10-K 1 firstgwlaform10k.txt FIRSTGWLAFORM10K d UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 ---------------------------------------- OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transaction period from to ----------------- ----------------- Commission file number 333-25269 ----------------- FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) -------------------------------------------------------------------------------- New York 93-1225432 --------------------------------------------- ------------------------------- (State or other jurisdiction of incorporation (I.R.S. Employer Identification or organization) Number) 125 Wolf Road, Albany, New York 12205 ----------------------------------------------------------- (Address of principal executive offices) (Zip Code) [518]-437-1816 ----------------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------------- -------------- Indicate by check mark whether the registrant is an accelerated filer as defined in ss.240.12(b)-2 of this chapter. Yes No X -------------- -------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The public may read and copy any of the registrant's reports filed with the SEC at the SEC's Public Reference Room, 450 Fifth Street NW, Washington DC 20549, telephone 1-800-SEC-0330 or online at (http://www.sec.gov). As of June 30, 2002, the aggregate market value of the registrant's voting stock held by non-affiliates of the registrant was $0. As of March 1, 2003, 7,032,000 shares of the registrant's common stock were outstanding, all of which were owned by the registrant's parent company. NOTE: This Form 10-K is filed by the registrant only as a consequence of the sale by the registrant of a market value adjusted annuity product. 17 TABLE OF CONTENTS Part I Item 1. Business................................................ A. Organization and Corporate Structure............... B. Business of the Company............................ C. Employee Benefits.................................. D. Financial Services................................. E. Investment Operations.............................. F. Regulation......................................... G. Ratings............................................ H. Miscellaneous...................................... Item 2. Properties.............................................. Item 3. Legal Proceedings....................................... Item 4. Submission of Matters to a Vote of Security Holders..... Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................................... A. Equity Security Holders and Market Information....... B. Dividends............................................ Item 6. Selected Financial Data................................. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................... A. Company Results of Operations........................ B. Employee Benefits Results of Operations.............. C. Financial Services Results of Operations............. D. Investment Operations................................ E. Liquidity and Capital Resources...................... F. Accounting Pronouncements............................ Item 7A. Quantitative and Qualitative Disclosure About Market Risk............................................. Item 8. Financial Statements and Supplementary Data............. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................. Part III Item 10. Directors and Executive Officers of the Registrant...... A. Identification of Directors.......................... B. Identification of Executive Officers................. Item 11. Executive Compensation.................................. A. Compensation of Executive Officers................... B. Compensation of Directors............................ Item 12. Security Ownership of Certain Beneficial Owners and Management.............................................. A. Security Ownership of Certain Beneficial Owners...... B. Security Ownership of Management..................... Item 13. Certain Relationships and Related Transactions.......... Item 14. Controls and Procedures................................. Part IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................. A. Index to Financial Statements........................ B. Index to Exhibits.................................... C. Reports on Form 8-K.................................. Signatures.............................................. PART I ITEM 1. BUSINESS A. ORGANIZATION AND CORPORATE STRUCTURE First Great-West Life & Annuity Insurance Company (the Company) is a stock life insurance company originally organized under the laws of the state of New York in 1996. The Company is a wholly-owned subsidiary of Great-West Life & Annuity Insurance Company (GWL&A), a life insurance company domiciled in Colorado. GWL&A is a wholly-owned subsidiary of GWL&A Financial Inc. (GWL&A Financial), a Delaware holding company. GWL&A Financial is an indirect wholly-owned subsidiary of Great-West Lifeco Inc. (Lifeco), a Canadian holding company. Great-West Lifeco operates in the U.S. through GWL&A, and in Canada through its wholly owned subsidiary, The Great-West Life Assurance Company (Great-West Life). Lifeco is a subsidiary of Power Financial Corporation (Power Financial), a Canadian holding company with substantial interests in the financial services industry. Power Financial Corporation is a subsidiary of Power Corporation of Canada (Power Corporation), a Canadian holding and management company. Mr. Paul Desmarais, through a group of private holding companies that he controls, has voting control of Power Corporation. Shares of Great-West Lifeco, Power Financial, and Power Corporation are traded publicly in Canada. B. BUSINESS OF THE COMPANY The Company is authorized to engage in the sale of life insurance, annuities, and accident and health insurance. The Company became licensed to do business in New York and Iowa in 1997. The Company operates the following two business segments: Employee Benefits - life and health products for group clients Financial Services - savings products for public and non-profit employers, corporations and individuals, and life insurance products for individuals and businesses. On February 17, 2003, Great-West Lifeco announced a definitive agreement to acquire Canada Life Financial Corporation for $7.3 billion (Canadian). Canada Life is a Canadian based insurance company with business principally in Canada, the United Kingdom, the United States and Ireland. In the United States, Canada Life sells individual and group insurance and annuity products. Subject to required shareholder and regulatory approvals, the transaction is expected to close on July 10, 2003. Canada Life's U.S. operations represented approximately $1.6 billion in annual revenue in 2002 and $7.4 billion in assets as of December 31, 2002. If the transaction proceeds, Canada Life's U.S. operations will be integrated with GWL&A's operations. The details of the integration are still to be determined. The table that follows summarizes premiums and deposits for the years indicated. For further consolidated financial information concerning the Company, see Item 6 (Selected Financial Data), and Item 8 (Financial Statements and Supplementary Data). For commentary on the information in the following table, see Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations).

[Thousands] (1) 2002 2001 2000 ~~1999~~ ------------------------------------- ------------- ------------- ------------- Premium Income Employee Benefits Group life & health $ 159,~~055~~366 $ 1315,~~467~~054 $ 913,~~195~~467 ------------- ------------- ------------- Total Employee Benefits 9,366 15,~~055~~054 13,467 ~~9,195~~ ------------- ------------- ------------- Financial Services Savings (92) (118) (811) Individual insurance 650 84 109 ~~(43)~~ ------------- ------------- ------------- Total Financial Services 75648 76 98 ~~(51)~~ ------------- ------------- ------------- Premium income $ 10,014 $ 15,130 $ 13,565 ~~$ 9,144~~ ============= ============= ============= Fee Income Employee Benefits Group life & health $ 53,~~196~~630 $ 65,~~213~~196 $ ~~430 401(k)~~ 6,214 2 ------------- ------------- ------------- Total Employee Benefits 3,630 5,~~202~~196 6,~~215~~214 ~~430~~ ------------- ------------- ------------- Financial Services Savings 337 373 362 ~~262~~ Individual insurance 401(k) 6 6 1 ------------- ------------- ------------- Total Financial Services ~~373~~343 ~~362~~379 ~~262~~363 ------------- ------------- ------------- Fee income $ 3,973 $ 5,575 $ 6,577 ~~$ 692~~ ============= ============= ============= Deposits for investment-type contracts (2) Financial Services $ 3,890 $ 10,173 $ 37,344 ~~$ 20,000~~ ------------- ------------- ------------- Total investment-type deposits $ 3,890 $ 10,173 $ 37,344 ~~$ 20,000~~ ============= ============= ============= Deposits to Separate Accounts Employee Benefits $ 2,485 $ 708 $ 3,249 $ Financial Services 6,396 7,185 11,189 ~~9,389~~ ------------- ------------- ------------- Total separate accounts deposits $ 8,881 $ 7,893 $ 14,438 ~~$ 9,389~~ ============= ============= ============= Self-funded equivalents - Employee Benefits (3) $ 19,892 $ 38,410 $ 16,225 $ ============= ============= =============

(1)All information in the following table and other tables herein is derived from information that has been prepared in conformity with accounting principles generally accepted in the United States of America, unless otherwise indicated. (2)Investment-type contracts are contracts that include significant cash build-up features, as discussed in FASB Statement No. 97. (3)Self-funded equivalents generally represent paid claims under minimum premium and administrative services only contracts of which amounts approximate the additional premiums that would have been earned under such contracts if they had been written as traditional indemnity or HMO programs. C. EMPLOYEE BENEFITS 1. Principal Products The Employee Benefits segment of the Company provides a full range of employee benefits products. The Company began operating in this segment as of December 1, 1999 by entering into an assumption reinsurance agreement with Anthem Health & Life Insurance Company of New York (AH&L NY), to acquire a block of life and health insurance business. The business primarily consists of administrative services only, and stop loss policies. Annualized premium equivalents declined to $21.2 million in 2002 resulting from terminations during the year. In 2003, the Company will continue to focus on writing new employee benefits business. The Company offers customers a variety of health plan options to help them maximize the value of their employee benefits package. The majority of the Company's health care business is self-funded, whereby the employer assumes all or a significant portion of the risk. For companies with better than average claims experience, this can result in significant health care savings. The Company offers employers a strategic benefits solution - an integrated package of group life and disability insurance, managed-care programs, and flexible spending accounts. Through integrated pricing, administration, funding, and service, the Company helps employers provide cost-effective benefits that will attract and retain quality employees, and at the same time, helps employees reach their personal goals by offering benefit choices, along with information needed to make appropriate choices. Many customers also find this integrated approach appealing because their benefit plans are administered through a single company with linked systems that provide on line administration and account access, for enhanced efficiency and simplified plan administration. The Company offers a choice of managed care products including Preferred Provider Organization (PPO) plans and Point of Service (POS) plans. PPO plans offer members a greater choice of physicians and hospitals. Members do not need to enroll with a primary care physician - they simply select a contracted PPO provider at the time of the service to receive the highest level of benefits. If members seek care outside of the PPO network, they receive a lower level of benefits. POS plans require that a member enroll with a primary care physician who is responsible for coordinating the member's health care. Members receive the highest benefit coverage and the lowest out-of-pocket costs when they use their primary care physician to coordinate their health care. Members can seek care outside of the primary care physician's direction, at a reduced level of benefits. Some benefits may not be covered outside the POS plan in- network. The Company offers Internal Revenue Code Section 125 and 129 plans that enable participants to set aside pre-tax dollars to pay for non-reimbursed medical expenses and dependent care expenses. This creates tax efficiencies for both the employer and its employees. The Company offers group life insurance. Sales of group life insurance consist principally of renewable term coverage, the amounts of which are usually linked to individual employee wage levels. Group life insurance in force prior to reinsurance ceded to other insurance enterprises for the year ended December 31, 2002 totaled $418 million, up from $394 million in 2001. The Company offers group disability insurance that is a type of health insurance designed to compensate insured people for a portion of the income they lose because of a disabling injury or illness. Generally, benefits are in the form of monthly payments. 2. Method of Distribution The Company distributes its products and services through affiliated sales staff located in two sales offices. Each sales office works with insurance brokers, agents, and consultants in its local market. 3. Competition The employee benefits industry is highly competitive. The United States health care industry continues to experience mergers and consolidations. A number of larger carriers have dropped out of the group health market entirely. Although there are still many different carriers in the marketplace, it has become dominated by an increasingly smaller number of carriers. The highly competitive marketplace creates pricing pressures that encourage employers to seek competitive bids each year. Although most employers are looking for affordably priced employee benefits products, they also want to offer product choices because employee needs differ. In many cases it is more cost-effective and efficient for an employer to contract with a carrier such as the Company that offers multiple product lines and centralized administration. In addition to price, there are a number of other factors that influence employer decision-making. These factors include: quality of services; scope, cost-effectiveness and quality of provider networks; product responsiveness to customers' needs; cost-containment services; and effectiveness of marketing and sales. 4. Reserves For group term insurance products, policy reserve liabilities are equal to the present value of future benefits and expenses less the present value of future net premiums using best estimate assumptions for interest, mortality, and expenses (including margins for adverse deviation). For disability waiver of premium contracts, the policy reserves equal the present value of future benefits and expenses using best estimate assumptions for interest, mortality, and morbidity expenses (including margins for adverse deviation). Reserves for long-term disability products are established for lives currently in payment status, or that are approved for payment but are in a waiting period, using industry and Company morbidity factors, and interest rates based on Company experience. In addition, reserves are held for claims that have been incurred but not reported and for long term disability claims that have been reported but not yet adjudicated. For medical and dental insurance products, reserves reflect the ultimate cost of claims including, on an estimated basis, (i) claims that have been reported but not settled, and (ii) claims that have been incurred but not reported. Claim reserves are based upon factors derived from past experience. Reserves also reflect retrospective experience rating that is done on certain types of business. Assumptions for mortality and morbidity experience are periodically reviewed against published industry data and company experience. The above mentioned reserves are computed amounts that, with additions from premiums and deposits to be received, and with interest on such reserves, are expected to be sufficient to meet the Company's policy obligations, pay expected death surrender requests, and to generate profits. 5. Reinsurance The Company seeks to limit its exposure 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 maximum amount of group life insurance retained on any one life is $250 thousand. D. FINANCIAL SERVICES 1. Principal Products The Financial Services segment of the Company develops, administers, and sells retirement savings and life insurance products and services for individuals, for employees of public and non-profit employers and for employees of corporations. The Company's primary marketing emphasis in the public/non-profit pension market is group fixed and variable annuity contracts for defined contribution retirement savings plans. Defined contribution plans provide for benefits based upon the value of contributions to, and investments returns on, the individual's account. The Company ceased selling its individual fixed annuity product on March 1, 2003. The product is a Guarantee Period Fund that was established as a non-unitized Separate Account in which the owner does not participate in the performance of the assets. The assets accrue solely to the benefit of the Company and any gain or loss in the Guarantee Period Fund is borne entirely by the Company. Guaranteed period durations of one to ten years were offered by the Company. Distributions from the amounts allocated to a Guarantee Period Fund more than six months prior to the maturity date result in a market value adjustment (MVA). The MVA reflects the relationship as of the time of its calculation between the current U.S. Treasury Strip ask side yield and the U.S. Treasury Strip ask side yield at the inception of the contract. The Company's 401(k) product is offered by way of a group fixed and variable deferred annuity contract. The product provides a variety of funding and distribution options for employer-approved retirement plans that qualify under Internal Revenue Code Section 401(k). Investment options for employers and corporations include guaranteed interest rates for various lengths of time and variable investment options. For the fully guaranteed option, the difference between the income earned on investments in the Company's general account and the interest credited to the participant's account balance flows through to operating income. Variable investment options utilize separate accounts to provide participants with a vehicle to assume the investment risks. Assets held under these options are invested, as designated by the participant, in separate accounts that in turn invest in shares of underlying funds managed by an affiliate of the Company or by selected external fund managers. The Company is compensated by the separate accounts for bearing expense risks pertaining to the variable annuity contract, and for providing administrative services. Customer retention is a key factor for the profitability on annuities. Annuity contracts impose a charge for termination during a designated period of time after the contracts' inception. The charge is determined in accordance with a formula in the contract. Existing federal tax penalties on distributions prior to age 59 1/2 provide an additional disincentive to premature surrenders of account balances, but do not impede rollovers to products of competitors. The amount of annuities in force is measured by account balances. At December 31, 2002, annuity account balances were $14.6 million for fixed annuities and $35.2 million for variable annuities. At December 31, 2001, annuity account balances were $6 million for fixed annuities and $45.6 million for variable annuities. During 1998, the Company began selling life insurance products in the Business-Owned Life Insurance (BOLI) market. These products are interest-sensitive whole life products that fund post-retirement benefits for employees. In 2002 the Company continued its efforts to partner with a large financial institution to deliver life insurance to the mass market. This strategy allows the Company to offer traditional life insurance products through an established institutional channel at a competitive price. 2. Method of Distribution The Company primarily uses BenefitsCorp, Inc., an affiliate, to distribute pension products and to provide communication and enrollment services to employers in the public/non-profit market. Pension products are also distributed through independent marketing agencies. The 401(k) product is sold by licensed and appointed representatives of the Company. The Company distributes its individual annuity products through Charles Schwab & Co., Inc. pursuant to a distribution agreement. The Company's BOLI product is currently marketed through one broker, Clark/Bardes, Inc. Institutional term life insurance is marketed through Citibank. 3. Competition The retirement savings life and annuity insurance marketplace is highly competitive. The Company's competitors include mutual fund companies, insurance companies, banks, investment advisors, and certain service and professional organizations. No one competitor or small number of competitors is dominant. Competition focuses on service, technology, cost, variety of investment options, investment performance, product features, price, and financial strength as indicated by ratings issued by nationally recognized agencies. For more information on the Company's ratings, see Item 1(G) (Ratings). 4. Reserves Reserves for universal life policies are equal to cumulative deposits, less withdrawals and charges, plus credited interest. For all life insurance contracts, reserves are established for claims that have been incurred but not reported based on factors derived from past experience. Reserves for investment contracts (deferred annuities and 401(k)) are equal to the participants' account balances. Reserves for immediate annuities without life contingent payouts are computed on the basis of assumed investment yield and expenses. Reserves for all fixed individual life insurance contracts are computed on the basis of assumed investment yield, mortality, morbidity, and expenses (including a margin for adverse deviation). These reserves are calculated as the present value of future benefits (including dividends) and expenses less the present value of future net premiums. The assumptions used in calculating the reserves generally vary by plan, year of issue, and policy duration. The mentioned reserves are computed amounts that, with additions from premiums and deposits to be received, and with interest on such reserves, are expected to be sufficient to meet the Company's policy obligations (such as paying expected death or retirement benefits or surrender requests) and to generate profits. 5. Reinsurance The Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding risks to other insurance enterprises under excess coverage and co-insurance contracts. The Company retains a maximum of $250 thousand of coverage per individual life. E. INVESTMENT OPERATIONS GWL&A manages the Company's general and separate accounts in support of cash and liquidity requirements of the Company's insurance and investment products. Invested assets under management at December 31, 2002, totaled $245 million, comprised of $209.7 million of general account assets and separate account assets of $35.3 million. Invested assets under management at December 31, 2001, totaled $228 million, comprised of $182.4 million of general account assets and separate account assets of $45.6 million. The Company's general account investments are in a broad range of asset classes and investments, such as government bonds, public and privately placed corporate bonds, mortgage-backed securities and asset-backed securities. The Company's investments are subject to New York insurance laws. GWL&A manages the characteristics of the Company's investment assets, such as liquidity, currency, yield, and duration, to reflect the underlying characteristics of related insurance and policyholder liabilities that vary among the Company's principal product lines. GWL&A observes strict asset and liability matching guidelines on behalf of the Company designed to ensure that the Company's investment portfolio will appropriately meet the cash flow and income requirements of the Company's liabilities. GWL&A routinely monitors and evaluates the status of the Company's investments in light of current economic conditions, trends in capital markets, and other factors. These other factors include investment size, quality, concentration by issuer and industry and other diversification considerations relevant to fixed maturity investments. The Company's long-term bond portfolio remained at 98% of investment assets as of December 31, 2002, compared to 98% in 2001. Credit risk for the portfolio as a whole is reduced by investing primarily in investment grade bonds. As of December 31, 2002 and 2001, 100% and 98%, respectively, of the bond portfolio carried an investment grade rating. The following table sets forth the distribution of invested assets, cash and accrued investment income for the Company's general account as of the end of the years indicated:

Carrying Value in Millions 2002 2001 2000 1999 1998 ~~1997~~ ----------------------- --------- ---------- ---------- ---------- ---------- U.S. Government Securities and Agencies $ 70 $ 48 $ 54 $ 22 $ 24 $Mortgage-backed 5securities ~~Collaterized~~9 ~~mortgage obligations~~ 10 10 19 20 ~~Corporate~~Bonds ~~bonds~~64 53 35 35 35 Asset -backed securities 63 67 52 35 --------- ---------- ---------- ---------- ---------- Total 206 178 151 111 79 5 Short-term investments 4 4 16 2 1 --------- ---------- ---------- ---------- ---------- Total investments $ 210 $ 182 $ 167 $ 113 $ 80 ~~$ 5~~ ========= ========== ========== ========== ========== Cash $ 12 $ 8 $ 8 $ 5 $ 1 $ Accrued investment income 2 2 1 1 1 Net Investment Earned Net Income Investment For the year: [Thousands] Income Rate -------------------- ------------- -------------- 2002 $ 12,844 6.83 % 2001 11,763 7.04 % 2000 10,333 6.99 % 1999 6,278 6.79 % 1998 3,367 6.35 %

F. REGULATION 1. Insurance Regulation The Company must comply with the insurance laws of New York and Iowa. These laws govern the admittance of assets, premium rating methodology, policy forms, reserve requirements and solvency standards, maximum interest rates on life insurance policy loans and minimum rates for accumulation of surrender values, and the type, amounts and valuation of investments permitted. The Company's operations and accounts are subject to examination by the New York Insurance Department at specified intervals. New York has adopted the National Association of Insurance Commissioners' (NAIC) risk-based capital rules and other financial ratios for life insurance companies. Based on the Company's December 31, 2002 statutory financial reports, the Company has risk-based capital well in excess of that required. In March 1998, the NAIC adopted the Codification of Statutory Accounting Principles (Codification). The Codification is intended to standardize accounting and reporting to state insurance departments effective January 1, 2001. However, statutory accounting principles will continue to be established by individual state laws and permitted practices. The New York Insurance Department required adoption of Codification with certain modifications for the preparation of statutory financial statements effective January 1, 2001. 2. Insurance Holding Company Regulations The Company is subject to and complies with insurance holding company regulations in New York. These regulations contain certain restrictions and reporting requirements for transactions between an insurer and its affiliates, including the payments of dividends. They also regulate changes in control of an insurance company. 3. Securities Laws The Company is subject to various levels of regulation under federal securities laws. GWL&A's broker-dealer subsidiaries are regulated by the Securities and Exchange Commission (SEC) and the National Association of Securities Dealers, Inc. GWL&A's investment advisor subsidiary and transfer agent subsidiary are regulated by the SEC. Certain of the Company's separate accounts, mutual funds, and variable insurance and annuity products are registered under the Investment Company Act of 1940 and the Securities Act of 1933. 4. Potential Legislation United States legislative developments in various areas including pension regulation, financial services regulation, and health care legislation could significantly and adversely affect the Company in the future. Congress continues to consider legislation relating to health care reform and managed care issues. Congress is also considering changes to various features of retirement plans such as the holding of company stock, diversification rights, imposition of transaction restrictions, expanded disclosure requirements and greater access to investment advice for participants. It is not possible to predict whether future legislation or regulation adversely affecting the business of the Company will be enacted and, if enacted, the extent to which such legislation or regulation will have an effect on the Company and its competitors. G. RATINGS The Company is rated by a number of nationally recognized rating agencies. The ratings represent the opinion of the rating agencies regarding the financial strength of the Company and its ability to meet ongoing obligations to policyholders. The ratings take into account an agreement whereby GWL&A has undertaken to provide the Company with certain financial support related to maintaining required statutory surplus and liquidity. In connection with the announcement by Great-West Lifeco regarding the acquisition of Canada Life, the Company's ratings are under review with negative implications. Upon completion of the acquisition of Canada Life by Great-West Lifeco, Standard & Poor's Corporation has indicated it is likely that the company's rating will be lowered one notch and a negative outlook maintained.

Rating Agency Measurement Current Rating ------------------------------ ------------------------------- ----------- ---~~----~~ A.M. Best Company, Inc. Financial strength, operating A++(1) performance and market profile Fitch, Inc. Financial strength ~~AAA~~AA+(2) Moody's Investors Service Financial strength Aa3(3) Standard & Poor's Corporation Financial strength AA(4)

(1) Superior (highest rating out of six categories) (2) Very Strong (second highest rating out of twelve categories) (3) Excellent (second highest rating out of nine categories) (4) Very Strong (second highest rating out of nine categories) H. MISCELLANEOUS The Company's BOLI business is comprised of a few customers that account for the majority of the total deposits. The BOLI contracts do not explicitly restrict surrenders, however, significant tax penalties will arise if money is withdrawn from the contracts. The contracts do limit the amount of money exchanged to new policies on a tax-free basis to 20% in any given year. The Company and GWL&A have administrative services agreements whereby GWL&A administers, distributes, and underwrites business for the Company and administers the Company's investment portfolio. ITEM 2. PROPERTIES The Company leases its home office in Albany, New York. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of 2002 to a vote of security holders. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS A. EQUITY SECURITY HOLDERS AND MARKET INFORMATION There is no established public trading market for the Company's common equity. B. DIVIDENDS The Company has not paid dividends on its common shares. Under New York law, the Company may distribute a dividend if the total of all dividends paid in any calendar year does not exceed the lesser of (i) 10% of surplus to policyholders as of the preceding December 31; or (ii) the net gain from operations for the preceding calendar year, not including realized capital gains. The Company cannot distribute any greater dividend amount unless a notice of its intention to declare such dividend and the amount thereof has been filed with the New York Superintendent of Insurance not less than thirty days in advance of such proposed declaration. The Superintendent may disapprove of such distribution by giving written notice to the Company within thirty days after such filing stating that he finds the financial condition of the Company does not warrant such distribution. ITEM 6. SELECTED FINANCIAL DATA The following is a summary of certain financial data of the Company. This summary has been derived in part from and should be read in conjunction with the consolidated financial statements of the Company included in Item 8 (Financial Statements and Supplementary Data). Note 2 to the financial statements discusses the significant accounting policies of the Company. Significant estimates are required to account for the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

~~For the period from [Dollars in Thousands] April 4, 1997 (inception) through~~ INCOME STATEMENT Years Ended December 31, ~~December 31,~~ ----------------------------------------------------------- DATA 2002 2001 2000 1999 1998 ~~1997~~ ------------------------ --------- --------- -------- -------- ------------ [Dollars in Thousands] Premium income $ 10,014 $ 15,130 $ 13,565 $ 9,144 $ (65) ~~$ 21~~ Fee income 3,973 5,575 6,577 692 143 Net investment income 12,844 11,763 10,333 6,278 3,367 ~~243~~ Net realized investment gains (losses) 363 642 67 (6) 74 --------- --------- -------- -------- ------------ Total revenues 27,194 33,110 30,542 16,108 3,519 ~~264~~ Total benefits and expenses 21,970 24,323 27,152 14,444 2,124 ~~213~~ Income tax expense 1,607 3,294 1,346 641 603 18 --------- --------- -------- -------- ------------ Net income $ 3,617 $ 5,493 $ 2,044 $ 1,023 $ 792 ~~$ 33~~ ========= ========= ======== ======== ============ Deposits for investment- type contracts $ 3,890 $ 10,173 $ 37,344 $ 20,000 $ 62,528 $ Deposits to separate accounts $ 8,881 $ 7,893 $ 14,438 $ 9,389 $ 12,776 $ Self-funded premium equivalents $ 19,892 $ 38,410 $ 16,225 $ $ $ BALANCE SHEET Years Ended December 31, ---------------------------------------------------------- DATA 2002 2001 2000 1999 1998 ~~1997~~ ------------------------- --------- --------- --------- --------- --------- [Dollars in Thousands] Investment assets $ 209,707 $ 182,445 $ 166,538 $ 112,799 $ 80,353 ~~$ 5,381~~ Separate account assets 35,250 45,576 47,359 39,881 23,836 ~~9,045 45,576~~ Total assets ~~248~~266,~~728~~324 249,114 247,806 171,710 107,095 ~~16,154~~ Total policy benefit liabilities 175,427 156,850 144,270 98,421 64,445 84 Total shareholder's equity 47,770 41,212 36,074 30,614 16,642 ~~6,538 41,212~~

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Form 10-K contains forward-looking statements. Forward-looking statements are statements not based on historical information and that relate to future operations, strategies, financial results, or other developments. In particular, statements using verbs such as "expected", "anticipate", "believe", or words of similar import generally involve forward-looking statements. Without limiting the foregoing, forward-looking statements include statements that represent the Company's beliefs concerning future or projected levels of sales of the Company's products, investment spreads or yields, or the earnings or profitability of the Company's activities. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments, some of which may be national in scope, such as general economic conditions and interest rates, some of which may be related to the insurance industry generally, such as pricing competition, regulatory developments and industry consolidation, and others of which may relate to the Company specifically, such as credit, volatility, and other risks associated with the Company's investment portfolio and other factors. Readers are also directed to consider other matters, including any risks and uncertainties, discussed in documents filed by the Company with the Securities and Exchange Commission. Management's discussion and analysis of financial conditions and results of operations of the Company for the three years ended December 31, 2002 follows. This management discussion and analysis should be read in conjunction with the financial data contained in Item 6 and the Company's consolidated Financial Statements. A. COMPANY RESULTS OF OPERATIONS 1. Consolidated Results The Company's consolidated net income of $3.6 million decreased $1.9 million or 34.2% in 2002 when compared to 2001. The Employee Benefits segment contributed $3.2 million to the consolidated results, and the Financial Services segment contributed $404 thousand. Of total consolidated net income for 2002, 2001, and 2000, the Employee Benefits segment contributed 89%, 82%, and 67%, respectively, while the Financial Services segment contributed 11%, 18%, and 33%, respectively. The Employee Benefits segment began operations in 1999 by entering into an assumption reinsurance agreement on December 1, 1999 with AH&L NY to acquire a block of life and health insurance business. The subsequent operations resulting from this agreement combined with new case sales within other blocks of business resulted in net income of $3.2 million, $4.5 million, and $1.4 million being recorded in 2002, 2001, and 2000, respectively. The Financial Services net income decreased $598 thousand in 2002 primarily due to a reduction in realized gains on fixed maturities. The Financial Services net income increased in 2001 from 2000 due to realized gains on fixed maturities in 2001 of $679 thousand compared to realized gains in 2000 of $67 thousand. In 2002 total Company revenues decreased $5.9 million or 18% to $27.2 million when compared to 2001. The decline in revenues in 2002 was comprised of decreased premium and fee income of $6.7 million, decreased realized gain on investments of $279 thousand, partially offset by increased net investment income of $1.1 million. The decreased premium and fee income in 2002 was comprised of a decline in Employee Benefits of $7.3 million partially offset by an increase of $536 thousand in Financial Services premium and fee income. The premium and fee income increase in 2001 was comprised of growth in Employee Benefits premium and fee income of $569 thousand. Net investment income grew to $12.8 million and $11.8 million in 2002 and 2001, respectively, from $10.3 million in 2000, primarily as a result of growth in policyholder reserves on BOLI business and increased shareholder's equity. Total benefits and expenses decreased $2.4 million or 9.7% in 2002 when compared to 2001. The Employee Benefits segment contributed $4 million of the decrease in 2002 while the Financial Services segment contributed an increase of $1.6 million. The decrease in total benefits and expenses in the Employee Benefits segment in 2002 resulted primarily from loss of membership due to higher terminations and reduced operating expenses. The increase in Financial Services related to additional interest credits on BOLI account balances and increased operating expenses associated with growth in the Company's business. Total benefits and expenses decreased $2.8 million in 2001 when compared to 2000. This decrease was primarily due to a decrease in the Employee Benefits segment. Income tax expense decreased $1.7 million or 51% in 2002 when compared to 2001. Income tax expense increased $1.9 million in 2001 when compared to 2000. The changes in income tax expense reflect the impact of the fluctuations in pre-tax earnings. In evaluating its results of operations, the Company also considers net changes in deposits received for investment-type contracts, deposits to separate accounts, and self-funded equivalents. Self-funded equivalents generally represent paid claims under minimum premium and administrative services only contracts that amounts approximate the additional premiums which would have been earned under such contracts if they had been written as traditional indemnity programs. Deposits for investment-type contracts decreased $6.3 million or 62% and decreased $27 million or 73% in 2002 and 2001, respectively, due to BOLI deposits. BOLI sales are single premium and individually large in nature, and therefore, can vary significantly from year to year. Deposits for separate accounts increased $988 thousand in 2002 when compared to 2001 and decreased $6.5 million in 2001 compared to 2000. These fluctuations are expected in the small market in which the Company operates. Self-funded premium equivalents decreased $18.5 million or 48% in 2002 when compared to 2001 primarily due to membership decline in the Employee Benefits segment. Total assets and liabilities increased $17 million or 7% and $1 million or 1% in 2002 and 2001, respectively. The increase in 2002 is primarily attributable to interest credited to existing Financial Services reserves and the related invested assets. 2. Other Matters On February 17, 2003, Great-West Lifeco announced a definitive agreement to acquire Canada Life Financial Corporation for $7.3 billion (Canadian). Canada Life is a Canadian based insurance company with business principally in Canada, the United Kingdom, the United States and Ireland. In the United States, Canada Life sells individual and group insurance and annuity products. Subject to required shareholder and regulatory approvals, the transaction is expected to close on July 10, 2003. Canada Life's U.S. operations represented approximately $1.6 billion in annual revenue in 2002 and $7.4 billion in assets as of December 31, 2002. If the transaction proceeds, Canada Life's U.S. operations will be integrated with GWL&A's operations. The details of the integration are still to be determined. On October 6, 1999, GWL&A entered into a purchase and sales agreement (the Agreement) with Allmerica Financial Corporation (Allmerica) to acquire, via assumption reinsurance, Allmerica's group life and health business on March 1, 2000. The policies resident in the state of New York have been assigned to the Company as part of the Agreement. This business primarily consists of administrative services only, and stop loss policies. The in-force business was immediately co-insured back to Allmerica and then underwritten and retained by the Company upon each policy renewal date. The purchase price, as defined in the Agreement, was based on a percentage of the amount in force at March 1, 2000, contingent on the persistency of the block of business through March 2001. B. EMPLOYEE BENEFITS RESULTS OF OPERATIONS

