Schwab Select Annuity(R)
A flexible premium deferred variable and fixed annuity contract
Issued by
Great-West Life & Annuity Insurance Company
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Overview
This Prospectus describes the Schwab Select Annuity--a flexible premium deferred
annuity contract which allows you to accumulate assets on a tax-deferred basis
for retirement or other long-term purposes. This Contract is issued either on a
group basis or as individual contracts by Great-West Life & Annuity Insurance
Company ("we, us, Great-West or GWL&A"). Both will be referred to as the
"Contract" throughout this Prospectus.
How to Invest
The minimum initial Contribution is:
o $5,000
o $2,000 if an Individual Retirement Account ("IRA")
o $1,000 if subsequent Contributions are made via Automatic Contribution
Plan
The minimum subsequent Contribution is:
o $500 per Contribution, or
o $100 per Contribution if made via Automatic Contribution Plan
Allocating Your Money
When you contribute money to the Schwab Select Annuity, you can allocate it
among the Sub-Accounts of the Variable Annuity-1 Series Account which invest in
the following Portfolios:
o AIM V.I. Core Stock Fund (formerly INVESCO VIF Core Equity Fund)
o AIM V.I. High Yield Fund (formerly INVESCO VIF High Yield Fund)*
o AIM V.I. Technology Fund (formerly INVESCO VIF Technology Fund)
o Alger American Growth Portfolio - Class O Shares
o Alger American MidCap Growth Portfolio - Class O Shares
o AllianceBernstein VPS Utility Income Portfolio - Class A Shares
o AllianceBernstein VPS Worldwide Privatization - Class A Shares
o American Century VP Balanced Fund - Original Class Shares
o American Century VP International Fund - Original Class Shares
o American Century VP Value Fund - Original Class Shares
o Baron Capital Asset Fund: Insurance Shares
o Delaware VIP Small Cap Value Series
o Dreyfus GVIT Mid Cap Index Fund - Class II
o Dreyfus Investment Portfolios MidCap Stock Portfolio - Initial Shares
o Dreyfus Variable Investment Fund Appreciation Portfolio - Initial Shares
o Dreyfus Variable Investment Fund Developing Leaders Portfolio -
Initial Shares*
o Dreyfus Variable Investment Fund Growth and Income Portfolio - Initial Shares
o Federated American Leaders Fund II - Primary Shares*
o Federated Fund for U.S. Government Securities II
o Federated Capital Income Fund II*
o Janus Aspen Series Balanced Portfolio - Institutional Shares
o Janus Aspen Series Flexible Bond Portfolio - Institutional Shares
(formerly Flexible Income)
o Janus Aspen Series Large Cap Growth Portfolio - Institutional Shares
(formerly Growth)
o Janus Aspen Series Growth and Income Portfolio - Institutional Shares
o Janus Aspen Series International Growth Portfolio - Institutional Shares
o Janus Aspen Series Worldwide Growth Portfolio - Institutional Shares*
o Oppenheimer Global Securities Fund/VA
o PIMCO VIT High Yield Portfolio
o PIMCO VIT Low Duration Portfolio
o PIMCO VIT Total Return Portfolio
o Pioneer Fund (formerly, SAFECO RST Core Equity Portfolio)
o Pioneer Growth Opportunities Fund (formerly, SAFECO RST Growth Opportunities
Portfolio) o Pioneer Small Cap Value Fund (formerly, SAFECO RST Small-Cap
Value Portfolio)
o Prudential Series Fund Equity Portfolio Class II
o Schwab MarketTrack Growth Portfolio II(TM)
o Schwab Money Market Portfolio(TM)
o Schwab S&P 500 Index Portfolio (formerly the Schwab S&P 500 Portfolio)
o Scudder Variable Series I
Capital Growth Portfolio - Class A Shares
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o Scudder Variable Series I
Growth and Income Portfolio - Class A Shares
o Scudder Variable Series II SVS Dreman High Return Equity Portfolio -
Class A Shares
o Scudder Variable Series II Large Cap Value - Class A Shares
o Scudder Investments VIT EAFE(R) Equity Index Fund - Class A Shares (until
July 25, 2005, when this Sub-Account will be liquidated)
o Scudder Investments VIT Small Cap Index Fund - Class A Shares
o Universal Institutional Funds U.S. Real Estate Portfolio - Class I Shares
o Van Kampen LIT Comstock - Class I Shares
o Van Kampen LIT Growth & Income - Class I Shares
o Wells Fargo Advantage Multi Cap Value Fund (formerly, Strong Multi Cap Value
Fund II)*
* Effective April 29, 2005, new Contributions or Transfers into these Portfolios
were closed.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is a
criminal offense. No person is authorized by Great-West to give information or
to make any representation, other than those contained in this Prospectus, in
connection with the Contracts contained in this Prospectus. This Prospectus does
not constitute an offering in any jurisdiction in which such offering may not
lawfully be made. Please read this Prospectus and keep it for future reference.
May 1, 2005
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You can also allocate some or all of the money you contribute to the Guarantee
Period Fund. The Guarantee Period Fund allows you to select one or more
Guarantee Periods that offer specific interest rates for a specific period.
Please note that the Guarantee Period Fund may not be available in all states.
However, your Guarantee Period Fund may be subject to a Market Value Adjustment
which may increase or decrease the amount Transferred or withdrawn from the
value of a Guarantee Period if the Guarantee Period is broken prior to the
Guarantee Period Maturity Date. A negative adjustment may result in an effective
interest rate lower than the Guaranteed Interest Rate and the value of the
Contribution(s) allocated to the Guarantee Period being less than the
Contribution(s) made.
Sales and Surrender Charges
There are no sales, redemption, surrender or withdrawal charges under the Schwab
Select Annuity.
Free Look Period
After you receive your Contract, you can look it over free of obligation for at
least 10 days or longer if required by your state law (up to 35 days for
replacement policies), during which you may cancel your Contract.
Payout Options
The Schwab Select Annuity offers a variety of annuity payout and periodic
withdrawal options. Depending on the option you select, income can be guaranteed
for your lifetime, your spouse's and/or Beneficiaries' lifetime or for a
specified period of time.
The Contracts are not deposits of, or guaranteed or endorsed by, any bank, nor
are the Contracts federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency. The
Contracts involve certain investment risks, including possible loss of
principal. See "Breaking a Guarantee Period" and "Market Value Adjustment" on
page 19.
For account information, please contact:
Annuity Administration Department
P.O. Box 173920
Denver, Colorado 80217-3920
800-838-0650
This Prospectus presents important information you should review before
purchasing the Schwab Select Annuity. Please read it carefully and keep it for
future reference. You can find more detailed information pertaining to the
Contract in the Statement of Additional Information dated May 1, 2005 (as may
be amended from time to time), and filed with the Securities and Exchange
Commission ("SEC"). The Statement of Additional Information is incorporated by
reference into this Prospectus and is legally a part of this Prospectus. The
table of contents for the Statement of Additional Information may be found on
page 37 of this Prospectus. You may obtain a copy without charge by contacting
the Annuity Administration Department at the above address or phone number. Or,
you can obtain it by visiting the SEC's Internet web site (http://www.sec.gov).
This web site also contains material incorporated by reference and other
information about us and other registrants that file electronically with the
SEC.
This Prospectus does not constitute an offering in any jurisdiction in which
such offering may not lawfully be made. No dealer, salesperson or other person
is authorized to give any information or make any representations in connection
with the Contracts other than those contained in this Prospectus, and, if given
or made, such other information or representations must not be relied on.
This Contract is not available in all states.
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Table of Contents
Definitions........................................5
Summary............................................7
How to contact Schwab Insurance Services.........7
Variable Annuity Fee Tables........................8
Example...........................................10
Condensed Financial Information...................11
Great-West Life & Annuity Insurance
Company...........................................11
The Series Account................................11
The Portfolios....................................11
Meeting Investment Objectives...................18
Where to Find More Information About the
Portfolios......................................18
Addition, Deletion or Substitution..............18
The Guarantee Period Fund.........................18
Investments of the Guarantee Period Fund........18
Subsequent Guarantee Periods....................19
Breaking a Guarantee Period.......................19
Interest Rates..................................19
Market Value Adjustment.........................20
Application and Initial Contributions.............20
Free Look Period..................................20
Subsequent Contributions..........................20
Annuity Account Value.............................21
Transfers.........................................21
Market Timing and Excessive Trading.............22
Automatic Custom Transfers......................23
Withdrawals.......................................24
Withdrawals to Pay Investment Manager or
Financial Advisor Fees..........................25
Tax Consequences of Withdrawals.................25
Telephone and Internet Transactions...............25
Death Benefit.....................................25
Proportional Withdrawals (Oregon only)..........25
Beneficiary.....................................26
Distribution of Death Benefit...................27
Charges and Deductions............................27
Mortality and Expense Risk Charge...............28
Contract Maintenance Charge.....................28
Transfer Fees...................................28
Expenses of the Portfolios......................28
Premium Tax.....................................29
Other Taxes.....................................29
Payout Options....................................29
Periodic Withdrawals............................29
Annuity Payouts.................................30
Seek Tax Advice...................................31
Federal Tax Matters...............................31
Taxation of Annuities...........................32
Individual Retirement Annuities...................34
Assignments or Pledges............................35
Distribution of the Contracts.....................35
Voting Rights.....................................35
Rights Reserved by Great-West.....................35
Legal Proceedings.................................36
Legal Matters.....................................36
Independent Registered Public Accounting Firm.....36
Incorporation of Certain Documents by Reference
and Available Information.........................36
Table of Contents of Statement of Additional
Information.......................................37
Appendix A--Condensed Financial
Information.......................................A-1
Appendix B--Market Value Adjustments..............B-1
Appendix C--Net Investment Factor.................C-1
Appendix D--Expenses of Each Sub-Account's
Underlying Portfolio..............................D-1
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Definitions
1035 Exchange--A provision of the Internal Revenue Code of 1986, as amended (the
"Code") that allows for the tax-free exchange of certain types of insurance
contracts.
Accumulation Period--The time period between the Effective Date and the Annuity
Commencement Date. During this period, you're contributing to the annuity.
Accumulation Unit--The unit of measure that we use to calculate the value of
your interest in a Sub-Account.
Annuitant--The person named in the application upon whose life the payout of an
annuity is based and who will receive annuity payouts. If a Contingent Annuitant
is named, the Annuitant will be considered the Primary Annuitant.
Annuity Account--An account established by us in your name that reflects all
account activity under your Contract.
Annuity Account Value--The sum of all the investment options credited to your
Annuity Account--less partial withdrawals, amounts applied to an annuity payout
option, periodic withdrawals, charges deducted under the Contract, and Premium
Tax, if any.
Annuity Commencement Date--The date annuity payouts begin.
Annuity Individual Retirement Account (or Annuity IRA)--An annuity contract used
in a retirement savings program that is intended to satisfy the requirements of
Section 408 of the Code.
Annuity Payout Period--The period beginning on the Annuity Commencement Date and
continuing until all annuity payouts have been made under the Contract. During
this period, the Annuitant receives payouts from the annuity.
Annuity Unit--An accounting measure we use to determine the amount of any
variable annuity payout after the first annuity payout is made.
Automatic Contribution Plan--A feature which allows you to make automatic
periodic Contributions. Contributions will be withdrawn from an account you
specify and automatically credited to your Annuity Account.
Beneficiary--The person(s) designated to receive any Death Benefit under the
terms of the Contract.
Contingent Annuitant--The person you may name in the application who becomes the
Annuitant when the Primary Annuitant dies. The Contingent Annuitant must be
designated before the death of the Primary Annuitant.
Contract Maintenance Charge--For contracts with an Annuity Account Value of less
than $50,000 on the applicable contract anniversary date, an annual charge of
$25 applies. Also, if your Annuity Account Value falls below $50,000, the
Contract Maintenance Charge will apply until the next applicable Contract
anniversary date that your Annuity Account Value is equal to or greater than
$50,000.
Contributions--The amount of money you invest or deposit into your annuity.
Death Benefit--The amount payable to the Beneficiary when the Owner or the
Annuitant dies.
Distribution Period--The period starting with your Payout Commencement Date.
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Schwab Select Annuity Structure
Your Annuity Account
| |
Variable Account Fixed Account
Contains the money you contribute Contains the money you contribute
to variable investment options to fixed investment options
(the Sub-Accounts). (the Guarantee Period Fund)
| |
Sub-Accounts Guarantee Period Fund
Shares of the Portfolios are held You can choose a guarantee period
in Sub-Accounts. There is one of one to ten years
Sub-Account for each Portfolio.
|
Portfolios
Your total Annuity Account can be made up of a variable and a fixed account.
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Effective Date--The date on which the first Contribution is credited to your
Annuity Account.
Fixed Account Value--The value of the fixed investment option credited to you
under the Annuity Account.
Guarantee Period--The number of years available in the Guarantee Period Fund
during which Great-West will credit a stated rate of interest. Great-West may
discontinue offering a period at any time for new Contributions. Amounts
allocated to one or more guaranteed periods may be subject to a Market Value
Adjustment.
Guarantee Period Fund--A fixed investment option which pays a stated rate of
interest for a specified time period.
Guarantee Period Maturity Date--The last day of any Guarantee Period.
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Guaranteed Interest Rate--The minimum annual interest rate in effect that
applies to each Guarantee Period at the time the Contribution is made.
Market Value Adjustment (or MVA)--An amount added to or subtracted from certain
transactions involving the Guarantee Period Fund to reflect the impact of
changing interest rates
Non-Qualified Annuity Contract--An annuity contract funded with money outside a
tax qualified retirement plan.
Owner (Joint Owner) or You--The person(s) named in the application who is
entitled to exercise all rights and privileges under the Contract, while the
Annuitant is living. Joint Owners must be husband and wife as of the date the
Contract is issued. The Annuitant will be the Owner unless otherwise indicated
in the application. If a Contract is purchased in connection with an IRA, the
Owner and the Annuitant must be the same individual and a Joint Owner is not
allowed.
Payout Commencement Date--The date on which annuity payouts or periodic
withdrawals begin under a payout option. The Payout Commencement Date must be at
least one year after the Effective Date of the Contract. If you do not indicate
a Payout Commencement Date on your application, annuity payouts will begin on
the first day of the month of the Annuitant's 91st birthday.
Portfolio--A registered management investment company, or portfolio thereof, in
which the assets of the Annuity Account may be invested.
Premium Tax--A tax charged by a state or other governmental authority. Varying
by state, the current range of Premium Taxes is 0% to 3.5% and may be assessed
at the time you make a Contribution, make withdrawals, or when annuity payments
begin.
Primary Annuitant--See Annuitant, above; if a Contingent Annuitant is named in
the application, the Primary Annuitant receives payments based on the applicable
payout option during his/her lifetime and payments continue, after the death of
the Primary Annuitant, for the life of the surviving Contingent Annuitant.
Proportional Withdrawals--(effective for Contracts issued after April 30, 2004
in Oregon only); a partial withdrawal made by you which reduces your Annuity
Account Value measured as a percentage of each prior withdrawal against the
current Annuity Account Value. A Proportional Withdrawal is determined by
calculating the percentage the withdrawal represents of your Annuity Account
Value at the time the withdrawal was made. For example, a partial withdrawal of
75% of the Annuity Account Value represents a Proportional Withdrawal of 75% of
the total Contributions for purposes of calculating the Death Benefit.
Request--Any written, telephoned, or computerized instruction in a form
satisfactory to Great-West and Charles Schwab & Co., Inc. ("Schwab") received at
the Annuity Administration Department at Great-West (or other annuity service
center subsequently named) from you, your designee (as specified in a form
acceptable to Great-West and Schwab) or the Beneficiary (as applicable) as
required by any provision of the Contract.
Series Account--Variable Annuity-1 Series Account; the segregated asset account
established by Great-West under Colorado law and registered as a unit investment
trust under the Investment Company Act of 1940, as amended (the "1940 Act").
Sub-Account--A division of the Series Account containing the shares of a
Portfolio. There is a Sub-Account for each Portfolio.
Surrender Value--The value of your Annuity Account with any applicable Market
Value Adjustment on the effective date of the surrender, less Premium Tax, if
any.
Transaction Date--The date on which any Contribution, Transfer or other Request
from you will be processed. Contributions and Requests received after 4:00 p.m.
Eastern Time will be priced on the next business day. Requests will be processed
and the Variable Account Value will be determined on each day that the New York
Stock Exchange ("NYSE") is open for trading.
Transfer--Moving money from and between the Sub-Account(s) and the Guarantee
Period Fund.
Variable Account Value--The value of the Sub-Accounts credited to you under the
Annuity Account.
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Summary
The Schwab Select Annuity allows you to accumulate assets on a tax-deferred
basis by investing in a variety of variable investment options (the
Sub-Accounts) and a fixed investment option (the Guarantee Period Fund). The
performance of your Annuity Account will vary with the investment performance of
the Portfolios corresponding to the Sub-Accounts you select. You bear the entire
investment risk for all amounts invested in them. Depending on the performance
of the Sub-Accounts you select, your Variable Account Value could be less than
the total amount of your Contributions.
Further, the Guarantee Period Fund may be subject to a Market Value Adjustment
which may increase or decrease the amount Transferred or withdrawn from the
value of a Guarantee Period if the Guarantee Period is broken prior to the
Guarantee Period Maturity Date. A negative adjustment may result in an effective
interest rate lower than the Guaranteed Interest Rate and the value of the
Contribution(s) allocated to a Guarantee Period being less than the
Contribution(s) made.
The Schwab Select Annuity can be purchased on a non-qualified basis or purchased
and used in connection with an IRA. You can also purchase it through a 1035
Exchange from another insurance contract.
Tax deferral under IRAs arises under the Code. Tax deferral under non-qualified
contracts arises under the Contract.
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How to contact Schwab Insurance Services:
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Schwab Insurance Services
101 Montgomery Street
San Francisco, CA 94104
Attention: Insurance & Annuities Department
800-838-0650
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Your initial Contribution must be at least $5,000; $2,000 if an IRA, or $1,000
if you are setting up an Automatic Contribution Plan. Subsequent Contributions
must be either $500, or $100 if made through an Automatic Contribution Plan.
The money you contribute to the Contract will be invested at your direction,
except that in some states during your "free look period" your payment will be
allocated to the Schwab Money Market Sub-Account. The duration of your free look
period depends on your state law and is generally 10 days after you receive your
Contract. Free look allocations are described in more detail on page 20 of this
Prospectus.
Prior to the Payout Commencement Date, you can withdraw all or a part of your
Annuity Account Value. There are no surrender or withdrawal charges. Certain
withdrawals may be subject to federal income tax as well as a federal penalty
tax.
When you're ready to start taking money out of your Contract, you can select
from a variety of payout options, including variable and fixed annuity payouts
as well as periodic withdrawals.
If the Annuitant dies before the Annuity Commencement Date, we will pay the
Death Benefit to the Beneficiary you select. If the Owner dies before the entire
value of the Contract is distributed, the remaining value will be distributed
according to the rules outlined in the "Death Benefit" section on page 25.
For accounts under $50,000 as of each Contract anniversary date, we deduct a $25
annual Contract Maintenance Charge from the Annuity Account Value on each such
Contract anniversary date. There is no annual Contract Maintenance Charge for
accounts of $50,000 or more. We also deduct a mortality and expense risk charge
from your Sub-Accounts at the end of each daily valuation period equal to an
effective annual rate of 0.85% of the value of the net assets in your
Sub-Accounts. Each Portfolio assesses a charge for management fees and other
expenses. These fees and expenses are detailed in this Prospectus.
You may cancel your Contract during the free look period by sending it to the
Annuity Administration Department at Great-West. If you are replacing an
existing insurance contract with the Contract, the free look period may be
extended based on your state of residence. Free look allocations are described
in more detail on page 20 of this Prospectus.
This summary highlights some of the more significant aspects of the Schwab
Select Annuity. You'll find more detailed information about these topics
throughout the Prospectus and in your Contract. Please keep them both for future
reference.
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VARIABLE ANNUITY FEE TABLES
The following tables describe the fees and expenses that you will pay when
buying, owning, and surrendering the Contract. The first table describes the
fees and expenses that you will pay at the time that you buy the Contract,
surrender the Contract, or transfer cash value between investment options. State
Premium Taxes may also be deducted.
Contract Owner Transaction Expenses
Sales Load Imposed on Purchases: None
(as a percentage of purchase payments)
Surrender Charge: None
(as a percentage of purchase payments)
Maximum Transfer Charge: $10*
*Applicable to each Transfer after the first twelve Transfers in each calendar
year.
The next table describes the fees and expenses that you will pay periodically
during the time that you own the Contract, not including Portfolio fees and
expenses.
Annual Contract Maintenance Charge $25*
*The Contract Maintenance Charge is currently waived for Contracts with an
Annuity Account Value of at least $50,000 on the applicable Contract anniversary
date. If your Annuity Account Value falls below $50,000, the Contract
Maintenance Charge will be reinstated until the next applicable Contract
anniversary date that your Annuity Account Value is equal to or greater than
$50,000.
The next table describes the fees and expenses that you will pay periodically
during the time that you own the Contract, not including Portfolio fees and
expenses.
