As filed with the Securities and Exchange Commission on October
29 , 1996
Registration No. 333-01173
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
PRE-EFFECTIVE AMENDMENT NO. 2 to
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(Exact name of Registrant)
COLORADO 63 84-0467907
(State of Incorporation) (Primary Standard (I.R.S. Employer
Industrial Identification
Classification Code No.)
Number)
8515 East Orchard Road
Englewood, Colorado 80111
(800) 537-2033
(Address, including zip code, and telephone number,
including area code, or registrant's principal executive officer)
William T. McCallum
President and Chief Executive Officer
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, Colorado 80111
(Name and Address of Agent for Service)
Copy to:
James F. Jorden, Esq.
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W., Suite 400 East
Washington, D.C. 20007-0805
Approximate Date of Proposed Public Offering: Upon the effective
date of
this Registration Statement.
It is proposed that this Registration Statement will become
effective on
October 31, 1996
If any of the securities being registered on this form are to be
offered on
a delayed or continuous basis pursuant to Rule 415 under the
Securities Act
of 1933, check the following:
If this Form is filed to register additional securities for an
offering
pursuant to Rule 462(b) under the Securities Act, check the
following box and
list the Securities Act registration statement number of the
earlier
effective registration statement for the same offering:
If this Form is a post-effective amendment filed pursuant to Rule
462(c)
under the Securities Act, check the following box and list the
Securities Act
registration statement for the same offering:
If delivery of the prospectus is expected to be made pursuant to
Rule 434,
check the following box:
The Registrant hereby amends this registration statement on such
date or
dates as may be necessary to delay its effective date until the
Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in
accordance with
Section 8(a) of the Securities Act of 1933 or until the
registration
statement shall become effective on such date as the Commission
acting
pursuant to said Section 8(a) may determine.
Cross Reference Sheet
Showing Location in Prospectus
and Statement of Additional Information
As Required by Form S-1
FORM S-1 PROSPECTUS
CAPTION ITEM
1. Forepart of Registration Statement
and Outside Front Cover Page Cover Page
2. Inside Front and Outside Cover Page;
Back Cover Pages Table of
Contents
3. Summary Information, Risk Factors Key Features of
and Ratio of Earnings the Annuity;
to Fixed Charges Great-West Life
&
Annuity
Insurance
Company
4. Use of Proceeds Not Applicable
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Distribution of
the Contracts
9. Description of Securities The Guarantee
Period Fund; The
Market Value
Adjustment
10. Interest of Named Experts Legal Matters;
and Counsel Experts
11. Information with Respect Selected
Financial
to the Registrant Data; Legal
Proceedings;
Financial
Statements
12. Disclosure of Commission, Distribution of
Position on Indemnification the Contracts
for Securities Act Liabilities
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL
NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
THE SCHWAB VARIABLE ANNUITY TM
A FLEXIBLE PREMIUM DEFERRED FIXED AND VARIABLE ANNUITY
Distributed by
CHARLES SCHWAB & CO., INC.
_____________________________________________
Issued by
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
This prospectus describes interests under a flexible premium
deferred
annuity contract, The Schwab Variable Annuity (the "Contract").
The
Contract is issued either on a group basis or as individual
contracts
by Great-West Life & Annuity Insurance Company (the "Company").
Participation in a group contract will be accounted for by the
issuance of a certificate showing an interest under the group
contract. The certificate and the individual contract are
hereafter
both referred to as the "Contract."
Your investment in the Contract may be allocated among
twenty-one
Investment Divisions of the Variable Annuity-1 Series Account
("Series Account") and the available Guarantee Periods under the
Guarantee Period Fund. The Investment Divisions invest in various
underlying funds (open-end investment companies) offered by fund
families such as Federated, INVESCO, Janus, Lexington, Alger,
Schwab
Funds, Stein Roe, Strong, Montgomery, Twentieth Century and Van
Eck.
You also have the option of allocating some or all of your
investment
in the Contract to the Guarantee Period Fund which allows you to
select one or more Guarantee Periods, each of which offers you a
specified interest rate for a specified period. There may be a
market value adjustment on the amounts withdrawn from the Guarantee
Period Fund.
The minimum initial investment is $5,000 ($2,000 if an IRA) or
$1,000
if made under an Automatic Contribution Plan ("ACP"). The minimum
subsequent Contribution is $500 (or $100 per month if made under an
ACP).
There are no sales charges, redemption, surrender or withdrawal
charges. The Contract provides a Free Look Period of 10 days from
your receipt of the Contract (or longer, if required by state law),
during which time you may cancel your investment in the Contract.
During the Free Look Period, all Contributions allocated to an
Investment Division will be allocated first to the Schwab Money
Market Investment Division and will remain there until the next
Transaction Date following the end of the Free Look Period.
Contributions to the Guarantee Period Fund will be allocated
immediately into the specified Guarantee Period(s).
Your Variable Account Value will increase or decrease based on the
investment performance of the options you select. You bear the
entire investment risk under the Contract prior to the annuity
commencement date for all amounts in your Variable Sub-Accounts.
While there is a guaranteed death benefit, there is no guaranteed
or
minimum Variable Account Value on amounts allocated to Investment
Divisions. Therefore, the Annuity Account Value you receive could
be
less than the total amount of your Contributions.
Amounts allocated to the Guarantee Period Fund may be subject to a
Market Value Adjustment which could result in receipt of less than
your Contributions if you surrender, Transfer, make a partial
withdrawal, apply amounts to purchase an annuity or take a
distribution upon the death of the Owner or Annuitant before a
Guarantee Period Maturity Date. Whether such a result actually
occurs depends on the timing of the transaction, the amount of the
Market Value Adjustment and the interest rate credited. The
interest
rate in subsequent Guarantee Periods may be more or less than the
rate of a previous Guarantee Period.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE
INFORMATION
OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERS CONTAINED IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
PLEASE
READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
Prospectus Dated November 1 , 1996
The Contracts are not deposits of, or guaranteed or endorsed by any
bank, nor are the Contracts federally insured by the Federal
Deposit
Insurance Corporation, the Federal Reserve Board or any other
government agency. The Contracts involve certain investment risks,
including possible loss of principal.
To Place Orders and for Account Information: Contact the Schwab
Annuity Service Center at 800-838-0650 or P.O. Box 7666, San
Francisco, California 94120-7666.
About This Prospectus: This Prospectus concisely presents
important
information you should have before investing in the Contract.
Please
read it carefully and retain it for future reference. You can find
more detailed information pertaining to the Contract in the
Statement
of Additional Information dated November 1, 1996 (as may be amended
from time to time), and filed with the Securities and Exchange
Commission. The Statement of Additional Information is
incorporated
by reference into this Prospectus, and may be obtained without
charge
by contacting the Schwab Annuity Service Center at 800-838-0650 or
P.O. Box 7666, San Francisco, California 94120-7666.
TABLE OF CONTENTS
Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .iv
KEY FEATURES OF THE ANNUITY . . . . . . . . . . . . . . . . . . .
1
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
AND THE SERIES ACCOUNT . . . . . . . . . . . . . . . .
7
THE ELIGIBLE FUNDS. . . . . . . . . . . . . . . . . . . . . . . .
8
THE GUARANTEE PERIOD FUND . . . . . . . . . . . . . . . . . . . .12
THE MARKET VALUE ADJUSTMENT . . . . . . . . . . . . . . . . . . .15
APPLICATION AND CONTRIBUTIONS . . . . . . . . . . . . . . . . . 16
ANNUITY ACCOUNT VALUE . . . . . . . . . . . . . . . . . . . . . .17
TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
CASH WITHDRAWALS. . . . . . . . . . . . . . . . . . . . . . . . .21
TELEPHONE TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . .22
DEATH BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . .22
CHARGES AND DEDUCTIONS. . . . . . . . . . . . . . . . . . . . . .25
PAYMENT OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . .27
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . .31
ASSIGNMENTS OR PLEDGES. . . . . . . . . . . . . . . . . . . . . .36
PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . . .36
DISTRIBUTION OF THE CONTRACTS . . . . . . . . . . . . . . . . . .37
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . .38
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . 48
RIGHTS RESERVED BY THE COMPANY. . . . . . . . . . . . . . . . . .49
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . .49
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . .49
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . .50
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . F-1
___________________________________________________________________
_______
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER,
SALESPERSON, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON.
___________________________________________________________________
_______
The Contract is not available in all states.
___________________________________________________________________
_______
DEFINITIONS
___________________________________________________________________
_______
Accumulation Period - The period between the Effective Date and the
Payment Commencement Date.
Annuitant - The person named in the application upon whose life the
payment of an annuity is based and who will receive annuity
payments.
If a Contingent Annuitant is named, then the Annuitant will be
considered the Primary Annuitant. While the Annuitant is living
and
at least 30 days prior to the annuity commencement date, the Owner
may, by Request, change the Annuitant.
Annuity Account - An account established by the Company in the name
of the Owner that reflects all account activity under this
Contract.
Annuity Account Value - The sum of the Variable and Fixed Sub-
Accounts credited to the Owner under the Annuity Account; less
Transfers, partial withdrawals, amounts applied to an annuity
option,
periodic withdrawals, charges deducted under the Contract and, less
Premium Tax, if any.
Annuity Payment Period - The period beginning on the annuity
commencement date and continuing until all annuity payments have
been
made under the Contract.
Annuity Unit - An accounting measure used to determine the dollar
value of any variable annuity payment after the first annuity
payment
is made.
Automatic Contribution Plan ("ACP") - A plan which allows for
automatic periodic Contributions. The Contribution amount will be
withdrawn from a designated pre-authorized account and
automatically
credited to the Annuity Account.
Beneficiary - The person(s) designated by the Owner, in the
application, or as subsequently changed by the Owner by Request, to
receive any death benefit which may become payable under the terms
of
the Contract. If the surviving spouse of an Owner is the surviving
Joint Owner, the surviving spouse will become the Beneficiary upon
such Owner's death and may elect to take the death benefit, if any,
or elect to continue the Contract in force.
Company - Great-West Life & Annuity Insurance Company, the issuer
of
this annuity, located at 8515 East Orchard Road, Englewood,
Colorado
80111.
Contingent Annuitant - The person named in the application, unless
later changed by the Owner by Request while the Annuitant is alive
and before annuity payments have commenced, who becomes the
Annuitant
when the Primary Annuitant dies. No new Contingent Annuitant may
be
designated after the death of the Primary Annuitant.
Contributions - Purchase amounts received under the Contract and
allocated to the Fixed or Variable Sub-Account(s) prior to any
Premium Tax or other deductions.
Effective Date - The date on which the first Contribution is
credited
to the Annuity Account.
Eligible Fund - A registered management investment company, or
portfolio thereof, in which the assets of the Series Account may be
invested.
Fixed Sub-Accounts - The subdivision(s) of the Owner's Annuity
Account reflecting the value of Contributions made to a fixed
interest investment option available under the Contract and any
Fixed
Sub-Account Riders.
Guarantee Period - One of the periods of time available in the
Guarantee Period Fund during which the Company will credit a stated
rate of interest. The Company may stop offering any term at any
time
for new Contributions. Amounts allocated to one or more Guaranteed
Periods may be subject to a Market Value Adjustment.
Guarantee Period Fund - A Fixed Sub-Account in which amounts
allocated will be credited a stated rate of interest for the
applicable Guarantee Period(s).
Guarantee Period Maturity Date - The last day of any Guarantee
Period.
Guaranteed Interest Rate - The minimum interest rate applicable to
each Fixed Sub-Account equal to an annual effective rate in effect
at
the time the Contribution is made and as reflected in written
confirmation of the Contribution. This is the minimum rate allowed
by law and is subject to change in accordance with changes in
applicable law.
Individual Retirement Annuity (IRA) - An annuity contract used in
a
retirement savings program that is intended to satisfy the
requirements of Section 408 of the Internal Revenue Code of 1986,
as
amended.
Investment Division - A division of the Series Account containing
the
shares of an Eligible Fund. There is an Investment Division for
each
Eligible Fund.
Market Value Adjustment - An adjustment which may be made to
amounts
paid out before the Guarantee Period Maturity Date due to
surrenders,
partial withdrawals, Transfers, amounts applied to the periodic
withdrawal option or to purchase an annuity, and distributions
resulting from death of the Owner or Annuitant, as applicable. The
Market Value Adjustment may increase or decrease the amount payable
on one of the above-described distributions. A negative adjustment
may result in an effective interest rate lower than the applicable
Guaranteed Interest Rate and the value of the Contribution(s)
allocated to the Guarantee Period being less than the
Contribution(s)
made. The Market Value Adjustment is detailed on page 15.
Non-Qualified Annuity Contract - An annuity contract which is not
intended to be part of a qualified retirement plan and is not
intended to satisfy the requirements of Section 408 of the Internal
Revenue Code of 1986, as amended.
Owner (Joint Owner) or You - The person(s), while the Annuitant is
living, named in the Contract Data Page who is entitled to exercise
all rights and privileges under the Contract. Joint Owners must be
husband and wife as of the date the Contract is issued. The
Annuitant will be the Owner unless otherwise indicated in the
application. If a Contract is purchased as an IRA, the Owner and
the
Annuitant must be the same individual and no Joint Owner may be
named. Any reference to Owner in the singular tense shall include
the plural, and vice versa, as applicable.
Payment Commencement Date - The date on which annuity payments or
periodic withdrawals commence under a payment option. The Payment
Commencement Date must be at least one year after the Effective
Date
of the Contract. If a Payment Commencement Date is not shown on
the
Contract Data Page, annuity payments will commence on the first day
of the month of the Annuitant's 91st birthday. The Payment
Commencement Date may be changed by the Owner within 60 days prior
to
commencement of annuity payments or it may be changed by the
Beneficiary upon the death of the Owner. If this is an IRA,
payments
which satisfy the minimum distribution requirements of the Internal
Revenue Code of 1986, as amended, must begin no later than the
Owner's attainment of age 70 1/2.
Premium Tax - The amount of tax, if any, charged by a state or
other
governmental authority.
Request - Any written, telephoned, or computerized instruction in
a
form satisfactory to the Company and received at the Schwab Annuity
Service Center (or other annuity service center subsequently named)
from the Owner or the Owner's designee (as specified in a form
acceptable to the Company) or the Beneficiary (as applicable) as
required by any provision of the Contract or as required by the
Company. All Requests are subject to any action taken or payment
made by the Company before it was processed.
Schwab Annuity Service Center - P.O. Box 7666, San Francisco,
California 94120-7666, telephone 800-838-0650.
Series Account - The segregated account established by the Company
under Colorado law and registered as a unit investment trust under
the Investment Company Act of 1940, as amended.
Simplified Employee Pension - An individual retirement annuity
(IRA)
which may accept contributions from one or more employers under a
retirement savings program intended to satisfy the requirements of
Section 408(k) of the Internal Revenue Code of 1986, as amended.
Surrender Value - The Annuity Account Value with a Market Value
Adjustment, if applicable, on the effective date of the surrender,
less Premium Tax, if any.
Transaction Date - The date on which any Contribution or Request
from
the Owner will be processed by the Company at the Schwab Annuity
Service Center. Contributions and Requests received after 4:00
p.m.
EST/EDT will be deemed to have been received on the next business
day. Requests will be processed and the Variable Account Value
will
be determined on each day that the New York Stock Exchange is open
for trading.
Transfer - The moving of money from among and between the
Investment
Division(s) and the Guaranteed Period Fund.
Variable Account Value - The sum of the values of the Variable Sub-
Accounts credited to the Owner under the Annuity Account.
Variable Sub-Accounts - The sub-division(s) of the Owner's Annuity
Account containing the value credited to the Owner under the
Annuity
Account from an Investment Division.
We, our, us, or GWL&A: Great-West Life & Annuity Insurance
Company.
KEY FEATURES OF THE ANNUITY
The Contract currently allows you to invest in your choice of
twenty-
one different Investment Divisions offered by eleven different
mutual
fund investment advisers. You can also invest in the Guarantee
Period Fund. Your Annuity Account Value allocated to an Investment
Division will vary with the investment performance of the
Investment
Division you select. You bear the entire investment risk for all
amounts invested in the Investment Division(s). Your Annuity
Account
Value could be less than the total amount of your
Contributions.
Who should invest. The Contract is designed for investors who are
seeking long-term tax deferred asset accumulation with a wide range
of investment options. The Contract can be used for retirement or
other long-term investment purposes. The deferral of income taxes
is
particularly attractive to investors in high federal and state tax
brackets who have already fully taken advantage of their ability to
make IRA contributions or "pre-tax" contributions to their employer
sponsored retirement or savings plans.
A Wide Range of Variable Investment Choices. The Contract gives
you
an opportunity to select among twenty-one different Investment
Divisions. Each Investment Division invests in shares of an
Eligible
Fund. The Eligible Funds cover a wide range of investment
objectives
as follows:
Investment Objective Eligible Funds
Aggressive Growth Janus Aspen Aggressive
Growth Portfolio
SteinRoe Capital
Appreciation Fund
Strong Discovery Fund II
Alger American Small
Capitalization Portfolio
Growth Janus Aspen Growth Portfolio
Alger American Growth Portfolio
TCI Growth
Montgomery Variable Series:
Growth Fund
Schwab Asset Director - High
Growth Portfolio
Index Schwab S&P 500 Portfolio
Growth & Income Federated American Leaders
Fund II
Equity Income INVESCO VIF-Industrial Income
Portfolio
Balanced/Asset Allocation INVESCO VIF-Total Return
Portfolio
Gold/Natural Resources Van Eck Gold and Natural
Resources Fund
International Lexington Emerging Markets
Fund
TCI International
Janus Aspen Worldwide Growth
Portfolio
Montgomery Variable Series:
International Small Cap Fund
High Yield Bond INVESCO VIF-High Yield
Portfolio
Government Bond Federated Fund for U.S.
Government Securities II
Money Market Schwab Money Market Portfolio
The distinct investment objectives and policies for each
Eligible
Fund are more fully described in their individual fund prospectuses
which are available from the Schwab Annuity Service Center, P.O.
Box
7666, San Francisco, California 94120-7666, or via telephone at 1-
800-838-0650.
The Guarantee Period Fund. The Contract also gives you an
opportunity to allocate your Contributions and to transfer your
Annuity Account Value to the Guarantee Period Fund. This Fixed
Sub-
Account option is comprised of Guarantee Periods, each of which has
its own stated rate of interest and its own maturity date. The
stated rate of interest for the Guarantee Period will depend on the
date the Guarantee Period is established and the duration of the
Guarantee Period you select from among those available. The rates
declared are subject to a minimum (Guaranteed Interest Rate), but
the
Company may declare higher rates (the stated rate of interest).
The
Guaranteed Interest Rate will be disclosed in the written
confirmation. The stated rate of interest will not be less than
the
Guaranteed Interest Rate and will also be disclosed in the written
confirmation. Amounts withdrawn or transferred from a Guarantee
Period prior to the Guarantee Period Maturity Date may be subject
to
a Market Value Adjustment. (See "Market Value Adjustment," page
15.)
How to Invest. You must complete a Contract application form in
order to invest in the Contract and you must pay by check or
instruct
us to transfer funds from your Schwab account. The minimum initial
investment is $5,000 (or $2,000 if in an IRA). Subsequent
investments must be at least $500. The minimum initial investment
may be reduced to $1,000 should the Owner agree to make additional
$100 per month minimum recurring deposits through an ACP.
Free Look Period. The Contract provides for a Free Look Period
which
allows you to cancel your investment generally within 10 days of
your
receipt of the Contract. You can cancel the Contract during the
Free
Look Period by delivering or mailing the Contract to the Schwab
Annuity Service Center. The cancellation is not effective unless
we
receive a notice which is postmarked before the end of the Free
Look
Period. If the Contract is returned, the Contract will be void
from
the start and the Annuity Account Value will be refunded. These
procedures may vary where required by state law. (See "Application
and Contributions," page 16.)
Allocation of the Initial Investment. Any initial Contribution
allocated to an Investment Division (other than certain 1035
exchanges - see "Application and Contributions," page 16) will be
allocated to the Schwab Money Market Portfolio until the next
Transaction Date following the end of the Free Look Period. At
that
time, the Variable Account Value will be allocated to the
Investment
Divisions in accordance with your instructions. (See "Annuity
Account Value," page 17.) Your initial investment in the Guarantee
Period Fund will be immediately allocated to the Guarantee
Period(s)
specified in the application.
Charges and Deductions Under the Contract. The Contract is a "no
load" variable annuity and, as such, imposes no sales charges,
redemption or withdrawal charges.
There is a Mortality and Expense Risk Charge at an effective
annual
rate of 0.85% of the value of the net assets in the Variable
Account.
A Contract Maintenance Charge of $25 will be deducted annually from
your Annuity Account Value. There will be a transfer fee of $10
for
each Transfer in excess of twelve Transfers per calendar year.
(See
"Charges and Deductions," page 25.)
Depending on your state of residence, we may deduct a charge for
Premium Tax from purchase payments or amounts withdrawn or at the
Payment Commencement Date. (See "Charges and Deductions," page
25.)
The Market Value Adjustment may increase or decrease the value of
a
Guarantee Period if the Guarantee Period is broken prior to the
Guarantee Period Maturity Date. A negative adjustment may result
in
an effective interest rate lower than the stated rate of interest
for
the Guarantee Period and the Guaranteed Interest Rate and the value
of the Guarantee Period being less
than Contribution(s). (See "Market Value Adjustment," page 15).
Switching Investments. You may switch Contributions among the
Investment Divisions or Guarantee Period
Fund as often as you like with no immediate tax consequences. You
may make a Transfer Request to the
Schwab Annuity Service Center. A transfer fee may apply. (See
"Charges and Deductions," page 25.)
Amounts Transferred out of a Guarantee Period prior to the
Guarantee Period Maturity Date may be subject
to a Market Value Adjustment. (See "Market Value Adjustment," page
15.)
Full and Partial Withdrawals. You may withdraw all or part of your
Annuity Account Value before the earlier
of the annuity commencement date you selected or the Annuitant's or
Owner's death. Withdrawals may be
taxable and if made prior to age 59 1/2 may be subject to a 10%
penalty tax. Withdrawals of amounts
allocated to a Guarantee Period prior to the Guarantee Period
Maturity Date may be subject to Market Value
Adjustment. (See "Market Value Adjustment," page 15.) The minimum
partial withdrawal prior to the Market
Value Adjustment is $500. There is no limit on the number of
withdrawals made. The Company may delay
payment of withdrawals from your Variable Sub-Accounts by up to 7
days and may delay withdrawals from
the Guarantee Period Fund by up to 6 months. (See "Cash
Withdrawals," page 21.)
Annuity Options. Beginning on the first day of the month
immediately following the annuity commencement
date you select, you may elect to receive annuity payments on a
fixed or variable basis. (The default date
is the first day of the month that the Annuitant attains age 91.)
A wide range of annuity options are available
to provide flexibility in choosing an annuity payment schedule that
meets your particular needs. These
annuity options include alternatives designed to provide payments
for life (for either a single or joint life), with
or without a guaranteed minimum number of payments. (See "Payment
Options," page 27.)
Death Benefit. The amount of the death benefit, if payable before
annuity payments commence, will be the
greater of (a) the Annuity Account Value with a Market Value
Adjustment, if applicable, as of the date a
Request for payment is received, less Premium Tax, if any; or (b)
the sum of Contributions paid, less partial
withdrawals and Periodic Withdrawals, less charges deducted under
the Contract, if any, less Premium Tax,
if any. (See "Death Benefit," page 22.)
Customer Service. Schwab's professional representatives are
available toll-free to assist you. If you have
any questions about your Contract, please telephone the Schwab
Annuity Service Center (800-838-0650) or
write to the Schwab Annuity Service Center at P.O. Box 7666, San
Francisco, California 94120-7666. All
inquiries should include the Contract number and the Owner's name.
As a Contract Owner you will receive
periodic statements confirming any transactions relating to your
Contract, as well as a quarterly statement
and an annual report.
VARIABLE ANNUITY FEE TABLE
The purpose of this table and the examples that follow is to
assist you in understanding the various
costs and expenses that you will bear directly or indirectly when
investing in the Contract. The table and
examples reflect expenses related to the Investment Divisions as
well as of the Eligible Funds. The table
assumes that the entire Annuity Account Value is allocated to one
or more Investment Divisions. The
information set forth should be considered together with the
narrative provided under the heading "Charges
and Deductions," page 25 of this Prospectus, and with the Funds'
prospectuses. In addition to the expenses
listed below, Premium Tax may be applicable.
Contract Owner Transaction Expenses
Sales Load None
Surrender Fee None
Transfer Fee (First 12 Per Year) None
Annual Contract Maintenance Charge $25.00
Investment Division Annual Expenses1
(as a percentage of average Variable
Account assets)
Mortality and Expense Risk Charge 0.85%
Administrative Expense Charge 0.00%
Other Fees and Expenses of the Variable Account0.00%
Total Investment Division Annual Expenses0.85%
Eligible Fund Annual Expenses (1)
(as a percentage of Eligible Fund net assets, after expenses
reimbursements)
Total
Management Other 12b-1 Eligible
Fees Expenses Fees Fund
Expenses
Portfolio
Alger American Growth Portfolio .75% .10% 0% .85%
Alger American Small
Capitalization Portfolio .85% .07% 0% .92%
Federated American Leaders Fund II .0% .85% 0% .85%
Federated Fund for U.S. Government Securities II.0%.80%0%.80%
INVESCO VIF-High Yield Portfolio.60%.37% 0% .97%
INVESCO VIF-Industrial Income Portfolio.75%.28%0% 1.03%
INVESCO VIF-Total Return Portfolio.75%.26% 0% 1.01%
Janus Aspen Aggressive
Growth Portfolio .75% .11% 0% .86%
Janus Aspen Growth Portfolio.65%.13% 0% .78%
Janus Aspen Worldwide
Growth Portfolio .68% .22% 0% .90%
Lexington Emerging Markets Fund.85%.90% 0% 1.75%
Montgomery Variable Series: Growth Fund1.00%.25%0%1.25%
Montgomery Variable Series:
International Small Cap Fund1.25%.25% 0% 1.50%
Schwab Asset Director -
High Growth Portfolio.60% .15% 0% .75%
Schwab Money Market Portfolio.44%.06% 0% .50%
Schwab S&P 500 Portfolio.20% .15% 0% .35%
SteinRoe Capital Appreciation Fund.50%.26% 0% .76%
Strong Discovery Fund II1.00% .31% 0% 1.31%
TCI Growth 1.00% 0% 0% 1.00%
TCI International 1.50% 0% 0% 1.50%
Van Eck Gold and Natural Resources Fund.90%.18%0% 1.08%
_________________________________
(1) The figures given above reflect the amounts actually
deducted
from the Eligible Funds during 1995. From
time to time, an Eligible Fund's investment adviser, in its sole
discretion, may waive all or part of its fees
and/or voluntarily assume certain expenses. For a more complete
description of the Eligible Funds' fees and
expenses, see the Eligible Funds' prospectuses. As of the date of
this Prospectus, certain fees are being
waived or expenses are being assumed, in each case on a voluntary
basis. Without such waivers or
reimbursements, the total Eligible Fund annual expenses that would
have been incurred for the last
completed fiscal year would be: 2.21% for Federated American
Leaders Fund II; 5.61% for Federated Fund
for U.S. Government Securities II; 2.71% for INVESCO VIF-High Yield
Portfolio; 2.31% for INVESCO VIF-
Industrial Income Portfolio; 2.51% for INVESCO VIF-Total Return
Portfolio; .93% for Janus Aspen Aggressive
Growth Portfolio; .98% for Janus Aspen Growth Portfolio; 1.09% for
Janus Aspen Worldwide Growth Portfolio;
4.09% for Lexington Emerging Markets Fund; and 1.02% for Schwab
Money Market Portfolio. See the Eligible
Funds' prospectuses for a discussion of fee waiver and expense
reimbursements.
