-----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, IYgbiV/ipcKzz9PcyxREDgHDQAH3iWQfmWtBvxlz9tNKSV5tlxC6PvqtVhvCRce8 XOUOEhlUellIXe05+sMpxw== 0001075796-04-000006.txt : 20040503 0001075796-04-000006.hdr.sgml : 20040503 20040430184208 ACCESSION NUMBER: 0001075796-04-000006 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20040503 EFFECTIVENESS DATE: 20040503 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: 04771213 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 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: 1940 Act SEC FILE NUMBER: 811-09201 FILM NUMBER: 04771214 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 cvul2pea10.txt As filed with the Securities and Exchange Commission on April 30, 2004. 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. 10 AND THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 3 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 Suite 400 East Secretary 1025 Thomas Jefferson Street, N.W. Great-West Life & Annuity Insurance Washington, D.C. 20007-5208 Company 8515 East Orchard Road, 2T3 Greenwood Village, Colorado 80111 ------------ Approximate date of proposed public offering: Continuous It is proposed that this filing will become effective (check appropriate box): [X] immediately upon filing pursuant to paragraph (b) of Rule 485. [ ] on (date) 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)(1) 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 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 April 30, 2004 Table of Contents Summary of the Policy and its Benefits.. Policy Risks............................ Fund Risks.............................. Fee Tables ............................. Transaction Fees.................. Periodic Charges Other Than Fund Operating Expenses............. Supplemental Benefit 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...... Market Timing & Excessive Trading 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 the Policy................ Diversification of Investments.... Policy Owner Control.............. Tax Treatment of Policy Benefits........ Life Insurance Death Benefit Proceeds....................... Tax Deferred Accumulation......... Surrenders........................ Distributions Under a Policy That Is Not a MEC.............. Modified Endowment Contracts...... Distributions Under Modified Endowment Contracts............ 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......................... Corporate Tax Shelter Requirements Legal Proceedings....................... Legal Matters........................... Financial Statements.................... Appendix A - Glossary of Terms.......... Appendix B - Table of Death Benefit Percentages........................... Appendix C - Sample Hypothetical Illustrations 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 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 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 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 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 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 Account Value, less Policy Debt, will be applied as a single Premium to purchase "paid-up" insurance. Your 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 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 Account Value less the value of the Loan Account. The Death Benefit Proceeds and your 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 Account Value for all partial withdrawals after the first made in the same Policy Year. Please note that withdrawals reduce your 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 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 non-taxable 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 and taxed at ordinary income tax rates. A 10% penalty tax is also generally imposed on the taxable portion of any amount received before age 59 1/2. Fund Risks The Policy currently offers 48 investment options and it has four options that are only available to existing shareholders, 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 Charge 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 Fee At time of transfer for all Maximum: $10/Transfer transfers in excess of 12 made in the same calendar year Loan Interest Upon issuance of Policy Loan Maximum: The Moody's Corporate Bond Yield Average - Monthly Average Corporates(2) - ------------------------------- ----------------------------- ---------------------------- 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)(3)
- -------- (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 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. (3) 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 [ ].
Minimum & Maximum Guaranteed: Cost of Insurance Minimum: $0.08 per $1000. Charge 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+ - ------------------------------- Supplemental Benefit Charges Currently, we are offering the following supplemental optional riders. The charges for the rider you select are deducted monthly from your Account Value as part of the Monthly Deduction described on page [ ] of this prospectus. The benefits provided under each rider are summarized in "Other Provisions and Benefits" beginning on page [ ] below. Change of Insured Upon change of insured Minimum: $100 per change. Rider Maximum: $400 per change. 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 Rider4 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) - ------------------------------- ----------------------------- ---------------------------- 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.
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)
- ------------------------------- ----------------------------- ---------------------------- Minimum Maximum - ------------------------------- ----------------------------- ---------------------------- - ------------------------------- ----------------------------- ---------------------------- Total Annual Operating Expenses (without waivers or 0.25% 4.56% reimbursements) Total Annual Operating Expenses (with contractual 0.25% 2.00% waivers and reimbursements)(6) - ------------------------------- ----------------------------- ----------------------------
(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. (6) Neuberger Berman Advisers Management Trust, Socially Responsive Portfolio: 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%. The figures in the following table show expense ratios for the individual Funds for the year ended December 31, 2003, except where noted otherwise. The expenses of certain Funds reflect contractual fee reductions and expense reimbursements, as indicated in their prospectuses. Individual Fund Annual Operating Expenses (as a percentage of average daily net assets) - ---------------------------------------- ---------------- ------------- ------------ --------------- ------------ Fund Name Management Fee Other Gross Less Net Total Expenses Total Contractual Annual Annual Fee Waivers & Operating Operating Expense Expenses Expense Reimbursements - ---------------------------------------- ---------------- ------------- ------------ --------------- ------------ AIM Variable Insurance Funds (formerly INVESCO Variable Investment Funds, Inc.) 7 INVESCO VIF - Financial Services Fund 0.75% 0.36% 1.11% 0.00% 1.11% INVESCO VIF - Health Sciences Fund 0.75% 0.33% 1.08% 0.00% 1.08% INVESCO VIF - Core Equity Fund - 0.75% 0.38% 1.13% 0.00% 1.13% Series I shares INVESCO VIF - Technology Fund - Series 0.75% 0.41% 1.16% 0.00% 1.16% I shares American Century Variable Portfolios, Inc. 8 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% 0.01% 1.01% 0.00% 1.01% Class Shares) American Century VP Value (Original 0.95% 0.00% 0.95% 0.00% 0.95% Class Shares) Dreyfus Stock Index Fund Stock Index Fund 9 (Initial Share Class) 0.25% 0.02% 0.27% 0.00% 0.27% Dreyfus Variable Investment Fund 10 Appreciation Portfolio (Initial Share 0.75% 0.05% 0.80% 0.00% 0.80% Class) Dreyfus Investment Portfolios 11 Dreyfus IP - Core Value Portfolio 0.75% 0.07% 0.82% 0.00% 0.82% (Initial Share Class) Dreyfus IP - Mid Cap Stock Portfolio 0.75% 0.10% 0.85% 0.00% 0.85% (Initial Share Class) Federated Insurance Series Federated American Leaders Fund II 0.75% 0.40 % 1.15% 0.00% 1.15% (Primary Share Class)12 Federated Growth Strategies Fund II 0.75% 0.99% 1.74% 0.00% 1.74% (Primary Share Class)13 Federated High Income Bond Fund II 0.60% 0.40% 1.00% 0.00% 1.00% (Primary Share Class)14 Federated International Equity Fund 1.00% 1.00% 2.00% 0.00% 2.00% II (Primary Share Class)15 Fidelity Variable Insurance Products (VIP) Fund Fidelity VIP Growth Portfolio 16 0.58% 0.34% 0.92% 0.00% 0.92% (Service Class 2) Fidelity VIP Contrafund(R)Portfolio 17 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% Portfolio18 (Service Class 2) Fidelity VIP Equity Income Portfolio 19 0.48% 0.34% 0.82% 0.00% 0.82% (Service Class 2) Fidelity VIP Mid Cap Portfolio 20 0.58% 0.37% 0.95% 0.00% 0.95% (Service Class 2) Janus Aspen Series 21 Balanced Portfolio (Institutional 0.65% 0.02% 0.67% 0.00% 0.67% Shares) Capital Appreciation Portfolio 0.65% 0.03% 0.68% 0.00% 0.68% (Institutional Shares) Flexible Income Portfolio 0.60% 0.04% 0.64% 0.00% 0.64% (Institutional Shares) Growth Portfolio (Institutional 0.65% 0.02% 0.67% 0.00% 0.67% Shares) Worldwide Growth Portfolio 0.65% 0.06% 0.71% 0.00% 0.71% (Institutional 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 MFS(R)Small-Cap Growth Portfolio 0.95% 0.13% 1.08% 0.00% 1.08% (formerly Maxim INVESCO Small-Cap Growth Portfolio) 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 Price Equity/Income 0.85% 0.00% 0.85% 0.00% 0.85% Portfolio Maxim T. Rowe Price Mid Cap Growth Maxim U.S. Government Securities 0.60% 0.00% 0.60% 0.00% 0.60% Portfolio Maxim Loomis Sayles Small-Cap 1.00% 0.09% 1.09% 0.00% 1.09% Portfolio 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 0.25% 0.00% 0.25% 0.00% 0.25% I Portfolio Maxim Conservative Profile I Portfolio 0.25% 0.00% 0.25% 0.00% 0.25% Neuberger Berman Advisers Management Trust 22 AMT Guardian Portfolio (Class I) 0.85% 0.12% 0.97% 0.00% 0.97% AMT Mid-Cap Growth Portfolio 0.84% 0.04% 0.88% 0.00% 0.88% AMT Partners Portfolio 0.83% 0.07% 0.90% 0.00% 0.90% AMT Socially Responsive Portfolio23 0.85% 1.45% 2.30% 0.80% 1.50% AMT Fasciano Portfolio 24 1.15% 3.41% 4.56% 3.16% 1.40% PIMCO VIT PIMCO VIT Real Return25 0.25% 0.41% 0.66% 0.00% 0.66% (administrative class) PIMCO VIT Total Return I 0.25% 0.40% 0.65% 0.00% 0.65% (administrative class) PIMCO VIT Low Duration Bond 0.25% 0.40% 0.65% 0.00% 0.65% (administrative class) PIMCO VIT High Yield 0.25% 0.50% 0.75% 0.00% 0.75% (administrative class) STI Classic Variable Trust STI Classic Capital Appreciation Fund26 1.15% 0.31% 1.46% 0.00% 1.46% STI Classic Small Cap Value Equity 1.15% 0.64% 1.79% 0.00% 1.79% Fund 27 - ---------------------------------------- ---------------- ------------- ------------ --------------- ------------ - --------------------------------------- ---------------- ------------- ------------ --------------- ------------
- -------- 7 AIM Variable Insurance Funds (formerly INVESCO Variable Investment Funds, Inc.) - Financial Services Fund, Health Sciences Fund, Core Equity 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. Effective April 1, 2004, INVESCO Core Equity was closed to new Owners. Effective April 30, 2004, each series of the INVESCO Variable Investment Funds, Inc. was reorganized into existing series of AIM Variable Insurance Funds. 8 American Century Variable Portfolios, Inc - VP Income & Growth, VP International, VP Ultra(R) and VP Value: This Fund has a stepped fee schedule. As a result, the Fund's management fee rate generally decreases as the Fund's assets increase. Effective April 1, 2004, VP International and VP Income & Growth were closed to new owners. 9 Dreyfus Stock Index Fund: The figures in the above expense table are for the fiscal year ended December 31, 2003. Actual expenses in future years may be higher or lower than the figures above. 10 Dreyfus Variable Investment Fund - Appreciation Portfolio: The figures in the above expense table are for the fiscal year ended December 31, 2003. Actual expenses in future years may be higher or lower than the figures above. 11 Dreyfus Investment Portfolios - Core Value Portfolio and Mid Cap Stock Portfolio: The figures in the above expense table are for the fiscal year ended December 31, 2003. Actual expenses in future years may be higher or lower than the figures above. 12 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, 2003. Total voluntary Waivers of Fund Expenses: 0.25%. Total Actual Annual Fund Operating Expenses (after voluntary waivers): 0.90% The Fund's Primary Shares have no present intention of paying or accruing the shareholder services fee during the fiscal year ending December 31, 2004. 13Federated Insurance Series - Growth Strategies Fund II: Although not contractually obligated to do so, the administrator and shareholder services provider waived certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended December 31, 2003. Total voluntary Waivers of Fund Expenses: 0.51%. Total Actual Annual Fund Operating Expenses (after voluntary waivers): 1.23%. The Fund did not pay or accrue the shareholder services fee during the fiscal year ended December 31, 2003. The Fund has no present intention of paying or accruing the shareholder services fee during the fiscal year ending December 31, 2004. Other expenses were 0.48% for the fiscal year ended December 31, 2003. 14 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, 2003. Total voluntary Waivers of Fund Expenses: 0.25%. Total Actual Annual Fund Operating Expenses (after voluntary waivers): 0.75%. 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, 2003. The Primary Shares have no present intention of paying or accruing the shareholder services fee during the fiscal year ending December 31, 2004. 15 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, 2003. Total voluntary Waivers of Fund Expenses: 0.30%. Total Actual Annual Fund Operating Expenses (after voluntary waivers): 1.70%. 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 0.96% for the fiscal year ending December 31, 2003. The Fund did not pay or accrue the shareholder services fee during the fiscal year ended December 31, 2003. The Fund has no present intention of paying or accruing the shareholder services fee during the fiscal year ending December 31, 2004. 16 Fidelity Variable Insurance Products (VIP) Fund - Fidelity VIP Growth Portfolio, Fidelity VIP Contrafund Portfolio, and Fidelity VIP Investment Grade Bond Portfolio: A portion of the brokerage commissions that the Fund pays may be reimbursed and used to reduce the Fund's expenses. Including this reduction, the total class operating expenses would have been 1.20%. These offsets may be discontinued at any time. 17 Fidelity Variable Insurance Products (VIP) Fund - Fidelity VIP Contrafund(R) Portfolio: A portion of the brokerage commissions that the Fund pays may be reimbursed and 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 the Fund's custodian expenses. Including these reductions, the total class operating expenses would have been 0.90%. These offsets may be discontinued at any time. 18 Fidelity Variable Insurance Products (VIP) Fund - Fidelity VIP Investment Grade Bond Portfolio: Through arrangements with the Fund's custodian, credits realized as a result of uninvested cash balances are used to reduce the Fund's custodian expenses. Including this reduction, the total class operating expenses would have been 0.79%. These offsets may be discontinued at any time. 19 Fidelity Variable Insurance Products (VIP) Fund - Fidelity VIP Equity Income Portfolio: A portion of the brokerage commissions that the Fund pays may be reimbursed and 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 the Fund's custodian expenses. Including these reductions, the total class operating expenses would have been 0.81%. These offsets may be discontinued at any time. 20 Fidelity Variable Insurance Products (VIP) Fund - Fidelity VIP Mid Cap Portfolio: A portion of the brokerage commissions that the Fund pays may be reimbursed and 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 the Fund's custodian expenses. Including these reductions, the total class operating expenses would have been 0.93%. These offsets may be discontinued at any time. 21 Janus Aspen Series: Expenses are based upon expenses for the year ended December 31, 2003. All expenses are shown without the effect of any expense offset arrangements. 22 Neuberger Berman Advisers Management Trust, Socially Responsive: Neuberger Berman Management Inc. ("NBMI") has undertaken through December 31, 2007 to waive fees and/or reimburse certain operating expenses, including the compensation of NBMI (except with respect to Balanced, Growth, Limited Maturity Bond, and Partners Portfolios) and excluding taxes, interest, extraordinary expenses, brokerage commissions and transaction costs, that exceed, in the aggregate, 1.40% of the average daily net asset value of the AMT Fasciano Portfolio; and 1.50% of the average daily net asset value of the AMT Socially Responsive Portfolios. The expense limitation arrangements for the Portfolios are contractual and any excess expenses can be repaid to NBMI within three years of the year incurred, provided such recoupment would not cause a Portfolio to exceed its respective limitation. Effective April 1, 2004, the AMT Guardian Portfolio was closed to new Owners. 23 Neuberger Berman Advisers Management Trust: Neuberger Berman Management, Inc. NBMI has voluntarily committed to waive fees and/or reimburse expenses for an additional 0.20% of the average daily net asset value of the AMT Socially Responsive Portfolio to maintain the Portfolio's net operating expense ratio at 1.30%. NBMI can, at its sole discretion, on at least 30 days' notice terminate this voluntary waiver and/or reimbursement commitment. 24 Neuberger Berman Advisers Management Trust, AMT Fasciano: NBMI has contractually agreed to reimburse certain expenses of the fund through 12/31/2006, so that the total annual operating expenses are limited to 1.40% of the fund's average daily net asset value. This arrangement does not cover interest, taxes, brokerage commissions, and extraordinary expenses. The fund has agreed to repay NBMI for expenses reimbursed to the fund provided that repayment does not cause the fund's annual operating expenses to exceed to its expenses limitation. Any such repayment must be made within three years after the year in which NBMI incurred the expense. The figures in the table are based on an asset size of $25 million. 25 PIMCO VIT Real Return: Ratio of expenses to average net assets excluding interest expense is 0.65%. Interest expense is generally incurred as a result of investment management activities. 26 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. 27 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. Description of Depositor, Registrant, and Funds 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 49 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 of Canada, a holding and management company, has voting control of Power Financial Corporation. Mr. Paul Desmarais, through a group of private holding companies, which he controls, has voting control of Power Corporation of Canada. On July 10, 2003, Great-West acquired Canada Life Financial Corporation ("Canada Life"). Canada Life is a Canadian based insurance company with business principally in Canada, the United Kingdom, the United States and Ireland. In the United States, Canada Life sells individual and group insurance and annuity products. 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. 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 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 Funds as investment options. 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 Division of Great-West's COLI VUL-2 Series Account that invests in the Maxim INVESCO Balanced Portfolio was closed to new contributions and Transfers in effective August 29, 2003. The Divisions of Great-West's COLI VUL-2 Series Account that invest in Dreyfus VIF Growth and Income, INVESCO VIF High Yield, Janus Aspen Series Mid Cap Growth, and STI Classic Growth & Income were closed to new contributions and Transfers in effective April 1, 2004. Effective April 1, 2004, the Divisions investing in the following Funds will be closed to new Owners: American Century VP International, American Century VP Income & Growth, INVESCO VIF Core Equity and Neuberger Berman AMT Guardian. However, Owners with amounts invested in the aforementioned Funds as of April 1, 2004, may continue to allocate premium payments and Transfer amounts into and out of such Funds. The investment policies of the current Funds are briefly described below: AIM Variable Insurance Funds (formerly, INVESCO Variable Investment Funds, Inc.) (advised by A I M Advisors, Inc. ("AIM") INVESCO VIF - Core Equity Fund - Series I shares seeks high total return through both growth and current income. The Fund normally invests in at least 65% (80% effective July 31, 2002) of its assets in a combination of common stocks of companies with a history of paying regular dividends and debt securities. Debt securities include corporate obligations and obligations of the U.S. government and government agencies. The remaining assets of the Fund are allocated to other investments at INVESCO's discretion, based upon current business, economic, and market conditions. Effective April 1, 2004, this Fund is closed to new investors, however, Owners with amounts invested in this Fund as of April 1, 2004, may continue to allocate premium payments and Transfer amounts into and out of this Fund. INVESCO VIF - Financial Services Fund seeks capital appreciation. The Fund 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. AIM 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 Fund seeks capital appreciation. The Fund 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. AIM 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 Fund and represent core holdings in the Fund. INVESCO VIF - Technology Fund - Series I shares 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. 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. Effective April 1, 2004, this Fund is closed to new investors, however, Owners with amounts invested in the Fund as of April 1, 2004, may continue to allocate premium payments and Transfer amounts into and out of this Fund. American Century VP International seeks capital growth by investing primarily in an internationally diversigied portfolio of common stocks that are considered by the adviser to have prospects for appreciation Effective April 1, 2004, this Fund is closed to new investors, however, Owners with amounts invested in this Fund as of April 1, 2004, may continue to allocate premium payments and Transfer amounts into and out of this Fund. 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. Dreyfus Investment Portfolios (advised by The Dreyfus Corporation) Dreyfus IP-Mid Cap Stock Portfolio seeks investment results that are greater than the total return performance of publicly traded common stocks of medium-sized domestic companies in the aggregate as represented by the Standard & Poor's MidCap 400 Index Dreyfus IP-Core Value Portfolio seeks long term growth of capital, with current income as a secondary objective. To pursue these goals the Fund will normally invest at least 80% of its assets in stocks. The Fund focuses on stocks of large value companies (market capitalizations above $1 billion). 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 Fund 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 seeks long-term capital appreciation by investing primarily in common stocks. The Fund 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 Fund normally invests in U.S. dollar-denominated investment-grade bonds (those of medium and high quality). Fidelity VIP Mid Cap Portfolio seeks long-term growth of capital. Normally investing at least 80% of assets in securities of companies with medium market capitalizations. Fidelity VIP Equity Income Portfolio seeks reasonable income. The Fund will also consider the potential for capital appreciation. The Fund's goal is to achieve a yield that exceeds the composite yield on securities comprising the Standard & Poor's 500SM Index (S&P 500 (R)) Janus Aspen Series (advised by Janus Capital Management, LLC) 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 Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 Fund 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 Fund invests at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in the securities of issuers classified in the small or medium/small capitalization quintiles of the Frank Russell U.S. equity universe at the time of purchase. This Fund will emphasize small companies that are believed to be undervalued but demonstrate a strong potential for growth. The Fund 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 Fund 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. Ariel Capital Management, L.P. is the sub-adviser to this Fund. Maxim Ariel Mid-Cap Value Portfolio seeks long-term capital appreciation. Under normal circumstances, this Fund will invest at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in the securities of issuers classified in the medium/small, medium, or medium/large capitalization quintiles of the Frank Russell U.S. equity universe at the time of purchase. This Fund will emphasize issuers that are believed to be undervalued but demonstrate a strong potential for growth. The Fund 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 Fund 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. Ariel Capital Management, L.P. is the sub-adviser to this Fund. Maxim Loomis-Sayles Bond Portfolio seeks high total investment return through a combination of current income and capital preservation. Under normal circumstances, this Fund 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. Loomis Sayles & Company, L.P. is the sub-adviser to this Fund. Maxim INVESCO ADR Portfolio seeks a high total return through capital appreciation and current income, while reducing risk through diversification. Under normal circumstances, this Fund 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 SEC and traded in the U.S. INVESCO Global Asset Management (N.A.) is the sub-adviser to this Fund. Maxim MFS(R) Small-Cap Growth Portfolio (formerly, Maxim INVESCO Small-Cap Growth Portfolio) seeks to achieve long-term capital growth. Under normal circumstances, this Fund 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 Fund may also invest up to 20% in equity securities of companies with market capitalizations in excess of $2.5 billion. Effective July 1, 2003, Massachusetts Financial Services Company replaces INVESCO Funds Group, Inc. as the sub-adviser for this Fund. Maxim Loomis Sayles Small-Cap Value Portfolio seeks long-term capital growth. The Fund invests primarily in small cap companies within the Russell 2000 Index. It looks to build a core of small cap stocks of solid growth companies that may have experienced business problems but are believed to have favorable prospects for recovery. The Fund may also invest up to 3.5% of assets in securities with market capitalizations in excess of the Russell 2000 Index market capitalization range. Under normal circumstances, this Fund will invest at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in equity securities of companies with market capitializations that fall within the capitalization range of the Russell 2000 Index, an index that tracks stocks of the 2000 smallest U. S. compaines in the Russell 3000 Index ($1.6 million to $2.8 billion as of December 31, 2003). Loomis, Sayles & Company, L.P. is the sub-adviser to this Fund. 