-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HR5TVwBwT0MUQTdp6shCyabSnNv7y4YF2gQeGz/EOGLlvcaXJKI1AaTWOjJ17lYU EO2H4fkdzfLyMl5Teg65rQ== 0001075796-03-000005.txt : 20030429 0001075796-03-000005.hdr.sgml : 20030429 20030429165328 ACCESSION NUMBER: 0001075796-03-000005 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20030429 EFFECTIVENESS DATE: 20030429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLI VUL 2 SERIES ACCOUNT CENTRAL INDEX KEY: 0001075796 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 333-70963 FILM NUMBER: 03670064 BUSINESS ADDRESS: STREET 1: 8515 EAST ORCHARD RD CITY: GREENWOOD VILLAGE STATE: CO ZIP: 80111 MAIL ADDRESS: STREET 1: 8515 EAST ORCHARD RD STREET 2: 2T3 CITY: GREENWOOD VILLAGE STATE: CO ZIP: 80111 485BPOS 1 colivul2full485b42003.txt COLI VUL 2 485(B) APRIL 2003 As filed with the Securities and Exchange Commission on April 29, 2003. File Nos. 333-70963 811-09201 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-6 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 9 AND THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 2 COLI VUL-2 SERIES ACCOUNT (Exact Name of Registrant) GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY (Name of Depositor) 8515 East Orchard Road Greenwood Village, Colorado 80111 (Address of Depositor's Principal Executive Offices) (303) 737-3000 (Depositor's Telephone Number) William T. McCallum President and Chief Executive Officer GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY 8515 East Orchard Road Greenwood Village, Colorado 80111 (Name and Address of Agent for Service) COPIES TO: James F. Jorden, Esq. Beverly A. Byrne, Esq. Jorden Burt LLP Vice President, Counsel & Associate Secretary Suite 400 East Great-West Life & Annuity Insurance Company 1025 Thomas Jefferson Street, N.W. 8515 East Orchard Road, 2T3 Washington, D.C. 20007-5208 Greenwood Village, Colorado 80111 ------------ Approximate date of proposed public offering: Continuous It is proposed that this filing will become effective (check appropriate box): [ ] immediately upon filing pursuant to paragraph (b) of Rule 485. [X] on May 1, 2003 pursuant to paragraph (b) of Rule 485. [ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485. [ ] on (date) pursuant to paragraph (a)(2) of Rule 485. If appropriate, check the following box: [ ] This post-effective amendment designates a new effective date for a previously filed post-effective amendment. Title of securities being offered: flexible premium variable universal life insurance policies. Great-West Life & Annuity Insurance Company A Stock Company 8515 East Orchard Road Greenwood Village, Colorado 80111 (303) 737-3000 Key Business VUL -- Prospectus A Flexible Premium Variable Universal Life Insurance Policy offered by Great-West Life & Annuity Insurance Company in connection with its COLI VUL-2 Series Account This prospectus describes a flexible premium variable universal life insurance policy (the "Policy") offered by Great-West Life & Annuity Insurance Company ("Great-West," "Company," "we" or "us"). The Policy is designed for use by corporations and employers to provide life insurance coverage in connection with, among other things, deferred compensation plans. The Policy is designed to meet the definition of "life insurance contracts" for federal income tax purposes. The Policy allows "you," the Owner, within certain limits to: o choose the type and amount of insurance coverage you need and increase or decrease that coverage as your insurance needs change; o choose the amount and timing of premium payments, within certain limits; o allocate premium payments among the available investment options and Transfer Account Value among available investment options as your investment objectives change; and o access your Policy's Account Value through loans and partial withdrawals or total surrenders. This prospectus contains important information you should understand before purchasing a Policy. We use certain special terms that are defined in Appendix A. You should read this prospectus carefully and keep it for future reference. The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. The Date of this prospectus is May 1, 2003 Table of Contents Summary of Policy and its Benefits...... Policy Risks............................ Fund Risks.............................. Fee Tables ............................. Transaction Fees.................. Periodic Charges ................. Supplemental Benefits Charges..... Total Annual Fund Operating Expenses....................... Individual Fund Annual Operating Expenses.......... Description of Depositor, Registrant, and Funds......................... Charges and Deductions.................. Expense Charge Applied to Premium........................ Mortality and Expense Risk Charge......................... Monthly Deduction.................. Monthly Risk Rates................. Service Charge..................... Transfer Fee....................... Partial Withdrawal Fee............. Surrender Charges.................. Change of Death Benefit Option Fee..................... Fund Expenses...................... General Description of Policy........... Policy Rights...................... Owner.......................... Beneficiary.................... Policy Limitations................. Allocation of Net Premiums..... Transfers Among Divisions...... Exchange of Policy............. Age Requirements............... Policy or Registrant Changes....... Addition, Deletion or Substitution of Investments.... Entire Contract................ Alteration..................... Modification................... Assignments.................... Notice and Elections........... Account Value...................... Net Investment Factor.......... Splitting Units................ Other Provisions and Benefits.......... Misstatement of Age or Sex..... Suicide........................ Incontestability............... Paid-Up Life Insurance......... Supplemental Benefits.......... Term Life Insurance Rider...... Change of Insured Rider........ Report to Owner................ Dollar Cost Averaging.......... Rebalancer Option.............. Non-Participating.............. Premiums ............................... Policy Application, Issuance and Initial Premium............ Free Look Period.................. Premium........................... Net Premiums...................... Planned Periodic Premiums......... Death Benefits.......................... Death Benefit................... Changes in Death Benefit Option......................... Changes in Total Face Amount...... Surrenders and Withdrawals.............. Surrenders........................ Partial Withdrawal................ Loans Policy Loans...................... Lapse and Reinstatement ................ Lapse and Continuation of Coverage....................... Grace Period...................... Termination of Policy............. Reinstatement..................... Deferral of Payment............... Federal Income Tax Considerations....... Tax Status of Policy.................... Corporate Tax Shelter Registration and Customer List Requirements.............. Diversification of Investments.... Policy Owner Control.............. Tax Treatment of Policy Benefits........ Life Insurance Death Benefit Proceeds....................... Tax Deferred Accumulation......... Distributions..................... Modified Endowment Contract....... Distributions Under Modified Endowment Contracts............ Distributions Under a Policy That Is Not a MEC.............. Multiple Policies................. Treatment When Insured Reaches Attained Age 100....... Federal Income Tax Withholding.................... Actions to Ensure Compliance with the Tax Law............... Trade or Business Entity Owns or is Directly or Indirectly a Beneficiary of the Policy.... Other Employee Benefit Programs....................... Policy Loan Interest.............. Our Taxes......................... Legal Proceedings....................... Legal Matters........................... Financial Statements.................... Summary of the Policy and its Benefits This is a summary of some of the most important features of your Policy. The Policy is more fully described in the remainder of this prospectus. Please read this prospectus carefully. Unless otherwise indicated, the description of the Policy in this prospectus assumes that the Policy is in force, there is no Policy Debt and current federal tax laws apply. 1. Corporate-Owned Variable Life Insurance. We will issue Policies to corporations and employers to provide life insurance coverage in connection with, among other things, deferred compensation plans. We will issue Policies on the lives of prospective Insureds who meet our underwriting standards. 2. The Series Account. We have established a separate account to fund the variable benefits under the Policy. The assets of the separate account are insulated from the claims of our general creditors. 3. Premium Payments. You must pay us an Initial Premium to put your Policy in force. The minimum Initial Premium will vary based on various factors, including the age of the Insured and the death benefits option you select, but may not be less than $100.00. Thereafter, you choose the amount and timing of premium payments, within certain limits. 4. Free Look Period. You may return your Policy to us for any reason within 10 days of receiving it, or such longer period as required by applicable state law, and receive the greater of your Premiums, less any withdrawals, or your Account Value. 5. Investment Options and Funds. You may allocate your net premium payments among the available variable Divisions. Each Division invests exclusively in shares of a single mutual fund (each a "Fund," collectively "Funds"). Each Fund has its own distinct investment objective and policies, which are described in the accompanying prospectuses for the Funds. You may Transfer amounts from one Division to another. 6. Death Benefit. You may choose from among three death benefit options - 1. a fixed benefit equal to the Total Face Amount of your Policy; 2. a variable benefit equal to the sum of the Total Face Amount and your Policy's Account Value; or 3. an increasing benefit equal to the sum of the Total Face Amount and the accumulated value of all premiums paid under your Policy accumulated at the interest rate shown on the policy specifications page of your Policy. For each option, the death benefit may be greater if necessary to satisfy federal tax law requirements. We will deduct any outstanding Policy Debt and unpaid Policy charges before we pay a death benefit. In addition, prior partial withdrawals may reduce the Death Benefit Proceeds under the first and third options. At any time, you may increase or decrease the Total Face Amount, subject to our approval and other requirements set forth in the Policy. After the first Policy Year, you may change your death benefit option once each Policy Year. 7. Account Value. Your Policy's Account Value will reflect - 1. the Premiums you pay; 2. the investment performance of the Divisions you select; 3. any policy loans or partial withdrawals; 4. your Loan Account balance; and 5. the charges we deduct under the Policy. 8. Accessing Your Policy's Account Value. You may borrow from us using your Account Value as collateral. Loans may be treated as taxable income if your Policy is a "modified endowment contract" ("MEC") for federal income tax purposes and you have had positive net investment performance. You may surrender your Policy for its Cash Surrender Value. There are no surrender charges associated with your Policy. You may withdraw a portion of your Policy's Account Value at any time while your Policy is in force. A withdrawal will reduce your death benefit. We will charge an administrative fee not greater than $25 per withdrawal on partial withdrawals after the first in a Policy Year. 9. Supplemental Benefits. The following riders are available - 1. term life insurance; and 2. change of insured We will deduct the cost, if any, of the rider(s) from your Policy's Account Value on a monthly basis. 10. Paid-Up Life Insurance. If the Insured reaches Attained Age 100 and your Policy is in force, the Policy's Account Value, less Policy Debt, will be applied as a single Premium to purchase "paid-up" insurance. Your Policy's Account Value will remain in the Series Account allocated to the Divisions in accordance with your instructions. The death benefit under this paid-up insurance generally will be equal to your Account Value. As your Account Value changes based on the investment experience of the Divisions, the death benefit will increase or decrease accordingly. 11. Reinstatement. If your Policy terminates due to insufficient value, we will reinstate it within three years at your request, subject to certain conditions. 12. Surrenders. You may surrender your Policy for its Cash Surrender Value at any time while the Insured is living. If you do, the insurance coverage and all other benefits under the Policy will terminate. If you withdraw part of the Cash Surrender Value, your Policy's death benefit will be reduced and you may incur taxes and tax penalties. You may borrow from us using your Policy's Account Value as collateral. 13. Partial Withdrawal. You may Request a partial withdrawal of Account Value at any time while the Policy is in force. The amount of any partial withdrawal must be at least $500 and may not exceed 90% of your Policy's Account Value less the value of the Loan Account. The Death Benefit Proceeds and your Policy's Account Value will be reduced by the amount of any partial withdrawals. 14. Policy loans. You may request a Policy loan of up to 90% of your Policy's Account Value, decreased by the amount of any outstanding Policy Debt on the date the policy loan is made. The minimum policy loan amount is $500. 15. Changes in Total Face Amount. You may increase or decrease the Total Face Amount of your Policy at any time. Each increase or decrease in the Total Face Amount must be at least $25,000. Policy Risks 1. Account Value Not Guaranteed. Your Account Value is not guaranteed. Your Account Value fluctuates based on the performance of the investment options you select. The investment options you select may not perform to your expectations. Your Account Value may also be affected by charges under your Policy. 2. Suitability as Short-Term Savings Vehicle. The Policy is designed for long-term financial planning. Accordingly, you should not purchase the Policy if you need access to the Account Value within a short time. Before purchasing a Policy, consider whether the long-term nature of the Policy is consistent with the purposes for which it is being considered. 3. Risk of Contract Lapse. Your Policy may terminate if your Account Value at the beginning of any Policy Month is insufficient to pay the Policy's monthly charges. If your Policy would terminate due to insufficient value, we will send you notice and allow you a 61-day grace period. If, within the grace period, you do not make a premium payment sufficient to cover all accrued and unpaid charges and deductions, your Policy will terminate at the end of the grace period without further notice. 4. Limitations on Withdrawals. Partial withdrawals of Account Value are permitted at any time the Policy is in force. As noted above, the amount of any partial withdrawal must be at least $500 and may not exceed 90% of your Policy's Account Value less the value of the Loan Account. A maximum administrative fee of $25 will be deducted from your Policy's Account Value for all partial withdrawals after the first made in the same Policy Year. Please note that withdrawals reduce your Policy's Account Value and your Death Benefit Proceeds. In addition, withdrawals may have tax consequences. 5. Limitations on Transfers. Subject to our rules as they may exist from time to time, you may at any time Transfer to another Division all or a portion of the Account Value allocated to a Division. 6. Limitations or Charges on Surrender of Policy. You may surrender your Policy for its Cash Surrender Value at any time while the Insured is living. Upon surrender of your Policy, the insurance coverage and all other benefits under the Policy will terminate. There are no surrender charges associated with your Policy. However, the surrender of your policy may have tax consequences. 7. Risks of Taking a Policy loan. As noted above, you may request a policy loan of up to 90% of your Policy's Account Value, decreased by the amount of any outstanding Policy Debt on the date the policy loan is made. The minimum policy loan amount is $500. Taking a policy loan may increase the risk that your Policy will lapse, will reduce your Account Value, and will reduce the death benefit. In addition, if your Policy is a MEC for tax purposes, taking a policy loan may have tax consequences. 8. Adverse Tax Consequences. Your Policy is structured to meet the definition of a life insurance contract under the Internal Revenue Code of 1986, as amended ("Code"). Current federal tax law generally excludes all death benefits from the gross income of the Beneficiary of a life insurance policy. Generally, you are not taxed on any increase in the Account Value until it is withdrawn, but are taxed on surrender proceeds and the proceeds of any partial withdrawals if those amounts, when added to all previous distributions, exceed the total premium paid. Amounts received upon surrender or withdrawals in excess of Premiums are treated as ordinary income. Under certain circumstances, a Policy may become a MEC for federal tax purposes. This may occur if you reduce the Total Face Amount of your Policy or pay excessive Premiums. We will monitor your premium payments and other Policy transactions and notify you if a payment or other transaction might cause your Policy to become a MEC without your written permission. We will not invest any Premium or portion of a Premium that would cause your Policy to become a MEC, but instead will promptly refund the money to you. If you elect to have a MEC contract, you can return the money to us with a signed form of acceptance. Under current tax law, Death Benefit Proceeds under MECs generally are excluded from the gross income of the Beneficiary. Withdrawals and policy loans, however, are treated first as income, to the extent of any gain, and then as a return of Premium. The income portion of the distribution is includable in your taxable income. A 10% penalty tax is also generally imposed on the taxable portion of amount received before age 59 1/2. Fund Risks The Policy currently offers 46 investment options, each of which is a Division of Great-West's COLI VUL-2 Series Account ("the Series Account"). Each Division uses its assets to purchase, at their net asset value, shares of a Fund. The Divisions are referred to as "variable" because their investment experience depends upon the investment experience of the Funds in which they invest. We do not guarantee that the Funds will meet their investment objectives. Your Account Value may increase or decrease in value depending on the investment performance of the Funds. You bear the risk that those Funds may not meet their investment objectives. A comprehensive discussion of the risks of each Fund may be found in Fund's prospectus, including detailed information concerning investment objectives, strategies, and their investment risk. If you require a copy of a prospectus, please contact us at the address or telephone number listed on the first page of this prospectus. Fee Tables The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the Policy. The first table describes the fees and expenses that you will pay at the time that you buy the Policy, surrender the Policy, or Transfer cash value between investment options.
Transaction Fees - ------------------------------- ----------------------------- ---------------------------- Charge When Charge is Deducted Amount Deducted - ------------------------------- ----------------------------- ---------------------------- - ------------------------------- ----------------------------- ---------------------------- Expense Charges Applied to Upon each premium payment Maximum: 10% of premium Premium (1) Current: 9% of premium Partial Withdrawal Fee Upon partial withdrawal Maximum: $25 deducted from Account Value for all partial withdrawals after the first made in the same Policy Year. Change of Death Benefit Upon change of option Maximum: $100 deducted Option Fee from Account Value for each change of death benefit option. Transfer Fees At time of transfer for all Maximum: $10/Transfer transfers in excess of 12 made in the same calendar year - ------------------------------- ----------------------------- ---------------------------- The next table describes the fees and expenses that you will pay periodically during the time that you own the Policy, not including Fund fees and expenses. Periodic Charges Other Than Fund Operating Expenses - ------------------------------- ----------------------------- ---------------------------- Charge When Charge is Deducted Amount Deducted - ------------------------------- ----------------------------- ---------------------------- - ------------------------------- ----------------------------- ---------------------------- Cost of Insurance (per $1000 Monthly Net Amount at Risk)(2) - ------------------------------- - -------------------------------
(1) We will deduct a maximum charge of 10% from each premium payment as follows. A maximum of 6.5% of Premium will be deducted as sales load to compensate us in part for sales and promotional expenses in connection with selling the Policies, such as commissions, the cost of preparing sales literature, other promotional activities and other direct and indirect expenses. A maximum of 3.5% of Premium will be used to cover premium taxes and certain federal income tax obligations resulting from the receipt of Premiums. For more information about the calculation of this charge, see "Expense Charges Applied to Premium" on page [ ]. (2) The cost of insurance charge varies based on individual characteristics such as the age, Policy Year, underwriting class, Total Face Amount, risk and sex of the Insured. We determine the current cost of insurance rates, but we guarantee that we will never charge you a higher cost of insurance rate than the guaranteed rate shown in your Policy. We calculate a separate cost of insurance charge for any increase in the Total Face Amount based on the Insured's circumstances at the time of the increase. For more information about the calculation of the cost of insurance charges, see "Monthly Risk Rates" on page [ ]. The cost of insurance charge shown in the table above may not be representative of the charge you would pay. For more information about the cost of insurance charge that would apply to your Policy, please contact us at the address or telephone number shown on the first page of this prospectus.
Minimum & Maximum Guaranteed: Cost of Insurance Minimum: $0.08 per Charge $1000. Maximum: $83.33 per $1000. Cost of Insurance Guaranteed: Charge for a 46-year old Male Non-Smoker, $0.41 per $1000. $550,000 Face Amount, Option 1 (Level Death) - ------------------------------- Mortality and Expense Risk Upon each Valuation Date Maximum: 0.90% annually. Fees Current: 0.40% for Policy Years 1-5, 0.25% for Policy Years 6-20, and 0.10% thereafter. - ------------------------------- Service Charge Monthly Maximum: $15/month Current: $10.00/month, Policy Years 1-3 and $7.50/month, Policy Years 4+ - ------------------------------- Policy Loans Upon issuance of Policy Loan Maximum: The Moody's Corporate Bond Yield Average - Monthly Average Corporates (3) - ------------------------------- Change of Insured Rider Upon change of insured Minimum: $100 per change. Maximum: $400 per change. - ------------------------------- Change of Insured Upon change of insured $400 per change. Rider for a 46-year old Male Non-Smoker, $550,000 Face Amount, Option 1 (Level Death) - ------------------------------- Term Life Insurance Rider (4) Monthly Guaranteed: Minimum COI: $0.08 per $1000. Maximum COI: $83.33 per $1000. Term Life Insurance Monthly Guaranteed: Rider for a 46-year old Male Non-Smoker, $0.41 per $1000. $550,000 Face Amount, Option 1 (Level Death) - ------------------------------- ----------------------------- ---------------------------- - ------------------------------- ----------------------------- ----------------------------
3 The Moody's Corporate Bond Yield Average - Monthly Average Corporate, is published monthly by Moody's Investor Services, Inc. If that average ceases to be published, the maximum interest rate for policy loans will be derived from a substantially similar average adopted by your state's Insurance Commissioner. For more information regarding policy loan interest rates, see page [ ] of this prospectus. The next table shows the minimum and maximum total operating expenses charged by the Funds that you may pay periodically during the time that you own the Policy. More detail concerning each Fund's fee and expenses is contained in the prospectus for each Fund. Total Annual Fund Operating Expenses (5) (Expenses that are deducted from Fund assets, including management fees, distribution [and/or service] (12b-1) fees, and other expenses) - ------------------------------- ----------------------------- ------------------ - ------------------------------- ----------------------------- ------------------ Total Annual Operating Minimum Maximum Expenses (without waivers or 0.26% 2.87% reimbursements) - ------------------------------- - ------------------------------- (4) The applicable charge depends on the Insured's individual characteristics when the rider is added to your Policy. The charge shown in the table above may not be representative of the charge you would pay. For more information about the charge that would apply to your rider, please contact us at the address or telephone number shown on the first page of this prospectus. (5) The management fees and other expenses of the Funds are more fully described in the Fund prospectuses. The information relating to the Fund expenses was provided by each Fund and was not independently verified by us. Total Annual Operating Expenses (with contractual 0.26% 1.85% waivers and reimbursements)(6) - ------------------------------- ----------------------------- ------------------ The figures in the following table show expense ratios for the individual Funds for the year-ended December 31, 2002, except where noted otherwise. The expenses of certain Funds reflect contractual fee reductions and expense reimbursements, as indicated in their prospectuses. (6) Neuberger Berman Advisers Management Trust, Socially Responsive: Neuberger Berman Management Inc. ("NBMI") has undertaken through December 31, 2006 to waive fees and/or reimburse certain operating expenses, including the compensation of NBMI and excluding taxes, interest, extraordinary expenses, brokerage commissions and transaction costs, that exceed, in the aggregate, 1.50% of the average daily net asset value of the Fund. The expense limitation agreement is contractual and any excess expenses can be repaid to NBMI within three years of the year incurred, provided such recoupment would not cause the fund to exceed its contractual expense limitation. Without this contractual arrangement, the maximum Total Annual Operating Expenses would be 2.87%. STI Classic Growth and Income Fund: The Fund's adviser has contractually agreed to waive fees and reimburse expenses until May 1, 2004 in order to keep total operating expenses from exceeding 1.20%. Without this contractual arrangement, the maximum Total Annual Operating Expenses would be 2.56%.
Individual Fund Annual Operating Expenses (as a percentage of average daily net assets) - ------------------------------------------- ------------- ---------- ---------- ------------ ------------- Fund Name Management Other Gross Less Fee Net Fee Expenses Total Waivers & Total Annual Expense Annual Operating ReimbursementOperating Expense Expenses - ------------------------------------------- - ------------------------------------------- ------------- ---------- ---------- ------------ ------------- American Century Variable Portfolios, Inc. (7) American Century VP Income & Growth 0.70% 0.00% 0.70% 0.00% 0.70% (Original Class Shares) American Century VP International 1.30% 0.00% 1.30% 0.00% 1.30% (Original Class Shares) American Century VP Ultra(R) (Original 1.00% 0.00% 1.00% 0.00% 1.00% Class Shares) American Century VP Value (Original 0.95% 0.00% 0.95% 0.00% 0.95% Class Shares) Dreyfus Stock Index Fund (8) (Initial Share Class) 0.25% 0.01% 0.26% 0.00% 0.26% Dreyfus Variable Investment Fund (9) Appreciation Portfolio (Initial Share 0.75% 0.03% 0.78% 0.00% 0.78% Class) Growth & Income Portfolio (Initial Share 0.75% 0.05% 0.80% 0.00% 0.80% Class) Federated Insurance Series Federated American Leaders Fund II 0.75% 0.38% 1.13% 0.00% 1.13% (Primary Share Class) (10) Federated Growth Strategies Fund II 0.75% 0.70% 1.45% 0.00% 1.45% (Primary Share Class) (11) (7)American Century Variable Portfolios, Inc - VP Value, VP International and VP Ultra(R): This fund has a stepped fee schedule. As a result, the fund's management fee rate generally decreases as the fund's assets increase. (8) Dreyfus Stock Index Fund: The figures in the above expense table are for the fiscal year ended December 31, 2002. Actual expenses in future years may be higher or lower than the figures above. (9) Dreyfus Variable Investment Fund - Appreciation Portfolio and Growth and Income Portfolio: The figures in the above expense table are for the fiscal year ended December 31, 2002. Actual expenses in future years may be higher or lower than the figures above. (10) Federated Insurance Series - American Leaders Fund II: Although not contractually obligated to do so, the shareholder services provider waived certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ending December 31, 2002. Total Waivers of Fund Expenses: 0.25%. Total Actual Annual Fund Operating Expenses (after waivers): 0.88% The Fund's Primary Shares have no present intention of paying or accruing the shareholder services fee during the fiscal year ending December 31, 2003. (11) Federated Insurance Series - Growth Strategies Fund II: Although not contractually obligated to do so, the shareholder services provider waived certain amounts. These are shown below along with the net expenses the Fund expects to pay for the fiscal year ending December 31, 2003. Total Waivers of Fund Expenses: 0.26%. Total Actual Annual Fund Operating Expenses (after waivers): 1.19%. The Total Actual Annual Fund Operating Expenses (after waivers) were 1.07% for the fiscal year ended December 31, 2002. The Adviser expects to waive a portion of its management fee. The Adviser can terminate this anticipated voluntary waiver at any time. The expected management fee to be paid by the Fund (after the anticipated voluntary waiver) is expected to be 0.74% for the fiscal year ending December 31, 2003. The management fee paid by the Fund (after the voluntary waiver) was 0.74% for the fiscal year ended December 31, 2002. The Fund did not pay or accrue the shareholder services fee during the fiscal year ended December 31, 2002. The Fund has no present intention of paying or accruing the shareholder services fee during the fiscal year ending December 31, 2003. Other expenses were 0.33% for the fiscal year ended December 31, 2002. Federated High Income Bond Fund II 0.60% 0.42% 1.02% 0.00% 1.02% (Primary Share Class) (12) Federated International Equity Fund II 1.00% 0.85% 1.85% 0.00% 1.85% (Primary Share Class) (13) Fidelity Variable Insurance Products (VIP) Fund (14) Fidelity VIP Growth Portfolio (Service 0.58% 0.35% 0.93% 0.00% 0.93% Class 2) Fidelity VIP Contrafund Portfolio 0.58% 0.35% 0.93% 0.00% 0.93% (Service Class 2) Fidelity VIP Investment Grade Bond 0.43% 0.36% 0.79% 0.00% 0.79% Portfolio (Service Class 2) INVESCO Variable Investment Funds, Inc.(15) INVESCO VIF - Financial Services Fund 0.75% 0.34% 1.09% 0.00% 1.09% INVESCO VIF - Health Sciences Fund 0.75% 0.32% 1.07% 0.00% 1.07% INVESCO VIF - High Yield Fund 0.60% 0.45% 1.05% 0.00% 1.05% INVESCO VIF - Core Equity Fund 0.75% 0.37% 1.12% 0.00% 1.12% INVESCO VIF - Technology Fund 0.75% 0.36% 1.11% 0.00% 1.11% Janus Aspen Series (16) (12) Federated Insurance Series - High Income Bond Fund II: Although not contractually obligated to do so, the shareholder services provider waived certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ending December 31, 2002. Total Waivers of Fund Expenses: 0.25%. Total Actual Annual Fund Operating Expenses (after waivers): 0.77%. The distributor voluntarily elected not to accrue a portion of the distribution (12b-1) fee. Primary Shares did not pay or accrue the shareholder services fee during the fiscal year ended December 31, 2002. The Primary Shares have no present intention of paying or accruing the shareholder services fee during the fiscal year ending December 31, 2003. (13) Federated Insurance Series - International Equity Fund II: Although not contractually obligated to do so, the shareholder services provider waived certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ending December 31, 2002. Total Waivers of Fund Expenses: 0.35%. Total Actual Annual Fund Operating Expenses (after waivers): 1.50%. The Adviser voluntarily waived a portion of its management fee. The Adviser can terminate this voluntary waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.90% for the fiscal year ending December 31, 2002. The Fund did not pay or accrue the shareholder services fee during the fiscal year ended December 31, 2002. The Fund has no present intention of paying or accruing the shareholder services fee during the fiscal year ending December 31, 2003. (14) Fidelity Variable Insurance Products (VIP) Fund - Fidelity VIP Growth Portfolio, Fidelity VIP Contrafund Portfolio, and Fidelity VIP Investment Grade Bond Portfolio: Actual annual class operating expenses were lower because a portion of the brokerage commissions that the Fund paid was used to reduce the Fund's expenses. In addition, through arrangements with the Fund's custodian, credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund's custodian expenses. These offsets may be discontinued at any time. (15) INVESCO Variable Investment Funds, Inc. - Core Equity Fund, High Yield Fund, Financial Services Fund, Health Sciences Fund, & Technology Fund: Actual Other Expenses and Total Annual Fund Operating Expenses were lower than the figures shown, because their custodian fees were reduced under an expense offset arrangement. (16) Janus Aspen Series: Expenses are based upon expenses for the year ended December 31, 2002. All expenses are shown without the effect of any expense offset arrangements. Mid Cap Growth (formerly Aggressive 0.65% 0.02% 0.67% 0.00% 0.67% Growth Portfolio) (Institutional Shares) Balanced Portfolio (Institutional Shares) 0.65% 0.02% 0.67% 0.00% 0.67% Capital Appreciation Portfolio 0.65% 0.02% 0.67% 0.00% 0.67% (Institutional Shares) Flexible Income Portfolio (Institutional 0.61% 0.05% 0.66% 0.00% 0.66% Shares) Growth Portfolio (Institutional Shares) 0.65% 0.02% 0.67% 0.00% 0.67% Worldwide Growth Portfolio (Institutional 0.65% 0.05% 0.70% 0.00% 0.70% Shares) Maxim Series Fund, Inc. Maxim Loomis-Sayles Bond Portfolio 0.90% 0.00% 0.90% 0.00% 0.90% Maxim INVESCO ADR Portfolio 1.00% 0.12% 1.12% 0.00% 1.12% Maxim INVESCO Balanced Portfolio 1.00% 0.00% 1.00% 0.00% 1.00% Maxim INVESCO Small-Cap Growth Portfolio 0.95% 0.13% 1.08% 0.00% 1.08% Maxim Ariel Mid-Cap Value Portfolio 0.95% 0.11% 1.06% 0.00% 1.06% Maxim Ariel Small-Cap Value Portfolio 1.00% 0.06% 1.06% 0.00% 1.06% Maxim Money Market Portfolio 0.46% 0.00% 0.46% 0.00% 0.46% Maxim T.Rowe Equity/Income Portfolio 0.85% 0.00% 0.85% 0.00% 0.85% Maxim U.S. Government Securities Portfolio 0.60% 0.00% 0.60% 0.00% 0.60% Maxim Profile Portfolios Maxim Aggressive Profile I Portfolio 0.25% 0.00% 0.25% 0.00% 0.25% Maxim Moderately Aggressive Profile I 0.25% 0.00% 0.25% 0.00% 0.25% Portfolio Maxim Moderate Profile I Portfolio 0.25% 0.00% 0.25% 0.00% 0.25% Maxim Moderately Conservative Profile I 0.25% 0.00% 0.25% 0.00% 0.25% Portfolio Maxim Conservative Profile I Portfolio 0.25% 0.00% 0.25% 0.00% 0.25% Neuberger Berman Advisers Management Trust (17) AMT Guardian Portfolio (Class I) 0.85% 0.13% 0.98% 0.00% 0.98% AMT Mid-Cap Growth Portfolio 0.84% 0.11% 0.95% 0.00% 0.95% AMT Partners Portfolio 0.83% 0.08% 0.91% 0.00% 0.91% AMT Socially Responsive Portfolio (18) 0.85% 2.02% 2.87% 1.36% 1.51% (17) Neuberger Berman Advisers Management Trust: Neuberger Berman Management, Inc. ("NBMI") has voluntarily undertaken through April 20, 2005 to reimburse certain operating expenses, including the compensation of NBMI (except with respect to Partners Portfolio) and excluding taxes, interest, extraordinary expenses, brokerage commissions and transaction costs, that exceed, in the aggregate, 1% of the Guardian, Mid-Cap Growth and Partner Portfolio's average daily net asset value and 1.30% of the average daily net asset value of the Socially Responsive Portfolio. (18) Neuberger Berman Advisers Management Trust, Socially Responsive: Neuberger Berman Management Inc. ("NBMI") has undertaken through December 31, 2006 to waive fees and/or reimburse certain operating expenses, including the compensation of NBMI and excluding taxes, interest, extraordinary expenses, brokerage commissions and transaction costs, that exceed, in the aggregate, 1.50% of the average daily net asset value of the fund. The expense limitation agreement is contractual and any excess expenses can be repaid to NBMI within three years of the year incurred, provided such recoupment would not cause the Fund to exceed its contractual expense limitation. Moreover, NBMI has voluntarily committed to waive fees and/or reimburse certain expenses, as stated above, for an additional 0.20% of the average daily net asset value of Fund to maintain the Fund's net operating expense ratio at 1.30. NBMI may, at its sole discretion, terminate this voluntary waiver and/or reimbursement commitment without notice. STI Classic Variable Trust Capital Appreciation Fund (19) 1.15% 0.31% 1.46% 0.00% 1.46% Growth and Income Fund (20) 0.90% 1.66% 2.56% 1.36% 1.20% Small Cap Value Equity Fund (21) 1.15% 0.64% 1.79% 0.00% 1.79% - ------------------------------------------- ------------- ---------- ---------- ------------ -------------
Description of Depositor, Registrant, and Portfolio Companies Great-West Life & Annuity Insurance Company Great-West is a stock life insurance company organized under the laws of the state of Colorado. Our offices are located at 8515 East Orchard Road, Greenwood Village, Colorado 80111. We are authorized to do business in forty-nine states, the District of Columbia, Puerto Rico, U.S. Virgin Islands and Guam. We issue individual and group life insurance policies and annuity contracts and accident and health insurance policies. Great-West is an indirect, wholly owned subsidiary of Great-West Lifeco Inc., a holding company. Great-West Lifeco Inc. is, in turn, a subsidiary of Power Financial Corporation, a financial services company. Power Corporation, a holding and management company, has voting control of Power Financial Corporation of Canada. Mr. Paul Desmarais, through a group of private holding companies, which he controls, has voting control of Power Corporation. On February 17, 2003, Great-West Lifeco announced a definitive agreement to acquire Canada Life Financial Corporation. 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. Subject to required shareholder and regulatory approvals, the transaction is expected to close on or about July 10, 2003. The Series Account COLI VUL-2 Series Account is a segregated asset account of Great-West. We use the Series Account to fund benefits payable under the Policy. The Series Account may also be used to fund benefits payable under other life insurance policies issued by us. (19) STI Classic Capital Appreciation Fund: The Fund's adviser voluntarily waived a portion of the fees in order to keep total operating expenses at a specified level. The adviser may discontinue all or part of this fee waiver at any time. (20) STI Classic Growth and Income Fund: The Fund's adviser has contractually agreed to waive fees and reimburse expenses until May 1, 2004 in order to keep total operating expenses from exceeding 1.20%. (21) STI Classic Small Cap Value Equity Fund: The Fund's adviser voluntarily waived a portion of the fees in order to keep total operating expenses at a specified level. The adviser may discontinue all or part of this fee waiver at any time. We own the assets of the Series Account, which we hold separate and apart from our general account assets. 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. The income, gains, and losses credited to, or charged against, the Series Account reflect the Series Account's own investment experience and not the investment experience of Great-West's other assets. The assets of the Series Account may not be used to pay any liabilities of Great-West other than those arising from the Policies (and any other life insurance policies issued by us and funded by the Series Account). Great-West is obligated to pay all amounts promised to Owners under the Policies (and any other life insurance policies issued by us and funded by the Series Account). 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 policies participating in the Series Account. The Series Account is divided into Divisions. Each Division invests exclusively in shares of a corresponding investment portfolio of a registered management investment company (commonly known as a mutual fund). We may in the future add new or delete existing Divisions. The income, gains or losses, realized or unrealized, from assets allocated to each Division are credited to or charged against that Division without regard to the other income, gains or losses of the other Divisions. All amounts allocated to a Division will be used to purchase shares of the corresponding Fund. The Divisions will at all times be fully invested in Fund shares. We maintain records of all purchases and redemptions of shares of the Funds. The Investment Options and Funds The Policy offers a number of investment options, corresponding to the Divisions. Each Division invests in a single Fund. Each Fund is a mutual fund registered under the Investment Company Act of 1940, as amended (the "1940 Act"), or a separate series of shares of such a mutual fund. More comprehensive information, including a discussion of potential risks, is found in the current prospectuses for the Funds. The fund prospectuses should be read in connection with this prospectus. YOU MAY OBTAIN A PROSPECTUS AND, IF AVAILABLE, A FUND PROFILE, CONTAINING COMPLETE INFORMATION ON EACH FUND, WITHOUT CHARGE, UPON REQUEST. Each Fund holds its assets separate from the assets of the other Funds, and each Fund has its own distinct investment objective and policies. Each Fund operates as a separate investment fund, and the income, gains and losses of one Fund generally have no effect on the investment performance of any other Fund. The Funds are NOT available to the general public directly. The Funds are available as investment options in variable life insurance policies or variable annuity contracts issued by life insurance companies or, in some cases, through participation in certain qualified pension or retirement plans. Some of the Funds have been established by investment advisers that manage publicly traded mutual funds having similar names and investment objectives. While some of the Funds may be similar to, and may in fact be modeled after publicly traded mutual funds, the Funds are not otherwise directly related to any publicly traded mutual fund. Consequently, the investment performance of publicly traded mutual funds and any similarly named Fund may differ substantially. Some of the Funds' investment advisers or distributors compensate us for providing the administrative, recordkeeping and reporting services they would normally be required to provide for individual shareholders. Such compensation is paid out of the investment adviser's or the distributor's assets. The investment policies of the current Funds are briefly described below: American Century Variable Portfolios, Inc. (advised by American Century Investment Management, Inc.) American Century VP Income & Growth seeks long-term capital growth, with current income as a secondary objective, by investing in common stocks. American Century VP International seeks capital growth by investing primarily in an internationally diversified portfolio of common stocks that are considered by the adviser to have prospects for appreciation. American Century VP Ultra(R) seeks long-term capital growth by using a 16,000-company proprietary database to identify companies with accelerated growth. The fund conducts a fundamental analysis to further evaluate attractive companies and identify those with sustainable growth. The portfolio is built by buying stocks exhibiting the best sustainable, accelerated growth trends. Stocks that no longer meet the fund's acceleration criteria are sold. American Century VP Value seeks long-term capital growth by investing in securities that the adviser believes to be undervalued at the time of purchase. Income is a secondary objective. Dreyfus Stock Index Fund (advised by The Dreyfus Corporation and its affiliate Mellon Equity Associates) Dreyfus Stock Index Fund seeks to provide investment results that correspond to the price and yield performance of publicly traded common stocks in the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. Dreyfus Variable Investment Fund (advised by The Dreyfus Corporation) Appreciation Portfolio seeks to provide long-term capital growth consistent with the preservation of capital; current income is a secondary goal by investing in common stocks focusing on "blue-chip" companies with total market values of more than $5 billion at the time of purchase. Current income is a secondary goal. Fayez Sarofim & Co. is the sub-adviser to this Fund and, as such, provides day-to-day management. Growth and Income Portfolio seeks to provide long-term capital growth, current income and growth of income, consistent with reasonable investment risk by investing primarily in stocks, bonds and money market instruments of domestic and foreign issuers. Federated Insurance Series (advised by Federated Advisers) Federated American Leaders Fund II seeks to achieve long-term growth of capital by investing, under normal circumstances, primarily in common stock of "blue-chip" companies. The Fund's secondary objective is to provide income. Federated Growth Strategies Fund II seeks capital appreciation by investing primarily in equity securities of companies with prospects for above-average growth in earnings and dividends or companies where significant fundamental changes are taking place. Federated High Income Bond Fund II seeks high current income by investing primarily in a professionally managed, diversified portfolio of fixed-income securities, including lower-rated corporate debt obligations commonly referred to as "junk bonds." Federated International Equity Fund II seeks to obtain a total return on its assets by investing primarily in equity securities of companies outside the United States. Fidelity Variable Insurance Products (VIP) Fund (advised by Fidelity Management & Research Company) Fidelity VIP Growth Portfolio seeks to achieve capital appreciation. The Portfolio normally invests primarily in common stocks of domestic and foreign companies that are believed to have above-average growth potential. Fidelity VIP Contrafund(R) Portfolio (formerly Fidelity VIP II Contrafund(R) Portfolio) seeks long-term capital appreciation by investing primarily in common stocks. The Portfolio invests its assets in securities of companies whose value its investment advisor believes is not fully recognized by the public. Fidelity VIP Investment Grade Bond Portfolio seeks to provide as high a level of current income as is consistent with the preservation of capital. The Portfolio normally invests in U.S. dollar-denominated investment-grade bonds (those of medium and high quality). INVESCO Variable Investment Funds, Inc. (advised by INVESCO Funds Group, Inc. ("INVESCO")) INVESCO VIF - Core Equity Fund seeks high total return through both growth and current income. The Portfolio normally invests in at least 65% (80% effective July 31, 2002) of its assets in a combination of common stocks of companies with a history of paying regular dividends and debt securities. Debt securities include corporate obligations and obligations of the U.S. government and government agencies. The remaining assets of the Portfolio are allocated to other investments at INVESCO's discretion, based upon current business, economic, and market conditions. The Portfolio was formally called the Industrial Income Portfolio and the Equity Income Fund. INVESCO VIF - Financial Services seeks capital appreciation. The Portfolio invests normally at least 80% of its assets in the equity securities of companies involved in the financial services sector. These companies include, but are not limited to, banks (regional and money centers), insurance companies (life, property and casualty, and multiline), investment and miscellaneous industries (asset managers, brokerage firms, and government-sponsored agencies) and suppliers to financial services companies. INVESCO seeks companies that it believes can grow their revenues and earnings in a variety of interest rate environments - although securities prices of financial services companies generally are interest rate-sensitive. INVESCO VIF - Health Sciences seeks capital appreciation. The Portfolio normally invests at least 80% of its assets in the equity securities of companies that develop, produce or distribute products or services related to health care. These companies include, but are not limited to, medical equipment or supplies, pharmaceuticals, biotechnology and healthcare providers and service companies. INVESCO attempts to blend well-established healthcare firms with faster-growing, more dynamic health care companies. Well-established health care companies typically provide liquidity and earnings visibility for the Portfolio and represent core holdings in the Portfolio. INVESCO VIF - High Yield Fund seeks a high level of current income by investing 65% (80% effective July 31, 2002) of its assets in bonds and other debt securities. The Portfolio pursues its investment objective through investment in a diversified portfolio of high yield corporate bonds rated below investment grade, commonly known as "junk bonds," and preferred stock with investment grade and below investment grade ratings. Potential capital appreciation is a factor in the selection of investments, but is secondary to the Portfolio's primary objective. INVESCO VIF - Technology Fund seeks capital growth and normally invests at least 80% of its assets in equity securities and equity-related instruments of companies engaged in technology-related industries. These include, but are not limited to, applied technology, biotechnology, communications, computers, electronics, Internet IT services and consulting, software, telecommunication equipment and services, IT infrastructure and networking companies. Many of these products and services are subject to rapid obsolescence, which may lower the market value of the securities of the companies in this sector. While the Fund's investments are diversified across the technology sector, the Fund's investments are not as diversified as most mutual funds, and far less diversified than the broad securities markets because the Fund's portfolio is limited to a comparatively narrow segment of the economy. This means that the Fund tends to be more volatile than other mutual funds, and the value of its portfolio investments tends to go up and down more rapidly. As a result, the value of a Fund shares may rise or fall rapidly. Janus Aspen Series (advised by Janus Capital Management, LLC) Mid Cap Growth Portfolio seeks long-term growth of capital by investing primarily in common stocks selected for their growth potential, and normally invests at least 80% of its equity assets in medium sized companies. Balanced Portfolio seeks long-term growth of capital, balanced by current income by normally investing 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, which include debt securities and preferred stock. Capital Appreciation Portfolio seeks long-term growth of capital by investing primarily in common stocks selected for their growth potential. The Portfolio may invest in companies of any size, from larger, well-established companies to small, emerging growth companies. Flexible Income Portfolio seeks to maximize total return consistent with the preservation of capital by investing primarily in a wide variety of income-producing securities such as corporate bonds and notes, government securities and preferred stock. As a fundamental policy, the Portfolio will invest at least 65% (at the time of purchase) of its assets in investment grade debt securities and maintain a dollar-weighted average portfolio maturity of five to ten years. The Portfolio will also limit its investment in high-yield/high-risk bonds to less than 35% (at the time of purchase) of its net assets. Growth Portfolio 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. Worldwide Growth Portfolio seeks long-term growth of capital in a manner consistent with the preservation of capital primarily through investments in common stocks of foreign and domestic c issuers. The Portfolio has the flexibility to invest on a worldwide basis in companies and organizations of any size, regardless of country of organization or place of principal business activity. Worldwide Growth Portfolio normally invests at least 80% of its total assets in issuers from at least five different countries, including the United States. The Portfolio may at times invest in fewer than five countries or even a single country. Maxim Series Fund, Inc. (advised by GW Capital Management, LLC, (d.b.a. Maxim Capital Management) ("MCM") a wholly-owned subsidiary of Great-West) Maxim Ariel Small-Cap Value Portfolio seeks long- term capital appreciation. Under normal circumstances, this portfolio invests at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in the securities of issuers whose market capitalizations are less than $2 billion at the time of purchase. This portfolio will emphasize small companies that are believed to be undervalued but demonstrate a strong potential for growth, focusing on issuers with market capitalizations under $2 billion at the time of purchase. The portfolio actively seeks investments in companies that achieve excellence in both financial return and environmental soundness, selecting issuers that take positive steps toward preserving the environment and avoiding companies with a poor environmental record. The portfolio will not invest in issuers primarily engaged in the manufacture of tobacco, weapons systems, the production of nuclear energy or manufacture of equipment to produce nuclear energy. Maxim Ariel Mid-Cap Value Portfolio seeks long-term capital appreciation. Under normal circumstances, this portfolio will invest at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in the securities of issuers whose market capitalizations are less than $10 billion at the time of purchase and which are believed to be undervalued but demonstrate a strong potential for growth. In this connection, the portfolio may focus on issuers with market capitalizations between approximately $200 million and $10 billion at the time of purchase. The portfolio actively seeks investments in companies that achieve excellence in both financial return and environmental soundness, selecting issuers that take positive steps toward preserving the environment and avoiding companies with a poor environmental record. The portfolio will not invest in issuers primarily engaged in the manufacture of tobacco, weapons systems, the production of nuclear energy or manufacture of equipment to produce nuclear energy. Maxim Loomis-Sayles Bond Portfolio seeks high total investment return through a combination of current income and capital preservation. Under normal circumstances, this portfolio will invest at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in fixed income securities. It may also invest up to 20% in preferred stocks, convertible preferred stocks or foreign securities and up to 35% in below investment grade quality ("high-yield/high-risk" or "junk") bonds. Maxim INVESCO ADR Portfolio seeks a high total return through capital appreciation and current income, while reducing risk through diversification. Under normal circumstances, this portfolio invests at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in foreign securities that are issued in the form of American Depositary Receipts ("ADRs") or foreign stocks that are registered with the Securities and Exchange Commission and traded in the U.S. Maxim INVESCO Balanced Portfolio seeks high total return on investment through capital appreciation and current income. This portfolio normally invests at least 65% of its assets in a combination of common stocks and fixed income securities, including preferred stocks, convertible securities and bonds. Under normal circumstances, the portfolio invests a majority of its total assets in common stocks and approximately 25% of its assets in investment grade debt securities and 25% of its assets in debt securities that are investment grade at the time of purchase, which may include obligations of the U.S. government, government agencies and investment grade corporate bonds. Maxim INVESCO Small-Cap Growth Portfolio seeks to achieve long-term capital growth. Under normal circumstances, this portfolio will invest at least 80% of its net assets (plus the amount of any borrowings for investments purposes) in the common stocks of a diversified group of growth companies that are included in the Russell 2000 Growth Index at the time of purchase, or if not included in that index, have market capitalizations of $2.5 billion or less at the time of initial purchase. This portfolio may also invest up to 20% in equity securities of companies with market capitalizations in excess of $2.5 billion. Maxim Money Market Portfolio seeks as high a level of current income as is consistent with the preservation of capital and liquidity. Investment in the Maxim Money Market Portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the portfolio seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in this portfolio. Maxim T. Rowe Price Equity/Income Portfolio seeks substantial dividend income and also long-term capital appreciation. Under normal circumstances, this portfolio invests at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in common stocks, with 65% in common stocks of well-established companies paying above-average dividends. Maxim U.S. Government Securities Portfolio seeks the highest level of return consistent with preservation of capital and substantial credit protection. Under normal circumstances, this portfolio invests at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in securities issued or guaranteed by the U.S. Government or one of its agencies or instrumentalities. Maxim Profile Portfolios Each of the following five Profile Portfolios seeks to provide an asset allocation program designed to meet certain investment goals based on an investor's risk tolerance. Maxim Aggressive Profile I Portfolio seeks long-term capital appreciation primarily through investments in other mutual funds, including mutual funds that are not affiliated with Maxim Series Fund, that emphasize equity investments. Maxim Moderately Aggressive Profile I Portfolio seeks long-term capital appreciation primarily through investments in other mutual funds, including mutual funds that are not affiliated with Maxim Series Fund, that emphasize equity investments and, to a lesser degree, emphasizing fixed income securities. Maxim Moderate Profile I Portfolio seeks long-term capital appreciation primarily through investments in other mutual funds, including mutual funds that are not affiliated with Maxim Series Fund, with a relatively equal emphasis on equity and fixed income investments. Maxim Moderately Conservative Profile I Portfolio seeks capital appreciation primarily through investments in other mutual funds, including mutual funds that are not affiliated with Maxim Series Fund, that emphasize fixed income investments, and, to a lesser degree, equity investments. Maxim Conservative Profile I Portfolio seeks capital preservation primarily through investments in other mutual funds, including mutual funds that are not affiliated with Maxim Series Fund, that emphasize fixed income investments. Neuberger Berman Advisers Management Trust (advised by Neuberger Berman Management Incorporated) AMT Guardian Portfolio seeks capital appreciation, and, secondarily, current income by investing primarily in common stocks of long-established, high-quality companies. A value-oriented investment approach is used in selecting securities. AMT Mid-Cap Growth Portfolio seeks capital appreciation by investing, under normal market conditions, in equity securities of medium-sized companies. A growth-oriented investment approach is used in selecting securities. AMT Partners Portfolio seeks capital growth by investing in common stocks and other equity securities of medium to large capitalization established companies. A value-oriented investment approach is used in selecting securities. AMT Socially Responsive Portfolio seeks long-term capital appreciation by investing in stocks of medium to large capitalization companies that meet both financial and social criteria. A value-oriented investment approach is used in selecting securities. STI Classic Variable Trust (advised by Trusco Capital Management, Inc.) STI Capital Appreciation Fund seeks to provide capital appreciation. It generally invests primarily in U.S. common stocks and other equity securities that the Fund's adviser believes have strong business fundamentals, such as revenue growth, cash flows, and earnings trends. STI Growth and Income Fund seeks to provide long-term capital appreciation with current income as a secondary investment goal. It generally invests primarily in equity securities, including common stocks of domestic companies and listed American Depository Receipts (ADRs) of foreign companies, all with market capitalizations of at least $1 billion. However, the average market capitalization can vary throughout a full market cycle and will be flexible to allow the Fund's adviser to capture market opportunities. STI Small Cap Value Equity Fund seeks to achieve capital appreciation with current income as a secondary investment goal. It generally invests at least 80% of its net assets in common stocks of small-sized U.S. companies (i.e., companies with market capitalizations under $2 billion). In selecting investments, the Fund's advisor chooses companies that it believes are undervalued in the market. You should contact your representative for further information on the availability of the Divisions. Each Fund is subject to certain investment restrictions and policies that may not be changed without the approval of a majority of the shareholders of the Fund. See the accompanying fund prospectuses for further information. We automatically reinvest all dividends and capital gain distributions from the Funds in shares of the distributing Fund at their net asset value. The income and realized and unrealized gains or losses on the assets of each Division are separate and are credited to, or charged against, the particular Division without regard to income, gains or losses from any other Division or from any other part of our business. We will use amounts you allocate to a Division to purchase shares in the corresponding Fund and will redeem shares in the Funds to meet Policy obligations or make adjustments in reserves. The Funds are required to redeem their shares at net asset value and to make payment within seven days. The Funds may also be available to separate accounts offering variable annuity, variable life products and qualified plans of other affiliated and unaffiliated insurance companies, as well as our other separate accounts. Although we do not anticipate any disadvantages to this, there is a possibility that a material conflict may arise between the interests of the Series Account and one or more of the other separate accounts participating in the Funds. A conflict may occur due to a change in law affecting the operations of variable life and variable annuity separate accounts, differences in the voting instructions of Owners and those of other companies, or some other reason. In the event of conflict, we will take any steps necessary to protect Owners, including withdrawal of the Series Account from participation in the Funds that are involved in the conflict or substitution of shares of other Funds. Voting. We are the legal owner of all shares of the Funds held in the Divisions of the Series Account, and as such have the right to vote upon matters that are required by the 1940 Act to be approved or ratified by the shareholders of the Funds and to vote upon any other matters that may be voted upon at a shareholders' meeting. We will, however, vote shares held in the Divisions in accordance with instructions received from Owners who have an interest in the respective Divisions. We will vote shares held in each Division for which no timely instructions from Owners are received, together with shares not attributable to a Policy, in the same proportion as those shares in that Division for which instructions are received. The number of shares in each Division for which instructions may be given by an Owner is determined by dividing the portion of the Account Value derived from participation in that Division, if any, by the value of one share of the corresponding Fund. We will determine the number as of the record date chosen by the Fund. Fractional votes are counted. Voting instructions will be solicited in writing at least 14 days prior to the shareholders' meeting. We may, if required by state insurance regulators, disregard voting instructions if those instructions would require shares to be voted so as to cause a change in the sub-classification or investment policies of one or more of the Funds, or to approve or disapprove an investment management contract. In addition, we may disregard voting instructions that would require changes in the investment policies or investment adviser, provided that we reasonably disapprove of those changes in accordance with applicable federal regulations. If we disregard voting instructions, we will advise you of that action and our reasons for it in our next communication to Owners. This description reflects our current view of applicable law. Should the applicable federal securities laws change so as to permit us to vote shares held in the Series Account in our own right, we may elect to do so. Charges and Deductions Expense Charges Applied to Premium. We will deduct a maximum charge of 10% from each premium payment as follows. A maximum of 6.5% will be deducted as sales load to compensate us in part for sales and promotional expenses in connection with selling the Policies, such as commissions, the cost of preparing sales literature, other promotional activities and other direct and indirect expenses. A maximum of 3.5% of Premium will be used to cover premium taxes and certain federal income tax obligations resulting from the receipt of Premiums. All states and some cities and municipalities impose taxes on premiums paid for life insurance, which generally range from 2% to 4% of Premium but may exceed 4% in some states. The amount of your state's premium tax may be higher or lower than the amount attributable to premium taxes that we deduct from your premium payments. The current expense charge applied to Premium for sales load is 5.5% of Premium up to target and 3.0% of Premium in excess of target for Policy Years 1 through 10. Your target Premium will depend on the initial Total Face Amount of your Policy, your Issue Age, your sex (except in unisex states), and rating class (if any). Thereafter, there is no charge for sales load. The current expense charge applied to Premium to cover our premium taxes and the federal tax obligation described above is 3.5% in all Policy Years. Where permitted by applicable state insurance law, if your Policy is surrendered for the Surrender Benefit (Account Value less any outstanding policy loans and less accrued loan interest) within the first six Policy Years, we will return a percentage of the expense charge. The return of expense charge will be a percentage of your Policy's Account Value on the date the surrender Request was received by us at our Corporate Headquarters. This amount will be in addition to the Surrender Benefit. The return of expense charge is based on the following: Policy Year Percentage of Account Value Returned Year 1 6% Year 2 5% Year 3 4% Year 4 3% Year 5 2% Year 6 1% Year 7+ 0% As described under the heading "Term Life Insurance Rider" on page [ ], we may offer a term life insurance rider that may have the effect of reducing the sales charge you pay on purchasing an equivalent amount of insurance. We offer this rider in circumstances that result in the savings of sales and distribution expenses and administrative costs. To qualify, a corporation, employer, or other purchaser must satisfy certain criteria such as, for example, the number of Policies it expects to purchase and the expected Total Face Amount under all such Policies. Generally, the sales contacts and effort and administrative costs per Policy depend on factors such as the number of Policies purchased by a single Owner, the purpose for which the Policies are purchased, and the characteristics of the proposed Insureds. The amount of reduction and the criteria for qualification are related to the sales effort and administrative costs resulting from sales to a qualifying owner. Great-West from time to time may modify on a uniform basis both the amounts of reductions and the criteria for qualification. Reductions in these charges will not be unfairly discriminatory against any person, including the affected owners funded by the Series Account. Mortality and Expense Risk Charge. This charge is for the mortality and expense risks we assume with respect to the Policy. It is based on an annual rate that we apply against each Division of the Series Account on a daily basis. We convert the mortality and expense risk charge into a daily rate by dividing the annual rate by 365. The mortality and expense risk charge will be determined by us from time to time based on our expectations of future interest, mortality experience, persistency, expenses and taxes, but will not exceed 0.90% annually. Currently, the charge is 0.40% for Policy Years 1 through 5, 0.25% for Policy Years 6 through 20 and 0.10% thereafter. The mortality risk we assume is that the group of lives insured under the Policies may, on average, live for shorter periods of time than we estimated. The expense risk we assume is that the costs of issuing and administering Policies may be more than we estimated. Monthly Deduction. We make a monthly deduction from your Account Value on the Policy Date and the first day of each Policy Month. This monthly deduction will be charged proportionally to the amounts in the Divisions. The monthly deduction equals the sum of (1), (2), (3) and (4) where: (1) is the cost of insurance charge (the monthly risk charge) equal to the current monthly risk rate (described below) multiplied by the net amount at risk divided by 1,000; (2) is the service charge; (3) is the monthly cost of any additional benefits provided by riders which are a part of your Policy; and (4) is any extra risk charge if the Insured is in a rated class as specified in your Policy. The net amount at risk equals: o the death benefit divided by 1.00327374; less o your Policy's Account Value on the first day of a Policy Month prior to assessing the monthly deduction. If there are increases in the Total Face Amount other than increases caused by changes in the death benefit option, the monthly deduction described above is determined separately for the initial Total Face Amount and each increase in the Total Face Amount. In calculating the net amount at risk, your Account Value will first be allocated to the most recent increase in the death benefit and then to each increase in the Total Face Amount in the reverse order in which the increases were made. Monthly Risk Rates. The monthly risk rate is used to determine the cost of insurance charge (monthly risk charge) for providing insurance coverage under the Policy. The monthly risk rate is applied to the amount at risk. The monthly risk rates (except for any such rate applicable to an increase in the Total Face Amount) are based on the length of time your Policy has been in force and the Insured's sex (in the case of non-unisex Policies) and Issue Age. If the Insured is in a rated class as specified in your Policy, we will deduct an extra risk charge that reflects that class rating. The monthly risk rates applicable to each increase in the Total Face Amount are based on the length of time the increase has been in force and the Insured's sex (in the case of non-unisex Policies), Issue Age, and class rating, if any. The monthly risk rates will be determined by us from time to time based on our expectations of future experience with respect to mortality, persistency, interest rates, expenses and taxes, but will not exceed the guaranteed maximum monthly risk rates based on the 1980 Commissioner's Standard Ordinary, Age Nearest Birthday, Male/Female, Smoker/Non-Smoker Ultimate Mortality Table ("1980 CSO"). Our monthly risk rates for unisex Policies will never exceed a maximum based on the 1980 CSO using male lives. Currently, the guaranteed minimum monthly risk charge is $0.08 per $1000 and the guaranteed maximum is $83.33 per $1000. The guaranteed maximum monthly risk rates reflect any class rating applicable to the Policy. We have filed a detailed statement of our methods for computing Account Values with the insurance department in each jurisdiction where the Policy was delivered. These values are equal to or exceed the minimum required by law. The monthly risk rate is greater on policies that require less underwriting to be performed regardless of the health of the individual. Monthly risk rate charges will be greatest on guaranteed issue policies, followed by simplified issue policies, then fully underwritten policies. Service Charge. We will deduct a maximum of $15.00 from your Policy's Account Value on the first day of each Policy Month to cover our administrative costs, such as salaries, postage, telephone, office equipment and periodic reports. This charge may be increased or decreased by us from time to time based on our expectations of future expenses, but will never exceed $15.00 per Policy Month. The service charge will be deducted proportionally from the Divisions. The current service charge is $10.00 per Policy Month for Policy Years 1 through 3 and $7.50 per Policy Month thereafter. Transfer Fee. A maximum administrative charge of $10 per Transfer of Account Value from one Division to other Divisions will be deducted from your Policy's Account Value for all Transfers in excess of 12 made in the same calendar year. The allocation of your Initial Premium from the Maxim Money Market Portfolio Division to your selected Divisions will not count toward the 12 free Transfers. Similarly, Transfers made under dollar cost averaging and periodic rebalancing under the rebalancer option are not subject to the transfer fee and do not count as Transfers for this purpose (except a one-time rebalancing under the rebalancer option will count as one Transfer). All Transfers requested on the same Business Day will be aggregated and counted as one Transfer. The current charge is $10 per Transfer. Partial Withdrawal Fee. A maximum administrative fee of $25 will be deducted from your Policy's Account Value for all partial withdrawals after the first made in the same Policy Year. The partial withdrawal fee will be deducted proportionally from all Divisions. Surrender Charges. Your Policy has no surrender charges. Change of Death Benefit Option Fee. A maximum administrative fee of $100 will be deducted from your Policy's Account Value each time you change your death benefit option. The change of death benefit fee will be deducted proportionally from all Divisions. Fund Expenses. You indirectly bear the charges and expenses of the Funds whose shares are held by the Divisions to which you allocate your Account Value. The Series Account purchases shares of the Funds at net asset value. Each Fund's net asset value reflects investment advisory fees and administrative expenses already deducted from the Fund's assets. A table containing current estimates of these charges and expenses can be found starting on page [ ]. For more information concerning the investment advisory fees and other charges against the Funds, see the fund prospectuses and the statements of additional information for the Funds, which are available upon Request. We may receive compensation from the investment advisers or administrators of the Funds. Such compensation will be consistent with the services we provide or the cost savings resulting from the arrangement and, therefore, may differ between Funds. General Description of Policy Unless otherwise indicated, the description of the Policy in this prospectus assumes that the Policy is in force, there is no Policy Debt and current federal tax laws apply. The Policy described in this prospectus is offered to corporations and employers to provide life insurance coverage in connection with, among other things, deferred compensation plans. We issue Policies on the lives of prospective Insureds who meet our underwriting standards. Policy Rights Owner. While the Insured is alive, unless you have assigned any of these rights, you may: o transfer ownership to a new owner; o name a contingent owner who will automatically become the Owner of the Policy if you die before the Insured; o change or revoke a contingent owner; o change or revoke a Beneficiary (unless a previous beneficiary designation was irrevocable); o exercise all other rights in the Policy; o increase or decrease the Total Face Amount, subject to the other provisions of the Policy; and o change the death benefit option, subject to the other provisions of the Policy. When you transfer your rights to a new Owner, you automatically revoke any prior contingent owner designation. When you want to change or revoke a prior beneficiary designation, you have to specify that action. You do not affect a prior Beneficiary when you merely transfer ownership, or change or revoke a contingent owner designation. You do not need the consent of a Beneficiary or a contingent owner in order to exercise any of your rights. However, you must give us written notice satisfactory to us of the Requested action. Your Request will then, except as otherwise specified herein, be effective as of the date you signed the form, subject to any action taken before it was received by us. Beneficiary. The Beneficiary has