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:
Investment Divisions 1 Year 3 Years
Alger American Growth Portfolio $ 8.89 $29.14
Alger American Small
Capitalization Portfolio $ 9.61 $31.51
Federated Equity Growth and Income Fund$ 8.89$29.14
Federated U.S. Government Bond Fund$ 8.37 $27.45
INVESCO VIF-High Yield Portfolio $10.13 $33.20
INVESCO VIF-Industrial Income Portfolio$10.76$35.22
INVESCO VIF-Total Return Portfolio $10.55 $34.55
Janus Aspen Aggressive
Growth Portfolio $ 8.99 $29.48
Janus Aspen Growth Portfolio $ 8.16 $26.77
Janus Aspen Worldwide
Growth Portfolio $ 9.41 $30.83
Lexington Emerging Markets Fund $18.21 $59.20
Montgomery Variable Series: Growth Fund$13.04$42.60
Montgomery Variable Series:
International Small-Cap Fund $15.63 $50.93
Schwab Asset Director -
High Growth Portfolio $ 7.84 $25.75
Schwab Money Market Portfolio $ 5.24 $17.23
Schwab S&P 500 Portfolio $ 3.67 $12.09
SteinRoe Capital Appreciation Fund $ 7.95 $26.09
Strong Discovery Fund II $13.66 $44.61
TCI Growth $10.45 $34.21
TCI International $15.63 $50.93
Van Eck Gold and Natural Resources Fund$11.28$36.90
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE EXPENSES.
ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE SHOWN,
SUBJECT TO THE
GUARANTEES IN THE CONTRACT.
These examples assume that no premium taxes have been assessed
(although premium taxes may be
applicable - see "Premium Tax," page 26).
(1) The Eligible Fund Annual Expenses and these examples are based
on data provided by the Eligible
Funds. The Company has no reason to doubt the accuracy or
completeness of that data, but the Company
has not verified the Eligible Funds' figures. In preparing the
Eligible Fund Expense table and the Examples
above, the Company has relied on the figures provided by the
Eligible Funds.
_________________________________________________________________
___________
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
AND THE SERIES ACCOUNT
_________________________________________________________________
___________
Great-West Life & Annuity Insurance Company ("GWL&A")
The Company is a stock life insurance company originally
organized under the laws of the state of
Kansas as the National Interment Association. Its name was changed
to Ranger National Life Insurance
Company in 1963 and to Insuramerica Corporation prior to changing
to its current name in 1982. In
September of 1990, GWL&A redomesticated and is now organized under
the laws of the state of Colorado.
GWL&A is authorized to engage in the sale of life insurance,
accident and health insurance and
annuities. It is qualified to do business in the District of
Columbia, Puerto Rico and 49 states in the United
States.
GWL&A is a wholly-owned subsidiary of The Great-West Life
Assurance Company ("Great-West Life").
Great-West Life is a subsidiary of Great-West Lifeco Inc., a
holding company. Great-West Lifeco Inc. is in turn
a subsidiary of Power Financial Corporation, a financial services
company. Power Corporation of Canada,
a holding and management company, has voting control of Power
Financial Corporation. Mr. Paul
Desmarais, through a group of private holding companies, which he
controls, has voting control of Power
Corporation of Canada.
The Series Account
The Variable Annuity-1 Series Account ("Series Account") was
established by the Company as a
separate account under the laws of the State of Colorado on July
24, 1995. The Series Account is
registered with the Securities and Exchange Commission
("Commission") under the Investment Company
Act of 1940, as amended ("1940 Act"), as a unit investment trust.
The Series Account meets the definition
of a "separate account" under the federal securities laws. However,
such registration does not involve
supervision of the management of the Series Account or the Company
by the Commission.
The Company does not guarantee the investment performance of
the Series Account. The
portion of the Annuity Account Value attributable to the Series
Account and the amount of variable
annuity payments depend on the investment performance of the
Eligible Funds. Thus, the Contract
Owner bears the full investment risk for all Contributions
allocated to the Series Account.
The Series Account is administered and accounted for as part
of the general business of the
Company; but the income, capital gains, or capital losses of each
Investment Division are credited to or
charged against the assets held in that Investment Division in
accordance with the terms of the Contract,
without regard to other income, capital gains or capital losses of
any other Investment Division or arising
out of any other business the Company may conduct. Under Colorado
law, the assets of the Series
Account are not chargeable with liabilities arising out of any
other business the Company may conduct.
Nevertheless, all obligations arising under the Contracts are
generally corporate obligations of the
Company.
The Series Account currently has twenty-one Investment
Divisions available for allocation of
Contributions. If, in the future, the Company determines that
marketing needs and investment conditions
warrant, it may establish additional Investment Divisions which
will be made available to Owners to the
extent and on a basis to be determined by the Company, (See
"Addition, Deletion, or Substitution," page
12). Each Investment Division invests in shares of an Eligible
Fund, each having a specific investment
objective.
_________________________________________________________________
___________
THE ELIGIBLE FUNDS
_________________________________________________________________
___________
The Eligible Funds described below are offered exclusively for
use as funding vehicles for
insurance products and, consequently, are not publicly available
mutual funds. Each Eligible Fund has
separate investment objectives and policies. As a result, each
Eligible Fund operates as a separate
investment portfolio and the investment performance of one Eligible
Fund has no effect on the investment
performance of any other Eligible Fund. See the Eligible Funds'
prospectuses for more information.
The Alger American Fund
Alger American Small Capitalization Portfolio: Seeks long-term
capital appreciation by investing
at least 65% of its total assets, except during temporary
defensive periods, in equity securities of
companies that, at the time of purchase, have total market
capitalization within the range of
companies included in the Russell 2000 Growth Index, updated
quarterly. The Russell 2000
Growth Index is designed to track the performance of small
capitalization companies with market
capitalizations which range from $20 million to $3.04 billion.
The Portfolio may invest up to 35%
of its total assets in equity securities of companies that, at
the time of purchase, have total market
capitalization greater than the range of companies included in
the Russell 2000 Growth Index and
in excess of that amount (up to 100% of its assets) during
temporary defensive periods.
Alger American Growth Portfolio: Seeks long-term capital
appreciation by investment of at least
65% of its assets, except during temporary defensive periods,
in equity securities of companies
that, at the time of purchase of the securities, have total
market capitalization of $1 billion or
greater. The Portfolio may invest up to 35% of its total
assets in equity securities of companies
that, at the time of purchase, have total market
capitalization of less than $1 billion and in excess
of that amount (up to 100% of its assets) during temporary
defensive periods.
Federated Investors Insurance Management Series
Federated American Leaders Fund II: Seeks to achieve
long-term
growth of capital as a primary
objective and seeks to provide income as a secondary objective
through investment of at least 65
% of its total assets (under normal circumstances) in common
stocks of "blue chip" companies.
Federated Fund for U.S. Government Securities II: Seeks to
provide current income through
investment of at least 65% of its total assets 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.
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-Industrial Income Portfolio: Seeks the best
possible current income while
following sound investment practices. Capital growth
potential is an additional, but secondary,
consideration in the selection of portfolio securities. The
Industrial Income Portfolio seeks to
achieve its investment objective by investing in securities
which will provide a relatively high yield
and stable return and which, over a period of years, also may
provide capital appreciation.
INVESCO VIF-Total Return Portfolio: Seeks a high total return
on investment through capital
appreciation and current income. The Total Return Portfolio
seeks to achieve its investment
objective by investing in a combination of equity securities
(consisting of common stocks and, to
a lesser degree, securities convertible into common stock) and
fixed income securities.
INVESCO VIF-High Yield Portfolio: Seeks a high level of
current income by investing
substantially all of its assets in lower rated bonds and other
debt securities and in preferred
stock. These bonds and other securities are sometimes
referred to as "junk bonds." The High
Yield Portfolio pursues its investment objective through
investment in a variety of long-term,
intermediate-term, and short-term bonds. Potential capital
appreciation is a factor in the selection
of investments, but is secondary to the Portfolio's primary
objective.
Janus Aspen Series
Janus Aspen Aggressive Growth Portfolio: Seeks long-term
growth of capital in a manner
consistent with the preservation of capital. The Portfolio
normally invests at least 50% of its equity
assets in securities issued by medium-sized companies.
Medium-sized companies are those
whose market capitalizations fall within the range of
companies in the S&P MidCap 400 Index (the
"MidCap Index"). Companies whose capitalization falls outside
this range after the Portfolio's
initial purchase continue to be considered medium-sized
companies for the purpose of this
policy. As of December 29, 1995, the MidCap Index included
companies with capitalizations
between approximately $118 million to $7.5 billion. The range
of the MidCap Index is expected to
change on a regular basis. Subject to the above policy, the
Portfolio may also invest in smaller
or larger issuers.
Janus Aspen Growth Portfolio: Seeks long-term growth of
capital in a manner consistent with
the preservation of capital. The Portfolio pursues its
objective by investing in common stocks of
companies of any size. This Portfolio generally invests in
larger, more established issuers.
Janus Aspen Worldwide Growth Portfolio: Seeks long-term growth
of capital in a manner
consistent with the preservation of capital. The Portfolio
pursues its objective primarily through
investments in common stocks of foreign and domestic issuers.
The Portfolio has the flexibility to
invest on a worldwide basis in companies and organizations of
any size, regardless of country of
organization or place of principal business activity. The
Portfolio normally invests in issuers from
at least five different countries, including the United
States; however, it may at times invest in
fewer than five countries or even a single country.
Lexington Emerging Markets Fund, Inc.
Lexington Emerging Markets Fund: Seeks long term growth of
capital primarily through
investment in equity securities of companies domiciled in, or
doing business in emerging
countries and emerging markets. For purposes of its
investment objective, the Fund considers
emerging country equity securities to be any country whose
economy and market the World Bank
or United Nations considers to be emerging or developing. The
Fund may also invest in equity
securities and equivalents traded in any market of companies
that derive 50% or more of their
total revenue from either goods or services produced in such
emerging countries or markets or
sales made in such countries.
Montgomery Variable Series
Montgomery Growth Fund: Seeks capital appreciation by
investing at least 65% of its total
assets (under normal conditions) in the equity securities of
domestic corporations. In addition to
capital appreciation, this Fund emphasizes value. While the
Fund emphasizes investments in
common stock, it also invests in other types of equity
securities (including options on equity
securities, warrants and futures contracts on equity
securities). The Fund may invest up to 35%
of its total assets in debt securities rated within the three
highest grades of S&P, Moody's or
Fitch, or unrated debt securities deemed to be of comparable
quality by its portfolio manager
using guidelines approved by the Board of Trustees.
Montgomery International Small Cap Fund: Seeks capital
appreciation by investing at least
65% of its total assets (under normal conditions) in equity
securities of companies outside the
United States having total market capitalizations of less than
$1 billion, sound fundamental values
and potential for long-term growth at a reasonable price. The
Fund generally invests the
remaining 35% of its total assets in a similar manner but may
invest those assets in companies
having market capitalizations of $1 billion or more, or in
debt securities, including up to 5% of its
total assets in debt securities rated below investment grade.
Schwab Annuity Portfolios
Schwab Money Market Portfolio: Seeks maximum current income
consistent with liquidity and
stability of capital. It seeks to achieve its objective by
investing in short-term money market
instruments. This Portfolio is neither insured nor guaranteed
by the United States Government
and there can be no assurance that it will be able to maintain
a stable net asset value of $1.00
per share.
Schwab Asset Director-High Growth Portfolio: seeks to
provide
high capital growth with less
volatility than an all stock portfolio. The High Growth Fund
seeks to meet its investment objective
by investing in a mix of stocks, bonds, and cash
equivalents.
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 (the "Index"). The S&P 500 Fund invests primarily
in the common stocks of
companies composing the Index.
SteinRoe Variable Investment Trust
SteinRoe Capital Appreciation Fund: Seeks capital growth by
investing primarily in common
stocks, convertible securities, and other securities selected
for prospective capital growth.
Strong Discovery Fund II, Inc.
Strong Discovery Fund II: Seeks capital growth by investing in
a diversified portfolio of securities
that the Fund's investment adviser believes represent
attractive growth opportunities. The Fund
normally emphasizes equity investments, although it has the
flexibility to invest in any security the
Fund's investment adviser believes has the potential for
capital appreciation.
TCI Portfolios, Inc.
TCI Growth: Seeks capital growth by investing in common
stocks (including securities
convertible into common stocks and other equity equivalents)
and other securities that meet
certain fundamental and technical standards of selection and
have, in the opinion of the
investment manager, better-than-average potential for
appreciation. The Portfolio's investment
manager intends to stay fully invested in such securities,
regardless of the movement of stock
prices generally.
TCI International: Seeks capital growth by investing primarily
in an internationally diversified
portfolio of securities of foreign companies that meet certain
fundamental and technical standards
of selection and have, in the opinion of the investment
manager, potential for capital appreciation.
The Portfolio will invest primarily in common stocks (defined
to include depository receipts for
common stock and other equity equivalents) of such companies.
Investment in securities for
foreign issues typically involves a greater degree of risk
than an investment in domestic
securities.
Van Eck Worldwide Insurance Trust
Van Eck Gold and Natural Resources Fund: Seeks long-term
capital appreciation by investing in
equity and debt securities of companies engaged in the
exploration, development, production
and distribution of gold and other natural resources, such as
strategic and other metals, minerals,
forest products, oil, natural gas and coal. Current income is
not an investment objective.
The two Alger American Funds are advised by Fred Alger
Management, Inc. of New York, New
York. The two Federated Insurance Series Portfolios are advised by
Federated Advisers of Pittsburgh,
Pennsylvania. The three INVESCO Variable Investment Funds, Inc.,
Portfolios are advised by INVESCO
Funds Group, Inc., of Denver, Colorado. INVESCO Trust Company is
the sub-adviser for the INVESCO
VIF-Industrial Income Portfolio. The three Janus Aspen Series
Portfolios are advised by Janus Capital
Corporation of Denver, Colorado. The Lexington Emerging Markets
Fund is advised by Lexington
Management Corporation of Saddle Brook, New Jersey. The two
Montgomery Variable Series Funds are
advised by Montgomery Asset Management, L.P. of San Francisco,
California. The three Schwab Annuity
Portfolios are advised by Charles Schwab Investment Management,
Inc., of San Francisco, California.
The SteinRoe Capital Appreciation Fund is advised by Stein Roe &
Farnham Incorporated of Chicago,
Illinois. Strong Discovery Fund II is advised by Strong Capital
Management, Inc. of Milwaukee, Wisconsin.
The two TCI Portfolios, Inc., are advised by Investors Research
Corporation of Kansas City, Missouri,
advisers to the Twentieth Century family of mutual funds. The Van
Eck Gold and Natural Resources
Fund is advised by Van Eck Associates Corporation of New York, New
York.
***
Meeting investment objectives depends on various factors,
including, but not limited to, how well
the Eligible Fund managers anticipate changing economic and market
conditions. THERE IS NO
ASSURANCE THAT ANY OF THESE ELIGIBLE FUNDS WILL ACHIEVE THEIR
STATED OBJECTIVES.
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.
Each Eligible Fund is registered with the Commission as an
open-end management investment
company or portfolio thereof. The Commission does not supervise
the management or the investment
practices and policies of any of the Eligible Funds.
Since some of the Eligible Funds are available to registered
separate accounts of other insurance
companies offering variable annuity and variable life products,
there is a possibility that a material conflict
may arise between the interests of the Series Account and one or
more other separate accounts
investing in the Eligible Funds. In the event of a material
conflict, the affected insurance companies are
required to take any necessary steps to resolve the matter,
including stopping their separate accounts
from investing in the Eligible Funds. See the Eligible Funds'
prospectuses for more details.
Additional information concerning the investment objectives
and policies of all of the Eligible
Funds and the investment advisory services and administrative
services and charges can be found in the
current prospectuses for the Eligible Funds, which can be obtained
by calling the Schwab Annuity
Service Center at 800-838-0650, or by writing to Schwab Annuity
Service Center, P.O. Box 7666, San
Francisco, California 94120-7666. The Eligible Funds' prospectuses
should be read carefully before
any decision is made concerning the allocation of Contributions to,
or Transfers among, the
Investment Divisions.
Addition, Deletion, or Substitution
The Company does not control the Eligible Funds and cannot
guarantee that any of the Eligible
Funds will always be available for allocation of Contributions or
Transfers. The Company retains the
right to make changes in the Series Account and in its investments.
Currently, Schwab must approve
certain changes.
GWL&A and Schwab reserve the right to eliminate the shares of
any Eligible Fund held by an
Investment Division and to substitute shares of another Eligible
Fund or of another investment company,
for the shares of any Eligible Fund, if the shares of the Eligible
Fund are no longer available for
investment or if, in GWL&A's and Schwab's judgment, investment in
any Eligible Fund would be
inappropriate in view of the purposes of the Series Account. To
the extent required by the 1940 Act, a
substitution of shares attributable to the Owner's interest in an
Investment Division will not be made
without prior notice to the Owners and the prior approval of the
Commission. Nothing contained herein
shall prevent the Series Account from purchasing other securities
for other series or classes of variable
annuity policies, or from effecting an exchange between series or
classes of variable policies on the basis
of Requests made by you.
New Investment Divisions may be established when, in our
discretion, marketing, tax, investment
or other conditions so warrant. Any new Investment Divisions will
be made available to Owners on a
basis to be determined by us. Each additional Investment Division
will purchase shares in a Eligible
Fund or in another mutual fund or investment vehicle. We may also
eliminate one or more Investment
Divisions if, in our sole discretion, marketing, tax, investment or
other conditions so warrant. In the event
any Investment Division is eliminated, we will notify the Owners
and request a re-allocation of the
amounts invested in the eliminated Investment Division.
In the event of any such substitution or change, we may make
such changes to your Contract as
may be necessary or appropriate to reflect such substitution or
change. Furthermore, if deemed to be in
the best interests of persons having voting rights under the
Contracts, the Series Account may be
operated as a management company under the 1940 Act or any other
form permitted by law, may be de-
registered under such Act in the event such registration is no
longer required, or may be combined with
one or more other separate accounts. Such changes will be made in
compliance with applicable law.
_________________________________________________________________
__________
THE GUARANTEE PERIOD FUND
_________________________________________________________________
___________
Guarantee Period Fund
Amounts allocated to the Guarantee Period Fund under the
Contract will be deposited to, and
accounted for, in a non-unitized separate account established by
the Company under Section 10-7-401,
et seq. of the Colorado Insurance Code and, accordingly, are not
part of the Series Account. A non-
unitized separate account is a separate account in which the Owner
does not participate in the
performance of the assets through unit values. Therefore, Owners
allocating Contributions do not receive
a unit ownership of assets accounted for in this separate account.
The assets accrue solely to the
benefit of the Company and any gain or loss in the separate account
is borne entirely by the Company.
For amounts allocated to the Guarantee Period Fund, Owners will
receive the Contract guarantees made
by the Company.
Contributions allocated to or amounts transferred to the
Guarantee Period Fund will establish a
new Guarantee Period of a duration selected by the Owner from those
currently being offered by the
Company. Every Guarantee Period offered by the Company will have
a duration of at least one year.
Contributions allocated to the Guarantee Period Fund will be
credited on the Transaction Date.
Each Guarantee Period will have its own stated rate of
interest and Guarantee Period Maturity
Date. The stated rate of interest applicable to a Guarantee Period
will depend on the date the Guarantee
Period is established and the duration chosen by the Owner.
As of the date of this Prospectus, Guarantee Periods with
annual durations of 1 to 10 years are
offered. The Guarantee Periods may be changed in the future;
however, any such modification will not
have an impact on any Guarantee Period then in effect.
The value of amounts in each Guarantee Period is the Owner's
Contributions, less Premium Tax,
if any, in that Guarantee Period, plus interest earned, less
amounts distributed, withdrawn (in whole or in
part), Transferred or applied to an annuity option, periodic
withdrawals, and charges deducted under the
Contract. If a Guarantee Period is broken, a Market Value
Adjustment may be assessed. Any such
amount withdrawn or Transferred from a Guarantee Period will be
paid in accordance with the MVA
formula (See "Market Value Adjustment," page 15.)
Investments
The Company intends to invest in assets which, in the
aggregate, have characteristics, especially
cash flow patterns, reasonably related to the characteristics of
its liabilities. Various techniques will be
used to achieve the objective of close aggregate matching of assets
and liabilities. The Company will
primarily invest in investment-grade fixed income securities
including:
Securities issued by the U.S. Government or its agencies
or instrumentalities, which
issues may or may not be guaranteed by the U.S. Government.
Debt securities which have an investment grade, at the
time of purchase, within the four
highest grades assigned by Moody's Investment Services, Inc.
(Aaa, Aa, A or Baa), Standard &
Poor's Corporation (AAA, AA, A or BBB) or any other nationally
recognized rating service.
Other debt instruments, including, but not limited to,
issues of banks or bank holding
companies and of corporations, which obligations, although not
rated by Moody's, Standard &
Poor's, or other nationally recognized rating firms, are
deemed by the Company's management to
have an investment quality comparable to securities which may
be purchased as stated above.
Commercial paper, cash or cash equivalents, and other
short-term investments having a
maturity of less than one year which are considered by the
Company's management to have
investment quality comparable to securities which may be
purchased as stated above.
In addition, the Company may invest in futures and options.
Financial futures and related options
thereon and options on securities are purchased solely for
non-speculative hedging purposes. The
Company may sell a futures contract or purchase a put option on
futures or securities to protect the
value of securities held in or to be sold for the general account
or the non-unitized separate account in
the event the securities prices are anticipated to decline.
Similarly, if securities prices are expected to
rise, the Company may purchase a futures contract or a call option
thereon against anticipated positive
cash flow or may purchase options on securities.
WHILE THE FOREGOING GENERALLY DESCRIBES THE INVESTMENT
STRATEGY FOR THE
GUARANTEE PERIOD FUND, THE COMPANY IS NOT OBLIGATED TO INVEST THE
ASSETS
ATTRIBUTABLE TO THE GUARANTEE PERIOD FUND ACCORDING TO ANY
PARTICULAR
STRATEGY, EXCEPT AS MAY BE REQUIRED BY COLORADO AND OTHER STATE
INSURANCE
LAWS, NOR WILL THE STATED RATE OF INTEREST THAT THE COMPANY
ESTABLISHES
NECESSARILY RELATE TO THE PERFORMANCE OF THE NON-UNITIZED SEPARATE
ACCOUNT.
Subsequent Guarantee Periods
Prior to the date annuity payments commence, you may invest
the value of amounts held in a
maturing Guarantee Period in any Guarantee Period that we offer at
that time. On the quarterly
statement issued prior to the end of any Guarantee Period, we will
notify you of the upcoming maturity of
a Guarantee Period. THE GUARANTEE PERIOD AVAILABLE FOR NEW
CONTRIBUTIONS MAY BE
CHANGED AT ANY TIME, INCLUDING BETWEEN THE DATE OF NOTIFICATION OF
A MATURING
GUARANTEE PERIOD AND THE DATE A SUBSEQUENT GUARANTEE PERIOD BEGINS.
Information
regarding the current Guarantee Periods then available and their
stated rate of interest may be obtained
by calling the Schwab Annuity Service Center at:
1-800-838-0650.
If the Company receives no direction from the Contract
Owner
by the Guarantee Period Maturity
Date, the Company will automatically allocate the amount from the
maturing Guarantee Period to a
Guarantee Period equal in duration to the one just ended. If at
that time, the duration previously chosen
is no longer available, the amount will be allocated to the next
shortest available Guarantee Period
duration. If none of the above is available, the value of matured
Guarantee Periods will be allocated to
the Schwab Money Market Investment Division. In any event, a
Guarantee Period will not renew for a
term equal in duration to the one just ended if the Guarantee
Period will mature after the Payment
Commencement Date. No Guarantee Period may mature later than six
months after a Payment
Commencement Date. For example, if a 3-year Guarantee Period
matures and the Payment
Commencement Date begins 1 3/4 years from the Guarantee Period
Maturity Date, the matured value
will be transferred to a 2-year Guarantee Period.
Breaking A Guarantee Period
Any Transfer, withdrawal or the selection of an annuity option
prior to the Guarantee Period
Maturity Date will be known as breaking a Guarantee Period. When
a Request to break a Guarantee
Period is received, the Guarantee Period that is closest to the
Guarantee Period Maturity Date will be
broken first. If a Guarantee Period is broken, a Market Value
Adjustment may be assessed. The Market
Value Adjustment may increase or decrease the value of the amount
Transferred or withdrawn from the
Guarantee Period Fund. The Market Value Adjustment may reduce the
value of amounts held in a
Guarantee Period below the amount of your Contribution(s) allocated
to that Guarantee Period. (See
"Market Value Adjustment" below.)
Interest Rates
Declared rates are effective annual rates of interest. The
rate is guaranteed throughout the
Guarantee Period. FOR GUARANTEE PERIODS NOT YET IN EFFECT, GWL&A
MAY DECLARE
INTEREST RATES DIFFERENT THAN THOSE CURRENTLY IN EFFECT. When a
subsequent Guarantee
Period begins, the rate applied will not be less than the rate then
applicable to new Contracts of the
same type with the same Guarantee Period.