The results below reflect the Employee Benefits segment for the following periods: Years Ended December 31, ----------------------------------------------- INCOME STATEMENT DATA 2002 2001 2000 ~~1999~~ ------------------------------------- ------------- ------------- ------------- [thousands] Premium income $ 159,~~055~~366 $ 1315,~~467~~054 $ 913,~~195~~467 Fee income 3,630 5,~~202~~196 6,~~215~~214 ~~430~~ Net investment income 1,992 1,479 1,111 Net realized investment 234 (~~losses~~37) gains(37losses) ------------- ------------- ------------- Total revenues 15,222 21,~~699~~692 20,~~793~~792 ~~9,625~~ Policyholder benefits 6,537 9,~~473~~472 14,431 ~~8,378~~ Operating expenses 4,022 5,~~085~~059 4,~~087~~081 ~~506~~ ------------- ------------- ------------- Total benefits and expenses 10,559 14,~~558~~531 18,~~518~~512 ~~8,884~~ ------------- ------------- ------------- Income from operations 4,663 7,~~141~~161 2,~~275~~280 ~~741~~ Income tax expense 1,450 2,~~662~~670 ~~908~~910 ~~295~~ ------------- ------------- ------------- Net income $ 43,~~479~~213 $ 14,~~367~~491 $ ~~446~~1,370 ============= ============= ============= ~~Deposits~~Self-funded topremium ~~separate~~equivalents ~~accounts~~ $ ~~708 $ 3~~19,~~249~~892 $ ~~Self-funded premium equivalents~~ 38,410 $ 16,225

During 2002, the Employee Benefits segment had an overall decrease in its net income. The decrease was due primarily to a reduction in business volume, resulting in net income of $3.2 million in 2002, compared with $4.5 million in 2001. Equivalent premium revenue and fee income for group life and health decreased 44% from 2001 levels as the result of continued membership decline. This reduction was partially offset by increased pricing. Policyholder benefits decreased $2.9 million or 31% in 2002 when compared to 2001, reflecting lower group life and health claims primarily as a result of the decline in membership. Expenses decreased $1 million or 20% in 2002 when compared to 2001, due to a reduction in business volume primarily as a result of the decline in membership. In order to remain competitive, a focused effort on provider contracting is essential to ensure strong morbidity results. Sales efforts will be streamlined and concentrated on self-funded products. Business development strategies will emphasize greater penetration in the New York market. Continued emphasis will be placed on expense economies and synergies to ensure competitive administrative costs. Efficiency will be improved through implementation of various system initiatives and through process redesign. Online billing was implemented in 2002 for our small to mid size life and health customers. As a further enhancement to our Internet services, online billing for our large customers is scheduled for implementation in 2003. This initiative will continue to provide our customers with improved service, as well as generate cost savings to the Company. C. FINANCIAL SERVICES RESULTS OF OPERATIONS

The results below reflect the Financial Services segment for the following periods: Years Ended December 31, ----------------------------------------------- INCOME STATEMENT DATA 2002 2001 2000 ~~1999~~ ------------------------------------- ------------- ------------- ------------- [thousands] Premium income $ 75648 $ 9876 $ ~~(51)~~98 Fee income ~~373~~343 ~~362~~379 ~~262~~363 Net investment income 10,852 10,284 9,222 ~~6,278~~ Net realized investment gains 129 679 67 ~~(6) (losses)~~ ------------- ------------- ------------- Total revenues 11,~~411~~972 911,~~749~~418 69,~~483~~750 Policyholder benefits 9,044 8,~~226~~227 7,261 ~~4,600~~ Operating expenses 2,367 1,~~539~~565 1,~~373~~379 ~~960~~ ------------- ------------- ------------- Total benefits and expenses 11,411 9,~~765~~792 8,~~634~~640 ~~5,560~~ ------------- ------------- ------------- Income from operations 561 1,~~646~~626 1,~~115~~110 ~~923~~ Income tax expense ~~632~~157 ~~438~~624 ~~346~~436 ------------- ------------- ------------- Net income $ ~~1,014~~404 $ ~~677~~1,002 $ ~~577~~674 ============= ============= ============= Deposits for investment-type contracts $ 3,890 $ 10,173 $ 37,344 ~~$ 20,000~~ Deposits to separate accounts 78,~~185~~881 117,~~189~~893 914,~~389~~438

During 2002, the Financial Services segment had a significant decrease in its net income attributable to a reduction in realized gains on fixed maturities. The higher realized gains in 2001 were a contributing factor to the significant increase in net income in 2001 to $1 million from $674 thousand in 2000. Deposits for investment-type contracts decreased $6.3 million or 62% and decreased $27 million or 73% in 2002 and 2001, respectively. In both years the decreases were a result of reductions in BOLI sales. BOLI premiums and deposits were $0 in 2002 compared to $5 million in 2001 and $35 million in 2000 The reduction in BOLI premiums and deposits was impacted by lower U.S. equity markets, lower fixed interest rates and recent negative publicity regarding this type of insurance product. Deposits for separate accounts increased $988 thousand in 2002 when compared to 2001 and decreased $6.5 million in 2001 compared to 2000. These fluctuations are expected in the small market in which the Company operates. Fee income decreased $36 thousand in 2002 compared to an increase of $16 thousand in 2001. The fluctuations in fee income were a result of the changes in asset values in the separate accounts over the three-year period due to U.S. equity markets and sales activity. Net investment income increased $568 thousand in 2002 compared to 2001 and $1.1 million in 2001 compared to 2000. The increase is the result of interest income associated with BOLI business. Total benefits and expenses increased $1.6 million in 2002 compared to an increase of $1.2 million in 2001, primarily due to additional interest credits on BOLI balances and increased operating expenses. D. INVESTMENT OPERATIONS The Company's primary investment objective is to acquire assets with duration and cash flow characteristics reflective of the Company's liabilities, while meeting industry, size, issuer, and geographic diversification standards. Formal liquidity and credit quality parameters have also been established. In managing the Company's assets, GWL&A follows rigorous procedures to control interest rate risk and observes strict asset and liability matching guidelines. These guidelines are designed to ensure that, even under changing market conditions, the Company's assets will always be able to meet the cash flow and income requirements of its liabilities. Using dynamic modeling to analyze the effects of a range of possible market changes upon investments and policyholder benefits, GWL&A ensures that the Company's investment portfolio is appropriately structured to fulfill financial obligations to the Company's policyholders.

A summary of the Company's general account invested assets follows: [Dollars in Thousands] 2002 2001 ~~2000~~ ----------------------------------------------------- -------------- ------------- Fixed maturities, available-for-sale, at fair value $ ~~178~~205,~~591~~681 $ ~~150~~178,~~631~~591 Short-term investments 4,026 3,854 ~~15,907~~ -------------- ------------- Total invested assets $ ~~182~~209,~~445~~707 $ ~~166~~182,~~538~~445 ============== =============

During 2000, the Company transferred all securities classified as held-to-maturity into the available-for-sale category. The Company recorded a $645 thousand unrealized gain associated with this transfer in other comprehensive income, net of tax. Fixed maturity investments include public and privately placed corporate bonds, government bonds and mortgage-backed and asset-backed securities. Private placement investments that are primarily in the held-to-maturity category are generally less marketable than publicly traded assets, yet they typically offer enhanced covenant protection that allows the Company, if necessary, to take appropriate action to protect its investment. The Company believes that the cost of the additional monitoring and analysis required by private placements is more than offset by their enhanced yield. One of the Company's primary objectives is to ensure that its fixed maturity portfolio is maintained at a high average quality so as to limit credit risk. If not externally rated, the securities are rated by GWL&A for the Company on a basis intended to be similar to that of the rating agencies.

~~Projected~~The ~~Cash~~distribution ~~Flows~~of bythe ~~Calendar~~fixed ~~Year~~maturity [$portfolio ~~There-~~by ~~Undiscounted~~credit ~~Fair~~rating ~~millions]~~is ~~2002~~summarized ~~2003~~as ~~2004~~follows: ~~2005~~Credit ~~2006~~Rating ~~after~~2002 ~~Total~~2001 ~~Value~~ ----- ----- ------ ------ ------ ------ ------------- ---------- ~~Benchmark~~---------- 18AAA 2860.3 18% 1865.0 55% ~~102~~AA ~~238~~7.4 ~~186~~6.8 ~~Interest~~A ~~rates~~15.1 up11.9 1%BBB 1617.2 2113.9 19BB 21and 57lower ~~110~~0.0 ~~243~~2.4 ~~178~~---------- ---------- TOTAL 100.0 % 100.0 % ========== ==========

E. LIQUIDITY AND CAPITAL RESOURCES The Company's operations have liquidity requirements that are dependent upon the principal product lines currently offered. Life insurance and pension plan reserves are primarily long-term liabilities. Life insurance and pension plan reserve requirements are usually stable and predictable, and are supported primarily by long-term, fixed income investments. Generally, the Company has met its operating requirements by maintaining appropriate levels of liquidity in its investment portfolio. Liquidity for the Company has remained strong, as evidenced by significant amounts of short-term investments and cash that totaled $15.6 million and $11.7 million as of December 31, 2002 and 2001, respectively. The Company and GWL&A have an agreement whereby GWL&A has undertaken to provide the Company with certain financial support related to maintaining required statutory surplus and liquidity. F. ACCOUNTING PRONOUNCEMENTS In September 2000, the Financial Accounting Standards Board (FASB) issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - A replacement of FASB Statement No. 125", which revised the standards for accounting for securitizations, and other transfers of financial assets and collateral, and requires certain disclosures. SFAS No. 140 was effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. The adoption of the new SFAS did not have a significant effect on earnings or the financial position of the Company. Effective April 1, 2001, the Company adopted Emerging Issues Task Force Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interest in Securitized Financial Assets (EITF 99-20). This pronouncement requires investors in certain asset-backed securities to record changes in their estimated yield on a prospective basis and to apply specific evaluation methods to these securities for an other-than-temporary decline in value. The adoption of EITF 99-20 did not have a material impact on the Company's financial position or results of operations. On June 29, 2001, Statement No. 141, "Business Combinations" was approved by the FASB. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Goodwill and certain intangible assets will remain on the balance sheet and not be amortized. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets must be tested for impairment, and write-downs may be necessary. The Company implemented SFAS No. 141 on July 1, 2001. Adoption of the Statement did not have a material impact on the Company's financial position or results of operations. On June 29, 2001, SFAS No. 142, "Goodwill and Other Tangible Assets" was approved by the FASB. SFAS No. 142 changes the accounting for goodwill and certain other intangibles from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, ceased upon adoption of this statement. The Company implemented SFAS No. 142 on January 1, 2002 and, adoption of this statement did not have a material impact on the Company's financial position or results of operations. In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No. 144 superceded prior accounting guidance relating to impairment of long-lived assets and provides a single accounting methodology for long-lived assets to be disposed of, and also supercedes existing guidance with respect to reporting the effects of the disposal of a business. SFAS No. 144 was effective January 1, 2002, and adoption of this statement did not have a material impact on the Company's financial position or results of operations. See Note 1 to the Consolidated Financial Statements for additional information regarding accounting pronouncements. ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The primary risk facing the Company is rising interest rates. To manage interest rate risk, the Company invests in assets that are suited to the products that it sells. For products with uncertain timing of benefit payments such as life insurance, the Company invests in fixed income assets with expected cash flows that are earlier than the expected timing of the benefit payments. The Company can then react to changing interest rates as these assets mature for reinvestment. The Company has estimated the possible effects of interest rate changes at December 31, 2002. If interest rates increased by 100 basis points (1%), the fair value of the fixed income assets would decrease by approximately $7 million. The calculation used projected cash flows, discounted back to December 31, 2002. The cash projections are shown in the table below. The table shows cash flows rather than expected maturity dates because many of the Company's assets have substantial expected principal payments prior to the final maturity date. The fair value shown in the table below was calculated using spot discount interest rates that varied by the year in which the cash flows were expected to be received. These spot rates in the benchmark calculation ranged from 2.77% to 7.70%.

~~======================================================================================================================~~Projected ~~(Dollars~~Cash inFlows ~~Thousands)~~by ~~ASSETS~~Calendar ~~2001~~Year ~~2000 ------ -------------------- -------------------- INVESTMENTS: Fixed maturities, available-for-sale, at fair value (amortized cost~~ [$~~176,687~~ ~~and~~millions] ~~$148,522) $ 178,591 $ 150,631 Short~~There-~~term~~ ~~investments,~~Undiscounted ~~available-for-sale~~Fair ~~(cost~~2003 ~~approximates~~2004 ~~fair~~2005 ~~value)~~2006 ~~3,854~~2007 ~~15,907~~after ~~-------------------- --------------------~~ Total ~~Investments~~Value 182,445 166,538 OTHER ASSETS: Cash 7,860 8,462 Reinsurance receivable 2,346 1,924 Deferred policy acquisition costs 1,257 1,717 Investment income due and accrued 1,713 1,325 Amounts receivable related to uninsured accident and health plan claims (net of allowances of $1,835 and $0) 1,884 2,069 Premiums in course of collection (net of allowances of $875 and $776) 792 2,502 Deferred income taxes 1,377 1,107 Due from Parent Corporation 107 10,207 Other assets 3,371 4,596 SEPARATE ACCOUNT ASSETS 45,576 47,359 -----~~---------------~~ -----~~---------------~~ TOTAL ASSETS $ 248,728 $ 247,806 ==================== ==================== (Continued) ====================================================================================================================== LIABILITIES AND STOCKHOLDER'S EQUITY POLICY BENEFIT LIABILITIES: Policy reserves $ 152,874 $ 137,657 Policy and contract claims 1,175 3,851 Policyholders' funds 2,801 2,762 GENERAL LIABILITIES: Bank overdrafts 3,104 8,954 Contract deposits 7,761 Other liabilities 1,986 3,388 SEPARATE ACCOUNT LIABILITIES 45,576 47,359 ------~~--------------~~ ------~~--------------~~ ~~Total Liabilities 207,516 211,732~~ ------~~--------------~~ ------~~--------------~~ ~~COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY: Common stock, $1,000 par value, 10,000 shares authorized, 2,500 issued and outstanding 2,500 2,500 Additional paid~~-~~in capital 28,600 28,600 Accumulated other comprehensive income 727 1,082 Retained earnings 9,385 3,892~~ -----------~~---------~~ ------~~--------------~~ ~~Total~~Benchmark ~~Stockholder's~~31 ~~Equity~~32 ~~41,212~~43 ~~36,074~~39 ~~--------------------~~32 ~~--------------------~~74 ~~TOTAL~~251 ~~LIABILITIES~~214 ~~AND~~Interest ~~STOCKHOLDER'S~~rates ~~EQUITY~~up $1% ~~248,728~~29 $24 ~~247,806~~42 ~~====================~~48 ~~====================~~25 ~~See~~87 ~~notes~~255 ~~to financial statements. (Concluded)~~207

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following are the Company's Financial Statements for the years ended December 31, 2002, 2001, and 2000, and the Independent Auditor's Report thereon. First Great-West Life & Annuity Insurance Company (A wholly-owned subsidiary of Great-West Life & Annuity Insurance Company) Financial Statements for the Years Ended December 31, 2002, 2001, and 2000 and Independent Auditors' Report INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholder of First Great-West Life & Annuity Insurance Company: We have audited the accompanying balance sheets of First Great-West Life & Annuity Insurance Company (a wholly-owned subsidiary of Great-West Life & Annuity Insurance Company) as of December 31, 2002 and 2001, and the related statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of First Great-West Life & Annuity Insurance Company as of December 31, 2002 and 2001, and the results of its operations and its cash flows for the each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Denver, Colorado January 27, 2003 FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY BALANCE SHEETS DECEMBER 31, 2002 AND 2001