no rights in the Policy until the death of the Insured, except an irrevocable beneficiary cannot be changed without the consent of that Beneficiary. If a Beneficiary is alive at that time, the Beneficiary will be entitled to payment of the Death Benefit Proceeds as they become due. Policy Limitations Allocation of Net Premiums. Except as otherwise described herein, your net premium will be allocated in accordance with the allocation percentages you select. Percentages must be in whole numbers. We will credit premium payments received prior to the end of the free look period as described in the "Free Look Period" section of this prospectus on page [ ]. You may change your allocation percentages at any time by Request. Telephone Requests will be honored only if we have a properly completed telephone authorization form for you on file. An allocation change will be effective as of the date we receive the Request for that change. We, our affiliates and the representative from whom you purchased your Policy will not be responsible for losses resulting from acting upon telephone Requests reasonably believed to be genuine. We will use reasonable procedures to confirm that instructions communicated by telephone are genuine. You will be required to identify yourself by name and a personal identification number for transactions initiated by telephone. However, if we do not take reasonable steps to ensure that a telephone authorization is valid, we may be liable for such losses. We may suspend, modify or terminate this telephone privilege at any time without notice. Transfers Among Divisions. Subject to our rules as they may exist from time to time, you may at any time Transfer to another Division all or a portion of the Account Value allocated to a Division. We will make Transfers pursuant to a Request. Telephone Requests will be honored only if we have a properly completed telephone authorization form for you on file. We, our affiliates and the representative from whom you purchased your Policy will not be responsible for losses resulting from acting upon telephone Requests reasonably believed to be genuine. We will use reasonable procedures to confirm that instructions communicated by telephone are genuine. For transactions initiated by telephone, you will be required to identify yourself by name and a personal identification number. However, if we do not take reasonable steps to help ensure that a telephone authorization is valid, we may be liable for such losses. We may suspend, modify or terminate the telephone Transfer privilege at any time without notice. Transfers may be Requested by indicating the Transfer of either a specified dollar amount or a specified percentage of the Division's value from which the Transfer will be made. Transfer privileges are subject to our consent. We reserve the right to impose limitations on Transfers, including, but not limited to: (1) the minimum amount that may be Transferred; and (2) the minimum amount that may remain in a Division following a Transfer from that Division. An administrative charge of $10 per Transfer will apply for all Transfers in excess of 12 made in a calendar year. We may increase or decrease the Transfer charge; however, it is guaranteed to never exceed $10 per Transfer. All Transfers made in a single day will count as only one Transfer toward the 12 free Transfers. The Transfer of your Initial Premium from the Maxim Money Market Portfolio Division to your selected Divisions does not count toward the twelve free Transfers. Likewise, any Transfers under dollar cost averaging or periodic rebalancing of your Account Value under the rebalancer option do not count toward the twelve free Transfers (a one time rebalancing, however, will be counted as one Transfer). Exchange of Policy. You may exchange your Policy for a new policy issued by Great-West that does not provide for variable benefits. The new policy will have the same Policy Date, Issue Age, and Insured as your Policy on the date of the exchange. The exchange must be made within 24 Policy Months after the Issue Date of your Policy and all Policy Debt must be repaid. The cash value of your current Policy will be applied to the new policy as the Initial Premium. Age Requirements. An Insured's Issue Age must be between 20 and 85 for Policies issued on a fully underwritten basis and between 20 and 70 for Policies issued on a guaranteed underwriting or a simplified underwriting basis. Policy or Registrant Changes Addition, Deletion or Substitution of Investments. Shares of any or all of the Funds may not always be available for purchase by the Divisions of the Series Account, or we may decide that further investment in any such shares is no longer appropriate. In either event, shares of other registered open-end investment companies or unit investment trusts may be substituted both for Fund shares already purchased by the Series Account and/or as the security to be purchased in the future, provided that these substitutions have been approved by the SEC, to the extent necessary. We also may close a Division to future premium allocations and Transfers of Account Value. If we do so, we will notify you and ask you to change your premium allocation instructions. If you do not change those instructions by the Division's closing date, Premiums allocated to that Division automatically will be allocated to the Maxim Money Market Portfolio Division until you instruct us otherwise. A Division closing may affect dollar cost averaging and the rebalancer option. We reserve the right to operate the Series Account in any form permitted by law, to take any action necessary to comply with applicable law or obtain and continue any exemption from applicable laws, to assess a charge for taxes attributable to the operation of the Series Account or for other taxes, as described in "Charges and Deductions" beginning on [ ] of this prospectus, and to change the way in which we assess other charges, as long as the total other charges do not exceed the maximum guaranteed charges under the Policies. We also reserve the right to add Divisions, or to eliminate or combine existing Divisions or to Transfer assets between Divisions, or from any Division to our general account. In the event of any substitution or other act described in this paragraph, we may make appropriate amendment to the Policy to reflect the change. Entire Contract. Your entire contract with us consists of the Policy, including the attached copy of your application and any attached copies of supplemental applications for increases in the Total Face Amount, any endorsements and any riders. Any illustrations prepared in connection with the Policy do not form a part of our contract with you and are intended solely to provide information about how values under the Policy, such as Cash Surrender Value, death benefit and Account Value, will change with the investment experience of the Divisions, and such information is based solely upon data available at the time such illustrations are prepared. Alteration. Sales representatives do not have any authority to either alter or modify your Policy or to waive any of its provisions. The only persons with this authority are our president, secretary, or one of our vice presidents. Modification. Upon notice to you, we may modify the Policy if such a modification -- o is necessary to make the Policy or the Series Account comply with any law or regulation issued by a governmental agency to which we are, or the Series Account is, subject; o is necessary to assure continued qualification of the Policy under the Code or other federal or state laws as a life insurance policy; o is necessary to reflect a change in the operation of the Series Account or the Divisions; or o adds, deletes or otherwise changes Division options. We also reserve the right to modify certain provisions of the Policy as stated in those provisions. In the event of any such modification, we may make appropriate amendment to the Policy to reflect such modification. Assignments. During the lifetime of the Insured, you may assign all or some of your rights under the Policy. All assignments must be filed at our Corporate Headquarters and must be in written form satisfactory to us. The assignment will then be effective as of the date you signed the form, subject to any action taken before we received it. We are not responsible for the validity or legal effect of any assignment. Notice and Elections. To be effective, all notices and elections under the Policy must be in writing, signed by you, and received by us at our Corporate Headquarters. Certain exceptions may apply. Unless otherwise provided in the Policy, all notices, requests and elections will be effective when received at our Corporate Headquarters complete with all necessary information. Account Value Your Account Value is the sum of your interests in each Division you have chosen plus the amount in your Loan Account. The Account Value varies depending upon the premiums paid, expense charges applied to premium, mortality and expense risk charge, service charges, monthly risk charges, partial withdrawals, fees, policy loans and the net investment factor (described below) for the Divisions to which your Account Value is allocated. We measure the amounts in the Divisions in terms of Units and Unit Values. On any given date, your interest in a Division is equal to the Unit Value multiplied by the number of Units credited to you in that Division. Amounts allocated to a Division will be used to purchase Units of that Division. Units are redeemed when you make partial withdrawals, undertake policy loans or Transfer amounts from a Division, and for the payment of service charges, monthly risk charges and other fees. The number of Units of each Division purchased or redeemed is determined by dividing the dollar amount of the transaction by the Unit Value for the Division. The Unit Value for each Division was established at $10.00 for the first Valuation Date of the Division. The Unit Value for any subsequent Valuation Date is equal to the Unit Value for the preceding Valuation Date multiplied by the net investment factor (determined as provided below). The Unit Value of a Division for any Valuation Date is determined as of the close of the Valuation Period ending on that Valuation Date. Transactions are processed on the date we receive a Premium at our Corporate Headquarters or upon approval of a Request. If your Premium or Request is received on a date that is not a Valuation Date, or after the close of the NYSE on a Valuation Date, the transaction will be processed on the next Valuation Date. The Account Value attributable to each Division of the Series Account on the Policy Date equals: o that portion of net premium received and allocated to the Division, less o the service charges due on the Policy Date, less o the monthly risk charge due on the Policy Date, less o the monthly risk charge for any riders due on the Policy Date. We apply your Initial Premium on the Policy Date, which will be the Issue Date (if we have already received your Initial Premium) or the Business Day we receive a Premium equal to, or in excess of, the Initial Premium after we have approved your application. The Account Value attributable to each Division of the Series Account on subsequent Valuation Dates is equal to: o the Account Value attributable to the Division on the preceding Valuation Date multiplied by that Division's net investment factor, plus o that portion of net premium received and allocated to the Division during the current Valuation Period, plus o that portion of the value of the Loan Account Transferred to the Division upon repayment of a policy loan during the current Valuation Period; plus o any amounts Transferred by you to the Division from another Division during the current Valuation Period, less o any amounts Transferred by you from the Division to another Division during the current Valuation Period, less o that portion of any partial withdrawals deducted from the Division during the current Valuation Period, less o that portion of any Account Value Transferred from the Division to the Loan Account during the current Valuation Period, less o that portion of fees due in connection with a partial withdrawal charged to the Division, less o if the first day of a Policy Month occurs during the current Valuation Period, that portion of the service charge for the Policy Month just beginning charged to the Division, less o if the first day of a Policy Month occurs during the current Valuation Period, that portion of the monthly risk charge for the Policy Month just beginning charged to the Division, less o if the first day of a Policy Month occurs during the current Valuation Period, that Division's portion of the cost for any riders and any extra risk charge if the Insured is in a rated class as specified in your Policy, for the Policy Month just beginning. Net Investment Factor. The net investment factor for each Division for any Valuation Period is determined by deducting the mortality and expense risk charge for each day in the Valuation Period from the quotient of (1) and (2) where: (1) is the net result of: o the net asset value of a Fund share held in the Division determined as of the end of the current Valuation Period, plus o the per share amount of any dividend or other distribution declared on Fund shares held in the Division if the "ex-dividend" date occurs during the current Valuation Period, plus or minus o a per share credit or charge with respect to any taxes incurred by or reserved for, or paid by us if not previously reserved for, during the current Valuation Period which are determined by us to be attributable to the operation of the Division; and (2) is the net result of: o the net asset value of a Fund share held in the Division determined as of the end of the preceding Valuation Period; plus or minus o a per share credit or charge with respect to any taxes incurred by or reserved for, or paid by us if not previously reserved for, during the preceding Valuation Period which are determined by us to be attributable to the operation of the Division. The mortality and expense risk charge for the Valuation Period is the annual mortality and expense risk charge divided by 365 multiplied by the number of days in the Valuation Period. The net investment factor may be greater or less than or equal to one. Splitting Units. We reserve the right to split or combine the value of Units. In effecting any such change, strict equity will be preserved and no such change will have a material effect on the benefits or other provisions of your Policy. Other Provisions and Benefits Misstatement of Age or Sex (Non-Unisex Policy). If the age or (in the case of a non-unisex Policy) sex of the Insured is stated incorrectly in your policy application or rider application, we will adjust the amount payable appropriately as described in the Policy. If we determine that the Insured was not eligible for coverage under the Policy after we discover a misstatement of the Insured's age, our liability will be limited to a return of premiums paid, less any partial withdrawals, any Policy Debt, and the cost for riders. Suicide. If the Insured, whether sane or insane, commits suicide within two years after your Policy's Issue Date (one year if your Policy is issued in Colorado or North Dakota), we will not pay any part of the Death Benefit Proceeds. We will pay the Beneficiary premiums paid, less the amount of any Policy Debt, any partial withdrawals and the cost for riders. If the Insured, whether sane or insane, commits suicide within two years after the effective date of an increase in the Total Face Amount (one year if your Policy is issued in Colorado or North Dakota), then our liability as to that increase will be the cost of insurance for that increase and that portion of the Account Value attributable to that increase. The Total Face Amount of the Policy will be reduced to the Total Face Amount that was in effect prior to the increase. Incontestability. All statements made in the application or in a supplemental application are representations and not warranties. We relied and will rely on those statements when approving the issuance, increase in face amount, increase in death benefit over premium paid, or change in death benefit option of the Policy. In the absence of fraud, we can use no statement in defense of a claim or to cancel the Policy for misrepresentation unless the statement was made in the application or in a supplemental application. In the absence of fraud, after the Policy has been in force during the lifetime of the Insured for a period of two years from its Issue Date, we cannot contest it except for non-payment of Premiums. However, any increase in the Total Face Amount which is effective after the Issue Date will be incontestable only after such increase has been in force during the lifetime of the Insured for two years from the effective date of coverage of such increase. Paid-Up Life Insurance. When the Insured reaches Attained Age 100 (if your Policy is in force at that time), the entire Account Value of your Policy (less outstanding Policy Debt) will be applied as a single Premium to purchase "paid-up" insurance. Outstanding Policy Debt will be repaid at this time. This repayment may be treated as a taxable distribution to you if your Policy is not a MEC. The net single premium for this insurance will be based on the 1980 Commissioner's Standard Ordinary, Sex Distinct, Non-Smoker Mortality Table. The cash value of your paid-up insurance, which initially is equal to the net single premium, will remain in the Divisions of the Series Account in accordance with your then current allocation. While the paid-up life insurance is in effect your assets will remain in the Series Account. You may change your Division allocation instructions and you may Transfer your cash value among the Divisions. All charges under your Policy, to the extent applicable, will continue to be assessed, except we will no longer make a deduction each Policy Month for the monthly risk charge. Your death benefit will be equal to the cash value of the paid-up policy and, thus, as your cash value changes based on the investment experience of the Divisions, the death benefit will increase or decrease accordingly. You may surrender the paid-up insurance policy at any time and, if surrendered within 30 days of a Policy Anniversary, its cash value will not be less than it was on that Policy Anniversary. Please see "Federal Income Tax Considerations -- Treatment When Insured Reached Attained Age 100" on page [ ]. Supplemental Benefits. The following supplemental benefit riders are available, subject to certain limitations. An additional monthly risk charge will be assessed for each rider that is in force as part of the monthly deduction from your Account Value. If a supplemental benefit rider is terminated, the monthly risk charge for such rider will end immediately. See fee tables on pages [ ]. Term Life Insurance Rider. This rider provides term life insurance on the Insured. Coverage is renewable annually until the Insured's Attained Age 100. The amount of coverage provided under this rider varies from month to month as described below. We will pay the rider's death benefit to the Beneficiary when we receive Due Proof of death of the Insured while this rider is in force. This rider provides the same three death benefit options as your Policy. The option you choose under the rider must at all times be the same as the option you have chosen for your Policy. The rider's death benefit will be determined at the beginning of each Policy Month in accordance with one of those options. For each of the options, any outstanding Policy Debt will reduce your death benefit. If you purchase this rider, the Total Face Amount shown on your Policy's specifications page will be equal to the minimum amount of coverage provided by this rider plus the base face amount (which is the minimum death benefit under your Policy without the rider's death benefit). The minimum allocation of Total Face Amount between your Policy and the rider is 10% and 90% at inception, respectively. The total Death Benefit Payable under the rider and the Policy will be determined as described in "Death Benefit" below, using the Total Face Amount shown on your Policy's specifications page. Coverage under this rider will take effect on the later of: o the Policy Date of the Policy to which this rider is attached; or o the Policy Anniversary following our approval of your Request to add this rider to your Policy, subject to the deduction of the first monthly risk charge for the rider. The monthly risk rate for this rider will be the same as that used for the Policy and the monthly risk charge for the rider will be determined by multiplying the monthly risk rate by the rider's death benefit. This charge will be calculated on the first day of each Policy Month and added to the Policy's monthly risk charge. If you purchase this rider, the target premium amount, to which the sales charge applies, will be proportionately lower. As a result, the sales charge deducted from your premium payments will be less than you would pay on a single Policy providing the same Total Face Amount of coverage as your Policy and rider. We will offer this rider only in circumstances that result in the savings of sales and distribution expenses. As a result, in our discretion, we may decline to offer the term rider or refuse to consent to a proposed allocation of coverage between a base policy and term rider. In exercising this discretion, we will not discriminate unfairly against any person, including the affected owners funded by the Series Account. You may terminate this rider by Request. This rider also will terminate on the earliest of the following dates: o the date the Policy is surrendered or terminated; o the expiration of the grace period of the Policy; or o the death of the Insured. Change of Insured Rider. This rider permits you to change the Insured under your Policy or any Insured that has been named by virtue of this rider. Before we change the Insured you must provide us with (1) a Request for the change signed by you and approved by us; (2) evidence of insurability for the new Insured; (3) evidence that there is an insurable interest between you and the new Insured; (4) evidence that the new Insured's age, nearest birthday, is under 70 years; and (5) evidence that the new Insured was born prior to the Policy Date. We may charge a fee for administrative expenses when you change the Insured. The minimum charge is $100 per change and the maximum charge is $400 per change. When a change of Insured takes effect, policy premiums will be based on the new Insured's age, sex, mortality class and the premium rate in effect on the Policy Date. Report to Owner. We will maintain all records relating to the Series Account and the Divisions. We will send you a report at least once each Policy Year within 30 days after a Policy Anniversary. The report will show current Account Value, current allocation in each Division, death benefit, premiums paid, investment experience since your last report, deductions made since the last report, and any further information that may be required by laws of the state in which your Policy was issued. It will also show the balance of any outstanding policy loans and accrued interest on such loans. There is no charge for this report. In addition, we will send you the financial statements of the Funds and other reports as specified in the 1940 Act. We also will mail you confirmation notices or other appropriate notices of policy transactions quarterly or more frequently within the time periods specified by law. Please give us prompt written notice of any address change. Please read your statements and confirmations carefully and verify their accuracy and contact us promptly with any question. Dollar Cost Averaging. By Request, you may elect dollar cost averaging in order to purchase Units of the Divisions over a period of time. There is no charge for this service. Dollar cost averaging permits you to automatically Transfer a predetermined dollar amount, subject to our minimum, at regular intervals from any one or more designated Divisions to one or more of the remaining, then available Divisions. The Unit Value will be determined on the dates of the Transfers. You must specify the percentage to be Transferred into each designated Division. Transfers may be set up on any one of the following frequency periods: monthly, quarterly, semiannually, or annually. The Transfer will be initiated one frequency period following the date of your Request. We will provide a list of Divisions eligible for dollar cost averaging that may be modified from time to time. Amounts Transferred through dollar cost averaging are not counted against the twelve free Transfers allowed in a calendar year. You may not participate in dollar cost averaging and the rebalancer option (described below) at the same time. Participation in dollar cost averaging does not assure a greater profit, or any profit, nor will it prevent or necessarily alleviate losses in a declining market. We reserve the right to modify, suspend, or terminate dollar cost averaging at any time. The Rebalancer Option. By Request, you may elect the rebalancer option in order to automatically Transfer Account Value among the Divisions on a periodic basis. There is no charge for this service. This type of transfer program automatically reallocates your Account Value so as to maintain a particular percentage allocation among Divisions chosen by you. The amount allocated to each Division will grow or decline at different rates depending on the investment experience of the Divisions. Rebalancing does not change your Premium allocation. In order to change your premium allocation, contact us at the address or phone number on the first page of this prospectus. You may Request that rebalancing occur one time only, in which case the Transfer will take place on the date of the Request. This Transfer will count as one Transfer towards the 12 free Transfers allowed in a calendar year. You may also choose to rebalance your Account Value on a quarterly, semiannual, or annual basis, in which case the first Transfer will be initiated one frequency period following the date of your Request. On that date, your Account Value will be automatically reallocated to the selected Divisions. Thereafter, your Account Value will be rebalanced once each frequency period. In order to participate in the rebalancer option, your entire Account Value must be included. Transfers made with these frequencies will not count against the 12 free Transfers allowed in a calendar year. You must specify the percentage of Account Value to be allocated to each Division and the frequency of rebalancing. You may terminate the rebalancer option at any time by Request. You may not participate in the rebalancer option and dollar cost averaging at the same time. Participation in the rebalancer option does not assure a greater profit, or any profit, nor will it prevent or necessarily alleviate losses in a declining market. The Company reserves the right to modify, suspend, or terminate the rebalancer option at any time. Non-Participating. The Policy does not pay dividends. Premiums Policy Application, Issuance and Initial Premium. To purchase a Policy, you must submit an application to our Corporate Headquarters. We will then follow our underwriting procedures designed to determine the insurability of the proposed Insured. We may require full underwriting, which includes a medical examination and further information, before your application may be approved. We also may offer the Policy on a simplified underwriting or guaranteed issue basis. Proposed Insureds must be acceptable risks based on our applicable underwriting limits and standards. We will not issue a Policy until the underwriting process has been completed to our satisfaction. We reserve the right to reject an application for any lawful reason or to "rate" an Insured as a substandard risk, which will result in increased monthly risk rates. The monthly risk rate also may vary depending on the type of underwriting we use. You must specify certain information in the application, including the Total Face Amount, the death benefit option and supplemental benefits, if any. The Total Face Amount generally may not be decreased below $100,000. Upon approval of the application, we will issue to you a Policy on the life of the Insured. A specified Initial Premium must be paid before we issue the Policy. The effective date of coverage for your Policy (which we call the "Policy Date") will be the date we receive a Premium equal to or in excess of the specified Initial Premium after we have approved your application. If your premium payment is received on the 29th, 30th or 31st of a month, the Policy will be dated the 28th of that month. We generally do not accept premium payments before approval of an application, however, at our discretion, we may elect to do so. While your application is in underwriting, if we accept your premium payment before approval of your application, we will provide you with temporary insurance coverage in accordance with the terms of our temporary insurance agreement. In our discretion, we may limit the amount of Premium we accept and the amount of temporary coverage we provide. If we approve your application, we will allocate your premium payment to the Series Account on the Policy Date, as described below. Otherwise, we will promptly return your payment to you. We will not credit interest to your premium payment for the period while your application is in underwriting. We reserve the right to change the terms or conditions of your Policy to comply with differences in applicable state law. Variations from the information appearing in this prospectus due to individual state requirements are described in supplements that are attached to this prospectus or in endorsements to the Policy, as appropriate. Free Look Period. During the free look period (ten days or longer where required by law), you may cancel your Policy. If you exercise the free look privilege, you must return the Policy to our Corporate Headquarters or to the representative from whom you purchased the Policy. Generally, net premium will be allocated to the Divisions you selected on the application. However, under certain circumstances described below, the net premium will first be allocated to the Money Market Investment Division and remain there until the next Valuation Date following the end of the free look period plus 5 calendar days. On that date, the Sub-Account value held in the Money Market Investment Division will be allocated to the Investment Division(s) selected by you. If your premium payments are received after 2:00 PM MST, such payments will be credited on the next Valuation Date. Regardless of when the payment is credited, you will receive the utilized values from the date we received your payment. During the free look period, you may change your Division allocations as well as your allocation percentages. Policies returned during the free look period will be void from the date we issued the Policy. In most states, we will refund your current Policy Account Value. In those states, this amount may be higher or lower than your premium payments, which means you bear the investment risk during the free look period. Certain states require that we return the greater of your Policy Account Value (less any surrenders, withdrawals and distributions already received) or the amount of the Premiums received. In those states, we will allocate your net premium payments to the Division of the Series Account that invests in the Maxim Money Market Portfolio. We will Transfer the Account Value in that Division to the other Divisions of the Series Account in accordance with your allocation instructions at the end of the free look period. Premium. All premium payments must be made payable to "Great-West Life & Annuity Insurance Company" and mailed to our Corporate Headquarters. The Initial Premium will be due and payable on or before your Policy's Issue Date. The minimum Initial Premium will vary based on various factors, including the age of the Insured and the death benefits option you select, but may not be less than $100.00.You may pay additional premium payments to us in the amounts and at the times you choose, subject to the limitations described below. To find out whether your premium payment has been received, contact us at the address or telephone number shown on the first page of this prospectus. We reserve the right to limit the number of premium payments we accept on an annual basis. No premium payment may be less than $100 per Policy without our consent, although we will accept a smaller premium payment if necessary to keep your Policy in force. We reserve the right to restrict or refuse any premium payments that exceed the Initial Premium amount shown on your Policy. We also reserve the right not to accept a premium payment that causes the death benefit to increase by an amount that exceeds the Premium received. Evidence of insurability satisfactory to us may be required before we accept any such Premium. We will not accept premium payments that would, in our opinion, cause your Policy to fail to qualify as life insurance under applicable federal tax law. If a premium payment is made in excess of these limits, we will accept only that portion of the Premium within those limits, and will refund the remainder to you. Net Premiums. The net premium is the amount you pay as the Premium less any expense charges applied to Premiums. See "Charges and Deductions - - Expense Charges Applied to Premium," on page [ ]. Planned Periodic Premiums. While you are not required to make additional premium payments according to a fixed schedule, you may select a planned periodic premium schedule and corresponding billing period, subject to our limits. We will send you reminder notices for the planned periodic premium, unless you request to have reminder notices suspended. You are not required, however, to pay the planned periodic premium; you may increase or decrease the planned periodic premium subject to our limits, and you may skip a planned payment or make unscheduled payments. Depending on the investment performance of the Divisions you select, the planned periodic premium may not be sufficient to keep your Policy in force, and you may need to change your planned payment schedule or make additional payments in order to prevent termination of your Policy. Death Benefits Death Benefit. If your Policy is in force at the time of the Insured's death, we will pay the Beneficiary an amount based on the death benefit option you select once we have received Due Proof of the Insured's death. The amount payable will be: o the amount of the selected death benefit option, less o the value of any Policy Debt on the date of the Insured's death, less o any accrued and unpaid policy charges. We will pay this amount to the Beneficiary in one lump sum, unless the Beneficiary and we agree on another form of settlement. We will pay interest, at a rate not less than that required by law, on the amount of Death Benefit Proceeds, if payable in one lump sum, from the date of the Insured's death to the date of payment. In order to meet the definition of life insurance under the Code, section 7702 of the Code defines alternative testing procedures for the minimum death benefit under a Policy: the guideline premium test ("GPT") and the cash value accumulation test ("CVAT"). See "Federal Income Tax Considerations - Tax Status of the Policy," on page [ ]. The Policy must qualify under either the GPT or the CVAT. When you purchase a Policy, you must choose the procedure under which your Policy will qualify. You may not change your choice while the Policy is in force. Under both testing procedures, there is a minimum death benefit required at all times equal to your Policy's Account Value multiplied by some pre-determined factor. The factors used to determine the minimum death benefit depend on the testing procedure chosen and vary by age. The factors (expressed as percentages) used for GPT are shown in Appendix B and those used for CVAT are set forth in your Policy. Under the GPT, there is also a maximum amount of Premium that may be paid with respect to your Policy. When you purchase a Policy, you may choose the procedure under which your Policy will qualify. In general, if your primary objective is maximum accumulation of Account Value during the initial Policy Years, then the CVAT may be the more appropriate choice. If your primary objective is the most economically efficient method of obtaining a specified amount of coverage, then the GPT may generally be more appropriate. You should consult with a qualified tax advisor before deciding. If you do not elect either the CVAT or the GPT, we will use the CVAT to qualify your Policy. The Policy has three death benefit options. Option 1. The "Level Death" Option. Under this option, the death benefit is -- o the Policy's Total Face Amount on the date of the Insured's death less any partial withdrawals; or, if greater, o the Policy's Account Value on the date of death multiplied by the applicable factor shown in the table set forth in Appendix B or in your Policy. This death benefit option should be selected if you want to minimize your cost of insurance (monthly risk charge). Option 2. The "Coverage Plus" Option. Under this option, the death benefit is -- o the sum of the Total Face Amount and Account Value of the Policy on the date of the Insured's death; or, if greater, o the Policy's Account Value on the date of death multiplied by the applicable factor shown in the table set forth in Appendix B or in your Policy. This death benefit option should be selected if you want your death benefit to increase with your Policy's Account Value. Option 3. The "Premium Accumulation" Option. Under this option, the death benefit is -- o the sum of the Total Face Amount and premiums paid under the Policy plus interest at the rate specified in your Policy less any partial withdrawals; or, if greater, o the Policy's Account Value on the date of death multiplied by the applicable factor shown in the table set forth in Appendix B or in your Policy. This death benefit option should be selected if you want a specified amount of death benefit plus a return of the Premiums you paid with guaranteed interest. Your Account Value and death benefit fluctuate based on the performance of the investment options you select and the expenses and deductions charged to your account. There is no minimum death benefit guarantee associated with this Policy. Changes in Death Benefit Option. After the first Policy Year, but not more than once each Policy Year, you may change the death benefit option by Request. Any change will be effective on the first day of the Policy Month following the date we approve your Request. A maximum administrative fee of $100 will be deducted from your Account Value each time you change your death benefit option. A change in the death benefit option will not change the amount payable upon the death of the Insured on the date of change. Any change is subject to the following conditions: o If the change is from option 1 to option 2, the new Total Face Amount, at the time of the change, will equal the prior Total Face Amount less the Policy's Account Value. Evidence of insurability may be required. o If the change is from option 1 to option 3, the new Total Face Amount, at the time of the change, will equal the prior Total Face Amount less the accumulated value of all Premiums at the interest rate shown in your Policy. Evidence of insurability may be required. o If the change is from option 2 to option 1, the new Total Face Amount, at the time of the change, will equal the prior Total Face Amount plus the Policy's Account Value. o If the change is from option 2 to option 3, the new Total Face Amount, at the time of the change, will equal the prior Total Face Amount plus the Policy's Account Value less the accumulated value of all Premiums at the interest rate shown in your Policy. o If the change is from option 3 to option 1, the new Total Face Amount, at the time of the change, will equal the prior Total Face Amount plus the accumulated value of all Premiums at the interest rate shown in your Policy. o If the change is from option 3 to option 2, the new Total Face Amount, at the time of the change, will equal the prior Total Face Amount less the Policy's Account Value plus the accumulated value of all Premiums at the interest rate shown in your Policy. Changes in Total Face Amount. You may increase or decrease the Total Face Amount of your Policy at any time within certain limits. Minimum Changes. Each increase or decrease in the Total Face Amount must be at least $25,000. We reserve the right to change the minimum amount by which you may change the Total Face Amount. Increases. To Request an increase, you must provide satisfactory evidence of the Insured's insurability. Once approved by us, an increase will become effective on the Policy Anniversary following our approval of your Request, subject to the deduction of the first Policy Month's monthly risk charge, service charge, any extra risk charge if the Insured is in a rated class and the cost of any riders. Decreases. A decrease will become effective at the beginning of the next Policy Month following our approval of your Request. The Total Face Amount after the decrease must be at least $100,000. For purposes of the incontestability provision of your Policy, any decrease in Total Face Amount will be applied in the following order: o first, to the most recent increase; o second, to the next most recent increases, in reverse chronological order; and o finally, to the initial Total Face Amount. Surrenders and Withdrawals Surrenders. You may surrender your Policy for its Cash Surrender Value at any time while the Insured is living. If you do, the insurance coverage and all other benefits under the Policy will terminate. To surrender your Policy, contact us at the address or telephone number shown on the first page of this prospectus. The proceeds of a surrender will be payable within seven (7) days of the Request. We will determine your Cash Surrender Value as of the end of the first Valuation Date after we receive your Request for surrender. If you withdraw part of the Cash Surrender Value, your Policy's death benefit will be reduced and you may incur taxes and tax penalties. You may borrow from us using your Policy's Account Value as collateral. Partial Withdrawal. You may Request a partial withdrawal of Account Value at any time while the Policy is in force. The amount of any partial withdrawal must be at least $500 and may not exceed 90% of your Policy's Account Value less the value of the Loan Account. An administrative fee will be deducted from your Account Value for all partial withdrawals after the first made during the same Policy Year. This administrative fee is guaranteed to be no greater than $25. To Request a partial withdrawal, contact us at the address or telephone number shown on the first page of this prospectus. The proceeds of any such partial withdrawal will be payable within seven (7) days of the Request. The Death Benefit Proceeds will be reduced by the amount of any partial withdrawals. Your Policy's Account Value will be reduced by the amount of a partial withdrawal. The amount of a partial withdrawal will be withdrawn from the Divisions in the proportion the amounts in the Divisions bear to your Policy's Account Value. You cannot repay amounts taken as a partial withdrawal. Any subsequent payments received by us will be treated as additional premium payments and will be subject to our limitations on Premiums. A partial withdrawal may have tax consequences. See "Federal Income Tax Considerations - - Tax Treatment of Policy Benefits," beginning on [ ] of this prospectus. Loans Policy loans. You may request a policy loan of up to 90% of your Policy's Account Value, decreased by the amount of any outstanding Policy Debt on the date the policy loan is made. When a policy loan is made, a portion of your Account Value equal to the amount of the policy loan will be allocated to the Loan Account as collateral for the loan. This amount will not be affected by the investment experience of the Series Account while the loan is outstanding and will be subtracted from the Divisions in the proportion the amounts in the Divisions bear to your Account Value. The minimum policy loan amount is $500. The interest rate on the policy loan will be determined annually, using a simple interest formula, at the beginning of each Policy Year. That interest rate will be guaranteed for that Policy Year and will apply to all policy loans outstanding during that Policy Year. Interest is due and payable on each Policy Anniversary. Interest not paid when due will be added to the principal amount of the loan and will bear interest at the loan interest rate. Presently, the maximum interest rate for policy loans is The Moody's Corporate Bond Yield Average - Monthly Average Corporates, which is published by Moody's Investor Service, Inc. If that Average ceases to be published, the maximum interest rate for policy loans will be derived from a substantially similar average adopted by your state's Insurance Commissioner. We must reduce our policy loan interest rate if the maximum loan interest rate is lower than the loan interest rate for the previous Policy Year by one-half of one percent or more. We may increase the policy loan interest rate but such increase must be at least one-half of one percent. No increase may be made if the policy loan interest rate would exceed the maximum loan interest rate. We will send you advance notice of any increase in the policy loan rate. Interest will be credited to amounts held in the Loan Account using a compound interest formula. The rate will be no less than the policy loan interest rate then in effect less a maximum of 0.9%. All payments we receive from you will be treated as premium payments unless we have received notice, in form satisfactory to us, that the funds are for loan repayment. If you have a policy loan, it is generally advantageous to repay the loan rather than make a premium payment because premium payments incur expense charges whereas loan repayments do not. Loan repayments will first reduce the outstanding balance of the policy loan and then accrued but unpaid interest on such loans. We will accept repayment of any policy loan at any time while the Policy is in force. Amounts paid to repay a policy loan will be allocated to the Divisions in accordance with your allocation instructions then in effect at the time of repayment. Any amount in the Loan Account used to secure the repaid loan will be allocated back to the Sub-Accounts. A policy loan, whether or not repaid, will affect the Death Benefit Proceeds, payable upon the Insured's death, and the Account Value because the investment results of the Divisions do not apply to amounts held in the Loan Account. The longer a loan is outstanding, the greater the effect is likely to be, depending on the investment results of the Divisions while the loan is outstanding. The effect could be favorable or unfavorable. Lapse and Reinstatement Lapse and Continuation of Coverage. If you cease making premium payments, coverage under your Policy and any riders to the Policy will continue until your Policy's Account Value, less any Policy Debt, is insufficient to cover the monthly deduction. When that occurs, the grace period will go into effect. Grace Period. If the first day of a Policy Month occurs during the Valuation Period and your Policy's Account Value, less any Policy Debt, is not sufficient to cover the monthly deduction for that Policy Month, then your Policy will enter the grace period described below. If you do not pay sufficient additional Premiums during the grace period, your Policy will terminate without value. The grace period will allow 61 days for the payment of Premium sufficient to keep the Policy in force. Any such Premium must be in an amount sufficient to cover deductions for the monthly risk charge, the service charge, the cost for any riders and any extra risk charge if the Insured is in a rated class for the next two Policy Months. Notice of premium due will be mailed to your last known address or the last known address of any assignee of record at least 31 days before the date coverage under your Policy will cease. If the premium due is not paid within the grace period, then the Policy and all rights to benefits will terminate without value at the end of the 61-day period. The Policy will continue to remain in force during this grace period. If the Death Benefit Proceeds become payable by us during the grace period, then any due and unpaid policy charges will be deducted from the amount payable by us. Termination of Policy. Your Policy will terminate on the earliest of the date we receive your Request to surrender, the expiration date of the grace period due to insufficient value or the date of death of the Insured. Upon lapse or termination, the Policy no longer provides insurance benefits. Reinstatement. Before the Insured's death, we will reinstate your Policy, provided that the Policy has not been surrendered, and provided further that: o you make your reinstatement Request within three years from the date of termination; o you submit satisfactory evidence of insurability to us; o you pay an amount equal to the policy charges which were due and unpaid at the end of the grace period; o you pay a Premium equal to four times the monthly deduction applicable on the date of reinstatement; and o you repay or reinstate any policy loan that was outstanding on the date coverage ceased, including interest at 6.00% per year compounded annually from the date coverage ceased to the date of reinstatement of your Policy. A reinstated Policy's Total Face Amount may not exceed the Total Face Amount at the time of termination. Your Account Value on the reinstatement date will reflect: o the Account Value at the time of termination; plus o net premiums attributable to premiums paid to reinstate the Policy; less o the monthly expense charge; less o the monthly cost of insurance charge applicable on the date of reinstatement; less o The expense charge applied to premium. The effective date of reinstatement will be the date the application for reinstatement is approved by us. Deferral of Payment. We will usually pay any amount due from the Series Account within seven (7) days after the Valuation Date following your Request giving rise to such payment or, in the case of death of the Insured, Due Proof of such death. Payment of any amount payable from the Series Account on death, surrender, partial withdrawal, or policy loan may be postponed whenever: o the NYSE is closed other than customary weekend and holiday closing, or trading on the NYSE is otherwise restricted; o the SEC, by order, permits postponement for the protection of Owners; or o an emergency exists as determined by the SEC, as a result of which disposal of securities is not reasonably practicable, or it is not reasonably practicable to determine the value of the assets of the Series Account. Federal Income Tax Considerations The following summary provides a general description of the federal income tax considerations associated with the Policy and does not purport to be complete or to cover all situations. This discussion is not intended as tax advice. You should consult counsel or other competent tax advisers for more complete information. This discussion is based upon our understanding of the Internal Revenue Service's (the "IRS") current interpretation of current federal income tax laws. We make no representation as to the likelihood of continuation of the current federal income tax laws or of the current interpretations by the IRS. We do not make any guarantee regarding the tax status of any Policy or any transaction regarding the Policy. The Policy may be used in various arrangements, including non-qualified deferred compensation or salary continuance plans, split dollar insurance plans, executive bonus plans, retiree medical benefit plans and others. The tax consequences of such plans may vary depending on the particular facts and circumstances of each individual arrangement. Therefore, if the use of the Policy in any such arrangement is contemplated, you should consult a qualified tax adviser for advice on the tax attributes and consequences of the particular arrangement. Tax Status of the Policy A Policy has certain tax advantages when treated as a life insurance contract within the meaning of section 7702 of the Code. We believe that the Policy meets the section 7702 definition of a life insurance contract and will take whatever steps are appropriate and reasonable to attempt to cause the Policy to comply with section 7702. We reserve the right to amend the Policies to comply with any future changes in the Code, any regulations or rulings under the Code and any other requirements imposed by the IRS. Diversification of Investments. Section 817(h) of the Code requires that the investments of each Division of the Series Account be "adequately diversified" in accordance with certain treasury department regulations. Disqualification of the Policy as a life insurance contract for failure to comply with the diversification requirements would result in the imposition of federal income tax on you with respect to the earnings allocable to the Policy prior to the receipt of payments under the Policy. We believe that the Divisions will be adequately diversified. Policy Owner Control. In certain circumstances, the owner of a variable life insurance policy may be considered, for federal income tax purposes, the owner of the assets of the variable account used to support the Policy. In those circumstances, income and gains from the variable account assets would be includible in the owner's gross income. We do not know what standards will be established, if any, in the regulations or rulings that the treasury department has stated it expects to issue on this question. We therefore reserve the right to modify the Policy as necessary to attempt to prevent an owner from being considered the owner of a pro-rata share of the assets of the Series Account. The following discussion assumes that your Policy will qualify as a life insurance contract for federal income tax purposes. Tax Treatment of Policy Benefits Life Insurance Death Benefit Proceeds. In general, the amount of the Death Benefit Payable under your Policy is excludible from your gross income under the Code. If the death benefit is not received in a lump sum and is, instead, applied under a proceeds option agreed to by us and the Beneficiary, payments generally will be prorated between amounts attributable to the death benefit, which will be excludible from the Beneficiary's income, and amounts attributable to interest (occurring after the Insured's death), which will be includible in the Beneficiary's income. Tax Deferred Accumulation. Any increase in your Account Value is generally not taxable to you. If you receive or are deemed to receive amounts from the Policy before the Insured dies, see the following section entitled "Distributions" for a more detailed discussion of the taxability of such payments. Distributions. If you surrender your Policy, you will recognize ordinary income to the extent the Account Value exceeds the "investment in the contract," which is generally the total of Premiums and other consideration paid for the Policy, less all amounts previously received under the Policy to the extent those amounts were excludible from gross income. Depending on the circumstances, any of the following transactions may have federal income tax consequences: o the exchange of a Policy for a life insurance, endowment or annuity contract; o a change in the death benefit option; o a policy loan; o a partial surrender; o a surrender; o a change in the ownership of a Policy; o a change of the named Insured; or o an assignment of a Policy. In addition, federal, state and local transfer and other tax consequences of ownership or receipt of Death Benefit Proceeds will depend on your circumstances and those of the named Beneficiary. Whether partial withdrawals (or other amounts deemed to be distributed) constitute income subject to federal income tax depends, in part, upon whether your Policy is considered a MEC. Modified Endowment Contracts. Section 7702A of the Code treats certain life insurance contracts as MECs. In general, a Policy will be treated as a MEC if total premiums paid at any time during the first seven Policy Years exceed the sum of the net level premiums which would have been paid on or before that time if the Policy provided for paid-up future benefits after the payment of seven level annual premiums ("seven-pay test"). In addition, a Policy may be treated as a MEC if there is a "material change" of the Policy. We will monitor your premium payments and other Policy transactions and notify you if a payment or other transaction might cause your Policy to become a MEC. We will not invest any Premium or portion of a Premium that would cause your Policy to become a MEC. We will promptly refund that money to you and, if you elect to have a MEC contract, you can return the money to us with a signed form of acceptance. Further, if a transaction occurs which decreases the Total Face Amount of your Policy during the first seven years, we will retest your Policy, as of the date of its purchase, based on the lower Total Face Amount to determine compliance with the seven-pay test. Also, if a decrease in Total Face Amount occurs within seven years of a "material change," we will retest your Policy for compliance as of the date of the "material change." Failure to comply in either case would result in the Policy's classification as a MEC regardless of our efforts to provide a payment schedule that would not otherwise violate the seven-pay test. The rules relating to whether a Policy will be treated as a MEC are complex and cannot be fully described in the limited confines of this summary. Therefore, you should consult with a competent tax adviser to determine whether a particular transaction will cause your Policy to be treated as a MEC. Distributions Under Modified Endowment Contracts. If treated as a MEC, your Policy will be subject to the following tax rules: o First, partial withdrawals are treated as ordinary income subject to ordinary income tax up to the amount equal to the excess (if any) of your Account Value immediately before the distribution over the "investment in the contract" at the time of the distribution. o Second, policy loans and loans secured by a Policy are treated as partial withdrawals and taxed accordingly. Any past-due loan interest that is added to the amount of the loan is treated as a loan. o Third, a 10 percent additional penalty tax is imposed on that portion of any distribution (including distributions upon surrender), policy loan, or loan secured by a Policy, that is included in income, except where the distribution or loan is made to a taxpayer that is a natural person, and: 1. made when the taxpayer is age 59 1/2 or older; 2. attributable to the taxpayer becoming disabled; or 3. is part of a series of substantially equal periodic payments (not less frequently than annually) for the duration of the taxpayer's life (or life expectancy) or for the duration of the longer of the taxpayer's or the Beneficiary's life (or life expectancies). Distributions Under a Policy That Is Not a MEC. If your Policy is not a MEC, a distribution is generally treated first as a tax-free recovery of the "investment in the contract," and then as a distribution of taxable income to the extent the distribution exceeds the "investment in the contract." An exception is made for cash distributions that occur in the first 15 Policy Years as a result of a decrease in the death benefit or other change that reduces benefits under the Policy that are made for purposes of maintaining compliance with section 7702. Such distributions are taxed in whole or part as ordinary income (to the extent of any gain in the Policy) under rules prescribed in section 7702. If your Policy is not a MEC, policy loans and loans secured by the Policy are generally not treated as distributions. Such loans are instead generally treated as your indebtedness. Finally, if your Policy is not a MEC, distributions (including distributions upon surrender), policy loans and loans secured by the Policy are not subject to the 10 percent additional tax. Multiple Policies. All MECs issued by us (or our affiliates) to you during any calendar year will be treated as a single MEC for purposes of determining the amount of a policy distribution which is taxable to you. Treatment When Insured Reaches Attained Age 100. As described above, when the Insured reaches Attained Age 100, we will issue you a "paid-up" life insurance policy. We believe that the paid-up life insurance policy will continue to qualify as a "life insurance contract" under the Code. However, there is some uncertainty regarding this treatment. It is possible, therefore, that you would be viewed as constructively receiving the Cash Surrender Value in the year in which the Insured attains age 100 and would realize taxable income at that time, even if the Death Benefit Proceeds were not distributed at that time. In addition, any outstanding Policy Debt will be repaid at that time. This repayment may be treated as a taxable distribution to you, if your contract is not a MEC. Federal Income Tax Withholding. We are required to withhold 10% on that portion of a policy distribution that is taxable, unless you direct us in writing not to do so at or before the time of the policy distribution. As the Owner you are responsible for the payment of any taxes and early distribution penalties that may be due on policy distributions. Actions to Ensure Compliance with the Tax Law. We believe that the maximum amount of Premiums we intend to permit for the Policies will comply with the Code definition of a "life insurance contract." We will monitor the amount of your Premiums, and, if you pay a Premium during a Policy Year that exceeds those permitted by the Code, we will promptly refund the Premium or a portion of the Premium before any allocation to the Funds. We reserve the right to increase the death benefit (which may result in larger charges under a Policy) or to take any other action deemed necessary to ensure the compliance of the Policy with the federal tax definition of a life insurance contract. Trade or Business Entity Owns or Is Directly or Indirectly a Beneficiary of the Policy. Where a Policy is owned by other than a natural person, the owner's ability to deduct interest on business borrowing unrelated to the Policy can be impacted as a result of its ownership of cash value life insurance. No deduction will be allowed for a portion of a taxpayer's otherwise deductible interest expense unless the Policy covers only one individual, and such individual is, at the time first covered by the Policy, a 20 percent owner of the trade or business entity that owns the Policy, or an officer, director, or employee of such trade or business. Although this limitation generally does not apply to Policies held by natural persons, if a trade or business (other than one carried on as a sole proprietorship) is directly or indirectly the Beneficiary under a Policy (e.g., pursuant to a split-dollar agreement), the Policy shall be treated as held by such trade or business. The effect will be that a portion of the trade or business entity's deduction for its interest expenses will be disallowed unless the above exception for a 20 percent owner, employee, officer or director applies. The portion of the entity's interest deduction that is disallowed will generally be a pro rata amount which bears the same ratio to such interest expense as the taxpayer's average unborrowed cash value bears to the sum of the taxpayer's average unborrowed cash value and average adjusted bases of all other assets. Any corporate or business use of the life insurance should be carefully reviewed by your tax adviser with attention to these rules as well as any other rules and possible tax law changes that could occur with respect to corporate-owned life insurance. Other Employee Benefit Programs. Complex rules may apply when a Policy is held by an employer or a trust, or acquired by an employee, in connection with the provision of employee benefits. These Policy owners also must consider whether the Policy was applied for by or issued to a person having an insurable interest under applicable state law, as the lack of insurable interest may, among other things, affect the qualification of the Policy as life insurance for federal income tax purposes and the right of the Beneficiary to death benefits. Employers and employer-created trusts may be subject to reporting, disclosure and fiduciary obligations under the Employee Retirement Income Security Act of 1974, as amended. You should consult your legal adviser. Policy loan Interest. Generally, no tax deduction is allowed for interest paid or accrued on any indebtedness under a Policy. Our Taxes. We are taxed as a life insurance company under part I of subchapter L of the Code. The operations of the Series Account are taxed as part of our operations. Investment income and realized capital gains are not taxed to the extent that they are applied under the Policies. As a result of the Omnibus Budget Reconciliation Act of 1990, we are currently making, and are generally required to capitalize and amortize certain policy acquisition expenses over a 10-year period rather than currently deducting such expenses. This so-called "deferred acquisition cost" tax ("DAC tax") applies to the deferred acquisition expenses of a Policy and results in a significantly higher corporate income tax liability for Great-West. We reserve the right to adjust the amount of a charge to premium to compensate us for these anticipated higher corporate income taxes. A portion of the expense charges applied to premium is used to offset the federal, state or local taxes that we incur which are attributable to the Series Account or the Policy. We reserve the right to adjust the amount of this charge. We do not make any guarantees about the Policy's tax status. We believe the Policy will be treated as a life insurance contract under federal tax laws. Death benefits generally are not subject to federal income tax. Investment gains are normally not taxed unless distributed to you before the Insured dies. If you pay more Premiums than permitted under the seven-pay test, your Policy will be a MEC. If your Policy becomes a MEC, partial withdrawals, policy loans and surrenders may incur taxes and tax penalties. Corporate Tax Shelter Requirements The Company does not believe that any purchase of a Policy by an Owner pursuant to this offering will be subject to the tax shelter registration, customer list or reporting requirements under the Current Tax Code and implementing regulations. All Owners which are corporations are advised to consult with their own tax and/or legal counsel and advisers, to make their own determination as to the applicability of the disclosure requirements of IRC ss. 6011 and Treas. Reg. Section 1.6011-4 to their federal income tax returns. Legal Proceedings There are no pending legal proceedings that would have an adverse material effect on the Series Account. Great-West is engaged in various kinds of routine litigation that, in our judgment, is not material to its total assets or material with respect to the Series Account. Legal Matters Beverly A. Byrne, Vice President, Counsel and Associate Secretary of Great-West, has passed upon all matters of Colorado law pertaining to the Policy, including the validity of the Policy and our right to issue the Policy under Colorado law. The law firm of Jorden Burt LLP, 1025 Thomas Jefferson St., Suite 400, East Lobby, Washington, D.C. 20007-5208, serves as special counsel to Great-West with regard to the federal securities laws. Financial Statements Great-West's consolidated financial statements, which are included in the Statement of Additional Information ("SAI"), should be considered only as bearing on our ability to meet our obligations with respect to the death benefit and our assumption of the mortality and expense risks. They should not be considered as bearing on the investment performance of the Fund shares held in the Series Account. Appendix A - Glossary of Terms Unless otherwise defined in this prospectus, capitalized terms shall have the meaning set forth below. Account Value - The sum of the value of your interests in the Divisions and the Loan Account. Attained Age - The age of the Insured, nearest birthday, as of the Policy Date and each Policy Anniversary thereafter. Beneficiary - The person(s) named by the Owner to receive the Death Benefit Proceeds upon the death of the Insured. Business Day - Any day that we are open for business. We are open for business every day that the NYSE is open for trading. Cash Surrender Value - is equal to: (a) Policy Value Account on the effective date of the surrender; less (b) outstanding policy loans and accrued loan interest, if any; less (c) any monthly cost of insurance charges. Corporate Headquarters - Great-West Life & Annuity Insurance Company ("the Company"), 8515 East Orchard Road, Greenwood Village, Colorado 80111, or such other address as we may hereafter specify to you by written notice. Death Benefit Proceeds - The amount determined in accordance with the terms of the Policy which is payable at the death of the Insured. This amount is the death benefit, decreased by the amount of any outstanding Policy Debt, and increased by the amounts payable under any supplemental benefits. Divisions - Divisions into which the assets of the Series Account are divided, each of which corresponds to an investment choice available to you. Due Proof - Such evidence as we may reasonably require in order to establish that Death Benefit Proceeds are due and payable. Effective Date - The date on which the first premium payment is credited to the Policy. Evidence of Insurability - Information about an Insured that is used to approve or reinstate this Policy or any additional benefit. Fund - An underlying mutual fund in which a Division invests. Each Fund is an investment company registered with the SEC or a separate investment series of a registered investment company. Initial Premium - The initial premium amount specified in a Policy. Insured - The person whose life is insured under the Policy. Issue Age - The Insured's age as of the Insured's birthday nearest the Policy Date. Issue Date - The date on which we issue a Policy. Loan Account - All outstanding loans plus credited loan interest held in the general account of the Company. The Loan Account is not part of the Series Account. Loan Account Value - The sum of all outstanding loans plus credited loan interest for this policy. MEC - Modified Endowment Contract. For more information regarding MECs, see "Modified Endowment Contracts" on page [ ]. NYSE - New York Stock Exchange. Owner - The person(s) named in the application who is entitled to exercise all rights and privileges under the Policy, while the Insured is living. The purchaser of the Policy will be the Owner unless otherwise indicated in the application. Policy Anniversary - The same day in each succeeding year as the day of the year corresponding to the Policy Date. Policy Date - The effective date of coverage under this Policy. The Policy Months, Policy Years and Policy Anniversaries are measured from the Policy Date. Policy Debt - The principal amount of any outstanding loan against the Policy, plus accrued but unpaid interest on such loan. Policy Month - The one-month period commencing on the same day of the month as the Policy Date. Policy Value Account - The Sub-Account value plus the Loan Account value. Policy Year - The one-year period commencing on the Policy Date or any Policy Anniversary and ending on the next Policy Anniversary. Premiums - Amounts received and allocated to the Sub-Account(s) prior to any deductions. Request - Any instruction in a form, written, telephoned or computerized, satisfactory to the Company and received at the Corporate Headquarters from the Owner or the Owner's assignee (as specified in a form acceptable to the Company) or the Beneficiary, (as applicable) as required by any provision of this policy or as required by the Company. The Request is subject to any action taken or payment made by the Company before it was processed. SEC - The United States Securities and Exchange Commission. Series Account - The segregated investment account established by the Company as a separate account under Colorado law named the COLI VUL -2 Series Account. It is registered as a unit investment trust under the Investment Company Act of 1940, as amended. Sub-Account - Sub-division(s) of the Owner's Policy Account Value containing the value credited to the Owner from the Series Account. Surrender Benefit - Account Value less any outstanding policy loans and less accrued loan interest. Total Face Amount - The amount of life insurance coverage you request as specified in your Policy. Transaction Date - The date on which any premium payment or Request from the Owner will be processed by the Company. Premium payments and Requests received after 4:00 p.m. EST/EDT will be deemed to have been received on the next Business Day. Requests will be processed and the Sub-Account Value will be valued on each date that the NYSE is open for trading. Transfer - The moving of money from one Sub-Account to one or more Sub-Account(s). Unit - An accounting unit of measurement that we use to calculate the value of each Division. Unit Value - The value of each Unit in a Division. Valuation Date - The date on which the net asset value of each Fund is determined. A Valuation Date is each day that the NYSE is open for regular business. The value of a Division's assets is determined at the end of each Valuation Date. To determine the value of an asset on a day that is not a Valuation Date, the value of that asset as of the end of the previous Valuation Date will be used. Valuation Period - The period of time from one determination of Unit Values to the next following determination of Unit Values. We will determine Unit Value for each Valuation Date as of the close of the NYSE on that Valuation Date. 4 Appendix B -- Table of Death Benefit Percentages Applicable Age Percentage Applicable Age Percentage 20 250% 60 130% 21 250% 61 128% 22 250% 62 126% 23 250% 63 124% 24 250% 64 122% 25 250% 65 120% 26 250% 66 119% 27 250% 67 118% 28 250% 68 117% 29 250% 69 116% 30 250% 70 115% 31 250% 71 113% 32 250% 72 111% 33 250% 73 109% 34 250% 74 107% 35 250% 75 105% 36 250% 76 105% 37 250% 77 105% 38 250% 78 105% 39 250% 79 105% 40 250% 80 105% 41 243% 81 105% 42 236% 82 105% 43 229% 83 105% 44 222% 84 105% 45 215% 85 105% 46 209% 86 105% 47 203% 87 105% 48 197% 88 105% 49 191% 89 105% 50 185% 90 105% 51 178% 91 104% 52 171% 92 103% 53 164% 93 102% 54 157% 94 101% 55 150% 95 100% 56 146% 96 100% 57 142% 97 100% 58 138% 98 100% 59 134% 99 100% 5 Appendix C -- Sample Hypothetical Illustrations Illustrations of death benefits, surrender values and accumulated premiums The illustrations in this prospectus have been prepared to help show how values under the Policy change with investment performance. The illustrations on the following pages illustrate the way in which a Policy Year's death benefit, Account Value and Cash Surrender Value could vary over an extended period of time. They assume that all Premiums are allocated to and remain in the Series Account for the entire period shown and are based on hypothetical gross annual investment returns for the Funds (i.e., investment income and capital gains and losses, realized or unrealized) equivalent to constant gross annual rates of 0%, 6%, and 12% over the periods indicated. The Account Values and death benefits would be different from those shown if the gross annual investment rates of return averaged 0%, 6%, and 12% over a period of years, but fluctuated above or below such averages for individual Policy Years. The values would also be different depending on the allocation of a Policy's total Account Value among the Divisions of the Series Account, if the actual rates of return averaged 0%, 6% or 12%, but the rates of each Fund varied above and below such averages. The amounts shown for the death benefits and Account Values take into account all charges and deductions imposed under the Policy based on the assumptions set forth in the tables below. These include the expense charges applied to premium, the daily risk percentage charged against the Series Account for mortality and expense risks, the monthly service charge and the monthly cost of insurance. The expense charges applied to premium is equal to a guaranteed maximum of 6.5% for sales load and a guaranteed maximum of 3.5% to cover our federal tax obligations and the applicable local and state premium tax. The current level of these charges is 5.5% for sales load (for Policy Years 1 through 10 only) and 3.5% for federal tax obligations and applicable local and state premium tax. The daily risk percentage charged against the Series Account for mortality and expense risks is an annual effective rate of 0.40% for the first five Policy Years, 0.25% for Policy Years 6 through 20, and 0.10% thereafter and is guaranteed not to exceed an annual effective rate of 0.90%. The monthly service charge is $10.00 per month for the first three Policy Years and $7.50 per Policy Month for all Policy Years thereafter. This charge is guaranteed not to exceed $15 per Policy Month. The amounts shown in the tables also take into account the Funds' advisory fees and operating expenses, which are assumed to be at an annual rate of .0.86% of the average daily net assets of each Fund. This is based upon a simple average of the advisory fees and expenses of all the Funds for the most recent fiscal year taking into account any applicable expense caps or expense reimbursement arrangements. Actual fees and expenses that you will incur may be more or less than .0.86%, and will vary from year to year. See "Charges and Deductions -- Fund Expenses" in this prospectus and the prospectuses for the Funds for more information on Fund expenses. The gross annual rates of investment return of 0%, 6% and 12% correspond, on a current basis, to net annual rates of -1.25%, 4.67%, and 10.60%, respectively, during the first five Policy Years, -1.10%, 4.83%, and 10.76%, respectively, for Policy Years 6 through 20, and -0.96%, 4.99% and 10.93%, respectively, thereafter. The hypothetical returns shown in the tables do not reflect any charges for income taxes against the Series Account since no charges are currently made. If, in the future, such charges are made, in order to produce the illustrated death benefits, Account Values and Cash Surrender Values, the gross annual investment rate of return would have to exceed 0%, 6%, or 12% by a sufficient amount to cover the tax charges. We will furnish upon request a comparable table using any specific set of circumstances. In addition to a table assuming Policy charges at their maximum, we will furnish a table assuming current Policy charges.