Series Account Annual Expenses
(as a percentage of average Annuity Account Value)
Mortality and Expense Risk Charge: 0.85%
Account Fees and Expenses: None
Total Series Account Annual Expenses: 0.85%
The next item shows the minimum and maximum total operating expenses charged by
the Portfolios that you may pay periodically during the time that you own the
Contract. More detail concerning each Portfolio's fees and expenses is contained
in the prospectus for each Portfolio.
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Total Annual Portfolio Operating Expenses Minimum Maximum
(Expenses that are deducted from Portfolio assets,
including management fees, distribution and/or
service (12b-1) fees, and other expenses) 0.32% 1.66%1
THE ABOVE EXPENSES FOR THE PORTFOLIOS WERE PROVIDED BY THE PORTFOLIOS. WE
HAVE NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE INFORMATION.
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1 The expenses shown do not reflect any fee waiver or expense reimbursement. The
advisers and/or other service providers of certain Portfolios have agreed to
reduce their fees and/or reimburse the Portfolios' expenses in order to keep the
Portfolios' expenses below specified limits. The expenses of certain Portfolios
are reduced by contractual fee reduction and expense reimbursement arrangements
that will remain in effect at least through May 2, 2005. Other Portfolios have
voluntary fee reduction and/or expense reimbursement arrangements that may be
terminated at any time. The minimum and maximum Total Annual Operating Expenses
for all Portfolios after all fee reductions and expense reimbursements are 0.28%
and 1.66%, respectively. Each fee reduction and/or expense reimbursement
arrangement is described in the relevant Portfolio's prospectus.
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EXAMPLE
This example is intended to help you compare the cost of investing in the
Contract with the cost of investing in other variable annuity contracts. These
costs include Contract Owner transaction expenses, Contract fees, Series Account
annual expenses, and Portfolio fees and expenses.
This example assumes that you invest $10,000 in the Contract for the time
periods indicated. The example also assumes that your investment has a 5% return
each year and assumes the maximum fees and expenses of any of the Portfolios. In
addition, this example assumes no Transfers were made and no Premium Taxes were
deducted. If these arrangements were considered, the expenses shown would be
higher. This example also does not take into consideration any fee waiver or
expense reimbursement arrangements of the Portfolios. If these arrangements were
taken into consideration, the expenses shown would be lower.
Although your actual costs may be higher or lower, based on these assumptions,
your costs if you retain your Contract, annuitize your Contract or if you
surrender your Contract at the end of the applicable time period, would be:
1 year 3 years 5 years 10 years
$262 $845 $1,514 $3,636
The example does not show the effect of Premium Taxes. Premium Taxes (ranging
from 0% to 3.5%) are deducted from Annuity Account Value upon full surrender,
death or annuitization. The example also does not include any of the taxes or
penalties you may be required to pay if you surrender your Contract.
The Variable Annuity Fee Tables and example should not be considered a
representation of past or future expenses and charges of the Sub-Accounts. Your
actual expenses may be greater or less than those shown. Similarly, the 5%
annual rate of return assumed in the example is not an estimate or a guarantee
of future investment performance. See "Charges and Deductions" on page 27 of
this prospectus.
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Condensed Financial Information
Attached as Appendix A is a table showing selected information concerning
Accumulation Units for each Sub-Account for each calendar year since inception.
The Accumulation Unit values do not reflect the deduction of certain charges
that are subtracted from your Annuity Account Value, such as the Contract
Maintenance Charge. The information in the table is included in the Series
Account's financial statements, which have been audited by Deloitte & Touche
LLP, an independent registered public accounting firm. To obtain a more complete
picture of each Sub-Account's finances and performance, you should also review
the Series Account's financial statements, which are in the Statement of
Additional Information.
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Great-West Life & Annuity Insurance Company
Great-West is a stock life insurance company that was originally organized under
the laws of the state of Kansas as the National Interment Association. Our name
was changed to Ranger National Life Insurance Company in 1963 and to
Insuramerica Corporation prior to changing to our current name in 1982. In
September of 1990, we redomesticated under the laws of the state of Colorado.
Great-West is an indirect, wholly-owned subsidiary of Great-West Lifeco Inc.
("Lifeco"), a holding company. Lifeco 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. On July
10, 2003, Great-West acquired Canada Life Financial Corporation ("Canada Life").
Canada Life is a Canadian based insurance company with business principally in
Canada, the United Kingdom, the United States and Ireland. In the United States,
Canada Life sells individual and group insurance and annuity products.
We are authorized to do business in 49 states, the District of Columbia, Puerto
Rico, U.S. Virgin Islands and Guam.
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Greenwood Village, Colorado 80111
The Series Account
We established the Variable Annuity-1 Series Account in accordance with Colorado
laws on July 24, 1995.
The Series Account is registered with the SEC under the 1940 Act, as a unit
investment trust. Registration under the 1940 Act does not involve supervision
by the SEC of the management or investment practices or policies of the Series
Account.
We own the assets of the Series Account. The income, gains or losses, realized
or unrealized, from assets allocated to the Series Account are credited to or
charged against the Series Account without regard to our other income gains or
losses.
We will at all times maintain assets in the Series Account with a total market
value at least equal to the reserves and other liabilities relating to the
variable benefits under all Contracts participating in the Series Account. Those
assets may not be charged with our liabilities from our other business. Our
obligations under those Contracts are, however, our general corporate
obligations.
The Series Account is divided into 46 Sub-Accounts, 40 of which are currently
available under the Contract. Each Sub-Account invests exclusively in shares of
a corresponding investment Portfolio of a registered investment company
(commonly known as a mutual fund). We may in the future add new, or delete
existing, Sub-Accounts. The income, gains or losses, realized or unrealized,
from assets allocated to each Sub-Account are credited to or charged against
that Sub-Account without regard to the other income, gains or losses of the
other Sub-Accounts. All amounts allocated to a Sub-Account will be fully
invested in Portfolio shares.
We hold the assets of the Series Account. We keep those assets physically
segregated and held separate and apart from our general account assets. We
maintain records of all purchases and redemptions of shares of the Portfolios.
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The Portfolios
The Contract offers a number of Portfolios, corresponding to the Sub-Accounts.
Each Sub-Account invests in a single Portfolio. Each Portfolio is a separate
mutual fund registered under the 1940 Act. More comprehensive information,
including a discussion of potential risks, is found in the current prospectuses
for the Portfolios (the "Portfolio Prospectuses"). The Portfolio Prospectuses
should be read in connection with this Prospectus. You may obtain a copy of the
Portfolio Prospectuses without charge by request.
Each Portfolio:
o holds its assets separate from the assets of the other Portfolios,
o has its own distinct investment objective and policy, and
o operates as a separate investment fund.
11
The income, gains and losses of one Portfolio generally have no effect on the
investment performance of any other Portfolio.
The Portfolios are not available to the general public directly. The Portfolios
are only available as investment options in variable annuity contracts or
variable life insurance policies issued by life insurance companies or, in some
cases, through participation in certain qualified pension or retirement plans.
Some of the Portfolios have been established by investment advisers which manage
publicly available mutual funds having similar names and investment objectives.
While some of the Portfolios may be similar to, and may in fact be modeled after
publicly available mutual funds, you should understand that the Portfolios are
not otherwise directly related to any publicly available mutual fund.
Consequently, the investment performance of publicly available mutual funds and
any corresponding Portfolios may differ. The investment objectives of the
Portfolios are briefly described below:
AIM Variable Insurance Fund Trust (formerly, INVESCO Variable Investment Funds,
Inc.) -- advised by A I M Advisors, Inc., Houston, Texas. A I M Advisors, Inc.
("AIM"), is an indirect wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP").
Another indirect wholly owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc.
("IFG"), was formerly the investment advisor to the INVESCO Funds.
AIM V.I. Core Stock Fund (formerly INVESCO VIF Core Equity Fund)- Series I
shares seeks to provide high total return through both growth and current
income. The Fund normally invests at least 80% of its net assets in common and
preferred stocks. At least 50% of common and preferred stocks which the Fund
holds will be dividend-paying. Stocks selected for the Fund are generally
expected to produce income and consistent, stable returns. Although the Fund
focuses on the stocks of larger companies with a history of paying dividends,
it also may invest in companies that have not paid regular dividends. The
Fund's equity investments are limited to stocks that can be traded easily in
the United States. It may, however, invest in foreign securities in the form of
American Depositary Receipts ("ADRs"). This fund is Sub-advised by INVESCO
Institutional (N.A.), Inc.
AIM V.I. High Yield Fund (formerly INVESCO VIF High Yield Fund)- Series I shares
seeks to achieve a high level of current income and normally invests at least
80% of its net assets, plus the amount of any borrowings for investment
purposes, in non-investment grade debt securities, i.e., "junk bonds". In
complying with this 80% investment requirement, the fund's investments may
include investments in synthetic instruments. Synthetic instruments are
investments that have economic characteristics similar to the fund's direct
investments, and may include futures and options. The fund may also invest in
preferred stock. The fund may invest up to 25% of its total assets in foreign
securities. Effective April 29, 2005, new Contributions or Transfers into this
Portfolio were closed.
AIM V.I. Technology Fund - Series I shares seeks capital growth and normally
invests at least 80% of its net assets in equity securities and equity-related
instruments of companies engaged in technology-related industries. These
include, but are not limited to, various applied technologies, hardware,
software, semiconductors, telecommunications equipment and services, and
service-related companies in information technology. Many of these products and
services are subject to rapid obsolescence, which may lower the market value of
the securities of the companies in this sector. At any given time, 20% of the
Fund's assets is not required to be invested in the sector. As a sector fund,
the portfolio is concentrated in a comparatively narrow segment of the economy.
This means the Fund's investment concentration in a sector is higher than most
mutual funds and the broad securities markets. Consequently, the Fund tends to
be more volatile than other mutual funds, and the value of its portfolio
investments and consequently the value of an investment in the Fund tend to go
up and down more rapidly.
The Alger American Fund -- advised by Fred Alger Management, Inc. of New York,
New York.
Alger American Growth Portfolio - Class O Shares seeks long-term capital
appreciation. It focuses on growing companies that generally have broad product
lines, markets, financial resources and depth of management. Under normal
circumstances, the Portfolio invests primarily in the equity securities of large
companies. The Portfolio considers a large company to have a market
capitalization of $1 billion or greater.
Alger American MidCap Growth Portfolio - Class O Shares seeks long-term capital
appreciation. It focuses on midsized companies with promising growth potential.
Under normal circumstances, the Portfolio invests primarily in the equity
securities of companies having a market capitalization within the range of
companies in the Russell MidCap Growth Index.
Alliance Variable Products Series Fund, Inc. -- advised by Alliance Capital
Management, L.P., New York, New York.
AllianceBernstein VPS Utility Income Portfolio - Class A Shares seeks to invest
primarily in income-producing equity securities. Under normal circumstances, the
Portfolio invests at least 80% of its net assets in securities of companies in
the utilities industry. The Portfolio invests in securities of utility companies
in the electric, telecommunications, gas, and water utility industries. The
Portfolio may invest in both U.S. and foreign utility companies, although the
Portfolio will limit its investments in issuers in any one foreign country to no
more than 15% of its total assets. The Portfolio may invest up to 35% of its net
assets in lower-rated securities and up to 30% of its net assets in convertible
securities.
12
AllianceBernstein VPS Worldwide Privatization Portfolio - Class A Shares seeks
long-term capital appreciation. As a fundamental policy, the Portfolio invests
at least 65% of its total assets in equity securities issued by enterprises that
are undergoing, or have undergone, privatization (as described below). However,
under normal circumstances, the Portfolio will invest at least 80%, and normally
substantially all, of its net assets in securities of enterprises that are
undergoing or have undergone privatizations and in securities of companies
believed by Alliance to be beneficiaries of privatizations. For purposes of this
policy, net assets include any borrowings for investment purposes. The Portfolio
is designed for investors desiring to take advantage of investment opportunities
historically inaccessible to U.S. individual investors and that are created by
privatizations of state enterprises in both established and developing
economies. These companies include those in Western Europe and Scandinavia,
Australia, New Zealand, Latin America, Asia, Eastern and Central Europe and, to
a lesser degree, Canada and the United States.
American Century Variable Portfolios, Inc. -- advised by American Century(R)
Investment Management, Inc. of Kansas City, Missouri, advisers to the American
Century family of mutual funds.
American Century VP Balanced Fund - Original Class Shares seeks long-term
capital growth and current income by investing approximately 60% of its assets
in equity securities and the remainder in bonds and other fixed-income
securities.
American Century VP International Fund - Original Class Shares seeks long-term
capital growth by investing primarily in equity securities of foreign companies.
The Fund invests primarily in securities of issuers in developed countries.
International investing involves special risks including currency fluctuation
and political instability.
American Century VP Value Fund - Original Class Shares seeks long-term capital
growth. Income is a secondary objective. The fund managers look for companies
whose stock price is less than they believe the company is worth. The managers
attempt to purchase stock of these undervalued companies and hold them until
their stock price has increased to, or is higher than, a level the managers
believe more accurately reflects the fair value of the company.
Baron Capital Funds Trust -- advised by BAMCO, Inc. of New York, New York.
Baron Capital Asset Fund: Insurance Shares seeks capital appreciation through
investments in small and medium sized companies with undervalued assets or
favorable growth prospects. The Fund invests primarily in small sized companies
with market capitalizations of under $2.5 billion and medium sized companies
with market values of $2.5 billion to $8 billion.
Delaware VIP Trust -- The Series is managed by Delaware Management Company, a
series of Delaware Management Business Trust, which is an indirect wholly owned
subsidiary of Delaware Management Holdings, Inc.
Delaware VIP Small Cap Value Series - Standard Class seeks capital appreciation.
Under normal circumstances, at least 80% of the Series' net assets will be in
investments of small-capitalization companies. For the purposes of this Series,
small-capitalization companies are companies with a market capitalization
generally less than 3.5 times the dollar-weighted, median market capitalization
of the Russell 2000 Index at the time of purchase. Among other factors, the
financial strength of a company, its management, the prospects for its industry,
and any anticipated changes within the company, which might suggest a more
favorable outlook going forward, are investment considerations for the Series.
Dreyfus Investment Portfolios - advised by The Dreyfus Corporation of New York,
New York.
Dreyfus Investment Portfolios MidCap Stock Portfolio - Initial Shares seeks
investment results that are greater than the total return performance of
publicly traded common stocks of medium-size domestic companies in the
aggregate, as represented by the Standard & Poor's MidCap 400(R) Index. To
pursue this goal, the Portfolio normally invests at least 80% of its assets in
stocks of mid-size companies. The Portfolio invests in growth and value stocks,
which are chosen through a disciplined investment process that combines computer
modeling techniques, fundamental analysis and risk management.
Dreyfus Variable Investment Fund--advised by The Dreyfus Corporation of New
York, New York. The Dreyfus Variable Investment Fund Appreciation Portfolio is
sub-advised by Fayez Sarofim & Co.
Dreyfus Variable Investment Fund Appreciation Portfolio - Initial Shares seeks
long-term capital growth consistent with the preservation of capital; current
income is its secondary goal. To pursue these goals, the portfolio invests in
common stocks. The portfolio focuses on "blue-chip" companies with total market
values of more than $5 billion at the time of purchase including multinational
companies. Fayez Sarofim & Co. is the sub-adviser to this Portfolio and, as
such, provides day-to-day management.
13
Dreyfus Variable Investment Fund Developing Leaders Portfolio - Initial Shares
seeks capital growth. To pursue this goal, the portfolio normally invests at
least 80% of its assets in the stocks of companies Dreyfus believes to be
developing leaders: those characterized by new or innovative products, services
or processes having the potential to enhance earnings or revenue growth. Based
on current market conditions, the portfolio primarily invests small companies
with total market capitalizations of less than $2 billion at the time of
purchase. Effective April 29, 2005, this Portfolio was closed to new
Contributions or Transfers.
Dreyfus Variable Investment Fund Growth and Income Portfolio - Initial Shares
seeks long-term capital growth, current income and growth of income consistent
with reasonable investment risk. To pursue this goal, the Portfolio seeks to
invest in stocks of domestic and foreign issuers.
Federated Insurance Series -- advised by Federated Equity Management Company of
Pennsylvania. Federated American Leaders Fund II - Primary Shares seeks to
achieve long-term growth of capital as a primary objective and seeks to provide
income as a secondary objective by investing primarily (under normal
circumstances) in common stocks of "blue chip" companies. Effective April 29,
2005, new Contributions or Transfers into this Portfolio were closed.
Federated Fund for U.S. Government Securities II seeks to provide current income
by investing primarily in U.S. government securities, including mortgage-backed
securities issued by U.S. government agencies.
Federated Capital Income Fund II seeks to provide high current income and
moderate capital appreciation by investing primarily in both equity and fixed
income securities that have high relative income potential. Effective April 29,
2005, new Contributions or Transfers into this Portfolio were closed.
Gartmore Variable Insurance Trust -- advised by Gartmore Mutual Fund Capital
Trust of Delaware, and sub-advised by The Dreyfus Corporation of New York, New
York.
Dreyfus GVIT Mid Cap Index Fund - Class II seeks capital appreciation. Under
normal conditions, the Fund invests at least 80% of its net assets in equity
securities of companies included in the S&P MidCap 400(R) Index and in
derivative instruments linked to the index.
Janus Aspen Series -- advised by Janus Capital Management LLC of Denver,
Colorado.
Janus Aspen Series Balanced Portfolio - Institutional Shares seeks long-term
capital growth, consistent with preservation of capital and balanced by current
income. The Portfolio normally invests 40-60% of its assets in securities
selected primarily for their growth potential and 40-60% of its assets in
securities selected primarily for their income potential. The Portfolio will
normally invest at least 25% of its assets in fixed-income senior securities.
Janus Aspen Series Flexible Bond Portfolio - Institutional Shares (formerly
Flexible Income) seeks to obtain maximum total return, consistent with
preservation of capital. The Portfolio invests in a wide variety of
income-producing securities such as corporate bonds and notes, government
securities, including agency securities, and preferred stock. As a fundamental
policy, the Portfolio will invest at least 80% of its assets in income-producing
securities. The Portfolio will invest at least 65% of its assets in investment
grade debt securities and will maintain an average-weighted effective maturity
of five to ten years. The Portfolio will limit its investment in
high-yield/high-risk bonds to less than 35% of its net assets.
Janus Aspen Series Large Cap Growth Portfolio - Institutional Shares (formerly
Growth) seeks long-term growth of capital in a manner consistent with the
preservation of capital. The Portfolio invests primarily in common stocks
selected for their growth potential. Although the Portfolio can invest in
companies of any size, it generally invests in larger, more established
companies.
Janus Aspen Series Growth and Income Portfolio - Institutional Shares seeks
long-term capital growth and current income. The Portfolio will normally invest
up to 75% of its assets in equity securities selected primarily for their growth
potential, and at least 25% of its assets in securities the portfolio manager
believes have income potential.
Janus Aspen Series International Growth Portfolio - Institutional Shares seeks
to invest, under normal circumstances, at least 80% of its net assets in
securities of issuers from at least five different countries, excluding the
United States. Although the Portfolio intends to invest substantially all of its
assets in issuers located outside the United States, it may invest in U.S.
issuers and, under unusual circumstances, it may invest all of its assets in
fewer than five countries or even a single country.
14
Janus Aspen Series Worldwide Growth Portfolio - Institutional Shares seeks
long-term growth of capital in a manner consistent with the preservation of
capital. The Portfolio invests primarily in common stocks of any size throughout
the world. The Portfolio normally invests in issuers from at least five
different countries, including the U.S. The Portfolio may invest in fewer than
five countries or even a single country. Effective April 29, 2005, new
Contributions or Transfers into this Portfolio were closed.
Oppenheimer Variable Account Funds - advised by OppenheimerFunds, Inc. of New
York, New York.
Oppenheimer Global Securities Fund/VA seeks long term capital appreciation by
investing a substantial portion of assets in securities of foreign issues
"growth-type" companies, cyclical industries and special situations that are
considered to have appreciation possibilities.
PIMCO Variable Insurance Trust -- advised by Pacific Investment Management
Company LLC of Newport Beach, California.
PIMCO VIT High Yield Portfolio seeks maximum total return, consistent with
preservation of capital and prudent investment management. The Portfolio seeks
to achieve its investment object by investing, under normal circumstances, at
least 80% of its assets in a diversified portfolio of high-yield securities
("junk bonds") rated below investment grade but rated at least Caa by Moody's or
CCC by S&P, or, if unrated, determined by PIMCO to be of comparable quality. The
remainder of the Portfolio's assets may be invested in investment grade Fixed
Income Instruments. The average portfolio duration of this Portfolio normally
varies within a two-to-six-year time frame based on PIMCO's forecast for
interest rates. The Portfolio may invest up to 20% of its total assets in
securities denominated in foreign currencies and may invest beyond this limit in
U.S. dollar-denominated securities of foreign issuers. The Portfolio normally
will hedge at least 75% of its exposure to the foreign currency to reduce the
risk of loss due to fluctuations in currency exchange rates. The Portfolio may
invest all of its assets in derivative instruments, such as options, futures
contracts or swap agreements, or in mortgage- or asset-backed securities. The
Portfolio may, without limitation, seek to obtain market exposure to the
securities in which it primarily invests by entering into a series of purchase
and sale contracts or by using other investment techniques (such as buy backs or
dollar rolls). The "total return" sought by the Portfolio consists of income
earned on the Portfolio's investments, plus capital appreciation, if any, which
generally arises from decreases in interest rates or improving credit
fundamentals for a particular sector or security.