The stated rate of interest must be at least equal to the
Guaranteed Interest Rate. The Company
may declare higher rates. The Guaranteed Interest Rate is based on
the applicable state standard non-
forfeiture law. Please see Appendix A for the standard
non-forfeiture law rate applicable to the state in
which the Contract was issued.
The determination of the stated rate of interest is influenced
by, but does not necessarily
correspond to, interest rates available on fixed income investments
which the Company may acquire
using funds deposited into the Guarantee Period Fund. In addition,
the Company will consider other
items in determining the stated rate of interest including
regulatory and tax requirements, sales
commissions and administrative expenses borne by the Company,
general economic trends, and
competitive factors.
Market Value Adjustment
Distributions from the amounts allocated to a Guarantee Period
due to a full surrender or partial
withdrawal, Transfer, application of amounts to the periodic
withdrawal option or to purchase an annuity,
or distributions resulting from the death of the Owner or Annuitant
prior to a Guarantee Period Maturity
Date will be subject to a Market Value Adjustment ("MVA"). An MVA
may increase or decrease the
amount payable on one of the above described distributions. Amount
available for a full surrender,
partial withdrawal or Transfer = amount Requested + MVA. The MVA
is calculated by multiplying the
amount Requested by the Market Value Adjustment Factor ("MVAF").
The MVA reflects the relationship as of the time of its
calculation between (a) the U.S. Treasury
Strip ask side yield as published in the Wall Street Journal on the
last business day of the week prior to
the date the stated rate of interest was established for the
Guarantee Period; and (b) the U.S. Treasury
Strip ask side yield as published in the Wall Street Journal on the
last business day of the week prior to
the week the Guarantee Period is broken. There would be a downward
adjustment if Treasury rates at
the time the Guarantee Period is broken, exceed Treasury rates when
the Guarantee Period was created.
There would be an upward adjustment if Treasury rates at the time
the Guarantee Period is broken, are
lower than when the Guarantee Period was created. The MVA factor
is the same for all Contracts.
1. The formula used to determine the MVA is:
MVA = (amount applied) X (MVAF)
The Market Value Adjustment Factor (MVAF) is:
MVAF = {[(1 + i)/(1 + j +.10%)] N/12} - 1
where:
a) i is the U.S. Treasury Strip ask side yield as
published in the Wall Street Journal
on the last business day of the week prior to the date
the stated rate of interest was
established for the Guarantee Period. The term of i is
measured in years and equals the
term of the Guarantee Period;
b) j is the U.S. Treasury Strip ask side yield as
published in the Wall Street Journal
on the last business day of the week prior to the week
the Guarantee Period is broken.
The term of j equals the remaining term to maturity of
the Guarantee Period, rounded up
to the higher number of years; and
c) N is the number of complete months remaining until
maturity.
If i + j differ by less than .10%, the MVA will equal 0. If
N is less than 6, the MVA will
equal 0.
2. The Market Value Adjustment will apply to any Guarantee Period
six or more months prior to the
Guarantee Period Maturity Date in each of the following situations:
a) Transfer to another Guarantee Period or to an
Investment Division offered under
this Contract; or
b) Surrenders, partial withdrawals, annuitization or
Periodic Withdrawals; or
c) A single sum payment upon death of the Owner or
Annuitant.
3. The Market Value Adjustment will not apply to any Guarantee
Period having fewer than six
months prior to the Guarantee Period Maturity Date in each of the
following situations:
a) Transfer to an Investment Division offered under
this Contract; or
b) Surrenders, partial withdrawals, annuitization or
Periodic Withdrawals.
c) A single sum payment upon death of the Owner or
Annuitant.
See Appendix B for Illustrations of the MVA.
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APPLICATION AND CONTRIBUTIONS
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Contributions
All Contributions may be paid at the Schwab Annuity Service
Center by a check payable to the
Company or by transfer to the Company of available funds from your
Schwab account.
The initial Contribution for the Contract must be at least
$5,000 (or $2,000 if for an IRA).
Subsequent Contributions must be at least $500. This minimum
initial investment may be reduced to
$1,000, but only if you participate in an Automatic Contribution
Plan and contribute at least $100 per
month through a recurring deposit. A confirmation will be issued
to you upon the acceptance of each
Contribution.
Your Contract will be issued and your Contribution
generally
will be accepted and credited within
two business days after receipt of an acceptable application and
receipt of the initial Contribution at the
Schwab Annuity Service Center. All Contributions should be paid to
the Schwab Annuity Service Center
by check (payable to GWL&A) or by instructing Schwab to transfer to
GWL&A available funds from your
account with Schwab. Acceptance is subject to there being
sufficient information in a form acceptable to
us and we reserve the right to reject any application or
Contribution.
The Schwab Annuity Service Center will process your
application and Contributions. If your
application is complete and your initial Contribution is being
transferred from funds available in your
Schwab account, then the Contribution will generally be credited
within two business days following
receipt of the application. If your application is incomplete, the
Schwab Annuity Service Center will either
complete the application from information Schwab has on file, or
contact you for the additional
information. No transfer of funds will be made from your Schwab
account until your application is
complete. The funds will be credited as Contributions to the
Contract when they are transferred.
If your Contribution is by check, and the application is
complete, Schwab will use its best efforts
to credit the Contribution on the day of receipt, but in all such
cases it will be credited to your Contract
within two business days of receipt. If your application is
incomplete, the Schwab Annuity Service Center
will complete the application from information Schwab has on file
or contact you by telephone to obtain
the required information. If your application remains incomplete
for five business days, we will return to
you both the check and the application unless you consent to our
retaining the initial Contribution and
crediting it as soon as the requirements are fulfilled.
A Contract may be returned within ten days after receipt, or
longer where required by law ("Free
Look Period"). During the Free Look Period, all contributions will
be processed as follows:
(1) Amounts to be allocated to one or more of the then
available Guarantee Periods will be
allocated as directed, effective upon the Transaction
Date.
(2) Amounts the Owner has directed to be allocated to one or
more of the Investment
Divisions will first be allocated to the Schwab Money
Market Investment Division until the
next Transaction Date following the end of the Free Look
Period. On that date, the
Variable Account Value held in the Schwab Money Market
Investment Division will be
allocated to the Investment Divisions selected by the
Owner.
(3) During the Free Look Period, you may change the
allocation percentages among the
Investment Divisions and/or your selection of Investment
Divisions to which Contributions
will be allocated after the Free Look Period.
(4) If the Contract is returned, the contract will be void
from the start and the greater of:
(a) Contributions received or (b) the Annuity Account
Value less surrenders, withdrawals
and distributions, will be refunded. Exercising the
return privilege requires the return of
the Contract to the Company or to the Schwab Annuity
Service Center.
Amounts the Owner has contributed from a 1035 exchange of the
Schwab Investment Advantage
Annuity Contract will be immediately allocated to the Investment
Divisions selected by the Owner. If the
Contract is returned, it will be void from the start and the
greater of: (a) Contributions received or (b) the
Annuity Account Value less surrenders, withdrawals and
distributions, will be refunded.
Additional Contributions may be made at any time prior to the
Payment Commencement Date, as
long as the Annuitant is living. Additional Contributions must be
at least $500 or $100 per month if under
an ACP.
Total Contributions may exceed $1,000,000 with our prior
approval.
The Company reserves the right to modify the limitations set
forth in this section.
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ANNUITY ACCOUNT VALUE
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Before the date annuity payments commence, your Annuity
Account Value is the sum of each
Variable and Fixed Sub-Account established under your Contract.
Before the annuity commencement date, the Variable Account
Value is the total dollar amount of
all Accumulation Units under each of your Variable Sub-Accounts.
Initially, the value of each
Accumulation Unit was set at $10.00. Each Variable Sub-Account's
value prior to the annuity
commencement date is equal to: (a) net Contributions allocated to
the corresponding Investment
Division; plus or minus (b) any increase or decrease in the value
of the assets of the Variable Sub-
Account due to investment results; less (c) the daily Mortality and
Expense Risk Charge; less (d)
reductions for the Contract Maintenance Charge deducted on the last
business day of each Contract
Year; less (e) any applicable Transfer Fees; and less (f) any
withdrawals or Transfers from the Variable
Sub-Account.
A Valuation Period is the period between successive Valuation
Dates. It begins at the close of
the New York Stock Exchange (generally 4:00 p.m. ET) on each
Valuation Date and ends at the close of
the New York Stock Exchange on the next succeeding Valuation Date.
A Valuation Date is each day that
the New York Stock Exchange is open for regular business. The
value of an Investment Division's assets
is determined at the end of each Valuation Date. To determine the
value of an asset on a day that is not
a Valuation Date, the value of that asset as of the end of the
previous Valuation Date will be used.
The Variable Account Value is expected to change from
Valuation Period to Valuation Period,
reflecting the investment experience of the selected Investment
Division(s) as well as the deductions for
charges.
Contributions which you allocate to an Investment Division are
used to purchase Variable
Accumulation Units in the Investment Division(s) you select. The
number of Accumulation Units to be
credited will be determined by dividing the portion of each
Contribution allocated to the Investment
Division by the value of an Accumulation Unit determined at the end
of the Valuation Period during which
the Contribution was received. In the case of the initial
Contribution, Accumulation Units for that payment
will be credited to the Variable Account Value (and, except for
certain 1035 exchanges), held in the
Schwab Money Market Investment Division until the end of the Free
Look Period (see "Application and
Contributions," page 16). In the case of any subsequent
Contribution, Accumulation Units for that
payment will be credited at the end of the Valuation Period during
which we receive the Contribution.
The value of an Accumulation Unit for each Investment Division for
a Valuation Period is established at
the end of each Valuation Period and is calculated by multiplying
the value of that unit at the end of the
prior Valuation Period by the Investment Division's Net Investment
Factor for the Valuation Period.
Unlike a brokerage account, amounts held under a Contract are
not covered by the Securities
Investor Protection Corporation ("SIPC") .
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TRANSFERS
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In General
Prior to the Payment Commencement Date you may Transfer all or
part of your Annuity Account
Value among and between the Investment Divisions and the available
Guarantee Periods by telephone or
by sending a Request to the Schwab Annuity Service Center. The
Request must specify the amounts
being Transferred, the Investment Division(s) and/or Guarantee
Period(s) from which the Transfer is to be
made, and the Investment Division(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 Investment
Divisions during any Contract Year. There is no charge for the
first twelve Transfers each Contract Year,
but there will be a charge of $10 for each additional Transfer in
each Contract Year. We reserve the right
to limit the number of Transfers you make. The charge will be
deducted from the amount transferred. All
Transfers made on a single Transaction Date will be aggregated to
count as only one Transfer toward the
twelve free Transfers; however, if a one time rebalancing Transfer
also occurs on the Transaction Date, it
will be counted as a separate and additional Transfer.
Transfers involving the Guarantee Period Fund (including
Transfers to or from the Investment
Division(s)) are not limited during any calendar year. These
Guarantee Period Fund Transfers are
counted against your twelve free Transfer as discussed above. The
$10 charge will apply to each
Transfer made in excess of the first twelve Transfers each calendar
year.
A Transfer generally will be effective on the date the Request
for Transfer is received by the
Schwab Annuity Service Center if received before 4:00 p.m. Eastern
Time. Under current law, there will
not be any tax liability to you if you make a Transfer.
Transfers involving the Investment Divisions will result in
the purchase and/or cancellation of
Accumulation Units having a total value equal to the dollar amount
being Transferred to or from a
particular Investment Division. The purchase and/or cancellation
of such units generally shall be made
using the Variable Account Value as of the end of the Valuation
Date on which the Transfer is effective.
When a Transfer is made from amounts in a Guarantee Period
before the Guarantee Period
Maturity Date, the amount Transferred may be subject to a Market
Value Adjustment. (See "Market Value
Adjustment," page 15.) A Request for Transfer from amounts in a
Guarantee Period made prior to the
Guarantee Period Maturity Date for Transfers on the Guarantee
Period Maturity Date will not be counted
for the purpose of determining any Transfer Fee on Transfers in
excess of the twelve Transfers per year if
these Transfers are to take place on the Guarantee Period Maturity
Date.
Possible Restrictions
We reserve the right without prior notice to modify, restrict,
suspend or eliminate the Transfer
privileges (including telephone Transfers) at any time. For
example, restrictions may be necessary to
protect Owners from adverse impacts on portfolio management of
large and/or numerous Transfers by
market timers or others. We have determined that the movement of
significant amounts from one
Investment Division to another may prevent the underlying Eligible
Fund from taking advantage of
investment opportunities because the Eligible Fund must maintain a
significant cash position in order to
handle redemptions. Such movement may also cause a substantial
increase in Eligible Fund transaction
costs which must be indirectly borne by Owners. Therefore, we
reserve the right to require that all
Transfer Requests be made by the Owner and not by an Owner's
designee and to require that each
Transfer Request be made by a separate communication to us. We
also reserve the right to request that
each Transfer Request be submitted in writing and be manually
signed by the Owner; facsimile Transfer
Requests may not be allowed. Transfers among the Investment
Divisions may also be subject to such
terms and conditions as may be imposed by the Eligible Funds.
Custom Transfer: Dollar Cost Averaging (Automatic Transfers)
The Owner may Request to automatically Transfer at regular
intervals, predetermined amounts
from one Investment Division selected from among those being
allowed under this option (which may be
modified by the Company from time to time) to any of the other
Investment Divisions. The intervals
between Transfers may be monthly, quarterly, semi-annually or
annually. The Transfer will be initiated on
the Transaction Date one frequency period following the date of the
Request. Transfers will continue on
that same day each interval unless terminated by you or for other
reasons as set forth in the Contract. If
there are insufficient funds in the applicable Variable Sub-Account
on the date of Transfer, no Transfer
will be made; however, Dollar Cost Averaging will resume once there
are sufficient funds in the applicable
Variable Sub-Account. Dollar Cost Averaging will terminate
automatically upon the annuity
commencement date. Amounts transferred through Dollar Cost
Averaging are not counted against the
twelve free Transfers allowed in a calendar year.
Automatic Transfers must meet the following conditions:
1. The minimum amount that can be Transferred out of the
selected Investment Division is $100
per month.
2. The Owner must specify dollar amount to be Transferred,
designate the Investment Division(s)
to which the Transfer will be made and the percent to be allocated
to such Investment Division(s). The
Accumulation Unit values will be determined on the Transfer
Date.
Dollar Cost Averaging may be used to purchase Accumulation
Units of the Investment Divisions
over a period of time. The Owner, by Request, may cease Dollar
Cost Averaging at any time.
Participation in Dollar Cost Averaging does not, however, assure a
greater profit, nor will it prevent or
necessarily alleviate losses in a declining market. The Company
reserves the right to modify, suspend or
terminate Dollar Cost Averaging at any time.
Custom Transfer: Rebalancer Option
The Owner may Request to automatically Transfer among the
Investment Divisions on a periodic
basis by electing the Rebalancer Option. This option automatically
reallocates the Variable Account
Value to maintain a particular allocation among Investment
Divisions selected by the Owner. The amount
allocated to each Investment Division will increase or decrease at
different rates depending on the
investment experience of the Investment Division.
The Owner may Request that the rebalancing occur one time
only, in which case the Transfer will
take place on the Transaction Date of the Request. This Transfer
will count as one Transfer towards the
twelve free Transfers allowed in a calendar year. (See "Transfer
Fee," page 26.)
Rebalancing may also be set up on a quarterly, semiannual or
annual basis, in which case the
first Transfer will be initiated on the Transaction Date one
frequency period following the date of the
Request. On the Transaction Date for the specified Request, assets
will be automatically reallocated to
the selected Investment Divisions. Rebalancing will continue on
the same Transaction Date for
subsequent periods. In order to participate in the Rebalancer
Option, the entire Variable Account Value
must be included. Transfers set up with these frequencies will not
count against the twelve free Transfers
allowed in a calendar year.
The Owner must specify the percentage of Variable Account
Value to be allocated to each
Investment Division and the frequency of rebalancing. The Owner,
by Request, may modify the
allocations or cease the Rebalancer Option at any time. The
Rebalancer Option will terminate
automatically upon the annuity commencement date. Participation in
the Rebalancer Option and Dollar
Cost Averaging at the same time is not allowed. Participation in
the Rebalancer Option does not assure
a greater profit, nor will it prevent or necessarily alleviate
losses in a declining market. The Company
reserves the right to modify, suspend, or terminate the Rebalancer
Option at any time.
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CASH WITHDRAWALS
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Withdrawals
You (the Owner) may withdraw from the Contract all or part of
your Annuity Account Value at any
time during the life of the Annuitant and prior to the date annuity
payments commence by Request at the
Schwab Annuity Service Center subject to the rules below. Federal
or state laws, rules or regulations
may apply. The amount payable to you if you surrender your
Contract is your Annuity Account Value,
with a Market Value Adjustment, if applicable, on the effective
date of the surrender, and less any
applicable Premium Tax. No withdrawals may be made after the date
annuity payments commence.
A Request for a partial withdrawal will result in a reduction
in your Annuity Account Value equal to
the sum of the dollar amount withdrawn. A Market Value Adjustment
may apply. (See "Market Value
Adjustment," page 15.) The partial withdrawal proceeds may be
greater or less than the amount
requested, depending on the effect of the Market Value Adjustment.
The minimum partial withdrawal before application of the MVA
is $500. Partial withdrawals are
unlimited; however, you must specify the Investment Division(s) or
Guarantee Period(s) from which the
withdrawal is to be made. After any partial withdrawal, if the
remaining Annuity Account Value is less
than $2,000, then a full surrender may be required.
The following terms apply:
(a) No partial withdrawals are permitted after the date
annuity payments commence.
(b) A partial withdrawal will be effective upon the
Transaction Date.
(c) A partial withdrawal from amounts in a Guarantee Period
may be subject to the Market
Value Adjustment provisions, the Guarantee Period Fund
provisions of the Contract, and
the terms of the attached Guarantee Period Fund Rider(s),
if any.
Withdrawals may be taxable (this includes Periodic
Withdrawals, discussed below). Moreover, the
Internal Revenue Code (the "Code") provides that a 10% penalty tax
may be imposed on the taxable
portions of certain early withdrawals. The Code generally requires
us to withhold federal income tax from
withdrawals. However, generally you will be entitled to elect, in
writing, not to have tax withholding apply
unless withholding is mandatory for your Contract. Withholding
applies to the portion of the withdrawal
which is included in your income and subject to federal income tax.
The tax withholding rate is 10% of
the taxable amount of the withdrawal. Withholding applies only if
the taxable amount of the withdrawal is
at least $200. Some states also require withholding for state
income taxes. (See "Federal Tax Matters,"
page 31.)
Withdrawal Requests must be in writing to ensure that your
instructions regarding withholding are
followed. If an adequate election is not made, the Request will be
denied and no withdrawal or partial
withdrawal will be processed.
After a withdrawal of all of your total Annuity Account Value,
or at any time that your Annuity
Account Value is zero, all your rights under the Contract will
terminate.
Since IRAs are offered by this Prospectus, reference should be
made to the applicable provisions
of the Code for any additional limitations or restrictions on cash
withdrawals.
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TELEPHONE TRANSACTIONS
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We will employ reasonable procedures to confirm that
instructions communicated by telephone
are genuine and if we follow such procedures we will not be liable
for any losses due to unauthorized or
fraudulent instructions. However, we may be liable for such losses
if we do not follow those reasonable
procedures. The procedures we will follow for telephone
transactions may include requiring some form of
personal identification prior to acting on instructions received by
telephone, providing written confirmation
of the transaction, and/or tape recording the instructions given by
telephone.
We reserve the right to suspend telephone transaction
privileges at any time, for some or all
Contracts, and for any reason. Withdrawals are not permitted by
telephone.
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DEATH BENEFIT
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Payment of Death Benefit
Before the date annuity payments commence, the death benefit,
if any, will be equal to the
greater of: (a) the Annuity Account Value with an MVA, if
applicable, as of the date the Request for
payment is received, less Premium Tax, if any, or (b) the sum of
Contributions paid, less partial
withdrawals and/or Periodic Withdrawals, less Premium Tax, if any.
The death benefit will become
payable following the Company's receipt of a Request from the
Beneficiary. When an Owner or the
Annuitant dies before the annuity commencement date and a death
benefit is payable to a Beneficiary,
the death benefit proceeds will remain invested in accordance with
the allocation instructions given by
the Owner(s) until new allocation instructions are Requested by the
Beneficiary or until the death benefit
is actually paid to the Beneficiary. The death benefit will be
determined as of the date payments
commence; however, on the date a payment option is processed,
amounts in the Variable Sub-Account
will be Transferred to the Money Market Investment Division unless
the Beneficiary otherwise elects by
Request. Subject to the distribution rules set forth below,
payment of the death benefit may be
Requested to be made as follows:
A. Proceeds from the Variable Sub-Account(s)
1. payment in a single sum; or
2. payment under any of the variable annuity options
provided under this Contract.
B. Proceeds from the Guarantee Period(s)
1. payment in a single sum with respect to which a
Market Value Adjustment may
apply; or
2. payment under any of the annuity options provided
under this Contract with
respect to which a Market Value Adjustment may
apply; or
3. payment on the Guarantee Period Maturity Date so
that a Market Value
Adjustment will not apply.
In any event, no payment of benefits provided under the
Contract will be allowed that does not
satisfy the requirements of Section 72(s) of the Code and any other
applicable federal or state laws, rules
or regulations.
Distribution Rules
1. Death of Annuitant
Upon the death of the Annuitant while the Owner is living, and
before the annuity commencement
date, the Company will pay the death benefit to the Beneficiary
unless there is a Contingent Annuitant.
If a Contingent Annuitant was named by the Owner(s) prior to
the Annuitant's death, and the
Annuitant dies before the annuity commencement date while the Owner
and Contingent Annuitant are
living, no death benefit will be payable by reason of the
Annuitant's death and the Contingent Annuitant
will become the Annuitant.
If the Annuitant dies after the date annuity payments commence
and before the entire interest
has been distributed, any benefit payable must be distributed to
the Beneficiary in accordance with and
at least as rapidly as under the payment option applicable to the
Annuitant on the Annuitant's date of
death.
If a corporation or other non-individual is an Owner, or if
the deceased Annuitant is an Owner, the
death of the Annuitant will be treated as the death of an Owner and
the Contract will be subject to the
"Death of Owner" provisions described below.
2. Death of Owner
If the Owner is not the Annuitant:
(1) If there is a Joint Owner who is the surviving spouse of
the deceased Owner, the Joint Owner
will become the Owner and Beneficiary and may elect to take
the death benefit or elect to
continue the Contract in force.
(2) In all other cases, the Company will pay the death
benefit to the Beneficiary even if a Joint
Owner (who was not the Owner's spouse on the date of the
Owner's death), the Annuitant and/or
the Contingent Annuitant are alive at the time of the Owner's
death, unless the sole Beneficiary is
the deceased Owner's surviving spouse and the Beneficiary
elects to become the Owner and
Annuitant and to continue the Contract in force.
If the Owner is not the Annuitant, and the Owner dies after
annuity payments commence and
before the entire interest has been distributed while the Annuitant
is living, any benefit payable will
continue to be distributed to the Annuitant at least as rapidly as
under the payment option applicable on
the Owner's death. All rights granted the Owner under the Contract
will pass to any surviving Joint
Owner and, if none, to the Annuitant.
If the Owner is the Annuitant (Owner/Annuitant):
(1) If there is a Joint Owner who is the surviving spouse of
the deceased Owner and a
Contingent Annuitant, the Joint Owner will become the Owner
and the Beneficiary, the Contingent
Annuitant will become the Annuitant, and the Contract will
continue in force.
(2) If there is a Joint Owner who is the surviving spouse of
the deceased Owner but no
Contingent Annuitant, the Joint Owner will become the Owner,
Annuitant and Beneficiary and
may elect to take the death benefit or continue the Contract
in force.
(3) In all other cases, the Company will pay the death
benefit to the Beneficiary, even if a Joint
Owner (who was not the Owner's spouse on the date of the
Owner's death), Annuitant and/or
Contingent Annuitant are alive at the time of the Owner's
death, unless the sole Beneficiary is the
deceased Owner's surviving spouse and the Beneficiary Requests
to become the Owner and
Annuitant and to continue the Contract in force.
Any death benefit payable to the Beneficiary upon an Owner's
death will be distributed as follows:
(1) If the Owner's surviving spouse is the person entitled to
receive benefits upon the Owner's
death, the surviving spouse will be treated as the Owner and
will be allowed to take the death
benefit or continue the Contract in force; or
(2) If the Beneficiary is a non-spouse individual, she/he may
elect, not later than one year after
the Owner's date of death, to receive the death benefit in
either a single sum or payment under
any of the variable or fixed annuity options available under
the Contract, provided that (a) such
annuity is distributed in substantially equal installments
over the life or life expectancy of the
Beneficiary or over a period not extending beyond the life
expectancy of the Beneficiary; and (b)
such distributions begin not later than one year after the
Owner's date of death. If no election is
received by the Company from a non-spouse Beneficiary such
that substantially equal
installments have begun not later than one year after the
Owner's date of death, then the entire
amount must be distributed within five years of the Owner's
date of death. The death benefit will
be determined as of the date the payments commence; or
(3) If a corporation or other non-individual entity is
entitled to receive benefits upon the Owner's
death, the death benefit must be completely distributed within
five years of the Owner's date of
death.
Beneficiary
You may select one or more Beneficiaries. If more than one
Beneficiary is selected, unless you
indicate otherwise, they will share equally in any death benefit
payable. You may change the Beneficiary
any time before the Annuitant's death.
You may, while the Annuitant is living, change the Beneficiary
by Request. A change of
Beneficiary will take effect as of the date the Request is
processed by the Schwab Annuity Service
Center, unless a certain date is specified by the Owner. If the
Owner dies before the Request was
processed, the change will take effect as of the date the Request
was made, unless the Company has
already made a payment or otherwise taken action on a designation
or change before receipt or
processing of such Request. A beneficiary designated irrevocably
may not be changed without the
written consent of that Beneficiary, except as allowed by law.