==============================================================================================~~=====================~~ (Dollars in Thousands) ~~2001~~ASSETS ~~2000~~2002 ~~1999~~2001 ------~~----------~~ ----------------- ----------------- ~~REVENUES~~INVESTMENTS: ~~Premium~~Fixed ~~income~~maturities, ~~(net~~available-for-sale, ofat ~~premium~~fair ~~ceded~~value of(amortized ~~$140,~~cost $~~109~~195,893 and $64176,687) $ 15205,~~130~~681 $ 13178,~~565~~591 $Short-term 9investments,~~144~~ ~~Fee~~available-for-sale ~~income~~(cost ~~5,575~~approximates ~~6,577~~fair ~~692~~value) ~~Net investment income 11~~4,~~763~~026 103,~~333~~854 ~~6,278 Net realized gains (losses) on investments 642 67 (6)~~ ---------------- -~~----------------~~ ----------------- 33Total Investments 209,~~110~~707 30182,~~542~~445 16OTHER ASSETS: Cash 11,~~108~~550 ~~----------------~~7,860 Reinsurance receivable 2,870 2,346 Deferred policy acquisition costs 1,069 1,257 Investment income due and accrued 1,807 1,713 Amounts receivable related to uninsured accident and health plan claims (net of allowances of $1,491 and $1,835) 903 2,377 Premiums in course of collection (net of allowances of $300 and $875) 456 792 Deferred income taxes 1,377 Other assets 2,712 3,371 SEPARATE ACCOUNT ASSETS 35,250 45,576 ----------------- ----------------- ~~BENEFITS~~TOTAL ~~AND~~ASSETS ~~EXPENSES:~~$ ~~Life~~266,324 ~~and~~$ ~~other~~249,114 ~~policy~~================= ~~benefits~~================= (~~net~~Continued) of============================================================================================== ~~reinsurance~~LIABILITIES ~~recoveries~~AND ofSTOCKHOLDER'S ~~$177,~~EQUITY ~~$964,~~POLICY ~~and~~BENEFIT LIABILITIES: Policy reserves $~~740)~~ 11169,~~132~~985 ~~15,625~~$ 4152,~~391~~874 ~~(Decrease)~~Policy ~~increase~~and incontract ~~reserves~~claims (2,819 1,~~262)~~175 ~~(944)~~Policyholders' 4funds 2,~~003~~623 ~~Interest~~2,801 ~~paid~~GENERAL orLIABILITIES: ~~credited~~Due to ~~contractholders~~Parent 7Corporation 3,~~829~~125 7386 Bank overdrafts 1,~~011~~370 43,~~584~~104 ~~General~~Deferred ~~and~~taxes ~~administrative~~670 ~~expenses~~Other ~~6,624~~liabilities 52,~~460~~712 1,~~466~~986 ~~----------------~~SEPARATE ACCOUNT LIABILITIES 35,250 45,576 ----------------- ----------------- ~~24,323~~Total 27Liabilities 218,~~152~~554 14207,~~444~~902 ---------------- -~~----------------~~ ----------------- ~~INCOME~~COMMITMENTS ~~BEFORE~~AND ~~INCOME~~CONTINGENCIES ~~TAXES~~STOCKHOLDER'S ~~8,787~~EQUITY: 3Common stock,~~390~~ $1,~~664~~000 ~~PROVISION~~par ~~FOR~~value, ~~INCOME~~10,000 ~~TAXES:~~shares ~~Current 3~~authorized,~~383~~ 2,~~307~~500 65issued ~~Deferred~~and ~~(89)~~outstanding ~~(961)~~2,500 ~~576~~2,500 Additional paid-~~---------------~~in capital 28,600 28,600 Accumulated other comprehensive income 3,668 727 Retained earnings 13,002 9,385 ----------------- ----------------- 3Total Stockholder's Equity 47,~~294~~770 141,~~346~~212 ~~641~~ ---------------- -~~----------------~~ ----------------- ~~NET~~TOTAL ~~INCOME~~LIABILITIES $AND ~~5,493~~STOCKHOLDER'S EQUITY $ 2266,~~044~~324 $ 1249,~~023~~114 ================ =~~================~~ ================= See notes to financial statements. (Concluded)

FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

==============================================================================================~~====================================~~ (Dollars in Thousands) ~~Accumulated~~2002 ~~Additional~~2001 ~~Other~~2000 ~~Paid~~-~~in Comprehensive Retained Shares Amount Capital Income (Loss) Earnings Total~~ --------- -----~~-----~~ --------------- --------------~~----~~ ~~---------------~~REVENUES: ~~---------------~~Premium ~~BALANCES,~~income ~~JANUARY~~(net 1,of ~~1999~~premium ~~2,500~~ceded $of 2$496,~~500~~ $ 12384,~~600~~ and $152) ~~717~~$ 10,014 $ ~~825~~15,130 $ 1613,~~642~~565 ~~Net~~Fee income 13,~~023~~973 15,~~023~~575 ~~Other~~6,577 ~~comprehensive~~Net investment income ~~(loss)~~12,844 (311,~~051)~~763 (310,~~051)~~333 ~~---------------~~Net ~~Comprehensive~~realized ~~income~~gains ~~(loss)~~on ~~(2,028)~~investments 363 642 67 --------------- ~~Capital contribution 16,000 16,000~~ --------- ------~~----~~ --------------- 27,194 33,110 30,542 ---------------~~---~~ --------------- --------------- ~~BALANCES,~~BENEFITS ~~DECEMBER~~AND 31EXPENSES: Life and other policy benefits (net of reinsurance recoveries of $306, ~~1999~~$177, 2and $964) 6,~~500~~848 211,~~500~~132 2815,~~600~~625 Increase (~~2,334~~decrease) in reserves 136 (1,~~848~~262) ~~30,614~~(944) ~~Net~~Interest ~~income~~paid 2or credited to contractholders 8,~~044~~597 27,~~044~~829 ~~Other~~7,011 ~~comprehensive~~General ~~income~~and 3administrative expenses 6,~~416~~389 36,~~416~~624 5,460 --------------- ~~Comprehensive income 5,460~~ --------- ------~~----~~ --------------- 21,970 24,323 27,152 ---------------~~---~~ --------------- --------------- ~~BALANCES,~~INCOME ~~DECEMBER~~BEFORE ~~31,~~INCOME ~~2000~~TAXES 25,~~500~~224 28,~~500~~787 283,~~600~~390 ~~1,082~~PROVISION ~~3,892~~FOR ~~36,074~~INCOME ~~Net~~TAXES: ~~income~~Current 5694 3,~~493~~383 52,~~493~~307 ~~Other~~Deferred ~~comprehensive~~913 ~~income~~ (~~loss~~89) (~~355~~961) ~~(355)~~ --------------- ~~Comprehensive income 5,138~~ --------- ------~~----~~ --------------- 1,607 3,294 1,346 ---------------~~---~~ --------------- --------------- ~~BALANCES,~~NET ~~DECEMBER~~INCOME ~~31, 2001 2,500~~ $ 23,~~500~~617 $ 285,~~600~~493 $ ~~727 $ 9~~2,~~385~~044 ~~$ 41,212~~ ========= ======~~====~~ =============== ==============~~==== =============== ===============~~

See notes to financial statements. FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

==============================================================================================~~======================~~ (Dollars in Thousands) ~~2001~~Accumulated ~~2000~~Additional ~~1999~~Other Paid-in Comprehensive Retained Shares Amount Capital Income (Loss) Earnings Total ------------- ------------- ------------- ---------------- ~~OPERATING~~------------- ~~ACTIVITIES:~~------------ ~~Net~~BALANCES, ~~income~~JANUARY $1, 52000 2,~~493~~500 $ 2,~~044~~500 $ 128,~~023~~600 ~~Adjustments~~$ ~~to reconcile net income to net cash provided by operating activities Amortization of investments~~ (12,~~144~~334) ($ 1,~~032)~~848 59$ ~~Realized~~30,614 ~~(gains)~~Net ~~losses on sale of investments (642) (67) 6 Amortization of deferred acquisition costs 393 213 112 Deferred~~ income ~~taxes (89) (961) 576 Changes in assets and liabilities: Accrued interest and other receivables 1~~2,~~322~~044 (2,~~086)~~044 ~~(1,046)~~Other ~~Policy~~comprehensive ~~benefit~~income ~~liabilities~~ 3,~~484~~416 53,~~902~~416 ~~13,389~~------------ ~~Reinsurance~~Comprehensive ~~receivable~~income ~~(422) (498) (1,303) Bank overdrafts (~~5,~~850)~~460 ~~7,446 1,508 Contract deposits (7,761) 7,761 Other, net (235) 695 (2,765)~~ -------------- -------------- -------------- ~~Net cash provided by (used in) operating activities (5,451) 19,417 11,559~~ -------------- -- ------------- -------------- ~~INVESTING~~BALANCES, ~~ACTIVITIES:~~DECEMBER ~~Proceeds~~31, ~~from~~2000 ~~sales~~2,500 ~~maturities~~2,500 ~~and~~28,600 ~~redemptions~~1,082 of3,892 ~~investments:~~36,074 ~~Fixed maturities: Held~~-to-~~maturity 667 447 Available~~-~~for~~-~~sale 59,417 50,107 15,683 Purchases of investments: Fixed maturities: Held~~-to-~~maturity (14,144) (23,000) Available~~-~~for~~-~~sale~~----- ~~(73,742) (83,570) (31,066)~~ ------------- ------------- ---------------- ------------- ------------ Net ~~cash~~income ~~used~~5,493 in5,493 ~~investing~~Other ~~activities~~comprehensive $income (~~14,325~~loss) $ (~~46,940~~355) $ (~~37,936~~355) -------------- Comprehensive income 5,138 -------------- -------------- ~~See notes to financial statements. (Continued) FIRST GREAT~~-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999 ==================================================================================================================== (Dollars in Thousands) 2001 2000 1999 ------------ -- -------------- ------------- ------------ ~~FINANCING~~BALANCES, ~~ACTIVITIES:~~DECEMBER ~~Contract deposits~~31, ~~net~~2001 ~~of withdrawals 9~~2,~~074~~500 372,~~447~~500 2028,~~494~~600 ~~Due~~727 ~~(from) to Parent Corporation 10~~9,~~100~~385 (641,~~905)~~212 ~~(5,379) Capital contributions 16,000~~ -------------- -------------- -------------- ~~Net cash provided by financing activities 19,174 30,542 31,115~~ -------------- -- ------------- -------------- ~~NET~~Net ~~INCREASE~~income ~~(DECREASE)~~3,617 IN3,617 ~~CASH~~Other ~~(602)~~comprehensive ~~3,019~~income 42,~~738~~941 ~~CASH~~2,941 ~~BEGINNING~~------------ OFComprehensive ~~YEAR~~income 86,~~462~~558 ~~5,443~~------------- ~~705~~ ------------- ------------- ---------------- ------------- ------------ ~~CASH~~BALANCES, ~~END~~DECEMBER OF31, ~~YEAR~~2002 2,500 $ 72,~~860~~500 $ 828,~~462~~600 $ 53,~~443~~668 $ 13,002 $ 47,770 ============== ============= ============= ================ ~~SUPPLEMENTAL~~============= ~~DISCLOSURES~~============ ~~OF CASH FLOW INFORMATION Cash paid (received) during the year for: Income taxes $ 0 $ 2,217 $ (1,073)~~ See notes to financial statements. ~~(Concluded)~~

FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

~~Years~~============================================================================================== ~~Ended~~(Dollars ~~December~~in 31Thousands) 2002 2001 2000 ------------ ------------ ------------- OPERATING ACTIVITIES: Net income $ 3,617 $ 5,493 $ 2,044 Adjustments to reconcile net income to net cash provided by operating activities Amortization of investments (928) (1,144) (1,032) Realized (gains) losses on sale of (363) (642) (67) investments Amortization of deferred acquisition costs 560 393 213 Deferred income taxes 913 (89) (961) Changes in assets and liabilities: Accrued interest and other receivables 242 1,322 (2,086) Policy benefit liabilities 18,660 3,484 5,902 Reinsurance receivable (524) (422) (498) Bank overdrafts (1,734) (5,850) 7,446 Other, net (1,189) (235) 695 ------------ ------------ ------------- ------------ ~~2001~~------------ ~~2000~~------------- ~~1999~~Net cash provided by operating activities 19,254 2,310 11,656 ------------ ------------ ------------- ~~Investment~~INVESTING ~~management~~ACTIVITIES: ~~expense~~Proceeds from sales, maturities, and redemptions of investments: Fixed maturities: Held-to-maturity 667 Available-for-sale 29,686 59,417 50,107 Purchases of investments: Fixed maturities: Held-to-maturity (~~included~~14,144) Available-for-sale (47,772) (73,742) (83,570) ------------ ------------ ------------- Net cash used in ~~net~~investing ~~investment~~activities ~~income~~(18,086) $(14,325) ~~123~~(46,940) $------------ ~~128~~------------ $------------- 96See ~~Administrative~~notes ~~and~~to ~~underwriting~~financial ~~services~~statements. (~~included~~Continued) FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 ============================================================================================== (Dollars in ~~general~~Thousands) ~~and~~2002 ~~administrative~~2001 ~~expenses~~2000 ------------ ------------ ------------- FINANCING ACTIVITIES: Contract deposits, net of withdrawals (217) 1,313 45,208 Due (from) to Parent Corporation 2,739 10,100 (6,905) Capital contributions ------------ ------------ ------------- Net cash provided by financing activities 2,522 11,413 38,303 ------------ ------------ ------------- NET INCREASE (DECREASE) IN CASH 3,~~070~~690 (602) 3,019 CASH, BEGINNING OF YEAR 7,860 8,462 5,443 ------------ ------------ ------------- CASH, END OF YEAR $ 11,550 $ 7,860 $ 8,462 ============ ============ ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Income taxes $ 0 $ 0 $ 2,~~222~~217 ~~166~~Income taxes are paid by the Parent Corporation on behalf of the Company as part of the income tax allocation agreement. See notes to financial statements. (Concluded)

FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 ================================================================================ (Dollars in Thousands) 1. ORGANIZATION First Great-West Life & Annuity Insurance Company (the Company) is a wholly-owned subsidiary of Great-West Life & Annuity Insurance Company (the Parent Corporation). The Company was incorporated as a stock life insurance company in the State of New York and was capitalized on April 4, 1997, through a $6,000 cash investment from the Parent Corporation for 2,000 shares of common stock. On December 29, 1997, the Company issued an additional 500 shares of common stock to the Parent Corporation for $500. The Company was licensed as an insurance company in the State of New York on May 28, 1997. The Company does business in New York through two business segments, as discussed in Note 12. 2. SIGNIFICANT ACCOUNTING POLICIES 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. Actual results could differ from those estimates. Certain reclassifications have been made to the 2001 and 2000 financial statements and related footnotes to conform to the 2002 presentation. These changes in classification had no effect on previously reported stockholder's equity or net income. Investments - Management has classified its fixed maturities as available for sale and carries them at fair value with the net unrealized gains and losses (net of deferred taxes) reported as accumulated other comprehensive income (loss) in stockholder's equity. Premiums and discounts are recognized as a component of net investment income using the effective interest method. Realized gains and losses, and declines in value judged to be other-than-temporary are included in net realized gains/(losses) on investments. Short-term investments include securities purchased with initial maturities of one year or less and are carried at amortized cost. The Company considers short-term investments to be available-for-sale and amortized cost approximates fair value. Gains and losses realized on disposal of investments are determined on a specific identification basis. Cash - Cash includes only amounts in demand deposit accounts. Deferred Policy Acquisition Costs - Policy acquisition costs, which primarily consist of sales commissions related to the production of new business, have been deferred to the extent recoverable. These costs are variable in nature and are dependent upon sales volume. Deferred costs associated with the annuity products are being amortized over the life of the contracts in proportion to the emergence of gross profits. Retrospective adjustments of these amounts are made when the Company revises its estimates of current or future gross profits. Deferred costs associated with traditional life insurance are amortized over the premium paying period of the related policies in proportion to premium revenues recognized. Amortization of deferred policy acquisition costs totaled $560, $393 and $213 in 2002, 2001, and 2000, respectively. Separate Accounts - Separate account assets and related liabilities are carried at fair value. The Company's separate accounts invest in shares of Maxim Series Fund, Inc. and Orchard Series Fund, open-end management investment companies which are affiliates of the Parent Corporation, shares of other non-affiliated mutual funds, and government and corporate bonds. Investment income and realized capital gains and losses of the separate accounts accrue directly to the contractholders and, therefore, are not included in the Company's statements of income. Revenues to the Company from the separate accounts consist of contract maintenance fees, administration fees, and mortality and expense risk charges. Life Insurance and Annuity Reserves - Life insurance and annuity policy reserves with life contingencies of $154,348 and $145,593 at December 31, 2002 and 2001, respectively, are computed on the basis of estimated mortality, investment yield, withdrawals, future maintenance and settlement expenses, and retrospective experience rating premium refunds. Annuity contract reserves without life contingencies of $14,379 and $5,995 at December 31, 2002 and 2001, respectively, are established at contractholders' account value. Reinsurance - Policy reserves ceded to other insurance companies are carried as a reinsurance receivable on the balance sheet. The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies (See Note 6). Policy and Contract Claims - Policy and contract claims include provisions for reported life and health claims in process of settlement, valued in accordance with the terms of the related policies and contracts, as well as provisions for claims incurred and unreported based primarily on prior experience of the Company. Recognition of Premium Income and Expenses - Life insurance premiums are recognized when due. 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 realized as assessed and 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 impact income by means of the provision for future policy benefit reserves, resulting 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 credit rating on annuity products, first sold in 2001, was approximately 4.0% and 4.2% in 2002 and 2001. Income Taxes - Income taxes are recorded using the asset and liability approach, which requires, among other provisions, the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, all expected future events (other than the enactments or changes in the tax laws or rules) are considered. Although realization is not assured, management believes it is more likely than not that the deferred tax asset will be realized. Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - FASB has issued Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - A replacement of FASB Statement No. 125", (SFAS No. 140) which revises the standards for accounting for securitizations and other transfers of financial assets and collateral, and requires certain disclosures. SFAS No. 140 was effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. Certain disclosure requirements under SFAS No. 140 were effective December 15, 2000, and these requirements have been incorporated in the Company's financial statements. The adoption of SFAS No. 140 did not have a material effect on the financial position or results of operations of the Company. Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interest in Securitized Financial Assets - Effective April 1, 2001, the Company adopted Emerging Issues Task Force Issue No. 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interest in Securitized Financial Assets" (EITF 99-20). This pronouncement requires investors in certain asset-backed securities to record changes in their estimated yield on a prospective basis and to apply specific evaluation methods to these securities for an other-than-temporary decline in value. The adoption of EITF 99-20 did not have a material impact on the Company's financial position or results of operations. Business Combinations - On June 29, 2001 Statement of Financial Accounting Standards (SFAS) No.141, "Business Combinations" (SFAS No. 141) was approved by the FASB. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The Company implemented SFAS No. 141 on July 1, 2001. Adoption of the Statement did not have a material impact on the Company's financial position or results of operations. Goodwill and Other Intangible Assets - On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142) was approved by the FASB. SFAS No. 142 changes the accounting for goodwill and certain other intangibles from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, ceased upon adoption of this statement. The Company implemented SFAS No. 142 on January 1, 2002. Adoption of this Statement did not have a material impact on the Company's financial position or results of operations. Selected Loan Loss Allowance Methodology - In July 2001, the SEC released Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance Methodology and Documentation Issues (SAB 102). SAB 102 summarizes certain of the SEC's views on the development, documentation and application of a systematic methodology for determining allowances for loan and lease losses. Adoption of SAB 102 by the Company did not have a material impact on the Company's financial position or results of operations. Long Lived Assets - In August 2001, the FASB issued SFAS No.144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No.144). SFAS No.144 supercedes current accounting guidance relating to impairment of long-lived assets and provides a single accounting methodology for long-lived assets to be disposed of, and also supercedes existing guidance with respect to reporting the effects of the disposal of a business. SFAS No.144 was adopted January 1, 2002 without a material impact on the Company's financial position or results of operations. Technical Corrections - April 2002, the FASB issued Statement No. 145 "Rescission of FASB No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" (SFAS No. 145). FASB No. 4 required all gains or losses from extinguishment of debt to be classified as extraordinary items net of income taxes. SFAS No. 145 requires that gains and losses from extinguishment of debt be evaluated under the provision of Accounting Principles Board Opinion No. 30, and be classified as ordinary items unless they are unusual or infrequent or meet the specific criteria for treatment as an extraordinary item. This statement is effective January 1, 2003. The Company does not expect this statement to have a material effect on the Company's financial position or results of operations. Costs Associated With Exit or Disposal Activities - In July 2002, the FASB issued Statement No. 146 "Accounting for Costs Associated With Exit or Disposal Activities" (SFAS No. 146). This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." This statement requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred, as opposed to when the entity commits to an exit plan under EITF 94-3. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not expect this statement to have a material impact on the Company's financial position or results of operations. Regulatory Requirements - In accordance with the requirements of the State of New York, the Company must demonstrate adequate capital, as defined. At December 31, 2002, the Company was in compliance with the requirement. The Company is also required to maintain an investment deposit in the amount of $5,000 in cash or investment certificates with the New York Insurance Commissioner for the protection of policyholders in the event the Company is unable to satisfactorily meet its contractual obligations. A United States Treasury obligation, whose cost approximates market value, was designated to meet this requirement at December 31, 2002. 3. ACQUISITIONS On October 6, 1999, the Parent Corporation entered into a purchase and sale agreement (the Agreement) with Allmerica Financial Corporation (Allmerica) to acquire, via assumption reinsurance, Allmerica's group life and health insurance business on March 1, 2000. The policies resident in the State of New York have been assigned to the Company as part of the Agreement. This business primarily consists of administrative services only and stop loss policies. The in-force business was immediately co-insured back to Allmerica and then underwritten and retained by the Company upon each policy renewal date. The purchase price, as defined in the Agreement, was based on a percentage of the amount in-force at March 1, 2000 contingent on the persistency of the block of business through March 2001. The effect of this transaction was not material to the Company's results of operations or financial position. 4. RELATED-PARTY TRANSACTIONS The Company and the Parent Corporation have service agreements whereby the Parent Corporation administers, distributes, and underwrites business for the Company and administers the Company's investment portfolio, and whereby, the Company provides certain services for the Parent Corporation. The amounts recorded are based upon management's best estimate of actual costs incurred and resources expended based upon number of policies and/or certificates in force. These transactions are summarized as follows:

~~2001~~Years ~~2000~~Ended ~~1999~~December 31, --------------- --------------- -------~~--------~~ ~~Balance,~~2002 ~~beginning~~2001 of2000 ~~year~~============================================ ~~$ $ $ Provisions charged to operations 1,935 Amounts written off~~ - ~~net (100)~~ ----------~~-----~~ -----------~~----~~ -----------~~----~~ ~~Balance,~~Investment ~~end~~management ofexpense ~~year $ 1,835 $ 0 $ 0~~ =============== =============== =============== ~~Allowances~~(included ~~for premiums~~ in ~~course~~net ofinvestment ~~collection:~~income) ~~2001 2000 1999 --------------- --------------- --------------- Balance, beginning of year~~ $ ~~776~~130 $ ~~580~~123 $ ~~Provisions~~128 ~~charged~~============================================ toAdministrative ~~operations~~and ~~167~~underwriting ~~196~~services ~~580~~============================================ ~~Amounts~~(included ~~written~~in ~~off~~general -and ~~net~~administrative ~~(68~~============================================ expenses) ~~---------------~~3,961 ~~---------------~~3,070 ~~--------------- Balance~~2,222 ~~end of year $ 875 $ 776 $ 580~~ =============== ============================= ==============================================================================================

The Company and the Parent Corporation have an agreement whereby the Parent Corporation has committed to provide certain financial support related to maintaining adequate regulatory surplus and liquidity. 5. ALLOWANCES ON POLICYHOLDER RECEIVABLES Amount receivable for accident and health plan claims and premiums in the course of collection are generally uncollateralized. The Company maintains an allowance for credit losses at a level that, in management's opinion, is sufficient to absorb credit losses on its amounts receivable related to uninsured accident and health plan claims and premiums in course of collection. Management's judgement is based on past loss experience and current and projected economic conditions. Activity in the allowance for amounts receivable related to uninsured accident and health plan claims is as follows:

~~Ceded~~2002 ~~Assumed~~2001 ~~Percentage~~2000 ~~Primarily to Primarily of Amount Gross the Other From Other Net Assumed Amount Companies Companies Amount To Net~~ --------------- -------------~~---~~ ------------- ~~---------------- ------------- December 31~~Balance, ~~2001:~~beginning ~~Life~~of ~~insurance~~year ~~in force: Individual~~ $ ~~493~~1,~~567~~835 $ ~~136,613~~Provisions $charged $to ~~356,954~~operations ~~0.0%~~869 ~~Group 393~~1,~~861~~935 ~~393,861~~Amounts ~~0.0%~~written ~~---------------~~off -~~---------------~~ ~~-------------~~net ~~---------------- Total $ 887~~(1,~~428~~213) $(100) ~~136,613 $ $ 750,815 =============== ================ ============= ================ Premium Income: Life insurance $ 3,789 $ 107 $ $ 3,682 0.0% Accident/health 11,724 268 11,456 0.0%~~ --------------- -------------~~---~~ ------------- ~~---------------- Total $ 15~~Balance,~~513~~ $end ~~375~~of $year $ 151,~~138~~491 ~~=============== ================ ============= ================ December 31, 2000: Life insurance in force: Individual~~ $ ~~468~~1,~~463~~835 ~~$ 125,222 $ $ 343,241~~ 0~~.0%~~ ~~Group 623,454 623,454 0.0% --------------- ---------------- ------------- ---------------- Total $ 1,091,917 $ 125,222 $ $ 966,695~~ =============== =============~~===~~ ============= ~~================~~Activity ~~Premium~~in ~~Income:~~the ~~Life~~allowance ~~insurance~~for $premiums ~~3,193~~in $course 76of $collection $is ~~3,117~~as ~~0.0%~~follows: ~~Accident/health~~2002 ~~8,591~~2001 762000 ~~1,933 10,448 18.5%~~ --------------- -------------~~---~~ ------------- ~~---------------- Total $ 11~~Balance,~~784~~ $beginning ~~152~~of $year ~~1,933~~ $ ~~13,565~~875 ~~=============== ================ ============= ================ December 31, 1999: Life insurance in force: Individual~~ $ ~~329,346~~776 $ ~~125,688~~580 $Provisions $charged ~~203,658~~(reversed) ~~0.0%~~to ~~Group~~(442) ~~1,075,000~~167 ~~1,075,000~~196 ~~0.0%~~operations ~~---------------~~Amounts ~~----------------~~written ~~-------------~~off -~~---------------~~ ~~Total~~net $(133) ~~1,404,346~~(68) ~~$ 125,688 $ $ 1,278,658 =============== ================ ============= ================ Premium Income: Life insurance $ 685 $ 57 $ 93 $ 721 12.9% Accident/health 9,471 1,064 23 8,430 0.3%~~ --------------- -------------~~---~~ ------------- ~~----------------~~Balance, ~~Total~~end $of ~~10,156~~year $ ~~1,121~~300 $ ~~116~~875 $ ~~9,151~~776 =============== =============~~===~~ ============= ~~================~~

6. 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 100% of the first $50 of coverage per individual life and has a maximum retention of $250 per individual life. Life insurance policies are first reinsured to the Parent Corporation up to a maximum of $1,250 of coverage per individual life. Any excess amount is reinsured to a third party. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. At December 31, 2002 and 2001, the reinsurance receivable had a carrying value of $2,870 and $2,346, respectively. Total reinsurance premiums ceded to the Parent Corporation in 2002, 2001, and 2000 were $343, $107 and $77, respectively. The following schedule details life insurance in force and life and accident/health premiums:

~~Gross~~Percentage ~~Gross~~of ~~Estimated~~Amount Reinsurance Reinsurance Assumed Direct Ceded Assumed Net To Net ------------- ------------- ------------ ------------- ----------- December 31, 2002: Life insurance in force: Individual $ 1,489,496 $ 603,672 $ $ 885,824 0.0% Group 418,254 418,254 0.0% ------------- ------------- ------------ ------------- Total $ 1,907,750 $ 603,672 $ $ 1,304,078 ============= ============= ============ ============= Premium Income: Life $ 3,384 $ 343 $ $ 3,041 0.0% insurance 7,120 145 6,975 0.0% Accident/health ------------- ------------- ------------ ------------- Total $ 10,504 $ 488 $ $ 10,016 ============= ============= ============ ============= December 31, 2001: Life insurance in force: Individual $ 493,567 $ 136,613 $ $ 356,954 0.0% Group 393,861 393,861 0.0% ------------- ------------- ------------ ------------- Total $ 887,428 $ 136,613 $ $ 750,815 ============= ============= ============ ============= Premium Income: Life $ 3,789 $ 107 $ $ 3,682 0.0% insurance 11,724 268 11,456 0.0% Accident/health ------------- ------------- ------------ ------------- Total $ 15,513 $ 375 $ $ 15,138 ============= ============= ============ ============= December 31, 2000: Life insurance in force: Individual $ 468,463 $ 125,222 $ $ 343,241 0.0% Group 623,454 623,454 0.0% ------------- ------------- ------------ ------------- Total $ 1,091,917 $ 125,222 $ $ 966,695 ============= ============= ============ ============= Premium Income: Life $ 3,193 $ 76 $ $ 3,117 0.0% insurance 8,591 76 1,933 10,448 18.5% Accident/health ------------- ------------- ------------ ------------- Total $ 11,784 $ 152 $ 1,933 $ 13,565 ============= ============= ============ ============= 7. SUMMARY OF INVESTMENTS Fixed maturities owned at December 31, 2002 are summarized as follows: Amortized Unrealized Unrealized Fair Carrying Cost Gains Losses Value Value ----------- ------------- ---------- -- -------- ---- ------- ----------- ~~Available~~-~~for~~-~~Sale:~~--------- U.S. Government ~~Agencies~~CMO $ 4633,~~579~~449 $ 1,~~584~~597 $ ~~187~~ $ 4735,~~976~~046 $ 4735,~~976~~046 ~~Collateralized~~U.S. ~~mortgage~~Government ~~obligations~~ABS 97,~~954~~165 ~~259~~458 107,~~213~~623 107,~~213~~623 ~~Public~~U.S. ~~utilities~~Government 7Other 31,~~000~~841 ~~524~~2,689 734,~~524~~530 734,~~524~~530 Corporate bonds 4651,~~480~~478 ~~549~~3,820 155,~~213~~298 4555,~~816~~298 45Public utilities 7,~~816~~590 ~~Asset~~972 (50) 8,512 8,512 Asset-backed securities 6655,~~674~~756 1,~~030~~828 ~~642~~(1,727) 6755,~~062~~857 6755,~~062~~857 Collateralized mortgage obligation 8,614 201 8,815 8,815 ----------- ------------ ------------ ------------ ------------ $ ~~176~~195,~~687~~893 $ 311,~~946~~565 $ 2(1,~~042~~777) $ ~~178~~205,~~591~~681 $ ~~178~~205,~~591~~681 =========== ============ ============ ============ ============ Fixed maturities owned at December 31, ~~2000~~2001 are summarized as follows: Gross Gross Estimated Amortized Unrealized Unrealized Fair Carrying Cost Gains Losses Value Value ----------- ------------- ---------- -- -------- ---- ------- ----------- ~~Available~~-~~for~~-~~Sale:~~--------- U.S. Government ~~Agencies~~CMO $ 5228,~~169~~737 $ ~~1,454~~343 $ 25(170) $ 5328,~~598~~910 $ 5328,~~598~~910 ~~Collateralized~~U.S. ~~mortgage~~Government ~~obligations~~ABS 97,~~953~~459 ~~237~~508 97,~~716~~967 97,~~716~~967 ~~Public~~U.S. ~~utilities~~Government 7Other 17,~~000~~843 ~~218~~1,241 7(16) 19,~~218~~068 719,~~218~~068 Corporate bonds 2946,~~029~~480 ~~160~~549 ~~991~~(1,213) 2845,~~198~~816 2845,~~198~~816 ~~Asset~~Public utilities 7,000 524 7,524 7,524 Asset-backed securities 5059,~~371~~214 1522 (643) 59,~~743~~093 ~~213~~59,093 51Collateralized mortgage obligation 9,~~901~~954 51259 10,~~901~~213 10,213 ----------- ------------ ------------ ------------ ------------ $ ~~148~~176,~~522~~687 $ 3,~~575~~946 $ 1(2,~~466~~042) $ ~~150~~178,~~631~~591 $ ~~150~~178,~~631~~591 =========== ============ ============ ============ ============

The collateralized mortgage obligations consist primarily of sequential and planned amortization classes with final stated maturities of two to thirty years and average lives of less than one to fifteen years. Prepayments on all mortgage-backed securities are monitored monthly and amortization of the premium and/or the accretion of the discount associated with the purchase of such securities is adjusted by such prepayments. See Note 8 for additional information on policies regarding estimated fair value of fixed maturities. The amortized cost and estimated fair value of fixed maturity investments at December 31, 2002, by projected maturity, are shown below. Actual maturities will likely differ from these projections because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Available-for-Sale ------------------------ Amortized Estimated Cost Fair Value ----------- ----------- Due in one year or less $ 9,970 $ 10,575 Due after one year through five 60,625 65,174 years Due after five years through ten 19,872 22,103 years Due after ten years 442 488 Mortgage-backed securities 42,063 43,861 Asset-backed securities 62,921 63,480 ----------- ----------- $ 195,893 $ 205,681 =========== =========== Proceeds from sales of securities available-for-sale were $18,719 , $54,832, and $44,237 during 2002, 2001, and 2000, respectively. The realized gains on such sales totaled $433, $950, and $296 for 2002, 2001, and 2000, respectively. The realized losses totaled $70, $308, and $229, for 2002, 2001, and 2000, respectively. During 2000, the Company transferred all securities classified as held-to-maturity into the available-for-sale category. The Company recorded a $645 unrealized gain associated with this transfer in other comprehensive income, net of tax. 8. ESTIMATED FAIR-VALUE OF FINANCIAL INSTRUMENTS