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 Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in this Fund. Maxim T. Rowe Price Equity/Income Portfolio seeks substantial dividend income and also long-term capital appreciation. Under normal circumstances, this Fund 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. T. Rowe Price Associates, Inc. is the sub-adviser to this Fund. Maxim T. Rowe Price Mid Cap Growth seeks long-term capital appreciation. The Fund primarily invests in securities whose market capitalization fall within the range of companies included in either the Standard & Poor's 400 Mid Cap Index or the Russell Mid Cap Growth index. It emphasizes on companies whose earnings are expected to grow at a faster rate than the average mid-cap company. The Fund may also invest up to 25% of its total assets in foreign securities. Under normal circumstances, this Fund 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 capitalization fall within the range of companies included in either the Standard & Poor's 400 MidCap Index or the Russell MidCap Growth Index (approximately $594 million to $18.5 billion as of January 31, 2004). The Fund has the flexibility to purchase some larger and smaller companies that have qualities consistent with its core characteristics and may on occasion purchase a stock whose market capitalization is outside of the capitalization range of mid-cap companies. The market capitalization of the companies in the Fund, the S&P MidCap 400 Index, and the Russell MidCap Growth Index will change over time, and the Fund will not automatically sell or cease to purchase a stock of a company it already owns just because the company's market capitalization grows or falls outside of the index ranges. This Fund will emphasize companies whose earnings are expected to grow at a faster rate than the average mid-cap company. Stock selection is based on a combination of fundamental bottom-up anaylsis and top-down quantitative strategies in an effort to identify companies with superior long-term appreciation prospects. Proprietary quantitative models are used to identify, measure and evaluate the characteristics of companies in the mid-cap growth sector that can influence stock returns. In addition, stocks will be selected by using T. Rowe Price's fundamental research, which encompasses both qualitative and quantitative analysis. The Fund will be broadly diversified, and this helps to mitigate the downside risk attributable to any single poorly- performing security. 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 Fund 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 Fasciano Portfolio The Fund seeks long-term capital growth. The portfolio manager also may consider a company's potential for current income prior to selecting it for the Fund. To pursue this goal, the Fund invests in common stocks of small-capitalization companies, which is defined as those with a total market value no more than $1.5 billion at the time the fund first invests in them. 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. Effective April 1, 2004, this Fund is closed to new investors, however, Owners with amounts invested in this Fund as of April 1, 2004, may continue to allocate premium payments and Transfer amounts into and out of this Fund. 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. PIMCO (advised by Pacific Investment Management Company, LLC) PIMCO VIT Real Return seeks maximum real return, consistent with preservation of real capital and prudent investment management by investing at least 65% of its total assets in inflation-indexed fixed income securities with a duration varying within 2 years of the duration of the Lehman Global Real: U.S. TIPS Index. PIMCO VIT Total Return seeks maximum total return, consistent with preservation of capital and prudent investment management. Invests in intermediate fixed income securities with at least 65% of its total assets in a diversified portfolio of fixed income instruments. It can invest up to 20% of its total assets in foreign currencies. PIMCO VIT Low Duration Bond seeks maximum total return, consistent with preservation of capital and prudent investment management. Invests at least 65% of its total assets in a diversified portfolio of fixed income instruments, with a focus on investment grade short maturity fixed income securities. May invest up to 10% of its total assets in high yield securities. PIMCO VIT High Yield seeks maximum total return, consistent with preservation of capital and prudent investment management. Invests at least 80% of its assets in a diversified portfolio of high yield securities ("junk bonds") rated below investment grade but rated at least B by Moody's or S&P, or if unrated, determined by PIMCO to be of comparable quality. Effective June 1, 2004, the High Yield Fund's quality guideline will change, permitting the Fund to invest in securities with lower-quality credit ratings. Under the new guidelines, the Fund will invest at least 80% of its assets in a diversified portfolio of high yield securities rated below investment grade but rated at least Caa (subject to a maximum of 5% of total assets in securities rated Caa) by Moody's or S&P, or, if unrated determined by PIMCO to be of comparable quality. The average duration of portfolio varies within a two to six year time frame based on PIMCO's forecast for interest rates. Seeks intermediate higher yielding fixed income securities. STI Classic Variable Trust (advised by Trusco Capital Management, Inc.) STI Classic 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 Classic 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 Charge 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 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 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 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 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 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 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. A transfer fee 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 Requested on the same Business 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). Market Timing & Excessive Trading. The Policies are intended for long-term investment and not for the purpose of market timing or excessive trading activity. In general, proposed SEC rules and the Funds define market timing activity to be the movement in and out of a Division in a five-day period designed to take advantage of short-term market fluctuations based upon expected increases in Division Unit Values. Excessive trading activity is defined as purchase and sale transactions of an Owner that occurs with such frequency and/or such size as to materially affect the Fund's ability to meet its investment objective in the judgment of the Fund. Funds may report suspected market-timing or excessive trading transfer activity. However, not all market timing or excessive trading transfer activity can be prevented, as it may not be possible to identify it unless and until a trading pattern is established. If suspected market-timing or excessive trading activity is identified by the Funds, we will take corrective action at the request of the Fund consistent with the terms of the Policy and applicable law. 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 Investment Options. 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 Reaches 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. 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 4:00 PM EST/EDT, 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 Charge 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 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. 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 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 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 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 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 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 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 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 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 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 Account Value less the value of the Loan Account. A partial withdrawal 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 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 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 page [ ] of this prospectus. Loans Policy Loans. You may request a policy loan of up to 90% of your 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 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 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 connection with its issuance of temporary and proposed regulations under Section 817(h) in 1986, the Treasury Department announced that those regulations did not "provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor (i.e., the Owner), rather than the insurance company to be treated as the owner of the assets in the account" (which would result in the current taxation of the income on those assets to the Owner). In Revenue Ruling 2003-91, the IRS provided such guidance by describing the circumstances under which the owner of a variable contract will not possess sufficient control over the assets underlying the contract to be treated as the owner of those assets for federal income tax purposes. Rev. Rul. 2003-91 states that the determination of whether the owner of a variable contract is to be treated as the owner of the assets held by the insurance company under the contract will depend on all of the facts and circumstances. We do not believe that your ownership rights under the Policy would result in you being treated as the Owner of the assets of the Policy under Rev. Rul. 2003-91. However, we do not know whether additional guidance will be provided by the IRS on this issue and what standards may be contained in such guidance. Therefore, we reserve the right to modify the Policy as necessary to attempt to prevent an Owner from being considered the Owner of a pro rata share of the assets of the Policy. 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 includable 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. 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. Surrenders. 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. 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 applicable to distributions from 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 notify you or your agent of the excess cash received. We will not process the premium payment unless we receive a MEC acceptance form or policy change form within 48 hours of receipt of the excess funds. If paperwork is received that allows us to process the excess cash, the effective date will be the date of the new paperwork. 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). 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 that 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 that 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 or on GWFS Equities, Inc., the principal underwriter and distributor of the Policy. 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. The financial statements of the Series Accounts are also included in the SAI. 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. This amount reflects: (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. 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 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 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 the day that the premium payments or Request is received and the NYSE is open for trading. Transfer - The moving of money from one Division to one or more Division(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. 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% 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 0.87% 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 0.87%, 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 -1.26%, 4.66%, and 10.59%, respectively, during the first five Policy Years, -1.11%, 4.82%, and 10.75%, respectively, for Policy Years 6 through 20, and -0.97%, 4.98% and 10.92%, 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. TABLE 1 Great-West Life & Annuity Insurance Company COLI VUL-2 Series Account Male, Age 45 $1,000,000 Total Face Amount Annual Premium $12,524.03 Death Benefit Option 1 Current Policy Charges Hypothetical 0% Gross Investment Hypothetical 6% Gross Hypothetical 12% Gross Return Net -1.24% Investment Return Net 4.68% Investment Return Net 10.61% Premiums Paid Plus Policy interest At Contract Surrender Death Contract Surrender Death Contract Surrender Death ----- Year 5% Per Year Value Value Benefit Value Value Benefit Value Value Benefit ---- ----------- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 13,150 10,431 11,057 1,000,000 11,080 11,745 1,000,000 11,730 12,433 1,000,000 2 26,958 20,158 21,166 1,000,000 22,088 23,192 1,000,000 24,096 25,301 1,000,000 3 41,456 29,201 30,369 1,000,000 33,034 34,355 1,000,000 37,183 38,670 1,000,000 4 56,679 37,608 38,736 1,000,000 43,958 45,277 1,000,000 51,117 52,651 1,000,000 5 72,663 45,024 45,925 1,000,000 54,496 55,586 1,000,000 65,621 66,934 1,000,000 6 89,447 51,442 51,956 1,000,000 64,632 65,278 1,000,000 80,795 81,603 1,000,000 7 107,069 56,810 56,810 1,000,000 74,284 74,284 1,000,000 96,647 96,647 1,000,000 8 125,573 61,593 61,593 1,000,000 83,898 83,898 1,000,000 113,743 113,743 1,000,000 9 145,002 65,909 65,909 1,000,000 93,595 93,595 1,000,000 132,358 132,358 1,000,000 10 165,402 69,655 69,655 1,000,000 103,278 103,278 1,000,000 152,577 152,577 1,000,000 11 186,823 73,524 73,524 1,000,000 113,687 113,687 1,000,000 175,381 175,381 1,000,000 12 209,314 77,928 77,928 1,000,000 125,226 125,226 1,000,000 201,355 201,355 1,000,000 13 232,930 82,860 82,860 1,000,000 137,942 137,942 1,000,000 230,832 230,832 1,000,000 14 257,727 87,339 87,339 1,000,000 150,946 150,946 1,000,000 263,326 263,326 1,000,000 15 283,763 91,261 91,261 1,000,000 164,162 164,162 1,000,000 299,129 299,129 1,000,000 16 311,101 94,525 94,525 1,000,000 177,520 177,520 1,000,000 338,586 338,586 1,000,000 17 339,807 97,032 97,032 1,000,000 190,945 190,945 1,000,000 382,105 382,105 1,000,000 18 369,947 98,573 98,573 1,000,000 204,271 204,271 1,000,000 430,092 430,092 1,000,000 19 401,595 99,044 99,044 1,000,000 217,422 217,422 1,000,000 483,124 483,124 1,000,000 20 434,825 98,339 98,339 1,000,000 230,328 230,328 1,000,000 541,883 541,883 1,000,000 Age 60 283,763 91,261 91,261 1,000,000 164,162 164,162 1,000,000 299,129 299,129 1,000,000 Age 65 434,825 98,339 98,339 1,000,000 230,328 230,328 1,000,000 541,883 541,883 1,000,000 Age 70 627,622 91,357 91,357 1,000,000 306,594 306,594 1,000,000 952,923 952,923 1,476,296 Age 75 873,686 55,045 55,045 0 387,941 387,941 1,000,000 161,0680 1,610,680 2,263,778 Age 100 - - - - - - - 1,670,1678 1,6701,678 17,369,745 :
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 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 $1,000,000 Total Face Amount Annual Premium $12,524.03 Death Benefit Option 1 Guaranteed Policy Charges Hypothetical 0% Gross Hypothetical 6% Gross Investment Hypothetical 12% Gross Investment Return Net -1.73% Return Net 4.16% Investment Return Net 10.06% Premiums Paid Plus Policy interest At Contract Surrender Death Contract Surrender Death Contract Surrender Death ----- Year 5% Per Year Value Value Benefit Value Value Benefit Value Value Benefit ---- ----------- ----- ----- ------- ----- ----- ------- ----- ----- ------- 1 13,150 6,554 6,947 1,000,000 7,075 7,499 1,000,000 7,598 8,054 1,000,000 2 26,958 12,555 13,183 1,000,000 13,994 14,694 1,000,000 15,500 16,275 1,000,000 3 41,456 18,133 18,858 1,000,000 20,878 21,713 1,000,000 23,871 24,826 1,000,000 4 56,679 23,296 23,995 1,000,000 27,730 28,562 1,000,000 32,767 33,750 1,000,000 5 72,663 27,938 28,497 1,000,000 34,435 35,124 1,000,000 42,129 42,972 1,000,000 6 89,447 32,070 32,390 1,000,000 40,993 41,403 1,000,000 52,018 52,538 1,000,000 7 107,069 35,586 35,586 1,000,000 47,287 47,287 1,000,000 62,381 62,381 1,000,000 8 125,573 38,384 38,384 1,000,000 53,195 53,195 1,000,000 73,165 73,165 1,000,000 9 145,002 40,474 40,474 1,000,000 58,707 58,707 1,000,000 84,434 84,434 1,000,000 10 165,402 41,752 41,752 1,000,000 63,697 63,697 1,000,000 96,143 96,143 1,000,000 11 186,823 42,114 42,114 1,000,000 68,032 68,032 1,000,000 108,250 108,250 1,000,000 12 209,314 41,567 41,567 1,000,000 71,686 71,686 1,000,000 120,822 120,822 1,000,000 13 232,930 40,002 40,002 1,000,000 74,518 74,518 1,000,000 133,830 133,830 1,000,000 14 257,727 37,420 37,420 1,000,000 76,489 76,489 1,000,000 147,352 147,352 1,000,000 15 283,763 33,707 33,707 1,000,000 77,441 77,441 1,000,000 161,372 161,372 1,000,000 16 311,101 28,741 28,741 1,000,000 77,207 77,207 1,000,000 175,879 175,879 1,000,000 17 339,807 22,395 22,395 1,000,000 75,604 75,604 1,000,000 190,869 190,869 1,000,000 18 369,947 14,536 14,536 1,000,000 72,431 72,431 1,000,000 206,344 206,344 1,000,000 19 401,595 4,783 4,783 1,000,000 67,239 67,239 1,000,000 222,116 222,116 1,000,000 20 434,825 - - 0 59,766 59,766 1,000,000 238,191 238,191 1,000,000 Age 60 283,763 33,707 33,707 1,000,000 77,441 77,441 1,000,000 161,372 161,372 1,000,000 Age 65 434,825 - - 0 59,766 59,766 1,000,000 238,191 238,191 1,000,000 Age 70 627,622 - - 0 - - 0 321,493 321,493 1,000,000 Age 75 873,686 - - 0 - - 0 402,374 402,374 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 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 April 30, 2004, 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. April 30, 2004 Table of Contents General Information and History of Great-West and the Series Account..........................1 State Regulation.................1 Experts..........................1 Independent Auditors ..................1 Underwriters...........................2 Underwriting Procedures................2 Illustrations........................... Financial Statements.................... General Information and History of Great-West and the 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. Independent Auditors The accounting firm of Deloitte & Touche LLP performs 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 2003, 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, 2003, as well as the financial statements of the Series Account for the years ended December 31, 2002 and 2003, 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 GWFS Equities, Inc. ("GWFS Equities"), an indirect wholly owned subsidiary of Great-West, whose principal business address is 8515 East Orchard Road, Greenwood Village, Colorado 80111. GWFS Equities 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. GWFS Equities 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 GWFS Equities. GWFS Equities 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. 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. 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, 2003 and 2002 and Independent Auditors' Report COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2003
- ------------------------------------------------------------------------------------------------------------------------------------ AMERICAN AMERICAN AMERICAN DREYFUS STOCK DREYFUS VIF FEDERATED CENTURY VP CENTURY VP CENTURY VP INDEX PORTFOLIO APPRECIATION AMERICAN INCOME & INTERNATIONAL VALUE PORTFOLIO LEADERS GROWTH IV PORTFOLIO PORTFOLIO FUND II PORTFOLIO ------------------------------------------------------------------------------------------- ASSETS: Investments at market value (1) $ 86,055 $ 90,691 $ 75,161 $ 2,861,000 $ 76,347 $ 469,548 Investment income due and accrued 10,782 ------------- -------------- ------------- -------------- ------------- ------------- ------------- -------------- ------------- -------------- ------------- ------------- Total assets 86,055 90,691 75,161 2,871,782 76,347 469,548 ------------- -------------- ------------- -------------- ------------- ------------- ------------- -------------- ------------- -------------- ------------- ------------- LIABILITIES: Due to Great-West Life & Annuity 7 8 6 249 7 41 Insurance Company ------------- -------------- ------------- -------------- ------------- ------------- ------------- -------------- ------------- -------------- ------------- ------------- Total liabilities 7 8 6 249 7 41 ------------- -------------- ------------- -------------- ------------- ------------- ------------- -------------- ------------- -------------- ------------- ------------- NET ASSETS $ 86,048 $ 90,683 $ 75,155 $ 2,871,533 $ 76,340 $ 469,507 ============= ============== ============= ============== ============= ============= ============= ============== ============= ============== ============= ============= NET ASSETS REPRESENTED BY: Accumulation units $ 86,048 $ 90,683 $ 75,155 $ 2,871,533 $ 76,340 $ 469,507 ============= ============== ============= ============== ============= ============= ============= ============== ============= ============== ============= ============= ACCUMULATION UNITS OUTSTANDING 9,000 10,753 5,149 320,551 7,757 44,949 UNIT VALUE (ACCUMULATION) $ 9.56 $ 8.43 $ 14.60 $ 8.96 $ 9.84 $ 10.45 ============= ============== ============= ============== ============= ============= ============= ============== ============= ============== ============= ============= (1) Cost of investments: $ 73,614 $ 74,735 $ 66,940 $ 2,429,889 $ 69,401 $ 459,186 Shares of investments: 13,098 14,104 9,648 100,669 2,218 24,584 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, 2003 - ------------------------------------------------------------------------------------------------------------------------------------ FEDERATED FEDERATED HIGH FEDERATED FIDELITY VIP FIDELITY VIP FIDELITY GROWTH INCOME BOND INTERNATIONAL CONTRAFUND GROWTH VIP STRATEGIES FUND II EQUITY FUND II SERVICES II PORTFOLIO INVESTMENT FUND II PORTFOLIO GRADE BOND II PORTFOLIO ------------------------------------------------------------------------------------------- ASSETS: Investments at market value (1) $ 23,630 $ 68,215 $ 232,191 $ 361,547 $ 1,676,291 $ 5,947,685 Investment income due and accrued ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- Total assets 23,630 68,215 232,191 361,547 1,676,291 5,947,685 ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- LIABILITIES: Due to Great-West Life & Annuity 2 6 20 31 145 522 Insurance Company ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- Total liabilities 2 6 20 31 145 522 ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- NET ASSETS $ 23,628 $ 68,209 $ 232,171 $ 361,516 $ 1,676,146 $ 5,947,163 ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= ============= NET ASSETS REPRESENTED BY: Accumulation units $ 23,628 $ 68,209 $ 232,171 $ 361,516 $ 1,676,146 $ 5,947,163 ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= ============= ACCUMULATION UNITS OUTSTANDING 2,634 5,928 27,321 32,664 223,558 481,612 UNIT VALUE (ACCUMULATION) $ 8.97 $ 11.51 $ 8.50 $ 11.07 $ 7.50 $ 12.35 ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= ============= (1) Cost of investments: $ 20,826 $ 64,199 $ 224,778 $ 297,600 $ 1,719,882 $ 5,790,561 Shares of investments: 1,298 8,538 20,034 15,767 54,567 440,569 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, 2003 - ------------------------------------------------------------------------------------------------------------------------------------ INVESCO VIF JANUS ASPEN JANUS ASPEN JANUS ASPEN JANUS ASPEN MAXIM ARIEL CORE EQUITY SERIES SERIES SERIES SERIES MIDCAP PORTFOLIO BALANCED CAPITAL FLEXIBLE WORLDWIDE VALUE PORTFOLIO APPRECIATION INCOME GROWTH PORTFOLIO I PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------- ASSETS: Investments at market value (1) $ 1,944,054 $ 1,268,711 $ 424,822 $ 5,326,794 $ 1,019,819 $ 1,703,132 Investment income due and accrued ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- Total assets 1,944,054 1,268,711 424,822 5,326,794 1,019,819 1,703,132 ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- LIABILITIES: Due to Great-West Life & Annuity 169 110 37 467 88 148 Insurance Company ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- Total liabilities 169 110 37 467 88 148 ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- NET ASSETS $ 1,943,885 $ 1,268,601 $ 424,785 $ 5,326,327 $ 1,019,731 $ 1,702,984 ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= ============= NET ASSETS REPRESENTED BY: Accumulation units $ 1,943,885 $ 1,268,601 $ 424,785 $ 5,326,327 $ 1,019,731 $ 1,702,984 ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= ============= ACCUMULATION UNITS OUTSTANDING 193,411 110,920 41,263 392,739 120,589 103,055 UNIT VALUE (ACCUMULATION) $ 10.05 $ 11.44 $ 10.29 $ 13.56 $ 8.46 $ 16.53 ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= ============= (1) Cost of investments: $ 1,975,215 $ 1,169,043 $ 393,226 $ 5,258,498 $ 1,006,084 $ 1,377,426 Shares of investments: 108,546 55,209 20,385 426,485 39,497 77,982 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, 2003 - ------------------------------------------------------------------------------------------------------------------------------------ MAXIM ARIEL MAXIM MAXIM INVESCO MAXIM MFS MAXIM LOOMIS MAXIM SMALL-CAP CONSERVATIVE ADR PORTFOLIO SMALL-CAP SAYLES BOND MODERATELY VALUE PROFILE I GROWTH PORTFOLIO AGGRESSIVE PORTFOLIO PORTFOLIO PORTFOLIO PROFILE I PORTFOLIO ------------------------------------------------------------------------------------------- ASSETS: Investments at market value (1) $ 555,339 $ 23,303 $ 295,155 $ 765,228 $ 2,059,159 $ 31,541 Investment income due and accrued ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- Total assets 555,339 23,303 295,155 765,228 2,059,159 31,541 ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- LIABILITIES: Due to Great-West Life & Annuity 49 2 25 66 179 3 Insurance Company ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- Total liabilities 49 2 25 66 179 3 ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- NET ASSETS $ 555,290 $ 23,301 $ 295,130 $ 765,162 $ 2,058,980 $ 31,538 ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= ============= NET ASSETS REPRESENTED BY: Accumulation units $ 555,290 $ 23,301 $ 295,130 $ 765,162 $ 2,058,980 $ 31,538 ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= ============= ACCUMULATION UNITS OUTSTANDING 50,963 1,922 28,733 83,651 130,621 2,839 UNIT VALUE (ACCUMULATION) $ 10.90 $ 12.12 $ 10.27 $ 9.15 $ 15.76 $ 11.11 ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= ============= (1) Cost of investments: $ 495,604 $ 23,322 $ 249,786 $ 641,693 $ 1,696,845 $ 28,104 Shares of investments: 45,896 2,340 20,202 50,377 171,883 3,065 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, 2003 - ------------------------------------------------------------------------------------------------------------------------------------ MAXIM MONEY MAXIM T. ROWE MAXIM U.S. NEUBERGER NEUBERGER NEUBERGER MARKET PRICE GOVERNMENT BERMAN AMT BERMAN AMT BERMAN AMT PORTFOLIO EQUITY/INCOME SECURITIES GUARDIAN MID-CAP GROWTH PARTNERS PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------- ASSETS: Investments at market value (1) $ 4,873,129 $ 215,616 $ 5,501,250 $ 403,545 $ 453,502 $ 99,401 Investment income due and accrued 133 ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- Total assets 4,873,262 215,616 5,501,250 403,545 453,502 99,401 ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- LIABILITIES: Due to Great-West Life & Annuity 427 18 482 35 39 9 Insurance Company ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- Total liabilities 427 18 482 35 39 9 ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- ------------- NET ASSETS $ 4,872,835 $ 215,598 $ 5,500,768 $ 403,510 $ 453,463 $ 99,392 ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= ============= NET ASSETS REPRESENTED BY: Accumulation units $ 4,872,835 $ 215,598 $ 5,500,768 $ 403,510 $ 453,463 $ 99,392 ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= ============= ACCUMULATION UNITS OUTSTANDING 434,713 20,730 417,475 36,476 49,163 9,216 UNIT VALUE (ACCUMULATION) $ 11.21 $ 10.40 $ 13.18 $ 11.06 $ 9.22 $ 10.78 ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= ============= (1) Cost of investments: $ 4,873,129 $ 192,702 $ 5,648,866 $ 372,842 $ 399,600 $ 89,922 Shares of investments: 4,873,129 12,758 493,386 28,866 29,583 6,455 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, 2003 - ------------------------------------------------------------------------------------------------------------------------------------ NEUBERGER STI CLASSIC TOTAL COLI BERMAN AMT VARIABLE VUL-2 SOCIALLY TRUST SMALL SERIES RESPONSIVE CAP VALUE ACCOUNT PORTFOLIO PORTFOLIO ------------------------------------------- ASSETS: Investments at market value (1) $ 4,316 $ 83,690 $ 39,019,867 Investment income due and accrued 10,915 ------------- ------------- ------------- ------------- ------------- ------------- Total assets 4,316 83,690 39,030,782 ------------- ------------- ------------- ------------- ------------- ------------- LIABILITIES: Due to Great-West Life & Annuity Insurance Company 0 7 3,404 ------------- ------------- ------------- ------------- ------------- ------------- Total liabilities 0 7 3,404 ------------- ------------- ------------- ------------- ------------- ------------- NET ASSETS $ 4,316 $ 83,683 $ 39,027,378 ============= ============= ============= ============= ============= ============= NET ASSETS REPRESENTED BY: Accumulation units $ 4,316 $ 83,683 $ 39,027,378 ============= ============= ============= ============= ============= ============= ACCUMULATION UNITS OUTSTANDING 363 6,610 UNIT VALUE (ACCUMULATION) $ 11.89 $ 12.66 ============= ============= ============= ============= (1) Cost of investments: $ 3,620 $ 81,373 $ 37,268,511 Shares of investments: 349 5,655 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, 2003
