GREAT WEST LIFE & ANNUITY INSURANCE CO - 10-K Annual Report

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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 [FEE REQUIRED]

For The Fiscal Year Ended December 31, 1996

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ______________ to _____________
Commission file number __________________________

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(Exact name of registrant as specified in its charter)

Colorado 84-0467907
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

8515 East Orchard Road, Englewood, Colorado 80111
(Address of principal executive offices) (Zip
Code)

(303) 689-4649
(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 No X

Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (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. [ ]

As of March 1, 1997, the aggregate market value of the registrant's
voting stock held by non-affiliates of the registrant was $0.

As of March 1, 1997, 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.

TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
A. Organization and Corporate Structure 1
B. Business of the Company 1
C. Description of Business Units 3
Item 2. Properties 16
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17

PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 17
A. Equity Security Holders and Market Information 17
B. Dividends 17
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial
Condition and
Results of Operations 18
A. Company Results of Operations 19
B. Business Unit Results of Operations 21
C. Liquidity and Capital Resources 27
D. Accounting Pronouncements 28
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 54

PART III
Item 10. Directors and Executive Officers of the Registrant 55
A. Identification of Directors 55
B. Identification of Executive Officers 57
i
Item 11. Executive Compensation 59
A. Summary Compensation Table 59
B. Options 60
C. Pension Plan Table 61
D. Compensation of Directors 62
E. Compensation Committee Interlocks and Insider
Participation 63
Item 12. Security Ownership of Certain Beneficial Owners and
Management 64
A. Security Ownership of Certain Beneficial Owners 64
B. Security Ownership of Management 64
Item 13. Certain Relationships and Related Transactions 66

PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 66
A. Index to Financial Statements 66
B. Index to Financial Statement Schedules 66
C. Index to Exhibits 67
D. Reports on Form 8-K 67

Signatures 68

ii
PART I

ITEM 1. BUSINESS

A. ORGANIZATION AND CORPORATE STRUCTURE

Great-West Life & Annuity Insurance Company (the "Company") is a
stock life insurance company originally organized under the laws of
the State of Kansas in 1907 as the National Interment Association.
Its name was changed to Ranger National Life Insurance Company in
1963 and to Insuramerica Corporation prior to changing to its
current name in 1982. In September of 1990, the Company
redomesticated and is now organized under the laws of the State of
Colorado.

The Company ranks in the top 2% of all U.S. life insurers in terms
of net assets.

The Company is a wholly-owned subsidiary of The Great-West Life
Assurance Company ("Great-West Life"), a Canadian life insurance
company. Great-West Life is a subsidiary of Great-West Lifeco Inc.
("Great-West Lifeco"), a Canadian holding company. Great-West
Lifeco is in turn a subsidiary of Power Financial Corporation
("Power Financial"), a Canadian holding company with substantial
interests in the financial services industry. Power Corporation of
Canada ("Power Corporation"), a Canadian holding and management
company, has voting control of Power Financial. Mr. Paul
Desmarais, through a group of private holding companies, which he
controls, has voting control of Power Corporation.

Common and preferred shares of Great-West Life, 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,
accident and health insurance and annuities. It is qualified to do
business in the District of Columbia, Puerto Rico, and in all
states in the United States except New York.

The Company operates in one business segment as a provider of life,
health and annuity products; however, the business operations of
the Company will be discussed in terms of its major business units,
which are:

Employee Benefits
- -
life, health, disability income and 401(k) products for group
clients.

Financial Services
- -
accumulation and payout annuity products for both group and
individual clients, primarily in the public/non-profit sector, as
well as insurance products for individual clients.

Investment Operations
- -
management of assets, both general funds and separate accounts
which segregate, from the Company's general account, the assets and
liabilities of contractholders of variable products ("Separate
Accounts").

The table that follows summarizes premiums and deposits for the
years indicated. For further consolidated financial information
concerning the Company, see Item 6 on
page 18 (Selected Financial Data), and Item 8 on page 29 (Financial
Statements and Supplementary Data). For commentary on the
information in the following table, see page 21 (Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Business Unit Results of Operations).

Millions (1)

1996
1995
1994

Employee Benefits
Group Life
$ 121
$ 138
$ 133
Group Health
642
679
638
401(k)
41
30
21
Financial Services
Savings
51
50
40
Individual Insurance
344(2)
171
168
Premium and other income
$ 1,199
$ 1,068
$ 1,000

Deposits for Investment-type
Contracts:
401(k)
$ 34
$ 47
$ 50
Savings
215
364
384
Individual Insurance
566
457
572
Total investment-type deposits
$ 815
$ 868
$ 1,006

Deposits to Separate Accounts:
401(k)
$ 1,109
$ 883
$ 704
Savings
329
282
309
Total separate accounts deposits
$ 1,438
$ 1,165
$ 1,013

ASO equivalents (3)
$ 1,940
$ 2,140
$ 1,907

(1) All information in the above table and other tables herein is
presented in conformity with generally accepted accounting
principles, unless otherwise indicated.

