49 $20.32 $14.20 $21.99
=====================================================================================================
Ending Unit Value $10.95 $16.22 $9.70 $3.01 $11.20 $15.16 $10.81 $16.91
=====================================================================================================
Number of Units 238,710 2,191,193 1,802,549 4,253,860 2,866,207 3,590,948 2,109,314 3,763,889
Outstanding
=====================================================================================================
Net Assets (000's) $2,615 $35,560 $17,491 $12,785 $32,113 $54,439 $22,800 $63,654
=====================================================================================================
2000
Beginning Unit Value $14.18 $17.28 $13.14 $10.00 $9.95 $23.98 $17.04 $26.30
=====================================================================================================
Ending Unit Value $12.81 $17.97 $11.51 $5.60 $10.49 $20.32 $14.20 $21.99
=====================================================================================================
Number of Units 260,840 2,043,703 1,919,249 4,296,975 1,624,948 4,289,162 2,082,710 4,803,181
Outstanding
=====================================================================================================
Net Assets (000's) $3,340 $36,739 $22,081 $24,047 $17,043 $87,143 $29,582 $105,639
=====================================================================================================
1999
Beginning Unit Value $14.07 $15.18 $12.13 $10.00 $16.79 $10.00 $16.13
===============================================================
=====================================================================================================
Ending Unit Value $14.18 $17.28 $13.14 $9.95 $23.98 $17.04 $26.30
===============================================================
=====================================================================================================
Number of Units 280,957 1,752,510 2,003,863 838,445 3,396,683 772,937 4,259,845
Outstanding
===============================================================
=====================================================================================================
Net Assets (000's) $3,985 $30,299 $26,326 $8,347 $81,453 $13,174 $112,048
=====================================================================================================
1998
Beginning Unit Value $12.45 $13.27 $12.09 $12.49 $12.62
===============================================================
=====================================================================================================
Ending Unit Value $14.07 $15.18 $12.13 $16.79 $16.13
===============================================================
=====================================================================================================
Number of Units 416,024 1,638,804 1,867,862 1,979,076 3,616,710
Outstanding
===============================================================
=====================================================================================================
Net Assets (000's) $5,852 $24,882 $22,654 $33,242 $58,337
=====================================================================================================
1997
Beginning Unit Value $10.00 $10.44 $10.39 $10.26 $10.42
===============================================================
=====================================================================================================
Ending Unit Value $12.45 $13.27 $12.09 $12.49 $12.62
===============================================================
=====================================================================================================
Number of Units 168,289 1,270,248 1,360,681 1,335,615 2,208,577
Outstanding
===============================================================
=====================================================================================================
Net Assets (000's) $2,095 $16,867 $16,450 $16,678 $27,868
=====================================================================================================
1996
Beginning Unit Value $10.00 $10.00 $10.00 $10.00
============================================================================
=========================
Ending Unit Value $10.44 $10.39 $10.26 $10.42
============================================================================
=====================================================================================================
Number of Units 68,094 52,044 93,401 51,895
Outstanding
============================================================================
=====================================================================================================
Net Assets (000's) $719 $541 $960 $541
=====================================================================================================
(Continued)
Scudder
Montgomery Prudential Schwab Variable
Variable Series SAFECO RST SAFECO RST MarketTrack Schwab Schwab S&P Series I
Series: Fund Equity Equity Growth Growth II Money Market 500 Capital
Growth Growth - A
-----------------------------------------------------------------------------------------------------
Date Sub-Account 11/01/96 05/03/99 05/01/97 05/03/99 11/01/96 11/01/96 11/01/96 05/03/99
Commenced Operations
2001
Beginning Unit Value $14.55 $10.05 $14.05 $10.64 $16.05 $11.93 $18.83 $11.30
=====================================================================================================
Ending Unit Value $11.43 $8.81 $12.62 $12.57 $14.57 $12.26 $16.40 $9.03
=====================================================================================================
Number of Units 453,313 119,514 859,655 1,066,369 896,576 13,479,708 6,729,128 438,902
Outstanding
=====================================================================================================
Net Assets (000's) $5,188 $1,053 $10,848 $13,404 $13,067 $165,358 $110,371 $3,964
=====================================================================================================
2000
Beginning Unit Value $16.13 $9.85 $15.88 $11.44 $17.01 $11.35 $20.95 $12.64
=====================================================================================================
Ending Unit Value $14.55 $10.05 $14.05 $10.64 $16.05 $11.93 $18.83 $11.30
=====================================================================================================
Number of Units 457,499 159,971 940,488 576,155 818,621 12,387,477 5,933,342 403,433
Outstanding