- ------------------------------------------------------------------------------------------------------------------------------------ AMERICAN AMERICAN AMERICAN DREYFUS STOCK DREYFUS VIF DREYFUS VIF CENTURY VP CENTURY VP CENTURY VP INDEX APPRECIATION GROWTH & INCOME & INTERNATIONAL VALUE PORTFOLIO PORTFOLIO INCOME GROWTH IV PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ 1,176 $ 392 $ $ 34,177 $ 975 $ 36 EXPENSES: Mortality and expense risk 358 318 116 8,286 417 22 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- NET INVESTMENT INCOME (LOSS) 818 74 (116) 25,891 558 14 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) on sale of (5,377) (4,841) (1,063) (79,824) 13,748 155 fund shares Realized gain distributions ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- Net realized gain (loss) (5,377) (4,841) (1,063) (79,824) 13,748 155 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- Change in net unrealized appreciation on investments 29,550 26,119 9,582 596,986 5,677 1,160 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 24,991 $ 21,352 $ 8,403 $ 543,053 $ 19,983 $ 1,329 ============= ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= INVESTMENT INCOME RATIO (2003) 1.31% 0.49% 1.65% 0.93% 0.63% ============= ============= ============= ============== ============= ============= ============= ============= ============== ============= INVESTMENT INCOME RATIO (2002) 0.76% 0.82% 0.76% 1.50% 1.66% 0.69% ============= ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= INVESTMENT INCOME RATIO (2001) 0.12% 0.02% 1.19% 1.85% 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, 2003 - ------------------------------------------------------------------------------------------------------------------------------------ FEDERATED FEDERATED FEDERATED FEDERATED FIDELITY VIP FIDELITY AMERICAN GROWTH HIGH INCOME INTERNATIONAL CONTRAFUND VIP GROWTH LEADERS FUND STRATEGIES BOND FUND II EQUITY FUND II SERVICES II PORTFOLIO II FUND II PORTFOLIO ------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ 6,039 $ $ 1,226 $ $ $ 993 EXPENSES: Mortality and expense risk 1,601 62 574 770 915 4,209 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- NET INVESTMENT INCOME (LOSS) 4,438 (62) 652 (770) (915) (3,216) ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) on sale of (1,844) 746 17,782 (787) 12,245 (55,529) fund shares Realized gain distributions ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- Net realized gain (loss) (1,844) 746 17,782 (787) 12,245 (55,529) ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- Change in net unrealized appreciation (depreciation) on investments 98,001 4,382 4,997 57,152 63,947 348,619 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 100,595 $ 5,066 $ 23,431 $ 55,595 $ 75,277 $ 289,874 ============= ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= INVESTMENT INCOME RATIO (2003) 1.51% 0.79% 0.09% ============= ============= ============= ============= ============= ============= INVESTMENT INCOME RATIO (2002) 0.08% 8.43% 0.11% ============= ============= ============= ============= ============= ============= 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, 2003 - ------------------------------------------------------------------------------------------------------------------------------------ FIDELITY VIP INVESCO VIF INVESCO VIF JANUS ASPEN JANUS ASPEN JANUS ASPEN INVESTMENT CORE EQUITY HIGH YIELD SERIES SERIES CAPITAL SERIES GRADE BOND II PORTFOLIO PORTFOLIO BALANCED APPRECIATION I FLEXIBLE PORTFOLIO PORTFOLIO PORTFOLIO INCOME PORTFOLIO ------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ 177,225 $ 18,185 $ $ 33,340 $ 1,062 $ 243,838 EXPENSES: Mortality and expense risk 21,247 4,679 70 6,153 562 20,611 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- NET INVESTMENT INCOME (LOSS) 155,978 13,506 (70) 27,187 500 223,227 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) on sale of 178,290 (11,459) 3,205 (73,631) 8,032 96,482 Realized gain distributions 64,755 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- Net realized gain (loss) 243,045 (11,459) 3,205 (73,631) 8,032 96,482 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- Change in net unrealized appreciation (depreciation) on investments (161,614) 243,474 869 225,940 31,596 (16,207) ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 237,409 $ 245,521 $ 4,004 $ 179,496 $ 40,128 $ 303,502 ============= ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= INVESTMENT INCOME RATIO (2003) 3.34% 1.55% 2.17% 0.64% 4.73% ============= ============= ============= ============== ============= ============= ============= ============= ============== ============= INVESTMENT INCOME RATIO (2002) 1.44% 1.71% 11.72% 2.90% 5.71% ============= ============= ============= ============= ============= ============= ============= ============= ============= ============= INVESTMENT INCOME RATIO (2001) 1.76% 3.26% ============= ============= ============= ============= 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, 2003 - ------------------------------------------------------------------------------------------------------------------------------------ JANUS ASPEN MAXIM ARIEL MAXIM ARIEL MAXIM MAXIM INVESCO MAXIM MFS SERIES MIDCAP VALUE SMALL-CAP CONSERVATIVE ADR PORTFOLIO SMALL-CAP WORLDWIDE PORTFOLIO VALUE PROFILE I GROWTH GROWTH PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ 8,999 $ 2,372 $ 139 $ 407 $ 2,672 $ EXPENSES: Mortality and expense risk 3,139 5,759 1,218 5 470 2,481 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- NET INVESTMENT INCOME (LOSS) 5,860 (3,387) (1,079) 402 2,202 (2,481) ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) on sale of (74,195) (210,995) 29,242 (720) (49,729) fund shares Realized gain distributions 5,453 8,795 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- Net realized gain (loss) (74,195) (205,542) 38,037 (720) (49,729) ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- Change in net unrealized appreciation (depreciation) on investments 242,228 563,711 59,735 (19) 47,852 233,472 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 173,893 $ 354,782 $ 96,693 $ 383 $ 49,334 $ 181,262 ============= ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= INVESTMENT INCOME RATIO (2003) 1.15% 0.13% 0.04% 2.23% 2.27% ============= ============= ============= ============= ============== ============= ============= ============= ============= ============== INVESTMENT INCOME RATIO (2002) 1.09% 0.23% 1.91% ============= ============= ============== ============= ============= ============== INVESTMENT INCOME RATIO (2001) 0.62% 0.66% 1.32% ============= ============= ============== ============= ============= ============== 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, 2003 - ------------------------------------------------------------------------------------------------------------------------------------ MAXIM LOOMIS MAXIM MAXIM MONEY MAXIM T. ROWE MAXIM U.S. NEUBERGER SAYLES BOND MODERATELY MARKET PRICE GOVERNMENT BERMAN AMT PORTFOLIO AGGRESSIVE PORTFOLIO EQUITY/INCOME SECURITIES GUARDIAN PROFILE I PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ 119,550 $ 414 $ 50,055 $ 1,542 $ 222,287 $ 3,516 EXPENSES: Mortality and expense risk 7,739 101 27,984 319 19,626 1,489 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- NET INVESTMENT INCOME 111,811 313 22,071 1,223 202,661 2,027 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) on sale of 56,624 (63) 468 26,707 (18,921) fund shares Realized gain distributions 163 44,146 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- Net realized gain (loss) 56,624 (63) 631 70,853 (18,921) ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- Change in net unrealized appreciation (depreciation) on investments 332,457 5,961 22,914 (177,062) 120,283 ------------- ------------- ------------- ------------- -------------- ------------- ------------- ------------- ------------- ------------- -------------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 500,892 $ 6,211 $ 22,071 $ 24,768 $ 96,452 $ 103,389 ============= ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= INVESTMENT INCOME RATIO (2003) 6.18% 1.64% 0.71% 1.66% 4.54% 0.94% ============= ============= ============= ============= ============== ============= ============= ============= ============= ============= ============== ============= INVESTMENT INCOME RATIO (2002) 7.33% 1.68% 1.36% 5.47% 0.07% ============= ============= ============= ============== ============= ============= ============= ============= ============== ============= INVESTMENT INCOME RATIO (2001) 11.35% 2.39% 3.51% 0.36% ============= ============= ============= ============= ============= ============= ============= ============= 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, 2003 - ----------------------------------------------------------------------------------------------------------------------------------- NEUBERGER NEUBERGER NEUBERGER STI CLASSIC TOTAL COLI BERMAN AMT BERMAN AMT BERMAN AMT VARIABLE VUL-2 MID-CAP PARTNERS SOCIALLY TRUST SMALL SERIES GROWTH PORTFOLIO RESPONSIVE CAP VALUE ACCOUNT PORTFOLIO PORTFOLIO PORTFOLIO ------------------------------------------------------------------------ INVESTMENT INCOME: Dividends $ $ $ $ 94 $ 930,711 EXPENSES: Mortality and expense risk 1,463 210 9 13 142,995 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- NET INVESTMENT INCOME (LOSS) (1,463) (210) (9) 81 787,716 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) on sale of fund shares (35,777) (42) 4 (181,067) Realized gain distributions 123,312 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net realized gain (loss) (35,777) (42) 4 (57,755) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Change in net unrealized appreciation on investments 126,029 16,256 696 2,317 3,167,060 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 88,789 $ 16,004 $ 691 $ 2,398 $ 3,897,021 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= INVESTMENT INCOME RATIO (2003) 0.11% ============= ============= 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, 2003 AND 2002
- ----------------------------------------------------------------------------------------------------------------------------------- AMERICAN CENTURY VP INCOME & AMERICAN CENTURY VP AMERICAN CENTURY VP VALUE GROWTH IV PORTFOLIO INTERNATIONAL PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------------- ---------------------------- --------------------------- ---------------------------- 2003 2002 2003 2002 2003 2002 ------------- ------------- ------------ ------------ ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 818 $ 256 $ 74 $ 135 $ (116)$ 26 Net realized gain (loss) (5,377) (327) (4,841) (314) (1,063) 302 Change in net realized appreciation (depreciation) on investments 29,550 (17,033) 26,119 (6,778) 9,582 (1,409) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from operations 24,991 (17,104) 21,352 (6,957) 8,403 (1,081) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 22,350 26,637 25,074 19,640 319 2,646 Redemptions (20,083) (2,378) (1,409) (773) (495) (428) Transfers between subaccounts, net (31,426) 58,140 13,610 5 59,910 Contract maintenance charges (329) (349) (485) (276) (233) (13) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions (29,488) 82,050 36,790 18,596 59,501 2,205 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase (decrease) in net (4,497) 64,946 58,142 11,639 67,904 1,124 assets NET ASSETS: Beginning of period 90,545 25,599 32,541 20,902 7,251 6,127 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 86,048 $ 90,545 $ 90,683 $ 32,541 $ 75,155 $ 7,251 ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 2,988 9,806 10,239 2,484 5,290 208 Units redeemed (6,190) (374) (4,271) (137) (779) (39) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase (decrease) (3,202) 9,432 5,968 2,347 4,511 169 ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ============= 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, 2003 AND 2002 - ------------------------------------------------------------------------------------------------------------------------------------ DREYFUS STOCK INDEX PORTFOLIO DREYFUS VIF APPRECIATION DREYFUS VIF GROWTH & PORTFOLIO INCOME PORTFOLIO --------------------------------------------------------------------------------------- ---------------------------- --------------------------- ---------------------------- 2003 2002 2003 2002 2003 2002 ------------- ------------- ------------ ------------ ------------- ------------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income $ 25,891 $ 9,363 $ 558 $ 358 $ 14 $ 10 Net realized gain (loss) (79,824) (101,994) 13,748 (2,086) 155 (28) Change in net realized appreciation (depreciation) on investments 596,986 (164,442) 5,677 1,265 1,160 (1,029) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from operations 543,053 (257,073) 19,983 (463) 1,329 (1,047) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 216,432 231,091 49,985 59,364 2,720 2,196 Redemptions (228,996) (21,018) (56,144) (1,172) (107) (84) Transfers between subaccounts, net 1,396,754 909,535 24,456 (26,030) (7,399) (5) Contract maintenance charges (4,602) (3,851) (527) (208) (28) (30) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions 1,379,588 1,115,757 17,770 31,954 (4,814) 2,077 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase (decrease) in net 1,922,641 858,684 37,753 31,491 (3,485) 1,030 assets NET ASSETS: Beginning of period 948,892 90,208 38,587 7,096 3,485 2,455 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 2,871,533 $ 948,892 $ 76,340 $ 38,587 $ 0 $ 3,485 ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 254,897 196,505 15,911 10,381 362 232 Units redeemed (69,775) (71,032) (12,886) (6,371) (822) (14) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase (decrease) 185,122 125,473 3,025 4,010 (460) 218 ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ============= (1) The portfolio ceased operations on December 12, 2003. 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, 2003 AND 2002 - ------------------------------------------------------------------------------------------------------------------------------------ FEDERATED AMERICAN LEADERS FEDERATED GROWTH STRATEGIES FEDERATED HIGH INCOME BOND FUND II FUND II FUND II --------------------------------------------------------------------------------------- ---------------------------- --------------------------- ---------------------------- 2003 2002 2003 2002 2003 2002 ------------- ------------- ------------ ------------ ------------- ------------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 4,438 $ (919)$ (62) $ (165)$ 652 $ 1,019 Net realized gain (loss) (1,844) (11,677) 746 (37,773) 17,782 (74) Change in net realized appreciation (depreciation) on investments 98,001 (87,639) 4,382 24,392 4,997 (981) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from operations 100,595 (100,235) 5,066 (13,546) 23,431 (36) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 86 17,869 4,524 41,165 4,402 Redemptions (5,869) (3,953) (275) (2,066) (264,964) (494) Transfers between subaccounts, net 6,487 474,811 (5,864) (105,479) 255,279 9,689 Contract maintenance charges (1,204) (1,211) (63) (191) (236) (27) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions (500) 469,647 11,667 (103,212) 31,244 13,570 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase (decrease) in net 100,095 369,412 16,733 (116,758) 54,675 13,534 assets NET ASSETS: Beginning of period 369,412 0 6,895 123,653 13,534 0 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 469,507 $ 369,412 $ 23,628 $ 6,895 $ 68,209 $ 13,534 ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 1,865 51,726 6,582 937 30,142 1,505 Units redeemed (1,897) (6,745) (5,020) (14,016) (25,646) (73) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase (decrease) (32) 44,981 1,562 (13,079) 4,496 1,432 ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ============= (1) The portfolio commenced 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, 2003 AND 2002 - ----------------------------------------------------------------------------------------------------------------------------------- FEDERATED INTERNATIONAL FIDELITY VIP FIDELITY VIP GROWTH EQUITY FUND II CONTRAFUND PORTFOLIO SERVICES II PORTFOLIO ------------------------------------------------------------------------ --------------------------- ------------ ---------------------------- 2003 2002 2003 2003 2002 ------------- ------------ ------------ ------------- ------------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (770)$ (588) $ (915)$ (3,216)$ (2,419) Net realized gain (loss) (787) (336) 12,245 (55,529) (12,082) Change in net realized appreciation (depreciation) on investments 57,152 (49,739) 63,947 348,619 (303,399) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from operations 55,595 (50,663) 75,277 289,874 (317,900) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 0 120,175 531,980 356,322 Redemptions (2,750) (1,704) (32,600) (51,843) (23,979) Transfers between subaccounts, net 232,862 198,979 93,142 30,915 Contract maintenance charges (580) (589) (315) (1,123) (1,047) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions (3,330) 230,569 286,239 572,156 362,211 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase in net assets 52,265 179,906 361,516 862,030 44,311 NET ASSETS: Beginning of period 179,906 0 0 814,116 769,805 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 232,171 $ 179,906 $ 361,516 $ 1,676,146 $ 814,116 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 0 28,110 46,314 102,443 53,539 Units redeemed (482) (307) (13,650) (22,237) (4,290) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase (decrease) (482) 27,803 32,664 80,206 49,249 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= (1) The portfolio commenced operations on February 25, 2003. 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, 2003 AND 2002 - ------------------------------------------------------------------------------------------------------------------------------------ FIDELITY VIP INVESTMENT INVESCO VIF CORE EQUITY INVESCO VIF HIGH YIELD GRADE BOND II PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------------- ---------------------------- --------------------------- ---------------------------- 2003 2002 2003 2002 2003 2002 ------------- ------------- ------------ ------------ ------------- ------------- (1) (2) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 155,978 $ 29,896 $ 13,506 $ 12,315 $ (70)$ 1,526 Net realized gain (loss) 243,045 6,655 (11,459) (21,040) 3,205 (3) Change in net realized appreciation (depreciation) on investments (161,614) 264,931 243,474 (217,454) 869 (869) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from operations 237,409 301,482 245,521 (226,179) 4,004 654 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 1,477,502 642,211 485,621 341,351 17,151 1,276 Redemptions (1,148,779) (61,380) (39,562) (26,727) (18,092) (91) Transfers between subaccounts, net 715,256 2,732,461 320,227 45,934 (17,362) 12,508 Contract maintenance charges (8,715) (6,434) (1,579) (1,240) (36) (12) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions 1,035,264 3,306,858 764,707 359,318 (18,339) 13,681 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase (decrease) in net 1,272,673 3,608,340 1,010,228 133,139 (14,335) 14,335 assets NET ASSETS: Beginning of period 4,674,490 1,066,150 933,657 800,518 14,335 0 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 5,947,163 $ 4,674,490 $ 1,943,885 $ 933,657 $ 0 $ 14,335 ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 267,967 306,266 85,784 44,410 2,081 1,958 Units redeemed (182,028) (9,551) (5,807) (9,331) (3,971) (68) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase (decrease) 85,939 296,715 79,977 35,079 (1,890) 1,890 ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ============= (1) The portfolio ceased operations on December 12, 2003. (2) The portfolio commenced 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, 2003 AND 2002 - ------------------------------------------------------------------------------------------------------------------------------------ JANUS ASPEN SERIES BALANCED JANUS ASPEN JANUS ASPEN SERIES PORTFOLIO SERIES FLEXIBLE INCOME PORTFOLIO CAPITAL APPRECIATION I PORTFOLIO ------------------------------------------------------------------------ --------------------------- ------------ ---------------------------- 2003 2002 2003 2003 2002 ------------- ------------ ------------ ------------- ------------- (1) (2) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income $ 27,187 $ 31,569 $ 500 $ 223,227 $ 118,261 Net realized gain (loss) (73,631) (17,441) 8,032 96,482 765 Change in net realized appreciation (depreciation) on investments 225,940 (104,133) 31,596 (16,207) 84,503 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from operations 179,496 (90,005) 40,128 303,502 203,529 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 218,388 84,360 79,949 640,605 Redemptions (599,863) (51,922) (24,476) (96,947) (18,425) Transfers between subaccounts, net (38,206) 1,054,298 329,370 82,455 4,221,812 Contract maintenance charges (4,210) (4,876) (186) (6,251) (3,953) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions (423,891) 1,081,860 384,657 619,862 4,199,434 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase (decrease) in net assets (244,395) 991,855 424,785 923,364 4,402,963 NET ASSETS: Beginning of period 1,512,996 521,141 0 4,402,963 0 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 1,268,601 $ 1,512,996 $ 424,785 $ 5,326,327 $ 4,402,963 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 85,072 113,649 54,108 162,597 347,182 Units redeemed (124,425) (11,607) (12,845) (113,891) (3,149) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase (decrease) (39,353) 102,042 41,263 48,706 344,033 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= (1) The portfolio commenced operations on April 19, 2002, but had no activity until 2003. (2) The portfolio commenced 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, 2003 AND 2002 - ----------------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES WORLDWIDE MAXIM ARIEL MIDCAP VALUE MAXIM ARIEL GROWTH PORTFOLIO PORTFOLIO SMALL-CAP VALUE PORTFOLIO ------------------------------------------------------------------------ --------------------------- --------------------------- ------------- 2003 2002 2003 2002 2003 ------------- ------------ ------------ ------------- ------------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 5,860 $ 4,586 $ (3,387)$ (1,526)$ (1,079) Net realized gain (loss) (74,195) (86,256) (205,542) 2,158 38,037 Change in net realized appreciation (depreciation) on investments 242,228 (141,717) 563,711 (238,626) 59,735 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from operations 173,893 (223,387) 354,782 (237,994) 96,693 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 233,664 185,355 246,214 227,919 58,871 Redemptions (49,760) (17,345) (350,092) (47,216) (64,978) Transfers between subaccounts, net (9,907) 275,939 (21,762) 1,532,465 465,350 Contract maintenance charges (1,605) (1,872) (4,030) (5,000) (646) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions 172,392 442,077 (129,670) 1,708,168 458,597 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase in net assets 346,285 218,690 225,112 1,470,174 555,290 NET ASSETS: Beginning of period 673,446 454,756 1,477,872 7,698 0 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 1,019,731 $ 673,446 $ 1,702,984 $ 1,477,872 $ 555,290 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 44,851 71,696 115,847 137,015 66,753 Units redeemed (22,614) (22,622) (128,211) (22,130) (15,790) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase (decrease) 22,237 49,074 (12,364) 114,885 50,963 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= (1) The portfolio commenced operations on April 19, 2002, but had no activity until 2003. 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, 2003 AND 2002 - ----------------------------------------------------------------------------------------------------------------------------------- MAXIM MAXIM INVESCO ADR MAXIM MFS SMALL-CAP GROWTH CONSERVATIVE PORTFOLIO PORTFOLIO PROFILE I PORTFOLIO ------------------------------------------ ---------------------------- ------------- --------------------------- ---------------------------- 2003 2003 2002 2003 2002 ------------- ------------ ------------ ------------- ------------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 402 $ 2,202 $ 172 $ (2,481)$ (1,952) Net realized loss (720) (48) (49,729) (89,640) Change in net realized appreciation (depreciation) on investments (19) 47,852 (1,753) 233,472 (72,274) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from operations 383 49,334 (1,629) 181,262 (163,866) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 317 21,706 6,528 67,258 53,856 Redemptions (1,925) (274) (106,775) (17,830) Transfers between subaccounts, net 22,601 214,559 38 141,974 400,088 Contract maintenance charges (221) (98) (1,620) (1,749) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase in net assets resulting from contract transactions 22,918 234,119 6,194 100,837 434,365 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase in net assets 23,301 283,453 4,565 282,099 270,499 NET ASSETS: Beginning of period 0 11,677 7,112 483,063 212,564 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 23,301 $ 295,130 $ 11,677 $ 765,162 $ 483,063 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 1,922 27,996 747 53,743 79,860 Units redeemed 0 (750) (43) (38,972) (31,824) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase 1,922 27,246 704 14,771 48,036 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= (1) The portfolio commenced operations on December 12, 2003. 