-----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, OrvZJJ49011qo/pRV6uDM35NLux/lYZhPtQa7AlqOv2l9DaqU8s2tYuY0Ncn+P+Q Po4M9F6LODMh+ZrmzhAPeA== 0001075796-05-000006.txt : 20050429 0001075796-05-000006.hdr.sgml : 20050429 20050429102928 ACCESSION NUMBER: 0001075796-05-000006 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20050429 DATE AS OF CHANGE: 20050429 EFFECTIVENESS DATE: 20050429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLI VUL 2 SERIES ACCOUNT CENTRAL INDEX KEY: 0001075796 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 333-70963 FILM NUMBER: 05783099 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 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-09201 FILM NUMBER: 05783100 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 full485b.txt As filed with the Securities and Exchange Commission on April 29, 2005 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. 12 AND THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 5 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 Company Washington, D.C. 20007-5208 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): [ ] immediately upon filing pursuant to paragraph (b) of Rule 485. [X] on May 1, 2005 pursuant to paragraph (b) of Rule 485. [ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485. [ ] on ___________ 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 May 1, 2005 1
Table of Contents Summary of the Policy and its Benefits.................................................4 Policy Risks...........................................................................6 Fund Risks.............................................................................7 Fee Tables ............................................................................8 Transaction Fees.................................................................8 Periodic Charges Other Than Fund Operating Expenses..............................9 Supplemental Benefit Charges.....................................................9 Total Annual Fund Operating Expenses.............................................10 Individual Fund Annual Operating Expenses.........................................11 Description of Depositor, Registrant, and Funds........................................16 Great-West Life & Annuity Insurance Company.......................................16 The Series Account................................................................16 The Investment Options and Funds..................................................16 Charges and Deductions.................................................................26 Expense Charge Applied to Premium.................................................26 Mortality and Expense Risk Charge.................................................27 Monthly Deduction.................................................................27 Monthly Risk Rates................................................................27 Service Charge....................................................................28 Transfer Fee......................................................................28 Partial Withdrawal Fee............................................................28 Surrender Charges.................................................................28 Change of Death Benefit Option Fee................................................28 Fund Expenses.....................................................................28 General Description of Policy..........................................................29 Policy Rights.....................................................................29 Owner.........................................................................29 Beneficiary...................................................................29 Policy Limitations................................................................29 Allocation of Net Premiums....................................................29 Transfers Among Divisions.....................................................29 Market Timing & Excessive Trading.............................................30 Exchange of Policy............................................................31 Age Requirements..............................................................31 Policy or Registrant Changes......................................................32 Addition, Deletion or Substitution of Investment Options......................32 Entire Contract...............................................................32 Alteration....................................................................32 Modification..................................................................32 Assignments...................................................................32 Notice and Elections..........................................................32 Account Value.....................................................................33 Net Investment Factor.........................................................34 Splitting Units...............................................................34 Other Provisions and Benefits.........................................................34 Misstatement of Age or Sex....................................................34 Suicide.......................................................................34 Incontestability..............................................................34 Paid-Up Life Insurance........................................................34 Supplemental Benefits.........................................................35 Term Life Insurance Rider.....................................................35 2 Change of Insured Rider.......................................................35 Report to Owner...............................................................36 Dollar Cost Averaging.........................................................36 Rebalancer Option.............................................................36 Non-Participating.............................................................36 Premiums ..............................................................................37 Policy Application, Issuance and Initial Premium.................................38 Free Look Period.................................................................38 Premium..........................................................................38 Net Premiums.....................................................................38 Planned Periodic Premiums........................................................38 Death Benefits.........................................................................38 Death Benefit..................................................................38 Changes in Death Benefit Option..................................................39 Changes in Total Face Amount.....................................................40 Surrenders and Withdrawals.............................................................40 Surrenders.......................................................................40 Partial Withdrawal...............................................................40 Loans ..............................................................................41 Policy Loans.....................................................................41 Lapse and Reinstatement ...............................................................41 Lapse and Continuation of Coverage...............................................41 Grace Period.....................................................................42 Termination of Policy............................................................42 Reinstatement....................................................................42 Deferral of Payment..............................................................42 Federal Income Tax Considerations......................................................42 Tax Status of the Policy...............................................................43 Diversification of Investments...................................................43 Policy Owner Control.............................................................43 Tax Treatment of Policy Benefits.......................................................43 Life Insurance Death Benefit.....................................................43 Proceeds......................................................................43 Tax Deferred Accumulation........................................................43 Surrenders.......................................................................44 Modified Endowment Contracts.....................................................44 Distributions....................................................................44 Distributions Under a Policy that is Not a Modified Endowment Contrat.........44 Distributions Under Modified Endowment Contracts..............................45 Multiple Policies................................................................45 Treatment When Insured Reaches Attained Age 100..................................45 Federal Income Tax Withholding...................................................45 Actions to Ensure Compliance with the Tax Law....................................45 Trade or Business Entity Owns or is Directly or Indirectly a Beneficiary of the Policy .. 45 Other Employee Benefit Programs..................................................45 Policy Loan Interest.............................................................46 Our Taxes........................................................................46 Corporate Tax Shelter Requirements...............................................46 Legal Proceedings......................................................................46 Legal Matters..........................................................................46 Financial Statements...................................................................46 Appendix A - Glossary of Terms.........................................................47 Appendix B - Table of Death Benefit Percentages........................................49 Appendix C - Sample Hypothetical Illustrations.........................................50
3 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. 4 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 plus Return of Expense Charge, if applicable. 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 may 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 may 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 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. 5 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 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 may 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. 6 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. 7 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 - ------------------------------- ----------------------------- ---------------------------- - ------------------------------- ----------------------------- ---------------------------- Maximum Sales Charge Imposed Upon each premium payment Maximum: 6.5% of Premium on Premium Current: 5.5% of Premium up to target and 3.0% of Premium in excess of target 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. Premium Tax Upon each Premium payment Maxim 3.5% of Premium 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 Corporates1 - ------------------------------- ----------------------------- ---------------------------- 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. 9 Periodic Charges Other Than Fund Operating Expenses - ------------------------------- ----------------------------- ---------------------------- Charge When Charge is Deducted Amount Deducted - ------------------------------- ----------------------------- ---------------------------- - ------------------------------- ----------------------------- ---------------------------- Cost of Insurance (per $1000 Monthly Net Amount at Risk)2 Minimum & Maximum Guaranteed: Cost of Insurance Minimum: $0.08 per Charge $1000. Maximum: $83.33 per $1000. Cost of Insurance Guaranteed: Charge for a 46-year old Male Non-Smoker, $0.41 per $1000. $550,000 Face Amount, Option 1 (Level Death) Mortality and Expense Risk Upon each Valuation Date Maximum: 0.90% annually. Fees Current: 0.40% for Policy Years 1-5, 0.25% for Policy Years 6-20, and 0.10% thereafter. 8 - ------------------------------- ----------------------------- ---------------------------- Charge When Charge is Deducted Amount Deducted - ------------------------------- ----------------------------- ---------------------------- Monthly Maximum: $15/month Service Charge 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 27 of this prospectus. The benefits provided under each rider are summarized in "Other Provisions and Benefits" beginning on page 34 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 Rider3 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 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. 9 Total Annual Fund Operating Expenses(1) (Expenses that are deducted from Fund assets, including management fees, distribution and/or service (12b-1) fees, and other expenses) - ------------------------------- ----------------------------- ---------------------------- Minimum Maximum - ------------------------------- ----------------------------- ---------------------------- - ------------------------------- ----------------------------- ---------------------------- Total Annual Fund Operating 0.25% 1.50% - ------------------------------- ----------------------------- ---------------------------- The figures in the following table show expense ratios for the individual Funds for the year ended December 31, 2004, except where noted otherwise. The expenses of certain Funds reflect contractual fee reductions and expense reimbursements, as indicated in their prospectuses.
1 Expenses are shown as a percentage of a Fund's average net assets as of December 31, 2004. The range of expenses above does not show the effect of any fee waiver or expense reimbursement arrangements. The advisers and/or other service providers of certain Funds have agreed to waive their fees and/or reimburse the Funds' expenses in order to keep the expenses below specified limits. In some cases, these expense limitations may be contractual. In other cases, these expense limitations are voluntary and may be terminated at any time. The minimum and maximum Total Annual Fund Operating Expenses for all the Funds after all fee waivers and expense reimbursements are 0.25% and 1.50%, respectively. Please see the Individual Fund Annual Operating Expenses table below and the prospectus for each Fund for information regarding the expenses for each Fund, including fee reduction and/or expense reimbursement arrangements, if applicable. 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. 10
Individual Fund Annual Operating Expenses (as a percentage of average daily net assets) Fund/Portfolio Management Other Gross Less Net Fee Expenses* Total Contractual Total Annual Fee Waivers & Annual Operating Expense Operating Expense Reimbursements Expenses AIM Variable Insurance Funds AIM V.I. Core Stock Fund (Series 0.75% 0.46% 1.23% 0.06% 1.15% I Shares)1,2,3 AIM V.I. Financial Services Fund 0.75% 0.37% 1.12% 0.00% 1.12% (Series I Shares) 2,3 AIM V.I. Health Sciences Fund 0.75% 0.36% 1.11% 0.01% 1.10% (Series I Shares) 2,3,4,5 AIM V.I. Technology Fund (Series 0.75% 0.40% 1.15% 0.00% 1.15% I Shares) 2,3 American Century Variable Portfolios, Inc.6 American Century VP Income & 0.70% 0.00% 0.70% 0.00% 0.70% 1 AIM V.I. Core Stock Fund (Series I Shares): Except as otherwise noted, figures shown in the table are for the year ended December 31, 2004 and are expressed as a percentage of the Fund's average daily net assets. There is no guarantee that actual expenses will be the same as those shown in the table. 2 AIM V.I. Core Stock Fund (Series I Shares), AIM V.I. Financial Services Fund (Series I Shares), AIM V.I. Health Sciences Fund (Series I Shares), AIM V.I. Technology Fund (Series I Shares): The Fund's advisor has contractually agreed to waive advisory fees and/or reimburse expenses of Series I shares to the extent necessary to limit Total Annual Fund Operating Expenses (excluding certain items discussed below) of Series I shares to 1.30% of average daily nets assets for each series portfolio of AIM Variable Insurance Funds. In determining the advisor's obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the Total Annual Fund Operating Expenses to exceed the limit stated above: (i) Rule 12b-1 plan fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on short sales; (v) extraordinary items (these are expenses that are not anticipated to arise from the Fund's day-to day operations), or items designated as such by the Fund's Board of Trustees; (vi) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vii) expenses that the Fund has incurred but did not actually pay because of an expense offset arrangement. Currently, the only expense offset arrangements from which the Fund benefits are in the form of credits that the Fund receives from banks where the Fund or its transfer agent has deposit accounts in which it holds uninvested cash. Those credits are used to pay certain expenses incurred by the Fund. The expense limitation is in effect through April 30, 2006. 3 AIM V.I. Core Stock Fund (Series I Shares), AIM V.I. Financial Services Fund (Series I Shares), AIM V.I. Health Sciences Fund (Series I Shares), AIM V.I. Technology Fund (Series I Shares): Effective January 1, 2005 through December 31, 2009, the advisor has contractually agreed to waive a portion of its advisory fees. The fee waiver reflects this agreement. 4 AIM V.I. Health Sciences Fund (Series I Shares): Effective January 1, 2005 through June 30, 2006, the advisor has contractually agreed to waive a portion of its advisory fees. The fee waiver reflects this agreement. 5 AIM V.I. Health Sciences Fund (Series I Shares): Effective July 1, 2005, AIM V.I. Health Sciences Fund will be renamed AIM V.I. Global Health Care Fund. 6 American Century Variable Portfolios, Inc - VP Income & Growth, VP International, VP Ultra(R),VP Value, and VP VistaSM: These Portfolios have a stepped fee schedule. As a result, the Portfolios' management fee rates generally decrease as the Portfolios' assets increase. Effective April 1, 2004, VP International and VP Income & Growth were closed to new owners. * Information regarding other expenses, which include the fees and expenses of the fund's independent directors, their legal counsel, interest and extraordinary expenses, can be found in the Fees and Expenses section of this fund's Prospectus. 11 Growth Fund (Class I Shares) American Century VP International Fund(Class I 1.27% 0.00% 1.27% 0.00% 1.27% Shares) American Century VP Ultra(R) Fund 1.00% 0.00% 1.00% 0.00% 1.00% (Class I Shares) American Century VP Value Fund 0.93% 0.00% 0.93% 0.00% 0.93% (Class I Shares) American Century VP VistaSM Fund 1.00% 0.00% 1.00% 0.00% 1.00% (Class I Shares) Davis Variable Account Fund, Inc. Davis Financial Portfolio 0.75% 0.10% 0.85% 0.00% 0.85% Davis Value Portfolio 0.75% 0.06% 0.81% 0.00% 0.81% Dreyfus Investment Portfolios3 Dreyfus IP Core Value Portfolio 0.75% 0.10% 0.85% 0.00% 0.85% (Initial Shares) Dreyfus IP Emerging Leaders 0.90% 0.23% 1.13% 0.04% 1.09% Portfolio (Initial Shares) Dreyfus IP Mid Cap Stock 0.75% 0.03% 0.78% 0.00% 0.78% Portfolio (Initial Shares) Dreyfus IP Technology Growth 0.75% 0.10% 0.85% 0.00% 0.85% Portfolio (Initial Shares) Dreyfus Stock Index Fund, Inc.7 Dreyfus Stock Index Fund 0.25% 0.01% 0.26% 0.00% 0.26% (Initial Shares) Dreyfus Variable Investment Fund3 Dreyfus VIF Appreciation 0.75% 0.04% 0.79% 0.00% 0.79% Portfolio (Initial Shares) Dreyfus VIF International Equity 0.75% 0.29% 1.04% 0.00% 1.04% Portfolio (Initial Shares) 8 Dreyfus VIF International Value 1.00% 0.25% 1.25% 0.00% 1.25% Portfolio (Initial Shares) Federated Insurance Series Federated American Leaders Fund 0.75% 0.40% 1.15% 0.25% 0.90% II (Primary Shares) 9 7 Dreyfus IP Core Value Portfolio, Dreyfus IP Emerging Leaders Portfolio, Dreyfus IP MidCap Stock Portfolio, Dreyfus IP Technology Growth Portfolio, Dreyfus Stock Index Fund, Inc., Dreyfus VIF Appreciation Portfolio, Dreyfus VIF International Equity Portfolio and Dreyfus VIF International Value Portfolio: The figures in the above expense table are for the fiscal year ended December 31, 2004. Actual expenses in future years may be higher or lower than the figures above. 8 Dreyfus VIF International Equity Portfolio: The Dreyfus Corporation has agreed, until December 31, 2005, to waive receipt of its fees and/or assume the expenses of the portfolio so that the expenses do not (excluding taxes, brokerage commissions, extraordinary expenses, interest expenses and commitment fees on borrowings) exceed 1.50%. 9 Federated American Leaders Fund II (Primary Shares): The percentages shown are based on expenses for the entire fiscal year ended December 31, 2004. However, the rate at which expenses are accrued during the fiscal year may not be constant and, at any particular point, may be greater or less than the stated average percentage. Although not contractually obligated to do so, the shareholder services provider waived certain amounts. These are shown along with the net expenses the Fund actually paid for the fiscal year ended December 31, 2004. 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, 2005. 12 Federated Mid Cap Growth Strategies Fund II (Primary 0.75% 0.71% 1.46% 0.29% 1.17% Shares) 10 Federated International Equity 0.75% 0.46% 1.21% 0.04% 1.17% Fund II (Primary Shares)11 Fidelity Variable Insurance Products (VIP) Fidelity VIP Contrafund(R) 0.57% 0.36% 0.93% 0.02% 0.91% Portfolio12 (Service Class 2 Shares) Fidelity VIP Equity-Income 0.47% 0.36% 0.83% 0.01% 0.82% Portfolio13(Service Class 2 Shares) Fidelity VIP Growth Portfolio14 0.58% 0.35% 0.93% 0.03% 0.90% (Service Class 2 Shares) Fidelity VIP Investment Grade 0.43% 0.38% 0.81% 0.00% 0.81% Bond Portfolio (Service Class 2 Shares) 10 Federated Mid Cap Growth Strategies Fund II (Primary Shares): The percentages shown are based on expenses for the entire fiscal year ended December 31, 2004. However, the rate at which expenses are accrued during the fiscal year may not be constant and, at any particular point, may be greater or less than the stated average percentage. Although not contractually obligated to do so, the administrator and shareholder services provider waived certain amounts. These are shown along with the net expenses the Fund actually paid for the fiscal year ended December 31, 2004. Total voluntary Waivers of Fund Expenses: 0.29%. Total Actual Annual Fund Operating Expenses (after voluntary waivers): 1.17%. The Fund's Primary Shares have no present intention of paying or accruing the shareholder services fee during the fiscal year ending December 31, 2005. The administrator voluntarily waived a portion of its fee. The administrator can terminate this voluntary waiver at any time. Total other expenses paid by the Fund (after the voluntary waiver) were 0.42% for the fiscal year ended December 31, 2004. 11 Federated International Equity Fund II (Primary Shares): The percentages shown are based on expenses for the entire fiscal year ended December 31, 2004. However, the rate at which expenses are accrued during the fiscal year may not be constant and, at any particular point, may be greater or less than the stated average percentage. Although not contractually obligated to do so, the administrator and shareholder services provider waived certain amounts. These are shown along with the net expenses the Fund actually paid for the fiscal year ended December 31, 2004. Total voluntary Waivers of Fund Expenses: 0.30%. Total Actual Annual Fund Operating Expenses (after voluntary waivers): 1.57%. The Fund did not pay or accrue the shareholder services fee during the fiscal year ended December 31, 2004. The Fund has no present intention of paying or accruing the shareholder services fee during the fiscal year ending December 31, 2005. The administrator voluntarily waived a portion of its fee. The administrator can terminate this voluntary waiver at any time. Total other operating expenses paid by the Fund (after the voluntary waiver) were 0.57% for the fiscal year ended December 31, 2004. 12 Fidelity VIP Contrafund(R) Portfolio (Service Class 2 Shares): 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 0.91%. These offsets may be discontinued at any time. 13 Fidelity VIP Equity-Income Portfolio (Service Class 2 Shares): 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 0.82%. These offsets may be discontinued at any time. 14 Fidelity VIP Growth Portfolio (Service Class 2 Shares) 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. 13 Fidelity VIP Mid Cap Portfolio15 0.57% 0.39% 0.96% 0.03% 0.93% (Service Class 2 Shares) Janus Aspen Series16 Janus Aspen Balanced Portfolio 0.55% 0.01% 0.56% 0.00% 0.56% (Institutional Shares) Janus Aspen Flexible Bond 0.50% 0.03% 0.53% 0.00% 0.53% Portfolio (formerly Flexible Income Portfolio) (Institutional Shares) Janus Aspen Forty Portfolio 0.64% 0.02% 0.66% 0.00% 0.66% (formerly Capital Appreciation Portfolio) (Institutional Shares) Janus Aspen Large Cap Growth 0.64% 0.02% 0.66% 0.00% 0.66% Portfolio (formerly Growth Portfolio) (Institutional Shares) Janus Aspen Worldwide Growth 0.60% 0.03% 0.63% 0.00% 0.63% Portfolio (Institutional Shares) Maxim Series Fund, Inc. Maxim Loomis-Sayles Bond 0.90% 0.00% 0.90% 0.00% 0.90% Portfolio Maxim INVESCO ADR Portfolio 1.00% 0.06% 1.06% 0.00% 1.06% Maxim MFS(R) Small-Cap Growth 0.95% 0.08% 1.03% 0.00% 1.03% Portfolio Maxim Ariel Mid-Cap Value 0.95% 0.03% 0.98% 0.00% 0.98% Portfolio Maxim Ariel Small-Cap Value 1.00% 0.02% 1.02% 0.00% 1.02% Portfolio Maxim Money Market Portfolio 0.46% 0.00% 0.46% 0.00% 0.46% Maxim T. Rowe Price 0.80% 0.02% 0.82% 0.00% 0.82% Equity/Income Portfolio Maxim T. Rowe Price Mid Cap 1.00% 0.04% 1.04% 0.00% 1.04% 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 15 Fidelity VIP Mid Cap Portfolio (Service Class 2 Shares): 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. 16 Janus Aspen Series: Expenses are based upon expenses for the year ended December 31, 2004, restated to reflect reductions in the Portfolios' management fees, where applicable, effective July 1, 2004. All expenses are shown without the effect of any expense offset arrangements. 14 Maxim Aggressive Profile I 0.25% 0.00% 0.25% 0.00% 0.25% Portfolio Maxim Moderately Aggressive 0.25% 0.00% 0.25% 0.00% 0.25% Profile I Portfolio Maxim Moderate Profile I 0.25% 0.00% 0.25% 0.00% 0.25% Portfolio Maxim Moderately Conservative 0.25% 0.00% 0.25% 0.00% 0.25% Profile I Portfolio Maxim Conservative Profile I 0.25% 0.00% 0.25% 0.00% 0.25% Portfolio Neuberger Berman Advisers Management Trust17 Neuberger Berman AMT Fasciano 1.15% 1.42% 2.57% 1.16% 1.41% Portfolio (S Shares) Neuberger Berman AMT Guardian 0.85% 0.13% 0.98% 0.00% 0.98% Portfolio (I Shares) Neuberger Berman AMT Mid-Cap 0.84% 0.08% 0.92% 0.00% 0.92% Growth Portfolio (I Shares) Neuberger Berman AMT Partners 0.83% 0.08% 0.91% 0.00% 0.91% Portfolio (I Shares) Neuberger Berman AMT Socially 0.85% 0.89% 1.74% 0.24% 1.50% Responsive Portfolio18 (I Shares) PIMCO VIT PIMCO VIT High Yield Portfolio 0.25% 0.50% 0.75% 0.00% 0.75% (Administrative Shares) PIMCO VIT Low Duration Portfolio 0.25% 0.40% 0.65% 0.00% 0.65% (Administrative Shares) PIMCO VIT Real Return Portfolio 0.25% 0.40% 0.65% 0.00% 0.65% (Administrative Shares) PIMCO VIT Total Return Portfolio 0.25% 0.40% 0.65% 0.00% 0.65% (Administrative Shares) Scudder Variable Series I Scudder Variable Series I Global 1.43% 0.00% 1.43% 0.28% 1.15% Discovery Portfolio (A Shares) Scudder Variable Series II SVS Dreman High Return Equity 1.57% 0.00% 1.57% 0.37% 1.20% Portfolio (A Shares) Classic Variable Trust STI Classic VT Capital 1.15% 0.35% 1.50% 0.35% 1.15% Appreciation Fund19 STI Classic VT Small Cap Value 1.15% 0.64% 1.79% 0.59% 1.20% Equity Fund20
17 Neuberger Berman Advisers Management Trust: Neuberger Berman Management Inc. ("NBMI") has undertaken through December 31, 2008 to waive fees and/or reimburse certain operating expenses, including the compensation of NBMI (except with respect to the Partners Portfolio) and excluding taxes, interest, extraordinary expenses, brokerage commissions and transaction costs, that exceed, in the aggregate, 1% of the Guardian (Class I), Mid-Cap Growth (Class I) and Partners Portfolios' average daily net asset value; 1.40% of the average daily net asset value of the Fasciano Portfolio; and 1.50% of the average daily net asset value of the Socially Responsive Portfolio. 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.. 18 Neuberger Berman AMT Socially Responsive Portfolio (I Shares) 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 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. 15 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. 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. 19 STI Classic Capital Appreciation Fund: The Fund's adviser voluntarily waived a portion of the fees in order to keep total operating expenses at a specified level. The adviser may discontinue all or part of this fee waiver at any time. 20 STI Classic 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. 16 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 affiliates may compensate us for providing the administrative, recordkeeping and reporting services they would normally be required to provide for individual shareholders or cost savings experienced by the investment advisers or affiliates of the Funds. Such compensation is typically a percentage of Series Account assets invested in the relevant Fund and generally may range up to 0.35% of net assets. GWFS may also receive Rule 12b-1 fees (ranging up to 0.25%) directly from certain Funds for providing distribution related services related to shares of Funds offered in connection with a Rule 12b-1 plan. If GWFS receives 12b-1 fees, combined compensation for administrative and distribution related services generally ranges up to 0.35% annually of Series Account assets invested in a Fund. The Divisions of Great-West's COLI VUL-2 Series Account that invest in Dreyfus VIF Growth and Income, AIM VIF High Yield (formerly, 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 were closed to new Owners: American Century VP International, American Century VP Income & Growth, AIM VIF Core Stock and Neuberger Berman AMT Guardian. However, Owners with amounts invested in the aforementioned Divisions as of April 1, 2004, may continue to allocate premium payments and Transfer amounts into and out of such Divisions. Effective May 1, 2005, the Divisions investing in the following Funds were closed to new Owners: AIM VIF - Technology Fund (Series I Shares), Federated American Leaders Fund II (Primary Shares), Federated International Equity Fund II (Primary Shares), Fidelity VIP Growth Portfolio (Service Class 2 Shares); Janus Aspen Worldwide Growth Portfolio (Institutional Shares), Maxim MFS(R) Small-Cap Growth Portfolio, Neuberger Berman AMT Mid-Cap Growth Portfolio (S Shares). However, Owners with amounts invested in the aforementioned Divisions as of May 1, 2005, may continue to allocate premium payments and Transfer amounts into and out of such Divisions. Effective May 1, 2005, the Divisions investing in the following Funds were closed to all Owners: AIM VIF - Financial Services Fund (Series I Shares), Dreyfus IP - Core Value Portfolio (Initial Shares), Janus Aspen Large Cap Growth Portfolio (Institutional Shares). The investment policies of the current Funds are briefly described below: 17 AIM Variable Insurance Funds (formerly INVESCO Variable Investment Funds, Inc. ) (advised by A I M Advisors, Inc. ("AIM") AIM VIF - Core Stock Fund(Series I shares) seeks high total return through both growth and current income. The Fund normally invests in at least 80% of its assets in common and preferred stocks. At least 50% of stocks which the Fund holds will be dividend-paying common and preferred stocks. Stocks selected for the Fund generally are expected to product income and consistent, stable returns. Effective April 1, 2004, this Fund was closed to new investors; however, Owners with amounts invested in this Division as of April 1, 2004, may continue to allocate premium payments and Transfer amounts into and out of this Division. AIM VIF - Financial Services Fund (Series I shares) seeks capital growth. 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. Effective May 1, 2005, this Fund was closed to new investors; however, Owners with amounts invested in this Division as of May 1, 2005, may continue to allocate premium payments and Transfer amounts into and out of this Division. AIM VIF - Health Sciences Fund (Series I shares) seeks capital growth. The Fund normally invests at least 80% of its assets in the equity securities of companies. Effective July 1, 2005, AIM VIF Health Sciences Fund will be renamed AIM 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. Effective May 1, 2005, this Fund was closed to new investors; however, Owners with amounts invested in this Division as of May 1, 2005, may continue to allocate premium payments and Transfer amounts into and out of this Division. American Century Variable Portfolios, Inc. (advised by American Century Investment Management, Inc.) American Century VP Income & Growth (Class I shares) seeks long-term capital growth, with current income as a secondary objective, by investing in common stocks. Effective April 1, 2004, this Division was 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 Division. American Century VP International (Class I shares) seeks capital growth by investing primarily in an internationally diversified portfolio of common stocks that are considered by the adviser to have prospects for appreciation. Effective April 1, 2004, this Division was 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 Division. American Century VP Ultra(R) (Class I shares) seeks long-term capital growth by looking for stocks of large companies they believe will increase in value over time, using a growth investment strategy developed by American Century. This strategy looks for companies with earnings and revenues that are not only growing, but growing at a successively faster, or accelerating pace. It also looks for companies whose growth rates, although still negative, are less negative than in prior periods. This strategy is based on the premise that, over the long term, the stocks of companies with accelerating earnings and revenues have a greater-than-average chance to increase in value. 18 American Century VP Value (Class I shares) seeks long-term capital growth. Income is a secondary objective. The fund managers look for stocks of companies that they believe are undervalued at the time of purchase. The managers use a value investment strategy that looks for companies that are temporarily out of favor in the market. The managers attempt to purchase the stocks of these undervalued companies and hold them until they have returned to favor in the market and their stock prices have gone up. American Century VP VistaSM Fund (Class I Shares) seeks long-term capital growth by looking for stocks of medium-sized and smaller companies they believe will increase in value over time, using a growth investment strategy developed by American Century. This strategy looks for companies with earnings and revenues that are not only growing, but growing at a successively faster, or accelerating pace. It also looks for companies whose growth rates, although still negative, are less negative than in prior periods. This strategy is based on the premise that, over the long term, the stocks of companies with accelerating earnings and revenues have a greater-than-average chance to increase in value. Davis Variable Account Fund, Inc. (advised by Davis Selected Advisors, L.P.) Davis Financial Portfolio seeks long-term growth of capital. Under normal circumstances, the Portfolio invests at least 80% of its net assets, plus any borrowing for investment purposes, in securities issued by companies principally engaged in the financial services sector. The Portfolio searches for companies that management believes are of high quality and whose shares are selling at attractive prices. Davis Value Portfolio seeks long-term growth of capital. Under normal circumstances, the Portfolio invests the majority of its assets in equity securities issued by large companies with market capitalizations of at least $10 billion that management believes are of high quality and whose shares are selling at attractive prices. Dreyfus Stock Index Fund (advised by The Dreyfus Corporation and its affiliate Mellon Equity Associates) Dreyfus Stock Index Fund (Initial Shares) 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 Investment Portfolios (advised by The Dreyfus Corporation) Dreyfus IP - Mid Cap Stock Portfolio (Initial Shares) 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. To pursue this goal, the portfolio normally invests at least 80% of its assets in stocks of mid-size companies. Dreyfus IP - Core Value Portfolio (Initial Shares) 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). Effective May 1, 2005, this portfolio was closed to new investors; however, Owners with amounts invested in this Division as of May 1, 2005, may continue to allocate premium payments and Transfer amounts into and out of this Division. Dreyfus IP Emerging Leaders Portfolio (Initial Shares) seeks capital growth. To pursue this goal, the portfolio invests at least 80% of its assets in stocks of companies Dreyfus believes to be emerging leaders: companies characterized by new or innovative products, services or processes having the potential to enhance earnings growth. Dreyfus IP Technology Growth Portfolio (Initial Shares) seeks capital appreciation. To pursue this goal, the portfolio normally invests at least 80% of its assets in the stocks of growth companies of any size that Dreyfus believes to be leading producers or beneficiaries of technological innovation. Dreyfus Variable Investment Fund (advised by The Dreyfus Corporation) 19 Dreyfus VIF Appreciation Portfolio (Initial Shares) seeks long-term capital growth consistent with the preservation of capital. Its secondary goal is current income. To pursue these goals, the portfolio normally invests at least 80% of its assets in common stocks The portfolio focuses on "blue-chip" companies with total market values of more than $5 billion at the time of purchase, including multinational companies. Fayez Sarofim & Co. is the sub-adviser to this Portfolio and, as such, provides day-to-day management. Dreyfus VIF International Equity Portfolio (Initial Shares) seeks capital growth. To pursue this goal, the portfolio invests primarily in growth stocks of foreign companies. Newton Capital Management Limited is the sub-adviser to this portfolio and, as such, provides day-to-day management. Dreyfus VIF International Value Portfolio (Initial Shares) seeks long-term capital growth. To pursue this goal, the portfolio normally invests at least 80% of its assets in stocks. The portfolio ordinarily invests most of its assets in securities of foreign companies which Dreyfus believes to be value companies. The portfolio may invest in companies of any size. The portfolio may also invest in companies located in emerging markets. Federated Insurance Series (advised by Federated Advisers) Federated American Leaders Fund II (Primary Shares) 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. Effective May 1, 2005, this Fund was closed to new investors; however, Owners with amounts invested in this Division as of May 1, 2005, may continue to allocate premium payments and Transfer amounts into and out of this Division. Federated Mid Cap Growth Strategies Fund II (Primary Shares) seeks capital appreciation by investing primarily in common stock (including American Depositary Receipts (ADRs)) of mid cap companies that offer superior growth prospects. Because the Fund refers to mid cap investments in its name, the Fund will notify shareholders at least 60 days in advance of any change in its investment policies that would permit the Fund to normally invest less than 80% of its assets in investments in mid cap companies. For purposes of this limitation, mid cap companies will be defined as companies with market capitalizations similar to companies in the Russell Mid-Cap Growth Index. The definition will be applied at the time of investment, and the Fund will not be required to sell an investment because a company's market capitalization has grown or reduced outside the market capitalization range of mid cap companies. Federated High Income Bond Fund II (Primary Shares) 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 (Primary Shares) seeks to obtain a total return on its assets by investing primarily in equity securities of companies outside the United States. Effective May 1, 2005, this Fund was closed to new investors; however, Owners with amounts invested in this Division as of May 1, 2005, may continue to allocate premium payments and Transfer amounts into and out of this Division. Fidelity Variable Insurance Products (VIP) Fund (advised by Fidelity Management & Research Company) Fidelity VIP Growth Portfolio (Service Class 2 Shares) seeks to achieve capital appreciation. The Portfolio normally invests primarily in common stocks of domestic and foreign companies that are believed to have above-average growth potential. Growth may be measured by factors such as earnings or revenue. The Portfolio may invest in domestic and foreign issuers. Effective May 1, 2005, this Fund was closed to new investors; however, Owners with amounts invested in this Division as of May 1, 2005, may continue to allocate premium payments and Transfer amounts into and out of this Division.. Fidelity VIP Contrafund(R) Portfolio (Service Class 2 Shares) seeks long-term capital appreciation. The Portfolio's principal investment strategies include: normally investing primarily in common stocks; investing in securities of companies whose value its investment advisor believes is not fully recognized by the public; investing in domestic and 20 foreign issuers; investing either "growth" stocks or "value" stocks or both; and using fundamental analysis of each issuer's financial condition and industry position and market and economic conditions to selection investments. Fidelity VIP Investment Grade Bond Portfolio (Service Class 2 Shares) seeks to provide as high a level of current income as is consistent with the preservation of capital. The Portfolio's principal investment strategies include: normally investing at least 80% of assets in investment grade debt securities (those of medium and high quality) in all types and repurchase agreements for those securities; managing the Portfolio to have similar overall interest rate risk to an index, which as of December 31, 2004, was the Lehman Brothers(R) Aggregate Bond Index; allocating assets across different market sectors and maturities; and analyzing a security's structure features and current pricing, trading opportunities, and the credit quality of its issuer to select investments. Fidelity VIP Mid Cap Portfolio (Service Class 2 Shares) seeks long-term growth of capital. The Portfolio's principal investment strategies include: normally invests primarily in comment stocks; normally investing at least 80% of assets in securities of companies with medium market capitalizations (which, for the purposes of this Portfolio, are those companies with market capitalizations similar to companies in the Russell Midcap(R) Index or the Standard & Poor's MidCap 400 Index); potentially investing in companies with smaller or larger market capitalizations; investing in domestic; investing in either "growth" or "value" stocks or both; and using fundamental analysis of each issuer's financial condition and industry position and market and economic conditions to select investments. Fidelity VIP Equity-Income Portfolio (Service Class 2 Shares) seeks reasonable income by investing primarily in income-producing equity securities. In choosing these securities, the Portfolio will also consider the potential for capital appreciation. The Portfolio's goal is to achieve a yield which exceeds the composite yield on the securities comprising the S&P 500. The Portfolio's principal investment strategies include: normally investing at least 80% of assets in equity securities; normally investing primarily in income-producing equity securities, which tends to lead to investments in large cap "value" stocks; potentially investing in other types of equity securities and debt securities, including lower-quality debt securities; investing in domestic and foreign issuers; and using fundamental analysis of each issuer's financial condition and industry position and market and economic conditions to select investments. 21 Janus Aspen Series (advised by Janus Capital Management, LLC) Janus Aspen Balanced Portfolio (Institutional Shares) seeks long-term growth of capital consistent with preservation of capital and balanced by current income by normally investing 50-60% of its assets in securities selected primarily for their growth potential and 40-50% of its assets in securities selected primarily for their income potential. The Portfolio will normally invest at least 25% of its assets in fixed-income senior securities. Janus Aspen Forty Portfolio (formerly, the Capital Appreciation Portfolio) (Institutional Shares) seeks long-term growth of capital by investing primarily in a core group of 20-40 common stocks selected for their growth potential. The Portfolio may invest in companies of any size, from larger, well-established companies to small, emerging growth companies. Within the parameters of its specific investment policies, the Portfolio may invest without limit in foreign equity and debt securities. The Portfolio will limit its investment in high-yield/high-risk bonds to less than 35% of its net assets. Janus Aspen Flexible Bond Portfolio (formerly, the Flexible Income Portfolio) (Institutional Shares) seeks to obtain maximum total return consistent with the preservation of capital by investing, under normal circumstances, at least 80% of its net assets in bonds, including but not limited to, government bonds, corporate bonds, convertible bonds, mortgage-backed securities and zero-coupon bonds. The Portfolio will invest at least 65% (at the time of purchase) of its assets in investment grade debt securities and maintain a dollar-weighted average portfolio maturity of five to ten years. The Portfolio will limit its investment in high-yield/high-risk bonds to less than 35% (at the time of purchase) of its net assets. Within the parameters of its specific investment policies, the Portfolio may invest without limit in foreign debt and equity securities. Janus Aspen Large Cap Growth Portfolio (formerly, the Growth Portfolio) (Institutional Shares) seeks long-term growth of capital in a manner consistent with the preservation of capital. The Portfolio invests, under normal circumstances, at least 80% of its net assets in common stocks of large-sized companies. Large-sized companies are those whose market capitalization falls within the range of companies in the Russell 1000 Index at the time of purchase. For the Portfolio's 80% policy, net assets will take into account borrowing for investment purposes. Within the parameters of its specific investment policies, the Portfolio may invest without limit in foreign equity and debt securities. The Portfolio will limit its investment in high-yield/high-risk bonds to less than 20% of its net assets. Effective May 1, 2005, this Portfolio was closed to new investors; however, Owners with amounts invested in this Portfolio as of May 1, 2005, may continue to allocate premium payments and Transfer amounts into and out of this Portfolio. Janus Aspen Worldwide Growth Portfolio (Institutional Shares) seeks long-term growth of capital in a manner consistent with the preservation of capital primarily through investments in common stocks of companies of any size throughout the world. 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. The Portfolio may have significant exposure to emerging markets. Effective May 1, 2005, this Portfolio was closed to new investors; however, Owners with amounts invested in this Portfolio as of May 1, 2005, may continue to allocate premium payments and Transfer amounts into and out of this Portfolio. 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, LLC is the sub-adviser to this Fund. 22 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, LLC 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 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 May 1, 2005, this Portfolio was closed to new investors; however, Owners with amounts invested in this Portfolio as of May 1, 2005, may continue to allocate premium payments and Transfer amounts into and out of this Portfolio. Massachusetts Financial Services Company is 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 capitalizations that fall within the capitalization range of the Russell 2000 Index, an index that tracks stocks of the 2000 smallest U.S. companies (market capitalization if $175.8 million to $1.6 billion)in the Russell 3000 Index. 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 23 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, 2005). 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 analysis 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. 24 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) Neuberger Berman AMT Fasciano Portfolio (S Shares) 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. Neuberger Berman AMT Guardian Portfolio (S Shares) seeks long-term growth, and, secondarily, current income. The Fund invests 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 was 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. Neuberger Berman AMT Mid-Cap Growth Portfolio (S Shares) seeks growth of capital. Under normal market conditions, the Fund invests in equity securities of medium-sized companies. A growth-oriented investment approach is used in selecting securities. Effective May 1, 2005, this Fund was closed to new investors; however, Owners with amounts invested in this Fund as of May 1, 2005, may continue to allocate premium payments and Transfer amounts into and out of this Fund. Neuberger Berman AMT Partners Portfolio (S Shares) seeks capital growth. The Fund invests in common stocks and other equity securities of medium to large capitalization established companies. A value-oriented investment approach is used in selecting securities. Neuberger Berman AMT Socially Responsive Portfolio (S Shares) seeks long-term growth of capital by investing in securities of 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 (Administrative Shares) seeks maximum real return, consistent with preservation of real capital and prudent investment management by investing at least 80% of its total assets in inflation-indexed fixed income securities with a duration varying within 2 years of the duration of the Lehman Brothers U.S. TIPS Index. PIMCO VIT Total Return (Administrative Shares) 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 30% of its total assets in foreign currencies. PIMCO VIT Low Duration Bond (Administrative Shares) 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 30% of its total assets in foreign currencies. PIMCO VIT High Yield (Administrative Shares) 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. The High Yield Fund's quality guideline permits the Fund to invest in securities with lower-quality credit ratings. Under these 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. 25 Scudder Variable Series I (advised by Deutsche Investment Management Americas Inc.) Scudder Variable Series I Global Discovery Portfolio (A Shares) seeks above-average capital appreciation over the long term. The portfolio invests at least 65% of total assets in common stocks and other equities of small companies throughout the world (companies with market values similar to the smallest 20% of the Citigroup Broad Market Index). While the portfolio may invest in securities in any country, it generally focuses on countries with developed economies (including the US). As of December 31, 2004, companies in which the portfolio invests typically have a market capitalization of between $500 million and $5 billion. Scudder Variable Series II (advised by Deutsche Investment Management Americas Inc.) The SVS Dreman High Return Equity Portfolio is subadvised by Dreman Value Management L.L.C. SVS Dreman High Return Equity Portfolio (A Shares) seeks to achieve a high rate of total return. Under normal circumstances, the portfolio invests at least 80% of net assets, plus the amount of any borrowings for investment purposes, in common stocks and other equity securities. The portfolio focuses on stocks of large US companies that are similar in size to the companies in the S&P 500 Index and that the portfolio managers believe are undervalued. As of December 31, 2004, the S&P 500 Index had a median market capitalization of $11.29 billion. 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 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. 26 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 and for Corporate Owned Policies only, 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 35, 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 27 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") GW KEY BUSINESS UNIT: PLEASE CONFIRM NONE OF THE POLICIES ARE BASED ON THE 2001 CSO TABLE. 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. 28 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 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 11. 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. 29 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 total 100% and can be up to two decimal places. 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 37. 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 after the Free-Look Period 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. 30 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 policy 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. Market timing activity may dilute the interests of Owners in the underlying Funds. Market timing generally involves frequent or unusually large transfers that are intended to take advantage of short-term fluctuations in the value of a Fund's portfolio securities and the reflection of that change in the Fund's share price. In addition, frequent or unusually large transfers may harm performance by increases Fund expenses and disrupting Fund management strategies. For example, excessive trading may result in forced liquidations of portfolio securities or cause the Fund to keep a relatively higher cash position, resulting in increased brokerage costs and lost investment opportunities. We maintain procedures designed to discourage market timing and excessive trading by Owners. As part of those procedures, we will rely on the Funds to monitor for such activity. If a Fund believes such activity has occurred, we will scrutinize the Owner's activity and request a determination from the Eligible Fund as to whether such activity constitutes improper trading. If the Fund determines that the activity constitutes improper trading, GWL&A will contact the Owner in writing to request that market timing and/or excessive trading stop immediately. At that time, we will also request you select one of four trading restrictions to be implemented going forward if the improper trading activity is not stopped upon receipt of our written request. We will then provide a subsequent report of the Owner's trading activity to the Fund. If the Fund determines that the Owner has not ceased improper trading, and upon request of the Fund, we will inform the Owner in writing that the trading restriction selected is being implemented. The four possible trading restrictions are: o Restrict the Owner to inquiry-only access for the web and voice response unit so that the you will only be permitted to make Transfer Requests by written Request mailed to GWL&A through U.S. mail ("U.S. Mail Restriction"); the Owner will not be permitted to make Transfer Requests via overnight mail, fax, the web, voice response unit, or the call center. Once the U.S. Mail Restriction has been in place for one hundred eighty (180) days, the restricted Owner may Request that we lift the U.S. Mail Restriction by signing, dating and returning a form to us whereby you acknowledge the potentially harmful effects of improper trading on Funds and other investors, represent that no further improper trading will occur, and acknowledge that we may implement further restrictions, if necessary, to stop improper trading by the you; o Close the applicable Fund to all new monies, including Contributions and Transfers in; o Restrict all Owners to one purchase in the applicable Fund per ninety (90) day period; or o Remove the Fund as an investment option and convert all allocations in that Fund to a different investment option. If the Owner does not select one of the above restrictions or provide direction to us, the Fund will be so advised. Absent corrective action by the Owner satisfactory to the Fund, the Fund may, pursuant to its prospectus and policies and procedures, reject all trades initiated by the Owner. INHERENTLY SUBJECTIVE JUDGMENTS WILL BE INVOLVED WHEN AN OWNER SELECTS ONE OF THE FOUR TRADING RESTRICTIONS OR IF AN ELIGIBLE FUND DECIDES TO REJECT ALL TRADES INITIATED BY AN OWNER. THE DISCRETIONARY NATURE OF OUR PROCEDURES CREATES A RISK THAT WE MAY TREAT SOME OWNERS DIFFERENTLY THAN OTHERS. Please note that the Account's marketing timing procedures are such that the Account does not impose trading restrictions unless or until an Eligible Fund first detects and notifies us of potential market timing or excessive trading activity. Accordingly, we cannot prevent all market timing or excessive trading 31 transfer activity before it occurs, as it may not be possible to identify it unless and until a trading pattern is established. To the extent the Funds do not detect and notify us of market timing and/or excessive trading or the trading restrictions we impose fail to curtail it, it is possible that a market timer may be able to make market timing and/or excessive trading transactions with the result that the management of the Funds may be disrupted and the Owners may suffer detrimental effects such as increased costs, reduced performance, and dilution of their interests in the affected Funds. We endeavor to ensure that our procedures are uniformly and consistently applied to all Owners, and we do not exempt any persons from these procedures. In addition, we do not enter into agreements with Owners whereby we permit market timing or excessive trading. Subject to applicable state law and the terms of each Policy, we reserve the right without prior notice to modify, restrict, suspend or eliminate the Transfer privileges (including telephone Transfers) at any time, to require that all Transfer Requests be made by you and not by your designee, and to require that each Transfer Request be made by a separate communication to us. We also reserve the right to require that each Transfer Request be submitted in writing and be signed by you. The Funds may have adopted their own policies and procedures with respect to frequent purchases and redemptions of their respective shares. The prospectuses for the Funds should describe any such policies and procedures. The frequent trading policies and procedures of a Fund may be different, and more or less restrictive, than the frequent trading policies and procedures of other Funds and the policies and procedures we have adopted to discourage market timing and excessive trading. For example, a Fund may impose a redemption fee. Owners should also be aware that we may not have the contractual obligation or the operational capacity to apply the frequent trading policies and procedures of the respective Funds that would be affected by the transfers. We may revise our market timing and excessive trading policy and related procedures at our sole discretion, at any time and without prior notice, as we deem necessary or appropriate to comply with state or federal regulatory requirements or to impose additional or alternative restrictions on Owners engaging in market timing or excessive trading. In addition, our orders to purchase shares of the Funds are generally subject to acceptance by the Fund, and in some cases a Fund may reject or reverse our purchase order. Therefore, we reserve the right to reject any Owner's Transfer Request if our order to purchase shares of the Fund is not accepted by, or is reversed by, an applicable Fund. You should note that other insurance companies and retirement plans may invest in the Funds and that those companies or plans may or may not have their own policies and procedures on frequent transfers. You should also know that the purchase and redemption orders received by the Funds generally are "omnibus" orders from intermediaries such as retirement plans or separate accounts funding variable insurance contracts. Omnibus orders reflect the aggregation and netting of multiple orders from individual retirement plan participants and/or individual owners of variable insurance contracts. The nature of such orders may limit the Funds' ability to apply their respective frequent trading policies and procedures. As a result, there is a risk that the Funds may not be able to detect potential market timing and/or excessive trading activities in the omnibus orders they receive. We cannot guarantee that the Funds will not be harmed by transfer activity relating to the retirement plans and/or other insurance companies that invest in the Funds. If the policies and procedures of other insurance companies or retirement plans fail to successfully discourage frequent transfer activity, it may affect the value of your investments in the Funds. In addition, if a Fund believes that an omnibus order we submit may reflect one or more Transfer Requests from an Owner engaged in frequent transfer activity, the Fund may reject the entire omnibus order and thereby interfere with our ability to satisfy your Request even if you have not made frequent transfers. For transfers into more than one investment option, we may reject or reverse the entire Transfer Request if any part of it is not accepted by or is reversed by a Fund. 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. 32 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 page 26 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. 33 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 34 (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 35 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 45. 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 beginning on page 8. 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 of a reduction in commission payments. Commissions payable to sales representatives for the sale of the Policy are calculated based on the total premium payments. As a result, this rider generally is not offered in connection with any Policy with annual premium payments of less than $100,000, except for policies issued on a Guaranteed Issue basis. In our discretion, we may decline to offer this rider or refuse to consent to a proposed allocation of coverage between a Policy and term rider. If this rider is offered, the commissions will vary depending on the allocation of your coverage between the Policy and the term rider. The same initial Death Benefit will result in the highest commission when there is no term rider, with the commission declining as the portion of the Death Benefit coverage allocated to the term rider increases. Thus, the lowest commission amount is payable, and the lowest amount of sales charges deducted from your premiums will occur, when the maximum term rider is purchased. 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. 36 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 questions. 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 unless that option is checked on the Rebalancer Request. Your premium allocation can also be changed by written Request at the address 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 policy 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 policy 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. 37 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 not your Division allocations but you may change 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 plus the return of any expense charges deducted. In those states, this 38 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 Maxim Money Market Division Portfolio. We will Transfer the Account Value in that Division to the other Divisions of the Series Account in accordance with your most recent allocation instructions on file 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 26. 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 43. 39 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 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 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. See the "Account Value" and "Charges and Deductions" sections of this prospectus. 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. 40 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. Each increase to the Total Face Amount is considered to be a new segment to the Policy. When an increase is approved, Premium is allocated against the original Policy segment up to the seven-pay Premium limit established on the Issue Date. Any excess Premium is then allocated toward the new segment. Each segment will have a separate target premium associated with it. The expense charge applied to Premium is higher up to target and lower for Premium in excess of the target as described in detail in the "Charges and Deductions" section of this Prospectus. The expense charge formula will apply to each segment based on the target Premium for that segment. In addition, each segment will have a new incontestability period and suicide exclusion period as described in the "Other Provisions and Benefits" section of this Prospectus. 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. We will send you the paperwork necessary for you to Request the surrender of your Policy. The proceeds of a surrender will be payable within seven (7) days of our receipt of the completed 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. 41 A surrender may have tax consequences, including tax penalties. See "Federal Income Tax Considerations - Tax Treatment of Policy Benefits," beginning on page 43 of this prospectus. 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. We will send you the paperwork necessary for you to request a withdrawal form your Policy. The proceeds of any such partial withdrawal will be payable within seven (7) days of our receipt of the completed 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 43 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 42 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; 43 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. 44 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 complete 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. 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 without instruction to do so from you. 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. 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 45 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. 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. 46 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 will 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 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. Summary. 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. 47 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. 48 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. 49 MEC - Modified Endowment Contract. For more information regarding MECs, see "Modified Endowment Contracts" on page 44. 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 in good order 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 or more Division(s) 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 50 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. 51
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%
52 Appendix C -- Sample Hypothetical Illustrations Illustrations of death benefits, surrender values and accumulated premiums The illustrations in this prospectus have been prepared to help show how values under the Policy change with investment performance. The illustrations on the following pages illustrate the way in which a Policy Year's death benefit, Account Value and Cash Surrender Value could vary over an extended period of time. They assume that all Premiums are allocated to and remain in the Series Account for the entire period shown and are based on hypothetical gross annual investment returns for the Funds (i.e., investment income and capital gains and losses, realized or unrealized) equivalent to constant gross annual rates of 0%, 6%, and 12% over the periods indicated. The Account Values and death benefits would be different from those shown if the gross annual investment rates of return averaged 0%, 6%, and 12% over a period of years, but fluctuated above or below such averages for individual Policy Years. The values would also be different depending on the allocation of a Policy's total Account Value among the Divisions of the Series Account, if the actual rates of return averaged 0%, 6% or 12%, but the rates of each Fund varied above and below such averages. The amounts shown for the death benefits and Account Values take into account all charges and deductions imposed under the Policy based on the assumptions set forth in the tables below. These include the expense charges applied to premium, the daily risk percentage charged against the Series Account for mortality and expense risks, the monthly service charge and the monthly cost of insurance. The expense charges applied to premium is equal to a guaranteed maximum of 6.5% for sales load and a guaranteed maximum of 3.5% to cover our federal tax obligations and the applicable local and state premium tax. The current level of these charges is 5.5% for sales load (for Policy Years 1 through 10 only) and 3.5% for federal tax obligations and applicable local and state premium tax. The daily risk percentage charged against the Series Account for mortality and expense risks is an annual effective rate of 0.40% for the first five Policy Years, 0.25% for Policy Years 6 through 20, and 0.10% thereafter and is guaranteed not to exceed an annual effective rate of 0.90%. The monthly service charge is $10.00 per month for the first three Policy Years and $7.50 per Policy Month for all Policy Years thereafter. This charge is guaranteed not to exceed $15 per Policy Month. The amounts shown in the tables also take into account the Funds' advisory fees and operating expenses, which are assumed to be at an annual rate of 0.86% of the average daily net assets of each Fund. This is based upon a simple average of the advisory fees and expenses of all the Funds for the most recent fiscal year taking into account any applicable expense caps or expense reimbursement arrangements. Actual fees and expenses that you will incur may be more or less than 0.86%, and will vary from year to year. See "Charges and Deductions -- Fund Expenses" in this prospectus and the prospectuses for the Funds for more information on Fund expenses. The gross annual rates of investment return of 0%, 6% and 12% correspond, on a current basis, to net annual rates of -1.25%, 4.67%, and 10.60%, respectively, during the first five Policy Years, -1.10%, 4.83%, and 10.76%, respectively, for Policy Years 6 through 20, and -0.96%, 4.99% and 10.93%, respectively, thereafter. The hypothetical returns shown in the tables do not reflect any charges for income taxes against the Series Account since no charges are currently made. If, in the future, such charges are made, in order to produce the illustrated death benefits, Account Values and Cash Surrender Values, the gross annual investment rate of return would have to exceed 0%, 6%, or 12% by a sufficient amount to cover the tax charges. We will furnish upon request a comparable table using any specific set of circumstances. In addition to a table assuming Policy charges at their maximum, we will furnish a table assuming current Policy charges. 53
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 Hypothetical 6% Gross Hypothetical 12% Gross Investment Return Net -1.25% Investment Return Net 4.67% Investment Return Net 10.60% Premiums Paid Plus Policy interest ContractSurrender Death Contract Surrender Death Contract Surrender Death Year At 5% Per Value Value Benefit Value Value Benefit Value Value Benefit ---- ------- ----- ----- ------- ----- ----- ------- ----- ----- ------- Year 1 13,150 10,430 11,056 1,000,000 11,079 11,744 1,000,000 11,729 12,432 1,000,000 2 26,958 20,155 21,163 1,000,000 22,085 23,189 1,000,000 24,092 25,297 1,000,000 3 41,456 29,195 30,363 1,000,000 33,027 34,348 1,000,000 37,175 38,662 1,000,000 4 56,679 37,598 38,726 1,000,000 43,946 45,265 1,000,000 51,103 52,636 1,000,000 5 72,663 45,010 45,910 1,000,000 54,477 55,567 1,000,000 65,599 66,911 1,000,000 6 89,447 51,422 51,936 1,000,000 64,606 65,252 1,000,000 80,761 81,569 1,000,000 7 107,069 56,785 56,785 1,000,000 74,249 74,249 1,000,000 96,600 96,600 1,000,000 8 125,573 61,561 61,561 1,000,000 83,853 83,853 1,000,000 113,679 113,679 1,000,000 9 145,002 65,871 65,871 1,000,000 93,537 93,537 1,000,000 132,273 132,273 1,000,000 10 165,402 69,609 69,609 1,000,000 103,207 103,207 1,000,000 152,467 152,467 1,000,000 11 186,823 73,470 73,470 1,000,000 113,600 113,600 1,000,000 175,240 175,240 1,000,000 12 209,314 77,867 77,867 1,000,000 125,121 125,121 1,000,000 201,177 201,177 1,000,000 13 232,930 82,791 82,791 1,000,000 137,817 137,817 1,000,000 230,610 230,610 1,000,000 14 257,727 87,260 87,260 1,000,000 150,798 150,798 1,000,000 263,052 263,052 1,000,000 15 283,763 91,173 91,173 1,000,000 163,990 163,990 1,000,000 298,799 298,793 1,000,000 16 311,101 94,428 94,428 1,000,000 177,319 177,319 1,000,000 338,176 338,176 1,000,000 17 339,807 96,925 96,925 1,000,000 190,714 190,714 1,000,000 381,607 381,607 1,000,000 18 369,947 98,455 98,455 1,000,000 204,004 204,004 1,000,000 429,492 429,492 1,000,000 19 401,595 98,916 98,916 1,000,000 217,117 217,117 1,000,000 482, 403 482,403 1,000,000 20 434,825 98,201 98,201 1,000,000 229,981 229,981 1,000,000 541,018 541,018 1,000,000 Age 60 283,763 91,173 91,173 1,000,000 163,990 163,990 1,000,000 298,793 298,793 1,000,000 Age 65 434,825 98,201 98,201 1,000,000 229,981 229,981 1,000,000 541,018 541,018 1,000,000 Age 70 627,622 91,164 91,164 1,000,000 305,964 305,964 1,000,000 951,046 951,046 1,473,388 Age 75 873,686 54,799 54,799 1,000,000 386,836 386,836 1,000,000 1,606,8771,606,8772,258,433 Age 100 3,586,234 - - - - - - 16,624,3816,624,3817,289,357 :
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. 54
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 Hypothetical 12% Gross Investment Return Net Investment Return Net 4.16% Investment Return Net -1.73% 10.06% Premiums Paid Plus Policy interest ContractSurrender Death Contract Surrender Death Contract Surrender Death Year At 5% Per Value Value Benefit Value Value Benefit Value Value Benefit ---- ------- ----- ----- ------- ----- ----- ------- ----- ----- ------- Year 1 13,150 6,553 6,946 1,000,000 7,074 7,498 1,000,000 7,597 8,052 1,000,000 2 26,958 12,553 13,181 1,000,000 13,992 14,691 1,000,000 15,497 16,272 1,000,000 3 41,456 18,129 18,854 1,000,000 20,873 21,708 1,000,000 23,866 24,820 1,000,000 4 56,679 23,289 23,988 1,000,000 27,722 28,554 1,000,000 32,757 33,740 1,000,000 5 72,663 27,928 28,487 1,000,000 34,423 35,111 1,000,000 42,114 42,956 1,000,000 6 89,447 32,056 32,377 1,000,000 40,976 41,385 1,000,000 51,995 52,515 1,000,000 7 107,069 35,569 35,569 1,000,000 47,263 47,263 1,000,000 62,349 62,349 1,000,000 8 125,573 38,362 38,362 1,000,000 53,164 53,164 1,000,000 73,122 73,122 1,000,000 9 145,002 40,448 40,448 1,000,000 58,669 58,669 1,000,000 84,377 84,377 1,000,000 10 165,402 41,722 41,722 1,000,000 63,650 63,650 1,000,000 96,070 96,070 1,000,000 11 186,823 42,080 42,080 1,000,000 67,975 67,975 1,000,000 108,157 108,157 1,000,000 12 209,314 41,528 41,528 1,000,000 71,619 71,619 1,000,000 120,707 120,707 1,000,000 13 232,930 39,958 39,958 1,000,000 74,439 74,439 1,000,000 133,687 133,687 1,000,000 14 257,727 37,373 37,373 1,000,000 76,397 76,397 1,000,000 147,177 147,177 1,000,000 15 283,763 33,655 33,655 1,000,000 77,336 77,336 1,000,000 161,160 161,160 1,000,000 16 311,101 28,686 28,686 1,000,000 77,087 77,087 1,000,000 175,624 175,624 1,000,000 17 339,807 22,338 22,338 1,000,000 75,468 75,468 1,000,000 190,563 190,563 1,000,000 18 369,947 14,476 14,476 1,000,000 72,279 72,279 1,000,000 205,979 205,979 1,000,000 19 401,595 4,722 4,722 1,000,000 67,070 67,070 1,000,000 221,684 221,684 1,000,000 20 434,825 - - 0 59,578 59,578 1,000,000 237,680 237,680 1,000,000 Age 60 283,763 33,655 33,655 1,000,000 77,336 77,336 1,000,000 161,160 161,160 1,000,000 Age 65 434,825 - - 0 59,578 59,578 1,000,000 237,680 237,680 1,000,000 Age 70 627,622 - - 0 - - 0 320,335 320,335 1,000,000 Age 75 873,686 - - 0 - - 0 399,730 399,730 1,000,000 Age 100 - - - - - - - - - -
Notes: (1) "0" values in the "Contract Value," "Surrender Value" and "Death Benefit" columns indicate Policy lapse. (2) Assumes a $12,524.03 premium is paid at the beginning of each Policy Year. Values will be different if premiums are 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. 55 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 56 COLI VUL-2 SERIES ACCOUNT Flexible Premium Variable Universal Life Insurance Policies Issued by: Great-West Life & Annuity Insurance Company 8515 East Orchard Road Greenwood Village, Colorado 80111 STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information is not a prospectus and should be read in conjunction with the prospectus, dated May 1, 2005, which is available without charge by contacting Great-West Life & Annuity Insurance Company at (888) 353-2654 or via e-mail at KEYBUSINESS@GWL.COM. May 1, 2005 1
Table of Contents General Information and History of Great-West and the Series Account.........................................................................1 State Regulation................................................................1 Experts.........................................................................1 Independent Registered Public Accounting Firm.........................................1 Underwriters..........................................................................2 Underwriting Procedures...............................................................2 Illustrations.......................................................................... Financial Statements...................................................................