The interest of any Beneficiary who dies before the Owner or
the Annuitant will terminate at the
death of the Beneficiary. The interest of any Beneficiary who dies
at the time of, or within 30 days after,
the death of an Owner or the Annuitant will also terminate if no
benefits have been paid to such
Beneficiary, unless the Owner otherwise indicates by Request. The
benefits will then be paid as though
the Beneficiary had died before the deceased Owner or Annuitant.
If no Beneficiary survives the Owner
or Annuitant, as applicable, the Company will pay the death benefit
proceeds to the Owner's estate.
If the surviving spouse of an Owner is the surviving Joint
Owner, the surviving spouse will
become the Beneficiary upon such Owner's death and may elect to
take the death benefit or may elect to
continue the Contract in force. If there is no surviving Joint
Owner, and no named Beneficiary is alive at
the time at the time of an Owner's death, any benefits payable will
be paid to the Owner's estate.
Contingent Annuitant
While the Annuitant is living, the Owner(s) may, by Request,
designate or change a Contingent
Annuitant from time to time. A change of Contingent Annuitant will
take effect as of the date the Request
is processed at the Schwab Annuity Service Center, unless a certain
date is specified by the Owner(s).
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CHARGES AND DEDUCTIONS
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No deductions are made from Contributions except for any
applicable Premium Tax. Therefore,
the full amount of the Contributions (less any applicable Premium
Tax) are invested in the Contract.
As more fully described below, charges under the Contract are
assessed only as deductions for
Premium Tax, if applicable, for certain Transfers, as a Contract
Maintenance Charge, and as charges
against the assets in the Owner's Variable Sub-Account(s) for our
assumption of mortality and expense
risks. In addition, a Market Value Adjustment may apply to
withdrawals and surrenders, Transfers,
amounts applied to purchase an annuity, and distributions resulting
from death of the Owner or Annuitant
if the amounts held in a Guarantee Period are paid out prior to the
Guarantee Period Maturity Date.
Mortality and Expense Risk Charge
We deduct a Mortality and Expense Risk Charge from your
Variable Sub-Account(s) at the end of
each Valuation Period to compensate us for bearing certain
mortality and expense risks under the
Contract. This is a daily charge equal to an effective annual rate
of 0.85% of the value of the net assets
in your Variable Sub-Account(s). The approximate portion of this
charge attributable to mortality risks is
0.68%; the approximate portion of this charge estimated to be
attributable to expense risk is 0.17% of the
value of the net assets in your Variable Sub-Account(s). We
guarantee that this charge will never
increase beyond 0.85%.
The Mortality and Expense Risk Charge is reflected in the
Accumulation Unit Values for each of
your Variable Sub-Accounts. Thus, this charge will continue to be
applicable should you choose a
variable annuity payment option or the periodic withdrawal option.
Annuity Account Values and annuity payments are not affected
by changes in actual mortality
experience incurred by us. The mortality risks assumed by us arise
from our contractual obligations to
make annuity payments determined in accordance with the annuity
tables and other provisions contained
in the Contract. Thus you are assured that neither the Annuitant's
longevity nor an unanticipated
improvement in general life expectancy will adversely affect the
annuity payments under the Contract.
We bear substantial risk in connection with the death benefit
before the annuity commencement
date, since we will pay a death benefit equal to the greater of:
(1) the Annuity Account Value with a
Market Value Adjustment, if applicable, as of the later of the date
of death or the date the Request for
payment is received, less Premium Tax, if any; or, (2) the sum of
the Contributions paid, less partial
withdrawals and/or Periodic Withdrawals, less any charges under
Contract less Premium Tax, if any (i.e.,
we bear the risk of unfavorable experience in your Variable
Sub-Accounts).
The expense risk assumed is the risk that our actual expenses
in administering the Contracts and
the Series Account will be greater than anticipated, or exceed the
amount recovered through the
Contract Maintenance Charge plus the amount, if any, recovered
through Transfer Fees.
If the Mortality and Expense Risk Charge is insufficient to
cover actual costs and risks assumed,
the loss will fall on us. Conversely, if this charge is more than
sufficient, any excess will be profit to us.
Currently, we expect a profit from this charge. Our expenses for
distributing the Contracts will be borne
by our general assets, including any profits from this charge.
Contract Maintenance Charge
We currently deduct a $25 annual Contract Maintenance Charge
from the Annuity Account Value
only on each Contract anniversary date. This charge partially
covers our costs for administering the
Contracts and the Series Account. Once you have selected a payment
option, this charge will cease to
apply other than for the Periodic Withdrawal Option. The Contract
Maintenance Charge is deducted from
your Annuity Account Value allocated to the Schwab Money Market
Investment Division. If you do not
have sufficient Annuity Account Value allocated to the Schwab Money
Market Investment Division to cover
the Contract Maintenance Charge, then the charge or any portion
thereof will be deducted on a pro rata
basis from all your Variable Sub-Accounts with current value. If
the entire Annuity Account is held in the
Guarantee Period Fund or there are not enough funds in any Variable
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. We do not expect a profit from
amounts received from the Contract
Maintenance Charge.
Premium Tax
We may be required to pay state premium taxes or retaliatory
taxes currently ranging from 0% to
3.5% in connection with Contributions or values under the
Contracts. Depending upon applicable state
law, we will deduct charges for the premium taxes we incur with
respect to a particular Contract from the
Contributions, from amounts withdrawn, or from amounts applied on
the Payment Commencement Date.
In some states, charges for both direct premium taxes and
retaliatory premium taxes may be imposed at
the same or different times with respect to the same Contribution,
depending on applicable state law.
Transfer Fee
There will be a $10 charge for each Transfer in excess of
twelve Transfers in any calendar year.
We do not expect a profit from the Transfer fee for excess
Transfers.
Other Taxes
Under present laws, we will incur state or local taxes (in
addition to the Premium Tax described
above) in several states. No charges are currently made for taxes
other than Premium Tax. However, we
reserve the right to deduct charges in the future for federal,
state, and local taxes or the economic
burden resulting from the application of any tax laws that we
determine to be attributable to the
Contracts.
Expenses of the Eligible Funds
The value of the assets in the Investment Divisions reflect
the value of Eligible Fund shares and
therefore the fees and expenses paid by each Eligible Fund. A
complete description of the fees,
expenses, and deductions from the Eligible Funds are found in the
Eligible Funds' prospectuses. (See
"The Eligible Funds," page 8.) Current prospectuses for the Funds
can be obtained by calling the
Schwab Annuity Service Center at 800-838-0650, or by writing to the
Schwab Annuity Service Center,
P.O. Box 7666, San Francisco, California 94120-7666.
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PAYMENT OPTIONS
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Periodic Withdrawal Option
The Owner may Request that all or part of the Annuity Account
Value be applied to a Periodic
Withdrawal Option. The amount applied to a Periodic Withdrawal is
the Annuity Account Value with an
MVA, if applicable, less Premium Tax, if any.
In Requesting Periodic Withdrawals, the Owner must elect:
- The withdrawal frequency of either 12-, 6-, 3-, or
1-month intervals;
- A withdrawal amount; a minimum of $100 is required;
- The calendar day of the month on which withdrawals will
be made;
- One withdrawal option; and
- The allocation of withdrawals from the Owner's Variable
and/or Fixed Sub-Account(s) as
follows:
1) Prorate the amount to be paid across all Variable
and Fixed Sub-Accounts in
proportion to the assets in each sub-account; or
2) Select the Variable and/or Fixed Sub-Account(s) from
which withdrawals will be
made. Once the Variable and/or Fixed Sub-Accounts
have been depleted, the
Company will automatically prorate the remaining
withdrawals against all
remaining available Variable and/or Fixed
Sub-Accounts unless the Owner
Requests the selection of another Variable and/or
Fixed Sub-Account.
The Owner may elect to change the withdrawal option and/or the
frequency once each calendar
year.
While Periodic Withdrawals are being received:
1. the Owner may continue to exercise all contractual rights
that are available prior to
electing an annuity option, except that no Contributions
may be made;
2. for Periodic Withdrawals from Guarantee Periods six or
more months prior to its
Guarantee Period Maturity Date, a Market Value
Adjustment, if applicable, will be
assessed;
3. the Owner may keep the same investment options as were in
force before periodic
withdrawals began;
4. charges and fees under the Contract continue to apply;
and
5. maturing Guarantee Periods renew into the shortest
Guarantee Period then available.
Periodic Withdrawals will cease on the earlier of the date:
1. the amount elected to be paid under the option selected
has been reduced to zero;
2. the Annuity Account Value is zero;
3. the Owner Requests that withdrawals stop; or
4. an Owner or the Annuitant dies.
The Owner must elect one of the following five (5) withdrawal
options:
1. Income for a Specified Period for at least thirty-six
(36) months - The Owner elects the
duration over which withdrawals will be made. The amount paid
will vary based on the duration;
or
2. Income of a Specified Amount for at least thirty-six (36)
months - The Owner elects the
dollar amount of the withdrawals. Based on the amount
elected, the duration may vary; or
3. Interest Only - The withdrawals will be based on the
amount of interest credited to the
Guarantee Period Fund between each withdrawal. Available only
if 100% of the account value is
invested in the Guarantee Period Fund; or
4. Minimum Distribution - If this is an IRA contract, the
Owner may Request minimum
distributions as specified under Code Section 401(a)(9); or
5. Any Other Form for a period of at least thirty-six (36)
months - Any other form of Periodic
Withdrawal which is acceptable to the Company.
If Periodic Withdrawals cease, the Owner may resume making
Contributions. The Owner may
elect to restart a Periodic Withdrawal program; however, the
Company may limit the number of times the
Owner may restart a Periodic Withdrawal program.
Periodic withdrawals may be taxable, subject to withholding
and subject to the 10% penalty tax.
IRAs are subject to complex rules with respect to restrictions on
and taxation of distributions, including
the applicability of penalty taxes. A competent tax adviser should
be consulted before a Periodic
Withdrawal Option is requested. (See "Federal Tax Matters," page
31.)
Annuity Date
The date annuity payments commence may be chosen when the
Contract is purchased or at a
later date. This date must be at least one year after the initial
Contribution. In the absence of an earlier
election, the annuity date is the first day of the month of the
Annuitant's 91st birthday.
If an option has not been elected within 30 days of the
annuity commencement date, the Annuity
Account Value held in the Fixed Sub-Account(s) will be applied
under Annuity Payment Option 3,
discussed below, to provide payments for life with a guaranteed
period of 20 years. The Annuity
Account Value held in the Variable Sub-Account(s) will be applied
under Variable Annuity Payment
Option 1, discussed below, to provide payments for life with a
guaranteed period of 20 years.
Under section 401(a)(9) of the Code, a Contract which is
purchased and used in connection with
an Individual Retirement Account or with certain other plans
qualifying for special federal income tax
treatment is subject to complex "minimum distribution"
requirements, which require that distributions
under such a plan must begin by a specific date, and also that the
entire interest of the plan participant
must be distributed within certain specified periods under formulas
that specify minimum annual
distributions. The application of the minimum distribution
requirements to each person will vary
according to the person's age and other circumstances. A
prospective purchaser may wish to consult a
competent tax adviser regarding the application of the minimum
distribution requirements. (See "Federal
Tax Matters," page 31.)
Annuity Options
An annuity option may be selected by the Owner when the
Contract is purchased, or at a later
date. This selection may be changed, by Request, at any time up to
30 days before the annuity date. In
the absence of an election, payments will automatically commence on
the annuity date as described
above. The amount to be applied is the Annuity Account Value on
the annuity date. The minimum
amount that may be withdrawn from the Annuity Account Value to
purchase an annuity payment option is
$2,000 with an MVA, if applicable. If the amount is less than
$2,000, the Company may pay the amount
in a single sum subject to the Contract provisions applicable to a
partial withdrawal. Payments may be
elected to be received monthly, quarterly, semi-annually or
annually. Payments to be made under the
annuity payment option selected must be at least $50. The Company
reserves the right to make
payments using the most frequent payment interval which produces a
payment of not less than $50. The
maximum amount that may be applied under any payment option is
$1,000,000, unless prior approval is
obtained from the Company.
A single sum payment may be elected. If it is, then the
amount to be paid is the Surrender
Value. If the Owner elects a variable annuity with funds from the
Owner's Variable Sub-Accounts, then
the amount to be applied is the Annuity Account Value held in the
Variable Sub-Account(s), as of the
annuity commencement date, less any applicable Premium Tax. If the
Owner elects a fixed annuity with
funds from the Fixed Sub-Accounts, then the amount to be applied is
the Annuity Account Value held in
the Fixed Sub-Account(s), as of the annuity commencement date with
an MVA, if applicable, less any
applicable Premium Tax.
Fixed Annuity Payment Options
Option 1: Income of Specified Amount
The amount applied under this option may be paid in equal
annual, semiannual, quarterly or
monthly installments of the dollar amount elected for not more than
240 months. Upon death of the
Annuitant, the Beneficiary will begin to receive the remaining
payments at the same interval that was
elected by the Owner.
Option 2: Income for a Specified Period
Payments are paid annually, semiannually, quarterly or
monthly, as elected, for a selected
number of years not to exceed 240 months. Upon death of the
Annuitant, the Beneficiary will begin to
receive the remaining payments at the same interval that was
elected by the Owner.
Option 3: Fixed Life Annuity with Guaranteed Period
This option provides for monthly payments during a designated
period and thereafter throughout
the lifetime of the Annuitant. The designated period may be 5, 10,
15 or 20 years. Upon death of the
Annuitant, for each remaining designated period, the amounts
payable under this payment option will be
paid to the Beneficiary.
Option 4: Fixed Life Annuity
This annuity is payable monthly during the lifetime of the
Annuitant, terminating with the last
payment due prior to the death of the Annuitant. Since no minimum
number of payments is guaranteed,
this option may offer the maximum level of monthly payments of the
annuity options. It is possible that
only one payment may be made if the Annuitant died before the date
on which the second payment was
due. No other payments nor death benefits would be payable.
Option 5: Any Other Form
This option allows an Owner the ability to choose any other
form of annuity which is acceptable
to the Company.
Variable Annuity Payment Options
Option 1: Variable Life Annuity with Guarantee Period
This option provides for payments during a designated period
and thereafter throughout the life
time of the Annuitant. The designated period may be 5, 10, 15 or
20 years. Upon death of the
Annuitant, for each remaining designated period, the amounts
payable under this payment option will be
paid to the Beneficiary.
Option 2: Variable Life Annuity
This annuity is payable during the lifetime of the Annuitant.
The annuity terminates with the last
payment due prior to the death of the Annuitant. Since no minimum
number of payments is guaranteed,
this option may offer the maximum level of monthly payments of the
annuity options. It is possible that
only one payment may be made if the Annuitant died before the date
on which the second payment was
due. No other payments nor death benefits would be payable.
Variable annuity payment options are subject to the following
provisions:
Amount of First Payment
The first payment under a variable annuity payment option will
be based on the value of the
amounts held in each Variable Sub-Account 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 payment option.
Annuity Units
The number of Annuity Units paid to the Annuitant for each
Variable Sub-Account is determined
by dividing the amount of the first monthly payment by its
Accumulation Unit Value on the 5th Valuation
Date preceding the date the first payment is due. The number of
Annuity Units used to calculate each
payment for a Variable Sub-Account remains fixed during the Annuity
Payment Period.
Amount of Payments after the First
Payments after the first will vary depending upon the
investment experience of the Investment
Divisions. The subsequent amount paid from each sub-account is
determined by multiplying (a) by (b)
where (a) is the number of 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
payment is due. The total amount of
each variable annuity payment will be the sum of the variable
annuity payments for each Variable Sub-
Account. The Company guarantees that the dollar amount of each
payment after the first will not be
affected by variations in expenses or mortality experience.
Transfers After the Annuity Commencement Date
Once annuity payments have begun, no Transfers may be made
from a fixed annuity payment
option to a variable annuity payment option, or vice versa;
however, for variable annuity payment options,
Transfers may be made among Investment Divisions. Transfers after
the annuity commencement date
will be made by converting the number of Annuity Units being
Transferred to the number of Accumulation
Units of the Variable Sub-Account to which the Transfer is made.
The result will be that the next annuity
payment, if it were made at that time, would be the same amount
that it would have been without the
Transfer. Thereafter, annuity payments will reflect changes in the
value of the new Annuity Units.
***
For annuity options involving life income, the actual age
and/or sex of the Annuitant will affect the
amount of each payment. We reserve the right to ask for
satisfactory proof of the Annuitant's age. We may
delay annuity payments until satisfactory proof is received. Since
payments to older Annuitants are expected
to be fewer in number, the amount of each annuity payment under a
selected annuity form will be greater
for older Annuitants than for younger Annuitants.
If the age of the Annuitant has been misstated, the payments
established will be made on the basis
of the correct age. If payments were too large because of
misstatement, the difference with interest may be
deducted by the Company from the next payment or payments. If
payments were too small, the difference
with interest may be added by the Company to the next payment.
This interest is at an annual effective rate
which will not be less than the Guaranteed Interest Rate.
The Payment Commencement Date and annuity options available
for IRAs may also be controlled
by endorsements, the plan documents, or applicable law.
Once payments start under the annuity form selected by the
Owner: (a) no changes can be made
in the annuity form, (b) no additional Contributions will be
accepted under the Contract, and (c) no further
withdrawals, other than withdrawals made to provide annuity
benefits, will be allowed.
***
A portion or the entire amount of the annuity payments may be
taxable as ordinary income. If, at the
time the annuity payments begin, we have not received a proper
written election not to have federal income
taxes withheld, we must by law withhold such taxes from the taxable
portion of such annuity payments and
remit that amount to the federal government (an election not to
have taxes withheld is not permitted for
certain Qualified Contracts). State income tax withholding may
also apply. (See "Federal Tax-Matters,"
below.)
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FEDERAL TAX MATTERS
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Introduction
The following discussion is a general description of federal
income tax considerations relating to the
Contracts and is not intended as tax advice. Further, this
discussion is based on the assumption that the
Contract qualifies as an annuity contract for federal income tax
purposes. This discussion is not intended
to address the tax consequences resulting from all of the
situations in which a person may be entitled to or
may receive a distribution under the Contract. Any person
concerned about these tax implications should
consult a competent tax adviser before initiating any transaction.
This discussion is based upon our
understanding of the present federal income tax laws as they are
currently interpreted by the Internal
Revenue Service. No representation is made as to the likelihood of
the continuation of the present federal
income tax laws or of the current interpretation by the Internal
Revenue Service. Moreover, no attempt has
been made to consider any applicable state or other tax laws.
The Contract may be purchased on a non-tax qualified basis
("Non-Qualified Contract") or purchased
and used in connection with IRAs. The ultimate effect of federal
income taxes on the amounts held under
a Contract, on annuity payments, and on the economic benefit to
you, the Annuitant, or the Beneficiary may
depend on the type of Contract, and on the tax status of the
individual concerned. In addition, certain
requirements must be satisfied in purchasing an IRA and receiving
distributions from an IRA in order to
continue receiving favorable tax treatment. Therefore, purchasers
of IRAs should seek competent legal and
tax advice regarding the suitability of the Contract for their
situation, the applicable requirements, and the
tax treatment of the rights and benefits of the Contract. The
following discussion assumes that an IRA is
purchased with proceeds from and/or Contributions that qualify for
the intended special federal income tax
treatment.
Tax Status
The Company is taxed as a life insurance company under Part I
of Subchapter L of the Code.
Taxation of Annuities
In General
Section 72 of the Code governs taxation of annuities in
general. An Owner who is a natural person
generally is not taxed on increases (if any) in the value of an
Annuity Account Value until distribution occurs
by withdrawing all or part of the Annuity Account Value (e.g.,
withdrawals or annuity payments under the
annuity form elected). However, under certain circumstances, the
Owner may be subject to taxation
currently. In addition, an assignment, pledge, or agreement to
assign or pledge any portion of the Annuity
Account Value generally will be treated as a distribution. The
taxable portion of a distribution (in the form
of a single sum payment or an annuity) is taxable as ordinary
income. An IRA Contract may not be assigned
as collateral.
The Owner of any annuity contract who is not a natural person
(e.g. a corporation) generally must
include in income any increase in the excess of the Annuity Account
Value over the "investment in the
contract" (discussed below) during each taxable year. The rule
does not apply where the non-natural person
is the nominal owner of a Contract and the beneficial owner is a
natural person. The rule also does not apply
in the following circumstances: (1) where the annuity Contract is
acquired by the estate of a decedent, (2)
where the Contract is held under an IRA, (3) where the Contract is
a qualified funding asset for a structured
settlement, and (4) where the Contract is purchased on behalf of an
employee upon termination of a qualified
plan. A prospective Owner that is not a natural person may wish to
discuss these matters with a competent
tax adviser.
The following discussion generally applies to a Contract owned
by a natural person.
Withdrawals
In the case of a withdrawal under an IRA, including
withdrawals under the Periodic Withdrawal Option,
a ratable portion of the amount received may be non-taxable. The
amount of the non-taxable portion is
generally determined by the ratio of the "investment in the
contract" to the individual's total accrued benefit
under the retirement plan. The "investment in the contract"
generally equals the amount of any nondeductible
Contributions paid by or on behalf of any individual. Special tax
rules may be available for certain
distributions from an IRA.
With respect to Non-Qualified Contracts, partial withdrawals,
including Periodic Withdrawals, are
generally treated as taxable income to the extent that the Annuity
Account Value immediately before the
withdrawal exceeds the "investment in the contract" at that time.
If a partial withdrawal is made from a
Guarantee Period which is subject to a Market Value Adjustment,
then the Annuity Account Value immediately
before the withdrawal will not be altered to take into account the
Market Value Adjustment. As a result, for
purposes of determining the taxable portion of the partial
withdrawal, the Annuity Account Value will not
reflect the amount, if any, deducted from or added to the Guarantee
Period due to the Market Value
Adjustment. Full surrenders are treated as taxable income to the
extent that the amount received exceeds
the "investment in the contract." The taxable portion of any
annuity payment is taxed at ordinary income tax
rates.
Annuity Payments
Although the tax consequences may vary depending on the
annuity form elected under the Contract,
in general, only the portion of the annuity payment that represents
the amount by which the Annuity Account
Value exceeds the "investment in the contract" will be taxed; after
the investment in the contract is recovered,
the full amount of any additional annuity payments is taxable. For
fixed annuity payments, in general there
is no tax on the portion of each payment which represents the same
ratio that the "investment in the contract"
bears to the total expected value of the annuity payments for the
term of the payments; however, the
remainder of each annuity payment is taxable. Once the investment
in the Contract has been fully recovered,
the full amount of any additional annuity payments is taxable. If
the annuity payments cease as a result of
an Annuitant's death before full recovery of the "investment in the
contract," you should consult a competent
tax adviser regarding the deductibility of the unrecovered amount.
Penalty Tax
In the case of a distribution pursuant to a Non-Qualified
Contract, there may be imposed a federal
income tax penalty equal to 10% of the amount treated as taxable
income. In general, however, there is no
penalty tax on distributions: (1) made on or after the date on
which the Owner attains age 59 1/2; (2) made
as a result of death or disability of the Owner; or (3) received in
substantially equal periodic payments as a
life annuity or a joint and survivor annuity for the lives or life
expectancies of the Owner and a "designated
beneficiary." Other exemptions or tax penalties may apply to
certain distributions pursuant to an IRA. For
more details regarding these exemptions or penalties consult a
competent tax adviser.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the Contract because of the
death of an Owner or the Annuitant.
Generally such amounts are includible in the income of the
recipient as follows: (1) if distributed in a lump
sum, they are taxed in the same manner as a full surrender, as
described above, or (2) if distributed under
an annuity form, they are taxed in the same manner as annuity
payments, as described above.
Distribution-at-Death Rules
In order to be treated as an annuity contract, the terms of
the Contract must provide the following
two distribution rules: (A) if any Contract Owner dies on or after
the date annuity payments commence, and
before the entire interest in the Contract has been distributed,
the remainder of his interest will not be
distributed under a slower distribution schedule than that provided
for in the method in effect on the Contract
Owner's death; and (B) if any Contract Owner dies before the date
annuity payments commence, his entire
interest must generally be distributed within five years after the
date of death provided that if such interest
is payable to a designated Beneficiary, then such interest may be
made over the life of that designated
Beneficiary or over a period not extending beyond the life
expectancy of that Beneficiary, so long as
payments commence within one year after the Contract Owner's death.
If the sole designated Beneficiary
is the spouse of the Contract Owner, the Contract may be continued
in the name of the spouse as Contract
Owner. The designated Beneficiary is the natural person designated
by the terms of the Contract or by the
Contract Owner as the individual to whom ownership of the contract
passes by reason of the Contract
Owner's death. If the Contract Owner is not an individual, then
for purposes of the distribution at death rules,
the Primary Annuitant is considered the Contract Owner. In
addition, when the Contract Owner is not an
individual, a change in the Primary Annuitant is treated as the
death of the Contract Owner.
Transfers, Assignments, or Exchanges
A Transfer of ownership of a Contract, the designation of an
Annuitant, Payee or other Beneficiary
who is not also the Owner, or the exchange of a Contract may result
in adverse tax consequences to the
Owner that are not discussed herein. An Owner contemplating any
such designation, transfer, assignment,
or exchange of a Contract should contact a competent tax adviser
with respect to the potential tax effects
of such a transaction.
Multiple Contracts
All deferred, non-qualified annuity contracts that are issued
by the Company (or our affiliates) to the
same Owner during any calendar year will be treated as one annuity
contract for purposes of determining
the amount includible in gross income under section 72(e) of the
Code. Amounts received under any such
Contract may be taxable (and may be subject to the 10% Penalty Tax)
to the extent of the combined income
in all such Contracts. In addition, the Treasury Department has
specific authority to issue regulations that
prevent the avoidance of section 72(e) through the serial purchase
of annuity contracts or otherwise.
Congress has also indicated that the Treasury Department may have
authority to treat the combination
purchase of an immediate annuity contract and separate deferred
annuity contracts as a single annuity
contract under its general authority to prescribe rules as may be
necessary to enforce the income tax laws.
Withholding
Annuity distributions generally are subject to withholding for
the recipient's federal income tax liability
at rates that vary according to the type of distribution and the
recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax
withheld from distributions. Certain
distributions from IRAs are subject to mandatory federal income tax
withholding.
Possible Changes in Taxation
In past years, legislation has been proposed that would have
adversely modified the federal taxation
of certain annuities. For example, one such proposal would have
changed the tax treatment of non-qualified
annuities that did not have "substantial life contingencies" by
taxing income as it is credited to the annuity.