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, 2003 AND 2002 - ------------------------------------------------------------------------------------------------------------------------------------ MAXIM LOOMIS SAYLES BOND MAXIM MODERATELY AGGRESSIVE MAXIM MONEY MARKET PORTFOLIO PROFILE I PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------------- ---------------------------- --------------------------- ---------------------------- 2003 2002 2003 2002 2003 2002 ------------- ------------- ------------ ------------ ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income $ 111,811 $ 71,688 $ 313 $ 192 $ 22,071 $ 38,770 Net realized gain (loss) 56,624 (2,546) (63) (42) Change in net realized appreciation (depreciation) on investments 332,457 32,018 5,961 (2,210) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from operations 500,892 101,160 6,211 (2,060) 22,071 38,770 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 5,741 11,331 8,729 7,548,060 18,317,124 Redemptions (15,620) (1,717) (460) (361) (1,423,754) (99,602) Transfers between subaccounts, net (144,623) 1,583,512 (1,218) (6,139,234) (14,447,449) Contract maintenance charges (777) (88) (119) (129) (15,022) (9,392) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions (155,279) 1,581,707 9,534 8,239 (29,950) 3,760,681 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase (decrease) in net 345,613 1,682,867 15,745 6,179 (7,879) 3,799,451 assets NET ASSETS: Beginning of period 1,713,367 30,500 15,793 9,614 4,880,714 1,081,263 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 2,058,980 $ 1,713,367 $ 31,538 $ 15,793 $ 4,872,835 $ 4,880,714 ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 14,090 148,170 1,257 871 886,505 1,676,850 Units redeemed (24,317) (10,096) (174) (51) (888,623) (1,337,744) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase (decrease) (10,227) 138,074 1,083 820 (2,118) 339,106 ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ============= 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, 2003 AND 2002 - ----------------------------------------------------------------------------------------------------------------------------------- MAXIM T. ROWE MAXIM U.S. GOVERNMENT NEUBERGER BERMAN AMT PRICE SECURITIES PORTFOLIO GUARDIAN PORTFOLIO EQUITY/INCOME PORTFOLIO ------------------------------------------------------------------------ ------------- --------------------------- ---------------------------- 2003 2003 2002 2003 2002 ------------- ------------ ------------ ------------- ------------- (1) (2) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 1,223 $ 202,661 $ 71,398 $ 2,027 $ (888) Net realized gain (loss) 631 70,853 5,610 (18,921) (20,929) Change in net realized appreciation (depreciation) on investments 22,914 (177,062) 29,446 120,283 (88,776) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from operations 24,768 96,452 106,454 103,389 (110,593) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 25,296 1,458,495 29,412 21,489 Redemptions (1,676) (333,231) (18,086) (71,429) (4,870) Transfers between subaccounts, net 167,341 1,630,488 2,568,003 32,936 375,295 Contract maintenance charges (131) (5,963) (1,844) (1,080) (1,085) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions 190,830 2,749,789 2,548,073 (10,161) 390,829 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase in net assets 215,598 2,846,241 2,654,527 93,228 280,236 NET ASSETS: Beginning of period 0 2,654,527 0 310,282 30,046 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 215,598 $ 5,500,768 $ 2,654,527 $ 403,510 $ 310,282 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 21,063 361,191 223,163 11,586 42,479 Units redeemed (333) (149,536) (17,343) (11,920) (8,280) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase (decrease) 20,730 211,655 205,820 (334) 34,199 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= (1) The portfolio commenced operations on April 19, 2002, but had no activity until 2003. (2) The portfolio commenced 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, 2003 AND 2002 - ----------------------------------------------------------------------------------------------------------------------------------- NEUBERGER BERMAN AMT MID-CAP NEUBERGER BERMAN AMT NEUBERGER GROWTH PORTFOLIO PARTNERS PORTFOLIO BERMAN AMT SOCIALLY RESPONSIVE PORTFOLIO ------------------------------------------------------------------------ --------------------------- --------------------------- ------------- 2003 2002 2003 2002 2003 ------------- ------------ ------------ ------------- ------------- (1) (2) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (1,463)$ (883) $ (210)$ (66)$ (9) Net realized gain (loss) (35,777) (29,331) (42) (112) 4 Change in net realized appreciation (depreciation) on investments 126,029 (50,938) 16,256 (6,777) 696 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from operations 88,789 (81,152) 16,004 (6,955) 691 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 166,683 112,100 4,281 0 Redemptions (131,651) (7,154) (1,919) (494) (31) Transfers between subaccounts, net 109,464 37,640 51,420 37,203 3,658 Contract maintenance charges (664) (548) (105) (43) (2) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase in net assets resulting from contract transactions 143,832 142,038 53,677 36,666 3,625 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase in net assets 232,621 60,886 69,681 29,711 4,316 NET ASSETS: Beginning of period 220,842 159,956 29,711 0 0 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 453,463 $ 220,842 $ 99,392 $ 29,711 $ 4,316 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 38,854 22,917 5,897 3,771 366 Units redeemed (20,233) (7,943) (388) (64) (3) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase 18,621 14,974 5,509 3,707 363 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= (1) The portfolio commenced operations on October 1, 1999, but had no activity until 2002. (2) The portfolio commenced operations on April 25, 2003. 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, 2003 AND 2002 - ----------------------------------------------------------------------------------------------------------------------------------- STI CLASSIC BRAZOS SMALL TOTAL COLI VUL-2 SERIES VARIABLE CAP PORTFOLIO ACCOUNT TRUST SMALL CAP VALUE PORTFOLIO ---------------------------------------------------------- ------------- ------------- ---------------------------- 2003 2002 2003 2002 ------------- ------------- ------------- ------------- (1) (2) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 81 $ (1,131) 787,716 $ 381,003 Net realized loss (11,020) (57,755) (429,609) Change in net realized appreciation (depreciation) on investments 2,317 (1,051) 3,167,060 (1,122,472) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Increase (decrease) in net assets resulting from operations 2,398 (13,202) 3,897,021 (1,171,078) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 0 0 13,824,700 20,709,120 Redemptions (15,616) (5,146,555) (447,159) Transfers between subaccounts, net 81,285 (2,014,190) 0 Contract maintenance charges (1,095) (62,687) (47,250) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Increase (decrease) in net assets resulting from contract transactions 81,285 (2,030,901) 8,615,458 20,214,711 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Total increase (decrease) in net assets 83,683 (2,044,103) 12,512,479 19,043,633 NET ASSETS: Beginning of period 0 2,044,103 26,514,899 7,471,266 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- End of period $ 83,683 $ 0 39,027,378 $ 26,514,899 ============= ============= ============= ============= ============= ============= ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 6,610 2,793,173 3,576,437 Units redeemed 0 (234,062) (1,908,486) (1,829,306) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) 6,610 (234,062) 884,687 1,747,131 ============= ============= ============= ============= ============= ============= ============= ============= (1) The portfolio commenced operations on June 24, 2002, but had no activity until 2003. (2) The portfolio ceased operations on February 22, 2002. The accompanying notes are an integral part of these financial statements. (Concluded)
COLV VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY For the year or For the Year ended period ended At December 31, 2003 December 31, 2003 December 31, 2003 ------------------------------------- ------------------------------------ ------------------------------------- ---------------- ---------------- Units Unit Fair Value Net Assets Expense Ratio Total Return (000s) (000s) --------- -------- ---------- ---------------- ---------------- --------- -------- ---------- ---------------- ---------------- AMERICAN CENTURY VP INCOME & GROWTH IV PORTFOLIO 9 $ 9.56 $ 86 0.40 % 28.84 % AMERICAN CENTURY VP INTERNATIONAL PORTFOLIO 11 $ 8.43 $ 91 0.40 % 24.01 % AMERICAN CENTURY VP VALUE PORTFOLIO 5 $ 14.60 $ 75 0.40 % 28.42 % DREYFUS STOCK INDEX PORTFOLIO 321 $ 8.96 $ 2,872 0.40 % 27.85 % DREYFUS VIF APPRECIATION PORTFOLIO 8 $ 9.84 $ 76 0.40 % 20.68 % FEDERATED AMERICAN LEADERS FUND II 45 $ 10.45 $ 470 0.40 % 27.19 % FEDERATED GROWTH STRATEGIES FUND II 3 $ 8.97 $ 24 0.40 % 39.48 % FEDERATED HIGH INCOME BOND FUND II 6 $ 11.51 $ 68 0.40 % 21.72 % FEDERATED INTERNATIONAL EQUITY FUND II 27 $ 8.50 $ 232 0.40 % 31.33 % FIDELITY VIP CONTRAFUND SERVICES II PORTFOLIO 33 $ 11.07 $ 362 0.40 % 27.68 % FIDELITY VIP GROWTH SERVICES II PORTFOLIO 224 $ 7.50 $ 1,676 0.40 % 32.02 % FIDELITY VIP INVESTMENT GRADE BOND II PORTFOLIO 482 $ 12.35 $ 5,948 0.40 % 4.52 % INVESCO VIF CORE EQUITY PORTFOLIO 193 $ 10.05 $ 1,944 0.40 % 22.11 % JANUS ASPEN SERIES BALANCED PORTFOLIO 111 $ 11.44 $ 1,269 0.40 % 13.60 % JANUS ASPEN SERIES CAPITAL APPRECIATION I PORTFOLIO 41 $ 10.29 $ 425 0.40 % 20.06 % JANUS ASPEN SERIES FLEXIBLE INCOME PORTFOLIO 393 $ 13.56 $ 5,327 0.40 % 5.97 % JANUS ASPEN SERIES WORLDWIDE GROWTH PORTFOLIO 121 $ 8.46 $ 1,020 0.40 % 23.50 % MAXIM ARIEL MIDCAP VALUE PORTFOLIO 103 $ 16.53 $ 1,703 0.40 % 29.06 % MAXIM ARIEL SMALL-CAP VALUE PORTFOLIO 51 $ 10.90 $ 555 0.40 % 28.72 % MAXIM CONSERVATIVE PROFILE I PORTFOLIO 2 $ 12.12 $ 23 0.40 % 10.88 % MAXIM INVESCO ADR PORTFOLIO 29 $ 10.27 $ 295 0.40 % 30.78 % MAXIM MFS SMALL-CAP GROWTH PORTFOLIO 84 $ 9.15 $ 765 0.40 % 30.43 % MAXIM LOOMIS SAYLES BOND PORTFOLIO 131 $ 15.76 $ 2,059 0.40 % 29.58 % MAXIM MODERATELY AGGRESSIVE PROFILE I PORTFOLIO 3 $ 11.11 $ 32 0.40 % 23.48 % MAXIM MONEY MARKET PORTFOLIO 435 $ 11.21 $ 4,874 0.40 % 0.32 % MAXIM T. ROWE PRICE EQUITY/INCOME PORTFOLIO 21 $ 10.40 $ 216 0.40 % 25.13 % MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO 417 $ 13.18 $ 5,501 0.40 % 2.16 % NEUBERGER BERMAN AMT GUARDIAN PORTFOLIO 36 $ 11.06 $ 404 0.40 % 31.24 % NEUBERGER BERMAN AMT MID-CAP GROWTH PORTFOLIO 49 $ 9.22 $ 453 0.40 % 27.56 % NEUBERGER BERMAN AMT PARTNERS PORTFOLIO 9 $ 10.78 $ 99 0.40 % 34.55 % NEUBERGER BERMAN AMT SOCIALLY RESPONSIVE PORTFOLIO 0 $ 11.89 $ 4 0.40 % 33.85 % STI CLASSIC VARIABLE TRUST SMALL CAP VALUE PORTFOLIO 7 $ 12.66 $ 84 0.40 % 37.88 %
AMERICAN AMERICAN AMERICAN REYFUS STOCK DREYFUS VIF FEDERATED FEDERATED CENTURY VP CENTURY VP CENTURY VP INDEX FUND APPRECIATION AMERICAN GROWTH INCOME & GROWTH INTERNATIONAL VALUE PORTFOLIO LEADERS FUND II STRATEGIES IV PORTFOLIO PORTFOLIO PORTFOLIO FUND II ------------------------------------------------------------------------------------------------------------ Expenses as a % of net asset 0.40 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 $ 8.21 $ 6.43 Number of Units Outstanding 12,202 4,785 638 135,429 4,732 44,981 1,072 Net Assets (000's) $ 91 $ 33 $ 7 $ 949 $ 39 $ 369 $ 7 Total Return (19.70%) (20.75%) (12.94%) (22.63%) (17.09%) (17.90%) (26.43%) 2001 - ------------------------ Ending Unit Value $ 9.24 $ 8.58 $ 13.06 $ 9.06 $ 9.83 $ 8.74 Number of Units Outstanding 2,770 2,438 469 9,956 722 14,151 Net Assets (000's) $ 26 $ 21 $ 6 $ 90 $ 7 $ 124 Total Return (8.70%) (29.44%) 12.39% (12.55%) (9.82%) (22.79%) 2000 - ------------------------ Ending Unit Value $ 10.12 $ 12.16 $ 11.62 $ 10.36 $ 10.90 $ 11.32 Number of Units Outstanding 173 335 - 5,545 55 16,074 Net Assets (000's) $ 2 $ 4 $ - $ 57 $ 1 $ 182 Total Return (10.99%) (17.11%) 17.73% (9.60%) (1.00%) (20.23%) 1999 - ------------------------ Ending Unit Value $ 11.37 $ 14.67 $ 9.87 $ 11.46 $ 11.01 $ 14.19 Number of Units Outstanding - - - - - - Net Assets (000's) $ - - $ - $ - $ - $ - Total Return 13.70% 46.70% (1.30%) 14.60% 10.10% 41.90% (Continued) FEDERATED FEDERATED FIDELITY VIP FIDELITY VIP INVESCO VIF JANUS ASPEN JANUS ASPEN HIGH INCOME INTERNATIONAL GROWTH INVESTMENT CORE EQUITY SERIES SERIES BOND FUND II EQUITY FUND II SERVICES II GRADE BOND II PORTFOLIO BALANCED FLEXIBLE PORTFOLIO PORTFOLIO PORTFOLIO INCOME PORTFOLIO ---------------------------------------------------------------------------------------------------------- Expenses as a % of net assets 0.40 0.40 0.40 0.40 0.40 0.40 0.40 2002 - ------------------------ Ending Unit Value $ 9.45 $ 6.47 $ 5.68 $ 11.81 $ 8.23 $ 10.07 $ 12.80 Number of Units Outstanding 1,432 27,803 143,352 395,673 113,434 150,273 344,033 Net Assets (000's) $ 14 $ 180 $ 814 $ 4,674 $ 934 $ 1,513 $ 4,403 Total Return 0.96% (23.07%) (30.56%) 9.66% (19.47%) (6.85%) 28.00% 2001 - ------------------------ Ending Unit Value $ 9.36 $ 8.41 $ 8.18 $ 10.77 $ 10.22 $ 10.81 Number of Units Outstanding - - 94,103 98,958 78,355 48,231 Net Assets (000's) $ - $ - $ 770 $ 1,066 $ 801 $ 521 Total Return 0.97% (29.68%) (18.20%) 7.70% (9.32%) (5.01%) 2000 - ------------------------ Ending Unit Value $ 9.27 $ 11.96 $ 10.00 $ 10.00 $ 11.27 $ 11.38 Number of Units Outstanding - 47 - - - 13,507 Net Assets (000's) $ - $ 1 $ - $ - $ - $ 154 Total Return (9.38%) (22.94%) 0.00% 0.00% 4.45% (2.65%) 1999 - ------------------------ Ending Unit Value $ 10.23 $ 15.52 $ 10.79 $ 11.69 Number of Units Outstanding - - - - Net Assets (000's) $ - $ - $ - $ - Total Return 2.30% 55.20% 7.90% 16.90% (Continued) JANUS ASPEN MAXIM ARIEL MAXIM INVESCO MAXIM MFS MAXIM LOOMIS MAXIM MAXIM SERIES MIDCAP VALUE ADR PORTFOLIO SMALL-CAP SAYLES BOND MODERATELY MONEY WORLDWIDE PORTFOLIO GROWTH PORTFOLIO AGGRESSIVE MARKET GROWTH PORTFOLIO PROFILE I PORTFOLIO PORTFOLIO PORTFOLIO ---------------------------------------------------------------------------------------------------------- Expenses as a % of net assets 0.40 0.40 0.40 0.40 0.40 0.40 0.40 2002 - ------------------------ Ending Unit Value $ 6.85 $ 12.80 $ 7.85 $ 7.01 $ 12.16 $ 8.99 $ 11.17 Number of Units Outstanding 98,352 115,419 1,487 68,880 140,848 1,756 436,831 Net Assets (000's) $ 673 $ 1,478 $ 12 $ 483 $ 1,713 $ 16 $ 4,881 Total Return (25.79%) (11.17%) (13.55%) (31.27%) 10.65% (12.46%) 0.99% 2001 - ------------------------ Ending Unit Value $ 9.23 $ 14.41 $ 9.08 $ 10.20 $ 10.99 $ 10.27 $ 11.06 Number of Units Outstanding 49,278 534 783 20,844 2,774 936 97,725 Net Assets (000's) $ 455 $ 8 $ 7 $ 213 $ 30 $ 10 $ 1,081 Total Return (22.76%) 17.73% (16.54%) (23.13%) 2.14% (5.00%) 3.46% 2000 - ------------------------ Ending Unit Value $ 11.95 $ 12.24 $ 10.88 $ 13.27 $ 10.76 $ 10.81 $ 10.69 Number of Units Outstanding 29,617 - 55 24,049 2 168 - Net Assets (000's) $ 354 $ - $ 1 $ 319 $ - $ 2 $ - Total Return (15.96%) 18.26% (10.53%) (12.75%) 4.16% (4.67%) 5.63% 1999 - ------------------------ Ending Unit Value $ 14.22 $ 10.35 $ 12.16 $ 15.21 $ 10.33 $ 11.34 $ 10.12 Number of Units Outstanding - - - - - - - Net Assets (000's) $ - $ - $ - $ - $ - $ - $ - Total Return 42.20% 3.50% 21.60% 52.10% 3.30% 13.40% 1.20% (Continued) MAXIM U.S. NEUBERGER NEUBERGER NEUBERGER GOVERNMENT BERMAN AMT BERMAN AMT BERMAN AMT SECURITIES GUARDIAN MID-CAP GROWTH PARTNERS PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO ----------------------------------------------------------------- Expenses as a % of net assets 0.40 0.40 0.40 0.40 2002 - ------------------------ Ending Unit Value $ 12.90 $ 8.43 $ 7.23 $ 8.01 Number of Units Outstanding 205,820 36,810 30,542 3,707 Net Assets (000's) $ 2,655 $ 310 $ 221 $ 30 Total Return 29.00% (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)
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, 2003, 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, 2003, 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, 2003, 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. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP March 12, 2004 COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DECEMBER 31, 2003 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, 2003 were as follows:
Purchases Sales --------------- --------------- American Century VP Income & Growth IV Portfolio $ 23,716 $ 52,095 American Century VP International Portfolio 71,381 34,183 American Century VP Value Portfolio 68,711 9,321 Dreyfus Stock Index Fund 1,956,628 557,249 Dreyfus VIF Appreciation Portfolio 135,558 117,117 Dreyfus VIF Growth & Income Portfolio 2,788 7,555 Federated American Leaders Fund II 23,566 19,615 Federated Growth Strategies Fund II 50,540 38,861 Federated High Income Bond Fund II 320,845 288,944 Federated International Equity Fund II 0 4,094 Fidelity VIP Contrafund Services II Portfolio 410,873 125,518 Fidelity VIP Growth Portfolio 711,899 142,877 Fidelity VIP Investment Grade Bond Portfolio 3,482,332 2,226,171 INVESCO VIF Core Equity Portfolio 847,198 52,713 INVESCO VIF High Yield Portfolio 18,696 35,564 Janus Aspen Series Balanced Portfolio 915,459 1,311,222 Janus Aspen Series Capital Appreciation I 499,830 114,636 Portfolio Janus Aspen Series Flexible Income Portfolio 2,349,572 1,506,353 Janus Aspen Series Worldwide Growth Portfolio 353,883 175,304 Maxim Ariel MidCap Value Portfolio 1,113,634 1,241,094 Maxim Ariel Small-Cap Value Portfolio 624,332 157,970 Maxim Conservative Profile I Portfolio 23,325 3 Maxim INVESCO ADR Portfolio 243,469 7,015 Maxim MFS Small-Cap Growth Portfolio 402,760 304,339 Maxim Loomis Sayles Bond Portfolio 312,144 355,564 Maxim Moderately Aggressive Profile I Portfolio 11,793 1,798 Maxim Money Market Portfolio 8,455,484 8,460,803 Maxim T. Rowe Price Equity/Income Portfolio 195,435 3,201 Maxim U.S. Government Securities Portfolio 4,879,784 1,882,909 Neuberger Berman AMT Guardian Portfolio 111,413 119,536 Neuberger Berman AMT Mid-Cap Growth Portfolio 319,618 177,045 Neuberger Berman AMT Partners Portfolio 57,440 3,966 Neuberger Berman AMT Socially Responsive 3,658 42 Portfolio STI Classic Variable Trust Small Cap Value 81,379 6 Portfolio --------------- --------------- --------------- --------------- Total $ $ =============== ===============
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 units outstanding for variable annuity contracts, the range of the lowest to highest expense ratio, excluding expenses of the underlying funds, the related total return and the related accumulation unit fair values for the year ended December 31, 2003 is included on the following page. For the years ended December 31, 2002, 2001, 2000 and 1999, ending unit values, the number of units outstanding, net assets and total return are shown separately for each expense band of each investment division. The Expense Ratios represent the annualized contract expenses of the Series Account, consisting of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund have been excluded. The Total Return amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through the redemption of units. The total return is calculated for each period shown and, accordingly, is not annualized. As the total return for the year ended December 31, 2003 is presented as a range of minimum to maximum values, based on the product grouping representing the minimum and maximum expense ratio amounts, some individual contract total returns are not within the ranges presented. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY (A wholly-owned subsidiary of GWL&A Financial Inc.) Consolidated Financial Statements for the Years Ended December 31, 2003, 2002, and 2001 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, 2003 and 2002, 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, 2003. 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, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Denver, Colorado February 25, 2004 GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2003 AND 2002
============================================================================================== (Dollars in Thousands) 2003 2002 ------------------- ------------------- ASSETS INVESTMENTS: Fixed maturities, available-for-sale, at fair value (amortized cost $12,757,614 and $9,910,662 ) $ 13,136,564 $ 10,371,152 Equity investments, at fair value (cost $407,797 and $102,862) 427,810 90,188 Mortgage loans on real estate (net of allowances of $31,889 and $55,654) 1,885,812 417,412 Real estate 7,912 3,735 Policy loans 3,389,534 2,964,030 Short-term investments, available-for-sale (cost $852,198 and $709,592) 852,198 709,804 ------------------- ------------------- ------------------- ------------------- Total Investments 19,699,830 14,556,321 ------------------- ------------------- ------------------- ------------------- OTHER ASSETS: Cash 188,329 154,600 Reinsurance receivable: Related party 1,312,139 3,104 Other 262,685 238,049 Deferred policy acquisition costs 284,866 267,846 Deferred ceding commission 285,165 Investment income due and accrued 165,417 133,166 Amounts receivable related to uninsured accident and health plan claims (net of allowances of $32,329 and $42,144) 129,031 86,228 Premiums in course of collection (net of allowances of $9,768 and $12,011) 75,809 54,494 Deferred income taxes 119,971 69,016 Other assets 754,160 754,869 SEPARATE ACCOUNT ASSETS 13,175,480 11,338,376 ------------------- ------------------- TOTAL ASSETS $ 36,452,882 $ 27,656,069 =================== =================== ============================================================================================== 2003 2002 --------------- -------------- LIABILITIES AND STOCKHOLDER'S EQUITY POLICY BENEFIT LIABILITIES: Policy reserves: Related party $ 3,429,873 $ 518,587 Other 15,220,205 11,732,627 Policy and contract claims 418,930 378,995 Policyholders' funds 368,076 299,730 Provision for policyholders' dividends 89,121 76,983 Undistributed earnings on participating business 177,175 170,456 GENERAL LIABILITIES: Due to GWL 30,950 33,841 Due to GWL&A Financial 175,691 171,416 Repurchase agreements 389,715 323,200 Commercial paper 96,432 96,645 Other liabilities 994,608 850,757 SEPARATE ACCOUNT LIABILITIES 13,175,480 11,338,376 --------------- -------------- Total Liabilities 34,566,256 25,991,613 --------------- -------------- 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 722,365 719,709 Accumulated other comprehensive income 127,820 150,616 Retained earnings 1,029,409 787,099 --------------- -------------- Total Stockholder's Equity 1,886,626 1,664,456 --------------- -------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 36,452,882 $ 27,656,069 =============== ==============
See notes to consolidated financial statements. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
============================================================================================== (Dollars in Thousands) 2003 2002 2001 ------------- ------------- -------------- REVENUES: Premiums: Related party $ 1,595,357 $ 16,715 $ 18,144 Other (net of premiums ceded totaling $461,092, $83,789 and $82,028) 657,540 1,103,380 1,185,495 Fee income 840,072 883,562 947,255 Net investment income 988,400 919,365 934,756 Net realized gains on investments 39,560 41,626 46,825 ------------- ------------- -------------- ------------- -------------- 4,120,929 2,964,648 3,132,475 BENEFITS AND EXPENSES: Life and other policy benefits (net of reinsurance recoveries totaling $410,430, $50,974 and $40,144) 573,976 936,215 1,029,495 Increase in reserves: Related party 1,450,185 15,934 12,475 Other 51,320 55,414 45,958 Interest paid or credited to contractholders 514,846 498,549 530,027 Provision for policyholders' share of earnings on participating business 1,159 7,790 2,182 Dividends to policyholders 92,118 78,851 76,460 ------------- ------------- -------------- ------------- ------------- -------------- 2,683,604 1,592,753 1,696,597 Commissions 180,673 185,450 197,099 Operating expenses 753,336 741,979 787,110 Premium taxes 31,675 30,714 36,911 Special charges 127,040 ------------- ------------- -------------- ------------- ------------- -------------- 3,649,288 2,550,896 2,844,757 INCOME BEFORE INCOME TAXES 471,641 413,752 287,718 PROVISION FOR INCOME TAXES: Current 173,181 126,222 136,965 Deferred (19,561) 3,993 (41,993) ------------- ------------- -------------- ------------- ------------- -------------- 153,620 130,215 94,972 ------------- ------------- -------------- ------------- ------------- -------------- NET INCOME $ 318,021 $ 283,537 $ 192,746 ============= ============= ============== See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
============================================================================================== (Dollars in Thousands) Accumulated Other Comprehensive Income (Loss) --------------------------- Unrealized Minimum Additional Gains Pension Preferred Common Paid-in (Losses) Liability Retained Stock Stock Capital on Adjustment Earnings Total Securities ---------- ----------- ----------- ------------- ------------ ---------- ----------- ---------- ----------- ----------- ------------- ------------ ---------- ----------- BALANCES, JANUARY 1, 2001 $ 0 $ 7,032 $ 717,704 $ 33,672 $ $ 669,021 $ 1,427,429 Net income 192,746 192,746 Other comprehensive income 42,835 42,835 ----------- Total comprehensive income 235,581 ----------- Dividends (187,633) (187,633) Capital contributions adjustment - - Parent stock options (12,098) (12,098) Income tax benefit on stock Compensation 7,195 7,195 ---------- ----------- ----------- ------------- ------------ ---------- ----------- BALANCES, DECEMBER 31, 2001 0 7,032 712,801 76,507 674,134 1,470,474 ---------- ----------- ----------- ------------- ------------ ---------- ----------- Net income 283,537 283,537 Other comprehensive income 86,993 (12,884) 74,109 ----------- Total comprehensive income 357,646 ----------- Dividends (170,572) (170,572) Income tax benefit on stock Compensation 6,908 6,908 ---------- ----------- ----------- ------------- ------------ ---------- ----------- BALANCES, DECEMBER 31, 2002 0 7,032 719,709 163,500 (12,884) 787,099 1,664,456 ---------- ----------- ----------- ------------- ------------ ---------- ----------- Net income 318,021 318,021 Other comprehensive income (26,369) 3,573 (22,796) ----------- Total comprehensive income 295,225 ----------- Dividends (75,711) (75,711) Income tax benefit on stock compensation 2,656 2,656 ---------- ----------- ----------- ------------- ------------ ---------- ----------- BALANCES, DECEMBER 31, 2003 $ 0 $ 7,032 $ 722,365 $ 137,131 $ (9,311) 1,029,409 $ 1,886,626 ========== =========== =========== ============= ============ ========== ===========
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
============================================================================================== (Dollars in Thousands) 2003 2002 2001 -------------- ------------- ------------- OPERATING ACTIVITIES: Net income $ 318,021 $ 283,537 $ 192,746 Adjustments to reconcile net income to net cash provided by operating activities: Earnings allocated to participating policyholders 1,159 7,790 2,182 Amortization of investments (64,126) (76,002) (82,955) Net realized gains on investments (39,560) (41,626) (46,825) Depreciation and amortization (including goodwill impairment in 2001) 59,375 37,639 62,101 Deferred income taxes (19,561) 3,993 (41,993) Stock compensation adjustment (12,098) Changes in assets and liabilities, net of effects from acquisitions: Policy benefit liabilities 516,019 622,854 334,025 Reinsurance receivable (13,064) 41,199 (48,384) Receivables (23,724) 89,686 153,350 Bank overdrafts 32,068 (41,901) (29,121) Other, net (26,405) (159,562) 157,228 -------------- ------------- ------------- Net cash provided by operating $ 740,202 $ 767,607 $ 640,256 activities -------------- ------------- ------------- (Continued) GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001 (Dollars in Thousands) ================================================================================================ ================================================================================================ 2003 2002 2001 --------------- ------------- ------------- --------------- ------------- ------------- INVESTING ACTIVITIES: Proceeds from sales, maturities and redemptions of investments: Fixed maturities available-for-sale: Sales $ 7,852,152 5,729,919 $ 5,201,692 Maturities and redemptions 6,033,863 1,456,176 1,244,547 Mortgage loans 188,341 210,224 224,810 Real estate 3,012 3,570 Equity investments 86,908 2,798 38,331 Purchases of investments: Fixed maturities available-for -sale (14,265,107) (7,369,364) (6,878,213) Mortgage loans (5,500) Real estate (6,190) (2,768) (3,124) Equity investments (369,650) (29,690) (27,777) Corporate owned life insurance (100,000) Other, net 96,155 (77,769) 95,808 Acquisitions, net of cash acquired (128,636) ================================================= --------------- ------------- ------------- Net cash used in investing activities $ (514,652) (76,904) $ (203,926) --------------- ------------- ------------- --------------- ------------- ------------- ================================================================================================ (Continued) GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001, ============================================================================================== (Dollars in Thousands) 2003 2002 2001 -------------- -------------- -------------- -------------- -------------- FINANCING ACTIVITIES: Contract withdrawals, net of deposits $ (180,346) $ (599,724) $ (483,285) Due to GWL (6,341) (8,033) (1,207) Due to GWL&A Financial 4,275 (43,415) 45,245 Dividends paid (75,711) (170,572) (187,633) Net commercial paper repayments (213) (401) (585) Net repurchase agreements borrowings 66,515 72,311 250,889 -------------- -------------- -------------- -------------- Net cash used in financing activities (191,821) (749,834) (376,576) -------------- -------------- -------------- NET INCREASE (DECREASE) IN CASH 33,729 (59,131) 59,754 CASH, BEGINNING OF YEAR 154,600 213,731 153,977 -------------- -------------- -------------- CASH, END OF YEAR $ 188,329 $ 154,600 $ 213,731 ============== ============== ============== ============== ============== ============== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Income taxes $ 144,273 $ 164,863 $ 59,895 Interest 16,155 16,697 17,529 Non-cash financing activity: Effect on capital - Parent stock options (12,098)