2 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 Registered Public Accounting Firm 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, 2003 and 2004, 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, 2004, as well as the financial statements of the Series Account for the years ended December 31, 2003 and 2004, which are included in this Statement of Additional Information, have been audited by Deloitte & Touche LLP, independent registered public accounting firm, 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, 3 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 ("NASD"). 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 NASD 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 The consolidated financial statements of GWL&A as contained herein should be considered only as bearing upon GWL&A's ability to meet its obligations under the Policies, and they should not be considered as bearing on the investment performance of the Series Account. The variable interest of Owners under the Policies are affected solely by the investment results of the Series Account. The financial statements of the Series Account are also included herein. 4 Great-West Life & Annuity Insurance Company - -------------------------------------------------------------------------------- FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 5 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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, 2004 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, 2004. Our audits also included the financial statement schedule listed in the Index at Item 8. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/Deloitte & Touche LLP Deloitte & Touche LLP Denver, Colorado February 25, 2005
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2004 AND 2003 (Dollars in Thousands, Except Share Amounts) December 31, -------------------------------------------------- 2004 2003 ----------------------- ----------------------- ASSETS INVESTMENTS: Fixed maturities, available-for-sale, at fair value (amortized cost $12,909,455 and $12,757,614) $ 13,215,042 $ 13,136,564 Equity investments, at fair value (cost $591,474 and $407,797) 637,434 427,810 Mortgage loans on real estate (net of allowances of $30,339 and $31,889) 1,543,507 1,893,724 Policy loans 3,548,225 3,389,534 Short-term investments, available-for-sale (cost approximates fair value) 708,801 852,198 ----------------------- ----------------------- Total Investments 19,653,009 19,699,830 ----------------------- ----------------------- OTHER ASSETS: Cash 110,518 151,278 Reinsurance receivable: Related party 1,072,940 1,345,847 Other 260,409 287,036 Deferred policy acquisition costs 301,603 284,866 Deferred ceding commission 82,648 285,165 Investment income due and accrued 159,398 165,417 Amounts receivable related to uninsured accident and health plan claims (net of allowances of $22,938 and $32,329) 144,312 129,031 Premiums in course of collection (net of allowances of $7,751 and $9,768) 95,627 85,706 Deferred income taxes 138,845 119,971 Securities pledged to creditors 340,755 299,521 Due from GWL&A Financial Inc. 55,915 Other assets 494,515 580,987 SEPARATE ACCOUNT ASSETS 14,155,397 13,175,480 ----------------------- ----------------------- TOTAL ASSETS $ 37,065,891 $ 36,610,135 ======================= ======================= See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2004 AND 2003 (Dollars in Thousands, Except Share Amounts) December 31, -------------------------------------- 2004 2003 ----------------- ----------------- LIABILITIES AND STOCKHOLDER'S EQUITY POLICY BENEFIT LIABILITIES: Policy reserves: Related party $ 5,170,447 $ 5,640,251 Other 12,771,872 13,009,827 Policy and contract claims 360,862 418,930 Policyholders' funds 327,409 330,123 Provision for policyholders' dividends 118,096 127,074 Undistributed earnings on participating business 192,878 177,175 GENERAL LIABILITIES: Due to The Great-West Life Assurance Company 26,659 30,950 Due to GWL&A Financial Inc. 194,164 175,691 Repurchase agreements 563,247 389,715 Commercial paper 95,044 96,432 Payable under securities lending agreements 349,913 317,376 Other liabilities 695,542 834,485 SEPARATE ACCOUNT LIABILITIES 14,155,397 13,175,480 ----------------- ----------------- Total Liabilities 35,021,530 34,723,509 ----------------- ----------------- 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 725,935 722,365 Accumulated other comprehensive income 118,795 127,820 Retained earnings 1,192,599 1,029,409 ----------------- ----------------- Total Stockholder's Equity 2,044,361 1,886,626 ----------------- ----------------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 37,065,891 $ 36,610,135 ================= ================= See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands) Year Ended December 31, --------------------------------------------------------- 2004 2003 2002 ----------------- ---------------- ---------------- REVENUES: Premiums: Related party (net of premiums ceded totaling $ (52,134) $ 1,595,357 $ 16,715 $260,445, $815 and $2,046) Other (net of premiums ceded totaling $428,010, $460,277 and $81,743) 625,394 657,540 1,103,380 Fee income 915,644 840,072 883,562 Net investment income 1,033,307 988,400 919,365 Net realized gains on investments 57,947 39,560 41,626 ----------------- ---------------- ---------------- Total revenues 2,580,158 4,120,929 2,964,648 ----------------- ---------------- ---------------- BENEFITS AND EXPENSES: Life and other policy benefits (net of reinsurance recoveries totaling $396,886, $410,430 and $50,974) 756,227 573,976 936,215 Increase (decrease) in reserves: Related party (186,972) 1,450,185 15,934 Other (69,901) 51,320 55,414 Interest paid or credited to contractholders 517,448 514,846 498,549 Provision for policyholders' share of earnings on participating business 10,181 1,159 7,790 Dividends to policyholders 108,822 92,118 78,851 ----------------- ---------------- ---------------- Total benefits 1,135,805 2,683,604 1,592,753 ----------------- ---------------- ---------------- Commissions 193,943 180,673 185,450 Operating expenses 740,740 753,336 741,979 Premium taxes 33,030 31,675 30,714 ----------------- ---------------- ---------------- Total benefits and expenses 2,103,518 3,649,288 2,550,896 ----------------- ---------------- ---------------- INCOME BEFORE INCOME TAXES 476,640 471,641 413,752 PROVISION FOR INCOME TAXES: Current 152,028 173,181 126,222 Deferred (1,808) (19,561) 3,993 ----------------- ---------------- ---------------- Total income taxes 150,220 153,620 130,215 ----------------- ---------------- ---------------- NET INCOME $ 326,420 $ 318,021 $ 283,537 ================= ================ ================ See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands) Accumulated Other Comprehensive Income (Loss) ----------- --- ---------- Unrealized Minimum Additional Gains Pension Preferred Common Paid-in (Losses) on Liability Retained Stock Stock Capital Securities Adjustment Earnings Total ----------- ----------- ----------- ----------- ---------- ----------- ----------- BALANCES, JANUARY 1, 2002 $ 0 $ 7,032 $ 712,801 $ 76,507 $ 0 $ 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 Net income 326,420 326,420 Other comprehensive income (3,585) (5,440) (9,025) ----------- Total comprehensive income 317,395 Dividends (163,230) (163,230) Income tax benefit on stock compensation 3,570 3,570 ----------- ----------- ----------- ----------- ---------- ----------- ----------- BALANCES, DECEMBER 31, 2004 $ 0 $ 7,032 $ 725,935 $ 133,546 $ (14,751) $ 1,192,599 $ 2,044,361 =========== =========== =========== =========== ========== =========== =========== See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands) Year Ended December 31, ------------------------------------------------------ 2004 2003 2002 ---------------- ---------------- ---------------- OPERATING ACTIVITIES: Net income $ 326,420 $ 318,021 $ 283,537 Adjustments to reconcile net income to net cash provided by operating activities: Earnings allocated to participating policyholders 10,181 1,159 7,790 Amortization of investments 28,367 (64,126) (76,002) Net realized gains on investments (57,947) (39,560) (41,626) Depreciation and amortization 93,580 95,542 74,012 Deferral of acquisition costs (52,693) (49,245) (49,763) Deferred income taxes (1,808) (19,561) 3,993 Changes in assets and liabilities, net of effects from acquisitions: Policy benefit liabilities (106,912) 478,066 622,854 Reinsurance receivable 21,352 (71,123) 41,199 Receivables (34,056) (33,621) 89,686 Other, net 63,437 55,531 (146,172) ---------------- ---------------- ---------------- Net cash (used in) provided by operating activities $ 289,921 $ 671,083 $ 809,508 ---------------- ---------------- ---------------- INVESTING ACTIVITIES: Proceeds from sales, maturities and redemptions of investments: Fixed maturities available-for-sale: Sales $ 6,150,160 $ 7,852,152 $ 5,729,919 Maturities and redemptions 7,465,130 6,033,863 1,456,176 Mortgage loans on real estate 368,734 191,353 213,794 Equity investments 148,685 86,908 2,798 Purchases of investments: Fixed maturities available-for -sale (13,715,370) (14,128,309) (7,087,170) Mortgage loans on real estate (50,577) (11,690) (2,768) Equity investments (323,551) (369,650) (29,690) Net change in short-term investments 143,397 (136,798) (282,194) Acquisitions, net of cash acquired (128,636) Other, net (124,944) 96,155 (77,769) ---------------- ---------------- ---------------- Net cash provided by (used in) investing activities $ 61,664 $ (514,652) $ (76,904) ---------------- ---------------- ---------------- (Continued)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002, (In Thousands) 2004 2003 2002 ----------------- ---------------- ----------------- FINANCING ACTIVITIES: Contract withdrawals, net of deposits $ (296,378) $ (180,346) $ (599,724) Change in due to The Great-West Life Assurance Company (4,291) (6,341) (8,033) Change in due to/from GWL&A Financial Inc. (37,442) 4,275 (43,415) Dividends paid (163,230) (75,711) (170,572) Change in bank overdrafts (63,148) 32,068 (41,901) Net commercial paper repayments (1,388) (213) (401) Net repurchase agreements borrowings 173,532 66,515 72,311 ----------------- ---------------- ----------------- Net cash used in financing activities (392,345) (159,753) (791,735) ----------------- ---------------- ----------------- NET DECREASE IN CASH (40,760) (3,322) (59,131) CASH, BEGINNING OF YEAR 151,278 154,600 213,731 ----------------- ---------------- ----------------- CASH, END OF YEAR $ 110,518 $ 151,278 $ 154,600 ================= ================ ================= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Income taxes $ 147,287 $ 144,273 $ 164,863 Interest 15,220 16,155 16,697 See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (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"). 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. The Company uses the equity method of accounting for investments in which it has more than a minor equity interest or more than minor influence over the entity's operations, but does not have a controlling interest. The Company uses the cost method of accounting for investments in which it has a minor equity interest and virtually no influence over the entity's operations. All material inter-company transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to the 2003 and 2002 consolidated financial statements and related notes to conform to the 2004 presentation. These changes in classification had no effect on previously reported stockholder's equity or net income. Investments - Investments are reported as follows: 1. The Company has classified its fixed maturity investments 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. Net unrealized gains and losses related to participating contract policies are recorded as undistributed earnings on participating business. 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 determined 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 judgment is based upon 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. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) 3. 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. Realized gains and losses and declines in value determined to be other-than-temporary are included in net realized gains on investments. 4. Policy loans are carried at their unpaid balances. 5. Short-term investments include securities purchased with initial maturities of one year or less and are carried at fair value. The Company considers short-term investments to be available-for-sale. 6. Gains and losses realized on disposal of investments are determined on a specific identification basis. 7. From time to time, the Company may employ a trading strategy that involves the sale of securities with a simultaneous agreement to repurchase similar securities at a future date at an agreed-upon price. Proceeds of the sale are reinvested in other securities and may enhance the current yield and total return. The difference between the sales price and the future repurchase price is recorded as an adjustment to interest income. During the period between the sale and repurchase, the Company will not be entitled to receive interest and principal payments on the securities sold. Losses may arise from changes in the value of the securities or if the counterparty files for bankruptcy or becomes insolvent. In such cases, the Company's right to repurchase the security may be restricted. Amounts owing to brokers under these arrangements are included in repurchase agreements on the accompanying consolidated balance sheets. At December 31, 2004 and 2003, this liability was $563,247 and $389,715, respectively. The liability is collateralized by securities with approximately the same value. Cash - Cash includes only amounts in demand deposit accounts. Bank overdrafts - The Company's cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Checks issued but not yet presented to banks for payment frequently result in overdraft balances for accounting purposes and are included in other liabilities in the consolidated balance sheets. Internal use software - Capitalized internal use software development costs, net of accumulated depreciation, in the amount of $74,021 and $68,244 are included in other assets at December 31, 2004 and 2003, respectively. The Company capitalized $21,484, $27,882 and $20,091 of internal use software development costs for the years ended December 31, 2004, 2003 and 2002, 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. The recoverability of such costs is dependent upon the future profitability of the related business. 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 $40,536, $36,283 and $38,707 in 2004, 2003 and 2002, respectively. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) 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. an, open-end management investment company, which is an affiliate of the Company, and 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 contract holders 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 in the amount of $12,115,519 and $12,111,180 at December 31, 2004 and 2003, 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 in the amount of $4,831,428 and $5,157,776 at December 31, 2004 and 2003, respectively, are established at the contract holder's account value. Reinsurance - Policy reserves and policy and contract claims ceded to other insurance companies are carried as a reinsurance receivable on the consolidated balance sheets. 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 the process of settlement. They are 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 $6,290,994 and $6,119,896 at December 31, 2004 and 2003, respectively. Participating business approximates 29.2%, 34.3% and 24.8% of the Company's ordinary life insurance in force and 74.3%, 66.4% and 80.2% of ordinary life insurance premium income for the years ended December 31, 2004, 2003 and 2002, respectively. The amount of dividends to be paid from undistributed earnings on participating business is determined annually by the Board of Directors. Earnings allocated 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 it 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. Securities lending - 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. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) Derivative Financial Instruments - All derivatives, whether designated in hedging relationships or not, are recorded on the consolidated balance sheet at fair value. Accounting for the ongoing changes in the fair value of a derivative depends on the intended use of the derivative and its designation as determined when the derivative contract is entered into. If the derivative is designated as a fair value hedge, the changes in its fair value 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 on the balance sheet and are recognized in the income statement when the hedged item affects earnings. Changes in the fair value of derivatives not qualifying for hedge accounting and the ineffective portion of cash flow hedges are recognized in net investment income in the period of the change. 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 4.3%, 5.2%, and 5.9%, in 2004, 2003 and 2002, respectively. Income taxes - Income taxes are recorded using the asset and liability approach, which 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 Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") to stock-based compensation awards to employees, as interpreted by AIPCA Accounting Interpretation APB 25 (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 Lifeco to employees of the Company. 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, the Company's net income would have been reduced by $3,352, $3,105 and $2,364 in the years ended December 13, 2004, 2003 and 2002, respectively. Regulatory requirements - In accordance with the requirements of the State of Colorado, the Company must demonstrate adequate capital. At December 31, 2004, the Company was in compliance with the requirement (See Note 13). At December 31, 2004 and 2003, fixed maturities with carrying values of $60,353 and $63,843, respectively, were on deposit with various insurance regulatory authorities as required by law. Application of recent accounting pronouncements - In January 2004, Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46R") was reissued by the Financial Accounting Standards Board (FASB). FIN 46R addresses consolidation by business enterprises of variable interest entities ("VIE"), which have one or both of the following characteristics: a) insufficient equity investment at GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) 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, Statement of Financial Accounting Standards No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS No. 148") was issued by the FASB. SFAS No. 148 amends the disclosures that a company is required to make in its annual financial statements and requires certain disclosures in interim financial reports. In addition to the disclosures required by SFAS 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 SFAS No. 123 to account for its stock-based employee compensation. In December 2004, Statement of Financial Accounting Standards No. 123R "Share-Based Payment" ("SFAS No. 123R") was issued by the FASB. SFAS 123R replaces SFAS 123 and supersedes APB No. 25. SFAS 123R requires a company to use the fair value method to account for its stock-based employee compensation and to provide certain other additional disclosures. The Company will adopt the provisions of SFAS 123R on July 1, 2005 and does not expect this statement to have a material effect on the Company's consolidated financial position or results of operations. In July 2003, the Accounting Standards Executive Committee (the "AcSEC") of the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 03-01, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts" ("SOP 03-1"). AcSEC developed SOP 03-1 to address the evolution of product designs since the issuance of Statement of Financial Accounting Standards No. 60, "Accounting and Reporting by Insurance Enterprises," and Statement of Financial Accounting Standards 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, 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 was effective on January 1, 2004. The adoption of SOP 03-1 did not have a material effect on the Company's consolidated financial position or results of operations. In January 2004, FASB issued Emerging Issues Task Force ("EITF") Issue No. 03-1, "The Meaning of Other-Than Temporary Impairment and Its Application to Certain Investments" ("EITF 03-1"). EITF 03-1 provides guidance on the disclosure requirements, which were effective as of December 31, 2003, for other-than-temporary impairments of debt and marketable equity investments that are accounted for under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). EITF 03-1 also included guidance on the measurement and recognition of other-than-temporary impairments of certain investments, which was originally going to be effective during the quarter ended September 30, 2004. However, in response to various concerns raised by financial statement preparers and others, the measurement and recognition provisions of EITF 03-1 were delayed. The staff of the Financial Accounting Standards Board ("FASB") is currently evaluating the guidance of EITF 03-1 in the context of developing implementation guidance for its measurement and recognition provisions. The Company is continuing to evaluate potential other-than-temporary impairments under SFAS 115 and SEC Staff Accounting Bulletin Topic 5-M, "Other Than Temporary Impairment Of Certain Investments In Debt and Equity Securities." Due to the current uncertainty as to the implementation guidance for EITF 03-1 by the FASB staff, the Company is unable to evaluate the impact EITF 03-1 will ultimately have on its financial position or results of operations. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) 2. ACQUISITIONS AND RELATED TRANSACTIONS 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 $235,000. 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, 2004 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. The Company recorded, as of December 31, 2003, the following as a result of the acquisition (net of the $235,000 purchase price) of 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 on real Policy and contract claims 899 estate 1,146,044 Provision for Policy loans 13,621 policyholders' dividends 2,800 Short-term investments 65,537 Other liabilities 439,439 --------------------- Cash (232,803) Total liabilities 3,436,952 Investment income Accumulated other due and accrued 32,147 comprehensive income (14,433) Other assets 439,864 Retained earnings 2,789 --------------------- Total stockholder's equity (11,644) ------------------ --------------------- $ 3,425,308 $ 3,425,308 ================== =====================
The Company's statements of income include the following related to CLICA and CLINY for the period from July 10 to December 31, 2003:
Period July 10, 2003 to December 31, 2003 -------------------------- Total revenues $ 105,868 -------------------------- Benefits 92,193 Operating expenses 9,385 -------------------------- Total benefits and expenses 101,578 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 United States Branch. The Company recorded $1,426,362 in premium income and increase in reserves associated with these policies. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) 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 Policy loans 278,152 claims 45,229 Reinsurance receivable 1,320,636 Policyholders' funds 65,958 Deferred ceding commissions 313,364 Investment income due and accrued 17,280 Premiums in course of collection 21,466 ------------------ ----------------- $ 3,037,684 $ 3,037,684 ================== =================
In the third quarter of 2004, the deferred ceding commission asset and certain policy reserve liabilities acquired as part of this reinsurance transaction were both decreased $157,000 based on the Company's final analysis of the policy reserves acquired. CLAC's United States branch had not previously computed policy liabilities under United States GAAP, which required the Company to estimate the amount of liabilities assumed, which was approximately $3,000,000 at September 1, 2003. These adjustments had no material effect on the Company's consolidated financial position or results of operations. The reinsurance receivable relates to the amount due to 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, as defined by the agreement, on a segregated pool of investments of the CLAC's United States branch. Pursuant to an interpretation of Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), as amended, the Company has identified an embedded derivative for its 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 decreased $5,282 and increased $7,387 during the years ended December 31, 2004 and 2003, respectively. 3. RELATED-PARTY TRANSACTIONS The Company performs administrative services for the United States operations of The Great-West Life Assurance Company ("GWL"), a wholly-owned subsidiary of Lifeco. Beginning in 2003, the Company began providing administrative and operational services for the United States operations of Canada Life. Beginning in 2002, the Company began performing investment services for London Reinsurance Group, an indirect subsidiary of GWL. The following table 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 estimated costs incurred (including a profit charge) and resources expended based upon the number of policies, certificates in force and/or administered assets.
Year Ended December 31, ------------------------------------------------------ 2004 2003 2002 --------------- --------------- --------------- Investment management revenue included in net investment income $ 6,304 $ 3,355 $ 892 Administrative and underwriting revenue included in operating expenses 6,427 1,859 860 --------------- --------------- --------------- Total $ 12,731 $ 5,214 $ 1,752 =============== =============== ===============
At December 31, 2004 and 2003, due to GWL includes $1,321 and $5,612 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 GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) in part at any time without penalty. The issuer may not demand payment before the maturity date. The note payable bears interest at 5.4%. At December 31, 2004 due from GWL&A Financial Inc. includes $55,915 due on demand and due to GWL&A Financial includes a surplus note with a face amount and carrying value of $195,000 and $194,164, respectively. At December 31, 2003 due to GWL&A Financial Inc. includes $691 due on demand and a $175,000 subordinated note. The surplus note, which bears interest at the rate of 6.675% per annum, matures on November 14, 2034. On November 15, 2004, GWL&A Financial issued a $175,000 deferrable debenture through an affiliated limited partnership ("Great-West LP") to qualified institutional investors. Also on November 15, 2004, Lifeco and 2023308 Ontario Inc. ("Ontario"), a wholly-owned subsidiary of Lifeco, made equity contributions in the combined amount of $23,000 to Great-West LP. Great-West LP in turn, invested the proceeds from the sale of the deferrable debentures together with a portion of the equity contributions from Lifeco and Ontario in certain junior subordinated deferrable debentures of GWLA Financial. On November 15, 2004, GWL&A Financial used the proceeds from the sale of its junior subordinated deferrable debentures to purchase the surplus note from the Company. On December 16, 2004, the Company used the proceeds from the sale of the surplus note to redeem the $175,000 subordinated note payable to GWL&A Financial and for general corporate purposes. Payments of principal and interest under the surplus note shall be made only out of surplus funds of the Company and only with prior written approval of the Commissioner of Insurance of the State of Colorado when the Commissioner of Insurance is satisfied that the financial condition of the Company warrants such action pursuant to applicable Colorado law. Payments of principal and interest on the surplus note are payable only if at the time of such payment and after giving effect to the making thereof, the Company's surplus would not fall below two and one half times the authorized control level as required by the most recent risk-based capital calculations. Interest expense attributable to these related party obligations were $15,189, $14,345 and $14,976 for the years ended December 31, 2004, 2003 and 2002, respectively. On February 29, 2004, CLAC recaptured the group life and health business from the Company associated with the original Indemnity Reinsurance Agreement dated August 31, 2003, as discussed in Note 2. The Company recorded an income statement impact of $256,318 of negative premium income and change in reserves associated with these policies. The Company recorded, at fair value, the following at February 29, 2004 as a result of this transaction:
Assets Liabilities and Stockholder's Equity -------------------------------------------------------- ------------------------------------------------ Cash $ (126,105) Policy reserves $ (286,149) Reinsurance receivable (152,077) Policy and contract Deferred ceding commission (29,831) claims (32,755) Premiums in course of Policyholders' funds (3,982) collection (14,873) ------------------- ----------------- $ (322,886) $ (322,886) =================== =================
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 judgment is based on past loss experience and current and projected economic conditions. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) Activity in the allowance for amounts receivable related to uninsured accident and health plan claims is as follows:
2004 2003 2002 --------------- -------------- --------------- Balance, beginning of year $ 32,329 $ 42,144 $ 53,431 Amounts acquired by reinsurance (1,859) 6,207 Provisions charged (reversed) to operations (517) 1,460 (7,544) Amounts written off - net (7,015) (11,275) (9,950) --------------- -------------- --------------- Balance, end of year $ 22,938 $ 32,329 $ 42,144 =============== ============== =============== Activity in the allowance for premiums in course of collection is as follows: 2004 2003 2002 --------------- -------------- --------------- Balance, beginning of year $ 9,768 $ 12,011 $ 22,217 Amounts acquired by reinsurance (300) 1,600 Provisions charged (reversed) to operations 17 1,889 (5,729) Amounts written off - net (1,734) (4,132) (6,077) --------------- -------------- --------------- Balance, end of year $ 7,751 $ 9,768 $ 12,011 =============== ============== ===============
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 $3,500 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% in 2003 and 75% in 2004 of group health stop-loss and excess loss activity. This Allianz agreement was retroactive to January 1, 2003. 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, 2004 and 2003, the reinsurance receivables had carrying values of $1,333,349 and $1,632,883, respectively. The following table summarizes life insurance in force and life and accident/health premiums at, and for the year ended, December 31, 2004:
Percentage of Amount Reinsurance Reinsurance Assumed Direct Ceded Assumed Net to Net ---------------- ---------------- ---------------- ---------------- -------------- Life insurance in force: Individual $ 50,946,388 $ 12,925,504 $ 14,080,477 $ 52,101,361 27.0% Group 48,101,396 501,200 1,142,649 48,742,845 2.3% ---------------- ---------------- ---------------- ---------------- Total $ 99,047,784 $ 13,426,704 $ 15,223,126 $ 100,844,206 ================ ================ ================ ================ Premium income: Life insurance $ 347,603 $ 54,610 $ 128,097 $ 421,090 30.4% Accident/health 628,257 377,632 (103,721) 146,904 (70.6)% ---------------- ---------------- ---------------- ---------------- Total $ 975,860 $ 432,242 $ 24,376 $ 567,994 ================ ================ ================ ================ GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) The following table summarizes life insurance in force and life and accident/health premiums at, and for the year ended, December 31, 2003: Percentage of Amount Reinsurance Reinsurance Assumed Direct Ceded Assumed Net to Net ---------------- ---------------- --------------- ---------------- -------------- 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 $ 71,624,980 $ 153,863,443 ================ ================ =============== ================ Premium income: Life insurance $ 355,791 $ 44,118 $ 1,301,560 $ 1,613,233 80.7% Accident/health 678,516 423,592 321,996 576,920 55.8% ---------------- ---------------- --------------- ---------------- Total $ 1,034,307 $ 467,710 $ 1,623,556 $ 2,190,153 ================ ================ =============== ================ The following table summarizes life insurance in force and life and accident/health premiums at, and for the year ended, December 31, 2002: Percentage of Amount Reinsurance Reinsurance Assumed Direct Ceded Assumed Net to Net ---------------- ---------------- --------------- ---------------- -------------- Life insurance in force: Individual $ 43,324,059 $ 12,786,783 $ 7,280,731 $ 37,818,007 19.3% Group 51,385,610 7,186,698 58,572,308 12.3% ---------------- ---------------- --------------- ---------------- Total $ 94,709,669 $ 12,786,783 $ 14,467,429 $ 96,390,315 ================ ================ =============== ================ Premium income: Life insurance $ 312,388 $ 40,582 $ 41,245 $ 313,051 13.2% Accident/health 728,972 43,047 128,820 814,745 15.8% ---------------- ---------------- --------------- ---------------- Total $ 1,041,360 $ 83,629 $ 170,065 $ 1,127,796 ================ ================ =============== ================
6. NET INVESTMENT INCOME AND NET REALIZED GAINS (LOSSES) ON INVESTMENTS
The following table summarizes net investment income for the years ended December 31, 2004, 2003 and 2002: Year Ended December 31, ------------------------------------------------------ 2004 2003 2002 --------------- --------------- --------------- Investment income: Fixed maturities and short-term investments $ 687,329 $ 697,209 $ 673,825 Equity investments 10,749 4,703 3,272 Mortgage loans on real estate 104,902 85,966 51,440 Policy loans 203,127 195,633 209,608 Other 64,916 37,254 5,236 --------------- --------------- --------------- 1,071,023 1,020,765 943,381 Investment expenses, including interest on amounts charged by related parties of $15,189, $14,345 and $14,976 37,716 32,365 24,016 --------------- --------------- --------------- Net investment income $ 1,033,307 $ 988,400 $ 919,365 =============== =============== =============== GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) The following table summarizes net realized gains on investments for the years ended December 31, 2004, 2003 and 2002: Year Ended December 31, ------------------------------------------------------ 2004 2003 2002 --------------- --------------- --------------- Net realized gains: Fixed maturities $ 34,960 $ 26,621 $ 33,455 Equity investments 8,040 1,013 1,639 Real estate and mortgage loans on real estate 5,318 2,911 1,493 Other (13) Provisions for mortgage impairments 9,642 9,015 5,039 --------------- --------------- --------------- Net realized gains on investments $ 57,947 $ 39,560 $ 41,626 =============== =============== ===============
7. SUMMARY OF INVESTMENTS
The following table summarizes fixed maturities and equity securities available-for-sale at December 31, 2004: Gross Gross Estimated Amortized Unrealized Unrealized Fair Carrying Fixed Maturities: Cost Gains Losses Value Value ---------------------------- -------------- -------------- ---------------- -------------- -------------- U.S. Government and agencies direct obligations $ 3,107,235 $ 55,242 $ 8,687 $ 3,153,790 $ 3,153,790 Obligations of U.S. states and their subdivisions 1,197,912 61,951 4,930 1,254,933 1,254,933 Foreign government 15,759 276 218 15,817 15,817 Corporate debt securities 5,257,149 203,603 43,919 5,416,833 5,416,833 Mortgage-backed and asset-backed securities 3,332,857 65,994 21,634 3,377,217 3,377,217 Other debt securities (1,457) 2,091 (3,548) (3,548) -------------- -------------- ---------------- -------------- -------------- Total fixed maturities $ 12,909,455 $ 387,066 $ 81,479 $ 13,215,042 $ 13,215,042 ============== ============== ================ ============== ============== Total equity Investments $ 591,474 $ 47,015 $ 1,055 $ 637,434 $ 637,434 ============== ============== ================ ============== ============== GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) The following table summarizes fixed maturities and equity securities available for sale at December 31, 2003: Gross Gross Estimated Amortized Unrealized Unrealized Fair Carrying Fixed Maturities: Cost Gains Losses Value Value ---------------------------- -------------- -------------- ---------------- -------------- -------------- U.S. Government and Agencies direct Obligations $ 3,146,847 $ 72,031 $ 20,328 $ 3,198,550 $ 3,198,550 Obligations of U.S. States and their Subdivisions 1,133,234 79,323 4,204 1,208,353 1,208,353 Foreign government 58,211 1,191 940 58,462 58,462 Corporate debt Securities 5,392,187 311,640 104,819 5,599,008 5,599,008 Mortgage-backed and Asset-backed Securities 3,025,297 84,057 35,196 3,074,158 3,074,158 Other debt securities 1,838 3,805 (1,967) (1,967) -------------- -------------- ---------------- -------------- -------------- Total fixed maturities $ 12,757,614 $ 548,242 $ 169,292 $ 13,136,564 $ 13,136,564 ============== ============== ================ ============== ============== Total equity Investments $ 407,797 $ 22,197 $ 2,184 $ 427,810 $ 427,810 ============== ============== ================ ============== ============== 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, 2004 and 2003, by projected maturity, are shown in the table 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.
December 31, 2004 December 31, 2003 ------------------------------------- ----------------------------------- Amortized Estimated Amortized Estimated Cost Fair Value Cost Fair Value ---------------- ----------------- ---------------- --------------- Due in one year or less $ 824,954 $ 851,869 $ 684,947 $ 710,287 Due after one Year through five years 2,989,404 3,069,032 3,351,405 3,495,805 Due after five years Through ten years 1,887,974 1,956,626 1,660,758 1,743,056 Due after ten years 1,893,175 1,952,856 1,940,424 1,966,535 Mortgage backed and asset Backed securities 5,313,948 5,384,659 5,120,080 5,220,881 ---------------- ----------------- ---------------- --------------- $ 12,909,455 $ 13,215,042 $ 12,757,614 $ 13,136,564 ================ ================= ================ ===============
Mortgage-backed and asset-backed securities include collateralized mortgage obligations that 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. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) The following table summarizes information regarding the sales of fixed maturities for the years ended December 31, 2004, 2003 and 2002:
Year Ended December 31, ----------------------------------------------------- 2004 2003 2002 --------------- --------------- -------------- Proceeds from sales $ 6,150,160 $ 7,852,152 $ 5,729,919 Gross realized gains from sales 103,892 72,815 45,315 Gross realized losses from sales (59,930) (43,214) (10,410)
The Company makes limited use of derivative financial instruments to manage interest rate, market credit and foreign exchange risk associated with its invested assets. Derivatives are not used for speculative purposes. The Company controls the credit risk of its derivative contracts through credit approvals, limits and monitoring procedures. Risk of loss is generally limited to the fair value of derivative instruments and not to the notional or contractual amounts of the derivatives. As the Company generally enters into derivative transactions only with high quality institutions, no losses associated with non-performance of derivative financial instruments have occurred or are expected to occur. Fair value hedges - Written call options are used in conjunction with interest rate swap agreements to effectively convert fixed rate bonds to variable rate bonds as part of the Company's overall asset/liability matching program. The Company's use of derivatives treated as fair value hedges has been nominal in the last three years. Ineffective amounts had no material impact on net income for the years ended December 31, 2004, 2003 and 2002. Cash flow hedges - 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. Interest rate 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 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. 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. Hedge ineffectiveness in the amounts of $3,534, $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, 2004, 2003 and 2002 respectively. Unrealized derivative gains and losses included in accumulated other comprehensive income are reclassified into earnings at the time interest income is recognized. Derivative gains in the amounts of $975, $1,024 and $563 were reclassified to net investment income in 2004, 2003 and 2002 respectively. As of December 31, 2004, the Company estimates that $1,410 of net derivative gains included in other comprehensive income will be reclassified into net investment income within the next twelve months. Derivatives not designated as hedging instruments - The Company attempts to match the timing of when interest rates are committed on insurance products and other new investments, however, timing differences may occur and can expose the Company to fluctuating interest rates. To offset this risk, the Company uses U.S. Treasury futures contracts. The Company also utilizes U.S. Treasury futures as a method of adjusting the duration of the overall portfolio. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) 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, 2004, the Company has one such security that has been created through the combination of a credit default swap and a United States Government Agency security. 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 and carried at fair value. Although the above-mentioned derivatives are effective hedges from an economic standpoint, they do not meet the requirements for hedge accounting treatment under SFAS No. 133, as amended. As such, periodic changes in the market value of these instruments flow directly into net income. In 2004, 2003 and 2002, increases to net investment income of $4,043, $1,007 and $0 were recognized from market value changes of derivatives not receiving hedge accounting treatment, excluding the impact of the embedded derivative discussed in Note 2. The following tables summarize derivative financial instruments at December 31, 2004 and 2003:
T December 31, 2004 ---------------------------------------------------------------------------- Notional Amount Strike / Swap Rate Maturity -------------- -------------------------------- -------------------- Interest rate caps $ 300,000 11.65% January 2005 February 2006 - Interest rate swaps 221,264 2.40% - 5.20% March 2031 October 2005 - Credit default swaps 145,085 N/A November 2007 Foreign currency June 2005 - exchange contracts 27,585 N/A November 2006 Options: Calls 22,000 Various February 2006 Total return swap: Receivable for coinsurance with funds withheld 1,087,416 Variable Indeterminable GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) December 31, 2003 ---------------------------------------------------------------------------- Notional Amount Strike / Swap Rate Maturity -------------- -------------------------------- -------------------- February 2004 - Interest rate caps $ 617,000 7.91% - 11.65% January 2005 January 2004 - Interest rate swaps 331,334 1.03% - 4.50% November 2009 October 2005 - Credit default swaps 171,310 N/A November 2007 Foreign currency June 2005 - exchange contracts 27,585 N/A November 2006 Options: Calls 92,700 Various May 2004 - June 2007 Puts 15,000 Various March 2007 Total return swap: Receivable for coinsurance with funds withheld 1,287,059 Variable Indeterminable
The following table summarizes information with respect to impaired mortgage loans at December 31, 2004 and 2003:
December 31, --------------------------------- 2004 2003 --------------- -------------- Loans, net of related allowance for credit losses of $13,000 and $19,542 $ 8,700 $ 7,680 Loans with no related allowance for credit losses 5,560 Average balance of impaired loans during the year 25,049 29,633 Interest income recognized while impaired 890 1,350 Interest income received and recorded while impaired using the cash basis method of recognition 1,029 1,405
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 $18,881 and $34,880 at December 31, 2004 and 2003, respectively. The following table summarizes activity in the allowance for mortgage loan credit losses for the years 2004, 2003 and 2002:
Year Ended December 31, ----------------------------------------------------- 2004 2003 2002 --------------- --------------- -------------- Balance, beginning of year $ 31,889 $ 55,654 $ 57,654 Provisions reversed to operations (3,192) (9,817) (3,588) Amounts written off (304) (15,766) (139) Recoveries 1,946 1,818 1,727 --------------- --------------- -------------- Balance, end of year $ 30,339 $ 31,889 $ 55,654 =============== =============== ==============
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) The carrying value of the Company's equity investments was $637,434 and $427,810 at December 31, 2004 and 2003, respectively. At December 31, 2004 and 2003, the Company had an investment of $199,162 and $130,473, respectively, in an exchange-traded fund, which invests in corporate debt securities. Upon redemption of the fund, the Company has the option of receiving the underlying debt securities or the redemption value of the investment. At December 31, 2004 and 2003, the Company has invested $336,543 and $216,610, respectively 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, 2004 and 2003 were $85,867 and $128,341, respectively. The Company participates in a securities lending program whereby securities, which are included in invested assets, are loaned to third parties. The Company requires a minimum of 102% of the fair value of the loaned securities to be separately maintained as collateral for the loans. Securities with a cost or amortized cost of $336,949 and $288,834 and an estimated fair value of $340,755 and $299,521 were on loan under the program at December 31, 2004 and 2003, respectively. The Company was liable for collateral under its control of $349,913 and $317,376 at December 31, 2004 and 2003, respectively. Impairment of Fixed Maturities and Equity Investments - The Company classifies all of its fixed maturities and equity investments as available-for-sale and marks them to market through other comprehensive income. All securities with gross unrealized losses at the consolidated balance sheet date are subjected to the Company's process for identifying other-than-temporary impairments. The Company writes down to fair value securities that it deems to be other-than-temporarily impaired in the period the securities are deemed to be so impaired. The Company records writedowns as investment losses and adjusts the cost basis of the securities accordingly. The Company does not change the revised cost basis for subsequent recoveries in value. The assessment of whether an other-than-temporary impairment has occurred is based on management's case-by-case evaluation of the underlying reasons for the decline in fair value. Management considers a wide range of factors, as described below, about the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management's evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used by the Company in the impairment evaluation process include, but are not limited to, the following: o Fair value is significantly below cost. o The decline in fair value is attributable to specific adverse conditions affecting a particular instrument, its issuer, an industry or a geographic area. o The decline in fair value has existed for an extended period of time. o A debt security has been downgraded by a rating agency. o The financial condition of the issuer has deteriorated. o Dividends have been reduced/eliminated or scheduled interest payments have not been made. While all available information is taken into account, it is difficult to predict the ultimate recoverable amount of a distressed or impaired security. The Company's portfolio of fixed maturities fluctuates in value based upon interest rates in financial markets and other economic factors. These fluctuations, caused by market interest rate changes, have little bearing on whether or not the investment will be ultimately recoverable. Therefore, the Company considers these declines in value as temporary, even in periods exceeding one year. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) The following tables summarize unrealized investment losses by class of investment at December 31, 2004 and 2003. The Company considers these investments to be only temporarily impaired.