There is always the possibility that the tax treatment of annuities
could change by legislation or other means
(such as IRS regulations, revenue rulings, judicial decisions,
etc.). Moreover, it is also possible that any
change could be retroactive (that is, effective prior to the date
of the change).
Section 1035 Exchanges
Code Section 1035 provides that no gain or loss shall be
recognized on the exchange of one annuity
contract for another. A replacement contract obtained in a
tax-free exchange of contracts succeeds to the
status of the original contract. Special rules apply to Contracts
issued prior to August 14, 1982. Prospective
Owners wishing to take advantage of a Section 1035 exchange should
consult their tax adviser.
Individual Retirement Annuities
The Contract may be used with IRAs as described in Section 408
of the Code. Section 408 of the
Code permits eligible individuals to contribute to an individual
retirement program known as an Individual
Retirement Annuity. Also, certain kinds of distributions from
certain types of qualified and non-qualified
retirement plans may be "rolled over" following the rules set out
in the Code to maintain favorable tax
treatment, to an Individual Retirement Annuity. The sale of a
Contract for use with an IRA may be subject
to special disclosure requirements of the Internal Revenue Service.
Purchasers of the Contract for use with
IRA's will be provided with supplemental information required by
the Internal Revenue Service or other
appropriate agency. Such purchasers will have the right to revoke
their purchase within seven days of
purchase of the IRA Contract.
Various tax penalties may apply to contributions in excess of
specified limits, aggregate distributions
in excess of $150,000 annually, distributions that do not satisfy
specified requirements, and certain other
transactions. The Contract will be amended as necessary to conform
to the requirements of the Code.
Purchasers should seek competent advice as to the suitability of
the Contract for use with IRA's.
If a Contract is issued in connection with an employer's
Simplified Employee Pension ("SEP") plan,
Owners, Annuitants and Beneficiaries are cautioned that the rights
of any person to any of the benefits under
the Contract may be subject to the terms and conditions of the plan
itself, regardless of the terms and
conditions of the Contract.
If a Contract is purchased to fund an IRA the Annuitant must
also be the Owner. In addition, if a
Contract is purchased to fund an IRA, minimum distributions must
commence not later than April 1st of the
calendar year following the calendar year in which you attain age
70 1/2. You should consult your tax adviser
concerning these matters.
The Contract and prototype IRA endorsement have been submitted
for IRS approval and
determination that they are acceptable under Section 408 of the
Code, so that each individual who purchases
a Contract with an IRA endorsement will be considered to have
adopted a retirement savings program that
satisfies the requirements of Section 408 of the Code. The IRS
approval is a determination only as to the
form of the Contract and does not represent a determination of the
merits of the Contract.
At the time the Initial Contribution is paid, a prospective
purchaser must specify whether he or she
is purchasing a Non-Qualified Contract or an IRA. If the initial
Contribution is derived from an exchange or
surrender of another annuity contract, we may require that the
prospective purchaser provide information with
regard to the federal income tax status of the previous annuity
contract. We will require that persons
purchase separate Contracts if they desire to invest monies
qualifying for different annuity tax treatment
under the Code. Each such separate Contract would require the
minimum initial Contribution stated above.
Additional Contributions under a Contract must qualify for the same
federal income tax treatment as the initial
Contribution under the Contract; we will not accept an additional
Contribution under a Contract if the federal
income tax treatment of such Contribution would be different from
that of the initial Contribution.
Seek Tax Advice
The foregoing discussion of the federal income tax
consequences is only a brief summary and is not
intended as tax advice. Further, the federal income tax
consequences discussed herein reflect our
understanding of current law and the law may change. Federal
estate tax consequences and state and local
estate, inheritance, and other tax consequences of ownership or
receipt of distributions under a Contract
depend on the individual circumstances of each Owner or recipient
of the distribution. A COMPETENT TAX
ADVISER SHOULD BE CONSULTED FOR FURTHER INFORMATION.
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ASSIGNMENTS OR PLEDGES
_________________________________________________________________
___________
Generally, rights in the Contract may be assigned or pledged
for loans at any time during the life of
the Annuitant; however, if the Contract is an IRA, the Owner may
not assign the Contract as collateral.
If a non-IRA Contract is assigned, the interest of the
assignee has priority over the interest of the
Owner and the interest of the Beneficiary. Any amount payable to
the assignee will be paid in a single sum.
A copy of any assignment must be submitted to the Company at
the Schwab Annuity Service Center.
Any assignment is subject to any action taken or payment made by
the Company before the assignment was
processed. The Company is not responsible for the validity or
sufficiency of any assignment.
If any portion of the Annuity Account Value is assigned or
pledged for a loan, it may be treated as
a distribution. A competent tax adviser should be consulted for
further information.
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PERFORMANCE DATA
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From time to time, we may advertise yields and average annual
total returns for the Investment
Divisions. In addition, we may advertise the effective yield of
the Schwab Money Market Investment Division.
These figures will be based on historical information and are not
intended to indicate future
performance.
The yield of the Schwab Money Market Investment Division
refers to the annualized income generated
by an investment in that Investment Division over a specified
seven-day period. The yield is calculated by
assuming that the income generated for that seven-day period is
generated each seven-day period over a
52-week period and is shown as a percentage of the investment. The
effective yield is calculated similarly
but, when annualized, the income earned by an investment in that
Investment Division is assumed to be
reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this
assumed reinvestment.
The yield of an Investment Division (other than the Schwab
Money Market Investment Division) refers
to the annualized income generated by an investment in that
Investment Division over a specified thirty-day
period. The yield is calculated by assuming that the income
generated by the investment during that thirty-
day period is generated each thirty-day period over a twelve-month
period and is shown as a percentage
of the investment.
The yield calculations do not reflect the effect of any
Premium Tax that may be applicable to a
particular Contract. To the extent that premium taxes are
applicable to a particular Contract, the yield of that
Contract will be reduced. For a description of the methods used to
determine yield and total returns, see
the Statement of Additional Information.
The average annual total return of an Investment Division
refers to return quotations assuming an
investment has been held in the Investment Division for various
periods of time including, but not limited to,
a period measured from the date the Investment Division commenced
operations. When an Investment
Division has been in operation for 1, 5, and 10 years,
respectively, the average annual total return for these
periods will be provided. The average annual total return
quotations will represent the average annual
compounded rates of return that would equate an initial investment
of $1,000 to the redemption value of that
investment (excluding Premium Tax) as of the last day of each of
the periods for which total return quotations
are provided. For additional information regarding yields and
total returns calculated using the standard
formats briefly described herein, please refer to the Statement of
Additional Information.
Performance information for any Investment Division reflects
only the performance of a hypothetical
Contract under which Annuity Account Value is allocated to an
Investment Division during a particular time
period on which the calculations are based. Performance
information should be considered in light of the
investment objectives and policies and characteristics of the
Eligible Funds in which the Investment Division
invests, and the market conditions during the given time period,
and should not be considered as a
representation of what may be achieved in the future.
Reports and promotional literature may also contain other
information including (1) the ranking of any
Investment Division derived from rankings of variable annuity
separate accounts or their investment products
tracked by Lipper Analytical Services, Inc., VARDS, Morningstar,
Value Line, IBC/Donoghue's Money Fund
Report, Financial Planning Magazine, Money Magazine, Bank Rate
Monitor, Standard & Poor's Indices, Dow
Jones Industrial Average, and other rating services, companies,
publications, or other persons who rank
separate accounts or other investment products on overall
performance or other criteria, and (2) the effect
of tax-deferred compounding on investment returns, or returns in
general, which may be illustrated by graphs,
charts, or otherwise, and which may include a comparison, at
various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred
basis (assuming one or more tax rates) with
the return on a currently taxable basis. Other ranking services
and indices may be used.
We may from time to time also disclose cumulative
(non-annualized) total returns for the Investment
Divisions. We may from time to time also disclose yield and
standard total returns for any or all Investment
Divisions.
We may also advertise performance figures for the Investment
Divisions based on the performance
of an Eligible Fund prior to the time the Series Account commenced
operations.
For additional information regarding the calculation of other
performance data, please refer to the
Statement of Additional Information.
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DISTRIBUTION OF THE CONTRACTS
_________________________________________________________________
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Charles Schwab & Co., Inc. ("Schwab") is the distributor of
the Contracts. Schwab is registered with
the Securities and Exchange Commission as a broker/dealer and is a
member of the National Association
of Securities Dealers, Inc. ("NASD"). Its principal offices are
located at 101 Montgomery, San Francisco,
California 94104, telephone 800-838-0650.
Certain administrative services are provided by Schwab to
assist the Company in the processing of
the Contracts, which services are described in written agreements
between Schwab and the Company. The
Company has agreed to indemnify Schwab (and its agents, employees,
and controlling persons) for certain
damages arising out of the sale of the Contracts, including those
arising under the securities laws.
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SELECTED FINANCIAL DATA
_________________________________________________________________
___________
The following is a summary of certain financial data of the
Company. This summary has been derived
in part from, and should be read in conjunction with, the financial
statements of the Company included
elsewhere in this Prospectus.
Nine Months EndedYears Ended December
31,
(In Millions) 9/30/969/30/95 1995 1994 19931992 1991
INCOME STATEMENT DATA
Premiums and other income$ 785$ 793$ 1,067$ 1,000$ 696$ 245$
58
Net investment income 623 622 835 768 792 661 599
Realized investment gains (losses) (31) 2 8 (72)
25 (4) (30)
Total Revenues 1,377 1,417 $ 1,910$ 1,696$ 1,513$ 902$
627
Total benefits and expenses1,2391,290$ 1,733$ 1,594$ 1,417$ 844$
596
Income tax expense 39 45 49 28 31 18
7
Cumulative effect of adopting a
new accounting method for income taxes_____ ____ ____ (23) ___
Net income $ 99$ 82$ 128$ 74$ 65$ 63$
24
BALANCE SHEET DATA
Investment assets $12,572
$12,148$12,473$11,791$11,592$10,771$8,483
Separate account assets 5,039 3,728 3,999 2,555 1,680 937 550
Total assets 18,90717,067 17,68215,61614,29612,9489,571
Total policy liabilities11,64011,399 11,49210,92910,59210,3527,808
Total shareholder's equity 989908 993 777 821 769 624
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company
The Company operates in one business segment as a provider of
life, health and annuity products
to groups of individuals associated with employers or distributors;
however, the business operations of
GWL&A will be discussed in terms of its major business units: the
Employee Benefits Division, which
distributes life, health, disability income insurance and 401(k)
products to employee groups, primarily to small
to mid-sized corporations; and the Financial Services Division,
which distributes accumulation and payout
annuity products for both group and individual clients, primarily
in the public\non-profit sector, as well as
insurance products for individual clients.
GWL&A recognized the potential problems of high yielding
assets in the late 1980's and adjusted
its investment policy accordingly. The impact of problem mortgage
and real estate accounts showed marked
improvement in the last few years as the Company curtailed any new
investment in mortgage loans. The
emphasis of quality over yield in the bond portfolio certainly has
proved to be beneficial to the overall
strength of the investment assets.
Going forward, GWL&A intends to increase the percentage of
assets and liabilities funded on a
separate account basis. Management believes this emphasis is in
the best interests of its customers and
shareholders. GWL&A intends to continue to improve its
administrative and distribution systems in order to
compete with insurers, mutual fund companies, and other money
managers.
NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1995
Results of Operations
Net income increased to $98.7 million as of September 30,
1996, compared to $82.1 million for
the same period in 1995. The growth in earnings is being driven by
good results from operations.
Increased Employee Benefits Division earnings reflected an
improvement in group health morbidity and
expense gains associated with the large growth in 401(k). The
Financial Services Division net income
increased as a result of effective expense management and increased
interest margins on annuity
products.
The Company also benefited from a $25.6 million release of
a
provision on a contingent liability it
assumed from Great-West Life in 1993. This was largely offset by
capital losses of $21.5 million incurred
on the sales of bonds in the first nine months of 1996. The
Company had realized capital gains on bond
sales of $16.8 million through the first nine months of 1995. The
bond
capital gains and losses are included in the
realized investment gains [losses] in the income statement.
YEARS ENDED DECEMBER 31, 1995 and 1994
Results of Operations
The net income of $128 million in 1995 is up significantly
from the $74 million recorded in 1994.
The growth in earnings is related to the Company's continued
investment philosophy of replacing
mortgage loans with higher quality bonds which ultimately resulted
in a reduction of mortgage
writedowns. This is very apparent in the Financial Services
Division where the asset intensive lines
benefited from a combination of lower mortgage writedowns and
capital gains in the bond portfolio. The
Company's strategy of increasing fee income and reducing interest
rate exposure is apparent in the
growth of the separate accounts. The Employee Benefits Division's
net income from operations
increased in 1995, largely due to low healthcare inflation,
favorable mortality, outstanding 401(k) growth
and effective expense management.
Life, accident, and health premium increased $49 million from
1994 to a total of $988 million
primarily due to an increase in group health premium, which
primarily reflects the acquisition of a block of
group life and health business from Confederation Life Insurance
Company.
Net investment income increased $67 million to a total of $835
million in 1995 reflecting higher
earned rates and growth in policy loans associated with corporate
owned life insurance (COLI) business.
The net realized gains and losses improved significantly over
last year as the $8 million of gains
in 1995 was substantially better than the $72 million of losses
recorded in 1994. Provisions for asset
losses, included in realized losses, continued to decline as the
$22 million in 1995 were $12 million
better than the $34 million recorded in 1994. Interest rates
decreased in 1995, leading to bond capital
gains of $28 million which were better than the $39 million of
losses recorded in 1994.
The capital gains and losses recorded in 1994 and 1995 were
somewhat mitigated by
adjustments to the amortization of deferred acquisition costs and
premium deficiency reserves totalling
$(10) million in 1995 and $19 million in 1994.
Policyholder benefits increased to $1.2 billion, up $76
million, which is a combination of an
increase in interest credits to policyholders and higher group life
and health claims.
The commissions and operating expense increase of $56 million
to a total of $465 million includes
expense increases associated with managed care and the acquisition
of a block of group life and health
business from Confederation Life Insurance Company.
The effective income tax rate in 1995 and 1994 was lower than
the statutory rate due to a
reduction of $13 million and $7 million, respectively, in the
deferred tax asset valuation allowance held in
a subsidiary company, GWL Properties Inc.
Balance Sheet
Total assets grew approximately $2.1 billion to a total of
$17.7 billion, reflecting continued growth
in the separate accounts of $1.4 billion and a $333 million
increase in policy loans associated with COLI
business.
It is important to recognize the continued shift away from
mortgages as the portfolio dropped
$298 million during 1995. The mortgage portfolio of $1.7 billion
at December 31, 1995 represented 13.7%
of total investment assets, compared to 17.1% at December 31, 1994.
Stockholder's equity at December 31, 1995 of $993 million
increased substantially from December
31, 1994, as the result of higher earnings and a significant
increase in the unrealized gains on the bond
portfolio that is available for sale.
YEARS ENDED DECEMBER 31, 1994 and 1993
Results of Operations
Net income in 1994 of $74 million increased from $65 million
in 1993. The higher group life and
health earnings more than offset the lower asset intensive earnings
associated with the capital losses on
the bond portfolio.
Premiums and other income consist primarily of life, accident,
and health premiums which
increased 48% over 1993 to a total of $939 million. The $306
million increase was primarily the result of
group life and health, which was up $248 million as none of the
premium was reinsured to The Great-
West Life during 1994, compared to $179 million reinsured in 1993.
Net investment income decreased $24 million to a total of $768
million. The decrease was
associated with a 0.68% drop in the yield on investments as higher
yielding mortgages and bonds
continued to be replaced by lower yielding, higher quality bonds.
The net realized losses of $72 million were significantly
worse than the $25 million of net gains
recorded in 1993, reflecting the decline in bond prices during
1994. However, provisions for asset losses
in 1994 of $34 million showed improvement over the $43 million in
1993, reflecting the overall decrease in
mortgage investments and the reduction in problem mortgages.
The capital losses in 1994 were somewhat mitigated by
adjustments to the amortization of
deferred acquisition costs and premium deficiency reserves
totalling $19 million. The same components
were adjusted by $44 million in 1993.
The increase in benefits and expenses was primarily related to
a $69 million increase in policy
benefits and a $98 million increase in commission and operating
expenses, both the result of the group
life and health business not being reinsured at all during 1994.
In 1993 the business had been reinsured
to Great-West Life for part of the year.
The 1994 effective income tax rate of 27.7% is lower than the
1993 rate of 32.5% as a result of a
$7 million reduction in the deferred income tax asset valuation
allowance being held in a subsidiary
company, GWL Properties Inc.
Balance Sheet
Total assets increased $1.3 billion in 1994 to a total of
$15.6 billion. The only growth in the
general account was the acquisition of corporate owned life
insurance (COLI) policies from Confederation
Life Insurance Company which increased assets $250 million. The
majority of the increase is associated
with separate account assets which grew by $875 million over 1993
to a total of $2.6 billion. The growth
in separate accounts is derived from a combination of good sales in
both the 401(k) and the public non-
profit business units and good investment performance.
The mortgage loans on real estate portfolio reduced $367
million bringing the total portfolio to
$2.0 billion or 17.1% of total investment assets. The reduction is
related to a combination of
prepayments, renewals refinanced with other lenders, and the
Company's policy of not initiating any new
mortgage loans.
Liquidity and Capital Resources
The principal short- and long-term liquidity needs of the
Company are to satisfy policyholder
benefits. The liquidity needs of the Company are closely managed
through cash flow matching of assets
and liabilities, and the forecasting of earned and required yields
to ensure consistency between
policyholder requirements and the yield of assets. Over 88.1% of
policy liabilities are non-cashable prior
to maturity or subject to market value adjustments or withdrawal
penalties.
Investments in highly marketable securities at the end of 1995
totaled $6.4 billion, including short-
term investments of $135 million which have minimal market risk.
For several years, the Company has
followed an investment policy that has emphasized high-quality
bonds and de-emphasized high-yield,
lower quality bonds and mortgage loans. At December 31, 1995,
mortgages represented 13.7% of
investments, compared to 25.2% at December 31, 1991. Bonds rated
below investment grade were only
1.4% of investments at December 31, 1995. The Company's
investments in mortgage-backed and asset-
backed bonds do not include highly volatile issues. The Company
limits its use of derivative financial
instruments to contracts which change the interest rate
characteristics of certain bonds from variable to
fixed rates or which effectively change interest paid in foreign
currencies to U.S. dollars.
Additional liquidity is available through the Company's
commercial paper program which is
partially supported by a standby letter of credit. At December 31,
1995, the program had an outstanding
balance of $85 million with maturities ranging from 25 to 160 days
and interest rates ranging from 5.7% to
5.9%.
The National Association of Insurance Commissioners (NAIC)
utilizes risk-based capital standards
to determine the capital requirements of a life insurance company
based upon its inherent operating
risks. These standards require the computation of a risk-based
capital amount which is then compared
to the Company's actual adjusted capital. Based on current
calculations of the risk-based capital
standards, the Company's percentage to total adjusted capital is
well in excess of ratios that would
require regulatory attention.
Great-West Life owns all of the Company's $122 million of
preferred shares and all of its
common stock. The shareholder's equity was $993 million as of
December 31, 1995, compared to $777
million as of December 31, 1994. Most of the increase was related
to the increase in fair value of the
Company's available-for-sale bond portfolio, including $23 million
related to the Company's
reclassification on December 31, 1995 of $2.1 billion of bonds from
the held-to-maturity portfolio.
Ratings
The Company operates in a very competitive market place,
and
therefore its ratings from various
rating agencies are very important to its ability to distribute
certain products. A.M. Best Company has
assigned the Company its highest financial strength and operating
performance rating of A++. Duff &
Phelps Corporation has assigned the Company their highest claims
paying ability rating of AAA.
Standard & Poor's Corporation has assigned the Company its second
highest rating of AA+ for claims
paying ability. Moody's Investors Service has assigned the Company
an insurance and financial
strength rating of Aa2.
These ratings represent the rating agency's independent
opinion of the Company's financial
strength and ability to meet its policyholder obligations, but have
no relevance to the performance or
quality of the assets in the Series Account.
Regulation and Reserves
The Company is subject to regulation and supervision by the
insurance departments of the state
in which it is licensed. This regulation covers a variety of
areas, including policy reserve requirements,
adequacy of company capital and surplus, operational standards, and
financial accounting policies and
procedures.
Pursuant to state insurance laws and regulations, the Company
is obligated to hold policy
reserves to meet its obligations under all outstanding insurance
contracts. These reserves are based on
a number of assumptions as to future experience. Neither the
reserve requirements nor the other
aspects of state insurance regulation provide absolute protection
to holders of insurance contracts if the
Company were to experience unexpected losses (e.g., infectious
diseases or catastrophic investment
losses).
Competition
The Company is engaged in a business that is highly
competitive due to the large number of
insurance companies and other entities competing in marketing,
administering, and selling insurance
products. There are approximately 2,300 insurers in the life
insurance business in the United States.
Segment Information
The Company operates in one business segment as a provider of
life, health and annuity
products to groups of individuals associated with employers or
distributors.
Employees and Facilities
The Company has an administrative services agreement with
Great-West Life, to provide total
administrative support for all aspects of the Company's business.
Great-West Life has approximately
4,300 employees in its U.S. operations. The home office facilities
are in Englewood, Colorado which
includes 517,633 square feet in a three building complex. As well,
there are sales and claims offices
located in several states.
State Regulation
As a life insurance company organized and operated under
Colorado law, GWL&A is subject to
provisions governing such companies and regulation by the Colorado
Division of Insurance.
GWL&A's books and accounts are subject to review and
examination by the Colorado Division of
Insurance at any time, and a full examination of its operations is
conducted triennially.
In addition, GWL&A is subject to comprehensive and detailed
regulation and supervision by the
supervisory agencies in each jurisdiction in which it conducts
business. Each state's supervisory agency
has broad administrative authority which includes, but is not
limited to, the power to regulate licenses to
transact business, trade practices, agent licensing, policy forms,
claims practices, underwriting practices,
reserve requirements, fixing maximum interest rates on life
insurance policy loans and minimum rates for
accumulation of surrender values, the form and content of required
financial statements and the type and
amounts of investments permitted. GWL&A is required to file
detailed annual reports with supervisory
agencies in each of the jurisdictions in which it does business and
its accounts are subject to
examination by such agencies at regular intervals.
Under insurance guaranty fund laws in most states, insurers
can be assessed up to prescribed
limits for insurance contract losses incurred by insolvent
companies. GWL&A has estimated that the $9
million reserve being held at December 31, 1995 is adequate to
cover any obligations of known
insolvencies.
In addition, most jurisdictions, including Colorado, regulate
affiliated groups of insurers such as
GWL&A and its affiliates under insurance holding company
legislation. Under such laws, intercorporate
transfers of assets and dividend payments from insurance
subsidiaries may be subject to prior notice or
approval, depending on the size of such transfers and payments in
relation to the financial position of the
company making the transfer. Changes in control also are regulated
under these laws.
Although the federal government generally does not directly
regulate the business of insurance,
federal initiatives often have an impact on the business in a
variety of ways. Current and proposed
federal measures which may significantly affect GWL&A's insurance
business include employee benefits
regulation, controls on medical care costs, insurance reform,
managed care regulation, medical
entitlement programs (e.g., Medicare), removal of barriers
preventing banks from engaging in the
insurance and mutual fund businesses, the taxation of insurance
companies and the tax treatment of
insurance products.
The Securities and Exchange Commission regulates certain
separate accounts of GWL&A and
the mutual funds used as funding vehicles for those accounts.
Directors and Officers
Set forth below is information concerning the Company's
directors and executive officers,
together with their principal occupation for the past five years.
Unless otherwise indicated, all of the
directors and executive officers have been engaged for not less
than five years in their present principal
occupations or in another executive capacity with the companies or
firms identified.
Directors Principal Occupation Last 5 Years
James Balog Company Director since March 1993;
previously Chairman,
Lambert Brussels Capital Corporation
James W. Burns, O.C. Chairman of the Boards of Lifeco1 and
Great-West Life; Deputy
Chairman, PCC2
Orest T. Dackow President and Chief Executive Officer,
Lifeco since April 1992;
previously President, Great-West Life
Paul Desmarais, Jr. Chairman and Co-Chief Executive Officer,
PCC; Chairman, PFC3
Robert G. Graham Company Director since January 1996;
previously Chairman and
Chief Executive Officer, Inter-City
Products Corporation
Robert Gratton Chairman of the Board of Great-West Life
& Annuity Insurance
Company ("GWL&A"); President and Chief
Executive Officer, PFC
N. Berne Hart Company Director since February 1992;
previously Chairman of
the Board, United Banks of Colorado, Inc.
Kevin P. Kavanagh Company Director since April 1992;
previously President and
Chief Executive Officer, Lifeco
William Mackness Company Director since July 1995;
previously Dean, Faculty of
Management, University of Manitoba
William T. McCallum President and Chief Executive Officer,
GWL&A; President and
Chief Executive Officer (U.S. Operations),
Great-West Life
Jerry E.A. Nickerson Chairman of the Board, H.B. Nickerson &
Sons Limited
The Honourable
P. Michael Pitfield, P.C., Q.C.Vice-Chairman, PCC; Member of the
Senate of Canada
Michel Plessis-Belair, F.C.A.Executive Vice-President and Chief
Financial Officer, PCC; Senior
Vice-President, Finance, PFC
Ross J. Turner Chairman, Genstar Investment Corporation
Brian E. Walsh Partner, Trinity L.P. since January 1996;
previously Managing
Director and Co-head, Global Investment
Bank, Bankers Trust
Company
1 Great-West Lifeco, Inc.
2 Power Corporation of Canada
3 Power Financial Corporation
Executive Officers Principal Occupation Last 5 Years
William T. McCallum President and Chief Executive Officer,
GWL&A;
President and Chief President and Chief Executive Officer
(U.S. Operations),
Executive Officer Great-West Life
Dennis Low Executive Vice President, Financial
Services, GWL&A
Executive Vice President,and Great-West Life
Financial Services
Alan D. MacLennan Executive Vice President, Employee
Benefits, GWL&A
Executive Vice President,and Great-West Life
Employee Benefits
John T. Hughes Senior Vice President, Chief Investment
Officer, GWL&A;
Senior Vice President, Senior Vice President, Chief Investment
Officer (U.S.