(2) This amount includes the recapture of $164 million of
participating policy reserves previously coinsured with Great-West
Life under a participating life coinsurance agreement.

(3) ASO equivalents generally represent paid claims under minimum
premium and administrative services only contracts, which amounts
approximate the premiums that would have been earned under such
contracts if they had been written as traditional indemnity or HMO
programs.

C. DESCRIPTION OF BUSINESS UNITS

1. Employee Benefits

Principal Products

The Employee Benefits division is responsible for marketing group
life, health, disability income and 401(k) products, primarily to
small and medium sized employers. The Company offers employers a
total benefits approach - an integrated package of comprehensive
employee benefits products and services through a single
administrator. Through integrated pricing, administration and
funding, the Company helps employers provide cost-effective
benefits aimed at attracting and retaining quality employees, while
offering employees benefit choices and the information they need to
make wise decisions.

The Company offers customers a variety of options to help them
maximize the value of their employee benefits investment. This
ranges from fully-insured products, whereby the Company assumes all
or a portion of the health care cost and utilization risk, to
self-funded, whereby the employer assumes all or a significant
portion of the risk. Employee Benefits also provides administration
and claims services and, in many cases, stop-loss insurance
protection, for an appropriate fee or premium charge
(Administrative Services Only plans - "ASO").

The Company offers a full range of managed care products and
services. These products range from Health Maintenance
Organization ("HMO") plans, which provide a high degree of managed
care, to Preferred Provider Organization ("PPO") plans and
Point-of-Service ("POS") plans which offer more flexibility in
provider choice than HMO plans. Because many employers want to
offer employees a choice in health plans while containing costs,
the Company packages managed care health plans as a dual option
package which allows the employer to offer either a PPO/HMO or a
PPO/POS package to their employees. In addition, the Company
maintains a fully insured product to meet customer demand for
traditional health care products.

Under HMO plans, health care for the member is coordinated by a
primary care physician who is responsible for managing all aspects
of the member's care. HMO plans offer a broad scope of benefits
coverage including routine office visits and preventive care, as
well as lower premiums and low copayments which minimize
out-of-pocket costs. Services for care not coordinated with the
primary care physician are not covered, with the exception of
emergency care. There are no claims to file when services are
received through a primary care physician. Physicians are
reimbursed on a monthly capitated rate per HMO patient for most
services.

POS plans also require that a member enroll with a primary care
physician who is responsible for coordinating the member's health
care. Similar to an HMO, 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. In
contrast to an HMO, members can seek care outside of the primary
physician's direction, at a reduced level of benefits in terms of
increased cost sharing. Some benefits may not be covered outside
the in-network POS plan.

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 service to receive the highest level of benefits. If
members seek care outside of the PPO network, they receive a lower
level of benefits in terms of increased cost sharing.

A traditional fully insured plan allows complete freedom of choice
for covered services. After meeting an annual deductible, insureds
pay their share of coinsurance for all covered services. These
plans are not typically considered managed care, although they may
include some medical management features, such as inpatient
certification, reasonable and customary charges, and some benefits
for preventive care.

During 1996, the Company continued to develop its managed care
operations, licensing five One Health Plan HMO subsidiaries in
California, Texas, Illinois, Colorado, and Georgia. Through each
One Health Plan subsidiary, the Company centralized all provider
relations and contracting, medical management, member services and
quality assurance for all of the Company's medical members (PPO,
POS, and HMO) in each of those states.

The type of coverage provided by the Company continues to move
toward the higher forms of managed care. As of December 31, 1996,
of the 1,554,142 lives covered, 350,185 were in POS/HMO type plans,
1,003,333 were in PPO plans, and 200,624 were in fully insured
plans. At December 31, 1995, of the 1,621,170 lives covered,
258,930 were in POS/HMO type plans, 1,047,028 were in PPO plans,
and 315,212 were in fully insured plans.

The Company offers group term, whole and universal 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. The following table shows group life
insurance in force prior to reinsurance ceded for the years
indicated:

Years Ended December 31,
Millions

1996
1995
1994
1993
1992

In force, end of year
$49,500
$50,370
$51,051
$39,898
$39,485

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).

The 401(k) product investment options for the contractholder
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
contractholders with a vehicle to assume the investment risks.
Assets held under these options are invested, as designated by the
participant, in Separate Accounts which in turn invest in shares of
mutual funds managed by a subsidiary of the Company or by selected
external fund managers. The participant currently has up to 29
different variable investment options.