December 31, 2004 Less than twelve months Twelve months or longer Total -------------------------- ------------------------------ ------------------------------- ------------------------------ Estimated Unrealized Estimated Unrealized Estimated Unrealized Fixed Maturities: Fair value Loss Fair value Loss Fair value Loss -------------------------- ------------- ------------ -------------- ------------- ------------- ------------- U.S. Government and agencies direct obligations $ 850,994 $ 4,000 $ 220,214 4,687 $ 1,071,208 $ 8,687 Obligations of U.S. states and their subdivisions 160,000 2,256 107,556 2,674 267,556 4,930 Foreign government 59,208 193 8,525 25 67,733 218 Corporate debt securities 643,064 17,054 600,119 26,865 1,243,183 43,919 Mortgage-backed and asset-backed securities 555,898 7,605 283,131 14,029 839,029 21,634 Other debt securities (3,547) 2,091 (3,547) 2,091 ------------- ------------ -------------- ------------- ------------- ------------- Total fixed maturities $ 2,265,617 $ 33,199 $ 1,219,545 48,280 $ 3,485,162 $ 81,479 ============= ============ ============== ============= ============= ============= December 31, 2003 Less than twelve months Twelve months or longer Total -------------------------- ------------------------------ ------------------------------- ------------------------------ Estimated Unrealized Estimated Unrealized Estimated Unrealized Fixed Maturities: Fair value Loss Fair value Loss Fair value Loss -------------------------- ------------- ------------ -------------- ------------- ------------- ------------- U.S. Government and agencies direct obligations $ 472,620 $ 20,149 $ 30,791 179 $ 503,411 $ 20,328 Obligations of U.S. states and their subdivisions 160,668 3,947 16,679 257 177,347 4,204 Foreign government 26,133 940 26,133 940 Corporate debt securities 1,174,753 77,477 332,880 27,342 1,507,633 104,819 Mortgage-backed and asset-backed securities 404,762 7,150 247,056 28,046 651,818 35,196 Other debt securities (1,967) 3,805 (1,967) 3,805 ------------- ------------ -------------- ------------- ------------- ------------- Total fixed maturities $ 2,238,936 $ 109,663 $ 625,439 59,629 $ 2,864,375 $ 169,292 ============= ============ ============== ============= ============= =============
At December 31, 2004 and 2003, there were 480 and 556 securities, respectively, that had been in a loss position for less than twelve months with carrying values of $2,265,617 and $2,238,936, respectively, and unrealized losses of $33,199 and $109,663, respectively. At December 31, 2004 and 2003 less than 1% were rated non-investment grade. The losses on these securities are primarily attributable to changes in market interest rates and changes in credit spreads since the securities were acquired. At December 31, 2004 and 2003, there were 410 and 123 securities, respectively, that had been in a continuous loss position for twelve months or longer with carrying values of $1,219,545 and $625,439, respectively, and unrealized losses of $48,280 and $59,629, respectively. The Company's impairment exposure is not concentrated in any one industry. At December 31, 2004, there are 14 airline industry securities on which $9,820 of impairment write-downs was recognized during 2004. For the years ended December 31, 2004 and 2003, mortgage-backed and asset-backed securities represent $14,029, or 29% and $28,046, or 47% of the unrealized losses, respectively. While the Company is in an unrealized loss position on these securities, payments continue to be made under their original terms. At December 31, GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) 2004, the Company has no information to cause it to believe that any of these investments are other than temporarily impaired. At December 31, 2004 and 2003, the Company had unrealized losses on equity investments of $1,055 and $2,184, respectively. The decrease reflects security dispositions in 2004 and the overall improvement in the equity markets. At December 31, 2004, the Company has no information to cause it to believe that any of these investments are other than temporarily impaired. For the years ended December 31, 2004 and 2003, the Company recorded total other-than-temporary impairments in the fair value of its available-for-sale investments of $13,167 and $14,197, respectively. 8. COMMERCIAL PAPER The Company has a commercial paper program that is partially supported by a $50,000 standby letter-of-credit. The following table provides information regarding the Company's commercial paper program at December 31, 2004 and 2003:
December 31, ------------------------------------------------------- 2004 2003 ------------------------- ------------------------- Commercial paper outstanding $ 95,044 $ 96,432 Maturity range (days) 10 - 66 9 - 86 Interest rate range 2.18% - 2.50% 1.18% - 1.20%
9. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The following table summarizes the carrying amount and estimated fair value of the Company's financial instruments at December 31, 2004 and 2003:
December 31, ------------------------------------------------------------------------- 2004 2003 ---------------------------------- ---------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value --------------- --------------- -------------- --------------- ASSETS: Fixed maturities and short-term investments $ 13,923,843 $ 13,923,843 $ 13,988,762 $ 13,988,762 Equity investments 637,434 637,434 427,810 427,810 Mortgage loans on real estate 1,543,507 1,511,437 1,893,724 1,871,373 Policy loans 3,548,225 3,548,225 3,389,534 3,389,534 Reinsurance receivables 1,333,349 1,333,349 1,632,883 1,632,883 LIABILITIES: Annuity contract reserves without life contingencies 4,831,428 4,833,755 5,157,776 5,245,946 Policyholders' funds 327,409 327,409 330,123 330,123 Due to GWL 26,659 27,510 30,950 32,591 Due to GWL&A Financial 194,164 194,164 175,691 178,421 Commercial paper 95,044 95,044 96,432 96,432 Repurchase agreements 563,247 563,247 389,715 389,715
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) The estimated fair values of financial instruments have been determined using available information and appropriate valuation methodologies. However, considerable judgment 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. 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 $13,372 and $20,416 at December 31, 2004 and 2003, respectively, representing the estimated fair value of the embedded derivative associated with the Company's reinsurance receivable under its coinsurance with funds withheld agreement with the United States branch of CLAC. Valuation of the derivative 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&A Financial and GWL is based on discounted cash flows at current market rates on high quality investments. The carrying value of repurchase agreements and commercial paper is a reasonable estimate of fair value due to the short-term nature of the liabilities. Included in fixed maturities and short-term investments are derivative financial instruments with a net liability position of $16,630 in 2004 and $1,967 in 2003. 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. 10. EMPLOYEE BENEFIT PLANS The following table summarizes changes for the years ended December 31, 2004, 2003 and 2002 in the benefit obligations and in plan assets for the Company's defined benefit pension plan and its unfunded post-retirement medical plan: GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts)
Defined Benefit Pension Plan Post-Retirement Medical Plan Year Ended December 31, Year Ended December 31, ------------------------------------------- -------------------------------------------- 2004 2003 2002 2004 2003 2002 ----------- ---------- ------------ ---------- ------------- ----------- Change in projected benefit obligation: Benefit obligation at beginning of year $ 212,963 $ 186,047 $ 150,521 $ 44,105 $ 31,242 $ 57,861 Service cost 8,576 8,269 8,977 2,891 2,046 3,516 Interest cost 13,317 12,275 11,407 2,735 2,269 3,138 Amendments 827 (22,529) Actuarial (gain) loss 9,781 12,746 20,679 1,482 9,614 (9,814) Benefits paid (6,613) (6,374) (6,364) (1,139) (1,066) (930) ----------- ---------- ------------ ---------- ------------- ----------- Benefit obligation at end of year $ 238,024 $ 212,963 $ 186,047 $ 50,074 $ 44,105 $ 31,242 =========== ========== ============ ========== ============= ===========
Defined Benefit Pension Plan Year Ended December 31, ----------------------------------------- 2004 2003 2002 ----------- ---------- ---------- Change in plan assets: Fair value of plan assets at beginning of year $ 189,319 $ 163,316 $ 187,661 Actual return on plan assets 13,058 32,377 (17,981) Employer contributions 3,200 Benefits paid (6,613) (6,374) (6,364) ----------- ---------- ---------- Fair value of plan assets at end of year $ 198,964 $ 189,319 $ 163,316 =========== ========== ==========
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts)
Defined Benefit Pension Plan Post-Retirement Medical Plan Year Ended December 31, Year Ended December 31, ------------------------------------------- ------------------------------------------- 2004 2003 2002 2004 2003 2002 ----------- ---------- ------------ ----------- ----------- ----------- Funded (unfunded) status $ (39,060) $ (23,643) $ (22,730) $ (50,074) $ (44,105) $ (31,242) Unrecognized net actuarial loss 50,682 41,777 51,943 14,532 13,715 4,361 Unrecognized prior service cost 1,464 2,095 2,727 (7,965) (8,679) (9,392) Unrecognized net obligation or (asset) at transition (10,599) (12,113) (13,627) ----------- ---------- ------------ ----------- ----------- ----------- Prepaid (accrued) benefit cost 2,487 8,116 18,313 (43,507) (39,069) (36,273) Additional minimum liability (24,158) (16,419) (22,549) ----------- ---------- ------------ ----------- ----------- ----------- Prepaid benefit cost (accrued benefit liability) (21,671) (8,303) (4,236) (43,507) (39,069) (36,273) Intangible asset 1,464 2,095 2,727 Accumulated other comprehensive income adjustments 22,694 14,324 19,822 ----------- ---------- ------------ ----------- ----------- ----------- Net amount recognized $ 2,487 $ 8,116 $ 18,313 $ (43,507) $ (39,069) $ (36,273) =========== ========== ============ =========== =========== =========== Increase (decrease) in minimum liability included in other comprehensive income $ (5,440) $ 3,573 $ (12,884) =========== ========== ============ Expected Benefit Payments Year Ended December 31, --------------------------------------------------------------------------------------------- 2010 through 2005 2006 2007 2008 2009 2014 ----------- ---------- ------------ ----------- ----------- ----------- Defined benefit pension plan $ 7,567 $ 7,881 $ 8,341 $ 8,968 $ 9,682 $ 61,557 Post-retirement medical plan 1,381 1,658 1,937 2,216 2,487 17,669
During 2003, Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the "Act"), which made significant changes to the federal Medicare Program. The Act provides for drug benefits under a new Medicare Part D program. The measurement of the accumulated post-retirement benefit obligation and the net post-retirement benefit cost included in 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 $220,635 and $197,623 at December 31, 2004 and 2003, respectively. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) The following table presents the components of net periodic benefit cost for the years ended December 31, 2004, 2003 and 2002:
Years Ended December 31, Years Ended December 31, Defined Benefit Pension Plan Post-Retirement Medical Plan ------------------------------------------- ----------------------------------- 2004 2003 2002 2004 2003 2002 ------------ ----------- ----------- --------- --------- -------- Components of net periodic benefit cost: Service cost $ 8,576 $ 8,269 $ 8,977 $ 2,891 $ 2,046 $ 3,516 Interest cost 13,317 12,275 11,406 2,735 2,269 3,138 Expected return on plan assets (14,933) (12,954) (14,782) Amortization of transition obligation (1,514) (1,514) (1,514) 808 Amortization of unrecognized prior service costs 632 632 632 (713) (713) 161 Amortization of gain from earlier periods 2,751 3,489 664 261 ------------ ----------- ----------- --------- --------- -------- Net periodic benefit cost $ 8,829 $ 10,197 $ 4,719 $ 5,577 $ 3,863 $ 7,623 ============ =========== =========== ========= ========= ======== The following table presents the assumptions used in determining benefit obligations for the years ended December 31, 2004, 2003 and 2002: Pension Benefits Post-Retirement Medical Plan ------------------------------------------- ----------------------------------- 2004 2003 2002 2004 2003 2002 ------------ ----------- ----------- --------- --------- -------- Discount rate 6.00% 6.25% 6.75% 6.00% 6.25% 6.75% Expected return on plan asset 8.00% 8.00% 8.00% Rate of compensation increase 3.19% 3.44% 3.92% 3.19% 3.44% 3.92%
The Company-sponsored post-retirement medical plan (the "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 2004, 2003 or 2002. 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.
The following table presents what a one-percentage-point change would have on assumed health care cost trend rates: One Percentage One Percentage Point Increase Point Decrease ---------------------- --------------------- Increase (decrease) on total of service and interest cost on components $ 529 $ (451) Increase (decrease) on post-retirement benefit obligation 4,211 (2,692) GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) The following table presents how the Company's pension plan assets are invested at December 31, 2004 and 2003: December 31, ---------------------------------------------- Asset Category: 2004 2003 ---------------------- -------------------- Equity securities 64% 61% Debt securities 29% 25% Other 7% 14% ---------------------- -------------------- Total 100% 100% ====================== ==================== The following table presents the Company's target allocation for invested plan assets at December 31, 2005: Asset Category: December 31, 2005 -------------------------- Equity securities 60% Debt securities 30% Other 10% -------------------------- Total 100% ==========================
The Company does not expect to make contributions to its pension plan in 2005. 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 50% 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, 2004, 2003 and 2002 totaled $7,363, $6,646 and $7,257, respectively. The Company has an executive 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 $16,810 and $15,350 at December 31, 2004 and 2003, respectively. The participant deferrals earned interest at the average rate of 6.56% during 2004. The interest rate is based on the Moody's Average Annual Corporate Bond Index rate plus 0.45% for actively employed participants and fixed rates ranging from 7.25% to 8.3% for retired participants. Interest expense related to this plan was $1,184, $1,087 and $1,085 for the years ended December 31, 2004, 2003 and 2002, respectively. The Company has a deferred compensation plan for regional sales managers and individual sales managers and a deferred compensation plan for producers providing select regional group managers, individual sales managers and producers with the opportunity to participate in an unfunded deferred GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) compensation program. Under this program, participants may defer compensation and earn interest on the amounts deferred. The program is not qualified under Section 401 of the Internal Revenue Code. Effective January 1, 2005, this program will no longer accept deferrals. Participant deferrals, which are reflected in other liabilities, are $6,339 and $6,576 at December 31, 2004 and 2003, respectively. The participant deferrals earned interest at the average rate of 4.50% during 2004. The interest rate is based on an annual rate determined by the Company. The interest expense related to this plan was $291, $362 and $ 374 for the years ended December 31, 2004, 2003 and 2002, respectively. The Company has a non-qualified deferred compensation plan providing a select group of management or highly compensated individuals with the opportunity to participate in an unfunded deferred compensation program. Under the program, participants may defer a portion of their compensation and earn interest on the amount deferred. The program is not qualified under Section 401 of the Internal Revenue Code. Participant deferrals, which are reflected in other liabilities, are $9,246 and $8,435 at December 31, 2004 and 2003, respectively. Participant deferrals earned interest at rates ranging from 1.11% to 20.84% during 2004. The interest rate is based on the rates earned on the investments elected by the participants. 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 was $2,966, $3,073 and 2,494 for the years ended December 31, 2004, 2003 and 2002, respectively. The total liability of $27,185 and $24,942 at December 31, 2004 and 2003, respectively, is included in other liabilities. 11. FEDERAL INCOME TAXES The following table presents a reconciliation between the statutory federal income tax rate and the Company's effective income tax rate for the years 2004, 2003 and 2002:
2004 2003 2002 ----------------- ----------------- ---------------- Statutory federal income tax rate 35.0 % 35.0 % 35.0 % Tax effect of: Reduction in tax contingency (0.3) (2.1) (3.3) Investment income not subject to federal tax (1.3) (2.1) (1.4) Tax credits (2.4) (0.2) Other, net .5 1.8 1.4 ----------------- ----------------- ---------------- Effective income tax rate 31.5 % 32.6 % 31.5 % ================= ================= ================
The Company has reduced its liability in each of the last three years for tax contingencies due to the completion of Internal Revenue Service examinations. Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. The tax effect of temporary differences, which give rise to the deferred tax assets and liabilities as of December 31, 2004 and 2003 are as follows: GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts)
December 31, ------------------------------------------------------------------------ 2004 2003 ---------------------------------- ---------------------------------- Deferred Deferred Deferred Deferred Tax Tax Tax Tax Asset Liability Asset Liability --------------- -------------- -------------- --------------- Policyholder reserves $ 334,357 $ $ 358,014 $ Deferred policy acquisition costs 127,563 96,067 Deferred acquisition cost proxy tax 137,867 126,662 Investment assets 242,297 277,358 Other 36,481 8,720 --------------- -------------- -------------- --------------- Total deferred taxes $ 508,705 $ 369,860 $ 493,396 $ 373,425 =============== ============== ============== ===============
Amounts included for investment assets above include $75,726 and $74,326 related to the unrealized gains on the Company's fixed maturities available-for-sale at December 31, 2004 and 2003, 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 at December 31, 2004 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
The following table presents the composition of other comprehensive income for the year ended December 31, 2004: Tax Before Tax (Expense) Net of Tax Amount Benefit Amount ----------------- ----------------- ----------------- Unrealized gains on available-for-sale securities: Net changes during the year related to cash flow hedges $ 7,326 $ (2,564) $ 4,762 Unrealized holding gains (losses) arising during the period (12,706) 4,448 (8,258) Less: reclassification adjustment for (gains) losses realized in net income (35,908) 12,567 (23,341) ----------------- ----------------- ----------------- Net unrealized gains (losses) (41,288) 14,451 (26,837) Reserve and deferred policy acquisition costs adjustment 35,773 (12,521) 23,252 ----------------- ----------------- ----------------- Net unrealized gains (losses) (5,515) 1,930 (3,585) Minimum pension liability adjustment (8,370) 2,930 (5,440) ----------------- ----------------- ----------------- Other comprehensive income (loss) $ (13,885) $ 4,860 $ (9,025) ================= ================= ================= GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) The following table presents the composition of other comprehensive income for the year ended December 31, 2003: Tax Before-Tax (Expense) Net-of-Tax Amount 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 income (22,824) 7,989 (14,835) ----------------- ----------------- ----------------- Net unrealized gains (losses) (28,016) 9,807 (18,209) Reserve and deferred policy acquisition costs 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) ================= ================= ================= The following table presents the composition of other comprehensive income for the year ended December 31, 2002: Tax Before-Tax (Expense) Net-of-Tax Amount or Benefit Amount ----------------- ----------------- ----------------- Unrealized gains on available-for-sale securities: Net changes during the year related to cash flow hedges $ (7,486) $ 2,620 $ (4,866) Unrealized holding gains (losses) arising during the period 192,079 (67,290) 124,789 Less: reclassification adjustment for (gains) losses realized in net income (8,004) 2,802 (5,202) ----------------- ----------------- ----------------- Net unrealized gains (losses) 176,589 (61,868) 114,721 Reserve and deferred policy acquisition costs 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 (loss) $ 114,086 $ (39,977) $ 74,109 ================= ================= =================
13. STOCKHOLDER'S EQUITY, DIVIDEND RESTRICTIONS AND OTHER MATTERS At December 31, 2004 and 2003, the Company had 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. Dividends in the amount of $163,230, $75,711 and $170,572, were paid on common stock in 2004, 2003 and 2002, 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 years ended December 31, 2004, 2003 and 2002 are as follows: GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts)
Year Ended December 31, -------------------------------------------------------- 2004 2003 2002 ---------------- ----------------- --------------- (Unaudited) Net income (loss) $ 402,341 $ (75,626) $ 205,749 Capital and surplus 1,477,425 1,281,191 1,292,292
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. Unaudited statutory surplus and net gains from operations at December 31, 2004 were $1,477,425 and 496,470, respectively. The Company should be able to pay up to $496,470 (unaudited) of dividends in 2005. 14. STOCK OPTIONS The Parent has a stock option plan (the "Lifeco plan") that provides for the granting of options of its common shares to certain officers and employees of its subsidiaries, including the Company. Options may be granted with exercise prices not less than the market price on the date of the grant. Termination of employment prior to vesting results in the forfeiture of the options. The stock of Power Financial Corporation ("PFC"), which is the parent corporation of Lifeco, and Lifeco split on July 21, 2004 and October 4, 2004, respectively. All prior year numbers have been restated to reflect the stock splits. As of December 31, 2004, 2003 and 2002, stock available for award to Company employees under the Lifeco plan aggregated 5,588,588, 6,068,688 and 7,834,688 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 vested and became 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 556,000 and 3,664,000 in 1998 and 1997, respectively, became exercisable, if certain cumulative financial targets were attained by the end of 2001. A total of 351,022 options vested and became exercisable. The exercise period runs from June 26, 2007 Additional variable options granted in 2004, 2003, 2001, 2000 and 1998 totaling 0, 200,000, 160,000, 240,000 and 760,000 shares, respectively, become exercisable if certain sales or financial targets are attained. During 2004, 2003 and 2002, none of these options vested and accordingly, the Company did not recognize compensation expense. If exercisable, the exercise period expires ten years from the date of grant. The following table summarizes the status of, and changes in, the Lifeco plan options granted to Company employees which are outstanding and the weighted-average exercise price (the "WAEP") for 2004, 2003 and 2002. 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:
2004 2003 2002 -------------------------- -------------------------- ---------------------------- Options WAEP Options WAEP Options WAEP --------------------------- ------------- --------- ------------ ---------- ------------- ---------- Outstanding, Jan. 1 7,754,314 $ 8.09 8,894,290 $ 6.83 12,796,298 $ 5.83 Granted 242,000 18.96 1,706,000 13.41 349,000 11.08 Exercised 1,248,834 6.65 972,352 5.43 2,718,982 3.58 Expired or canceled 473,276 14.36 1,873,624 6.98 1,532,026 5.51 ------------ --------- ---------- ---------- ------------- ---------- Outstanding, Dec 31 6,274,204 $ 11.87 7,754,314 $ 10.29 8,894,290 $ 6.83 ============= ========= =========== ========== ============= ========== Options exercisable At year-end 4,195,804 $ 9.98 4,554,584 $ 8.09 4,243,276 $ 5.84 ============ ========= ============ ========== ============= ========== GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) 2004 2003 2002 Options WAEP Options WAEP Options WAEP Weighted average fair value of options granted during year $ 4.80 $ 3.49 $ 3.73 ============ ============ ============
The following table summarizes the range of exercise prices for outstanding Lifeco common stock options granted to Company employees at December 31, 2004:
Outstanding Exercisable -------------------------------------------------- --------------------------------- Average Average Average Exercise Options Life Exercise Options Exercise Price Range Outstanding Remaining Price Outstanding Price --------------------- ---------------- ------------- ------------- ---------------- ------------- $3.53 - $6.76 686,800 1.93 $ 4.84 686,800 $ 4.84 $8.42 - $11.22 2,494,304 4.99 9.24 2,401,704 9.25 $14.28 - $20.93 3,093,100 7.60 15.55 1,107,300 14.75
Of the exercisable Lifeco options, 3,870,404 relate to fixed option grants and 325,400 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 its common shares 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. The following table summarizes the status of, and changes in, the PFC plan options granted to Company officers and their WAEP for 2004, 2003 and 2002. 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:
2004 2003 2002 ------------------------ -------------------------- -------------------------- Options WAEP Options WAEP Options WAEP ------------ --------- ------------- --------- ------------- --------- Outstanding, Jan 1, 0 $ 0.00 0 $ 0.00 140,000 $ 1.08 Exercised 0 0.00 0 0.00 (140,000) 1.11 ------------ --------- ------------- --------- ------------- --------- Outstanding, Dec 31, 0 0.00 0 $ 0.00 0 $ 0.00 ============ ========= ============= ========= ============= ========= Options exercisable at year-end 0 $ 0.00 0 $ 0.00 0 $ 0.00 ------------ --------- ------------- --------- ------------- ---------
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:
Granted During The Year Ended December 31, -------------------------------------------------------- 2004 2003 2002 ---------------- ----------------- --------------- Dividend yield 2.58% 2.81% 2.45% Expected volatility 24.64% 26.21% 31.67% Risk free interest rate 4.33% 4.48% 5.13% Expected duration 6.7 years 7 years 7 years
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) 15. SEGMENT INFORMATION The Company has two reportable segments: Great-West Healthcare 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 individuals, public and not-for-profit employers and corporations, 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. The accounting policies of the segments are the same as those described in Note 1. The Company evaluates performance of its reportable segments based on their profitability from operations after income taxes. The Company's operations are not materially dependent on one or a few customers, brokers or agents. The following table summarizes segment financial information for the year ended and as of December 31, 2004: Year Ended December 31, 2004 --------------------------------------------------------------- Great-West Financial Operations: Healthcare Services Total ------------------ ------------------- ------------------ Revenue: Premium income $ 261,957 $ 311,303 $ 573,260 Fee income 649,113 266,531 915,644 Net investment income 46,253 987,054 1,033,307 Realized investment gains 15,248 42,699 57,947 ------------------ ------------------- ------------------ Total revenue 972,571 1,607,587 2,580,158 ------------------ ------------------- ------------------ Benefits and Expenses: Benefits 68,306 1,067,499 1,135,805 Operating expenses 680,563 287,150 967,713 ------------------ ------------------- ------------------ Total benefits and expenses 748,869 1,354,649 2,103,518 ------------------ ------------------- ------------------ Net operating income before income taxes 223,702 252,938 476,640 Income taxes 74,541 75,679 150,220 ------------------ ------------------- ------------------ Net income $ 149,161 $ 177,259 $ 326,420 ================== =================== ================== December 31, 2004 --------------------------------------------------------------- Assets: Great-West Financial Healthcare Services Total ------------------ ------------------- ------------------ Investment assets $ 1,564,644 $ 18,088,365 $ 19,653,009 Other assets 274,914 2,982,571 3,257,485 Separate account assets 14,155,397 14,155,397 ------------------ ------------------- ------------------ Total assets $ 1,839,558 $ 35,226,333 $ 37,065,891 ================== =================== ================== GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) The following table summarizes segment financial information for the year ended and as of December 31, 2003: Year Ended December 31, 2003 --------------------------------------------------------------- Great-West Financial Operations: 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 taxes 261,345 210,296 471,641 Income taxes 88,104 65,516 153,620 ------------------ ------------------- ------------------ Net income $ 173,241 $ 144,780 $ 318,021 ================== =================== ================== December 31, 2003 --------------------------------------------------------------- Assets: Great-West Financial Healthcare Services Total ------------------ ------------------- ------------------ Investment assets $ 1,351,871 $ 18,347,959 $ 19,699,830 Other assets 275,005 3,459,820 3,734,825 Separate account assets 13,175,480 13,175,480 ------------------ ------------------- ------------------ Total assets $ 1,626,876 $ 34,983,259 $ 36,610,135 ================== =================== ================== The following table summarizes segment financial information for the year ended and as of December 31, 2002: Year Ended December 31, 2002 --------------------------------------------------------------- Great-West Financial Operations: 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 taxes 203,502 210,250 413,752 Income taxes 67,198 63,017 130,215 ------------------ ------------------ ----------------- Net income $ 136,304 $ 147,233 $ 283,537 ================== ================== ================= GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In Thousands, Except Share Amounts) The following table, which summarizes premium and fee income by segment, represents supplemental information for the years ended December 31, 2004, 2003 and 2002: Year Ended December 31, ---------------------------------------------------------------- 2004 2003 2002 ------------------ ------------------- ------------------- Premium Income: Great-West Healthcare: Group Life & Health $ 261,957 $ 838,194 $ 960,191 ------------------ ------------------- ------------------- Total Great-West Healthcare 261,957 838,194 960,191 ------------------ ------------------- ------------------- Financial Services: Retirement Services 1,640 824 15 Individual Markets 309,663 1,413,879 159,889 ------------------- ------------------- ------------------ Total Financial Services 311,303 1,414,703 159,904 ------------------ ------------------- ------------------- Total premium income $ 573,260 $ 2,252,897 $ 1,120,095 ================== =================== =================== Year Ended December 31, ---------------------------------------------------------------- 2004 2003 2002 ------------------ ------------------- ------------------- Fee Income: Great-West Healthcare: Group Life & Health (uninsured plans) $ 649,113 $ 607,369 $ 660,423 ------------------ ------------------- ------------------- Total Great-West Healthcare 649,113 607,369 660,423 ------------------ ------------------- ------------------- Financial Services: Retirement Services 226,958 199,374 196,972 Individual Markets 39,573 33,329 26,167 ------------------ ------------------- ------------------- Total Financial Services 266,531 232,703 223,139 ------------------ ------------------- ------------------- Total fee income $ 915,644 $ 840,072 $ 883,562 ================== =================== ===================
16. OBLIGATIONS RELATING TO DEBT AND LEASES The Company enters into operating leases primarily for office space. The following table shows, as of December 31, 2004, scheduled related party debt repayments and minimum annual rental commitments for operating leases having initial or remaining non-cancelable lease terms in excess of one year during the years 2005 through 2009.
2005 2006 2007 2008 2009 Thereafter ---------- ---------- ----------- ---------- ----------- -------------- Related party notes $ $ 25,000 $ $ $ $ 195,000 Operating leases 21,968 19,471 17,935 17,463 16,019 7,279 ---------- ---------- ----------- ---------- ----------- -------------- Total contractual obligations $ 21,968 $ 44,471 $ 17,935 $ 17,463 $ 16,019 $ 202,279 ========== ========== =========== ========== =========== ==============
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. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY SCHEDULE III SUPPLEMENTAL INSURANCE INFORMATION (In Thousands)
Financial Healthcare Services As of and for the year ended December 31, 2004 Segment Segment Total - ---------------------------------------------- ----------------- ---------------- ----------------- Deferred policy acquisition costs $ $ 301,603 $ 301,603 Future policy benefits, losses, claims, expenses 323,975 17,580,163 17,904,138 Unearned premiums 37,749 432 38,181 Other policy claims and benefits payable 564,623 434,622 999,245 Premium income 261,957 311,303 573,260 Net investment income 46,253 987,054 1,033,307 Benefits, claims, losses and settlement expenses 68,306 1,067,499 1,135,805 Amortization of deferred policy acquisition costs 40,536 40,536 Other operating expenses 680,563 287,150 967,713 Financial Healthcare Services As of and for the year ended December 31, 2003 Segment Segment Total - ---------------------------------------------- ----------------- ---------------- ----------------- Deferred policy acquisition costs $ $ 284,866 $ 284,866 Future policy benefits, losses, claims, expenses 569,425 18,051,633 18,621,058 Unearned premiums 28,475 545 29,020 Other policy claims and benefits payable 623,337 429,965 1,053,302 Premium income 838,194 1,414,703 2,252,897 Net investment income 72,191 916,209 988,400 Benefits, claims, losses and settlement expenses 567,603 2,116,001 2,683,604 Amortization of deferred policy acquisition costs 36,283 36,283 Other operating expenses 699,146 266,538 965,684 Financial Healthcare Services For the year ended December 31, 2002 Segment Segment Total - ------------------------------------ ----------------- ---------------- ----------------- Premium income $ 960,191 $ 159,904 $ 1,120,095 Net investment income 67,923 851,442 919,365 Benefits, claims, losses and settlement expenses 761,481 831,272 1,592,753 Amortization of deferred policy acquisition costs 38,707 38,707 Other operating expenses 732,472 225,671 958,143
COLI VUL-2 Series Account FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AIM V.I. CORE AIM V.I. AIM V.I. AIM V.I. AMERICAN AMERICAN EQUITY FINANCIAL HEALTH TECHNOLOGY CENTURY VP CENTURY VP PORTFOLIO SERVICES SCIENCES PORTFOLIO INCOME & INTERNATIONAL PORTFOLIO PORTFOLIO GROWTH IV PORTFOLIO PORTFOLIO -------------------------------------------------------------------------------- ------------ ------------ ----------- ------------ ------------ ------------ ASSETS: Investments at market value (1) $ 1,955,465 $ 32,585 $ 32,712 $ 37,269 $ 136,430 $ 167,169 Investment income due and accrued ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------ Total assets 1,955,465 32,585 32,712 37,269 136,430 167,169 ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------ LIABILITIES: Due to Great West Life & Annuity Insurance Company 171 3 3 3 12 14 ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------ Total liabilities 171 3 3 3 12 14 ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------ NET ASSETS $ 1,955,294 $ 32,582 $ 32,709 $ 37,266 $ 136,418 $ 167,155 ============ ============ =========== ============ ============ ============ ============ ============ =========== ============ ============ ============ NET ASSETS REPRESENTED BY: Accumulation units $ 1,955,294 $ 32,582 $ 32,709 $ 37,266 $ 136,418 $ 167,155 ============ ============ =========== ============ ============ ============ ============ ============ =========== ============ ============ ============ ACCUMULATION UNITS OUTSTANDING 187,378 2,856 2,965 4,128 12,679 17,315 UNIT VALUE (ACCUMULATION) $ 10.44 $ 11.41 $ 11.03 $ 9.03 $ 10.76 $ 9.65 ============ ============ =========== ============ ============ ============ ============ ============ =========== ============ ============ ============ (1) Cost of investments: $ 1,890,578 $ 31,839 $ 31,838 $ 35,963 $ 112,612 $ 137,515 Shares of investments: 105,644 2,230 1,731 3,001 18,638 22,744 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, 2004 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AMERICAN AMERICAN DREYFUS STOCK DREYFUS VIF FEDERATED FEDERATED CENTURY VP CENTURY VP INDEX APPRECIATION AMERICAN GROWTH ULTRA VALUE PORTFOLIO PORTFOLIO LEADERS FUND STRATEGIES PORTFOLIO ORTFOLIO II FUND II --------------------------------------------------------------------------------- ------------- ---------- ------------- ------------ ------------ ------------ ASSETS: Investments at market value (1) $ 663 $ 143,296 $ 4,747,770 $ 161,655 $ 750,536 $ 12,451 Investment income due and accrued ------------- ---------- ------------- ------------ ------------ ------------ ------------- ---------- ------------- ------------ ------------ ------------ Total assets 663 143,296 4,747,770 161,655 750,536 12,451 ------------- ---------- ------------- ------------ ------------ ------------ ------------- ---------- ------------- ------------ ------------ ------------ LIABILITIES: Due to Great West Life & Annuity Insurance Company 12 382 14 65 1 ------------- ---------- ------------- ------------ ------------ ------------ ------------- ---------- ------------- ------------ ------------ ------------ Total liabilities 12 382 14 65 1 ------------- ---------- ------------- ------------ ------------ ------------ ------------- ---------- ------------- ------------ ------------ ------------ NET ASSETS $ 663 $ 143,284 $ 4,747,388 $ 161,641 $ 750,471 $ 12,450 ============= ========== ============= ============ ============ ============ ============= ========== ============= ============ ============ ============ NET ASSETS REPRESENTED BY: Accumulation units $ 663 $ 143,284 $ 4,747,388 $ 161,641 $ 750,471 $ 12,450 ============= ========== ============= ============ ============ ============ ============= ========== ============= ============ ============ ============ ACCUMULATION UNITS OUTSTANDING 61 8,621 480,905 15,699 65,710 1,208 UNIT VALUE (ACCUMULATION) $ 10.87 $ 16.62 $ 9.87 $ 10.30 $ 11.42 $ 10.31 ============= ========== ============= ============ ============ ============ ============= ========== ============= ============ ============ ============ (1) Cost of investments: $ 623 $ 122,105 $ 4,161,109 $ 151,045 $ 688,543 $ 10,829 Shares of investments: 65 16,377 153,699 4,546 36,310 592 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, 2004 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- FEDERATED FEDERATED FIDELITY VIP FIDELITY VIP FIDELITY VIP JANUS ASPEN HIGH INCOME INTERNATIONAL CONTRAFUND GROWTH INVESTMENT SERIES BOND FUND II EQUITY FUND II PORTFOLIO SVC PORTFOLIO SVC GRADE BOND BALANCED II II PORTFOLIO PORTFOLIO SVC II --------------------------------------------------------------------------------------- ------------- ------------- ------------- ------------ ------------ ------------- ASSETS: Investments at market value (1) $ 376,198 $ 259,112 $ 1,830,434 $ 1,289,701 $ 5,706,122 $ 1,916,418 Investment income due and accrued ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- Total assets 376,198 259,112 1,830,434 1,289,701 5,706,122 1,916,418 ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- LIABILITIES: Due to Great West Life & Annuity 33 22 159 112 498 146 Insurance Company ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- Total liabilities 33 22 159 112 498 146 ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- NET ASSETS $ 376,165 $ 259,090 $ 1,830,275 $ 1,289,589 $ 5,705,624 $ 1,916,272 ============= ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= NET ASSETS REPRESENTED BY: Accumulation units $ 376,165 $ 259,090 $ 1,830,275 $ 1,289,589 $ 5,705,624 $ 1,916,272 ============= ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ACCUMULATION UNITS OUTSTANDING 29,712 26,836 144,176 167,459 445,248 155,003 UNIT VALUE (ACCUMULATION) $ 12.66 $ 9.65 $ 12.69 $ 7.70 $ 12.81 $ 12.36 ============= ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= (1) Cost of investments: $ 369,280 $ 219,949 $ 1,626,055 $ 1,244,782 $ 5,769,471 $ 1,812,874 Shares of investments: 45,878 19,600 69,466 40,762 436,248 78,574 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, 2004 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN JANUS ASPEN JANUS ASPEN JANUS ASPEN MAXIM MAXIM ARIEL SERIES SERIES SERIES GROWTH SERIES AGGRESSIVE MIDCAP CAPITAL FLEXIBLE PORTFOLIO WORLDWIDE PROFILE I VALUE APPRECIATION INCOME GROWTH PORTFOLIO PORTFOLIO I PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------------- ------------- ------------- ------------- ------------ ------------ ------------- ASSETS: Investments at market value (1) $ 742,437 $ 5,440,411 $ 15,531 $ 1,058,307 $ 222,257 $ 3,248,618 Investment income due and accrued ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- Total assets 742,437 5,440,411 15,531 1,058,307 222,257 3,248,618 ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- LIABILITIES: Due to Great West Life & Annuity 65 475 1 81 19 247 Insurance Company ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- Total liabilities 65 475 1 81 19 247 ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- NET ASSETS $ 742,372 $ 5,439,936 $ 15,530 $ 1,058,226 $ 222,238 $ 3,248,371 ============= ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= NET ASSETS REPRESENTED BY: Accumulation units $ 742,372 $ 5,439,936 $ 15,530 $ 1,058,226 $ 222,238 $ 3,248,371 ============= ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ACCUMULATION UNITS OUTSTANDING 61,238 387,358 1,523 119,911 17,810 175,778 UNIT VALUE (ACCUMULATION) $ 12.12 $ 14.04 $ 10.20 $ 8.83 $ 12.48 $ 18.48 ============= ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= (1) Cost of investments: $ 617,743 $ 5,531,942 $ 14,879 $ 992,031 $ 199,846 $ 3,112,974 Shares of investments: 30,205 448,139 774 39,519 19,078 138,239 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, 2004 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ MAXIM ARIEL MAXIM MAXIM INVESCO MAXIM LOOMIS MAXIM MFS MAXIM SMALL-CAP CONSERVATIVE ADR PORTFOLIO SAYLES BOND SMALL-CAP MODERATE VALUE PROFILE I PORTFOLIO GROWTH PROFILE I PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------------- ------------- ------------- ------------- ------------ ------------ ------------- ASSETS: Investments at market value (1) $ 1,817,032 $ 45,163 $ 450,247 $ 2,917,193 $ 1,169,613 $ 140,819 Investment income due and accrued ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- Total assets 1,817,032 45,163 450,247 2,917,193 1,169,613 140,819 ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- LIABILITIES: Due to Great West Life & Annuity 158 4 39 253 96 12 Insurance Company ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- Total liabilities 158 4 39 253 96 12 ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- NET ASSETS $ 1,816,874 $ 45,159 $ 450,208 $ 2,916,940 $ 1,169,517 $ 140,807 ============= ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= NET ASSETS REPRESENTED BY: Accumulation units $ 1,816,874 $ 45,159 $ 450,208 $ 2,916,940 $ 1,169,517 $ 140,807 ============= ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ACCUMULATION UNITS OUTSTANDING 137,039 3,499 36,783 167,407 121,113 11,073 UNIT VALUE (ACCUMULATION) $ 13.26 $ 12.91 $ 12.24 $ 17.42 $ 9.66 $ 12.72 ============= ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= (1) Cost of investments: $ 1,607,148 $ 43,618 $ 368,544 $ 2,501,908 $ 987,582 $ 131,287 Shares of investments: 129,881 4,368 26,162 236,210 72,647 12,825 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, 2004 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- MAXIM MAXIM MAXIM MONEY MAXIM T. ROWE MAXIM U.S. NEUBERGER MODERATELY MODERATELY MARKET PRICE GOVERNMENT BERMAN AMT AGGRESSIVE CONSERVATIVE PORTFOLIO EQUITY/INCOME SECURITIES GUARDIAN PROFILE I PROFILE I PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------------- ------------- ------------- ------------- ------------ ------------ ------------- ASSETS: Investments at market value (1) $ 105,565 $ 1,163 $ 3,428,428 $ 811,374 $ 4,983,376 $ 794,091 Investment income due and accrued 138 ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- Total assets 105,565 1,163 3,428,566 811,374 4,983,376 794,091 ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- LIABILITIES: Due to Great West Life & Annuity 9 375 71 465 69 Insurance Company ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- Total liabilities 9 375 71 465 69 ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- NET ASSETS $ 105,556 $ 1,163 $ 3,428,191 $ 811,303 $ 4,982,911 $ 794,022 ============= ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= NET ASSETS REPRESENTED BY: Accumulation units $ 105,556 $ 1,163 $ 3,428,191 $ 811,303 $ 4,982,911 $ 794,022 ============= ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ACCUMULATION UNITS OUTSTANDING 8,415 93 304,186 68,088 365,442 62,224 UNIT VALUE (ACCUMULATION) $ 12.54 $ 12.51 $ 11.27 $ 11.92 $ 13.64 $ 12.76 ============= ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= (1) Cost of investments: $ 96,761 $ 1,163 $ 3,428,428 $ 764,687 $ 5,112,899 $ 665,634 Shares of investments: 9,228 110 3,428,428 43,669 448,953 49,109 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, 2004 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- NEUBERGER NEUBERGER NEUBERGER STI CLASSIC STI CLASSIC TOTAL COLI BERMAN AMT BERMAN AMT BERMAN AMT VARIABLE VARIABLE VUL-2 MID-CAP PARTNERS SOCIALLY TRUST CAPITAL TRUST SMALL SERIES GROWTH PORTFOLIO RESPONSIBLE APPRECIATION CAP VALUE ACCOUNT PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------------- ------------- ------------- ------------- ------------ ------------ ------------- ASSETS: Investments at market value (1) $ 366,504 $ 227,182 $ 15,779 $ 37,952 $ 355,829 $ 47,950,857 Investment income due and accrued 138 ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- Total assets 366,504 227,182 15,779 37,952 355,829 47,950,995 ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- LIABILITIES: Due to Great West Life & Annuity 32 20 1 3 31 4,176 Insurance Company ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- Total liabilities 32 20 1 3 31 4,176 ------------- ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- NET ASSETS $ 366,472 $ 227,162 $ 15,778 $ 37,949 $ 355,798 $ 47,946,819 ============= ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= NET ASSETS REPRESENTED BY: Accumulation units $ 366,472 $ 227,162 $ 15,778 $ 37,949 $ 355,798 $ 47,946,819 ============= ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ACCUMULATION UNITS OUTSTANDING 34,297 17,774 1,177 3,392 22,720 UNIT VALUE (ACCUMULATION) $ 10.69 $ 12.78 $ 13.41 $ 11.19 $ 15.66 ============= ============= ============= ============ ============ ============= ============= ============= ============ ============ (1) Cost of investments: $ 318,313 $ 199,247 $ 13,414 $ 35,639 $ 310,734 $ 45,473,431 Shares of investments: 20,555 12,401 1,128 2,311 19,412 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, 2004
- ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AIM V.I. CORE AIM V.I. AIM V.I. AIM V.I. AMERICAN AMERICAN EQUITY FINANCIAL HEALTH TECHNOLOGY CENTURY VP CENTURY VP PORTFOLIO SERVICES SCIENCES PORTFOLIO INCOME & INTERNATIONAL PORTFOLIO PORTFOLIO GROWTH IV PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------- ------------- ------------- ----------- ---------- ------------ ------------- INVESTMENT INCOME: Dividends $ 16,634 $ 232 $ $ $ 1,389 $ 763 EXPENSES: Mortality and expense risk 7,645 104 106 108 430 575 ------------- ------------- ----------- ---------- ------------ ------------- ------------- ------------- ----------- ---------- ------------ ------------- NET INVESTMENT INCOME (LOSS) 8,989 128 (106) (108) 959 188 ------------- ------------- ----------- ---------- ------------ ------------- ------------- ------------- ----------- ---------- ------------ ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) on sale of fund shares (29,850) (228) (100) (407) 1,714 5,724 Realized gain distributions ------------- ------------- ----------- ---------- ------------ ------------- ------------- ------------- ----------- ---------- ------------ ------------- Net realized gain (loss) (29,850) (228) (100) (407) 1,714 5,724 ------------- ------------- ----------- ---------- ------------ ------------- ------------- ------------- ----------- ---------- ------------ ------------- Change in net unrealized appreciation on investments 96,048 746 874 1,306 11,377 13,698 ------------- ------------- ----------- ---------- ------------ ------------- ------------- ------------- ----------- ---------- ------------ ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 75,187 $ 646 $ 668 $ 791 $ 14,050 $ 19,610 ============= ============= =========== ========== ============ ============= ============= ============= =========== ========== ============ ============= INVESTMENT INCOME RATIO (2004) 0.87% 0.75% 1.29% 0.53% ============= ============= ============ ============= ============= ============= ============ ============= INVESTMENT INCOME RATIO (2003) 1.55% 1.31% 0.49% ============= ============ ============= ============= ============ ============= INVESTMENT INCOME RATIO (2002) 1.71% 0.76% 0.82% ============= ============ ============= ============= ============ ============= INVESTMENT INCOME RATIO (2001) 1.76% 0.12% 0.02% ============= ============ ============= ============= ============ ============= 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, 2004 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AMERICAN AMERICAN DREYFUS STOCK DREYFUS VIF FEDERATED FEDERATED CENTURY VP CENTURY VP INDEX APPRECIATION AMERICAN GROWTH ULTRA VALUE PORTFOLIO PORTFOLIO LEADERS FUND STRATEGIES PORTFOLIO PORTFOLIO II FUND II --------------------------------------------------------------------------------- ------------- ----------- ----------- ------------ ------------ ------------- INVESTMENT INCOME: Dividends $ $ 1,414 $ 74,410 $ 2,663 $ 9,685 $ EXPENSES: Mortality and expense risk 2 520 14,591 566 2,703 52 ------------- ----------- ---------- ------------ ------------ ------------- ------------- ----------- ---------- ------------ ------------ ------------- NET INVESTMENT INCOME (LOSS) (2) 894 59,819 2,097 6,982 (52) ------------- ----------- ---------- ------------ ------------ ------------- ------------- ----------- ---------- ------------ ------------ ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) on sale of fund shares (6) 1,687 152,976 366 356 3,457 Realized gain distributions 1,097 ------------- ----------- ---------- ------------ ------------ ------------- ------------- ----------- ---------- ------------ ------------ ------------- Net realized gain (loss) (6) 2,784 152,976 366 356 3,457 ------------- ----------- ---------- ------------ ------------ ------------- ------------- ----------- ---------- ------------ ------------ ------------- Change in net unrealized appreciation on investments 40 12,970 155,550 3,664 51,631 (1,182) ------------- ----------- ---------- ------------ ------------ ------------- ------------- ----------- ---------- ------------ ------------ ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 32 $ 16,648 $ 368,345 $ 6,127 $ 58,969 $ 2,223 ============= =========== ========== ============ ============ ============= ============= =========== ========== ============ ============ ============= INVESTMENT INCOME RATIO (2004) 1.09% 2.04% 1.88% 1.43% =========== ========== ============ ============ =========== ========== ============ ============ INVESTMENT INCOME RATIO (2003) 1.65% 0.93% 1.51% ========== ============ ============ ========== ============ ============ INVESTMENT INCOME RATIO (2002) 0.76% 1.50% 1.66% 0.08% =========== ========== ============ ============ =========== ========== ============ ============ INVESTMENT INCOME RATIO (2001) 1.19% 1.85% ========== ============ ========== ============ The accompanying notes are an integral part of these financial statements. (Continued) COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2004 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ FEDERATED FEDERATED FIDELITY VIP FIDELITY VIP FIDELITY VIP JANUS ASPEN HIGH INCOME INTERNATIONAL CONTRAFUND GROWTH INVESTMENT SERIES BOND FUND II EQUITY FUND II PORTFOLIO SVC PORTFOLIO SVC GRADE BOND BALANCED II II PORTFOLIO PORTFOLIO SVC II ------------------------------------------------------------------------------------ ------------- ------------- ------------- ------------ ------------ ---------- INVESTMENT INCOME: Dividends $ 5,725 $ $ 803 $ 2,408 $ 265,918 $ 37,952 EXPENSES: Mortality and expense risk 410 940 3,746 4,932 23,158 5,420 ------------- -------- ------------- ------------ ------------ ------------- ------------- -------- ------------- ------------ ------------ ------------- NET INVESTMENT INCOME (LOSS) 5,315 (940) (2,943) (2,524) 242,760 32,532 ------------- -------- ------------- ------------ ------------ ------------- ------------- -------- ------------- ------------ ------------ ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) on sale of fund shares 1,757 346 28,452 (8,867) (273) 68,660 Realized gain distributions 198,230 ------------- -------- ------------- ------------ ------------ ------------- ------------- -------- ------------- ------------ ------------ ------------- Net realized gain (loss) 1,757 346 28,452 (8,867) 197,957 68,660 ------------- -------- ------------- ------------ ------------ ------------- ------------- -------- ------------- ------------ ------------ ------------- Change in net unrealized appreciation (depreciation) on investments 2,902 31,750 140,432 88,510 (220,473) 3,876 ------------- -------- ------------- ------------ ------------ ------------- ------------- -------- ------------- ------------ ------------ ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 9,974 $ 31,156 $ 165,941 $ 77,119 $ 220,244 $ 105,068 ============= ======== ============= ============ ============ ============= ============= ======== ============= ============ ============ ============= INVESTMENT INCOME RATIO (2004) 5.59% 0.09% 0.20% 4.59% 2.80% ============= ============= ============ ============ ============= ============= ============= ============ ============ ============= INVESTMENT INCOME RATIO (2003) 0.79% 0.09% 3.34% 2.17% ============= ============ ============ ============= ============= ============ ============ ============= INVESTMENT INCOME RATIO (2002) 8.43% 0.11% 1.44% 2.90% ============= ============ ============ ============= ============= ============ ============ ============= INVESTMENT INCOME RATIO (2001) 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, 2004 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ JANUS ASPEN JANUS ASPEN JANUS ASPEN JANUS ASPEN MAXIM MAXIM ARIEL SERIES SERIES SERIES GROWTH SERIES AGGRESSIVE MIDCAP CAPITAL FLEXIBLE PORTFOLIO WORLDWIDE PROFILE I VALUE APPRECIATION INCOME GROWTH PORTFOLIO PORTFOLIO I PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------- ------------- ------------- ------------- ------------ ------------ ------- INVESTMENT INCOME: Dividends $ 1,708 $ 306,662 $ 22 $ 9,278 $ 3,058 $ 5,922 EXPENSES: Mortality and expense risk 2,573 20,863 30 3,255 262 8,801 ------------- ------------- --------- ------------ ----------- ------------- ------------- ------------- --------- ------------ ----------- ------------- NET INVESTMENT INCOME (LOSS) (865) 285,799 (8) 6,023 2,796 (2,879) ------------- ------------- --------- ------------ ----------- ------------- ------------- ------------- --------- ------------ ----------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) on sale of fund shares 20,752 18,580 (4) (10,581) 98 339,599 Realized gain distributions 39,729 93,487 ------------- ------------- --------- ------------ ----------- ------------- ------------- ------------- --------- ------------ ----------- ------------- Net realized gain (loss) 20,752 58,309 (4) (10,581) 98 433,086 ------------- ------------- --------- ------------ ----------- ------------- ------------- ------------- --------- ------------ ----------- ------------- Change in net unrealized appreciation (depreciation) on investments 93,098 (159,827) 652 52,541 22,411 (190,062) ------------- ------------- --------- ------------ ----------- ------------- ------------- ------------- --------- ------------ ----------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 112,985 $ 184,281 $ 640 $ 47,983 $ 25,305 $ 240,145 ============= ============= ========= ============ =========== ============= ============= ============= ========= ============ =========== ============= INVESTMENT INCOME RATIO (2004) 0.27% 5.88% 0.20% 1.14% 3.13% 0.27% ============= ============= ========= ============ =========== ============= ============= ============= ========= ============ =========== ============= INVESTMENT INCOME RATIO (2003) 0.64% 4.73% 1.15% 0.13% ============= ============= ============ ============= ============= ============= ============ ============= INVESTMENT INCOME RATIO (2002) 5.71% 1.09% 0.23% ============= ============ ============= ============= ============ ============= INVESTMENT INCOME RATIO (2001) 0.62% 0.66% ============ ============= ============ ============= 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, 2004 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ MAXIM ARIEL MAXIM MAXIM INVESCO MAXIM LOOMIS MAXIM MFS MAXIM SMALL-CAP CONSERVATIVE ADR PORTFOLIO SAYLES BOND SMALL-CAP MODERATE VALUE PROFILE I PORTFOLIO GROWTH PROFILE I PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------- ------------- ------------- ------------- ------------ ------------ ------- INVESTMENT INCOME: Dividends $ 3,481 $ 1,234 $ 6,730 $ 204,478 $ $ 2,849 EXPENSES: Mortality and expense risk 6,329 127 1,651 10,821 3,519 329 ------------- ----------- ------------- ------------ ------------ ----------- ------------- ----------- ------------- ------------ ------------ ----------- NET INVESTMENT INCOME (LOSS) (2,848) 1,107 5,079 193,657 (3,519) 2,520 ------------- ----------- ------------- ------------ ------------ ----------- ------------- ----------- ------------- ------------ ------------ ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain on sale of fund shares 54,720 401 33,173 34,355 11,889 168 Realized gain distributions 93,171 ------------- ----------- ------------- ------------ ------------ ----------- ------------- ----------- ------------- ------------ ------------ ----------- Net realized gain 147,891 401 33,173 34,355 11,889 168 ------------- ----------- ------------- ------------ ------------ ----------- ------------- ----------- ------------- ------------ ------------ ----------- Change in net unrealized appreciation on investments 150,149 1,564 36,334 52,971 58,496 9,532 ------------- ----------- ------------- ------------ ------------ ----------- ------------- ----------- ------------- ------------ ------------ ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 295,192 $ 3,072 $ 74,586 $ 280,983 $ 66,866 $ 12,220 ============= =========== ============= ============ ============ =========== ============= =========== ============= ============ ============ =========== INVESTMENT INCOME RATIO (2004) 0.22% 3.89% 1.63% 7.56% 2.52% ============= =========== ============= ============ =========== ============= =========== ============= ============ =========== INVESTMENT INCOME RATIO (2003) 0.04% 2.23% 2.27% 6.18% ============= =========== ============= ============ ============= =========== ============= ============ INVESTMENT INCOME RATIO (2002) 1.91% 7.33% ============= ============ ============= ============ INVESTMENT INCOME RATIO (2001) 1.32% 11.35% ============= ============ ============= ============ 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, 2004 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ MAXIM MAXIM MAXIM MONEY MAXIM T. ROWE MAXIM U.S. NEUBERGER MODERATELY MODERATELY MARKET PRICE GOVERNMENT BERMAN AMT AGGRESSIVE CONSERVATIVE PORTFOLIO EQUITY/INCOME SECURITIES GUARDIAN PROFILE I PROFILE I PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------- ------------- ------------- ------------ ------------ ------------ ---------- INVESTMENT INCOME: Dividends $ 1,870 $ 30 $ 53,252 $ 11,507 $ 233,573 $ 915 EXPENSES: Mortality and expense risk 245 9 22,557 2,545 22,242 2,695 ------------- ------------- ------------ ------------ ------------ ---------- ------------- ------------- ------------ ------------ ------------ ---------- NET INVESTMENT INCOME (LOSS) 1,625 21 30,695 8,962 211,331 (1,780) ------------- ------------- ------------ ------------ ------------ ---------- ------------- ------------- ------------ ------------ ------------ ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain (loss) on sale of fund shares 4,350 (255) 0 25,126 (48,413) 1,764 Realized gain distributions 0 0 0 23,311 7,453 0 ------------- ------------- ------------ ------------ ------------ ---------- ------------- ------------- ------------ ------------ ------------ ---------- Net realized gain (loss) 4,350 (255) 0 48,437 (40,960) 1,764 ------------- ------------- ------------ ------------ ------------ ---------- ------------- ------------- ------------ ------------ ------------ ---------- Change in net unrealized appreciation (depreciation) on investments 5,367 0 0 23,773 18,093 97,754 ------------- ------------- ------------ ------------ ------------ ---------- ------------- ------------- ------------ ------------ ------------ ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 11,342 $ (234)$ 30,695 $ 81,172 $ 188,464 $ 97,738 ============= ============= ============ ============ ============ ========== ============= ============= ============ ============ ============ ========== INVESTMENT INCOME RATIO (2004) 2.53% 0.54% 0.94% 1.81% 4.20% 0.14% ============= ============= ============ ============ ============ ========== ============= ============= ============ ============ ============ ========== INVESTMENT INCOME RATIO (2003) 1.64% 0.71% 1.66% 4.54% 0.94% ============= ============ ============ ============ ========== ============= ============ ============ ============ ========== INVESTMENT INCOME RATIO (2002) 1.68% 1.36% 5.47% 0.07% ============= ============ ============ ========== ============= ============ ============ ========== INVESTMENT INCOME RATIO (2001) 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, 2004 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ NEUBERGER NEUBERGER NEUBERGER STI CLASSIC STI CLASSIC TOTAL COLI BERMAN AMT BERMAN AMT BERMAN AMT VARIABLE VARIABLE VUL-2 MID-CAP PARTNERS SOCIALLY TRUST CAPITAL TRUST SMALL SERIES GROWTH PORTFOLIO RESPONSIBLE APPRECIATION CAP VALUE ACCOUNT PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------- ------------- ----------- ------------- ------------ ------------ ---------- INVESTMENT INCOME: Dividends $ $ 15 $ $ 69 $ 685 $ 1,267,334 EXPENSES: Mortality and expense risk 1,166 501 45 87 813 177,473 ------------- ----------- ------------- ------------ ---------- ------------- ------------- ----------- ------------- ------------ ---------- ------------- NET INVESTMENT INCOME (LOSS) (1,166) (486) (45) (18) (128) 1,089,861 ------------- ----------- ------------- ------------ ---------- ------------- ------------- ----------- ------------- ------------ ---------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain on sale of fund shares 68,067 8,663 72 52 10,186 798,526 Realized gain distributions 456,478 ------------- ----------- ------------- ------------ ---------- ------------- ------------- ----------- ------------- ------------ ---------- ------------- Net realized gain 68,067 8,663 72 52 10,186 1,255,004 ------------- ----------- ------------- ------------ ---------- ------------- ------------- ----------- ------------- ------------ ---------- ------------- Change in net unrealized appreciation on investments (5,711) 18,456 1,669 2,313 42,778 726,070 ------------- ----------- ------------- ------------ ---------- ------------- ------------- ----------- ------------- ------------ ---------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 61,190 $ 26,633 $ 1,696 $ 2,347 $ 52,836 $ 3,070,935 ============= =========== ============= ============ ========== ============= ============= =========== ============= ============ ========== ============= INVESTMENT INCOME RATIO (2004) 0.01% 0.21% 0.34% =========== ============ ========== =========== ============ ========== 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, 2004 AND 2003
- ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AIM V.I. CORE EQUITY AIM V.I. AIM V.I. AIM V.I. HIGH AIM V.I. PORTFOLIO FINANCIAL HEALTH YIELD TECHNOLOGY SERVICES SCIENCES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------- ---------------------------- ---------- ------------ ------------- ---------- 2004 2003 2004 2004 2003 2004 ------------- ------------- ---------- ------------ ------------- ---------- ------------- ------------- ---------- ------------ ------------- ---------- (1) (1) (2) (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 8,989 $ 13,506 $ 128 $ (106)$ (70)$ (108) Net realized gain (loss) (29,850) (11,459) (228) (100) 3,205 (407) Change in net realized appreciation (depreciation) on investments 96,048 243,474 746 874 869 1,306 ------------- ------------- ---------- ------------ ------------- ---------- ------------- ------------- ---------- ------------ ------------- ---------- Increase in net assets resulting from operations 75,187 245,521 646 668 4,004 791 ------------- ------------- ---------- ------------ ------------- ---------- ------------- ------------- ---------- ------------ ------------- ---------- CONTRACT TRANSACTIONS: Purchase payments 237,534 485,621 10,323 10,361 17,151 10,502 Redemptions (142,869) (39,562) (1,078) (1,084) (18,092) (1,102) Transfers, net (156,445) 320,227 22,796 22,868 (17,362) 27,185 Contract maintenance charges (1,998) (1,579) (105) (104) (36) (110) ------------- ------------- ---------- ------------ ------------- ---------- ------------- ------------- ---------- ------------ ------------- ---------- Increase (decrease) in net assets resulting from contract transactions (63,778) 764,707 31,936 32,041 (18,339) 36,475 ------------- ------------- ---------- ------------ ------------- ---------- ------------- ------------- ---------- ------------ ------------- ---------- Total increase (decrease) in net assets 11,409 1,010,228 32,582 32,709 (14,335) 37,266 NET ASSETS: Beginning of period 1,943,885 933,657 14,335 ------------- ------------- ---------- ------------ ------------- ---------- ------------- ------------- ---------- ------------ ------------- ---------- End of period $ 1,955,294 $ 1,943,885 $ 32,582 $ 32,709 $ 0 $ 37,266 ============= ============= ========== ============ ============= ========== ============= ============= ========== ============ ============= ========== CHANGES IN UNITS OUTSTANDING: Units issued 37,820 85,784 3,462 3,585 2,081 4,613 Units redeemed (43,853) (5,807) (606) (620) (3,971) (485) ------------- ------------- ---------- ------------ ------------- ---------- ------------- ------------- ---------- ------------ ------------- ---------- Net increase (decrease) (6,033) 79,977 2,856 2,965 (1,890) 4,128 ============= ============= ========== ============ ============= ========== ============= ============= ========== ============ ============= ========== (1) The portfolio commenced operations on December 21, 2004. (2) 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, 2004 AND 2003 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AMERICAN CENTURY VP INCOME & AMERICAN CENTURY VP AMERICAN CENTURY VP GROWTH IV PORTFOLIO INTERNATIONAL PORTFOLIO ULTRA PORTFOLIO ------------------------------------------------------------------------ --------------------------- --------------------------- ------------- 2004 2003 2004 2003 2004 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 959 $ 818 $ 188 $ 74 $ (2) Net realized gain (loss) 1,714 (5,377) 5,724 (4,841) (6) Change in net realized appreciation on investments 11,377 29,550 13,698 26,119 40 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase in net assets resulting from operations 14,050 24,991 19,610 21,352 32 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 45,970 22,350 63,476 25,074 59 Redemptions (10,728) (20,083) (7,324) (1,409) (10) Transfers, net 1,393 (31,426) 1,293 13,610 583 Contract maintenance charges (315) (329) (583) (485) (1) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions 36,320 (29,488) 56,862 36,790 631 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase (decrease) in net assets 50,370 (4,497) 76,472 58,142 663 NET ASSETS: Beginning of period 86,048 90,545 90,683 32,541 0 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 136,418 $ 86,048 $ 167,155 $ 90,683 $ 663 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 5,319 2,988 10,174 10,239 73 Units redeemed (1,640) (6,190) (3,612) (4,271) (12) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase (decrease) 3,679 (3,202) 6,562 5,968 61 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= (1) The portfolio commenced operations on December 21, 2004. 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, 2004 AND 2003 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ AMERICAN CENTURY VP VALUE DREYFUS STOCK INDEX DREYFUS VIF APPRECIATION PORTFOLIO PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------------- ---------------------------- --------------------------- ---------------------------- 2004 2003 2004 2003 2004 2003 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 894 $ (116)$ 59,819 $ 25,891 $ 2,097 $ 558 Net realized gain (loss) 2,784 (1,063) 152,976 (79,824) 366 13,748 Change in net realized appreciation on investments 12,970 9,582 155,550 596,986 3,664 5,677 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase in net assets resulting from operations 16,648 8,403 368,345 543,053 6,127 19,983 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 63,612 319 1,100,770 216,432 75,534 49,985 Redemptions (6,382) (495) (155,586) (228,996) (7,450) (56,144) Transfers, net (5,212) 59,910 567,696 1,396,754 11,693 24,456 Contract maintenance charges (537) (233) (5,370) (4,602) (603) (527) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase in net assets resulting from contract transactions 51,481 59,501 1,507,510 1,379,588 79,174 17,770 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase in net assets 68,129 67,904 1,875,855 1,922,641 85,301 37,753 NET ASSETS: Beginning of period 75,155 7,251 2,871,533 948,892 76,340 38,587 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 143,284 $ 75,155 $ 4,747,388 $ 2,871,533 $ 161,641 $ 76,340 ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 5,060 5,290 289,815 254,897 9,060 15,911 Units redeemed (1,588) (779) (129,461) (69,775) (1,118) (12,886) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase 3,472 4,511 160,354 185,122 7,942 3,025 ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ============= 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, 2004 AND 2003 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ DREYFUS VIF FEDERATED AMERICAN LEADERS FEDERATED GROWTH STRATEGIES GROWTH & FUND II FUND II INCOME PORTFOLIO ------------------------------------------------------------------------ ------------- --------------------------- ---------------------------- 2003 2004 2003 2004 2003 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 14 $ 6,982 $ 4,438 $ (52)$ (62) Net realized gain (loss) 155 356 (1,844) 3,457 746 Change in net realized appreciation on investments 1,160 51,631 98,001 (1,182) 4,382 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase in net assets resulting from operations 1,329 58,969 100,595 2,223 5,066 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 2,720 64,486 86 3,862 17,869 Redemptions (107) (20,703) (5,869) (455) (275) Transfers, net (7,399) 180,096 6,487 (16,758) (5,864) Contract maintenance charges (28) (1,884) (1,204) (50) (63) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions (4,814) 221,995 (500) (13,401) 11,667 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase (decrease) in net assets (3,485) 280,964 100,095 (11,178) 16,733 NET ASSETS: Beginning of period 3,485 469,507 369,412 23,628 6,895 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ $ 750,471 $ 469,507 $ 12,450 $ 23,628 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 362 30,187 1,865 612 6,582 Units redeemed (822) (9,426) (1,897) (2,038) (5,020) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase (decrease) (460) 20,761 (32) (1,426) 1,562 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= (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, 2004 AND 2003 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- FEDERATED HIGH INCOME BOND FEDERATED INTERNATIONAL FIDELITY VIP CONTRAFUND FUND II EQUITY FUND II PORTFOLIO SVC II --------------------------------------------------------------------------------------- ---------------------------- --------------------------- ---------------------------- 2004 2003 2004 2003 2004 2003 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 5,315 $ 652 $ (940) $ (770)$ (2,943)$ (915) Net realized gain (loss) 1,757 17,782 346 (787) 28,452 12,245 Change in net realized appreciation on investments 2,902 4,997 31,750 57,152 140,432 63,947 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase in net assets resulting from operations 9,974 23,431 31,156 55,595 165,941 75,277 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 314 41,165 42 284,650 120,175 Redemptions (2,786) (264,964) (4,311) (2,750) (34,767) (32,600) Transfers, net 300,604 255,279 690 1,054,211 198,979 Contract maintenance charges (150) (236) (658) (580) (1,276) (315) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions 297,982 31,244 (4,237) (3,330) 1,302,818 286,239 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase in net assets 307,956 54,675 26,919 52,265 1,468,759 361,516 NET ASSETS: Beginning of period 68,209 13,534 232,171 179,906 361,516 0 ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 376,165 $ 68,209 $ 259,090 $ 232,171 $ 1,830,275 $ 361,516 ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 27,296 30,142 86 125,739 46,314 Units redeemed (3,512) (25,646) (571) (482) (14,227) (13,650) ------------- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase (decrease) 23,784 4,496 (485) (482) 111,512 32,664 ============= ============= ============ ============ ============= ============= ============= ============= ============ ============ ============= ============= (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, 2004 AND 2003 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ FIDELITY VIP GROWTH FIDELITY VIP INVESTMENT JANUS ASPEN SERIES PORTFOLIO SVC II GRADE BOND PORTFOLIO SVC II BALANCED PORTFOLIO --------------------------------------------------------------------------------- ---------------------------- --------------------------- ----------------------- 2004 2003 2004 2003 2004 2003 ------------- ------------- ------------ ------------ ---------- ----------- ------------- ------------- ------------ ------------ ---------- ----------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ (2,524)$ (3,216)$ 242,760 $ 155,978 $ 32,532 $ 27,187 Net realized gain (loss) (8,867) (55,529) 197,957 243,045 68,660 (73,631) Change in net realized appreciation (depreciation) on investments 88,510 348,619 (220,473) (161,614) 3,876 225,940 ------------- ------------- ------------ ------------ ---------- ------------ ------------- ------------- ------------ ------------ ---------- ------------ Increase in net assets resulting from operations 77,119 289,874 220,244 237,409 105,068 179,496 ------------- ------------- ------------ ------------ ---------- ------------ ------------- ------------- ------------ ------------ ---------- ------------ CONTRACT TRANSACTIONS: Purchase payments 45,265 531,980 775,666 1,477,502 66,940 218,388 Redemptions (55,148) (51,843) (469,748) (1,148,779) (59,524) (599,863) Transfers, net (452,155) 93,142 (761,143) 715,256 537,422 (38,206) Contract maintenance charges (1,638) (1,123) (6,558) (8,715) (2,235) (4,210) ------------- ------------- ------------ ------------ ---------- ------------ ------------- ------------- ------------ ------------ ---------- ------------ Increase (decrease) in net assets resulting from contract transactions (463,676) 572,156 (461,783) 1,035,264 542,603 (423,891) ------------- ------------- ------------ ------------ ---------- ------------ ------------- ------------- ------------ ------------ ---------- ------------ Total increase (decrease) in net assets (386,557) 862,030 (241,539) 1,272,673 647,671 (244,395) NET ASSETS: Beginning of period 1,676,146 814,116 5,947,163 4,674,490 1,268,601 1,512,996 ------------- ------------- ------------ ------------ ---------- ------------ ------------- ------------- ------------ ------------ ---------- ------------ End of period $ 1,289,589 $ 1,676,146 $ 5,705,624 $ 5,947,163 $1,916,272 $ 1,268,601 ============= ============= ============ ============ ========== ============ ============= ============= ============ ============ ========== ============ CHANGES IN UNITS OUTSTANDING: Units issued 88,809 102,443 80,133 267,967 93,561 85,072 Units redeemed (144,908) (22,237) (116,497) (182,028) (49,478) (124,425) ------------- ------------- ------------ ------------ ---------- ------------ ------------- ------------- ------------ ------------ ---------- ------------ Net increase (decrease) (56,099) 80,206 (36,364) 85,939 44,083 (39,353) ============= ============= ============ ============ ========== ============ ============= ============= ============ ============ ========== ============ 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, 2004 AND 2003 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ JANUS ASPEN SERIES CAPITAL JANUS ASPEN SERIES FLEXIBLE JANUS ASPEN SERIES APPRECIATION I PORTFOLIO INCOME PORTFOLIO GROWTH PORTFOLIO ---------------------------------------------------------------------------- ------------------------------------------------------------------------ --------------------------- --------------------------- ------------- 2004 2003 2004 2003 2004 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- (1) (2) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ (865)$ 500 $ 285,799 $ 223,227 $ (8) Net realized gain (loss) 20,752 8,032 58,309 96,482 (4) Change in net realized appreciation (depreciation) on investments 93,098 31,596 (159,827) (16,207) 652 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase in net assets resulting from operations 112,985 40,128 184,281 303,502 640 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 261,278 79,949 250,296 640,605 1,207 Redemptions (94,918) (24,476) (77,319) (96,947) (188) Transfers, net 38,631 329,370 (238,775) 82,455 13,907 Contract maintenance charges (389) (186) (4,874) (6,251) (36) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions 204,602 384,657 (70,672) 619,862 14,890 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase in net assets 317,587 424,785 113,609 923,364 15,530 NET ASSETS: Beginning of period 424,785 0 5,326,327 4,402,963 0 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 742,372 $ 424,785 $ 5,439,936 $ 5,326,327 $ 15,530 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 33,938 54,108 36,308 162,597 1,557 Units redeemed (13,963) (12,845) (41,689) (113,891) (34) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase (decrease) 19,975 41,263 (5,381) 48,706 1,523 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= (1) The portfolio commenced operations on April 19, 2002, but had no activity until 2003. (2) The portfolio commenced operations on December 21, 2004. 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, 2004 AND 2003 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ JANUS ASPEN SERIES WORLDWIDE MAXIM MAXIM ARIEL MIDCAP GROWTH PORTFOLIO AGGRESSIVE VALUE PORTFOLIO PROFILE I PORTFOLIO ------------------------------------------------------------------- --------------------------- ------------ ----------------------- 2004 2003 2004 2004 2003 ------------- ------------ ------------ ----------- ---------- ------------- ------------ ------------ ----------- ---------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 6,023 $ 5,860 $ 2,796 $ (2,879)$ (3,387) Net realized gain (loss) (10,581) (74,195) 98 433,086 (205,542) Change in net realized appreciation on investments 52,541 242,228 22,411 (190,062) 563,711 ------------- ------------ ----------- ------------- ---------- ------------- ------------ ----------- ------------- ---------- Increase in net assets resulting from operations 47,983 173,893 25,305 240,145 354,782 ------------- ------------ ----------- ------------- ---------- ------------- ------------ ----------- ------------- ---------- CONTRACT TRANSACTIONS: Purchase payments 17,399 233,664 9,192 338,841 246,214 Redemptions (25,715) (49,760) (2,493) (111,997) (350,092) Transfers, net 281 (9,907) 190,425 1,083,281 (21,762) Contract maintenance charges (1,453) (1,605) (191) (4,883) (4,030) ------------- ------------ ----------- ------------- ---------- ------------- ------------ ----------- ------------- ---------- Increase (decrease) in net assets resulting from contract transactions (9,488) 172,392 196,933 1,305,242 (129,670) ------------- ------------ ----------- ------------- ---------- ------------- ------------ ----------- ------------- ---------- Total increase in net assets 38,495 346,285 222,238 1,545,387 225,112 NET ASSETS: Beginning of period 1,019,731 673,446 0 1,702,984 1,477,872 ------------- ------------ ----------- ------------- ---------- ------------- ------------ ----------- ------------- ---------- End of period $ 1,058,226 $ 1,019,731 $ 222,238 $ 3,248,371 $1,702,984 ============= ============ =========== ============= ========== ============= ============ =========== ============= ========== CHANGES IN UNITS OUTSTANDING: Units issued 38,143 44,851 18,110 165,573 115,847 Units redeemed (38,821) (22,614) (300) (92,850) (128,211) ------------- ------------ ----------- ------------- ---------- ------------- ------------ ----------- ------------- ---------- Net increase (decrease) (678) 22,237 17,810 72,723 (12,364) ============= ============ =========== ============= ========== ============= ============ =========== ============= ========== (1) The portfolio commenced operations on December 21, 2004. (Continued) The accompanying notes are an integral part of these financial statements. COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENT OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2004 AND 2003 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ MAXIM ARIEL SMALL-CAP VALUE MAXIM CONSERVATIVE PROFILE MAXIM INVESCO PORTFOLIO I PORTFOLIO ADR PORTFOLIO --------------------------------------------------------------------------------- ---------------------------- -------------------------- ----------------------- 2004 2003 2004 2003 2004 2003 ------------- ------------- ------------ ----------- ----------- ---------- ------------- ------------- ------------ ----------- ----------- ---------- (1) (2) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ (2,848)$ (1,079)$ 1,107 $ 402 $ 5,079 $ 2,202 Net realized gain (loss) 147,891 38,037 401 33,173 (720) Change in net realized appreciation (depreciation) on investments 150,149 59,735 1,564 (19) 36,334 47,852 ------------- ------------- ------------ ----------- ----------- ---------- ------------- ------------- ------------ ----------- ----------- ---------- Increase in net assets resulting from operations 295,192 96,693 3,072 383 74,586 49,334 ------------- ------------- ------------ ----------- ----------- ---------- ------------- ------------- ------------ ----------- ----------- ---------- CONTRACT TRANSACTIONS: Purchase payments 254,282 58,871 9,208 317 153,071 21,706 Redemptions (56,777) (64,978) (993) (45,057) (1,925) Transfers, net 770,571 465,350 10,708 22,601 (27,079) 214,559 Contract maintenance charges (1,684) (646) (137) (443) (221) ------------- ------------- ------------ ----------- ----------- ---------- ------------- ------------- ------------ ----------- ----------- ---------- Increase in net assets resulting from contract transactions 966,392 458,597 18,786 22,918 80,492 234,119 ------------- ------------- ------------ ----------- ----------- ---------- ------------- ------------- ------------ ----------- ----------- ---------- Total increase in net assets 1,261,584 555,290 21,858 23,301 155,078 283,453 NET ASSETS: Beginning of period 555,290 0 23,301 0 295,130 11,677 ------------- ------------- ------------ ----------- ----------- ---------- ------------- ------------- ------------ ----------- ----------- ---------- End of period $ 1,816,874 $ 555,290 $ 45,159 $ 23,301 $ 450,208 $ 295,130 ============= ============= ============ =========== =========== ========== ============= ============= ============ =========== =========== ========== CHANGES IN UNITS OUTSTANDING: Units issued 119,156 66,753 3,973 1,922 29,354 27,996 Units redeemed (33,080) (15,790) (2,396) (21,304) (750) ------------- ------------- ------------ ----------- ----------- ---------- ------------- ------------- ------------ ----------- ----------- ---------- Net increase 86,076 50,963 1,577 1,922 8,050 27,246 ============= ============= ============ =========== =========== ========== ============= ============= ============ =========== =========== ========== (1) The portfolio commenced operations on April 19, 2002, but had no activity until 2003. (2) 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, 2004 AND 2003 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ MAXIM LOOMIS SAYLES BOND MAXIM MFS SMALL-CAP GROWTH MAXIM MODERATE PORTFOLIO PORTFOLIO PROFILE I PORTFOLIO --------------------------------------------------------------------------- --------------------------- --------------------------- ------------- 2004 2003 2004 2003 2004 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 193,657 $ 111,811 $ (3,519)$ (2,481)$ 2,520 Net realized gain (loss) 34,355 56,624 11,889 (49,729) 168 Change in net realized appreciation on investments 52,971 332,457 58,496 233,472 9,532 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase in net assets resulting from operations 280,983 500,892 66,866 181,262 12,220 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 186,014 5,741 106,904 67,258 21,173 Redemptions (72,732) (15,620) (42,892) (106,775) (3,445) Transfers, net 466,239 (144,623) 275,479 141,974 111,233 Contract maintenance charges (2,544) (777) (2,002) (1,620) (374) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions 576,977 (155,279) 337,489 100,837 128,587 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase in net assets 857,960 345,613 404,355 282,099 140,807 NET ASSETS: Beginning of period 2,058,980 1,713,367 765,162 483,063 0 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 2,916,940 $ 2,058,980 $ 1,169,517 $ 765,162 $ 140,807 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 51,378 14,090 58,071 53,743 16,865 Units redeemed (14,592) (24,317) (20,609) (38,972) (5,792) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase (decrease) 36,786 (10,227) 37,462 14,771 11,073 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= (1) The portfolio commenced operations on December 21, 2004. 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, 2004 AND 2003 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ MAXIM MODERATELY AGGRESSIVE MAXIM MAXIM MONEY MARKET PROFILE I PORTFOLIO MODERATELY PORTFOLIO CONSERVATIVE PROFILE I PORTFOLIO --------------------------------------------------------------------------- 2004 2003 2004 2004 2003 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income $ 1,625 $ 313 $ 21 $ 30,695 $ 22,071 Net realized gain (loss) 4,350 (63) (255) Change in net realized appreciation on investments 5,367 5,961 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from operations 11,342 6,211 (234) 30,695 22,071 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 15,616 11,331 253 2,827,729 7,548,060 Redemptions (2,519) (460) (188) (360,199) (1,423,754) Transfers, net 49,863 (1,218) 1,333 (3,932,436) (6,139,234) Contract maintenance charges (284) (119) (1) (10,433) (15,022) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase (decrease) in net assets resulting from contract transactions 62,676 9,534 1,397 (1,475,339) (29,950) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase (decrease) in net assets 74,018 15,745 1,163 (1,444,644) (7,879) NET ASSETS: Beginning of period 31,538 15,793 0 4,872,835 4,880,714 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 105,556 $ 31,538 $ 1,163 $ 3,428,191 $ 4,872,835 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 9,602 1,257 1,183 390,980 886,505 Units redeemed (4,026) (174) (1,090) (521,507) (888,623) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase (decrease) 5,576 1,083 93 (130,527) (2,118) ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= (1) The portfolio commenced operations on December 21, 2004. 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, 2004 AND 2003 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ MAXIM T. ROWE PRICE MAXIM U.S. GOVERNMENT NEUBERGER BERMAN AMT EQUITY/INCOME PORTFOLIO SECURITIES PORTFOLIO GUARDIAN PORTFOLIO --------------------------------------------------------------------------------- ---------------------------- --------------------------- ----------------------- 2004 2003 2004 2003 2004 2003 ------------- ------------- ------------ ------------ ----------- ------- ------------- ------------- ------------ ------------ ----------- ------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ 8,962 $ 1,223 $ 211,331 $ 202,661 $ (1,780)$ 2,027 Net realized gain (loss) 48,437 631 (40,960) 70,853 1,764 (18,921) Change in net realized appreciation (depreciation) on investments 23,773 22,914 18,093 (177,062) 97,754 120,283 ------------- ------------- ------------ ------------ ----------- ---------- ------------- ------------- ------------ ------------ ----------- ---------- Increase in net assets resulting from operations 81,172 24,768 188,464 96,452 97,738 103,389 ------------- ------------- ------------ ------------ ----------- ---------- ------------- ------------- ------------ ------------ ----------- ---------- CONTRACT TRANSACTIONS: Purchase payments 6,823 25,296 537,958 1,458,495 56,180 29,412 Redemptions (18,985) (1,676) (145,011) (333,231) (32,468) (71,429) Transfers, net 527,369 167,341 (1,093,420) 1,630,488 270,997 32,936 Contract maintenance charges (674) (131) (5,848) (5,963) (1,935) (1,080) ------------- ------------- ------------ ------------ ----------- ---------- ------------- ------------- ------------ ------------ ----------- ---------- Increase (decrease) in net assets resulting from contract transactions 514,533 190,830 (706,321) 2,749,789 292,774 (10,161) ------------- ------------- ------------ ------------ ----------- ---------- ------------- ------------- ------------ ------------ ----------- ---------- Total increase (decrease) in net assets 595,705 215,598 (517,857) 2,846,241 390,512 93,228 NET ASSETS: Beginning of period 215,598 0 5,500,768 2,654,527 403,510 310,282 ------------- ------------- ------------ ------------ ----------- ---------- ------------- ------------- ------------ ------------ ----------- ---------- End of period $ 811,303 $ 215,598 $ 4,982,911 $ 5,500,768 $ 794,022 $ 403,510 ============= ============= ============ ============ =========== ========== ============= ============= ============ ============ =========== ========== CHANGES IN UNITS OUTSTANDING: Units issued 63,621 21,063 79,420 361,191 29,340 11,586 Units redeemed (16,263) (333) (131,453) (149,536) (3,592) (11,920) ------------- ------------- ------------ ------------ ----------- ---------- ------------- ------------- ------------ ------------ ----------- ---------- Net increase (decrease) 47,358 20,730 (52,033) 211,655 25,748 (334) ============= ============= ============ ============ =========== ========== ============= ============= ============ ============ =========== ========== (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, 2004 AND 2003 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ NEUBERGER BERMAN AMT MID-CAP NEUBERGER BERMAN AMT NEUBERGER BERMAN AMT GROWTH PORTFOLIO PARTNERS PORTFOLIO SOCIALLY RESPONSIBLE PORTFOLIO --------------------------------------------------------------------------------- ---------------------------- --------------------------- ----------------------- 2004 2003 2004 2003 2004 2003 ------------- ------------- ------------ ------------ ---------- ----------- ------------- ------------- ------------ ------------ ---------- ----------- (1) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment loss $ (1,166)$ (1,463)$ (486) $ (210)$ (45)$ (9) Net realized gain (loss) 68,067 (35,777) 8,663 (42) 72 4 Change in net realized appreciation on investments (5,711) 126,029 18,456 16,256 1,669 696 ------------- ------------- ------------ ------------ ---------- ----------- ------------- ------------- ------------ ------------ ---------- ----------- Increase in net assets resulting from operations 61,190 88,789 26,633 16,004 1,696 691 ------------- ------------- ------------ ------------ ---------- ----------- ------------- ------------- ------------ ------------ ---------- ----------- CONTRACT TRANSACTIONS: Purchase payments 37,908 166,683 23,387 4,281 4,545 0 Redemptions (15,935) (131,651) (9,666) (1,919) (470) (31) Transfers, net (169,428) 109,464 87,623 51,420 5,701 3,658 Contract maintenance charges (726) (664) (207) (105) (10) (2) ------------- ------------- ------------ ------------ ---------- ----------- ------------- ------------- ------------ ------------ ---------- ----------- Increase (decrease) in net assets resulting from contract transactions (148,181) 143,832 101,137 53,677 9,766 3,625 ------------- ------------- ------------ ------------ ---------- ----------- ------------- ------------- ------------ ------------ ---------- ----------- Total increase (decrease) in net assets (86,991) 232,621 127,770 69,681 11,462 4,316 NET ASSETS: Beginning of period 453,463 220,842 99,392 29,711 4,316 0 ------------- ------------- ------------ ------------ ---------- ----------- ------------- ------------- ------------ ------------ ---------- ----------- End of period $ 366,472 $ 453,463 $ 227,162 $ 99,392 $ 15,778 $ 4,316 ============= ============= ============ ============ ========== =========== ============= ============= ============ ============ ========== =========== CHANGES IN UNITS OUTSTANDING: Units issued 27,948 38,854 13,671 5,897 898 366 Units redeemed (42,814) (20,233) (5,113) (388) (84) (3) ------------- ------------- ------------ ------------ ---------- ----------- ------------- ------------- ------------ ------------ ---------- ----------- Net increase (decrease) (14,866) 18,621 8,558 5,509 814 363 ============= ============= ============ ============ ========== =========== ============= ============= ============ ============ ========== =========== (1) 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, 2004 AND 2003 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- STI CLASSIC STI CLASSIC VARIABLE TRUST TOTAL COLI VUL-2 VARIABLE SMALL CAP VALUE PORTFOLIO SERIES ACCOUNT TRUST CAPITAL APPRECIATION PORTFOLIO ------------------------------------------------------------------------- ------------- --------------------------- ---------------------------- 2004 2004 2003 2004 2003 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- (1) (2) INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income (loss) $ (18)$ (128) $ 81 $ 1,089,861 $ 787,716 Net realized gain (loss) 52 10,186 1,255,004 (57,755) Change in net realized appreciation on investments 2,313 42,778 2,317 726,070 3,167,060 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase in net assets resulting from operations 2,347 52,836 2,398 3,070,935 3,897,021 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- CONTRACT TRANSACTIONS: Purchase payments 5,682 65,775 8,050,087 13,824,700 Redemptions (950) (35,823) (2,137,795) (5,146,555) Transfers, net 30,968 189,712 81,285 Contract maintenance charges (98) (385) (63,786) (62,687) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Increase in net assets resulting from contract transactions 35,602 219,279 81,285 5,848,506 8,615,458 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Total increase in net assets 37,949 272,115 83,683 8,919,441 12,512,479 NET ASSETS: Beginning of period 0 83,683 0 39,027,378 26,514,899 ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- End of period $ 37,949 $ 355,798 $ 83,683 $ 47,946,819 $ 39,027,378 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= CHANGES IN UNITS OUTSTANDING: Units issued 4,081 25,460 6,610 2,034,034 2,793,173 Units redeemed (689) (9,350) (1,545,063) (1,908,486) ------------- ------------ ------------ ------------- ------------- ------------- ------------ ------------ ------------- ------------- Net increase 3,392 16,110 6,610 488,971 884,687 ============= ============ ============ ============= ============= ============= ============ ============ ============= ============= (1) The portfolio commenced operations on December 21, 2004. (2) The portfolio commenced operations on June 24, 2002, but had no activity until 2003. (Concluded) The accompanying notes are an integral part of these financial statements.
COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- DECEMBER 31, 2004 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, 2004 were as follows:
Purchases Sales --------------- --------------- AIM V.I Core Equity Portfolio $ 382,135 $ 436,922 AIM V.I. Financial Services Portfolio 37,964 5,897 AIM V.I. Health Sciences Portfolio 37,916 5,978 AIM V.I. Technology Portfolio 39,589 3,219 American Century VP Income & Growth IV Portfolio 50,560 13,276 American Century VP International Portfolio 84,739 27,683 American Century VP Ultra Portfolio 737 108 American Century VP Value Portfolio 73,545 20,067 Dreyfus Stock Index Portfolio 2,696,705 1,118,461 Dreyfus VIF Appreciation Portfolio 87,183 5,905 Federated American Leaders Fund II 326,097 97,096 Federated Growth Strategies Fund II 5,472 18,926 Federated High Income Bond Fund II 344,939 41,615 Federated International Equity Fund II 740 5,915 Fidelity VIP Contrafund Portfolio SVC II 1,446,355 146,352 Fidelity VIP Growth Portfolio SVC II 683,812 1,150,045 Fidelity VIP Investment Grade Bond Portfolio SVC 1,405,065 1,425,882 II Janus Aspen Series Balanced Portfolio 1,145,586 570,415 Janus Aspen Series Capital Appreciation I 340,183 136,418 Portfolio Janus Aspen Series Flexible Income Portfolio 830,018 575,154 Janus Aspen Series Growth Portfolio 15,151 268 Janus Aspen Series Worldwide Growth Portfolio 337,924 341,396 Maxim Aggressive Profile I Portfolio 202,070 2,322 Maxim Ariel MidCap Value Portfolio 2,958,255 1,562,306 Maxim Ariel Small-Cap Value Portfolio 1,446,431 389,607 Maxim Conservative Profile I Portfolio 49,097 29,202 Maxim INVESCO ADR Portfolio 303,016 217,431 Maxim Loomis Sayles Bond Portfolio 1,005,633 234,925 Maxim MFS Small-Cap Growth Portfolio 516,220 182,220 Maxim Moderate Profile I Portfolio 197,656 66,537 Maxim Moderately Aggressive Profile I Portfolio 109,100 44,793 Maxim Moderately Conservative Profile I Portfolio 13,649 12,231 Maxim Money Market Portfolio 4,223,484 5,668,185 Maxim T. Rowe Price Equity/Income Portfolio 723,735 176,876 Maxim U.S. Government Securities Portfolio 1,257,483 1,745,037 Neuberger Berman AMT Guardian Portfolio 330,667 39,639 Neuberger Berman AMT Mid-Cap Growth Portfolio 260,114 409,468 Neuberger Berman AMT Partners Portfolio 158,041 57,379 Neuberger Berman AMT Socially Responsive 10,469 747 Portfolio STI Classic Variable Trust Capital Appreciation 42,543 6,956 Portfolio STI Classic Variable Trust Small Cap Value 344,366 125,191 Portfolio --------------- --------------- --------------- --------------- Total $ 24,524,444 $ 17,118,050 =============== ===============
4. EXPENSES AND RELATED PARTY TRANSACTIONS Cost of Insurance The Company deducts from each participant's account an amount to pay for the insurance provided on each life. This charge varies based on individual characteristics of the policy holder. 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. Charges Incurred for Change of Death Benefit Option Fee The Company charges a maximum fee of $100 for each change of death benefit option. Transfer Fees The Company charges $10 for each transfer between investment divisions in excess of 12 transfers in any calendar year. Service Charge The Company deducts from each participant's account an amount equal to a maximum of $15 per month. This charge compensates the Company for certain administrative costs. 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. Supplemental Benefit Charges The company deducts from each participant's account an amount to pay for certain riders selected by the policy holder. This charge varies based on individual characteristics of the policy holder when the rider is added to the policy. Related Party Transactions GW Capital Management, LLC, (doing business as Maxim Capital Management, LLC ("MCM")) 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 MCM 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 five years ended December 31, 2004 is included on the following pages. 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. COLI VUL-2 SERIES ACCOUNT OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
At December 31 For the year ended December 31 -------------------------------------- --------------------------- -------------------------------------- --------------------------- Units Unit Fair ValueNet Assets Expense Ratio Total Return (000s) (000s) ---------- ----------- ------------ --------- ------------ ---------- ----------- ------------ --------- ------------ AIM V.I. CORE EQUITY PORTFOLIO 2004 187 $ 10.44 $ 1,955 0.40 % 3.83 % 2003 193 $ 10.05 $ 1,944 0.40 % 22.11 % 2002 113 $ 8.23 $ 934 0.40 % (19.47)% 2001 78 $ 10.22 $ 801 0.40 % (9.32)% AIM V.I. FINANCIAL SERVICES PORTFOLIO 2004 3 $ 11.41 $ 33 0.40 % 8.26 % AIM V.I. HEALTH SCIENCES PORTFOLIO 2004 3 $ 11.03 $ 33 0.40 % 7.14 % AIM V.I. TECHNOLOGY PORTFOLIO 2004 4 $ 9.03 $ 37 0.40 % 4.22 % AMERICAN CENTURY VP INCOME & GROWTH IV PORTFOLIO 2004 13 $ 10.76 $ 136 0.40 % 12.54 % 2003 9 $ 9.56 $ 86 0.40 % 28.84 % 2002 12 $ 7.42 $ 91 0.40 % (19.70)% 2001 3 $ 9.24 $ 26 0.40 % (8.70)% 2000 0 * $ 10.12 $ 2 0.40 % (10.99)% AMERICAN CENTURY VP INTERNATIONAL PORTFOLIO 2004 17 $ 9.65 $ 167 0.40 % 14.47 % 2003 11 $ 8.43 $ 91 0.40 % 24.01 % 2002 5 $ 6.80 $ 33 0.40 % (20.75)% 2001 2 $ 8.58 $ 21 0.40 % (29.44)% 2000 0 * $ 12.16 $ 4 0.40 % (17.11)% AMERICAN CENTURY VP ULTRA PORTFOLIO 2004 0 * $ 10.87 $ 1 0.40 % 10.20 % AMERICAN CENTURY VP VALUE PORTFOLIO 2004 9 $ 16.62 $ 143 0.40 % 13.88 % 2003 5 $ 14.60 $ 75 0.40 % 28.42 % 2002 1 $ 11.37 $ 7 0.40 % (12.94)% 2001 0 * $ 13.06 $ 6 0.40 % 12.39 % (Continued) DREYFUS STOCK INDEX PORTFOLIO 2004 481 $ 9.87 $ 4,747 0.40 % 10.20 % 2003 321 $ 8.96 $ 2,872 0.40 % 27.85 % 2002 135 $ 7.01 $ 949 0.40 % (22.63)% 2001 10 $ 9.06 $ 90 0.40 % (12.55)% 2000 6 $ 10.36 $ 57 0.40 % (9.60)% DREYFUS VIF APPRECIATION PORTFOLIO 2004 16 $ 10.30 $ 162 0.40 % 4.62 % 2003 8 $ 9.84 $ 76 0.40 % 20.68 % 2002 5 $ 8.15 $ 39 0.40 % (17.09)% 2001 1 $ 9.83 $ 7 0.40 % (9.82)% 2000 0 * $ 10.90 $ 1 0.40 % (1.00)% FEDERATED AMERICAN LEADERS FUND II 2004 66 $ 11.42 $ 750 0.40 % 9.34 % 2003 45 $ 10.45 $ 470 0.40 % 27.19 % 2002 45 $ 8.21 $ 369 0.40 % (17.90)% FEDERATED GROWTH STRATEGIES FUND II 2004 1 $ 10.31 $ 12 0.40 % 14.90 % 2003 3 $ 8.97 $ 24 0.40 % 39.48 % 2002 1 $ 6.43 $ 7 0.40 % (26.43)% 2001 14 $ 8.74 $ 124 0.40 % (22.79)% 2000 16 $ 11.32 $ 182 0.40 % (20.23)% FEDERATED HIGH INCOME BOND FUND II 2004 30 $ 12.66 $ 376 0.40 % 10.02 % 2003 6 $ 11.51 $ 68 0.40 % 21.72 % 2002 1 $ 9.45 $ 14 0.40 % 0.96 % FEDERATED INTERNATIONAL EQUITY FUND II 2004 27 $ 9.65 $ 259 0.40 % 13.61 % 2003 27 $ 8.50 $ 232 0.40 % 31.33 % 2002 28 $ 6.47 $ 180 0.40 % (23.07)% 2001 0 * $ 8.41 $ 0 ^ 0.40 % (29.68)% 2000 0 * $ 11.96 $ 1 0.40 % (22.94)% (Continued) FIDELITY VIP CONTRAFUND PORTFOLIO SVC II 2004 144 $ 12.69 $ 1,830 0.40 % 14.70 % 2003 33 $ 11.07 $ 362 0.40 % 27.68 % FIDELITY VIP GROWTH PORTFOLIO SVC II 2004 167 $ 7.70 $ 1,290 0.40 % 2.71 % 2003 224 $ 7.50 $ 1,676 0.40 % 32.02 % 2002 143 $ 5.68 $ 814 0.40 % (30.56)% 2001 94 $ 8.18 $ 770 0.40 % (18.20)% FIDELITY VIP INVESTMENT GRADE BOND PORTFOLIO SVC II 2004 445 $ 12.81 $ 5,706 0.40 % 3.77 % 2003 482 $ 12.35 $ 5,948 0.40 % 4.52 % 2002 396 $ 11.81 $ 4,674 0.40 % 9.66 % 2001 99 $ 10.77 $ 1,066 0.40 % 7.70 % JANUS ASPEN SERIES BALANCED PORTFOLIO 2004 155 $ 12.36 $ 1,916 0.40 % 8.09 % 2003 111 $ 11.44 $ 1,269 0.40 % 13.60 % 2002 150 $ 10.07 $ 1,513 0.40 % (6.85)% 2001 48 $ 10.81 $ 521 0.40 % (5.01)% 2000 14 $ 11.38 $ 154 0.40 % (2.65)% JANUS ASPEN SERIES CAPITAL APPRECIATION I PORTFOLIO 2004 61 $ 12.12 $ 742 0.40 % 17.76 % 2003 41 $ 10.29 $ 425 0.40 % 20.06 % JANUS ASPEN SERIES FLEXIBLE INCOME PORTFOLIO 2004 387 $ 14.04 $ 5,440 0.40 % 3.55 % 2003 393 $ 13.56 $ 5,327 0.40 % 5.97 % 2002 344 $ 12.80 $ 4,403 0.40 % 28.00 % JANUS ASPEN SERIES GROWTH PORTFOLIO 2004 2 $ 10.20 $ 16 0.40 % 4.09 % (Continued) JANUS ASPEN SERIES WORLDWIDE GROWTH PORTFOLIO 2004 120 $ 8.83 $ 1,058 0.40 % 4.36 % 2003 121 $ 8.46 $ 1,020 0.40 % 23.50 % 2002 98 $ 6.85 $ 673 0.40 % (25.79)% 2001 49 $ 9.23 $ 455 0.40 % (22.76)% 2000 30 $ 11.95 $ 354 0.40 % (15.96)% MAXIM AGGRESSIVE PROFILE I PORTFOLIO 2004 18 $ 12.48 $ 222 0.40 % 16.42 % MAXIM ARIEL MIDCAP VALUE PORTFOLIO 2004 176 $ 18.48 $ 3,248 0.40 % 11.83 % 2003 103 $ 16.53 $ 1,703 0.40 % 29.06 % 2002 115 $ 12.80 $ 1,478 0.40 % (11.17)% 2001 1 $ 14.41 $ 8 0.40 % 17.73 % MAXIM ARIEL SMALL-CAP VALUE PORTFOLIO 2004 137 $ 13.26 $ 1,817 0.40 % 21.68 % 2003 51 $ 10.90 $ 555 0.40 % 28.72 % MAXIM CONSERVATIVE PROFILE I PORTFOLIO 2004 3 $ 12.91 $ 45 0.40 % 6.49 % 2003 2 $ 12.12 $ 23 0.40 % 10.88 % MAXIM INVESCO ADR PORTFOLIO 2004 37 $ 12.24 $ 450 0.40 % 19.16 % 2003 29 $ 10.27 $ 295 0.40 % 30.78 % 2002 1 $ 7.85 $ 12 0.40 % (13.55)% 2001 1 $ 9.08 $ 7 0.40 % (16.54)% 2000 0 * $ 10.88 $ 1 0.40 % (10.53)% MAXIM LOOMIS SAYLES BOND PORTFOLIO 2004 167 $ 17.42 $ 2,917 0.40 % 10.54 % 2003 131 $ 15.76 $ 2,059 0.40 % 29.58 % 2002 141 $ 12.16 $ 1,713 0.40 % 10.65 % 2001 3 $ 10.99 $ 30 0.40 % 2.14 % 2000 0 * $ 10.76 $ 0 ^ 0.40 % 4.16 % (Continued) MAXIM MFS SMALL-CAP GROWTH PORTFOLIO 2004 121 $ 9.66 $ 1,170 0.40 % 5.57 % 2003 84 $ 9.15 $ 765 0.40 % 30.43 % 2002 69 $ 7.01 $ 483 0.40 % (31.27)% 2001 21 $ 10.20 $ 213 0.40 % (23.13)% 2000 24 $ 13.27 $ 319 0.40 % (12.75)% MAXIM MODERATE PROFILE I PORTFOLIO 2004 11 $ 12.72 $ 141 0.40 % 10.89 % MAXIM MODERATELY AGGRESSIVE PROFILE I PORTFOLIO 2004 8 $ 12.54 $ 106 0.40 % 12.92 % 2003 3 $ 11.11 $ 32 0.40 % 23.48 % 2002 2 $ 8.99 $ 16 0.40 % (12.46)% 2001 1 $ 10.27 $ 10 0.40 % (5.00)% 2000 0 * $ 10.81 $ 2 0.40 % (4.67)% MAXIM MODERATELY CONSERVATIVE PROFILE I PORTFOLIO 2004 0 * $ 12.51 $ 1 0.40 % 9.23 % MAXIM MONEY MARKET PORTFOLIO 2004 304 $ 11.27 $ 3,428 0.40 % 0.54 % 2003 435 $ 11.21 $ 4,874 0.40 % 0.32 % 2002 437 $ 11.17 $ 4,881 0.40 % 0.99 % 2001 98 $ 11.06 $ 1,081 0.40 % 3.46 % MAXIM T. ROWE PRICE EQUITY/INCOME PORTFOLIO 2004 68 $ 11.92 $ 811 0.40 % 14.57 % 2003 21 $ 10.40 $ 216 0.40 % 25.13 % MAXIM U.S. GOVERNMENT SECURITIES PORTFOLIO 2004 365 $ 13.64 $ 4,983 0.40 % 3.48 % 2003 417 $ 13.18 $ 5,501 0.40 % 2.16 % 2002 206 $ 12.90 $ 2,655 0.40 % 29.00 % (Continued) NEUBERGER BERMAN AMT GUARDIAN PORTFOLIO 2004 62 $ 12.76 $ 794 0.40 % 15.35 % 2003 36 $ 11.06 $ 404 0.40 % 31.24 % 2002 37 $ 8.43 $ 310 0.40 % (26.76)% 2001 3 $ 11.51 $ 30 0.40 % (1.79)% 2000 2 $ 11.72 $ 22 0.40 % 0.69 % NEUBERGER BERMAN AMT MID-CAP GROWTH PORTFOLIO 2004 34 $ 10.69 $ 366 0.40 % 15.85 % 2003 49 $ 9.22 $ 453 0.40 % 27.56 % 2002 31 $ 7.23 $ 221 0.40 % (29.60)% 2001 16 $ 10.27 $ 160 0.40 % (25.09)% 2000 0 * $ 13.71 $ 2 0.40 % (7.80)% NEUBERGER BERMAN AMT PARTNERS PORTFOLIO 2004 18 $ 12.78 $ 227 0.40 % 18.50 % 2003 9 $ 10.78 $ 99 0.40 % 34.55 % 2002 4 $ 8.01 $ 30 0.40 % (19.90)% NEUBERGER BERMAN AMT SOCIALLY RESPONSIBLE PORTFOLIO 2004 1 $ 13.41 $ 16 0.40 % 12.84 % 2003 0 * $ 11.89 $ 4 0.40 % 33.85 % STI CLASSIC VARIABLE TRUST CAPITAL APPRECIATION PORTFOLIO 2004 3 $ 11.19 $ 38 0.40 % 6.33 % STI CLASSIC VARIABLE TRUST SMALL CAP VALUE PORTFOLIO 2004 23 $ 15.66 $ 356 0.40 % 23.70 % 2003 7 $ 12.66 $ 84 0.40 % 37.88 % * The Investment Division has units that round to less than 1,000 units. ^ The Investment Division has net assets that round to less than $1,000. (Concluded)
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. (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)(5) Change of Insurance Rider is incorporated by reference to Registrant's Post-Effective Amendment No. 10 on Form N-6 filed on April 30, 2004 (File No. 333-70963 and 811-09201). (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) (f)(1) 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). (f)(2) 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. Form of Reinsurance Contract between Great-West and Security Life of Denver 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) and amendment thereto filed herewith. (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) and amendment thereto filed herewith. (h)(3) Amendment to Fund Participation Agreement between Great-West and Dreyfus Life & Annuity Index Fund, Inc., dated March 15, 1999, is incorporated by reference to Registrant's Post Effective Amendment No. 5 to Form S- 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, AIM Variable Insurance Funds, Inc., and AIM Distributors, Inc., dated March 30, 2005, is filed herewith. (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 incorporated by reference to Registrant's Post-Effective Amendment No. 10 on Form N-6 filed on May 3, 2004 (File No. 333-70963 and 811-09201). (h)(19) Fund Participation Agreement among Great-West, Davis Variable Account Fund, Inc., Davis Selected Advisers, L.P. and Davis Distributors, LLC is filed herewith. (h)(20) Fund Participation Agreement among Great-West, Scudder Variable Series I, Scudder Variable Series II, Scudder Investment VIT Funds, Deutsche Investment Management Americas, Inc., Deutsche Asset Management, Inc. and Scudder Distributors, 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 incorporated by reference to Registrant's Pre-Effective Amendment No. 1 to Form S-6 filed on June 23, 1999 (File No. 333-70963).. (l) Actuarial Opinion. An opinion of an actuarial officer of Great-West with respect to the illustrations is filed herewith. (m) Calculation of Hypothetical Illustration Value is incorporated by reference to Registrant's Post Effective Amendment No. 9 to Form N-6 filed on April 29, 2003 (File No. 333-70963). (n) Other Opinions. (n)(1) Legal Consent of Jorden Burt, LLP is filed herewith. (n)(2) Independent Registered Public Accounting Firm'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 S. Mark Corbett (3) Senior Vice-President, Investments Glen R. Derback (3) Senior Vice-President and Controller John R. Gabbert (2) Senior Vice President, Great- West Healthcare Chief Information Officer Donna A. Goldin (2) Senior Vice-President, Great-West Healthcare Operations Mitchell T.G. Graye (3) Exec.Vice President, Chief Financial Officer Wayne Hoffmann (3) Senior Vice-President, Investments Positions and Offices Name Principal Business Address with Depositor - ---- -------------------------- ---------------- D. Craig Lennox (6) Senior Vice-President, General Counsel and Secretary Graham R. McDonald (3) Senior Vice-President, Corporate Administration Charles P. Nelson (3) Senior Vice-President, Retirement Services Deborah L. Origer (2) Senior Vice-President, Healthcare Management Marty Rosenbaum (2) Senior Vice-President, Great-West Healthcare Finance Richard F. Rivers (2) Executive Vice President, Great-West Healthcare Gregory E. Seller (3) Senior Vice-President, Retirement Services, Government Markets Robert K. Shaw (3) Senior Vice-President, Individual Markets Mark Stadler (2) Senior Vice President, Great-West Healthcare Sales, U.S. Markets Douglas J. Stefanson (2) Senior Vice-President, Great-West Healthcare Underwriting George D. Webb (3) Senior Vice-President, Retirement Services, P/NP Operations Douglas L. Wooden (3) Executive 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
Item 29. Person Controlled by or Under Common Control with the Depositor or the Registrant. (State/Country of Organization) - Nature of Business Power Corporation of Canada (Canada) - Holding and Management Company 100.0% - 2795957 Canada Inc. (Canada) - Holding Company 100.0% - 171263 Canada Inc. (Canada) - Holding Company 66.4% - Power Financial Corporation (Canada) - Holding Company 74.9% - 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 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% - GWFS 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% - NPC Administrative Services Corporation (Delaware) - Third Party Administrator 100.0% - P.C. Enrollment Services & Insurance Brokerage, Inc. (Massachusetts) - Insurance Agency 100.0% - EMJAY Corporation (Wisconsin) - Third Party Administrator 100.0% - EMJAY Retirement Plan Services, Inc. (Wisconsin) - Third Party Administrator 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 90.3% - 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 100.0% - Orchard Trust Company, LLC (Colorado) - Trust Company 31.2% - BFM Holdings, LLC (Delaware) - Holding 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 entity 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 entity 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, Variable Annuity-1 Series Account and Pinnacle Series Account of GWL&A and Variable Annuity-1 Series Account of First Great-West Life & Annuity Insurance Company 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 President Robert K. Shaw (1) Director Graham R. McDonald (1) Director Gregory E. Seller 18101 Von Karman Ave. Director and Senior Vice Suite 1460 President Irvine, CA 92715 Thomas M. Connolly 300 Broadacres Drive Vice President Bloomfield, NJ 07003 William S. Harmon (1) Vice President Kent A. Morris 500 North Central, Vice President Suite 220 Glendale, CA 91203 Michael P. Sole One North LaSalle, Vice President Suite 3200 Chicago, IL 60602 Glen R. Derback (1) Treasurer Beverly A. Byrne (1) Secretary & Chief Compliance Officer Teresa L. Buckley (1) Compliance Officer Mary C. Maiers 8525 E. Orchard Road Investments Compliance Officer Greenwood Village, CO 80111 - ------------ (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 of Rule 485(b) under the Securities Act of 1933 for effectiveness of this Post-Effective Amendment to the Registrant and has duly caused this Post-Effective Amendment to the 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 , 2005. 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 , 2005 /s/ W.T. McCallum W.T. McCallum President, Chief Executive April , 2005 Officer and Director /s/ M.T.G. Graye Executive Vice President and - ---------------------- M.T.G. Graye Chief Financial Officer April , 2005 /s/ J. Balog J. Balog* Director April , 2005 /s/ J.W. Burns J.W. Burns* Director April , 2005 /s/ O.T. Dackow O.T. Dackow* Director April , 2005 /s/ A. Desmarais A. Desmarais* Director April , 2005 /s/ P. Desmarais P. Desmarais, Jr.* Director April , 2005 /s/ K.P. Kavanagh K.P. Kavanagh* Director April , 2005 /s/ W. Mackness W. Mackness* Director April , 2005 /s/ J.E.A. Nickerson J.E.A. Nickerson* Director April , 2005 D.A. Nield Director /s/ M. Plessis-Belair M. Plessis-Belair* Director April , 2005 /s/ B.E. Walsh B.E. Walsh* Director April , 2005 *By: /s/ G.R. Derback D.C. Lennox, Attorney-in-Fact pursuant to Powers of Attorney filed under Registrant's initial Registration Statement on Form S-6 (File No. 333-70963) filed on January 22, 1999 and Registrant's Pre-Effective Amendment No. 1 to Form S-6, filed with the Securities and Exchange Commission on June 23, 1999, respectively. EX-99 3 exhibitgwlaaimviffpa.txt PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, A I M DISTRIBUTORS, INC., GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY, ON BEHALF OF ITSELF AND ITS SEPARATE ACCOUNTS, AND AS UNDERWRITER OF VARIABLE CONTRACTS AND POLICIES
TABLE OF CONTENTS Description Page SECTION 1. AVAILABLE FUNDS................................................................2 1.1 AVAILABILITY..................................................................2 ---- ------------ 1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS...................................2 ---- ------------------------------------------- 1.3 NO SALES TO THE GENERAL PUBLIC................................................2 --- ------------------------------ SECTION 2. PROCESSING TRANSACTIONS........................................................2 2.1 TIMELY PRICING AND ORDERS.....................................................2 --- ------------------------- 2.2 TIMELY PAYMENTS...............................................................3 --- --------------- 2.3 APPLICABLE PRICE..............................................................3 --- ---------------- 2.4 DIVIDENDS AND DISTRIBUTIONS...................................................4 --- --------------------------- 2.5 BOOK ENTRY....................................................................4 --- ---------- SECTION 3. COSTS AND EXPENSES.............................................................5 3.1 GENERAL.......................................................................5 --- ------- 3.2 PARTIES TO COOPERATE..........................................................5 --- -------------------- SECTION 4. LEGAL COMPLIANCE...............................................................5 4.1 TAX LAWS......................................................................5 --- -------- 4.2 INSURANCE AND CERTAIN OTHER LAWS..............................................7 --- -------------------------------- 4.3 SECURITIES LAWS...............................................................8 --- --------------- 4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.........................9 --- ----------------------------------------------------- 4.5 G-WL&A TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF...........................9 --- --------------------------------------------------- 4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT G-WL&A..........................10 --- --------------------------------------------------- SECTION 5. MIXED AND SHARED FUNDING......................................................11 5.1 GENERAL......................................................................11 --- ------- 5.2 DISINTERESTED TRUSTEES.......................................................12 --- ---------------------- 5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.............................12 --- ------------------------------------------------ 5.4 CONFLICT REMEDIES............................................................13 --- ----------------- 5.5 NOTICE TO G-WL&A.............................................................14 --- ---------------- 5.6 INFORMATION REQUESTED BY BOARD...............................................14 --- ------------------------------ 5.7 COMPLIANCE WITH SEC RULES....................................................14 --- ------------------------- 5.8 OTHER REQUIREMENTS...........................................................15 --- ------------------ SECTION 6. TERMINATION...................................................................15 6.1 EVENTS OF TERMINATION........................................................15 --- --------------------- 6.2 NOTICE REQUIREMENT FOR TERMINATION...........................................16 --- ---------------------------------- 6.3 FUNDS TO REMAIN AVAILABLE....................................................17 --- ------------------------- 6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS..................................17 --- ------------------------------------------- 6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES................................17 --- --------------------------------------------- SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION...................................17 SECTION 8. ASSIGNMENT....................................................................17 SECTION 9. NOTICES.......................................................................18 SECTION 10. VOTING PROCEDURES..............................................................19 SECTION 11. FOREIGN TAX CREDITS............................................................19 SECTION 12. INDEMNIFICATION................................................................20 12.1 OF AVIF AND AIM BY G-WL&A AND UNDERWRITER....................................20 ---- ----------------------------------------- 12.2 OF G-WL&A AND UNDERWRITER BY AVIF AND AIM....................................22 ---- ----------------------------------------- 12.3 EFFECT OF NOTICE.............................................................24 ---- ---------------- 12.4 SUCCESSORS...................................................................24 ---- ---------- SECTION 13. APPLICABLE LAW.................................................................25 SECTION 14. EXECUTION IN COUNTERPARTS......................................................25 SECTION 15. SEVERABILITY...................................................................25 SECTION 16. RIGHTS CUMULATIVE..............................................................25 SECTION 17. HEADINGS.......................................................................25 SECTION 18. CONFIDENTIALITY................................................................25 SECTION 19. TRADEMARKS AND FUND NAMES......................................................26 SECTION 20. PARTIES TO COOPERATE...........................................................26 SECTION 21. AMENDMENTS; NEED FOR...........................................................27 SECTION 22. FORCE MAJEURE..................................................................27
PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the 30th day of March, 2005 ("Agreement"), by and among AIM VARIABLE INSURANCE FUNDS, a Delaware Trust ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM"), GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY, a Colorado life insurance company ("G-WL&A"), on behalf of itself and each of its segregated asset accounts listed in Schedule A hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts"); and as the principal underwriter of the Contracts ("UNDERWRITER") (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, AVIF is registered with the Securities and Exchange Commission ("SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, AVIF currently consists of twenty-eight separate series ("Series"), shares ("Shares") each of which are registered under the Securities Act of 1933, as amended (the "1933 Act") and are currently sold to one or more separate accounts of life insurance companies to fund benefits under variable annuity contracts and variable life insurance contracts; and WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto as the Parties hereto may amend from time to time (each a "Fund"; reference herein to "AVIF" includes reference to each Fund, to the extent the context requires) available for purchase by the Accounts; and WHEREAS, G-WL&A will be the issuer of certain variable annuity contracts and variable life insurance contracts ("Contracts") as set forth on Schedule A hereto, as the Parties hereto may amend from time to time, which Contracts (hereinafter collectively, the "Contracts"), if required by applicable law, will be registered under the 1933 Act; and WHEREAS, G-WL&A will fund the Contracts through the Accounts, each of which may be divided into two or more subaccounts ("Subaccounts"; reference herein to an "Account" includes reference to each Subaccount thereof to the extent the context requires); and WHEREAS, G-WL&A will serve as the depositor of the Accounts, each of which is registered as a unit investment trust investment company under the 1940 Act (or exempt therefrom), and the security interests deemed to be issued by the Accounts under the Contracts will be registered as securities under the 1933 Act (or exempt therefrom); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, G-WL&A intends to purchase Shares in one or more of the Funds on behalf of the Accounts to fund the Contracts; and WHEREAS, GWL&A intends to utilize its NSCC member broker/dealer affiliate, GWFS Equities, Inc., ("GWFS") to transmit instructions for the purchase, redemption and transfer of Fund shares on behalf of the Account, and GWFS, alone, or with the assistance of a recordkeeping affiliate, to perform certain recordkeeping functions associated with the transfer of Fund shares into and out of the Account in order to recognize certain organizational economies; and WHEREAS, AIM is a broker-dealer registered with the SEC under the 1934 Act and a member in good standing of the NASD; NOW, THEREFORE, in consideration of the mutual benefits and promises contained herein, the Parties hereto agree as follows: Section 1. Available Funds 1.1 Availability AVIF will make Shares of each Fund available to G-WL&A for purchase and redemption at net asset value and with no sales charges, subject to the terms and conditions of this Agreement. The Board of AVIF (the "Board") may refuse to sell Shares of any Fund to any person, or suspend or terminate the offering of Shares of any Fund (a) if such action is required by law or by regulatory authorities having jurisdiction, (b) if, in the sole discretion of the Trustees acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, such action is deemed in the best interests of the shareholders of such Fund, or (c) if such action is required by any policies that the Board has adopted and that apply to all Participating Insurance Companies. 1.2 Addition, Deletion or Modification of Funds The Parties hereto may agree, from time to time, to add other Funds to provide additional funding media for the Contracts, or to delete, combine, or modify existing Funds, by amending Schedule A hereto. Upon such amendment to Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall include a reference to any such additional Fund. Schedule A, as amended from time to time, is incorporated herein by reference and is a part hereof. 1.3 No Sales to the General Public AVIF represents and warrants that no Shares of any Fund have been or will be sold to the general public. Section 2. Processing Transactions 2.1 Timely Pricing and Orders (a) AVIF or its designated agent will use its best efforts to provide G-WL&A with the net asset value per Share for each Fund by 6:00 p.m. Central Time on each Business Day. As used herein, "Business Day" shall mean any day on which (i) the New York Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset value, and (iii) G-WL&A is open for business. (b) G-WL&A will use the data provided by AVIF each Business Day pursuant to paragraph (a) immediately above to calculate Account unit values and to process transactions that receive that same Business Day's Account unit values. G-WL&A will perform such Account processing the same Business Day, and will place corresponding orders to purchase or redeem Shares with AVIF by 9:00 a.m. Central Time the following Business Day; provided, however, that AVIF shall provide additional time to G-WL&A in the event that AVIF is unable to meet the 6:00 p.m. time stated in paragraph (a) immediately above. Such additional time shall be equal to the additional time that AVIF takes to make the net asset values available to G-WL&A. (c) With respect to payment of the purchase price by G-WL&A and of redemption proceeds by AVIF, G-WL&A and AVIF shall net purchase and redemption orders with respect to each Fund and shall transmit one net payment per Fund in accordance with Section 2.2, below. (d) If AVIF provides materially incorrect Share net asset value information (as determined under SEC guidelines), G-WL&A shall be entitled to an adjustment to the number of Shares purchased or redeemed to reflect the correct net asset value per Share. Any material error in the calculation or reporting of net asset value per Share, dividend or capital gain information shall be reported promptly upon discovery to G-WL&A. Materiality and reprocessing cost reimbursement shall be determined in accordance with standards established by the Parties as provided in Schedule B, attached hereto and incorporated herein (except that for any money market fund, materiality shall be determined in a manner consistent with Rule 2a-7 under the 1940 Act). 2.2 Timely Payments G-WL&A will wire payment for net purchases to a custodial account designated by AVIF by 1:00 p.m. Central Time on the same day as the order for Shares is placed, to the extent practicable. AVIF will wire payment for net redemptions to an account designated by G-WL&A by 1:00 p.m. Central Time on the same day as the Order is placed, to the extent practicable, but in any event within five (5) calendar days after the date the order is placed in order to enable G-WL&A to pay redemption proceeds within the time specified in Section 22(e) of the 1940 Act or such shorter period of time as may be required by law. 2.3 Applicable Price (a) Share purchase payments and redemption orders that result from purchase payments, premium payments, surrenders and other transactions under Contracts (collectively, "Contract transactions") and that G-WL&A receives prior to the close of regular trading on the New York Stock Exchange (or such other time set by the Board for purposes of determining the current net asset value of a Fund in accordance with Rule 22c-1 under the 1940 Act) on a Business Day will be executed at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the orders. For purposes of this Section 2.3(a), G-WL&A shall be the designated agent of AVIF for receipt of orders relating to Contract transactions, in accordance with Section 22(c) and Rule 22c-1 under the 1940 Act, on each Business Day and receipt by such designated agent shall constitute receipt by AVIF; provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on the next following Business Day or such later time as computed in accordance with Section 2.1(b) hereof. In connection with this Section 2.3(a), G-WL&A represents and warrants that it will not knowingly submit any order for Shares or engage in any practice, nor will it knowingly allow or suffer any person acting on its behalf to submit any order for Shares or engage in any practice, that would violate or cause a violation of applicable law or regulation including, without limitation Section 22 of the 1940 Act and the rules thereunder. (b) ....All other Share purchases and redemptions by G-WL&A will be effected at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the order therefor, and such orders will be irrevocable. .........(c) Without limiting the scope or effect of Section 1.1 hereof, pursuant to which the Board may reject a Share purchase order by or on behalf of G-WL&A under the circumstances described therein, G-WL&A and its designated affiliate agrees to cooperate with the Fund and AIM to prevent any person exercising, or purporting to exercise, rights or privileges under one or more Contracts (including, but not limited to Contract owners, annuitants, insureds or participants, as the case may be (collectively, "Participants")) from engaging in any trading practices in any Fund that the Board or AIM determines, in good faith and in their sole discretion, to be detrimental or potentially detrimental to the other shareholders of the Fund, or to be in contravention of any applicable law or regulation including, without limitation, Section 22 of the 1940 Act and the rules thereunder. Such cooperation may include, but shall not be limited to, identifying the person or persons engaging in such trading practices, facilitating the imposition of any applicable redemption fee on such person or persons, limiting the telephonic or electronic trading privileges of such person or persons, and taking such other remedial steps, all to the extent permitted or required by applicable law and the Funds' then current prospectus. 2.4 Dividends and Distributions AVIF will furnish notice by wire or telephone (followed by written confirmation) on or prior to the payment date to G-WL&A of any income dividends or capital gain distributions payable on the Shares of any Fund. G-WL&A hereby elects to reinvest all dividends and capital gains distributions in additional Shares of the corresponding Fund at the ex-dividend date net asset values until G-WL&A otherwise notifies AVIF in writing, it being agreed by the Parties that the ex-dividend date and the payment date with respect to any dividend or distribution will be the same Business Day. G-WL&A reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. 2.5 Book Entry Issuance and transfer of AVIF Shares will be by book entry only. Stock certificates will not be issued to G-WL&A. Shares ordered from AVIF will be recorded in an appropriate title for G-WL&A, on behalf of its Account. Section 3. Costs and Expenses 3.1 General Except as otherwise specifically provided in Schedule C, attached hereto and made a part hereof, each Party will bear, or arrange for others to bear, all expenses incident to its performance under this Agreement. 3.2 Parties To Cooperate Each Party agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver, in a timely manner, combined or coordinated prospectuses or other materials of AVIF and the Accounts. ........Section 4. Legal Compliance 4.1 Tax Laws (a) AVIF represents and warrants that each Fund is currently qualified as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and represents that it will use its best efforts to qualify and to maintain qualification of each Fund as a RIC. AVIF will notify G-WL&A immediately upon having a reasonable basis for believing that a Fund has ceased to so qualify or that it might not so qualify in the future. (b) AVIF represents that it will use its best efforts to comply and to maintain each Fund's compliance with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will notify G-WL&A immediately upon having a reasonable basis for believing that a Fund has ceased to so comply or that a Fund might not so comply in the future. In the event of a breach of this Section 4.1(b) by AVIF, it will take all reasonable steps to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Section 1.817-5 of the regulations under the Code. (c) Notwithstanding any other provision of this Agreement, but without limiting the ability of AVIF and/or AIM to assume the defense of any action pursuant to Section 12.2(d) hereof, G-WL&A agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of G-WL&A or, to G-WL&A's knowledge, of any Participants, that any Fund has failed to comply with the diversification requirements of Section 817(h) of the Code or G-WL&A otherwise becomes aware of any facts that could give rise to any claim against AVIF or its affiliates as a result of such a failure or alleged failure: (i) G-WL&A shall promptly notify AVIF of such assertion or potential claim (subject to the Confidentiality provisions of Section 18 as to any Participant); (ii) G-WL&A shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure; (iii) G-WL&A shall use all commercially reasonable efforts to minimize any liability of AVIF or its affiliates 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; (iv) G-WL&A shall permit AVIF, its affiliates and their legal and accounting advisors to participate in any conferences, settlement discussions or other administrative or judicial proceeding or contests (including judicial appeals thereof) with the IRS, any Participant or any other claimant regarding any claims that could give rise to liability to AVIF or its affiliates as a result of such a failure or alleged failure; provided, however, that G-WL&A will retain control of the conduct of such conferences discussions, proceedings, contests or appeals; (v) any written materials to be submitted by G-WL&A to the IRS, any Participant or any other claimant in connection with any of the foregoing proceedings or contests that would affect AIM, it affiliates and/or AVIF and/or AVIF's shareholders, (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)), (a) shall be provided by G-WL&A to AVIF (together with any supporting information or analysis); subject to the confidentiality provisions of Section 18, at least ten (10) business days or such shorter period to which the Parties hereto agree prior to the day on which such proposed materials are to be submitted, and (b) shall not be submitted by G-WL&A to any such person without the express written consent of AVIF which shall not be unreasonably withheld; vi) G-WL&A shall provide AVIF or its affiliates and their accounting and legal advisors with such cooperation as AVIF shall reasonably request (including, without limitation, by permitting AVIF and its accounting and legal advisors to review the relevant books and records of G-WL&A) in order to facilitate review by AVIF or its advisors of any written submissions provided to it pursuant to the preceding clause or its assessment of the validity or amount of any claim against its arising from such a failure or alleged failure; (vii) G-WL&A shall not with respect to any claim of the IRS or any Participant that would give rise to a claim against AVIF or its affiliates (a) compromise or settle any claim, (b) accept any adjustment on audit, or (c) forego any allowable administrative or judicial appeals, without the express written consent of AVIF or its affiliates, which shall not be unreasonably withheld, provided that G-WL&A shall not be required, after exhausting all administrative remedies, to appeal any adverse judicial decision unless AVIF or its affiliates shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and provided further that the costs of any such appeal shall be borne solely by AVIF. Notwithstanding the foregoing, GWL&A agrees to share in fifty percent (50%) of the reasonable costs of appeal should the decision of the appellate court relieve GWL&A of any direct liability with respect to the claim appealed thereto; and (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if G-WL&A fails to comply with any of the foregoing clauses (i) through (vii), and such failure could be shown to have materially contributed to the liability. Should AVIF or any of its affiliates refuse to give its written consent to any compromise or settlement of any claim or liability hereunder, G-WL&A may, in its discretion, authorize AVIF or its affiliates to act in the name of G-WL&A in, and to control the conduct of, such conferences, discussions, proceedings, contests or appeals and all administrative or judicial appeals thereof, and in that event AVIF or its affiliates shall bear the fees and expenses associated with the conduct of the proceedings that it is so authorized to control; provided, that in no event shall G-WL&A have any liability resulting from AVIF's refusal to accept the proposed settlement or compromise with respect to any failure caused by AVIF. As used in this Agreement, the term "affiliates" shall have the same meaning as "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. (d) G-WL&A represents and warrants that the Contracts currently are and will be treated as annuity contracts or life insurance contracts under applicable provisions of the Code and that it will use its best efforts to maintain such treatment; G-WL&A will notify AVIF immediately upon having a reasonable basis for believing that any of the Contracts have ceased to be so treated or that they might not be so treated in the future. (e).....G-WL&A represents and warrants that each Account is a "segregated asset account" and that interests in each 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. G-WL&A will use its best efforts to continue to meet such definitional requirements, and it will notify AVIF 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. 4.2 Insurance and Certain Other Laws (a) AVIF will use its best efforts to comply with any applicable state insurance laws or regulations, to the extent specifically requested in writing by G-WL&A, which efforts shall include, without limitation, the furnishing of information that is not otherwise available to G-WL&A and that is required by state insurance law to enable G-WL&A to obtain the authority needed to issue the Contracts in any applicable state. (b) G-WL&A represents and warrants that (i) it is an insurance company duly organized, validly existing and in good standing under the laws of the State of Colorado and has full corporate power, authority and legal right to execute, deliver and perform its duties and comply with its obligations under this Agreement, and (ii) the Contracts comply in all material respects with all other applicable federal and state laws and regulations. (c) AVIF represents and warrants that it is lawfully organized, validly existing, and in good standing under the laws of the State of Delaware and has full power, authority, and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. 4.3 Securities Laws (a) G-WL&A represents and warrants that (i) interests in each Account pursuant to the Contracts will be registered under the 1933 Act to the extent required by the 1933 Act, (ii) the Contracts will be duly authorized for issuance and sold in compliance with all applicable federal and state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and the law(s) of G-WL&A's state(s) of organization and domicile, (iii) each Account is and will remain registered under the 1940 Act, to the extent required by the 1940 Act, (iv) each Account does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, to the extent required, (v) each Account's 1933 Act registration statement relating to the Contracts, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder, (vi) G-WL&A will amend the registration statement for its Contracts under the 1933 Act and for its Accounts under the 1940 Act from time to time as required in order to effect the continuous offering of its Contracts or as may otherwise be required by applicable law, and (vii) each Account Prospectus, Statement of Additional Information, and then-current stickers (collectively referred to herein as "Account Prospectus"), will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (b) AVIF represents and warrants that (i) Shares sold pursuant to this Agreement will be registered under the 1933 Act to the extent required by the 1933 Act and duly authorized for issuance and sold in compliance with Delaware law, (ii) AVIF is and will remain registered under the 1940 Act to the extent required by the 1940 Act, (iii) AVIF will amend the registration statement for its Shares under the 1933 Act and itself under the 1940 Act from time to time as required in order to effect the continuous offering of its Shares, (iv) AVIF does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act registration statement, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and rules thereunder, and (vi) AVIF's Prospectus, Statement of Additional Information, and then-current stickers (collectively referred to herein as "AVIF Prospectus"), will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (c) AVIF will at its expense register and qualify its Shares for sale in accordance with the laws of any state or other jurisdiction if and to the extent reasonably deemed advisable by AVIF. (d) AVIF represents and warrants that all of its trustees, officers, employees, investment advisers, and other individuals/entities having access to the funds and/or securities of the Fund are and continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond includes coverage for larceny and embezzlement and is issued by a reputable bonding company. 4.4 Notice of Certain Proceedings and Other Circumstances (a) AVIF or AIM will immediately notify G-WL&A of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to AVIF's registration statement under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any amendment to such registration statement or AVIF Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of AVIF's Shares, or (iv) any other action or circumstances that may prevent the lawful offer or sale of Shares of any Fund in any state or jurisdiction, including, without limitation, any circumstances in which (a) such Shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law, or (b) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by G-WL&A. AVIF and AIM will make every reasonable effort to prevent the issuance, with respect to any Fund, of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. (b) G-WL&A or its designated underwriter affiliate will immediately notify AVIF of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to each Account's registration statement under the 1933 Act relating to the Contracts or each Account Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Account Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of each Account's interests pursuant to the Contracts, or (iv) any other action or circumstances that may prevent the lawful offer or sale of said interests in any state or jurisdiction, including, without limitation, any circumstances in which said interests are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law. G-WL&A and its designated underwriter affiliate will make every reasonable effort to prevent the issuance of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. 4.5 G-WL&A To Provide Documents; Information About AVIF (a) G-WL&A will provide to AVIF or its designated agent at least one (1) complete copy of all SEC registration statements, Account Prospectuses, reports, any preliminary and final voting instruction solicitation material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to each Account or the Contracts, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) G-WL&A will provide to AVIF or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which AVIF or any of its affiliates is named, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if AVIF or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. AVIF hereby designates AIM as the entity to receive such sales literature, until such time as AVIF appoints another designated agent by giving notice to G-WL&A in the manner required by Section 9 hereof. (c) Neither G-WL&A nor any of its affiliates, will give any information or make any representations or statements on behalf of or concerning AVIF or its affiliates in connection with the sale of the Contracts other than (i) the information or representations contained in the registration statement, including the AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus may be amended from time to time; or (ii) in reports or proxy materials for AVIF; or (iii) in published reports for AVIF that are in the public domain and approved by AVIF for distribution; or (iv) in sales literature or other promotional material approved by AVIF, except with the express written permission of AVIF. (d) G-WL&A shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF and its affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither GWL&A, AVIF nor any of their affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (e) For the purposes of this Section 4.5, the phrase "sales literature or 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 messages), 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, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act, or the 1940 Act. 4.6 AVIF To Provide Documents; Information About G-WL&A (a) AVIF will provide to G-WL&A at least one (1) complete copy of all SEC registration statements, AVIF Prospectuses, reports, any preliminary and final proxy material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to AVIF or the Shares of a Fund, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) AVIF will provide to G-WL&A a camera ready copy of all AVIF prospectuses and printed copies, in an amount specified by G-WL&A, of AVIF statements of additional information, proxy materials, periodic reports to shareholders and other materials required by law to be sent to Participants who have allocated any Contract value to a Fund. AVIF will provide such copies to G-WL&A in a timely manner so as to enable G-WL&A, as the case may be, to print and distribute such materials within the time required by law to be furnished to Participants. (c) AVIF will provide to G-WL&A or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which G-WL&A, or any of its respective affiliates is named, or that refers to the Contracts, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if G-WL&A or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. G-WL&A shall receive all such sales literature until such time as it appoints a designated agent by giving notice to AVIF in the manner required by Section 9 hereof. (d) Neither AVIF nor any of its affiliates will give any information or make any representations or statements on behalf of or concerning G-WL&A, each Account, or the Contracts other than (i) the information or representations contained in the registration statement, including each Account Prospectus contained therein, relating to the Contracts, as such registration statement and Account Prospectus may be amended from time to time; or (ii) in published reports for the Account or the Contracts that are in the public domain and approved by G-WL&A for distribution; or (iii) in sales literature or other promotional material approved by G-WL&A or its affiliates, except with the express written permission of G-WL&A. (e) AVIF shall cause its principal underwriter to adopt and implement procedures reasonably designed to ensure that information concerning G-WL&A, and its respective affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither G-WL&A, nor any of its respective affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (f) For purposes of this Section 4.6, the phrase "sales literature or 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 messages), 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, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act, or the 1940 Act. Section 5. Mixed and Shared Funding 5.1 General The SEC has granted an order to AVIF exempting it from certain provisions of the 1940 Act and rules thereunder so that AVIF may be available for investment by certain other entities, including, without limitation, separate accounts funding variable annuity contracts or variable life insurance contracts, separate accounts of insurance companies unaffiliated with G-WL&A, and trustees of qualified pension and retirement plans (collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply pursuant to the exemptive order granted to AVIF. AVIF hereby notifies G-WL&A that, in the event that AVIF implements Mixed and Shared Funding, it may be appropriate to include in the prospectus pursuant to which a Contract is offered disclosure regarding the potential risks of Mixed and Shared Funding. 5.2 Disinterested Trustees AVIF agrees that its Board shall at all times consist of trustees a majority of whom (the "Disinterested Trustees") are not interested persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the rules thereunder and as modified by any applicable orders of the SEC, except that if this condition is not met by reason of the death, disqualification, or bona fide resignation of any director, then the operation of this condition shall be suspended (a) for a period of forty-five (45) days if the vacancy or vacancies may be filled by the Board; (b) for a period of sixty (60) days if a vote of shareholders is required to fill the vacancy or vacancies or (c) for such longer period as the SEC may prescribe by order upon application. 5.3 Monitoring for Material Irreconcilable Conflicts AVIF agrees that its Board will monitor for the existence of any material irreconcilable conflict between the interests of the Participants in all separate accounts of life insurance companies utilizing AVIF ("Participating Insurance Companies"), including each Account, and participants in all qualified retirement and pension plans investing in AVIF ("Participating Plans"). G-WL&A agrees to inform the Board of AVIF of the existence of or any potential for any such material irreconcilable conflict of which it is aware. The concept of a "material irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder, but the Parties recognize that such a conflict may arise for a variety of reasons, including, without limitation: (a) an action by any state insurance or other 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 Fund are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract Participants or by Participants of different Participating Insurance Companies; (f) a decision by a Participating Insurance Company to disregard the voting instructions of Participants; or (g) a decision by a Participating Plan to disregard the voting instructions of Plan participants. Consistent with the SEC's requirements in connection with exemptive orders of the type referred to in Section 5.1 hereof, G-WL&A will assist the Board in carrying out its responsibilities by providing the Board with all information reasonably necessary for the Board to consider any issue raised, including information as to a decision by G-WL&A to disregard voting instructions of Participants. G-WL&A's responsibilities in connection with the foregoing shall be carried out with a view only to the interests of Participants. 5.4 Conflict Remedies (a) It is agreed that if it is determined by a majority of the members of the Board or a majority of the Disinterested Trustees that a material irreconcilable conflict exists, G-WL&A will, if it is a Participating Insurance Company for which a material irreconcilable conflict is relevant, at its own expense and to the extent reasonably practicable (as determined by a majority of the Disinterested Trustees), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps may include, but are not limited to: (i) withdrawing the assets allocable to some or all of the Accounts from AVIF or any Fund and reinvesting such assets in a different investment medium, including another Fund of AVIF, or submitting the question whether such segregation should be implemented to a vote of all affected Participants and, as appropriate, segregating the assets of any particular group (e.g., annuity Participants, life insurance Participants or all Participants) that votes in favor of such segregation, or offering to the affected Participants the option of making such a change; and (ii) establishing a new registered investment company of the type defined as a "management company" in Section 4(3) of the 1940 Act or a new separate account that is operated as a management company. (b) If the material irreconcilable conflict arises because of G-WL&A's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, G-WL&A may be required, at AVIF's election, to withdraw each Account's investment in AVIF or any Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within six (6) months after AVIF gives notice to G-WL&A that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by G-WL&A for the purchase and redemption of Shares of AVIF. (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to G-WL&A conflicts with the majority of other state regulators, then G-WL&A will withdraw each Account's investment in AVIF within six (6) months after AVIF's Board informs G-WL&A that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal AVIF shall continue to accept and implement orders by G-WL&A for the purchase and redemption of Shares of AVIF. No charge or penalty will be imposed as a result of such withdrawal. (d) G-WL&A agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Participants. (e) For purposes hereof, a majority of the Disinterested Trustees will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will AVIF or any of its affiliates be required to establish a new funding medium for any Contracts. G-WL&A will not be required by the terms hereof to establish a new funding medium for any Contracts if an offer to do so has been declined by vote of a majority of Participants materially adversely affected by the material irreconcilable conflict. 