See notes to consolidated financial statements. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001 ================================================================================ (Amounts in Thousands, except Share Amounts) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization - Great-West Life & Annuity Insurance Company (the Company) is a direct wholly-owned subsidiary of GWL&A Financial Inc. (GWL&A Financial), a holding company formed in 1998. GWL&A Financial is an indirect wholly-owned subsidiary of Great-West Lifeco, Inc. (Lifeco or the Parent). 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. 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 2002 and 2001 financial statements and related footnotes to conform to the 2003 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. Equity investments 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. The Company classifies its equity investments not accounted for under the equity method as available-for-sale. The Company uses the equity method of accounting for investments in which it has more than a minority interest, has influence in the entity's operating and financial policies, but does not have a controlling interest. 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 $68,244 and $55,363 are included in other assets at December 31, 2003 and 2002, respectively. The Company capitalized, net of depreciation, $12,881, $10,448, and $6,896 of internal use software development costs for the years ended December 31, 2003, 2002 and 2001, respectively. Deferred Policy Acquisition Costs - Policy acquisition costs, which primarily consist of sales commissions and costs associated with the Company's 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 $60,288, $38,707 and $44,096, in 2003, 2002 and 2001, 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 $12,111,180 and $8,029,337 at December 31, 2003 and 2002, respectively, are computed on the basis of estimated mortality, investment yield, withdrawals, future maintenance and settlement expenses, and retrospective experience rating premium refunds. Annuity contract reserves without life contingencies of $6,215,416 and $4,152,594 at December 31, 2003 and 2002, respectively, are established at the contractholder's account value. Reinsurance - Policy reserves ceded to other insurance companies are carried as reinsurance receivable on the balance sheet. 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 $5,875,033 and $4,947,081 at December 31, 2003 and 2002, respectively. Participating business approximates 34.3%, 24.8% and 25.8% of the Company's ordinary life insurance in force and 66.4%, 80.2% and 85.4% of ordinary life insurance premium income for the years ended December 31, 2003, 2002 and 2001, 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 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 The Great-West Life Assurance Company (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 it 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, are a combination of a derivative and a cash security to synthetically create a third replicated security. As of December 31, 2003, 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 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, as subsequently amended by SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities", 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 net investment income. 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 $125 and $177, determined in accordance with SFAS No. 133, was recorded as a decrease to net investment income for the years ended December 31, 2003 and 2002, respectively. Derivative gains and losses included in accumulated other comprehensive income (OCI) are reclassified into earnings at the time interest income is recognized. Derivative gains of $1,024 and $563 were reclassified to net investment income in 2003 and 2002, respectively. The Company estimates that $975 of net derivative gains included in OCI will be reclassified into net investment income within the next twelve months. 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 5.2%, 5.9%, and 6.1%, in 2003, 2002 and 2001. 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 Accounting Principle Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), to stock-based compensation awards to employees, as interpreted by AIN-APB 25 and amended by Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (SFAS No. 123) as it relates to accounting for stock options granted by the Parent to employees of the Company (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 No. 140 was effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. 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 Securities and Exchange Commission (SEC) released Staff Accounting Bulletin No. 102, "Selected Loan Loss Allowance Methodology and Documentation Issues" (SAB No. 102). SAB No. 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 No. 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 - In April 2002, the FASB issued Statement No. 145 "Rescission of FASB Nos. 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 provisions 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. In November 2002, the FASB issued Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" to clarify accounting and disclosure requirements relating to a guarantor's issuance of certain types of guarantees. FIN 45 requires entities to disclose additional information about certain guarantees, or groups of similar guarantees, even if the likelihood of the guarantor's having to make any payments under the guarantee is remote. The disclosure provisions are effective for financial statements for fiscal years ended after December 15, 2002. For certain guarantees, the interpretation also requires that guarantors recognize a liability equal to the fair value of the guarantee upon its issuance. This initial recognition and measurement provision is to be applied only on a prospective basis to guarantees issued or modified after December 31, 2002. In the normal course, the Company may enter into agreements which may contain features which meet the FIN 45 definition of a guarantee, and while the maximum guarantee cannot always be determined, given the nature of the future events which may or may not occur, any such arrangements that were material have been previously disclosed by the Company. In January 2004, FASB reissued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities" as FIN 46R. This Interpretation addresses consolidation by business enterprises of variable interest entities (VIE), which have one or both of the following characteristics: a) insufficient equity investment at risk, or b) insufficient control by equity investors. This guidance, as reissued, is effective for VIEs created after January 31, 2003, and for pre-existing VIEs as of March 31, 2004. In conjunction with the issuance of this guidance, the Company conducted a review of its involvement with VIEs and does not have any investments or ownership in VIEs. In December 2002, the FASB issued Statement No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure" (SAFS No. 148). SAFS No. 148 amends the disclosures that a company is required to make in its annual financial statements and requires, for the first time, certain disclosures in interim financial reports. In addition to the disclosures required by SAFS No 123, a company must disclose additional information as part of its Summary of Significant Policies. These disclosures are required regardless of whether a company is using the intrinsic value method under APB No. 25 or the fair value based method under SAFS No. 123 to account for its stock-based employee compensation. In April 2003, the FASB issued Statement No. 149 "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" (SFAS No. 149). SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Except for certain implementation guidance that is incorporated in SFAS No. 149 and already effective, SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did not have a material effect on the Company's financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with characteristics of both Liabilities and Equity" (SFAS No. 150). SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances), many of which were previously classified as equity. The provisions of SFAS No. 150 are effective for financial instruments entered into or modified after May 31, 2003 and with one exception, is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material effect on the Company's financial statements. In July 2003, the Accounting Standards Executive Committee ("AcSEC") of the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 03-01, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts." AcSEC developed the SOP to address the evolution of product designs since the issuance of SFAS No. 60, "Accounting and Reporting by Insurance Enterprises," and SFAS No. 97, "Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments." SOP 03-1 provides guidance related to the reporting and disclosure of certain insurance contracts and separate accounts, including guidance for computing reserves for products with guaranteed benefits, such as guaranteed minimum death benefits ("GMDB"), and for products with annuitization benefits such as guaranteed minimum income benefits. In addition, SOP 03-1 addresses certain issues related to the presentation and reporting of separate accounts, as well as rules concerning the capitalization and amortization of sales inducements. SOP 03-1 will be effective for the Company's financial statements on January 1, 2004. The Company is currently evaluating the impact of adopting SOP 03-1 on its consolidated financial position and results of operations. 2. ACQUISITIONS, DIVESTITURES AND SPECIAL CHARGES On July 10, 2003, Lifeco completed its acquisition of Canada Life Financial Corporation (Canada Life). Canada Life is a Canadian based holding company that is the owner of insurance companies with businesses principally in Canada, the United Kingdom, the United States and Ireland. On December 31, 2003 Canada Life sold two direct wholly-owned subsidiaries, Canada Life Insurance Company of New York (CLINY) and Canada Life Insurance Company of America (CLICA) to the Company for cash in the amount of $235 million. These acquisitions have been accounted for as a "reorganization of businesses under common control" and, accordingly the assets and liabilities of CLICA and CLINY were recorded at Lifeco's cost basis, and the results of operations of CLICA and CLINY from July 10, 2003 through December 31, 2003 are included in the Company's financial statements. CLINY and CLICA sell individual and group insurance and annuity products in the United States. Since the time of its acquisition by Lifeco, Canada Life's insurance and annuity businesses in the United States, including that conducted by its U.S. branch, have been managed by the Company whereby it provides certain corporate and operational administrative services for which it receives a fee. In the United States, Canada Life's subsidiary insurance companies' business includes individual and group insurance and annuity products. The Company recorded as of December 31, 2003, the following as a result of the acquisition (net of the $235 million purchase price) CLICA and CLINY:
Assets Liabilities and Stockholder's Equity -------------------------------------------- -------------------------------------------- Fixed maturities $ 1,937,218 Policy reserves $ 2,991,407 Equity investments 23,680 Policyholders' funds 2,407 Mortgage loans 1,145,494 Policy and contract 899 claims Real estate 550 Provision for policyholders' 2,800 dividends Policy loans 13,621 Other liabilities 439,439 ----------------- Short-term investments 65,537 Total liabilities 3,436,952 Cash (232,803) Investment income Accumulated other due and accrued 32,147 comprehensive income (14,433) Other assets 439,864 Retained earnings 2,789 Total stockholder's (11,644) equity -------------- ----------------- $ 3,425,308 $ 3,425,308 ============== =================
The Company's statement of operations for the year ended December 31, 2003 includes the following related to CLICA and CLINY for the period from July 10, 2003 to December 31, 2003: Total revenues $ 105,868 Benefits 92,193 Operating expenses 9,385 -------------- Total benefits and 101,578 expenses Income from operations 4,290 Income taxes 1,501 -------------- Net income $ 2,789 ============== On August 31, 2003, the Company and The Canada Life Assurance Company (CLAC), a wholly owned subsidiary of Canada Life, entered into an Indemnity Reinsurance Agreement pursuant to which the Company reinsured 80% (45% coinsurance and 35% coinsurance with funds withheld) of certain United States life, health and annuity business of CLAC's U.S. Branch. The Company recorded $1,427 million in premium income and increase in reserves associated with these policies. The Company recorded, at fair value, the following at August 31, 2003 as a result of this transaction:
Assets Liabilities and Stockholder's Equity -------------------------------------------- --------------------------------------- Fixed Maturities $ 635,061 Policy reserves $ 2,926,497 Mortgage loans 451,725 Policy and contract 45,229 claims Policy loans 278,152 Policyholders' funds 65,958 Reinsurance receivable 1,320,636 Deferred policy acquisition costs acquired 313,364 Investment income due and accrued 17,280 Premiums in course of collection 21,466 -------------- -------------- -------------- -------------- $ 3,037,684 $ 3,037,684 ============== ==============
The reinsurance receivable relates to the amount due the Company for reserves ceded by coinsurance with funds withheld. The Company's return on this reinsurance receivable will be the interest and other investment returns earned net of realized gains and losses on a segregated pool of investments of the CLAC's U.S. branch. Pursuant to an interpretation of SFAS 133, the Company has identified an embedded derivative for the Company's exposure to interest rate and credit risk on the segregated pool of investments. As this embedded derivative does not qualify for hedge accounting the Company's net income increased $5.7 million. On July 8, 1998, the Company acquired Alta Health & Life Insurance Company (Alta). 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 Alta business. The Company decided to discontinue writing new Alta business and that all Alta customers will be moved to its contracts over time. All Alta sales and administration staff have become employees of the Company and the underwriting functions are being conducted by its underwriting staff. 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 included $46 million for premium deficiency reserves, $29 million for premium receivables, $28 million for uninsured accident and health plan claim receivables and $24 million for goodwill and other. 3. RELATED-PARTY TRANSACTIONS The Company performs administrative services for the U.S. operations of GWL and, beginning in 2003, the U.S. operations of Canada Life. Beginning in 2002, the Company performs investment services for London Reinsurance Group, an indirect subsidiary of GWL. The Company also manages the U.S. businesses of Canada Life, providing administrative and operational services. The following represents revenue from related parties for services provided pursuant to these service agreements. These amounts, in accordance with the terms of the various contracts, are based upon management's best estimate of actual costs incurred and resources expended based upon the number of policies, certificates in force and/or administered assets.
Years Ended December 31, ------------------------------------------- 2003 2002 2001 ------------- ------------- ------------- Investment management revenue $ 3,355 $ 892 $ 186 Administrative and underwriting revenue 1,859 860 1,043 ------------- ------------- ------------- ------------- ------------- ------------- Total $ 5,214 $ 1,752 $ 1,229 ============= ============= =============
At December 31, 2003 and 2002, due to GWL includes $5,612 and $8,503 due on demand and, at each date, $25,338 of a note payable which matures on October 1, 2006. The note 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 (4.59% and 4.75% at December 31, 2003 and 2002, respectively). The note payable bears interest at 5.4%. At December 31, 2003 and 2002, due to GWL&A Financial includes $656 and $(3,619) due on demand and, at each date, $175,035 of a subordinated note payable. The note, which was issued in 1999, 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 its financial condition 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 (4.59% and 4.75% at December 31, 2003 and 2002, respectively). The note payable bears interest at 7.25%. Interest expense attributable to these related party obligations was $14,345, $14,976 and $14,732 for the years ended December 31, 2003, 2002 and 2001, 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 a large number of 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 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:
2003 2002 2001 ------------- ------------- ------------- Balance, beginning of year $ 42,144 $ 53,431 $ 34,700 Amounts acquired by reinsurance 6,207 Provisions charged (reversed) to operations 1,460 (7,544) 50,500 Amounts written off - net (11,275) (9,950) (31,769) ------------- ------------- ------------- ------------- Balance, end of year $ 32,329 $ 42,144 $ 53,431 ============= ============= ============= Activity in the allowance for premiums in course of collection is as follows: 2003 2002 2001 ------------- ------------- ------------- Balance, beginning of year $ 12,011 $ 22,217 $ 18,700 Amounts acquired by reinsurance 1,600 Provisions charged (reversed) to operations 1,889 (5,729) 29,642 Amounts written off - net (4,132) (6,077) (26,125) ------------- ------------- ------------- Balance, end of year $ 9,768 $ 12,011 $ 22,217 ============= ============= =============
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 liability of $1,500 of coverage per individual life. In addition to the Indemnity Reinsurance Agreement entered into with CLAC (see Note 2), the Great-West Healthcare division of the Company entered into a reinsurance agreement during 2003 with Allianz Risk Transfer (Bermuda) Limited (Allianz) to cede 90% of direct written group health stop-loss and excess loss activity. This Allianz agreement was retroactive to January 1, 2003. The net cost of the Allianz agreement was charged 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, 2003 and 2002, the reinsurance receivables had carrying values of $1,574,824 and $241,153, 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, 2003: Life insurance in force: Individual $ 49,590,015 $ 16,483,477 $ 18,054,587 $ 51,161,125 35.3% Group 49,150,866 18,941 53,570,393 102,702,318 52.2% ------------- ------------- ------------- ------------- Total $ 98,740,881 $ 16,502,418 $ 71,624,979 $ 153,863,442 ============= ============= ============= ============= Premium Income: Life insurance $ 459,039 $ 30,138 $ 1,184,332 $ 1,613,233 73.4% 678,516 423,592 321,996 576,920 55.8% Accident/health ------------- ------------- ------------- ------------- Total $ 1,137,555 $ 453,730 $ 1,506,328 $ 2,190,153 ============= ============= ============= ============= 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% 728,972 43,047 128,820 814,745 15.8% Accident/health ------------- ------------- ------------- ------------- 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% 830,970 49,001 42,750 824,719 5.2% Accident/health ------------- ------------- ------------- ------------- Total $ 1,215,658 $ 81,821 $ 80,192 $ 1,214,029 ============= ============= ============= =============
6. NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON INVESTMENTS Net investment income is summarized as follows:
Years Ended December 31, ------------------------------------------- 2003 2002 2001 ------------- ------------- ------------- Investment income: Fixed maturities and short-term $ 697,209 $ 673,825 $ 693,573 investments Equity investments 4,703 3,272 4,882 Mortgage loans on real estate 84,532 48,625 69,237 Real estate 1,434 2,815 1,113 Policy loans 195,633 209,608 200,533 Other 37,254 5,236 3,766 ------------- ------------- ------------- 1,020,765 943,381 973,104 Investment expenses, including interest on amounts charged by the related parties of $14,345, $14,976 and $14,732 32,365 24,016 38,348 ------------- ------------- ------------- Net investment income $ 988,400 $ 919,365 $ 934,756 ============= ============= ============= Net realized gains (losses) on investments are as follows: Years Ended December 31, ------------------------------------------- 2003 2002 2001 ------------- ------------- ------------- Realized gains (losses): Fixed maturities $ 26,621 $ 33,455 $ 32,116 Equity investments 1,013 1,639 13,052 Mortgage loans on real estate 3,159 1,493 1,657 Real estate (248) Provisions 9,015 5,039 ------------- ------------- ------------- ------------- Net realized gains on investments $ 39,560 $ 41,626 $ 46,825 ============= ============= =============
7. SUMMARY OF INVESTMENTS
Fixed maturities owned at December 31, 2003 are summarized as follows: Gross Gross Estimated Amortized Unrealized Unrealized Fair Carrying Cost Gains Losses Value Value ------------------------ ---------- ---------- ----------- ----------- ----------- U.S. Government CMO $ 1,112,972 $ 27,273 $ 1,992 $ 1,138,253 $ 1,138,253 U.S. Government ABS 461,185 21,490 232 482,443 482,443 U.S. Government MBS 520,629 5,521 123 526,027 526,027 U.S. Government Other 1,052,061 17,747 17,981 1,051,827 1,051,827 Credit tenant loans 128,931 11,717 265 140,383 140,383 State and 1,133,234 79,323 4,204 1,208,353 1,208,353 municipalities Foreign government 58,211 1,191 940 58,462 58,462 Corporate bonds 4,107,100 238,908 84,306 4,261,702 4,261,702 Mortgage backed securities - CMO 353,750 15,914 1,315 368,349 368,349 Public utilities 1,156,156 61,015 20,248 1,196,923 1,196,923 Asset backed securities 2,272,648 64,538 33,751 2,303,435 2,303,435 Derivatives 1,838 3,805 (1,967) (1,967) Collateralized mortgage obligation 398,899 3,605 130 402,374 402,374 ---------- ---------- ----------- ----------- ----------- $ 12,757,614$ 548,242 $ 169,292 $ 13,136,564 $ 13,136,564 ========== ========== =========== =========== =========== 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 1,019,049 100,256 194 1,119,111 1,119,111 municipalities 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 ========== ========== =========== =========== ===========
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 are 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, 2003, 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 $ 684,947 $ 710,287 Due after one year through five 3,351,405 3,495,805 years Due after five years through ten 1,660,758 1,743,056 years Due after ten years 1,940,424 1,966,535 Mortgage backed securities 2,386,248 2,435,003 Asset backed securities 2,733,832 2,785,878 -------------- -------------- $ 12,757,614 $ 13,136,564 ============== ============== Proceeds from sales of securities available-for-sale were $7,852,152, $5,729,919, and $5,201,692 during 2003, 2002 and 2001, respectively. The realized gains on such sales totaled $72,815, $45,315 and $42,299 for 2003, 2002 and 2001, respectively. The realized losses totaled $43,214, $10,410, and $10,186 for 2003, 2002 and 2001, respectively. At December 31, 2003 and 2002, pursuant to fully collateralized securities lending arrangements, the Company had loaned $193,200 and $284,990 of fixed maturities, respectively. The Company makes limited use of derivative financial instruments to manage interest rate, market, credit and foreign exchange risk. The following tables summarize the derivative financial instruments:
Notional Strike/Swap December 31, 2003 Amount Rate Maturity -------------------------- ------------- ---------------------------- ----------------- Interest Rate Caps $ 617,000 7.91% - 11.65% 02/04 - 01/05 Interest Rate Swaps 331,334 1.03% - 4.50% 01/04 - 11/09 Credit Default Swaps 171,310 N/A 10/05 - 11/07 Foreign Currency Exchange Contracts 27,585 N/A 06/05 - 11/06 Options Calls 92,700 Various 05/04 -03/07 Puts 15,000 Various 03/07 - 03/07 Total Return Swap - Receivable for Coinsurance with Funds 1,309,160 Variable Indeterminate Withheld Notional Strike/Swap December 31, 2002 Amount Rate Maturity -------------------------- ------------- -------------------------- ------------------ Interest Rate Caps $ 1,122,000 7.64% - 11.65% 02/03 - 01/05 Interest Rate Swaps 400,188 1.26% - 4.75% 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 is information with respect to impaired mortgage loans: 2003 2002 -------------- -------------- -------------- -------------- Loans, net of related allowance for credit losses of $19,542 and $20,917 $ 7,680 $ 8,200 Loans with no related allowance for credit losses 2,638 Average balance of impaired loans during the year 29,633 31,243 Interest income recognized (while impaired) 1,350 2,007 Interest income received and recorded (while impaired) using the cash basis method of recognition 1,405 2,249 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 $34,880 and $40,302 at December 31, 2003 and 2002, respectively. The following table presents changes in the allowance for credit losses: 2003 2002 2001 ------------- ------------- ------------- ------------- Balance, beginning of year $ 55,654 $ 57,654 $ 61,242 Provision (credits) (9,817) (3,588) Charge-offs (15,766) (139) (3,588) Recoveries 1,818 1,727 ------------- ------------- ------------- ------------- Balance, end of year $ 31,889 $ 55,654 $ 57,654 ============= =============--=============
The carrying value of the Company's equity investments was $427,810 and $90,188 at December 31, 2003 and 2002, respectively. At December 31, 2003, the Company has invested $130,473 in an exchange-traded fund which invests in corporate debt securities. Upon redemption of the equity ownership, the Company has the option of receiving the debt securities or the redemption value of the investment. At December 31, 2003, the Company has invested $216,610 in limited partnerships and limited liability corporations. The Company makes commitments to fund partnership interests in the normal course of its business. The amounts of unfunded commitments at December 31, 2003 and 2002 were $128,341 and $16,689, respectively. 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, 2003, commercial paper outstanding in the amount of $96,432 had maturities ranging from 9 to 86 days and interest rates ranging from 1.18% to 1.2%. At December 31, 2002, commercial paper outstanding in the amount of $96,645 had maturities from 3 to 66 days and interest rates ranging from 1.40% to 1.88%. 9. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
December 31, ---------------------------------------------------------- 2003 2002 ---------------------------- ---------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ------------- ------------- ------------- ------------- ASSETS: Fixed maturities and short-term investments $ 13,988,762 $ 13,988,762 $ 11,080,956 $ 11,080,956 Mortgage loans on real estate 1,885,812 1,871,373 417,412 429,907 Policy loans 3,389,534 3,389,534 2,964,030 2,964,030 Equity investments 427,810 427,810 90,188 90,188 Reinsurance receivables 1,574,824 1,574,824 241,153 241,153 LIABILITIES: Annuity contract reserves without life 6,552,507 6,640,677 4,152,594 4,228,080 contingencies Policyholders' funds 368,076 368,076 299,730 299,730 Due to GWL 30,950 32,591 33,841 35,316 Due to GWL&A Financial 175,691 178,421 171,416 173,376 Commercial paper 96,432 96,432 96,645 96,645 Repurchase agreements 389,715 389,715 323,200 323,200
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 equity investments that are publicly traded are obtained from an independent pricing service. To determine fair value for fixed maturities and equity investments 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 in the amounts of $(1,967) and $11,921 at December 31, 2003 and 2002, 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 and carrying amount of reinsurance receivables includes $20,416 representing the estimated fair value of the total return swap, which is an embedded derivative associated with the Company's reinsurance receivable under its coinsurance with funds withheld agreement with the U.S. branch of CLAC. Valuation of the total return swap is based on the estimated fair value of the segregated pool of assets from which the Company derives its return on the reinsurance receivable. 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, 2003. 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 over-the-counter 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 fixed maturities are derivative financial instruments with a net liability position of $1,967 in 2003 and a net asset position of $11,921 in 2002. Included in the net asset position for foreign currency exchange contracts are $7,464 and $2,518 of liabilities in 2003 and 2002, respectively. 10. EMPLOYEE BENEFIT PLANS The following table summarizes changes for the years ended December 31, 2003, 2002 and 2001 in the benefit obligations and in plan assets for the Company's defined benefit pension plan and post-retirement medical plan.