Of the total 401(k) assets contributed by participants in 1996, 97%
were allocated to variable investment options.

The Company is compensated by the Separate Accounts for bearing
expense risks pertaining to the variable annuity contract, and for
providing administrative services to contractholders. A subsidiary
of the Company also receives fees for serving as an investment
advisor.

Product retention is a key factor for the profitability of the
Company's 401(k) product. The annuity contracts impose a charge
for termination during a certain period of time after the
contract's inception. The charge is determined in accordance with
a formula in the contract. Existing tax penalties on annuity
distributions prior to age 59 1/2 provide an additional
disincentive to premature surrenders of account balances, but do
not impact rollovers to products of competitors.

Employee Benefits introduced a rollover Individual Retirement
Annuity product in 1995, which allows individuals to move
retirement funds from a 401(k) plan to a qualified Individual
Retirement Account.

In the following table, the amount of 401(k) business in force is
measured by the total of individual account balances:

Millions
Year Ended December 31,
Fixed Annuities
Variable Annuities
1992
$ 365
$ 433
1993
357
868
1994
345
1,324
1995
358
2,227
1996
347
3,229

Method of Distribution

Products are sold principally through field representatives and
home office marketing personnel. These individuals work with
independent insurance agents, brokers and consultants who assist in
the production and servicing of business.

Competition

The employee benefits industry is highly competitive. Market share
remains fragmented because of the large number of insurance
carriers, third-party administrators and HMOs serving the various
public and private sectors. No one competitor is dominant across
the country. With managed care enrollment expected to increase
dramatically over the remainder of the decade, many indemnity
carriers are transitioning their members into managed care
products.

The highly competitive marketplace creates pricing pressures which
encourage employers to seek competitive bids each year. Although
most employers are looking for affordably priced employee benefits
products, they want to offer product choice 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, which
offers multiple product lines and centralized administration.

In addition to price, there are a number of other factors which
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. The Company has 33 sales and service offices located
throughout the United States to service local customer needs. Each
of the Company's sales representative works with local insurance
agents, brokers and consultants to sell and service local
employers.

Reserves

For group whole life and 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 and paid up group whole life contracts, the policy
reserves equal the present value of future benefits and expenses
using best estimate assumptions for interest, mortality and
expenses (including margins for adverse deviation). For group
universal life, the policy reserves equal the accumulated fund
balance (which reflects cumulative deposits plus credited interest
less charges thereon). Reserves for long-term disability products
are established for lives currently in payment status using
standard industry morbidity and experience interest rates. In
addition, reserves are held for lives that have not satisfied their
waiting period and for claims that have been incurred but not
reported.

For medical, dental and vision 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.

Reserves for investment contracts (401(k) deferred annuities) are
equal to cumulative deposits, less withdrawals and charges, plus
credited interest thereon.

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 at their maturities, pay expected
death or retirement benefits or surrender requests.

Reinsurance

The Company has a joint venture with New England Life Insurance
Company and its parent company ("New England"). Under reinsurance
agreements, New England issues group life and health and 401(k)
products and then immediately reinsures 50% of its group life and
health business, and nearly 100% of its guaranteed 401(k) business,
with the Company.

2. Financial Services

Principal Products

The Financial Services division markets and administers savings and
life insurance products.

Savings products include (i) individual and group annuity contracts
which offer a variety of funding and distribution options for
personal and employer-sponsored retirement plans that qualify under
Internal Revenue Code Sections 401, 403, 408, and 457, and (ii)
individual and group non-qualified annuity contracts. These
contracts may be immediate or deferred and are offered primarily to
individuals and employers of public and non-profit sector
employees. The Company also provides pension plan administrative
services through a subsidiary company, Financial Administrative
Services Corporation ("FASCorp"), and marketing and communication
services through a subsidiary company, Benefits Communication
Corporation ("BenefitsCorp").

The primary marketing emphasis for the Company's savings products
is the public/non-profit market for defined contribution pension
plans. Defined contribution plans provide for participant accounts
with benefits based upon the value of contributions to, and
investment returns on, the individual's account. This has been the
fastest growing portion of the pension marketplace in recent years.

The Company's variable annuity products provide the opportunity for
contractholders to assume the risks of, and receive all the
benefits from, the investment of retirement assets. The variable
product assets are invested, as designated by the participant, in
Separate Accounts which in turn invest in shares of mutual funds
managed by a subsidiary of the Company or by selected external fund
managers.

Demand for investment diversification for customers and their
participants continued to grow during 1996. The Company continues
to expand the annuity products available through its subsidiary
mutual fund company, Maxim Series Fund, Inc., and arrangements with
external fund managers. This array of funds allows customers to
diversify their investments across a wide range of investment
products, including fixed income, stock, and international equity
fund offerings.