PIMCO VIT Low Duration Portfolio seeks maximum total return, consistent with
preservation of capital and prudent investment management. The Portfolio seeks
to achieve its investment objective by investing under normal circumstances, at
least 65% of its total assets in a diversified portfolio of fixed income
instruments of varying maturities. The average portfolio duration of this
Portfolio normally varies within a one- to three-year time frame based on
PIMCO's forecast for interest rates. The Portfolio invests primarily in
investment grade debt securities, but may invest up to 10% of its total assets
in high-yield securities ("junk bonds") rated B or higher by Moody's or S&P, or,
if unrated, determined by PIMCO to be of comparable quality. The Portfolio may
invest up to 30% of its total assets in securities denominated in foreign
currencies, and may invest beyond this limit in U.S. dollar-denominated
securities of foreign issuers. The Portfolio will normally hedge at least 75% of
its exposure to foreign currency to reduce the risk of loss due to fluctuations
in currency exchange rates. The Portfolio may invest all of its assets in
derivative instruments, such as options, futures contracts or swap agreements,
or in mortgage- or asset-backed securities. The Portfolio may, without
limitation, seek to obtain market exposure to the securities in which it
primarily invests by entering into a series of purchase and sale contracts or by
using other investment techniques (such as buy backs or dollar rolls). The
"total return" sought by the Portfolio consists of income earned on the
Portfolio's investments, plus capital appreciation, if any, which generally
arises from decreases in interest rates or improving credit fundamentals for a
particular sector or security.
PIMCO VIT Total Return Portfolio seeks maximum total return, consistent with
preservation of capital and prudent investment management. The Portfolio may
invest up to 10% in high-yield, lower-rated securities, which generally involve
greater risk to principal than investment in higher-rated securities. The
Portfolio may use derivative instruments for hedging purposes or as part of its
investment strategy. Use of these instruments may involve certain costs and
risks such as liquidity risk, interest rate risk, market risk, credit risk,
management risk and the risk that a fund could not close out a position when it
would be most advantageous to do so. Portfolios investing in derivatives could
lose more than the principal amount invested. The Portfolio may invest up to
30% in non-U.S. securities, which include potentially higher risks due to
non-U.S. currency fluctuations and political or economic uncertainty and may be
enhanced when investing in emerging markets. The credit quality of the
investment in the Portfolio does not apply to the stability or safety of the
Portfolio
15
Pioneer Investments, Inc. -- advised by Pioneer Investment Management, Inc. of
Boston, Massachusetts.
Pioneer Fund (formerly SAFECO RST Core Equity Portfolio) seeks long-term growth
of capital and reasonable current income. To achieve its objective, under normal
circumstances the Portfolio invests at least 80% of its net assets (plus any
borrowings for investment purposes) in equity securities and, to a much lesser
extent, invests in equity-related securities.
Pioneer Growth Opportunities Fund (formerly SAFECO Growth Opportunities
Portfolio) seeks growth of capital. To achieve its objective, under normal
circumstances the Portfolio invests most of its assets in common stocks of
companies the advisor considers to be reasonably priced or undervalued, with
above average growth potential.
Pioneer Small Cap Value Fund (formerly SAFECO RST Small Cap Value Portfolio)
seeks long-term growth of capital through investing primarily in small-sized
companies. To achieve its objective, under normal circumstances the Portfolio
invests at least 80% of its net assets (plus any borrowings for investment
purposes) in equity and equity-related securities of companies with total market
capitalization at the time of investment of less than $1.5 billion.
Prudential Series Fund, Inc. -- advised by Prudential Investments LLC of Newark,
New Jersey.
Prudential Series Fund Equity Portfolio Class II seeks capital appreciation
through investment primarily in common stocks of companies, including major
established corporations as well as smaller capitalization companies, that
appear to offer attractive prospects of price appreciation that is superior to
broadly-based stock indices. Current income, if any, is incidental.
Schwab Annuity Portfolios -- advised by Charles Schwab Investment Management,
Inc. of San Francisco, California.
Schwab MarketTrack Growth Portfolio II(TM) seeks to provide high capital growth
with less volatility than an all stock portfolio by investing in a mix of
stocks, bonds, and cash equivalents either directly or through investment in
other mutual funds.
Schwab Money Market Portfolio(TM) seeks the highest current income consistent
with liquidity and stability of capital. This Portfolio is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. There can be no assurance that it will be able to maintain a stable net
asset value of $1.00 per share.
Schwab S&P 500 Index Portfolio (formerly the Schwab S&P 500 Portfolio) seeks to
track the price and dividend performance (total return) of stocks of U.S.
companies, as represented in the Standard & Poor's Composite Index of 500
stocks.
Scudder Variable Series I and Variable Series II -- advised by Deutsche
Investment Management Americas, Inc. of New York, New York.
Scudder Variable Series I Capital Growth Portfolio - Class A Shares seeks to
maximize long-term capital growth through a broad and flexible investment
program. The Portfolio invests at least 65% of its total assets in common stocks
of U.S. companies. Although the Portfolio can invest in companies of any size,
it generally focuses on established companies that are similar in size to the
companies in the S&P 500 Index or the Russell 1000 Growth Index.
Scudder Variable Series I Growth and Income Portfolio - Class A Shares seeks
long-term growth of capital, current income and growth of income. The Portfolio
invests at least 65% of its total assets in equities, mainly common stocks.
Although the Portfolio can invest in companies of any size and from any country,
it invests primarily in large U.S. companies.
Scudder Variable Series II SVS Dreman High Return Equity Portfolio - Class A
Shares seeks to achieve a high rate of total return. Under normal circumstances,
the Portfolio invests at least 80% of net assets, plus the amount of any
borrowings for investment purposes, in common stocks and other equity
securities. The Portfolio focuses on stocks of large US companies that are
similar in size to the companies in the S&P 500 Index and that the Portfolio
managers believe are undervalued. The Portfolio intends to invest primarily in
companies whose market capitalizations fall within the normal range of the
Index. Although the Portfolio can invest in stocks of any economic sector, at
times it may emphasize the financial services sector or other sectors (in fact,
it may invest more than 25% of total assets in a single sector). The Portfolio
managers begin by screening for stocks whose price-to-earnings ratios are below
the average for the S&P 500 Index. The managers then compare a company's stock
price to its book value, cash flow and yield, and analyze individual companies
to identify those that are financially sound and appear to have strong potential
for long-term growth and income.
Scudder Variable Series II Large Cap Value - Class A Shares seeks to achieve a
high rate of total return. Under normal circumstances, the Portfolio invests at
least 80% of net assets, plus the amount of any borrowings for investment
purposes, in common stocks and other equity securities of large U.S. companies
that are similar in size to the companies in the Russell 1000 Value Index and
that the Portfolio's managers believe are undervalued. These are typically
companies that have been sound historically but are temporarily out of favor.
The Portfolio intends to invest primarily in companies whose market
capitalizations fall within the normal range of the Index. Although the
Portfolio can invest in stocks of any economic sector (which is comprised of two
or more industries); at times it may emphasize the financial services sector or
other sectors. In fact, it may invest more than 25% of total assets in a single
sector.
16
The Scudder Investment VIT Funds --- advised by Deutsche Asset Management
Americas, Inc. of New York, New York and sub-advised by
Northern Trust Investments, N.A. of Chicago, Illinois.
Scudder VIT EAFE(R) Equity Index Fund - Class A Shares seeks to replicate, as
closely as possible, before expenses, the performance of the MSCI EAFE(R) Index
which emphasizes stocks of companies in major markets in Europe, Australasia and
the Far East. Under normal circumstances, the Fund intends to invest at least
80% of its assets, determined at the time of purchase, in stocks of companies
included in the MSCI EAFE(R) Index and in derivative instruments, such as
futures contracts and options that provide exposure to the stocks of companies
in the MSCI EAFE(R) Index.
The Board of Trustees of the Scudder Investments VIT Funds voted to liquidate
and terminate the EAFE Equity Index Fund effective July 25, 2005 ("Closing
Date"). Accordingly, the EAFE Equity Index Fund will redeem involuntarily any
shares that are outstanding on the Closing Date. Owners may Transfer without
incurring a fee assets invested in this Sub-Account to another Sub-Account. On
the Closing Date, GWL&A will Transfer any amounts in the EAFE Equity Index Fund
Sub-Account to the Schwab Money Market Portfolio(TM) Sub-Account.
Scudder VIT Small Cap Index Fund - Class A Shares seeks to replicate,
as closely as possible, before expenses, the performance of the Russell 2000
Index which emphasizes stocks of small US companies. Under normal circumstances,
the Fund intends to invest at least 80% of its assets, determined at the time of
purchase, in stocks of companies included in the Russell 2000 Index and in
derivative instruments, such as futures contracts and options that provide
exposure to the stocks of companies in the Russell 2000 Index.
The Universal Institutional Funds, Inc. -- advised by Morgan Stanley
Investment Management Inc. ("MSIM") of New York, New York. MSIM does business
in certain instances as "Van Kampen."
Universal Institutional Funds U.S. Real Estate Portfolio - Class I Shares seeks
to provide above average current income and long-term capital appreciation by
investing primarily in equity securities of companies engaged in the U.S. real
estate industry, including real estate investment trusts.
Van Kampen Life Investment Trust -- advised by Van Kampen Asset Management, a
wholly-owned subsidiary of Van Kampen Investments, Inc.
Van Kampen LIT Comstock - Class I Shares seeks capital growth and income through
investments in equity securities, including common stocks, preferred stocks and
securities convertible into common and preferred stocks. In selecting securities
for investment, the Portfolio focuses primarily on the security's potential for
capital growth and income. The Portfolio emphasizes a value style of investing
seeking well-established, undervalued companies. The Portfolio's investment
adviser generally seeks to identify companies that are undervalued and have
identifiable factors that might lead to improved valuations.
Van Kampen LIT Growth & Income - Class I Shares seeks long-term growth of
capital and income. The Portfolio, under normal market conditions, achieves the
investment objective by investing primarily in income- producing equity
securities, including common stocks and convertible securities; although
investments are also made in non-convertible preferred stocks and debt
securities rated within the four highest grades assigned by Standard & Poor's
("S&P") or by Moody's Investors Service, Inc. ("Moody's"). In selecting
securities for investment, the Portfolio focuses primarily on the security's
potential for growth and income. The Portfolio's investment adviser may focus on
larger capitalization companies that it believes possess characteristics for
improved valuation. The Portfolio's investment adviser looks for catalysts for
change that may positively impact a company, such as new management, industry
development or regulatory change. The aim is to uncover these catalysts for
change, and then benefit from potential stock price appreciation of the change
taking place at the company.
Wells Fargo Funds -- advised by Wells Fargo Funds Management, LLC, an affiliate
of Funds Management located in San Francisco, California.
Wells Fargo Advantage Multi Cap Value Fund (formerly, the Strong Multi Cap Value
Fund II) seeks long-term capital appreciation. The Fund invests in equity
securities that it believe are undervalued relative to the market based on
discounted earnings, cash flow or asset value. The Fund may invest in equity
securities of companies of any market capitalization, and at times may emphasize
one or more particular sectors. The Fund specifically looks for companies whose
stock prices may benefit from a positive dynamic of change, such as a new
management team, a new product or service, a corporate restructuring, an
improved business plan, industry consolidation or positive timing in the
business cycle. As a hedging strategy, the Fund may write put and call options,
meaning that the Fund sells an option to another party giving that party the
right to either sell a stock to (put) or buy a stock from (call) the Fund at a
predetermined price in the future. Whether or not this hedging strategy is
successful depends on a variety of factors, particularly the Fund's ability to
predict movements of the price of the hedged stock.. Effective April 29, 2005,
new Contributions or Transfers into this Portfolio were closed.
17
Meeting Investment Objectives
Meeting investment objectives depends on various factors, including, but not
limited to, how well the Portfolio managers anticipate changing economic and
market conditions. There is no guarantee that any of these Portfolios will
achieve their stated objectives.
Where to Find More Information About the Portfolios
Additional information about the investment objectives and policies of all the
Portfolios and the investment advisory and administrative services and charges
can be found in the current Portfolio Prospectuses, which can be obtained
without charge from the Schwab Insurance Center. You may also visit
www.schwab.com or www.schwaballiance.com (for clients of investment managers who
are Schwab Alliance customers).
The Portfolio Prospectuses should be read carefully before any decision is made
concerning the allocation of Contributions to, or Transfers among, the
Sub-Accounts.
Addition, Deletion or Substitution
Great-West does not control the Portfolios and cannot guarantee that any of the
Portfolios will always be available for allocation of Contributions or
Transfers. We retain the right to make changes in the Series Account and in its
investments.
Great-West and GWFS Equities, Inc. ("GWFS") reserve the right to discontinue the
offering of any Portfolio. If a Portfolio is discontinued, we may substitute
shares of another Portfolio or shares of another investment company for the
discontinued Portfolio's shares. Any share substitution will comply with the
requirements of the 1940 Act.
If you are contributing to a Sub-Account corresponding to a Portfolio that is
being discontinued, you will be given notice prior to the Portfolio's
elimination.
Based on marketing, tax, investment and other conditions, we may establish new
Sub-Accounts and make them available to Owners at our discretion. Each
additional Sub-Account will purchase shares in a Portfolio or in another mutual
fund or investment vehicle.
If, in our sole discretion, marketing, tax, investment or other conditions
warrant, we may also eliminate one or more Sub-Accounts. If a Sub-Account is
eliminated, we will notify you and request that you reallocate the amounts
invested in the eliminated Sub-Account.
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The Guarantee Period Fund
The Guarantee Period Fund is not part of the Series Account. Amounts allocated
to the Guarantee Period Fund will be deposited to, and accounted for, in a
non-unitized market value separate account. As a result, you do not participate
in the performance of the assets through unit values.
Consequently, these assets accrue solely to the benefit of Great-West and any
gain or loss in the non-unitized market value separate account is borne entirely
by Great-West. You will receive the Contract guarantees made by Great-West for
amounts you contribute to the Guarantee Period Fund.
When you contribute or Transfer amounts to the Guarantee Period Fund, you select
a new Guarantee Period from those available. All Guarantee Periods will have a
term of at least three years for Contracts issued after June 1, 2003.
Contributions allocated to the Guarantee Period Fund will be credited on the
Transaction Date we receive them.
Each Guarantee Period will have its own stated rate of interest and maturity
date determined by the date the Guarantee Period is established and the term you
choose.
Currently, Guarantee Periods with annual terms of three to ten years are offered
only in those states where the Guarantee Period Fund is available. The Guarantee
Periods may change in the future, but this will not have an impact on any
Guarantee Period already in effect.
The value of amounts in each Guarantee Period equals Contributions plus interest
earned, less any Premium Tax, amounts distributed, withdrawn (in whole or in
part), amounts Transferred or applied to an annuity option, periodic withdrawals
and charges deducted under the Contract. If a Guarantee Period is broken, a
Market Value Adjustment may be assessed (please see "Breaking a Guarantee
Period" on page 19). Any amount withdrawn or transferred prior to the Guarantee
Period Maturity Date will be paid in accordance with the Market Value Adjustment
formula. You can read more about Market Value Adjustments on page 19.
Investments of the Guarantee
Period Fund
We use various techniques to invest in assets that have similar characteristics
to our general account assets--especially cash flow patterns. We will primarily
invest in investment-grade fixed income securities including:
o Securities issued by the U.S. Government or its agencies or
instrumentalities, which may or may not be guaranteed by the U.S.
Government.
o Debt securities which have an investment grade, at the time of purchase,
within the four highest grades assigned by Moody's Investment Services, Inc.
(Aaa, Aa, A or Baa), Standard & Poor's Corporation (AAA, AA, A or BBB) or
any other nationally recognized rating service.
18
o Other debt instruments, including, but not limited to, issues of banks or
bank holding companies and of corporations, which obligations--although not
rated by Moody's, Standard & Poor's, or other nationally recognized rating
firms--are deemed by us to have an investment quality comparable to
securities which may be purchased as stated above.
o Commercial paper, cash or cash equivalents and other short-term investments
having a maturity of less than one year which are considered by us to have
investment quality comparable to securities which may be purchased as stated
above.
In addition, we may invest in futures and options solely for non-speculative
hedging purposes. We may sell a futures contract or purchase a put option on
futures or securities to protect the value of securities held in or to be sold
for the general account or the non-unitized market value separate account if the
securities prices are anticipated to decline. Similarly, if securities prices
are expected to rise, we may purchase a futures contract or a call option
against anticipated positive cash flow or may purchase options on securities.
The above information generally describes the investment strategy for the
Guarantee Period Fund. However, we are not obligated to invest the assets in the
Guarantee Period Fund according to any particular strategy, except as may be
required by Colorado and other state insurance laws. The stated rate of interest
that we establish will not necessarily relate to the performance of the
non-unitized market value separate account.
Subsequent Guarantee Periods
Before annuity payouts begin, you may reinvest the value of amounts in a
maturing Guarantee Period in a new Guarantee Period of any length we offer at
that time. On the quarterly statement you receive prior to the end of any
Guarantee Period, we will notify you of the upcoming maturity of a Guarantee
Period. The Guarantee Period available for new Contributions may be changed at
any time, including between the date we notify you of a maturing Guarantee
Period and the date a new Guarantee Period begins.
If you do not tell us where you would like the amounts in a maturing Guarantee
Period allocated by the maturity date, we will automatically allocate the amount
to a Guarantee Period of the same length as the maturing period. If the term
previously chosen is no longer available, the amount will be allocated to the
next shortest available Guarantee Period term. If none of the above are
available, the value of matured Guarantee Periods will be allocated to the
Schwab Money Market Sub-Account.
No Guarantee Period may mature later than six months after your Payout
Commencement Date. For example, if a 3-year Guarantee Period matures and the
Payout Commencement Date begins 1 3/4 years following its Guarantee Period
Maturity Date, the matured value will be transferred to a 2-year Guarantee
Period.
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Breaking a Guarantee Period
If you begin annuity payouts, Transfer or withdraw prior to the Guarantee Period
Maturity Date, you are breaking a Guarantee Period. When we receive a request to
break a Guarantee Period and you have another Guarantee Period that is closer to
its maturity date, we will break that Guarantee Period first.
If you break a Guarantee Period, you may be assessed an interest rate adjustment
called a Market Value Adjustment.
Interest Rates
The declared annual rates of interest are guaranteed throughout the Guarantee
Period. For Guarantee Periods not yet in effect, Great-West may declare interest
rates different from those currently in effect. When a subsequent Guarantee
Period begins, the rate applied will be equal to or more than the rate currently
in effect for new Contracts with the same Guarantee Period.
The stated rate of interest must be at least equal to the Guaranteed Interest
Rate, but Great-West may declare higher rates. The Guaranteed Interest Rate is
based on the applicable state standard non-forfeiture law.
We guarantee an effective yearly interest rate that complies with the
non-forfeiture law that is in effect on the issue date for the state in which
this Contract was delivered. As explained above, a negative Market Value
Adjustment may result in an effective interest rate lower than the Guaranteed
Interest Rate applicable to this Contract and the value of the Contribution(s)
allocated to the Guarantee Period being less than the Contribution(s) made.
The determination of the stated interest rate is influenced by, but does not
necessarily correspond to, interest rates available on fixed income investments
which Great-West may acquire using funds deposited into the Guarantee Period
Fund. In addition, Great-West considers regulatory and tax requirements, sales
and administrative expenses, general economic trends and competitive factors in
determining the stated interest rate.
19
Market Value Adjustment
Amounts you allocate to the Guarantee Period Fund may be subject to an interest
rate adjustment called a Market Value Adjustment if, six months or more before a
Guarantee Period Fund's Maturity Date, you:
o surrender your investment in the Guarantee Period Fund;
o transfer money from the Guarantee Period Fund;
o partially withdraw money from the Guarantee Period Fund;
o take a periodic withdrawal;
o apply amounts from the Guarantee Period Fund to purchase an annuity to
receive payouts from your account; or
o take a distribution from the Guarantee Period Fund upon the death of the
Owner or the Annuitant.
The Market Value Adjustment will not apply to any Guarantee Period having fewer
than six months prior to the Guarantee Period Maturity Date in each of the
following situations:
o transfer to a Sub-Account offered under this Contract;
o surrenders, partial withdrawals, annuitization or periodic withdrawals; or
o a single sum payout upon death of the Owner or Annuitant.
A Market Value Adjustment may increase or decrease the amount payable on the
above-described distributions. The formula for calculating Market Value
Adjustments is detailed in Appendix B. Appendix B also includes examples of how
Market Value Adjustments work.