Post-Retirement Pension Benefits Medical Plan ---------------------------- ---------------------------- 2003 2002 2001 2003 2002 2001 -------- -------- -------- ------- -------- -------- Change in projected benefit obligation Benefit obligation at $ 186,047 $ 150,521 $ 140,563 $ 31,242 $ 57,861 $ 33,018 beginning of year Service cost 8,269 8,977 8,093 2,046 3,516 3,331 Interest cost 12,275 11,407 9,718 2,269 3,138 3,303 Acquisition of new employees 7,823 Amendments 827 (22,529) Actuarial (gain) loss 12,746 20,679 (2,640) 9,614 (9,814) 11,401 Benefits paid (6,374) (6,364) (5,213) (1,066) (930) (1,015) -------- -------- -------- ------- -------- -------- -------- -------- -------- ------- -------- -------- Benefit obligation at end $ 212,963 $ 186,047 $ 150,521 $ 44,105 $ 31,242 $ 57,861 of year ======== ======== ======== ======= ======== ======== Change in plan assets Fair value of plan assets at Beginning of year $ 163,316 $ 187,661 $ 193,511 $ $ $ Actual return on plan assets 32,377 (17,981) (637) Benefits paid (6,374) (6,364) (5,213) -------- -------- -------- ------- -------- -------- Fair value of plan assets 189,319 163,316 187,661 at end of year -------- -------- -------- ------- -------- -------- Funded (unfunded) status (23,643) (22,730) 37,140 (44,105) (31,242) (57,861) Unrecognized net actuarial 41,777 51,943 (1,499) 13,715 4,361 14,659 (gain) loss Unrecognized prior service 2,095 2,727 2,533 (8,679) (9,392) 9,326 cost Unrecognized net obligation or (asset) at transition (12,113) (13,627) (15,142) 12,120 Acquisition of GenAm (7,823) employees -------- -------- -------- ------- -------- -------- Prepaid (accrued) benefit 8,116 18,313 23,032 (39,069) (36,273) (29,579) cost Additional minimum liability (16,419) (22,549) -------- -------- -------- ------- -------- -------- Prepaid benefit cost/ (accrued benefit (8,303) (4,236) 23,032 (39,069) (36,273) (29,579) liability) Intangible asset 2,095 2,727 Accumulated other comprehensive income adjustments 14,324 19,822 -------- -------- -------- ------- -------- -------- Net amount recognized $ 8,116 $ 18,313 $ 23,032 $ (39,069$ (36,273)$ (29,579) ======== ======== ======== ======= ======== ======== Increase (decrease) in minimum liability included in other Comprehensive income $ 3,573 $ (12,884)$ $ $ $
Late last year Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 which made significant changes to the federal Medicare Program. The Act provides for drug benefits under a new Medicare Part D program. Employers such as the Company who provide drug benefits for post-65 retirees are expected to make use of the subsidies inherent in this new program. The measurement of the accumulated post-retirement benefit obligation (APBO) and the net post-retirement benefit cost included these financial statements do not reflect the effects that this legislation may have on the plan. Authoritative guidance on the accounting for this issue is currently pending and when issued, could require the Company to revise previously reported information. The accumulated benefit obligation for all defined benefit pension plans was $197.6 million and $167.5 million at December 31, 2003 and 2002, respectively.
Post-Retirement Pension Benefits Medical Plan ---------------------------- ---------------------------- 2003 2002 2001 2003 2002 2001 -------- -------- -------- ------- -------- -------- Components of net periodic benefit cost Service cost $ 8,269 8,977 $ 8,093 $ 2,046 $ 3,516 $ 3,331 Interest cost 12,275 11,406 9,718 2,269 3,138 3,303 Expected return on plan (12,954) (14,782) (15,276) assets Amortization of transition (1,514) (1,514) (1,514) 808 808 obligation Amortization of unrecognized prior service cost 632 632 541 (713) 161 645 Amortization of unrecognized prior service cost - GenAm (484) Amortization of gain from earlier periods 3,489 (467) 261 172 -------- -------- -------- ------- -------- -------- Net periodic (benefit) cost $ 10,197 4,719 $ 1,095 $ 3,863 $ 7,623 $ 7,775 ======== ======== ======== ======= ======== ======== Weighted-average assumptions as of December 31 Discount rate 6.25% 6.75% 7.25% 6.25% 6.75% 7.25% Expected return on plan 8.00% 8.00% 8.00% assets Rate of compensation 3.44% 3.92% 4.00% 3.44% 3.92% 4.00% increase
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 2003, 2002 or 2001. Assumed health care cost trend rates have a significant effect on the amounts reported for the medical plan. For measurement purposes, a 10% 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 2014. 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 $ 428 $ (367) Increase (decrease) on post-retirement benefit obligation 3,157 (2,612) The Company's pension plan assets are invested as follows: Plan Assets at December 31 ------------------------------------- 2003 2002 ----------------- ----------------- Asset Category Equity securities 61% 55% Debt securities 25% 36% Real estate 0% 0% Other 14% 9% ----------------- ----------------- ----------------- ----------------- Total 100% 100% ================= ================= The Company's target allocation for invested plan assets at December 31, 2004 is as follows: Asset Category Equity securities 60% Debt securities 30% Real estate 0% Other 10% ----------------- ----------------- Total 100% =================
The Company expects to contribute $4,800 to its pension plan and $1,300 to its other post-retirement benefit plan in 2004. The discount rate has been set based on the rates of return on high-quality fixed-income investments currently available and expected to be available during the period the benefits will be paid. In particular, the yields on bonds rated AA or better on the measurement date have been used to set the discount rate. The investment objective is to provide an attractive risk-adjusted return that will ensure the payment of benefits while protecting against the risk of substantial investment losses. Correlations among the asset classes are used to identify an asset mix that the Company believes will provide the most attractive returns. Long-term return forecasts for each asset class using historical data and other qualitative considerations to adjust for projected economic forecasts are used to set the expected rate of return for the entire portfolio. 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 before January 1, 1999. For all other employees the Company matches 50% of the first 8% of participant pre-tax contributions. Company contributions for the years ended December 31, 2003, 2002 and 2001 totaled $6,646, $7,257 and $7,773, 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 the amounts deferred. The program is not qualified under Section 401 of the Internal Revenue Code. Participant deferrals, which are reflected in other liabilities, are $21,926 and $20,606 as of December 31, 2003 and 2002, respectively. The participant deferrals earned interest at 6.87% at December 31, 2003, 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, 2003, 2002 and 2001 was $1,449, $1,459 and $1,434, 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 2003, 2002 and 2001 was $3,123, $2,527 and $2,726, respectively. The total liability of $24,942 and $20,037 as of December 31, 2003 and 2002 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:
2003 2002 2001 ----------- ----------- ---------- Federal tax rate 35.0 % 35.0 % 35.0 % Reduction in tax contingency (2.1) (3.3) Investment income not subject to federal tax (2.1) (1.3) (1.7) Other, net 1.8 1.1 (0.3) ----------- ----------- ---------- Total 32.6 % 31.5 % 33.0 % =========== =========== ==========
During 2003, the Company reduced its liability for tax contingencies due to the completion of Internal Revenue Service examinations. The amount released was $9,600; however, $5,000 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 2003 statement of income. The tax effect of temporary differences, which give rise to the deferred tax assets and liabilities, as of December 31, 2003 and 2002 are as follows:
2003 2002 --------------------------- -------------------------- Deferred Deferred Deferred Deferred Tax Tax Tax Tax Asset Liability Asset Liability ------------ ------------- ------------ ------------ Policyholder reserves $ 219,490 $ 231,679 $ Deferred policy acquisition 96,207 94,018 costs Deferred acquisition cost proxy tax 124,498 109,779 Investment assets 130,090 149,958 Other 2,280 28,466 ------------ ------------- ------------ ------------ Total deferred taxes $ 346,268 226,297 $ 341,458 $ 272,442 ============ ============= ============ ============
Amounts included for investment assets above include $74,326 and $86,907 related to the unrealized gains on the Company's fixed maturities available-for-sale at December 31, 2003 and 2002, respectively. Under pre-1984 life insurance company income tax laws, a portion of a life insurance company's 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, 2003 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 $ (18,159) $ 6,356 $ (11,803) Unrealized holding gains (losses) arising during the period 12,967 (4,538) 8,429 Less: reclassification adjustment for (gains) losses realized in net (22,824) 7,989 (14,835) income --------------- -------------- -------------- (28,016) 9,807 (18,209) Reserve and DAC adjustment (12,553) 4,393 (8,160) --------------- -------------- -------------- --------------- -------------- -------------- Net unrealized gains (losses) (40,569) 14,200 (26,369) Minimum pension liability adjustment 5,498 (1,925) 3,573 --------------- -------------- -------------- Other comprehensive income (loss) $ (35,071) $ 12,275 $ (22,796) =============== ============== ============== 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 (8,004) 2,802 (5,202) income --------------- -------------- -------------- 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 (15,912) 5,569 (10,343) income --------------- -------------- -------------- 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 =============== ============== ==============
13. STOCKHOLDER'S EQUITY, DIVIDEND RESTRICTIONS AND OTHER MATTERS At December 31, 2003 and 2002, 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 2003, 2002 and 2001. Dividends of $75,711, $170,572 and $187,633, were paid on common stock in 2003, 2002 and 2001, 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:
2003 2002 2001 -------------- -------------- ------------ -------------- -------------- ------------ (Unaudited) Net income (loss) $ (75,627) $ 205,749 $ 266,398 Capital and surplus 1,212,548 1,292,292 1,200,372
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 is subject to restrictions relating to statutory surplus and statutory net gain from operations. Statutory surplus and net losses from operations at December 31, 2003 were $1,212,548 and ($77,158)[Unaudited], respectively. The Company should be able to pay up to $121,255 [Unaudited] of dividends in 2004. 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 not 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, 2003, 2002 and 2001, stock available for award to Company employees under the Lifeco plan aggregated 3,034,344, 3,917,344 and 3,278,331 shares, respectively. The Lifeco plan provides for the granting of options with varying terms and vesting requirements. The majority of basic options under the Lifeco 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 2003, 2001, 2000 and 1998 totaling 100,000, 80,000, 120,000 and 380,000 respectively, become exercisable if certain sales or financial targets are attained. During 2003, 2002 and 2001, 0, 0, and 7,750 of these options vested and accordingly, the Company recognized compensation expense of $0, $0, and $48, respectively. If exercisable, the exercise period expires ten years from the date of grant. The following table summarizes the status of, and changes in, Lifeco options granted to Company employees which are outstanding and the weighted-average exercise price (WAEP) for 2003, 2002 and 2001. As the options granted relate to Canadian stock, the values, which are presented in U.S. dollars, will fluctuate as a result of exchange rate fluctuations:
2003 2002 2001 --------------------- ---------------------- --------------------- Options WAEP Options WAEP Options WAEP -------------------- ---------- --------- ----------- --------- ---------- -------- Outstanding, Jan. 1 4,447,145$ 13.66 6,398,149 $ 11.66 7,675,551$ 9.91 Granted 1,336,000 27.28 174,500 22.16 947,500 22.28 Exercised 486,176 10.85 1,359,491 7.16 1,534,568 5.87 Expired or Canceled 980,000 14.07 766,013 11.02 690,334 11.24 ---------- --------- ----------- --------- ---------- -------- Outstanding, Dec 31 4,316,969$ 21.63 4,447,145 $ 13.66 6,398,149$ 11.66 ========== ========= =========== ========= ========== ======== Options Exercisable at year-end 2,237,810$ 16.08 2,121,638 $ 11.67 2,602,480$ 8.08 ========== ========= =========== ========= ========== ======== Weighted average Fair value of Options granted During year $ 7.05 $ 7.46 $ 7.10 ========== =========== ==========
The following table summarizes the range of exercise prices for outstanding Lifeco common stock options granted to Company employees at December 31, 2003:
Outstanding Exercisable ================== ----------------------------------------- ---------------------------- Average Average Exercise Average Exercise Exercise Price Range Options Life Price Options Price ------------------ -------------- ----------- ------------ -------------- ------------ $6.57 - 8.73 437,500 2.56 6.57 437,500 6.57 $12.58 - 20.87 1,736,469 5.50 16.62 1,471,436 16.50 $26.57 - 32.29 2,143,000 8.74 28.77 328,874 26.86
Of the exercisable Lifeco options, 1,838,810 relate to fixed option grants and 399,000 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 2003, 2002 and 2001. 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:
2003 2002 2001 ---------------------- ---------------------- ---------------------- Options WAEP Options WAEP Options WAEP ----------- --------- ----------- -------- ----------- --------- Outstanding, Jan.1, 0 $ 0.00 70,000 $ 2.16 70,000 $ 2.29 Exercised 0 0.00 70,000 2.21 ----------- --------- ----------- -------- ----------- --------- Outstanding, Dec 0 $ 0.00 0 $ 0.00 70,000 $ 2.16 31, =========== ========= =========== ======== =========== ========= Options exercisable at year-end 0 $ 0.00 0 $ 0.00 70,000 $ 2.16 =========== ========= =========== ======== =========== =========
The Company accounts for stock-based compensation using the intrinsic value method prescribed by APB No. 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 $3,315, $2,364, and $2,092, in 2003, 2002 and 2001, 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 2003, 2002, and 2001, respectively: dividend yields of 2.81%, 2.453%, and 2.27%, expected volatility of 26.21%, 31.67%, and 28.56%, risk-free interest rates of 4.48%, 5.125%, and 5.30%, and expected lives of 7 years. 15. SEGMENT INFORMATION The Company has two reportable segments: Great-West Healthcare (formerly Employee Benefits) and Financial Services. The Great-West Healthcare segment markets group life and health insurance 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 Great-West Healthcare 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, 2003
Operations: Great-West Financial Healthcare Services Total ======================================== -------------- -------------- --------------- Revenue: Premium income $ 838,194 1,414,703 2,252,897 Fee income 607,369 232,703 840,072 Net investment income 72,191 916,209 988,400 Realized investment gains 10,340 29,220 39,560 ======================================== -------------- -------------- --------------- -------------- -------------- --------------- Total revenue 1,528,094 2,592,835 4,120,929 ======================================== -------------- -------------- --------------- -------------- -------------- --------------- Benefits and Expenses: Benefits 567,603 2,116,001 2,683,604 Operating expenses 699,146 266,538 965,684 -------------- -------------- --------------- Total benefits and expenses 1,266,749 2,382,539 3,649,288 ======================================== -------------- -------------- --------------- -------------- -------------- --------------- Net operating income before income 261,345 210,296 471,641 taxes Income taxes 88,104 65,516 153,620 ======================================== -------------- -------------- --------------- Net income $ 173,241 144,780 318,021 ============== ============== =============== Assets: Great-West Financial Healthcare Services Total ======================================== -------------- -------------- --------------- Investment assets $ 1,351,871 $ 18,347,959 $ 19,699,830 Other assets 244,100 3,333,472 3,577,572 Separate account assets 13,175,480 13,175,480 -------------- -------------- --------------- Total assets $ 1,595,971 $ 34,856,911 $ 36,452,882 ======================================== ============== ============== =============== Year ended December 31, 2002 Operations: Great-West Financial Healthcare 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 203,502 210,250 413,752 taxes Income taxes 67,198 63,017 130,215 -------------- -------------- --------------- -------------- -------------- --------------- Net income $ 136,304 $ 147,233 $ 283,537 ======================================== ============== ============== =============== Assets: Great-West Financial Healthcare 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: Great-West Financial Healthcare 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 15,638 31,187 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: Great-West Financial Healthcare 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 ======================================== ============== ============== =============== The following table, which summarizes premium and fee income by segment, represents supplemental information. 2003 2002 2001 ======================================= -------------- --------------- -------------- Premium Income: Great-West Healthcare: Group Life & Health $ 838,194 $ 960,191 $ 1,033,886 -------------- --------------- -------------- Total Great-West 838,194 960,191 1,033,886 Healthcare ======================================= -------------- --------------- -------------- -------------- --------------- -------------- Financial Services: Retirement Services 824 15 3,533 Individual Markets 1,413,879 159,889 166,220 -------------- --------------- -------------- Total Financial Services 1,414,703 159,904 169,753 ======================================= -------------- --------------- -------------- Total premium income $ 2,252,897 $ 1,120,095 $ 1,203,639 ======================================= ============== =============== ============== Fee Income: Great-West Healthcare: Group Life & Health (uninsured $ 607,369 $ 660,423 $ 713,297 plans) -------------- --------------- -------------- Total Great-West 607,369 660,423 713,297 Healthcare ======================================= -------------- --------------- -------------- -------------- --------------- -------------- Financial Services: Retirement Services 199,374 196,972 207,677 Individual Markets 33,329 26,167 26,281 ======================================= -------------- --------------- -------------- Total Financial Services 232,703 223,139 233,958 ======================================= -------------- --------------- -------------- Total fee income $ 840,072 $ 883,562 $ 947,255 ============== =============== ==============
16. OBLIGATIONS RELATING TO DEBT AND LEASES The Company enters into operating leases primarily for office space. As of December 31, 2003, minimum annual rental commitments on operating leases having initial or remaining non-cancelable lease terms in excess of one year during the years 2004 through 2008 are $25,586, $23,564, $20,469, $18,426 and $17,616, respectively, with $23,502 in minimum commitments thereafter.