Table1 Great-West Life & Annuity Insurance Company COLI VUL-2 Series Account Male, Age 45, GI, Unismoke $1,000,000 Total Face Amount Annual Premium $12,524.03 Death Benefit Option 1 Current Policy Charges 0% Hypothetical 6% Hypothetical 12% Hypothetical Investment Return Net Investment Return Net Investment Return Net -1.25% 4.67% 10.60% Policy Contract Surrender Death Contract Surrender Death Contract Surrender Death Premiums Year Value Value Benefit Value Value Benefit Value Value Benefit ---- ----- ----- ------- ----- ----- ------- ----- ----- ------- 12524 1 10,430 11,056 1,000,000 11,079 11,744 1,000,000 11,729 12,432 1,000,000 12524 2 20,155 21,163 1,000,000 22,085 23,189 1,000,000 24,092 25,297 1,000,000 12524 3 29,195 30,363 1,000,000 33,027 34,348 1,000,000 37,175 38,662 1,000,000 12524 4 37,598 38,726 1,000,000 43,946 45,265 1,000,000 51,103 52,636 1,000,000 12524 5 43,989 44,869 1,000,000 53,433 54,501 1,000,000 64,532 65,823 1,000,000 12524 6 49,957 50,456 1,000,000 63,045 63,676 1,000,000 79,107 79,898 1,000,000 12524 7 55,327 55,327 1,000,000 72,604 72,604 1,000,000 94,757 94,757 1,000,000 12524 8 60,111 60,111 1,000,000 82,117 82,117 1,000,000111,625 111,625 1,000,000 12524 9 64,427 64,427 1,000,000 91,705 91,705 1,000,000129,982 129,982 1,000,000 12524 10 68,171 68,171 1,000,000101,272 101,272 1,000,000149,911 149,911 1,000,000 12524 11 74,017 74,017 1,000,000113,521 113,521 1,000,000174,288 174,288 1,000,000 12524 12 79,396 79,396 1,000,000126,005 126,005 1,000,000201,035 201,035 1,000,000 12524 13 84,313 84,313 1,000,000138,751 138,751 1,000,000230,452 230,452 1,000,000 12524 14 88,777 88,777 1,000,000151,784 151,784 1,000,000262,876 262,876 1,000,000 12524 15 92,684 92,684 1,000,000165,032 165,032 1,000,000298,597 298,597 1,000,000 12524 16 95,936 95,936 1,000,000178,420 178,420 1,000,000337,957 337,957 1,000,000 12524 17 98,430 98,430 1,000,000191,879 191,879 1,000,000381,362 381,362 1,000,000 12524 18 99,959 99,959 1,000,000205,239 205,239 1,000,000429,218 429,218 1,000,000 12524 19 100,421 100,421 1,000,000218,427 218,427 1,000,000482,095 482,095 1,000,000 12524 20 99,708 99,708 1,000,000231,371 231,371 1,000,000540,673 540,673 1,000,000 Age 60 92,684 92,684 1,000,000165,032 165,032 1,000,000298,597 298,597 1,000,000 Age 65 99,708 99,708 1,000,000231,371 231,371 1,000,000540,673 540,673 1,000,000 Age 70 92,704 92,704 1,000,000307,862 307,862 1,000,000950,481 950,481 1,472,513 Age 75 56,423 56,423 1,000,000389,519 389,519 1,000,001,605,970 1,605,970 2,257,158 Age 100 - - - - - - 16,615,673 16,615,673 17,280,300
Notes: (1) 0" values in the "Contract Value,"Surrender Value" and "Death Benefit columns indicate Policy lapse. (2) Assumes a $12,524.03 premium is paid at the beginning of each Policy Year. Values will be different if premiums are Paid with a different frequency or in different amounts. (3) Assumes that no policy loans have been made/ Excessive loans or partial withdrawals may cause your Policy to lapse due to insufficient Account Value. The hypothetical investment rates of return are illustrative only, and should not be deemed a representation of past or future investment rates of return. Actual investment results may be more or less than those shown, and will depend on a number of factors, including the investment allocations by a policy owner, and the different investment rates of return for the Funds. The Cash Surrender Value and death benefit for a Policy would be different from those shown if the actual rates of investment return averaged 0%, 6%, and 12% over a period of years, but fluctuated above and below those averages for individual Policy Years. They would also be different if any policy loans or partial withdrawals were made. No representations can be made that these hypothetical investment rates of return can be achieved for any one-year or sustained over any period of time.
Table 2 Great-West Life & Annuity Insurance Company COLI VUL-2 Series Account Male, Age 45, GI, Unismoke $1,000,000 Total Face Amount Annual Premium $12,524.03 Death Benefit Option 1 Guaranteed Policy Charges 0% Hypothetical 6% Hypothetical 12% Hypothetical Investment Return Net Investment Return Net Investment Return Net -1.74% 4.15% 10.05% Policy Contract Surrender Death Contract Surrender Death Contract Surrender Death Year Value Value Benefit Value Value Benefit Value Value Benefit ---- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 6,553 6,946 1,000,000 7,074 7,498 1,000,000 7,597 8,052 1,000,000 2 12,553 13,181 1,000,000 13,992 14,691 1,000,000 15,497 16,272 1,000,000 3 18,129 18,854 1,000,000 20,873 21,708 1,000,000 23,866 24,820 1,000,000 4 23,289 23,988 1,000,000 27,722 28,554 1,000,000 32,757 33,740 1,000,000 5 27,928 28,487 1,000,000 34,423 35,111 1,000,000 42,114 42,956 1,000,000 6 32,056 32,377 1,000,000 40,976 41,385 1,000,000 51,995 52,515 1,000,000 7 35,569 35,569 1,000,000 47,263 47,263 1,000,000 62,349 62,349 1,000,000 8 38,362 38,362 1,000,000 53,164 53,164 1,000,000 73,122 73,122 1,000,000 9 40,448 40,448 1,000,000 58,669 58,669 1,000,000 84,377 84,377 1,000,000 10 41,722 41,722 1,000,000 63,650 63,650 1,000,000 96,070 96,070 1,000,000 11 42,080 42,080 1,000,000 67,975 67,975 1,000,000 108,157 108,157 1,000,000 12 41,528 41,528 1,000,000 71,619 71,619 1,000,000 120,707 120,707 1,000,000 13 39,958 39,958 1,000,000 74,439 74,439 1,000,000 133,687 133,687 1,000,000 14 37,373 37,373 1,000,000 76,397 76,397 1,000,000 147,177 147,177 1,000,000 15 33,655 33,655 1,000,000 77,336 77,336 1,000,000 161,160 161,160 1,000,000 16 28,686 28,686 1,000,000 77,087 77,087 1,000,000 175,624 175,624 1,000,000 17 22,338 22,338 1,000,000 75,468 75,468 1,000,000 190,563 190,563 1,000,000 18 14,476 14,476 1,000,000 72,279 72,279 1,000,000 205,979 205,979 1,000,000 19 4,722 4,722 1,000,000 67,070 67,070 1,000,000 221,684 221,684 1,000,000 20 - - - 59,578 59,578 1,000,000 237,680 237,680 1,000,000 Age 60 33,655 33,655 1,000,000 77,336 77,336 1,000,000 161,160 161,160 1,000,000 Age 65 - - - 59,578 59,578 1,000,000 237,680 237,680 1,000,000 Age 70 - - - - - - 320,335 320,335 1,000,000 Age 75 - - - - - - 399,730 399,730 1,000,000 Age 100 - - - - - - - - -
Notes: (1) 0" values in the "Contract Value,"Surrender Value" and "Death Benefit columns indicate Policy lapse. (2) Assumes a $12,524.03 premium is paid at the beginning of each Policy Year. Values will be different if premiums are Paid with a different frequency or in different amounts. (3) Assumes that no policy loans have been made/ Excessive loans or partial withdrawals may cause your Policy to lapse due to insufficient Account Value. The hypothetical investment rates of return are illustrative only, and should not be deemed a representation of past or future investment rates of return. Actual investment results may be more or less than those shown, and will depend on a number of factors, including the investment allocations by a policy owner, and the different investment rates of return for the Funds. The Cash Surrender Value and death benefit for a Policy would be different from those shown if the actual rates of investment return averaged 0%, 6%, and 12% over a period of years, but fluctuated above and below those averages for individual Policy Years. They would also be different if any policy loans or partial withdrawals were made. No representations can be made that these hypothetical investment rates of return can be achieved for any one-year or sustained over any period of time. A Statement of Additional Information ("SAI") is a document that includes additional information about the COLI VUL-2 Series Account, including the financial statements of both Great-West Life & Annuity Insurance Company and the COLI VUL-2 Series Account. The SAI is incorporated by reference into the prospectus. The SAI is available upon request, without charge. To request the SAI or other information about the Policy, or to make any inquiries about the Policy, contact Great-West Life & Annuity Insurance Company toll-free at (888) 353-2654 or via e-mail at Keybusiness@gwl.com. Information about the COLI VUL-2 Series Account (including the SAI) can be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the public reference room may be obtained by calling the SEC at 202-942-8090. Reports and other information about the COLI VUL-2 Series Account are available on the SEC's Internet site at http://www.sec.gov. Copies of this information may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section of the Commission, 450 Fifth Street, NW, Washington, DC 20549-0102. Investment Company Act File No. 811-09201 COLI VUL-2 SERIES ACCOUNT Flexible Premium Variable Universal Life Insurance Policies Issued by: Great-West Life & Annuity Insurance Company 8515 East Orchard Road Greenwood Village, Colorado 80111 STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information is not a prospectus and should be read in conjunction with the prospectus, dated May 1, 2003, which is available without charge by contacting Great-West Life & Annuity Insurance Company at (888) 353-2654 or via e-mail at Keybusiness@gwl.com. May 1, 2003 Table of Contents General Information and History of Great-West and the Series Account..........................1 State Regulation.................1 Experts..........................1 Services ..............................1 Underwriters...........................2 Underwriting Procedures................2 Performance Data.......................2 Financial Statements.................... General Information and History of Great-West and COLI VUL-2 Series Account Great-West Life & Annuity Insurance Company ("Great-West," the "Company," "we" or "us") 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 February 1982. In September 1990, we redomesticated under the laws of Colorado. We are authorized to do business in forty-nine states, the District of Columbia, Puerto Rico, U.S. Virgin Islands and Guam. We issue individual and group life insurance policies and annuity contracts and accident and health insurance policies. Great-West is an indirect, wholly owned subsidiary of Great-West Lifeco Inc., a holding company. Great-West Lifeco Inc. is, in turn, a subsidiary of Power Financial Corporation, a financial services company. Power Corporation, a holding and management company, has voting control of Power Financial Corporation of Canada. Mr. Paul Desmarais, through a group of private holding companies, which he controls, has voting control of Power Corporation. State Regulation We are subject to the laws of Colorado governing life insurance companies and to regulation by Colorado's Commissioner of Insurance, whose agents periodically conduct an examination of our financial condition and business operations. We are also subject to the insurance laws and regulations of all the jurisdictions in which we are authorized to do business. We are required to file an annual statement with the insurance regulatory authority of those jurisdictions where we are authorized to do business relating to our business operations and financial condition as of December 31st of the preceding year. Experts Actuarial matters included in the prospectus and the registration statement of which it is a part, including the hypothetical Policy illustrations, have been examined by Ron Laeyendecker, F.S.A., M.A.A.A, Actuary of the Company, and are included in reliance upon his opinion as to their reasonableness. We established "COLI VUL-2 Series Account" (the "Series Account") in accordance with Colorado law on November 25, 1997. The Series Account is registered with the SEC as a unit investment trust under the Investment Company Act of 1940. Services The accounting firm of Deloitte & Touche LLP performs certain accounting and auditing services for Great-West and the Series Account. The principal business address of Deloitte & Touche LLP is 555 Seventeenth Street, Suite 3600, Denver, Colorado, 80202-3942. The consolidated financial statements of Great-West as of December 31, 2002 and 2001, and the related consolidated statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2002, as well as the financial statements of the Series Account for the years ended December 31, 2002 and 2001, which are included in this Statement of Additional Information, have been audited by Deloitte & Touche LLP, independent auditors, as set forth in their reports appearing herein. Such financial statements have been included herein in reliance upon the reports of Deloitte & Touche LLP, given upon their authority as experts in accounting and auditing. Underwriters The offering of the Policy is made on a continuous basis by BenefitsCorp Equities, Inc. ("BCE"), an indirect wholly owned subsidiary of Great-West, whose principal business address is 8515 East Orchard Road, Greenwood Village, Colorado 80111. BCE is registered with the SEC under the Securities Exchange Act of 1934 as a broker-dealer and is a member of the National Association of Securities Dealers, Inc. BCE has received no underwriting commissions in connection with this offering. Licensed insurance agents will sell the Policy in those states where the Policy may be lawfully sold. Such agents will be registered representatives of broker-dealers registered under the Securities Exchange Act of 1934 which are members of the National Association of Securities Dealers, Inc. and which have entered into selling agreements with BCE. BCE also acts as the general distributor of certain annuity contracts issued by us. The maximum sales commission payable to our agents, independent registered insurance agents and other registered broker-dealers is 70% of premium up to the first year target premium and 7% of the portion of the first year premium above the target. In addition, asset-based trail commissions may be paid. A sales representative may be required to return all or a portion of the commissions paid if: (i) a Policy terminates prior to the second Policy Anniversary; or (ii) a Policy is surrendered for the Surrender Benefit within the first six Policy Years and applicable state insurance law permits a return of expense charge. The directors and executive officers of BCE are: C.P. Nelson, Chairman and President; R.K. Shaw, Director; G.E. Seller, Director and Senior Vice President; G.R. McDonald, Director; J.R. Cavalier, Vice President; T.M. Connolly, Vice President; W.S. Harmon, Vice President; K.A. Morris, Vice President, M.P. Sole, Vice President, G.R. Derback, Treasurer; B.A. Byrne, Secretary and T. L. Buckley, Compliance Officer. The principal business address of each director and executive officer, except G.E. Seller, T.M. Connolly, K.A. Morris, M.P. Sole and Beverly A. Byrne, is 8515 East Orchard Road, Greenwood Village, Colorado 80111. G.E. Seller's principal business address is 18101 Von Karman Avenue, Suite 1460, Irvine, California 92612. T.M. Connolly's principal business address is 300 Broadacres Drive, Bloomfield, New Jersey, 07003. K.A. Morris' principal business address is 500 North Central, Suite 220, Glendale, California, 91203. M.P. Sole's principal business address is One North LaSalle, Suite 3200, Chicago, Illinois, 60602. Beverly A. Byrne's principal business address is 8525 East Orchard Road, Greenwood Village, Colorado 80111. Underwriting Procedures We will issue on a Fully Underwritten Basis applicants up to 300% of our standard current mortality assumptions. We will issue on a Simplified Basis based on case characteristics, such as required policy size, average age of group and the industry of the group using our standard mortality assumptions. We will issue on a Guaranteed Basis for larger groups based on case characteristics such as the size of the group, policy size, average age of group, industry, and group location. Performance Data Quotations of average annual total return for a sub-account will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in the sub-account over periods of 1, 5, and 10 years (or up to the life of the sub-account) that would equate the initial amount invested to the ending value. The average annual return is computed from the date the fund was initially made available to the Key Business VUL contract holders or based on historical performance of the underlying funds, reduced by the charges of the Key Business VUL product that would have applied if the separate account had been in existence since the inception date of the underlying fund. The average annual total return for each sub-account is calculated based on the following formula: P(1+T)n = ERV where: P = a hypothetical initial investment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of initial investment Performance figures are based on historical earnings and are not intended to suggest future performance. These figures reflect the fund operating expenses and the mortality and expense fee of 0.40% for years 1-5; 0.25% for years 6-20; 0.10% for years 21+. Product charges, such as cost of insurance, expense charges applied to premiums, service charges and surrender charges are not included in these performance numbers. Had they been included the performance figures would be significantly lower. The product commenced operations November 1999. All performance figures are for the period ended 12/31/02 The first table reflects average annual return from the date the Funds were initially made available to the Key Business VUL contract holders.
- -------------------------------------------- ---------- ---------- ---------- ---------- --------- Fund Name Inception 1 Year 5 Years 10 Years Life Of Date fund - -------------------------------------------- ---------- ---------- ---------- ---------- --------- - -------------------------------------------- ---------- ---------- ---------- ---------- --------- American Century VP Income & Growth Nov - 99 -19.69% N/A N/A -11.27% American Century VP International Nov - 99 -20.69% N/A N/A -17.14% American Century VP Ultra(R) May - 02 N/A N/A N/A -19.83% American Century VP Value Nov - 99 -12.95% N/A N/A 4.31% Dreyfus Stock Index Fund Nov - 99 -22.67% N/A N/A -13.17% Dreyfus VIF Appreciation Portfolio Nov - 99 -17.06% N/A N/A -8.59% Dreyfus VIF Growth & Income Portfolio Nov - 99 -25.42% N/A N/A -10.62% Federated American Leaders Fund II Nov - 99 -20.53% N/A N/A -7.04% Federated Growth Strategies Fund II Nov - 99 -26.41% N/A N/A -18.21% Federated High Income Bond Fund II Nov - 99 0.99% N/A N/A -2.22% Federated International Equity Fund II Nov - 99 -23.07% N/A N/A -20.12% Fidelity VIP Growth Portfolio May - 00 -30.58% N/A N/A -23.39% Fidelity VIP Contrafund Portfolio May - 02 N/A N/A N/A -13.10% Fidelity VIP Investment Grade Bond May - 00 9.66% N/A N/A 9.91% Portfolio INVESCO VIF - Financial Services Fund May - 02 N/A N/A N/A -15.81% INVESCO VIF - Health Sciences Fund May - 02 N/A N/A N/A -18.18% INVESCO VIF - High Yield Fund Nov - 99 -1.69% N/A N/A -9.23% INVESCO VIF - Core Equity Fund Nov - 99 -19.44% N/A N/A -8.40% INVESCO VIF - Technology Fund May - 02 N/A N/A N/A -34.40% Janus Aspen Mid Cap Growth Portfolio May - 02 N/A N/A N/A -19.65% Janus Aspen Balanced Portfolio Nov - 99 -6.82% N/A N/A -2.40% Janus Aspen Capital Appreciation Portfolio May - 02 N/A N/A N/A -12.25% Janus Aspen Flexible Income Portfolio Nov - 99 10.04% N/A N/A 7.74% Janus Aspen Growth Portfolio May - 02 N/A N/A N/A -22.50% Janus Aspen Worldwide Growth Portfolio Nov - 99 -25.80% N/A N/A -17.30% Maxim Loomis-Sayles Bond Portfolio Nov - 99 10.64% N/A N/A 5.98% Maxim INVESCO ADR Portfolio Nov - 99 -13.51% N/A N/A -9.56% Maxim INVESCO Balanced Portfolio Nov - 99 -17.34% N/A N/A -9.72% Maxim INVESCO Small-Cap Growth Portfolio Nov - 99 -31.23% N/A N/A -16.16% Maxim Ariel Mid-Cap Value Portfolio Nov - 99 -11.12% N/A N/A 8.29% Maxim Ariel Small-Cap Value Portfolio May - 02 N/A N/A N/A -16.15% Maxim Money Market Portfolio Nov - 99 0.98% N/A N/A 3.40% Maxim T.Rowe Equity/Income Portfolio May - 02 N/A N/A N/A -15.59% Maxim U.S. Government Securities Portfolio Nov - 99 9.38% N/A N/A 8.35% Maxim Aggressive Profile I Portfolio Nov - 99 -17.95% N/A N/A -7.12% Maxim Moderately Aggressive Profile Nov - 99 -12.38% N/A N/A -4.47% Portfolio Maxim Moderate Profile I Portfolio Nov - 99 -8.88% N/A N/A -2.22% Maxim Moderately Conservative Profile I Nov - 99 -5.69% N/A N/A -0.98% Portfolio Maxim Conservative Profile I Portfolio Nov - 99 -1.09% N/A N/A 2.64% Neuberger Berman AMT Guardian Portfolio Nov - 99 -26.74% N/A N/A -8.91% Neuberger Berman AMT Mid-Cap Growth Nov - 99 -29.62% N/A N/A -15.92% Portfolio Neuberger Berman AMT Partners Portfolio Nov - 99 -24.45% N/A N/A -8.58% Neuberger Berman AMT Socially Responsive Nov - 99 -15.09% N/A N/A -6.19% Portfolio STI Classic VT Capital Appreciation Sep - 02 N/A N/A N/A -10.71% Portfolio STIC Classic VT Growth and Income Portfolio Sep - 02 N/A N/A N/A -12.60% STI Classic VT Small Cap Value Equity Sep - 02 N/A N/A N/A -9.18% Portfolio - -------------------------------------------- ---------- ---------- ---------- ---------- --------- The second table reflects average annual return based on historical performance of the underlying Funds, reduced by the charges of the Key Business VUL product that would have applied if the separate account had been in existence since the inception date of the underlying Fund. - -------------------------------------------- ---------- ---------- ---------- ---------- --------- Fund Name Inception 1 Year 5 Years 10 Years Life Of Date fund - -------------------------------------------- ---------- ---------- ---------- ---------- --------- - -------------------------------------------- ---------- ---------- ---------- ---------- --------- American Century VP Income & Growth Oct - 97 -19.69% -0.62% N/A 0.83% American Century VP International May - 94 -20.69% -2.18% N/A 2.89% American Century VP Ultra(R) May - 01 N/A N/A N/A -17.08% American Century VP Value May - 96 -12.95% 3.48% N/A 7.98% Dreyfus Stock Index Fund Sep - 98 -22.67% -1.28% 8.54% 8.87% Dreyfus VIF Appreciation Portfolio Apr - 93 -17.06% 1.27% N/A 9.76% Dreyfus VIF Growth & Income Portfolio May - 94 -25.42% -2.83% N/A 7.82% Federated American Leaders Fund II Feb - 94 -20.53% -0.77% N/A 8.36% Federated Growth Strategies Fund II Nov - 95 -26.41% -1.86% N/A 5.20% Federated High Income Bond Fund II Mar - 94 0.99% -0.75% N/A 4.18% Federated International Equity Fund II May - 95 -23.07% -0.81% N/A 2.11% Fidelity VIP Growth Portfolio Jan - 95 -30.58% -0.91% 7.97% 10.00% Fidelity VIP Contrafund Portfolio Oct - 86 -9.96% 3.11% N/A 11.71% Fidelity VIP Investment Grade Bond Dec - 88 9.66% 6.86% 6.82% 7.59% Portfolio INVESCO VIF - Financial Services Fund Sep - 99 -15.24% N/A N/A 1.45% INVESCO VIF - Health Sciences Fund May - 97 -24.76% 4.83% N/A 6.10% INVESCO VIF - High Yield Fund May - 94 -1.69% -4.24% N/A 3.20% INVESCO VIF - Core Equity Fund Aug - 94 -19.44% 0.04% N/A 8.81% INVESCO VIF - Technology Fund May - 97 -47.06% -6.79% N/A -3.77% Janus Aspen Mid Cap Growth Portfolio Sep - 93 -28.22% -2.47% N/A 6.86% Janus Aspen Balanced Portfolio Sep - 93 -6.82% 7.78% N/A 11.48% Janus Aspen Capital Appreciation Portfolio May - 97 -16.01% 6.94% N/A 10.55% Janus Aspen Flexible Income Portfolio Sep - 93 10.04% 6.57% N/A 7.99% Janus Aspen Growth Portfolio Sep - 93 -26.81% -1.97% N/A 6.50% Janus Aspen Worldwide Growth Portfolio Sep - 93 -25.80% 0.25% N/A 9.99% Maxim Loomis-Sayles Bond Portfolio Nov - 94 10.64% 4.85% N/A 8.86% Maxim INVESCO ADR Portfolio Nov - 94 -13.51% -2.75% N/A 3.59% Maxim INVESCO Balanced Portfolio Oct - 96 -17.34% -0.61% N/A 3.94% Maxim INVESCO Small-Cap Growth Portfolio Nov - 94 -31.23% -0.55% N/A 8.34% Maxim Ariel Mid-Cap Value Portfolio Dec - 93 -11.12% 10.47% N/A 11.78% Maxim Ariel Small-Cap Value Portfolio Dec - 93 -9.01% 6.00% N/A 9.67% Maxim Money Market Portfolio Feb - 82 0.98% 3.84% 4.01% 5.63% Maxim T.Rowe Equity/Income Portfolio Nov - 94 -13.18% 2.01% N/A 10.21% Maxim U.S. Government Securities Portfolio Apr - 85 9.38% 6.51% 6.46% 8.07% Maxim Aggressive Profile I Portfolio Sep - 97 -17.95% -0.16% N/A 0.44% Maxim Moderately Aggressive Profile Sep - 97 -12.38% 1.57% N/A 2..14% Portfolio Maxim Moderate Profile I Portfolio Sep - 97 -8.88% 2.21% N/A 2.55% Maxim Moderately Conservative Profile I Sep - 97 -5.69% 1.83% N/A 2.13% Portfolio Maxim Conservative Profile I Portfolio Sep - 97 -1.09% 3.78% N/A 4.22% Neuberger Berman AMT Guardian Portfolio Nov - 97 -26.74% 1.67% N/A 2.61% Neuberger Berman AMT Mid-Cap Growth Nov - 97 -29.62% 0.66% N/A 3.77% Portfolio Neuberger Berman AMT Partners Portfolio Mar - 94 -24.45% -4.03% N/A 7.08% Neuberger Berman AMT Socially Responsive Feb - 99 -15.09% N/A N/A -2.17% Portfolio STI Classic VT Capital Appreciation Oct - 95 -22.20% 0.93% N/A 8.09% Portfolio STIC Classic VT Growth and Income Portfolio Dec - 99 -20.91% N/A N/A -6.78% STI Classic VT Small Cap Value Equity Oct - 97 -1.59% 2.74% N/A 2.21% Portfolio - -------------------------------------------- ---------- ---------- ---------- ---------- ---------
Illustrations - Illustration provided in Appendix C of prospectus. Upon Request, we will provide you an illustration of Cash Surrender Value, Account Value and death benefits. The first illustration you Request during a Policy Year will be provided to you free of charge. Thereafter, each additional illustration Requested during the same Policy Year will be provided to you for a nominal fee not to exceed $50. Financial Statements Coli Vul-2 Series Account of Great-West Life & Annuity Insurance Company Financial Statements for the Years Ended December 31, 2002 and 2001 and Independent Auditors' Report INDEPENDENT AUDITORS' REPORT To the Board of Directors and Contract Owners of COLI VUL-2 Series Account of Great-West Life & Annuity Insurance Company We have audited the accompanying statement of assets and liabilities of COLI VUL-2 Series Account of Great-West Life & Annuity Insurance Company (the "Series Account") as of December 31, 2002, by investment division, and the related statement of operations for the year then ended, by investment division, and the statements of changes in net assets for each of the two years in the period then ended, by investment division. These financial statements are the responsibility of the Series Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of COLI VUL-2 Series Account of Great-West Life & Annuity Insurance Company as of December 31, 2002, by investment division, the results of its operations for the year then ended, by investment division, and the changes in its net assets for each of the two years in the period then ended, by investment division, in conformity with accounting principles generally accepted in the United States of America. February 19, 2003 /s/ Deloitte & Touche LLP Deloitte & Touche LLP COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AMERICAN AMERICAN AMERICAN DREYFUS STOCK DREYFUS VIF DREYFUS VIF CENTURY VP CENTURY VP CENTURY VP INDEX FUND APPRECIATION GROWTH & INCOME & INTERNATIONAL VALUE PORTFOLIO INCOME GROWTH IV PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------- ------------- ------------- ------------- ------------- ------------ ASSETS: Investments at market value (1) $ 90,261 $ 32,215 $ 7,252 $ 944,459 $ 38,481 $ 3,452 Investment income due and accrued 3,741 Purchase payments receivable 291 328 765 109 36 ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- ------------- ------------- ------------- ------------ Total assets 90,552 32,543 7,252 948,965 38,590 3,488 ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- ------------- ------------- ------------- ------------ LIABILITIES: Due to Great-West Life & Annuity Insurance Company7 2 1 73 3 3 ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- ------------- ------------- ------------- ------------ Total liabilities 7 2 1 73 3 3 ------------- ------------- ------------- ------------- ------------- ------------ ------------- ------------- ------------- ------------- ------------- ------------ NET ASSETS $ 90,545 $ 32,541 $ 7,251 $ 948,892 $ 38,587 $ 3,485 ============= ============= ============= ============= ============= ============ ============= ============= ============= ============= ============= ============ NET ASSETS REPRESENTED BY: Accumulation units $ 90,545 $ 32,541 $ 7,251 $ 948,892 $ 38,587 $ 3,485 ============= ============= ============= ============= ============= ============ ============= ============= ============= ============= ============= ============ ACCUMULATION UNITS OUTSTANDING 12,202 4,785 638 135,429 4,732 460 UNIT VALUE (ACCUMULATION) $ 7.42 $ 6.80 $ 11.37 $ 7.01 $ 8.15 $ 7.58 ============= ============= ============= ============= ============= ============ ============= ============= ============= ============= ============= ============ (1) Cost of investments: $ 107,370 $ 42,378 $ 8,613 $ 1,110,334 $ 37,212 $ 4,612 Shares of investments: 17,493 6,183 1,185 42,032 1,337 215 The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ FEDERATED FEDERATED FEDERATED FEDERATED FIDELITY VIP FIDELITY AMERICAN GROWTH HIGH INCOME INTERNATIONAL GROWTH VIP LEADERS FUND STRATEGIES BOND FUND II EQUITY FUND II PORTFOLIO INVESTMENT II FUND II GRADE BOND PORTFOLIO ------------- ------------- ------------- -------------- ------------- ---------- ASSETS: Investments at market value (1) $ 369,440 $ 6,823 $ 13,535 $ 179,920 $ 814,179 $ 4,674,848 Investment income due and accrued Purchase payments receivable 73 ------------- -------- ------------- -------------- ------------- ------------- ------------- -------- ------------- -------------- ------------- ------------- Total assets 369,440 6,896 13,535 179,920 814,179 4,674,848 ------------- -------- ------------- -------------- ------------- ------------- ------------- -------- ------------- -------------- ------------- ------------- LIABILITIES: Due to Great-West Life & Annuity Insurance Company 28 1 1 14 63 358 ------------- -------- ------------- -------------- ------------- ------------- ------------- -------- ------------- -------------- ------------- ------------- Total liabilities 28 1 1 14 63 358 ------------- -------- ------------- -------------- ------------- ------------- ------------- -------- ------------- -------------- ------------- ------------- NET ASSETS $ 369,412 $ 6,895 $ 13,534 $ 179,906 $ 814,116 $ 4,674,490 ============= ======== ============= ============== ============= ============= ============= ======== ============= ============== ============= ============= NET ASSETS REPRESENTED BY: Accumulation units $ 369,412 $ 6,895 $ 13,534 $ 179,906 $ 814,116 $ 4,674,490 ============= ======== ============= ============== ============= ============= ============= ======== ============= ============== ============= ============= ACCUMULATION UNITS OUTSTANDING 44,981 1,072 1,432 27,803 143,352 395,673 UNIT VALUE (ACCUMULATION) $ 8.21 $ 6.43 $ 9.45 $ 6.47 $ 5.68 $ 11.81 ============= ======== ============= ============== ============= ============= ============= ======== ============= ============== ============= ============= (1) Cost of investments: $ 457,079 $ 8,401 $ 14,516 $ 229,659 $ 1,206,389 $ 4,356,110 Shares of investments: 24,289 525 1,912 20,469 35,079 344,499 The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ INVESCO INVESCO JANUS ASPEN JANUS ASPEN JANUS ASPEN MAXIM ARIEL VIF-CORE VIF-HIGH YIELD SERIES SERIES SERIES MIDCAP EQUITY FUND FUND BALANCED FLEXIBLE WORLDWIDE VALUE PORTFOLIO INCOME GROWTH PORTFOLIO PORTFOLIO PORTFOLIO ------------- ------------- ------------- -------------- ------------- ---------- ASSETS: Investments at market value (1) $ 917,554 $ 12,794 $ 1,512,165 $ 4,403,300 $ 673,207 $ 1,477,876 Investment income due and accrued 16,102 1,542 Purchase payments receivable 73 947 291 109 ------------- -------- ------------- -------------- ------------- ------------- ------------- -------- ------------- -------------- ------------- ------------- Total assets 933,729 14,336 1,513,112 4,403,300 673,498 1,477,985 ------------- -------- ------------- -------------- ------------- ------------- ------------- -------- ------------- -------------- ------------- ------------- LIABILITIES: Due to Great-West Life & Annuity Insurance Company 72 1 116 337 52 113 ------------- -------- ------------- -------------- ------------- ------------- ------------- -------- ------------- -------------- ------------- ------------- Total liabilities 72 1 116 337 52 113 ------------- -------- ------------- -------------- ------------- ------------- ------------- -------- ------------- -------------- ------------- ------------- NET ASSETS $ 933,657 $ 14,335 $ 1,512,996 $ 4,402,963 $ 673,446 $ 1,477,872 ============= ======== ============= ============== ============= ============= ============= ======== ============= ============== ============= ============= NET ASSETS REPRESENTED BY: Accumulation units $ 933,657 $ 14,335 $ 1,512,996 $ 4,402,963 $ 673,446 $ 1,477,872 ============= ======== ============= ============== ============= ============= ============= ======== ============= ============== ============= ============= ACCUMULATION UNITS OUTSTANDING 113,434 1,890 150,273 344,033 98,352 115,419 UNIT VALUE (ACCUMULATION) $ 8.23 $ 7.58 $ 10.07 $ 12.80 $ 6.85 $ 12.80 ============= ======== ============= ============== ============= ============= ============= ======== ============= ============== ============= ============= (1) Cost of investments: $ 1,192,189 $ 13,663 $ 1,638,437 $ 4,318,797 $ 901,700 $ 1,715,881 Shares of investments: 62,123 1,901 73,442 357,992 31,981 106,414 The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ MAXIM INVESCO MAXIM INVESCO MAXIM LOOMIS MAXIM MAXIM MONEY MAXIM U.S. ADR PORTFOLIO SMALL-CAP SAYLES BOND MODERATELY MARKET GOVERNMENT GROWTH PORTFOLIO AGGRESSIVE PORTFOLIO SECURITIES PORTFOLIO PROFILE I PORTFOLIO PORTFOLIO ------------- ------------- ------------- -------------- ------------- -------- ASSETS: Investments at market value (1) $ 11,569 $ 483,064 $ 1,713,498 $ 15,648 $ 4,878,448 $ 2,654,730 Investment income due and accrued 2,494 Purchase payments receivable 109 36 146 146 ------------- ------------- ------------- --------- ------------- ------------- ------------- ------------- ------------- --------- ------------- ------------- Total assets 11,678 483,100 1,713,498 15,794 4,881,088 2,654,730 ------------- ------------- ------------- --------- ------------- ------------- ------------- ------------- ------------- --------- ------------- ------------- LIABILITIES: Due to Great-West Life & Annuity Insurance Company 1 37 131 1 374 203 ------------- ------------- ------------- --------- ------------- ------------- ------------- ------------- ------------- --------- ------------- ------------- Total liabilities 1 37 131 1 374 203 ------------- ------------- ------------- --------- ------------- ------------- ------------- ------------- ------------- --------- ------------- ------------- NET ASSETS $ 11,677 $ 483,063 $ 1,713,367 $ 15,793 $ 4,880,714 $ 2,654,527 ============= ============= ============= ========= ============= ============= ============= ============= ============= ========= ============= ============= NET ASSETS REPRESENTED BY: Accumulation units $ 11,677 $ 483,063 $ 1,713,367 $ 15,793 $ 4,880,714 $ 2,654,527 ============= ============= ============= ========= ============= ============= ============= ============= ============= ========= ============= ============= ACCUMULATION UNITS OUTSTANDING 1,487 68,880 140,848 1,756 436,831 205,820 UNIT VALUE (ACCUMULATION) $ 7.85 $ 7.01 $ 12.16 $ 8.99 $ 11.17 $ 12.90 ============= ============= ============= ========= ============= ============= ============= ============= ============= ========= ============= ============= (1) Cost of investments: $ 14,052 $ 593,001 $ 1,683,641 $ 18,172 $ 4,878,448 $ 2,625,284 Shares of investments: 1,026 41,643 175,204 1,858 4,878,448 232,260 The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ NEUBERGER NEUBERGER NEUBERGER TOTAL COLI BERMAN AMT BERMAN AMT BERMAN AMT VUL-2 GUARDIAN MID-CAP GROWTH PARTNERS SERIES PORTFOLIO PORTFOLIO PORTFOLIO ACCOUNT ------------- -------------- ------------- --------- ASSETS: Investments at market value (1) $ 310,306 $ 220,677 $ 29,713 $ 26,489,414 Investment income due and accrued 23,879 Purchase payments receivable 182 3,641 ------------- --------- ------------- ------------- ------------- --------- ------------- ------------- Total assets 310,306 220,859 29,713 26,516,934 ------------- --------- ------------- ------------- ------------- --------- ------------- ------------- LIABILITIES: Due to Great-West Life & Annuity Insurance Company 24 17 2 2,035 ------------- --------- ------------- ------------- ------------- --------- ------------- ------------- Total liabilities 24 17 2 2,035 ------------- --------- ------------- ------------- ------------- --------- ------------- ------------- NET ASSETS $ 310,282 $ 220,842 $ 29,711 $ 26,514,899 ============= ========= ============= ============= ============= ========= ============= ============= NET ASSETS REPRESENTED BY: Accumulation units $ 310,282 $ 220,842 $ 29,711 $ 26,514,899 ============= ========= ============= ============= ============= ========= ============= ============= ACCUMULATION UNITS OUTSTANDING 36,810 30,542 3,707 UNIT VALUE (ACCUMULATION) $ 8.43 $ 7.23 $ 8.01 ============= ========= ============= ============= ========= ============= (1) Cost of investments: $ 399,886 $ 292,804 $ 36,490 $ 27,905,118 Shares of investments: 29,001 18,436 2,606 The accompanying notes are an integral part of these financial statements. (Concluded)
COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AMERICAN AMERICAN AMERICAN BRAZOS SMALL DREYFUS STOCK DREYFUS VIF CENTURY VP CENTURY VP CENTURY VP CAP PORTFOLIO INDEX FUND APPRECIATION INCOME & INTERNATIONAL VALUE PORTFOLIO GROWTH IV PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------ ------------- ------------- ------------- ------------- -------------- ------- INVESTMENT INCOME: Dividends $ 541 $ 263 $ 55 $ $ 12,799 $ 472 EXPENSES: Mortality and expense risk 285 128 29 1,131 3,436 114 ------------- ------------- ---------- ------------- -------------- ---------- ------------- ------------- ---------- ------------- -------------- ---------- NET INVESTMENT INCOME (LOSS) 256 135 26 (1,131) 9,363 358 ------------- ------------- ---------- ------------- -------------- ---------- ------------- ------------- ---------- ------------- -------------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized loss on sale of fund shares (327) (314) (57) (11,020) (101,994) (2,086) Realized gain distributions 0 0 359 0 0 0 ------------- ------------- ---------- ------------- -------------- ---------- ------------- ------------- ---------- ------------- -------------- ---------- Net realized gain (loss) (327) (314) 302 (11,020) (101,994) (2,086) ------------- ------------- ---------- ------------- -------------- ---------- ------------- ------------- ---------- ------------- -------------- ---------- Change in net unrealized appreciation (depreciation) on investments (17,033) (6,778) (1,409) (1,051) (164,442) 1,265 ------------- ------------- ---------- ------------- -------------- ---------- ------------- ------------- ---------- ------------- -------------- ---------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (17,104)$ (6,957) $ (1,081)$ (13,202)$ (257,073)$ (463) ============= ============= ========== ============= ============== ========== ============= ============= ========== ============= ============== ========== INVESTMENT INCOME RATIO (2002) 0.76% 0.82% 0.76% 0.00% 1.50% 1.66% ============= ============= ========== ============== ========== ============= ============= ========== ============== ========== INVESTMENT INCOME RATIO (2001) 0.12% 0.02% 1.19% 1.85% ============= ============= ============== ========== ============= ============= ============== ========== The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ DREYFUS VIF FEDERATED FEDERATED FEDERATED FEDERATED FIDELITY GROWTH & AMERICAN GROWTH HIGH INCOME INTERNATIONAL VIP GROWTH INCOME LEADERS FUND II STRATEGIES BOND FUND II EQUITY FUND II PORTFOLIO PORTFOLIO FUND II ------------- ------------- ------------- ------------- -------------- ------- INVESTMENT INCOME: Dividends $ 24 $ 301 $ $ 1,063 $ $ 921 EXPENSES: Mortality and expense risk 14 1,220 165 44 588 3,340 ------------- ------------- ------------- ------------- -------- ------------- ------------- ------------- ------------- ------------- -------- ------------- NET INVESTMENT INCOME (LOSS) 10 (919) (165) 1,019 (588) (2,419) ------------- ------------- ------------- ------------- -------- ------------- ------------- ------------- ------------- ------------- -------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized loss on sale of fund shares (28) (11,677) (37,773) (74) (336) (12,082) Realized gain distributions 0 0 0 0 0 0 ------------- ------------- ------------- ------------- -------- ------------- ------------- ------------- ------------- ------------- -------- ------------- Net realized loss (28) (11,677) (37,773) (74) (336) (12,082) ------------- ------------- ------------- ------------- -------- ------------- ------------- ------------- ------------- ------------- -------- ------------- Change in net unrealized depreciation on investments (1,029) (87,639) 24,392 (981) (49,739) (303,399) ------------- ------------- ------------- ------------- -------- ------------- ------------- ------------- ------------- ------------- -------- ------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (1,047)$ (100,235) $ (13,546)$ (36)$ (50,663)$ (317,900) ============= ============= ============= ============= ======== ============= ============= ============= ============= ============= ======== ============= INVESTMENT INCOME RATIO (2002) 0.69% 0.08% 0 8.43% 0.00% 0.11% ============= ============= ============= ============= ============= ============= ============= ============= INVESTMENT INCOME RATIO (2001) 0.07% ============= ============= The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ FIDELITY VIP INVESCO INVESCO JANUS ASPEN JANUS ASPEN JANUS ASPEN INVESTMENT VIF-CORE VIF-HIGH SERIES SERIES SERIES GRADE BOND EQUITY FUND YIELD FUND BALANCED FLEXIBLE WORLDWIDE PORTFOLIO PORTFOLIO INCOME GROWTH PORTFOLIO PORTFOLIO ------------- ------------- ------------- ------------- -------------- ------- INVESTMENT INCOME: Dividends $ 41,422 $ 16,102 $ 1,542 $ 36,615 $ 125,869 $ 7,265 EXPENSES: Mortality and expense risk 11,526 3,787 16 5,046 7,608 2,679 ------------- ------------- -------- ------------- ------------ ------------- ------------- ------------- -------- ------------- ------------ ------------- NET INVESTMENT INCOME 29,896 12,315 1,526 31,569 118,261 4,586 ------------- ------------- -------- ------------- ------------ ------------- ------------- ------------- -------- ------------- ------------ ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) on sale of fund shares 6,655 (21,040) (3) (17,441) 765 (86,256) Realized gain distributions ------------- ------------- -------- ------------- ------------ ------------- ------------- ------------- -------- ------------- ------------ ------------- Net realized gain (loss) 6,655 (21,040) (3) (17,441) 765 (86,256) ------------- ------------- -------- ------------- ------------ ------------- ------------- ------------- -------- ------------- ------------ ------------- Change in net unrealized appreciation (depreciation) on investments 264,931 (217,454) (869) (104,133) 84,503 (141,717) ------------- ------------- -------- ------------- ------------ ------------- ------------- ------------- -------- ------------- ------------ ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 301,482 $ (226,179) $ 654 $ (90,005)$ 203,529 $ (223,387) ============= ============= ======== ============= ============ ============= ============= ============= ======== ============= ============ ============= INVESTMENT INCOME RATIO (2002) 1.44% 1.71% 11.72% 2.90% 5.71% 1.09% ============= ============= ======== ============= ============ ============= ============= ============= ======== ============= ============ ============= INVESTMENT INCOME RATIO (2001) 1.76% 3.26% 0.62% ============= ============= ============= ============= ============= ============= The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ MAXIM ARIEL MAXIM INVESCO MAXIM INVESCO MAXIM LOOMIS MAXIM MAXIM MONEY MIDCAP VALUE ADR PORTFOLIO SMALL-CAP SAYLES BOND MODERATELY MARKET PORTFOLIO GROWTH PORTFOLIO AGGRESSIVE PORTFOLIO PORTFOLIO PROFILE I PORTFOLIO ------------- ------------- ------------- ------------- -------------- --------- INVESTMENT INCOME: Dividends $ 3,575 $ 218 $ $ 73,715 $ 252 $ 55,039 EXPENSES: Mortality and expense risk 5,101 46 1,952 2,027 60 16,269 ------------- ------------- ------------- ------------- -------- ------------- ------------- ------------- ------------- ------------- -------- ------------- NET INVESTMENT INCOME (LOSS) (1,526) 172 (1,952) 71,688 192 38,770 ------------- ------------- ------------- ------------- -------- ------------- ------------- ------------- ------------- ------------- -------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized loss on sale of fund shares (34,482) (48) (89,640) (2,546) (42) Realized gain distributions 36,640 ------------- ------------- ------------- ------------- -------- ------------- ------------- ------------- ------------- ------------- -------- ------------- Net realized gain (loss) 2,158 (48) (89,640) (2,546) (42) ------------- ------------- ------------- ------------- -------- ------------- ------------- ------------- ------------- ------------- -------- ------------- Change in net unrealized depreciation on investments (238,626) (1,753) (72,274) 32,018 (2,210) ------------- ------------- ------------- ------------- -------- ------------- ------------- ------------- ------------- ------------- -------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (237,994)$ (1,629) $ (163,866)$ 101,160 $ (2,060)$ 38,770 ============= ============= ============= ============= ======== ============= ============= ============= ============= ============= ======== ============= INVESTMENT INCOME RATIO (2002) 0.23% 1.91% 7.33% 1.68% 1.36% ============= ============= ============= ======== ============= ============= ============= ============= ======== ============= INVESTMENT INCOME RATIO (2001) 0.66% 1.32% 11.35% 2.39% 3.51% ============= ============= ============= ======== ============= ============= ============= ============= ======== ============= The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2002 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ MAXIM U.S. NEUBERGER NEUBERGER NEUBERGER TOTAL COLI GOVERNMENT BERMAN AMT BERMAN AMT BERMAN AMT VUL-2 SECURITIES GUARDIAN MID-CAP PARTNERS SERIES PORTFOLIO PORTFOLIO GROWTH PORTFOLIO ACCOUNT PORTFOLIO ------------- ------------- ------------- -------------- ------- INVESTMENT INCOME: Dividends $ 76,191 $ 194 $ $ $ 454,438 0 EXPENSES: 0 Mortality and expense risk 4,793 1,082 883 66 73,435 ------------- ----------- ------------- --------- ------------- ------------- ----------- ------------- --------- ------------- NET INVESTMENT INCOME (LOSS) 71,398 (888) (883) (66) 381,003 ------------- ----------- ------------- --------- ------------- ------------- ----------- ------------- --------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) on sale of fund shares 5,610 (20,929) (29,331) (112) (466,608) Realized gain distributions 36,999 ------------- ----------- ------------- --------- ------------- ------------- ----------- ------------- --------- ------------- Net realized gain (loss) 5,610 (20,929) (29,331) (112) (429,609) ------------- ----------- ------------- --------- ------------- ------------- ----------- ------------- --------- ------------- Change in net unrealized appreciation (depreciation) on investments 29,446 (88,776) (50,938) (6,777) (1,122,472) ------------- ----------- ------------- --------- ------------- ------------- ----------- ------------- --------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 106,454 $ (110,593)$ (81,152)$ (6,955)$ (1,171,078) ============= =========== ============= ========= ============= ============= =========== ============= ========= ============= INVESTMENT INCOME RATIO (2002) 5.47% 0.07% ============= =========== ============= =========== INVESTMENT INCOME RATIO (2001) 0.36% =========== =========== The accompanying notes are an integral part of these financial statements. (Concluded)
COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2002 AND 2001
- ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AMERICAN CENTURY VP INCOME AMERICAN CENTURY VP AMERICAN CENTURY VP VALUE & GROWTH IV PORTFOLIO INTERNATIONAL PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------- --------------------------- --------------------------- ----------------------- 2002 2001 2002 2001 2002 2001 ------------ ------------ ------------- ------------ ------------- -------- ------------ ------------ ------------- ------------ ------------- -------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 256 $ (40)$ 135 $ (64)$ 26 $ Net realized gain (loss) (327) (51) (314) (808) 302 Change in net unrealized appreciation (depreciation) on investments (17,033) 24 (6,778) (3,082) (1,409) 48 ------------ ------------ ------------- ------------ ------------- -------- ------------ ------------ ------------- ------------ ------------- -------- Increase (decrease) in net assets resulting from operations (17,104) (67) (6,957) (3,954) (1,081) 48 ------------ ------------ ------------- ------------ ------------- -------- ------------ ------------ ------------- ------------ ------------- -------- CONTRACT TRANSACTIONS: Purchase payments 26,637 5,289 19,640 6,852 2,646 1,044 Redemptions (2,378) (420) (773) (526) (428) Transfers between subaccounts, net 58,140 19,255 5 14,721 5,035 Contract maintenance charges (349) (211) (276) (263) (13) ------------ ------------ ------------- ------------ ------------- -------- ------------ ------------ ------------- ------------ ------------- -------- Increase in net assets resulting from contract transactions 82,050 23,913 18,596 20,784 2,205 6,079 ------------ ------------ ------------- ------------ ------------- -------- ------------ ------------ ------------- ------------ ------------- -------- Total increase in net assets 64,946 23,846 11,639 16,830 1,124 6,127 NET ASSETS: Beginning of period 25,599 1,753 20,902 4,072 6,127 0 ------------ ------------ ------------- ------------ ------------- -------- ------------ ------------ ------------- ------------ ------------- -------- End of period $ 90,545 $ 25,599 $ 32,541 $ 20,902 $ 7,251 $ 6,127 ============ ============ ============= ============ ============= ======== ============ ============ ============= ============ ============= ======== CHANGES IN UNITS OUTSTANDING: Units issued 9,806 2,685 2,484 2,289 208 469 Units redeemed (374) (88) (137) (186) (39) ------------ ------------ ------------- ------------ ------------- -------- ------------ ------------ ------------- ------------ ------------- -------- Net increase 9,432 2,597 2,347 2,103 169 469 ============ ============ ============= ============ ============= ======== ============ ============ ============= ============ ============= ======== (1) The portfolio commenced investment operations on October 1, 1999, but had no activity until 2001. The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2002 AND 2001 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ BRAZOS SMALL CAP PORTFOLIO DREYFUS STOCK INDEX FUND DREYFUS VIF APPRECIATION PORTFOLIO --------------------------------------------------------------------------------------- ------------------------------ ----------------------------- ----------------------- 2002 2001 2002 2001 2002 2001 -------------- -------------- ------------- ------------- ---------- ----------- -------------- -------------- ------------- ------------- ---------- ----------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ (1,131)$ (6,552)$ 9,363 $ 630 $ 358 $ 46 Net realized loss (11,020) (13,562) (101,994) (7,711) (2,086) (50) Change in net unrealized appreciation (depreciation) on investments (1,051) 17,023 (164,442) 1,089 1,265 31 -------------- -------------- ------------- ------------- ---------- ----------- -------------- -------------- ------------- ------------- ---------- ----------- Increase (decrease) in net assets resulting from operations (13,202) (3,091) (257,073) (5,992) (463) 27 -------------- -------------- ------------- ------------- ---------- ----------- -------------- -------------- ------------- ------------- ---------- ----------- CONTRACT TRANSACTIONS: Purchase payments 158,016 231,091 21,546 59,364 1,057 Redemptions (15,616) (63,229) (21,018) (2,658) (1,172) (93) Transfers between subaccounts, net (2,014,190) 876,821 909,535 20,655 (26,030) 5,547 Contract maintenance charges (1,095) (6,152) (3,851) (785) (208) (46) -------------- -------------- ------------- ------------- ---------- ----------- -------------- -------------- ------------- ------------- ---------- ----------- Increase (decrease) in net assets resulting from contract transactions (2,030,901) 965,456 1,115,757 38,758 31,954 6,465 -------------- -------------- ------------- ------------- ---------- ----------- -------------- -------------- ------------- ------------- ---------- ----------- Total increase (decrease) in net assets (2,044,103) 962,365 858,684 32,766 31,491 6,492 NET ASSETS: Beginning of period 2,044,103 1,081,738 90,208 57,442 7,096 604 -------------- -------------- ------------- ------------- ---------- ----------- -------------- -------------- ------------- ------------- ---------- ----------- End of period $ 0 $ 2,044,103 $ 948,892 $ 90,208 $ 38,587 $ 7,096 ============== ============== ============= ============= ========== =========== ============== ============== ============= ============= ========== =========== CHANGES IN UNITS OUTSTANDING: Units issued 131,982 196,505 5,188 10,381 690 Units redeemed (234,062) (9,752) (71,032) (777) (6,371) (23) -------------- -------------- ------------- ------------- ---------- ----------- -------------- -------------- ------------- ------------- ---------- ----------- Net increase (decrease) (234,062) 122,230 125,473 4,411 4,010 667 ============== ============== ============= ============= ========== =========== ============== ============== ============= ============= ========== =========== (1) The portfolio ceased investment operations on February 22, 2002. The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2002 AND 2001 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ DREYFUS VIF GROWTH & INCOME FEDERATED FEDERATED GROWTH PORTFOLIO AMERICAN STRATEGIES FUND II LEADERS FUND II ----------------------------------------------------------------------- --------------------------- ------------ ---------------------------- 2002 2001 2002 2002 2001 ------------ ------------- ------------ ------------- ------------- ------------ ------------- ------------ ------------- ------------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 10 $ (50)$ (919)$ (165)$ (502) Net realized loss (28) (6,676) (11,677) (37,773) (20,261) Change in net unrealized depreciation on investments (1,029) 3,859 (87,639) 24,392 (15,519) ------------ ------------- ------------ ------------- ------------- ------------ ------------- ------------ ------------- ------------- Decrease in net assets resulting from operations (1,047) (2,867) (100,235) (13,546) (36,282) ------------ ------------- ------------ ------------- ------------- ------------ ------------- ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 2,196 697 0 4,524 10,685 Redemptions (84) (922) (3,953) (2,066) (5,384) Transfers between subaccounts, net (5) (62,942) 474,811 (105,479) (26,791) Contract maintenance charges (30) (80) (1,211) (191) (517) ------------ ------------- ------------ ------------- ------------- ------------ ------------- ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions 2,077 (63,247) 469,647 (103,212) (22,007) ------------ ------------- ------------ ------------- ------------- ------------ ------------- ------------ ------------- ------------- Total increase (decrease) in net assets 1,030 (66,114) 369,412 (116,758) (58,289) NET ASSETS: Beginning of period 2,455 68,569 0 123,653 181,942 ------------ ------------- ------------ ------------- ------------- ------------ ------------- ------------ ------------- ------------- End of period $ 3,485 $ 2,455 $ 369,412 $ 6,895 $ 123,653 ============ ============= ============ ============= ============= ============ ============= ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 232 301 51,726 937 2,508 Units redeemed (14) (6,375) (6,745) (14,016) (4,432) ------------ ------------- ------------ ------------- ------------- ------------ ------------- ------------ ------------- ------------- Net increase (decrease) 218 (6,074) 44,981 (13,079) (1,924) ============ ============= ============ ============= ============= ============ ============= ============ ============= ============= (1) The portfolio commenced investment operations on August 20, 2001, but had no activity until 2002. The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2002 AND 2001 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ FEDERATED HIGH INCOME BOND FEDERATED INTERNATIONAL FIDELITY VIP GROWTH FUND II EQUITY FUND II PORTFOLIO --------------------------------------------------------------------------------- --------------------------- --------------------------- ------------------------ 2002 2001 2002 2001 2002 2001 ------------- ------------ ------------- ------------ --------- ------------- ------------- ------------ ------------- ------------ --------- ------------- (1) (1) (2) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 1,019 $ (1)$ (588)$ (2)$ (2,419)$ (1,929) Net realized gain (loss) (74) (15) (336) 10 (12,082) (1,030) Change in net unrealized depreciation on investments (981) (49,739) 67 (303,399) (88,811) ------------- ------------ ------------- ------------ --------- ------------- ------------- ------------ ------------- ------------ --------- ------------- Increase (decrease) in net assets resulting from operations (36) (16) (50,663) 75 (317,900) (91,770) ------------- ------------ ------------- ------------ --------- ------------- ------------- ------------ ------------- ------------ --------- ------------- CONTRACT TRANSACTIONS: Purchase payments 4,402 92 0 563 356,322 503,894 Redemptions (494) (12) (1,704) (16) (23,979) (12,087) Transfers between subaccounts, net 9,689 (56) 232,862 (1,172) 30,915 370,562 Contract maintenance charges (27) (8) (589) (9) (1,047) (794) ------------- ------------ ------------- ------------ --------- ------------- ------------- ------------ ------------- ------------ --------- ------------- Increase (decrease) in net assets resulting from contract transactions 13,570 16 230,569 (634) 362,211 861,575 ------------- ------------ ------------- ------------ --------- ------------- ------------- ------------ ------------- ------------ --------- ------------- Total increase (decrease) in net assets 13,534 0 179,906 (559) 44,311 769,805 NET ASSETS: Beginning of period 0 0 0 559 769,805 0 ------------- ------------ ------------- ------------ --------- ------------- ------------- ------------ ------------- ------------ --------- ------------- End of period $ 13,534 $ 0 $ 179,906 $ 0 $814,116 $ 769,805 ============= ============ ============= ============ ========= ============= ============= ============ ============= ============ ========= ============= CHANGES IN UNITS OUTSTANDING: Units issued 1,505 235 28,110 167 53,539 97,352 Units redeemed (73) (235) (307) (214) (4,290) (3,249) ------------- ------------ ------------- ------------ --------- ------------- ------------- ------------ ------------- ------------ --------- ------------- Net increase (decrease) 1,432 0 27,803 (47) 49,249 94,103 ============= ============ ============= ============ ========= ============= ============= ============ ============= ============ ========= ============= (1) The portfolio commenced investment operations on October 1, 1999, but had no activity until 2001. (2) The portfolio commenced investment operations on October 13, 2000, but had no activity until 2001. The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2002 