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Application and Initial Contributions
The first step to purchasing the Schwab Select Annuity is to complete your
Contract application and submit it with your initial minimum Contribution of
$5,000; $2,000 if an IRA, or $1,000 if you are setting up an Automatic
Contribution Plan. Initial Contributions can be made by check (payable to GWL&A)
or transferred from a Schwab brokerage account.
If your application is complete, your Contract will be issued and your
Contribution will be credited within two business days after receipt at the
Annuity Administration Department at Great-West. Acceptance is subject to
sufficient information in a form acceptable to us. We reserve the right to
reject any application or Contribution.
If your application is incomplete, the Annuity Administration Department will
complete the application from information Schwab has on file or contact you by
telephone to obtain the required information. If the information necessary to
complete your application is not received within five business days at the
Annuity Administration Department, we will return to you both your check and the
application. If you provide consent we will retain the initial Contribution and
credit it as soon as we have completed your application.
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Free Look Period
During the free look period (ten days or longer where required by law), you may
cancel your Contract. If you exercise the free look privilege, you must return
the Contract to the Annuity Administration Department at Great-West.
Generally, Contributions will be allocated to the Sub-Accounts you selected on
the application, effective upon the Transaction Date. During the free look
period, you may change your Sub-Account allocations as well as your allocation
percentages.
Contracts returned during the free look period will be void from the date we
issued the Contract. In the majority of states, we will refund your current
Annuity Account Value. This amount may be higher or lower than your
Contributions, which means you bear the investment risk during the free look
period.
Certain states require that we return the greater of your Annuity Account Value
(less any surrenders, withdrawals, and distributions already received) or the
amount of Contributions received. During the free look period, all Contributions
will be processed as follows:
o Amounts you specify to be allocated to one or more of the available
Guarantee Periods will be allocated as directed, effective upon the
Transaction Date.
o Amounts you specify to be allocated to one or more of the Sub-Accounts will
first be allocated to the Schwab Money Market Sub-Account until the end of
the free look period. After the free look period is over, the Variable
Account Value held in the Schwab Money Market Sub-Account will be allocated
to the Sub-Accounts you selected on the application.
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Subsequent Contributions
Once your application is complete and we have received your initial
Contribution, you can make subsequent Contributions at any time prior to the
Payout Commencement Date, as long as the Annuitant is living. Additional
Contributions must be at least $500, or $100 if made via an Automatic
Contribution Plan. Total Contributions may exceed $1,000,000 only with our prior
approval. Additional Contributions will be credited on the date received by the
Annuity Administration Department at GWL&A if received before 4:00 p.m. Eastern
Time and the NYSE is open for business. Additional Contributions received after
4:00 p.m. Eastern Time will be credited on the next business day the NYSE is
open for business.
20
Subsequent Contributions can be made by check or via an Automatic Contribution
Plan directly from your bank or savings account. You can designate the date
you'd like your subsequent Contributions deducted from your account each month.
If you make subsequent Contributions by check, your check should be payable to
GWL&A.
You'll receive a confirmation of each Contribution you make upon its acceptance.
Great-West reserves the right to modify the limitations set forth in this
section.
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Annuity Account Value
Prior to the Annuity Commencement Date, your Annuity Account Value is the sum of
the Variable and Fixed Account Values established under your Contract.
Before your Annuity Commencement Date, the Variable Account Value is the total
dollar amount of all Accumulation Units credited to you for each Sub-Account.
Initially, the value of each Accumulation Unit was set at $10.00. Each
Sub-Account's value prior to the Annuity Commencement Date is equal to:
o net Contributions allocated to the corresponding Sub-Account,
o plus or minus any increase or decrease in the value of the assets of the
Sub-Account due to investment results,
o minus the daily mortality and expense risk charge,
o minus any applicable reductions for the Contract Maintenance
Charge deducted on the Contract anniversary date,
o minus any applicable Transfer fees, and
o minus any withdrawals or Transfers from the Sub-Account.
The value of a Sub-Account's assets is determined at the end of each day that
the NYSE is open for regular business (a "valuation date"). A valuation period
is the period between successive valuation dates. It begins at the close of the
NYSE (generally 4:00 p.m. Eastern Time) on each valuation date and ends at the
close of the NYSE on the next succeeding valuation date.
The Variable Account Value is expected to change from valuation period to
valuation period, reflecting the investment experience of the selected
Sub-Account(s), as well as the deductions for applicable charges.
Upon allocating Variable Account Values to a Sub-Account you will be credited
with variable Accumulation Units in that Sub-Account. The number of Accumulation
Units you will be credited is determined by dividing the portion of each
Contribution allocated to the Sub-Account by the value of an Accumulation Unit.
The value of the Accumulation Unit is determined and credited at the end of the
valuation period during which the Contribution was received.
Each Sub-Account's Accumulation Unit value is established at the end of each
valuation period. It is calculated by multiplying the value of that unit at the
end of the prior valuation period by the Sub-Account's Net Investment Factor for
the valuation period. The formula used to calculate the Net Investment Factor is
discussed in Appendix C.
Unlike a brokerage account, amounts held under a Contract are not covered by the
Securities Investor Protection Corporation ("SIPC").
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Transfers
Prior to the Annuity Commencement Date you may Transfer all or part of your
Annuity Account Value among and between the Sub-Accounts and the available
Guarantee Periods by Request to the Annuity Administration Department at
Great-West.
Your Request must specify:
o the amounts being Transferred;
o the Sub-Account(s) and/or Guarantee Period(s) from which the Transfer is to be
made; and
o the Sub-Account(s) and/or Guarantee Period(s) that will receive the Transfer.
Currently, there is no limit on the number of Transfers you can make among the
Sub-Accounts and the Guarantee Period Fund during any calendar year, subject to
certain restrictions discussed in this section. We reserve the right to limit
the number of Transfers you make.
There is no charge for the first twelve Transfers each calendar year, but there
will be a charge of $10 for each additional Transfer made. The charge will be
deducted from the amount Transferred. All Transfers made on a single Transaction
Date will count as only one Transfer toward the twelve free Transfers. However,
if a one-time rebalancing Transfer also occurs on the Transaction Date, it will
be counted as a separate and additional Transfer.
A Transfer generally will be effective on the date the Request for Transfer is
received by the Annuity Administration Department at Great-West if received
before 4:00 p.m. Eastern Time. Requests received after 4:00 p.m. Eastern Time
will be effective on the next business day we and the NYSE are open for
business. Under current tax law, there will not be any tax liability to you if
you make a Transfer.
Transfers involving the Sub-Accounts will result in the purchase and/or
cancellation of Accumulation Units having a total value equal to the dollar
amount being transferred. The purchase and/or cancellation of such units is made
using the Variable Account Value as of the end of the valuation date on which
the Transfer is effective.
21
Transfers among the Sub-Accounts may also be subject to certain terms and
conditions imposed by the Portfolios that could result in a Transfer request
being rejected or the pricing for that Transfer delayed. Please review the
respective Portfolio prospectus for details on any Portfolio level restrictions.
When you make a Transfer from amounts in a Guarantee Period before the Guarantee
Period Maturity Date, the amount Transferred may be subject to a Market Value
Adjustment as discussed on page 20. If you request in advance to Transfer
amounts from a maturing Guarantee Period upon maturity, your Transfer will not
count toward the 12 free Transfers and no Transfer fees will be charged.
Market Timing & Excessive Trading
The Contracts are intended for long-term investment and not for the purpose of
market timing or excessive trading activity. Market timing activity may dilute
the interests of Owners in the underlying Portfolios. Market timing generally
involves frequent or unusually large transfers that are intended to take
advantage of short-term fluctuations in the value of a Portfolio's portfolio
securities and the reflection of that change in the Portfolio's share price. In
addition, frequent or unusually large transfers may harm performance by
increasing Portfolio expenses and disrupting Portfolio management strategies.
For example, excessive trading may result in forced liquidations of portfolio
securities or cause the Portfolio to keep a relatively higher cash position,
resulting in increased brokerage costs and lost investment opportunities.
We maintain procedures designed to discourage market timing and excessive
trading by Owners. As part of those procedures, we will rely on the Portfolios
to monitor for such activity. If such activity is identified by a Portfolio, we
will request a determination from the Portfolio as to whether such activity
constitutes improper trading. If the Portfolio determines that the activity
constitutes improper trading, Charles Schwab & Co. or the Company will contact
the Owner via telephone and/or in writing to request that the Owner stop market
timing and/or excessive trading immediately. We will then provide a subsequent
report of the Owner's trading activity to the Portfolio. If the Portfolio
determines that the Owner has not ceased improper trading, we will contact the
Owner by telephone and/or in writing to inform the Owner that all Transfer
Requests must be submitted to Great-West via a paper form that is mailed through
U.S. mail ("U.S. Mail Restriction"); the Owner will not be permitted to make
Transfer Requests via overnight mail, fax, the web, voice response unit, or the
call center. Once the U.S. Mail Restriction has been in place for one hundred
eighty (180) days, the restricted Owner may request that we lift the U.S. Mail
Restriction by signing, dating and returning a form to us whereby the individual
acknowledges the potentially harmful effects of improper trading on Portfolios
and other investors, represents that no further improper trading will occur, and
acknowledges that we may implement further restrictions, if necessary, to stop
improper trading by the individual.
Please note that our market timing procedures are such that we do not impose
trading restrictions unless or until the applicable underlying Portfolio first
detects and notifies us of potential market timing or excessive trading
activity. Accordingly, we cannot prevent all market timing or excessive trading
transfer activity before it occurs, as it may not be possible to identify it
unless and until a trading pattern is established. To the extent the Portfolios
do not detect and notify us of market timing and/or excessive trading or the
trading restrictions we impose fail to curtail it, it is possible that a market
timer may be able to make market timing and/or excessive trading transactions
with the result that the management of the Portfolios may be disrupted and the
Owners may suffer detrimental effects such as increased costs, reduced
performance, and dilution of their interests in the affected Portfolios.
We endeavor to ensure that our procedures are uniformly and consistently applied
to all Owners, and we do not exempt any persons from these procedures. In
addition, we do not enter into agreements with Owners whereby we permit market
timing or excessive trading. Subject to applicable state law and the terms of
each Contract, we reserve the right without prior notice to modify, restrict,
suspend or eliminate the Transfer privileges (including telephone Transfers) at
any time, to require that all Transfer Requests be made by you and not by your
designee, and to require that each Transfer Request be made by a separate
communication to us. We also reserve the right to require that each Transfer
Request be submitted in writing and be signed by you.
The Portfolios may have adopted their own policies and procedures with respect
to frequent purchases and redemptions of their respective shares. The
prospectuses for the Portfolios should describe any such policies and
procedures. The frequent trading policies and procedures of a Portfolio may be
different, and more or less restrictive, than the frequent trading policies and
procedures of other Portfolios and the policies and procedures we have adopted
to discourage market timing and excessive trading. For example, a Portfolio may
impose a redemption fee. Owners should also be aware that we may not have the
contractual obligation or the operational capacity to apply the frequent trading
policies and procedures of the respective Portfolios that would be affected by
the transfers.
22
We may revise our market timing and excessive trading policy and related
procedures at our sole discretion, at any time and without prior notice, as we
deem necessary or appropriate to comply with state or federal regulatory
requirements or to impose additional or alternative restrictions on Owners
engaging in market timing or excessive trading. In addition, our orders to
purchase shares of the Portfolios are generally subject to acceptance by the
Portfolio, and in some cases a Portfolio may reject or reverse our purchase
order. Therefore, we reserve the right to reject any Owner's Transfer Request if
our order to purchase shares of the Portfolio is not accepted by, or is reversed
by, an applicable Portfolio.
You should note that other insurance companies and retirement plans may also
invest in the Portfolios and that those companies or plans may or may not have
their own policies and procedures on frequent transfers. You should also know
that the purchase and redemption orders received by the Portfolios generally are
"omnibus" orders from intermediaries such as retirement plans or separate
accounts funding variable insurance contracts. Omnibus orders reflect the
aggregation and netting of multiple orders from individual retirement plan
participants and/or individual owners of variable insurance contracts. The
nature of such orders may limit the Portfolios' ability to apply their
respective frequent trading policies and procedures. As a result, there is a
risk that the Portfolios may not be able to detect market timing and/or
excessive trading activities in the omnibus orders they receive. We cannot
guarantee that the Portfolios will not be harmed by transfer activity relating
to the retirement plans and/or other insurance companies that invest in the
Portfolios. If the policies and procedures of other insurance companies or
retirement plans fail to successfully discourage frequent transfer activity, it
may affect the value of your investments in the Portfolios. In addition, if a
Portfolio believes that an omnibus order we submit may reflect one or more
Transfer Requests from an Owner engaged in frequent transfer activity, the
Portfolio may reject the entire omnibus order and thereby interfere with our
ability to satisfy your request even if you have not made frequent transfers.
For transfers into more than one investment option, we may reject or reverse the
entire Transfer Request if any part of it is not accepted by or is reversed by a
Portfolio.
Automatic Custom Transfers
Dollar Cost Averaging
You may arrange for systematic Transfers from any Sub-Account to any other
Sub-Account. These systematic Transfers may be used to Transfer values from the
Schwab Money Market Sub-Account to the other Sub-Accounts as part of a dollar
cost averaging strategy. Dollar cost averaging allows you to buy more units when
the price is low and fewer units when the price is high. Over time, your average
cost per unit may be more or less than if you invested all your money at one
time. However, dollar cost averaging does not assure a greater profit, or any
profit, and will not prevent or necessarily alleviate losses in a declining
market. There is no charge for participating in Dollar Cost Averaging.
You can set up automatic dollar cost averaging on a monthly, quarterly,
semi-annual or annual basis. Your Transfer will be initiated on the Transaction
Date one frequency period following the date of the Request. For example, if you
request quarterly Transfers on January 9th, your first Transfer will be made on
April 9th and every three months on the 9th thereafter. Transfers will continue
on that same day for each interval unless terminated by you or for other reasons
as set forth in the Contract.
If there are insufficient funds in the applicable Sub-Account on the date your
Transfer is scheduled, your Transfer will not be made. However, your dollar cost
averaging Transfers will resume once there are sufficient funds in the
applicable Sub-Account. Dollar cost averaging will terminate automatically when
you start taking payouts from the Contract. Dollar cost averaging Transfers are
not included in the twelve free Transfers allowed in a calendar year.
Dollar cost averaging Transfers must meet the following conditions:
o The minimum amount that can be Transferred out of the selected Sub-Account is
$100.
o You must: (1) specify the dollar amount to be Transferred, (2) designate the
Sub-Account(s) to which the Transfer will be made, and (3) designate the
percentage of the dollar amount to be allocated to each Sub-Account into
which you are Transferring money. The Accumulation Unit values will be
determined on the Transfer date.
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How dollar cost averaging works:
-------- --------- -------- --------
------- Contribution Units Price
Month Purchased per
unit
-------- --------- -------- --------
-------- --------- -------- --------
Jan. 10 $25.00
$250
-------- --------- -------- --------
-------- --------- -------- --------
Feb. 250 12 20.83
-------- --------- -------- --------
-------- --------- -------- --------
Mar. 250 20 12.50
-------- --------- -------- --------
-------- --------- -------- --------
Apr. 250 20 12.50
-------- --------- -------- --------
-------- --------- -------- --------
May 250 15 16.67
-------- --------- -------- --------
-------- --------- -------- --------
June 250 12 20.83
-------- --------- -------- --------
Stocks 75%
Large Company 35%
Small Company 20%
International 20%
Bonds 20%
Cash 5%
Average market value per unit $18.06
Investor's average cost per unit $16.85
In the chart above, if all units had been purchased at one time at the highest
unit value of $25.00, only 60 units could have been purchased with $1,500. By
contributing smaller amounts over time, dollar cost averaging allowed 89 units
to be purchased with $1,500 at an average unit price of $16.85. This investor
purchased 29 more units at $1.21 less per unit than the average market value per
unit of $18.06.
23
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You may not participate in dollar cost averaging and Rebalancer at the same
time.
Great-West reserves the right to modify, suspend or terminate dollar cost
averaging at any time.
Rebalancer
Over time, variations in each Sub-Account's investment results will change your
asset allocation plan percentages. Rebalancer allows you to automatically
reallocate your Variable Account Value to maintain your desired asset
allocation. Participation in Rebalancer does not assure a greater profit, or any
profit, nor will it prevent or necessarily alleviate losses in a declining
market. There is no charge for participating in Rebalancer.
You can set up Rebalancer as a one-time Transfer or on a quarterly, semi-annual
or annual basis. If you select to rebalance only once, the Transfer will take
place on the Transaction Date of the Request. One-time Rebalancer Transfers
count toward the twelve free Transfers allowed in a calendar year.
If you select to rebalance on a quarterly, semi-annual or annual basis, the
first Transfer will be initiated on the Transaction Date one frequency period
following the date of the Request. For example, if you request quarterly
Transfers on January 9th, your first Transfer will be made on April 9th and
every three months on the 9th thereafter. Transfers will continue on that same
day for each interval unless terminated by you or for other reasons as set forth
in the Contract. Quarterly, semi-annual and annual Transfers will not count
toward the twelve free Transfers.
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How Rebalancer works:
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Suppose you purchased your annuity and you decided to allocate 60% of your
initial contribution to stocks; 30% to bonds and 10% to cash equivalents as in
this pie chart:
Stocks 60%
Large Company 30%
Small Company 15%
International 15%
Bonds 30%
Cash 10%
Now assume that stock portfolios outperform bond portfolios and cash equivalents
over a certain period of time. Over this period, the unequal performance may
alter the asset allocation of the above hypothetical plan to look like this:
Stocks 75%
Large Company 35%
Small Company 20%
International 20%
Bonds 20%
Cash 5%
Rebalancer automatically reallocates your Variable Account Value to maintain
your desired asset allocation. In this example, the portfolio would be
reallocated back to 60% in stocks; 30% in bonds; 10% in cash equivalents.
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On the Transaction Date for the specified Request, assets will be automatically
reallocated to the Sub-Accounts you selected. The Rebalancer option will
terminate automatically when you start taking payouts from the Contract.
Rebalancer Transfers must meet the following conditions:
o Your entire Variable Account Value must be included.
o You must specify the percentage of your Variable Account Value you wish
allocated to each Sub-Account and the frequency of rebalancing. You may
modify the allocations or stop the Rebalancer option at any time.
o You may not participate in dollar cost averaging and Rebalancer at the same
time.
Great-West reserves the right to modify, suspend, or terminate the Rebalancer
option at any time.
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Withdrawals
You may withdraw all or part of your Annuity Account Value at any time during
the life of the Annuitant and prior to the Annuity Commencement Date by
submitting a written withdrawal request to the Annuity Administration Department
at Great-West. Withdrawals are not permitted by telephone. Withdrawals are
subject to the rules below and federal or state laws, rules or regulations may
also apply. The amount payable to you if you surrender your Contract is your
Annuity Account Value, plus any applicable Market Value Adjustment on the
Effective Date of the surrender, less any applicable Premium Tax. No withdrawals
may be made after the date annuity payouts begin.
If you Request a partial withdrawal, your Annuity Account Value will be reduced
by the dollar amount withdrawn. A Market Value Adjustment may apply. Market
Value Adjustments are discussed on page 20.
Partial withdrawals are unlimited. However, you must specify the Sub-Account(s)
or Guarantee Period(s) from which the withdrawal is to be made. After any
partial withdrawal, if your remaining Annuity Account Value is less than $2,000,
then a full surrender may be required. The minimum partial withdrawal (before
application of the MVA) is $500.
24
The following terms apply to withdrawals:
o Partial withdrawals or surrenders are not permitted after the Annuity
Commencement Date.
o A partial withdrawal or a surrender will be effective upon
the Transaction Date.
o A partial withdrawal or a surrender from amounts in a Guarantee Period may
be subject to the Market Value Adjustment provisions, and the Guarantee
Period Fund provisions of the Contract.
Withdrawal Requests must be in writing with your original signature. If your
instructions are not clear, your Request will be denied and no surrender or
partial withdrawal will be processed.
After a withdrawal of all of your Annuity Account Value, or at any time that
your Annuity Account Value is zero, all your rights under the Contract will
terminate.
Partial Withdrawals to Pay Investment Manager or Financial Advisor Fees
You may Request partial withdrawals from your Annuity Account Value and direct
us to remit the amount withdrawn directly to your designated Investment Manager
or Financial Advisor (collectively "Consultant"). A withdrawal Request for this
purpose must meet the $500 minimum withdrawal requirements and comply with all
terms and conditions applicable to partial withdrawals, as described above. Tax
consequences of withdrawals are detailed below, but you should consult a
competent tax advisor prior to authorizing a withdrawal from your Annuity
Account Value to pay Consultant fees.
Tax Consequences of Withdrawals
Withdrawals made for any purpose may be taxable--including payments made by us
directly to your Consultant.
In addition, the Code may require us to withhold federal income taxes from
withdrawals and report such withdrawals to the IRS. If you request partial
withdrawals to pay Consultant fees, your Annuity Account Value will be reduced
by the sum of the fees paid to the Consultant and the related withholding.