5.5 Notice to G-WL&A AVIF will promptly make known in writing to G-WL&A the Board's determination of the existence of a material irreconcilable conflict, a description of the facts that give rise to such conflict and the implications of such conflict. 5.6 Information Requested by Board G-WL&A and AVIF (or its investment adviser) will at least annually submit to the Board of AVIF such reports, materials or data as the Board may reasonably request so that the Board may fully carry out the obligations imposed upon it by the provisions hereof or any exemptive order granted by the SEC to permit Mixed and Shared Funding, and said reports, materials and data will be submitted at any reasonable time deemed appropriate by the Board. All reports received by the Board of potential or existing conflicts, and all Board actions with regard to determining the existence of a conflict, notifying Participating Insurance Companies and Participating Plans of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board or other appropriate records, and such minutes or other records will be made available to the SEC upon request. 5.7 Compliance with SEC Rules If, at any time during which AVIF is serving as an investment medium for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and conditions thereof and that the terms of this Section 5 shall be deemed modified if and only to the extent required in order also to comply with the terms and conditions of such exemptive relief that is afforded by any of said rules that are applicable. 5.8 Other Requirements AVIF will require that each Participating Insurance Company and Participating Plan enter into an agreement with AVIF that contains in substance the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b), 4.5(a), 5, and 10 of this Agreement. Section 6. Termination 6.1 Events of Termination Subject to Section 6.4 below, this Agreement will terminate as to a Fund: (a) at the option of any party, with or without cause with respect to the Fund, upon six (6) months advance written notice to the other parties, or, if later, upon receipt of any required exemptive relief from the SEC, unless otherwise agreed to in writing by the parties; or (b) at the option of AVIF upon institution of formal proceedings against G-WL&A or its affiliates by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding G-WL&A's obligations under this Agreement or related to the sale of the Contracts, the operation of each Account, or the purchase of Shares, if, in each case, AVIF reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on the Fund with respect to which the Agreement is to be terminated; or (c) at the option of G-WL&A upon institution of formal proceedings against AVIF, its principal underwriter, or its investment adviser by the NASD, the SEC, or any state insurance regulator or any other regulatory body regarding AVIF's obligations under this Agreement or related to the operation or management of AVIF or the purchase of AVIF Shares, if, in each case, G-WL&A reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on G-WL&A, or the Subaccount corresponding to the Fund with respect to which the Agreement is to be terminated; or (d) at the option of any Party in the event that (i) the Fund's Shares are not registered and, in all material respects, issued and sold in accordance with any applicable federal or state law, or (ii) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by G-WL&A; or (e) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (f) at the option of G-WL&A if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if G-WL&A reasonably believes that the Fund may fail to so qualify; or (g) at the option of G-WL&A if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions, or if G-WL&A reasonably believes that the Fund may fail to so comply; or (h) at the option of AVIF if the Contracts issued by G-WL&A cease to qualify as annuity contracts or life insurance contracts under the Code (other than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M of the Code) or if interests in an Account under the Contracts are not registered, where required, and, in all material respects, are not issued or sold in accordance with any applicable federal or state law; or (i) upon another Party's material breach of any provision of this Agreement. 6.2 Notice Requirement for Termination No termination of this Agreement will be effective unless and until the Party terminating this Agreement gives prior written notice to the other Party to this Agreement of its intent to terminate, and such notice shall set forth the basis for such termination. Furthermore: (a) in the event that any termination is based upon the provisions of Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at least six (6) months in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; (b) in the event that any termination is based upon the provisions of Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at least ninety (90) days in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; and (c) in the event that any termination is based upon the provisions of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written notice shall be given as soon as possible within twenty-four (24) hours after the terminating Party learns of the event causing termination to be required. 6.3 Funds To Remain Available Notwithstanding any termination of this Agreement by G-WL&A, AVIF will, at the option of G-WL&A, continue to make available additional shares of the Fund 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"), unless AIM or the Board determines that doing so would not serve the best interests of the shareholders of the affected Funds or would be inconsistent with applicable law or regulation. Specifically, without limitation, the owners of the Existing Contracts will be permitted to reallocate investments in the Fund (as in effect on such date), redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 6.3 will not apply to any (i) terminations under Section 5 and the effect of such terminations will be governed by Section 5 of this Agreement or (ii) any rejected purchase and/or redemption order as described in Section 2.3(c) hereof. 6.4 Survival of Warranties and Indemnifications All warranties and indemnifications will survive the termination of this Agreement. 6.5 Continuance of Agreement for Certain Purposes If any Party terminates this Agreement with respect to any Fund pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this Agreement shall nevertheless continue in effect as to any Shares of that Fund that are outstanding as of the date of such termination (the "Initial Termination Date"). This continuation shall extend to the earlier of the date as of which an Account owns no Shares of the affected Fund or a date (the "Final Termination Date") six (6) months following the Initial Termination Date, except that G-WL&A may, by written notice shorten said six (6) month period in the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i). Section 7. Parties To Cooperate Respecting Termination The Parties hereto agree to cooperate and give reasonable assistance to one another in taking all necessary and appropriate steps for the purpose of ensuring that an Account owns no Shares of a Fund after the Final Termination Date with respect thereto, or, in the case of a termination pursuant to Section 6.1(a), the termination date specified in the notice of termination. Such steps may include combining the affected Account with another Account, substituting other mutual fund shares for those of the affected Fund, or otherwise terminating participation by the Contracts in such Fund. Section 8. Assignment This Agreement may not be assigned by any Party, except with the written consent of each other Party. For purposes of this Agreement, the designation of an affiliate of a Party to perform some, or all, the duties and obligations hereto shall not be construed as an assignment. An affiliate is that entity which is controlled, either directly or indirectly by a Party and shall include any entity that conforms to such definition as of the effective date of the Agreement as well as any entity that conforms to the definition anytime thereafter. Section 9. Notices Notices and communications required or permitted will be given by means mutually acceptable to the Parties concerned. Each other notice or communication required or permitted by this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: AIM VARIABLE INSURANCE FUNDS A I M DISTRIBUTORS, INC. 11 Greenway Plaza, Suite 100 Houston, Texas 77046 Facsimile: (713) 993-9185 Attn: .Peter A. Davidson, Esq. GREAT-WEST LIFE AND ANNUITY INSURANCE COMPANY 8515 East Orchard Road Greenwood Village, Colorado 80111 Attn: Vice President, Institutional Insurance cc: Beverly A. Byrne, V.P. Counsel and Associate Secretary Section 10. Voting Procedures Subject to the cost allocation procedures set forth in Section 3 hereof, G-WL&A will distribute all proxy material furnished by AVIF to Participants to whom pass-through voting privileges are required to be extended and will solicit voting instructions from Participants. G-WL&A will vote Shares in accordance with timely instructions received from Participants. G-WL&A will vote Shares that are (a) not attributable to Participants to whom pass-through voting privileges are extended, or (b) attributable to Participants, but for which no timely instructions have been received, in the same proportion as Shares for which said instructions have been received from Participants, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass through voting privileges for Participants. Neither G-WL&A nor any of its affiliates will in any way recommend action in connection with or oppose or interfere with the solicitation of proxies for the Shares held for such Participants. G-WL&A reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. G-WL&A shall be responsible for assuring that each of its Accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by the Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will notify G-WL&A of any changes of interpretations or amendments to Mixed and Shared Funding exemptive order it has obtained. AVIF will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular, AVIF either will provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or will comply with Section 16(c) of the 1940 Act (although AVIF 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, AVIF will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of trustees and with whatever rules the SEC may promulgate with respect thereto. Section 11. Foreign Tax Credits AVIF agrees to consult in advance with G-WL&A concerning any decision to elect or not to elect pursuant to Section 853 of the Code to pass through the benefit of any foreign tax credits to its shareholders. Section 12. Indemnification 12.1 Of AVIF and AIM by G-WL&A (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, G-WL&A and its designated affiliates agree to indemnify and hold harmless AVIF, AIM, their affiliates, and each person, if any, who controls AVIF, AIM, or their affiliates within the meaning of Section 15 of the 1933 Act and each of their respective trustees and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of G-WL&A or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to G-WL&A or its designated affiliate by or on behalf of AVIF or AIM for use in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of G-WL&A or their respective affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of G-WL&A or their respective affiliates or persons under their control (including, without limitation, their employees and "persons associated with a member," as that term is defined in paragraph (q) of Article I of the NASD's By-Laws), in connection with the sale or distribution of the Contracts or Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, 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 in conformity with information furnished to AVIF, AIM or their affiliates by or on behalf of G-WL&A or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by G-WL&A or its designated affiliates to perform the obligations, provide the services and furnish the materials required of them under the terms of this Agreement, or any material breach of any representation and/or warranty made by G-WL&A or its designated affiliates in this Agreement or arise out of or result from any other material breach of this Agreement by G-WL&A or its designated affiliates; or (v) arise as a result of failure by the Contracts issued by G-WL&A to qualify as annuity contracts or life insurance contracts under the Code, otherwise than by reason of any Fund's failure to comply with Subchapter M or Section 817(h) of the Code. (b) Neither G-WL&A nor its designated affiliates shall be liable under this Section 12.1 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of that Indemnified Party's reckless disregard of obligations or duties (i) under this Agreement, or (ii) to AVIF or AIM. (c) Neither G-WL&A nor its designated affiliates shall be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF or AIM shall have notified G-WL&A and its designated affiliates in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action 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 G-WL&A and its designated affiliates of any such action shall not relieve G-WL&A and its designated affiliates from any liability which they may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.1. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, G-WL&A and its designated affiliates shall be entitled to participate, at their own expense, in the defense of such action and also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from G-WL&A or its designated affiliates to such Indemnified Party of G-WL&A's or its designated affiliates' election to assume the defense thereof, the Indemnified Party will cooperate fully with G-WL&A and its designated affiliates and shall bear the fees and expenses of any additional counsel retained by it, and neither LIFE COMPANY nor its designated affiliates will be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 12.2 Of G-WL&A by AVIF and AIM (a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e), below, AVIF and AIM agree to indemnify and hold harmless G-WL&A and its respective affiliates, and each person, if any, who controls G-WL&A or its respective affiliates within the meaning of Section 15 of the 1933 Act and each of their respective trustees and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AVIF and/or AIM) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law, or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus or sales literature or advertising of AVIF (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to AVIF or its affiliates by or on behalf of G-WL&A, or its respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, or in sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising for the Contracts, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of AVIF, AIM or their affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AVIF, AIM or their affiliates or persons under their control (including, without limitation, their employees and "persons associated with a member" as that term is defined in Section (q) of Article I of the NASD By-Laws), in connection with the sale or distribution of AVIF Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing, 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 statement or omission was made in reliance upon and in conformity with information furnished to G-WL&A or its respective affiliates by or on behalf of AVIF or AIM for use in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by AVIF to perform the obligations, provide the services and furnish the materials required of it under the terms of this Agreement, or any material breach of any representation and/or warranty made by AVIF in this Agreement or arise out of or result from any other material breach of this Agreement by AVIF. (b) The parties agree that the foregoing indemnification by AVIF shall not apply to any acts or omissions of AIM. Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the Indemnified Parties from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement thereof with, the written consent of AVIF and/or AIM) or actions in respect thereof (including, to the extent reasonable, legal and other expenses) to which the Indemnified Parties may become subject directly or indirectly under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions directly or indirectly result from or arise out of the failure of any Fund to operate as a regulated investment company in compliance with (i) Subchapter M of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and regulations thereunder, including, without limitation, any income taxes and related penalties, rescission charges, liability under state law to Participants asserting liability against G-WL&A pursuant to the Contracts, the costs of any ruling and closing agreement or other settlement with the IRS, and the cost of any substitution by G-WL&A of Shares of another investment company or portfolio for those of any adversely affected Fund as a funding medium for each Account that G-WL&A reasonably deems necessary or appropriate as a result of the noncompliance. (c) Neither AVIF nor AIM shall be liable under this Section 12.2 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of such Indemnified Party's reckless disregard of its obligations and duties (i) under this Agreement, or (ii) to G-WL&A, UNDERWRITER, each Account or Participants. (d) Neither AVIF nor AIM shall be liable under this Section 12.2 with respect to any action against an Indemnified Party unless the Indemnified Party shall have notified AVIF and/or AIM in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action 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 AVIF or AIM of any such action shall not relieve AVIF or AIM from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.2. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, AVIF and/or AIM will be entitled to participate, at its own expense, in the defense of such action and also shall be entitled to assume the defense thereof (which shall include, without limitation, the conduct of any ruling request and closing agreement or other settlement proceeding with the IRS), with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AVIF and/or AIM to such Indemnified Party of AVIF's or AIM's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and AIM and shall bear the fees and expenses of any additional counsel retained by it, and AVIF and AIM will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. (e) In no event shall AVIF or AIM be liable under the indemnification provisions contained in this Agreement to any individual or entity, including, without limitation, G-WL&A or any other Participating Insurance Company or any Participant, with respect to any losses, claims, damages, liabilities or expenses that arise out of or result from (i) a breach of any representation, warranty, and/or covenant made by G-WL&A or its designated affiliates hereunder or by any other Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by G-WL&A or any other Participating Insurance Company to maintain its segregated asset account (which invests in any Fund) as a legally and validly established segregated asset account under applicable state law and as a duly registered unit investment trust under the provisions of the 1940 Act (unless exempt therefrom); or (iii) the failure by G-WL&A or any other Participating Insurance Company to maintain its variable annuity or life insurance contracts (with respect to which any Fund serves as an underlying funding vehicle) as annuity contracts or life insurance contracts under applicable provisions of the Code. 12.3 Effect of Notice Any notice given by the indemnifying Party to an Indemnified Party referred to in Sections 12.1(c) or 12.2(d) above of participation in or control of any action by the indemnifying Party will in no event be deemed to be an admission by the indemnifying Party of liability, culpability or responsibility, and the indemnifying Party will remain free to contest liability with respect to the claim among the Parties or otherwise. 12.4 Successors A successor by law of any Party shall be entitled to the benefits of the indemnification contained in this Section 12. Section 13. Applicable Law This Agreement will be construed and the provisions hereof interpreted under and in accordance with Delaware law, without regard for that state's principles of conflict of laws. Section 14. Execution in Counterparts This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. Section 15. Severability If any provision of this Agreement is held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby. Section 16. Rights Cumulative 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, that the Parties are entitled to under federal and state laws. Section 17. Headings The Table of Contents and headings used in this Agreement are for purposes of reference only and shall not limit or define the meaning of the provisions of this Agreement. Section 18. Confidentiality AVIF acknowledges that the identities of the customers of G-WL&A or any of its affiliates (collectively, the "G-WL&A Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the G-WL&A Protected Parties or any of their employees or agents in connection with G-WL&A's performance of its duties under this Agreement are the valuable property of the G-WL&A Protected Parties. AVIF agrees that if it comes into possession of any list or compilation of the identities of or other information about the G-WL&A Protected Parties' customers, or any other information or property of the G-WL&A Protected Parties, other than such information as may be independently developed or compiled by AVIF from information supplied to it by the G-WL&A Protected Parties' customers who also maintain accounts separate from those Accounts registered by G-WL&A directly with AVIF, AVIF will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with G-WL&A's prior written consent; or (b) as required by law or judicial process. G-WL&A acknowledges that the identities of the customers of AVIF or any of its affiliates (collectively, the "AVIF Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the AVIF Protected Parties or any of their employees or agents in connection with AVIF's performance of its duties under this Agreement are the valuable property of the AVIF Protected Parties. G-WL&A agrees that if it comes into possession of any list or compilation of the identities of or other information about the AVIF Protected Parties' customers or any other information or property of the AVIF Protected Parties, other than such information as may be independently developed or compiled by G-WL&A from information supplied to it by the AVIF Protected Parties' customers who also maintain accounts directly with G-WL&A, G-WL&A will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with AVIF's prior written consent; or (b) as required by law or judicial process. Each party acknowledges that any breach of the agreements in this Section 18 would result in immediate and irreparable harm to the other parties for which there would be no adequate remedy at law and agree that in the event of such a breach, the other parties will be entitled to equitable relief by way of temporary and permanent injunctions, as well as such other relief as any court of competent jurisdiction deems appropriate. Section 19. Trademarks and Fund Names (a) Except as may otherwise be provided in a License Agreement among A I M Management Group Inc., G-WL&A or its designated affiliates, neither G-WL&A nor its designated affiliates or any of their respective affiliates, shall use any trademark, trade name, service mark or logo of AVIF, AIM or any of their respective affiliates, or any variation of any such trademark, trade name, service mark or logo, without AVIF's or AIM's prior written consent, the granting of which shall be at AVIF's or AIM's sole option. (b) Except as otherwise expressly provided in this Agreement, neither AVIF, its investment adviser, its principal underwriter, or any affiliates thereof shall use any trademark, trade name, service mark or logo of G-WL&A or any of its affiliates, or any variation of any such trademark, trade name, service mark or logo, without G-WL&A's prior written consent, the granting of which shall be at G-WL&A's sole option. Section 20. Parties to Cooperate Each party to this Agreement will cooperate with each other party and all appropriate governmental authorities (including, without limitation, the SEC, the NASD and state insurance regulators) and will permit each other and such authorities reasonable access to its books and records (including copies thereof) in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Section 21. Amendments; Need For No provision of this Agreement may be amended or modified in any manner except by mutual written agreement executed by all parties hereto. The Parties shall, from time to time, review this Agreement to determine the extent to which an amendment thereto may be necessary or appropriate to reflect changes in applicable law or regulation, and shall cooperate in implementing any such amendment in a timely manner, it being understood and agreed to that no such amendment shall take effect except upon mutual written agreement of all Parties as stated above. Section 22. Force Majeure Each Party shall be excused from the performance of any of its obligations to the other where such nonperformance is occasioned by any event beyond its control which shall include, without limitation, any applicable order, rule or regulation of any federal, state or local body, agency or instrumentality with jurisdiction, work stoppage, accident, natural disaster, war, acts of terrorism or civil disorder, provided that the Party so excused shall use all reasonable efforts to minimize its nonperformance and overcome, remedy, cure or remove such event as soon as is reasonably practicable, and such performance shall be excused only for so long as, in any given case, the force or circumstances making performance impossible shall exist. IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers signing below. AIM VARIABLE INSURANCE FUNDS Attest: By: ---------------------- --------------------------------------- Name: Name: ------------------------ --------------------------------------- Title: Title: ----------------------- --------------------------------------- A I M DISTRIBUTORS, INC. Attest: By: ---------------------- -------------------------------------------- Name: Name: ------------------------ ------------------------------------- Title: Title: ----------------------- ------------------------------------ GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY, as Underwriter and on behalf of itself and its separate accounts and its Affiliate Attest: _______________________ By: ___________________________________ Name: _______________________ Name: ___________________________________ Title: _______________________ Title: ___________________________________
SCHEDULE A FUNDS AVAILABLE UNDER THE CONTRACTS AIM V.I. Aggressive Growth Fund AIM V.I. Money Market Fund AIM V.I. Balanced Fund AIM V.I. Premier Equity Fund AIM V.I. Basic Value Fund AIM V.I. Real Estate Fund AIM V.I. Blue Chip Fund AIM V.I. Small Cap Equity Fund AIM V.I. Capital Appreciation Fund INVESCO VIF - Core Equity Fund (name AIM V.I. Capital Development Fund will be changed to AIM V.I. Core Stock AIM V.I. Core Equity Fund Fund on October 15, 2004) AIM V.I. Dent Demographic Trends Fund INVESCO VIF - Dynamics Fund (name will AIM V.I. Diversified Income Fund be changed to AIM V.I. Dynamics Fund on AIM V.I. Government Securities Fund October 15, 2004) AIM V.I. Growth Fund INVESCO VIF - Financial Services Fund AIM V.I. High Yield Fund (name will be changed to AIM V.I. AIM V.I. International Growth Fund Financial Services Fund on October 15, AIM V.I. Large Cap Growth Fund 2004) AIM V.I. Mid Cap Core Equity Fund INVESCO VIF - Health Sciences Fund (name will be changed to AIM V.I. Health Sciences Fund on October 15, 2004) INVESCO VIF - Leisure Fund (name will be changed to AIM V.I. Leisure Fund on October 15, 2004) INVESCO VIF - Small Company Growth Fund (name will be changed to AIM V.I. Small Company Growth Fund on October 15, 2004) INVESCO VIF - Technology Fund (name will be changed to AIM V.I. Technology Fund on October 15, 2004) INVESCO VIF - Total Return Fund (name will be changed to AIM V.I. Total Return Fund on October 15, 2004) INVESCO VIF - Utilities Fund (name will be changed to AIM V.I. Utilities Fund on October 15, 2004)
SEPARATE ACCOUNTS UTILIZING THE FUNDS CONTRACTS FORM NUMBERS Future Funds Series Account GTDAMF92 Vol GTGAMF92 ER GTMSG184-1 GTSAMF191 COLI VUL - 2 Series Account J355 COLI VUL - 7 Series Account J350 SCHEDULE B AIM's PRICING ERROR POLICIES Determination of Materiality In the event that AIM discovers an error in the calculation of the Fund's net asset value, the following policies will apply: If the amount of the error is less than $.01 per share, it is considered immaterial and no adjustments are made. If the amount of the error is $.01 per share or more, then the following thresholds are applied: a. If the amount of the difference in the erroneous net asset value and the correct net asset value is less than .5% of the correct net asset value, AIM will reimburse the affected Fund to the extent of any loss resulting from the error. No other adjustments shall be made. b. If the amount of the difference in the erroneous net asset value and the correct net asset value is .5% of the correct net asset value or greater, then AIM will determine the impact of the error to the affected Fund and shall reimburse such Fund (and/or G-WL&A, as appropriate, such as in the event that the error was not discovered until after G-WL&A processed transactions using the erroneous net asset value) to the extent of any loss resulting from the error. To the extent that an overstatement of net asset value per share is detected quickly and G-WL&A has not mailed redemption checks to Participants, G-WL&A and AIM agree to examine the extent of the error to determine the feasibility of reprocessing such redemption transaction (for purposes of reimbursing the Fund to the extent of any such overpayment). In no event shall G-WL&A be liable to Participants for any such adjustments or underpayment amounts unless the error is due to G-WL&A's own willful misfeasance, bad faith, or gross negligence. A pricing error within categories (a) or (b) above shall be deemed to be "materially incorrect" or constitute a "material error" for purposes of this Agreement. Reprocessing Cost Reimbursement To the extent a reprocessing of Participant transactions is required pursuant to paragraph (b), above, AIM shall reimburse G-WL&A for G-WL&A's reprocessing costs in an amount not to exceed $1.00 per contract affected by $10 or more.
SCHEDULE C EXPENSE ALLOCATIONS ==================================================== ================================================ G-WL&A AVIF / AIM - ---------------------------------------------------- ------------------------------------------------ - ---------------------------------------------------- ------------------------------------------------ preparing and filing the Account's registration Preparing and filing the Fund's registration statement statement - ---------------------------------------------------- ------------------------------------------------ - ---------------------------------------------------- ------------------------------------------------ text composition for Account prospectuses and text composition for Fund prospectuses and supplements supplements - ---------------------------------------------------- ------------------------------------------------ - ---------------------------------------------------- ------------------------------------------------ text alterations of prospectuses (Account) and text alterations of prospectuses (Fund) and supplements (Account) supplements (Fund) - ---------------------------------------------------- ------------------------------------------------ - ---------------------------------------------------- ------------------------------------------------ printing Account and Fund prospectuses and a camera ready Fund prospectus supplements - ---------------------------------------------------- ------------------------------------------------ - ---------------------------------------------------- ------------------------------------------------ text composition and printing Account SAIs text composition and printing Fund SAIs - ---------------------------------------------------- ------------------------------------------------ - ---------------------------------------------------- ------------------------------------------------ mailing and distributing Account SAIs to policy mailing and distributing Fund SAIs to policy owners upon request by policy owners owners upon request by policy owners - ---------------------------------------------------- ------------------------------------------------ - ---------------------------------------------------- ------------------------------------------------ mailing and distributing prospectuses (Account and Fund) and supplements (Account and Fund) to policy owners of record as required by Federal Securities Laws and to prospective purchasers - ---------------------------------------------------- ------------------------------------------------ - ---------------------------------------------------- ------------------------------------------------ text composition (Account), printing, mailing, and text composition of annual and semi-annual distributing annual and semi-annual reports for reports (Fund) Account (Fund and Account as, applicable) - ---------------------------------------------------- ------------------------------------------------ - ---------------------------------------------------- ------------------------------------------------ text composition, printing, mailing, distributing, text composition, printing, mailing, distribuing and tabulation of proxy statements and voting and tabulation of proxy statements and voting instruction solicitation materials to policy instruction solicitation materials to policy owners with respect to proxies related to the owners with respect to the Fund Account - ---------------------------------------------------- ------------------------------------------------ - ---------------------------------------------------- ------------------------------------------------ If required by G-WLA: preparation, printing and distributing sales material and advertising relating to the Accounts, insofar as such materials relate to the Contracts and filing such materials with and obtaining approval from, the SEC, the NASD, any state insurance regulatory authority, and any other appropriate regulatory authority, to the extent required ==================================================== ================================================
EX-99 4 exhibitgwlaamerfpaamend.txt THIRD AMENDMENT TO PARTICIPATION AGREEMENT THIS THIRD AMENDMENT TO PARTICIPATION AGREEMENT is made as of this ____ day of __________, 2005, by and among GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY ("GWL&A"), AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. (the "Adviser") and AMERICAN CENTURY INVESTMENT SERVICES, INC. (the "Distributor"). Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Original Agreement (defined below). RECITALS WHEREAS, GWL&A, the Adviser and the Distributor are parties to a certain Participation Agreement, dated September 14, 1999, and amended April 20, 2000 and May 1, 2002 (the "Original Agreement"), pursuant to which shares of Portfolios of the Fund, an open-end management investment company registered under the Investment Company Act of 1940, are made available to act as an investment vehicle for separate accounts established for variable life insurance policies and/or variable annuity contracts to be offered by insurance companies, including GWL&A; and WHEREAS, the parties have agreed to add Class I of the VP Vista Fund as a Designated Portfolio on behalf of the Accounts to fund the variable annuity contracts sold through FutureFunds as well as the variable life insurance contracts sold through COLI VUL Series Account 2, either directly or indirectly through the Profile Portfolios of the Maxim Series Fund, Inc. and the parties have agreed to revise Schedule B to include this new Designated Portfolio as well as the available class for each Designated Portfolio. NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties agree as follows, effective as of the date first written above: 1. Schedule B of the Original Agreement is hereby deleted and replaced in its entirety with the Schedule B attached hereto and incorporated by reference herein. IN WITNESS WHEREOF, the undersigned duly authorized officers have executed this Amendment in their capacities as such as of the date first written above. GREAT WEST LIFE & ANNUITY AMERICAN CENTURY INVESTMENT INSURANCE COMPANY MANAGEMENT, INC. By:______________________________ By: _____________________________ Name:____________________________ Name:___________________________ Title: ____________________________ Title:____________________________ AMERICAN CENTURY INVESTMENT SERVICES, INC. By:______________________________ Name:____________________________ Title:_____________________________ 1 SCHEDULE B Designated Portfolios (offered either directly or indirectly to the Accounts) - ----------------------------------------------------------------------------- Name of Portfolio Available Class American Century VP Capital Appreciation Class I American Century VP Balanced Class I American Century VP Advantage Class I American Century VP International Class I American Century VP Value Class I American Century VP Income & Growth Class I American Century VP Ultra Class I American Century VP Vista Class I EX-99 5 exhibitgwladavisfpa.txt FUND PARTICIPATION AGREEMENT
TABLE OF CONTENTS ARTICLE I. Sale of Fund Shares...................................................... ARTICLE II. Representations and Warranties........................................... ARTICLE III. Prospectuses and Proxy Statements; Voting................................ ARTICLE IV. Sales Material and Information........................................... ARTICLE V. Fees and Expenses........................................................ ARTICLE VI. Diversification and Qualification........................................ ARTICLE VII. Potential Conflicts and Compliance With Mixed and Shared Funding Exemptive Order ................................ ARTICLE VIII. Indemnification ......................................................... ARTICLE IX. Applicable Law........................................................... ARTICLE X. Termination.............................................................. ARTICLE XI. Notices.................................................................. ARTICLE XII. Miscellaneous............................................................ SCHEDULE A Designated Portfolios.................................................... SCHEDULE B Reports per Section 6.6.................................................. SCHEDULE C Expenses................................................................. SCHEDULE D Administrative Services.................................................. SCHEDULE E Non-Compete Provisions...................................................
FUND PARTICIPATION AGREEMENT Among GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY DAVIS VARIABLE ACCOUNT FUND, INC. DAVIS SELECTED ADVISERS, L.P. and DAVIS DISTRIBUTORS, LLC THIS AGREEMENT, made and entered into as of this ____ day of _December, 2004 by and among GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY (hereinafter "GWL&A"), a Colorado life insurance company, on its own behalf and on behalf of its Separate Account COLI VUL-2 Series Account (the "Account"); DAVIS VARIABLE ACCOUNT FUND, INC., a _corporation organized under the laws of _Maryland_ (hereinafter the "Fund"); DAVIS SELECTED ADVISERS, L.P. (hereinafter the "Adviser"), a _limited partnership_ organized under the laws of _Colorado; and DAVIS DISTRIBUTORS, LLC, a _limited liability company_ organized under the laws of _Delaware_ (hereinafter the "Distributor"). WHEREAS, the Fund engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance policies and/or variable annuity contracts (collectively, the "Variable Insurance Products") to be offered by insurance companies, including GWL&A, which have entered into participation agreements similar to this Agreement (hereinafter "Participating Insurance Companies"); and WHEREAS, the beneficial interest in the Fund is divided into several series of shares, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities and other assets; and WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission (hereinafter the "SEC"), dated November 19, 1999 (File No. 812-11572 ), granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity and variable life insurance separate accounts of life insurance companies that may or may not be affiliated with one another and qualified pension and retirement plans ("Qualified Plans") (hereinafter the "Mixed and Shared Funding Exemptive Order"); and WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and shares of the Portfolio(s) are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and WHEREAS, the Adviser is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and any applicable state securities laws; and WHEREAS, the Distributor is duly registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, (the "1934 Act") and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, GWL&A has registered certain variable life contracts supported wholly or partially by the Account (the "Contracts") to be made available to owners thereof, including any participants or employees of such owners as applicable ("Contract Owners"); and WHEREAS, the Account is a duly organized, validly existing segregated asset account, established by resolution of the Board of Directors of GWL&A, under the insurance laws of the State of Colorado, to set aside and invest assets attributable to the Contracts; and WHEREAS, GWL&A has registered the Account as a unit investment trust under the 1940 Act and has registered the securities deemed to be issued by the Account under the 1933 Act; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, GWL&A intends to purchase shares in the Portfolio(s) listed in Schedule A attached hereto and incorporated herein by reference, as such Schedule may be amended from time to time by mutual written agreement (the "Designated Portfolio(s)"), on behalf of the Account to fund the Contracts, and the Fund is authorized to sell such shares to unit investment trusts such as the Account at net asset value; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Account also intends to purchase shares in other open-end investment companies or series thereof not affiliated with the Fund (the "Unaffiliated Funds") on behalf of the Account to fund the Contracts; and WHEREAS, GWL&A intends to utilize its NSCC member broker/dealer affiliate, GWFS Equities, Inc., formerly known as BenefitsCorp Equities, Inc., ("GWFS") to transmit instructions for the purchase, redemption and transfer of Fund shares on behalf of the Account, and GWFS, alone, or with the assistance of a recordkeeping affiliate, to perform certain recordkeeping functions associated with the transfer of Fund shares into and out of the Account in order to recognize certain organizational economies; and NOW, THEREFORE, in consideration of their mutual promises, GWL&A, the Fund, the Distributor and the Adviser agree as follows: ARTICLE I. Sale of Fund Shares 1.1 The Fund agrees that shares of the Fund will be sold only to Participating Insurance Companies and their separate accounts and to certain Qualified Plans. No shares of any Designated Portfolio will be sold to the general public. The Fund will not sell shares of the Designated Portfolio(s) to any other Participating Insurance Company separate account unless an agreement containing provisions substantially similar to Sections 2.4, 2.10, 3.5, 3.6, 5.1, and Article VII of this Agreement is in effect to govern such sales. 1.2. All purchases, redemptions and exchanges of Designated Portfolio shares by GWL&A on behalf of the Account, in addition to the pricing and correction thereof, of Designated Portfolio shares, shall be governed by and subject to the terms of the Trading and NSCC Networking Agreement, entered into by and between _Davis Selected Advisers, L.P, _ and __BenefitsCorp Equities, Inc.__ dated _April 2, 1998_, as amended from time to time. 1.3. Notwithstanding Section 1.2 hereof, if an adjustment is necessary to correct an error which has caused Contract Owners to receive less than the amount to which they are entitled, the number of shares of the applicable sub-account of such Contract Owners will be adjusted and the amount of any underpayments shall be credited by the Adviser to GWL&A for crediting of such amounts to the applicable Contract Owners accounts. Upon notification by the Adviser of any overpayment due to an error, GWL&A shall promptly remit to Adviser any overpayment that has not been paid to Contract Owners; however, Adviser acknowledges that GWL&A does not intend to seek additional payments from any Contract Owner who, because of a pricing error, may have underpaid for units of interest credited to his/her account. In no event shall GWL&A be liable to Contract Owners for any such adjustments or underpayment amounts. 1.4 The Adviser shall promptly reimburse GWL&A for any and all costs or expenses which GWL&A incurs that are associated with any failure of the Fund to settle trades by the time specified on the Business Day following the Trade Date, as specified and defined in the Trading and NSCC Networking Agreement. ARTICLE II. Representations and Warranties 2.1. GWL&A represents and warrants that the Contracts and the securities deemed to be issued by the Account under the Contracts are or will be registered under the 1933 Act; that the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. GWL&A further represents that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established the Account prior to any issuance or sale of units thereof as a segregated asset account under Colorado insurance law and has registered the Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts and that it will maintain such registration for so long as any Contracts are outstanding as required by applicable law. 2.2. The Fund represents and warrants that Designated Portfolio(s) shares sold pursuant to this Agreement shall be registered under the 1933 Act, duly authorized for issuance and sold in compliance with all applicable federal securities laws including without limitation the 1933 Act, the 1934 Act, and the 1940 Act and that the Fund is and shall remain registered under the 1940 Act. The Fund shall amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. 2.3. The Fund reserves the right to adopt a plan pursuant to Rule 12b-1 under the 1940 Act and to impose an asset-based or other charge to finance distribution expenses as permitted by applicable law and regulation. In any event, the Fund and Adviser agree to comply with applicable provisions and SEC staff interpretations of the 1940 Act to assure that the investment advisory or management fees paid to the Adviser by the Fund are in accordance with the requirements of the 1940 Act. To the extent that the Fund decides to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have its Board, a majority of whom are not interested persons of the Fund, formulate and approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses. 2.4. The Fund represents and warrants that it will make 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 all state insurance and other applicable laws to the extent required to perform this Agreement. The Fund further represents and warrants that it will make every effort to ensure that Designated Portfolio(s) shares will be sold in compliance with applicable state securities and insurance laws. The Fund shall register and qualify the shares for sale in accordance with the laws of the various states if and to the extent required by applicable law. GWL&A and the Fund will endeavor to mutually cooperate with respect to the implementation of any modifications necessitated by any change in state insurance laws, regulations or interpretations of the foregoing that affect the Designated Portfolio(s) (a "Law Change"), and to keep each other informed of any Law Change that becomes known to either party. In the event of a Law Change, the Fund agrees that, except in those circumstances where the Fund has advised GWL&A that its Board of Directors has determined that implementation of a particular Law Change is not in the best interest of all of the Fund's shareholders with an explanation regarding why such action is lawful, any action required by a Law Change will be taken. 2.5. The Fund represents and warrants that it is lawfully organized and validly existing under the laws of the State of __Maryland _ and that it does and will comply in all material respects with the 1940 Act. 2.6. The Adviser represents and warrants that it is and shall remain duly registered under all applicable federal and state securities laws and that it shall perform its obligations for the Fund in compliance in all material respects with the laws of the State of __Maryland_ and any applicable state and federal securities laws. 2.7. The Distributor represents and warrants that it is and shall remain duly registered under all applicable federal and state securities laws and that it shall perform its obligations for the Fund in compliance in all material respects with the laws of the State of __Maryland_ and any applicable state and federal securities laws. 2.8. The Fund and the Adviser represent and warrant that all of their respective officers, employees, investment advisers, and other individuals or entities dealing with the money and/or securities of the Fund are, and shall continue to be at all times, covered by one or more blanket fidelity bonds or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage required by Rule 17g-1 under the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bonds shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.9. The Fund will provide GWL&A with as much advance notice as is reasonably practicable of any material change affecting the Designated Portfolio(s) (including, but not limited to, any material change in the registration statement or prospectus affecting the Designated Portfolio(s)) and any proxy solicitation affecting the Designated Portfolio(s) and consult with GWL&A in order to implement any such change in an orderly manner, recognizing the expenses of changes and attempting to minimize such expenses by implementing them in conjunction with regular annual updates of the prospectus for the Contracts. The Fund agrees to share equitably in expenses incurred by GWL&A as a result of actions taken by the Fund, consistent with the allocation of expenses contained in Schedule C attached hereto and incorporated herein by reference. 2.10. GWL&A represents and warrants, for purposes other than diversification under Section 817 of the Internal Revenue Code of 1986 as amended ("the Code"), that the Contracts are currently and at the time of issuance will be treated as life insurance contracts under applicable provisions of the Code, and that it will make every effort to maintain such treatment and that it will notify the Fund, the Distributor and the Adviser immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. In addition, GWL&A represents and warrants that the Account is a "segregated asset account" and that interests in the Account are offered exclusively through the purchase of or transfer into a "variable contract" within the meaning of such terms under Section 817 of the Code and the regulations thereunder. GWL&A will use every effort to continue to meet such definitional requirements, and it will notify the Fund, the Distributor and the Adviser immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. GWL&A represents and warrants that it will not purchase Fund shares with assets derived from tax-qualified retirement plans except, indirectly, through Contracts purchased in connection with such plans. ARTICLE III. Prospectuses and Proxy Statements; Voting 3.1. At least annually, the Adviser or Distributor shall provide GWL&A with as many copies of the Fund's current prospectus for the Designated Portfolio(s) as GWL&A may reasonably request for marketing purposes (including distribution to Contract Owners with respect to new sales of a Contract), with expenses to be borne in accordance with Schedule C hereof. If requested by GWL&A in lieu thereof, the Advisor, Distributor or Fund shall provide such documentation (including a camera-ready copy and computer diskette of the current prospectus for the Designated Portfolio(s)) and other assistance as is reasonably necessary in order for GWL&A once each year (or more frequently if the prospectuses for the Designated Portfolio(s) are amended) to have the prospectus for the Contracts and the Fund's prospectus for the Designated Portfolio(s) printed together in one document. The Fund and Adviser agree that the prospectus (and semi-annual and annual reports) for the Designated Portfolio(s) will describe only the Designated Portfolio(s) and will not name or describe any other portfolios or series that may be in the Fund unless required by law. 3.2. If applicable state or federal laws or regulations require that the Statement of Additional Information ("SAI") for the Fund be distributed to all Contract Owners, then the Fund, Distributor and/or the Adviser shall provide GWL&A with copies of the Fund's SAI or documentation thereof for the Designated Portfolio(s) in such quantities, with expenses to be borne in accordance with Schedule C hereof, as GWL&A may reasonably require to permit timely distribution thereof to Contract Owners. The Adviser, Distributor and/or the Fund shall also provide SAIs to any Contract Owner or prospective owner who requests such SAI from the Fund (although it is anticipated that such requests will be made to GWL&A). 3.3. The Fund, Distributor and/or Adviser shall provide GWL&A with copies of the Fund's proxy material, reports to stockholders and other communications to stockholders for the Designated Portfolio(s) in such quantity, with expenses to be borne in accordance with Schedule C hereof, as GWL&A may reasonably require to permit timely distribution thereof to Contract Owners as required by applicable law. 3.4. It is understood and agreed that, except with respect to information regarding GWL&A provided in writing by that party, GWL&A is not responsible for the content of the prospectus or SAI for the Designated Portfolio(s). It is also understood and agreed that, except with respect to information regarding the Fund, the Distributor, the Adviser or the Designated Portfolio(s) provided in writing by the Fund, the Distributor or the Adviser, neither the Fund, the Distributor nor Adviser are responsible for the content of the prospectus or SAI for the Contracts. 3.5. If and to the extent required by law GWL&A shall: (i) solicit voting instructions from Contract Owners; (ii) vote the Designated Portfolio(s) shares held in the Account in accordance with instructions received from Contract Owners: and (iii) vote Designated Portfolio shares held in the Account for which no instructions have been received in the same proportion as Designated Portfolio(s) shares for which instructions have been received from Contract Owners, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners. GWL&A reserves the right to vote Fund shares held in any segregated asset account in its own right, to the extent permitted by law. 3.6. GWL&A shall be responsible for assuring that each of its separate accounts holding shares of a Designated Portfolio calculates voting privileges as directed by the Fund and agreed to by GWL&A and the Fund. The Fund agrees to promptly notify GWL&A of any changes of interpretations or amendments of the Mixed and Shared Funding Exemptive Order. 3.7. The Fund will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the Fund will either provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or, as the Fund currently intends, comply with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors or trustees and with whatever rules the Commission may promulgate with respect thereto. ARTICLE IV. Sales Material and Information 4.1. GWL&A shall furnish, or shall cause to be furnished, to the Fund or its designee, a copy of each piece of sales literature or other promotional material that GWL&A, respectively, develops or proposes to use and in which the Fund (or a Portfolio thereof), its Adviser or one of its sub-advisers or the Distributor is named in connection with the Contracts, at least ten (10) business days prior to its use. No such material shall be used if the Fund objects to such use within five (5) business days after receipt of such material. Notwithstanding the foregoing, GWL&A shall not be required to furnish to the Fund or its designee any sales literature or other promotional material which GWL&A receives from the Fund or third party vendors and which is unaltered by GWL&A. 4.2. GWL&A shall not give any information or make any representations or statements on behalf of the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement, prospectus or SAI for the Fund shares, as the same may be amended or supplemented from time to time, or in sales literature or other promotional material approved by the Fund, Distributor or Adviser, except with the permission of the Fund, Distributor or Adviser. 4.3. The Fund or the Adviser shall furnish, or shall cause to be furnished, to GWL&A, a copy of each piece of sales literature or other promotional material in which GWL&A and/or its separate account(s), is named at least ten (10) business days prior to its use. No such material shall be used if GWL&A objects to such use within five (5) business days after receipt of such material. 4.4. The Fund, the Distributor and the Adviser shall not give any information or make any representations on behalf of GWL&A or concerning GWL&A, the Account, or the Contracts other than the information or representations contained in a registration statement, prospectus or SAI for the Contracts, as the same may be amended or supplemented from time to time, or in sales literature or other promotional material approved by GWL&A or its designee, except with the permission of GWL&A. 4.5. The Fund will provide to GWL&A at least one complete copy of any registration statements, prospectuses, SAIs, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Designated Portfolio(s), contemporaneously with the filing of such document(s) with the SEC or NASD or other regulatory authorities. 