AND 2001 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ FIDELITY VIP INVESTMENT GRADE INVESCO VIF-CORE EQUITY FUND INVESCO INVESCO VIF BOND PORTFOLIO VIF-HIGH YIELD TOTAL FUND RETURN FUND --------------------------------------------------------------------------------------- ----------------------------- ----------------------------- -------------- --------- 2002 2001 2002 2001 2002 2001 ------------- -------------- ------------- ------------- -------------- --------- ------------- -------------- ------------- ------------- -------------- --------- (1) (2) (3) (4) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 29,896 $ (2,664)$ 12,315 $ 6,781 $ 1,526 (2) Net realized gain (loss) 6,655 685 (21,040) 2,481 (3) 64 Change in net unrealized appreciation (depreciation) on investments 264,931 53,806 (217,454) (57,181) (869) 53 ------------- -------------- ------------- ------------- -------------- --------- ------------- -------------- ------------- ------------- -------------- --------- Increase (decrease) in net assets resulting from operations 301,482 51,827 (226,179) (47,919) 654 115 ------------- -------------- ------------- ------------- ------------------------- ------------- -------------- ------------- ------------- ------------------------- CONTRACT TRANSACTIONS: Purchase payments 642,211 600,916 341,351 501,448 1,276 563 Redemptions (61,380) (16,258) (26,727) (12,626) (91) (18) Transfers between subaccounts, net 2,732,461 430,735 45,934 360,488 12,508 (1,278) Contract maintenance charges (6,434) (1,070) (1,240) (873) (12) (9) ------------- -------------- ------------- ------------- -------------- --------- ------------- -------------- ------------- ------------- -------------- --------- Increase (decrease) in net assets resulting from contract transactions 3,306,858 1,014,323 359,318 848,437 13,681 (742) ------------- -------------- ------------- ------------- -------------- --------- ------------- -------------- ------------- ------------- -------------- --------- Total increase (decrease) in net assets 3,608,340 1,066,150 133,139 800,518 14,335 (627) NET ASSETS: Beginning of period 1,066,150 0 800,518 0 0 627 ------------- -------------- ------------- ------------- -------------- --------- ------------- -------------- ------------- ------------- -------------- --------- End of period $ 4,674,490 $ 1,066,150 $ 933,657 $ 800,518 $ 14,335 0 ============= ============== ============= ============= ============== ========= ============= ============== ============= ============= ============== ========= CHANGES IN UNITS OUTSTANDING: Units issued 306,266 100,601 44,410 80,188 1,958 184 Units redeemed (9,551) (1,643) (9,331) (1,833) (68) (247) ------------- -------------- ------------- ------------- -------------- --------- ------------- -------------- ------------- ------------- -------------- --------- Net increase (decrease) 296,715 98,958 35,079 78,355 1,890 (63) ============= ============== ============= ============= ============== ========= ============= ============== ============= ============= ============== ========= (1) The portfolio commenced investment operations on October 13, 2000, but had no activity until 2001. (2) The portfolio commenced investment operations on October 1, 1999, but had no activity until 2001. (3) The portfolio commenced investment operations on August 20, 2001, but had no activity until 2002. (4) The portfolio ceased investment operations on June 27, 2001. The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2002 AND 2001 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ JANUS ASPEN SERIES BALANCED JANUS ASPEN JANUS JANUS ASPEN SERIES PORTFOLIO SERIES ASPEN SERIES WORLDWIDE GROWTH PORTFOLIO FLEXIBLE HIGH YIELD INCOME PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------- --------------------------- ------------ ------------ ----------------------- 2002 2001 2002 2001 2002 2001 ------------ ------------- ------------ ------------ ------------- -------- ------------ ------------- ------------ ------------ ------------- -------- (1) (2) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income $ 31,569 $ 11,859 $ 118,261 $ $ 4,586 $ 829 Net realized gain (loss) (17,441) (8,373) 765 (86,256) (94,860) Change in net unrealized appreciation (depreciation) on investments (104,133) (10,989) 84,503 (141,717) (15,332) ------------ ------------- ------------ ------- ------------- ------------ ------------ ------------- ------------ ------- ------------- ------------ Increase (decrease) in net assets resulting from operations (90,005) (7,503) 203,529 (223,387) (109,363) ------------ ------------- ------------ ------- ------------- ------------ ------------ ------------- ------------ ------- ------------- ------------ CONTRACT TRANSACTIONS: Purchase payments 84,360 59,494 0 185,355 230,727 Redemptions (51,922) (15,416) (18,425) (17,345) (13,849) Transfers between subaccounts, net 1,054,298 333,076 4,221,812 (27) 275,939 (5,190) Contract maintenance charges (4,876) (2,182) (3,953) (1,872) (1,371) ------------ ------------- ------------ ------- ------------- ------------ ------------ ------------- ------------ ------- ------------- ------------ Increase (decrease) in net assets resulting from contract transactions 1,081,860 374,972 4,199,434 (27) 442,077 210,317 ------------ ------------- ------------ ------- ------------- ------------ ------------ ------------- ------------ ------- ------------- ------------ Total increase (decrease) in net assets 991,855 367,469 4,402,963 (27) 218,690 100,954 NET ASSETS: Beginning of period 521,141 153,672 0 27 454,756 353,802 ------------ ------------- ------------ ------- ------------- ------------ ------------ ------------- ------------ ------- ------------- ------------ End of period $ 1,512,996 $ 521,141 $ 4,402,963 $ 0 $ 673,446 $ 454,756 ============ ============= ============ ======= ============= ============ ============ ============= ============ ======= ============= ============ CHANGES IN UNITS OUTSTANDING: Units issued 113,649 38,001 347,182 3 71,696 35,565 Units redeemed (11,607) (3,277) (3,149) (3) (22,622) (15,904) ------------ ------------- ------------ ------- ------------- ------------ ------------ ------------- ------------ ------- ------------- ------------ Net increase 102,042 34,724 344,033 0 49,074 19,661 ============ ============= ============ ======= ============= ============ ============ ============= ============ ======= ============= ============ (1) The portfolio commenced investment operations on August 20, 2001, but had no activity until 2002. (2) The portfolio ceased investment operations on October 26, 2001. The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2002 AND 2001 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ MAXIM ARIEL MIDCAP VALUE MAXIM INVESCO ADR PORTFOLIO MAXIM INVESCO SMALL-CAP PORTFOLIO GROWTH PORTFOLIO ------------------------------------------------------------------------------------- ----------------------------- ------------------------- -------------------------- 2002 2001 2002 2001 2002 2001 ------------- -------------- -------------- ---------- ------------- ---------- ------------- -------------- -------------- ---------- ------------- ---------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) (1,526)$ 4 $ 172 $ 46 $ (1,952) $ (780) Net realized gain (loss) 2,158 464 (48) (8) (89,640) (58,907) Change in net unrealized appreciation (depreciation) on investments (238,626) 621 (1,753) (661) (72,274) (6,160) ------------- -------------- -------------- ---------- ------------- ---------- ------------- -------------- -------------- ---------- ------------- ---------- Increase (decrease) in net assets resulting from operations (237,994) 1,089 (1,629) (623) (163,866) (65,847) ------------- -------------- -------------- ---------- ------------- ---------- ------------- -------------- -------------- ---------- ------------- ---------- CONTRACT TRANSACTIONS: Purchase payments 227,919 1,028 6,528 1,542 53,856 19,621 Redemptions (47,216) (154) (274) (156) (17,830) (8,497) Transfers between subaccounts, net 1,532,465 5,813 38 5,824 400,088 (51,098) Contract maintenance charges (5,000) (78) (98) (79) (1,749) (774) ------------- -------------- -------------- ---------- ------------- ---------- ------------- -------------- -------------- ---------- ------------- ---------- Increase (decrease) in net assets resulting from contract transactions 1,708,168 6,609 6,194 7,131 434,365 (40,748) ------------- -------------- -------------- ---------- ------------- ---------- ------------- -------------- -------------- ---------- ------------- ---------- Total increase (decrease) in net assets 1,470,174 7,698 4,565 6,508 270,499 (106,595) NET ASSETS: Beginning of period 7,698 0 7,112 604 212,564 319,159 ------------- -------------- -------------- ---------- ------------- ---------- ------------- -------------- -------------- ---------- ------------- ---------- End of period 1,477,872 $ 7,698 $ 11,677 $ 7,112 $ 483,063 $ 212,564 ============= ============== ============== ========== ============= ========== ============= ============== ============== ========== ============= ========== CHANGES IN UNITS OUTSTANDING: Units issued 137,015 620 747 758 79,860 4,577 Units redeemed (22,130) (86) (43) (30) (31,824) (7,782) ------------- -------------- -------------- ---------- ------------- ---------- ------------- -------------- -------------- ---------- ------------- ---------- Net increase (decrease) 114,885 534 704 728 48,036 (3,205) ============= ============== ============== ========== ============= ========== ============= ============== ============== ========== ============= ========== (1) The portfolio commenced investment operations on October 1, 1999, but had no activity until 2001. The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2002 AND 2001 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- MAXIM LOOMIS SAYLES BOND MAXIM MODERATELY AGGRESSIVE MAXIM MONEY MARKET PORTFOLIO PROFILE I PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------- ----------------------------- --------------------------- ------------------------- 2002 2001 2002 2001 2002 2001 ------------- -------------- -------------- ----------- ------------ ----------- ------------- -------------- -------------- ----------- ------------ ----------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income $ 71,688 $ 2,371 $ 192 $ 141 $ 38,770 $ 5,849 Net realized gain (loss) (2,546) (60) (42) 146 Change in net unrealized appreciation (depreciation) on investments 32,018 (2,160) (2,210) (154) ------------- -------------- -------------- ----------- ------------ ----------- ------------- -------------- -------------- ----------- ------------ ----------- Increase (decrease) in net assets resulting from operations 101,160 151 (2,060) 133 38,770 5,849 ------------- -------------- -------------- ----------- ------------ ----------- ------------- -------------- -------------- ----------- ------------ ----------- CONTRACT TRANSACTIONS: Purchase payments 0 2,477 8,729 2,922 18,317,124 3,503,506 Redemptions (1,717) (771) (361) (232) (99,602) (7,678) Transfers between subaccounts, net 1,583,512 28,704 0 5,094 (14,447,449) (2,419,780) Contract maintenance charges (88) (85) (129) (116) (9,392) (634) ------------- -------------- -------------- ----------- ------------ ----------- ------------- -------------- -------------- ----------- ------------ ----------- Increase in net assets resulting from contract transactions 1,581,707 30,325 8,239 7,668 3,760,681 1,075,414 ------------- -------------- -------------- ----------- ------------ ----------- ------------- -------------- -------------- ----------- ------------ ----------- Total increase in net assets 1,682,867 30,476 6,179 7,801 3,799,451 1,081,263 NET ASSETS: Beginning of period 30,500 24 9,614 1,813 1,081,263 0 ------------- -------------- -------------- ----------- ------------ ----------- ------------- -------------- -------------- ----------- ------------ ----------- End of period $ 1,713,367 $ 30,500 $ 15,793 $ 9,614 $ 4,880,714 $ 1,081,263 ============= ============== ============== =========== ============ =========== ============= ============== ============== =========== ============ =========== CHANGES IN UNITS OUTSTANDING: Units issued 148,170 2,956 871 847 1,676,850 318,303 Units redeemed (10,096) (184) (51) (79) (1,337,744) (220,578) ------------- -------------- -------------- ----------- ------------ ----------- ------------- -------------- -------------- ----------- ------------ ----------- Net increase 138,074 2,772 820 768 339,106 97,725 ============= ============== ============== =========== ============ =========== ============= ============== ============== =========== ============ =========== (1) The portfolio commenced investment operations on October 1, 1999, but had no activity until 2001. The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2002 AND 2001 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- MAXIM U.S. NEUBERGER BERMAN AMT NEUBERGER BERMAN AMT NEUBERGER GOVERNMENT GUARDIAN PORTFOLIO MID-CAP GROWTH PORTFOLIO BERMAN AMT SECURITIES PARTNERS PORTFOLIO PORTFOLIO -------------------------------------------------------------------------------------- ------------- --------------------------- --------------------------- ------------- 2002 2002 2001 2002 2001 2002 ------------- ------------ ------------- ------------ ------------ ------------- ------------- ------------ ------------- ------------ ------------ ------------- (1) (2) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) 71,398 $ (888)$ (10)$ (883) $ (419)$ (66) Net realized gain (loss) 5,610 (20,929) 1,118 (29,331) (232) (112) Change in net unrealized appreciation (depreciation) on investments 29,446 (88,776) (1,196) (50,938) (20,920) (6,777) ------------- ------------ ------------- ------------ ------------ ------------- ------------- ------------ ------------- ------------ ------------ ------------- Increase (decrease) in net assets resulting from operations 106,454 (110,593) (88) (81,152) (21,571) (6,955) ------------- ------------ ------------- ------------ ------------ ------------- ------------- ------------ ------------- ------------ ------------ ------------- CONTRACT TRANSACTIONS: Purchase payments 21,489 2,431 112,100 103,709 0 Redemptions (18,086) (4,870) (1,065) (7,154) (2,698) (494) Transfers between subaccounts, net 2,568,003 375,295 6,800 37,640 79,204 37,203 Contract maintenance charges (1,844) (1,085) (101) (548) (313) (43) ------------- ------------ ------------- ------------ ------------ ------------- ------------- ------------ ------------- ------------ ------------ ------------- Increase in net assets resulting from contract transactions 2,548,073 390,829 8,065 142,038 179,902 36,666 ------------- ------------ ------------- ------------ ------------ ------------- ------------- ------------ ------------- ------------ ------------ ------------- Total increase in net assets 2,654,527 280,236 7,977 60,886 158,331 29,711 NET ASSETS: Beginning of period 0 30,046 22,069 159,956 1,625 0 ------------- ------------ ------------- ------------ ------------ ------------- ------------- ------------ ------------- ------------ ------------ ------------- End of period 2,654,527 $ 310,282 $ 30,046 $ 220,842 $ 159,956 $ 29,711 ============= ============ ============= ============ ============ ============= ============= ============ ============= ============ ============ ============= CHANGES IN UNITS OUTSTANDING: Units issued 223,163 42,479 829 22,917 16,136 3,771 Units redeemed (17,343) (8,280) (101) (7,943) (687) (64) ------------- ------------ ------------- ------------ ------------ ------------- ------------- ------------ ------------- ------------ ------------ ------------- Net increase 205,820 34,199 728 14,974 15,449 3,707 ============= ============ ============= ============ ============ ============= ============= ============ ============= ============ ============ ============= (1) The portfolio commenced investment operations on August 20, 2001, but had no activity until 2002. (2) The portfolio commenced investment operations on October 1, 1999, but had no activity until 2002. The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2002 AND 2001 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL COLI VUL-2 SERIES ACCOUNT ---------------------------- ---------------------------- 2002 2001 ------------- ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income $ 381,003 $ 15,541 Net realized loss (429,609) (207,636) Change in net unrealized depreciation on investments (1,122,472) (145,544) ------------- ------------- ------------- ------------- Decrease in net assets resulting from operations (1,171,078) (337,639) ------------- ------------- ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 20,709,120 5,740,119 Redemptions (447,159) (164,765) Transfers between subaccounts, net 0 0 Contract maintenance charges (47,250) (16,550) ------------- ------------- ------------- ------------- Increase in net assets resulting from contract transactions 20,214,711 5,558,804 ------------- ------------- ------------- ------------- Total increase in net assets 19,043,633 5,221,165 NET ASSETS: Beginning of period 7,471,266 2,250,101 ------------- ------------- ------------- ------------- End of period $ 26,514,899 $ 7,471,266 ============= ============= ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 3,576,437 843,434 Units redeemed (1,829,306) (277,765) ------------- ------------- ------------- ------------- Net increase 1,747,131 565,669 ============= ============= ============= ============= The accompanying notes are an integral part of these financial statements. (Concluded)
AMERICAN CENTURY AMERICAN AMERICAN DREYFUS STOCK DREYFUS VIF DREYFUS VIF VP INCOME & CENTURY VP CENTURY VP INDEX FUND APPRECIATION GROWTH & GROWTH IV INTERNATIONAL VALUE PORTFOLIO PORTFOLIO INCOME PORTFOLIO PORTFOLIO PORTFOLIO -------------------------------------------------------------------------------------------------------- ---------------- --------------- -------------- -------------- --------------- ---------------- Expenses as a % of net assets 0.40 0.40 0.40 0.40 0.40 0.40 2002 - -------------------------- - -------------------------- Ending Unit Value $ 7.42 $ 6.80 $ 11.37 $ 7.01 $ 8.15 $ 7.58 Number of Units Outstanding 12,202 4,785 638 135,429 4,732 460 Net Assets (000's) $ 91 $ 33 $ 7 $ 949 $ 39 $ 3 Total Return (19.70%) (20.75%) (12.94%) (22.63%) (17.09%) (25.32%) 2001 - -------------------------- - -------------------------- Ending Unit Value $ 9.24 $ 8.58 $ 13.06 $ 9.06 $ 9.83 $ 10.15 Number of Units Outstanding 2,770 2,438 469 9,956 722 242 Net Assets (000's) $ 26 $ 21 $ 6 $ 90 $ 7 $ 2 Total Return (8.70%) (29.44%) 12.39% (12.55%) (9.82%) (6.54%) 2000 - -------------------------- - -------------------------- Ending Unit Value $ 10.12 $ 12.16 $ 11.62 $ 10.36 $ 10.90 $ 10.86 Number of Units Outstanding 173 335 - 5,545 55 6,316 Net Assets (000's) $ 2 $ 4 $ - $ 57 $ 1 $ 69 Total Return (10.99%) (17.11%) 17.73% (9.60%) (1.00%) (4.15%) 1999 - -------------------------- - -------------------------- Ending Unit Value $ 11.37 $ 14.67 $ 9.87 $ 11.46 $ 11.01 $ 11.33 Number of Units Outstanding - - - - - - Net Assets (000's) $ - - $ - $ - $ - $ - Total Return 13.70% 46.70% (1.30%) 14.60% 10.10% 13.30% (Continued) FEDERATED FEDERATED FEDERATED HIGH FEDERATED FIDELITY VIP FIDELITY AMERICAN LEADERS GROWTH INCOME BOND FUND INTERNATIONAL GROWTH VIP FUND II STRATEGIES FUND II EQUITY FUND II PORTFOLIO INVESTMENT II GRADE BOND PORTFOLIO -------------------------------------------------------------------------------------------------------- ---------------- -------------- -------------- ---------------- -------------- -------------- Expenses as a % of net assets 0.40 0.40 0.40 0.40 0.40 0.40 2002 - -------------------------- - -------------------------- Ending Unit Value $ 8.21 $ 6.43 $ 9.45 $ 6.47 $ 5.68 $ 11.81 Number of Units Outstanding 44,981 1,072 1,432 27,803 143,352 395,673 Net Assets (000's) $ 369 $ 7 $ 14 $ 180 $ 814 $ 4,674 Total Return (17.90%) (26.43%) 0.96% (23.07%) (30.56%) 9.66% 2001 - -------------------------- - -------------------------- Ending Unit Value $ 8.74 $ 9.36 $ 8.41 $ 8.18 $ 10.77 Number of Units Outstanding 14,151 - - 94,103 98,958 Net Assets (000's) $ 124 $ - $ - $ 770 $ 1,066 Total Return (22.79%) 0.97% (29.68%) (18.20%) 7.70% 2000 - -------------------------- - -------------------------- Ending Unit Value $ 11.32 $ 9.27 $ 11.96 $ 10.00 $ 10.00 Number of Units Outstanding 16,074 - 47 - - Net Assets (000's) $ 182 $ - $ 1 $ - $ - Total Return (20.23%) (9.38%) (22.94%) 0.00% 0.00% 1999 - -------------------------- - -------------------------- Ending Unit Value $ 14.19 $ 10.23 $ 15.52 Number of Units Outstanding - - - Net Assets (000's) $ - $ - $ - Total Return 41.90% 2.30% 55.20% (Continued) INVESCO VIF-CORE INVESCO JANUS ASPEN JANUS ASPEN JANUS ASPEN MAXIM ARIEL EQUITY FUND VIF-HIGH YIELD SERIES BALANCED SERIES FLEXIBLE SERIES MIDCAP VALUE FUND PORTFOLIO INCOME PORTFOLIO WORLDWIDE PORTFOLIO GROWTH PORTFOLIO --------------------------------------------------------------------------------------------------------- ---------------- -------------- -------------- ---------------- -------------- ---------------- Expenses as a % of net assets 0.40 0.40 0.40 0.40 0.40 0.40 2002 - -------------------------- - -------------------------- Ending Unit Value $ 8.23 $ 7.58 $ 10.07 $ 12.80 $ 6.85 $ 12.80 Number of Units Outstanding 113,434 1,890 150,273 344,033 98,352 115,419 Net Assets (000's) $ 934 $ 14 $ 1,513 $ 4,403 $ 673 $ 1,478 Total Return (19.47%) (24.20%) (6.85%) 28.00% (25.79%) (11.17%) 2001 - -------------------------- - -------------------------- Ending Unit Value $ 10.22 $ 10.81 $ 9.23 $ 14.41 Number of Units Outstanding 78,355 48,231 49,278 534 Net Assets (000's) $ 801 $ 521 $ 455 $ 8 Total Return (9.32%) (5.01%) (22.76%) 17.73% 2000 - -------------------------- - -------------------------- Ending Unit Value $ 11.27 $ 11.38 $ 11.95 $ 12.24 Number of Units Outstanding - 13,507 29,617 - Net Assets (000's) $ - $ 154 $ 354 $ - Total Return 4.45% (2.65%) (15.96%) 18.26% 1999 - -------------------------- - -------------------------- Ending Unit Value $ 10.79 $ 11.69 $ 14.22 $ 10.35 Number of Units Outstanding - - - - Net Assets (000's) $ - $ - $ - $ - Total Return 7.90% 16.90% 42.20% 3.50% (Continued) MAXIM INVESCO MAXIM INVESCO MAXIM LOOMIS MAXIM MODERATELY MAXIM MONEY MAXIM U.S. ADR PORTFOLIO SMALL-CAP GROWTH SAYLES BOND AGGRESSIVE MARKET GOVERNMENT PORTFOLIO PORTFOLIO PROFILE I PORTFOLIO SECURITIES PORTFOLIO PORTFOLIO -------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------- Expenses as a % of net assets 0.40 0.40 0.40 0.40 0.40 0.40 2002 - -------------------------- Ending Unit Value $ 7.85 $ 7.01 $ 12.16 $ 8.99 $ 11.17 $ 12.90 Number of Units Outstanding 1,487 68,880 140,848 1,756 436,831 205,820 Net Assets (000's) $ 12 $ 483 $ 1,713 $ 16 $ 4,881 $ 2,655 Total Return (13.55%) (31.27%) 10.65% (12.46%) 0.99% 29.00% 2001 - -------------------------- Ending Unit Value $ 9.08 $ 10.20 $ 10.99 $ 10.27 $ 11.06 Number of Units Outstanding 783 20,844 2,774 936 97,725 Net Assets (000's) $ 7 $ 213 $ 30 $ 10 $ 1,081 Total Return (16.54%) (23.13%) 2.14% (5.00%) 3.46% 2000 - -------------------------- Ending Unit Value $ 10.88 $ 13.27 $ 10.76 $ 10.81 $ 10.69 Number of Units Outstanding 55 24,049 2 168 - Net Assets (000's) $ 1 $ 319 $ - $ 2 $ - Total Return (10.53%) (12.75%) 4.16% (4.67%) 5.63% 1999 - -------------------------- Ending Unit Value $ 12.16 $ 15.21 $ 10.33 $ 11.34 $ 10.12 Number of Units Outstanding - - - - - Net Assets (000's) $ - $ - $ - $ - $ - Total Return 21.60% 52.10% 3.30% 13.40% 1.20% (Continued) NEUBERGER NEUBERGER BERMAN NEUBERGER BERMAN AMT AMT MID-CAP BERMAN AMT GUARDIAN GROWTH PORTFOLIO PARTNERS PORTFOLIO PORTFOLIO -------------------------------------------------- -------------------------------------------------- Expenses as a % of net assets 0.40 0.40 0.40 2002 - -------------------------- Ending Unit Value $ 8.43 $ 7.23 $ 8.01 Number of Units Outstanding 36,810 30,542 3,707 Net Assets (000's) $ 310 $ 221 $ 30 Total Return (26.76%) (29.60%) (19.90%) 2001 - -------------------------- Ending Unit Value $ 11.51 $ 10.27 Number of Units Outstanding 2,611 15,568 Net Assets (000's) $ 30 $ 160 Total Return (1.79%) (25.09%) 2000 - -------------------------- Ending Unit Value $ 11.72 $ 13.71 Number of Units Outstanding 1,883 119 Net Assets (000's) $ 22 $ 2 Total Return 0.69% (7.80%) 1999 - -------------------------- Ending Unit Value $ 11.64 $ 14.87 Number of Units Outstanding - - Net Assets (000's) $ - $ - Total Return 16.40% 48.70% (Concluded)
COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DECEMBER 31, 2002 1. ORGANIZATION The Coli Vul-2 Series Account (the Series Account), a variable life separate account of Great-West Life & Annuity Insurance Company (the Company), was established under Colorado law on November 25, 1997. The Series Account commenced operations on October 1, 1999, with actual investment activity beginning in 2000. Commencement of investment activity in each investment division is indicated in the Statement of Changes in Net Assets. The Series Account is registered as a unit investment trust under the Investment Company Act of 1940, as amended. The Series Account is a funding vehicle for individual variable annuity contracts. The Series Account consists of numerous investment divisions with each investment division being treated as an individual separate account and investing all of its investible assets in the named underlying mutual fund. Under applicable insurance law, the assets and liabilities of the Series Account are clearly identified and distinguished from the Company's other assets and liabilities. The portion of the Series Account's assets applicable to the reserves and other contract liabilities with respect to the Series Account is not chargeable with liabilities arising out of any other business the Company may conduct. 2. SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of the significant accounting policies of the Series Account. Security Transactions Investments made in the underlying mutual funds are valued at the reported net asset values of such underlying mutual funds, which value their investment securities at fair value. Transactions are recorded on a trade date basis. Income from dividends, and gains from realized gain distributions, are recorded on the ex-distribution date. Realized gains and losses on the sales of investments are computed on the basis of the identified cost of the investment sold. Federal Income Taxes The operations of the Series Account are included in the federal income tax return of the Company, which is taxed as a life insurance company under the provisions of the Internal Revenue Code (IRC). Under the current provisions of the IRC, the Company does not expect to incur federal income taxes on the earnings of the Series Account to the extent the earnings are credited under the contracts. Based on this, no charge is being made currently to the Series Account for federal income taxes. The Company will review periodically the status of this policy in the event of changes in the tax law. A charge may be made in future years for any federal income taxes that would be attributable to the contracts. Investment Income Ratio The Investment Income Ratio represents the dividends, excluding distributions of capital gains, received by the investment division from the underlying mutual fund divided by average net assets. The ratio excludes those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the investment division is affected by the timing of the declaration of dividends by the underlying fund in which the investment division invests. 3. PURCHASES AND SALES OF INVESTMENTS The cost of purchases and proceeds from sales of investments for the year ended December 31, 2002 were as follows:
Purchases Sales --------------- --------------- American Century VP Income & Growth IV Portfolio $ 85,776 $ 2,718 American Century VP International Portfolio 19,388 992 American Century VP Value Portfolio 4,100 465 Brazos Small Cap Portfolio 0 2,033,906 Dreyfus Stock Index Fund 1,645,339 523,976 Dreyfus VIF Appreciation Portfolio 85,420 53,216 Dreyfus VIF Growth & Income Portfolio 2,164 118 Federated American Leaders Fund II 527,110 58,354 Federated Growth Strategies Fund II 7,079 110,722 Federated High Income Bond Fund II 15,279 689 Federated International Equity Fund II 232,164 2,169 Fidelity VIP Growth Portfolio 393,484 30,793 Fidelity VIP Investment Grade Bond Portfolio 3,443,428 106,708 INVESCO VIF-Core Equity Fund 447,732 83,697 INVESCO VIF-High Yield Fund 14,164 498 Janus Aspen Series Balanced Portfolio 1,237,133 123,684 Janus Aspen Series Flexible Income Portfolio 4,359,956 41,924 Janus Aspen Series Worldwide Growth Portfolio 617,769 171,527 Maxim Ariel MidCap Value Portfolio 2,023,505 280,222 Maxim INVESCO ADR Portfolio 6,606 351 Maxim INVESCO Small-Cap Growth Portfolio 693,666 257,148 Maxim Loomis Sayles Bond Portfolio 1,769,150 115,634 Maxim Moderately Aggressive Profile I Portfolio 8,748 466 Maxim Money Market Portfolio 13,821,299 9,953,303 Maxim U.S. Government Securities Portfolio 2,840,566 220,892 Neuberger Berman AMT Guardian Portfolio 464,530 74,575 Neuberger Berman AMT Mid-Cap Growth Portfolio 201,094 60,166 Neuberger Berman AMT Partners Portfolio 37,203 601 --------------- --------------- --------------- --------------- Total $ 35,003,852 $ 14,309,514 =============== ===============
4. EXPENSES AND RELATED PARTY TRANSACTIONS Charges Incurred for Partial Surrenders The Company charges a maximum administrative fee of $25 for all partial withdrawals after the first made during the same policy year. Transfer Fees The Company charges $10 for each transfer between investment divisions in excess of 12 transfers in any calendar year. Deductions for Assumption of Mortality and Expense Risks The Company deducts an amount, computed daily, from the net asset value of the Series Account investments, equal to an annual rate that will not exceed 0.90% annually. Currently, the charge is 0.40% for Policy Years 1 through 5, 0.25% for Policy Years 6 through 20 and 0.10% thereafter. This charge compensates the Company for its assumption of certain mortality, death benefit and expense risks. Expense Charges Applied to Premium The Company deducts a maximum charge of 10% from each premium payment. A maximum of 6.5% of this charge will be deducted as sales load to compensate the Company in part for sales and promotional expenses in connection with selling the Policies. A maximum of 3.5% of this charge will be used to cover premium taxes and certain federal income tax obligations resulting from the receipt of premiums. If the above charges prove insufficient to cover actual costs and assumed risks, the loss will be borne by the Company; conversely, if the amounts deducted prove more than sufficient, the excess will be a profit to the Company. Related Party Transactions GW Capital Management, LLC, a wholly owned subsidiary of the Company, serves as investment adviser to Maxim Series Fund, Inc. Fees are assessed against the average daily net assets of the affiliated funds to compensate GW Capital Management, LLC for investment advisory services. 5. ACCUMULATION UNIT VALUES A summary of accumulation unit values and accumulation units outstanding for variable annuity contracts and the expense ratios, excluding expenses of the underlying funds, for each of the periods from inception to the year ended December 31, 2002 is included on the following pages. Total return is based on operations for the period shown and, accordingly, is not annualized. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets the requirements for effectiveness of this Registration Statement under Rule 485(b) under the Securities Act of 1933 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Greenwood Village, State of Colorado, on the day of April 29, 2003. COLI VUL-2 SERIES ACCOUNT (Registrant) BY: /s/ W. T. McCallum________________________ ------------------ W.T. McCallum President and Chief Executive Officer BY: GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY (Depositor) BY: /s/ W. T. McCallum________________________ ------------------ W.T. McCallum President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated: /s/ R. Gratton______________ - -------------- R. Gratton* Chairman of the Board April 29, 2003 /s/ W. T. McCallum________ - ------------------ W.T. McCallum President, Chief Executive April 29, 2003 Officer and Director /s/ M.T.G. Graye__________ - ---------------- M.T.G. Graye Chief Financial Officer April 29, 2003 /s/ J. Balog_______________ - ------------ J. Balog* Director April 29, 2003 /s/ J.W. Burns_____________ - -------------- J.W. Burns* Director April 29, 2003 /s/ O.T. Dackow___________ - --------------- O.T. Dackow* Director April 29, 2003 /s/ A. Desmarais____________ - ---------------- A. Desmarais* Director April 29, 2003 /s/ P. Desmarais, Jr._________ - --------------------- P. Desmarais, Jr.* Director April 29, 2003 /s/ K.P. Kavanagh___________ - ----------------- K.P. Kavanagh* Director April 29, 2003 /s/ W. Mackness____________ - --------------- W. Mackness* Director April 29, 2003 /s/ J.E.A. Nickerson_________ - -------------------- J.E.A. Nickerson* Director April 29, 2003 /s/ P.M. Pitfield____________ - ----------------- P.M. Pitfield* Director April 29, 2003 /s/ M. Plessis-Belair________ - --------------------- M. Plessis-Belair* Director April 29, 2003 /s/ B.E. Walsh_____________ - -------------- B.E. Walsh* Director April 29, 2003 *By: /s/ D. C. Lennox_________ ---------------- D.C. Lennox, Attorney-in-Fact pursuant to Powers of Attorney filed under Registrant's Pre-Effective Amendment No. 1 to Form S-6, filed with the Securities and Exchange Commission on June 23, 1999. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY (A wholly-owned subsidiary of GWL&A Financial Inc.) Consolidated Financial Statements for the Years Ended December 31, 2002, 2001, and 2000 and Independent Auditors' Report INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholder of Great-West Life & Annuity Insurance Company: We have audited the accompanying consolidated balance sheets of Great-West Life & Annuity Insurance Company and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Great-West Life & Annuity Insurance Company and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Denver, Colorado January 27, 2003 GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2002 AND 2001 ==================================================================================================================================== (Dollars in Thousands) 2002 2001 ----------------------- ---------------------- ASSETS INVESTMENTS: Fixed maturities, available-for-sale, at fair value (amortized cost $9,910,662 and $9,904,453) $ 10,371,152 $ 10,116,175 Common stock, at fair value (cost $102,862 and $74,107 ) 90,188 73,344 Mortgage loans on real estate (net of allowances of $55,654 and $57,654) 417,412 613,453 Real estate 3,735 11,838 Policy loans 2,964,030 3,000,441 Short-term investments, available-for-sale (cost $709,592 and $427,398) 709,804 424,730 ----------------------- ---------------------- Total Investments 14,556,321 14,239,981 OTHER ASSETS: Cash 154,600 213,731 Reinsurance receivable Related party 3,104 3,678 Other 238,049 278,674 Deferred policy acquisition costs 267,846 275,570 Investment income due and accrued 133,166 130,775 Amounts receivable related to uninsured accident and health plan claims (net of allowances of $42,144 and $53,431) 86,228 132,988 Premiums in course of collection (net of allowances of $12,011 and $22,217) 54,494 99,811 Deferred income taxes 69,016 112,912 Other assets 754,869 745,617 SEPARATE ACCOUNT ASSETS 11,338,376 12,584,661 ----------------------- ---------------------- TOTAL ASSETS $ 27,656,069 $ 28,818,398 ======================= ====================== (Continued) ==================================================================================================================================== 2002 2001 ----------------- ----------------- LIABILITIES AND STOCKHOLDER'S EQUITY POLICY BENEFIT LIABILITIES: Policy reserves Related party $ 518,587 $ 532,374 Other 11,732,627 11,679,122 Policy and contract claims 378,995 401,389 Policyholders' funds 299,730 242,916 Provision for policyholders' dividends 76,983 74,740 Undistributed earnings on participating business 170,456 163,086 GENERAL LIABILITIES: Due to GWL 33,841 41,874 Due to GWL&A Financial 171,416 214,831 Repurchase agreements 323,200 250,889 Commercial paper 96,645 97,046 Other liabilities 850,757 1,064,996 SEPARATE ACCOUNT LIABILITIES 11,338,376 12,584,661 ----------------- ----------------- Total Liabilities 25,991,613 27,347,924 ----------------- ----------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY: Preferred stock, $1 par value, 50,000,000 shares authorized, 0 shares issued and outstanding Common stock, $1 par value; 50,000,000 shares authorized; 7,032,000 shares issued and outstanding 7,032 7,032 Additional paid-in capital 719,709 712,801 Accumulated other comprehensive income 150,616 76,507 Retained earnings 787,099 674,134 ----------------- ----------------- Total Stockholder's Equity 1,664,456 1,470,474 ----------------- ----------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 27,656,069 $ 28,818,398 ================= ================= See notes to consolidated financial statements. (Concluded) GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 ==================================================================================================================================== (Dollars in Thousands) 2002 2001 2000 ---------------- ----------------- ----------------- REVENUES: Premiums Related party $ 16,715 $ 18,144 $ 20,853 Other (net of premiums ceded totaling $83,789, $82,028, and $115,404) 1,103,380 1,185,495 1,311,713 Fee income 883,562 947,255 871,627 Net investment income (expense) Related party (14,818) (14,546) (14,517) Other 934,183 949,302 939,550 Net realized gains on investments 41,626 46,825 28,283 ---------------- ----------------- ----------------- ---------------- ----------------- ----------------- 2,964,648 3,132,475 3,157,509 BENEFITS AND EXPENSES: Life and other policy benefits (net of reinsurance recoveries totaling $50,974, $40,144, and $62,803) 936,215 1,029,495 1,122,560 Increase in reserves 71,348 58,433 53,550 Interest paid or credited to contractholders 498,549 530,027 490,131 Provision for policyholders' share of earnings on participating business 7,790 2,182 5,188 Dividends to policyholders 78,851 76,460 74,443 ---------------- ----------------- ----------------- ---------------- ----------------- ----------------- 1,592,753 1,696,597 1,745,872 Commissions 185,450 197,099 204,444 Operating expenses (income): Related party (861) (1,043) (704) Other 742,840 788,153 769,477 Premium taxes 30,714 36,911 45,286 Special charges 127,040 ---------------- ----------------- ----------------- ---------------- ----------------- ----------------- 2,550,896 2,844,757 2,764,375 INCOME BEFORE INCOME TAXES 413,752 287,718 393,134 PROVISION FOR INCOME TAXES: Current 126,222 136,965 108,509 Deferred 3,993 (41,993) 25,531 ---------------- ----------------- ----------------- ---------------- ----------------- ----------------- 130,215 94,972 134,040 ---------------- ----------------- ----------------- NET INCOME $ 283,537 $ 192,746 $ 259,094 ================ ================= ================= See notes to consolidated financial statements. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 =================================================================================================================== (Dollars in Thousands) Accumulated Other Comprehensive Income (Loss) ----------------------------------------- Additional Unrealized Minimum Preferred Common Paid-in Gains (Losses) Pension Liability Stock Stock Capital on Securities Adjustment ------------ -------------- ------------ ------------------ ------------------ BALANCES, JANUARY 1, 2000 $ 0 $ 7,032 $ 700,316 $ (84,861) $ 0 Net income Other comprehensive income 118,533 Total comprehensive income Dividends Capital contributions - Parent stock options 15,052 Income tax benefit on stock compensation 2,336 ------------ -------------- ------------ ------------------ ------------------ BALANCES, DECEMBER 31, 2000 0 7,032 717,704 33,672 0 ------------ -------------- ------------ ------------------ ------------------ Net income Other comprehensive income 42,835 Total comprehensive income Dividends Capital contributions adjustment - Parent stock options (12,098) Income tax benefit on stock compensation 7,195 ------------ -------------- ------------ ------------------ ------------------ BALANCES, DECEMBER 31, 2001 0 7,032 712,801 76,507 0 ------------ -------------- ------------ ------------------ ------------------ Net income Other comprehensive income 86,993 (12,884) Total comprehensive income Dividends Income tax benefit on stock compensation 6,908 ------------ -------------- ------------ ------------------ ------------------ BALANCES, DECEMBER 31, 2002 $ 0 $ 7,032 $ 719,709 $ 163,500 $ (12,884) ============ ============== ============ ================== ================== Retained Earnings Total -------------- ------------- BALANCES, JANUARY 1, 2000 $ 544,076 $ 1,166,563 Net income 259,094 259,094 Other comprehensive income 118,533 ------------- Total comprehensive income 377,627 ------------- Dividends (134,149) (134,149) Capital contributions - Parent stock options 15,052 Income tax benefit on stock compensation 2,336 -------------- ------------- BALANCES, DECEMBER 31, 2000 669,021 1,427,429 -------------- ------------- Net income 192,746 192,746 Other comprehensive income 42,835 ------------- Total comprehensive income 235,581 ------------- Dividends (187,633) (187,633) Capital contributions adjustment - Parent stock options (12,098) Income tax benefit on stock compensation 7,195 -------------- ------------- BALANCES, DECEMBER 31, 2001 674,134 1,470,474 -------------- ------------- Net income 283,537 283,537 Other comprehensive income 74,109 ------------- Total comprehensive income 357,646 ------------- Dividends (170,572) (170,572) Income tax benefit on stock compensation 6,908 -------------- ------------- BALANCES, DECEMBER 31, 2002 $ 787,099 $ 1,664,456 ============== ============= See notes to consolidated financial statements. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 ==================================================================================================================================== (Dollars in Thousands) 2002 2001 2000 ----------------- ----------------- ----------------- OPERATING ACTIVITIES: Net income $ 283,537 $ 192,746 $ 259,094 Adjustments to reconcile net income to net Cash provided by operating activities: Earnings allocated to participating Policyholders 7,790 2,182 5,188 Amortization of investments (76,002) (82,955) (62,428) Net realized gains on investments (41,626) (46,825) (28,283) Depreciation and amortization (including Goodwill impairment in 2001) 37,639 62,101 41,693 Deferred income taxes 3,993 (41,993) 25,531 Stock compensation (adjustment) (12,098) 15,052 Changes in assets and liabilities, net of Effects from acquisitions: Policy benefit liabilities 622,854 334,025 310,511 Reinsurance receivable 41,199 (48,384) (35,368) Receivables 89,686 153,350 (128,382) Bank overdrafts (41,901) (29,121) 102,073 Other, net (159,562) 157,228 (119,359) ----------------- ----------------- ----------------- Net cash provided by operating activities 767,607 640,256 385,322 ----------------- ----------------- ----------------- (Continued) GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (Dollars in Thousands) ==================================================================================================================================== 2002 2001 2000 ----------------- ----------------- ----------------- INVESTING ACTIVITIES: Proceeds from sales, maturities, and redemptions of investments: Fixed maturities Held-to-maturity Sales 8,571 Maturities and redemptions 323,728 Available-for-sale Sales 5,729,919 5,201,692 1,460,672 Maturities and redemptions 1,456,176 1,244,547 887,420 Mortgage loans 210,224 224,810 139,671 Real estate 3,570 8,910 Common stock 2,798 38,331 61,889 Purchases of investments: Fixed maturities Held-to-maturity (100,524) Available-for-sale (7,369,364) (6,878,213) (2,866,228) Mortgage loans (4,208) Real estate (2,768) (3,124) (20,570) Common stock (29,690) (27,777) (52,972) Corporate owned life insurance (100,000) Other, net (77,769) 95,808 (100,935) Acquisitions, net of cash acquired 82,214 ----------------- ----------------- ----------------- Net cash used in investing activities $ (76,904) $ (203,926) $ (172,362) ================= ================= ================= (Continued) GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000, ==================================================================================================================================== (Dollars in Thousands) 2002 2001 2000 ----------------- ---------------- ----------------- FINANCING ACTIVITIES: Contract withdrawals, net of deposits $ (599,724) $ (483,285) $ (220,167) Due to GWL (8,033) (1,207) 7,102 Due to GWL&A Financial (43,415) 45,245 3,665 Dividends paid (170,572) (187,633) (134,149) Net commercial paper borrowings (repayments) (401) (585) 97,631 Net repurchase agreements borrowings (repayments) 72,311 250,889 (80,579) ----------------- ---------------- ----------------- Net cash used in financing activities (749,834) (376,576) (326,497) ----------------- ---------------- ----------------- NET (DECREASE) INCREASE IN CASH (59,131) 59,754 (113,537) CASH, BEGINNING OF YEAR 213,731 153,977 267,514 ----------------- ---------------- ----------------- CASH, END OF YEAR $ 154,600 $ 213,731 $ 153,977 ================= ================ ================= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Income taxes $ 164,863 $ 59,895 $ 78,510 Interest 16,697 17,529 21,060 Non-cash financing activity: Effect on capital - Parent stock options (12,098) 15,052 See notes to consolidated financial statements. (Concluded)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 ================================================================================ (Amounts in Thousands, except Share Amounts) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization - Great-West Life & Annuity Insurance Company (the Company) is a wholly-owned subsidiary of GWL&A Financial Inc. (GWL&A Financial), a holding company formed in 1998. The Company offers a wide range of life insurance, health insurance, and retirement and investment products to individuals, businesses, and other private and public organizations throughout the United States. The Company is an insurance company domiciled in the State of Colorado, and is subject to regulation by the Colorado Division of Insurance. On December 31, 2000, the Company and certain affiliated companies completed a corporate reorganization. Prior to December 31, 2000, GWL&A Financial was an indirect wholly-owned subsidiary of The Great-West Life Assurance Company (GWL). Under the new structure, GWL&A Financial and GWL each continue to be indirectly and directly, respectively, owned by Great-West Lifeco Inc., a Canadian holding company (the Parent or LifeCo), but GWL no longer holds an equity interest in the Company or GWL&A Financial. Basis of Presentation - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates are required to account for policy reserves, allowances for credit losses, deferred policy acquisition costs, and valuation of privately placed fixed maturities. Actual results could differ from those estimates. The consolidated financial statements include the accounts of the Company and its subsidiaries. All material inter-company transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to the 2001 and 2000 financial statements and related footnotes to conform to the 2002 presentation. These changes in classification had no effect on previously reported stockholder's equity or net income. Investments - Investments are reported as follows: 1. Management has classified its fixed maturities as available for sale and carries them at fair value with the net unrealized gains and losses (net of deferred taxes) reported as accumulated other comprehensive income (loss) in stockholder's equity. Premiums and discounts are recognized as a component of net investment income using the effective interest method. Realized gains and losses, and declines in value judged to be other-than-temporary are included in net realized gains/(losses) on investments. 2. Mortgage loans on real estate are carried at their unpaid balances adjusted for any unamortized premiums or discounts and any allowances for uncollectible accounts. Interest income is accrued on the unpaid principal balance. Discounts and premiums are amortized to net investment income using the effective interest method. Accrual of interest is discontinued on any impaired loans where collection of interest is doubtful. The Company maintains an allowance for credit losses at a level that, in management's opinion, is sufficient to absorb credit losses on its impaired loans. Management's judgement is based on past loss experience, current and projected economic conditions, and extensive situational analysis of each individual loan. The measurement of impaired loans is based on the fair value of the collateral. 3. Real estate is carried at cost. The carrying value of real estate is subject to periodic evaluation of recoverability. 4. Investments in common stock are carried at fair value with net unrealized gains and losses (net of deferred taxes) reported as accumulated other comprehensive income (loss) in stockholder's equity. 5. Policy loans are carried at their unpaid balances. 6. Short-term investments include securities purchased with initial maturities of one year or less and are carried at fair value. The Company considers short-term investments to be available-for-sale. 7. Gains and losses realized on disposal of investments are determined on a specific identification basis. Cash - Cash includes only amounts in demand deposit accounts. Internal Use Software - Capitalized internal use software development costs of $55,363 and $44,914 are included in other assets at December 31, 2002, and 2001, respectively. The Company capitalized, net of depreciation, $10,448, $6,896 and $17,309 of internal use software development costs for the years ended December 31, 2002, 2001 and 2000, respectively. Deferred Policy Acquisition Costs - Policy acquisition costs, which primarily consist of sales commissions and costs associated with the Company's group sales representatives related to the production of new business, have been deferred to the extent recoverable. These costs are variable in nature and are dependent upon sales volume. Deferred costs associated with the annuity products are being amortized over the life of the contracts in proportion to the emergence of gross profits. Retrospective adjustments of these amounts are made when the Company revises its estimates of current or future gross profits. Deferred costs associated with traditional life insurance are amortized over the premium paying period of the related policies in proportion to premium revenues recognized. Amortization of deferred policy acquisition costs totaled $38,707, $44,096, and $36,834 in 2002, 2001, and 2000, respectively. Separate Accounts - Separate account assets and related liabilities are carried at fair value. The Company's separate accounts invest in shares of Maxim Series Fund, Inc. and Orchard Series Fund, open-end management investment companies which are affiliates of the Company, shares of other non-affiliated mutual funds, and government and corporate bonds. Investment income and realized capital gains and losses of the separate accounts accrue directly to the contractholders and, therefore, are not included in the Company's statements of income. Revenues to the Company from the separate accounts consist of contract maintenance fees, administrative fees, and mortality and expense risk charges. Life Insurance and Annuity Reserves - Life insurance and annuity policy reserves with life contingencies of $8,029,337 and $7,941,905 at December 31, 2002 and 2001, respectively, are computed on the basis of estimated mortality, investment yield, withdrawals, future maintenance and settlement expenses, and retrospective experience rating premium refunds. Annuity contract reserves without life contingencies of $4,152,594 and $4,188,553 at December 31, 2002 and 2001, respectively, are established at the contractholder's account value. Reinsurance - Policy reserves ceded to other insurance companies are carried as a reinsurance receivable on the balance sheet. The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies (see Note 5). Policy and Contract Claims - Policy and contract claims include provisions for reported life and health claims in process of settlement, valued in accordance with the terms of the related policies and contracts, as well as provisions for claims incurred and unreported based primarily on prior experience of the Company. Participating Fund Account - Participating life and annuity policy reserves are $4,947,081 and $4,844,214 at December 31, 2002 and 2001, respectively. Participating business approximates 24.8%, 25.8%, and 28.6% of the Company's ordinary life insurance in force and 80.2%, 85.4%, and 85.2% of ordinary life insurance premium income for the years ended December 31, 2002, 2001, and 2000, respectively. The amount of dividends to be paid from undistributed earnings on participating business is determined annually by the Board of Directors. Earnings allocable to participating policyholders are consistent with established Company practice. The Company has established a Participating Policyholder Experience Account (PPEA) for the benefit of all participating policyholders of which is included in the accompanying consolidated balance sheets. Earnings associated with the operation of the PPEA are credited to the benefit of all participating policyholders. In the event that the assets of the PPEA are insufficient to provide contractually guaranteed benefits, the Company must provide such benefits from its general assets. The Company has also established a Participation Fund Account (PFA) for the benefit of the participating policyholders previously transferred to the Company from GWL under an assumption reinsurance transaction. The PFA is part of the PPEA. Earnings derived from the operation of the PFA, net of a management fee paid to the Company, accrue solely for the benefit of the transferred participating policyholders. Repurchase Agreements and Securities Lending - The Company enters into repurchase agreements with third-party broker/dealers in which the Company sells securities and agrees to repurchase substantially similar securities at a specified date and price. Such agreements are accounted for as collateralized borrowings. Interest expense on repurchase agreements is recorded at the coupon interest rate on the underlying securities. The repurchase fee is amortized over the term of the related agreement and recognized as an adjustment to net investment income. The Company receives collateral for lending securities that are held as part of its investment portfolio. The company requires collateral in an amount greater than or equal to 102% of the market value of domestic securities loaned and 105% of foreign securities loaned. Such collateral is used to replace the securities loaned in event of default by the borrower. The Company's securitized lending transactions are accounted for as collateralized borrowings. Derivatives - The Company makes limited use of derivative financial instruments to manage interest rate, market, and foreign exchange risk associated with invested assets. Derivatives are not used for speculative purposes. The Company controls the credit risk of its financial contracts through credit approvals, limits, and monitoring procedures. As the Company generally enters into derivative transactions only with high quality institutions, no losses associated with non-performance on derivative financial instruments have occurred or are expected to occur. Derivative instruments typically used consist of interest rate swap agreements, credit default swaps, interest rate floors and caps, foreign currency exchange contracts, options, and interest rate futures. Interest rate swap agreements are used to convert the interest rate on certain debt securities from a floating rate to a fixed rate or vice versa, to convert from a fixed rate to a floating rate. Credit default swaps may be used in conjunction with another purchased security to reproduce the investment characteristics of a cash investment in the same credit. Interest rate floors and caps are interest rate protection instruments that require the payment by a counter-party to the Company of an interest rate differential only if interest rates fall or rise to certain levels. The differential represents the difference between current interest rates and an agreed upon rate, the strike rate, applied to a notional principal amount. Foreign currency exchange contracts are used to hedge the foreign exchange rate risk associated with bonds denominated in other than U.S. dollars. Written call options are used in conjunction with interest rate swap agreements to effectively convert convertible, fixed rate bonds to non-convertible variable rate bonds as part of the Company's overall asset/liability matching program. Purchased put options are used to protect against significant drops in equity markets. Interest rate futures are used to hedge the interest rate risks of forecasted acquisitions of fixed rate fixed maturity investments. The Company also uses derivatives to synthetically create investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These securities, called replication synthetic asset transactions (RSAT's), are a combination of a derivative and a cash security to synthetically create a third replicated security. As of December 31, 2002, the Company has one such security that has been created through the combination of a credit default swap and U.S. Government Agency security. These derivatives do not qualify as hedges and therefore, changes in fair value are recorded in earnings. Effective January 1, 2001, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), as amended by FASB Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." The adoption of SFAS 133 resulted in an approximate $1,000 after-tax increase to accumulated comprehensive income, which has been included in the 2001 change in other comprehensive income in the Statement of Stockholder's Equity. The Statements require all derivatives, whether designated in hedging relationships or not, to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of the changes in the fair value of the derivative are recorded in accumulated other comprehensive income and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges and changes in fair value of derivatives not qualifying for hedge accounting are recognized in earnings. The Company occasionally purchases a financial instrument that contains a derivative instrument that is "embedded" in the financial instrument. Upon purchasing the instrument, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e, the host contract) and whether a separate instrument with the same terms as the embedded instrument could meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and changes in its fair value are included in earnings. Hedge ineffectiveness of $177 and $907, determined in accordance with SFAS No. 133, was recorded as a decrease to net investment income for the years ended December 31, 2002 and 2001, respectively. Derivative gains and losses included in accumulated other comprehensive income (OCI) are reclassified into earnings at the time interest income is recognized or interest receipts are received on bonds. Derivative gains of $563 and $469 were reclassified to net investment income in 2002 and 2001, respectively. The Company estimates that $837 of net derivative gains included in OCI will be reclassified into net investment income within the next twelve months. Revenue Recognition - In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements (SAB No. 101)," which provides guidance with respect to revenue recognition issues and disclosures. As amended by SAB No. 101B, "Second Amendment: Revenue Recognition in Financial Statements," the Company implemented the provisions of SAB No. 101 during the fourth quarter of 2000. The adoption of SAB No. 101 did not affect the Company's revenue recognition practices. Recognition of Premium and Fee Income and Benefits and Expenses - Life insurance premiums are recognized when due. Annuity premiums with life contingencies are recognized as received. Accident and health premiums are earned on a monthly pro rata basis. Revenues for annuity and other contracts without significant life contingencies consist of contract charges for the cost of insurance, contract administration, and surrender fees that have been assessed against the contract account balance during the period and are recognized when earned. Fee income is derived primarily from contracts for claim processing or other administrative services related to uninsured business and from assets under management. Fees from contracts for claim processing or other administrative services are recorded as the services are provided. Fees from assets under management, which consist of contract maintenance fees, administration fees and mortality and expense risk charges, are recognized when due. Benefits and expenses on policies with life contingencies are associated with earned premiums so as to result in recognition of profits over the life of the contracts. This association is accomplished by means of the provision for future policy benefit reserves. The average crediting rate on annuity products was approximately 5.9%, 6.1%, and 6.2% in 2002, 2001, and 2000. Income Taxes - Income taxes are recorded using the asset and liability approach, which requires, among other provisions, the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, all expected future events (other than the enactments or changes in the tax laws or rules) are considered. Although realization is not assured, management believes it is more likely than not that the deferred tax asset will be realized. Stock Options - The Company applies the intrinsic value measurement approach under APB Opinion No. 25, "Accounting for Stock Issued to Employees", to stock-based compensation awards to employees, as interpreted by AIN-APB 25 as it relates to accounting for stock options granted by the Parent to Company employees (see Note 14). Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - FASB has issued Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - A replacement of FASB Statement No. 125" (SFAS No. 140), which revises the standards for accounting for securitizations and other transfers of financial assets and collateral, and requires certain disclosures. SFAS 140 was effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. Certain disclosure requirements under SFAS No. 140 were effective December 15, 2000, and these requirements have been incorporated in the Company's financial statements. The adoption of SFAS No. 140 did not have a significant effect on the financial position or results of operations of the Company. Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interest in Securitized Financial Assets - Effective April 1, 2001, the Company adopted Emerging Issues Task Force Issue No. 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interest in Securitized Financial Assets" (EITF 99-20). This pronouncement requires investors in certain asset-backed securities to record changes in their estimated yield on a prospective basis and to apply specific evaluation methods to these securities for an other-than-temporary decline in value. The adoption of EITF 99-20 did not have a material impact on the Company's financial position or results of operations. Business Combinations - On June 29, 2001 Statement of Financial Accounting Standards (SFAS) FAS No.141, "Business Combinations" (SFAS No. 141) was approved by the FASB. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The Company implemented SFAS No. 141 on July 1, 2001. Adoption of the Statement did not have a material impact on the Company's financial position or results of operations. Goodwill and Other Intangible Assets - On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142) was approved by the FASB. SFAS No. 142 changes the accounting for goodwill and certain other intangibles from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, ceased upon adoption of this statement. The Company implemented SFAS No. 142 on January 1, 2002. Adoption of this Statement did not have a material impact on the Company's financial position or results of operations. Selected Loan Loss Allowance Methodology - In July 2001, the SEC released Staff Accounting Bulletin No. 102, "Selected Loan Loss Allowance Methodology and Documentation Issues" (SAB 102). SAB 102 summarizes certain of the SEC's views on the development, documentation and application of a systematic methodology for determining allowances for loan and lease losses. Adoption of SAB 102 by the Company did not have a material impact on the Company's financial position or results of operations. Long Lived Assets - In August 2001, the FASB issued SFAS No.144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No.144). SFAS No.144 supercedes current accounting guidance relating to impairment of long-lived assets and provides a single accounting methodology for long-lived assets to be disposed of, and also supercedes existing guidance with respect to reporting the effects of the disposal of a business. SFAS No.144 was adopted January 1, 2002 without a material impact on the Company's financial position or results of operations. Technical Corrections - April 2002, the FASB issued Statement No. 145 "Rescission of FASB No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" (SFAS No. 145). FASB No. 4 required all gains or losses from extinguishment of debt to be classified as extraordinary items net of income taxes. SFAS No. 145 requires that gains and losses from extinguishment of debt be evaluated under the provision of Accounting Principles Board Opinion No. 30, and be classified as ordinary items unless they are unusual or infrequent or meet the specific criteria for treatment as an extraordinary item. This statement is effective January 1, 2003. The Company does not expect this statement to have a material effect on the Company's financial position or results of operations. Costs Associated With Exit or Disposal Activities - In July 2002, the FASB issued Statement No. 146 "Accounting for Costs Associated With Exit or Disposal Activities" (SFAS No. 146). This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." This statement requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred, as opposed to when the entity commits to an exit plan under EITF 94-3. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not expect this statement to have a material impact on the Company's financial position or results of operations. 2. ACQUISITIONS AND SPECIAL CHARGES Effective January 1, 2000, the Company co-insured the majority of General American Life Insurance Company's (General American) group life and health insurance business, which primarily consists of administrative services only and stop loss policies. The agreement converted to an assumption reinsurance agreement January 1, 2001. The Company assumed approximately $150,000 of policy reserves and miscellaneous liabilities in exchange for $150,000 of cash and miscellaneous assets from General American. On October 6, 1999, the Company entered into a purchase and sale agreement with Allmerica Financial Corporation (Allmerica) to acquire via assumption reinsurance Allmerica's group life and health insurance business on March 1, 2000. This business primarily consists of administrative services only, and stop loss policies. The in-force business was immediately co-insured back to Allmerica and then underwritten and retained by the Company upon each policy renewal date. The effect of this transaction was not material to the Company's results of operations or financial position. Alta Health & Life Insurance Company (Alta) was acquired by the Company on July 8, 1998. During 1999 and 2000 the Alta business continued to be run as a free-standing unit but was converted to the Company's system and accounting processes. This conversion program resulted in significant issues related to pricing, underwriting, and administration of the business. The Company has decided to discontinue writing new Alta business and all Alta customers will be moved to the Company's contracts over time. All Alta sales and administration staff have become employees of the Company and the underwriting functions are being conducted by the underwriting staff of the Company. In the second quarter of 2001, the Company recorded a $127 million special charge ($80.9 million, net of tax), related to its decision to cease marketing the Alta products. The principal components of the charge include $46 million from premium deficiency reserves, $29 million from premium receivables, $28 million from uninsured accident and health plan claim receivables and $24 million from goodwill and other. 3. RELATED-PARTY TRANSACTIONS The Company performs administrative services for the U.S. operations of GWL and, beginning in 2002, performs investment services for London Reinsurance Group, an indirect subsidiary of GWL. The following represents revenue from related parties for services provided pursuant to these service agreements. The amounts recorded are based upon management's best estimate of actual costs incurred and resources expended based upon number of policies, certificates in force and/or administered assets. Years Ended December 31, ---------------------------------------------------- 2002 2001 2000 --------------- --------------- --------------- Investment management revenue $ 892 $ 186 $ 120 Administrative and underwriting revenue 860 1,043 704
At December 31, 2002 and 2001, due to GWL includes $8,503 and $16,536 due on demand and $25,338 and $25,338 of notes payable which bear interest and mature on October 1, 2006. These notes may be prepaid in whole or in part at any time without penalty; the issuer may not demand payment before the maturity date. The amounts due on demand to GWL bear interest at the public bond rate (4.75% and 6.0% at December 31, 2002 and 2001, respectively) while the note payable bears interest at 5.4%. At December 31, 2002 and 2001, due to GWL&A Financial includes $(3,619) and $39,796 due on demand and $175,035 and $175,035 of subordinated notes payable. The notes, which were issued in 1999 and used for general corporate purposes, bear interest and mature on June 30, 2048. Payments of principal and interest under this subordinated note shall be made only with prior written approval of the Commissioner of Insurance of the State of Colorado. Payments of principal and interest on this subordinated note are payable only out of surplus funds of the Company and only at such time as the financial condition of the Company is such that at the time of payment of principal or interest, its statutory surplus after the making of any such payment would exceed the greater of $1,500 or 1.25 times the company action level amount as required by the most recent risk based capital calculations. The amounts due on demand to GWL&A Financial bear interest at the public bond rate (4.75% and 6.0% at December 31, 2002 and 2001, respectively) while the note payable bears interest at 7.25%. Interest expense attributable to these related party obligations was $14,976, $14,732, and $14,637 for the years ended December 31, 2002, 2001, and 2000, respectively. 4. ALLOWANCES ON POLICYHOLDER RECEIVABLES Amounts receivable for accident and health plan claims and premiums in the course of collection are generally uncollateralized. Such receivables are from policyholders dispersed throughout the United States and throughout many industry groups. The Company maintains an allowance for credit losses at a level that, in management's opinion, is sufficient to absorb credit losses on its amounts receivable related to uninsured accident and health plan claims and premiums in course of collection. Management's judgement is based on past loss experience and current and projected economic conditions. Activity in the allowance for amounts receivable related to uninsured accident and health plan claims is as follows: 2002 2001 2000 -------------- --------------- --------------- Balance, beginning of year $ 53,431 $ 34,700 $ 31,200 Amounts acquired by reinsurance 6,207 Provisions charged (reversed) to operations (7,544) 50,500 7,700 Amounts written off - net (9,950) (31,769) (4,200) -------------- --------------- --------------- Balance, end of year $ 42,144 $ 53,431 $ 34,700 ============== =============== ===============
Activity in the allowance for premiums in course of collection is as follows: 2002 2001 2000 -------------- --------------- --------------- Balance, beginning of year $ 22,217 $ 18,700 $ 13,900 Amounts acquired by reinsurance 1,600 Provisions charged (reversed) to operations (5,729) 29,642 14,500 Amounts written off - net (6,077) (26,125) (9,700) -------------- --------------- --------------- Balance, end of year $ 12,011 $ 22,217 $ 18,700 ============== =============== ===============
5. REINSURANCE In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding risks to other insurance enterprises under excess coverage and co-insurance contracts. The Company retains a maximum of $1.5 million of coverage per individual life. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. At December 31, 2002 and 2001, the reinsurance receivable had a carrying value of $241,153 and $282,352, respectively. The following schedule details life insurance in force and life and accident/health premiums: Percentage of Amount Reinsurance Reinsurance Assumed Direct Ceded Assumed Net to Net --------------- ---------------- ---------------- --------------- ------------- December 31, 2002: Life insurance in force: Individual $ 43,324,059 $ 12,786,783 $ 7,280,731 37,818,007 19.3% Group 51,385,610 7,186,698 58,572,308 12.3% --------------- ---------------- ---------------- ---------------- Total $ 94,709,669 $ 12,786,783 $ 14,467,429 $ 96,390,315 =============== ================ ================ ================ Premium Income: Life insurance $ 312,388 $ 40,582 $ 41,245 $ 313,051 13.2% Accident/health 728,972 43,047 128,820 814,745 15.8% --------------- ---------------- ---------------- ---------------- Total $ 1,041,360 $ 83,629 $ 170,065 $ 1,127,796 =============== ================ ================ ================ December 31, 2001: Life insurance in force: Individual $ 43,370,006 $ 8,330,282 $ 7,399,250 $ 42,438,974 17.4% Group 56,650,090 9,888,796 66,538,886 14.9% --------------- ---------------- ---------------- ---------------- Total $ 100,020,096 $ 8,330,282 $ 17,288,046 $ 108,977,860 =============== ================ ================ ================ Premium Income: Life insurance $ 384,688 $ 32,820 $ 37,442 $ 389,310 9.6% Accident/health 830,970 49,001 42,750 824,719 5.2% --------------- ---------------- ---------------- ---------------- Total $ 1,215,658 $ 81,821 $ 80,192 $ 1,214,029 =============== ================ ================ ================ December 31, 2000: Life insurance in force: Individual $ 39,067,268 $ 5,727,745 $ 7,563,302 $ 40,902,825 18.5% Group 75,700,120 20,610,896 96,311,016 21.4% --------------- ---------------- ---------------- ---------------- Total $ 114,767,388 $ 5,727,745 $ 28,174,198 $ 137,213,841 =============== ================ ================ ================ Premium Income: Life insurance $ 349,097 $ 35,448 $ 88,994 $ 402,643 22.1% Accident/health 827,044 79,705 175,294 922,633 19.0% --------------- ---------------- ---------------- ---------------- Total $ 1,176,141 $ 115,153 $ 264,288 $ 1,325,276 =============== ================ ================ ================
6. NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON INVESTMENTS Net investment income is summarized as follows: Years Ended December 31, ---------------------------------------------------- 2002 2001 2000 --------------- --------------- --------------- Investment income: Fixed maturities and short-term Investments $ 673,825 $ 693,573 $ 675,200 Common stock 3,272 4,882 1,584 Mortgage loans on real estate 48,625 69,237 80,775 Real estate 2,815 1,113 1,863 Policy loans 209,608 200,533 191,320 Other 5,236 3,766 120 --------------- --------------- --------------- 943,381 973,104 950,862 Investment expenses, including interest on amounts charged by the related parties of $14,976, $14,732, and $14,637 24,016 38,348 25,829 --------------- --------------- --------------- Net investment income $ 919,365 $ 934,756 925,033 =============== =============== =============== Net realized gains (losses) on investments are as follows: Years Ended December 31, ---------------------------------------------------- 2002 2001 2000 --------------- --------------- --------------- Realized gains (losses): Fixed maturities $ 33,455 $ 32,116 $ (16,752) Common stock 1,639 13,052 33,411 Mortgage loans on real estate 1,493 1,657 2,207 Real estate 490 Provisions 5,039 8,927 --------------- --------------- --------------- Net realized gains on investments $ 41,626 $ 46,825 $ 28,283 =============== =============== =============== 7. SUMMARY OF INVESTMENTS Fixed maturities owned at December 31, 2002 are summarized as follows: Gross Gross Estimated Amortized Unrealized Unrealized Fair Carrying Cost Gains Losses Value Value ----------------------------- ------------ ------------ ------------ ------------ ------------ U.S. Government CMO $ 1,304,614 $ 43,929 $ $ 1,348,543 $ 1,348,543 U.S. Government ABS 491,183 16,310 1,785 505,708 505,708 U.S. Government MBS 385,764 5,957 149 391,572 391,572 U.S. Government Other 445,281 19,589 4 464,866 464,866 Credit tenant loans 104,648 11,081 115,729 115,729 State and municipalities 1,019,049 100,256 194 1,119,111 1,119,111 Foreign government 42,182 1,038 61 43,159 43,159 Corporate bonds 2,771,977 182,787 53,534 2,901,230 2,901,230 Mortgage-backed securities - CMO 96,776 16,170 18 112,928 112,928 Public utilities 698,365 44,334 11,369 731,330 731,330 Asset-backed securities 2,138,025 86,261 27,089 2,197,197 2,197,197 Derivatives (3,422) 15,343 11,921 11,921 Collateralized mortgage obligation 416,220 11,638 427,858 427,858 ------------ ------------ ------------ ------------ ------------ $ 9,910,662 $ 554,693 $ 94,203 $ 10,371,152 $ 10,371,152 ============ ============ ============ ============ ============ Fixed maturities owned at December 31, 2001 are summarized as follows: Gross Gross Estimated Amortized Unrealized Unrealized Fair Carrying Cost Gains Losses Value Value ----------------------------- ------------ ------------ ------------ ------------ ------------ U.S. Government CMO $ 1,182,723 $ 18,025 $ 5,767 $ 1,194,981 $ 1,194,981 U.S. Government ABS 463,028 11,422 1,153 473,297 473,297 U.S. Government MBS 345,979 2,537 2,840 345,676 345,676 U.S. Government Other 559,932 8,878 1,810 567,000 567,000 State and municipalities 935,758 35,462 3,955 967,265 967,265 Foreign government 26,466 1,824 28,290 28,290 Corporate bonds 2,943,635 114,871 71,504 2,987,002 2,987,002 Mortgage-backed securities - CMO 97,136 7,020 104,156 104,156 Public utilities 647,754 22,823 5,997 664,580 664,580 Asset-backed securities 2,265,033 64,765 11,336 2,318,462 2,318,462 Derivatives 1,935 18,682 20,617 20,617 Collateralized mortgage obligation 435,074 9,900 125 444,849 444,849 ------------ ------------ ------------ ------------ ------------ $ 9,904,453 $ 316,209 $ 104,487 $ 10,116,175 $ 10,116,175 ============ ============ ============ ============ ============
The collateralized mortgage obligations consist primarily of sequential and planned amortization classes with final stated maturities of two to thirty years and expected average lives of less than one to fifteen years. Prepayments on all mortgage-backed securities are monitored monthly and amortization of the premium and/or the accretion of the discount associated with the purchase of such securities is adjusted by such prepayments. See Note 9 for additional information on policies regarding estimated fair value of fixed maturities. The amortized cost and estimated fair value of fixed maturity investments at December 31, 2002, by projected maturity, are shown below. Actual maturities will likely differ from these projections because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Amortized Estimated Cost Fair Value ---------------- ---------------- Due in one year or less $ 592,856 615,583 Due after one year through five years 2,509,745 2,684,171 Due after five years through ten years 1,144,037 1,238,155 Due after ten years 857,672 875,859 Mortgage-backed securities 2,177,144 2,254,479 Asset-backed securities 2,629,208 2,702,905 ---------------- ---------------- $ 9,910,662 10,371,152 ================ ================
Proceeds from sales of securities available-for-sale were $5,729,919, $5,201,692, and $1,460,672 during 2002, 2001, and 2000, respectively. The realized gains on such sales totaled $45,315, $42,299, and $8,015 for 2002, 2001, and 2000, respectively. The realized losses totaled $10,410, $10,186, and $24,053 for 2002, 2001, and 2000, respectively. During the years 2002, 2001, and 2000, held-to-maturity securities with amortized cost of $0, $0, and $8,571 were sold due to credit deterioration with insignificant gains and losses. During the fourth quarter of 2000, the Company transferred all securities classified as held-to-maturity into the available-for-sale category. The Company recorded a $19,908 unrealized gain associated with this transfer in other comprehensive income, net of tax. At December 31, 2002 and 2001, pursuant to fully collateralized securities lending arrangements, the Company had loaned $284,990 and $278,471 of fixed maturities, respectively. The Company engages in hedging activities to manage interest rate, market, credit and foreign exchange risk. The following table summarizes the 2002 financial hedge instruments: Notional Strike/Swap December 31, 2002 Amount Rate Maturity ------------------------------- --------------- ------------------------------ -------------------- Interest Rate Caps $ 1,122,000 7.64% - 11.65% (CMT) 02/03 - 01/05 Interest Rate Swaps 400,188 2.62% - 7.32% 02/03 - 11/09 Credit Default Swaps 128,157 N/A 02/03 - 11/07 Foreign Currency Exchange Contracts 27,585 N/A 06/05 - 11/06 Options Calls 191,200 Various 05/04 - 06/07 Puts 15,000 Various 03/07 - 03/07 The following table summarizes the 2001 financial hedge instruments: Notional Strike/Swap December 31, 2001 Amount Rate Maturity ------------------------------- --------------- -------------------------------- -------------------- Interest Rate Caps $ 1,402,000 6.75% - 11.65% (CMT) 01/02 - 01/05 Interest Rate Swaps 365,018 3.13% - 7.32% 01/02- 12/06 Foreign Currency Exchange Contracts 13,585 N/A 06/05 - 07/06 Options Calls 191,300 Various 01/02 - 01/06 Puts 131,000 Various 12/01 - 12/02 CMT - Constant Maturity Treasury Rate The Company no longer actively invests in mortgage loans. The following is information with respect to impaired mortgage loans: 2002 2001 ---------------- ---------------- Loans, net of related allowance for credit losses of $20,917 and $13,018 $ 8,200 $ 6,300 Loans with no related allowance for credit losses 2,638 5,180 Average balance of impaired loans during the year 31,243 31,554 Interest income recognized (while impaired) 2,007 1,617 Interest income received and recorded (while impaired) using the cash basis method of recognition 2,249 1,744 As part of an active loan management policy and in the interest of maximizing the future return of each individual loan, the Company may from time to time modify the original terms of certain loans. These restructured loans, all performing in accordance with their modified terms, aggregated $40,302 and $56,258 at December 31, 2002 and 2001, respectively. The following table presents changes in the allowance for credit losses: 2002 2001 2000 --------------- --------------- --------------- Balance, beginning of year $ 57,654 $ 61,242 $ 77,416 Provision for loan losses (3,588) (8,927) Charge-offs (139) (3,588) (7,247) Recoveries 1,727 --------------- --------------- --------------- Balance, end of year $ 55,654 $ 57,654 $ 61,242 =============== =============== ===============
8. COMMERCIAL PAPER The Company has a commercial paper program that is partially supported by a $50,000 standby letter-of-credit. At December 31, 2002, commercial paper outstanding of $96,645 had maturities ranging from 3 to 66 days and interest rates ranging from 1.40% to 1.88%. At December 31, 2001, commercial paper outstanding of $97,046 had maturities from 4 to 63 days and an interest rates ranging from 1.91% to 2.55%. 9. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS December 31, ----------------------------------------------------------------------- 2002 2001 ---------------------------------- --------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value --------------- --------------- -------------- --------------- ASSETS: Fixed maturities and short-term investments $ 11,080,956 $ 11,080,956 $ 10,540,905 $ 10,540,905 Mortgage loans on real estate 417,412 429,907 613,453 624,102 Policy loans 2,964,030 2,964,030 3,000,441 3,000,441 Common stock 90,188 90,188 73,344 73,344 LIABILITIES: Annuity contract reserves without life contingencies 4,152,594 4,228,080 4,188,553 4,210,759 Policyholders' funds 299,730 299,730 242,916 242,916 Due to GWL 33,841 32,366 41,874 41,441 Due to GWL&A Financial 171,416 173,376 214,831 214,831 Commercial paper 96,645 96,645 97,046 97,046 Repurchase agreements 323,200 323,200 250,889 250,889
The estimated fair values of financial instruments have been determined using available information and appropriate valuation methodologies. However, considerable judgement is required to interpret market data to develop estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The estimated fair value of fixed maturities and common stocks that are publicly traded are obtained from an independent pricing service. To determine fair value for fixed maturities not actively traded, the Company utilizes discounted cash flows calculated at current market rates on investments of similar quality and term. Fair values of derivatives of $11,921 and $20,617 at December 31, 2002 and 2001, respectively, consisting principally of interest rate swaps are included in fixed maturities. Mortgage loan fair value estimates generally are based on discounted cash flows. A discount rate "matrix" is incorporated whereby the discount rate used in valuing a specific mortgage generally corresponds to that mortgage's remaining term and credit quality. The rates selected for inclusion in the discount rate "matrix" reflect rates that the Company would quote if placing loans representative in size and quality to those currently in the portfolio. Policy loans accrue interest generally at variable rates with no fixed maturity dates and, therefore, estimated fair value approximates carrying value. The estimated fair value of annuity contract reserves without life contingencies is estimated by discounting the cash flows to maturity of the contracts, utilizing current crediting rates for similar products. The estimated fair value of policyholders' funds is the same as the carrying amount as the Company can change the crediting rates with 30 days notice. The estimated fair value of due to GWL is based on discounted cash flows at current market rates on high quality investments. The fair value of due to GWL&A Financial reflects the last trading price of the subordinated notes in the public market at December 31, 2002. The carrying value of repurchase agreements and commercial paper is a reasonable estimate of fair value due to the short-term nature of the liabilities. The estimated fair value of derivatives, primarily consisting of interest rate swaps which are held for other than trading purposes, is the estimated amount the Company would receive or pay to terminate the agreement at each year-end, taking into consideration current interest rates and other relevant factors. Included in the net asset position for interest rates swaps are $1,488 and $33 of liabilities in 2002 and 2001, respectively. Included in the net asset position for foreign currency exchange contracts are $2,518 and $127 of liabilities in 2002 and 2001, respectively. 10. EMPLOYEE BENEFIT PLANS The following table summarizes changes for the years ended December 31, 2002, 2001, and 2000 in the benefit obligations and in plan assets for the Company's defined benefit pension plan and post-retirement medical plan. Based on an accumulated pension benefit obligation of $167,552 at December 31, 2002, an additional minimum liability of $22,549 was recorded resulting in a net accrued benefit liability of $4,236 as of December 31, 2002. There was no additional minimum pension liability required to be recognized as of December 31, 2001 or 2000. Post-Retirement Pension Benefits Medical Plan ---------------------------------- --------------------------------- 2002 2001 2000 2002 2001 2000 --------- --------- --------- --------- --------- -------- Change in projected benefit obligation Benefit obligation at beginning $ 150,521 $ 140,563 $ 126,130 $ 57,861 $ 33,018 $ 29,228 of year Service cost 8,977 8,093 7,062 3,516 3,331 2,305 Interest cost 11,407 9,718 9,475 3,138 3,303 2,167 Acquisition of new employees 7,823 Amendments 827 (22,529) Actuarial (gain) loss 20,679 (2,640) 2,510 (9,814) 11,401 Benefits paid (6,364) (5,213) (4,614) (930) (1,015) (682) --------- --------- --------- --------- --------- -------- Benefit obligation at end of year $ 186,047 $ 150,521 $ 140,563 $ 31,242 $ 57,861 $ 33,018 --------- --------- --------- --------- --------- -------- Change in plan assets Fair value of plan assets at beginning of year $ 187,661 $ 193,511 $ 192,093 $ $ $ Actual return on plan assets (17,979) (637) 6,032 Benefits paid (6,364) (5,213) (4,614) --------- --------- --------- --------- --------- -------- Fair value of plan assets at end 163,318 187,661 193,511 of year --------- --------- --------- --------- --------- -------- Funded (unfunded) status (22,729) 37,140 52,948 (31,242) (57,861) (33,018) Unrecognized net actuarial (gain) 51,943 (1,499) (15,239) 4,361 14,659 3,430 loss Unrecognized prior service cost 2,727 2,533 3,073 (9,392) 9,326 2,148 Unrecognized net obligation or (asset) at transition (13,628) (15,142) (16,655) 12,120 12,928 Acquisition of GenAm employees (7,823) --------- --------- --------- --------- --------- -------- Prepaid (accrued) benefit cost 18,313 Additional minimum liability (22,549) --------- --------- --------- --------- --------- -------- Prepaid benefit cost/ (accrued benefit liability) (4,236) 23,032 24,127 (36,273) (29,579) (14,512) Intangible asset 2,727 Accumulated other comprehensive income adjustments 19,822 --------- --------- --------- --------- --------- -------- Net amount recognized $ 18,313 $ 23,032 $ 24,127 $ (36,273) $ (29,579) $ (14,512) ========= ========= ========= ========= ========= ======== Post-Retirement Pension Benefits Medical Plan ---------------------------------- --------------------------------- 2002 2001 2000 2002 2001 2000 --------- --------- --------- --------- --------- -------- Components of net periodic benefit cost Service cost $ 8,977 $ 8,093 $ 7,062 $ 3,516 $ 3,331 $ 2,305 Interest cost 11,406 9,718 9,475 3,138 3,303 2,167 Expected return on plan assets (14,782) (15,276) (17,567) Amortization of transition (1,514) (1,514) (1,514) 808 808 808 obligation Amortization of unrecognized prior service cost 632 541 541 161 645 162 Amortization of unrecognized prior service cost - GenAm (484) Amortization of gain from earlier periods (467) (879) 172 34 --------- --------- --------- --------- --------- -------- Net periodic (benefit) cost $ 4,719 $ 1,095 $ (2,882) $ 7,623 $ 7,775 $ 5,476 ========= ========= ========= ========= ========= ======== Weighted-average assumptions as of December 31 Discount rate 6.75% 7.25% 7.50% 6.75% 7.25% 7.50% Expected return on plan assets 8.00% 8.00% 9.25% 8.00% 8.00% 9.25% Rate of compensation increase 3.92% 4.00% 5.00% 3.92% 4.00% 5.00%
The Company-sponsored post-retirement medical plan (medical plan) provides health benefits to retired employees. The medical plan is contributory and contains other cost sharing features, which may be adjusted annually for the expected general inflation rate. The Company's policy is to fund the cost of the medical plan benefits in amounts determined at the discretion of management. The Company made no contributions to this plan in 2002, 2001, or 2000. Assumed health care cost trend rates have a significant effect on the amounts reported for the medical plan. For measurement purposes, a 9.5% annual rate of increase in the per capita cost of covered health care benefits was assumed and that the rate would gradually decrease to a level of 5.25% by 2011. Additionally, it was assumed that the Company's cost for retirees eligible for health care benefits under Medicare would be limited to an increase of 3% starting in 2003, due to a plan change. A one-percentage-point change in assumed health care cost trend rates would have the following effects: 1-Percentage 1-Percentage Point Point Increase Decrease -------------------- -------------------- Increase (decrease) on total of service and interest cost on components $ 1,506 $ (1,166) Increase (decrease) on post-retirement benefit obligation 2,221 (1,907)
The Company sponsors a defined contribution 401(k) retirement plan which provides eligible participants with the opportunity to defer up to 15% of base compensation. The Company matches 50% of the first 5% of participant pre-tax contributions. For employees hired after January 1, 1999, the Company matches 50% of the first 8% of participant pre-tax contributions. Company contributions for the years ended December 31, 2002, 2001, and 2000 totaled $7,257, $7,773, and $6,130, respectively. The Company has a deferred compensation plan providing key executives with the opportunity to participate in an unfunded, deferred compensation program. Under the program, participants may defer base compensation and bonuses, and earn interest on their deferred amounts. The program is not qualified under Section 401 of the Internal Revenue Code. Participant deferrals, which are reflected in other liabilities, are $20,606 and $20,033 as of December 31, 2002 and 2001, respectively. The participant deferrals earn interest at 7.3% at December 31, 2002, based on the average ten-year composite government securities rate plus 1.5%. The interest expense related to the plan for the years ending December 31, 2002, 2001, and 2000 was $1,459, $1,434, and $1,358, respectively. The Company also provides a supplemental executive retirement plan to certain key executives. This plan provides key executives with certain benefits upon retirement, disability, or death based upon total compensation. The Company has purchased individual life insurance policies with respect to each employee covered by this plan. The Company is the owner and beneficiary of the insurance contracts. The expense for this plan for 2002, 2001, and 2000 was $2,527, $2,726, and $3,023, respectively. The total liability of $20,037 and $20,881 as of December 31, 2002 and 2001 is included in other liabilities. 11. FEDERAL INCOME TAXES The following is a reconciliation between the federal income tax rate and the Company's effective income tax rate: 2002 2001 2000 ------------ ------------ ------------ Federal tax rate 35.0 % 35.0 % 35.0 % Reduction in tax contingency (3.3) Investment income not subject to federal tax (1.3) (1.7) (0.9) Other, net 1.1 (0.3) ------------ ------------ ------------ Total 31.5 % 33.0 % 34.1 % ============ ============ ============
The Company has reduced its liability for tax contingencies due to the completion of the 1994 - 1996 Internal Revenue Service examination. The amount released was $13,810; however, $4,000 of the release was attributable to participating policyholders and therefore, had no affect on the net income of the Company since that amount was credited to the provision for policyholders' share of earnings on participating business in the accompanying 2002 statement of income. Temporary differences which give rise to the deferred tax assets and liabilities as of December 31, 2002 and 2001 are as follows: 2002 2001 ------------------------------- ------------------------------ Deferred Deferred Deferred Deferred Tax Tax Tax Tax Asset Liability Asset Liability ------------- -------------- ------------- ------------- Policyholder reserves $ 231,679 $ $ 219,227 $ Deferred policy acquisition costs 94,018 96,567 Deferred acquisition cost proxy tax 109,779 119,052 Investment assets 149,958 67,136 Other 28,466 61,664 ------------- -------------- ------------- ------------- Total deferred taxes $ 341,458 $ 272,442 $ 338,279 $ 225,367 ============= ============== ============= =============
Amounts included for investment assets above include $86,907 and $40,122 related to the unrealized gains on the Company's fixed maturities available-for-sale at December 31, 2002 and 2001, respectively. Under pre-1984 life insurance company income tax laws, a portion of life insurance company gain from operations was not subject to current income taxation but was accumulated, for tax purposes, in a memorandum account designated as "policyholders' surplus account." The aggregate accumulation in the account is $7,742 and the Company does not anticipate any transactions, which would cause any part of the amount to become taxable. Accordingly, no provision has been made for possible future federal income taxes on this accumulation. 12. OTHER COMPREHENSIVE INCOME Other comprehensive income for the year ended December 31, 2002 is summarized as follows: Before-Tax Tax (Expense) Net-of-Tax Amount or Benefit Amount ----------------- ---------------- ----------------- Unrealized gains on available-for-sale securities: Net changes during the year related to cash flow hedges $ (7,486) $ 2,620 $ (4,866) Unrealized holding gains (losses) arising during the period 192,079 (67,290) 124,789 Less: reclassification adjustment for (gains) losses realized in net income (8,004) 2,802 (5,202) ----------------- ---------------- ----------------- Net unrealized gains 176,589 (61,868) 114,721 Reserve and DAC adjustment (42,681) 14,953 (27,728) ----------------- ---------------- ----------------- ----------------- ---------------- ----------------- Net unrealized gains (losses) $ 133,908 $ (46,915) $ 86,993 ----------------- ---------------- ----------------- ----------------- ---------------- ----------------- Minimum pension liability adjustment (19,822) 6,938 (12,884) ----------------- ---------------- ----------------- Other comprehensive income 114,086 (39,977) 74,109 ================= ================ ================= Other comprehensive income for the year ended December 31, 2001 is summarized as follows: Before-Tax Tax (Expense) Net-of-Tax Amount or Benefit Amount ----------------- ---------------- ----------------- Unrealized gains on available-for-sale securities: Net changes during the year related to cash flow hedges $ 12,637 $ (4,423) $ 8,214 Unrealized holding gains (losses) arising during the period 112,544 (39,397) 73,147 Less: reclassification adjustment for (gains) losses realized in net income (15,912) 5,569 (10,343) ----------------- ---------------- ----------------- Net unrealized gains 109,269 (38,251) 71,018 Reserve and DAC adjustment (43,358) 15,175 (28,183) ----------------- ---------------- ----------------- Other comprehensive income $ 65,911 $ (23,076) $ 42,835 ================= ================ ================= Other comprehensive income for the year ended December 31, 2000 is summarized as follows: Before-Tax Tax (Expense) Net-of-Tax Amount or Benefit Amount ----------------- ---------------- ----------------- Unrealized gains on available-for-sale securities: Unrealized holding gains (losses) arising during the period $ 204,274 $ (71,495) $ 132,779 Less: reclassification adjustment for (gains) losses realized in net income 9,436 (3,303) 6,133 ----------------- ---------------- ----------------- Net unrealized gains (losses) 213,710 (74,798) 138,912 Reserve and DAC adjustment (31,352) 10,973 (20,379) ----------------- ---------------- ----------------- Other comprehensive income $ 182,358 $ (63,825) $ 118,533 ================= ================ =================
13. STOCKHOLDER'S EQUITY, DIVIDEND RESTRICTIONS, AND OTHER MATTERS At December 31, 2002 and 2001, the Company has 1,500 authorized shares each of Series A, Series B, Series C and Series D cumulative preferred stock; and 2,000,000 authorized shares of non-cumulative preferred stock. No dividends were paid on preferred stock in 2002, 2001, and 2000, respectively. Dividends of $170,572, $187,633, and $134,149 were paid on common stock in 2002, 2001, and 2000, respectively. Dividends are paid as determined by the Board of Directors, subject to restrictions as discussed below.The Company's net income and capital and surplus, as determined in accordance with statutory accounting principles and practices for December 31 are as follows: 2002 2001 2000 ---------------- ---------------- --------------- (Unaudited) Net income $ 205,749 $ 266,398 $ 293,521 Capital and surplus 1,292,292 1,200,372 1,083,718
In March 1998, the National Association of Insurance Commissioners adopted the Codification of Statutory Accounting Principles (Codification). The Codification, which is intended to standardize accounting and reporting to state insurance departments, was effective January 1, 2001. However, statutory accounting principles will continue to be established by individual state laws and permitted practices. The Colorado Division of Insurance required adoption of Codification with certain modifications for the preparation of statutory financial statements effective January 1, 2001. The adoption of Codification as modified by the Colorado Division of Insurance increased statutory net worth as of January 1, 2001, by approximately $105,760. (The modifications adopted by the Colorado Division of Insurance had no effect on statutory net worth). The maximum amount of dividends which can be paid to stockholders by insurance companies domiciled in the State of Colorado are subject to restrictions relating to statutory surplus and statutory net gain from operations. Statutory surplus and net gains from operations at December 31, 2002 were $1,292,292 and $208,194 [Unaudited], respectively. The Company should be able to pay up to $208,194 [Unaudited] of dividends in 2003. 14. STOCK OPTIONS The Parent has a stock option plan (the Lifeco plan) that provides for the granting of options on common shares of Lifeco to certain officers and employees of Lifeco and its subsidiaries, including the Company. Options may be awarded with exercise prices of no less than the market price on the date of the grant. Termination of employment prior to vesting results in forfeiture of the options. As of December 31, 2002, 2001, and 2000, stock available for award to Company employees under the Lifeco plan aggregated 3,917,344, 3,278,331, and 4,808,047 shares. The plan provides for the granting of options with varying terms and vesting requirements. The majority of basic options under the plan vest and become exercisable twenty percent per year commencing on the first anniversary of the grant and expire ten years from the date of grant. Other basic options vest and become exercisable one-third per year commencing on various dates from December 31, 2000 to September 30, 2004, and expire ten years from the date of grant. Variable options granted to Company employees totaling 278,000 and 1,832,000 in 1998 and 1997, respectively, became exercisable, if certain cumulative financial targets were attained by the end of 2001. A total of 175,511 options vested and became exercisable. The exercise period runs from June 26, 2007. During 2000, the Company determined that it was probable that certain of these options would become exercisable and, accordingly, accrued compensation expense of $15,052 with a corresponding credit to additional paid-in capital as prescribed by AIN-APB 25. During 2001, the Company released $12,098 of this accrual when certain financial targets were not attained. Additional variable options granted in 2001, 2000, and 1998 totaling 80,000, 120,000 and 380,000 respectively, become exercisable if certain sales or financial targets are attained. During 2002, 2001, and 2000, 0, 7,750, and 13,250 of these options vested and accordingly, the Company recognized compensation expense of $0, $48, and $151, respectively. If exercisable, the exercise period expires ten years from the date of grant. The following table summarizes the status of, and changes in, Lifeco options granted to Company employees, which are outstanding and the weighted-average exercise price (WAEP) for 2002, 2001, and 2000. As the options granted relate to Canadian stock, the values, which are presented in U.S. dollars, will fluctuate as a result of exchange rate fluctuations: 2002 2001 2000 ------------------------- ------------------------- ------------------------- Options WAEP Options WAEP Options WAEP ------------ ---------- ------------ ---------- ----------- ---------- Outstanding, Jan. 1 6,398,149 $ 11.66 7,675,551 $ 9.91 6,867,098 $ 9.20 Granted 174,500 22.16 947,500 22.28 1,386,503 14.88 Exercised 1,359,491 7.16 1,534,568 5.87 451,300 7.74 Expired or canceled 766,013 11.02 690,334 11.24 126,750 12.17 ------------ ---------- ------------ ---------- ----------- ---------- Outstanding, Dec 31 4,447,145 $ 13.66 6,398,149 $ 11.66 7,675,551 $ 9.91 ============ ========== ============ ========== =========== ========== Options exercisable at year-end 2,121,638 $ 11.67 2,602,480 $ 8.08 3,077,998 $ 7.11 ============ ========== ============ ========== =========== ========== Weighted average fair value of options granted during year $ 7.46 $ 7.10 $ 5.00 ============ ============ =========== The following table summarizes the range of exercise prices for outstanding Lifeco common stock options granted to Company employees at December 31, 2002: Outstanding Exercisable ------------------------------------------------- --------------------------------- Average Average Exercise Average Exercise Exercise Price Range Options Life Price Options Price --------------------- ---------------- ------------ ------------- ---------------- ------------- $5.37 - 7.13 696,076 3.55 $ 5.43 696,076 $ 5.43 $10.27 - 17.04 2,735,569 5.88 $ 12.67 1,256,325 $ 13.74 $21.70 - 23.66 1,015,500 8.79 $ 21.96 169,237 $ 21.94
Of the exercisable Lifeco options, 1,941,364 relate to fixed option grants and 180,274 relate to variable grants. Power Financial Corporation (PFC), which is the parent corporation of Lifeco, has a stock option plan (the PFC plan) that provides for the granting of options for common shares of PFC to key employees of PFC and its affiliates. Prior to the creation of the Lifeco plan in 1996, certain officers of the Company participated in the PFC plan in Canada. The following table summarizes the status of, and changes in, PFC options granted to Company officers, which remain outstanding and WAEP for 2002, 2001, and 2000. As the options granted relate to Canadian stock, the values, which are presented in U.S. dollars, will fluctuate as a result of exchange rate fluctuations: 2002 2001 2000 -------------------------- -------------------------- -------------------------- Options WAEP Options WAEP Options WAEP ------------- --------- ------------- --------- ------------- ---------- Outstanding, Jan.1, 70,000 $ 2.16 70,000 $ 2.29 285,054 $ 3.23 Exercised 70,000 2.21 215,054 3.30 ------------- --------- ------------- --------- ------------- ---------- Outstanding, Dec 31, 0 $ 0.00 70,000 $ 2.16 70,000 $ 2.29 ============= ========= ============= ========= ============= ========== Options exercisable at year-end 0 $ 0.00 70,000 $ 2.16 70,000 $ 2.29 ============= ========= ============= ========= ============= ==========
The Company accounts for stock-based compensation using the intrinsic value method prescribed by APB 25 under which compensation expenses for stock options are generally not recognized for stock option awards granted at or above fair market value. Had compensation expense for the Company's stock option plan been determined based upon fair value at the grant dates for awards under the plan in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net income would have been reduced by $2,364, $2,092, and $1,799, in 2002, 2001, and 2000, respectively. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for those options granted in 2002, 2001, and 2000, respectively: dividend yields of 2.453%, 2.27%, and 2.44%, expected volatility of 31.67%, 28.56%, and 29.57%, risk-free interest rates of 5.125%, 5.30%, and 6.61% and expected lives of 7 years. 15. SEGMENT INFORMATION The Company has two reportable segments: Employee Benefits and Financial Services. The Employee Benefits segment markets group life and health to small and mid-sized corporate employers. The Financial Services segment markets and administers savings products to public and not-for-profit employers, corporations, and individuals and offers life insurance products to individuals and businesses. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately as each segment has unique distribution channels. Prior to 2002, the Employee Benefits segment marketed and administered corporate savings products (401(k) plans). In 2002 the Financial Services segment assumed responsibility for these products. The 2001 and 2000 segment information has been reclassified to account for this change. The accounting policies of the segments are the same as those described in Note 1. The Company evaluates performance based on profit or loss from operations after income taxes. The Company's operations are not materially dependent on one or a few customers, brokers or agents. Summarized segment financial information for the year ended and as of December 31 was as follows: Year ended December 31, 2002 Operations: Employee Financial Benefits Services Total ----------------- ----------------- ----------------- Revenue: Premium income $ 960,191 $ 159,904 $ 1,120,095 Fee income 660,423 223,139 883,562 Net investment income 67,923 851,442 919,365 Realized investment gains 8,918 32,708 41,626 ----------------- ----------------- ----------------- Total revenue 1,697,455 1,267,193 2,964,648 Benefits and Expenses: Benefits 761,481 831,272 1,592,753 Operating expenses 732,472 225,671 958,143 ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- Total benefits and expenses 1,493,953 1,056,943 2,550,896 ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- Net operating income before income taxes 203,502 210,250 413,752 Income taxes 67,198 63,017 130,215 ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- Net income $ 136,304 $ 147,233 $ 283,537 ================= ================= ================= Assets: Employee Financial Benefits Services Total ----------------- ----------------- ----------------- Investment assets $ 1,491,857 $ 13,064,464 $ 14,556,321 Other assets 605,029 1,156,343 1,761,372 Separate account assets 11,338,376 11,338,376 ----------------- ----------------- ----------------- Total assets $ 2,096,886 $ 25,559,183 $ 27,656,069 ================= ================= ================= Year ended December 31, 2001 Operations: Employee Financial Benefits Services Total ----------------- ----------------- ----------------- Revenue: Premium income $ 1,033,886 $ 169,753 $ 1,203,639 Fee income 713,297 233,958 947,255 Net investment income 65,474 869,282 934,756 Realized investment gains (losses) 15,638 31,087 46,825 ----------------- ----------------- ----------------- Total revenue 1,828,295 1,304,180 3,132,475 Benefits and Expenses: Benefits 858,945 837,652 1,696,597 Operating expenses 775,018 246,102 1,021,120 ----------------- ----------------- ----------------- Total benefits and expenses 1,633,963 1,083,754 2,717,717 Income taxes 67,771 73,341 141,112 ----------------- ----------------- ----------------- Net income before special charges 126,561 147,085 273,646 Special charges (net of tax) 80,900 80,900 ----------------- ----------------- ----------------- Net income $ 45,661 $ 147,085 $ 192,746 ================= ================= ================= Assets: Employee Financial Benefits Services Total ----------------- ----------------- ----------------- Investment assets $ 1,080,974 $ 13,159,007 $ 14,239,981 Other assets 792,383 1,201,373 1,993,756 Separate account assets 12,584,661 12,584,661 ----------------- ----------------- ----------------- Total assets $ 1,873,357 $ 26,945,041 $ 28,818,398 ================= ================= ================= Year ended December 31, 2000 Operations: Employee Financial Benefits Services Total ----------------- ----------------- ----------------- Revenue: Premium income $ 1,142,319 $ 190,247 $ 1,332,566 Fee income 648,329 223,298 871,627 Net investment income 70,932 854,101 925,033 Realized investment gains (losses) (2,998) 31,281 28,283 ----------------- ----------------- ----------------- Total revenue 1,858,582 1,298,927 3,157,509 Benefits and Expenses: Benefits 914,730 831,142 1,745,872 Operating expenses 780,281 238,222 1,018,503 ----------------- ----------------- ----------------- Total benefits and expenses 1,695,011 1,069,364 2,764,375 ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- Net operating income before income taxes 163,571 229,563 393,134 Income taxes 57,078 76,962 134,040 ----------------- ----------------- ----------------- Net income $ 106,493 $ 152,601 $ 259,094 ================= ================= ================= The following table, which summarizes premium and fee income by segment, represents supplemental information. 2002 2001 2000 ----------------- ---------------- ---------------- Premium Income: Employee Benefits Group Life & Health $ 960,191 $ 1,033,886 $ 1,142,319 ----------------- ---------------- ---------------- Total Employee Benefits 960,191 1,033,886 1,142,319 ----------------- ---------------- ---------------- ----------------- ---------------- ---------------- Financial Services Savings 1,382 8,429 7,253 Individual Insurance 158,423 161,227 182,957 401(K) 99 97 37 ---------------- ---------------- ----------------- Total Financial Services 159,904 169,753 190,247 ----------------- ---------------- ---------------- Total premium income $ 1,120,095 $ 1,203,639 $ 1,332,566 ================= ================ ================ Fee Income: Employee Benefits Group Life & Health (uninsured plans) $ 660,423 $ 713,297 $ 648,329 ----------------- ---------------- ---------------- Total Employee Benefits 660,423 713,297 648,329 ----------------- ---------------- ---------------- ----------------- ---------------- ---------------- Financial Services Savings 117,952 119,793 111,201 Individual Insurance 18,152 17,888 8,117 401(k) 87,035 96,277 103,980 ----------------- ---------------- ---------------- ----------------- ---------------- ---------------- Total Financial Services 223,139 233,958 223,298 ----------------- ---------------- ---------------- Total fee income $ 883,562 $ 947,255 $ 871,627 ================= ================ ================
16. OBLIGATIONS RELATING TO DEBT AND LEASES: The Company enters into operating leases primarily for office space. As of December 31, 2002, minimum annual rental commitments on operating leases having initial or remaining non-cancellable lease terms in excess of one year during the years 2003 through 2007 were $26,323.4, $23,525.5, $22,069.9, $20,584.4 and $15,443.2, respectively, with $33,105.2 in minimum commitments thereafter. 2003 2004 2005 2006 2007 Thereafter ---------- ----------- ---------- ---------- ----------- ------------- Related party notes $ $ $ $ 25,000.0 $ $ 175,000.0 Operating leases 26,323.4 23,525.5 22,069.9 20,584.4 15,443.2 33,105.2 ---------- ----------- ---------- ---------- ----------- ------------- Total contractual obligations $ 26,323.4 $ 23,525.5 $ 22,069.9 $ 45,584.4 $ 15,443.2 $ 208,105.2 ========== =========== ========== ========== =========== =============
17. COMMITMENTS AND CONTINGENCIES The Company is involved in various legal proceedings, which arise in the ordinary course of its business. In the opinion of management, after consultation with counsel, the resolution of these proceedings should not have a material adverse effect on its financial position or results of operations. PART C: OTHER INFORMATION Item 27. Exhibits (a) Board of Directors Resolution. Resolution authorizing establishment of Registrant is incorporated by reference to Registrant's Registration Statement on Form S-6 filed on January 22, 1999, File No. 33-70963. (b) Custodian Agreements. None. (c) Underwriting Contracts. Copy of underwriting contract between Great-West Life & Annuity Insurance Company ("Great-West") and BenefitsCorp Equities, Inc. filed herewith. (d) Policies. Copy of Policy, including riders and endorsements, filed herewith. (e) Applications. Copy of application filed herewith. (f) Depositor's Certificate of Incorporation and By-Laws. Copy of Articles of Incorporation and Bylaws of Great-West are incorporated by reference to Pre-Effective Amendment No. 2 to the registration statement filed by Variable Annuity-1 Series Account on Form N-4 on October 29, 1996, (File No. 333-01153). (g) Reinsurance Contracts. Copy of contract reinsuring Registrant filed herewith. (h) Participation Agreements. Copies of fund participation agreements filed herewith. (h)(1) Fund Participation Agreement among Great-West, American Century Investment Management, Inc., and Fund Distributors, dated September 14, 1999, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(2) Fund Participation Agreement between Great-West and Dreyfus Life & Annuity Index Fund, Inc., dated December 31, 1998, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(3) Amendment to Fund Participation Agreement between Great-West and Dreyfus Life & Annuity Index Fund, Inc., dated March 15, 19999, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(4) Fund Participation Agreement among Great-West, Insurance Series and Federated Securities Corporation, dated October 6, 1999, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(5) Amendment to Fund Participation Agreement among Great-West, Insurance Service and Federated Securities Corporation, dated December 31, 1999, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(6) Participation Agreement among Great-West, Variable Insurance Products Fund and Fidelity Distributors Corporation, dated February 1, 1994, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(7) First Amendment to Participation Agreement among Great-West, Variable Insurance Products Fund and Fidelity Distributors Corporation, dated November 1, 2000, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(8) Second Amendment to Participation Agreement among Great-West, Variable Insurance Products Fund and Fidelity Distributors Corporation, dated May 1, 2001, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(9) Participation Agreement among Great-West, Variable Insurance Products Fund II and Fidelity Distributors Corporation, dated February 1, 1994, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(10) First Amendment to Participation Agreement amoung Great-West, Variable Insurance Products Fund II and Fidelity Distributors Corporation, dated November 1, 2000, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(11) Participation Agreement among Great-West, INVESCO Variable Investment Funds, Inc., INVESCO Funds Group, Inc. and INVESCO Distributors, Inc., dated June 18, 1999, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(12) Fund Participation Agreement among Great-West, Janus Aspen Series and Janus Capital Corporation, dated June 1, 1998, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(13) Letter Agreement Supplement to Fund Participation Agreement among Great-West, Janus Aspen Series and Janus Capital Corporation, dated April 27, 1998, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(14) Amendment to Fund Participation Agreement among Great-West, Janus Aspen Series and Janus Capital Corporation, dated December 1, 1998, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(15) Amendment to Fund Participation Agreement among Great-West, Janus Aspen Series and Janus Capital Corporation, dated October 4, 1999, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(16) Fund Participation Agreement among Great-West, Neuberger Berman Advisers Management Trust, Advisers Managers Trust, and Neuberger Berman Management Incorporated, dated January 1, 1999, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 registration statement filed on April 23, 2002 (File No. 333-70963). (h)(17) Fund Participation Agreement among Great-West, STI Classic Variable Trust, Trusco Capital Management, Inc., and SEI Investments Distribution Company, dated June 21, 2002, is filed herewith. (i) Administrative Contracts. None. (j) Other Material Contracts. None. (k) Legal Opinion. An opinion and consent of counsel regarding the legality of the securities being registered is filed herewith. (l) Actuarial Opinion. An opinion of an actuarial officer of Great-West with respect to the illustrations is filed herewith. (m) Calculation is filed herewith. (n) Other Opinions. Independent Auditor's consent is filed herewith. (o) Omitted Financial Statements. None. (p) Initial Capital Agreements. None. (q) Redeemability Exemption. None. Item 28. Directors and Officers of the Depositor.