2004 2005 2006 2007 2008 Thereafter -------- --------- -------- -------- -------- ---------- Related party notes $ $ $ 25,000 $ $ $ 175,000 Operating leases 25,586 23,564 20,469 18,426 17,616 23,502 -------- --------- -------- -------- -------- ---------- Total contractual obligations $ 25,586 $ 23,564 $ 45,469 $ 18,426 $ 17,616 $ 198,502 ======== ========= ======== ======== ======== ==========
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 the Company's financial position or the results of its operations. PART C: OTHER INFORMATION Item 27. Exhibits (a) Board of Directors Resolution. Resolution authorizing establishment of Registrant is incorporated by reference to initial Registrant's Registration Statement on Form S-6 filed on January 22, 1999 (File No. 333-70963). (b) Custodian Agreements. None. (c) Underwriting Contracts. Copy of underwriting contract between Great-West Life & Annuity Insurance Company ("Great-West") and GWFS Equities, Inc. is incorporated by reference to Registrant's Post-Effective Amendment No. 9 on Form N-6 filed on April 29, 2003 (File Nos. 333-70963 and 811-09201). (d) Policies. Copy of Policy, including riders and endorsements is incorporated by reference to Registrant's Registration Statement on Form S-6 filed on April 29, 2003 (File Nos. 333-70963 and 811-09201). (d)(1) Specimen Policy is incorporated by reference to Registrant's initial Registration Statement on Form S-6 filed on January 12, 1999 (File No. 333-70963). (d)(2) Specimen Term Life Insurance Rider is incorporated by reference to Registrant's initial Registration Statement on Form S-6 filed on January 12, 1999 (File No. 333-70963). (d)(3) Specimen Policy Free-Look Endorsement is incorporated by reference to Registrant's Post-Effective Amendment No. 1 on Form S-6 filed on April 27, 2000 (File No. 333-709630. (d)(4) Specimen Policy Return of Expense Charge Endorsement is incorporated by reference to Registrant's Post-Effective Amendment No. 4 on Form S-6 filed on April 25, 2001 (File No. 333-70963). (d)(4) Specimen Policy Return of Expenses Charge Endorsement is incorporated by reference to Registrant's Post-Effective Amendment No. 4 on Form S-6 filed on April 25, 2001 (File No. 333-70963) (d)(5) Change of Insurance Rider is filed herewith. (e) Applications. Specimen Application is incorporated by reference to Registrant's Pre-Effective Amendment No. 1 on Form S-6 filed on June 23, 1999 (File No. 333-70963). (f) Depositor's Certificate of Incorporation and By-Laws. Copy of Articles of Incorporation of Great-West, as amended, is incorporated by reference to Pre-Effective Amendment No. 2 on Form S-1 of Great-West filed on October 29, 1996, (File No. 333-01173). Copy of By-Laws of Great-West is incorporated by reference to Amendment No. 1 on Form 10-k of Great-West filed on March 31, 1998 (File No. 333-01173). (g) Reinsurance Contracts. Copy of contract reinsuring Registrant is incorporated by reference to Registrant's Post-Effective Amendment No. 9 on Form N-6 filed on April 29, 2003 (File Nos. 333-70963 and 811-09201). (h) Participation Agreements. (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 filed on April 24, 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 filed on April 24, 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 filed on April 24, 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 filed on April 24, 2002 (File No. 333-70963). (h)(5) Amendment to Fund Participation Agreement among Great-West, Insurance Series and Federated Securities Corporation, dated December 31, 1999, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S-6 filed on April 24, 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 filed on April 24, 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 filed on April 24, 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 filed on April 24, 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 filed on April 24, 2002 (File No. 333-70963). (h)(10) First Amendment to Participation Agreement among 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 filed on April 24, 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 filed on April 24, 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 filed on April 24, 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 filed on April 24, 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 filed on April 24, 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 filed on April 24, 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 filed on April 24, 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 incorporated by reference to Registrant's Post-Effective Amendment No. 9 on Form N-6 filed on April 29, 2003 (File Nos. 333-70963 and 811-09201). (h)(18)Fund Participation Agreement among Great-West, PIMCO Variable Insurance Trust, Pacific Investment Management Company LLC and PIMCO Advisors Distributors LLC, dated March 1, 2004 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 David A. Nield 330 University Avenue Director Toronto, Ontario M5G1R8 Canada 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, BenefitsCorp HealthCare Markets S. Mark Corbett (3) Senior Vice-President, Investments Glen R. Derback (3) Senior Vice-President and Controller John R. Gabbert (2) Senior Vice President, Employee Benefits Chief Information Officer Positions and Offices Name Principal Business Address with Depositor Donna A. Goldin (2) Senior Vice-President Operations Mitchell T.G. Graye (3) Exec. Vice President, Chief Financial Officer Wayne Hoffmann (3) Senior Vice-President, Investments D. Craig Lennox (6) Senior Vice-President, General Counsel and Secretary Charles P. Nelson (3) President, BenefitsCorp, Inc. Deborah L. Origer (2) Senior Vice-President, Healthcare Markets Martin Rosenbaum (2) Senior Vice-President, Employee Benefits Richard F. Rivers (2) Exec. Vice President, Employee Benefits Gregory E. Seller (3) Senior Vice-President, Benefits Corp Government Markets Robert K. Shaw (3) Senior Vice-President, Individual Markets Mark Stadler (2) Senior Vice President, National and Mid Markets Douglas J. Stefanson (2) Senior Vice-President, Healthcare Underwriting George D. Webb (3) Senior Vice-President, P/NP Operations Douglas L. Wooden (3) Exec. Vice-President, Financial Services
(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 (State/Country of Organization) - Nature of Business (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 67.1% - Power Financial Corporation (Canada) - Holding Company 74.6% - 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% - BenefitsCorp of Wyoming, Inc. (Wyoming) - Insurance Agency 100.0% - Canada Life Insurance Company of America (Michigan) - Life and Health Insurance Company 100.0% - Canada Life of America Financial Services, Inc. (Georgia) - Securities Broker/Dealer 100.0% - Canada Life Insurance Company of New York (New York) - Life and Health Insurance Company 100.0% - National Plan Coordinators of Delaware, Inc. (Delaware) - Third Party Administrator 100.0% - NPC Securities, Inc. (California) - Securities Broker/Dealer 100.0% - P.C. Enrollment Services & Insurance Brokerage, Inc. (Massachusetts) - Insurance Agency 100.0% - Great-West Healthcare Holdings, Inc. (Colorado) - Holding Company 100.0% - Great-West Healthcare, Inc. (Vermont) - Network contracting, development and management 100.0% - Great-West Healthcare of Arizona, Inc. (Arizona) - Health Care Services Organization 100.0% - Great-West Healthcare of California, Inc. (California) - Health Maintenance Organization 100.0% - Great-West Healthcare of Colorado, Inc. (Colorado) - Health Maintenance Organization 100.0% - Great-West Healthcare of Florida, Inc. (Florida) - Health Maintenance Organization 100.0% - Great-West Healthcare of Georgia, Inc. (Georgia) - Health Maintenance Organization 100.0% - Great-West Healthcare of Illinois, Inc. (Illinois) - Health Maintenance Organization 100.0% - Great-West Healthcare of Indiana, Inc. (Indiana) - Health Maintenance Organization 100.0% - Great-West Healthcare of Kansas/Missouri, Inc. (Kansas) - Health Maintenance Organization 100.0% - Great-West Healthcare of Massachusetts, Inc. (Massachusetts) - Health Maintenance Organization 100.0% - Great-West Healthcare of New Jersey, Inc. (New Jersey) - Health Maintenance Organization 100.0% - Great-West Healthcare of North Carolina, Inc. (North Carolina) - Health Maintenance Organization 100.0% - Great-West Healthcare of Ohio, Inc. (Ohio) - Health Insuring Corporation 100.0% - Great-West Healthcare of Oregon, Inc. (Oregon) - Health Care Service Contractors 100.0% - Great-West Healthcare of Pennsylvania, Inc. (Pennsylvania) - Health Maintenance Organization 100.0% - Great-West Healthcare of Tennessee, Inc. (Tennessee) - Health Maintenance Organization 100.0% - Great-West Healthcare of Texas, Inc. (Texas) - Health Maintenance Organization 100.0% - Great-West Healthcare of Washington, Inc. (Washington) - Health Care Service Contractors 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 83.9% - 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 14.1% - Orchard Series Fund (Delaware) - Investment Company 100.0% - Orchard Trust Company (Colorado) - Trust Company
Item 30. Indemnification. Provisions exist under the Colorado Business Corporation Act 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 any 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 known to those making the determination would not preclude indemnification under this article. (2) The undertaking required by paragraph (b) of subsection (1) of this section shall be an unlimited general obligation of the director, but need not be secured and may be accepted without reference to financial ability to make repayment. (3) Determinations and authorizations of payments under this section shall be made in the manner specified in Section 7-109-106. Section 7-109-105. Court-Ordered Indemnification of Directors. (1) Unless otherwise provided in the articles of incorporation, a director who is or was a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court, after giving any notice the court considers necessary, may order indemnification in the following manner: (a) If it determines the director is entitled to mandatory indemnification under section 7-109-103, the court shall order indemnification, in which case the court shall also order the corporation to pay the director's reasonable expenses incurred to obtain court-ordered indemnification. (b) If it determines that the director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director met the standard of conduct set forth in section 7-109-102 (1) or was adjudged liable in the circumstances described in Section 7-109-102 (4), the court may order such indemnification as the court deems proper; except that the indemnification with respect to any proceeding in which liability shall have been adjudged in the circumstances described Section 7-109-102 (4) is limited to reasonable expenses incurred in connection with the proceeding and reasonable expenses incurred to obtain court-ordered indemnification. Section 7-109-106. Determination and Authorization of Indemnification of Directors. (1) A corporation may not indemnify a director under Section 7-109-102 unless authorized in the specific case after a determination has been made that indemnification of the director is permissible in the circumstances because he has met the standard of conduct set forth in Section 7-109-102. A corporation shall not advance expenses to a director under Section 7-109-104 unless authorized in the specific case after the written affirmation and undertaking required by Section 7-109-104(1)(a) and (1)(b) are received and the determination required by Section 7-109-104(1)(c) has been made. (2) The determinations required by under subsection (1) of this section shall be made: (a) By the board of directors by a majority vote of those present at a meeting at which a quorum is present, and only those directors not parties to the proceeding shall be counted in satisfying the quorum. (b) If a quorum cannot be obtained, by a majority vote of a committee of the board of directors designated by the board of directors, which committee shall consist of two or more directors not parties to the proceeding; except that directors who are parties to the proceeding may participate in the designation of directors for the committee. (3) If a quorum cannot be obtained as contemplated in paragraph (a) of subsection (2) of this section, and the committee cannot be established under paragraph (b) of subsection (2) of this section, or even if a quorum is obtained or a committee designated, if a majority of the directors constituting such quorum or such committee so directs, the determination required to be made by subsection (1) of this section shall be made: (a) By independent legal counsel selected by a vote of the board of directors or the committee in the manner specified in paragraph (a) or (b) of subsection (2) of this section or, if a quorum of the full board cannot be obtained and a committee cannot be established, by independent legal counsel selected by a majority vote of the full board of directors; or (b) By the shareholders. (4) Authorization of indemnification and 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) GWFS Equities, Inc. ("GWFS Equities") 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 GWFS Equities Position and Offices Name Principal Business Address with Underwriter Charles P. Nelson (1) Chairman and President Robert K. Shaw (1) Director Graham R. McDonald (1) Director Gregory E. Seller 18101 Von Karman Ave. Director and Senior Suite 1460 Vice President Irvine, CA 92715 Jason R. Cavalier (1) Vice President Thomas M. Connolly 300 Broadacres Drive Vice President Bloomfield, NJ 07003 William S. Harmon (1) Vice President Kent A. Morris 500 North Central, Suite 220 Vice President Glendale, CA 91203 Michael P. Sole One North LaSalle, Suite 3200 Vice President Chicago, IL 60602 Glen R. Derback (1) Treasurer Beverly A. Byrne 8525 E. Orchard Road Secretary & Chief Greenwood Village, CO 80111 Compliance Officer Teresa L. Buckley (1) Compliance Officer Mary C. Maiers 8525 E. Orchard Road Investments Greenwood Village, CO 80111 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 GWFS Equities -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 expected 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 30, 2004. 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 30 2004 /s/ W.T. McCallum W.T. McCallum ....... President, Chief Executive April 30 2004 ....... Officer and Director /s/ M.T.G. Graye ....... Executive Vice President and M.T.G. Graye ....... Chief Financial Officer April 30 2004 /s/ J. Balog J. Balog* ....... Director April 30 2004 /s/ J.W. Burns J.W. Burns* ....... Director April 30 2004 /s/ O.T. Dackow O.T. Dackow* ....... Director April 30 2004 /s/ A. Desmarais A. Desmarais* ....... Director April 30 2004 /s/ P. Desmarais P. Desmarais, Jr.* ....... Director April 30 2004 /s/ K.P. Kavanagh K.P. Kavanagh* ....... Director April 30 2004 /s/ W. Mackness W. Mackness* ....... Director April 30 2004 /s/ J.E.A. Nickerson J.E.A. Nickerson* ....... Director April 30 2004 /s/ D.A. Nield D.A. Nield ....... Director April 30 2004 /s/ M. Plessis-Belair M. Plessis-Belair* ....... Director April 30 2004 /s/ B.E. Walsh B.E. Walsh* ....... Director April 30 2004 *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-99 3 exd5.txt CHANGE OF INSURANCE RIDER - -------------------------------------------------------------------------------- J90 Page i CHANGE OF INSURED RIDER - -------------------------------------------------------------------------------- ISSUED BY GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY AS PART OF THE POLICY TO WHICH IT IS ATTACHED. CHANGE OF INSURED The Owner may change the Insured under this policy by submitting to the Company for its approval: o a written request for the change signed by both the Owner and the new Insured. o evidence of insurability for the new Insured. o evidence that there is an insurable interest between the Owner and the new Insured. o evidence that the new Insured's age, nearest birthday, is under 70 years as of the Change of Insured Date. o evidence that the new Insured was born prior to the Policy Date of the policy to which this rider is attached. The amount in the Policy Value Account less any outstanding loans on the Change of Insured Date must be positive. With the exception of this Change of Insured Rider, all additional benefit riders attached to the policy will terminate on the Change of Insured Date. PREMIUMS AND CHARGES The Company will charge for the cost of underwriting the new Insured and for administrative expenses when this rider is exercised. The premium for the policy is shown in the Schedule of Benefits and Premiums. On and after the Change of Insured Date, policy premiums are based on the new Insured's age and the premium rate in effect on the Policy Date and on the new Insured's sex and mortality class as of the Change of Insured Date. CHANGE OF INSURED DATE If the request for change is approved by the Company, the Change of Insured Date will be the first day of the month on or following the date of approval. Coverage for the new Insured will take effect on the Change of Insured Date. Coverage for the prior Insured will remain in effect until the Change of Insured Date. INCONTESTABILITY AND SUICIDE EXCLUSION The time periods in the Incontestability and Suicide Exclusion provisions of the policy will begin for the new Insured on the Change of Insured Date. POLICY DATE The Policy Date for the policy to which this rider is attached will not change on the Change of Insured Date. FACE AMOUNT The Face Amount of the policy will not change on the Change of Insured Date. POLICY VALUE ACCOUNT The Policy Value Account of the policy will not change on the change of Insured Date. TAX CONSIDERATIONS The Company makes no representation concerning the tax effect of the exercise of this rider. No agent has the authority to make such a representation on behalf of the Company. The Owner of the policy to which this rider is attached should engage competent private counsel for advice concerning the potential taxability of any provision of the rider or the policy. It is the intent of the policy to which this rider is attached to always be considered life insurance for tax purposes. If the Company determines in its sole opinion, at any time, that the cash value has reached an amount that may jeopardize the tax exempt status of the proceeds payable upon death, it reserves the right to refund the portion of the cash value in excess of allowable limits for tax exempt purposes. Also, the Company reserves the right to refund any portion of the cash value accumulating in an amount that would be charged as current interest income to the Owner. - -------------------------------------------------------------------------------- J90 J90 CHANGE OF INSURED RIDER (continued) - -------------------------------------------------------------------------------- It may by necessary periodically to apply tests to determine the tax status of the policy. However, the Company does not give tax advice and this provision should not be construed to mean that proceeds and policy values will be exempt from future actions of any tax authority. TERMINATION This rider will terminate on the earliest of: o the date the policy is surrendered or terminated. o the date the policy's nonforfeiture benefits take effect. o the date the policy is changed to a policy for which this rider is not available. o the end of the policy's grace period, unless the Continuation of Insurance provision is in effect. Signed for the Great-West Life & Annuity Insurance Company. /s/ W.T. McCallum W.T. McCallum, President and Chief Executive Officer EX-10 4 fpa.txt FUND PARTICIPATION AGREEMENT PIMCO Variable Insurance Trust PARTICIPATION AGREEMENT Among GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY PIMCO VARIABLE INSURANCE TRUST, PACIFIC INVESTMENT MANAGEMENT COMPANY LLC, and PIMCO ADVISORS DISTRIBUTORS LLC THIS AGREEMENT, made and entered into as of this 1st day of March, 2004 by and among GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY ("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"); PIMCO VARIABLE INSURANCE TRUST, a business trust organized under the laws of Delaware ("Trust"); PACIFIC INVESTMENT MANAGEMENT COMPANY LLC ("Adviser"), a limited liability company organized under the laws of Delaware; and PIMCO ADVISORS DISTRIBUTORS LLC, a limited liability company organized under the laws of Delaware ("Distributor")(each a "Party," and collectively, the "Parties"). WHEREAS, the Trust 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 similar to this Agreement ("Participating Insurance Companies"); and WHEREAS, the beneficial interest in the Trust 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 Trust has obtained an order from the Securities and Exchange Commission ("SEC"), dated February 9, 1998 (File No. 812-10822), 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 ("1940 Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Trust 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") ("Mixed and Shared Trusting Exemptive Order"); and WHEREAS, the Trust 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 ("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, ("1934 Act") and is a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); and WHEREAS, GWL&A has registered interests under certain variable life contracts that are supported wholly or partially by the Account under the 1933 Act and that are listed in Schedule A hereto ("Contracts"); 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 (or will register prior to sale) the securities deemed to be issued by the Account under the 1933 Act to the extent required; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, GWL&A intends to purchase Administrative Class shares in the Portfolio(s) listed in Schedule B hereto (the "Designated Portfolio(s)"), on behalf of the Account to fund the Contracts, and the Trust 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 Trust ("Unaffiliated Funds") on behalf of the Account to fund the Contracts; and Trust NOW, THEREFORE, in consideration of their mutual promises, the Parties agree as follows: ARTICLE I. Sale of Trust Shares 1.1 The Trust agrees that shares of the Trust 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 Trust 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, 3.3, 3.5, 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 Trading and NSCC Fund/SERV Networking Agreement, entered into by and between GWL&A and PIMCO, dated March 1, 2004. ARTICLE II. Representations and Warranties 2.1. GWL&A represents and warrants that the securities deemed to be issued by the Account under the Contracts are or will be registered under the 1933 Act or exempt from registration thereunder, and that the Contracts will be issued and sold in compliance in all material respects with all applicable laws, rules, and regulations (collectively, "laws"). 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 Section 10-7-401, et. seq. of the 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 Trust and Distributor each 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 laws including without limitation the 1933 Act, the 1934 Act, and the 1940 Act, and that the Trust is and shall remain registered under the 1940 Act. The Trust 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 Trust 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. In any event, the Trust 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 Trust are in accordance with the requirements of the 1940 Act. To the extent that the Trust decides to finance distribution expenses pursuant to Rule 12b-1, the Trust undertakes to have its Board, a majority of whom are not interested persons of the Trust, formulate and approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses. 2.4. The Trust and Adviser each represents and warrants that it will make every effort to ensure that the investment policies, fees and expenses of the Designated Portfolio(s) are and shall at all times remain in compliance with the insurance and other applicable laws of the State of Colorado and any other applicable state to the extent required to perform this Agreement. The Trust and Distributor each represents and warrants that it will make every effort to ensure that Designated Portfolio(s) shares will be sold in compliance with the insurance laws of the State of Colorado and all applicable state insurance and securities laws. GWL&A and the Trust 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 Trust agrees that, except in those circumstances where the Trust has advised GWL&A that its Board has determined that implementation of a particular Law Change is not in the best interest of all of the Trust's shareholders with an explanation regarding why such action is lawful, any action required by a Law Change will be taken. 2.5. The Trust represents and warrants that it is lawfully organized and validly existing under the laws of the State of Delaware 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 qualified and registered under all applicable laws and that it shall perform its obligations for the Trust in compliance in all material respects with all applicable laws. The Adviser represents and warrants that management and any other fees paid by the Trust to Adviser or its affiliated persons (within the meaning of the 1940 Act) are legitimate and not excessive, and are derived from agreements that do not breach any fiduciary duty of Adviser to the Trust. 2.7. The Distributor represents and warrants that it is and shall remain duly qualified and registered under all applicable laws and that it shall perform its obligations for the Trust in compliance in all material respects with all applicable laws. 2.8. The Trust and the Adviser represent and warrant that all of their respective directors, officers, employees, investment advisers, and other individuals or entities dealing with the money and/or securities of the Trust 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 Trust 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 Trust 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 will 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 Trust agrees to share equitably in expenses incurred by GWL&A as a result of actions taken by the Trust, consistent with the allocation of expenses contained in Schedule D hereto. 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 contracts under applicable provisions of the Code, and that it will make every effort to maintain such treatment and that it will notify the Trust, 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 Trust, 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 Trust 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 printed copies of the current prospectus for each Designated Portfolio as GWL&A may reasonably request for distribution to Contract owners. If requested by GWL&A in lieu thereof, the Trust, Distributor or Adviser shall provide such documentation (including a camera-ready copy of each Designated Portfolio's current prospectus as set in type, a diskette containing such documents in the form sent to the 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 such 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 Trust's prospectus for the Designated Portfolio(s) printed together in a single document or posted on a website maintained by or for GWL&A. The Trust, Distributor, and Adviser agree that the prospectus 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 Trust unless required by law. Expenses associated with providing such documentation shall be allocated in accordance with Schedule D hereto. 3.2. If applicable laws require that the Statement of Additional Information ("SAI") for the Trust be distributed to all Contract owners, then the Trust, Distributor and/or the Adviser, as appropriate, shall provide GWL&A with copies of the Trust's SAI for the Designated Portfolio(s) in such quantities, with expenses to be borne in accordance with Schedule D hereto, as GWL&A may reasonably require to permit timely distribution thereof to Contract owners. If requested by GWL&A, the Trust, Distributor or Adviser shall provide an electronic copy of the Trust SAI in a format suitable for posting on an Internet website maintained by or on behalf of GWL&A. The Trust, Distributor and/or the Adviser, as appropriate, shall also provide SAIs to any Contract owner or prospective owner who requests such SAI from the Trust (although it is anticipated that such requests will be made to GWL&A). 3.3. The Trust, Distributor and/or Adviser shall provide GWL&A with copies of the Trust'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 D hereto, as GWL&A may reasonably require to permit timely distribution thereof to Contract owners. If requested by GWL&A, the Trust, Distributor or Adviser shall provide an electronic copy of such documentation in a format suitable for posting on an Internet website maintained by or on behalf of GWL&A. The Trust, Distributor, and Adviser agree that the foregoing materials 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 Trust unless required by law. 3.4. 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 Trust shares held in its general account and in any segregated asset account in its own right, to the extent permitted by law. 3.5. Participating Insurance Companies shall be responsible for assuring that each of their separate accounts participating in a Designated Portfolio calculates voting privileges in a manner consistent with the standards set forth in the Mixed and Shared Funding Exemptive Order, provided however, that the Trust shall provide GWL&A and each Participating Insurance Company with a written copy of such standards and such other assistance as may be necessary to facilitate coordination between GWL&A and other Participating Insurance Companies in complying with such standards and provided further that GWL&A shall be free to vote Designated Portfolio shares attributable to the Account in any manner permitted by applicable law, to the extent the Mixed and Shared Funding Order is superseded by SEC or administrative practice (including no-action relief). 3.6. The Trust will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the Trust 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 Trust currently intends, comply with Section 16(c) of the 1940 Act (although the Trust 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 Trust 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 Trust or its designee, a copy of each piece of sales literature or other promotional material that GWL&A develops or proposes to use and in which the Trust (or a Designated Portfolio thereof), its Adviser, any 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 Trust objects to such use within five (5) Business Days after receipt of such material. The Trust or its designee reserves the right to reasonably object to the continued use of any such sales literature or other promotional material in which the Trust (or a Designated Portfolio thereof), its Adviser, any of its sub-advisers, or the Distributor is named and no such material shall be used if the Trust or its designee so objects. 4.2. GWL&A shall not give any information or make any representations or statements on behalf of the Trust in connection with the sale of the Contracts other than the information or representations contained in the registration statement, prospectus or SAI for the Trust shares, as the same may be amended or supplemented from time to time, or in sales literature or other promotional material approved by the Trust, Distributor or Adviser, except with the permission of the Trust, Distributor or Adviser. 4.3. The Trust, Distributor, 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, its separate account(s), or any Contract 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 reasonably object to the continued use of any such sales literature or other promotional material in which GWL&A, its separate account(s), or any Contract, is named, and no such material shall be used if the GWL&A so objects. 4.4. The Trust, 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 (which shall include an offering memorandum, if any, if the Contracts issued by GWL&A or interests therein are not registered under the 1933 Act) 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 Trust or its designee will provide to GWL&A at least one complete copy of all registration statements, prospectuses, SAIs, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments or supplements to any of the above, that relate to the Trust or its shares (collectively, "Trust materials"), promptly following the filing of such document(s) with the SEC or NASD or other regulatory authorities. 4.6. GWL&A or its designee will provide to the Trust at least one complete copy of all registration statements, prospectuses, SAIs, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments or supplements to any of the above, that relate to the Contracts, (collectively, "Contract materials") 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, shareholder reports, 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. The Trust, Distributor and the Adviser shall pay no fee or other compensation to GWL&A under this Agreement, and GWL&A shall pay no fee or other compensation to the Trust, Distributor or Adviser under this Agreement, although the Parties hereto will bear certain expenses in accordance with Schedule D hereto, Articles III, V, and other provisions of this Agreement. 