The Company also offers single premium annuities and guaranteed
certificates on a very limited basis, which provide guarantees of
principal and interest with a fixed maturity date.

During the fourth quarter of 1996, the Company entered into a
marketing agreement with Charles Schwab & Co., Inc. to sell
individual fixed and variable qualified and non-qualified deferred
annuities. The variable annuity product offers 21 investment
options. The fixed product is a Guarantee Period Fund which 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.
Guarantee period durations of one to ten years are currently being
offered by the Company. Distributions from the amounts allocated
to a Guarantee Period Fund more than six months prior to the
maturity date results 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.

Product retention is a key factor for the profitability of annuity
products. To encourage product retention, annuity contracts
typically impose a surrender charge on policyholder balances
withdrawn for a period of time after the contract's inception. The
period of time and level of the charge vary by product. Existing
tax penalties on annuity distributions prior to age 59 1/2 provide
an additional disincentive to premature surrenders of annuity
balances, but do not impede transfers of those balances to products
of competitors.

Savings products generate earnings from the investment spreads on
the guaranteed investment options and from the fees collected for
mortality and expense risks associated with the variable options.
The Company also receives fees for providing administration
services to contractholders. A subsidiary of the Company receives
fees for serving as an investment advisor.

The Company's annuity products are supported by the general account
assets of the Company for guaranteed investment options, and the
Separate Accounts for the variable investment options.

The amount of annuity products in force is measured by account
balances. The following table shows guaranteed investment contract
and annuity account balances for the years indicated:

Millions

Year Ended December 31,
Guaranteed Investment Contracts
Fixed Annuities
Variable Annuities

1992
$ 1,674
$ 5,433
$ 504
1993
1,263
5,671
812
1994
930
5,672
1,231
1995
664
5,722
1,772
1996
525
5,502
2,256

In addition to providing administrative services to customers of
the Company's annuities, FASCorp also provides comprehensive
third-party administrative and recordkeeping services for other
financial institutions and employer-sponsored retirement plans.
Assets under administration with unaffiliated organizations totaled
$4.4 billion at December 31, 1996.

Life insurance products in force include participating and non
participating term life, whole life, and universal life. These
products were offered primarily to individuals, small businesses
and employer-sponsored groups.

Term life provides coverage for a stated period and pays a death
benefit only if the insured dies within the period. Whole life
provides guaranteed death benefits and level premium payments for
the life of the insured.

Universal life products include a cash value component that is
credited with interest at regular intervals. The Company's
earnings result from the difference between the investment income
and interest credited on customer cash values. Universal life cash
values are charged for the cost of insurance coverage and for
administrative expenses.

At December 31, 1996, the Company had $3.1 billion of policy
reserves on individual insurance products sold to corporations to
provide coverage on the lives of certain employees. Due to
legislation enacted during 1996 which phases out the interest
deductions on policy loans for Corporate-Owned Life Insurance
("COLI") over a two-year period ending 1998, the sales for this
product have essentially ceased. While this curtailment of new
business is expected to have an effect on the results of operations
of the Financial Services division, it is not expected to be
material to the Company's consolidated results of operations,
liquidity or financial condition.

In anticipation of this change in tax laws, the Company has shifted
its emphasis to the more stable market of Bank-Owned Life Insurance
("BOLI"). BOLI was not affected by the legislation. This product
funds long-term benefits for banks.

Sales of life insurance products typically have high initial
marketing expenses. Retention, an important factor in
profitability, is encouraged through product features. For
example, the Company's universal and whole life insurance contracts
typically impose a surrender charge on policyholder balances
withdrawn within the first 10 years of the contract's inception.
The period of time and level of the charge vary by product. In
addition, more favorable credited rates may be offered after
policies have been in force for a period of time. To further
encourage retention, life insurance agents are typically paid
renewal commissions or service fees.

Certain of the Company's life insurance and group annuity products
allow policyowners to borrow against their policies. At December
31, 1996, approximately 5% of outstanding policy loans were on
individual life policies that had fixed interest rates ranging from
5% to 8%. The remaining 95% of outstanding policy loans had
variable interest rates averaging 7.67% at December 31, 1996.
Investment income from policy loans was $175.7 million for the year
ended December 31, 1996.

The following table summarizes changes in life insurance in force
prior to reinsurance ceded for the years indicated:

Years Ended December 31,
Millions

1996
1995
1994
1993
1992

In force, beginning of year
$25,865
$24,877
$20,259
$18,192
$0 (1)

Sales and additions
2,695
2,520
6,302
2,842
18,665
Terminations
1,668
1,532
1,684
775
473
Net
1,027
988
4,618
2,067
18,192

In Force, end of year
26,892
25,865
24,877
20,259
18,192

(1) At December 31, 1992, all participating life insurance and
annuity business previously underwritten by Great-West Life in the
U.S. was transferred to the Company through assumption reinsurance.