You may elect, in writing, to have us not withhold federal income tax from
withdrawals, unless withholding is mandatory for your Contract. If you are
younger than 59 1/2, the taxable portion of any withdrawal is generally
considered to be an early withdrawal and is subject to an additional federal
penalty tax of 10%.
Some states also require withholding for state income taxes. For details about
withholding, please see "Federal Tax Matters" in this prospectus.
If you are interested in this Contract as an IRA, please refer to Section 408 of
the Code for limitations and restrictions on cash withdrawals.
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Telephone and Internet Transactions
You may make Transfer Requests by telephone, fax and/or Internet. Transfer
Requests received before 4:00 p.m. Eastern Time will be made on that day at that
day's unit value. Transfer requests received after 4:00 p.m. Eastern Time will
be made on the next business day that we and the NYSE are open for business, at
that day's unit value.
We will use reasonable procedures to confirm that instructions communicated by
telephone, fax and/or Internet are genuine, such as:
o requiring some form of personal identification prior to acting on
instructions;
o providing written confirmation of the transaction; and/or
o tape recording the instructions given by telephone.
If we follow such procedures we will not be liable for any losses due to
unauthorized or fraudulent instructions.
We reserve the right to suspend telephone, fax and/or Internet transaction
privileges at any time, for some or all Contracts, and for any reason.
Withdrawals are not permitted by telephone.
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Death Benefit
The Death Benefit, if any, will be equal to the greater of:
o the Annuity Account Value with an MVA, if applicable, as of the date a Request
for payout is received, less any Premium Tax, or
o the sum of Contributions,
less partial withdrawals and/or periodic withdrawals, and less any Premium
Tax.
Proportional Withdrawals (Oregon Only)
Before the Annuity Commencement Date, the Death Benefit, if any, for Contracts
issued prior to April 30, 2004, in the State of Oregon will be as stated above.
For Contracts issued in Oregon after April 30, 2004, the Death Benefit will be
equal to the greater of:
o the Annuity Account Value with an MVA, if applicable, as of the date a Request
for payout is received, less any Premium Tax, or
o the sum of Contributions, less Proportional Withdrawals and less any Premium
Tax.
Proportional Withdrawals (effective for Contracts issued after April 30, 2004 in
Oregon only) are withdrawals, if any, made by you, whether partial and/or
periodic, which reduce your Annuity Account Value as measured as a percentage of
each prior withdrawal against the current Annuity Account Value. Proportional
Withdrawals are determined by calculating the percentage of your Annuity Account
Value that each prior withdrawal represented when the withdrawal was made.
Therefore, a partial withdrawal of 75% of the Annuity Account Value will be
considered a 75% reduction in the total Contributions.
25
For example, in a rising market, where a contract Owner contributed $100,000
which increased to $200,000 due to market appreciation and then withdrew
$150,000, the new balance is $50,000 and the Proportional Withdrawal is 75%
($150,000/$200,000 = 75%). This 75% Proportional Withdrawal is calculated
against the total Contribution amount of $100,000 for a Death Benefit equal to
the greater of the Annuity Account Value ($50,000) or total Contributions
reduced by 75% ($100,000 reduced by 75%, or $25,000). Here, the Death Benefit
would be $50,000.
Separately, if the contract Owner withdrew $50,000, or 25% of the Annuity
Account Value, for a new balance of $150,000, the Death Benefit remains the
greater of the Annuity Account Value ($150,000) or total Contributions reduced
by the Proportional Withdrawal calculation ($100,000 reduced by 25%, or
$75,000). Here, the Death Benefit is $150,000.
If the contract Owner withdraws an additional $50,000, this represents an
additional Proportional Withdrawal of 33% ($50,000/$150,000 = 33%). The Death
Benefit is now equal to the greater of the Annuity Account Value ($100,000) or
total Contributions reduced by all the Proportional Withdrawal calculations
($100,000 reduced by 75% and then reduced by 33%, or $16,750). Here, the Death
Benefit is $100,000.
In a declining market, where a contract Owner contributed $100,000 which
declined in value due to market losses to $50,000, and the contract Owner then
withdrew $40,000, or 80% of Annuity Account Value, the result is a new account
balance of $10,000. When applying Proportional Withdrawals, here 80%, the Death
Benefit is the greater of the Annuity Account Value ($10,000) or total
Contributions reduced by the Proportional Withdrawal calculation ($100,000
reduced by 80%, or $20,000). Here, the Death Benefit is $20,000.
The Death Benefit will become payable following our receipt of the Beneficiary's
claim in good order. When an Owner or the Annuitant dies before the Annuity
Commencement Date and a Death Benefit is payable to a Beneficiary, the Death
Benefit proceeds will remain invested according to the allocation instructions
given by the Owner(s) until new allocation instructions are requested by the
Beneficiary or until the Death Benefit is actually paid to the Beneficiary.
The amount of the Death Benefit will be determined as of the date payouts begin.
However, on the date a payout option is processed, the Variable Account Value
will be Transferred to the Schwab Money Market Sub-Account unless the
Beneficiary elects otherwise.
Subject to the distribution rules below, payout of the Death Benefit may be made
as follows:
Variable Account Value
o payout in a single sum, or
o payout under any of the variable annuity options provided under this
Contract.
Fixed Account Value
o payout in a single sum that may be subject to a Market Value Adjustment, or
o payout under any of the annuity options provided under this Contract that
may be subject to a Market Value Adjustment.
Any payment within six months of the Guarantee Period Maturity Date will not be
subject to a Market Value Adjustment.
In any event, no payout of benefits provided under the Contract will be allowed
that does not satisfy the requirements of the Code and any other applicable
federal or state laws, rules or regulations.
Beneficiary
You may select one or more Beneficiaries. If more than one Beneficiary is
selected, they will share equally in any Death Benefit payable unless you
indicate otherwise. You may change the Beneficiary at any time before the
Annuitant's death.
A change of Beneficiary will take effect as of the date the request is processed
by the Annuity Administration Department, unless a certain date is specified by
the Owner. If the Owner dies before the Request is processed, the change will
take effect as of the date the request was made, unless we have already made a
payout or otherwise taken action on a designation or change before receipt or
processing of such Request. A Beneficiary designated irrevocably may not be
changed without the written consent of that Beneficiary, except as allowed by
law.
The interest of any Beneficiary who dies before the Owner or the Annuitant will
terminate at the death of the Beneficiary. The interest of any Beneficiary who
dies at the time of, or within 30 days after the death of an Owner or the
Annuitant, will also terminate if no benefits have been paid to such
Beneficiary, unless the Owner otherwise indicates by Request. The benefits will
then be paid as though the Beneficiary had died before the deceased Owner or
Annuitant. If no Beneficiary survives the Owner or Annuitant, as applicable, we
will pay the Death Benefit proceeds to the Owner's estate.
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If the Beneficiary is not the Owner's surviving spouse, she/he may elect, not
later than one year after the Owner's date of death, to receive the Death
Benefit in either a single sum or payout under any of the variable or fixed
annuity options available under the Contract, provided that:
o such annuity is distributed in substantially equal installments over the
life or life expectancy of the Beneficiary or over a period not extending
beyond the life expectancy of the Beneficiary; and
o such distributions begin not later than one year after the Owner's date of
death.
If an election is not received by Great-West from a non-spouse Beneficiary or
substantially equal installments begin later than one year after the Owner's
date of death, then the entire amount must be distributed within five years of
the Owner's date of death. The Death Benefit will be determined as of the date
the payouts begin.
If a corporation or other non-individual entity is entitled to receive benefits
upon the Owner's death, the Death Benefit must be completely distributed within
five years of the Owner's date of death.
Distribution of Death Benefit
Death of Annuitant
Upon the death of the Annuitant while the Owner is living, and before the
Annuity Commencement Date, we will pay the Death Benefit to the Beneficiary
unless there is a Contingent Annuitant.
If a Contingent Annuitant was named by the Owner(s) prior to the Annuitant's
death, and the Annuitant dies before the Annuity Commencement Date while the
Owner and Contingent Annuitant are living, no Death Benefit will be payable and
the Contingent Annuitant will become the Annuitant.
If the Annuitant dies after the Annuity Commencement Date and before the entire
interest has been distributed, any benefit payable must be distributed to the
Beneficiary according to and as rapidly as under the payout option which was in
effect on the Annuitant's date of death.
If the deceased Annuitant is an Owner, or if a corporation or other
non-individual is an Owner, the death of the Annuitant will be treated as the
death of an Owner and the Contract will be subject to the "Death of Owner"
provisions described below.
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Contingent Annuitant
While the Annuitant is living, you may, by Request, designate or change a
Contingent Annuitant from time to time. A change of Contingent Annuitant will
take effect as of the date the request is processed at the Annuity
Administration Department at Great-West, unless a certain date is specified by
the Owner(s). Please note, you are not required to designate a Contingent
Annuitant.
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Death of Owner Who Is Not the Annuitant
If there is a Joint Owner who is the surviving spouse and the Beneficiary of the
deceased Owner, the Joint Owner becomes the Owner and Beneficiary and the Joint
Owner may elect to take the Death Benefit or to continue the Contract in force.
If the Owner dies after the Annuity Commencement Date and before the entire
interest has been distributed while the Annuitant is living, any benefit payable
will continue to be distributed to the Annuitant as rapidly as under the payout
option applicable on the Owner's date of death. All rights granted the Owner
under the Contract will pass to any surviving Joint Owner and, if none, to the
Annuitant.
In all other cases, we will pay the Death Benefit to the Beneficiary even if a
Joint Owner (who was not the Owner's spouse on the date of the Owner's death),
the Annuitant and/or the Contingent Annuitant are alive at the time of the
Owner's death, unless the sole Beneficiary is the deceased Owner's surviving
spouse who may elect to become the Owner and Annuitant and continue the Contract
in force.
Death of Owner Who Is the Annuitant
If there is a Joint Owner who is the surviving spouse of the deceased Owner and
a Contingent Annuitant, the Joint Owner becomes the Owner and the Beneficiary,
the Contingent Annuitant will become the Annuitant, and the Contract will
continue in force.
If there is a Joint Owner who is the surviving spouse and the Beneficiary of the
deceased Owner but no Contingent Annuitant, the Joint Owner will become the
Owner, Annuitant and Beneficiary and may elect to take the Death Benefit or
continue the Contract in force.
In all other cases, we will pay the Death Benefit to the Beneficiary, even if a
Joint Owner (who was not the Owner's spouse on the date of the Owner's death),
Annuitant and/or Contingent Annuitant are alive at the time of the Owner's
death, unless the sole Beneficiary is the deceased Owner's surviving spouse who
may elect to become the Owner and Annuitant and continue the Contract in force.
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Charges and Deductions
No amounts will be deducted from your Contributions except for any applicable
Premium Tax. As a result, the full amount of your Contributions (less any
applicable Premium Tax) are invested in the Contract.
27
As more fully described below, charges under the Contract are assessed only as
deductions for:
o Premium Tax, if applicable;
o Certain Transfers;
o a Contract Maintenance Charge; and
o our assumption of mortality and expense risks.
Mortality and Expense Risk Charge
We deduct a mortality and expense risk charge from your Variable Account Value
at the end of each valuation period to compensate us for bearing certain
mortality and expense risks under the Contract. This is a daily charge equal to
an effective annual rate of 0.85%. We guarantee that this charge will never
increase beyond 0.85%.
The mortality and expense risk charge is reflected in the unit values of each of
the Sub-Accounts you have selected. Thus, this charge will continue to be
applicable should you choose a variable annuity payout option or the periodic
withdrawal option.
Annuity Account Values and annuity payouts are not affected by changes in actual
mortality experience incurred by us. The mortality risks assumed by us arise
from our contractual obligations to make annuity payouts determined in
accordance with the annuity tables and other provisions contained in the
Contract. This means that you can be sure that neither the Annuitant's longevity
nor an unanticipated improvement in general life expectancy will adversely
affect the annuity payouts under the Contract.
We bear substantial risk in connection with the Death Benefit before the Annuity
Commencement Date.
The expense risk assumed is the risk that our actual expenses in administering
the Contracts and the Series Account will be greater than we anticipated.
If the mortality and expense risk charge is insufficient to cover actual costs
and risks assumed, the loss will fall on us. If this charge is more than
sufficient, any excess will be profit to us. Currently, we expect a profit from
this charge. Our expenses for distributing the Contracts will be borne by our
general assets, including any profits from this charge.
Contract Maintenance Charge
We currently deduct a $25 annual Contract Maintenance Charge from the Annuity
Account Value on each Contract anniversary date for accounts under $50,000 as of
such anniversary date. This charge partially covers our costs for administering
the Contracts and the Series Account. Once you have started receiving payouts
from the Contract, this charge will stop unless you choose the periodic
withdrawal option.
The Contract Maintenance Charge is deducted from the portion of your Annuity
Account Value allocated to the Schwab Money Market Sub-Account. If the portion
of your Annuity Account Value in this Sub-Account is not sufficient to cover the
Contract Maintenance Charge, then the charge or any portion of it will be
deducted on a pro rata basis from all your Sub-Accounts with current value. If
the entire Annuity Account is held in the Guarantee Period Fund or there are not
enough funds in any Sub-Account to pay the entire charge, then the Contract
Maintenance Charge will be deducted on a pro rata basis from amounts held in all
Guarantee Periods. There is no MVA on amounts deducted from a Guarantee Period
for the Contract Maintenance Charge.
The Contract Maintenance Charge is currently waived for Contracts with an
Annuity Account Value of at least $50,000 as of such Contract anniversary date.
If your Annuity Account Value falls below $50,000, the Contract Maintenance
Charge will be reinstated until an anniversary date on which your Annuity
Account Value is equal to or greater than $50,000. We do not expect a profit
from amounts received from the Contract Maintenance Charge.
Transfer Fees
There will be a $10 charge for each Transfer in excess of 12 Transfers in any
calendar year. We do not expect a profit from the Transfer fees.
Expenses of the Portfolios
The values of the assets in the Sub-Accounts reflect the values of the
Sub-Accounts' respective Portfolio shares and therefore the fees and expenses
paid by each Portfolio. A description of the fees, expenses, and deductions from
the Portfolios is included in this Prospectus under the Variable Annuity Fee
Tables in Appendix D to this prospectus.
Some of the Portfolios' investment advisers or administrators may compensate us
for providing administrative services in connection with the Portfolios or cost
savings experienced by the investment advisers or administrators of the
Portfolios. Such compensation is typically a percentage of the value of the
assets invested in the relevant Sub-Accounts and generally may range up to 0.35%
annually of net assets. GWFS may also receive Rule 12b-1 fees (ranging up to
0.34% annually of net assets) directly from certain Portfolios for providing
distribution related services related to shares of the Portfolios offered in
connection with a Rule 12b-1 plan. If GWFS receives 12b-1 fees, combined
compensation for administrative and distribution related services generally
ranges up to 0.77% annually of the assets invested in the relevant Sub-Accounts.
28
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 may deduct charges for the
Premium Taxes we incur with respect to your Contributions, from amounts
withdrawn, or from amounts applied on the Payout Commencement Date. In some
states, charges for both direct Premium Taxes and retaliatory Premium Taxes may
be imposed at the same or different times with respect to the same Contribution,
depending on applicable state law.
Other Taxes
Under present laws, we will incur state or local taxes (in addition to the
Premium Tax described above) in several states. No charges are currently
deducted for taxes other than Premium Tax. However, we reserve the right to
deduct charges in the future for federal, state, and local taxes or the economic
burden resulting from the application of any tax laws that we determine to be
attributable to the Contract.
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Payout Options
During the Distribution Period, you can choose to receive payouts in four
ways--through periodic withdrawals, variable annuity payouts, fixed annuity
payouts or a single sum payment. The Payout Commencement Date must be at least
one year after the Effective Date of the Contract. If you do not select a Payout
Commencement Date, payouts will begin on the first day of the month of the
Annuitant's 91st birthday.
You may change the Payout Commencement Date within 30 days prior to commencement
of payouts or your Beneficiary may change it upon the death of the Owner.
If this is an IRA, payouts which satisfy the minimum distribution requirements
of the Code must begin no later than April 1 of the calendar year following the
calendar year in which you become age 70 1/2.
Periodic Withdrawals
You may request that all or part of the Annuity Account Value be applied to a
periodic withdrawal option. The amount applied to a periodic withdrawal is the
Annuity Account Value with any applicable MVA, less Premium Tax, if any.
In requesting periodic withdrawals, you must elect:
o The withdrawal frequency of either 1-, 3-, 6- or 12-month intervals.
o A minimum withdrawal amount of at least $100.
o The calendar day of the month on which withdrawals will be made.
o One of the periodic withdrawal payout options discussed below-- you may
change the withdrawal option and/or the frequency once each calendar year.
Your withdrawals may be prorated across the Guarantee Period Fund, if
applicable, and the Sub-Accounts in proportion to their assets. Or, they can be
made specifically from the Guarantee Period Fund and specific Sub-Account(s)
until they are depleted. Then, we will automatically prorate the remaining
withdrawals against any remaining Guarantee Period Fund and Sub-Account assets
unless you request otherwise.
While periodic withdrawals are being received:
o You may continue to exercise all contractual rights, except that no
Contributions may be made.
o A Market Value Adjustment, if applicable, will be assessed for periodic
withdrawals from Guarantee Periods made six or more months prior to their
Guarantee Period Maturity Date.
o You may keep the same Sub-Accounts as you had selected before periodic
withdrawals began.
o Charges and fees under the Contract continue to apply.
o Maturing Guarantee Periods renew into the shortest Guarantee Period then
available.
Periodic withdrawals will cease on the earlier of the date:
o The amount elected to be paid under the option selected has been reduced to
zero;
o The Annuity Account Value is zero;
o You request that withdrawals stop; or
o The Owner or the Annuitant dies.
If periodic withdrawals stop, you may resume making Contributions. However, we
may limit the number of times you may restart a periodic withdrawal program.
Periodic withdrawals made for any purpose may be taxable, subject to withholding
and to the 10% federal penalty tax if you are younger than age 59 1/2. IRAs are
subject to complex rules with respect to restrictions on and taxation of
distributions, including penalty taxes.
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If you choose to receive payouts from your Contract through periodic
withdrawals, you may select from the following payout options:
Income for a specified period (at least 36 months)--You elect the length of
time over which withdrawals will be made. The amount paid will vary based on
the duration you choose.
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Income of a specified amount (at least 36 months)--You elect the dollar amount
of the withdrawals. Based on the amount elected, the duration may vary.
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Interest only--Your withdrawals will be based on the amount of interest credited
to the Guarantee Period Fund between withdrawals. Available only if 100% of your
Account Value is invested in the Guarantee Period Fund.
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29
Minimum distribution--If you are using this Contract as an IRA, you may request
minimum distributions as specified under Code Section 401(a)(9).
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Any other form of periodic withdrawal acceptable to Great-West which is for a
period of at least 36 months.
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In accordance with the provisions outlined in this section, you may request a
periodic withdrawal to remit fees paid to your Consultant. There may be income
tax consequences to any periodic withdrawal made for this purpose. Please see
the sections on "Withdrawals" on page 24 and "Federal Tax Matters" on page 31 in
this prospectus.
Annuity Payouts
You can choose the Annuity Commencement Date either when you purchase the
Contract or at a later date. The date you choose must be at least one year after
the Effective Date of the Contract. If you do not select an Annuity Commencement
Date, payouts will begin on the first day of the month of the Annuitant's 91st
birthday. You can change your selection at any time up to 30 days before the
Annuity Commencement Date you selected.
If you have not elected a payout option within 30 days of the Annuity
Commencement Date, the portion of the Annuity Account Value held in your Fixed
Account will be paid out as a fixed life annuity with a guarantee period of 20
years. The Annuity Account Value held in the Sub-Account(s) will be paid out as
a variable life annuity with a guarantee period of 20 years.
The amount to be paid out is the Annuity Account Value on the Annuity
Commencement Date. The minimum amount that may be withdrawn from the Annuity
Account Value to purchase an annuity payout option is $2,000 with a Market Value
Adjustment, if applicable. If after the Market Value Adjustment, your Annuity
Account Value is less than $2,000, we may pay the amount in a single sum subject
to the Contract provisions applicable to a partial withdrawal.
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If you choose to receive variable annuity payouts from your Contract, you may
select from the following payout options:
Variable life annuity with guaranteed period--This option provides for monthly
payouts during a guaranteed period or for the lifetime of the Annuitant,
whichever is longer. The guaranteed period may be 5, 10, 15 or 20 years.
Variable life annuity--This option provides for monthly payouts during the
lifetime of the Annuitant. The annuity terminates with the last payout due prior
to the death of the Annuitant. Since no minimum number of payouts is guaranteed,
this option may offer the maximum level of monthly payouts. It is possible that
only one payout may be made if the Annuitant died before the date on which the
second payout is due.
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Under an annuity payout option, you can receive payouts monthly, quarterly,
semi-annually or annually in payments which must be at least $50. We reserve the
right to make payouts using the most frequent payout interval which produces a
payout of at least $50.
If you elect to receive a single sum payment, the amount paid is the Surrender
Value.