Positions and Offices Name Principal Business Address with Depositor - ---- -------------------------- ---------------- James Balog 2205 North Southwinds Boulevard, Apt. 307 Director Vero Beach, Florida 32963 James W. Burns, O.C. (7) Director Orest T. Dackow (3) Director Andre Desmarais (4) Director Paul Desmarais, Jr. (4) Director Robert Gratton (5) Chairman Kevin P. Kavanagh, C.M. (1) Director William Mackness 696 Whitehaven Crescent Director London, Ontario N6G 4V4 William T. McCallum (3) Director, President and Chief Exec. Officer Jerry E.A. Nickerson H.B. Nickerson & Sons Limited Director P.O. Box 130 255 Commercial Street North Sydney, Nova Scotia B2A 3M2 P. Michael Pitfield, P.C., Q.C. (4) Director Michel Plessis-Belair, F.C.A. (4) Director Brian E. Walsh QVan Capital, LLC Director 1 Dock Street, 4th Floor Stamford, Connecticut 06902 John A. Brown (3) Senior Vice-President, Financial Services S. Mark Corbett (3) Senior Vice-President, Investments John R. Gabbert (2) Senior Vice President, Employee Benefits Positions and Offices Name Principal Business Address with Depositor - ---- -------------------------- ---------------- Donna A. Goldin (2) Senior Vice-President Employee Benefits Mitchell T.G. Graye (3) Exec. Vice President, Chief Financial Officer Wayne Hoff mann (3) Senior Vice-President, Investments D. Craig Lennox (6) Senior Vice-President, General Counsel and Secretary James C. Matura (2) Senior Vice-President, Employee Benefits Charles P. Nelson (3) Senior Vice-President, Financial Services Deborah L. Origer-Bauroth (2) Senior Vice-President, Employee Benefits Marty Rosenbaum (2) Senior Vice-President, Employee Benefits Richard F. Rivers (2) Exec. Vice President, Employee Benefits Gregg E. Seller (3) Senior Vice-President, Financial Services Robert K. Shaw (3) Senior Vice-President, Financial Services Mark Stadler (2) Senior Vice President, Specialty Accounts George D. Webb (3) Senior Vice-President, Financial Services Douglas L. Wooden (3) Exec. Vice-President, Financial Services Jay W. Wright (2) Senior Vice-President, Employee Benefits (1) 100 Osborne Street North, Winnipeg, Manitoba, Canada R3C 3A5. (2) 8505 East Orchard Road, Greenwood Village, Colorado 80111. (3) 8515 East Orchard Road, Greenwood Village, Colorado 80111. (4) Power Corporation of Canada, 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3. (5) Power Financial Corporation, 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3. (6) 8525 East Orchard Road, Greenwood Village, Colorado 80111. (7) Power Corporation of Canada, 1 Lombard Place, 26th Floor, Winnipeg, Manitoba, Canada R3B 0X5
Item 29. Person Controlled by or Under Common Control with the Depositor or the Registrant. (State/Country of Organization) - Nature of Business
Power Corporation of Canada (Canada) - Holding and Management Company 100.0% - 2795957 Canada Inc. (Canada) - Holding Company 100.0% - 171263 Canada Inc. (Canada) - Holding Company 67.4% - Power Financial Corporation (Canada) - Holding Company 81.03% - Great-West Lifeco Inc. (Canada) - Holding Company 100.0% - GWL&A Financial (Canada) Inc. (Canada) - Holding Company 100.0% - GWL&A Financial (Nova Scotia) Co. (Canada) - Holding Company 100.0% - GWL&A Financial Inc. (Delaware) - Holding Company 100.0% - Great-West Life & Annuity Capital I (Delaware) - Business Trust 100.0% - Great-West Life & Annuity Insurance Company (Colorado) - Life and Health Insurance Company 100.0% - First Great-West Life & Annuity Insurance Company (New York) - Life and Health Insurance Company 100.0% - Advised Assets Group, LLC (Colorado) - Investment Adviser 100.0% - Alta Health & Life Insurance Company (Indiana) - Life and Health Insurance Company 100.0% - Alta Agency, Inc. (New York) - Insurance Agency 100.0% - BenefitsCorp, Inc. (Delaware) - Insurance Agency 100.0% - BenefitsCorp Equities, Inc. (Delaware) - Securities Broker/Dealer 100.0% - BCC Corp of Wyoming, Inc. (Wyoming) - Insurance Agency 100.0% - National Plan Coordinators of Delaware, Inc. (Delaware) - Third Party Administrator 100.0% - NPC Securities, Inc. (California) - Securities Broker/Dealer 100.0% - National Plan Coordinators of Washington, Inc. (Washington) - Third Party Administrator 100.0% - P.C. Enrollment Services & Insurance Brokerage, Inc. (Massachusetts) - Insurance Agency 100.0% - One Benefits, Inc. (Colorado) - Holding Company 100.0% - One Health Plan of Alaska, Inc. (Alaska) - Preferred Provider Organization 100.0% - One Health Plan of Arizona, Inc. (Arizona) - Health Maintenance Organization 100.0% - One of Arizona, Inc. (Arizona) - Preferred Provider Organization 100.0% - One Health Plan of California, Inc. (California) - Health Maintenance Organization 100.0% - One Health Plan of Colorado, Inc. (Colorado) - Health Maintenance Organization 100.0% - One Health Plan of Florida, Inc. (Florida) - Health Maintenance Organization 100.0% - One Health Plan of Georgia, Inc. (Georgia) - Health Maintenance Organization 100.0% - One Health Plan of Illinois, Inc. (Illinois) - Health Maintenance Organization 100.0% - One Health Plan of Indiana, Inc. (Indiana) - Health Maintenance Organization 100.0% - One Health Plan of Kansas/Missouri, Inc. (Kansas) - Health Maintenance Organization 100.0% - One Health Plan of Maine, Inc. (Maine) - Preferred Provider Organization 100.0% - One Health Plan of Massachusetts, Inc. (Massachusetts) - Health Maintenance Organization 100.0% - One Health Plan of Michigan, Inc. (Michigan) - Preferred Provider Organization 100.0% - One Health Plan of Minnesota, Inc. (Minnesota) - Preferred Provider Organization 100.0% - One Health Plan of Nevada, Inc. (Nevada) - Preferred Provider Organization 100.0% - One Health Plan of New Hampshire, Inc. (New Hampshire) - Preferred Provider Organization 100.0% - One Health Plan of New Jersey, Inc. (New Jersey) - Health Maintenance Organization 100.0% - One Health Plan of New York, Inc. (New York) - Preferred Provider Organization 100.0% - One Health Plan of North Carolina, Inc. (North Carolina) - Health Maintenance Organization 100.0% - One Health Plan of Ohio, Inc. (Ohio) - Health Maintenance Organization 100.0% - One Health Plan of Oregon, Inc. (Oregon) - Health Maintenance Organization 100.0% - One Health Plan of Pennsylvania, Inc. (Pennsylvania) - Health Maintenance Organization 100.0% - One Health Plan of South Carolina, Inc. (South Carolina) - Preferred Provider Organization 100.0% - One Health Plan of Tennessee, Inc. (Tennessee) - Health Maintenance Organization 100.0% - One Health Plan of Texas, Inc. (Texas) - Health Maintenance Organization 100.0% - One Health Plan, Inc. (Vermont) - Preferred Provider Organization 100.0% - One Health Plan of Virginia, Inc. (Virginia) - Preferred Provider Organization 100.0% - One Health Plan of Washington, Inc. (Washington) - Health Maintenance Organization 100.0% - One Health Plan of Wisconsin, Inc. (Wisconsin) - Preferred Provider Organization 100.0% - One Health Plan of Wyoming, Inc. (Wyoming) - Preferred Provider Organization 100.0% - One Orchard Equities, Inc. (Colorado) - Securities Broker/Dealer 100.0% - Financial Administrative Services Corporation (Colorado) - Third Party Administrator 100.0% - GWL Properties, Inc. (Colorado) - Real Property Corporation 50.0% - Westkin Properties Ltd. (California) - Real Property Corporation 100.0% - Great-West Benefit Services, Inc. (Delaware) - Leasing Company 92.1% - Maxim Series Fund, Inc. (Maryland) - Investment Company 100.0% - GW Capital Management, LLC (Colorado) - Investment Adviser 100.0% - Orchard Capital Management, LLC (Colorado) - Investment Adviser 100.0% - Greenwood Investments, LLC (Colorado) - Securities Broker/Dealer 86.8% - Orchard Series Fund (Delaware) - Investment Company 100.0% - Orchard Trust Company (Colorado) - Trust Company
Item 30. Indemnification. Provisions exist under the Colorado General Corporation Code and the Bylaws of Great-West whereby Great-West may indemnify a director, officer, or controlling person of Great-West against liabilities arising under the Securities Act of 1933. The following excerpts contain the substance of these provisions: Colorado Business Corporation Act Article 109 - INDEMNIFICATION Section 7-109-101. Definitions. As used in this Article: (1) "Corporation" includes any domestic or foreign entity that is a predecessor of the corporation by reason of a merger, consolidation, or other transaction in which the predecessor's existence ceased upon consummation of the transaction. (2) "Director" means an individual who is or was a director of a corporation or an individual who, while a director of a corporation, is or was serving at the corporation's request as a director, an officer, an agent, an associate, an employee, a fiduciary, a manager, a member, a partner, a promoter, or a trustee of or to hold a similar position with, another domestic or foreign corporation or other person or employee benefit plan. A director is considered to be serving an employee benefit plan at the corporation's request if the director's duties to the corporation also impose duties on, or otherwise involve services by, the director to the plan or to participants in or beneficiaries of the plan. "Director" includes, unless the context requires otherwise, the estate or personal representative of a director. (3) "Expenses" includes counsel fees. (4) "Liability" means the obligation incurred with respect to a proceeding to pay a judgment, settlement, penalty, fine, including an excise tax assessed with respect to an employee benefit plan, or reasonable expenses. (5) "Official capacity" means, when used with respect to a director, the office of director in the corporation and, when used with respect to a person other than a director as contemplated in Section 7-109-107, the office in a corporation held by the officer or the employment, fiduciary, or agency relationship undertaken by the employee, fiduciary, or agent on behalf of the corporation. "Official capacity" does not include service for any other domestic or foreign corporation or other person or employee benefit plan. (6) "Party" includes a person who was, is, or is threatened to be made a named defendant or respondent in a proceeding. (7) "Proceeding" means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal. Section 7-109-102. Authority to indemnify directors. (1) Except as provided in subsection (4) of this section, a corporation may indemnify a person made a party to the proceeding because the person is or was a director against liability incurred in the proceeding if: (a) The person conducted himself or herself in good faith; and (b) The person reasonably believed: (I) In the case of conduct in an official capacity with the corporation, that his or her conduct was in the corporation's best interests; and (II) In all other cases, that his or her conduct was at least not opposed to the corporation's best interests; and (c) In the case of any criminal proceeding, the person had no reasonable cause to believe his or her conduct was unlawful. (2) A director's conduct with respect to an employee benefit plan for a purpose the director reasonably believed to be in the interests of the participants in or beneficiaries of the plan is conduct that satisfies the requirements of subparagraph (II) of paragraph (b) of subsection (1) of this section. A director's conduct with respect to an employee benefit plan for a purpose that the director did not reasonably believe to be in the interests of the participants in or beneficiaries of the plan shall be deemed not to satisfy the requirements of subparagraph (a) of subsection (1) of this section. (3) The termination of any proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, is not, of itself, determinative that the director did not meet the standard of conduct described in this section. (4) A corporation may not indemnify a director under this section: (a) In connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or (b) In connection with any proceeding charging that the director derived an improper personal benefit, whether or not involving action in an official capacity, in which proceeding the director was adjudged liable on the basis that he or she derived an improper personal benefit. (5) Indemnification permitted under this section in connection with a proceeding by or in the right of a corporation is limited to reasonable expenses incurred in connection with the proceeding. Section 7-109-103. Mandatory Indemnification of Directors. Unless limited by the articles of incorporation, a corporation shall indemnify a person who was wholly successful, on the merits or otherwise, in defense of any proceeding to which the person was a party because the person is or was a director, against reasonable expenses incurred by him or her in connection with the proceeding. Section 7-109-104. Advance of Expenses to Directors. (1) A corporation may pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of the final disposition of the proceeding if: (a) The director furnishes the corporation a written affirmation of the director's good-faith belief that he or she has met the standard of conduct described in Section 7-109-102; (b) The director furnishes the corporation a written undertaking, executed personally or on the director's behalf, to repay the advance if it is ultimately determined that he or she did not meet such standard of conduct; and (c) A determination is made that the facts then know to those making the determination would not preclude indemnification under this article. (2) The undertaking required by paragraph (b) of subsection (1) of this section shall be an unlimited general obligation of the director, but need not be secured and may be accepted without reference to financial ability to make repayment. (3) Determinations and authorizations of payments under this section shall be made in the manner specified in Section 7-109-106. Section 7-109-105. Court-Ordered Indemnification of Directors. (1) Unless otherwise provided in the articles of incorporation, a director who is or was a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court, after giving any notice the court considers necessary, may order indemnification in the following manner: (a) If it determines the director is entitled to mandatory indemnification under section 7-109-103, the court shall order indemnification, in which case the court shall also order the corporation to pay the director's reasonable expenses incurred to obtain court-ordered indemnification. (b) If it determines that the director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director met the standard of conduct set forth in section 7-109-102 (1) or was adjudged liable in the circumstances described in Section 7-109-102 (4), the court may order such indemnification as the court deems proper; except that the indemnification with respect to any proceeding in which liability shall have been adjudged in the circumstances described Section 7-109-102 (4) is limited to reasonable expenses incurred in connection with the proceeding and reasonable expenses incurred to obtain court-ordered indemnification. Section 7-109-106. Determination and Authorization of Indemnification of Directors. (1) A corporation may not indemnify a director under Section 7-109-102 unless authorized in the specific case after a determination has been made that indemnification of the director is permissible in the circumstances because he has met the standard of conduct set forth in Section 7-109-102. A corporation shall not advance expenses to a director under Section 7-109-104 unless authorized in the specific case after the written affirmation and undertaking required by Section 7-109-104(1)(a) and (1)(b) are received and the determination required by Section 7-109-104(1)(c) has been made. (2) The determinations required by subsection (1) of this section shall be made: (a) By the board of directors by a majority vote of those present at a meeting at which a quorum is present, and only those directors not parties to the proceeding shall be counted in satisfying the quorum. (b) If a quorum cannot be obtained, by a majority vote of a committee of the board of directors designated by the board of directors, which committee shall consist of two or more directors not parties to the proceeding; except that directors who are parties to the proceeding may participate in the designation of directors for the committee. (3) If a quorum cannot be obtained as contemplated in paragraph (a) of subsection (2) of this section, and the committee cannot be established under paragraph (b) of subsection (2) of this section, or even if a quorum is obtained or a committee designated, if a majority of the directors constituting such quorum or such committee so directs, the determination required to be made by subsection (1) of this section shall be made: (a) By independent legal counsel selected by a vote of the board of directors or the committee in the manner specified in paragraph (a) or (b) of subsection (2) of this section or, if a quorum of the full board cannot be obtained and a committee cannot be established, by independent legal counsel selected by a majority vote of the full board of directors; or (b) By the shareholders. (4) Authorization of indemnification and advance of expenses shall be made in the same manner as the determination that indemnification or advance of expenses is permissible; except that, if the determination that indemnification or advance of expenses is permissible is made by independent legal counsel, authorization of indemnification and advance of expenses shall be made by the body that selected such counsel. Section 7-109-107. Indemnification of Officers, Employees, Fiduciaries, and Agents. (1) Unless otherwise provided in the articles of incorporation: (a) An officer is entitled to mandatory indemnification under section 7-109-103, and is entitled to apply for court-ordered indemnification under section 7-109-105, in each case to the same extent as a director; (b) A corporation may indemnify and advance expenses to an officer, employee, fiduciary, or agent of the corporation to the same extent as a director; and (c) A corporation may indemnify and advance expenses to an officer, employee, fiduciary, or agent who is not a director to a greater extent, if not inconsistent with public policy, and if provided for by its bylaws, general or specific action of its board of directors or shareholders, or contract. Section 7-109-108. Insurance. A corporation may purchase and maintain insurance on behalf of a person who is or was a director, officer, employee, fiduciary, or agent of the corporation and who, while a director, officer, employee, fiduciary, or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, fiduciary, or agent of any other domestic or foreign corporation or other person or of an employee benefit plan against any liability asserted against or incurred by the person in that capacity or arising out of his or her status as a director, officer, employee, fiduciary, or agent whether or not the corporation would have the power to indemnify the person against such liability under the Section 7-109-102, 7-109-103 or 7-109-107. Any such insurance may be procured from any insurance company designated by the board of directors, whether such insurance company is formed under the laws of this state or any other jurisdiction of the United States or elsewhere, including any insurance company in which the corporation has an equity or any other interest through stock ownership or otherwise. Section 7-109-109. Limitation of Indemnification of Directors. (1) A provision concerning a corporation's indemnification of, or advance of expenses to, directors that is contained in its articles of incorporation or bylaws, in a resolution of its shareholders or board of directors, or in a contract, except for an insurance policy or otherwise, is valid only to the extent the provision is not inconsistent with Sections 7-109-101 to 7-109-108. If the articles of incorporation limit indemnification or advance of expenses, indemnification or advance of expenses are valid only to the extent not inconsistent with the articles of incorporation. (2) Sections 7-109-101 to 7-109-108 do not limit a corporation's power to pay or reimburse expenses incurred by a director in connection with an appearance as a witness in a proceeding at a time when he or she has not been made a named defendant or respondent in the proceeding. Section 7-109-110. Notice to Shareholders of Indemnification of Director. If a corporation indemnifies or advances expenses to a director under this article in connection with a proceeding by or in the right of the corporation, the corporation shall give written notice of the indemnification or advance to the shareholders with or before the notice of the next shareholders' meeting. If the next shareholder action is taken without a meeting at the instigation of the board of directors, such notice shall be given to the shareholders at or before the time the first shareholder signs a writing consenting to such action. Bylaws of Great-West Article II, Section 11. Indemnification of Directors. ---------------------------- The Company may, by resolution of the Board of Directors, indemnify and save harmless out of the funds of the Company to the extent permitted by applicable law, any director, officer, or employee of the Company or any member or officer of any committee, and his heirs, executors and administrators, from and against all claims, liabilities, costs, charges and expenses whatsoever that any such director, officer, employee or any such member or officer sustains or incurs in or about any action, suit, or proceeding that is brought, commenced, or prosecuted against him for or in respect of any act, deed, matter or thing whatsoever made, done, or permitted by him in or about the execution of his duties of his office or employment with the Company, in or about the execution of his duties as a director or officer of another company which he so serves at the request and on behalf of the Company, or in or about the execution of his duties as a member or officer of any such Committee, and all other claims, liabilities, costs, charges and expenses that he sustains or incurs, in or about or in relation to any such duties or the affairs of the Company, the affairs of such Committee, except such claims, liabilities, costs, charges or expenses as are occasioned by his own willful neglect or default. The Company may, by resolution of the Board of Directors, indemnify and save harmless out of the funds of the Company to the extent permitted by applicable law, any director, officer, or employee of any subsidiary corporation of the Company on the same basis, and within the same constraints as, described in the preceding sentence. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 31. Principal Underwriter. (a) BenefitsCorp Equities, Inc. ("BCE") currently distributes securities of FutureFunds Series Account, Maxim Series Account and Pinnacle Series Account in addition to those of the Registrant. (b) Directors and Officers of BCE
Position and Offices Name Principal Business Address with Underwriter - ---- -------------------------- -------------------- C.P. Nelson (1) Chairman and President R.K. Shaw (1) Director G.R. McDonald (1) Director G.E. Seller 18101 Von Karman Ave. Director and Senior Vice Suite 1460 President Irvine, CA 92715 J.R. Cavalier (1) Vice President T.M. Connolly 300 Broadacres Drive Vice President Bloomfield, NJ 07003 W.S. Harmon (1) Vice President K.A. Morris 500 North Central, Suite 220 Vice President Glendale, CA 91203 M.P. Sole One North LaSalle, Suite 3200 Vice President Chicago, IL 60602 G.R. Derback (1) Treasurer B.A. Byrne 8525 E. Orchard Road Secretary Greenwood Village, CO 80111 T.L. Buckley (1) Compliance Officer - ------------
(1) 8515 E. Orchard Road, Greenwood Village, Colorado 80111 (c) Commissions and other compensation received from the Registrant by Principal Underwriter during Registrant's last fiscal year:
Net Name of Underwriting Compensation Principal Discounts and on Brokerage Underwriter Commissions Redemption Commissions Compensation BCE -0- -0- -0- -0-
Item 32. Location of Accounts and Records. All accounts, books, or other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder are maintained by the Registrant through Great-West, 8515 East Orchard Road, Greenwood Village, Colorado 80111. Item 33. Management Services. None. Item 34. Fee Representation. Great-West represents that the fees and charges deducted under the Policy, in the aggregate, are reasonable in relation to the services rendered, the expenses to be incurred and the risks assumed by Great-West. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets the requirements for effectiveness of this Registration Statement under Rule 485(b) under the Securities Act of 1933 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Greenwood Village, State of Colorado, on the day of April 29, 2003. COLI VUL-2 SERIES ACCOUNT (Registrant) BY: /s/ W.T. McCallum W.T. McCallum President and Chief Executive Officer BY: GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY (Depositor) BY: /s/ W.T. McCallum W.T. McCallum President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated: /s/ R. Gratton R. Gratton* Chairman of the Board April 29, 2003 /s/ W.T. McCallum W.T. McCallum President, Chief Executive April 29, 2003 Officer and Director /s/ M.T.G. Graye M.T.G. Graye Chief Financial Officer April 29, 2003 /s/ J. Balog J. Balog* Director April 29, 2003 /s/ J.W. Burns J.W. Burns* Director April 29, 2003 /s/ O.T. Dackow O.T. Dackow* Director April 29, 2003 /s/ A. Desmarais A. Desmarais* Director April 29, 2003 /s/ P. Desmarais P. Desmarais, Jr.* Director April 29, 2003 /s/ K.P. Kavanagh K.P. Kavanagh* Director April 29, 2003 /s/ W. Mackness W. Mackness* Director April 29, 2003 /s/ J.E.A. Nickerson J.E.A. Nickerson* Director April 29, 2003 /s/ P.M. Pitfield P.M. Pitfield* Director April 29, 2003 /s/ M. Plessis-Belair M. Plessis-Belair* Director April 29, 2003 /s/ B.E. Walsh B.E. Walsh* Director April 29, 2003 *By: /s/ D.C. Lennox D.C. Lennox, Attorney-in-Fact pursuant to Powers of Attorney filed under Registrant's Pre-Effective Amendment No. 1 to Form S-6, filed with the Securities and Exchange Commission on June 23, 1999. EX-23 4 consentdandt.txt COLI VUL 2 485(B) INDEPENDENT AUDITOR'S CONSENT Exhibit 27(n) INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-Effective Amendment No. 9 to Registration Statement No. 333-70963 of COLI VUL-2 Series Account of Great-West Life & Annuity Insurance Company on Form N-6 of our report dated February 19, 2003 on the financial statements of COLI VUL-2 Series Account and our report dated January 27, 2003 on the consolidated financial statements of Great-West Life & Annuity Insurance Company and to the reference to us under the heading "Services" in the Statement of Additional Information, which is part of such Registration Statement. /s/ Deloitte & Touche, LLP Deloitte & Touche, LLP Denver, Colorado April 24, 2003 EX-23 5 exhibit23consent.txt COLI VUL 2 CONSENT FOR 485(B) Exhibit 27(l) April 22, 2002 Great-West Life & Annuity Insurance Company 8515 East Orchard Road Greenwood Village, Colorado 80111 Re: COLI VUL-2 Series Account of Great-West Life & Annuity Insurance Company Post-Effective Amendment No. 8 to the Registration Statement on Form N-6 File No. 333-70963 Ladies and Gentlemen: This opinion is furnished in connection with the filing of Post-Effective Amendment No. 8 to the Registration Statement on Form N-6 (file No. 333-70963) (the "Registration Statement") which covers premiums expected to be received under flexible premium variable universal life insurance policies (the "Policies") to be offered by Great-West Life & Annuity Insurance Company (the "Company"). The prospectus included in the Registration Statement describes the Policy, which will be offered by the Company in each State where it has been approved by appropriate State insurance authorities. I am familiar with the Policy form and the Registration Statement and Exhibits thereto. In my capacity as Vice President of the Company, I have provided actuarial advice concerning: The preparation of the Registration Statement to be filed by the Company and its COLI VUL-2 Series Account with the Securities and Exchange Commission under the Securities Act of 1933 with respect to the Policies: and The preparation of the Policy forms for the Policy described in the Registration Statement. It is my professional opinion that: 1. The hypothetical illustrations of death benefits, account value, cash surrender value and total premiums paid plus interest at 5 percent shown in the prospectus, based on the assumptions stated in the illustration are consistent with the provisions of the Policy. The rate structure of the Policy has not been designed so as to make the relationship between premium and benefits, as shown in the illustrations included, appear to be correspondingly more favorable to prospective buyers than other illustrations which could have been provided at other combinations of ages, sex of the insured, death benefit option and amount, definition of life insurance test, premium class, and premium amounts. Insured of other premium classes may have higher costs of insurance charges. 2. All other numerical examples shown in the prospectus are consistent with the Policy and our practices, and have not been designed to appear more favorable to prospective buyers than other examples which could have been provided. I hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and the use of my name under the heading "Experts" in the prospectus. Sincerely, /s/ Ron Laeyendecker Ron Laeyendecker, F.S.A., M.A.A.A. Vice President Life Insurance Markets EX-23 6 legalconsent.txt COLI VUL 2 LEGAL CONSENT Exhibit #27(k) Jorden Burt LLP 1025 Thomas Jefferson Street, N.W. Brickell Avenue, Suite 500 Suite 400 East Miami, Florida 33131-2803 Washington, D.C. 20007-5208 (305) 371-2600 (202) 965-8100 Telecopier: (305) 372-9928 Telecopier: (202) 965-8104 175 Powder Forest Drive Suite 201 Simsbury, CT 06089-9668 (860) 392-5000 Telecopier: (860) 392-5058 HTTP://www.jordenusa.com April 29, 2003 Great-West Life & Annuity Insurance Company 8515 East Orchard Road Greenwood Village, Colorado 80111 Re: COLI VUL-2 Series Account Post-Effective Amendment No. 9 to Registration Statement on Form N-6 File Nos. 333-70963 and 811-09201 Ladies and Gentlemen: We have acted as counsel to Great-West Life & Annuity Insurance Company, a Colorado corporation, regarding the federal securities laws applicable to the issuance and sale of the policies described in the above-referenced registration statement. We hereby consent to the reference to our name under the caption "Legal Matters" in the prospectus filed as part of the above-referenced registration statement. In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. Very truly yours, /s/Jorden Burt LLP Jorden Burt LLP EX-10 7 stifpa.txt COLI VUL 2 485(B) AGREEMENT EXHIBIT Exhibit 27(h)(17) FUND PARTICIPATION AGREEMENT Among GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STI CLASSIC VARIABLE TRUST, TRUSCO CAPITAL MANAGEMENT, INC., and SEI INVESTMENTS DISTRIBUTION CO. THIS AGREEMENT, made and entered into as of this 21st day of June, 2002 by and among GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY (hereinafter "GWL&A"), a Colorado life insurance company, on its own behalf and on behalf of its Separate Account COLI VUL 2 Series Account (the "Account"); STI CLASSIC VARIABLE TRUST, a business trust organized under the laws of Massachusetts (hereinafter the "Fund"); TRUSCO CAPITAL MANAGEMENT, INC. (hereinafter the "Adviser"), a corporation organized under the laws of Georgia; and SEI INVESTMENTS DISTRIBUTION CO., a corporation organized under the laws of Pennsylvania (hereinafter the "Distributor"). WHEREAS, the Fund engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance policies and/or variable annuity contracts (collectively, the "Variable Insurance Products") to be offered by insurance companies, including GWL&A, which have entered into participation agreements with the Fund (hereinafter "Participating Insurance Companies"); and WHEREAS, the beneficial interest in the Fund is divided into several series of shares, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities and other assets; and WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission (hereinafter the "SEC"), dated April 30, 1998 (File No. 812-108441), granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity and variable life insurance separate accounts of life insurance companies that may or may not be affiliated with one another and qualified pension and retirement plans ("Qualified Plans") (hereinafter the "Mixed and Shared Funding Exemptive Order"); and WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and shares of the Portfolio(s) are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and WHEREAS, the Adviser is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and any applicable state securities laws; and WHEREAS, the Distributor is duly registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, (the "1934 Act") and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, GWL&A has registered certain variable life contracts supported wholly or partially by the Account (the "Contracts") to be made available to owners thereof, including any participants or employees of such owners as applicable ("Contract Owners"); and WHEREAS, the Account is a duly organized, validly existing segregated asset account, established by resolution of the Board of Directors of GWL&A, under the insurance laws of the State of Colorado, to set aside and invest assets attributable to the Contracts; and WHEREAS, GWL&A has registered the Account as a unit investment trust under the 1940 Act and has registered the securities deemed to be issued by the Account under the 1933 Act; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, GWL&A intends to purchase shares in the Portfolio(s) listed in Schedule A attached hereto and incorporated herein by reference, as such Schedule may be amended from time to time by mutual written agreement (the "Designated Portfolio(s)"), on behalf of the Account to fund the Contracts, and the Fund is authorized to sell such shares to unit investment trusts such as the Account at net asset value; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Account also intends to purchase shares in other open-end investment companies or series thereof not affiliated with the Fund (the "Unaffiliated Funds") on behalf of the Account to fund the Contracts; and WHEREAS, GWL&A intends to utilize its NSCC member broker/dealer affiliate, BenefitsCorp Equities, Inc. ("BCE") to transmit instructions for the purchase, redemption and transfer of Fund shares on behalf of the Account, and BCE, alone, or with the assistance of a recordkeeping affiliate, to perform certain recordkeeping functions associated with the transfer of Fund shares into and out of the Account in order to recognize certain organizational economies; and NOW, THEREFORE, in consideration of their mutual promises, GWL&A, the Fund, the Distributor and the Adviser agree as follows: ARTICLE I. Sale of Fund Shares ------------------- 1.1 The Fund agrees that shares of the Fund will be sold only to Participating Insurance Companies and their separate accounts and to certain Qualified Plans. No shares of any Designated Portfolio will be sold to the general public. The Fund will not sell shares of the Designated Portfolio(s) to any other Participating Insurance Company separate account unless an agreement containing provisions substantially similar to Sections 2.4, 2.10, 3.5, 3.6, 5.1, and Article VII of this Agreement is in effect to govern such sales. 1.2. All purchases, redemptions and exchanges of Designated Portfolio shares by GWL&A on behalf of the Account, in addition to the pricing and correction thereof, of Designated Portfolio shares, shall be governed by and subject to the terms of the then effective Trading and NSCC Networking Agreement, entered into by and between Distributor and BenefitsCorp Equities, Inc. 1.3. Notwithstanding Section 1.2 hereof, if an adjustment is necessary to correct an error which has caused Contract Owners to receive less than the amount to which they are entitled, the number of shares of the applicable sub-account of such Contract Owners will be adjusted and the amount of any underpayments shall be credited by the Adviser to GWL&A for crediting of such amounts to the applicable Contract Owners accounts. Upon notification by the Adviser of any overpayment due to an error, GWL&A shall promptly remit to Adviser any overpayment that has not been paid to Contract Owners; however, Adviser acknowledges that GWL&A does not intend to seek additional payments from any Contract Owner who, because of a pricing error, may have underpaid for units of interest credited to his/her account. In no event shall GWL&A be liable to Contract Owners for any such adjustments or underpayment amounts. 1.4 The Adviser shall promptly reimburse GWL&A for any and all costs or expenses which GWL&A incurs that are associated with any failure of the Fund to settle trades by the time specified on the Business Day following the Trade Date, as specified and defined in the Trading and NSCC Networking Agreement. ARTICLE II. Representations and Warranties 2.1. GWL&A represents and warrants that the Contracts and the securities deemed to be issued by the Account under the Contracts are or will be registered under the 1933 Act; that the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. GWL&A further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established the Account prior to any issuance or sale of units thereof as a segregated asset account under Colorado insurance law and has registered the Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts and that it will maintain such registration for so long as any Contracts are outstanding as required by applicable law. 2.2. The Fund represents and warrants that Designated Portfolio(s) shares sold pursuant to this Agreement shall be registered under the 1933 Act, duly authorized for issuance and sold in compliance with all applicable federal securities laws including without limitation the 1933 Act, the 1934 Act, and the 1940 Act and that the Fund is and shall remain registered under the 1940 Act. The Fund shall amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. 2.3. The Fund reserves the right to adopt a plan pursuant to Rule 12b-1 under the 1940 Act and to impose an asset-based or other charge to finance distribution expenses as permitted by applicable law and regulation. In any event, the Fund and Adviser agree to comply with applicable provisions and SEC staff interpretations of the 1940 Act to assure that the investment advisory or management fees paid to the Adviser by the Fund are in accordance with the requirements of the 1940 Act. To the extent that the Fund decides to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have its Board, a majority of whom are not interested persons of the Fund, formulate and approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses. 2.4. The Fund represents and warrants that it will make all commercially reasonable efforts to ensure that the investment policies, fees and expenses of the Designated Portfolio(s) are and shall at all times remain in compliance with all applicable laws to the extent required to perform this Agreement. The Fund further represents and warrants that it will make every effort to ensure that Designated Portfolio(s) shares will be sold in compliance with applicable state securities and insurance laws. The Fund shall register and qualify the shares for sale in accordance with the laws of the various states if and to the extent required by applicable law. GWL&A and the Fund will endeavor to mutually cooperate with respect to the implementation of any modifications necessitated by any change in state insurance laws, regulations or interpretations of the foregoing that affect the Designated Portfolio(s) (a "Law Change"), and to keep each other informed of any Law Change that becomes known to either party. In the event of a Law Change, the Fund agrees that, except in those circumstances where the Fund has advised GWL&A that its Board of Directors has determined that implementation of a particular Law Change is not in the best interest of all of the Fund's shareholders, and provides GWL&A with an explanation regarding such determination, any action required by a Law Change will be taken. 2.5. The Fund represents and warrants that it is lawfully organized and validly existing under the laws of the State of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 2.6. The Adviser represents and warrants that it is and shall remain duly registered under all applicable federal and state securities laws and that it shall perform its obligations for the Fund in compliance in all material respects with the laws of the State of Georgia and any applicable state and federal securities laws. 2.7. The Distributor represents and warrants that it is and shall remain duly registered under all applicable federal and state securities laws and that it shall perform its obligations for the Fund in compliance in all material respects with the any applicable state and federal securities laws. 2.8. The Fund and the Adviser represent and warrant that all of their respective officers, employees, investment advisers, and other individuals or entities dealing with the money and/or securities of the Fund are, and shall continue to be at all times, covered by one or more blanket fidelity bonds or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage required by Rule 17g-1 under the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bonds shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.9. The Fund will provide GWL&A with as much advance notice as is reasonably practicable of any material change affecting the Designated Portfolio(s) (including, but not limited to, any material change in the registration statement or prospectus affecting the Designated Portfolio(s)) and any proxy solicitation affecting the Designated Portfolio(s) and consult with GWL&A in order to implement any such change in an orderly manner, recognizing the expenses of changes and attempting to minimize such expenses by implementing them in conjunction with regular annual updates of the prospectus for the Contracts. The Fund agrees to share equitably in expenses incurred by GWL&A as a result of actions taken by the Fund, consistent with the allocation of expenses contained in Schedule C attached hereto and incorporated herein by reference. 2.10. GWL&A represents and warrants, for purposes other than diversification under Section 817 of the Internal Revenue Code of 1986 as amended ("the Code"), that the Contracts are currently and at the time of issuance will be treated as life insurance contracts under applicable provisions of the Code, and that it will make every effort to maintain such treatment and that it will notify the Fund, the Distributor and the Adviser immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. In addition, GWL&A represents and warrants that the Account is a "segregated asset account" and that interests in the Account are offered exclusively through the purchase of or transfer into a "variable contract" within the meaning of such terms under Section 817 of the Code and the regulations thereunder. GWL&A will use every effort to continue to meet such definitional requirements, and it will notify the Fund, the Distributor and the Adviser immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. GWL&A represents and warrants that it will not purchase Fund shares with assets derived from tax-qualified retirement plans except, indirectly, through Contracts purchased in connection with such plans. ARTICLE III. Prospectuses and Proxy Statements; Voting ----------------------------------------- 3.1. At least annually, the Adviser or Distributor shall provide GWL&A with as many copies of the Fund's current prospectus for the Designated Portfolio(s) as GWL&A may reasonably request for marketing purposes (including distribution to Contract Owners with respect to new sales of a Contract), with expenses to be borne in accordance with Schedule C hereof. If requested by GWL&A in lieu thereof, the Advisor, Distributor or Fund shall provide such documentation (including a camera-ready copy of each Designated Portfolio's current prospectus as set in type, a computer diskette containing such information in the form sent to financial printer, or an electronic copy of the documents in a format suitable for posting on an Internet website, all as GWL&A may reasonably request) and other assistance as is reasonably necessary in order for GWL&A once each year (or more frequently if the prospectuses for the Designated Portfolio(s) are amended) to have the prospectus for the Contracts and the Fund's prospectus for the Designated Portfolio(s) printed together in one document. The Fund and Adviser agree that the prospectus (and semi-annual and annual reports) for the Designated Portfolio(s) will describe only the Designated Portfolio(s) and will not name or describe any other portfolios or series that may be in the Fund unless required by law. 3.2. If applicable state or federal laws or regulations require that the Statement of Additional Information ("SAI") for the Fund be distributed to all Contract Owners, then the Fund, Distributor and/or the Adviser shall provide GWL&A with copies of the Fund's SAI or documentation thereof for the Designated Portfolio(s) in such quantities, with expenses to be borne in accordance with Schedule C hereof, as GWL&A may reasonably require to permit timely distribution thereof to Contract Owners. The Adviser, Distributor and/or the Fund shall also provide SAIs to any Contract Owner or prospective owner who requests such SAI from the Fund (although it is anticipated that such requests will be made to GWL&A). 3.3. The Fund, Distributor and/or Adviser shall provide GWL&A with copies of the Fund's proxy material, reports to stockholders and other communications to stockholders for the Designated Portfolio(s) in such quantity, with expenses to be borne in accordance with Schedule C hereof, as GWL&A may reasonably require to permit timely distribution thereof to Contract Owners as required by applicable law. 3.4. It is understood and agreed that, except with respect to information regarding GWL&A provided in writing by that party, GWL&A is not responsible for the content of the prospectus or SAI for the Designated Portfolio(s). It is also understood and agreed that, except with respect to information regarding the Fund, the Distributor, the Adviser or the Designated Portfolio(s) provided in writing by the Fund, the Distributor or the Adviser, neither the Fund, the Distributor nor Adviser are responsible for the content of the prospectus or SAI for the Contracts. 3.5. If and to the extent required by law GWL&A shall: (i) solicit voting instructions from Contract Owners; (ii) vote the Designated Portfolio(s) shares held in the Account in accordance with instructions received from Contract Owners: and (iii) vote Designated Portfolio shares held in the Account for which no instructions have been received in the same proportion as Designated Portfolio(s) shares for which instructions have been received from Contract Owners, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners. GWL&A reserves the right to vote Fund shares held in its general account and any segregated asset account in its own right, to the extent permitted by law. 3.6. GWL&A shall be responsible for assuring that each of its separate accounts holding shares of a Designated Portfolio calculates voting privileges as directed by the Fund and agreed to by GWL&A and the Fund. The Fund agrees to promptly notify GWL&A of any changes of interpretations or amendments of the Mixed and Shared Funding Exemptive Order. 3.7. The Fund will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the Fund will either provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or, as the Fund currently intends, comply with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors or trustees and with whatever rules the Commission may promulgate with respect thereto. ARTICLE IV. Sales Material and Information ------------------------------ 4.1. GWL&A shall furnish, or shall cause to be furnished, to the Fund or its designee, a copy of each piece of sales literature or other promotional material that GWL&A, respectively, develops or proposes to use and in which the Fund (or a Portfolio thereof), its Adviser or one of its sub-advisers or the Distributor is named in connection with the Contracts, at least ten (10) business days prior to its use. No such material shall be used if the Fund objects to such use within five (5) business days after receipt of such material. Notwithstanding the foregoing, GWL&A shall not be required to furnish to the Fund or its designee any sales literature or other promotional material which GWL&A receives from the Fund or third party vendors and which is unaltered by GWL&A. The Fund reserves the right to object to the continued use of any sales literature or other promotional materials in which the Fund (or a Designated Portfolio thereof), its Adviser, any of its sub-advisers, or the Distributor is named and no such material shall be used after the Fund so objects. 4.2. GWL&A shall not give any information or make any representations or statements on behalf of the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement, prospectus or SAI for the Fund shares, as the same may be amended or supplemented from time to time, or in sales literature or other promotional material approved by the Fund, Distributor or Adviser, except with the permission of the Fund, Distributor or Adviser. 4.3. The Fund or the Adviser shall furnish, or shall cause to be furnished, to GWL&A, a copy of each piece of sales literature or other promotional material in which GWL&A and/or its separate account(s), is named at least ten (10) business days prior to its use. No such material shall be used if GWL&A objects to such use within five (5) business days after receipt of such material. GWL&A reserves the right to object to the continued use of any sales literature or other promotional materials in which GWL&A is named and no such material shall be used after GWL&A so objects. 4.4. The Fund, the Distributor and the Adviser shall not give any information or make any representations on behalf of GWL&A or concerning GWL&A, the Account, or the Contracts other than the information or representations contained in a registration statement, prospectus or SAI for the Contracts, as the same may be amended or supplemented from time to time, or in sales literature or other promotional material approved by GWL&A or its designee, except with the permission of GWL&A. 4.5. The Fund will provide to GWL&A at least one complete copy of any registration statements, prospectuses, SAIs, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Designated Portfolio(s), contemporaneously with the filing of such document(s) with the SEC or NASD or other regulatory authorities. 4.6. GWL&A will provide to the Fund at least one complete copy of any registration statements, prospectuses, SAIs, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Contracts or the Account, contemporaneously with the filing of such document(s) with the SEC, NASD, or other regulatory authority. 4.7. For purposes of Articles IV and VIII, the phrase "sales literature and other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media; e.g., on-line networks such as the Internet or other electronic media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and shareholder reports, and proxy materials (including solicitations for voting instructions) and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.8. At the request of any party to this Agreement, each other party will make available to the other party's independent auditors and/or representative of the appropriate regulatory agencies, all records, data and access to operating procedures that may be reasonably requested in connection with compliance and regulatory requirements related to this Agreement or any party's obligations under this Agreement. ARTICLE V. Fees and Expenses ----------------- 5.1. Distributor shall not pay any fee or other compensation to GWL&A under this Agreement. The Fund and/or Adviser shall pay to GWL&A the fees set forth in Schedule D attached hereto and incorporated by reference herein. In addition, the parties will bear certain expenses in accordance with Schedule C, Articles III, V, and other provisions of this Agreement. 5.2. All expenses incident to performance by the Fund, the Distributor and the Adviser under this Agreement shall be paid by the appropriate party, as further provided in Schedule C. The Fund shall see to it that all shares of the Designated Portfolio(s) are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent required, in accordance with applicable state laws prior to their sale. 5.3. The parties shall bear the expenses of any routine annual distribution (mailing costs) of the Fund's prospectus and distribution (mailing costs) of the Fund's proxy materials and reports to owners of Contracts offered by GWL&A, in accordance with Schedule C. 5.4. The Fund, the Distributor and the Adviser acknowledge that a principal feature of the Contracts is the Contract Owner's ability to choose from a number of unaffiliated mutual funds (and portfolios or series thereof), including the Designated Portfolio(s) and the Unaffiliated Funds, and to transfer the Contract's cash value between funds and portfolios. The Fund, the Distributor and the Adviser agree to reasonably cooperate with GWL&A in facilitating the operation of the Account and the Contracts as described in the prospectus for the Contracts, including but not limited to reasonable cooperation in facilitating transfers between Unaffiliated Funds. ARTICLE VI. Diversification and Qualification --------------------------------- 6.1. The Fund and the Adviser represent and warrant that the Fund will at all times sell its shares and invest its assets in such a manner as to ensure that the Contracts will be treated as life insurance contracts under the Code, and the regulations issued thereunder. Without limiting the scope of the foregoing, the Fund and Adviser represent and warrant that the Fund and each Designated Portfolio thereof will at all times comply with Section 817(h) of the Code and Treasury Regulation ss.1.817-5, as amended from time to time, and any Treasury interpretations thereof, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications or successor provisions to such Section or Regulations. The Fund, the Distributor and the Adviser agree that shares of the Designated Portfolio(s) will be sold only to Participating Insurance Companies and their separate accounts and to Qualified Plans. 6.2. No shares of any Designated Portfolio of the Fund will be sold to the general public. 6.3. The Fund and the Adviser represent and warrant that the Fund and each Designated Portfolio is currently qualified as a Regulated Investment Company under Subchapter M of the Code, and that each Designated Portfolio will maintain such qualification (under Subchapter M or any successor or similar provisions) as long as this Agreement is in effect. 6.4. The Fund or Adviser will notify GWL&A immediately upon having a reasonable basis for believing that the Fund or any Designated Portfolio has ceased to comply with the aforesaid Section 817(h) diversification or Subchapter M qualification requirements or might not so comply in the future. 6.5. Without in any way limiting the effect of Sections 8.2, 8.3 and 8.4 hereof and without in any way limiting or restricting any other remedies available to GWL&A, the Adviser or Distributor (as applicable to the Party responsible) will pay all costs associated with or arising out of any failure, or any anticipated or reasonably foreseeable failure, of the Fund or any Designated Portfolio to comply with Sections 6.1, 6.2, or 6.3 hereof, including all costs associated with reasonable and appropriate corrections or responses to any such failure; such costs may include, but are not limited to, the costs involved in creating, organizing, and registering a new investment company as a funding medium for the Contracts and/or the costs of obtaining whatever regulatory authorizations are required to substitute shares of another investment company for those of the failed Portfolio (including but not limited to an order pursuant to Section 26(b) of the 1940 Act); such costs are to include, but are not limited to, reasonable fees and expenses of legal counsel and other advisors to GWL&A and any federal income taxes or tax penalties and interest thereon (or "toll charges" or exactments or amounts paid in settlement) incurred by GWL&A with respect to itself or owners of its Contracts in connection with any such failure or anticipated or reasonably foreseeable failure. 6.6 Upon GWL&A's request, but no more frequently than quarterly, the Fund shall complete, sign and return to GWL&A the form attached hereto as Schedule B, provided that GWL&A provides such form to the Fund's designee with each request. 