At the same time, the Company ceded some of the acquired
participating life insurance reserves back to Great-West Life under
a coinsurance agreement.

Method of Distribution

Financial Services primarily uses its subsidiary, BenefitsCorp, to
distribute pension products to the public/non-profit market.
BenefitsCorp also provides communication and enrollment services to
employers.

Prior to January 1, 1997, life insurance sold to individuals was
distributed through a general agency system. During 1996, the
Company began distributing term, universal and joint survivor life
insurance, as well as individual fixed and variable qualified and
non-qualified deferred annuities, through Charles Schwab and Co.,
Inc.

COLI and BOLI products are currently marketed through one broker.

Competition

The life insurance, savings and investments 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 page
16.

Reserves

Reserves for universal life and interest-sensitive whole life
products are equal to cumulative deposits less withdrawals and
charges plus credited interest. 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. For all life insurance
contracts (including universal life insurance), reserves are
established for claims that have been incurred but not reported
based on factors derived from past experience.

Reserves for limited payment contracts (immediate annuities with
life contingent payouts) are computed on the basis of assumed
investment yield, mortality, morbidity and expenses. These
assumptions generally vary by plan, year of issue and policy
duration. Reserves for investment contracts (deferred annuities
and immediate annuities without life contingent payouts) are equal
to cumulative deposits plus credited interest less withdrawals and
other charges.

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 at their maturities, pay expected
death or retirement benefits or surrender requests.

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
coinsurance contracts. The Company retains a maximum of $1.5
million of coverage per individual life.

3. Investment Operations

The Company's investment operations division manages the Company's
general and Separate Account funds in support of cash and liquidity
requirements of the Company's insurance and investment products.

Investments under management at year-end 1996 totaled $18.2
billion, comprised of corporate and insurance-related investments
assets ("investment assets") of $12.7 billion and Separate Account
assets of $5.5 billion.

The Company invests in a broad range of asset classes, including
domestic and international fixed maturities and common stocks,
mortgage loans, real estate, and short-term investments. Fixed
maturity investments include publicly traded and private placement
corporate bonds, government bonds, publicly traded and private
placement structured assets and redeemable preferred stocks. The
Company's portfolio of structured assets is primarily invested in
mortgage-backed securities and secondarily in other asset-backed
securities. Mortgage-backed securities include collateralized
mortgage obligations ("CMOs"). CMO holdings are concentrated in
securities with limited prepayment, extension and default risk,
such as planned amortization class bonds.

The Company generally manages the characteristics of its investment
assets, such as liquidity, currency, yield and duration to reflect
the underlying characteristics of related insurance and
contractholder liabilities, which vary among the Company's
principal product lines. The Company observes strict asset and
liability matching guidelines, which are designed to ensure that
the investment portfolio will appropriately meet the cash flow and
income requirements of its liabilities. In connection with its
investment strategy, the Company may use derivative instruments in
hedging applications to manage market risk. Derivative instruments
are not used for speculative purposes. For more information on
derivatives see Note 6 to the financial statements on page 46.

The Company routinely monitors and evaluates the status of its
investments in light of current economic conditions, trends in
capital markets, and other factors. These other factors include
investment size, quality, concentration by industry segment, and
other diversification considerations for fixed maturity
investments, and geographic and property-type considerations for
mortgage loan investments.

The Company's fixed maturity investments constituted 64% of
investment assets as of December 31, 1996. The Company reduces
credit risk for the portfolio as a whole by investing primarily in
investment grade fixed maturities rated by either third-party
rating agencies, or in the case of securities which may not be
rated by third-parties, by the Company (for private investments).
See page 25 for more information on the credit rating of the fixed
maturity portfolio.

The Company's mortgage loan investments constituted 12% of
investment assets as of December 31, 1996. The Company's mortgage
investment policy emphasizes a broadly diversified portfolio of
commercial and industrial mortgages. Mortgage loan investments are
subject to underwriting criteria addressing loan-to-value ratios,
debt service coverage, cash flow, tenant quality, leasing, market,
location, and financial strength of borrower. Since 1986, the
Company has reduced the overall weighting of its mortgage portfolio
with a greater emphasis in bond investments (see Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Investment Operations, on page 24).

At December 31, 1996 only .5% of invested assets were invested in
real estate.