Amount of First Variable Payout
The first payout under a variable annuity payout option will be based on the
value of the amounts held in each Sub-Account you have selected on the fifth
valuation date preceding the Annuity Commencement Date. It will be determined by
applying the appropriate rate to the amount applied under the payout option. The
rate set by Contract and applied reflects an assumed investment return ("AIR")
of 5%.
For annuity options involving life income, the actual age, year in which
annuitization commences, and/or gender of the Annuitant will affect the amount
of each payout. We reserve the right to ask for satisfactory proof of the
Annuitant's age. We may delay annuity payouts until satisfactory proof is
received. Because payouts to older Annuitants are expected to be fewer in
number, the amount of each annuity payout under a selected annuity form will be
greater for older Annuitants than for younger Annuitants.
If the age of the Annuitant has been misstated, the payouts established will be
made on the basis of the correct age. If payouts were too large because of
misstatement, the difference with interest may be deducted by us from the next
payout or payouts. If payouts were too small, the difference with interest may
be added by us to the next payout. This interest is at an annual effective rate
which will not be less than the Guaranteed Interest Rate.
Variable Annuity Units
The number of Annuity Units paid for each Sub-Account is determined by dividing
the amount of the first monthly payout by its Annuity Unit value on the fifth
valuation date preceding the date the first payout is due. The number of Annuity
Units used to calculate each payout for a Sub-Account remains fixed during the
Annuity Payout Period.
Amount of Variable Payouts After the
First Payout
Payouts after the first will vary depending upon the investment performance of
the Sub-Accounts. Your payments will increase in amount over time if the
Sub-Account(s) you select earn more than the 5% AIR. Likewise, your payments
will decrease in amount over time if the Sub-Account(s) you select earn less
than the 5% AIR. The subsequent amount paid from each Sub-Account is determined
by multiplying (a) by (b) where (a) is the number of Sub-Account Annuity Units
to be paid and (b) is the Sub-Account Annuity Unit value on the fifth valuation
date preceding the date the annuity payout is due. The total amount of each
variable annuity payout will be the sum of the variable annuity payouts for each
Sub-Account you have selected. We guarantee that the dollar amount of each
payout after the first will not be affected by variations in expenses or
mortality experience.
30
Transfers After the Variable Annuity
Commencement Date
Once annuity payouts have begun, no Transfers may be made from a fixed annuity
payout option to a variable annuity payout option, or vice versa. However, for
variable annuity payout options, Transfers may be made within the variable
annuity payout option among the available Sub-Accounts. Transfers after the
Annuity Commencement Date will be made by converting the number of Annuity Units
being Transferred to the number of Annuity Units of the Sub-Account to which the
Transfer is made. The result will be that the next annuity payout, if it were
made at that time, would be the same amount that it would have been without the
Transfer. Thereafter, annuity payouts will reflect changes in the value of the
new Annuity Units.
Other Restrictions
Once payouts start under the annuity payout option you select:
o no changes can be made in the payout option,
o no additional Contributions will be accepted under the Contract, and
o no further withdrawals, other than withdrawals made to provide annuity
benefits, will be allowed.
A portion or the entire amount of the annuity payouts may be taxable as ordinary
income. If, at the time the annuity payouts begin, we have not received a proper
written election not to have federal income taxes withheld, we must by law
withhold such taxes from the taxable portion of such annuity payouts and remit
that amount to the federal government (an election not to have taxes withheld is
not permitted for certain distributions from Qualified Contracts). State income
tax withholding may also apply. Please see "Federal Tax Matters" below for
details.
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If you choose to receive fixed annuity payouts from your Contract, you may
select from the following payout options:
Income of specified amount--The amount applied under this option may be paid in
equal annual, semi-annual, quarterly or monthly installments in the dollar
amount elected for not more than 240 months.
Income for a specified period--Payouts are paid annually, semi-annually,
quarterly or monthly, as elected, for a selected number of years not to exceed
240 months.
Fixed life annuity with guaranteed period--This option provides monthly payouts
during a guaranteed period or for the lifetime of the Annuitant, whichever is
longer. The guaranteed period may be 5, 10, 15 or 20 years.
Fixed life annuity--This option provides for monthly payouts during the lifetime
of the Annuitant. The annuity ends with the last payout due prior to the death
of the Annuitant. Because no minimum number of payouts is guaranteed, this
option may offer the maximum level of monthly payouts. It is possible that only
one payout may be made if the Annuitant died before the date on which the
second payout is due.
Any other form of a fixed annuity acceptable to us.
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Annuity IRAs
The annuity date and options available for IRAs may be controlled by
endorsements, the plan documents, or applicable law.
Under the Code, a Contract purchased and used in connection with an IRA or with
certain other plans qualifying for special federal income tax treatment is
subject to complex "minimum distribution" requirements. Under a minimum
distribution plan, distributions must begin by a specific date and the entire
interest of the plan participant must be distributed within a certain specified
period of time. The application of the minimum distribution requirements vary
according to your age and other circumstances.
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Seek Tax Advice
The following discussion of the federal income tax consequences is only a brief
summary and is not intended as tax advice. The federal income tax consequences
discussed here reflect our understanding of current law and the law may change.
Federal estate tax consequences and state and local estate, inheritance, and
other tax consequences of ownership or receipt of distributions under a Contract
depend on your individual circumstances or the circumstances of the person who
receives the distribution. A tax adviser should be consulted for further
information.
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Federal Tax Matters
The following discussion is a general description of the federal income tax
considerations relating to the Contracts and is not intended as tax advice. This
discussion assumes that the Contract qualifies as an annuity contract for
federal income tax purposes. This discussion is not intended to address the tax
consequences resulting from all situations. If you are concerned about the tax
implications relating to the ownership or use of the Contract, you should
consult a competent tax adviser before initiating any transaction.
31
This discussion is based upon our understanding of the present federal income
tax laws as they are currently interpreted by the IRS. 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 IRS. 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 ("Annuity IRA"). The
ultimate effect of federal income taxes on the amounts held under a Contract, on
annuity payouts, and on the economic benefit to you, the Annuitant, or the
Beneficiary depends on the type of Contract, and on the tax status of the
individual concerned.
- --------------------------------------------------------------------------------
Because tax laws, rules and regulations are constantly changing, we do not make
any guarantees about the Contract's tax status.
- --------------------------------------------------------------------------------
Certain requirements must be satisfied in purchasing an Annuity IRA and
receiving distributions from an Annuity IRA in order to continue receiving
favorable tax treatment. As a result, purchasers of Annuity IRAs should seek
competent legal and tax advice regarding the suitability of the Contract for
their situation, the applicable requirements and the tax treatment of the rights
and benefits of the Contract. The following discussion assumes that an Annuity
IRA is purchased with proceeds and/or Contributions that qualify for the
intended special federal income tax treatment.
Taxation of Annuities
Section 72 of the Code governs the taxation of annuities and distributions from
IRAs. You, as a "natural person," will not generally be taxed on increases, if
any, in the value of your Annuity Account Value until a distribution occurs by
withdrawing all or part of the Annuity Account Value (for example, withdrawals
or annuity payouts under the annuity payout option elected). However, under
certain circumstances, you may be subject to current taxation. In addition, an
assignment, pledge, or agreement to assign or pledge any portion of the
Non-Qualified Annuity Account Value will be treated as a distribution of such
portion. The taxable portion of a distribution (in the form of a single sum
payout or an annuity) is taxable as ordinary income. An Annuity IRA may not be
assigned as collateral for a loan.
As a general rule, if the Non-Qualified Contract is not owned by a natural
person (for example, a corporation or certain trusts), the Contract will not be
treated as an annuity contract for federal tax purposes. The Owner generally
must include in income any increase in the excess of the Annuity Account Value
over the "investment in the Contract" (discussed below) during each taxable
year. The rule generally does not apply, however, where the non-natural person
is only the nominal Owner of a Contract and the beneficial Owner is a natural
person.
The rule also does not apply where:
o The annuity Contract is acquired by the estate of a decedent.
o The Contract is an Annuity IRA.
o The Contract is a qualified funding asset for a structured settlement.
o The Contract is purchased on behalf of an employee upon termination of a
qualified plan.
o The Contract is an immediate annuity.
The following discussion generally applies to a Contract owned by a natural
person.
Withdrawals
In the case of a withdrawal under a Non-Qualified Contract, partial withdrawals,
including periodic withdrawals that are not part of an annuity payout, are
generally treated as taxable income to the extent that the Annuity Account Value
immediately before the withdrawal exceeds the "investment in the Contract" at
that time. The "investment in the Contract" generally equals the amount of any
nondeductible Contributions paid by or on behalf of any individual less any
withdrawals that were excludable from income. If a partial withdrawal is made
from a Guarantee Period which is subject to a Market Value Adjustment, then the
Annuity Account Value immediately before the withdrawal will not be altered to
take into account the Market Value Adjustment. As a result, for purposes of
determining the taxable portion of the partial withdrawal, the Annuity Account
Value will not reflect the amount, if any, deducted from or added to the
Guarantee Period due to the Market Value Adjustment.
Full surrenders are treated as taxable income to the extent that the amount
received exceeds the "investment in the Contract."
The taxable portion of any withdrawal is taxed at ordinary income tax rates.
In the case of a withdrawal under an Annuity IRA, including withdrawals under
the periodic withdrawal option, a portion of the amount received may be
non-taxable. The amount of the non-taxable portion is generally determined by
the ratio of the "investment in the Contract" to the individual's Annuity
Account Value. Special tax rules may be available for certain distributions from
an Annuity IRA.
32
Annuity Payouts
Although the tax consequences may vary depending on the annuity form elected
under the Contract, in general, only the portion of the annuity payout that
represents the amount by which the Annuity Account Value exceeds the "investment
in the Contract" will be taxed. For fixed annuity payouts, in general there is
no tax on the portion of each payout which represents the same ratio that the
"investment in the Contract" allocated to the fixed annuity payouts bears to the
total expected value of the annuity payouts for the term of the payouts
(determined under Treasury Department regulations). For variable annuity
payouts, in general there is no tax on the portion of each payout which
represents the same ratio that the "investment in the Contract" allocated to the
variable annuity payouts bears to the number of payments expected to be made
(determined by Treasury Department regulations which take into account the
Annuitant's life expectancy and the form of annuity benefit selected). However,
the remainder of each annuity payout is taxable. Once the "investment in the
Contract" has been fully recovered, the full amount of any additional annuity
payouts is taxable. If the annuity payments stop 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.
The taxable portion of any annuity payout is taxed at ordinary income tax rates.
Penalty Tax
For distributions from a Non-Qualified Contract, there may be a federal income
tax penalty imposed equal to 10% of the amount treated as taxable income. In
general, however, there is no penalty tax on distributions:
o Made on or after the date on which the Owner reaches age 59 1/2.
o Made as a result of death or disability of the Owner.
o Received in substantially equal periodic payouts (at least annually) for
your life (or life expectancy) or the joint lives (or joint life
expectancies) of you and the Beneficiary.
Other exceptions may apply to distributions from a Non-Qualified Contract.
Similar exceptions from the penalty tax on distributions are provided for
distributions from an Annuity IRA. For more details regarding this penalty tax
and other exceptions that may be applicable, consult a competent tax adviser.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the Contract because of the death of an Owner or
the Annuitant. Generally such amounts are included in the income of the
recipient as follows:
o If distributed in a lump sum, they are taxed in the same
manner as a full withdrawal, as described above.
o If distributed under an
annuity form, they are taxed in the same manner as annuity payouts, as
described above.
Distribution at Death
In order to be treated as an annuity contract, the terms of a Non-Qualified
Contract must provide the following two distribution rules:
o If the Owner dies before the date annuity payouts start, the entire
interest in the Contract must generally be distributed within five years
after the date of the Owner's death. If payable to a designated
Beneficiary, the distributions may be paid over the life of that
designated Beneficiary or over a period not extending beyond the life
expectancy of that Beneficiary, so long as payouts start within one year
of the Owner's death. If the sole designated Beneficiary is your spouse,
the Contract may be continued in the name of the spouse as Owner.
o If the Owner dies on or after the date annuity payouts start, and before
the entire interest in the Contract has been distributed, the remainder of
the interest in the Contract will be distributed on the same or on a more
rapid schedule than that provided for in the method in effect on the date
of death.
If the Owner is not an individual, then for purposes of the distribution at
death rules, the Primary Annuitant is considered the Owner. In addition, when
the Owner is not an individual, a change in the Primary Annuitant is treated as
the death of the Owner.
Distributions made to a Beneficiary upon the Owner's death from an IRA must be
made pursuant to similar rules in Section 401(a)(9) of the Code.
Diversification of Investments
For a Non-Qualified Contract to be treated as an annuity for federal income tax
purposes, the investments of the Sub-accounts must be "adequately diversified"
in accordance with Treasury Department Regulations. The diversification
requirements do not apply to Annuity IRAs. If the Series Account or a
Sub-account failed to comply with these diversification standards, a
Non-Qualified Contract would not be treated as an annuity contract for federal
income tax purposes and the Owner would generally be taxable currently on the
excess of the Annuity Account Value over the "investment in the Contract."
33
Although the Company may not control the investments of the Sub-accounts or the
Portfolios, it expects that the Sub-accounts and the Portfolios will comply with
such regulations so that the Sub-accounts will be considered "adequately
diversified." Contract Owners bear the risk that the entire Non-Qualified
Contract could be disqualified as an annuity under the Code due to the failure
of the Series Account or a Sub-account to be deemed to be adequately
diversified.
Owner Control
In connection with its issuance of temporary and proposed regulations under
Section 817(h) in 1986, the Treasury Department announced that those regulations
did not "provide guidance concerning the circumstances in which investor control
of the investments of a segregated asset account may cause the investor (i.e.,
the Owner), rather than the insurance company to be treated as the owner of the
assets in the account" (which would result in the current taxation of the income
on those assets to the Owner). In Revenue Ruling 2003-91, the IRS provided such
guidance by describing the circumstances under which the owner of a variable
contract will not possess sufficient control over the assets underlying the
contract to be treated as the owner of those assets for federal income tax
purposes. Rev. Rul. 2003-91 states that the determination of whether the owner
of a variable contract is to be treated as the owner of the assets held by the
insurance company under the contract will depend on all of the facts and
circumstances. We do not believe that the ownership rights of an Owner under a
Contract would result in any Owner being treated as the owner of the assets of
the Contract under Rev. Rul. 2003-91. However, we do not know whether additional
guidance will be provided by the IRS on this issue and what standards may be
contained in such guidance. Therefore, we reserve the right to modify the
Contract as necessary to attempt to prevent an Owner from being considered the
owner of a pro rata share of the assets of the Contract.
Transfers, Assignments or Exchanges
A transfer of ownership of a Contract, the designation of an Annuitant, Payee or
other Beneficiary who is not also the Owner, or the exchange of a Contract may
result in adverse tax consequences that are not discussed in this Prospectus.
Multiple Contracts
All deferred, Non-Qualified Annuity Contracts that are issued by Great-West (or
our affiliates) to the same Owner during any calendar year will be treated as
one annuity contract for purposes of determining the taxable amount.
Withholding
Non-Qualified Annuity Contract and Annuity IRA distributions generally are
subject to withholding at rates that vary according to the type of distribution
and the recipient's tax status. Recipients, however, generally are provided the
opportunity to elect not to have tax withheld from distributions.
Section 1035 Exchanges
Code Section 1035 provides that no gain or loss shall be recognized on the
exchange of one annuity contract for another. Generally, an annuity contract
issued in an exchange for another annuity contract is treated as new for
purposes of the penalty and distribution at death rules. 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 which
permits eligible individuals to contribute to an individual retirement program
known as an Individual Retirement Annuity. Also, certain kinds of distributions
from certain types of qualified and non-qualified retirement plans may be
"rolled over" into an Annuity IRA following the rules set out in the Code and
your Contract and IRA endorsement. If you purchase this Contract for use with an
IRA, you will be provided with supplemental information. You also have the right
to revoke your purchase within seven days of purchase of the IRA Contract. If a
Contract is purchased to fund an IRA, the Annuitant must also be the Owner. In
addition, if a Contract is purchased to fund an IRA, minimum distributions must
commence not later than April 1st of the calendar year following the calendar
year in which you attain age 70 1/2. You should consult your tax adviser
concerning these matters.
Various tax penalties may apply to Contributions in excess of specified limits,
distributions that do not satisfy specified requirements, and certain other
transactions. The Contract will be amended as necessary to conform to the
requirements of the Code if there is a change in the law. Purchasers should seek
competent advice as to the suitability of the Contract for use with IRAs.
When you make your initial Contribution, you must specify whether you are
purchasing a Non-Qualified Contract or an IRA. If the initial Contribution is
made as a result of an exchange or surrender of another annuity contract, we may
require that you provide information with regard to the federal income tax
status of the previous annuity contract.
We will require that you purchase separate Contracts if you want to invest money
qualifying for different annuity tax treatment under the Code. For each separate
Contract you will need to make the required minimum initial Contribution.
Additional Contributions under the Contract must qualify for the same federal
income tax treatment as the initial Contribution under the Contract. We will not
accept an additional Contribution under a Contract if the federal income tax
treatment of the Contribution would be different from the initial Contribution.
34
If a Contract is issued in connection with an employer's Simplified Employee
Pension plan, Owners, Annuitants and Beneficiaries are cautioned that the rights
of any person to any of the benefits under the Contract will be subject to the
terms and conditions of the plan itself, regardless of the terms and conditions
of the Contract.
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Assignments or Pledges
Generally, rights in the Non-Qualified Contract may be assigned or pledged for
loans at any time during the life of the Annuitant. However, if the Contract is
an Annuity IRA, you may not assign the Contract as collateral.
If a Non-Qualified Contract is assigned, the interest of the assignee has
priority over your interest and the interest of the Beneficiary. Any amount
payable to the assignee will be paid in a single sum.
A copy of any assignment must be submitted to the Annuity Administration
Department at Great-West. All assignments are subject to any action taken or
payout made by Great-West before the assignment was processed. We are not
responsible for the validity or sufficiency of any assignment.
If any portion of the Annuity Account Value is assigned or pledged for a loan,
it will be treated as a withdrawal as discussed above under Taxation of
Annuities. Please consult a competent tax adviser for further information.
- --------------------------------------------------------------------------------
Distribution of the Contracts
GWFS is the principal underwriter and distributor of the Contracts. GWFS is
registered with the SEC as a broker/dealer and is a member of NASD. Its
principal offices are located at 8515 East Orchard Road, Greenwood Village,
Colorado 80111.
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Voting Rights
In general, you do not have a direct right to vote the Portfolio shares held in
the Series Account. However, under current law, you are entitled to give us
instructions on how to vote the shares. We will vote the shares according to
those instructions at regular and special shareholder meetings. If the law
changes and we can vote the shares in our own right, we may elect to do so.
Before the Annuity Commencement Date, you have the voting interest. The number
of votes available to you will be calculated separately for each of your
Sub-Accounts. That number will be determined by applying your percentage
interest, if any, in a particular Sub-Account to the total number of votes
attributable to that Sub-Account. You hold a voting interest in each Sub-Account
to which your Annuity Account Value is allocated. If you select a variable
annuity option, the votes attributable to your Contract will decrease as annuity
payouts are made.
The number of votes of a Portfolio will be determined as of the date established
by that Portfolio for determining shareholders eligible to vote at the meeting
of the Portfolios. Voting instructions will be solicited by written
communication prior to such meeting in accordance with procedures established by
the respective Portfolios.
If we do not receive timely instructions and Owners have no beneficial interest
in shares held by us, we will vote according to the voting instructions as a
proportion of all Contracts participating in the Sub-Account. If you indicate in
your instructions that you do not wish to vote an item, we will apply your
instructions on a pro rata basis to reduce the votes eligible to be cast.
Each person or entity having a voting interest in a Sub-Account will receive
proxy material, reports and other material relating to the appropriate
Portfolio.
Please note, generally the Portfolios are not required to, and do not intend to,
hold annual or other regular meetings of shareholders.
Owners have no voting rights in Great-West.
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Rights Reserved by Great-West
We reserve the right to make certain changes we believe would best serve the
interests of Owners and Annuitants or would be appropriate in carrying out the
purposes of the Contracts. Any changes will be made only to the extent and in
the manner permitted by applicable laws. Also, when required by law, we will
obtain your approval and approval from any appropriate regulatory authority of
the changes. Approval may not be required in all cases, however.
Examples of the changes we may make include:
o To operate the Series Account in any form permitted under the 1940 Act or
in any other form permitted by law;
o To Transfer any assets in any Sub-Account to another Sub-Account, or to
one or more separate accounts, or to a Guarantee Period; or to add,
combine or remove Sub-Accounts of the Series Account;
o To substitute, for the Portfolio shares in any Sub-Account, the shares of
another Portfolio or shares of another investment company or any other
investment permitted by law;
o To make any changes required by the Code or by any other applicable
law in order to continue treatment of the Contract as an annuity;
o To change the time or time of day at which a valuation date is deemed to
have ended, and/or;
o To make any other necessary technical changes in the Contract in order to
conform with any action the above provisions permit us to take, including
changing the way we assess charges, without increasing them for any
outstanding Contract beyond the aggregate amount guaranteed.