5.2. Except as otherwise provided in this Agreement, including without limitation Schedule D hereto, each Party shall bear all expenses incident to the performance of its obligations hereunder. Notwithstanding anything herein to the contrary, the Distributor or Adviser (as they may allocate between themselves) shall reimburse GWL&A for the costs associated with substituting the securities of a registered investment company for the shares of any Designated Portfolio that has discontinued or intends to discontinue the offering of its shares to Contract owners, or that implements, or intends to implement, a fundamental change in investment objective or policy or other change requiring shareholder approval, or with respect to which GWL&A determines to terminate the Agreement pursuant to Section 10.1(b) hereof. The costs of such substitution shall include, without limitation, reasonable legal fees for obtaining any required SEC order approving such substitution, and expenses for printing and distributing any prospectus supplement or other disclosure of the substitution or elimination of the Designated Portfolio as an investment vehicle under the Contracts. 5.3. The Trust, 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 Designated Portfolios. The Fund, the Distributor and the Adviser agree to cooperate with GWL&A and Schwab in facilitating the operation of the Account and the Contracts as described in the prospectus for the Contracts, including but not limited to cooperation in facilitating transfers between Unaffiliated Funds. ARTICLE VI. Diversification and Qualification. --------------------------------- 6.1. The Trust, the Distributor and the Adviser each represents and warrants that the Trust 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 contracts under the Code, and the regulations issued thereunder. Without limiting the scope of the foregoing, the Trust, Distributor and Adviser each represents and warrants that the Trust 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. In the event of a breach of this Article VI by the Trust, the Trust, Distributor, and Adviser will take all steps necessary to: (a) notify GWL&A of such breach, and (b) adequately diversify the Trust so as to achieve compliance within the 30-day grace period afforded by Regulation 1.817-5. 6.2. The Trust, the Distributor and the Adviser each represents and warrants that shares of the Designated Portfolio(s) will be sold only to Participating Insurance Companies and their separate accounts and to Qualified Plans, and that no person has or will purchase shares in any Portfolio for any purpose or under any circumstances that would preclude GWL&A from "looking through" to the investments of each Designated Portfolio in which it invests, pursuant to the "look through" rules found in Treasury Regulation 1.817-5. No shares of any Designated Portfolio of the Trust will be sold to the general public. 6.3. The Trust, the Distributor and the Adviser each represents and warrants that the Trust 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 Trust, Distributor and Adviser each will notify GWL&A immediately upon having a reasonable basis for believing that the Trust 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 Distributor and/or Adviser will pay all costs associated with or arising out of any failure, or any anticipated or reasonably foreseeable failure, of the Trust 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 its Contract owners in connection with any such failure or anticipated or reasonably foreseeable failure. 6.6. Upon request, the Trust shall provide GWL&A or its designee with reports certifying compliance with the aforesaid Section 817(h) diversification and Subchapter M qualification requirements, at the times provided for and substantially in the form attached hereto as Schedule D hereto; provided, however, that providing such reports does not relieve the Trust of its responsibility for such compliance or of its liability for any non-compliance. 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 Trust, Distributor or Adviser as a result of such a failure or alleged failure: (a) GWL&A shall promptly notify the Trust, the Distributor and the Adviser of such assertion or potential claim; (b) GWL&A shall consult with the Trust, 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 Trust, 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 Trust, 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 Trust, the Distributor and the Adviser with such cooperation as the Trust, the Distributor and the Adviser shall reasonably request (including, without limitation, by permitting the Trust, the Distributor and the Adviser to review the relevant books and records of GWL&A) in order to facilitate review by the Trust, 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 Trust, 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 Trust, 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 Trust 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 Trust, 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 Trust represents that the Board will monitor the Trust for the existence of any material irreconcilable conflict between the interests of the contract owners of all separate accounts investing in the Trust. A material irreconcilable 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 Designated 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 a material irreconcilable 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 members who are not interested persons of the Trust, the Distributor, the Adviser or any sub-adviser to any of the Designated Portfolios (the "Disinterested Members "), that a material irreconcilable conflict exists, and it is a Participating Insurance Company for which a material irreconcilable conflict is relevant, GWL&A and other Participating Insurance Companies shall, at their expense and to the extent reasonably practicable (as determined by a majority of the Disinterested Members), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, up to and including: (1) withdrawing the assets allocable to some or all of the separate accounts from the Trust or any Designated Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another portfolio of the Trust, 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 Trust's election, to withdraw the Account's investment in the Trust 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 Disinterested Members. Any such withdrawal and termination must take place within six (6) months after the Trust gives written notice that this provision is being implemented, and until the end of that six month period the Trust, the Distributor and the Adviser shall continue to accept and implement orders by GWL&A for the purchase (and redemption) of shares of the Trust. No charge or penalty will be imposed as a result of such withdrawal. The responsibility to take such remedial action shall be carried out with a view only to the interest of the Contract owners. 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 Trust 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. Until the end of the foregoing six-month period, the Trust and the Distributor shall continue to accept and implement orders by GWL&A for the purchase (and redemption) of shares of the Trust. The responsibility to take such action shall be carried out with a view only to the interest of the Contract owners. 7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of the Disinterested Members shall determine whether any proposed action adequately remedies any material irreconcilable conflict, but in no event will the Trust 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 material irreconcilable conflict. In the event that the Board determines that any proposed action does not adequately remedy any material irreconcilable conflict, then GWL&A will withdraw the Account's investment in the Trust 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 Disinterested Members. 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 Trust 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 3.4, 3.5, 3.6, 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 Trust, the Distributor and the Adviser and each of their respective officers and directors or trustees and each person, if any, who controls the Trust, 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) (collectively, a "Loss") to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such Loss is related to the sale or acquisition of the Trust's shares or the Contracts and: (i) arises out of or is based upon any untrue statements or alleged untrue statements of any material fact contained in any Contract materials, 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 the Trust, Distributor or Adviser for use in the Contract materials or otherwise for use in connection with the sale of the Contracts or Trust shares; or (ii) arises out of or as a result of statements or representations (other than statements or representations contained in Trust materials 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 Trust shares; or (iii) arises out of any untrue statement or alleged untrue statement of a material fact contained in any Trust materials, 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 and conformity with information furnished in writing to the Trust by or on behalf of GWL&A; or (iv) arises 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) arises out of or result from any material breach of any representation and/or warranty made by GWL&A in this Agreement or arises out of or result from any other material breach of this Agreement by GWL&A, including without limitation Section 2.11 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 Loss 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 an Indemnified Party, GWL&A shall be entitled to participate, at its own expense, in the defense of such action, and unless the Indemnified Parties release GWL&A from any further obligation under this Section 8.1 with respect to such claim(s), 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).Each Indemnified Party will promptly notify GWL&A of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Trust shares or the Contracts or the operation of the Trust. 8.2. Indemnification by the Adviser. 8.2(a). The Adviser agrees to indemnify and hold harmless GWL&A and its directors and officers, the Contract owners, 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 Loss to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such Loss is related to the sale or acquisition of the Trust's shares or the Contracts and: (i) arises out of or is based upon any untrue statement or alleged untrue statement of any material fact contained in any Trust materials, 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 Trust, Distributor or Adviser, by or on behalf of GWL&A for use in the Trust materials or otherwise for use in connection with the sale of the Contracts or the Trust shares; or (ii) arises out of or as a result of statements or representations (other than statements or representations contained in Trust materials not supplied by the Adviser or persons under its control) or wrongful conduct of the Trust, the Distributor or the Adviser or persons under their control, with respect to the sale or distribution of the Contracts or Trust shares; or (iii) arises out of any untrue statement or alleged untrue statement of a material fact contained in any Contract materials 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 and in conformity with information furnished in writing to GWL&A by or on behalf of the Trust, Distributor or Adviser; or (iv) arises as a result of any failure by the Trust, the Distributor or 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) arises out of or results from any material breach of any representation and/or warranty made by the Trust, the Distributor or the Adviser in this Agreement or arises out of or result from any other material breach of this Agreement by the Trust, the Distributor or the Adviser; or (vi) arises out of or results from the incorrect or untimely calculation or reporting by the Trust, the Distributor or 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 Loss 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 an Indemnified Party, the Adviser will be entitled to participate, at its own expense, in the defense thereof and unless the Indemnified Parties release Adviser from any further obligation under this Section 8.3 with respect to such claim(s), 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& agrees promptly to 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 Trust. 8.3(a). The Trust agrees to indemnify and hold harmless GWL&A and its directors and officers, the Contract owners, 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 Loss 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 Loss, is related to the operations of the Trust and: (i) arises as a result of any failure by the Trust 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) arises out of or results from any material breach of any representation and/or warranty made by the Trust in this Agreement or arises out of or result from any other material breach of this Agreement by the Trust; or (iii) arises out of or results 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 Trust shall not be liable under this indemnification provision with respect to any Loss 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 Trust 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 Trust 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 Trust 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 Trust has been prejudiced by such failure to give notice. In case any such action is brought against an Indemnified Party, the Trust will be entitled to participate, at its own expense, in the defense thereof and unless the Indemnified Parties release the Trust from any further obligation under this Section 8.4 with respect to such claim(s), the Trust shall also be entitled to assume the defense thereof, with counsel satisfactory to the Party named in the action. After notice from the Trust to such Party of the Trust'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 Trust 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 agrees promptly to notify the Trust 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 Trust. 8.4. Indemnification by the Distributor. 8.4(a).The Distributor agrees to indemnify and hold harmless GWL&A and its directors and officers, the Contract owners, 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 Loss to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such Loss is related to the sale or acquisition of the Trust's shares or the Contracts and: (i) arises out of or is based upon any untrue statement or alleged untrue statement of any material fact contained in Trust materials, 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 Trust, Distributor or Adviser by or on behalf of GWL&A for use in the Trust materials or otherwise for use in connection with the sale of the Contracts or Trust shares; or (ii) arises out of or as a result of statements or representations (other than statements or representations contained in Trust materials not supplied by the Distributor or persons under its control) or wrongful conduct of the Trust, the Distributor or Adviser or persons under their control, with respect to the sale or distribution of the Contracts or Trust shares; or (iii) arises out of any untrue statement or alleged untrue statement of a material fact contained in any Contract materials, 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 and in conformity with information furnished in writing to GWL&A by or on behalf of the Trust, Distributor or Adviser; or (iv) arises as a result of any failure by the Trust, Distributor or 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) arises out of or result from any material breach of any representation and/or warranty made by the Trust, Distributor or Adviser in this Agreement or arises out of or results from any other material breach of this Agreement by the Trust, Distributor or Adviser; or (vi) arises 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 8.4(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 Loss 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 an Indemnified Party, the Distributor will be entitled to participate, at its own expense, in the defense thereof and unless the Indemnified Parties release the Distributor from any further obligation under this Section 8.5 with respect to such claim(s), 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 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Colorado. ARTICLE 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 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 Trust, 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 Trust shares, if, in each case, the Trust, 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 Trust, 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 Trust, 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 Designated Portfolio in the event that such Portfolio fails to meet the requirements and comply with the representations and warranties specified in Article VI hereof; or (g) at the option of GWL&A by written notice to the other Parties with respect to any Designated Portfolio in the event that such Portfolio ceases to qualify as a regulated investment company under Subchapter M of the Code or under any successor or similar provision, or if GWL&A reasonably believes that the Designated Portfolio will fail to meet such requirements or so qualify; or (h) at the option of either the Trust, the Distributor or the Adviser, if (i) the Trust, Distributor or Adviser, respectively, shall determine, in its sole judgment reasonably exercised in good faith, that since the date of this Agreement GWL&A has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity, (ii) the Trust, 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 Trust, 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 (i) at the option of GWL&A, if (i) GWL&A shall determine, in its sole judgment reasonably exercised in good faith, that since the date of this Agreement the Trust, 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 Trust, Distributor or Adviser, as appropriate, of that determination and its intent to terminate this Agreement, and (iii) after considering the actions taken by the Trust, 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 (j) 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)-(i); 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. 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(h) or 10.1(i) 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) or 10.1(e), 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) or 10.1(g), 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 Trust or GWL&A to meet Section 817(h) of the Code diversification requirements, the Trust, 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 among 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. The parties acknowledge that nothing in this Agreement shall in any way preclude or prevent the Trust's board of Trustees from taking any actions deemed necessary by the Board in furtherance of its fiduciary duties to the Trust and its shareholders, which, among other things, may include approval of a merger or consolidation of any Designated Portfolio, the liquidation of any Designated Portfolio, the refusal to sell shares of any Designated Portfolio to any person, or to suspend or terminate the offering of the shares of any Designated Portfolio, if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Trustees, acting in good faith and in light of the Trustees' fiduciary duties under applicable law, necessary and in the best interest of the shareholder of any Designated Portfolio. 10.4. Surviving Provisions. Notwithstanding any termination of this Agreement, the following provisions shall survive: Article V, Article VIII and Section 12.1 of Article XII. 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 by the notifying Party to each other Party entitled to notice at the addresses set forth below or at such other address as a Party may from time to time specify in writing to the other Parties. If to the Trust: PIMCO Variable Insurance Trust 840 Newport Center Drive Newport Beach, CA 92660 Attention: Jeffrey M. Sargent If to GWL&A: Great-West Life & Annuity Insurance Company 8515 East Orchard Road Greenwood Village, CO 80111 Attention: Vice President and Counsel If to the Adviser: Pacific Investment Management Company LLC 840 Newport Center Drive, Newport Beach, CA 92660 Attention: Jeffrey M. Sargent If to the Distributor: PIMCO Advisors Distributors LLC 2187 Atlantic Street Stamford, CT 06902 Attention: Newton B. Schott, Jr. ARTICLE XII. Miscellaneous 12.1. Subject to the requirements of legal process and regulatory authority, each Party hereto shall treat as confidential any "non-public personal information" about any "consumer" of another Party as such terms are defined in SEC Regulation S-P, and shall not disclose or use such information without the express written consent of such Party. Such written consent shall specify the purposes for which such information may be disclosed or used, which disclosure or use shall be consistent with SEC Regulation S-P. 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 Colorado Variable Life Regulations and any other applicable law. 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 Trust and agree that, except as otherwise provided herein, the obligations assumed by the Trust pursuant to this Agreement shall be limited in any case to the Trust and its assets and GWL&A shall not seek satisfaction of any such obligation from the shareholders of the Trust (solely by reason of their status as such) the Trustees, officers, employees or agents of the Trust, or any of them. 12.10. The Trust, 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 their respective assets and neither the Trust, Distributor nor Adviser shall seek satisfaction of any such obligation from the shareholders of GWL&A, the directors, officers, employees or agents of the GWL&A, or any of them, except to the extent permitted under this Agreement. 12.11. Schedules A through E hereto, as the same may be amended from time to time by mutual written agreement of the Parties, are attached hereto and incorporated herein by reference. 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 of the date specified below. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY By its authorized officer, By:/s/ Ron Laeyendecker _____________ Name: Ron Laeyendecker Title:_Vice President Date:_____________________________ PIMCO VARIABLE INSURANCE TRUST By its authorized officer, By:/s/ Jeffrey M. Sargent ____________ ----------------------- Name: Jeffrey M. Sargent Title: Senior Vice President Date:_____________________________ PACIFIC INVESTMENT MANAGEMENT COMPANY LLC By its authorized officer, By:_/s/ Jeffrey M. Sargent ____________ ---------------------- Name: Jeffrey M. Sargent Title: Executive Vice President Date:_____________________________ PIMCO ADVISORS DISTRIBUTORS LLC By its authorized officer, By:/s/ Newton B. Schott, Jr ___________ ------------------------- Name: Newton B. Schott, Jr. Title: Managing Director Date:_____________________________ SCHEDULE A Contracts Form Numbers Great-West Life & Annuity Insurance Company COLI VUL -2 Series Account J355 Established 11/25/97 SCHEDULE B PIMCO Variable Insurance Trust Administrative Class Portfolios All Asset CommodityRealReturn Strategy Emerging Markets Bond Foreign Bond Global Bond High Yield Long-Term U.S. Government Low Duration Money Market Real Return Short-Term StocksPLUS Growth and Income StocksPLUS Total Return Total Return Total Return II As well as any other Portfolio of the Fund that are open and available to new investors on or after the effective date of this Agreement. Separate Accounts Date Established SCHEDULE C Reports per Section 6.6 With regard to the reports relating to the quarterly testing of compliance with the requirements of Section 817(h) and Subchapter M under the Internal Revenue Code (the "Code") and the regulations thereunder, upon request, the Trust shall provide a quarterly report to GWL&A in the Form D1 attached hereto and incorporated herein by reference, regarding the status under such sections of the Code of the Designated Portfolio(s), and if necessary, identification of any remedial action to be taken to remedy non-compliance. With regard to the reports relating to the year-end testing of compliance with the requirements of Subchapter M of the Code, referred to hereinafter as "RIC status," upon request, the Trust will provide the reports on the following basis: (i) the last quarter's quarterly reports, and (ii) a year-end report after the end of the calendar year. However, if a problem with regard to RIC status, as defined below, is identified in the third quarter report, on a weekly basis, starting the first week of December, additional interim reports may be requested specially addressing the problems identified in the third quarter report. If any interim report memorializes the cure of the problem, subsequent interim reports will not be required. A problem with regard to RIC status is defined as any violation of the following standards, as referenced to the applicable sections of the Code: (a) Less than ninety percent of gross income is derived from sources of income specified in Section 851(b)(2); (b) Less than fifty percent of the value of total assets consists of assets specified in Section 851(b)(3)(A); and (c) No more than twenty-five percent of the value of total assets is invested in the securities of one issuer, as that requirement is set forth in Section 851(b)(3)(B). FORM C1 CERTIFICATE OF COMPLIANCE For the quarter ended: --------------------------- ___________________ (investment advisor) for Trust hereby notifies you that, based on internal compliance testing performed as of the end of the calendar quarter ended ________, 20____, the Designated Portfolios were 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, and other than the exceptions discussed below: Exceptions Remedial Action Signed this day of , . ----- ---------- ------------ --------------------------------------------------- (Signature) By: ----------------------------------------------- (Type or Print Name and Title/Position) SCHEDULE D EXPENSES The Trust 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 Trust's share of the total costs determined according to the number of pages of the Trust's respective portions of the documents, except with respect to the printing of the combined fund prospectuses. The calculation for costs associated with the printing of the combined fund prospectuses shall be a weighted average factoring in the percentage of assets allocated to the Fund's respective portfolio(s) as of April 30 of each year, and the actual number of pages in that portfolio's prospectus.
- ------------------------- ----------------------- --------------------- ------------------ Item Function Party Responsible Party for Coordination Responsible for Expense - ------------------------- ----------------------- --------------------- ------------------ Mutual Fund Prospectus Printing of combined GWL&A Trust, prospectuses Distributor or Adviser, as applicable - ------------------------- ----------------------- --------------------- ------------------ Trust, Distributor or GWL&A Trust, Adviser shall supply Distributor or GWL&A with such Adviser, as numbers of the applicable 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 - ------------------------- ----------------------- --------------------- ------------------ Product 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 - ------------------------- ----------------------- --------------------- ------------------ - ------------------------- ----------------------- --------------------- ------------------ Item Function Party Responsible Party for Coordination Responsible for Expense - ------------------------- ----------------------- --------------------- ------------------ - ------------------------- ----------------------- --------------------- ------------------ Distribution to GWL&A GWL&A Prospective Contract owners - ------------------------- ----------------------- --------------------- ------------------ - ------------------------- ----------------------- --------------------- ------------------ Mutual Fund Prospectus If Required by Trust, Trust, Distributor Trust, Update & Distribution Distributor or Adviser or Adviser Distributor or Adviser - ------------------------- ----------------------- --------------------- ------------------ If Required by GWL&A GWL&A GWL&A - ------------------------- ----------------------- --------------------- ------------------ - ------------------------- ----------------------- --------------------- ------------------ Product Prospectus If Required by Trust, GWL&A Trust, Update & Distribution Distributor or Adviser Distributor or Adviser - ------------------------- ----------------------- --------------------- ------------------ If Required by GWL&A GWL&A GWL&A - ------------------------- ----------------------- --------------------- ------------------ - ------------------------- ----------------------- --------------------- ------------------ Mutual Fund SAI Printing Trust, Distributor Trust, or Adviser Distributor or Adviser - ------------------------- ----------------------- --------------------- ------------------ Distribution GWL&A GWL&A - ------------------------- ----------------------- --------------------- ------------------ Product SAI Printing GWL&A GWL&A - ------------------------- ----------------------- --------------------- ------------------ Distribution GWL&A GWL&A - ------------------------- ----------------------- --------------------- ------------------ - ------------------------- ----------------------- --------------------- ------------------ Proxy Material for Printing if proxy Trust, Distributor Trust, Mutual Fund: required by Law or Adviser Distributor or Adviser - ------------------------- ----------------------- --------------------- ------------------ Distribution GWL&A Trust, (including labor) if Distributor or proxy required by Law Adviser - ------------------------- ----------------------- --------------------- ------------------ 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 reports GWL&A Trust, Semi-Annual Report Distributor or Adviser - ------------------------- ----------------------- --------------------- ------------------ Distribution GWL&A GWL&A - ------------------------- ----------------------- --------------------- ------------------ - ------------------------- ----------------------- --------------------- ------------------ Other communication to If Required by the GWL&A Trust, New and Prospective Trust, Distributor or Distributor or clients Adviser Adviser - ------------------------- ----------------------- --------------------- ------------------ If Required by GWL&A GWL&A GWL&A - ------------------------- ----------------------- --------------------- ------------------ - ------------------------- ----------------------- --------------------- ------------------ Other communication to Distribution GWL&A Trust, inforce (including labor and Distributor or printing) if required Adviser by the Trust, 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 Trust or Adviser calculation participants - ------------------------- ----------------------- --------------------- ------------------ Cost of reasonable GWL&A Trust or Adviser administrative work to correct error - ------------------------- ----------------------- --------------------- ------------------ Operations of the Fund All operations and Trust, Distributor Trust or Adviser related expenses, or 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 Trust, and expenses paid or assumed by the Trust 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) - ------------------------- ----------------------- --------------------- ------------------
EX-23 5 legalconsent.txt Exhibit (n)(1) 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 30, 2004 Great-West Life & Annuity Insurance Company 8515 East Orchard Road Greenwood Village, Colorado 80111 Re: COLI VUL-2 Series Account Post-Effective Amendment No. 10 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-23 6 auditor.txt INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-Effective Amendment No. 10 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 March 12, 2004 on the financial statements of COLI VUL-2 Series Account and our report dated February 25, 2004 on the consolidated financial statements of Great-West Life & Annuity Insurance Company and to the reference to us under the heading "Independent Auditors" in the Statement of Additional Information, which is part of such Registration Statement. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Denver, Colorado April 28, 2004 EX-99.J 7 actuaryopinion.txt ACTUARIAL OPINION April 30, 2004 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. 10 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. 10 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. Insureds 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 -----END PRIVACY-ENHANCED MESSAGE-----