The following table sets forth the distribution of invested assets,
cash and accrued investment income as of the end of the years
indicated:

[Carrying Value in
Millions]

1996
1995
1994
1993
1992

*Debt Securities:
Bonds
U.S. Government
Securities and
obligations of U.S.
Government
Agencies
$ 1,947
$ 1,990
$ 1,672
$ 1,553
$ 1,730
Corporate bonds
6,133
6,168
5,079
5,128
4,510
Foreign governments
119
159
368
375
330
Total
8,199
8,317
7,119
7,056
6,570

Common Stock
20
9
5
3
8
Mortgage loans
1,488
1,713
2,011
2,378
2,713
Real estate
68
61
44
41
63
Policy loans
2,523
2,238
1,905
1,431
1,035
Short-term
investments
419
135

707
683
343
Total investments
12,717
12,473
11,791
11,592
10,732

Cash
125
91
132
86
87
Accrued investment
income
198
212
196
183
169

* The majority (in value) of debt securities are carried at fair
value in 1996, 1995, and 1994 due to the adoption of Statement of
Financial Accounting Standards No. 115 at January 1, 1994.

The following table summarizes investment results of the Company's
continuing operations:

Net Investment Income
Earned Net Investment Income Rate

[Millions]

For the year:
1996
$837
7.07%
1995
835
7.36
1994
768
7.23
1993
792
7.76
1992
661
8.32

4. Regulation

General

The Company must comply with the insurance laws of all
jurisdictions in which it is licensed to do business. Although the
intent of regulation varies, most jurisdictions have laws and
regulations governing rates, solvency, standards of business
conduct and various insurance and investment products. The form
and content of statutory financial reports and the type and
concentration of investments are also regulated.

The Company's operations and accounts are subject to examination by
the Colorado Insurance Division and other regulators at specified
intervals. The latest financial examination by the Colorado
Insurance Division was completed in 1997, and covered the 5-year
period ending December 31, 1995. This examination produced no
significant adverse findings regarding the Company.

Solvency Regulation

The National Association of Insurance Commissioners has adopted
risk-based capital rules for life insurance companies. These rules
recommend a specified level of capital depending upon the types and
quality of investments held, the types of business written, and the
types of liabilities maintained. Depending on the ratio of the
insurer's adjusted capital to its risk based capital, the insurer
could be subject to various regulatory actions ranging from
increased scrutiny to conservatorship. Based on the Company's
December 31, 1996 statutory financial reports, the Company was well
within these rules.

The National Association of Insurance Commissioners Insurance
Regulatory Information System ratios are another set of tools used
by regulators to provide an "early warning" as to when a company
may require special attention. There are twelve categories of
financial data with defined usual ranges for each. For 1996, the
Company was within the usual ranges in all categories.

Insurance Holding Company Regulations

The Company is subject to insurance holding company regulations in
Colorado. 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.

Securities Laws

The Company is subject to various levels of regulation under
federal securities laws. The Company's broker-dealer subsidiaries
are regulated by the Securities and Exchange Commission ("SEC") and
the National Association of Securities Dealers, Inc. The Company's
investment advisor subsidiary is 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.

HMO Regulation

The Company's HMO subsidiaries are subject to regulation by various
government agencies in the states in which they are licensed to do
business. This involves the regulation of solvency, contracts,
rates, quality assurance, minimum levels of benefits, and the
availability and continuity of care.

Guaranty Funds

Under insurance guaranty fund laws existing in all states, insurers
doing business in those states can be assessed (up to prescribed
limits) for certain obligations of insolvent insurance companies.
The Company has established a reserve of $9.1 million as of
December 31, 1996 to cover future assessments of known
insolvencies. The Company has historically recovered more than
half of the guaranty fund assessments through statutorily permitted
premium tax offsets. The Company has a prepaid asset associated
with guaranty fund assessments of $5.6 million at December 31,
1996.

Canadian Regulation

Because the Company is a subsidiary of Great-West Life, which is a
Canadian company, the Office of the Superintendent of Financial
Institutions Canada conducts periodic examinations of the Company
and approves certain investments in subsidiary companies.

5. Ratings

The Company is rated by a number of nationally recognized rating
agencies. The ratings represent the opinion of the rating agencies
on the financial strength of the Company and its ability to meet
the obligations of its insurance policies.

Rating Agency
Measurement
Rating

A.M. Best Company
Financial Condition and Operating Performance
A++ *

Duff & Phelps Corporation
Claims Paying Ability
AAA *

Standard & Poor's Corporation
Claims Paying Ability
AA+ **

Moody's Investors Service
Insurance Financial Strength
Aa2 ***

* Highest ratings available.
** Second highest rating out of 17 rating categories.
*** Third highest rating out of 19 rating categories.

6. Miscellaneous

A portion of the Company's business is "seasonal" in nature in the
sense that reported claims in the group health line of business are
generally higher in the first quarter.

No customer accounted for 10% or more of the Company's consolidated
revenues in 1996. In addition, no unit of the Company's business
is dependent on a single customer or a few customers, the loss of
which would have a significant effect on the Company or any of its
business units. The loss of business from any one, or a few,
independent brokers or agents would not have a material adverse
effect on the Company or any of its business units.