35
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Legal Proceedings
Currently, the Series Account is not a party to, and its assets are not subject
to, any material legal proceedings. Further, Great-West is not currently a party
to, and its property is not currently subject to, any material legal
proceedings. The lawsuits to which Great-West is a party are, in the opinion of
management, in the ordinary course of business, and are not expected to have a
material adverse effect on the financial results, conditions or prospects of
Great-West.
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Legal Matters
Advice regarding certain legal matters concerning the federal securities laws
applicable to the issue and sale of the Contract has been provided by Jorden
Burt LLP.
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Independent Registered Public Accounting Firm
The consolidated financial statements incorporated by reference from Great-West
Life & Annuity Insurance Company's Annual Report on Form 10-K for the year ended
December 31, 2004, have been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report which is
incorporated herein by reference and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
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Incorporation of Certain Documents by Reference and Available Information
Great-West's Annual Report on Form 10-K for the year ended December 31, 2004, is
incorporated herein by reference, which means that it is legally a part of this
Prospectus. All documents or reports filed by Great-West under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), after the effective date of this Prospectus are also
incorporated by reference. Such documents or reports will be part of this
Prospectus from the date such documents are filed.
Great-West files its Exchange Act documents and reports, including its annual
and quarterly annual reports on Form 10-K and Form 10-Q, electronically pursuant
to EDGAR under CIK No. 0000744455.
We have filed a registration statement ("Registration Statement") with the SEC
under the Securities Act of 1933, as amended, relating to the Contracts offered
by this Prospectus. This Prospectus has been filed as a part of the Registration
Statement and does not contain all of the information contained in the
Registration Statement and its exhibits. Please refer to the registration
statement and its exhibits for further information.
You may request a free copy of any or all of the information incorporated by
reference into the Prospectus (other than exhibits not specifically incorporated
by reference into the text of such documents). Please direct any oral or written
request for such documents to:
Annuity Administration Department
P. O. Box 173920
Denver, Colorado 80217-3920
1-800-838-0650
The SEC maintains an Internet web site (http://www.sec.gov) that contains the
Statement of Additional Information, information incorporated by reference and
other information filed electronically by Great-West concerning the Contract and
the Series Account. Certain information concerning Great-West and its products
is also available online at http://www.gwla.com.
You also can review and copy any materials filed with the SEC at its Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference room by calling the SEC at
1-800-SEC-0330.
36
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Table of Contents of Statement of Additional Information
The Statement of Additional Information contains more specific information
relating to the Series Account and Great-West, such as:
o general information;
o information about Great-West Life & Annuity Insurance Company and the
Variable Annuity-1 Series Account;
o the calculation of annuity payments;
o postponement of payments;
o services;
o withholding;
o financial statements for the Series Account and Great-West Life &
Annuity Insurance Company.
37
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Appendix A--Condensed Financial Information
Selected data for Accumulation Units Outstanding through each period ending
December 31, 2004
- --------------------------------------------------------------------------------
AIM V.I. AIM V.I. AIM V.I.
Core Stock High Yield Technology
(formerly (formerly (formerly Alger Alger Alliance American
INVESCO VIF INVESCO VIF INVESCO VIF American American Bernstein VPS Century VP
Core Equity) High Yield) Technology) Growth MidCap Growth Utility Income Balanced
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Date Sub-Account Commenced 11/01/96 11/01/96 03/01/00 11/01/96 06/13/03 06/13/03 06/13/03
Operations
2004
Beginning Unit Value $15.81 $11.77 $2.28 $16.34 $12.30 $10.84 $10.91
Ending Unit Value $16.34 $12.94 $2.37 $17.09 $13.79 $13.37 $11.87
Number of Units 910,773 1,182,911 3,991,132 1,499,613 269,117 182,662 153,302
Outstanding
Net Assets (000's) $14,884 $15,281 $9,469 $25,655 $3,712 $2,441 $1,820
2003
Beginning Unit Value $13.01 $9.50 $1.58 $12.19 $10.00 $10.00 $10.00
Ending Unit Value $15.81 $11.77 $2.28 $16.34 $12.30 $10.84 $10.91
Number of Units 1,318,309 1,612,798 4,628,543 1,821,665 194,735 53,982 76,175
Outstanding
Net Assets (000's) $20,856 $18,989 $10,562 $29,776 $2,396 $585 $831
2002
Beginning Unit Value $16.22 $9.70 $3.01 $18.35
Ending Unit Value $13.01 $9.50 $1.58 $12.19
Number of Units 1,584,575 1,586,371 3,230,415 2,113,428
Outstanding
Net Assets (000's) $20,623 $15,065 $5,117 $25,771
2001
Beginning Unit Value $17.97 $11.51 $5.60 $20.99
Ending Unit Value $16.22 $9.70 $3.01 $18.35
Number of Units 2,191,193 1,802,549 4,253,860 2,859,914
Outstanding
Net Assets (000's) $35,560 $17,491 $12,785 $52,489
2000
Beginning Unit Value $17.28 $13.14 $10.00 $24.84
Ending Unit Value $17.97 $11.51 $5.60 $20.99
Number of Units 2,043,703 1,919,249 4,296,975 3,090,861
Outstanding
Net Assets (000's) $36,739 $22,081 $24,047 $64,886
A-1
AIM V.I. Core AIM V.I. AIM V.I.
Stock High Yield Technology
(formerly (formerly (formerly Alger Alliance American
INVESCO VIF INVESCO VIF INVESCO VIF American Alger American Bernstein VPS Century VP
Core Equity) High Yield) Technology) Growth MidCap Growth Utility Income Balanced
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
1999
Beginning Unit Value $15.18 $12.13 $18.74
Ending Unit Value $17.28 $13.14 $24.84
Number of Units 1,752,510 2,003,863 2,200,675
Outstanding
Net Assets (000's) $30,299 $26,326 $54,671
1998
Beginning Unit Value $13.27 $12.09 $12.76
Ending Unit Value $15.18 $12.13 $18.74
Number of Units 1,638,804 1,867,862 1,306,403
Outstanding
Net Assets (000's) $24,882 $22,654 $24,487
1997
Beginning Unit Value $10.44 $10.39 $10.24
Ending Unit Value $13.27 $12.09 $12.76
Number of Units 1,271,028 1,360,681 417,062
Outstanding
Net Assets (000's) $16,867 $16,450 $5,325
1996
Beginning Unit Value $10.00 $10.00 $10.00
Ending Unit Value $10.44 $10.39 $10.24
Number of Units 68,874 52,044 1,167
Outstanding
Net Assets (000's) $719 $541 $12
American American Delaware VIP Dreyfus VIF
Century VP Century VP Baron Capital Small Cap Dreyfus Dreyfus VIF Developing
International Value Asset Value Series MidCap Stock Appreciation Leaders
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Date Sub-Account Commenced 11/01/96 06/13/03 05/03/99 06/13/03 06/13/03 05/03/99 06/13/03
Operations
2004
Beginning Unit Value $13.35 $11.60 $13.44 $12.38 $11.71 $9.00 $11.94
Ending Unit Value $15.22 $13.16 $16.74 $14.91 $13.29 $9.38 $13.18
Number of Units 604,451 455,097 1,638,242 331,641 105,545 1,146,329 53,873
Outstanding
Net Assets (000's) $9,199 $5,987 $27,659 $4,975 $1,402 $10,749 $710
2003
Beginning Unit Value $10.82 $10.00 $10.42 $10.00 $10.00 $7.49 $10.00
Ending Unit Value $13.35 $11.60 $13.44 $12.38 $11.71 $9.00 $11.94
Number of Units 702,872 207,509 1,704,855 271,405 71,020 1,205,655 32,811
Outstanding
Net Assets (000's) $9,386 $2,408 $22,911 $3,360 $831 $10,852 $392
2002
Beginning Unit Value $13.70 $12.25 $9.07
Ending Unit Value $10.82 $10.42 $7.49
Number of Units 684,511 1,568,750 1,123,321
Outstanding
Net Assets (000's) $7,404 $16,353 $8,416
2001
Beginning Unit Value $19.51 $11.00 $10.09
Ending Unit Value $13.70 $12.25 $9.07
Number of Units 756,485 1,057,192 880,333
Outstanding
Net Assets (000's) $10,364 $12,954 $7,987
2000
Beginning Unit Value $23.66 $11.40 $10.24
Ending Unit Value $19.51 $11.00 $10.09
Number of Units 808,346 655,329 474,144
Outstanding
Net Assets (000's) $15,773 $7,209 $4,784
American American Delaware VIP Dreyfus VIF
Century VP Century VP Baron Capital Small Cap Dreyfus Dreyfus VIF Developing
International Value Asset Value MidCap Stock Appreciation Leaders
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
1999
Beginning Unit Value $14.54 $10.00 $10.00
Ending Unit Value $23.66 $11.40 $10.24
Number of Units 602,867 502,097 245,395
Outstanding
Net Assets (000's) $14,264 $5,723 $2,513
1998
Beginning Unit Value $12.35
Ending Unit Value $14.54
Number of Units 560,117
Outstanding
Net Assets (000's) $8,147
1997
Beginning Unit Value $10.49
Ending Unit Value $12.35
Number of Units 298,157
Outstanding
Net Assets (000's) $3,683
1996
Beginning Unit Value $10.00
Ending Unit Value $10.49
Number of Units 13,400
Outstanding
Net Assets (000's) $141
Janus Aspen
Federated Series
Fund for Flexible Bond
Dreyfus VIF Federated U.S. Federated Dreyfus GVIT Janus Aspen (formerly
Growth & American Government Capital Mid Cap Index Series Flexible
Income Leaders II Securities II Income II II Balanced Income)
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Date Sub-Account Commenced 5/03/99 11/01/96 11/01/96 5/01/97 06/13/03 06/13/03 05/03/99
Operations
2004
Beginning Unit Value $8.88 $16.29 $14.44 $9.88 $12.05 $10.68 $12.95
Ending Unit Value $9.46 $17.73 $14.83 $10.77 $13.80 $11.49 $13.35
Number of Units 499,256 1,137,978 3,075,717 152,278 206,161 141,112 2,188,806
Outstanding
Net Assets (000's) $4,725 $20,197 $45,578 $1,640 $2,845 $1,621 $29,181
2003
Beginning Unit Value $7.08 $12.86 $14.23 $8.26 $10.00 $10.00 $12.27
Ending Unit Value $8.88 $16.29 $14.44 $9.88 $12.05 $10.68 $12.95
Number of Units 509,435 1,235,169 3,813,779 210,670 89,494 50,999 2,699,036
Outstanding
Net Assets (000's) $4,528 $20,143 $55,067 $2,082 $1,082 $545 $34,946
2002
Beginning Unit Value $9.56 $16.26 $13.16 $10.95 $11.20
Ending Unit Value $7.08 $12.86 $14.23 $8.26 $12.27
Number of Units 479,690 1,404,975 5,341,399 208,766 3,619,361
Outstanding
Net Assets (000's) $3,398 $18,098 $75,984 $1,724 $44,421
2001
Beginning Unit Value $10.24 $17.12 $12.40 $12.81 $10.49
Ending Unit Value $9.56 $16.26 $13.16 $10.95 $11.20
Number of Units 778,050 1,491,691 4,482,043 238,710 2,866,207
Outstanding
Net Assets (000's) $7,440 $24,283 $58,968 $2,615 $32,113
2000
Beginning Unit Value $10.73 $16.87 $11.27 $14.18 $9.95
Ending Unit Value $10.24 $17.12 $12.40 $12.81 $10.49
Number of Units 264,684 1,211,956 3,179,462 260,840 1,624,948
Outstanding
Net Assets (000's) $2,714 $20,780 $39,417 $3,340 $17,043
Janus Aspen
Series
Federated Flexible Bond
Dreyfus VIF Federated Fund for U.S. Federated Dreyfus GVIT Janus Aspen (formerly
Growth & American Government Capital Mid Cap Index Series Flexible
Income Leaders II Securities II Income II II Balanced Income)
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
1999
Beginning Unit Value $10.00 $15.95 $11.43 $14.07 $10.00
Ending Unit Value $10.73 $16.87 $11.27 $14.18 $9.95
Number of Units 49,371 1,441,835 2,809,027 280,957 838,445
Outstanding
Net Assets (000's) $534 $24,346 $31,648 $3,985 $8,347
1998
Beginning Unit Value $13.67 $10.71 $12.45
Ending Unit Value $15.95 $11.43 $14.07
Number of Units 1,761,482 2,136,709 416,024
Outstanding
Net Assets (000's) $28,117 $24,427 $5,852
1997
Beginning Unit Value $10.42 $9.97 $10.00
Ending Unit Value $13.67 $10.71 $12.45
Number of Units 1,426,437 815,966 168,289
Outstanding
Net Assets (000's) $19,505 $8,737 $2,095
1996
Beginning Unit Value $10.00 $10.00
Ending Unit Value $10.42 $9.97
Number of Units 65,889 9,330
Outstanding
Net Assets (000's) $686 $93
Janus Aspen
Series Large Janus Aspen Janus Aspen
Janus Aspen Cap Growth Series Series Oppenheimer
Series Growth (formerly International Worldwide Global PIMCO VIT PIMCO VIT Low
& Income Growth) Growth Growth Securities VA High Yield Duration
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Date Sub-Account Commenced 06/13/03 11/01/96 05/03/99 11/01/96 06/13/03 06/13/03 06/13/03
Operations
2004
Beginning Unit Value $11.31 $14.43 $10.67 $15.36 $12.94 $10.83 $9.96
Ending Unit Value $12.55 $14.95 $12.58 $15.96 $15.29 $11.77 $10.05
Number of Units 75,307 1,359,376 941,431 1,499,099 734,266 493,928 1,705,236
Outstanding
Net Assets (000's) $945 $20,326 $11,831 $23,916 $11,226 $5,814 $17,144
2003
Beginning Unit Value $10.00 $11.05 $7.98 $12.49 $10.00 $10.00 $10.00
Ending Unit Value $11.31 $14.43 $10.67 $15.36 $12.94 $10.83 $9.96
Number of Units 56,553 1,841,786 1,180,411 1,959,271 465,732 371,489 1,377,547
Outstanding
Net Assets (000's) $640 $26,576 $12,597 $30,092 $6,025 $4,025 $13,714
2002
Beginning Unit Value $15.16 $10.81 $16.91
Ending Unit Value $11.05 $7.98 $12.49
Number of Units 2,411,606 1,715,998 2,821,900
Outstanding
Net Assets (000's) $26,640 $13,686 $35,252
2001
Beginning Unit Value $20.32 $14.20 $21.99
Ending Unit Value $15.16 $10.81 $16.91
Number of Units 3,590,948 2,109,314 3,763,889
Outstanding
Net Assets (000's) $54,439 $22,800 $63,654
2000
Beginning Unit Value $23.98 $17.04 $26.30
Ending Unit Value $20.32 $14.20 $21.99
Number of Units 4,289,162 2,082,710 4,803,181
Outstanding
Net Assets (000's) $87,143 $29,582 $105,639
Janus Aspen
Series Large Janus Aspen Janus Aspen
Janus Aspen Cap Growth Series Series Oppenheimer
Series Growth (formerly International Worldwide Global PIMCO VIT PIMCO VIT Low
& Income Growth) Growth Growth Securities VA High Yield Duration
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
1999
Beginning Unit Value $16.79 $10.00 $16.13
Ending Unit Value $23.98 $17.04 $26.30
Number of Units 3,396,683 772,937 4,259,845
Outstanding
Net Assets (000's) $81,453 $13,174 $112,048
1998
Beginning Unit Value $12.49 $12.62
Ending Unit Value $16.79 $16.13
Number of Units 1,979,076 3,616,710
Outstanding
Net Assets (000's) $33,242 $58,337
1997
Beginning Unit Value $10.26 $10.42
Ending Unit Value $12.49 $12.62
Number of Units 1,335,813 2,208,664
Outstanding
Net Assets (000's) $16,678 $27,868
1996
Beginning Unit Value $10.00 $10.00
Ending Unit Value $10.26 $10.42
Number of Units 93,599 51,982
Outstanding
Net Assets (000's) $960 $541
Pioneer Pioneer
Growth Small Cap
Opportunities Value II Schwab S&P
Pioneer Fund VCT(formerly VCT(formerly Prudential 500 Index
VCT (formerly SAFECO RST SAFECO RST Series Fund Schwab (formerly
SAFECO RST Growth Small Cap Equity Class MarketTrack Schwab Money Schwab S&P
Core Equity) Opportunities) Value) II Growth II Market 500)
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Date Sub-Account Commenced 05/01/97 05/03/99 06/13/03 05/03/99 11/01/96 11/01/96 11/01/96
Operations
2004
Beginning Unit Value $11.47 $11.01 $12.28 $8.79 $15.38 $12.31 $16.04
Ending Unit Value $12.25 $13.35 $14.89 $9.54 $17.02 $12.31 $17.58
Number of Units 383,613 866,692 280,413 92,693 851,079 4,961,419 5,815,699
Outstanding
Net Assets (000's) $4,696 $11,574 $4,137 $884 $14,485 $60,763 $102,139
2003
Beginning Unit Value $9.27 $7.77 $10.00 $6.76 $12.22 $12.32 $12.62
Ending Unit Value $11.47 $11.01 $12.28 $8.79 $15.38 $12.31 $16.04
Number of Units 467,227 899,779 110,301 92,393 897,279 6,586,308 6,460,145
Outstanding
Net Assets (000's) $5,359 $9,907 $1,354 $812 $13,807 $81,092 $103,661
2002
Beginning Unit Value $12.62 $12.57 $8.81 $14.57 $12.26 $16.40
Ending Unit Value $9.27 $7.77 $6.76 $12.22 $12.32 $12.62
Number of Units 530,496 795,324 57,585 881,998 11,154,891 6,117,652
Outstanding
Net Assets (000's) $4,918 $6,178 $389 $10,778 $137,495 $77,178
2001
Beginning Unit Value $14.05 $10.64 $10.05 $16.05 $11.93 $18.83
Ending Unit Value $12.62 $12.57 $8.81 $14.57 $12.26 $16.40
Number of Units 859,655 1,066,369 119,514 896,576 13,479,708 6,729,128
Outstanding
Net Assets (000's) $10,848 $13,404 $1,053 $13,067 $165,358 $110,371
2000
Beginning Unit Value $15.88 $11.44 $9.85 $17.01 $11.35 $20.95
Ending Unit Value $14.05 $10.64 $10.05 $16.05 $11.93 $18.83
Number of Units 940,488 576,155 159,971 818,621 12,387,477 5,933,342
Outstanding
Net Assets (000's) $13,212 $6,131 $1,607 $13,138 $147,767 $111,752
Pioneer Pioneer
Growth Small Cap
Pioneer Fund Opportunities Value VCT Schwab S&P
VCT Portfolio VCT (formerly (formerly Prudential 500 Index
(formerly SAFECO RST SAFECO RST Series Fund Schwab (formerly
SAFECO RST Growth Small Cap Equity Class MarketTrack Schwab Money Schwab S&P
Core Equity) Opportunities) Value) II Growth II Market 500)
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
1999
Beginning Unit Value $14.65 $10.00 $10.00 $14.34 $10.93 $17.54
Ending Unit Value $15.88 $11.44 $9.85 $17.01 $11.35 $20.95
Number of Units 1,065,919 155,643 32,428 560,533 9,858,627 5,457,283
Outstanding
Net Assets (000's) $16,928 $1,780 $320 $9,532 $111,967 $114,346
1998
Beginning Unit Value $11.83 $12.79 $10.49 $13.81
Ending Unit Value $14.65 $14.34 $10.93 $17.54
Number of Units 1,168,094 447,514 6,647,088 4,084,150
Outstanding
Net Assets (000's) $17,116 $6,416 $72,692 $71,644
1997
Beginning Unit Value $10.00 $10.35 $10.07 $10.52
Ending Unit Value $11.83 $12.79 $10.49 $13.81
Number of Units 357,176 284,530 4,114,003 2,115,860
Outstanding
Net Assets (000's) $4,226 $3,638 $43,163 $29,224
1996
Beginning Unit Value $10.00 $10.00 $10.00
Ending Unit Value $10.35 $10.07 $10.52
Number of Units 16,525 297,046 62,674
Outstanding
Net Assets (000's) $171 $2,991 $659
Wells Fargo
Advantage Multi
cap Value Universal
Scudder VIT (formerly, Institutional
Scudder SVL Scudder SVL EAFE(R) Equity Scudder VIT Strong Multi Fund U.S. Real
Capital Growth Growth & Income Index Small Cap Index Cap Value II) Estate*
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Date Sub-Account Commenced 05/03/99 05/03/99 05/03/99 05/03/99 05/03/99 09/17/97
Operations
2004
Beginning Unit Value $7.98 $7.66 $7.61 $12.85 $9.97 $16.44
Ending Unit Value $8.54 $8.37 $8.99 $15.00 $11.55 $22.23
Number of Units Outstanding 285,636 196,536 1,100,901 1,084,019 960,262 971,261
Net Assets (000's) $2,440 $1,644 $9,923 $16,261 $11,090 $21,602
2003
Beginning Unit Value $6.34 $6.09 $5.76 $8.85 $7.27 $12.06
Ending Unit Value $7.98 $7.66 $7.61 $12.85 $9.97 $16.44
Number of Units Outstanding 353,028 273,363 974,944 1,223,240 1,209,130 1,117,565
Net Assets (000's) $2,817 $2,094 $7,421 $15,713 $12,086 $18,379
2002
Beginning Unit Value $9.03 $7.99 $7.40 $11.24 $9.54 $12.26
Ending Unit Value $6.34 $6.09 $5.76 $8.85 $7.27 $12.06
Number of Units Outstanding 320,017 244,202 645,901 930,019 1,361,907 1,059,611
Net Assets (000's) $2,029 $1,488 $3,718 $8,228 $9,923 $12,782
2001
Beginning Unit Value $11.30 $9.09 $9.92 $11.10 $9.24 $11.25
Ending Unit Value $9.03 $7.99 $7.40 $11.24 $9.54 $12.26
Number of Units Outstanding 438,902 376,108 589,568 843,685 1,463,902 830,637
Net Assets (000's) $3,964 $3,006 $4,366 $9,484 $13,995 $10,186
2000
Beginning Unit Value $12.64 $9.36 $12.00 $11.65 $8.64 $8.86
Ending Unit Value $11.30 $9.09 $9.92 $11.10 $9.24 $11.25
Number of Units Outstanding 403,433 190,165 290,653 464,935 553,906 786,877
Net Assets (000's) $4,557 $1,728 $2,883 $5,162 $5,146 $8,860
Wells Fargo
Advantage Multi
cap Value Universal
Scudder VIT (formerly, Institutional
Scudder SVS I Scudder SVS I EAFE(R) Equity Scudder VIT Strong Multi Cap Funds U.S. Real
Capital Growth Growth & Income Index Small Cap Index Value II) Estate*
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
1999
Beginning Unit Value $10.00 $10.00 $10.00 $10.00 $10.00 $9.25
Ending Unit Value $12.64 $9.36 $12.00 $11.65 $8.64 $8.86
Number of Units 186,640 61,409 161,396 203,338 91,471 347,481
Outstanding
Net Assets (000's) $2,360 $575 $1,937 $2,369 $817 $3,083
1998
Beginning Unit Value $10.56
Ending Unit Value $9.25
Number of Units 308,021
Outstanding
Net Assets (000's) $2,854
1997
Beginning Unit Value $10.00
Ending Unit Value $10.56
Number of Units 176,075
Outstanding
Net Assets (000's) $1,859
*On September 22, 2000, the net assets of the Van Kampen Life Investment Trust
Morgan Stanley Real Estate Securities Portfolio were merged into this underlying
Portfolio. The data shown above reflects financial information for the Van
Kampen Life Investment Trust Morgan Stanley Real Estate Securities Portfolio
until September 22, 2000, and for the Morgan Stanley Universal Institutional
Funds U.S. Real Estate Portfolio after that date.