Chief Investment Officer Operations), Great-West Life
D. Craig Lennox Senior Vice President, General Counsel and
Secretary,
Senior Vice President, GWL&A; Senior Vice President and General
Counsel,
General Counsel and SecretaryGreat-West Life
James D. Motz Senior Vice President, Employee Benefits
Operations,
Senior Vice President, GWL&A and Great-West Life
Employee Benefits Operations
Douglas L. Wooden Senior Vice President, Financial Services,
GWL&A and
Senior Vice President, Great-West Life
Financial Services
Executive Compensation
The following table sets out all compensation paid by
Great-West Life and its subsidiaries in
respect of the individuals who were, at December 31, 1995, the
Chief Executive Officer and the other four
most highly compensated executive officers of GWL&A (collectively
the "Named Executive Officers") for
services rendered to GWL&A and Great-West Life in all capacities
for fiscal years ended 1993, 1994 and
1995 respectively.
Name and
Principal Position
Year
Annual
Compensation(1)
Salary Bonus
($) ($)
Long-Term
Compensation Awards
Securities Under
Options Granted (2)
W.T. McCallum,
President and
Chief Executive
Officer
1995
1994
1993
523,958 351,000
225,000(3)
476,750 318,500
426,383 295,750
None
None
None
D. Low, Executive
Vice President,
Financial Services
1995
1994
1993
305,000 152,500
285,000 142,500
263,479 121,750
None
None
None
J.T. Hughes, Senior
Vice President, Chief
Investment Officer
1995
1994
1993
301,000 150,500
290,000 145,000
275,000 137,500
None
None
None
A.D. MacLennan,
Executive Vice
President, Employee
Benefits
1995
1994
1993
312,000 125,000
300,000 97,890
283,000 113,426
None
None
None
D.L. Wooden, Senior
Vice President,
Financial Services
1995
1994
1993
275,500 137,500
265,000 142,500
250,000 125,000
None
None
None
(1) The aggregate of perquisites and other personal benefits,
securities or property provided to each
Named Executive Officer in 1995 did not exceed the lesser of
$50,000 and 10% of the total of the
individual's annual salary and bonus.
(2) The options are for common shares of Power Financial
Corporation ("PFC Options"). PFC Options
are granted by, and in the sole discretion of, Power Financial
Corporation. (For additional information on
Power Financial Corporation, see "Ownership of Securities" in this
prospectus.)
(3) A special one-time bonus payment with respect to long-term
performance.
The following table describes all PFC Options exercised in
1995, and unexercised PFC Options
held as of December 31, 1995, by the Named Executive Officers.
Name
Securities
Acquired
on
Exercise
Aggregate
Value
Realized
($)
Unexercised Options at FY-
End
Exercisable Unexercisable
Value of Unexercised in-
the-Money Options at FY-
End ($)
Exercisable Unexercisable
W.T. McCallum
34,000
418,290
26,000 None
371,002 None
D. Low
None
None
44,000 None
627,849 None
J.T. Hughes
20,000
175,551
60,000 None
548,713 None
A.D. MacLennan
32,000
389,430
None None
None None
D.L. Wooden
None
None
44,000 None
423,621 None
Pension Plan Tables
The following discussion relates to pension benefits payable
to the Named Executive Officers as
of December 31, 1995.
Great-West Life has a non-contributory pension plan covering
substantially all of its employees.
Great-West Life contributes such amounts as are necessary, on an
actuarial basis, to provide the plan
with assets sufficient to meet the benefits to be paid to plan
members. Contributions under the plan are
based on length of service and average annual compensation.
Compensation includes normal salary
and wages and does not include bonuses, overtime pay,
reimbursements or special pay.
The directors of Great-West Life or of GWL&A determine the
eligibility for, and the amount of,
supplemental executive retirement benefits.
The President and Chief Executive Officer is entitled to the
benefits shown in Table #1 and has
30 years of service. The Executive Vice President, Financial
Services; Senior Vice President, Chief
Investment Officer; Executive Vice President, Employee Benefits;
and Senior Vice President, Financial
Services, are entitled to the benefits shown in Table #1 and Table
#2, and have 31, 6, 30 and 5 years of
service respectively.
Table #1 - Employees' Pension Plan
Remuneration
($)
Years of Service
5 15 20 25
30 35 40
200,000
18,875 56,625 75,500 94,375 113,250
120,000 120,000
300,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
400,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
500,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
600,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
700,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
800,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
The benefits shown in Table #1 are payable upon the attainment
of age 65, the normal retirement date, or age 62 with 35 years of
service. Remuneration is the average of the highest 60 consecutive
months of regular salary during the last 84 months of employment.
The determination of remuneration
and the pension amount are limited by Internal Revenue Service
maximums for qualified plans. The
normal form of pension is a life only annuity. Other optional
forms of pension payment are available on
an actuarially equivalent basis. The benefits listed in the table
are not subject to deduction for social
security or other offset amounts.
Table #2 - Supplemental Executive Retirement Benefits
Remuneration
($)
Years of Service
5 15 20 25
30 35 40
200,000
None None None None None
None None
300,000
401 15,123 22,664 30,205 52,500
52,500 52,500
400,000
10,401 45,123 62,664 80,205 112,500
112,500 112,500
500,000
20,401 75,123 102,664 130,205 172,500
172,500 172,500
600,000
30,401 105,123 142,664 180,205 232,500
232,500 232,500
700,000
40,401 135,123 182,664 230,205 292,500
292,500 292,500
800,000
50,401 165,123 222,664 280,205 352,500
352,500 352,500
The benefits shown in Table #2 are payable upon the attainment
of age 62, the normal retirement
date. Remuneration is the average of the highest 60 consecutive
months of compensation during the last
84 months of employment. Compensation includes salary and bonuses
prior to any deferrals. The
normal form of pension is a life only annuity. Other optional
forms of pension payment are available on
an actuarially equivalent basis. The benefits listed in the table
are not subject to deduction for social
security or other offset amounts.
Ownership of Securities
All of the Company's outstanding shares are owned by The
Great-West Life Assurance Company,
100 Osborne Street North, Winnipeg, Manitoba, Canada R3C 3A5. The
Great-West Life Assurance
Company is owned 99.5% by Great-West Lifeco Inc., both of which
share the same address. Great-West
Lifeco Inc. is owned 86.5% by Power Financial Corporation, 751
Victoria Square, Montreal, Quebec,
Canada H2Y 2J3. It is owned 68.3% by 171263 Canada Inc., which is
owned 100% by Power
Corporation of Canada, both of which share the same address as
Power Financial Corporation. Mr. Paul
Desmarais, 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3,
through a group of private holding
companies, which he controls, has voting control of Power
Corporation of Canada.
_________________________________________________________________
___________
VOTING RIGHTS
_________________________________________________________________
___________
To the extent required by applicable law, all Eligible Fund
shares held in the Series Account will
be voted by the Company at regular and special shareholder meetings
of the respective Eligible Funds in
accordance with instructions received from persons having voting
interests in the corresponding
Investment Division. If, however, the 1940 Act or any regulation
thereunder should be amended, or if the
present interpretation thereof should change, or if we determine
that we are allowed to vote all Eligible
Funds shares in our own rights, we may elect to do so.
Before the annuity commencement date, you the Owner, have
the
voting interest. The number of
votes which are available to you will be calculated separately for
each of your Variable Sub-Accounts.
That number will be determined by applying your percentage
interest, if any, in a particular Investment
Division to the total number of votes attributable to that
Investment Division. You hold a voting interest in
each Investment Division to which your Annuity Account Value is
allocated. If you select a variable
annuity option, the votes attributable to a Contract will decrease
as annuity payments are made.
The number of votes of an Eligible Fund will be determined
as
of the date coincident with the
date established by that Eligible Fund for determining shareholders
eligible to vote at the meeting of the
Eligible Funds. Voting instructions will be solicited by written
communication prior to such meeting in
accordance with procedures established by the respective Eligible
Funds.
Shares as to which no timely instructions are received and
shares held by us as to which Owners
have no beneficial interest will be voted in proportion to the
voting instructions which are received with
respect to all Contracts participating in the Investment Division.
Voting instructions to abstain on any
item to be voted upon will be applied on a pro rata basis to reduce
the votes eligible to be cast.
Each person or entity having a voting interest in a Investment
Division will receive proxy material,
reports and other material relating to the appropriate Eligible
Fund.
It should be noted that generally the Eligible Funds are not
required to, and do not intend to,
hold annual or other regular meetings of shareholders.
Contract Owners have no voting rights in the Company.
_________________________________________________________________
___________
RIGHTS RESERVED BY THE COMPANY
_________________________________________________________________
___________
The Company reserves the right to make certain changes if, in
its judgment, they would best
serve the interests of Owners and Annuitants or would be
appropriate in carrying out the purposes of the
Contracts. Any changes will be made only to the extent and in the
manner permitted by applicable laws.
Also, when required by law, the Company will obtain your approval
of the changes and approval from
any appropriate regulatory authority. Such approval may not be
required in all cases, however.
Examples of the changes the Company may make include:
- To operate the Series Account in any form permitted under
the Investment Company Act of
1940 or in any other form permitted by law.
- To transfer any assets in any Investment Division to
another Investment Division, or to one or
more separate accounts, or to a Guarantee Period; or to add,
combine or remove Investment
Divisions of the Series Account.
- To substitute, for the Eligible Fund shares in any
Investment Division, the shares of another
Eligible Fund or shares of another investment company or any
other investment permitted by law.
- To make any changes required by the Internal Revenue Code
or by any other applicable law in
order to continue treatment of the Contract as an annuity.
- To change the time or time of day at which a Valuation Date
is deemed to have ended.
- To make any other necessary technical changes in the
Contract in order to conform with any
action the above provisions permit the Company to take,
including to change the way the
Company assess charges, but without increasing as to any then
outstanding Contract the
aggregate amount of the types of charges which the Company has
guaranteed.
_________________________________________________________________
___________
LEGAL PROCEEDINGS
_________________________________________________________________
___________
There are at present no material legal proceedings to which
the Series Account is a party or to
which the assets of the Series Account are subject. The Company is
not currently a party to, and its
property is not currently subject to, any material legal
proceedings. The lawsuits to which the Company
is a party are, in the opinion of management, in the ordinary
course of business, and are not expected to
have a material adverse effect on the financial results, conditions
or prospects of the Company.
_________________________________________________________________
___________
LEGAL MATTERS
_________________________________________________________________
___________
Advice regarding certain legal matters concerning the federal
securities laws applicable to the
issue and sale of the Contract has been provided by Jorden Burt
Berenson & Johnson LLP. The
organization of the Company, the Company's authority to issue the
Contract, and the validity of the form
of the Contract have been passed upon by Ruth B. Lurie, Vice
President, Counsel and Associate
Secretary of the Company.
_________________________________________________________________
___________
EXPERTS
_________________________________________________________________
___________
The consolidated financial statements of Great-West Life &
Annuity Insurance Company at
December 31, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995
included in this prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated
in their report appearing herein, and are included in reliance upon
the report of such firm given upon
their authority as experts in accounting and auditing.
_________________________________________________________________
___________
AVAILABLE INFORMATION
_________________________________________________________________
___________
We have filed a registration statement ("Registration
Statement") with the Commission under the
1933 Act relating to the Contracts offered by this Prospectus.
This Prospectus has been filed as a part of
the Registration Statement and does not contain all of the
information set forth in the Registration
Statement and exhibits thereto. Reference is hereby made to the
Registration Statement and exhibits for
further information relating to us and the Contracts. Statements
contained in this Prospectus, as to the
content of the Contracts and other legal instruments, are
summaries. For a complete statement of the
terms thereof, reference is made to the instruments as filed as
exhibits to the Registration Statement.
The Registration Statement and its exhibits may be inspected and
copied at the offices of the
Commission located at 450 Fifth Street, N.W., Washington, D.C.
Appendix A
The standard nonforfeiture rate in all states, other than those
listed below is 3%.
Florida 0%
Mississippi 0%
Oklahoma 0%
Appendix B
On the following pages are four examples of Market Value
Adjustments illustrating (1) increasing interest
rates, (2) decreasing interest rates, (3) flat interest rates (i
and j are within .10% of each other), and (4)
less than 6 months to maturity.
Example #1 - Increasing Interest Rates
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period:10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2000
j: 7.00%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.071]65/12} - 1
= .952885 - 1
= .047115
MVA = (amount Transferred or surrendered) x MVAF
= $10,000 x - .047115
= - $471.15
Surrender Value = (amount Transferred or surrendered +
MVA)
= ($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
= {[1.0615/1.05]65/12} - 1
= .0055323
MVAF = (amount Transferred or surrendered) x MVAF
= $10,000 x .0055323
= $553.23
Surrender Value = (amount Transferred or surrendered +
MVA)
= ($10,000 + $553.23)
= $10,553.23
Example #3 - Flat Interest Rates (i and j are within .10% of
each other)
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period:10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2000
j: 6.24%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.0634]65/12} - 1
= .99036 - 1
= -.00964
However, [i-j] <.10%, so MVAF = 0
MVAF = (amount Transferred or surrendered) x MVAF
= $10,000 x 0
= $0
Surrender Value = (amount Transferred or surrendered +
MVA)
= ($10,000 + $0)
= $10,000
Example #4 - N<6 (less than 6 months to maturity)
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period:10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2005
j: 7.00%
Amount Surrendered: $10,000
N: 5
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.071]5/12} - 1
= .99629 - 1
= -.00371
However, N<6, so MVAF = 0
MVAF = (amount Transferred or surrendered) x MVAF
= $10,000 x 0
= $0
Surrender Value = (amount Transferred or surrendered + MVA)
= ($10,000 + $0)
= $10,000
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 1995, 1994 AND 1993
AND INDEPENDENT AUDITORS' REPORT
AND
UNAUDITED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED
SEPTEMBER 30, 1996
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 1995, 1994 AND 1993
AND INDEPENDENT AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
of Great-West Life & Annuity Insurance Company:
We have audited the accompanying consolidated balance sheets of
Great-West Life & Annuity Insurance Company (a wholly-owned
subsidiary of The Great-West Life Assurance Company) and
subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholder's equity, and cash
flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Great-West Life & Annuity Insurance Company and subsidiaries as of
December 31, 1995 and 1994, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
January 19, 1996
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Dollars in Thousands)
ASSETS
1995
1994
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized cost
(fair value $2,158,043 and $4,135,248)
$ 2,054,204
$4,293,985
Available for sale, at fair value
(amortized cost $6,087,969 and $2,997,087)
6,263,187
2,824,703
Common stock
9,440
5,222
Mortgage loans on real estate
1,713,195
2,011,059
Real estate
60,454
43,663
Policy loans
2,237,745
1,905,013
Short-term investments
134,835
706,920
Total Investments
12,473,060
11,790,565
Cash
90,939
131,621
Reinsurance receivable
333,924
295,148
Deferred policy acquisition costs
278,526
297,092
Investment income due and accrued
211,922
195,817
Other assets
40,038
55,579
Premiums in course of collection
85,990
84,478
Deferred income taxes
168,941
210,407
Separate account assets
3,998,878
2,554,836
TOTAL ASSETS
$17,682,218
$15,615,543
See notes to consolidated financial statements.
LIABILITIES AND STOCKHOLDER'S EQUITY
1995
1994
POLICY BENEFIT LIABILITIES:
Policy reserves
$10,845,935
$10,334,456
Policy and contract claims
359,791
338,515
Policyholders' funds
154,872
144,262
Experience refunds
83,562
70,359
Provision for policyholders'dividends
47,760
41,840
GENERAL LIABILITIES:
Due to Parent Corporation
149,974
159,117
Repurchase agreements
372,965
564,160
Commercial paper
84,854
89,686
Other liabilities
453,889
420,154
Undistributed earnings on
participating business
136,617
120,927
Separate account liabilities
3,998,878
2,554,836
Total Liabilities
16,689,097
14,838,312
STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value,
50,000,000 shares authorized:
Series A, cumulative,
1500 shares authorized, liquidation value of
$100,000 per share, 600 shares issued and
outstanding 60,000 60,000
Series B, cumulative,
1500 shares authorized, liquidation value of
$100,000 per share, 200 shares issued and
outstanding 20,000 20,000
Series C, cumulative,
1500 shares authorized, none outstanding
Series D, cumulative,
1500 shares authorized, none outstanding
Series E, non-cumulative,
2,000,000 shares authorized,
liquidation value of $20.90
41,800 41,800
per share, issued, and outstanding
Common stock, $1 par value;
50,000,000 shares authorized;
7,032,000 shares issued and
outstanding 7,032 7,032
Additional paid-in capital
657,265
657,265
Net unrealized gains (losses) on
securities available-for-sale
58,763
(78,427)
Retained earnings
148,261
69,561
Total Stockholder's Equity
993,121
777,231
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY
$17,682,218
$15,615,543
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994,
AND 1993
(Dollars in Thousands)
1995
1994
1993
REVENUES:
Annuity contract charges and
premiums
$79,816
$61,122
$63,210
Life, accident, and health premiums
earned (net of premiums ceded totaling
$60,880,
$48,115
and $254,969)
987,611
938,947
632,961
Net investment income
835,046
767,646
791,424
Net realized gains (losses) on
investments
7,465
(71,939)
25,342
1,909,938
1,695,776
1,512,937
BENEFITS AND EXPENSES:
Life and other policy benefits (net
of reinsurance recoveries totaling
$43,574,
$18,937,
and $151,598)
557,469
548,950
390,562
Increase in reserves
98,797
64,834
59,873
Interest paid or credited to
contractholders
562,263
529,118
623,417
Provision for policyholders' share
of earnings (losses)
on participating business
2,027
(725)
(1,498)
Dividends to policyholders
48,150
42,094
34,474
1,268,706
1,184,271
1,106,828
Commissions
122,926
120,058
90,472
Operating expenses
314,810
261,311
196,820
Premium taxes
26,884
27,402
23,129
1,733,326
1,593,042
1,417,249
INCOME BEFORE INCOME TAXES
176,612
102,734
95,688
PROVISION FOR INCOME TAXES:
Current
88,366
65,070
76,672
Deferred
(39,434)
(36,614)
(45,620)
48,932
28,456
31,052
NET INCOME
$127,680
$74,278
$64,636
See notes to consolidated financial
statements.
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S
EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND
1993 (Dollars in Thousands)
Net Additional
Unrealized Retained
Preferred Stock
Common Stock
Paid-In
Gains
Earnings
Shares
Amount
Shares
Amount
Capital
(Losses)
(Deficit)
Total
BALANCE, JANUARY 1, 1993
2,000,800
$121,800
7,028,217
$7,028
$647,199
$0
$(7,063)
$768,964
Issuance of common stock
3,783
4
496
500
Capital contributions
9,098
9,098
Dividends
(21,852)
(21,852)
Net income
64,636
64,636
BALANCE, DECEMBER 31, 1993
2,000,800
121,800
7,032,000
7,032
656,793
0
35,721
821,346
Adjustment to beginning
balance for change in
accounting method for investment
securities
6,515
6,515
Change in net unrealized
gains (losses)
(84,942)
(84,942)
Capital contributions
472
472
Dividends
(40,438)
(40,438)
Net income
74,278
74,278
BALANCE, DECEMBER 31, 1994
2,000,800
121,800
7,032,000
7,032
657,265
(78,427)
69,561
777,231
Change in net unrealized
gains (losses)
137,190
137,190
Dividends
(48,980)
(48,980)
Net income
127,680
127,680
BALANCE, DECEMBER 31,
1995
2,000,800
$121,800
7,032,000
$7,032
$657,265
$58,763
$148,261
$993,121
See notes to consolidated financial
statements.
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994,
AND 1993
(Dollars in Thousands)
1995
1994
1993
OPERATING ACTIVITIES:
Net income
$127,680
$74,278
$64,636
Adjustments to reconcile net
income to net cash provided by
operating activities:
Gain (loss) allocated to
par policyholders
2,027
(725)
(1,498)
Amortization of
investments
26,725
36,978
36,782
Realized losses (gains) on
disposal of investments
and write-downs of
mortgage loans and real estate
(7,465)
71,939
(25,342)
Amortization
49,464
29,197
34,115
Deferred income taxes
(39,763)
(38,631)
(56,959)
Changes in assets and
liabilities:
Policy benefit
liabilities
346,975
93,998
438,809
Reinsurance receivable
(38,776)
(25,868)
352,106
Accrued interest and
other receivables
(17,617)
(26,032)
(19,817)
Other, net
8,834
96,950
119,284
Net cash provided by operating activities
458,084
312,084
942,116
INVESTING ACTIVITIES:
Proceeds from sales,
maturities, and redemptions of
investments:
Fixed maturities
4,744,309
Held-to-maturity
Sales
18,821
16,014
Maturities and redemptions
655,993
1,034,324
Available-for-sale
Sales
4,211,649
1,753,445
Maturities and redemptions
253,747
141,299
Mortgage loans
260,960
291,102
339,406
Real estate
4,401
29,868
22,974
Common stock
178
Purchases of investments:
Fixed maturities
(5,494,534)
Held-to-maturity
(490,228)
(673,567)
Available-for-sale
(4,932,566)
(2,606,028)
Mortgage loans
(683)
(9)
(52,917)
Real estate
(5,302)
(9,253)
(14,303)
Common stock
(4,218)
(2,063)
Net cash used in
investing activities
(27,426)
(24,690)
(455,065)
(Continued)
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994,
AND 1993
(Dollars in Thousands)
1995
1994
1993
FINANCING ACTIVITIES:
Contract withdrawals, net of
deposits
$(217,190)
$(238,166)
$(590,118)
Due to Parent Corporation
(9,143)
(13,078)
(149,510)
Dividends paid
(48,980)
(40,438)
(21,852)
Net commercial paper (repayments)
borrowings
(4,832)
89,686
Net repurchase agreements
(repayments) borrowings
(191,195)
(39,244)
311,937
Net cash used in
financing activities
(471,340)
(241,240)
(449,543)
NET INCREASE IN CASH
(40,682)
46,154
37,508
CASH, BEGINNING OF YEAR
131,621
85,467
47,959
CASH, END OF YEAR
$90,939
$131,621
$85,467
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes
$83,841
$68,892
$87,778
Interest
17,016
12,229
7,438
See notes to consolidated financial
statements.
(Concluded)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Great-West Life & Annuity Insurance Company
(the Company) is a wholly-owned subsidiary of The Great-West Life
Assurance Company (the Parent Corporation). The Company is an
insurance company domiciled in the State of Colorado. The Company
offers a wide range of life insurance, health insurance, and
retirement and investment products to individuals, businesses,
and other private and public organizations throughout the United
States.
Basis of Presentation - The preparation of financial
statements in conformity with generally accepted accounting
principles equires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. The consolidated financial statements
include the accounts of the Company and its subsidiaries. All
material intercompany transactions and balances have been
eliminated.
Certain reclassifications have been made to the 1994 and 1993
financial statements to conform with the basis of presentation
used in 1995.
Investments - Investments are reported as follows:
1. Management determines the classification of fixed
maturities at the time of purchase. Fixed maturities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost unless
fair value is less than cost and the decline is deemed to be other
than temporary, in which case they are written down to fair
value and a new cost basis is established. Fixed maturities not
classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are carried at
fair value, with the net unrealized gains and losses reported as a
separate component of stockholder's equity. The net unrealized
gains and losses in derivative financial instruments used to hedge
available-for-sale securities is included in the separate component
of stockholder's equity.
The amortized cost of fixed maturities classified as
held-to-maturity or available-for-sale is adjusted for
amortization of premiums and accretion of discounts using the
effective interest method over the life of the related bonds. Such
amortization is included in interest income from investments.
Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net realized gains
(losses) on investments.
2. Mortgage loans on real estate are carried at their unpaid
balances adjusted for any unamortized premiums or discounts and any
valuation reserves. Interest income is accrued on the unpaid
principal balance. Discounts and premiums are amortized to income
using the effective interest method. Accrual of interest is
discontinued on any impaired loans where collection of interest is
doubtful.
The Company maintains an allowance for credit losses at
a level that, in management's opinion, is sufficient to
absorb possible credit losses on its impaired loans and to provide
adequate provision for any possible future losses in the portfolio.
Management's judgement is based on past loss experience, current
and projected economic conditions, and extensive situational
analysis of each individual loan.
Effective January 1, 1995, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 114 "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan-Income Recognition and
Disclosures". In accordance with these standards, a mortgage loan
is considered to be impaired when it is probable that the Company
will be unable to collect all amounts due according to the
contractual terms of the loan agreement. The measurement of
impaired loans is based on the fair value of the collateral. As
the Company was already providing for impairment of loans through
an allowance for credit losses, the implementation of these
statements had no material effect on the Company's financial
statements.
3. Real estate is carried at the lower of cost or fair
value. In March 1995, the FASB issued SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" to be effective for fiscal years beginning after
December 15, 1995. The effect of adopting this statement is not
expected to be material.
4. Policy loans are carried at their unpaid balances.
5. Short-term investments include securities purchased with
initial maturities of one year or less and are carried at amortized
cost. The Company considers short-term investments to be
available-for-sale and amortized cost approximates fair value.
Gains and losses realized on disposal of investments are
determined on a specific identification basis.
Cash - Cash includes only amounts in demand deposit accounts.
Deferred Policy Acquisition Costs - Policy acquisition costs,
which consist of sales commissions and other costs that vary with
and are primarily related to the production of new and renewal
business, have been deferred to the extent recoverable. Deferred
costs associated with the annuity products are being amortized
over the life of the contracts in proportion to the emergence of
gross profits. Retrospective adjustments of these amounts are made
when the Company revises its estimates of current or future gross
profits. Deferred costs associated with traditional life
insurance are amortized over the premium paying period of the
related policies in proportion to premium revenues recognized.
Amortization of deferred policy acquisition costs totalled $48,054,
$28,199, and $32,611 in 1995, 1994, and 1993, respectively.
Separate Account - Separate account assets and related
liabilities are carried at fair value. The Company's separate
accounts invest in shares of Maxim Series Fund, Inc., a
diversified, open-end management investment company which is an
affiliate of the Company, shares of other external mutual funds, or
government or corporate bonds.
Life Insurance and Annuity Reserves - Life insurance and
annuity policy reserves with life contingencies of $4,675,175, and
$3,995,927 at December 31, 1995 and 1994, respectively, are
computed on the basis of estimated mortality, investment yield,
withdrawals, future maintenance and settlement expenses, and
retrospective experience rating premium refunds. Annuity contract
reserves without life contingencies of $6,170,760, and $6,338,529
at December 31, 1995 and 1994, respectively, are established
at the contractholder's account value.