=====================================================================================================
Net Assets (000's) $6,664 $1,607 $13,212 $6,131 $13,138 $147,767 $111,752 $4,557
=====================================================================================================
1999
Beginning Unit Value $13.47 $10.00 $14.65 $10.00 $14.34 $10.93 $17.54 $10.00
=====================================================================================================
Ending Unit Value $16.13 $9.85 $15.88 $11.44 $17.01 $11.35 $20.95 $12.64
=====================================================================================================
Number of Units 410,065 32,428 1,065,919 155,643 560,533 9,858,627 5,457,283 186,640
Outstanding
=====================================================================================================
Net Assets (000's) $6,625 $320 $16,928 $1,780 $9,532 $111,967 $114,346 $2,360
=====================================================================================================
1998
Beginning Unit Value $13.20 $11.83 $12.79 $10.49 $13.81
========================================================================================
=========================
Ending Unit Value $13.47 $14.65 $14.34 $10.93 $17.54
============
=====================================================================================================
Number of Units 600,573 1,168,094 447,514 6,647,088 4,084,150
Outstanding
========================================================================================
=========================
Net Assets (000's) $8,097 $17,116 $6,416 $72,692 $71,644
=====================================================================================================
1997
Beginning Unit Value $10.35 $10.00 $10.35 $10.07 $10.52
=========================
========================================================================================
Ending Unit Value $13.20 $11.83 $12.79 $10.49 $13.81
============
=====================================================================================================
Number of Units 643,029 357,176 284,530 4,111,111 2,115,176
Outstanding
========================================================================================
=========================
Net Assets (000's) $8,495 $4,226 $3,638 $43,163 $29,224
=====================================================================================================
1996
Beginning Unit Value $10.00 $10.00 $10.00 $10.00
============================================================================
=========================
Ending Unit Value $10.35 $10.35 $10.07 $10.52
============================================================================
=====================================================================================================
Number of Units 10,632 16,525 294,154 61,990
Outstanding
============================================================================
=====================================================================================================
Net Assets (000's) $116 $171 $2,991 $659
=====================================================================================================
(Continued)
51
Van Kampen
Scudder Universal
Variable Scudder Scudder VIT Institutional
Series I VIT EAFE Small Cap Strong Fund U.S.
Growth & Equity Index Multi Cap Real Estate*
Income - A Index Value II
--------------------------------------------------
-------------
Date Sub-Account 05/03/99 05/03/99 05/03/99 05/03/99 09/17/97
Commenced Operations
2001
Beginning Unit Value $9.09 $9.92 $11.10 $9.24 $11.25
===============================================================
Ending Unit Value $7.99 $7.40 $11.24 $9.54 $12.26
=============
==================================================
Number of Units 376,108 589,568 843,685 1,463,902 830,637
Outstanding
===============================================================
Net Assets (000's) $3,006 $4,366 $9,484 $13,995 $10,186
===============================================================
2000
Beginning Unit Value $9.36 $12.00 $11.65 $8.64 $8.86
===============================================================
Ending Unit Value $9.09 $9.92 $11.10 $9.24 $11.25
===============================================================
Number of Units 190,165 290,653 464,935 563,906 786,877
Outstanding
=============
==================================================
Net Assets (000's) $1,728 $2,883 $5,162 $5,146 $8860
===============================================================
1999
Beginning Unit Value $10.00 $10.00 $10.00 $10.00 $9.25
===============================================================
Ending Unit Value $9.36 $12.00 $11.65 $8.64 $8.86
===============================================================
Number of Units 61,409 161,396 203,338 91,471 347,481
Outstanding
===============================================================
Net Assets (000's) $575 $1,937 $2,369 $817 $3,083
===============================================================
1998
Beginning Unit Value $10.56
==================================================
===============================================================
Ending Unit Value $9.25
==================================================
===============================================================
Number of Units 308,021
Outstanding
==================================================
===============================================================
Net Assets (000's) $2,854
===============================================================
1997
Beginning Unit Value $10.00
==================================================
===============================================================
Ending Unit Value $10.56
==================================================
===============================================================
Number of Units 175,621
Outstanding
==================================================
===============================================================
Net Assets (000's) $1,859
===============================================================
*On September 22, 2000, the net assets of the Van Kampen Life Investment Trust
Morgan Stanley Real Estate Securities Portfolio were merged into this underlying
Portfolio. The data shown above reflects financial information for the Van
Kampen Life Investment Trust Morgan Stanley Real Estate Securities Portfolio
until September 22, 2000, and for the Morgan Stanley Universal Institutional
Fund U.S. Real Estate Portfolio after that date.