The Company had approximately 4,200 employees at January 1, 1997.

ITEM 2. PROPERTIES

The executive offices of the Company consist of a 517,633 square
foot office complex located in Englewood, Colorado. The office
complex is owned by a subsidiary of the Company. The Company
leases sales and claims offices throughout the United States.

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 1996 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

All of the Company's outstanding common shares are owned by
Great-West Life. Accordingly, there is no established public
trading market for the Company's common equity.

B. DIVIDENDS

In the two most recent fiscal years, the Company has paid quarterly
dividends on its common shares. Dividends totaled $48,082,915 in
1996 and $39,763,499 in 1995.

Under Colorado law, the Company cannot, without the approval of the
Colorado Commissioner of Insurance, pay a dividend if, as a result
of such payment, the total of all dividends paid in the preceding
twelve months would exceed the greater of (i) 10% of the Company's
surplus as regards policyholders as at the preceding December 31;
or (ii) the Company's net gain from operations as at the preceding
December 31.

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 financial statements of the Company
included in Item 8 on page 29.

Millions
Years Ended December 31
1996
1995
1994
1993
1992

INCOME STATEMENT DATA
Premiums and other income
$ 1,199
$ 1,067
$ 1,000
$ 696
$ 245
Net investment income
837
835
768
792
661
Realized investment gains (losses)
(21)
8
(72)
25
(4)
Total Revenues
2,015
1,910
1,696
1,513
$ 902
Total benefits and expenses
1,824
$ 1,733
$ 1,593
$ 1,417
$ 844
Income tax expense
56
49
29
31
18
Cumulative effect of adopting
a new accounting method for
income taxes

(23)
Net Income
$ 135
$ 128
$ 74
$ 65
$ 63

BALANCE SHEET DATA
Investment assets
$12,717
$12,473
$11,791
$11,592
$10,732
Separate account assets
5,485
3,999
2,555
1,680
937
Total assets
19,351
17,682
15,616
14,296
12,948
Total policyholder liabilities
11,687
11,492
10,929
10,592
10,352
Total shareholder's equity
1,034
993
777
821
769

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Management's discussion and analysis of financial condition and
results of operations of the Company for the three years ended
December 31, 1996 follows. In connection with, and because it
desires to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the Company
cautions readers regarding certain forward-looking statements
contained in the following discussion and elsewhere in this report
and in any other statements made by, or on behalf of, the Company,
whether or not in future filings with the SEC. Forward-looking
statements are statements not based on historical information and
which relate to future operations, strategies, financial results,
or other developments. In particular, statements using verbs such
as "expect," "anticipate," "believe," or words of similar import
generally involve forward-looking statements. Without limiting the
foregoing, forward-looking statements include statements which
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 risks and uncertainties
discussed in documents filed by the Company with the SEC. The
Company disclaims any obligations to update forward-looking
information.

A. COMPANY RESULTS OF OPERATIONS

1. Comparison of Years Ended December 31, 1996 and 1995

The Company's consolidated net income increased 5% to $134.6
million, when compared to 1995.

Premiums and other income increased 12% from $1,067.4 million in
1995 to $1,199.2 million in 1996. The 1996 premiums included
$164.8 million of reinsurance premium associated with the recapture
of a block of participating individual insurance business from
Great-West Life. This transaction did not impact consolidated net
income, as it was offset by an increase in reserves (see discussion
of policy benefits below). Therefore, premiums and other income
from operations were down from 1995 levels, which reflects a 7%
reduction in group life and health premiums due to high termination
rates associated with price sensitivity and competition from
managed care companies.

Net investment income increased $1.5 million from $835.1 million in
1995 to $836.6 million in 1996. This change reflected an increase
in the amount of invested assets of $243.8 million, which was
largely offset by a lower effective yield on investments purchased
in late 1995 and early 1996. The increase in invested assets is
primarily the result of growth in policy loans on the
Corporate-Owned Life Insurance ("COLI") business.

The Company's realized investment gains (losses) changed from a net
realized gain of $7.5 million in 1995 to a net realized loss of
$21.1 million in 1996. The increase in interest rates in 1996
resulted in realized losses on the sale of fixed maturities
totaling $11.6 million, while lower interest rates contributed to
$28.2 million of fixed maturity gains recorded in 1995. The 50%
improvement in the provision for asset losses helped to partially
offset the fixed maturities capital losses, as the change in
provision was reduced from $22.0 million in 1995 to $10.6 million
in 1996.

Total benefits and expenses includes life and other policy
benefits, increase in reserves, interest paid or credited to
contractholders, expenses, and dividends to policyholders. The
increase of 5% from $1,733.3 million in 1995 to $1,824.3 million in
1996 is primarily the result of the increase in reserves of $164.8
million associated with the recapture of insurance from Great-West
Life. After this adjustment the total benefits and expenses
actually decreased from 1995 to 1996. This is the result of a
reduction in group health claims which is consistent with the
premium decrease discussed previously.