Reinsurance - Policy reserves ceded to other insurance
companies are carried as reinsurance receivable on the balance
sheet (See Note 3).
The cost of reinsurance related to long-duration contracts is
accounted for over the life of the underlying reinsured policies
using assumptions consistent with those used to account for the
underlying policies.
Policy and Contract Claims - Policy and contract claims
include provisions for reported claims in process of settlement,
valued in accordance with the terms of the related policies and
contracts, as well as provisions for claims incurred and unreported
based primarily on prior experience of the Company.
Participating Fund Account - Participating life and annuity
policy reserves are $3,339,316 and $2,917,273 at December 31, 1995
and 1994, respectively. Participating business approximates 46%
of the Company's ordinary life insurance in force and 84% of
ordinary life insurance premium income at December 31, 1995.
The liability for undistributed earnings on participating
business was increased by $15,690 in 1995, which represented $2,027
of earnings on participating business and adjustments of $13,663
to reflect the net unrealized gains on securities classified as
available-for-sale, net of certain adjustments to policy reserves
and income taxes.
The amount of dividends to be paid from undistributed earnings
on participating business is determined annually by the Board of
Directors. Amounts allocable to participating policyholders are
consistent with established Company practice.
The Company has established a Participating Policyholder
Experience Account (PPEA) for the benefit of all participating
policyholders which is included in the accompanying consolidated
balance sheet. Earnings associated with the operation of the PPEA
are credited to the benefit of all participating policyholders. In
the event that the assets of the PPEA are insufficient to provide
contractually guaranteed benefits, the Company must provide such
benefits from its general assets.
The Company has also established a Participation Fund Account
(PFA) for the benefit of the participating policyholders previously
transferred to the Company from the Parent under an assumption
reinsurance transaction. The PFA is part of the PPEA. The assets
and liabilities associated with these policies are segregated in
the accounting records of the Company to assure the continuation of
current policyholder dividend expectations. Earnings derived
from the operation of the PFA accrue solely for the benefit of the
acquired participating policyholders.
Recognition of Premium Income and Benefits and Expenses - Life
insurance premiums are recognized as earned. Annuity premiums
with life contingencies are recognized as received. Accident and
health premiums are earned on a monthly pro rata basis. Revenues
for annuity and other contracts without significant life
contingencies consist of contract charges for the cost of
insurance, contract administration, and surrender fees that have
been assessed against the contract account balance during the
period. Benefits and expenses on policies with life contingencies
are associated with premium income by means of the provision for
future policy benefit reserves, resulting in recognition of profits
over the life of the contracts. The average crediting rate on
annuity products was approximately 7.2% in 1995.
Income Taxes - Income taxes are recorded using the asset and
liability approach which requires, among other provisions, the
recognition of deferred tax assets and liabilities for expected
future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating
future tax consequences, all expected future events (other than the
enactments or changes in the tax laws or rules) are considered.
Deferred tax assets are recorded net of a valuation allowance to
the extent that management estimates that recovery of the asset is
not more likely than not.
Repurchase Agreements - The Company enters into repurchase
agreements with third-party broker-dealers in which the Company
sells securities and agrees to repurchase substantially similar
securities at a specified date and price. Such agreements are
accounted for as collateralized borrowings. Interest expense on
repurchase agreements is recorded at the coupon interest rate on
the underlying securities. The repurchase fee received or paid is
amortized over the term of the related agreement and recognized as
an adjustment to investment income.
Derivatives - The Company engages in hedging activities to
manage interest rate and foreign exchange risk (See Note 6).
2. RELATED-PARTY TRANSACTIONS
Reinsurance Transactions - The Company entered into a series
of reinsurance transactions with the Parent Corporation during 1993
and prior years intended to make the Company the underwriter and
administrator of all life and health insurance, annuity products,
and related services with respect to United States policyholders.
A May 1, 1993, reinsurance transaction resulted in the Company
recapturing certain group life and health business previously ceded
to the Parent under a coinsurance agreement, as follows:
Assets
Liabilities and
Stockholder's Equity
Bonds
$217,254
Policy reserves
$253,479
Mortgage loans
27,182
Cash and short-term
investments
5,607
Investment income
due & accrued
3,436
$253,479
$253,479
In addition, effective December 31, 1993, the Company
recaptured certain participating life business also previously
ceded to the Parent Corporation, as follows:
Assets
Liabilities and
Stockholder's Equity
Bonds
$171,005
Policy reserves
$180,000
Cash and short-term
investments
8,087
Investment income
due & accrued
908
$180,000
$180,000
From 1989 to 1993, the Company has assumed most of the United
States business of the Parent Corporation. During this period, the
Parent Corporation had recorded estimated tax liabilities for
certain United States federal income taxes in its financial
statements. On December 31, 1993 and December 30, 1994, the Parent
Corporation transferred assets with an estimated fair value of
$82,800 and $9,391, respectively, to the Company in exchange for
the Company agreeing to assume the estimated tax liabilities of the
Parent Corporation, and the issuance of shares of the Company's
common stock.
Fees and Expenses - The Company and the Parent Corporation
have a number of service agreements whereby the Parent Corporation
administers, distributes, and underwrites business for the Company
and administers the Company's investment portfolio. Certain
operating expenses represent allocations made by the Parent
Corporation to the Company for services provided pursuant to these
service agreements. These transactions are summarized as follows:
Years Ended December 31,
1995
1994
1993
Investment management expense
(included in net
investment income)
$15,182
$13,841
$17,767
Administrative and underwriting
payments (included
in operating expenses)
301,529
269,020
199,947
Other - At December 31, 1995 and 1994, due to Parent
Corporation includes $27,814 and $35,388 due on demand and $122,160
and $123,729 of notes payable which bear interest and mature at
various dates. These notes may be prepaid in whole or in part at
any time without penalty; the issuer may not demand payment before
the maturity date. The Company also has available an arrangement
to obtain advances from the Parent Corporation to fund short-term
liquidity needs. The due on demand to the Parent Corporation bears
interest at the public bond rate (6.4% and 8.5% at December 31,
1995 and 1994, respectively) while the remainder bear interest at
various rates.
3. REINSURANCE
In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured and to recover a
portion of benefits paid by ceding risks to other insurance
enterprises under excess coverage and co-insurance contracts. The
Company retains a maximum of $1.5 million of coverage per
individual life.
Reinsurance contracts do not relieve the Company from its
obligations to policyholders. Failure of reinsurers to honor their
obligations could result in losses to the Company; consequently,
allowances are established for amounts deemed uncollectible. The
Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of
the reinsurers to minimize its exposure to significant losses from
reinsurer insolvencies. At December 31, 1995 and 1994, reinsurance
receivables with a carrying value of $333,924, and $295,148,
respectively, were due primarily from the Parent Corporation.
Total reinsurance premiums assumed from the Parent Corporation
were $1,606 and $2,438, and $0, in 1995, 1994, and 1993,
respectively.
The Company considers all accident and health policies to be
short-duration contracts. The following schedule details life
insurance in force and life and accident/health premiums:
Assumed
Ceded
Primarily
Percentage
Primarily to
From
of
Amount
Gross
the Parent
Other
Net
Assumed
to
Amount
Corporation
Companies
Amount
Net
December 31, 1995:
Life insurance in force:
Individual
$22,388,520
$7,200,882
$3,476,784
$18,664,422
18.6%
Group
48,415,592
1,954,313
50,369,905
3.9%
Total
$70,804,112
$7,200,882
$5,431,097
$69,034,327
Premiums:
Life insurance
$339,342
$51,688
$21,028
$308,682
6.8%
Accident/health
623,626
9,192
64,495
678,929
9.5%
Total
$962,968
$60,880
$85,523
$987,611
December 31, 1994:
Life insurance in force:
Individual
$21,461,590
$7,411,811
$3,415,596
$17,465,375
19.6%
Group
48,948,669
2,102,228
51,050,897
4.1%
Total
$70,410,259
$7,411,811
$5,517,824
$68,516,272
Premiums:
Life insurance
$322,263
$42,946
$22,009
$301,326
7.3%
Accident/health
579,650
5,169
63,140
637,621
9.9%
Total
$901,913
$48,115
$85,149
$938,947
December 31, 1993:
Life insurance in force:
Individual
$17,131,994
$7,797,389
$3,142,723
$12,477,328
25.2%
Group
37,789,859
2,108,314
39,898,173
5.3%
Total
$54,921,853
$7,797,389
$5,251,037
$52,375,501
Premiums:
Life insurance
$283,707
$112,798
$18,753
$189,662
9.9%
Accident/health
524,747
142,171
60,723
443,299
13.7%
Total
$808,454
$254,969
79,476
$632,961
4. NET INVESTMENT INCOME
Net investment income is summarized as follows:
Years Ended December 31,
1995
1994
1993
Investment income:
Bonds and short-term
investments
$592,062
$555,103
$545,926
Mortgage loans on real
estate
171,008
182,544
220,477
Real estate
3,936
5,700
9,265
Policy loans
163,547
116,060
91,529
930,553
859,407
867,197
Investment expenses,
including interest on
amounts charged by the
Parent Corporation
of $10,778, $11,145, and
$7,250
95,507
91,761
75,773
Net investment income
$835,046
$767,646
$791,424
5. NET REALIZED GAINS (LOSSES) ON
INVESTMENTS
Net realized gains (losses) on
investments are as follows:
Years Ended December 31,
1995
1994
1993
Net realized gains
(losses):
Bonds
$28,166
$(39,775)
$68,884
Mortage loans on real
estate
1,309
2,120
(98)
Real estate
(10)
(102)
(102)
Bond provisions
(5,000)
(3,200)
(4,456)
Mortgage loan provisions
(15,877)
(27,918)
(38,089)
Real estate provisions
(1,123)
(3,064)
(797)
Net realized gains
(losses) on investments
$7,465
$(71,939)
$25,342
6. SUMMARY OF INVESTMENTS
Fixed maturities owned at December 31,
1995 are summarized as follows:
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Fair
Carrying Cost
Gains
Losses
Value
Value
Held-to-Maturity:
U.S. Treasury
Securities and
obligations of U.S.
Government Agencies:
Collateralized
mortgage obligations
$
$
$
$
$
Direct mortgage pass-through
certificates
Other
11,107
1,093
12,200
11,107
Collateralized
mortgage obligations
Public utilities
269,671
22,084
95
291,660
269,671
Corporate bonds
1,732,046
83,583
5,867
1,809,762
1,732,046
Foreign governments
18,596
1,087
12
19,671
18,596
State and
municipalities
22,784
1,966
24,750
22,784
$2,054,204
$109,813
$5,974
$2,158,043
$2,054,204
Available-for-Sale:
U.S. Treasury
Securities and
obligations
of U.S.
Government Agencies:
Collateralized
mortgage obligations
$561,475
$9,983
$1,948
$569,510
$569,510
Direct mortgage pass-through
certificates
794,056
11,980
2,233
803,803
803,803
Other
561,736
7,703
39
569,400
569,400
Collateralized
mortgage obligations
490,074
18,044
3,304
504,814
504,814
Public utilities
581,482
16,607
2,425
595,664
595,664
Corporate bonds
2,943,918
121,537
26
3,065,429
3,065,429
Foreign governments
141,362
5,021
5,644
140,739
140,739
State and
municipalities
13,866
22
60
13,828
13,828
$6,087,969
$190,897
$15,679
$6,263,187
$6,263,187
6.SUMMARY OF INVESTMENTS (Continued)
Fixed maturities owned at December 31, 1994 are summarized as
follows:
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Fair Carrying Cost
Gains
Losses
Value
Value
Held-to-Maturity:
U.S. Treasury
Securities and
obligations
of U.S.
Government Agencies:
Collateralized
mortgage obligations
$521,408
$389
$33,018
$488,779
$521,408
Direct
mortgage pass-through
certificates
69,559
617
1,001
69,175
69,559
Other
85,406
246
923
84,729
85,406
Collateralized
mortgage obligations
309,869
1,205
14,208
296,866
309,869
Public utilities
457,758
2,898
14,340
446,316
457,758
Corporate bonds
2,757,612
14,701
111,410
2,660,903
2,757,612
Foreign governments
90,690
47
3,950
86,787
90,690
State and
municipalities
1,683
10
1,693
1,683
$4,293,985
$20,113
$178,850
$4,135,248
$4,293,985
Available-for-Sale:
U.S. Treasury
Securities and
obligations
of U.S.
Government Agencies:
Collateralized
mortgage obligations
$80,531
$
$3,798
$76,733
$76,733
Direct
mortgage pass-through
certificates
759,815
871
49,462
711,224
711,224
Other
198,651
9
2,654
196,006
196,006
Collateralized
mortgage obligations
203,036
6,379
196,657
196,657
Public utilities
325,383
193
26,379
299,197
299,197
Corporate bonds
1,119,726
3,253
65,398
1,057,581
1,057,581
Foreign governments
298,597
17
21,826
276,788
276,788
State and
municipalities
11,348
831
10,517
10,517
$2,997,087
$4,343
$176,727
$2,824,703
$2,824,703
Most of the collateralized mortgage obligations consist of
planned amortization classes with final stated maturities of three
to thirty years and average lives of less than one to twelve
years. Prepayments on all mortgage-backed securities are monitored
monthly and amortization of the premium and/or the accretion of the
discount associated with the purchase of such securities is
adjusted by such prepayments.
The cumulative effect as of January 1, 1994 of adopting SFAS
No. 115 "Accounting for Certain Investments in Debt and Equity
Securities," increased the opening balance of stockholders'
equity by $6,515 to reflect the net unrealized gains on securities
classified as available-for-sale (previously carried at the
lower of aggregate amortized cost or fair value) and the
corresponding adjustments to deferred policy acquisition costs,
policy reserves, and amounts allocable to the liability for
undistributed earnings on participating business, all net of income
taxes.
In November 1995, the Financial Accounting Standards Board
issued a special report entitled A Guide to Implementation of SFAS
115 on Accounting for Certain Investments in Debt and Equity
Securities. In accordance with the adoption of this guidance, the
Company reassessed the classification of its investment portfolio
in December 1995 and reclassed securities totalling $2,119,814
from held-to-maturity to available-for-sale. In connection with
this reclassification, an unrealized gain, net of related
adjustments (see above), of $23,449 was recognized in stockholder's
equity at the date of transfer.
The estimated fair value of fixed maturities that are publicly
traded are obtained from an independent pricing service. To
determine fair value for fixed maturities not actively traded, the
Company utilized discounted cash flows at determined current market
spread rates on investments of similar quality and term.
The amortized cost and estimated fair value of fixed maturity
investments at December 31, 1995, by projected maturity, are shown
below. Actual maturities will likely differ from these projections
because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Held-to-
Maturity
Available-
for-Sale
Amortized
Estimated
Amortized
Estimated
Cost
Fair Value Cost
Fair Value Due in one year or
less
$287,565
$293,666
$326,032
$337,792
Due after one year
through five years
838,993
877,949
1,452,442
1,495,755
Due after five years
through ten years
537,365
575,896
1,023,894
1,064,871
Due after ten years
159,064
173,487
522,002
542,559
Mortgage-backed
securities
1,845,605
1,878,127
Asset-backed
securities
231,217
237,045
917,994
944,083
$2,054,204
$2,158,043
$6,087,969
$6,263,187
During the years ended December 31, 1995 and 1994,
available-for-sale securities with a fair value at the date of sale
of $4,211,649 and $1,753,445 were sold. The realized gains and
losses on such sales totaled $39,755 and $15,516 for 1995 and
$7,030 and $50,612 for 1994. During 1995 and 1994,
held-to-maturity securities with an amortized cost of $18,087 and
$15,300 were sold due to credit deterioration with insignificant
realized gains and losses. Gains on securities which were called
for redemption by the respective issuers prior to maturity were
$2,990 and $3,093 in 1995 and 1994, respectively.
At December 31, 1995 and 1994, pursuant to fully
collateralized securities lending arrangements, the Company had
loaned $343,351 and $0 of fixed maturities, respectively.
The Company makes limited use of derivative financial
instruments to manage interest rate and foreign exchange risk.
Such hedging activity consists of interest rate swap agreements,
interest rate floors and caps, and foreign currency exchange
contracts. Interest rate floors and caps are interest rate
protection instruments that require the payment by a counter-party
to the Company of an interest differential. This differential
represents the difference between current interest rates and an
agreed-upon rate, the strike rate, applied to a notional principal
amount. Interest rate swap agreements are used to convert the
interest rate on certain fixed maturities from a floating rate to
a fixed rate. Interest rate swap transactions generally involve
the exchange of fixed and floating rate interest payment
obligations without the exchange of the underlying principal
amounts. Foreign currency exchange contracts are used to hedge the
foreign exchange rate risk associated with bonds denominated in
other than U.S. dollars. The differential paid or received on
interest rate and amounts received under interest rate floor and
cap agreements are recognized as an adjustment to net investment
income on the accrual method. Gains and losses on foreign exchange
contracts are deferred and recognized in net investment income when
the hedged transactions are realized.
Although derivative financial instruments taken alone may
expose the Company to varying degrees of market and credit risk
when used solely for hedging purposes, these instruments typically
reduce overall market and interest rate risk. The Company controls
the credit risk of its financial contracts through credit
approvals, limits, and monitoring procedures. As the Company
generally enters nto transactions only with high quality
institutions, no losses associated with non-performance on
derivative financial instruments have occurred or are expected to
occur.
The following table summarizes the financial hedge
instruments:
Notional
Strike/Swap
December 31, 1995
Amount
Rate
Maturity
Interest Rate Floor
$100,000
4.5%
[LIBOR]
1999
Interest Rate Cap
100,000
11.0% [CMT]
2000
Interest Rate Swaps
165,000
6.203% to
9.35%
01/98 to
2/2002
Foreign Currency
Exchange Contracts
66,650
N/A
10/96 to
09/98
Notional
Strike
December 31, 1994
Amount
Rate
Maturity
Interest Rate Floor
$100,000
4.5%
[LIBOR]
1999
Interest Rate Swaps
150,000
6.275% to
10.644%
01/95 -
01/2000
Foreign Currency
Exchange Contracts
70,991
N/A
10/96 -
09/98
LIBOR - London Interbank Offered Rate
CMT - Constant Maturity Treasury Rate
The Company has established specific investment guidelines
designed to emphasize a diversified and geographically dispersed
portfolio of mortgages collateralized by commercial and industrial
properties located in the United States. The Company's policy is
to obtain collateral sufficient to provide loan-to-value ratios of
not greater than 75% at the inception of the mortgages. At
December 31, 1995 approximately 28% and 11% of the Company's
mortgage loans were collateralized by real estate located in
California and Illinois, respectively.
At December 31, 1995, the recorded investment in loans that
were considered to be impaired under SFAS No. 114 was $23,678
including $3,254 of loans with a related allowance for credit
losses of $654. Additionally, loans totaling $6,481 were on a
non-accrual basis. The average recorded investment in impaired
loans during the year ended December 31, 1995 was approximately
$29,150. For the year ended December 31, 1995, the Company
recognized interest income on those impaired loans of $675.
Interest income received and recorded using the cash basis method
of recognition during 1995 totalled $857.
As part of an active loan management policy and in the
interest of maximizing the future return of each individual loan,
the Company may from time to time alter the original terms of
certain loans. These restructured loans, all performing in
accordance with their modified terms, aggregated $89,160 and
$102,538 at December 31, 1995 and 1994, respectively.
The following table presents changes in the allowance for
credit losses since January 1, 1995 (date of the adoption of SFAS
No. 114):
Balance at January 1, 1995
$57,987
Provision for loan losses
15,877
Direct chargeoffs
(10,480)
Recoveries
610
Balance at December 31, 1995
$63,994
7. COMMERCIAL PAPER
The Company has a commercial paper program which is partially
supported by a $50,000 standby letter-of-credit. At December 31,
1995, commercial paper outstanding has maturities ranging from 25
to 160 days and interest rates ranging from 5.7% to 5.9%. At
December 31, 1994, maturities ranged from 40 to 120 days and
interest rates ranged from 5.4% to 6.4%
8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table provides estimated fair value for all
assets and liabilities and hedge contracts considered to be
financial instruments:
December 31,
1995
1994
Estimated
Carrying
Estimated
Carrying
Fair
Amount
Fair
Value
Amount
Value
ASSETS:
Fixed maturities
and short-term
investments
$8,452,226
$8,556,065
$7,825,608
$7,666,871
Mortgage loans
on real estate
1,713,195
1,749,514
2,011,059
2,037,694
Policy loans
2,237,745
2,237,745
1,905,013
1,905,013
Common stock
9,440
9,440
5,222
5,222
LIABILITIES:
Annuity contract
reserves
without life
contingencies
6,170,760
6,268,749
6,338,529
6,286,966
Policyholders'
funds
154,872
154,872
144,262
144,262
Due to Parent
Corporation
149,974
152,347
159,117
159,334
Repurchase agreements
372,965
372,965
564,160
564,160
Commercial paper
84,854
84,854
89,686
89,686
HEDGE CONTRACTS:
Interest rate
floor
84
1,320
88
76
Interest rate cap
90
90
Interest rate swaps
10,052
10,052
(771)
(771)
Foreign currency
exchange contracts
(4,604)
(4,604)
(4,345)
(4,345)
The estimated fair value of financial instruments has been
determined using available market information and appropriate
valuation methodologies. However, considerable judgement is
necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented
are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Mortgage loans fair value estimates generally are based on a
discounted cash flow basis. A discount rate "matrix" is
incorporated whereby the discount rate used in valuing a specific
mortgage generally corresponds to that mortgage's remaining
term. The rates selected for inclusion in the discount rate
"matrix" reflect rates that the Company would quote if placing
loans representative in size and quality to those currently in the
portfolio.
Policy loans accrue interest generally at variable rates with
no fixed maturity dates and, therefore, estimated fair value
approximates carrying value.
The fair value of annuity contract reserves without life
contingencies is estimated by discounting the cash flows to
maturity of the contracts, utilizing current credited rates for
similar products.
The estimated fair value of policyholder's funds is the same
as the carrying amount as the Company can change the crediting
rates with 30 days notice.
The estimated fair value of due to Parent Corporation is based
on discounted cash flows at current market spread rates on high
quality investments.
The carrying value of repurchase agreements and commercial
paper is a reasonable estimate of fair value due to the short-term
nature of the liabilities.
The estimated fair value of financial hedge instruments, all
of which are held for other than trading purposes, is the
estimated amount the Company would receive or pay to terminate the
agreement at each year-end, taking into consideration current
interest rates and other relevant factors. Included in the net
gain (loss) position for interest rates swaps are $0 and $2,985 of
unrealized losses in 1995 and 1994, respectively. Included in the
net loss position for foreign currencies exchange contracts are
$5,497 and $4,504 loss exposures in 1995 and 1994, respectvely.
See note 6 for additional information on policies regarding
estimated fair value of fixed maturities.
9. FEDERAL INCOME TAXES
The following is a reconciliation between the federal income
tax
rate and the Company's effective rate:
1995
1994
1993
Federal tax rate
35.0%
35.0%
35.0%
Change in tax rate resulting
from:
Investment income not
subject to federal tax
(0.5)
(1.0)
(1.2)
Effect of tax rate change
on net deferred tax assets
(1.8)
Change in valuation
allowance
(7.8)
(6.9)
1.0
State and environmental
taxes
0.7
0.9
Other, net
0.3
(0.3)
(0.5)
Total
27.7%
27.7%
32.5%
Temporary differences which give rise to the deferred tax
assets
and liabilities as of December 31, 1995 and 1994 are as
follows:
1995
1994
Deferred Tax
Asset
Deferred Tax
Liability
Deferred Tax
Asset
Deferred Tax
Liability
Policyholder
reserves
$162,073
$
$119,764
$
Deferred policy
acquisition costs
55,542
62,040
Deferred acquisition
cost proxy tax
58,481
45,422
Investment assets
16,372
97,249
Net operating loss
carryforwards
17,588
22,666
Tax credits and
other
4,786
2,564
Subtotal
242,928
71,914
287,665
62,040
Valuation allowance
(2,073)
(15,218)
Total Deferred Taxes
$240,855
$71,914
$272,447
$62,040
Amounts related to investment assets above include $33,735 and
$(47,493) related to the unrealized gains (losses) on the Company's
fixed maturities available-for-sale at December 31, 1995 and 1994,
respectively.
The Company files a separate tax return and, therefore, losses
incurred by subsidiaries cannot be offset against operating income
of the Company. At December 31, 1995, the Company's subsidiaries
have approximately $50,251 of net operating loss carryforwards,
expiring through the year 2010. The tax benefit of subsidiaries'
net operating loss carryforwards, net of a valuation allowance of
$419 are included in the deferred tax assets.
The Company's valuation allowance was decreased in 1995 and
1994 by $13,145 and $6,278, respectively, primarily as a result of
taxable income in subsidiaries which was greater than expected and
the resulting re-evaluation by management of future estimated
taxable income in the subsidiaries.
Under pre-1984 life insurance company income tax laws, a
portion of life insurance company gain from operations was not
subject to current income taxation but was accumulated, for tax
purposes, in a memorandum account designated as "policyholders'
surplus account." The aggregate accumulation in the account is
$7,742 and the Company does not anticipate any transactions which
would cause any part of the amount to become taxable. Accordingly,
no provision has been made for possible future federal income
taxes on this accumulation.
The Internal Revenue Service is currently auditing tax years
1988 to 1991, inclusive. In the opinion of Company management,
amounts paid or accrued are adequate, however, it is possible that
the Company's estimate may change as a result of the completion of
the IRS audits.
10. STOCKHOLDER'S EQUITY, DIVIDEND RESTRICTIONS, AND OTHER MATTERS
All of the Company's outstanding series of preferred stock are
owned by the Parent Corporation. The dividend rate on the Series
A Stated Rate Auction Preferred Stock (STRAPS) is 7.3% through
December 30, 2002. The Series A STRAPS are redeemable at the
option of the Company on or after December 29, 2002 at a price of
$100,000 per share, plus accumulated and unpaid dividends.
Through December 30, 1995, the Series B STRAPS had a 7%
dividend rate. Thereafter, the Company will, at its option, select
future dividend periods. Future dividend rates will be fixed by a
market auction process with dividend rates dependent upon the
Company. If auctions are undersubscribed or otherwise
unsuccessful, the dividend rate is fixed by formula. The Company
has the flexibility of specifying, before each auction, the rights
of redemption which it has during the succeeding dividend period.