6.7. GWL&A agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of GWL&A or, to GWL&A's knowledge, or any Contract Owner that any Designated Portfolio has failed to comply with the diversification requirements of Section 817(h) of the Code or GWL&A otherwise becomes aware of any facts that could give rise to any claim against the Fund, Distributor or Adviser as a result of such a failure or alleged failure: (a) GWL&A shall promptly notify the Fund, the Distributor and the Adviser of such assertion or potential claim; (b) GWL&A shall consult with the Fund, the Distributor and the Adviser as to how to minimize any liability that may arise as a result of such failure or alleged failure; (c) GWL&A shall use its best efforts to minimize any liability of the Fund, the Distributor and the Adviser resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations, Section 1.817-5(a)(2), to the commissioner of the IRS that such failure was inadvertent; (d) any written materials to be submitted by GWL&A to the IRS, any Contract Owner or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations, Section 1.817-5(a)(2)) shall be provided by GWL&A to the Fund, the Distributor and the Adviser (together with any supporting information or analysis) within at least two (2) business days prior to submission; (e) GWL&A shall provide the Fund, the Distributor and the Adviser with such cooperation as the Fund, the Distributor and the Adviser shall reasonably request (including, without limitation, by permitting the Fund, the Distributor and the Adviser to review the relevant books and records of GWL&A) in order to facilitate review by the Fund, the Distributor and the Adviser of any written submissions provided to it or its assessment of the validity or amount of any claim against it arising from such failure or alleged failure; (f) GWL&A shall not with respect to any claim of the IRS or any Contract Owner that would give rise to a claim against the Fund, the Distributor and the Adviser (i) compromise or settle any claim, (ii) accept any adjustment on audit, or (iii) forego any allowable administrative or judicial appeals, without the express written consent of the Fund, the Distributor and the Adviser, which shall not be unreasonably withheld; provided that, GWL&A shall not be required to appeal any adverse judicial decision unless the Fund and the Adviser shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and further provided that the Fund, the Distributor and the Adviser shall bear the costs and expenses, including reasonable attorney's fees, incurred by GWL&A in complying with this clause (f). ARTICLE VII. Potential Conflicts and Compliance With Mixed and Shared Funding Exemptive Order 7.1. The Board will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners or by contract owners of different Participating Insurance Companies; or (f) a decision by a Participating Insurance Company to disregard the voting instructions of contract owners. The Board shall promptly inform GWL&A if it determines that an irreconcilable material conflict exists and the implications thereof. 7.2. GWL&A will report any potential or existing conflicts of which it is aware to the Board. GWL&A will assist the Board in carrying out its responsibilities under the Mixed and Shared Funding Exemptive Order, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by GWL&A to inform the Board whenever contract owner voting instructions are to be disregarded. Such responsibilities shall be carried out by GWL&A with a view only to the interests of its Contract Owners. 7.3. If it is determined by a majority of the Board, or a majority of its directors who are not interested persons of the Fund, the Distributor, the Adviser or any sub-adviser to any of the Designated Portfolios (the "Independent Directors"), that a material irreconcilable conflict exists, GWL&A and other Participating Insurance Companies shall, at their expense and to the extent reasonably practicable (as determined by a majority of the Independent Directors), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (1) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Designated Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected contract owners the option of making such a change; and (2) establishing a new registered management investment company or managed separate account. 7.4. If a material irreconcilable conflict arises because of a decision by GWL&A to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, GWL&A may be required, at the Fund's election, to withdraw the Account's investment in the Fund and terminate this Agreement; provided, however that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the Independent Directors. Any such withdrawal and termination must take place within six (6) months after the Fund gives written notice that this provision is being implemented, and until the end of that six month period the Adviser, the Distributor and the Fund shall continue to accept and implement orders by GWL&A for the purchase (and redemption) of shares of the Fund. No charge or penalty will be imposed as a result of such withdrawal. 7.5. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to GWL&A conflicts with the majority of other state regulators, then GWL&A will withdraw the Account's investment in the Fund and terminate this Agreement within six months after the Board informs GWL&A in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Until the end of the foregoing six month period, the Fund shall continue to accept and implement orders by GWL&A for the purchase (and redemption) of shares of the Fund. 7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of the disinterested members of the Board shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. GWL&A shall not be required by Section 7.3 to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Contract owners affected by the irreconcilable material conflict. In the event that the Board determines that any proposed action does not adequately remedy any irreconcilable material conflict, then GWL&A will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Board informs GWL&A in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the Independent Directors. 7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable: and (b) Sections 3.5, 3.6, 3.7, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. ARTICLE VIII. Indemnification 8.1. Indemnification By GWL&A 8.1(a).GWL&A agrees to indemnify and hold harmless the Fund, the Distributor and the Adviser and each of their respective officers and directors or trustees and each person, if any, who controls the Fund, Distributor or Adviser within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, expenses, damages and liabilities (including amounts paid in settlement with the written consent of GWL&A) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, expenses, damages or liabilities (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement or prospectus or SAI covering the Contracts or contained in the Contracts or sales literature or other promotional material for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to GWL&A by or on behalf of such Indemnified Party for use in the registration statement or prospectus for the Contracts or sales literature or other promotional material (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature or other promotional material of the Fund not supplied by GWL&A or persons under its control) or wrongful conduct of GWL&A or persons under its control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, or sales literature or other promotional material of the Fund, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon information furnished in writing to the Fund by or on behalf of GWL&A; or (iv) arise as a result of any failure by GWL&A to perform the obligations, provide the services and furnish the materials required of it under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by GWL&A in this Agreement or arise out of or result from any other material breach of this Agreement by GWL&A, including without limitation Section 2.10 and Section 6.7 hereof, as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof. 8.1(b). GWL&A shall not be liable under this indemnification provision with respect to any losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.1(c). GWL&A shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified GWL&A in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify GWL&A of any such claim shall not relieve GWL&A from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that GWL&A has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, GWL&A shall be entitled to participate, at its own expense, in the defense of such action. GWL&A also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from GWL&A to such party of GWL&A's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and GWL&A will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.1(d).The Indemnified Parties will promptly notify GWL&A of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund Shares or the Contracts or the operation of the Fund. 8.2. Indemnification by the Adviser 8.2(a). The Adviser agrees to indemnify and hold harmless GWL&A and its directors and officers and each person, if any, who controls GWL&A within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, expenses, damages, liabilities (including amounts paid in settlement with the written consent of the Adviser) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or SAI or sales literature or other promotional material of the Fund prepared by the Adviser (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to the Adviser, the Distributor or the Fund by or on behalf of such Indemnified Parties for use in the registration statement, prospectus or SAI for the Fund or in sales literature or other promotional material (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Contracts or the Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI or sales literature or other promotional material for the Contracts not supplied by the Adviser or persons under its control) or wrongful conduct of the Adviser or persons under its control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, or sales literature or other promotional material covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished in writing to GWL&A by or on behalf of the Adviser; or (iv) arise as a result of any failure by the Adviser to perform the obligations, provide the services and furnish the materials required of it under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Article VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the the Adviser in this Agreement or arise out of or result from any other material breach of this Agreement by the Adviser; or (vi) arise out of or result from the incorrect or untimely calculation or reporting by the Adviser of the daily net asset value per share or dividend or capital gain distribution rate; as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof. This indemnification is in addition to and apart from the responsibilities and obligations of the Adviser specified in Article VI hereof. 8.2(b). The Adviser shall not be liable under this indemnification provision with respect to any losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.2(c). The Adviser shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Adviser in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Adviser of any such claim shall not relieve the Adviser from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that the Adviser has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, the Adviser will be entitled to participate, at its own expense, in the defense thereof. The Adviser also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Adviser to such party of the Adviser's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Adviser will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.2(d). GWL&A agrees to promptly notify the Adviser of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Account. 8.3. Indemnification By the Fund .3. Indemnification By the Fund 8.3(a). The Fund agrees to indemnify and hold harmless GWL&A and its directors and officers and each person, if any, who controls GWL&A within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.3) against any and all losses, claims, expenses, damages and liabilities (including amounts paid in settlement with the written consent of the Fund) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may be required to pay or become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, expenses, damages, liabilities or expenses (or actions in respect thereof) or settlements, are related to the operations of the Fund and: (i) arise as a result of any failure by the Fund to perform the obligations, provide the services and furnish the materials required of it under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Article VI of this Agreement); or (ii) arise out of or result from any material breach of any representation and/or warranty made by the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund; or (iii) arise out of or result from the incorrect or untimely calculation or reporting of the daily net asset value per share or dividend or capital gain distribution rate; as limited by and in accordance with the provisions of Sections 8.3(b) and 8.3(c) hereof. 8.3(b). The Fund shall not be liable under this indemnification provision with respect to any losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.3(c). The Fund shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve it from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that the Fund has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, the Fund will be entitled to participate, at its own expense, in the defense thereof. The Fund shall also be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Fund to such party of the Fund's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Fund will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.3(d). GWL&A each agrees to promptly notify the Fund of the commencement of any litigation or proceeding against itself or any of its respective officers or directors in connection with the Agreement, the issuance or sale of the Contracts, the operation of the Account, or the sale or acquisition of shares of the Fund. 8.4. Indemnification by the Distributor .4. Indemnification by the Distributor 8.4(a).The Distributor agrees to indemnify and hold harmless GWL&A and its directors and officers and each person, if any, who controls GWL&A within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.4) against any and all losses, claims, expenses, damages and liabilities (including amounts paid in settlement with the written consent of the Distributor) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or SAI or sales literature or other promotional material of the Fund (or any amendment or supplement to any of the foregoing) prepared or approved by the Distributor, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to the Adviser, the Distributor or Fund by or on behalf of GWL&A for use in the registration statement or SAI or prospectus for the Fund or in sales literature or other promotional material (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI, sales literature or other promotional material for the Contracts not supplied by the Distributor or persons under its control) or wrongful conduct of the Distributor or persons under its control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, sales literature or other promotional material covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished in writing to GWL&A by or on behalf of the Distributor; or (iv) arise as a result of any failure by the Distributor to perform the obligations, provide the services and furnish the materials required of it under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the requirements applicable to the Distributor specified in Article VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Distributor in this Agreement or arise out of or result from any other material breach of this Agreement by the Distributor; as limited by and in accordance with the provisions of Sections 8.4(b) and 8.4(c) hereof. This indemnification is in addition to and apart from the responsibilities and obligations of the Distributor specified in Article VI hereof. 8.4(b).The Distributor shall not be liable under this indemnification provision with respect to any losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance or such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.4(c) The Distributor shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Distributor in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Distributor of any such claim shall not relieve the Distributor from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that the Distributor has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, the Distributor will be entitled to participate, at its own expense, in the defense thereof. The Distributor also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Distributor to such party of the Distributor's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Distributor will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.4(d) GWL&A agrees to promptly notify the Distributor of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Account. ARTICLE IX. Applicable Law -------------- 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Colorado, without regard to the Colorado Conflict of Laws provisions. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant (including, but not limited to, the Mixed and Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE X. TerminationARTICLE X.Termination 10.1. This Agreement shall terminate: (a) at the option of any party, with or without cause, with respect to some or all Designated Portfolios, upon six (6) months advance written notice delivered to the other parties; provided, however, that such notice shall not be given earlier than six (6) months following the date of this Agreement; or (b) at the option of GWL&A by written notice to the other parties with respect to any Designated Portfolio based upon GWL&A's determination that shares of such Designated Portfolio are not reasonably available to meet the requirements of the Contracts; or (c) at the option of GWL&A by written notice to the other parties with respect to any Designated Portfolio in the event any of the Designated Portfolio's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by GWL&A; or (d) at the option of the Fund, Distributor or Adviser in the event that formal administrative proceedings are instituted against GWL&A by the NASD, the SEC, the Insurance Commissioner or like official of any state or any other regulatory body regarding GWL&A's duties under this Agreement or related to the sale of the Contracts, the operation of any Account, or the purchase of the Fund shares, if, in each case, the Fund, Distributor or Adviser, as the case may be, reasonably determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of GWL&A to perform its obligations under this Agreement; or (e) at the option of GWL&A in the event that formal administrative proceedings are instituted against the Fund, the Distributor or the Adviser by the NASD, the SEC, or any state securities or insurance department or any other regulatory body, if GWL&A reasonably determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Fund, the Distributor or the Adviser to perform their obligations under this Agreement; or (f) at the option of GWL&A by written notice to the other parties with respect to any Portfolio if GWL&A reasonably believes that the Portfolio will fail to meet the Section 817(h) diversification requirements or Subchapter M qualifications specified in Article VI hereof; or (g) at the option of either the Fund, the Distributor or the Adviser, if (i) the Fund, Distributor or Adviser, respectively, shall determine, in its sole judgment reasonably exercised in good faith, that GWL&A has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity, (ii) the Fund, Distributor or Adviser notifies GWL&A of that determination and its intent to terminate this Agreement, and (iii) after considering the actions taken by GWL&A and any other changes in circumstances since the giving of such a notice, the determination of the Fund, Distributor or Adviser shall continue to apply on the sixtieth (60th) day following the giving of that notice, which sixtieth day shall be the effective date of termination; or (h) at the option of either GWL&A, if (i) GWL&A shall determine, in its sole judgment reasonably exercised in good faith, that the Fund, Distributor or Adviser has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity, (ii) GWL&A notifies the Fund, Distributor or Adviser, as appropriate, of that determination and its intent to terminate this Agreement, and (iii) after considering the actions taken by the Fund, Distributor or Adviser and any other changes in circumstances since the giving of such a notice, the determination of GWL&A shall continue to apply on the sixtieth (60th) day following the giving of that notice, which sixtieth day shall be the effective date of termination; or (i) at the option of any non-defaulting party hereto in the event of a material breach of this Agreement by any party hereto (the "defaulting party") other than as described in 10.1(a)-(h); provided, that the non-defaulting party gives written notice thereof to the defaulting party, with copies of such notice to all other non-defaulting parties, and if such breach shall not have been remedied within thirty (30) days after such written notice is given, then the non-defaulting party giving such written notice may terminate this Agreement by giving thirty (30) days written notice of termination to the defaulting party; or (j) solely with respect to the Distributor, in the event the Distributor ceases to be the principal underwriter for the Fund. 10.2. Notice Requirement. No termination of this Agreement shall be effective unless and until the party terminating this Agreement gives prior written notice to all other parties of its intent to terminate, which notice shall set forth the basis for the termination. Furthermore, (a) in the event any termination is based upon the provisions of Article VII, or the provisions of Section 10.1(a), 10.1(g) or 10.1(h) of this Agreement, the prior written notice shall be given in advance of the effective date of termination as required by those provisions unless such notice period is shortened by mutual written agreement of the parties; (b) in the event any termination is based upon the provisions of Section 10.1(d), 10.1(e), 10.1(i) or 10.1(j) of this Agreement, the prior written notice shall be given at least sixty (60) days before the effective date of termination; and (c) in the event any termination is based upon the provisions of Section 10.1(b), 10.1(c) or 10.1(f), the prior written notice shall be given in advance of the effective date of termination, which date shall be determined by the party sending the notice. 10.3. Effect of Termination. Notwithstanding any termination of this Agreement, other than as a result of a failure by either the Fund or GWL&A to meet Section 817(h) of the Code diversification requirements, the Fund, the Distributor and the Adviser shall, at the option of GWL&A, continue to make available additional shares of the Designated Portfolio(s) pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts shall be permitted to reallocate investments in the Designated Portfolio(s), redeem investments in the Designated Portfolio(s) and/or invest in the Designated Portfolio(s) upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 10.3 shall not apply to any terminations under Article VII and the effect of such Article VII terminations shall be governed by Article VII of this Agreement. 10.4. Surviving Provisions. Notwithstanding any termination of this Agreement, each party's obligations under Article VIII to indemnify other parties shall survive and not be affected by any termination of this Agreement. In addition, with respect to Existing Contracts, all provisions of this Agreement shall also survive and not be affected by any termination of this Agreement. ARTICLE XI. Notices Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: STI Classic Variable Trust One Freedom Valley Drive Oaks, PA 19456 Attention: Timothy D. Barto, Vice President If to GWL&A: Great-West Life & Annuity Insurance Company 8515 East Orchard Road Greenwood Village, CO 80111 Attention:Ron Laeyendecker, Vice President, Life Insurance Markets PC: Beverly Byrne, Vice President and Counsel If to the Adviser: Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, GA 30303 Attention Elizabeth Wilson, Managing Director If to the Distributor: SEI Investments Distribution Co. One Freedom Valley Drive Oaks, PA 19456 Attention:Timothy D. Barto, Vice President ARTICLE XII. Miscellaneous ------------- 12.1. The parties hereto acknowledge that any nonpublic personal information (as defined by applicable law or regulation promulgated under Title V of the Gramm-Leach-Bliley Act of 1999 (the "Act")) of Contract Owners (and any participants thereof, as applicable) will be disclosed or utilized solely to carry out the terms of this Agreement or pursuant to an exception contained in any applicable law or regulation promulgated under the Act. Further, Fund, Distributor and Adviser agree to maintain and enforce procedures for the safeguarding and protection of such nonpublic personal information at least as rigorous as those required to be used by GWL&A under applicable law. Without limiting the foregoing, no party hereto shall disclose any information that another party has designated as proprietary. 12.2. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.3. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.4. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 12.5. Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the Colorado Insurance Commissioner with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the variable life operations of GWL&A are being conducted in a manner consistent with the applicable Colorado insurance regulations and any other applicable law or regulations. 12.6. Any controversy or claim arising out of or relating to this Agreement, or breach thereof, shall be settled by arbitration in a forum jointly selected by the relevant parties (but if applicable law requires some other forum, then such other forum) in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 12.7. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 12.8. This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto. 12.9. GWL&A is hereby expressly put on notice of the limitation of liability as set forth in the Declarations of Trust of the Fund and agree that the obligations assumed by the Fund, Distributor and the Adviser pursuant to this Agreement shall be limited in any case to the Fund, Distributor and Adviser and their respective assets and GWL&A shall not seek satisfaction of any such obligation from the shareholders of the Fund, Distributor or the Adviser, the Trustees, officers, employees or agents of the Fund, Distributor or Adviser, or any of them. 12.10. The Fund, the Distributor and the Adviser agree that the obligations assumed by GWL&A pursuant to this Agreement shall be limited in any case to GWL&A and its assets and neither the Fund, Distributor nor Adviser shall seek satisfaction of any such obligation from the shareholders of GWL&A, the directors, officers, employees or agents of GWL&A, or any of them, except to the extent permitted under this Agreement. 12.11. No provision of this Agreement may be deemed or construed to modify or supersede any contractual rights, duties, or indemnifications, as between the Adviser and the Fund, and the Distributor and the Fund. 12.12. None of the parties hereto shall be liable to the other for any and all losses, damages, costs, charges, counsel fees, payments, expenses or liability due to any failure, delay or interruption in performing its obligations under this Agreement, and without the fault or negligence of such party, due to causes or conditions beyond its control including, without limitation, labor disputes, strikes (whether legal or illegal), lock outs (whether legal or illegal), civil commotion, riots, war and war-like operations including acts of terrorism, embargoes, epidemics, invasion, rebellion, hostilities, insurrections, explosions, floods, unusually severe weather conditions, earthquakes, military power, sabotage, governmental regulations or controls, failure of power, fire or other casualty, accidents, national or local emergencies, boycotts, picketing, slow-downs, work stoppages, acts of God or natural disasters. 12.13 In the event of an error in the computation of a portfolio of the Fund's net asset value per share ("NAV") or any dividend or capital gain distribution (each, a "pricing error"), the Adviser or the Fund shall immediately notify GWL&A as soon as possible after discovery of the error. Such notification may be verbal, but shall be confirmed promptly in writing. A pricing error shall be corrected as follows: (a) if the pricing error results in a difference between the erroneous NAV and the correct NAV of less than $0.01 per share, then no corrective action need be taken; (b) if the pricing error results in a difference between the erroneous NAV and the correct NAV equal to or greater than $0.01 per share, but less than 1/2 of 1% of the applicable portfolio's NAV at the time of the error, then the Adviser shall reimburse the applicable portfolio for any loss, after taking into consideration any positive effect of such error; however, no adjustments to the accounts of Contract Owners need be made; and (c) if the pricing error results in a difference between the erroneous NAV and the correct NAV equal to or greater than 1/2 of 1% of the applicable portfolio's NAV at the time of the error, then the Adviser shall reimburse the applicable portfolio for any loss (without taking into consideration any positive effect of such error) and shall promptly reimburse GWL&A for the costs (including, but not limited to, administrative work) of adjustments made to correct the accounts of Contract Owners. If an adjustment is necessary to correct a material error which has caused Contract Owners to receive less than the amount to which they are entitled, the number of shares of the appropriate portfolios of the Fund attributable to the accounts of such Contract Owners will be adjusted and the amount of any underpayments shall be credited by the Adviser to GWL&A for crediting of such amounts to the applicable Contract Owner accounts. Upon notification by the Adviser of any overpayment due to a material error, GWL&A shall promptly remit to Adviser any overpayment that has not been paid to Contract Owners; however, Adviser acknowledges that GWL&A does not intend to seek additional payments from any Contract Owner who, because of a pricing error, may have underpaid for units of interest or shares credited to his/her account. In no event shall GWL&A be liable to Contract Owners for any such adjustments or underpayment amounts. A pricing error within categories (b) or (c) above shall be deemed to be "materially incorrect" or constitute a "material error" for purposes of this Agreement. The standards set forth in this section are based on the parties' understanding of views expressed by the staff of the Securities and Exchange Commission as of the date of this Agreement. In the event views of the Securities and Exchange Commission staff are later modified or superseded by Securities and Exchange Commission or judicial interpretation, the parties shall amend the foregoing provisions of this Amendment to comport with the appropriate applicable standards, on terms mutually satisfactory to all parties. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative as specified below. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY By its authorized officer, By:______________________________ Title: Date: STI CLASSIC VARIABLE TRUST By its authorized officer, By:______________________________ Title: Date: Trusco Capital Management, Inc. By its authorized officer, By:____________________________ Title: Date: SEI INVESTMENTS DISTRIBUTION CO. By its authorized officer, By:____________________________ Title: Date: SCHEDULE ASCHEDULE B Designated Portfolios STI CLASSIC VARIABLE TRUST CAPITAL APPRECIATION FUND STI CLASSIC VARIABLE TRUST GROWTH AND INCOME FUND STI CLASSIC VARIABLE TRUST SMALL CAP VALUE EQUITY FUND And any other portfolios of the Fund that are available and open to new investors on or after the effective date of this Agreement. SCHEDULE C EXPENSES The Fund and/or the Distributor and/or Adviser, and GWL&A will coordinate the functions and pay the costs of completing these functions based upon an allocation of costs in the tables below. Costs shall be allocated to reflect the Fund's share of the total costs determined according to the number of pages of the Fund's respective portions of the documents.
- ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible Party for Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Mutual Fund Prospectus Printing of GWL&A Fund or Adviser, prospectuses as applicable - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Fund, Distributor or GWL&A Fund or Adviser, Adviser shall supply as applicable GWL&A with such numbers of the Designated Portfolio(s) prospectus(es) as GWL&A shall reasonably request - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Distribution to New GWL&A GWL&A and Inforce Contract Owners - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Distribution to GWL&A GWL&A Prospective Contract Owners - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Distribution to GWL&A Fund or Adviser, Contract Owners in as applicable connection with initial rollout of Fund in connection with the Contracts - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Contract Prospectus Printing for Inforce GWL&A GWL&A Contract Owners - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Printing for GWL&A GWL&A Prospective Contract Owners - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Distribution to New GWL&A GWL&A and Inforce Contract Owners - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Distribution to GWL&A GWL&A Prospective Contract Owners - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Mutual Fund Prospectus If Required by Fund, Fund, Distributor or Fund or Adviser Update & Distribution Distributor or Adviser Adviser - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ If Required by GWL&A GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Contract Prospectus If Required by Fund, GWL&A Fund or Adviser Update & Distribution Distributor or Adviser - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible Party for Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ If Required by GWL&A GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ Mutual Fund SAI Printing Fund, Distributor or Fund or Adviser Adviser - ------------------------- ---------------------- ---------------------- ------------------ Distribution GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ Product SAI Printing GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ Distribution GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible Party for Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ Proxy Material for Printing if proxy Fund, Distributor or Fund or Adviser Mutual Fund: required by Law Adviser - ------------------------- ---------------------- ---------------------- ------------------ Distribution GWL&A Fund or Adviser (including labor) if proxy required by Law - ------------------------- ---------------------- ---------------------- ------------------ Printing & GWL&A GWL&A distribution if required by GWL&A ========================= ====================== ====================== ================== - ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible Party for Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ Mutual Fund Annual & Printing of combined GWL&A Fund or Adviser Semi-Annual Report reports - ------------------------- ---------------------- ---------------------- ------------------ Distribution GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ Other communication to If Required by the GWL&A Fund or Adviser New and Prospective Fund, Distributor or clients Adviser - ------------------------- ---------------------- ---------------------- ------------------ If Required by GWL&A GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible for Party Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ Other communication to Distribution GWL&A Fund or Adviser Inforce (including labor and printing) if required by the Fund, Distributor or Adviser - ------------------------- ---------------------- ---------------------- ------------------ Distribution GWL&A GWL&A (including labor and printing)if required by GWL&A ========================= ====================== ====================== ================== - ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible Party for Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ Errors in Share Price Cost of error to GWL&A Fund or Adviser calculation pursuant to Contract Section 1.10 Owners/participants - ------------------------- ---------------------- ---------------------- ------------------ Cost of GWL&A Fund or Adviser administrative work to correct error - ------------------------- ---------------------- ---------------------- ------------------ Substitution Orders Application for, and GWL&A Fund or Adviser implementation of (including necessary printing and mailings), substitution orders required as a result of Fund action - ------------------------- ---------------------- ---------------------- ------------------ Operations of the Fund All operations and Fund, Distributor or Fund or Adviser related expenses, Adviser including the cost of registration and qualification of shares, taxes on the issuance or transfer of shares, cost of management of the business affairs of the Fund, and expenses paid or assumed by the fund pursuant to any Rule 12b-1 plan - ------------------------- ---------------------- ---------------------- ------------------ Operations of the Federal registration GWL&A GWL&A Account of units of separate account (24f-2 fees) - ------------------------- ---------------------- ---------------------- ------------------
SCHEDULE D ADMINISTRATIVE SERVICES A. GWL&A, or an affiliate, will provide the properly registered and licensed personnel and systems needed for all customer servicing and support - for both Designated Portfolio and life insurance information and questions - including: responding to Contract Owner inquiries; delivery of prospectus - Designated Portfolio(s); entry of initial and subsequent orders; transfer of cash to GWL&A and/or Designated Portfolio(s); explanations of Designated Portfolio objectives and characteristics; entry of transfers between funds; Designated Portfolio balance and allocation inquiries; mail Designated Portfolio prospectus. B. GWL&A, or an affiliate, will communicate all purchase, withdrawal, and exchange orders it receives from its customers to each Designated Portfolio. Administrative Service Fee For the services, the Adviser shall pay GWL&A or its affiliate a fee of ___% per annum of the average aggregate monthly net asset value of shares of the Designated Portfolio(s) held in the Account, including through Profile or other fund of funds arrangements, payable by the Adviser directly to GWL&A or its affiliate. Such fee shall be paid in arrears quarterly. Each quarter's fee shall be determined based on assets in the Account at the end of each quarter and each quarterly fee will be independent of every other quarterly fee. Such fee shall be due and payable automatically within 30 (thirty) days after the last day of the quarter to which such payment relates. In the event such fee is not paid by such time, interest, in addition to the amount due, at the rate of six (6)% annually (or 1/2 of one (1) percent per month outstanding pro rated for any applicable period if less than one year) shall be payable and owed until payment is made. The Fund will calculate the asset balance for each day on which the fee is to be paid pursuant to this Amendment with respect to each applicable portfolio of the Fund. GWL&A shall have the right to reasonably audit the preparation of such calculation. The administrative service fee described herein shall remain payable and due so long as there remain any assets invested in the Fund, regardless of any termination of the Agreements, in any manner by the Accounts as contemplated by the Agreements, as amended herein. The Fund may modify the rate of the administrative service fee only with 120 days' written notice to GWL&A prior to the end of any calendar year, with any such revised rate becoming effective as of the 1st of January following any such calendar year. FORM D1 CERTIFICATE OF COMPLIANCE
For the quarter ended: _____________________________ I, ____________________________, a duly authorized officer, director or agent of ________________________ Fund hereby sear and affirm that _________________________ Fund is in compliance with all requirements of Section 817(h) and Subchapter M of the Internal Revenue Code (the "Code") and the regulations thereunder as required in the Fund Participation Agreement among Great-West Life & Annuity Insurance company, STI Classic Variable Trust, Trusco Capital Management, Inc., and SEI Investments Distribution Co. other than the exceptions discussed below: Exceptions Remedial Action - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- - --------------------------------------------------- ------------------------------------------------------- If no exception to report, please indicate "None." - -------------------------------------- - -------------------------------------- Signed this______ day of _______________, _______. - -------------------------------------- - -------------------------------------- - -------------------------------------- ---------------------------------------------------- (Signature) - -------------------------------------- - -------------------------------------- By: - -------------------------------------- ---- ----------------------------------------------- (Type or Print Name and Title/Position) - --------------------------------------
SCHEDULE E NON-COMPETE PROVISIONS GWL&A intends to offer Fund, Adviser and Distributor, as applicable, access to its, or its affiliates' or its parent company's (each, a "Company," collectively, the "Companies") current and prospective customers (hereinafter "Customers") so that Customers will have the option of purchasing the Designated Portfolio shares of the Fund. Fund, Adviser and Disrtibutor, as applicable, desires to make the Designated Portfolio(s) available to Customers, yet acknowledges that under certain circumstances, the ability of Fund, Adviser or Distributor, as applicable, to solicit business from Customers should be subject to special limitations in exchange for the increased ability to offer its product through a Company's introduction. An introduction will consist of a Company's inclusion of the Designated Portfolio(s) in the Retirement Plan Product offered to a Customer for that Customer's consideration. 1. In the scenario where any one of the Companies introduces Fund, Adviser or Distributor, as applicable, in any manner to a Customer which ultimately purchases a Retirement Plan Product from one of the Companies, and one of the Companies includes the Designated Portfolio(s) in the products offered to that Customer, Fund, Adviser and Distributor, as applicable, agree not to utilize any confidential information (which shall include, but not be limited to, all facts, circumstances, information, data, plans, projects and technical or commercial knowledge gained in relation to a Company, or received from a Company, including, but not limited to, information regarding customers (such as retirement plans and plan participants), employees, suppliers servicing methods, programs, fees, strategies and related information) received in connection with offering its product to Customer in any solicitation of Retirement Plan Product Business from that Customer. Further, Fund, Adviser and Distributor, as applicable, will not attempt to contact Customers regularly nor attempt to sell its mutual funds directly to Customer on a stand-alone basis while the Designated Portfolio(s) are included in a Company's arrangement with the Customer. For purposes of this Amendment "Retirement Plan Product" includes, but is not limited to, group or individual annuity contracts, GIC's, separate accounts and wrapped or unwrapped mutual funds whether sold separately or in conjunction-with each other. 2. In the scenario where any one of the Companies introduces the Fund, Adviser or Distributor in any manner to a Customer which ultimately purchases a Retirement Plan Product from a Company and the Customer does not select the Fund, the Fund, Adviser or Distributor may directly communicate with Customer about Retirement Plan Product business and may sell product directly to Customer provided it does not utilize the confidential information referred to above. 3. In the scenario where any one of the Companies introduces Fund, Adviser or Distributor in any manner to a Customer which does not purchase a Retirement Plan Product from a Company, the Fund, Adviser and Distributor are not subject to any prohibitions regarding sales to and communications with that Customer. Likewise, there are no prohibitions where none of the Companies provides an introduction. A Company may decide in its discretion when it desires to provide an introduction to one of its Customers. A Company has no obligation to provide introductions to its Customers. EX-10 8 reinsuranceagreement.txt COLI VUL 2 AGREEMENT EXHIBIT Exhibit 27(g) FACULTATIVE YEARLY RENEWABLE TERM EXPERIENCE RATED REINSURANCE AGREEMENT Effective December 29, 2000 Between GREAT-WEST LIFE & ANNUlTY INSURANCE COMPANY ("Ceding Company") 8515 East Orchard Road Englewood, Colorado 80111 And SECURITY LIFE OF DENVER INSURANCE COMPANY ("Reinsurer") Security Life Center 1290 Broadway Denver, Colorado 80203-5699 Reinsurer Agreement No. 0526-2942 0526-2941 SECURITY LIFE OF DENVER COLI 01/18/2002 INSURANCE COMPANY 46316FY1200C FACULTATIVE YEARLY RENEWABLE TERM EXPERIENCE RATED REINSURANCE AGREEMENT This Agreement is between GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY, 8515 East Orchard Road, Englewood, Colorado 80111 And SECURITY LIFE OF DENVER INSURANCE COMPANY, Security Life Center, 1290 Broadway, Denver, Colorado 80203-5699. The Reinsurer agrees to reinsure certain portions of the Ceding Company's contract risks as described in the terms and conditions of this Agreement, which includes any attached Schedules and Exhibits. This reinsurance Agreement constitutes the entire Agreement between the parties with respect to the business being reinsured hereunder and there are no understandings between the parties other than as expressed in this Agreement. Any change or modification to this Agreement is null and void unless made by amendment to this Agreement and signed by both parties. In witness of the above, the Ceding Company and the Reinsurer have by their respective officers executed and delivered this Agreement in duplicate on the dates indicated below, with an effective date of December 29, 2000. GREAT-WEST LIFE & ANNUITY SECURITY LIFE OF DENVER INSURANCE COMPANY INSURANCE COMPANY By: By: --------------------------------- ---------------------------------- Title: Title: ------------------------------ ---------------------------------- Date: Date: ------------------------------- ---------------------------------- By: By: --------------------------------- ---------------------------------- Title: Title: ------------------------------ ---------------------------------- Date: Date: ------------------------------- ---------------------------------- 0526-2942 COLI 01/18/2002 FACULTATIVE YEARLY RENEWABLE TERM EXPERIENCE RATED REINSURANCE AGREEMENT Table of Contents 0526-2941 COLI 01/18/2002 Listing of Schedules: SCHEDULE A -COVERAGE AND LIMITS 1. Plans Reinsured 2. Premium Due 3. Recapture Period 4. Net Amount at Risk 5. Additional Reporting Information SCHEDULE B -REINSURANCE PREMIUMS 1. Reinsurance Premiums -Life B-1: Reinsurance Rates: 1983 GAM Rate Table (Male & Female) SCHEDULE C -REPORTING INFORMATION Information on Risks Reinsured Sample Policy Exhibit Summary Sample Reserve Credit Summary Sample Accounting Summary CASE EXHIBIT 1 1. Case Name 2. Case Issue Date 3. Reinsurance Basis 4. Reinsured Amount 5. Ceding Company's Maximum Dollar Retention Limits 6. Reinsurance Percentages 7. Supplemental Benefits and Riders Reinsured 8. Ceding Company's Quota Share Percentage Amount 9. Experience Refund Formula 10. Age Basis 0526-2942 i COLI 01/18/2002 FACULTATIVE YEARLY RENEWABLE TERM EXPERIENCE RATED REINSURANCE AGREEMENT 1. PARTIES TO AGREEMENT. This Agreement is solely between the Reinsurer and the Ceding Company. There is no third party beneficiary to this Agreement. Reinsurance under this Agreement will not create any right or legal relationship between the Reinsurer and any other person, for example, any insured, policyholder, agent, beneficiary, assignee, or other reinsurer. The Ceding Company agrees that it will not make the Reinsurer a party to any litigation between any such third party and the Ceding Company. The Ceding Company and the Reinsurer will not disclose the other's name to these third parties with regard to the agreements or transactions that are between the Ceding Company and the Reinsurer, unless the Ceding Company or the Reinsurer gives prior written approval for the use of its own name. The terms of this Agreement are binding upon the parties, their representatives, successors, and assigns. The parties to this Agreement are bound by ongoing and continuing obligations and liabilities until this Agreement terminates for new business and the underlying policies are no longer in force, whichever occurs later. This Agreement shall not be bifurcated, partially assigned, or partially assumed. 2. REINSURANCE TYPE AND BASIS. This Agreement, including the attached Schedules and Exhibits, states the terms and conditions of facultative Yearly Renewable Term reinsurance ceded hereunder. This Agreement is applicable only to reinsurance of policies directly written by the Ceding Company and as set forth in Section 3 of each Case Exhibit. Any policies acquired through merger with another company, reinsurance, or purchase of another company's policies are not included under the terms of this Agreement. The Reinsurance Basis will be either an excess basis or a first dollar quota share basis, as set forth in Section 2 of each Case Exhibit. 3. FACULTATIVE REINSURANCE. Only policy forms listed in Section 3 of each Case Exhibit are eligible for facultative consideration. The Ceding Company shall submit all cases to the Reinsurer for a facultative offer. After receipt of the Ceding Company's application, the Reinsurer will promptly examine the materials and notify the Ceding Company of: i. the terms and conditions of the Reinsurer's offer for facultative reinsurance; or ii. that no offer will be made. The Reinsurer's offer expires 120 days after the offer is made, unless the written offer specifically states otherwise. If the Ceding Company accepts the Reinsurer's offer, then the Ceding Company will note its acceptance in its underwriting file and confirm acceptance with the Reinsurer, in writing, immediately. If the Ceding Company does not accept the Reinsurer's offer, then the Ceding Company will notify the Reinsurer in writing, as soon as possible. All offers of reinsurance made by the Reinsurer are subject to the following conditions: a. RESIDENCE. Each insured must be a resident of the United States or Canada at the time of issue. 0526-2942 4 b. MINIMUM CESSION. The minimum amount of reinsurance per cession that the Reinsurer will accept is $10,000.00 and reinsurance of a cession will be terminated when the amount reinsured is less than $10,000.00. 4. COMMENCEMENT OF REINSURANCE COVERAGE. Commencement of the Reinsurer's reinsurance coverage on any policy or pre-issue risk under this Agreement is described below: a. FACULTATIVE REINSURANCE. The Reinsurer's reinsurance coverage for any policy that is ceded facultatively under this Agreement will begin when: i. The Ceding Company accepts the Reinsurer's offer; and ii. The policy has been issued. Reinsurer's reinsurance coverage for any policy that is ceded facultatively under this Agreement will terminate simultaneously with the Ceding Company's contractual liability for the policy reinsured, unless otherwise terminated in accordance with the terms of this Agreement. b. PRE-ISSUE COVERAGE. The Reinsurer will not be liable for benefits paid under the Ceding Company's conditional receipt or temporary insurance agreement for facultative reinsurance coverage. 5. AMOUNT REINSURED AND REINSURANCE PREMIUM RATES. a. LIFE REINSURANCE. The amount reinsured on a policy is the policy's Net Amount at Risk less the Ceding Company's retention available on the policy less any amount of reinsurance with other reinsurers. The retention on each life, or both lives for joint policies, is as set forth in Section 3 of each Case Exhibit. The Net Amount at Risk is defined in Section 4 of Schedule A. The reinsurance premiums per $1000 are shown in Section 1 of Schedule B. b. SUPPLEMENTAL BENEFITS. Supplemental benefits and riders reinsured under this Agreement, if any, are as specified in Section 7 of each Case Exhibit. c. PREMIUM ADJUSTMENTS. The reinsurance premium rates are not guaranteed. The Reinsurer reserves the right to change the rates at any time. If the Reinsurer changes the rates, it will give the Ceding Company 90 days' prior written notice of the change. Any change applies only to reinsurance premiums due after the expiration of the notice period. The maximum reinsurance premiums are equal to the statutory valuation premiums for yearly renewable term insurance at the maximum interest rates and minimum mortality rates applicable at the policy issue date. If the Reinsurer exercises this right, the Ceding Company has the right (but no obligation) to recapture, in its entirety, all of the reinsured business for which Reinsurer increases the reinsurance premiums. 6. CASH VALUES OR LOANS. This Agreement does not provide reinsurance for cash surrender values. In addition, the Reinsurer will not participate in policy loans or other forms of indebtedness on reinsured business. 7. PAYMENT OF REINSURANCE PREMIUMS a. PREMIUM DUE. The reinsurance premiums for each reinsurance cession are due as shown in Section 2 of Schedule A. b. FAILURE TO PAY REINSURANCE PREMIUMS. If the reinsurance premiums are 60 days past due, for reasons other than those due to error or omission as defined below in Article 17, the premiums will be considered in default and the Reinsurer may terminate its liability for all in-force reinsurance coverage under this Agreement by giving 90 days' written notice of termination by registered mail to the Ceding Company and the Insurance Department of the State of Colorado. Upon formal finding of insolvency of the Ceding Company, the notification period will be reduced to 60 days. The Reinsurer will have no further liability as of the termination date. The Ceding Company will be liable for the prorated reinsurance premiums to the termination date. The Ceding Company agrees that it will not force termination under the provisions of this paragraph to avoid the recapture requirements or to transfer the block of business reinsured to another reinsurer. c. OVERPAYMENT OF REINSURANCE PREMIUM. If the Ceding Company overpays a reinsurance premium and the Reinsurer accepts the overpayment, the Reinsurer's acceptance will not constitute nor create a reinsurance liability nor result in any additional reinsurance. Instead, the Reinsurer will be liable to the Ceding Company for a credit in the amount of the overpayment, without interest. d. UNDERPAYMENT OF REINSURANCE PREMIUM. If the Ceding Company fails to make a full premium payment for a policy or policies reinsured hereunder, due to an error or omission as defined below in Article 17, the amount of reinsurance coverage provided by the Reinsurer shall not be reduced. However, once the underpayment is discovered, the Ceding Company will be required to pay to the Reinsurer the difference between the full premium amount and the amount actually paid, without interest. If payment of the full premium is not made within 60 days after the discovery of the underpayment, the underpayment shall be treated as a failure to pay premiums and subject to the conditions of Article 7.b., above. e. RETURN OF REINSURANCE PREMIUM. If a misrepresentation or misstatement on an application or a death of an insured by suicide results in the Ceding Company returning the policy premiums to the policy owner rather than paying the policy benefits, the Reinsurer will refund all of the reinsurance premiums it received on that policy to the Ceding Company, without interest. This refund given by the Reinsurer will be in lieu of all other reinsurance benefits payable on that policy under this Agreement. If there is an adjustment to the policy benefits due to a misrepresentation or misstatement of age or sex, a corresponding adjustment will be made to the reinsurance benefits. f. UNEARNED REINSURANCE PREMIUMS. Upon death, surrenders and other terminations, reinsurance premiums will be corrected if the Net Amount at Risk has changed from the prior anniversary. The premium correction will equal the Reinsurer's share of the Net Amount at Risk at death, surrender, or other termination less the Reinsurer's share of the Net Amount at Risk as of the last anniversary date multiplied by the per $1,000 reinsurance premium rate, prorated for the year. Unearned reinsurance premiums will be returned on deaths, surrenders and other terminations. This refund will be on a prorated basis without interest from the date of termination of the policy to the date through which a reinsurance premium has been paid. 8. PREMIUM TAX REIMBURSEMENT. The Reinsurer will not reimburse the Ceding Company for premium taxes. 9. DAC TAX AGREEMENT. The Ceding Company and the Reinsurer hereby enter into an election under Treasury Regulations Section 1.848-2(g) (8) whereby: a. For each taxable year under this Agreement, the party with the net positive consideration, as defined in the regulations promulgated under Treasury Code Section 848, will capitalize specified policy acquisition expenses with respect to this Agreement without regard to general deductions limitation of Section 848 (c) (1); b. The Ceding Company and the Reinsurer agree to exchange information pertaining to the net consideration under this Agreement each year to ensure consistency or as otherwise required by the Internal Revenue Service; c. The Ceding Company will submit to the Reinsurer by May 1 of each year its calculation of the net consideration for the preceding calendar year. This schedule of calculations will be accompanied by a statement signed by an officer of the Ceding Company stating that the Ceding Company will report such net consideration in its tax return for the preceding calendar year; d. The Reinsurer may contest such calculation by providing an alternative calculation to the Ceding Company in writing within 30 days of the Reinsurer's receipt of the Ceding Company's calculation. If the Reinsurer does not so notify the Ceding Company, the Reinsurer will report the net consideration as determined by the Ceding Company in the Reinsurer's tax return for the previous calendar year; e. If the Reinsurer contests the Ceding Company's calculation of the net consideration, the parties will act in good faith to reach an agreement as to the correct amount within 30 days of the date the Reinsurer submits its alternative calculation. If the Ceding Company and the Reinsurer reach agreement on the net amount of consideration, each party will report such amount in their respective tax returns for the previous calendar year. Both Ceding Company and Reinsurer represent and warrant that they are subject to U.S. taxation under either Subchapter L of Chapter 1, or Subpart F of Subchapter N of Chapter 1 of the Internal Revenue Code of 1986, as amended. 