December 31, --------------------------------------------------~~----------~~ 2002 2001 ~~2000~~ ------------------------~~----~~ ------------------------~~----~~ Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ------------ ------------ ------------ ------------ ASSETS: Fixed maturities and short-term investments $ ~~182~~209,~~445~~707 $ ~~182~~209,~~445~~707 $ ~~166~~182,~~538~~445 $ ~~166~~182,~~538~~445 LIABILITIES: Annuity contract reserves without life contingencies 14,379 14,379 5,995 5,995 ~~141 141~~ Policyholders' funds 2,~~801~~623 2,~~801~~623 2,~~762~~801 2,~~762~~801

The estimated fair-value of financial instruments have been determined using available information and appropriate valuation methodologies. However, considerable judgement is required to interpret market data to develop estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The estimated fair value of fixed maturities that are publicly traded are obtained from an independent pricing service. To determine fair value for fixed maturities not actively traded, the Company utilized discounted cash flows calculated at current market rates on investments of similar quality and term. The fair value of annuity contract reserves without life contingencies are estimated by discounting the cash flows to maturity of the contracts, utilizing current credited 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. 9. FEDERAL INCOME TAXES The following is a reconciliation between the federal income tax rate and the Company's effective rate:

2002 2001 2000 ~~1999~~ ------------- ------------- ------------- Federal tax rate 35.0 % 35.0 % 35.0 % Change in tax rate resulting from: ~~Prior~~State ~~year~~taxes, net of premium tax ~~adjustment~~offset (34.~~9) (~~0.9) (12.1) ~~State taxes 6.0 5.6~~ 4.67 Other (0.2) 0.4 ------------- ------------- ------------- Total 30.8 % 37.5 % 39.7 % ~~38.5 %~~ ============= ============= =============

Temporary differences, which give rise to the deferred tax assets and liabilities as of December 31, 2002 and 2001, are as follows:

2002 2001 ~~2000~~ ---------------------~~---~~ --------------------~~----~~ Deferred Deferred Deferred Deferred Tax Tax Tax Tax Asset Liability Asset Liability ---------- ---------- ---------- ---------- Policy reserves $ ~~261~~1,564 $ ~~204~~$ 1,234 $ Deferred policy acquisition costs $646 ~~279~~558 ~~$ 601~~ Deferred acquisition cost proxy tax 2,~~180~~145 2,~~226~~368 Investment assets ~~837~~3,307 ~~753~~706 ~~State taxes 92 31~~ Other 40426 961 ---------- ---------- ---------- ---------- Total deferred taxes $ 23,~~533~~709 $ 14,~~156~~379 $ 23,~~461~~602 $ 12,~~354~~225 ========== ========== ========== ==========

Amounts included for investment assets above include $3,426 and $666 related to the unrealized gains on the Company's fixed maturities available-for-sale at December 31, 2002, and 2001, respectively. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. The Company and the Parent Corporation have entered into an income tax allocation agreement whereby the Parent Corporation could file a consolidated federal income tax return. Under the agreement the Company is responsible for and will receive the benefits of any income tax liability or benefit computed on a separate basis. In 2002, the Company will file on a consolidated basis with its Parent Corporation. 10. OTHER COMPREHENSIVE INCOME Other comprehensive income (loss) for the year ended December 31, 2002 is summarized as follows:

Tax Before-Tax (Expense) Net-of-Tax Amount or Benefit Amount --------------~~---~~ --------------~~---~~ ---------------- Unrealized gains on available-for-sale securities: ~~Unrealized~~$ ~~holding~~7,816 ~~gains~~$ ~~arising during the period 16~~ (52,816) 11$ ~~Less:~~5,000 ~~reclassification~~Unrealized ~~adjustment~~holding ~~for~~gains (~~gains~~losses) ~~losses~~arising ~~realized~~during inthe ~~net~~period ~~income~~68 $ (~~220~~24) $44 ~~69 $ (151)~~ --------------~~---~~ --------------~~---~~ ---------------- Net unrealized gains (losses) ~~(204)~~7,884 64 (~~140~~2,840) 5,044 Reserve and DAC adjustment (~~331~~3,287) ~~116~~1,184 (~~215~~2,103) --------------~~---~~ --------------~~---~~ ---------------- Other comprehensive income (loss) $ ~~(535)~~4,597 $ ~~180~~(1,656) $ ~~(355)~~2,941 ==============~~===~~ ==============~~===~~ ================ Other comprehensive income (loss) for the year ended December 31, ~~2000~~2001 is summarized as follows: Tax Before-Tax (Expense) Net-of-Tax Amount or Benefit Amount --------------~~---~~ --------------~~---~~ ---------------- Unrealized gains on available-for-sale securities: $ $ $ Unrealized holding gains ~~Arising~~arising during the period $16 (5~~,700~~) $11 Less: reclassification adjustment for (~~1,995~~gains) $losses ~~3,705~~realized in net income (220) 69 (151) --------------~~---~~ --------------~~---~~ ---------------- Net unrealized gains ~~5,700~~(losses) (~~1,995~~204) ~~3,705~~64 (140) Reserve and DAC adjustment (~~444~~331) ~~155~~116 (~~289~~215) --------------~~---~~ --------------~~---~~ ---------------- Other comprehensive income $(loss) ~~5,256~~ $ (~~1,840~~535) $ ~~3,416~~180 $ (355) ==============~~===~~ ==============~~===~~ ================ Other comprehensive income ~~(loss)~~ for the year ended December 31, ~~1999~~2000 is summarized as follows: Tax Before-Tax (Expense) Net-of-Tax Amount or Benefit Amount --------------~~---~~ --------------~~---~~ ---------------- Unrealized gains on available-for-sale securities: $ $ $ Unrealized holding gains ~~(losses)~~arising ~~Arising~~ during the period ~~$ (~~5,~~425)~~700 $ (1,~~900~~995) ~~$ (~~3,~~525)~~705 --------------~~---~~ --------------~~---~~ ---------------- Net unrealized gains ~~(losses) (~~5,~~425)~~700 (1,~~900~~995) (3,~~525)~~705 Reserve and DAC adjustment ~~729~~ (~~255~~444) ~~474~~155 (289) --------------~~---~~ --------------~~---~~ ---------------- Other comprehensive income ~~(loss)~~ $ (45,~~696)~~256 $ (1,~~645~~840) $ (3,~~051)~~416 ==============~~===~~ ==============~~===~~ ================ 11. DIVIDEND RESTRICTIONS AND CODIFICATION The Company's net income and capital and surplus, as determined in accordance with statutory accounting principles and practices for December 31 are as follows: 2002 2001 2000 ------------ ------------ ------------ (Unaudited) Net income $ 1,567 $ 6,155 $ 27 Capital and surplus 33,224 31,480 26,999

In March 1998, the National Association of Insurance Commissioners adopted the Codification of Statutory Accounting Principles (Codification). The Codification, which is intended to standardize accounting and reporting to state insurance departments, was effective January 1, 2001. However, statutory accounting principles will continue to be established by individual state laws and permitted practices. The New York Division of Insurance required adoption of Codification with certain modifications for the preparation of statutory financial statements effective January 1, 2001. The adoption of Codification as modified by the New York Division of Insurance decreased statutory net worth as of January 1, 2001, by approximately $106. (The modifications adopted by the New York Division of Insurance had the effect of decreasing statutory net worth by approximately $2,901). As an insurance company domiciled in the State of New York, the Company is required to maintain a minimum of $6,000 of capital and surplus. In addition, the maximum amount of dividends, which can be paid to stockholders, is subject to restrictions relating to statutory surplus and statutory adjusted net investment income. The Company should be able to pay dividends of $3,322 in 2002. The Company paid no dividends in 2002, 2001, and 2000. Dividends are paid as determined by the Board of Directors. 12. SEGMENT INFORMATION The Company has two reportable segments: Employee Benefits and Financial Services. The Employee Benefits segment markets group life and health to small and mid-sized corporate employers. The Financial Services segment markets and administers savings products to public and not-for-profit employers, corporations, and individuals and offers life insurance products to individuals and businesses. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately as each segment has unique distribution channels. Prior to 2002, the Employee Benefits segment marketed and administered corporate savings products (401(k) plans). In 2002 the Financial Services segment assumed responsibility for these products. The 2001 and 2000 segment information has been reclassified to account for this change. The accounting policies of the segments are the same as those described in Note 2. The Company evaluates performance based on profit or loss from operations after income taxes. The Company's operations are not materially dependent on one or a few customers, brokers or agents. Summarized segment financial information for the year ended and as of December 31, 2002 was as follows:

Operations: Employee Financial Benefits Services Total -------------- -------------- --------------- Revenue: Premium income $ 9,366 $ 648 $ 10,014 Fee income 3,630 343 3,973 Net investment income 1,992 10,852 12,844 Realized investment gains 234 129 363 -------------- -------------- --------------- Total revenue 15,222 11,972 27,194 Benefits and Expenses: Benefits 6,537 9,044 15,581 Operating expenses 4,022 2,367 6,389 -------------- -------------- --------------- Total benefits and expenses 10,559 11,411 21,970 -------------- -------------- --------------- Net operating income before Income taxes 4,663 561 5,224 Income taxes 1,450 157 1,607 -------------- -------------- --------------- Net income $ 3,213 $ 404 $ 3,617 ============== ============== =============== Assets: Investment assets $ 20,983 $ 188,724 $ 209,707 Other assets 9,007 12,360 21,367 Separate account assets 35,250 35,250 -------------- -------------- --------------- Total assets $ 29,990 $ 236,334 $ 266,324 ============== ============== =============== Summarized segment financial information for the year ended and as of December 31, 2001 ~~2000~~was ~~1999~~as follows: Operations: Employee Financial Benefits Services Total -------------- -------------- --------------- Revenue: Premium income $ 15,054 $ 76 $ 15,130 Fee income 5,196 379 5,575 Net investment income 1,479 10,284 11,763 Realized investment gains (~~Unaudited~~losses) (37) 679 642 -------------- -------------- --------------- Total revenue 21,692 11,418 33,110 Benefits and Expenses: Benefits 9,472 8,227 17,699 Operating expenses 5,059 1,565 6,624 -------------- -------------- --------------- Total benefits and expenses 14,531 9,792 24,323 -------------- -------------- --------------- Net operating income $before Income taxes 7,~~138~~161 1,626 8,787 Income taxes 2,670 624 3,294 -------------- -------------- --------------- Net income $ 274,491 $ 1,~~202~~002 ~~Capital~~$ 5,493 ============== ============== =============== Assets: Investment assets $ 26,191 $ 156,254 $ 182,445 Other assets 16,538 4,555 21,093 Separate account assets 45,576 45,576 -------------- -------------- --------------- Total assets $ 42,729 $ 206,385 $ 249,114 ============== ============== =============== Summarized segment financial information for the year ended and ~~surplus~~as 33of December 31,~~406~~ 262000 was as follows: Operations: Employee Financial Benefits Services Total -------------- -------------- --------------- Revenue: Premium income $ 13,~~999~~467 29$ 98 $ 13,~~289~~565 Fee income 6,214 363 6,577 Net investment income 1,111 9,222 10,333 Realized investment gains 67 67 -------------- -------------- --------------- Total revenue 20,792 9,750 30,542 Benefits and Expenses: Benefits 14,431 7,261 21,692 Operating expenses 4,081 1,379 5,460 -------------- -------------- --------------- Total benefits and expenses 18,512 8,640 27,152 -------------- -------------- --------------- Net operating income before Income taxes 2,280 1,110 3,390 Income taxes 910 436 1,346 -------------- -------------- --------------- Net income $ 1,370 $ 674 $ 2,044 ============== ============== ===============

13. COMMITMENTS AND CONTINGENCIES The Company is involved in various legal proceedings, which arise in the ordinary course of its business. In the opinion of management, after consultation with counsel, the resolution of these proceedings should not have a material adverse effect on its financial position or results of operations. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS There has been no change in the Company's independent accountants or resulting disagreements on accounting and financial disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

~~Operations:~~A. ~~Employee~~IDENTIFICATION ~~Financial~~OF ~~Benefits~~DIRECTORS ~~Services~~Served ~~Total~~as ~~-----------------~~Director ~~-----------------~~Principal ~~---------------- Revenue: Premium income $ 15,055 $ 75 $ 15,130 Fee income 5,202 373 5,575 Net investment income 1,479 10,284 11,763 Realized investment gains~~ Occupation(~~losses~~s) ~~(37)~~Director ~~679~~Age ~~642 ----------------- ----------------- ---------------- Total revenue 21,699 11,411 33,110 Benefits and Expenses~~from: ~~Benefits~~for ~~9,473~~last ~~8,226~~Five ~~17,699~~Years ~~Operating expenses 5,085 1,539 6,624~~ ----------------- ------- ------~~----~~ -----------~~-----~~ ~~Total benefits and expenses 14,558 9,765 24,323~~ ----------------- ----------------- -------~~---------~~ ~~Net~~Marcia ~~operating~~D. ~~income~~Alazraki ~~before~~61 ~~Income~~1996 ~~taxes 7~~Partner,~~141~~ 1Manatt,~~646~~ ~~8,787~~Phelps ~~Income~~& ~~taxes 2~~Phillips,~~662~~ ~~632~~LLP ~~3,294~~(a ~~-----------------~~law ~~-----------------~~firm) ~~----------------~~since ~~Net~~January ~~income $ 4,479 $~~ 1,~~014~~ $2003; ~~5,493~~previously ~~=================~~Partner ~~================= ================ Assets: Investment assets $ 26~~Kalkines,~~223~~ ~~$ 156~~Arky,~~222~~ $Zall ~~182,445~~& ~~Other~~Bernstein ~~assets~~LLP ~~18,540~~(a ~~2,167~~law ~~20,707~~firm) ~~Separate~~James ~~account~~Balog ~~assets~~(1) ~~3,027~~74 ~~42,549~~1997 ~~45,576~~Company ~~-----------------~~Director ~~-----------------~~James ~~----------------~~W. ~~Total assets $ 47~~Burns,~~790~~ $O.C. ~~200,938~~73 $1997 ~~248,728~~Director ~~================= ================= ================ Summarized segment financial information for the year ended and as of December 31~~Emeritus, ~~2000~~Power ~~was~~Corporation asOrest ~~follows:~~T. ~~Operations:~~Dackow ~~Employee Financial Benefits Services Total ----------------- ----------------- ----------------- Revenue: Premium income $ 13,467 $ 98 $ 13,565 Fee income 6,215 362 6,577 Net investment income~~ (1~~,111~~) ~~9,222~~66 ~~10,333~~2000 ~~Realized~~Company ~~investment~~Director ~~gains~~since 67April 672000; ~~-----------------~~previously ~~-----------------~~President ~~----------------- Total revenue 20,793 9,749 30,542 Benefits~~ and ~~Expenses:~~Chief ~~Benefits~~Executive 14Officer,~~431~~ ~~7,261~~Great-West ~~21,692~~Lifeco ~~Operating~~Paul ~~expenses 4~~Desmarais,~~087~~ ~~1,373~~Jr. ~~5,460~~48 ~~-----------------~~1997 ~~-----------------~~Chairman ~~----------------- Total benefits~~ and ~~expenses 18,518 8,634 27,152~~ Co-~~----------------~~Chief ~~-----------------~~Executive ~~----------------- Net operating income before Income taxes 2~~Officer,~~275~~ ~~1,115~~Power ~~3,390~~Corporation; ~~Income taxes 908 438 1~~Chairman,~~346~~ ~~-----------------~~Power ~~-----------------~~Financial ~~-----------------~~Robert ~~Net~~Gratton ~~income~~59 $1997 ~~1,367~~Chairman $of ~~677~~the $Board ~~2,044~~of ~~=================~~GWL&A; ~~=================~~President ~~=================~~and ~~Assets:~~Chief ~~Investment~~Executive ~~assets $ 16~~Officer,~~201~~ $Power ~~150,337~~Financial; $Chairman ~~166,538~~of ~~Other~~the ~~assets~~Boards ~~20,625~~of ~~13,284~~Great-West 33Lifeco,~~909~~ ~~Separate account assets 47,359 47,359~~ Great-~~----------------~~West ~~-----------------~~Life; ~~-----------------~~London ~~Total~~Insurance ~~assets~~Group $Inc. ~~36,826 $ 210,980 $ 247,806 ================= ================= ================= Summarized segment financial information for the year ended~~ and asLondon ofLife ~~December~~Insurance ~~31,~~Company ~~1999~~Stuart ~~was~~Z. asKatz ~~follows:~~60 ~~Operations:~~1997 ~~Employee Financial Benefits Services Total ----------------- ----------------- ---------------- Revenue: Premium income $ 9~~Partner,~~195~~ ~~$ (51) $ 9~~Fried,~~144~~ ~~Fee income 430 262 692 Net investment income 6~~Frank,~~278~~ 6Harris,~~278~~ ~~Realized~~Shriver ~~investment~~& ~~gains~~Jacobson (~~losses)~~a ~~(6)~~law (6firm) ~~-----------------~~William ~~-----------------~~T. ~~----------------~~McCallum ~~Total~~60 ~~revenue~~1997 9Chairman,~~625~~ ~~6,483~~President ~~16,108 Benefits~~ and ~~Expenses:~~Chief ~~Benefits~~Executive ~~8,378~~Officer ~~4,600~~of ~~12,978~~the ~~Operating~~Company; ~~expenses~~President ~~505~~and ~~961~~Chief 1Executive Officer,~~466~~ ~~-----------------~~GWL&A; Co-~~----------------~~President ~~---------------- Total benefits~~ and ~~expenses~~Chief ~~8,883~~Executive 5Officer,~~561~~ ~~14,444~~ Great-~~----------------~~West ~~-----------------~~Lifeco ~~----------------~~Brian ~~Net~~E. ~~operating~~Walsh ~~income~~(1) ~~before~~49 ~~Income~~1997 ~~taxes~~Managing ~~742~~Partner, ~~922~~QVan 1Capital,~~664~~ ~~Income~~LLC ~~taxes~~(a ~~295~~merchant ~~346~~banking ~~641 ----------------- ----------------- ---------------- Net income $ 447 $ 576 $ 1,023 ================= ================= ================~~company)