4.6. GWL&A will provide to the Fund at least one complete copy of any registration statements, prospectuses, SAIs, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to the Contracts or the Account, contemporaneously with the filing of such document(s) with the SEC, NASD, or other regulatory authority. 4.7. For purposes of Articles IV and VIII, the phrase "sales literature and other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media; e.g., on-line networks such as the Internet or other electronic media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and shareholder reports, and proxy materials (including solicitations for voting instructions) and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.8. At the request of any party to this Agreement, each other party will make available to the other party's independent auditors and/or representative of the appropriate regulatory agencies, all records, data and access to operating procedures that may be reasonably requested in connection with compliance and regulatory requirements related to this Agreement or any party's obligations under this Agreement. ARTICLE V. Fees and Expenses 5.1. Neither the Fund, the Distributor nor the Adviser shall pay any fee or other compensation to GWL&A under this Agreement, other than pursuant to Schedule D attached hereto and incorporated by reference herein. In addition, the parties will bear certain expenses in accordance with Schedule C, Articles III, V, and other provisions of this Agreement. 5.2. All expenses incident to performance by the Fund, the Distributor and the Adviser under this Agreement shall be paid by the appropriate party, as further provided in Schedule C. The Fund shall see to it that all shares of the Designated Portfolio(s) are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent required, in accordance with applicable state laws prior to their sale. 5.3. The parties shall bear the expenses of any routine annual distribution (mailing costs) of the Fund's prospectus and distribution (mailing costs) of the Fund's proxy materials and reports to owners of Contracts offered by GWL&A, in accordance with Schedule C. 5.4. The Fund, the Distributor and the Adviser acknowledge that a principal feature of the Contracts is the Contract Owner's ability to choose from a number of unaffiliated mutual funds (and portfolios or series thereof), including the Designated Portfolio(s) and the Unaffiliated Funds, and to transfer the Contract's cash value between funds and portfolios. The Fund, the Distributor and the Adviser agree to cooperate with GWL&A in facilitating the operation of the Account and the Contracts as described in the prospectus for the Contracts, including but not limited to cooperation in facilitating transfers between Unaffiliated Funds. The Fund does not allow market timing, short-term trading, or other excessive trading into and out of the Fund. GWLA&A agrees to cooperate with the Fund, the Adviser, and the Distributor to prevent Contract Owners from market timing the Fund. ARTICLE VI. Diversification and Qualification 6.1. The Fund, the Distributor and the Adviser represent and warrant that the Fund will at all times sell its shares and invest its assets in such a manner as to ensure that the Contracts will be treated as life insurance contracts under the Code, and the regulations issued thereunder. Without limiting the scope of the foregoing, the Fund, Distributor and Adviser represent and warrant that the Fund and each Designated Portfolio thereof will at all times comply with Section 817(h) of the Code and Treasury Regulation ss.1.817-5, as amended from time to time, and any Treasury interpretations thereof, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications or successor provisions to such Section or Regulations. The Fund, the Distributor and the Adviser agree that shares of the Designated Portfolio(s) will be sold only to Participating Insurance Companies and their separate accounts and to Qualified Plans. 6.2. No shares of any Designated Portfolio of the Fund will be sold to the general public. 6.3. The Fund, the Distributor and the Adviser represent and warrant that the Fund and each Designated Portfolio is currently qualified as a Regulated Investment Company under Subchapter M of the Code, and that each Designated Portfolio will maintain such qualification (under Subchapter M or any successor or similar provisions) as long as this Agreement is in effect. 6.4. The Fund, Distributor or Adviser will notify GWL&A immediately upon having a reasonable basis for believing that the Fund or any Designated Portfolio has ceased to comply with the aforesaid Section 817(h) diversification or Subchapter M qualification requirements or might not so comply in the future. 6.5. Without in any way limiting the effect of Sections 8.2, 8.3 and 8.4 hereof and without in any way limiting or restricting any other remedies available to GWL&A, the Adviser or Distributor will pay all costs associated with or arising out of any failure, or any anticipated or reasonably foreseeable failure, of the Fund or any Designated Portfolio to comply with Sections 6.1, 6.2, or 6.3 hereof, including all costs associated with reasonable and appropriate corrections or responses to any such failure; such costs may include, but are not limited to, the costs involved in creating, organizing, and registering a new investment company as a funding medium for the Contracts and/or the costs of obtaining whatever regulatory authorizations are required to substitute shares of another investment company for those of the failed Portfolio (including but not limited to an order pursuant to Section 26(b) of the 1940 Act); such costs are to include, but are not limited to, fees and expenses of legal counsel and other advisors to GWL&A and any federal income taxes or tax penalties and interest thereon (or "toll charges" or exactments or amounts paid in settlement) incurred by GWL&A with respect to itself or owners of its Contracts in connection with any such failure or anticipated or reasonably foreseeable failure. 6.6. The Fund at the Fund's expense 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 B and incorporated herein by reference; provided, however, that providing such reports does not relieve the Fund 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 Fund, Distributor or Adviser as a result of such a failure or alleged failure: (a) GWL&A shall promptly notify the Fund, the Distributor and the Adviser of such assertion or potential claim; (b) GWL&A shall consult with the Fund, the Distributor and the Adviser as to how to minimize any liability that may arise as a result of such failure or alleged failure; (c) GWL&A shall use its best efforts to minimize any liability of the Fund, the Distributor and the Adviser resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations, Section 1.817-5(a)(2), to the commissioner of the IRS that such failure was inadvertent; (d) any written materials to be submitted by GWL&A to the IRS, any Contract Owner or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations, Section 1.817-5(a)(2)) shall be provided by GWL&A to the Fund, the Distributor and the Adviser (together with any supporting information or analysis) within at least two (2) business days prior to submission; (e) GWL&A shall provide the Fund, the Distributor and the Adviser with such cooperation as the Fund, the Distributor and the Adviser shall reasonably request (including, without limitation, by permitting the Fund, the Distributor and the Adviser to review the relevant books and records of GWL&A) in order to facilitate review by the Fund, the Distributor and the Adviser of any written submissions provided to it or its assessment of the validity or amount of any claim against it arising from such failure or alleged failure; (f) GWL&A shall not with respect to any claim of the IRS or any Contract Owner that would give rise to a claim against the Fund, the Distributor and the Adviser (i) compromise or settle any claim, (ii) accept any adjustment on audit, or (iii) forego any allowable administrative or judicial appeals, without the express written consent of the Fund, the Distributor and the Adviser, which shall not be unreasonably withheld; provided that, GWL&A shall not be required to appeal any adverse judicial decision unless the Fund and the Adviser shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and further provided that the Fund, the Distributor and the Adviser shall bear the costs and expenses, including reasonable attorney's fees, incurred by GWL&A in complying with this clause (f). ARTICLE VII. Potential Conflicts and Compliance With Mixed and Shared Funding Exemptive Order 7.1. The Board will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners or by contract owners of different Participating Insurance Companies; or (f) a decision by a Participating Insurance Company to disregard the voting instructions of contract owners. The Board shall promptly inform GWL&A if it determines that an irreconcilable material conflict exists and the implications thereof. 7.2. GWL&A will report any potential or existing conflicts of which it is aware to the Board. GWL&A will assist the Board in carrying out its responsibilities under the Mixed and Shared Funding Exemptive Order, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by GWL&A to inform the Board whenever contract owner voting instructions are to be disregarded. Such responsibilities shall be carried out by GWL&A with a view only to the interests of its Contract Owners. 7.3. If it is determined by a majority of the Board, or a majority of its directors who are not interested persons of the Fund, the Distributor, the Adviser or any sub-adviser to any of the Designated Portfolios (the "Independent Directors"), that a material irreconcilable conflict exists, GWL&A and other Participating Insurance Companies shall, at their expense and to the extent reasonably practicable (as determined by a majority of the Independent Directors), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (1) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Designated Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected contract owners the option of making such a change; and (2) establishing a new registered management investment company or managed separate account. 7.4. If a material irreconcilable conflict arises because of a decision by GWL&A to disregard contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, GWL&A may be required, at the Fund's election, to withdraw the Account's investment in the Fund and terminate this Agreement; provided, however that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the Independent Directors. Any such withdrawal and termination must take place within six (6) months after the Fund gives written notice that this provision is being implemented, and until the end of that six month period the Adviser, the Distributor and the Fund shall continue to accept and implement orders by GWL&A for the purchase (and redemption) of shares of the Fund. 7.5. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to GWL&A conflicts with the majority of other state regulators, then GWL&A will withdraw the Account's investment in the Fund and terminate this Agreement within six months after the Board informs GWL&A in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Until the end of the foregoing six month period, the Fund shall continue to accept and implement orders by GWL&A for the purchase (and redemption) of shares of the Fund. 7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of the disinterested members of the Board shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. GWL&A shall not be required by Section 7.3 to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Contract owners affected by the irreconcilable material conflict. In the event that the Board determines that any proposed action does not adequately remedy any irreconcilable material conflict, then GWL&A will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Board informs GWL&A in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the Independent Directors. 7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable: and (b) Sections 3.5, 3.6, 3.7, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. ARTICLE VIII. Indemnification 8.1. Indemnification By GWL&A 8.1(a).GWL&A agrees to indemnify and hold harmless the Fund, the Distributor and the Adviser and each of their respective officers and directors or trustees and each person, if any, who controls the Fund, Distributor or Adviser within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, expenses, damages and liabilities (including amounts paid in settlement with the written consent of GWL&A) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, expenses, damages or liabilities (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement or prospectus or SAI covering the Contracts or contained in the Contracts or sales literature or other promotional material for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to GWL&A by or on behalf of the Adviser, Distributor or Fund for use in the registration statement or prospectus for the Contracts or sales literature or other promotional material (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature or other promotional material of the Fund not supplied by GWL&A or persons under its control) or wrongful conduct of GWL&A or persons under its control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, or sales literature or other promotional material of the Fund, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon information furnished in writing to the Fund by or on behalf of GWL&A; or (iv) arise as a result of any failure by GWL&A to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by GWL&A in this Agreement or arise out of or result from any other material breach of this Agreement by GWL&A, including without limitation Section 2.10 and Section 6.7 hereof, as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof. 8.1(b). GWL&A shall not be liable under this indemnification provision with respect to any losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.1(c). GWL&A shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified GWL&A in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify GWL&A of any such claim shall not relieve GWL&A from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that GWL&A has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, GWL&A shall be entitled to participate, at its own expense, in the defense of such action. GWL&A also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from GWL&A to such party of GWL&A's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and GWL&A will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.1(d).The Indemnified Parties will promptly notify GWL&A of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund Shares or the Contracts or the operation of the Fund. 8.2. Indemnification by the Adviser 8.2(a).The Adviser agrees to indemnify and hold harmless GWL&A and its directors and officers and each person, if any, who controls GWL&A within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, expenses, damages, liabilities (including amounts paid in settlement with the written consent of the Adviser) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or SAI or sales literature or other promotional material of the Fund prepared by the Fund, the Distributor or the Adviser (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to the Adviser, the Distributor or the Fund by or on behalf of GWL&A for use in the registration statement, prospectus or SAI for the Fund or in sales literature or other promotional material (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Contracts or the Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI or sales literature or other promotional material for the Contracts not supplied by the Adviser or persons under its control) or wrongful conduct of the Fund, the Distributor or the Adviser or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, or sales literature or other promotional material covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished in writing to GWL&A by or on behalf of the Adviser, the Distributor or the Fund; or (iv) arise as a result of any failure by the Fund, the Distributor or the Adviser to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Article VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Fund, the Distributor or the Adviser in this Agreement or arise out of or result from any other material breach of this Agreement by the Adviser, the Distributor or the Fund; or (vi) arise out of or result from the incorrect or untimely calculation or reporting by the Fund, 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 losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.2(c). The Adviser shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Adviser in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Adviser of any such claim shall not relieve the Adviser from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that the Adviser has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, the Adviser will be entitled to participate, at its own expense, in the defense thereof. The Adviser also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Adviser to such party of the Adviser's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Adviser will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.2(d).GWL&A agrees to promptly notify the Adviser of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Account. 8.3. Indemnification By the Fund 8.3(a).The Fund agrees to indemnify and hold harmless GWL&A and its directors and officers and each person, if any, who controls GWL&A within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.3) against any and all losses, claims, expenses, damages and liabilities (including amounts paid in settlement with the written consent of the Fund) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may be required to pay or become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, expenses, damages, liabilities or expenses (or actions in respect thereof) or settlements, are related to the operations of the Fund and: (i) arise as a result of any failure by the Fund to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Article VI of this Agreement); or (ii) arise out of or result from any material breach of any representation and/or warranty made by the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund; as limited by and in accordance with the provisions of Sections 8.3(b) and 8.3(c) hereof. 8.3(b). The Fund shall not be liable under this indemnification provision with respect to any losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.3(c). The Fund shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve it from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that the Fund has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, the Fund will be entitled to participate, at its own expense, in the defense thereof. The Fund shall also be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Fund to such party of the Fund's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Fund will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.3(d). GWL&A each agrees to promptly notify the Fund of the commencement of any litigation or proceeding against itself or any of its respective officers or directors in connection with the Agreement, the issuance or sale of the Contracts, the operation of the Account, or the sale or acquisition of shares of the Fund. 8.4. Indemnification by the Distributor 8.4(a).The Distributor agrees to indemnify and hold harmless GWL&A and its directors and officers and each person, if any, who controls GWL&A within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.4) against any and all losses, claims, expenses, damages and liabilities (including amounts paid in settlement with the written consent of the Distributor) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or SAI or sales literature or other promotional material of the Fund prepared by the Fund, Adviser or Distributor (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to the Adviser, the Distributor or Fund by or on behalf of GWL&A for use in the registration statement or SAI or prospectus for the Fund or in sales literature or other promotional material (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI, sales literature or other promotional material for the Contracts not supplied by the Distributor or persons under its control) or wrongful conduct of the Fund, the Distributor or Adviser or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, sales literature or other promotional material covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished in writing to GWL&A by or on behalf of the Adviser, the Distributor or Fund; or (iv) arise as a result of any failure by the Fund, Adviser or Distributor to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Article VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Fund, Adviser or Distributor in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund, Adviser or Distributor; or (vi) arise out of or result from the incorrect or untimely calculation or reporting of the daily net asset value per share or dividend or capital gain distribution rate; as limited by and in accordance with the provisions of Sections 8.4(b) and 8.4(c) hereof. This indemnification is in addition to and apart from the responsibilities and obligations of the Distributor specified in Article VI hereof. 8.4(b).The Distributor shall not be liable under this indemnification provision with respect to any losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance or such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.4(c) The Distributor shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Distributor in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Distributor of any such claim shall not relieve the Distributor from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that the Distributor has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, the Distributor will be entitled to participate, at its own expense, in the defense thereof. The Distributor also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Distributor to such party of the Distributor's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Distributor will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.4(d) GWL&A agrees to promptly notify the Distributor of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Account. ARTICLE IX. Applicable Law 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Colorado, without regard to the Colorado Conflict of Laws provisions. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant (including, but not limited to, the Mixed and Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE X. 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 twelve (12) months advance written notice delivered to the other parties; provided, however, that such notice shall not be given earlier than six (6) months following the date of this Agreement; or (b) at the option of GWL&A by written notice to the other parties with respect to any Designated Portfolio based upon GWL&A's determination that shares of such Designated Portfolio are not reasonably available to meet the requirements of the Contracts; or (c) at the option of GWL&A by written notice to the other parties with respect to any Designated Portfolio in the event any of the Designated Portfolio's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by GWL&A; or (d) at the option of the Fund, Distributor or Adviser in the event that formal administrative proceedings are instituted against GWL&A by the NASD, the SEC, the Insurance Commissioner or like official of any state or any other regulatory body regarding GWL&A's duties under this Agreement or related to the sale of the Contracts, the operation of any Account, or the purchase of the Fund shares, if, in each case, the Fund, Distributor or Adviser, as the case may be, reasonably determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of GWL&A to perform its obligations under this Agreement; or (e) at the option of GWL&A in the event that formal administrative proceedings are instituted against the Fund, the Distributor or the Adviser by the NASD, the SEC, or any state securities or insurance department or any other regulatory body, if GWL&A reasonably determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Fund, the Distributor or the Adviser to perform their obligations under this Agreement; or (f) at the option of GWL&A by written notice to the Fund with respect to any Portfolio if GWL&A reasonably believes that the Portfolio will fail to meet the Section 817(h) diversification requirements or Subchapter M qualifications specified in Article VI hereof; or (g) at the option of either the Fund, the Distributor or the Adviser, if (i) the Fund, Distributor or Adviser, respectively, shall determine, in its sole judgment reasonably exercised in good faith, that GWL&A has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity and that material adverse change or publicity will have a material adverse impact on GWL&A's ability to perform its obligations under this Agreement, (ii) the Fund, Distributor or Adviser notifies GWL&A of that determination and its intent to terminate this Agreement, and (iii) after considering the actions taken by GWL&A and any other changes in circumstances since the giving of such a notice, the determination of the Fund, Distributor or Adviser shall continue to apply on the sixtieth (60th) day following the giving of that notice, which sixtieth day shall be the effective date of termination; or (h) at the option of either GWL&A, if (i) GWL&A shall determine, in its sole judgment reasonably exercised in good faith, that the Fund, Distributor or Adviser has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity and that material adverse change or publicity will have a material adverse impact on the Fund's, Distributor's or Adviser's ability to perform its obligations under this Agreement, (ii) GWL&A notifies the Fund, Distributor or Adviser, as appropriate, of that determination and its intent to terminate this Agreement, and (iii) after considering the actions taken by the Fund, Distributor or Adviser and any other changes in circumstances since the giving of such a notice, the determination of GWL&A shall continue to apply on the sixtieth (60th) day following the giving of that notice, which sixtieth day shall be the effective date of termination; or (i) at the option of any non-defaulting party hereto in the event of a material breach of this Agreement by any party hereto (the "defaulting party") other than as described in 10.1(a)-(j); 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(g) or 10.1(h) of this Agreement, the prior written notice shall be given in advance of the effective date of termination as required by those provisions unless such notice period is shortened by mutual written agreement of the parties; (b) in the event any termination is based upon the provisions of Section 10.1(d), 10.1(e), 10.1(i) or 10.1(j) of this Agreement, the prior written notice shall be given at least sixty (60) days before the effective date of termination; and (c) in the event any termination is based upon the provisions of Section 10.1(b), 10.1(c) or 10.1(f), the prior written notice shall be given in advance of the effective date of termination, which date shall be determined by the party sending the notice. 10.3. Effect of Termination. Notwithstanding any termination of this Agreement, other than as a result of a failure by either the Fund or GWL&A to meet Section 817(h) of the Code diversification requirements, the Fund, the Distributor and the Adviser shall, at the option of GWL&A, continue to make available additional shares of the Designated Portfolio(s) pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts shall be permitted to reallocate investments in the Designated Portfolio(s), redeem investments in the Designated Portfolio(s) and/or invest in the Designated Portfolio(s) upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 10.3 shall not apply to any terminations under Article VII and the effect of such Article VII terminations shall be governed by Article VII of this Agreement. 10.4. Surviving Provisions. Notwithstanding any termination of this Agreement, each party's obligations under Article VIII to indemnify other parties shall survive and not be affected by any termination of this Agreement. In addition, with respect to Existing Contracts, all provisions of this Agreement shall also survive and not be affected by any termination of this Agreement. ARTICLE XI. Notices Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: Davis Variable Account Fund, Inc. 2949 East Elvira Road, Suite 101 Tucson, Arizona, 85706 Attention: Kenneth Eich, Executive Vice President If to GWL&A: Great-West Life & Annuity Insurance Company 8515 East Orchard Road Greenwood Village, CO 80111 Attention:Ron Laeyendecker, Vice President, Life Insurance Markets PC: Beverly Byrne, Vice President and Counsel If to the Adviser: Davis Selected Advisers, L.P.. 2949 East Elvira Road, Suite 101 Tucson, Arizona, 85706 Attention: Kenneth Eich, Chief Operating Officer If to the Distributor: Davis Distributors, LLC 2949 East Elvira Road, Suite 101 Tucson, Arizona, 85706 Attention: Kenneth Eich, President ARTICLE XII. Miscellaneous 12.1. The parties hereto acknowledge that any nonpublic personal information (as defined by applicable law or regulation promulgated under Title V of the Gramm-Leach-Bliley Act of 1999 (the "Act")) of Contract Owners (and any participants thereof, as applicable) will be disclosed or utilized solely to carry out the terms of this Agreement or pursuant to an exception contained in any applicable law or regulation promulgated under the Act. Further, Fund, Distributor and Adviser agree to maintain and enforce procedures for the safeguarding and protection of such nonpublic personal information at least as rigorous as those required to be used by GWL&A under applicable law. Without limiting the foregoing, no party hereto shall disclose any information that another party has designated as proprietary. 12.2. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.3. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.4. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 12.5. Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the Colorado Insurance Commissioner with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the variable life operations of GWL&A are being conducted in a manner consistent with the applicable Colorado insurance regulations and any other applicable law or regulations. 12.6. Any controversy or claim arising out of or relating to this Agreement, or breach thereof, shall be settled by arbitration in a forum jointly selected by the relevant parties (but if applicable law requires some other forum, then such other forum) in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 12.7. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 12.8. This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto. 12.9. GWL&A is hereby expressly put on notice of the limitation of liability as set forth in the Declarations of Trust of the Fund and agree that the obligations assumed by the Fund, Distributor and the Adviser pursuant to this Agreement shall be limited in any case to the Fund, Distributor and Adviser and their respective assets and GWL&A shall not seek satisfaction of any such obligation from the shareholders of the Fund, Distributor or the Adviser, the Trustees, officers, employees or agents of the Fund, Distributor or Adviser, or any of them. 12.10. The Fund, the Distributor and the Adviser agree that the obligations assumed by GWL&A pursuant to this Agreement shall be limited in any case to GWL&A and its assets and neither the Fund, Distributor nor Adviser shall seek satisfaction of any such obligation from the shareholders of GWL&A, the directors, officers, employees or agents of GWL&A, or any of them, except to the extent permitted under this Agreement. 12.11. No provision of this Agreement may be deemed or construed to modify or supersede any contractual rights, duties, or indemnifications, as between the Adviser and the Fund, and the Distributor and the Fund. 12.12. None of the parties hereto shall be liable to the other for any and all losses, damages, costs, charges, counsel fees, payments, expenses or liability due to any failure, delay or interruption in performing its obligations under this Agreement, and without the fault or negligence of such party, due to causes or conditions beyond its control including, without limitation, labor disputes, strikes (whether legal or illegal), lock outs (whether legal or illegal), civil commotion, riots, war and war-like operations including acts of terrorism, embargoes, epidemics, invasion, rebellion, hostilities, insurrections, explosions, floods, unusually severe weather conditions, earthquakes, military power, sabotage, governmental regulations or controls, failure of power, fire or other casualty, accidents, national or local emergencies, boycotts, picketing, slow-downs, work stoppages, acts of God or natural disasters. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative as specified below. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY By its authorized officer, By: /s/ Ron Laeyendecker Title: Ron Laeyendecker, Vice President Date: 12/16/04 DAVIS VARIABLE ACCOUNT FUND, INC. By its authorized officer, By: /s/ Kenneth Eich Title: Kenneth Eich, Executive Vice President Date: 12/16/04 DAVIS SELECTED ADVISERS, L.P. By its authorized officer, By: /s/ Kenneth Eich Title: Kenneth Eich, Chief Operating Officer Date: 12/16/04 DAVIS DISTRIBUTORS, LLC By its authorized officer, By: /s/ Kenneth Eich Title: Kenneth Eich, President Date: 12/16/04 SCHEDULE A Designated Portfolios DAVIS VALUE PORTFOLIO DAVIS FINANCIAL PORTFOLIO DAVIS REAL ESTATE PORTFOLIO And any other portfolios of the Fund that are available and open to new investors on or after the effective date of this Agreement. SCHEDULE B 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, the Fund shall provide within twenty (20) business days of the close of the calendar quarter a report to GWL&A in the Form B1 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," the Fund will provide the reports on the following basis: (i) the last quarter's quarterly reports can be supplied within the 20-day period, and (ii) a year-end report will be provided 45 business days 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 will be provided 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 B1 CERTIFICATE OF COMPLIANCE For the quarter ended: --------------------------- I, , a duly authorized officer, director or agent of Fund hereby swear and affirm that Fund is in compliance with all requirements of Section 817(h) and Subchapter M of the Internal Revenue Code (the "Code") and the regulations thereunder as required in the Fund Participation Agreement among Great-West Life & Annuity Insurance Company, and other than the exceptions discussed below: Exceptions Remedial Action _________________________________ _______________________________ _________________________________ _______________________________ _________________________________ _______________________________ _________________________________ _______________________________ _________________________________ _______________________________ _________________________________ _______________________________ _________________________________ _______________________________ _________________________________ _______________________________ _________________________________ _______________________________ If no exception to report, please indicate "None." Signed this day of , . ---- ------- ------- _____________________________________ (Signature) By:__________________________________ (Type or Print Name and Title/Position) SCHEDULE C EXPENSES The Fund and/or the Distributor and/or Adviser, and GWL&A will coordinate the functions and pay the costs of completing these functions based upon an allocation of costs in the tables below. Costs shall be allocated to reflect the Fund's share of the total costs determined according to the number of pages of the Fund's respective portions of the documents.
- ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible Party for Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Mutual Fund Prospectus Printing of GWL&A Fund, prospectuses Distributor or Adviser, as applicable - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Fund, Distributor or GWL&A Fund, 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 - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Distribution to GWL&A Fund, Contract Owners in Distributor, or connection with Adviser, as initial rollout of applicable Fund in connection with the Contracts - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Contract Prospectus Printing for Inforce GWL&A GWL&A Contract Owners - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Printing for GWL&A GWL&A Prospective Contract Owners - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Distribution to New GWL&A GWL&A and Inforce Contract Owners - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Distribution to GWL&A GWL&A Prospective Contract Owners - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Mutual Fund Prospectus If Required by Fund, Fund, Distributor or Fund, Update & Distribution Distributor or Adviser Distributor or Adviser Adviser - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ If Required by GWL&A GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Contract Prospectus If Required by Fund, GWL&A Fund, Update & Distribution Distributor or Distributor or Adviser Adviser - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible Party for Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ If Required by GWL&A GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ Mutual Fund SAI Printing Fund, Distributor or Fund, Adviser Distributor or Adviser - ------------------------- ---------------------- ---------------------- ------------------ Distribution GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ Product SAI Printing GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ Distribution GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible Party for Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ Proxy Material for Printing if proxy Fund, Distributor or Fund, Mutual Fund: required by Law Adviser Distributor or Adviser - ------------------------- ---------------------- ---------------------- ------------------ Distribution GWL&A Fund, (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 combined GWL&A Fund, Semi-Annual Report reports Distributor or Adviser - ------------------------- ---------------------- ---------------------- ------------------ Distribution GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ Other communication to If Required by the GWL&A Fund, New and Prospective Fund, Distributor or Distributor or clients Adviser Adviser - ------------------------- ---------------------- ---------------------- ------------------ If Required by GWL&A GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible for Party Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ Other communication to Distribution GWL&A Fund, Inforce (including labor and Distributor or printing) if Adviser required by the Fund, Distributor or Adviser - ------------------------- ---------------------- ---------------------- ------------------ Distribution GWL&A GWL&A (including labor and printing)if required by GWL&A ========================= ====================== ====================== ================== - ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible Party for Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ Errors in Share Price Cost of error to GWL&A Fund or Adviser calculation pursuant to Contract Section 1.3 Owners/participants - ------------------------- ---------------------- ---------------------- ------------------ Cost of GWL&A Fund or Adviser administrative work to correct error - ------------------------- ---------------------- ---------------------- ------------------ Substitution Orders Application for, and GWL&A Fund or Adviser implementation of (including necessary printing and mailings), substitution orders required as a result of Fund action - ------------------------- ---------------------- ---------------------- ------------------ Operations of the Fund All operations and Fund, Distributor or Fund or Adviser related expenses, Adviser including the cost of registration and qualification of shares, taxes on the issuance or transfer of shares, cost of management of the business affairs of the Fund, and expenses paid or assumed by the fund pursuant to any Rule 12b-1 plan - ------------------------- ---------------------- ---------------------- ------------------ Operations of the Federal registration GWL&A GWL&A Account of units of separate account (24f-2 fees) - ------------------------- ---------------------- ---------------------- ------------------
SCHEDULE D ADMINISTRATIVE SERVICES A. GWL&A, or an affiliate, will provide the properly registered and licensed personnel and systems needed for all customer servicing and support - for both Designated Portfolio and life insurance information and questions - including: responding to Contract Owner inquiries; delivery of prospectus - Designated Portfolio(s); entry of initial and subsequent orders; transfer of cash to GWL&A and/or Designated Portfolio(s); explanations of Designated Portfolio objectives and characteristics; entry of transfers between funds; Designated Portfolio balance and allocation inquiries; mail Designated Portfolio prospectus. B. GWL&A, or an affiliate, will communicate all purchase, withdrawal, and exchange orders it receives from its customers to each Designated Portfolio. Administrative Service Fee For the services, GWL&A or its affiliate shall receive a fee of 0.25% per annum of the average aggregate monthly net asset value of shares of the Designated Portfolio(s) held in the Account, including through Profile or other fund of funds arrangements, payable by the Adviser directly to GWL&A or its affiliate. Such fee shall be paid in arrears quarterly. Each quarter's fee shall be determined based on assets in the Account at the end of each quarter and each quarterly fee will be independent of every other quarterly fee. Such fee shall be due and payable automatically within 30 (thirty) days after the last day of the quarter to which such payment relates. In the event such fee is not paid by such time, interest, in addition to the amount due, at the rate of six (6)% annually (or 1/2 of one (1) percent per month outstanding pro rated for any applicable period if less than one year) shall be payable and owed until payment is made. The Fund will calculate the asset balance for each day on which the fee is to be paid pursuant to this Amendment with respect to each applicable portfolio of the Fund. GWL&A shall have the right to reasonably audit the preparation of such calculation. The administrative service fee described herein shall remain payable and due so long as there remain any assets invested in the Fund, regardless of any termination of the Agreements, in any manner by the Accounts as contemplated by the Agreements, as amended herein. The Fund may modify the rate of the administrative service fee only with 120 days' written notice to GWL&A prior to the end of any calendar year, with any such revised rate becoming effective as of the 1st of January following any such calendar year. SCHEDULE E NON-COMPETE PROVISIONS GWL&A intends to offer Fund, _Adviser_ and _Distributor_, as applicable, access to its, or its affiliates' or its parent company's (each, a "Company," collectively, the "Companies") current and prospective customers (hereinafter "Customers") so that Customers will have the option of purchasing the Designated Portfolio shares of the Fund. Fund, _Adviser_ and _Distributor_, as applicable, desires to make the Designated Portfolio(s) available to Customers, yet acknowledges that under certain circumstances, the ability of Fund, _Adviser_ or _Distributor , as applicable, to solicit business from Customers should be subject to special limitations in exchange for the increased ability to offer its product through a Company's introduction. An introduction will consist of a Company's inclusion of the Designated Portfolio(s) in the Retirement Plan Product offered to a Customer for that Customer's consideration. 1. In the scenario where any one of the Companies introduces Fund, _Adviser_ or _Distributor, as applicable, in any manner to a Customer which ultimately purchases a Retirement Plan Product from one of the Companies, and one of the Companies includes the Designated Portfolio(s) in the products offered to that Customer, Fund, _Adviser_ and _Distributor , as applicable, agree not to utilize any confidential information (which shall include, but not be limited to, all facts, circumstances, information, data, plans, projects and technical or commercial knowledge gained in relation to a Company, or received from a Company, including, but not limited to, information regarding customers (such as retirement plans and plan participants), employees, suppliers servicing methods, programs, fees, strategies and related information) received in connection with offering its product to Customer in any solicitation of Retirement Plan Product Business from that Customer. Further, Fund, _Adviser_ and _Distributor , as applicable, will not attempt to contact Customers regularly nor attempt to sell its mutual funds directly to Customer on a stand-alone basis while the Designated Portfolio(s) are included in a Company's arrangement with the Customer. For purposes of this Amendment "Retirement Plan Product" includes, but is not limited to, group or individual annuity contracts, GIC's, separate accounts and wrapped or unwrapped mutual funds whether sold separately or in conjunction-with each other. 2. In the scenario where any one of the Companies introduces the Fund, _Adviser_ or _Distributor_ in any manner to a Customer which ultimately purchases a Retirement Plan Product from a Company and the Customer does not select the Fund, the Fund, _Adviser_ or _Distributor may directly communicate with Customer about Retirement Plan Product business and may sell product directly to Customer provided it does not utilize the confidential information referred to above. 3. In the scenario where any one of the Companies introduces Fund, Adviser _ or _Distributor in any manner to a Customer which does not purchase a Retirement Plan Product from a Company, the Fund, _Adviser_ and _Distributor_ are not subject to any prohibitions regarding sales to and communications with that Customer. Likewise, there are no prohibitions where none of the Companies provides an introduction. A Company may decide in its discretion when it desires to provide an introduction to one of its Customers. A Company has no obligation to provide introductions to its Customers. EX-99 6 exhibitdreyfusamendmentfpa.txt SECOND AMENDMENT TO FUND PARTICIPATION AGREEMENT Great-West Life & Annuity Insurance Company ("GWL&A"), on its behalf and on behalf of its separate accounts ("Accounts"), Dreyfus Stock Index Fund, Inc. (formerly known as Dreyfus Life and Annuity Index Fund, Inc., d/b/a Dreyfus Stock Index Fund) and Dreyfus Variable Investment Fund (the "Funds") hereby agree to amend the Fund Participation Agreement entered into as of the 31st day of December 1998, as amended March 15, 1999 and January 1, 2002 (the "Agreement.") WHEREAS, GWL&A and the Funds entered into the Agreement to allow GWL&A to purchase shares of the Funds on behalf of the Accounts, to fund certain registered variable life and annuity contracts, WHEREAS, GWL&A and the Funds wish to amend the Agreement to add additional Accounts, and to allow additional affiliated Dreyfus insurance product funds to be available to the Accounts, NOW THEREFORE, the Agreement is hereby amended as follows: 1. If the Agreement conflicts with any provision of this Amendment, this Amendment shall control. 2. All provisions of the Agreement not addressed by this Amendment shall remain in full force and effect. 3. Schedule A of the Agreement is hereby deleted in its entirety, and replaced with the amended Schedule A, attached hereto, and incorporated herein. The third and fourth lines of the recital paragraph are hereby modified as follows: "on its own behalf, and on behalf of the separate accounts listed on Schedule A attached hereto, and incorporated herein by reference (collectively, the "Accounts");" 4. The recital paragraph is hereby modified by adding Dreyfus Investment Portfolios and The Dreyfus Socially Responsible Growth Fund, Inc. as parties to the Agreement. 5. The Funds, Dreyfus Investment Portfolios, and The Dreyfus Socially Responsible Growth Fund, Inc. will collectively be referred to as the "Fund" throughout the Agreement. 6. The third WHEREAS clause of the Agreement is hereby amended to make reference to the orders from the SEC obtained by Dreyfus Investment Portfolios and The Dreyfus Socially Responsible Growth Fund, Inc. dated February 5, 1998 (File No. 812-10604), which will be collectively referred to with the similar orders referred to in that clause obtained by the Funds as the "Mixed and Shared Funding Exemptive Order." 7. The fifth WHEREAS clause of the Agreement is hereby deleted and replaced by the following: "WHEREAS, GWL&A has registered certain variable annuity contracts supported wholly or partially by each of the Accounts (the "Contracts") under the 1933 Act, and said Contracts and Accounts are listed in Schedule A attached hereto, and incorporated herein by reference, as such Schedule may be amended from time to time my mutual written agreement (or has not registered said Contracts because they are properly exempt from registration under Section 3(a)(2) of the 1933 Act, or will be offered exclusively in transactions that are properly exempt from registration under Section 4(a)(2) of Regulation D of the 1940 Act, in which case, the Company will make every effort to maintain such exemption, and will notify the Fund immediately upon having a reasonable basis for believing that such exemption no longer applies, or might not apply in the future); and" 8. The seventh WHEREAS clause of the Agreement is hereby deleted and replaced with the following: "WHEREAS, GWL&A has registered the Accounts as unit investment trusts under the 1940 Act (or has not registered such Accounts, in proper reliance upon an exemption from registration under Section 3(c) of the 1940 Act, in which case GWL&A will make every effort to maintain such exemption, and will notify the Fund immediately upon having a reasonable basis for believing that such exemption no longer applies in the future), and has registered the securities deemed to be issued by the Accounts under the 1933 Act (or has not registered said securities because they are properly exempt from registration under Section 3(a)(2) of the 1933 Act, or will be offered exclusively in transactions that are properly exempt from registration under Section 4(a)(2) of Regulation D of the 1940 Act, in which case the GWL&A will make every effort to maintain such exemption and will notify the Fund immediately upon having a reasonable basis for believing that such exemption no longer applies in the future); and" 9. The following paragraph is hereby added under Article I of the Agreement: "1.11 To the extent that an Account is properly exempt from registration under the 1940 Act, at least once annually, at the request of a Fund, or its designee, GWL&A will certify the amount of purchases and redemptions of fund shares from such Account for the Fund's most recent fiscal year end." 10. Article II, paragraph 2.1 is hereby deleted and replaced with the following: "GWL&A represents and warrants that the Contracts and the securities deemed to be issued by each of the Accounts under the Contracts are, or will be, registered under the 1933 Act (or will not be registered because they are properly exempt from registration under Section 3(a)(2) of the 1933 Act, or will be offered exclusively in transactions that are properly exempt from registration under Section 4(a)(2) of Regulation D of the 1940 Act, in which case, the Company will make every effort to maintain such exemption, and will notify the Fund immediately upon having a reasonable basis for believing that such exemption no longer applies, or might not apply in the future); that the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws, and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. GWL&A further represents and warrants that it is an insurance company duly organized and in good standing under applicable law, and that it has legally and validly established each of the Accounts 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 each of the Accounts as a unit investment trust (or has not registered such Accounts, in proper reliance upon an exemption from registration under Section 3(c) of the 1940 Act, in which case GWL&A will make every effort to maintain such exemption, and will notify the Fund immediately upon having a reasonable basis for believing that such exemption no longer applies in the future), 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." 11. Schedule B of the Agreement is hereby deleted in its entirety and replaced with the amended Schedule B attached hereto and incorporated herein. 12. After the effective date of this Amendment, GWL&A, the Funds, Dreyfus Investment Portfolios, and The Dreyfus Socially Responsible Growth Fund, Inc. assume all rights and liabilities under the Agreement, may enforce the Agreement in accordance with its terms, and may take all proper legal measures for the complete enjoyment of all rights pursuant to the Agreement, as applicable to each respective party. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and effective as of December 1, 2004. Each party hereby warrants and represents that its signatory, whose signature appears below, has been, and is, as of the date of this Amendment, duly authorized by all necessary and appropriate corporate action to execute this Amendment. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY By: ________________________________________ Name: ________________________________________ Title: ________________________________________ ON BEHALF OF THE FUNDS LISTED ON SCHEDULE B, ATTACHED HERETO: By: ________________________________________ Name: ________________________________________ Title: ________________________________________ SCHEDULE A Contracts Form Numbers --------- ------------ AICPA Variable Annuity J438 Individual Flexible Premium Variable Universal Life Insurance J355, J350, J350rev Separate Accounts Separate Account Maxim Series Account COLI VUL Series Account 2 COLI VUL Series Account 7 (an unregistered separate account)
SCHEDULE B CODE FUND Dreyfus Investment Portfolios 165 Core Bond Portfolio - Initial Shares 411 Core Bond Portfolio - Service Shares 172 Core Value Portfolio - Initial Shares 412 Core Value Portfolio - Service Shares 192 Emerging Leaders Portfolio - Initial Shares 413 Emerging Leaders Portfolio - Service Shares 193 Founders Discovery Portfolio - Initial Shares 416 Founders Discovery Portfolio - Service Shares 176 Founders Growth Portfolio - Initial Shares 417 Founders Growth Portfolio - Service Shares 177 Founders International Equity Portfolio - Initial Shares 418 Founders International Equity Portfolio - Service Shares 174 MidCap Stock Portfolio - Initial Shares 421 MidCap Stock Portfolio - Service Shares 410 Small Cap Stock Index Portfolio 175 Technology Growth Portfolio - Initial Shares 422 Technology Growth Portfolio - Service Shares 111 The Dreyfus Socially Responsible Growth Fund, Inc. - Initial Shares 423 The Dreyfus Socially Responsible Growth Fund, Inc. - Service Shares 763 Dreyfus Stock Index Fund, Inc. - Initial Shares 427 Dreyfus Stock Index Fund, Inc. - Service Shares Dreyfus Variable Investment Fund 112 Appreciation Portfolio - Initial Shares 400 Appreciation Portfolio - Service Shares 154 Balanced Portfolio - Initial Shares 399 Balanced Portfolio - Service Shares 121 Developing Leaders Portfolio (formerly, Small Cap Portfolio) - Initial Shares 407 Developing Leaders Portfolio (formerly, Small Cap Portfolio) - Service Shares 150 Disciplined Stock Portfolio - Initial Shares 401 Disciplined Stock Portfolio - Service Shares 152 International Value Portfolio - Initial Shares 404 International Value Portfolio - Service Shares 156 Limited Term High Yield Portfolio (formerly, Limited Term High Income Portfolio) - Initial Shares 405 Limited Term High Yield Portfolio (formerly, Limited Term High Income Portfolio) - Service Shares 117 Money Market Portfolio 120 Quality Bond Portfolio - Initial Shares 406 Quality Bond Portfolio - Service Shares 151 Small Company Stock Portfolio - Initial Shares 408 Small Company Stock Portfolio - Service Shares 108 Growth and Income Portfolio - Initial Shares 402 Growth and Income Portfolio - Service Shares 109 International Equity Portfolio - Initial Shares 403 International Equity Portfolio - Service Shares 118 Special Value Portfolio - Initial Shares 409 Special Value Portfolio - Service Shares
EX-99 7 exhibitgwlascudderfpa.txt FUND PARTICIPATION AGREEMENT TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares...................................................... ARTICLE II. Representations and Warranties........................................... ARTICLE III. Prospectuses and Proxy Statements; Voting................................ ARTICLE IV. Sales Material and Information........................................... ARTICLE V. Fees and Expenses........................................................ ARTICLE VI. Diversification and Qualification........................................ ARTICLE VII. Potential Conflicts and Compliance With Mixed and Shared Funding Exemptive Order ................................ ARTICLE VIII. Indemnification ......................................................... ARTICLE IX. Applicable Law........................................................... ARTICLE X. Termination.............................................................. ARTICLE XI. Notices.................................................................. ARTICLE XII. Miscellaneous............................................................ SCHEDULE A Designated Portfolios.................................................... SCHEDULE B Reports per Section 6.6.................................................. SCHEDULE C Expenses................................................................. SCHEDULE D Administrative Services.................................................. SCHEDULE E Market Timing and Excessive Trading Procedures...........................