10. REPORTS. The administering party is the Ceding Company. The reporting period is quarterly. For each reporting period, the Ceding Company will submit a statement to the Reinsurer with information that is substantially similar to the information displayed in Schedule C. The statement will include information on the risks reinsured with the Reinsurer, premiums owed, policy exhibit activity, and an accounting summary. The Ceding Company agrees to segment/identify COLI/BOLI policies from any other policies reported and provide the Reinsurer with separate reports or identifiers for the COLI/BOLI policies. Within fifteen days after the end of each calendar quarter, the Ceding Company will submit a reserve credit summary similar to that shown in Schedule C. The Ceding Company also agrees to provide the Reinsurer with Additional Reporting Information as contained in Section 5 of Schedule A. 11. RESERVES FOR REINSURANCE. The Reinsurer shall hold reinsurance reserves in accordance with all applicable laws and regulations that the Reinsurer deems controlling. 12. DEATH AND DISABILITY WAIVER OF PREMIUM CLAIMS. a. NOTICE OF DEATH. The Ceding Company will notify the Reinsurer, as soon as reasonably possible, after it receives notice of a death claim (or premium waiver of disability claim) arising from a death (or disability) of an insured under a policy reinsured. b. PROOFS. The Ceding Company will promptly provide the Reinsurer with proper death (or disability) claim proofs (including, for example, proofs required under the policy), all relevant information respecting the existence and validity of the death (or disability) claim, and an itemized statement of the death (or disability) claim benefits paid by the Ceding Company under the policy. c. DEATH CLAIMS PAYABLE. Death claims are payable only as a result of the actual death (or for waiver of premium due to disability) of an insured, to the extent reinsured under this Agreement and for which there is contractual liability for the death claim under the issuing company's in force policy. Except for accelerated death benefits for terminally ill insured individuals (certified by a physician as having an illness or physical condition that can reasonably be expected to result in death in 24 months or less after the date of certification), for which benefits are contractually provided under the issuing company's policy, and which are reinsured hereunder, no acceleration nor estimation of death claims on living individuals is permitted, will not be due, owing or payable, nor form the basis of any claim against the Reinsurer whatsoever. d. AMOUNT AND PAYMENT OF DEATH CLAIMS. After the Reinsurer receives proper death (or disability) claim notice, proofs of the death (or disability) claim, and proof of payment of the death claim by the Ceding Company, the Reinsurer will promptly pay the reinsurance death benefits due and owing to the Ceding Company in one lump sum (or the Reinsurer will pay the Ceding Company its proportional share of the waived premium on an annual basis). The Ceding Company's contractual liability for death (and disability) claims is binding on the Reinsurer. The maximum death benefit payable to the Ceding Company under each reinsured policy is the Net Amount at Risk specifically reinsured hereunder; the Reinsurer will not be nor become liable for any amounts or reserves to be held by the Ceding Company on policies reinsured under this Agreement. The total reinsurance in all companies on a policy shall not exceed the Ceding Company's total contractual liability on the policy, less its amount retained on the policy. The excess, if any, of the total reinsurance in all companies plus the Ceding Company's retained amount on the policy over its contractual liability under the reinsured policy will first be applied to reduce all reinsurance on the policy. This reduction in reinsurance will be shared among all the reinsurers in proportion to their respective amounts of reinsurance prior to the reduction. e. CONTESTED CLAIMS. The Ceding Company will notify the Reinsurer of its intention to contest, compromise, or litigate a claim involving a reinsured policy. If the Ceding Company's contest, compromise, or litigation results in a reduction in its liability, the Reinsurer will share in the reduction in the proportion that the Reinsurer's net liability bears to the sum of the net liability of all reinsurers on the insured's date of death. If the Reinsurer should decline to participate in the contest, compromise or litigation, the Reinsurer will then release all of its liability by paying the Ceding Company its full share of reinsurance death benefits for the policy and not sharing in any subsequent reduction in liability. f. CLAIM EXPENSES. The Reinsurer will pay its share of reasonable investigation and legal expenses connected with the litigation or settlement of contractual liability claims unless the Reinsurer has released its liability, in which case the Reinsurer will not participate in any expenses after the date of release. However, claim expenses do not include routine claim and administration expenses, including the Ceding Company's home office expenses. Also, expenses incurred in connection with a dispute or contest arising out of conflicting claims of entitlement to policy proceeds or benefits that the Ceding Company admits are payable are not a claim expense under this Agreement. g. EXTRA CONTRACTUAL DAMAGES. The Reinsurer will not participate in and shall not be liable to pay the Ceding Company or others for any amounts in excess of the Reinsurer's share of the Net Amount at Risk on the mortality risk reinsured hereunder. Extracontractual damages or liabilities and related expenses and fees are specifically excluded from the reinsurance coverage provided under this Agreement. Extracontractual damages are any damages awarded against the Ceding Company, including, for example, those resulting from negligence, reckless or intentional conduct, fraud, oppression, or bad faith committed by the Ceding Company in connection with the mortality risk insurance reinsured under this Agreement. The excluded extracontractual damages shall include, by way of example and not limitation: i. Actual and consequential damages; ii. Damages for emotional distress or oppression; iii. Punitive, exemplary or compensatory damages; iv. Statutory damages, fines, or penalties; v. Amounts in excess of the risk reinsured hereunder that the Ceding Company pays to settle a dispute or claim; vi. Third-party attorney fees, costs and expenses. However, if the Reinsurer elected in writing to join in the contest of the coverage in question, after full disclosure of all relevant information in the Ceding Company's possession, the Reinsurer shall pay its share of damages awarded by a court against the Ceding Company if the sole basis for the award was due to the denial of the claim. In such instances, the Ceding Company and the Reinsurer shall share such damages so assessed in proportions equal to their share of the policy. 13. POLICY CHANGES. a. NOTICE. If a reinsured policy is changed, a corresponding change will be made in the reinsurance coverage for that policy. The Ceding Company will notify the Reinsurer of the change in the Ceding Company's next accounting statement. b. INCREASES. If life insurance on a reinsured policy is increased and the increase is subject to new underwriting evidence, then the increase of life insurance on the reinsured policy will be handled the same as the issuance of a new policy. If the increase is not subject to new underwriting evidence, and increases are scheduled and known at issue, or due to the product's financial performance, then the increase will be accepted by the Reinsurer, but the increase is not to exceed fifty percent of the Reinsurer's share of the Net Amount at Risk at policy issue. Reinsurance rates will be based on the original issue age, duration since issuance of the original policy and the original underwriting classification. Other increases not subject to new underwriting evidence are not allowed under this Agreement. c. REDUCTIONS OR TERMINATIONS. If life insurance on a reinsured policy is reduced, then the reduction shall be applied first to the reinsured portion, among all reinsurers in accordance to their percentages. If life insurance on a reinsured policy is terminated, then reinsurance will cease on the date of such termination. Reductions and terminations are permitted only when the underlying policyholder directs such a reduction or termination of the issuing company policy that is in force at the time that the reductions and terminations take place. d. NON-FORFEITURE BENEFITS. i. EXTENDED TERM. If the original policy lapses and extended term insurance is elected under the terms of the policy, the Ceding Company will notify the Reinsurer of the new amount of reinsurance. The reinsurance rates will remain the same as the rates used for the original policy and will be based on the original issue age, duration since issuance of the original policy and the original underwriting classification. ii. REDUCED PAID UP. If the original policy lapses and reduced paid up insurance is elected under the terms of the policy, the amount reinsured will be reduced and the Ceding Company will notify the Reinsurer of the new amount of reinsurance. Reinsurance will be reduced by the full amount of the reduction. If the amount of the reduction exceeds the risk amount reinsured, the reinsurance on the policy will be terminated. The reinsurance rates will remain the same as the rates used for the original policy and will be based on the original issue age, duration since issuance of the original policy and the original underwriting classification. 14. EXCHANGES AND REPLACEMENTS. a. NOTICE. If a policy reinsured under this Agreement is exchanged or replaced, as defined below in 14.b, the Ceding Company will notify the Reinsurer of the change in the Ceding Company's next accounting statement. Unless mutually agreed otherwise in writing, policies that are not reinsured with the Reinsurer and that are exchanged or replaced with a plan covered under this Agreement will not be reinsured hereunder. b. EXCHANGES AND REPLACEMENTS. For purposes of this Agreement, an exchange or replacement is a new policy replacing an existing policy of the same type, where the new policy lacks at least one of the following characteristics: new business underwriting, full first year commissions, new suicide period, or new contestable period. New policies resulting from exchanges or replacements in the insurance reinsured hereunder will continue to be ceded to the Reinsurer under this Agreement, in an amount not to exceed the original amount reinsured hereunder. Reinsurance rates for exchanges or replacements will be those in effect at issuance of the original policy and will be point in scale (based on the original issue age, duration, and original underwriting class since issuance of the original policy). The recapture period applicable to the original policy shall govern the new policy and duration shall be measured from the effective date of the original policy. If an exchange or replacement results in an increase in risk amount, the increase will be underwritten by the Ceding Company as new business and will be eligible for reinsurance coverage under this Agreement as new business. When an exchange or replacement is fully underwritten with new suicide and contestable periods and full first year commissions, the resulting policy will be administered the same as the issuance of a new policy. 15. POLICYHOLDER REINSTATEMENTS. a. FACULTATIVE REINSTATEMENT. If the Ceding Company has been requested to reinstate a policy that was originally ceded to the Reinsurer as facultative reinsurance, the Ceding Company will resubmit the case to the Reinsurer for underwriting approval before the reinsurance can be reinstated. b. PREMIUM ADJUSTMENT. The reinsurance premiums for the interval during which the policy was lapsed will be paid to the Reinsurer on the same basis as the Ceding Company charged its policyholder for the reinstatement. c. REINSTATEMENT FOLLOWING REINSURANCE OF NON-FORFEITURE BENEFITS. If the Ceding Company has been requested to reinstate a policy that was reinsured while on extended term or reduced paid-up then the reinsurance for the extended term or reduced paid up option will terminate and the original policy will be reinstated using the facultative reinstatement procedures set forth above. If the reinstatement results in an increase in the Reinsured Net Amount at Risk greater than that attained at the time of the non-forfeiture activity, the terms of Article 13b will govern the increase. 16. INCREASE IN MAXIMUM DOLLAR RETENTION LIMITS AND RECAPTURE. a. NEW BUSINESS. If the Ceding Company increases its Maximum Dollar Retention Limits listed in Section 5 of each Case Exhibit, then it may, at its option and with 90 days' written notice to the Reinsurer, increase its Maximum Dollar Retention Limits shown in Section 5 of each Case Exhibit for policies issued after the effective date of the Maximum Dollar Retention Limit increase. A change to the Ceding Company's maximum Dollar. Retention Limits will not affect the reinsured policies in force except as specifically provided in paragraph 16b, below. b. RECAPTURE. If the Ceding Company increases its Maximum Dollar Retention Limits listed in Section 5 of each Case Exhibit, then it may, with 90 days' written notice to the Reinsurer, reduce or recapture the reinsurance in force subject to the following requirements: i. An in-force cession is not eligible for recapture until it has been reinsured for the minimum number of years shown in Section 3 of Schedule A. The effective date of the reduction in reinsurance will be the later of the first policy anniversary following the expiration of the 90-day notice period to recapture and the policy anniversary date when the required minimum number of years is attained. ii. On all policies eligible for recapture, reinsurance will be reduced by the amount necessary to increase the total insurance retained up to the new Maximum Dollar Retention Limits. iii. If more than one policy per life is eligible for recapture, then any recapture must be effected beginning with the policy with the earliest issue date and continuing in chronological order according to the remaining policies' issue dates. iv. The Ceding Company may not rescind its election to recapture for policies becoming eligible at future anniversaries. v. Recapture of reinsurance will not be allowed on any policy for which the Ceding Company did not keep its Maximum Dollar Retention Limit at issue. The Ceding Company's Maximum Dollar Retention Limits are stated in Section 5 of each Case Exhibit. vi. Recapture will not be made on a basis that may result in any anti-selection against the Reinsurer. The Reinsurer maintains the discretion to determine when anti-selection has occurred. Said determination will be made in a fair and equitable manner. 17. ERROR AND OMISSION. Any unintentional or accidental failure of the Ceding Company or the Reinsurer to comply with the terms of this Agreement which can be shown to be the result of an oversight, misunderstanding or clerical error, will not be deemed a breach of this Agreement. Upon discovery, the error will be corrected so that both parties are restored to the position they would have occupied had the oversight, misunderstanding or clerical error not occurred. Should it not be possible to restore both parties to such a position, the Ceding Company and the Reinsurer shall negotiate in good faith to equitably apportion any resulting liabilities and expenses. This provision applies only to oversights, misunderstandings or clerical errors relating to the administration of reinsurance covered by this Agreement. This provision does not apply to the administration of the insurance provided by the Ceding Company to its insured or any other errors or omissions committed by the Ceding Company with regard to the policy reinsured hereunder. 18. INSOLVENCY. In the event that the Ceding Company is deemed insolvent, all reinsurance death or disability claims payable hereunder will be payable by the Reinsurer directly to the Ceding Company, its liquidator, receiver or statutory successor, without diminution because of the insolvency of the Ceding Company. It is understood, however, that in the event of such insolvency, the liquidator, receiver or statutory successor of the Ceding Company will give written notice to the Reinsurer of the pendency of a death or disability claim against the Ceding Company on a risk reinsured hereunder within a reasonable time after such death or disability claim is filed in the insolvency proceeding. Such notice will indicate the policy reinsured and whether the death or disability claim could involve a possible liability on the part of the Reinsurer. During the pendency of such claim, the Reinsurer may investigate such death or disability claim and interpose, at its own expense, in the proceeding where such death or disability claim is to be adjudicated, any defense or defenses it may deem available to the Ceding Company, its liquidator, receiver or statutory successor. It is further understood that the expense thus incurred by the Reinsurer will be chargeable, subject to court approval, against the Ceding Company as part of the expense of liquidation to the extent of a proportionate share of the benefit that may accrue to the Ceding Company solely as a result of the defense undertaken by the Reinsurer. Where two or more reinsurers are participating in the same death or disability claim and a majority in interest (determined with respect to shares of Net Amount at Risk) elects to interpose a defense or defenses to any such death or disability claim, the expense will be apportioned among the reinsurers in the same proportion that the reinsurer's net liability bears to the sum of the net liability of all reinsurers on the insured's date of death or disability. 19. ARBITRATION. a. GENERAL. Notwithstanding any other provision, all disputes and other matters in question between the parties, arising out of, or relating to this Agreement, shall be submitted exclusively to arbitration upon the written request of either party; except a party shall not be prevented from filing and prosecuting a suit in a court of competent jurisdiction solely for the purpose of obtaining equitable relief, including for example, but not limited to, injunction or enforcement of subpoenas. The disputes and matters subject to arbitration include, but are not limited to disputes upon or after termination of this Agreement, and issues respecting the existence, scope, and validity of this Agreement. The arbitrators are to seek efficiencies in time and expense. The arbitrators are not bound to comply strictly with the rules of evidence. The arbitration panel also has, for example, the authority to issue subpoenas to third parties compelling prehearing depositions, and for document production. The arbitrators will have the authority to interpret this Agreement and, in doing so, will consider the customs and practices of the life insurance and life reinsurance industries. The arbitrators will consider this Agreement an honorable engagement rather than merely a legal obligation, and they are relieved of all judicial formalities and may abstain from following the strict rules of law. b. NOTICE. To initiate arbitration, one of the parties will notify the other, in writing, of its desire to arbitrate. The notice will state the nature of the dispute and the desired remedies. The party to which the notice is sent will respond to the notification in writing within 10 days of receipt of the notice. At that time, the responding party will state any additional dispute it may have regarding the subject of arbitration. c. PROCEDURE. Arbitration will be heard before a panel of three arbitrators. The arbitrators will be current or former executive officers of life insurance or life reinsurance companies other than either party or an affiliate of either party. Each party will appoint one arbitrator. Notice of the appointment of these arbitrators will be given by each party to the other party within 30 days of the date of mailing of the notification initiating the arbitration. These two arbitrators will, as soon as possible, but no longer than 45 days after the day of the mailing of the notification initiating the arbitration, then select the third arbitrator. In the event that either party should fail to choose an arbitrator within 30 days after the other party has given notice of its arbitrator appointment, the party which has already appointed an arbitrator may choose an additional arbitrator, and the two shall, in turn, choose a third arbitrator before entering arbitration. If the two arbitrators are unable to agree upon the selection of a third arbitrator within 30 days following their appointment, each arbitrator shall nominate three candidates within 10 days thereafter, two of whom the other shall decline and the decision shall be made by drawing lots. Once chosen, the three arbitrators will have the authority to decide all substantive and procedural issues by a majority vote. The arbitrators shall operate in a fair but cost efficient manner. For example, the arbitrators are not bound by technical rules of evidence and may limit the use of depositions and discovery. The arbitration hearing will be held on the date fixed by the arbitrators at a location agreed upon by the parties. The arbitrators will issue a written decision from which there will be no appeal. Either party may reduce this decision to a judgment before any court that has jurisdiction of the subject of the arbitration. Each party will pay the fees of its own attorneys, the arbitrator appointed by that party, and all other expenses connected with the presentation of its own case. The two parties will share equally in the cost of the third arbitrator. The arbitration panel may, in its discretion, award attorneys' fees, costs, expert witness fees, expenses and interest, all as it deems appropriate to the prevailing party. 20. OFFSET. All undisputed amounts due or otherwise accrued to any of the parties hereto or any of their parents, affiliates, or subsidiaries, whether by reason of premiums, losses, expenses, or otherwise, under this Agreement or any other contract heretofore or hereafter entered into, will at all times be fully subject to the right of offset and only the net balance will be due and payable. The right of offset will not be affected or diminished because of the insolvency of either party. 21. GOOD FAITH: FINANCIAL SOLVENCY AND INSPECTION OF RECORDS. This Agreement is entered into in reliance on the utmost good faith of the parties including, for example, their warranties, representations and disclosures. It requires the continuing utmost good faith of the parties, their representatives, successors, and assigns. This includes a duty of full and fair disclosure of all information respecting the formation and continuation of this contract and the business reinsured hereunder. The Ceding Company affirms that it has disclosed and will continue to disclose to the Reinsurer all matters material to this Agreement and each reinsurance cession. Examples of such matters are a change in underwriting or issue practices or philosophy, a change in underwriting management personnel, or a change in the Ceding Company's ownership or control. Each party represents and warrants to the other party that it is solvent on a statutory basis in all states in which it does business or is licensed. Each party agrees to promptly notify the other if it is subsequently financially impaired. Each party or its assigned representative shall have the right at any reasonable time to inspect the books, records, papers, files, policies and other matters respecting this Agreement. The party whose records are inspected agrees to provide a reasonable workspace for such inspection, to cooperate fully and to disclose the existence of and to produce any and all necessary and reasonable materials requested by such inspectors. Each party will bear its own audit expenses. All such information, including inspection reports and analyses, will be subject to confidentiality between the parties. 22. TREATMENT OF Confidential INFORMATION. Except for the purposes of carrying out this Agreement and as required by law, the Reinsurer shall not disclose or use any non-public personally identifiable customer or claimant information ("Customer/Claimant Information") provided by the Ceding Company to the Reinsurer, as such Customer/Claimant Information is defined by the Gramm-Leach-Bliley Act and related regulations. Such Customer/Claimant Information shall be shared only with those entities with which the Reinsurer may, from time to time, contract in accordance with the fulfillment of the terms of this Agreement, including but not limited to the Reinsurer's retrocessionaires and the Reinsurer's affiliates. 23. TERM OF THIS AGREEMENT AND TERMINATION. The Ceding Company will maintain and continue the reinsurance provided in this Agreement as long as the policy to which it relates is in force or has not been fully recaptured. This Agreement may be terminated, without cause, for the acceptance of new reinsurance after 90 days' written notice of termination by either party to the other. The Reinsurer will continue to accept reinsurance during this 90-day period. The Reinsurer's acceptance will be subject to both the terms of this Agreement and the Ceding Company's payment of applicable reinsurance premiums. In addition, this Agreement may be terminated immediately for the acceptance of new reinsurance by either party if one of the parties materially breaches this Agreement, or becomes insolvent or financially impaired. 24. SPECIAL TERMINATION. a. Upon occurrence of any of the Trigger Events set forth below in Paragraph b. of this Article 24, the Ceding Company may, at its option, give written notice via certified mail to the Reinsurer of its intent to terminate this Agreement. Unless such written notice is subsequently withdrawn by the Ceding Company or the Reinsurer cures such Trigger Event condition, on the 90th calendar day after receipt of such written notice by the Reinsurer (the "Termination Date"), this Agreement will terminate on the basis set forth in Paragraph c. of this Article 24. b. The Trigger Events under which the Ceding Company may terminate this Agreement in accordance with Paragraph a. of this Article 24 are limited to the events described in the following sub-paragraphs i, ii, and iii. However, the Ceding Company's right to terminate the Agreement pursuant to sub-paragraphs i, ii, or iii below will expire when the event no longer applies or if the Reinsurer is considered to have cured such condition, as described for the Trigger Events contained in sub-paragraphs i and iii. i) The publicized claims paying ability ratings assigned to the Reinsurer by two or more of the Specified Industry Rating Agencies fall below the Minimum Acceptable Ratings defined m the following table for more than 90 consecutive business days. The Reinsurer will be considered to have cured such condition if, during the 90 day notice period described in Paragraph a. of this Article 24, the Reinsurer's claims paying ability ratings from three or more of the specified Industry Rating Agencies become equal to or higher than the ratings shown in this subsection: Specified Industry Rating MINIMUM ACCEPTABLE RATINGS Agencies Standard & Poor's BBB- Moody's A3 A.M. Best A- Duff & Phelps BBB- For purposes of this sub-paragraph i, the Specified Industry Rating Agencies shall be the four Industry Rating Agencies listed in the above table. However, any Industry Rating Agency that has either discontinued its ratings services for any period of time, or has not published a current claims paying ability rating for the Reinsurer for any period of time shall not be a Specified Industry Rating Agency for that period. ii) The Insurance Commissioner of the Reinsurer's state of domicile declares the Reinsurer insolvent. iii) The Insurance Commissioner in a state where the Ceding Company and the Reinsurer are licensed or authorized issues a letter stating that the Ceding Company is not permitted to take credit on its financial statement for the reinsurance ceded to the Reinsurer under this Agreement due to reasons related to the Reinsurer's financial condition. The Reinsurer may cure such condition during the 90 day notice period described in Paragraph a. of this Article 24 by enabling the Ceding Company to receive credit on its financial statement for the reinsurance ceded to the Reinsurer under this Agreement. c. Upon the Termination Date, the Reinsurer will calculate a terminal accounting that will include a refund of unearned premiums and unpaid death claims, whether or not the death claims were reported to the Reinsurer prior to the Termination Date. The Ceding Company will pay the Reinsurer any unpaid premiums earned prior to the Termination Date for policies covered by the Agreement. The Reinsurer will not pay to the Ceding Company any amount representing the reserve held on the business. Payment of amounts specified in this paragraph will be considered the full and complete discharge of all obligations of the Ceding Company and the Reinsurer under this Agreement. 25. MEDICAL INFORMATION BUREAU. The Reinsurer is required to strictly adhere to the Medical Information Bureau Rules, and the Ceding Company agrees to abide by these Rules, as amended from time to time. The Ceding Company will not submit a preliminary notice, application for reinsurance, or reinsurance cession to the Reinsurer unless the Ceding Company has an authentic, signed preliminary or regular application for insurance in its home office and the current required Medical Information Bureau authorization. 26. SEVERABILITY. In the event that any court, arbitrator, or administrative agency determines any provision or term of this Agreement to be invalid, illegal or unenforceable, all of the other terms and provisions of this Agreement shall remain in full force and effect to the extent that their continuance is practicable and consistent with the original intent of the parties. However, in the event this Article is exercised and the Agreement no longer reflects the original intent of the parties, the parties agree to attempt to renegotiate this Agreement in good faith to carry out its original intent. 27. SURVIVAL. All provisions of this Agreement shall survive its termination to the extent necessary to carry out the purposes of this Agreement or to ascertain and enforce the parties' rights or obligations hereunder existing at the time of termination. 28. NON-WAIVER. No waiver by either party of any violation or default by the other party in the performance of any promise, term or condition of this Agreement shall be construed to be a waiver by such party of any other or subsequent default in performance of the same or any other promise, term or condition of this Agreement. No prior transactions or dealings between the parties shall be deemed to establish any custom or usage waiving or modifying any provision hereof. The failure of either party to enforce any part of this Agreement shall not constitute a waiver by such party of its right to do so, nor shall it be deemed to be an act of ratification or consent. 29. COLORADO LAW AND JURISDICTION This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado without regard to any jurisdiction's choice of law rules. In the event of the need for a judicial determination respecting this Agreement, the Ceding Company and the Reinsurer will consent to the jurisdiction of any court of general jurisdiction within the State of Colorado. With respect to this Agreement, the Reinsurer and the Ceding Company consent to and appoint the Commissioner of Insurance of the State of Colorado as agent for service of process. 0526-2942 COLI 01/18/2002 15 SCHEDULE A COVERAGE AND LIMITS 1. PLANS REINSURED: Policies eligible for reinsurance under this Agreement are guaranteed issue Corporate Owned Life Insurance or Bank Owned Life Insurance as set forth in Section 1 of each Case Exhibit. 2. PREMIUM DUE: Reinsurance premiums are due annually in advance. These premiums are due with the next quarterly billing following the date the policy is placed in force and with each subsequent quarterly billing following each policy anniversary. 3. RECAPTURE PERIOD: Recapture is only allowed in accordance with Article 16.b of this Agreement. The minimum number of years for a cession to be reinsured before it is eligible for recapture pursuant to Article 16.b. is 10 years. 4. NET AMOUNT AT RISK: The net amount at risk on the policies and riders eligible for reinsurance under this Agreement, is defined below: Option A Base Policy: The Net Amount at Risk is the Death Benefit minus the Account Value, where the Death Benefit is the greater of the Face Amount or the minimum amount required under Section 7702 of the IRC. Option B Base Policy: The Net Amount at Risk is the Death Benefit minus the Account Value, where the Death Benefit is the greater of the Face Amount plus Policy Value or the minimum amount required under Section 7702 of the IRC. For purposes of this Agreement, the following will apply: The Face Amount is the amount the Ceding Company uses to determine the death benefit and proceeds payable under the policy. The Initial Base Face Amount will be shown in the Policy Data of the policy. 5. ADDITIONAL REPORTING INFORMATION: For all policies include: 1. Underwriting Indicator: GI/SI/RI 2. 2. Corporation or Bank Name In addition, for policies that are a part of a group where the Reinsurer's share of the group Net Amount at Risk under this Agreement exceeds $50,000,000, include: 1. Working Address. This needs to be provided to the Reinsurer as soon as possible after the Case is placed. SCHEDULE B REINSURANCE PREMIUMS -YEARLY RENEW ABLE TERM BASIS 1. REINSURANCE PREMIUMS -LIFE: Standard annual reinsurance premiums per $1000 reinsured are the Reinsurance Rates attached to this Schedule B, as Schedule B-1, multiplied by the Reinsurance Percentages set forth in Section 6 of each Case Exhibit, applied to the appropriate issue age and duration since issuance of the reinsured policy. SCHEDULE B-1 REINSURANCE PREMIUM REINSURANCE RATES 1983 GAM Table (Male & Female) 1983 GAM Tables (per 1000) Attained Attained Age Male Female Age Male Female 0 0 0 60 9,158 4,241 1 0 0 61 10,064 4,703 2 0 0 62 11,133 5,210 3 0 0 63 12,391 5,769 4 0 0 64 13,868 6,386 5 0 0 65 15,592 7,064 6 0 0 66 17,579 7,817 7 0 0 67 19,804 8,681 8 0 0 68 22,229 9,702 9 0 0 69 24,817 10,922 10 0 0 70 27,530 12,385 11 0 0 71 30,354 14,128 12 0 0 72 33,370 16,160 13 0 0 73 36,680 18,481 14 0 0 74 40,388 21,092 15 0.325 0.140 75 44,597 23,992 16 0.333 0.149 76 49,388 27,185 17 0.343 0.159 77 54,758 30,672 18 0.353 0.168 78 60,678 34,459 19 0.365 0.179 79 67,125 38,549 20 0.377 0.189 80 74,070 42,945 21 0.392 0.201 81 81,484 47,655 22 0.408 0.212 82 89,320 52,691 23 0.424 0.225 83 97,525 58,071 24 0.444 0.239 84 106,047 63,807 25 0.464 0.253 85 114,836 69,918 26 0.488 0.268 86 124,170 76,570 27 0.513 0.284 87 133,870 83,870 28 0.542 0.302 88 144,073 91,935 29 0.572 0.320 89 154,859 101,354 30 0.607 0.342 90 166,307 111,750 31 0.645 0.364 91 178,214 123,076 32 0.687 0.388 92 190,460 135,630 33 0.734 0.414 93 203,007 149,577 34 0.785 0.443 94 217,904 161,503 35 0.860 0.476 95 234,086 182,419 36 0.907 0.502 96 248,436 201,757 37 0.966 0.536 97 263,954 222,044 38 1.039 0.573 98 280,803 243,899 39 1.128 0.617 99 299,154 268,185 40 1.238 0.665 100 319,185 295,187 41 1.370 0.716 101 341,086 325,225 42 1.527 0.775 102 365,052 358,897 43 1.715 0.842 103 393,102 395,843 44 1.932 0.919 104 427,255 438,360 45 2.183 1.010 105 469,531 487,816 46 2.471 1.117 106 521,945 545,886 47 2.790 1.237 107 586,518 614,309 48 3.138 1.366 108 665,268 694,885 49 3.513 1.505 109 760,215 789,474 50 3.909 1.647 110 1000 1000 51 4.324 1.793 111 1000 1000 52 4.755 1.949 112 1000 1000 53 5.200 2.120 113 1000 1000 54 5.660 2.315 114 1000 1000 55 6.131 2.541 115 1000 1000 56 6.618 2.803 116 1000 1000 57 7.139 3.103 117 1000 1000 58 7.719 3.443 118 1000 1000 59 8.384 3.821 119 1000 1000 SCHEDULE C REPORTING INFORMATION INFORMATION ON RISKS REINSURED 1. Type of Transaction 2. Effective Date of Transaction 3. Automatic/Facultative Indicator 4. Regular / Simplified / Guaranteed Issue Indicator 5. Policy Number 6. Full Name of Insured 7. Date of Birth 8. Male / Female / Unisex 9. Smoker/Nonsmoker/Unismoke 10. Policy Plan Code 11. Insured's State of Residence 12. Issue Age 13. Issue Date 14. Duration from Original Policy Date 15. Face Amount Issued 16. Reinsured Amount (Initial Amount) 17. Reinsured Amount (Current Amount at Risk) 18. Death Benefit Option (For Universal Life Type Plans) 19. ADB Amount (If Applicable) 20. Substandard Rating 21. Flat Extra Amount Per Thousand 22. Duration of Flat Extra 23. PW Rider (Yes or No) 24. Previous Policies (Yes or No) 25. Premiums 26. COLI / BOLl 27. Name or Identifier of Corporation or Bank 28. Working Address, if applicable 0526-2942 COLI 01/18/2002 20 GREAT-WEST LIFE & ANNUITY 2000 CEDED POOL POOL CODE 1042 INFORCE BUSINESS AS OF QUARTER _________
S S CURRENT CURR ISS E / POLICY REIN JT CV PLAN LIFE CURRENT INSURED POLICY NBR RES BIRTHDATE AGE X N DATE RATING AVI IN TY CODE RISK PREMIUM CNT ALL AMOUNTS MUST BE MULTIPLIED BY YOUR COMPANY SHARE date PAGE # date
AQ72RINP -STATUTORY, TAX, GAAP RESERVES CEDED REINSURANCE (DATE) 2000 GWLA CEDED POOL
GAAP SUBSTANDARD RESERVE REI ISSUE NO. OF OFFICIAL USCB BENEFIT RESERVE BASIS TYPE YEAR POLICIES AMOUNT RESERVE RESERVE (MISC BENEFITS) ALL AMOUNTS MUST BE MULTIPLIED BY YOUR COMPANY SHARE PAGE # date
0526-2942 COLI 01/18/2002 22 SCHEDULE C ___ QUARTER 200___
TO: - -------------------------------------------------------------------------------------- POLICY EXHIBIT FOR: (100% figures) ----------------------------------------------------------------- Life Life Premium Waiver Count Volume Count Volume INFORCE --------------------- -------------------------------------------------- + NEW BUSINESS -------------------------------------------------- + REINSTATEMENTS -------------------------------------------------- + OTHER NET INCREASES -------------------------------------------------- - -DEATH CLAIMS -------------------------------------------------- - -LAPSES -------------------------------------------------- - -SURRENDERS -------------------------------------------------- - -OTHER NET DECREASES -------------------------------------------------- INFORCE --------------------- RESERVES LIFE: PREMIUM WAIVER + MISC. BENEFITS: PREMIUM PREMIUMS LIFE WAIVER TOTAL PREMIUMS FIRST YEAR: ____ _________ ______ RENEWAL: ____ _________ ______ DISBURSEMENTS CLAIMS + CLAIMS EXPENSE _____ _________ ______ INTEREST: _____ _________ ______ TOTAL PREMIUMS LESS DISBURSEMENTS _____ _________ ______ COMPANY SHARE @ __________ _____ ________ _____*** ***If this is positive, check due your company is enclosed. If this is negative, please send check for this amount.
CASE EXHIBIT 1 1. CASE NAME: Frost National Bank Case 2. CASE ISSUE DATE: December 29, 2000 3. REINSURANCE BASIS: Reinsurance for the Frost National Bank Case is on a first dollar quota share basis. The Ceding Company will retain, and not otherwise reinsure, an amount of insurance on each life equal to the Ceding Company's Quota Share Percentage Amount of the policy as set forth in Section 8 of this Case Exhibit 1. 4. REINSURED AMOUNT: The Ceding Company's Quota Share Percentage Amount is shown in Section 8 of this Case Exhibit 1. The Reinsurer shall reinsure 53.00% of the Net Amount at Risk, as defined in Section 4 of Schedule A, up to the Ceding Company's Maximum Dollar Retention Limits, as set forth in Section 5 of this Case Exhibit 1, and 100.00% of the Net Amount at Risk beyond the Ceding Company's Maximum Dollar Retention Limits, subject to a maximum Reinsured Net Amount at Risk of $1 ,500,000 per life. 5. CEDING COMPANY'S MAXIMUM DOLLAR RETENTION LIMITS: a. Life Insurance: The following values are the Ceding Company's Corporate Owned Life Insurance and Bank Owned Life Insurance Maximum Dollar Retention Limits for the Frost National Bank Case. --------------------------------- ------------------------------- Issue Ages Guaranteed Issue --------------------------------- ------------------------------- --------------------------------- ------------------------------- 25--70 $1,500,000.00 --------------------------------- ------------------------------- 6. REINSURANCE PERCENT AGES: Standard annual reinsurance premiums per $1000 reinsured are the following Reinsurance Percentages multiplied by the Reinsurance Rates (1983 GAM Table), as set forth in Section 1 of Schedule B, applied to the appropriate issue age and duration since issuance of the reinsured policy. ------------------------------ --------------------------- Policy Years Percentages ------------------------------ --------------------------- ------------------------------ --------------------------- Years 1 through 4 95.0% ------------------------------ --------------------------- ------------------------------ --------------------------- Years 5+ 64.0% ------------------------------ --------------------------- CASE EXHIBIT 1. CONTINUED 7. SUPPLEMENTAL BENEFITS AND RIDERS REINSURED: Supplemental benefits and riders are not reinsured under this Agreement. 8. CEDING COMPANY'S QUOTA SHARE PERCENTAGE AMOUNT: The Ceding Company shall retain 47.00% of the Net Amount at Risk, as defined in Section 4 of Schedule A, up to the Ceding Company's Maximum Dollar Retention Limits, as set forth in Section 5 of this Case Exhibit 1. 9. EXPERIENCE REFUND FORMULA: The Experience Refunds for the Frost National Bank Case will be calculated annually on each December 31, beginning with December 31, 2001. Reinsurance Premiums and death claim values used in the calculation will be as per close of the Ceding Company's books on each December 31st and will be solely the Reinsurer's share. The amount of the Experience Refund will be payable to the Ceding Company from the Reinsurer within 30 days after such calculation is reported by the Ceding Company and agreed to by the Reinsurer. Over due amounts may be charged interest at the rate i(t). For calendar year (t), i (t) = annual interest rate applicable for calendar year (t) = arithmetic average of monthly interest rates applicable to reserves on underlying case Paid Reinsurance Premium (t) = reinsurance premiums due or paid corresponding to calendar year (t-1) Paid Death Claims (t) = the Reinsurer's share of recoverable death claims paid by the Ceding Company and billed to the Reinsurer in calendar year (t) Expected Death Claims(t), where t = 1,2,3,4 = (Paid Reinsurance Premium (t) + 0.95) * 0.90 Expected Death Claims(t), where t > 4 = (Paid Reinsurance Premium (t) + 0.64) * 0.60 Death Claims Fluctuation Reserve(t) = CFR(t) = 2 x Expected Death Claims (t) IBNR (t) = 0.25 x Expected Death Claims (t) Target Reserve (t) = CFR (t) + IBNR (t) Initial Reserve (0) = 0 Initial Reserve (t), where t = 1,2,3,4 = [(paid Reinsurance Premium (t) + 0.95) * 0.90 * (1 + i(t))] - - [(Paid Death Claims (t) * (1 + i(t)10.5)] + [(Final Reserve (t-1) * (1 + i(t))] Initial Reserve (t), where t > 4 = [(Paid Reinsurance Premium (t) + 0.64) * 0.60 * (1 + i(t)] -[(Paid Death Claims (t) * (1 + i(t))"0.5)] + [(Final Reserve (t-l) * (1 + i(t))] Experience Refund (t) = Maximum{0; Initial Reserve (t) -Target Reserve (t)} Final Reserve (t) = Initial Reserve (t) -Experience Refund (t) 10. AGE BASIS: Age Nearest Birthday EX-99 9 exhibit27mcalculation.txt COLI VUL 2 485(B) FOR APRIL 2003 Exhibit 27(m) Male, Nonsmoker, Age 45 $1,000.00 Face Amount Level Death Assumed Crediting Rate 12% Net Crediting Rate 10.60% Guaranteed Issue
Gross Net Service Contract Surrender Death Year Month Premium Premium Charge NAR COI Int Value Value Benefit 4 12 7.5 945855 $198.63 $427.18 $51,103.01 $52,363.10 $1,000,000.00 5 1 12,524.03 11,396.87 7.5 934237 $355.01 $523.80 $62,661.17 $63,914.39 $1,000,000.00 5 2 0 7.5 934076 $354.95 $525.16 $62,823.88 $64,080.36 $1,000,000.00 5 3 0 7.5 933913 $354.89 $526.53 $62,988.02 $64,247.78 $1,000,000.00 5 4 0 7.5 933749 $354.82 $527.92 $63,153.62 $64,416.69 $1,000,000.00 5 5 0 7.5 933583 $354.76 $529.31 $63,320.67 $64,587.08 $1,000,000.00 5 6 0 7.5 933416 $354.70 $530.72 $63,489.19 $64,758.97 $1,000,000.00 5 7 0 7.5 933248 $354.63 $532.14 $63,659.20 $64,932.38 $1,000,000.00 5 8 0 7.5 933078 $354.57 $533.58 $63,830.71 $65,107.32 $1,000,000.00 5 9 0 7.5 932906 $354.50 $535.02 $64,003.73 $65,283.80 $1,000,000.00 5 10 0 7.5 932733 $354.44 $536.48 $64,178.27 $65,461.83 $1,000,000.00 5 11 0 7.5 932559 $354.37 $537.95 $64,354.35 $65,641.44 $1,000,000.00 5 12 0 7.5 932383 $354.31 $539.44 $64,531.98 $65,822.62 $1,000,000.00
The following calculations are for Year 5, Month 1 Cash Value Accumulation Test takes the contract value from the previous month times the CVAT factor to determine what the minimum death benefit will be going forward. $51,103.01 * 2.59824 (factor for age 49) = $132,777.88 - this number is < the $1,000,000 death benefit so no adjustment is necessary. Net Premium equals the Gross Premium Amount less the policy load. The policy load is calculated as follows: as 9% up to Target Premium and 6.50% above Target. Target Premium = $15,825.70 $12,524.03 * .09 = $1,127.16 Total Load $12,524.03 - $1,127.16 = $11,396.87 Net Premium Service Charge is $7.50 each month for policy years 4+. Service Charge is $10.00 for years 1-3. Net Amount at risk = the face amount * 1.00327374 (discount factor) less the Policy Value Account (for Level Death Benefit) $1,000,000 * 1.00327374 = 996,737 - $62,499.88 (EOY 4 + $11,396.87) = $934,237 Total Net Amount at Risk Monthly COI Charge = Annual Risk Rate (age 49) / 12,000 * NAR $4.56/12,000 = .00038 * $934,237 = $355.01 Assumed Gross Crediting Rate of 12.0% less the daily fund advisory fee and operating expenses of .86% less the daily risk percentage charged against the Series Account for mortality and expense of .40% equaling an annual net effective rate of 10.60% Interest = Contract Value less Service Charge and COI * Net Crediting Rate discounted with a monthly interest factor $62,137.37 * .008431169 = $523.88 [(1+0.12)(1/365) - ((0.40 + 0.86)/365)]365 - 1 = 10.60% - (1.1060)1/12 - 1 = .008431169 Contract Value = End of Year 4 value plus Net Premium less Service Charge and COI, plus interest $51,103.01 + $11,396.87 - $7.50 - 355.01 + $523.88 = $62,661.17 Surrender Value = Contract Value * 1.02% (one plus percentage used for policy year 5 for return of expense charge) $62,661.17 * 1.02 = $63,914.39. Return of Expense percentage starts at 6.0% in year one and grades down one percentage point each year until year 7. Death Benefit = Face Amount for Level Death Benefit Option Months 2 through 12 are calculated the same way except no premiums are paid during this period, therefore no premium load is charged. EX-1 10 underwritingagmt.txt COLI VUL 2 485(B) APRIL 2003 Exhibit 27(c) UNDERWRITING AGREEMENT THIS UNDERWRITING AGREEMENT made this 1st day of July , 1999, by and between BenefitsCorp Equities, Inc. (the "Underwriter") and Great-West Life & Annuity Insurance Company (the "Insurance Company"), on its own behalf and on behalf of GWL&A VUL Series Account 2 (the "Series Account"), as follows: WHEREAS, the Insurance Company has or will register the Series Account as a unit investment trust under the Investment Company Act of 1940, as amended (the "1940 Act") and has or will register the Contracts under the Securities Act of 1933; WHEREAS, the Underwriter is registered as a broker dealer with the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, the Insurance Company and the Series Account desire to have the Contracts sold and distributed through the Underwriter, and the Underwriter is willing to sell and distribute such Contracts under the terms stated herein; NOW THEREFORE, the parties hereto agree as follows: 1. Representations, Responsibilities and Warranties of Insurance Company 1.01 The Insurance Company represents that it has the authority, and hereby agrees to, grant the Underwriter the right to serve as the distributor and principal underwriter of the Contracts during the term of this Agreement. 1.02 The Insurance Company represents and warrants that it is duly licensed as an insurance company under the laws of the State of Colorado and that it has taken all appropriate actions to establish the Series Account in accordance with state and federal laws. 1.03 The Insurance Company agrees to update and maintain a current prospectus for the Contracts as required by law. 1.04 The Insurance Company represents that it reserves the right to appoint or refuse to appoint, any proposed associated person of the Underwriter as an agent or broker of the Insurance Company. The Insurance Company also retains the right to terminate such agents or brokers once appointed. 1.05 On behalf of the Series Account, the Insurance Company shall furnish the Underwriter with copies of all financial statements and other documents which the Underwriter reasonably requests for use in connection with the distribution of the contracts. 2. Representations, Responsibilities and Warranties of Underwriter 2.01 Underwriter represents that it has the authority and hereby agrees to serve as distributor and principal underwriter of the Contracts during the term of this Agreement. 2.02 The Underwriter represents that it is duly registered as a broker-dealer under the 1934 Act and is a member in good standing of the NASD and to the extent necessary to offer the Contracts, shall be duly registered or otherwise qualified under the securities laws of any state or other jurisdiction. 2.03 The Underwriter agrees to use its best efforts to solicit applications for the Contracts, and to undertake, at its own expense, to provide all sales services relative to the Contracts and otherwise to perform all duties and functions which are necessary and proper for the distribution of the Contracts. 2.04 The Underwriter agrees to offer the Contracts for sale in accordance with the prospectus therefor, then in effect. The Underwriter represents and agrees that it is not authorized to give any information or make any representations concerning the Contracts other than those contained in the current prospectus as filed with the SEC or in such sales literature as may be authorized by the Insurance Company. 2.05. The Underwriter shall be fully responsible for carrying out its sales, underwriting and compliance supervisory obligations hereunder in compliance with the NASD Conduct Rules and all other relevant federal and state securities laws and regulations. Without limiting the generality of the foregoing, the Underwriter agrees that it shall have full responsibility for: (a) ensuring that no person shall offer or sell the Contracts on its behalf until such person is duly registered as a representative of the Underwriter, and duly licensed and appointed by the Insurance Company; (b) ensuring that no person shall offer or sell the Contracts on its behalf until the Underwriter has confirmed that the Insurance Company is appropriately licensed, or otherwise qualified to offer and sell such Contracts under the federal securities laws and any applicable state or jurisdictional securities and/or insurance laws in each state or jurisdiction in which such Contracts may be lawfully sold; (c) continually training, supervising, and controlling all registered representatives and other agents of the Underwriter for purposes of complying with the NASD Conduct Rules and with federal and state securities laws which may be applicable to the offering and sale of the Contracts. In this respect, the Underwriter shall: (1) conduct training programs (including the preparation and utilization of training materials) as is necessary, in the Underwriter's opinion, to comply with applicable laws and regulations; (2) establish and implement reasonable written procedures for the supervision of the sales practices of agents, representatives or brokers who sell the Contracts; and (3) take reasonable steps to ensure that its associated persons shall not make recommendations to an applicant to purchase a Contract in the absence of reasonable grounds to believe that the purchase of the Contract is suitable for such applicants; and (d) supervising and ensuring compliance with NASD rules of all administrative functions performed by the Underwriter with respect to the offering and sale of the Contracts and representations with respect to the Series Account. 2.06 The Underwriter, or its affiliates, on behalf of the Insurance Company, shall apply for the proper insurance licenses in the appropriate states or jurisdictions for the designated persons associated with the Underwriter or with independent broker-dealers which have entered into agreements with the Underwriter for the sale of the Contracts. The Underwriter agrees to pay all licensing or other fees necessary to properly authorize such persons for the sale of the Contracts. 2.07 The Underwriter shall have the responsibility for paying (i) all commissions or other fees to its associated persons which are due for the sale of the Contracts and (ii) any compensation to independent broker-dealers and their associated persons due under the terms of any sales agreements between the Underwriter and such broker-dealers. Provided, however, the Insurance Company retains the ultimate right to reject any commission rate allowed by the Underwriter. Furthermore, no associated person or independent broker-dealer shall have an interest in the surrender charges, deductions or other fees payable to Underwriter as set forth herein. The Underwriter shall have the responsibility for calculating and furnishing periodic reports to the Insurance Company as to the sale of the Contracts, and as to the commissions and service fees payable to persons selling the Contracts. 3. Records and Confidentiality 3.01 The Insurance Company and the Underwriter shall cause to be maintained and preserved for the periods prescribed, such accounts, books, records, files and other documents and materials ("Records") as are required of it by the 1940 Act and any other applicable laws and regulations. The Records of the Insurance Company, the Series Account and the Underwriter as to all transactions hereunder shall be maintained so as to disclose clearly and accurately the nature and details of the transactions. 3.02 The Underwriter shall cause the Insurance Company to be furnished with such Records, or copies thereof, as the Insurance Company may reasonably request for the purpose of meeting its reporting and recordkeeping requirements under the insurance laws of the State of Colorado and any other applicable states or jurisdictions. 3.03 The Insurance Company shall cause the Underwriter to be furnished with any Records, or copies thereof, as the Underwriter may reasonably request for the purpose of meeting its reporting and recordkeeping requirements under the federal securities laws or the securities laws of any inquiring jurisdiction. 3.04 The Underwriter agrees and understands that all Records shall be the sole property of the Insurance Company and that such property shall be held by the Underwriter, or its agents during the term of this agreement. Upon termination, all Records shall be returned to the Insurance Company. 3.05 Insurance Company agrees and understands that the Underwriter may maintain copies of the Records as is required by any relevant securities law, the SEC, the NASD or any other self regulatory agency. 3.06 Underwriter shall establish and maintain facilities and procedures for the safekeeping of all Records relative to this Agreement. 3.07 The parties hereto agree that all Records pertaining to the business of the other party which are exchanged or received pursuant to this Agreement, shall remain confidential and shall not be voluntarily disclosed to any other person, except to the extent disclosure thereof may be required by law. All such confidential information in the possession of each of the parties hereto shall be returned to the party from whom it was obtained upon the termination or expiration of this Agreement. 4. Relationship of the Parties 4.01 Notwithstanding anything in this Agreement to the contrary, the Underwriter or the Insurance Company may enter into sales agreements with independent broker-dealers for the sale of the Contracts. 4.02 All such sales agreements as described in 4.01, above, which are entered into by the Insurance Company or the Underwriter shall provide that each independent broker-dealer will assume full responsibility for continued compliance by itself and its associated persons with NASD Conduct Rules and applicable federal and state securities laws. All associated persons of such independent broker-dealers soliciting applications for the Contracts shall be duly and appropriately licensed and/or appointed for the sale of the Contracts under the insurance laws of the applicable state or jurisdiction in which the Contracts may be lawfully sold. 4.03 The services of the Underwriter to the Series Account hereunder are not to be deemed exclusive and the Underwriter shall be free to render similar services to others so long as the services rendered hereunder are not interfered with or impaired. 5. Term and Termination 5.01 Subject to termination, the Agreement shall remain in full force and effect for one year, and shall continue in full force and effect from year to year until terminated as provided below. Each additional year shall be an additional term of this Agreement. 5.02 This Agreement may be terminated: (a) by either party upon sixty (60) days written notice to the other party; (b) immediately, upon written notice in the event of bankruptcy or insolvency of one party; (c) at any time upon mutual written consent of the parties; (d) immediately in the event of its assignment; provided however, "assigned" shall not include any transaction exempted from section 15(b)(2) of the 1940 Act; (e) immediately in the event that the Underwriter no longer qualifies as a broker-dealer under applicable federal law; and (f) immediately in the event of fraud, misrepresentation, conversion or unlawful withholding of funds by a party. 5.03 Upon termination of this Agreement, all authorization, rights, and obligations shall cease except the obligations to settle accounts hereunder, including payments or premiums or contributions subsequently received for Contracts in effect at the time of termination or issued pursuant to applications received by the Insurance Company prior to termination. 5.04 After notice of termination, the parties agree to cooperate to effectuate an orderly transition of all accounts, payments and Records. 6. Miscellaneous 6.01 This Agreement shall be subject to the provisions of the 1940 Act, the 1934 Act and the rules, regulations and rulings thereunder. In addition it shall be subject to the rulings of the NASD, as issued from time to time, and any exemptions from the 1940 Act the SEC may grant. All terms of this Agreement will be interpreted and construed in accordance with compliance of this section 6.01. 6.02 Except as otherwise provided, Underwriter acknowledges that Insurance Company retains the overall right and responsibility to direct and control the activities of the Underwriter. 6.03 If any provisions of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall remain in full force and effect. 6.04 This Agreement constitutes the entire Agreement between the parties hereto and may not be modified except in a written instrument executed by all the parties hereto. 6.05 This Agreement shall be governed by the internal laws of the State of Colorado. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective duly authorized officers and have caused their respective seals to be affixed hereto, as of the day and year first written above. Great-West Life & Annuity Insurance Company /s/David Buhler By: /s/ Douglas L. Wooden - --------------- ---------------------- Witness: Douglas L. Wooden Executive Vice President, Financial Services BenefitsCorp Equities, Inc. /s/Jeff Engelsman By: /s/ Charles P. Nelson - ----------------- --------------------- Witness: Charles P. Nelson President -----END PRIVACY-ENHANCED MESSAGE-----