(1)Member of the Audit Committee Unless otherwise indicated, all of the directors have been engaged for not less than five years in their present principal occupations or in another executive capacity with the companies or firms identified. Directors are elected annually to serve until the following annual meeting of shareholders. The following is a list of directorships held by the directors of the Company, on companies whose securities are traded publicly in the United States or that are investment companies registered under the Investment Company Act of 1940. J. Balog Transatlantic Holdings, Inc. Phoenix Investment Partners Phoenix Euclid Fund P. Desmarais, Jr. SUEZ TotalFinaElf W.T. McCallum Maxim Series Fund, Inc. Orchard Series Fund Variable Annuity Account A B.E. Walsh Offshore Systems Inc. B. IDENTIFICATION OF EXECUTIVE OFFICERS

Served as ~~Director~~Executive Officer Principal Occupation(s) ~~Director~~Executive Officer Age from: for last Five Years ------------------------ ------ ----------- ------------------------------------------ ~~Marcia~~William DT. ~~Alazraki~~McCallum 60 ~~1996~~1997 ~~Partner~~Chairman, ~~Kalkines,~~President ~~Arky~~and Chief Chairman, ~~Zall~~President &Executive ~~Bernstein~~Officer ~~LLP~~of (athe ~~law~~Company; ~~firm)~~and ~~since~~Chief ~~January~~Executive ~~1998;~~President ~~previously~~and ~~Counsel,~~Chief ~~Simpson~~Executive Officer, ~~Thacher~~ GWL&A; ~~Bartlett~~Co-President (aand ~~law~~Chief ~~firm)~~Executive ~~James~~Officer, ~~Balog~~Great-West ~~(1)~~Lifeco 73Mitchell T.G. Graye 47 1997 Executive Vice President and Chief Executive Vice Financial Officer of the Company ~~Director~~and ~~James~~President W.and ~~Burns,~~Chief OGWL&A Financial Officer Douglas L.C. 72Wooden 46 1997 ~~Chairman~~Executive Vice President, Financial Executive Vice Services of the ~~Boards~~Company ofand ~~Great-West~~GWL&A ~~Lifeco~~President, ~~Great-West~~Financial ~~Life~~Services John A. Brown 55 1992 Senior Vice President, ~~London~~Healthcare ~~Insurance~~Senior ~~Group~~Vice ~~Inc.~~President ~~and~~Markets, ~~London~~Financial ~~Life~~Services, ~~Insurance~~of the Healthcare Markets Company; ~~Deputy~~and ~~Chairman~~GWL&A ~~Power~~Financial ~~Corporation~~Services ~~Orest~~Mark TS. ~~Dackow~~Corbett ~~(1)~~43 652001 ~~2000~~Senior Vice President, Investments of Senior Vice President, the Company ~~Director~~and ~~since~~GWL&A ~~April~~Investments ~~2000;~~John ~~previously~~A. Gabbert 48 2001 Senior Vice President and Chief ~~Executive~~Senior Vice President Information Officer, ~~Great-West~~Employee ~~Lifeco~~Benefits, ~~Paul~~and ~~Desmarais,~~Chief ~~Jr.~~Information 47of ~~1997~~the ~~Chairman~~Company and ~~Co-Chief~~GWL&A ~~Executive~~ Officer, ~~Power~~Employee ~~Corporation;~~Benefits ~~Chairman,~~Donna ~~Power~~A. ~~Financial~~Goldin ~~Robert~~55 ~~Gratton~~1996 58Senior ~~1997~~Vice ~~Chairman~~President, Healthcare Senior Vice President Operations of the ~~Board~~Company ofand & Healthcare Operations GWL&A; Wayne T. Hoffmann 47 2001 Senior Vice President, ~~and~~Investments ~~Chief~~of ~~Executive~~Senior ~~Officer~~Vice President, ~~Power~~the ~~Financial~~Company ~~Stuart~~and ZGWL&A Investments D. ~~Katz~~Craig 59Lennox 55 1997 ~~Partner,~~Senior ~~Fried,~~Vice ~~Frank~~President, ~~Harris~~General Senior Vice President, ~~Shriver~~Counsel &and ~~Jacobson~~Secretary (aof ~~law~~the ~~firm)~~General ~~William~~Counsel Tand Company and GWL&A Secretary Charles P. ~~McCallum~~Nelson 5942 ~~1997~~1998 ~~Chairman~~President, BenefitsCorp of the Company President, and ~~Chief~~GWL&A ~~Executive~~BenefitsCorp ~~Officer~~Martin Rosenbaum 50 1997 Senior Vice President, Employee Senior Vice President, Benefits of the Company; ~~President~~ and ~~Chief~~Employee ~~Executive~~Benefits ~~Officer~~GWL&A Gregory E. Seller 49 1997 Senior Vice President, Senior Vice President, Government Markets of the Company Government Markets and GWL&A; ~~Co-~~Robert K. Shaw 47 1997 Senior Vice President, ~~and~~Individual ~~Chief~~Senior ~~Executive~~Vice ~~Officer~~President, ~~Great-West~~Markets ~~Lifeco~~of ~~Brian~~the ECompany and GWL&A Individual Markets George D. ~~Walsh~~Webb ~~(1)~~59 481999 ~~1997~~Senior ~~Managing~~Vice ~~Partner~~President, ~~QVan~~Operations, ~~Capital~~of Senior Vice President, ~~LLC~~the (aCompany ~~merchant~~and ~~banking~~GWL&A; ~~company)~~prior ~~since~~to ~~September1997,~~Operations ~~previously~~July ~~Partner~~1999, ~~Trinity~~Principal, LWilliam M.P Mercer Investment Consulting Inc. (an ~~investment~~Investment consulting company) Jay W. Wright 51 2001 Senior Vice President, Senior Vice President, Employee Benefits of the Company Employee Benefits and GWL&A; prior to January 2001, Senior Vice President, New England Financial

Unless otherwise indicated, all of the executive officers have been engaged for not less than five years in their present principal occupations or in another executive capacity with the companies or firms identified. The appointments of executive officers are confirmed annually. ITEM 11.EXECUTIVE COMPENSATION A. COMPENSATION OF EXECUTIVE OFFICERS The executive officers of the Company are not compensated for their services to the Company. They are compensated as executive officers of GWL&A. B. COMPENSATION OF DIRECTORS For each director of the Company who is not also a director of GWL&A, Great-West Life or Great-West Lifeco, the Company pays an annual fee of $10,000. For each director of the Company who is also a director of GWL&A, Great-West Life or Great-West Lifeco, the Company pays an annual fee of $5,000. The Company pays each director a meeting fee of $1,000 for each meeting of the Board of Directors, or a committee thereof, attended. At their option, in lieu of cash payments, directors may receive deferred share units under The Great-West Life Assurance Company Deferred Share Unit Plan. In addition, all directors are reimbursed for incidental expenses. The above amounts are paid in the currency of the country of residence of the director. ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS Set forth below is certain information, as of March 1, 2003, concerning beneficial ownership of the voting securities of the Company by entities and persons who beneficially own more than 5% of the voting securities of the Company. The determinations of "beneficial ownership" of voting securities are based upon Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the Exchange Act). This rule provides that securities will be deemed to be "beneficially owned" where a person has, either solely or in conjunction with others, (1) the power to vote or to direct the voting of securities and/or the power to dispose or to direct the disposition of, the securities or (2) the right to acquire any such power within 60 days after the date such "beneficial ownership" is determined. (1) 100% of the Company's 2,500 outstanding common shares are owned by Great-West Life & Annuity Insurance Company, 8515 East Orchard Road, Greenwood Village, Colorado 80111. (2) 100% of the outstanding common shares of Great-West Life & Annuity Insurance Company's are owned by GWL&A Financial Inc., 8515 East Orchard Road, Greenwood Village, Colorado 80111. (3) 100% of the outstanding common shares of GWL&A Financial Inc. are owned by GWL&A Financial (Nova Scotia) Co., Suite 800, 1959 Upper Water Street, Halifax, Nova Scotia, Canada B3J 2X2. (4) 100% of the outstanding common shares of GWL&A Financial (Nova Scotia) co. are owned by GWL&A Financial (Canada) Inc., 100 Osborne Street North, Winnipeg, Manitoba, Canada R3C 3A5. (5) 100% of the outstanding common shares of GWL&A Financial (Canada) Inc. are owned by Great-West Lifeco Inc., 100 Osborne Street North, Winnipeg, Manitoba, Canada R3C 3A5. (6) 82.9% of the outstanding common shares of Great-West Lifeco Inc. are controlled by Power Financial Corporation, 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3, representing approximately 65% of the voting rights attached to all outstanding voting shares of Great-West Lifeco Inc. (7) 67.4% of the outstanding common shares of Power Financial Corporation are owned by 171263 Canada Inc., 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3. (8) 100% of the outstanding common shares of 171263 Canada Inc. are owned by 2795957 Canada Inc., 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3. (9) 100% of the outstanding common shares of 2795957 Canada Inc. are owned by Power Corporation of Canada, 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3. (10) Mr. Paul Desmarais, 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3, through a group of private holding companies, that he controls, has voting control of Power Corporation of Canada. As a result of the chain of ownership described in paragraphs (1) through (10) above, each of the entities and persons listed in paragraphs (1) through (10) would be considered under Rule 13d-3 of the Exchange Act to be a "beneficial owner" of 100% of the outstanding voting securities of the Company. B. SECURITY OWNERSHIP OF MANAGEMENT

~~Served~~The following table sets out the number of equity securities, and exercisable options (including options that will become exercisable within 60 days) for equity securities, of the Company or any of its parents or subsidiaries, beneficially owned, as ~~Executive~~of ~~Officer~~December ~~Principal~~31, ~~Occupation~~2002, by (si) ~~Executive~~the ~~Officer~~directors ~~Age~~of ~~from:~~the ~~for~~Company; ~~last~~and ~~Five~~(ii) ~~Years~~the directors and executive officers of the Company as a group. --------------------- --- ------ ------------- ---------------------- --------------- ~~William T. McCallum 59 1997 Chairman, President and Chief Chairman, President Executive Officer of the Company; and Chief Executive President and Chief Executive Officer Officer, GWL&A; Co~~-~~President~~--- ~~and Chief Executive Officer,~~ Great-West Lifeco ~~Mitchell~~Power ~~T.G. Graye 46 1997 Executive Vice President and Chief Executive Vice~~ Financial ~~Officer~~Power ofCorporation ~~the Company and President and Chief GWL&A Financial Officer Douglas L~~Inc. ~~Wooden~~Corporation 45of ~~1997~~Canada ~~Executive~~--------------------- ~~Vice~~---------------------- ~~President,~~---------------------- ~~Financial~~------------------- ~~Executive~~Directors ~~Vice~~(1) ~~Services~~(2) of(3) ~~the~~--------------------- ~~Company~~---------------------- ~~and~~---------------------- ~~GWL&A~~------------------- ~~President, Financial Services John A~~M.D. ~~Brown~~Alazraki 54--------------------- ~~1992~~---------------------- ~~Senior~~---------------------- ~~Vice~~------------------- ~~President, BenefitsCorp Senior Vice President Healthcare Markets of the Company BenefitsCorp and GWL&A Healthcare Markets Mark S~~J. ~~Corbett~~Balog 42--------------------- ~~2001~~---------------------- ~~Senior~~---------------------- ~~Vice~~------------------- ~~President, Investments of Senior Vice the Company President, Investments Wayne T~~J.W. ~~Hoffmann~~Burns ~~46 2001 Senior Vice President~~153,659 ~~Investments of Senior Vice the Company and GWL&A President~~8,000 ~~Investments D. Craig Lennox 54 1997 Senior Vice President~~385,640 ~~General Senior Vice Counsel and Secretary of the President~~200,000 ~~General~~options ~~Counsel~~--------------------- ~~and~~---------------------- ~~Company~~---------------------- ~~and~~------------------- ~~GWL&A Secretary Steve H~~O.T. ~~Miller~~Dackow ~~49 1997 Senior Vice President~~82,892 ~~Employee Senior Vice Benefits Sales of the Company and President~~100,000 ~~Employee~~options ~~Benefits~~--------------------- ~~GWL&A~~---------------------- ~~Sales~~---------------------- ~~Charles~~------------------- P. ~~Nelson 41 1998 President~~Desmarais, ~~BenefitsCorp~~Jr. ~~of the Company President~~43,659 ~~and GWL&A BenefitsCorp Martin Rosenbaum 49 1997 Senior Vice President~~5,698 ~~Employee Senior Vice Benefits Finance of the Company President~~1,821,500 ~~and~~options ~~Employee~~--------------------- ~~Benefits~~---------------------- ~~GWL&A~~---------------------- ~~Finance~~------------------- ~~Gregory E~~R. ~~Seller~~Gratton 48332,496 ~~1997~~310,000 ~~Senior Vice President~~12,965 ~~Senior Vice BenefitsCorp Government Markets President~~5,880,000 ~~BenefitsCorp~~options of--------------------- ~~the~~---------------------- ~~Company~~---------------------- ~~and~~------------------- ~~GWL&A Government Markets Robert K~~S.Z. ~~Shaw~~Katz 46--------------------- ~~1997~~---------------------- ~~Senior~~---------------------- ~~Vice~~------------------- ~~President, Individual Senior Vice President Markets of the Company and GWL&A Individual Markets George D~~W.T. ~~Webb~~McCallum ~~58 1999 President~~216,193 ~~Advised Assets Group~~19,500 ~~President~~629,200 ~~Inc.~~options of--------------------- ~~the~~---------------------- ~~Company~~---------------------- ~~and~~------------------- ~~GWL&A;~~B.E. ~~prior~~Walsh ~~to Advised Assets July 1999~~1,000 ~~Principal,~~--------------------- ~~William~~---------------------- M.---------------------- ~~Mercer~~------------------- ~~Group,~~--------------------- ~~Inc.~~---------------------- ~~Investment~~---------------------- ~~Consulting~~------------------- ~~Inc.~~Great-West ~~(an~~Lifeco ~~Investment~~Power ~~consulting~~Financial ~~company)~~Power ~~Warren~~Corporation JInc. ~~Winer~~Corporation 55of ~~2001~~Canada ~~Senior~~--------------------- ~~Vice~~---------------------- ~~President,~~---------------------- ~~Employee~~------------------- ~~Senior~~Directors ~~Vice Benefits of the Company~~ and ~~GWL&A;~~(1) ~~President,~~(2) ~~Employee~~(3) ~~Benefits prior to January 2001,~~ Executive ~~Vice~~Officers ~~President,~~as ~~General~~a ~~American~~Group ~~Life~~--------------------- ~~Insurance~~---------------------- ~~Company~~---------------------- ~~Jay~~------------------- W.889,321 ~~Wright 50 2001 Senior Vice President~~591,700 ~~Senior Vice Employee Benefits of the Company President~~406,103 ~~Employee Benefits and GWL&A; prior to January 2001~~1,745,402 ~~Senior~~options ~~Vice President~~5,880,000 ~~New~~ooptions ~~England Financial Unless otherwise indicated~~2,021,500 ~~all~~options of--------------------- ~~the~~---------------------- ~~executive~~---------------------- officers have been engaged for not less than five years in their present principal occupations or in another executive capacity with the companies or firms identified. The appointments of executive officers are confirmed annually.-------------------