These redemption rights are factored into the auctions which set
dividend rates.
The Series B STRAPS are redeemable at the option of the
Company at a price of $100,000 per share, plus accumulated and
unpaid dividends.
The Company's Series E 7.5% non-cumulative preferred shares
are redeemable by the Company after April 1, 1999. The shares are
not redeemable at the option of the holder at any time. The
shares are convertible into common shares at the option of the
holder on or after September 30, 1999, at a conversion price
negotiated between the holder and the Company or at a formula
determined conversion price in accordance with the share
conditions.
On December 31, 1993, the Company issued 3,783 shares of
common stock to the Parent Corporation in connection with an
assumption of estimated tax liabilities. The Company also received
$472 and $9,098 of contributed capital in the form of deferred tax
assets from the Parent Corporation during 1994 and 1993,
respectively, in connection with the 1993 reinsurance transactions
(see Note 2).
The Company's net income and capital and surplus, as
determined in accordance with statutory accounting principles and
practices for December 31 are as follows:
1995
1994
1993
(Unaudited)
Net Income
$114,931
$70,091
$55,995
Capital and Surplus
653,479
621,589
628,944
The maximum amount of dividends which can be paid to
stockholders by insurance companies domiciled in the State of
Colorado is subject to restrictions relating to statutory surplus
and statutory net gain from operations. Statutory surplus and net
gains from operations at December 31, 1995 were $524,647 and
$119,299 (unaudited), respectively. The Company should be able to
pay up to $119,299 (unaudited) of dividends without regulatory
approval in 1996.
Dividends of $9,217, $7,475, and $9,335, were paid on
preferred stock in 1995, 1994, and 1993, respectively. In
addition, dividends of $39,763, $32,963, and $12,517 were paid on
common stock in 1995, 1994 and 1993, respectively. Dividends are
paid as determined by the Board of Directors.
The Company is involved in various legal proceedings which
arise in the ordinary course of its business. In the opinion of
management, after consultation with counsel, the resolution of
these proceedings should not have a material adverse effect on its
financial position or results of operations.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996
[Unaudited] (Dollars in Thousands)
ASSETS 1996
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized
cost (fair value $2,006,053) $1,977,771
Available for sale, at fair
value (amortized cost $5,981,777) 5,992,295
Common stock 9,583
Mortgage loans on real estate 1,516,393
Real estate 62,763
Policy loans 2,506,789
Short-term investments 506,129
Total Investments 12,571,723
Cash 81,791
Reinsurance receivable 359,673
Deferred policy acquisition costs 286,502
Investment income due and accrued 218,402
Other assets 35,428
Premiums in course of collection 92,181
Deferred income taxes 222,437
Separate account assets 5,039,240
TOTAL ASSETS $18,907,377
(Continued)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996
[Unaudited] (Dollars in Thousands)
LIABILITIES AND STOCKHOLDER'S EQUITY 1996
POLICY BENEFIT LIABILITIES:
Policy reserves $10,985,700
Policy and contract claims 380,547
Policyholders' funds 139,153
Experience refunds 84,837
Provision for policyholders' dividends 50,151
GENERAL LIABILITIES:
Due to Parent Corporation 134,051
Repurchase agreements 395,735
Commercial paper 84,488
Other liabilities 490,029
Undistributed earnings on
participating business 134,374
Separate account liabilities 5,039,240
Total Liabilities 17,918,305
STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value,
50,000,000 shares authorized:
Series A, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
600 shares issued and outstanding 60,000
Series B, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
200 shares issued and outstanding 20,000
Series C, cumulative, 1500 shares authorized,
none outstanding
Series D, cumulative, 1500 shares authorized,
none outstanding
Series E, non-cumulative, 2,000,000
shares authorized, liquidation value of $20.90
per share, issued, and outstanding 41,800
Common stock, $1 par value; 50,000,000 shares authorized;
7,032,000 shares issued and outstanding 7,032
Additional paid-in capital 657,265
Net unrealized gains (losses) on
securities available-for-sale (1,797)
Retained earnings 204,772
Total Stockholder's Equity 989,072
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $18,907,377
See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Dollars in Thousands)
Nine Months Ended
September 30,
1996 1995
REVENUES:
Annuity contract charges and premiums $67,430 $57,362
Life, accident, and health premiums earned
(net of premiums ceded totaling $43,542
and $47,077) 717,528 735,859
Net investment income 622,703 622,044
Net realized gains (losses) on investments(30,692) 1,906
1,376,969 1,417,171
BENEFITS AND EXPENSES:
Life and other policy benefits (net of
reinsurance recoveries totaling
$38,981 and $26,463) 381,420 410,712
Increase in reserves 63,056 91,258
Interest paid or credited to
contractholders 422,697 417,745
Provision for policyholders' share
of earnings (losses)
on participating business 1,813 313
Dividends to policyholders 32,081 31,268
901,067 951,296
Commissions 77,866 93,465
Operating expenses 242,233 226,135
Premium taxes 17,526 19,256
1,238,692 1,290,152
INCOME BEFORE INCOME TAXES 138,277 127,019
PROVISION FOR INCOME TAXES:
Current 58,001 61,980
Deferred (18,394) (17,104)
39,607 44,876
NET INCOME $98,670 $82,143
See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Dollars in Thousands)
Nine Months Ended
September 30,
1996 1995
OPERATING ACTIVITIES:
Net income $98,670 $82,143
Adjustments to reconcile net income to
net cash provided by operating
activities:
Gain allocated to par policyholders 1,814 313
Amortization of investments 18,562 20,886
Realized losses (gains) on disposal
of investments and write-downs of
mortgage loans and real estate 30,692 (1,694)
Amortization 24,741 35,472
Deferred income taxes (18,676) (17,330)
Changes in assets and liabilities:
Policy benefit liabilities 206,966 222,687
Reinsurance receivable (25,749) (26,667)
Accrued interest and other
receivables (12,671) (20,527)
Other, net 28,593 (70,263)
Net cash provided by
operating activities 352,942 225,020
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and
redemptions of investments:
Fixed maturities
Held-to-maturity
Sales 11,466
Maturities and redemptions 409,012 504,168
Available-for-sale
Sales 2,664,867 2,846,901
Maturities and redemptions 621,231 90,020
Mortgage loans 188,398 191,009
Real estate 2,111 4,239
Common stock 1,773 0
Purchases of investments:
Fixed maturities
Held-to-maturity (336,291) (698,794)
Available-for-sale (3,590,988)(2,849,310)
Mortgage loans (3,485) (683)
Real estate (5,923) (4,594)
Common stock (1,904) (1,387)
Net cash (used in)
provided by investing
activities (51,199) 93,035
(Continued)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Dollars in Thousands)
Nine Months Ended
September 30,
1996 1995
FINANCING ACTIVITIES:
Contract withdrawals, net of deposits $(275,213)$(75,477)
Due to Parent Corporation (15,923) (24,039)
Dividends paid (42,159) (35,262)
Net commercial paper (repayments) borrowings (366) (5,472)
Net repurchase agreements (repayments)
borrowings 22,770 (247,224)
Net cash (used in) provided by
financing activities (310,891)(387,474)
NET DECREASE IN CASH (9,148) (69,419)
CASH, BEGINNING OF YEAR 90,939 131,621
CASH, END OF PERIOD $ 81,791 $ 62,202
See notes to consolidated financial statements.
(Concluded)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Amounts in Thousands, except Share Amounts)
1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements and related notes have
been prepared in accordance with generally accepted accounting
principles for interim financial reporting. Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. In the
opinion of management, all adjustments [consisting of only normal
recurring accruals] considered necessary for fair presentation of
the Company's financial position, results of operations, and cash
flows have been included. These financial statements should be
read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended December 31, 1995.
The results of operations for the periods presented are not
necessarily indicative of the results for a full year.
2. OTHER
Pursuant to a December 31, 1993 agreement between the Company
and its Parent whereby the Company assumed responsibility for the
Parent Corporation's income tax liability for fiscal years prior to
1994, the Company had previously recorded a contingent liability
provision. The Company's 1996 results of operations include a
release of $25,600 from that provision, to reflect the resolution
of 1988 and 1989 tax issues with the Internal Revenue Service. In
the opinion of Company management, the remaining amounts paid or
accrued are adequate, however, it is possible that the Company's
estimate may change as a result of the completion of the IRS
audits.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of the issuance and distribution of the
Contracts, other than commissions
on sales of the Contracts are as follows:
Securities and Exchange Commission fee $ 68,965.52
Accounting fees and expenses $ 5,000.00
Legal fees and expenses $ 20,000.00
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Provisions exist under the Colorado Business Corporation Act
and the Bylaws of GWL&A whereby
GWL&A may indemnify a director, officer, or controlling person of
GWL&A against liabilities arising under
the Securities Act of 1933. The following excerpts contain the
substance of these provisions:
Colorado Business Corporation Act
Article 109 - INDEMNIFICATION
Section 7-109-101. Definitions.
As used in this Article:
(1) "Corporation" includes any domestic or foreign entity
that is a predecessor of the
corporation by reason of a merger, consolidation, or other
transaction in which the predecessor's
existence ceased upon consummation of the transaction.
(2) "Director" means an individual who is or was a director
of a corporation or an individual
who, while a director of a corporation, is or was serving at
the corporation's request as a director,
officer, partner, trustee, employee, fiduciary or agent of
another domestic or foreign corporation
or other person or employee benefit plan. A director is
considered to be serving an employee
benefit plan at the corporation's request if his or her duties
to the corporation also impose duties
on or otherwise involve services by, the director to the plan
or to participants in or beneficiaries
of the plan.
(3) "Expenses" includes counsel fees.
(4) "Liability" means the obligation incurred with respect to
a proceeding to pay a judgment,
settlement, penalty, fine, including an excise tax assessed
with respect to an employee benefit
plan, or reasonable expenses.
(5) "Official capacity" means, when used with respect to a
director, the office of director in the
corporation and, when used with respect to a person other than
a director as contemplated in
Section 7-109-107, means the office in the corporation held by
the officer or the employment,
fiduciary, or agency relationship undertaken by the employee,
fiduciary, or agent on behalf of the
corporation. "Official capacity" does not include service for
any other domestic or foreign
corporation or other person or employee benefit plan.
(6) "Party" includes a person who was, is, or is threatened
to be made a named defendant
or respondent in a proceeding.
(7) "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding,
whether civil, criminal, administrative, or investigative and
whether formal or informal.
Section 7-109-102. Authority to indemnify directors.
(1) Except as provided in subsection (4) of this section, a
corporation may indemnify a
person made a party to the proceeding because the person is or
was a director against liability
incurred in any proceeding if:
(a) The person conducted himself or herself in good
faith;
(b) The person reasonably believed:
(I) In the case of conduct in an official capacity
with the corporation, that his
or her conduct was in the corporation's best
interests; or
(II) In all other cases, that his or her conduct was
at least not opposed to the
corporation's best interests; and
(c) In the case of any criminal proceeding, the person
had no reasonable cause to
believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit
plan for a purpose the director
reasonably believed to be in the interests of the participants
in or beneficiaries of the plan is
conduct that satisfies the requirements of subparagraph (II)
of paragraph (b) of subsection (1) of
this section. A director's conduct with respect to an
employee benefit plan for a purpose that the
director did not reasonably believe to be in the interests of
the participants in or beneficiaries of
the plan shall be deemed not to satisfy the requirements of
subparagraph (a) of subsection (1)
of this section.
(3) The termination of any proceeding by judgment, order,
settlement, or conviction, or upon
a plea of nolo contendere or its equivalent, is not, of
itself, determinative that the director did not
meet the standard of conduct described in this section.
(4) A corporation may not indemnify a director under this
section:
(a) In connection with a proceeding by or in the right
of the corporation in which the
director was adjudged liable to the corporation; or
(b) In connection with any proceeding charging that the
director derived an improper
personal benefit, whether or not involving action in his
official capacity, in which
proceeding the director was adjudged liable on the basis
that he or she derived an
improper personal benefit.
(5) Indemnification permitted under this section in
connection with a proceeding by or in the
right of a corporation is limited to reasonable expenses
incurred in connection with the
proceeding.
Section 7-109-103. Mandatory Indemnification of Directors.
Unless limited by the articles of incorporation, a corporation
shall be required to indemnify a
person who is or was a director of the corporation and who was
wholly successful, on the merits or
otherwise, in defense of any proceeding to which he was a party,
against reasonable expenses incurred
by him in connection with the proceeding.
Section 7-109-104. Advance of Expenses to Directors.
(1) A corporation may pay for or reimburse the reasonable
expenses incurred by a director
who is a party to a proceeding in advance of the final
disposition of the proceeding if:
(a) The director furnishes the corporation a written
affirmation of his good-faith belief
that he has met the standard of conduct described in
Section 7-109-102;
(b) The director furnishes the corporation a written
undertaking, executed personally
or on the director's behalf, to repay the advance if it
is ultimately determined that he or
she did not meet such standard of conduct; and
(c) A determination is made that the facts then known to
those making the
determination would not preclude indemnification under
this article.
(2) The undertaking required by paragraph (b) of subsection
(1) of this section shall be an
unlimited general obligation of the director, but need not be
secured and may be accepted
without reference to financial ability to make repayment.
(3) Determinations and authorizations of payments under this
section shall be made in the
manner specified in Section 7-109-106.
Section 7-109-105. Court-Ordered Indemnification of Directors.
(1) Unless otherwise provided in the articles of
incorporation, a director who is or was a party
to a proceeding may apply for indemnification to the court
conducting the proceeding or to
another court of competent jurisdiction. On receipt of an
application, the court, after giving any
notice the court considers necessary, may order
indemnification in the following manner:
(a) If it determines the director is entitled to
mandatory indemnification under section
7-109-103, the court shall order indemnification, in
which case the court shall also order
the corporation to pay the director's reasonable expenses
incurred to obtain court-
ordered indemnification.
(b) If it determines that the director is fairly and
reasonably entitled to indemnification
in view of all the relevant circumstances, whether or not
the director met the standard of
conduct set forth in section 7-109-102 (1) or was
adjudged liable in the circumstances
described in Section 7-109-102 (4), the court may order
such indemnification as the court
deems proper; except that the indemnification with
respect to any proceeding in which
liability shall have been adjudged in the circumstances
described Section 7-109-102 (4)
is limited to reasonable expenses incurred in connection
with the proceeding and
reasonable expenses incurred to obtain court-ordered
indemnification.
Section 7-109-106. Determination and Authorization of
Indemnification of Directors.
(1) A corporation may not indemnify a director under Section
7-109-102 unless authorized
in the specific case after a determination has been made that
indemnification of the director is
permissible in the circumstances because he has met the
standard of conduct set forth in Section
7-109-102. A corporation shall not advance expenses to a
director under Section 7-109-104
unless authorized in the specific case after the written
affirmation and undertaking required by
Section 7-109-104(1)(a) and (1)(b) are received and the
determination required by Section 7-109-
104(1)(c) has been made.
(2) The determinations required to be made under subsection
(1) of this section shall be
made:
(a) By the board of directors by a majority vote of
those present at a meeting at
which a quorum is present, and only those directors not
parties to the proceeding shall
be counted in satisfying the quorum.
(b) If a quorum cannot be obtained, by a majority vote
of a committee of the board
of directors designated by the board of directors, which
committee shall consist of two
or more directors not parties to the proceeding; except
that directors who are parties to
the proceeding may participate in the designation of
directors for the committee.
(3) If a quorum cannot be obtained as contemplated in
paragraph (a) of subsection (2) of this
section, and the committee cannot be established under
paragraph (b) of subsection (2) of this
section, or even if a quorum is obtained or a committee
designated, if a majority of the directors
constituting such quorum or such committee so directs, the
determination required to be made
by subsection (1) of this section shall be made:
(a) By independent legal counsel selected by a vote of
the board of directors or the
committee in the manner specified in paragraph (a) or (b)
of subsection (2) of this section
or, if a quorum of the full board cannot be obtained and
a committee cannot be
established, by independent legal counsel selected by a
majority vote of the full board
of directors; or
(b) By the shareholders.
(4) Authorization of indemnification and evaluation as to
reasonableness of expenses shall
be made in the same manner as the determination that
indemnification is permissible; except that,
if the determination that indemnification is permissible is
made by independent legal counsel,
authorization of indemnification and advance of expenses shall
be made by the body that
selected such counsel.
Section 7-109-107. Indemnification of Officers, Employees,
Fiduciaries, and Agents.
(1) Unless otherwise provided in the articles of
incorporation:
(a) An officer is entitled to mandatory indemnification
under section 7-109-103, and
is entitled to apply for court-ordered indemnification
under section 7-109-105, in each
case to the same extent as a director;
(b) A corporation may indemnify and advance expenses to
an officer, employee,
fiduciary, or agent of the corporation to the same extent
as a director; and
(c) A corporation may indemnify and advance expenses to
an officer, employee,
fiduciary, or agent who is not a director to a greater
extent, if not inconsistent with public
policy, and if provided for by its bylaws, general or
specific action of its board of directors
or shareholders, or contract.
Section 7-109-108. Insurance.
A corporation may purchase and maintain insurance on behalf of
a person who is or was a
director, officer, employee, fiduciary, or agent of the corporation
and who, while a director, officer,
employee, fiduciary, or agent of the corporation, is or was serving
at the request of the corporation as a
director, officer, partner, trustee, employee, fiduciary, or agent
of any other domestic or foreign corporation
or other person or of an employee benefit plan against any
liability asserted against or incurred by the
person in that capacity or arising out of his or her status as a
director, officer, employee, fiduciary, or
agent whether or not the corporation would have the power to
indemnify the person against such liability
under the Section 7-109-102, 7-109-103 or 7-109-107. Any such
insurance may be procured from any
insurance company designated by the board of directors, whether
such insurance company is formed
under the laws of this state or any other jurisdiction of the
United States or elsewhere, including any
insurance company in which the corporation has an equity or any
other interest through stock ownership
or otherwise.
Section 7-109-109. Limitation of Indemnification of Directors.
(1) A provision concerning a corporation's indemnification
of, or advance of expenses to,
directors that is contained in its articles of incorporation
or bylaws, in a resolution of its
shareholders or board of directors, or in a contract, except
for an insurance policy or otherwise,
is valid only to the extent the provision is not inconsistent
with Sections 7-109-101 to 7-109-108.
If the articles of incorporation limit indemnification or
advance of expenses, indemnification or
advance of expenses are valid only to the extent not
inconsistent with the articles of incorporation.
(2) Sections 7-109-101 to 7-109-108 do not limit a
corporation's power to pay or reimburse
expenses incurred by a director in connection with an
appearance as a witness in a proceeding
at a time when he or she has not been made a named defendant
or respondent in the
proceeding.
Section 7-109-110. Notice to Shareholders of Indemnification of
Director.
If a corporation indemnifies or advances expenses to a
director under this article in connection
with a proceeding by or in the right of the corporation, the
corporation shall give written notice of the
indemnification or advance to the shareholders with or before the
notice of the next shareholders'
meeting. If the next shareholder action is taken without a meeting
at the instigation of the board of
directors, such notice shall be given to the shareholders at or
before the time the first shareholder signs
a writing consenting to such action.
Bylaws of GWL&A
Article II, Section 11. Indemnification of Directors.
The Company may, by resolution of the Board of Directors,
indemnify and save harmless out of
the funds of the Company to the extent permitted by applicable law,
any director, officer, or employee of
the Company or any member or officer of any committee, and his
heirs, executors and administrators,
from and against all claims, liabilities, costs, charges and
expenses whatsoever that any such director,
officer, employee or any such member or officer sustains or incurs
in or about any action, suit, or
proceeding that is brought, commenced, or prosecuted against him
for or in respect of any act, deed,
matter or thing whatsoever made, done, or permitted by him in or
about the execution of his duties of his
office or employment with the Company, in or about the execution of
his duties as a director or officer of
another company which he so serves at the request and on behalf of
the Company, or in or about the
execution of his duties as a member or officer of any such
Committee, and all other claims, liabilities,
costs, charges and expenses that he sustains or incurs, in or about
or in relation to any such duties or
the affairs of the Company, the affairs of such Committee, except
such claims, liabilities, costs, charges
or expenses as are occasioned by his own wilful neglect or default.
The Company may, by resolution of
the Board of Directors, indemnify and save harmless out of the
funds of the Company to the extent
permitted by applicable law, any director, officer, or employee of
any subsidiary corporation of the
Company on the same basis, and within the same constraints as,
described in the preceding sentence.
Item 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Form of Principal Underwriter and Distribution
Agreement
is attached as Exhibit 1.
2. Not applicable.
3. (i) Articles of Incorporation of Great-West Life &
Annuity Insurance Company is attached
as Exhibit 3(a).
(ii) Bylaws of Great-West Life & Annuity Insurance
Company is attached as Exhibit 3(b).
4. (a) Form of Combination Fixed and Variable Group
Annuity
Contract is incorporated by
reference to Registrant's Amendment No. 1 to the
Registration Statement.
(b) Form of IRA Endorsement is incorporated by
reference
to Registrant's Amendment
No. 1 to the Registration Statement.
5. Opinion and consent of Ruth B. Lurie, Vice President,
Counsel and Associate Secretary
as to the legality of the securities being registered, is
incorporated by reference to
Registrant's Registration Statement.
6. Not applicable.
7. Not applicable.
8. Not applicable.
9. Not applicable.
10. Not applicable.
11. Not applicable.
12. Not applicable.
13. Not applicable.
14. Not applicable.
15. Not applicable.
16. Not applicable.
17. Not applicable.
18. Not applicable.
19. Not applicable.
20. Not applicable.
21. List of significant subsidiaries of Great-West Life &
Annuity Insurance Company, the state
of incorporation or organization or each, and the names
under which such subsidiaries
do business, is attached as Exhibit 21.
22. Not applicable.
23. (a) Consent of Jorden Burt Berenson & Johnson LLP is
incorporated by referenced to
Registrant's Registration Statement.
(b) Consent of Deloitte & Touche LLP is attached as
Exhibit 23b.
24. Power of Attorney for Messrs. Balog, Burns, Dackow,
Desmarais, Jr., Gratton, Hart,
Mackness, McCallum, Nickerson, Pitfield, Plessis-Belair,
Turner and Walsh are
incorporated by referenced to Registrant's Registration
Statement. Power of Attorney for
Messrs. Graham and Kavanagh are incorporated by reference
to Registrant's Amendment
No. 1 to the Registration Statement.
25. Not applicable.
26. Not applicable.
27. Financial Data Schedule for Great-West Life & Annuity
Insurance Company.
Item 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment
to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the
registration statement (or the most recent post-effective
amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set
forth in the registration statement;
(iii) To include any material information with respect
to the plan of distribution not
previously disclosed in the registration statement or any
material change to such
information in the registration statement, including (but
not limited to) any addition or
deletion of a managing underwriter.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities
being registered which remain unsold at the termination of the
offering.
(4) Insofar as indemnification for liability arising under
the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or
controlling person of the registrant in the successful defense
of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the
final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Amendment No. 2 to the
Registration Statement on Form S-1 to be signed on its behalf, in
the City of Englewood, State of Colorado, on this 28th day of
October , 1996.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
(Depositor)
By: /s/ W.T. McCallum
William T. McCallum, President
and Chief Executive Officer
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the
capacities with Great-West Life & Annuity Insurance Company and on
the dates indicated:
Signature and Title Date
/s/ R. Gratton* 10/28, 1996
Director, Chairman of the
Board (Robert Gratton)
/s/ W.T. McCallum 10/28, 1996
Director, President and Chief Executive
Officer (William T. McCallum)
/s/ G.R. Derback 10/28, 1996
Vice President, Financial Control
and Controller (Glen R. Derback)
Signature and Title Date
/s/ J. Balog* 10/28, 1996
Director, (James Balog)
/s/ J.W. Burns* 10/28, 1996
Director, (James W. Burns)
/s/ O.T. Dackow* 10/28, 1996
Director (Orest T. Dackow)
/s/ P. Desmarais, Jr.* 10/28, 1996
Director (Paul Desmarais, Jr.)
/s/ R.G. Graham* 10/28, 1996
Director (Robert G. Graham)
/s/ N.B. Hart* 10/28, 1996
Director (N. Berne Hart)
/s/ K.P. Kavanagh* 10/28, 1996
Director (Kevin P. Kavanagh)
/s/ W. Mackness* 10/28, 1996
Director (William Mackness)
/s/ J.E.A. Nickerson* 10/28, 1996
Director (Jerry E.A. Nickerson)
Signature and Title Date
/s/ P.M. Pitfield* 10/28, 1996
Director (P. Michael Pitfield)
/s/ Michel Plessis-Belair* 10/28, 1996
Director (Michel Plessis-Belair)
/s/ R.J. Turner* 10/28, 1996
Director (Ross J. Turner)
/s/ B.E. Walsh* 10/28, 1996
Director (Brian E. Walsh)
*By: /s/ D.C. Lennox 10/28, 1996
D. C. Lennox
Attorney-in-fact pursuant to Powers of Attorney filed with the
Registration Statement and Amendment No. 1 thereto.
Exhibit Table
Form S-1
Exhibit
1. Form of Underwriting agreement and
and Distribution Agreement 1
3. (i) Articles of Incorporation1
(ii) Bylaws 1
4. (i) Form of Combination Fixed and
Variable Annuity Contract 2
(ii) Form of IRA Endorsement 2
5. Opinion and consent of Ruth B. Lurie,
Vice President, Counsel and Associate
Secretary as to the legality of the
securities being registered 3
21. List of significant subsidiaries of
Great-West Life & Annuity Insurance
Company, the state of incorporation or
organization of each, and the names under
which such subsidiaries do business1
23. (a) Consent of Jorden Burt Berenson &
Johnson LLP 3
(b) Consent of Deloitte & Touche LLP 1
24. Power of Attorney for Messrs. Balog,
Burns, Dackow, Desmarais, Jr., Gratton,
Hart, Mackness, McCallum, Nickerson,
Pitfield, Plessis-Belair, Turner and
Walsh 2
27. Financial Data Schedule 1
1 Filed on October 29, 1996 with Amendment No. 2 to Registration
Statement.
2 Filed on August 2, 1996 with Amendment No. 1 to Registration
Statement and incorporated herein by
reference.
3 Filed on February 22, 1996 with Registration Statement and
incorporated herein by reference.