FUND PARTICIPATION AGREEMENT Among GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY SCUDDER VARIABLE SERIES I, SCUDDER VARIABLE SERIES II and SCUDDER INVESTMENTS VIT FUNDS, DEUTSCHE INVESTMENT MANAGEMENT AMERICAS INC. and DEUTSCHE ASSET MANAGEMENT, INC., and SCUDDER DISTRIBUTORS, INC. THIS AGREEMENT, made and entered into as of this ____ day of March, 2005 by and among GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY (hereinafter "GWL&A"), a Colorado life insurance company, on its own behalf and on behalf of its Separate Account COLI VUL 2 Series Account (the "Account"); SCUDDER VARIABLE SERIES I, SCUDDER VARIABLE SERIES II and SCUDDER INVESTMENTS VIT FUNDS (individually, a "Fund"), each a Massachusetts business trust created under a Declaration of Trust, as amended; DEUTSCHE INVESTMENT MANAGEMENT AMERICAS INC. and DEUTSCHE ASSET MANAGEMENT, INC., each a Delaware corporation (collectively, the "Adviser"); and SCUDDER DISTRIBUTORS, INC., a corporation organized under the laws of Delaware (hereinafter the "Distributor"). The parties agree that a single document is being used for ease of administration and that this Agreement shall be treated as if it were a separate agreement with respect to each Fund, and each series thereof, that is a party hereto, severally and not jointly, as if such entity had entered into a separate agreement naming only itself as a party. Without limiting the foregoing, no Fund, or series thereof, shall have any liability under this Agreement for the obligations of any other Fund, or series thereof. WHEREAS, the Fund engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance policies and/or variable annuity contracts (collectively, the "Variable Insurance Products") to be offered by insurance companies, including GWL&A, which have entered into participation agreements similar to this Agreement (hereinafter "Participating Insurance Companies"); and WHEREAS, the beneficial interest in the Fund is divided into several series of shares, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities and other assets; and WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission (hereinafter the "SEC") granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity and variable life insurance separate accounts of life insurance companies that may or may not be affiliated with one another and, for Scudder Investments VIT Funds, qualified pension and retirement plans ("Qualified Plans") (hereinafter the "Mixed and Shared Funding Exemptive Order"); and WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and shares of the Portfolio(s) are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and WHEREAS, the Adviser is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and any applicable state securities laws; and WHEREAS, the Distributor is duly registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, (the "1934 Act") and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, GWL&A has registered certain variable life contracts supported wholly or partially by the Account (the "Contracts") to be made available to owners thereof, including any participants or employees of such owners as applicable ("Contract Owners"); and WHEREAS, the Account is a duly organized, validly existing segregated asset account, established by resolution of the Board of Directors of GWL&A, under the insurance laws of the State of Colorado, to set aside and invest assets attributable to the Contracts; and WHEREAS, GWL&A has registered the Account as a unit investment trust under the 1940 Act and has registered the securities deemed to be issued by the Account under the 1933 Act; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, GWL&A intends to purchase shares in the Portfolio(s) listed in Schedule A attached hereto and incorporated herein by reference, as such Schedule may be amended from time to time by mutual written agreement (the "Designated Portfolio(s)"), on behalf of the Account to fund the Contracts, and the Fund is authorized to sell such shares to unit investment trusts such as the Account at net asset value; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Account also intends to purchase shares in other open-end investment companies or series thereof not affiliated with the Fund (the "Unaffiliated Funds") on behalf of the Account to fund the Contracts; and WHEREAS, GWL&A intends to utilize its NSCC member broker/dealer affiliate, GWFS Equities, Inc. (formerly known as BenefitsCorp Equities, Inc.) ("GWFS") to transmit instructions for the purchase, redemption and transfer of Fund shares on behalf of the Account, and GWFS, alone, or with the assistance of a recordkeeping affiliate, to perform certain recordkeeping functions associated with the transfer of Fund shares into and out of the Account in order to recognize certain organizational economies; and NOW, THEREFORE, in consideration of their mutual promises, GWL&A, the Fund, the Distributor and the Adviser agree as follows: ARTICLE I. Sale of Fund Shares 1.1 The Fund agrees to make shares of the Designated Portfolio(s) available for purchase at the applicable net asset value per share by GWL&A and the Account on those days on which the Fund calculates its Designated Portfolio(s)' net asset value pursuant to rules of the SEC, and the Fund shall calculate such net asset value on each Business Day (as defined below). Notwithstanding the foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell shares of any Designated Portfolio to any person, or suspend or terminate the offering of 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 Board acting in good faith and in light of its fiduciary duties under federal and any applicable state laws, necessary in the best interests of the shareholders of such Designated Portfolio. The Fund reserves the right to cease offering Shares of any Designated Portfolio in the discretion of the Fund. 1.2 The Fund agrees that shares of the Fund will be sold only to Participating Insurance Companies and their separate accounts and to other persons or plans ("Qualified Persons") that qualify to purchase Shares of the Fund under Section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder without impairing the ability of the Account to consider the portfolio investments of the Fund as constituting investments of the Account for the purpose of satisfying the diversification requirements of Section 817(h). GWL&A hereby represents and warrants that it and the Account are Qualified Persons. No shares of any Designated Portfolio will be sold to the general public. The Fund will not sell shares of the Designated Portfolio(s) to any other Participating Insurance Company separate account unless an agreement containing provisions substantially similar to Sections 2.4, 2.10, 3.5, 3.6 and Article VII of this Agreement is in effect to govern such sales. 1.3. The Fund agrees to (a) sell to GWL&A those full and fractional shares of the Designated Portfolio(s) that GWL&A, on behalf of the Account, orders, and (b) redeem, on GWL&A's order, any full or fractional shares of the Fund held by GWL&A, in each case executing such orders on each Business Day at the net asset value next computed after receipt by the Fund or its designee of the order for the shares of the Designated Portfolios. For purposes of this Section 1.3, GWL&A shall be the designee of the Fund for receipt of such orders and receipt by such designee shall constitute receipt by the Fund, provided that the Fund receives notice of any such order by 10:00 a.m. Eastern time on the next following Business Day or later time permitted by Section 1.6 hereof. "Business Day" shall mean any day on which the New York Stock Exchange is open for regular trading and on which the Designated Portfolio calculates its net asset value pursuant to the rules of the SEC. GWL&A shall provide the Fund with net purchase and redemption requests computed in accordance with Section 1.7 hereof. GWL&A shall not redeem Fund shares attributable to the Contracts (as opposed to Fund shares attributable to GWL&A's assets held in the Account) except (a) as necessary to implement Contract Owner initiated or approved transactions, (b) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption"), (c) as permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act, or (d) as permitted under the terms of the Contract. Upon request, GWL&A will promptly furnish the Fund and the Distributor reasonable assurance that any redemption pursuant to clause (b) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Contracts or by termination of this Agreement or as may otherwise be permitted under the terms of this Agreement, GWL&A shall not prevent Contract Owners from allocating payments to a Designated Portfolio that was otherwise available under the Contracts without first giving the Fund or the Distributor thirty (30) days notice of its intention to do so. 1.4 In the event of net purchases, GWL&A shall pay for Fund shares before the close of the federal wire transfer system on the next Business Day after an order to purchase Fund shares is made in accordance with the provisions of Section 1.3 hereof. Payment shall be in federal funds transmitted to the Fund by wire. Upon receipt by the Fund of the federal funds so wired, such funds shall cease to be the responsibility of GWL&A and shall become the responsibility of the Fund. 1.5 In the event of net redemptions, the Fund shall pay and transmit the proceeds of redemptions of Fund shares by 3:00 p.m. Eastern time on the next Business Day after a redemption order is received in accordance with Section 1.3 hereof. Payment shall be in federal funds transmitted to GWL&A or its designee by wire. 1.6 The Fund shall make the net asset value per share for each Designated Portfolio available to GWL&A on each Business Day as soon as reasonably practical after the net asset value per share is calculated and shall use its best efforts to make such net asset value per share available by 6:30 p.m. Eastern time. In the event that the Fund is unable to meet the 6:30 p.m. time stated herein, the Fund shall provide additional time for GWL&A to place orders for the purchase and redemption of shares equal to the additional time it takes the Fund to make the net asset value available to GWL&A. However, if net asset values are not available for inclusion in the next business cycle and purchase orders/redemptions are not able to be calculated and available for GWL&A to execute within the time frame identified in Section 1.3 hereof, GWL&A on behalf of the Account, shall be entitled to an adjustment to the number of shares purchased or redeemed to reflect the correct share net asset value. 1.7 At the end of each Business Day, GWL&A shall use the information described herein to calculate Account unit values for the day. Using these unit values, GWL&A shall process each such Business Day's separate account transactions based on requests and premiums received by it by the close of regular trading on the floor of the New York Stock Exchange (currently 4:00 p.m., Eastern time) to determine the net dollar amount of Fund shares which shall be purchased or redeemed at that day's closing net asset value per share. 1.8 In the event of an error in the computation of a Designated Portfolio's net asset value per share ("NAV") or any dividend or capital gain distribution (each, a "pricing error"), the Adviser or the Fund shall immediately notify GWL&A as soon as possible after discovery of the error. Such notification may be verbal, but shall be confirmed promptly in writing in accordance with Article XI of this Agreement. A pricing error shall be corrected in accordance with the procedures for correcting net asset value errors adopted by the Fund's Board of Trustees and in effect at the time of the error. The Fund represents and warrants that its procedures for correcting net asset value errors currently comply, and will continue to comply, with the 1940 Act and generally industry-wide accepted SEC staff interpretations concerning pricing errors in effect at the time of an error. GWL&A will be reimbursed for the administrative costs of adjustments made to correct Contract Owner accounts in accordance with the provisions of Schedule C hereof. If an adjustment is necessary to correct an error pursuant to the Fund's procedures which has caused Contract Owners to receive less than the amount to which they are entitled, the number of shares of the appropriate Designated Portfolio(s) attributable to the accounts of the Contract Owners will be adjusted and the amount of any underpayments shall be credited by the Adviser or the Fund, as appropriate, to GWL&A for crediting of such amounts to the applicable Contract Owners accounts. Upon notification by the Adviser of any overpayment due to an error, GWL&A shall promptly remit to the Adviser or the Fund, as appropriate, any overpayment that has not been paid to Contract Owners; however, the Parties acknowledge that GWL&A does not intend to seek additional payments from any Contract Owner who, because of a pricing error, may have underpaid for units of interest credited to his/her account. In no event shall GWL&A be liable to Contract Owners for any such adjustments or underpayment amounts. The standards set forth in this Section 1.8 are based on the Parties' understanding of the views expressed by the staff of the SEC as of the date of this Agreement. In the event the views of the SEC staff are later modified or superseded by SEC or judicial interpretation, the Parties shall amend the foregoing provisions of this Agreement to comport with the appropriate applicable standards, on terms mutually satisfactory to all Parties. 1.9 The Fund shall furnish same day notice (by wire or telephone, followed by written confirmation) to GWL&A of any income, dividends or capital gain distributions payable on the Designated Portfolio(s)' shares. GWL&A hereby elects to receive all such income dividends and capital gain distributions as are payable on the Designated Portfolio shares in additional shares of that Designated Portfolio. GWL&A reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. The Fund shall notify GWL&A by the end of the next following Business Day of the number of shares so issued as payment of such dividends and distributions. 1.10 Issuance and transfer of the Fund's shares will be by book entry only. Stock certificates will not be issued to GWL&A or the Account. Shares ordered from the Fund will be recorded in an appropriate title for the Account or the appropriate subaccount of the Account. Purchases and redemptions of Designated Portfolio shares shall be subject to the prospectus of the Fund from time to time in effect. 1.11 The Parties acknowledge that the arrangement contemplated by this Agreement is not exclusive; the Fund's shares may be sold to other Participating Insurance Companies (subject to Section 1.2 and Article VII hereof) and the cash value of the Contracts may be invested in other investment companies. 1.12 All purchases, redemptions and exchanges of Designated Portfolio shares by GWL&A on behalf of the Account shall be governed by and subject to the terms of a Fund/SERV Agreement and an NSCC Networking Agreement, entered into by and between GWFS, an affiliate of GWL&A, and Scudder Investments Service Company ("SISvC"), an affiliate of the Adviser, dated March 28, 2005, as amended from time to time; provided, however, in the event of a conflict between such Fund/SERV and NSCC Agreements and this Agreement, this Agreement shall govern. GWL&A agrees that GWFS is authorized to act on its behalf under the Fund/SERV and NSCC Networking Agreements. The Fund agrees that SISvC is authorized as transfer agent of the Fund to act on its behalf under the Fund/SERV and NSCC Networking Agreements. ARTICLE II. Representations and Warranties 2.1. GWL&A represents and warrants that the Contracts and the securities deemed to be issued by the Account under the Contracts are or will be registered under the 1933 Act; that the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. GWL&A further represents that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established the Account prior to any issuance or sale of units thereof as a segregated asset account under Colorado insurance law and has registered the Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts and that it will maintain such registration for so long as any Contracts are outstanding as required by applicable law. 2.2. The Fund represents and warrants that Designated Portfolio(s) shares sold pursuant to this Agreement shall be registered under the 1933 Act, duly authorized for issuance and sold in compliance with all applicable federal securities laws including without limitation the 1933 Act, the 1934 Act, and the 1940 Act and that the Fund is and shall remain registered under the 1940 Act. The Fund shall amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to permit the continuous offering of its shares. 2.3. The Fund reserves the right to adopt a plan pursuant to Rule 12b-1 under the 1940 Act and to impose an asset-based or other charge to finance distribution expenses as permitted by applicable law and regulation. In any event, the Fund and Adviser agree to comply with applicable provisions and SEC staff interpretations of the 1940 Act to assure that the investment advisory or management fees paid to the Adviser by the Fund are in accordance with the requirements of the 1940 Act. To the extent that the Fund decides to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have its Board, a majority of whom are not interested persons of the Fund, formulate and approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses. 2.4. The Fund represents and warrants that it will cooperate with GWL&A 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 to the extent required to perform this Agreement, provided that GWL&A gives the Fund and Adviser notice of any such laws. The Fund further represents and warrants that it will make every effort to ensure that Designated Portfolio(s) shares will be sold in compliance with applicable securities and insurance laws of the State of Colorado, provided that GWL&A gives the Fund and Adviser notice of any such laws. The Fund shall register and qualify the shares for sale in accordance with the laws of the various states if and to the extent required by applicable law. GWL&A shall be solely responsible for (i) identifying any changes in state insurance laws, regulations or interpretations that may affect the Designated Portfolios ("Law Change"); and (ii) notifying the Fund, Adviser and Distributor of such Law Change. In the event of a Law Change, the Fund agrees that any action required by a Law Change will be taken, except in those circumstances where the Fund has advised GWL&A that its Board has determined that implementation of a particular Law Change is not in the best interest of all the Fund's shareholders. 2.5. The Fund represents and warrants that it is lawfully organized and validly existing under the laws of the Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 2.6. The Adviser represents and warrants that it is and shall remain duly registered under all applicable federal and state securities laws and that it shall perform its obligations for the Fund in compliance in all material respects with any applicable state and federal securities laws. 2.7. The Distributor represents and warrants that it is and shall remain duly registered under all applicable federal and state securities laws and that it shall perform its obligations for the Fund in compliance in all material respects with any applicable state and federal securities laws. 2.8. The Fund and the Adviser represent and warrant that all of their respective officers, employees, investment advisers, and other individuals or entities dealing with the money and/or securities of the Fund are, and shall continue to be at all times, covered by one or more blanket fidelity bonds or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage required by Rule 17g-1 under the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bonds shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.9. The Fund will provide GWL&A with as much advance notice as is reasonably practicable of any material change affecting the Designated Portfolio(s) (including, but not limited to, any material change in the registration statement or prospectus affecting the Designated Portfolio(s)) and any proxy solicitation affecting the Designated Portfolio(s) and consult with GWL&A in order to implement any such change in an orderly manner, recognizing the expenses of changes and attempting to minimize such expenses by implementing them in conjunction with regular annual updates of the prospectus for the Contracts. The Fund agrees to share equitably in expenses incurred by GWL&A as a result of actions taken by the Fund, consistent with the allocation of expenses contained in Schedule C attached hereto and incorporated herein by reference. 2.10. GWL&A represents and warrants, for purposes other than diversification under Section 817 of the Internal Revenue Code of 1986 as amended ("the Code"), that the Contracts are currently and at the time of issuance will be treated as life insurance contracts under applicable provisions of the Code, and that it will make every effort to maintain such treatment and that it will notify the Fund, the Distributor and the Adviser immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. In addition, GWL&A represents and warrants that the Account is a "segregated asset account" and that interests in the Account are offered exclusively through the purchase of or transfer into a "variable contract" within the meaning of such terms under Section 817 of the Code and the regulations thereunder. GWL&A will use every effort to continue to meet such definitional requirements, and it will notify the Fund, the Distributor and the Adviser immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. GWL&A represents and warrants that it will not purchase Fund shares with assets derived from tax-qualified retirement plans except, indirectly, through Contracts purchased in connection with such plans. 2.11. GWL&A has policies and procedures reasonably designed to help prevent the use of the Accounts by Contract Owners engaged in short-term trading or excessive trading, which policies and procedures shall be reasonably acceptable to the Fund, the Adviser and the Distributor. If GWL&A modifies such policies and procedures, GWL&A will provide notice thereof to the Fund, the Adviser and the Distributor. GWL&A's Abusive Trading Procedures are attached hereto as Schedule E and incorporated herein by reference. In the event that it may become necessary or appropriate for GWL&A to implement trading restrictions under section 4 of Schedule E in a particular situation, GWL&A agrees to consult with the Fund in regard to which trading restriction to implement. In addition, GWL&A agrees to provide the Fund, on request from time to time, specific transaction information to help the Fund monitor suspected short-term or excessive trading activity; provided, however, the provision of any such information to the Fund will not relieve GWL&A of any obligations that it may otherwise have with respect to such trading activity. In addition to the foregoing, GWL&A will use reasonable efforts to develop, implement and maintain procedures as necessary or appropriate to further any specific policies and procedures of the Fund, the Adviser or the Distributor for one or more Designated Portfolios in regard to short-term trading or excessive trading. In the event that GWL&A deems it impractical to implement any such procedures, GWL&A and the Fund, the Adviser and the Distributor shall discuss alternative approaches and, in the event that agreement can not be reached as to an alternative approach, any party may terminate this Agreement upon written notice to the other parties. If, notwithstanding the foregoing, the Fund, the Adviser or the Distributor notifies GWL&A that a pattern or patterns of transactions involving short-term trading or excessive trading in one or more Accounts is having or may have, in their sole discretion, an adverse effect on a Designated Portfolio, GWL&A will, in accordance with Schedule E, promptly take such actions and implement such procedures as are appropriate to prevent such trading. The parties hereto acknowledge that, if necessary, such actions and procedures may include the identification of Contract Owners engaged in such trading and the imposition of complete or partial restrictions on their requests to purchase shares of the Designated Portfolio. GWL&A acknowledges that all orders accepted by GWL&A for the Accounts are subject to the obligations of GWL&A in this Section 2.11, including the obligation to help prevent the use of the Accounts for short-term trading or excessive trading, and that the Fund, the Adviser or the Distributor may take such actions as it deems to be in the best interests of shareholders of the Designated Portfolios to enforce such obligations and to otherwise prevent such trading in shares of the Designated Portfolios, including, among other things, the right to revoke, reject or cancel purchase orders for shares of the Designated Portfolios made by GWL&A. Any such revocation, rejection or cancellation may be made in whole or in part, it being understood that the Fund, the Adviser and the Distributor are not required to isolate objectionable trades. The Fund, the Underwriter and the Adviser acknowledge that revocation, cancellation or rejection of a purchase order poses potentially significant consequences to the Company and the Contract holders and represent that purchase orders normally will be rejected only after attempts to prevent the activity through the Company have failed. The Fund, the Adviser and the Distributor shall not be responsible for any losses or costs incurred by GWL&A, the Account or Contract Owners as a result of the revocation, rejection or cancellation of orders made by GWL&A in furtherance of the enforcement of their policy to prevent short-term trading and excessive trading in shares of the Designated Portfolios. 2.12. GWL&A represents and warrants as follows: (i) GWL&A has in place an anti-money laundering program ("AML program") that does now and will continue to comply with applicable laws and regulations, including the relevant provisions of the USA PATRIOT Act (Pub. L. No. 107-56 (2001)) and the regulations issued thereunder by the U.S. Treasury Department and the rules of the National Association of Securities Dealers, Inc., as applicable. (ii) GWL&A has in place - and has conducted due diligence pursuant to - policies, procedures and internal controls reasonably designed (a) to verify the identity of the Contract Owners that invest in the Account, and (b) to identify those Contract Owners' sources of funds, and have no reason to believe that any of the invested funds were derived from illegal activities. (iii) GWL&A has, after undertaking reasonable inquiry, no information or knowledge that (a) any Contract Owner that invests in the Account, or (b) any person or entity controlling, controlled by or under common control with such Contract Owner is an individual or entity or in a country or territory that is on an Office of Foreign Assets Control ("OFAC") list or similar list of sanctioned or prohibited persons maintained by a U.S. governmental or regulatory body. (iv) GWL&A further agrees promptly to notify the Fund and the Distributor should it become aware of any change in the representations and warranties set forth in 12.2 (i), (ii) or (iii) above. (v) GWL&A agrees to require any broker-dealer/insurance agency that distributes the Contracts to have an AML Program in substantial compliance with the foregoing. In addition, the Distributor and the Fund hereby provide notice to GWL&A that the Distributor and/or the Fund reserve the right to make inquiries of and request additional information from GWL&A regarding its AML program. ARTICLE III. Prospectuses and Proxy Statements; Voting 3.1. At least annually, the Adviser or Distributor shall provide GWL&A with as many copies of the Fund's current prospectus for the Designated Portfolio(s) as GWL&A may reasonably request for marketing purposes (including distribution to Contract Owners with respect to new sales of a Contract), with expenses to be borne in accordance with Schedule C hereof. If requested by GWL&A in lieu thereof, the Advisor, Distributor or Fund shall provide such documentation (including a camera-ready copy and computer diskette of the current prospectus for the Designated Portfolio(s)) and other assistance as is reasonably necessary in order for GWL&A once each year (or more frequently if the prospectuses for the Designated Portfolio(s) are amended) to have the prospectus for the Contracts and the Fund's prospectus for the Designated Portfolio(s) printed together in one document. The Fund and Adviser agree that the prospectus (and semi-annual and annual reports) for the Designated Portfolio(s) will describe only the Designated Portfolio(s) and will not name or describe any other portfolios or series that may be in the Fund unless required by law. 3.2. If applicable state or federal laws or regulations require that the Statement of Additional Information ("SAI") for the Fund be distributed to all Contract Owners, then the Fund, Distributor and/or the Adviser shall provide GWL&A with copies of the Fund's SAI or documentation thereof for the Designated Portfolio(s) in such quantities, with expenses to be borne in accordance with Schedule C hereof, as GWL&A may reasonably require to permit timely distribution thereof to Contract Owners. The Adviser, Distributor and/or the Fund shall also provide SAIs to any Contract Owner or prospective owner who requests such SAI from the Fund (although it is anticipated that such requests will be made to GWL&A). 3.3. The Fund, Distributor and/or Adviser shall provide GWL&A with copies of the Fund's proxy material, reports to stockholders and other communications to stockholders for the Designated Portfolio(s) in such quantity, with expenses to be borne in accordance with Schedule C hereof, as GWL&A may reasonably require to permit timely distribution thereof to Contract Owners as required by applicable law. 3.4. It is understood and agreed that, except with respect to information regarding GWL&A provided in writing by that party, GWL&A is not responsible for the content of the prospectus or SAI for the Designated Portfolio(s). It is also understood and agreed that, except with respect to information regarding the Fund, the Distributor, the Adviser or the Designated Portfolio(s) provided in writing by the Fund, the Distributor or the Adviser, neither the Fund, the Distributor nor Adviser are responsible for the content of the prospectus or SAI for the Contracts. 3.5. If and to the extent required by law GWL&A shall: (i) solicit voting instructions from Contract Owners; (ii) vote the Designated Portfolio(s) shares held in the Account in accordance with instructions received from Contract Owners: and (iii) vote Designated Portfolio shares held in the Account for which no instructions have been received in the same proportion as Designated Portfolio(s) shares for which instructions have been received from Contract Owners, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners. GWL&A reserves the right to vote Fund shares held in any segregated asset account in its own right, to the extent permitted by law. 3.6. GWL&A shall be responsible for assuring that each of its separate accounts holding shares of a Designated Portfolio votes shares in a manner that is consistent with the Mixed and Shared Funding Exemptive Order. The Fund agrees to promptly notify GWL&A of any changes of interpretations or amendments of the Mixed and Shared Funding Exemptive Order. 3.7. The Fund will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the Fund will either provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or, as the Fund currently intends, comply with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors or trustees and with whatever rules the Commission may promulgate with respect thereto. ARTICLE IV. Sales Material and Information 4.1. GWL&A shall furnish, or shall cause to be furnished, to the Fund or its designee, a copy of each piece of sales literature or other promotional material that GWL&A, respectively, develops or proposes to use and in which the Fund (or a Portfolio thereof), its Adviser or one of its sub-advisers or the Distributor is named in connection with the Contracts, at least ten (10) business days prior to its use. No such material shall be used if the Fund objects to such use within five (5) business days after receipt of such material. Notwithstanding the foregoing, GWL&A shall not be required to furnish to the Fund or its designee any sales literature or other promotional material which GWL&A receives from the Fund, the Distributor or Adviser and which is unaltered by GWL&A. 4.2. GWL&A shall not give any information or make any representations or statements on behalf of the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement, prospectus or SAI for the Fund shares, as the same may be amended or supplemented from time to time, or in sales literature or other promotional material approved by the Fund, Distributor or Adviser, except with the permission of the Fund, Distributor or Adviser. 4.3. The Fund or the Adviser shall furnish, or shall cause to be furnished, to GWL&A, a copy of each piece of sales literature or other promotional material in which GWL&A and/or its separate account(s), is named at least ten (10) business days prior to its use. No such material shall be used if GWL&A objects to such use within five (5) business days after receipt of such material. 4.4. The Fund, the Distributor and the Adviser shall not give any information or make any representations on behalf of GWL&A or concerning GWL&A, the Account, or the Contracts other than the information or representations contained in a registration statement, prospectus or SAI for the Contracts, as the same may be amended or supplemented from time to time, or in sales literature or other promotional material approved by GWL&A or its designee, except with the permission of GWL&A. GWL&A agrees that the Fund and the Adviser may include in the Fund's proxy materials, shareholder reports, registration statements, prospectuses or SAIs information about GWL&A and the Account, to the extent such information is required by applicable law to be included therein. 4.5. The Fund will provide to GWL&A at least one complete copy of any prospectuses and SAIs and all amendments to any of the above, that relate to the Designated Portfolio(s), reasonably promptly after the filing of such document(s) with the SEC or NASD or other regulatory authorities. Upon request, the Fund will provide to GWL&A copies of SEC exemptive orders and no-action letters and sales literature and other promotional material that relate to the Designated Portfolios and to the performance of this Agreement by the parties. 4.6. GWL&A will provide to the Fund at least one complete copy of any prospectuses and SAIs, and all amendments to any of the above, that relate to the Contracts or the Account, reasonably promptly after the filing of such document(s) with the SEC, NASD, or other regulatory authority. Upon request, the GWL&A will provide to the Fund copies of SEC exemptive orders and no-action letters, solicitations of voting instructions and sales literature and other promotional material that relate to the Contracts or the Account and the performance of this Agreement by the parties. 4.7. For purposes of Articles IV and VIII, the phrase "sales literature and other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media; e.g., on-line networks such as the Internet or other electronic media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and shareholder reports, and proxy materials (including solicitations for voting instructions) and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.8. At the request of any party to this Agreement, each other party will make available to the other party's independent auditors and/or representative of the appropriate regulatory agencies, all records, data and access to operating procedures that may be reasonably requested in connection with compliance and regulatory requirements related to this Agreement or any party's obligations under this Agreement. ARTICLE V. Fees and Expenses 5.1. Neither the Fund, the Distributor nor the Adviser shall pay any fee or other compensation to GWL&A under this Agreement, other than pursuant to Schedule D attached hereto and incorporated by reference herein. In addition, the parties will bear certain expenses in accordance with Schedule C, Articles III, V, and other provisions of this Agreement. 5.2. All expenses incident to performance by the Fund, the Distributor and the Adviser under this Agreement shall be paid by the appropriate party, as further provided in Schedule C. The Fund shall see to it that all shares of the Designated Portfolio(s) are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent required, in accordance with applicable state laws prior to their sale. 5.3. The parties shall bear the expenses of any routine annual distribution (mailing costs) of the Fund's prospectus and distribution (mailing costs) of the Fund's proxy materials and reports to owners of Contracts offered by GWL&A, in accordance with Schedule C. 5.4. The Fund, the Distributor and the Adviser acknowledge that a principal feature of the Contracts is the Contract Owner's ability to choose from a number of unaffiliated mutual funds (and portfolios or series thereof), including the Designated Portfolio(s) and the Unaffiliated Funds, and to transfer the Contract's cash value between funds and portfolios. The Fund, the Distributor and the Adviser agree to cooperate with GWL&A in facilitating the operation of the Account and the Contracts as described in the prospectus for the Contracts, including but not limited to cooperation in facilitating transfers between Unaffiliated Funds. ARTICLE VI. Diversification and Qualification 6.1. The Fund, the Distributor and the Adviser represent and warrant that the Fund will at all times sell its shares and invest its assets in such a manner as to ensure that the Contracts will be treated as life insurance contracts under the Code, and the regulations issued thereunder. Without limiting the scope of the foregoing, the Fund, Distributor and Adviser represent and warrant that the Fund and each Designated Portfolio thereof will at all times comply with Section 817(h) of the Code and Treasury Regulation ss.1.817-5, as amended from time to time, and any Treasury interpretations thereof, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications or successor provisions to such Section or Regulations. The Fund, the Distributor and the Adviser agree that shares of the Designated Portfolio(s) will be sold only to Participating Insurance Companies and their separate accounts and to other Qualified Persons. 6.2. No shares of any Designated Portfolio of the Fund will be sold to the general public. 6.3. The Fund, the Distributor and the Adviser represent and warrant that the Fund and each Designated Portfolio is currently qualified as a Regulated Investment Company under Subchapter M of the Code, and that each Designated Portfolio will maintain such qualification (under Subchapter M or any successor or similar provisions) as long as this Agreement is in effect. 6.4. The Fund, Distributor or Adviser will notify GWL&A immediately upon having a reasonable basis for believing that the Fund or any Designated Portfolio has ceased to comply with the aforesaid Section 817(h) diversification or Subchapter M qualification requirements or might not so comply in the future. 6.5. Without in any way limiting the effect of Sections 8.2, 8.3 and 8.4 hereof and without in any way limiting or restricting any other remedies available to GWL&A, the Adviser or Distributor will pay all costs associated with or arising out of any failure, or any anticipated or reasonably foreseeable failure, of the Fund or any Designated Portfolio to comply with Sections 6.1, 6.2, or 6.3 hereof, including all costs associated with reasonable and appropriate corrections or responses to any such failure; such costs may include, but are not limited to, the costs involved in creating, organizing, and registering a new investment company as a funding medium for the Contracts and/or the costs of obtaining whatever regulatory authorizations are required to substitute shares of another investment company for those of the failed Portfolio (including but not limited to an order pursuant to Section 26(b) of the 1940 Act); such costs are to include, but are not limited to, fees and expenses of legal counsel and other advisors to GWL&A and any federal income taxes or tax penalties and interest thereon (or "toll charges" or exactments or amounts paid in settlement) incurred by GWL&A with respect to itself or owners of its Contracts in connection with any such failure or anticipated or reasonably foreseeable failure. 6.6. The Fund at the Fund's expense 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 B and incorporated herein by reference; provided, however, that providing such reports does not relieve the Fund 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 Fund, Distributor or Adviser as a result of such a failure or alleged failure: (a) GWL&A shall promptly notify the Fund, the Distributor and the Adviser of such assertion or potential claim; (b) GWL&A shall consult with the Fund, the Distributor and the Adviser as to how to minimize any liability that may arise as a result of such failure or alleged failure; (c) GWL&A shall use its best efforts to minimize any liability of the Fund, the Distributor and the Adviser resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations, Section 1.817-5(a)(2), to the commissioner of the IRS that such failure was inadvertent; (d) any written materials to be submitted by GWL&A to the IRS, any Contract Owner or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations, Section 1.817-5(a)(2)) shall be provided by GWL&A to the Fund, the Distributor and the Adviser (together with any supporting information or analysis) within at least two (2) business days prior to submission; (e) GWL&A shall provide the Fund, the Distributor and the Adviser with such cooperation as the Fund, the Distributor and the Adviser shall reasonably request (including, without limitation, by permitting the Fund, the Distributor and the Adviser to review the relevant books and records of GWL&A) in order to facilitate review by the Fund, the Distributor and the Adviser of any written submissions provided to it or its assessment of the validity or amount of any claim against it arising from such failure or alleged failure; (f) GWL&A shall not with respect to any claim of the IRS or any Contract Owner that would give rise to a claim against the Fund, the Distributor and the Adviser (i) compromise or settle any claim, (ii) accept any adjustment on audit, or (iii) forego any allowable administrative or judicial appeals, without the express written consent of the Fund, the Distributor and the Adviser, which shall not be unreasonably withheld; provided that, GWL&A shall not be required to appeal any adverse judicial decision unless the Fund and the Adviser shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and further provided that the Fund, the Distributor and the Adviser shall bear the costs and expenses, including reasonable attorney's fees, incurred by GWL&A in complying with this clause (f). ARTICLE VII. Potential Conflicts and Compliance With Mixed and Shared Funding Exemptive Order 7.1. The Board will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners or by contract owners of different Participating Insurance Companies; or (f) a decision by a Participating Insurance Company to disregard the voting instructions of contract owners. The Board shall promptly inform GWL&A if it determines that an irreconcilable material conflict exists and the implications thereof. 7.2. GWL&A will report any potential or existing conflicts of which it is aware to the Board. GWL&A will assist the Board in carrying out its responsibilities under the Mixed and Shared Funding Exemptive Order, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by GWL&A to inform the Board whenever Contract Owner voting instructions are to be disregarded. Such responsibilities shall be carried out by GWL&A with a view only to the interests of its Contract Owners. 7.3. If it is determined by a majority of the Board, or a majority of its directors who are not interested persons of the Fund, the Distributor, the Adviser or any sub-adviser to any of the Designated Portfolios (the "Independent Directors"), that a material irreconcilable conflict exists, GWL&A and other Participating Insurance Companies shall, at their expense and to the extent reasonably practicable (as determined by a majority of the Independent Directors), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (1) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Designated Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected contract owners the option of making such a change; and (2) establishing a new registered management investment company or managed separate account. 7.4. If a material irreconcilable conflict arises because of a decision by GWL&A to disregard contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, GWL&A may be required, at the Fund's election, to withdraw the Account's investment in the Fund and terminate this Agreement; provided, however that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the Independent Directors. Any such withdrawal and termination must take place within six (6) months after the Fund gives written notice that this provision is being implemented, and until the end of that six month period the Adviser, the Distributor and the Fund shall continue to accept and implement orders by GWL&A for the purchase (and redemption) of shares of the Fund. 7.5. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to GWL&A conflicts with the majority of other state regulators, then GWL&A will withdraw the Account's investment in the Fund and terminate this Agreement within six months after the Board informs GWL&A in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Until the end of the foregoing six month period, the Fund shall continue to accept and implement orders by GWL&A for the purchase (and redemption) of shares of the Fund. 7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of the disinterested members of the Board shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. GWL&A shall not be required by Section 7.3 to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Contract owners affected by the irreconcilable material conflict. In the event that the Board determines that any proposed action does not adequately remedy any irreconcilable material conflict, then GWL&A will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Board informs GWL&A in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the Independent Directors. 7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable: and (b) Sections 3.5, 3.6, 3.7, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. ARTICLE VIII. Indemnification 8.1. Indemnification By GWL&A 8.1(a).GWL&A agrees to indemnify and hold harmless the Fund, the Distributor and the Adviser and each of their respective officers and directors or trustees and each person, if any, who controls the Fund, Distributor or Adviser within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, expenses, damages and liabilities (including amounts paid in settlement with the written consent of GWL&A) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, expenses, damages or liabilities (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement or prospectus or SAI covering the Contracts or contained in the Contracts or sales literature or other promotional material for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to GWL&A by or on behalf of the Adviser, Distributor or Fund for use in the registration statement or prospectus for the Contracts or sales literature or other promotional material (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature or other promotional material of the Fund not supplied by GWL&A or persons under its control) or wrongful conduct of GWL&A or persons under its control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, or sales literature or other promotional material of the Fund, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon information furnished in writing to the Fund by or on behalf of GWL&A; or (iv) arise as a result of any failure by GWL&A to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by GWL&A in this Agreement or arise out of or result from any other material breach of this Agreement by GWL&A, including without limitation Section 2.10 and Section 6.7 hereof, as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof. 8.1(b). GWL&A shall not be liable under this indemnification provision with respect to any losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.1(c). GWL&A shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified GWL&A in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify GWL&A of any such claim shall not relieve GWL&A from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that GWL&A has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, GWL&A shall be entitled to participate, at its own expense, in the defense of such action. GWL&A also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from GWL&A to such party of GWL&A's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and GWL&A will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.1(d).The Indemnified Parties will promptly notify GWL&A of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund Shares or the Contracts or the operation of the Fund. 8.2. Indemnification by the Adviser 8.2(a).The Adviser agrees to indemnify and hold harmless GWL&A and its directors and officers and each person, if any, who controls GWL&A within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, expenses, damages, liabilities (including amounts paid in settlement with the written consent of the Adviser) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or SAI or sales literature or other promotional material of the Fund prepared by the Fund, the Distributor or the Adviser (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to the Adviser, the Distributor or the Fund by or on behalf of GWL&A for use in the registration statement, prospectus or SAI for the Fund or in sales literature or other promotional material (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Contracts or the Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI or sales literature or other promotional material for the Contracts not supplied by the Adviser or persons under its control) or wrongful conduct of the Fund, the Distributor or the Adviser or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, or sales literature or other promotional material covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished in writing to GWL&A by or on behalf of the Adviser, the Distributor or the Fund; or (iv) arise as a result of any failure by the Fund, the Distributor or the Adviser to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Article VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Fund, the Distributor or the Adviser in this Agreement or arise out of or result from any other material breach of this Agreement by the Adviser, the Distributor or the Fund; or (vi) arise out of or result from a breach of this Agreement pertaining to the incorrect or untimely calculation or reporting by the Fund, 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 losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.2(c). The Adviser shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Adviser in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Adviser of any such claim shall not relieve the Adviser from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that the Adviser has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, the Adviser will be entitled to participate, at its own expense, in the defense thereof. The Adviser also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Adviser to such party of the Adviser's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Adviser will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.2(d).GWL&A agrees to promptly notify the Adviser of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Account. 8.3. Indemnification By the Fund 8.3(a).The Fund agrees to indemnify and hold harmless GWL&A and its directors and officers and each person, if any, who controls GWL&A within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.3) against any and all losses, claims, expenses, damages and liabilities (including amounts paid in settlement with the written consent of the Fund) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may be required to pay or become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, expenses, damages, liabilities or expenses (or actions in respect thereof) or settlements, are related to the operations of the Fund and: (i) arise as a result of any failure by the Fund to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Article VI of this Agreement); or (ii) arise out of or result from any material breach of any representation and/or warranty made by the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund; as limited by and in accordance with the provisions of Sections 8.3(b) and 8.3(c) hereof. 8.3(b). The Fund shall not be liable under this indemnification provision with respect to any losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.3(c). The Fund shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve it from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that the Fund has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, the Fund will be entitled to participate, at its own expense, in the defense thereof. The Fund shall also be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Fund to such party of the Fund's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Fund will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.3(d). GWL&A each agrees to promptly notify the Fund of the commencement of any litigation or proceeding against itself or any of its respective officers or directors in connection with the Agreement, the issuance or sale of the Contracts, the operation of the Account, or the sale or acquisition of shares of the Fund. 8.4. Indemnification by the Distributor 8.4(a).The Distributor agrees to indemnify and hold harmless GWL&A and its directors and officers and each person, if any, who controls GWL&A within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.4) against any and all losses, claims, expenses, damages and liabilities (including amounts paid in settlement with the written consent of the Distributor) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or SAI or sales literature or other promotional material of the Fund prepared by the Fund, Adviser or Distributor (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to the Adviser, the Distributor or Fund by or on behalf of GWL&A for use in the registration statement or SAI or prospectus for the Fund or in sales literature or other promotional material (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI, sales literature or other promotional material for the Contracts not supplied by the Distributor or persons under its control) or wrongful conduct of the Fund, the Distributor or Adviser or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, sales literature or other promotional material covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished in writing to GWL&A by or on behalf of the Adviser, the Distributor or Fund; or (iv) arise as a result of any failure by the Fund, Adviser or Distributor to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Article VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Fund, Adviser or Distributor in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund, Adviser or Distributor; or (vi) arise out of or result from a breach of this Agreement pertaining to 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 losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or negligence in the performance or such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. 8.4(c) The Distributor shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Distributor in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Distributor of any such claim shall not relieve the Distributor from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that the Distributor has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, the Distributor will be entitled to participate, at its own expense, in the defense thereof. The Distributor also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Distributor to such party of the Distributor's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Distributor will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.4(d) GWL&A agrees to promptly notify the Distributor of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Account. ARTICLE IX. Applicable Law 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Colorado, without regard to the Colorado Conflict of Laws provisions. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant (including, but not limited to, the Mixed and Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE X. Termination 10.1. This Agreement shall terminate: (a) at the option of any party, with or without cause, with respect to some or all Designated Portfolios, upon six (6) months advance written notice delivered to the other parties; provided, however, that such notice shall not be given earlier than six (6) months following the date of this Agreement; or (b) at the option of GWL&A by written notice to the other parties with respect to any Designated Portfolio based upon GWL&A's determination that shares of such Designated Portfolio are not reasonably available to meet the requirements of the Contracts; or (c) at the option of GWL&A by written notice to the other parties with respect to any Designated Portfolio in the event any of the Designated Portfolio's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by GWL&A; or (d) at the option of the Fund, Distributor or Adviser in the event that formal administrative proceedings are instituted against GWL&A by the NASD, the SEC, the Insurance Commissioner or like official of any state or any other regulatory body regarding GWL&A's duties under this Agreement or related to the sale of the Contracts, the operation of any Account, or the purchase of the Fund shares, if, in each case, the Fund, Distributor or Adviser, as the case may be, reasonably determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of GWL&A to perform its obligations under this Agreement; or (e) at the option of GWL&A in the event that formal administrative proceedings are instituted against the Fund, the Distributor or the Adviser by the NASD, the SEC, or any state securities or insurance department or any other regulatory body, if GWL&A reasonably determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Fund, the Distributor or the Adviser to perform their obligations under this Agreement; or (f) at the option of GWL&A by written notice to the Fund with respect to any Portfolio if GWL&A reasonably believes that the Portfolio will fail to meet the Section 817(h) diversification requirements or Subchapter M qualifications specified in Article VI hereof; or (g) at the option of either the Fund, the Distributor or the Adviser, if (i) the Fund, Distributor or Adviser, respectively, shall determine, in its sole judgment reasonably exercised in good faith, that GWL&A has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity and that material adverse change or publicity will have a material adverse impact on GWL&A's ability to perform its obligations under this Agreement, (ii) the Fund, Distributor or Adviser notifies GWL&A of that determination and its intent to terminate this Agreement, and (iii) after considering the actions taken by GWL&A and any other changes in circumstances since the giving of such a notice, the determination of the Fund, Distributor or Adviser shall continue to apply on the sixtieth (60th) day following the giving of that notice, which sixtieth day shall be the effective date of termination; or (h) at the option of either GWL&A, if (i) GWL&A shall determine, in its sole judgment reasonably exercised in good faith, that the Fund, Distributor or Adviser has suffered a material adverse change in its business or financial condition or is the subject of material adverse publicity and that material adverse change or publicity will have a material adverse impact on the Fund's, Distributor's or Adviser's ability to perform its obligations under this Agreement, (ii) GWL&A notifies the Fund, Distributor or Adviser, as appropriate, of that determination and its intent to terminate this Agreement, and (iii) after considering the actions taken by the Fund, Distributor or Adviser and any other changes in circumstances since the giving of such a notice, the determination of GWL&A shall continue to apply on the sixtieth (60th) day following the giving of that notice, which sixtieth day shall be the effective date of termination; or (i) at the option of any non-defaulting party hereto in the event of a material breach of this Agreement by any party hereto (the "defaulting party") other than as described in 10.1(a)-(j); 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(g) or 10.1(h) of this Agreement, the prior written notice shall be given in advance of the effective date of termination as required by those provisions unless such notice period is shortened by mutual written agreement of the parties; (b) in the event any termination is based upon the provisions of Section 10.1(d), 10.1(e), 10.1(i) or 10.1(j) of this Agreement, the prior written notice shall be given at least sixty (60) days before the effective date of termination; and (c) in the event any termination is based upon the provisions of Section 10.1(b), 10.1(c) or 10.1(f), the prior written notice shall be given in advance of the effective date of termination, which date shall be determined by the party sending the notice. 10.3. Effect of Termination. Notwithstanding any termination of this Agreement, other than as a result of a failure by either the Fund or GWL&A to meet Section 817(h) of the Code diversification requirements, the Fund, the Distributor and the Adviser shall, at the option of GWL&A, continue to make available for a period of one (1) year after the effective date of termination additional shares of the Designated Portfolio(s) pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts shall be permitted to reallocate investments in the Designated Portfolio(s), redeem investments in the Designated Portfolio(s) and/or invest in the Designated Portfolio(s) upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 10.3 shall not apply to any terminations under Article VII and the effect of such Article VII terminations shall be governed by Article VII of this Agreement. 10.4. Surviving Provisions. Notwithstanding any termination of this Agreement, each party's obligations under Article VIII to indemnify other parties shall survive and not be affected by any termination of this Agreement. In addition, with respect to Existing Contracts, all provisions of this Agreement shall also survive and not be affected by any termination of this Agreement except as otherwise provided for herein. ARTICLE XI. Notices Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: Scudder Variable Series I Scudder Variable Series II Scudder Investments VIT Funds Two International Place Boston, MA 02110-4103 Attention: Secretary If to GWL&A: Great-West Life & Annuity Insurance Company 8515 East Orchard Road, 9T2 Greenwood Village, CO 80111 Attention:Ron Laeyendecker, Vice President, Life Insurance Markets PC: Beverly Byrne, Vice President and Counsel If to the Adviser: Deutsche Investment Management Americas Inc. Deutsche Asset Management, Inc. Two International Place Boston, MA 02110-4103 Attention: Secretary If to the Distributor: Scudder Distributors, Inc. Two International Place Boston, MA 02110-4103 Attention: Secretary ARTICLE XII. Miscellaneous 12.1. The parties hereto acknowledge that any nonpublic personal information (as defined by applicable law or regulation promulgated under Title V of the Gramm-Leach-Bliley Act of 1999 (the "Act")) of Contract Owners (and any participants thereof, as applicable) will be disclosed or utilized solely to carry out the terms of this Agreement or pursuant to an exception contained in any applicable law or regulation promulgated under the Act. Each party each represents that it has adopted and implemented procedures to safeguard such non-public personal information that are reasonably designed to ensure the security and confidentiality of such information and to ensure compliance with the Act and applicable regulations thereunder. Without limiting the foregoing, no party hereto shall disclose any information that another party has designated as proprietary. Without limiting the foregoing, no party hereto shall disclose any information that another party has designated as proprietary. 12.2. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.3. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.4. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 12.5. Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the Colorado Insurance Commissioner with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the variable life operations of GWL&A are being conducted in a manner consistent with the applicable Colorado insurance regulations and any other applicable law or regulations. 12.6. Any controversy or claim arising out of or relating to this Agreement, or breach thereof, shall be settled by arbitration in a forum jointly selected by the relevant parties (but if applicable law requires some other forum, then such other forum) in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 12.7. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 12.8. This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto. 12.9. GWL&A is hereby expressly put on notice of the limitation of liability as set forth in the Declarations of Trust of the Fund and agree that the obligations assumed by the Fund, Distributor and the Adviser pursuant to this Agreement shall be limited in any case to the Fund, Distributor and Adviser and their respective assets and GWL&A shall not seek satisfaction of any such obligation from the shareholders of the Fund, Distributor or the Adviser, the Trustees, officers, employees or agents of the Fund, Distributor or Adviser, or any of them. 12.10. The Fund, the Distributor and the Adviser agree that the obligations assumed by GWL&A pursuant to this Agreement shall be limited in any case to GWL&A and its assets and neither the Fund, Distributor nor Adviser shall seek satisfaction of any such obligation from the shareholders of GWL&A, the directors, officers, employees or agents of GWL&A, or any of them, except to the extent permitted under this Agreement. 12.11. No provision of this Agreement may be deemed or construed to modify or supersede any contractual rights, duties, or indemnifications, as between the Adviser and the Fund, and the Distributor and the Fund. 12.12. None of the parties hereto shall be liable to the other for any and all losses, damages, costs, charges, counsel fees, payments, expenses or liability due to any failure, delay or interruption in performing its obligations under this Agreement, and without the fault or negligence of such party, due to causes or conditions beyond its control including, without limitation, labor disputes, strikes (whether legal or illegal), lock outs (whether legal or illegal), civil commotion, riots, war and war-like operations including acts of terrorism, embargoes, epidemics, invasion, rebellion, hostilities, insurrections, explosions, floods, unusually severe weather conditions, earthquakes, military power, sabotage, governmental regulations or controls, failure of power, fire or other casualty, accidents, national or local emergencies, boycotts, picketing, slow-downs, work stoppages, acts of God or natural disasters. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative as specified below. GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY By its authorized officer, By:______________________________ Title: Date: SCUDDER VARIABLE SERIES I By its authorized officer, By:______________________________ Title: Date: SCUDDER VARIABLE SERIES II By its authorized officer, By:____________________________ Title: Date: SCUDDER INVESTMENTS VIT FUNDS By its authorized officer, By:____________________________ Title: Date: DEUTSCHE INVESTMENT MANAGEMENT AMERICAS INC. By its authorized officer, By:____________________________ Title: Date: DEUTSCHE ASSET MANAGEMENT, INC. By its authorized officer, By:____________________________ Title: Date: SCHEDULE A Designated Portfolios. Class A shares only. A. Scudder Variable Series I Capital Growth Portfolio Global Discovery Portfolio Growth and Income Portfolio Health Sciences Portfolio International Portfolio Bond Portfolio Money Market Portfolio B. Scudder Variable Series II Scudder Aggressive Growth Portfolio Scudder Blue Chip Portfolio Scudder Fixed Income Portfolio Scudder Global Blue Chip Portfolio Scudder Government & Agency Securities Portfolio Scudder High Income Portfolio Scudder International Select Equity Portfolio Scudder Large Cap Value Portfolio Scudder Money Market Portfolio Scudder Small Cap Growth Portfolio Scudder Strategic Income Portfolio Scudder Technology Growth Portfolio Scudder Total Return Portfolio SVS Dreman Financial Services Portfolio SVS Dreman High Return Equity Portfolio SVS Dreman Small Cap Value Portfolio C. Scudder Investments VIT Funds Scudder VIT Equity 500 Index Fund Scudder VIT Small Cap Index Fund Scudder Real Estate Securities Portfolio SCHEDULE B 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, the Fund shall provide within twenty (20) business days of the close of the calendar quarter a report to GWL&A in the Form B1 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," the Fund will provide the reports on the following basis: (i) the last quarter's quarterly reports can be supplied within the 20-day period, and (ii) a year-end report will be provided 45 business days 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 will be provided 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 B1 CERTIFICATE OF COMPLIANCE For the quarter ended: --------------------------- I, , a duly authorized officer, director or agent of Fund hereby swear and affirm that Fund is in compliance with all requirements of Section 817(h) and Subchapter M of the Internal Revenue Code (the "Code") and the regulations thereunder as required in the Fund Participation Agreement among Great-West Life & Annuity Insurance Company, and other than the exceptions discussed below: Exceptions Remedial Action _________________________________ _______________________________ _________________________________ _______________________________ _________________________________ _______________________________ _________________________________ _______________________________ _________________________________ _______________________________ _________________________________ _______________________________ _________________________________ _______________________________ _________________________________ _______________________________ _________________________________ _______________________________ If no exception to report, please indicate "None." Signed this day of , . ---- ------- ------- _____________________________________ (Signature) By:__________________________________ (Type or Print Name and Title/Position) SCHEDULE C EXPENSES The Fund and/or the Distributor and/or Adviser, and GWL&A will coordinate the functions and pay the costs of completing these functions based upon an allocation of costs in the tables below. Costs shall be allocated to reflect the Fund's share of the total costs determined according to the number of pages of the Fund's respective portions of the documents.
- ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible Party for Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Mutual Fund Prospectus Printing of GWL&A Fund, prospectuses Distributor or Adviser, as applicable - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Fund, Distributor or GWL&A Fund, 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 - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Distribution to GWL&A Fund, Contract Owners in Distributor, or connection with Adviser, as initial rollout of applicable Fund in connection with the Contracts - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Contract Prospectus Printing for Inforce GWL&A GWL&A Contract Owners - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Printing for GWL&A GWL&A Prospective Contract Owners - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Distribution to New GWL&A GWL&A and Inforce Contract Owners - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Distribution to GWL&A GWL&A Prospective Contract Owners - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Mutual Fund Prospectus If Required by Fund, Fund, Distributor or Fund, Update & Distribution Distributor or Adviser Distributor or Adviser Adviser - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ If Required by GWL&A GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Contract Prospectus If Required by Fund, GWL&A Fund, Update & Distribution Distributor or Distributor or Adviser Adviser - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible Party for Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ If Required by GWL&A GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ Mutual Fund SAI Printing Fund, Distributor or Fund, Adviser Distributor or Adviser - ------------------------- ---------------------- ---------------------- ------------------ Distribution GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ Product SAI Printing GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ Distribution GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ - ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible Party for Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ Proxy Material for Printing if proxy Fund, Distributor or Fund, Mutual Fund: required by Law Adviser Distributor or Adviser - ------------------------- ---------------------- ---------------------- ------------------ Distribution GWL&A Fund, (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 combined GWL&A Fund, Semi-Annual Report reports Distributor or Adviser - ------------------------- ---------------------- ---------------------- ------------------ Distribution GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ Other communication to If Required by the GWL&A Fund, New and Prospective Fund, Distributor or Distributor or clients Adviser Adviser - ------------------------- ---------------------- ---------------------- ------------------ If Required by GWL&A GWL&A GWL&A - ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible for Party Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ Other communication to Distribution GWL&A Fund, Inforce (including labor and Distributor or printing) if Adviser required by the Fund, Distributor or Adviser - ------------------------- ---------------------- ---------------------- ------------------ Distribution GWL&A GWL&A (including labor and printing)if required by GWL&A ========================= ====================== ====================== ================== - ------------------------- ---------------------- ---------------------- ------------------ Item Function Party Responsible Party for Coordination Responsible for Expense - ------------------------- ---------------------- ---------------------- ------------------ Errors in Share Price Cost of error to GWL&A Fund or Adviser calculation pursuant to Contract Section 1.8 Owners/participants - ------------------------- ---------------------- ---------------------- ------------------ Cost of GWL&A Fund or Adviser administrative work to correct error - ------------------------- ---------------------- ---------------------- ------------------ Operations of the Fund All operations and Fund, Distributor or Fund or Adviser related expenses, Adviser including the cost of registration and qualification of shares, taxes on the issuance or transfer of shares, cost of management of the business affairs of the Fund, and expenses paid or assumed by the fund pursuant to any Rule 12b-1 plan - ------------------------- ---------------------- ---------------------- ------------------ Operations of the Federal registration GWL&A GWL&A Account of units of separate account (24f-2 fees) - ------------------------- ---------------------- ---------------------- ------------------
SCHEDULE D ADMINISTRATIVE SERVICES A. GWL&A, or an affiliate, will provide the properly registered and licensed personnel and systems needed for all customer servicing and support - for both Designated Portfolio and life insurance information and questions - including: responding to Contract Owner inquiries; delivery of prospectus - Designated Portfolio(s); entry of initial and subsequent orders; transfer of cash to GWL&A and/or Designated Portfolio(s); explanations of Designated Portfolio objectives and characteristics; entry of transfers between funds; Designated Portfolio balance and allocation inquiries; mail Designated Portfolio prospectus. B. GWL&A, or an affiliate, will communicate all purchase, withdrawal, and exchange orders it receives from its customers to each Designated Portfolio. ADMINISTRATIVE SERVICE FEE For the services, GWL&A or its affiliate shall receive from the Adviser a fee of 0.25 of 1% per annum of the average aggregate daily net asset value of shares of the Designated Portfolio(s) held in the Account payable by the Adviser directly to GWL&A or its affiliate. Such fee shall be paid in arrears quarterly. Each quarter's fee shall be determined based on assets in the Account during the quarter and each quarterly fee will be independent of every other quarterly fee. Such fee shall be due and payable automatically within 30 (thirty) days after the last day of the quarter to which such payment relates. In the event such fee is not paid by such time, interest, in addition to the amount due, at the rate of six (6)% annually (or 1/2 of one (1) percent per month outstanding pro rated for any applicable period if less than one year) shall be payable and owed until payment is made. The Adviser will calculate the asset balance for each day on which the fee is to be paid pursuant to this Agreement with respect to each applicable portfolio of the Fund. GWL&A shall have the right to reasonably audit the preparation of such calculation. The administrative service fee described herein shall remain payable and due so long as there remain any assets held in the account invested in the Fund, regardless of any termination of the Agreement, but in the case of a termination, only for the period of one (1) year after such termination. The Adviser may modify the rate of the administrative service fee only with 120 days' written notice to GWL&A prior to the end of any calendar year, with any such revised rate becoming effective as of the 1st of January following any such calendar year. SCHEDULE E MARKET TIMING AND EXCESSIVE TRADING PROCEDURES GWL&A has adopted the following procedures to handle Contract Owners identified by fund companies as market timers or excessive traders. 1. Upon request of a fund company that suspects a Contract Owner is market timing or trading excessively ("abusive trading") in its fund, GWL&A will provide a report of the suspected abusive trading to the fund company and request its determination as to whether such activity constitutes abusive trading according to that fund company's definition of such. 2. If the fund company determines that such activity does constitute abusive trading, we will contact the Contract Owners involved. The Contract Owner will be contacted in writing requesting that he/she stop such abusive trading. 3. We will then provide a report of the Contract Owner's trading activity in that fund to the fund company. 4. Should the fund company determine that the Contract Owner has continued abusive trading, and if the fund involved requests us to do so, GWL&A will implement one of the four trading restrictions identified below. The four possible trading restrictions are: (1) restrict the Contract Owner to inquiry-only access for the web and voice response unit so that the Contract Owner will only be allowed to trade by written request mailed to GWL&A through U.S. mail; the Contract Owner will not be permitted to trade via the web, voice response unit, call center, fax or overnight mail. A restricted Contract Owner may petition GWL&A to lift the restriction by signing, dating and returning an acknowledgement form to GWL&A once the restriction has been in place for six (6) months; (2) close the fund(s) to all new monies, including contributions and transfers in, of the Contract Owner; (3) restrict the Contract Owner to one purchase in the applicable fund(s) per ninety (90) day period; or (4) remove the fund(s) as an investment option for and convert all allocations in that fund(s) to a different investment option. EX-23 8 jordanburtlegalconsent.txt 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 26, 2005 Great-West Life & Annuity Insurance Company 8515 East Orchard Road Greenwood Village, Colorado 80111 Re: COLI VUL-2 Series Account Post-Effective Amendment No. 12 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-99 9 actuaryopinion.txt ACTUARY OPINION April 29, 2005 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. 12 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. 12 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 EX-23 10 independentauditorconsent.txt CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the use in this Post-Effective Amendment No. 12 to Registration Statement Nos. 333-70963 and 811-09201 of COLI VUL-2 Series Account of Great-West Life & Annuity Insurance Company on Form N-6 of our report dated March 11, 2005 on the financial statements of COLI VUL-2 Series Account and our report dated February 25, 2005 on the consolidated financial statements of Great-West Life & Annuity Insurance Company and to the reference to us under the heading "Independent Registered Public Accounting Firm" in the Statement of Additional Information, which is part of such Registration Statement. /s/ Deloitte & Touche, LLP Deloitte & Touche, LLP Denver, Colorado April 27, 2005 -----END PRIVACY-ENHANCED MESSAGE-----