(1)All holdings are common shares, or where indicated, exercisable options for common shares, of Great-West Lifeco Inc. (2)All holdings are common shares, or where indicated, exercisable options for common shares, of Power Financial Corporation. (3)All holdings are subordinate voting shares, or where indicated, exercisable options for subordinate voting shares, of Power Corporation of Canada. The number of common shares and exercisable options for common shares of Power Financial Corporation held by R. Gratton represents 1.8% of the total number of common shares and exercisable options for common shares of Power Financial Corporation outstanding. The number of common shares and exercisable options for common shares of Power Financial Corporation held by the directors and executive officers as a group represents 1.8% of the total number of common shares and exercisable options for common shares of Power Financial Corporation outstanding. The number of subordinate voting shares and exercisable options for subordinate voting shares of Power Corporation of Canada held by the directors and executive officers represents 1.2% of the total number of subordinate voting shares and exercisable options for subordinate voting shares of Power Corporation of Canada outstanding. None of the remaining holdings set out above exceeds 1% of the total number of shares and exercisable options for shares of the class outstanding. ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS M.D. Alazraki, a director of the Company, was a partner with Kalkines, Arky, Zall & Bernstein, a law firm that provided legal services to the Company. In 2002, the amount of such services was $88,570.99. ITEM 14.CONTROLS AND PROCEDURES Based on their evaluation as of January 22, 2003, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's Disclosure Controls and Procedures are effective in ensuring that information relating to the Company and its subsidiaries which is required to be disclosed in reports filed under the Securities Exchange Act of 1934 is (i) accumulated, processed and reported in a timely manner; and (ii) communicated to the Company's senior management, including the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, so that timely decisions may be made regarding disclosure. The Chief Executive Officer and Chief Financial Officer hereby confirm that, since the date of their evaluation on January 22, 2003, there were no significant changes in the Company's internal controls or in other factors that could significantly affect these internal controls including any corrective actions with regard to significant deficiencies and material weaknesses. PART IV ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The documents identified below are filed as a part of this report. A. INDEX TO FINANCIAL STATEMENTS Page ------------ Independent Auditors' Report on Financial Statements for the Years Ended December 31, 2002, 2001, and 2000 Balance Sheets as of December 31, 2002 and 2001.......... Statements of Income for the Years Ended December 31, 2002, 2001, and 2000 Statements of Stockholder's Equity for the Years Ended December 31, 2002, 2001, and 2000 Statements of Cash Flows for the Years Ended December 31, 2002, 2001, and 2000 Notes to Financial Statements for the Years Ended December 31, 2002, 2001, and 2000 All schedules and separate financial statements of the Registrant are omitted because they are not applicable, or not required, or because the required information is included in the financial statements or notes thereto. B. INDEX TO EXHIBITS

Exhibit Number Title Page --------------------- ---------------------- ---------------------- ----------------~~---~~ 3(i) Restated Charter of First Great-West ~~Lifeco~~Life ~~Power~~& ~~Financial~~Annuity ~~Power~~Insurance ~~Corporation~~Company ~~Inc.~~Filed ~~Corporation~~as ofExhibit ~~Canada~~3(i) ~~---------------------~~to ~~----------------------~~Registrant's ~~----------------------~~Form 10-~~------------------~~K ~~Directors~~for ~~(1)~~the year ended December 31, 1997 and incorporated herein by reference. 3(2ii) (Bylaws of First Great-West Life & Annuity Insurance Company Filed as Exhibit 3(ii) ~~---------------------~~to ~~----------------------~~Registrant's ~~----------------------~~Form 10-~~------------------~~K Mfor the year ended December 31, 1997 and incorporated herein by reference.D Material Contracts (Continued) 10.1 ~~Alazraki~~Description ~~---------------------~~Agreement ~~----------------------~~between ~~----------------------~~First Great-~~------------------~~ J.West ~~Balog~~Life ~~---------------------~~& ~~----------------------~~Annuity ~~----------------------~~Insurance ~~-------------------~~Company JCharles Schwab & Co.W, Inc. ~~Burns~~Filed ~~153,659~~as ~~8,000~~Exhibit ~~400,640~~10.1 ~~200,000~~to ~~options~~Registrant's ~~---------------------~~Form 10-~~---------------------~~K ~~----------------------~~for ~~-------------------~~the Oyear ended December 31, 1997 and incorporated herein by reference.T 10.2 ~~Dackow~~Administration ~~79,973~~Services ~~200,000~~Agreement ~~options~~between ~~---------------------~~First Great-~~---------------------~~West ~~----------------------~~Life & Annuity Insurance Company and Great-~~------------------~~West P.Life ~~Desmarais,~~& ~~Jr.~~Annuity ~~43,624~~Insurance ~~178,221~~Company Filed as Exhibit 10.2~~,379,000~~ ~~options~~Registrant's ~~---------------------~~Form 10-~~---------------------~~K ~~----------------------~~for ~~-------------------~~the R.year ~~Gratton~~ended ~~331,846~~December ~~310~~31,~~000~~ 1997 and incorporated herein by reference. 10~~,460~~.3 ~~6,780,000~~Financial ~~options~~Support ~~---------------------~~Agreement ~~----------------------~~between First Great-~~---------------------~~West Life & Annuity Insurance Company and Great-~~------------------~~West SLife & Annuity Insurance Company.Z Filed as Exhibit 10.3 ~~Katz~~to ~~---------------------~~Registrant's ~~----------------------~~Form 10-~~---------------------~~K ~~-------------------~~for ~~W.T.~~the ~~McCallum~~year ~~84,474~~ended ~~19,500~~December ~~840~~31,~~000~~ ~~options~~1997 ~~---------------------~~and ~~----------------------~~incorporated ~~----------------------~~herein ~~-------------------~~by Breference.E 10.4 ~~Walsh~~Administrative ~~2,000~~Services ~~---------------------~~Agreement ~~----------------------~~between ~~----------------------~~First Great-~~------------------~~West ~~---------------------~~Life ~~----------------------~~& ~~----------------------~~Annuity ~~-------------------~~Insurance Company and Great-West ~~Lifeco~~Life ~~Power~~& ~~Financial~~Annuity ~~Power~~Insurance ~~Corporation~~Company, ~~Inc~~respecting employee benefits business. ~~Corporation~~Filed ofas ~~Canada~~Exhibit ~~---------------------~~10.3 ~~----------------------~~to ~~----------------------~~Registrant's Form 10-~~------------------~~K ~~Directors~~for the year ended December 31, 2000 and ~~(1)~~incorporated ~~(2)~~herein ~~(3)~~by ~~Executive~~reference. ~~Officers~~10.5 Deferred Share Unit Plan filed herewith. 24 Directors' Powers of Attorney Filed as aExhibit ~~Group~~24 ~~---------------------~~to ~~----------------------~~Registrant's ~~----------------------~~Form 10-~~------------------~~K ~~844,216~~for ~~500,500~~the ~~592,121~~years ~~1,607,680~~ended ~~options~~December 631,~~850,000~~ ~~options~~1997 ~~2,579,000~~and ~~options~~2000 ~~---------------------~~and ~~----------------------~~incorporated ~~----------------------~~herein ~~-------------------~~by reference.

C. REPORTS ON FORM 8-K No reports on Form 8-K were filed during the fourth quarter of 2002. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY By: /s/ William T. McCallum -------------------------------------------------------------------- William T. McCallum, Chairman, President and Chief Executive Officer Date: March 28, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

~~Page~~Signature and Title Date ---------------------------------------------------------------- ~~Independent~~----------------- ~~Auditors'~~/s/ ~~Report~~William onT. ~~Financial~~McCallum ~~Statements~~March ~~for~~28, ~~the~~2003 ~~Years~~---------------------------------------------------------------- ~~Ended~~William ~~December~~T. 31McCallum Chairman, ~~2001~~President, and ~~2000...............................~~Chief ~~Balance~~Executive ~~Sheets~~Officer ~~as of December 31, 2001~~ and ~~2000.........................~~a ~~Statements~~Director of/s/ ~~Income~~Mitchell ~~for the Years Ended December 31, 2001, and 2000~~T.G.~~........................................................~~ ~~Statements~~Graye ofMarch ~~Stockholder's Equity for the Years Ended December 31~~28, ~~2001,~~2003 ~~and~~---------------------------------------------------------------- ~~2000~~Mitchell T.G.~~........................................................~~ ~~Statements~~Graye ofExecutive ~~Cash~~Vice ~~Flows~~President ~~for the Years Ended December 31, 2001,~~ and ~~2000..........................................................~~Chief ~~Notes to~~ Financial ~~Statements~~Officer ~~for~~/s/ ~~the~~Glen ~~Years Ended December 31, 2001, and 2000~~R.~~.........................................................~~ ~~All~~Derback ~~schedules~~March ~~and separate financial statements of the Registrant are omitted because they are not applicable~~28, or2003 ~~not~~---------------------------------------------------------------- ~~required,~~Glen orR. ~~because~~Derback ~~the~~Vice ~~required~~President ~~information~~and isTreasurer ~~included~~/s/ inMarcia ~~the financial statements or notes thereto~~D. B.Alazraki ~~INDEX~~* TOMarch ~~EXHIBITS~~28, ~~Exhibit~~2003 ~~Number Title Page~~ ------------------- --------------------------------------------- Marcia D. Alazraki, Director /s/ James Balog * March 28, 2003 ---------------- ~~3(i) Restated Charter of First Great~~-~~West Life & Annuity Insurance Company Filed as Exhibit 3(i) to Registrant's Form 10~~-K---------------------------------------------- ~~for~~James ~~the year ended December 31~~Balog, ~~1997~~Director ~~and~~/s/ ~~incorporated~~James ~~herein by reference~~W. ~~3(ii)~~Burns ~~Bylaws~~* ofMarch ~~First~~28, ~~Great-West~~2003 ~~Life & Annuity Insurance Company Filed as Exhibit 3(ii) to Registrant's Form 10~~-K--------------------------------------------------------------- ~~for~~James ~~the~~W. ~~year ended December 31~~Burns, ~~1997~~Director ~~and~~/s/ ~~incorporated~~Orest ~~herein by reference~~T. ~~Material~~Dackow ~~Contracts~~* ~~10.1~~March ~~Description~~28, ~~Agreement~~2003 ~~between First Great~~---------------------------------------------------------------- ~~West~~Orest ~~Life & Annuity Insurance Company Charles Schwab & Co~~T. Dackow, ~~Inc.~~Director ~~Filed as Exhibit 10.1 to Registrant'~~/s/ ~~Form~~Paul ~~10-K for the year ended December 31~~Desmarais, ~~1997 and incorporated herein by reference~~Jr. ~~10.2~~* ~~Administration~~March ~~Services~~28, ~~Agreement~~2003 ~~between First Great~~-~~West Life & Annuity Insurance Company and Great~~-~~West~~-------------------------------------------------------------- ~~Life~~Paul &Desmarais, ~~Annuity~~Jr., ~~Insurance~~Director ~~Company~~/s/ ~~Filed~~Robert asGratton ~~Exhibit~~* ~~10.2~~March ~~Registrant's~~28, ~~Form~~2003 10-K--------------------------------------------------------------- ~~for~~Robert ~~the year ended December 31~~Gratton, ~~1997~~Director ~~and~~/s/ ~~incorporated~~Stuart ~~herein by reference~~Z. ~~10.3~~Katz ~~Financial~~* ~~Support~~March ~~Agreement~~28, ~~between~~2003 ~~First Great~~-~~West Life & Annuity Insurance Company and Great~~-~~West~~-------------------------------------------------------------- ~~Life~~Stuart ~~& Annuity Insurance Company~~Z. ~~Filed~~Katz, asDirector ~~Exhibit 10.3 to Registrant'~~/s/ ~~Form~~Brian ~~10-K~~E. ~~for~~Walsh ~~the~~* ~~year~~March ~~ended December 31~~28, ~~1997~~2003 ~~and~~---------------------------------------------------------------- ~~incorporated~~Brian ~~herein by reference~~E. ~~Filed~~Walsh, asDirector ~~Exhibit~~*By: ~~10.3 to Registrant~~/s/ ~~Form~~D. ~~10-K~~Craig ~~for~~Lennox ~~the~~March ~~year ended December 31~~28, ~~2000~~2003 ~~and~~----------------------------------------------------------- ~~incorporated herein by reference~~D. ~~10.4~~Craig ~~Administrative~~Lennox ~~Services Agreement between First Great~~Attorney-~~West Life & Annuity Insurance Company and Great~~in-~~West~~fact ~~Life~~pursuant &to ~~Annuity Insurance Company, respecting employee benefits business. 10.5 Deferred Share Unit Plan~~ filed ~~herewith.~~Power ~~24 Directors' Powers~~ of Attorney ~~Filed as Exhibit 24 to Registrant's Form 10-K for the years ended December 31, 1997 and 2000 and incorporated herein by reference.~~

CERTIFICATIONS I, William T. McCallum, certify that: 1. I have reviewed this annual report on Form 10-K of First Great-West Life & Annuity Insurance Company (the "registrant"); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusion about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 28, 2003 /s/ William T. McCallum -------------------------------------- William T. McCallum Chairman, President and Chief Executive Officer CERTIFICATIONS I, Mitchell T.G. Graye, certify that: 1. I have reviewed this annual report on Form 10-K of First Great-West Life & Annuity Insurance Company (the "registrant"); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusion about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 28, 2003 /s/ Mitchell T.G. Graye -------------------------------------- Mitchell T.G. Graye Executive Vice President and Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of First Great-West Life & Annuity Insurance Company, a New York corporation (the "Company"), does hereby certify, to such officer's knowledge, that: The Annual Report on Form 10-K for the year ended December 31, 2002 (the "Form 10-K") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 28, 2003 /s/ William T. McCallum __________________________________________ William T. McCallum Chairman, President and Chief Executive Officer Dated: March 28, 2003 /s/ Mitchell T.G. Graye __________________________________________ Mitchell T.G. Graye Executive Vice President and Chief Financial Officer The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Form 10-K or as a separate disclosure document.

Signature and Title Date ---------------------------------------------------------------- ----------------- /s/ William T. McCallum March 28, 2002 ---------------------------------------------------------------- William T. McCallum Chairman, President, and Chief Executive Officer and a Director /s/ Mitchell T.G. Graye March 28, 2002 ---------------------------------------------------------------- Mitchell T.G. Graye Executive Vice President and Chief Financial Officer /s/ Glen R. Derback March 28, 2002 ---------------------------------------------------------------- Glen R. Derback Vice President and Treasurer /s/ Marcia D. Alazraki * March 28, 2002 ---------------------------------------------------------------- Marcia D. Alazraki, Director /s/ James Balog * March 28, 2002 ---------------------------------------------------------------- James Balog, Director /s/ James W. Burns * March 28, 2002 ---------------------------------------------------------------- James W. Burns, Director /s/ Orest T. Dackow * March 28, 2002 ---------------------------------------------------------------- Orest T. Dackow, Director /s/ Paul Desmarais, Jr. * March 28, 2002 ---------------------------------------------------------------- Paul Desmarais, Jr., Director /s/ Robert Gratton * March 28, 2002 ---------------------------------------------------------------- Robert Gratton, Director /s/ Stuart Z. Katz * March 28, 2002 ---------------------------------------------------------------- Stuart Z. Katz, Director /s/ Brian E. Walsh * March 28, 2002 ---------------------------------------------------------------- Brian E. Walsh, Director *By: /s/ D. Craig Lennox March 28, 2002 ----------------------------------------------------------- D. Craig Lennox Attorney-in-fact pursuant to filed Power of Attorney

TABLE OF CONTENTS Page 1. PREAMBLE AND DEFINITIONS.....................................................1 2. CONSTRUCTION AND INTERPRETATION..............................................2 3. ELIGIBILITY..................................................................3 4. DEFERRED SHARE UNIT GRANTS AND ACCOUNTS......................................3 5. REDEMPTION ON RETIREMENT OR DEATH............................................7 6. CURRENCY.....................................................................7 7. SHAREHOLDER RIGHTS...........................................................8 8. ADMINISTRATION...............................................................8 9. ASSIGNMENT...................................................................8

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