52
- --------------------------------------------------------------------------------
Appendix B--Market Value Adjustments
The amount available for a full surrender, partial withdrawal or Transfer equals
the amount requested plus or minus the Market Value Adjustment (MVA). The MVA is
calculated by multiplying the amount requested by the Market Value Adjustment
Factor (MVAF).
The MVA formula
The MVA is determined using the following formula:
MVA = (amount applied) X (Market Value Adjustment Factor) The Market Value
Adjustment Factor is:
{[(1 + i)/(1 + j +.10%)] N/12} - 1
Where:
o i is the U.S. Treasury Strip ask side yield as published in the Wall
Street Journal on the last business day of the week prior to the date the
stated rate of interest was established for the Guarantee Period. The term
of i is measured in years and equals the term of the Guarantee Period.
o j is the U.S. Treasury Strip ask side yield as published in the Wall
Street Journal on the last business day of the week prior to the week the
Guarantee Period is broken. The term of j equals the remaining term to
maturity of the Guarantee Period, rounded up to the higher number of years.
o N is the number of complete months remaining until maturity.
The MVA will equal 0 if:
o i and j differ by less than .10%
o N is less than 6
Examples
Following are four examples of Market Value Adjustments illustrating (1)
increasing interest rates, (2) decreasing interest rates, (3) flat interest
rates (i and j are within .10% of each other), and (4) less than 6 months to
maturity.
Example 1--Increasing Interest Rates
- -------------------------- -------------------------
- ------------------------- $25,000 on November 1,
Deposit 1996
- -------------------------- -------------------------
- -------------------------- -------------------------
Maturity date December 31, 2005
- -------------------------- -------------------------
- -------------------------- -------------------------
Interest Guarantee Period 10 years
- -------------------------- -------------------------
- -------------------------- -------------------------
i Assumed to be 6.15%
- -------------------------- -------------------------
- -------------------------- -------------------------
Surrender date July 1, 2000
- -------------------------- -------------------------
- -------------------------- -------------------------
J 7.00%
- -------------------------- -------------------------
- -------------------------- -------------------------
Amount surrendered $10,000
- -------------------------- -------------------------
- -------------------------- -------------------------
N 65
- -------------------------- -------------------------
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.071]65/12} - 1
= .952885 - 1
= -.047115
MVA = (amount transferred or surrendered) x MVAF = $10,000 x - .047115 =
- $471.15
Surrender Value = (amount transferred or surrendered + MVA)
= ($10,000 + - $471.15)
= $9,528.85
Example 2--Decreasing Interest Rates
- -------------------------- -------------------------
Deposit $25,000 on November 1,
1996
- -------------------------- -------------------------
- -------------------------- -------------------------
Maturity date December 31, 2005
- -------------------------- -------------------------
- -------------------------- -------------------------
Interest Guarantee Period 10 years
- -------------------------- -------------------------
- -------------------------- -------------------------
i Assumed to be 6.15%
- -------------------------- -------------------------
- -------------------------- -------------------------
Surrender date July 1, 2000
- -------------------------- -------------------------
- -------------------------- -------------------------
J 5.00%
- -------------------------- -------------------------
- -------------------------- -------------------------
Amount surrendered $10,000
- -------------------------- -------------------------
- -------------------------- -------------------------
N 65
- -------------------------- -------------------------
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.051]65/12} - 1
= .055323
MVA = (amount transferred or surrendered) x MVAF = $10,000 x .0055323 =
$553.23
Surrender Value = (amount transferred or surrendered + MVA)