- --------------------------------------------------------------------------------
Appendix B--Market Value Adjustments
The amount available for a full surrender, partial withdrawal or Transfer equals
the amount requested plus or minus the Market Value Adjustment (MVA). The MVA is
calculated by multiplying the amount requested by the Market Value Adjustment
Factor (MVAF).
The MVA formula
The MVA is determined using the following formula:
MVA = (amount applied) X (Market Value Adjustment Factor) The MVAF is:
{[(1 + i)/(1 + j +.10%)] N/12} - 1
Where:
o i is the U.S. Treasury Strip ask side yield as published in the Wall Street
Journal on the last business day of the week prior to the date the stated
rate of interest was established for the Guarantee Period. The term of i is
measured in years and equals the term of the Guarantee Period.
o j is the U.S. Treasury Strip ask side yield as published in the Wall Street
Journal on the last business day of the week prior to the week the Guarantee
Period is broken. The term of j equals the remaining term to maturity of the
Guarantee Period, rounded up to the higher number of years.
o N is the number of complete months remaining until maturity.
The MVA will equal 0 if:
o i and j differ by less than .10%
o N is less than 6
Examples
Following are four examples of Market Value Adjustments illustrating (1)
increasing interest rates, (2) decreasing interest rates, (3) flat interest
rates (i and j are within .10% of each other), and (4) less than 6 months to
maturity.
Example 1--Increasing Interest Rates
- -------------------------- -----------------------------
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
= {[1.0615/1.051]65/12} - 1
= .055323
MVA = (amount transferred or surrendered) x MVAF
= $10,000 x .0055323
= $553.23
Surrender Value = (amount transferred or surrendered + MVA)
= ($10,000 + $553.23)
= $10,553.23
B-1
Example 3--Flat Interest Rates (i and j are within .10% of each other)
- -------------------------- -----------------------------
Deposit $25,000 on November 1, 1996
- -------------------------- -----------------------------
- -------------------------- -----------------------------
Maturity date December 31, 2005
- -------------------------- -----------------------------
- -------------------------- -----------------------------
Interest Guarantee Period 10 years
- -------------------------- -----------------------------
- -------------------------- -----------------------------
i Assumed to be 6.15%
- -------------------------- -----------------------------
- -------------------------- -----------------------------
Surrender date July 1, 2000
- -------------------------- -----------------------------
- -------------------------- -----------------------------
J 6.24%
- -------------------------- -----------------------------
- -------------------------- -----------------------------
Amount surrendered $10,000
- -------------------------- -----------------------------
- -------------------------- -----------------------------
N 65
- -------------------------- -----------------------------
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.0634]65/12} - 1
= .99036 - 1
= -.00964
However, [i-j] <.10%, so MVAF = 0
MVA = (amount transferred or surrendered) x MVAF
= $10,000 x 0
= $0
Surrender Value = (amount transferred or surrendered + MVA)
= ($10,000 + $0)
= $10,000
Example 4--N equals less than six months to maturity
- -------------------------- -----------------------------
Deposit $25,000 on November 1, 1996
- -------------------------- -----------------------------
- -------------------------- -----------------------------
Maturity date December 31, 2005
- -------------------------- -----------------------------
- -------------------------- -----------------------------
Interest Guarantee Period 10 years
- -------------------------- -----------------------------
- -------------------------- -----------------------------
i assumed to be 6.15%
- -------------------------- -----------------------------
- -------------------------- -----------------------------
Surrender date July 1, 2005
- -------------------------- -----------------------------
- -------------------------- -----------------------------
J 7.00%
- -------------------------- -----------------------------
- -------------------------- -----------------------------
Amount surrendered $10,000
- -------------------------- -----------------------------
- -------------------------- -----------------------------
N 5
- -------------------------- -----------------------------
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.071]5/12} - 1
= .99629 - 1
= -.00371
However, N<6, so MVAF = 0
MVA = (amount transferred or surrendered) x MVAF
= $10,000 x 0
= $0
Surrender Value = (amount transferred or surrendered + MVA)
= ($10,000 + $0)
= $10,000
B-2
- --------------------------------------------------------------------------------
Appendix C--Net Investment Factor
The net investment factor is determined by dividing (a) by (b), and subtracting
(c) from the result where:
(a) is the net result of:
1) the net asset value per share of the Portfolio shares determined as of
the end of the current Valuation Period, plus
2) the per share amount of any dividend (or, if applicable, capital gain
distributions) made by the Portfolio on shares if the "ex-dividend"
date occurs during the current Valuation Period, minus or plus
3) a per unit charge or credit for any taxes incurred by or provided for in
the Sub-Account, which is determined by GWL&A to have resulted from the
investment operations of the Sub-Account, and
(b) is the net asset value per share of the Portfolio shares determined as of
the end of the immediately preceding Valuation Period, and
(c) is an amount representing the mortality and expense risk charge deducted
from each Sub-Account on a daily basis. Such amount is equal to 0.85%.
The Net Investment Factor may be greater than, less than, or equal to one.
Therefore, the Accumulation Unit Value may increase, decrease or remain
unchanged.
The net asset value per share referred to in paragraphs (a)(1) and (b) above,
reflects the investment performance of the Portfolio as well as the payment of
Portfolio expenses.
C-1
- --------------------------------------------------------------------------------
Appendix D--Expenses of Each Sub-Account's Underlying Portfolio
(as a percentage of Portfolio average net assets, before and after fee waivers
and expense reimbursements as of December 31, 2004)
Name of Fund Management Other 12b-1 Total Total Total
Fees fees fees Portfolio Fee Portfolio
Expenses Waivers Expenses
Before Fee After Fee
Waivers Waivers
AIM V.I. Core Stock
Fund - Series I Shares
(formerly INVESCO VIF
Core Equity Fund) 1 0.75% 0.46% 0.00% 1.21% 0.06% 1.15%
AIM V.I. High Yield
Fund -(formerly
INVESCO VIF High Yield 0.62% 0.42% 0.00% 1.04% 0.00% 1.04%
Fund) Series I
Shares)2, 3
AIM V.I. Technology
Fund - Series I Shares
(formerly INVESCO VIF 0.75% 0.40% 0.00% 1.15% 0.00% 1.15%
Technology Fund)4
Alger American Growth
Portfolio - Class O 0.75% 0.10% 0.00% 0.85% 0.00% 0.85%
Shares
Alger American MidCap
Growth Portfolio - 0.80% 0.13% 0.00% 0.93% 0.00% 0.93%
Class O Shares
AllianceBernstein VPS
Utility Income
Portfolio - Class A 0.55% 0.53% 0.00% 1.08% 0.00% 1.08%
Shares
AllianceBernstein VPS 0.75% 0.90% 0.00% 1.65% 0.00% 1.65%
Worldwide
Privatization - Class
A Shares
American Century VP
Balanced Fund -
Original Class Shares 0.90% 0.00% 0.00% 0.90% 0.00% 0.90%
American Century VP
International Fund - 1.33% 0.01% 0.00% 1.34% 0.00% 1.34%
Original Class Shares
American Century VP
Value Fund - Original 0.95% 0.00% 0.00% 0.95% 0.00% 0.95%
Class Shares
Baron Capital Asset 1.00% 0.11% 0.25% 1.36% 0.00% 1.36%
Fund: Insurance Shares
Delaware VIP Small Cap
Value Series - 0.75% 0.11% 0.00% 0.86% 0.00% 0.86%
Standard Class5
Dreyfus GVIT Mid Cap 0.35%6 0.08% 0.34%7 0.77% 0.00% 0.77%
Index Fund - Class II
Dreyfus Investment
Portfolios Midcap
Stock Portfolio - 0.75% 0.03% 0.00% 0.78% 0.00% 0.78%
Initial Shares
Dreyfus VIF
Appreciation Portfolio 0.75% 0.04% 0.00% 0.79% 0.00% 0.79%
- - Initial Shares
Dreyfus VIF Developing
Leaders Portfolio - 0.75% 0.04% 0.00% 0.79% 0.00% 0.79%
Initial Shares2
Dreyfus VIF Growth and
Income Portfolio - 0.75% 0.07% 0.00% 0.82% 0.00% 0.82%
Initial Shares
Federated American
Leaders Fund II -
Primary Shares2 0.75% 0.15% 0.00% 1.15% 0.25% 0.90%
D-1
Name of Fund Management Other 12b-1 Total Total Total
Fees fees fees Portfolio Fee Portfolio
Expenses Waivers Expenses
Before Fee After Fee
Waivers Waivers
Federated Capital 0.75% 0.67% 0.00% 1.42% 0.42% 1.00%
Income Fund II2
Janus Aspen Series
Balanced Portfolio - 0.55% 0.01% 0.00% 0.56% 0.00% 0.56%
Institutional Shares8
Janus Aspen Series
Flexible Bond
(formerly Flexible 0.52% 0.03% 0.00% 0.55% 0.00% 0.55%
Income) Portfolio -
Institutional Shares8
Janus Aspen Series
Large Cap Growth
(formerly Growth) 0.64% 0.02% 0.00% 0.66% 0.00% 0.66%
Portfolio -
Institutional Shares8
Janus Aspen Series
Growth and Income
Portfolio - 0.62% 0.13% 0.00% 0.75% 0.00% 0.75%
Institutional Shares8
Janus Aspen Series
International Growth
Portfolio - 0.64% 0.04% 0.00% 0.68% 0.00% 0.68%
Institutional Shares8
Janus Aspen Series
Worldwide Growth
Portfolio - 0.60% 0.03% 0.00% 0.63% 0.00% 0.63%
Institutional Shares 2,
8
Oppenheimer Global 0.63% 0.03% 0.00% 0.66% 0.00% 0.66%
Securities Fund/VA
PIMCO VIT High Yield 0.25% 0.35% 0.15% 0.75% 0.00% 0.75%
Portfolio
PIMCO VIT Low Duration 0.25% 0.25% 0.15% 0.65% 0.00% 0.65%
Portfolio
PIMCO VIT Total Return 0.25% 0.25% 0.00% 0.50% 0.00% 0.50%
Portfolio
Pioneer Fund VCT
(formerly the SAFECO
RST Core Equity
Portfolio) 0.50% 0.34% 0.25% 1.09% 0.00% 1.09%
Pioneer Growth
Opportunities VCT
(formerly the SAFECO
RST Growth
Opportunities 0.65% 0.39% 0.25% 1.29% 0.00% 1.29%
Portfolio)
Pioneer Small Cap
Value VCT II
(formerly the SAFECO
RST Small-Cap Value 0.85% 0.56% 0.25% 1.66% 0.00% 1.66%
Portfolio)
Prudential Series Fund
Equity Portfolio -
Class II 0.45% 0.18% 0.25% 0.88% 0.00% 0.88%
Schwab MarketTrack 0.44% 0.25% 0.00% 0.69% 0.19% 0.50%
Growth Portfolio IITM
Schwab Money Market 0.38% 0.08% 0.00% 0.46% 0.00% 0.46%
PortfolioTM
Schwab S&P Index
Portfolio (formerly
Schwab S&P 500 0.20% 0.11% 0.00% 0.31% 0.03% 0.28%
Portfolio)
Scudder Variable
Series I Capital
Growth Portfolio - 0.47% 0.03% 0.00% 0.50% 0.00% 0.50%
Class A Shares
Scudder Variable
Series I Growth and
Income Portfolio -
Class A Shares 0.48% 0.08% 0.00% 0.56% 0.00% 0.56%
Name of Fund Management Other 12b-1 Total Total Total
Fees fees fees Portfolio Fee Portfolio
Expenses Waivers Expenses
Before Fee After Fee
Waivers Waivers
Scudder Variable 0.73% 0.05% 0.00% 0.78% 0.00% 0.78%
Series II SVS Dreman
High Return Equity -
Class A Shares
Scudder VIT EAFE(R)
Equity Index Fund -
Class A Shares10 0.45% 0.37% 0.00% 0.82% 0.17%11 0.65%
Scudder VIT Small Cap
Index Fund - Class A 0.35% 0.13% 0.00% 0.48% 0.03%12 0.45%
Shares
Universal
Institutional Funds
U.S. Real Estate 0.80% 0.26% 0.00% 1.06% 0.00% 1.06%
Portfolio - Class I
Shares
Van Kampen LIT 0.59% 0.06% 0.00% 0.65% 0.00% 0.65%
Comstock - Class I
Shares
Van Kampen LIT Growth 0.60% 0.06% 0.00% 0.66% 0.00% 0.66%
& Income Class I Shares
Wells Fargo Advantage
Multi Cap Value Fund
(formerly Strong Multi
Cap Value Fund II)2, 13 0.75%14 0.36%15 0.25% 1.36% 0.22%16 1.14%
1 Effective January 1, 2005 through December 31, 2009, the Fund's advisor has
contractually agreed to waive a portion of its advisory fees. The fee waiver
shown here reflects this agreement. The advisor's agreement to waive advisory
fees and/or reimburse expenses of Series I shares is to the extent necessary to
limit total annual Fund operating expenses (excluding certain items discussed
below) of Series I shares to 1.30% of average daily net assets for each series
portfolio of AIM Variable Insurance Funds except for AIM VII. High Yield Fund
(see note 3). In determining the advisor's obligation to waive advisory fees
and/or reimburse expenses, the following expenses are not taken into account,
and could cause the total annual fund operating expenses to exceed the limit
stated above: (i) Rule 12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv)
dividend expense of short sales; (v) extraordinary items (these are expenses
that are not anticipated to arise from the Fund's day-to-day operations), or
items designated as such by the Fund's Board of Trustees; (vi) expenses related
to a merger or reorganization, as approved by the Fund's Board of Trustees; and
(vii) expenses that the Fund has incurred but did not actually pay because of an
expense offset arrangement. Currently, the only expense offset arrangements from
which the Fund benefits are in the form of credits that the Fund receives from
banks where the Fund or its transfer agent has deposit accounts in which it
holds uninvested cash. Those credits are used to pay certain expenses incurred
by the Fund. The expense limitation is in effect through April 30, 2006.
2 Effective April 29, 2005, new Contributions and Transfers into the
Sub-Accounts of these Portfolios were closed.
3 The fund's advisor has contractually agreed to waive advisory fees and/or
reimburse expenses of Series I shares to the extent necessary to limit total
annual fund operating expenses of Series I shares to 1.05% of average daily net
assets. The expense limitation agreement is in effect through April 30, 2006. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
total annual fund operating expenses to exceed the limit stated above: (i) Rule
12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense of
short sales; (v) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. The
expense limitation is in effect through April 30, 2006.
4 The Fund's advisor has contractually agreed to waive advisory fees and/or
reimburse expenses of Series I shares to the extent necessary to limit total
annual Fund operating expenses (excluding certain items discussed below) of
Series I shares to 1.30% of average daily net assets for each series portfolio
of AIM Variable Insurance Funds except for AIM VII. High Yield Fund (see note
3). In determining the advisor's obligation to waive advisory fees and/or
reimburse expenses, the following expenses are not taken into account, and could
cause the total annual fund operating expenses to exceed the limit stated above:
(i) Rule 12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend
expense of short sales; (v) extraordinary items (these are expenses that are not
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's Board of Trustees; (vi) expenses related to a merger or
reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. The
expense limitation is in effect through April 30, 2006.
5 The investment manager has contracted to waive fees and pay expenses through
April 30, 2005 in order to prevent total operating expenses (excluding any
12b-1 fees, taxes, interest, brokerage fees, extraordinary expenses and certain
insurance costs) from exceeding 0.95% of average daily net assets.
6 The management fee is a blended rate. Effective May 1, 2004, the management
fee dropped from 0.50% (annually) to 0.30% (annually). The total expense ratio
would have been 0.72% had the reduced management fee been in place the entire
year. Management fees are 0.30% (annually) for current year 2005.
7 The 12b-1 fees are 0.25% (annually) and administrative servicing fees are
0.09%(annually).
8 The Janus Aspen Series Funds fees' are as of July 1, 2004. The period from
January 1, 2004 through June 30, 2004 does not reflect these lowered fees.
10 This Sub-Account will be closed to new Contributions and Transfers effective
July 25, 2005. After July 25, 2005, any amounts invested in this Sub-Account
will be transferred to the Schwab Money Market Portfolio(TM) Sub-Account.
Assets invested in this Sub-Account may be transferred to another Sub-Account
without incurring a fee.
11 Pursuant to their respective agreements with Scudder VIT Funds, the
investment manager, the underwriter and the accounting agent have agreed, for
the one year period commencing on May 1, 2005, to limit their respective fees
and to reimburse other expenses to the extent necessary to limit total
operating expenses for Class A shares to 0.65%.
12 Pursuant to their respective agreements with Scudder VIT Funds, the
investment manager, the underwriter and the accounting agent have agreed, for
the one year period commencing on May 1, 2005, to limit their respective fees
and to reimburse other expenses to the extent necessary to limit total
operating expenses for Class A shares to 0.45%.
13 On May 25, 2004, Wells Fargo & Company entered into a purchase agreement with
Strong Financial Corporation ("SFC") to acquire the assets of SFC and certain of
its affiliates, including Strong Capital Management, Inc., the investment
adviser to the Strong Family of Funds. Pursuant to the receipt of approval from
the Strong Board, shareholders of the Strong Funds met and approved the
reorganization of each Strong Fund into a Wells Fargo Fund on December 10 and
December 22, 2004. Effective on or about April 11, 2005, the Investor Class and
Advisor Class shares of the Strong Opportunity Fund II reorganizaed into the
Wells Fargo Advantage Opportunity Fund, the Strong Discovery Fund II and Strong
Mid Cap Growth Fund II reorganizaed into the Wells Fargo Advantage Discovery
Fund; and the Strong Multi Cap Value Fund II reorganized into the Wells Fargo
Advantage Multi Cap Value Fund. Expense information provided as of April 11,
2005.
14 The Fund's investment adviser has implemented a breakpoint schedule for
the Fund's management fees. The management fees charged to the Fund will decline
as the Fund's assets grow and will continue to be based on a percentage of the
Fund's average daily net assets.
15 Other expenses may include expenses payable
to affiliates of Wells Fargo & Company. Other expenses for the Fund are based on
estimates for the current fiscal year.
16 The adviser has committed through April 30, 2007 to waive fees and/or
reimburse expenses to the extent necessary to maintain the net operating expense
ratios shown.