= ($10,000 + $553.23)
= $10,553.23
54
Example 3--Flat Interest Rates (i and j are within .10% of each other)
- -------------------------- -------------------------
Deposit $25,000 on November 1,
1996
- -------------------------- -------------------------
- -------------------------- -------------------------
Maturity date December 31, 2005
- -------------------------- -------------------------
- -------------------------- -------------------------
Interest Guarantee Period 10 years
- -------------------------- -------------------------
- -------------------------- -------------------------
i Assumed to be 6.15%
- -------------------------- -------------------------
- -------------------------- -------------------------
Surrender date July 1, 2000
- -------------------------- -------------------------
- -------------------------- -------------------------
J 6.24%
- -------------------------- -------------------------
- -------------------------- -------------------------
Amount surrendered $10,000
- -------------------------- -------------------------
- -------------------------- -------------------------
N 65
- -------------------------- -------------------------
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.0634]65/12} - 1
= .99036 - 1
= -.00964
However, [i-j] <.10%, so MVAF = 0
MVA = (amount transferred or surrendered) x MVAF = $10,000 x 0 = $0
Surrender Value = (amount transferred or surrendered + MVA)
= ($10,000 + $0)
= $10,000
Example 4--N equals less than 6 months to maturity
- -------------------------- -------------------------
Deposit $25,000 on November 1,
1996
- -------------------------- -------------------------
- -------------------------- -------------------------
Maturity date December 31, 2005
- -------------------------- -------------------------
- -------------------------- -------------------------
Interest Guarantee Period 10 years
- -------------------------- -------------------------
- -------------------------- -------------------------
i assumed to be 6.15%
- -------------------------- -------------------------
- -------------------------- -------------------------
Surrender date July 1, 2005
- -------------------------- -------------------------
- -------------------------- -------------------------
J 7.00%
- -------------------------- -------------------------
- -------------------------- -------------------------
Amount surrendered $10,000
- -------------------------- -------------------------
- -------------------------- -------------------------
N 5
- -------------------------- -------------------------
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.071]5/12} - 1
= .99629 - 1
= -.00371
However, N<6, so MVAF = 0
MVA = (amount transferred or surrendered) x MVAF = $10,000 x 0 = $0
Surrender Value = (amount transferred or surrendered + MVA)
= ($10,000 + $0)
= $10,000
55
- --------------------------------------------------------------------------------
Appendix C--Net Investment Factor
The Net Investment Factor is determined by dividing (a) by (b), and subtracting
(c) from the result where:
(a) is the net result of:
1) the net asset value per share of the Portfolio shares determined as of the
end of the current Valuation Period, plus
2) the per share amount of any dividend (or, if applicable, capital gain
distributions) made by the Portfolio on shares if the "ex-dividend" date
occurs during the current Valuation Period, minus or plus
3) a per unit charge or credit for any taxes incurred by or provided for in
the Sub-Account, which is determined by GWL&A to have resulted from the
investment operations of the Sub-Account, and
(b) is the net asset value per share of the Portfolio shares determined as of
the end of the immediately preceding Valuation Period, and
(c) is an amount representing the Mortality and Expense Risk Charge deducted
from each Sub-Account on a daily basis. Such amount is equal to 0.85%.
The Net Investment Factor may be greater than, less than, or equal to one.
Therefore, the Accumulation Unit Value may increase, decrease or remain
unchanged.
The net asset value per share referred to in paragraphs (a)(1) and (b) above,
reflect the investment performance of the Portfolio as well as the payment of
Portfolio expenses.