Net income in 1996 also reflects a $25.6 million release of a
previously recorded contingent liability that the Company assumed
from Great-West Life in 1993. The release was triggered by the
resolution of 1988 and 1989 tax issues with the Internal Revenue
Service.

The effective income tax rates were reduced in 1996 by the release
of the contingent liability which was not taxable and in 1995 by
the release of a $13.3 million deferred tax valuation allowance in
a subsidiary investment company.

2. Comparison of Years Ended December 31, 1995 and 1994

The Company's consolidated net income increased 73% in 1995,
compared with 1994. The majority of the increase was in the
Financial Services unit where the asset intensive lines benefited
from a combination of lower mortgage writedowns and capital gains
from sales in the fixed maturities portfolio, as described below.

Premiums and other income increased 7% from $1,000.1 million in
1994 to $1,067.4 million in 1995, as the result of an increase in
group life and health premiums which were augmented by the
acquisition of blocks of business from Confederation Life Insurance
Company and Life of Georgia.

Net investment income increased $67.4 million in 1995 to a total of
$835.1 million reflecting an increase in invested assets from $11.8
billion to $12.5 billion in 1995. The increase was driven by the
growth in policy loans associated with COLI business.

The Company's realized gains (losses) changed from a net realized
loss of $71.9 million in 1994 to a net realized gain of $7.5
million in 1995. The provision for asset losses, included in
realized losses, continued to decline as the $22.0 million in 1995
was $12.2 million lower than the $34.2 million recorded in 1994, as
the mortgage portfolio continued to improve. Interest rates
decreased in 1995, leading to capital gains on the sale of fixed
maturities of $28.2 million which were better than the $39.8
million of losses recorded in 1994.

Total benefits and expenses increased 9% in 1995 to a total of
$1,733.3 million. This increase reflects the growth in the group
life and health block of business, and its impact on the increase
in group health claims and operating expenses.

The effective income tax in 1995 and 1994 was lower than the
statutory rate due to a reduction of $13.3 million and $7.1
million, respectively, in the deferred tax asset valuation
allowance held in a real estate subsidiary.

B. BUSINESS UNIT RESULTS OF OPERATIONS

The following discussion of results from operations is presented in
terms of the major business units of the Company, and the financial
information regarding such business units, described on pages 1 and
2 (Business of the Company).

1. Employee Benefits

401(k) premiums and deposits increased 23% to $1.2 billion in 1996.

Total revenue premium income (including premium equivalents) for
group life and health decreased 9% from 1995 levels, however, the
Company experienced an increase in premium growth during the last
half of 1996. Assets under administration in 401(k) increased 40%
over 1995, to $3.9 billion. Employee benefits operating income
increased in 1996, with favorable mortality and morbidity results,
strong 401(k) asset growth, and effective expense management. The
Company increased expenses to fund HMO development and computer
systems enhancements.

The managed care industry in the United States experienced frequent
acquisitions and mergers in 1996. To position itself for the
future, the Company focused on putting in place the products,
strategies and processes that will strengthen its competitive
position in the evolving managed care environment.

As a result of heightened price sensitivity and competition from
managed care companies, the rate of growth in the Company's life
and health business slowed. New life and health case sales in 1996
of 1,125 were higher than the 1,031 recorded in 1995, however
termination rates were high resulting in a 7% reduction in the
premiums associated with this block of business.

Employers' heightened sensitivity to price has led to a demand for
more tightly controlled managed care plans, which is why HMO
development remains Employee Benefits' most important product
development initiative. In 1996 the Company received state
approval for HMO's in California, Texas, Illinois, Colorado, and
Georgia and applied for licenses in additional states. The Company
also entered into three agreements with other carriers, which will
exclusively market the One Health Plan HMO in various states.
These agreements, and others like them, will augment growth in the
Company's HMO programs in the years to come.

The Company's One Health Plan subsidiary organization will also
play an important role in network contracting and administration
medical management, member services and quality assurance for the
Company's other managed care products. In addition to day-to-day
operations of the HMO, each One Health Plan subsidiary will
administer Preferred Provider Organization ("PPO") and
Point-of-Service ("POS") plan provider networks for the Company and
its joint-venture partner, New England. As well as providing
economies of scale, this "pooling" of PPO, POS, and HMO membership
benefits the Company in negotiating favorable provider
reimbursement arrangements.

The Company experienced a 4% decrease in total covered lives, from
1,621,170 at the end of 1995 to 1,554,142 at year-end 1996.
However, gatekeeper (i.e., POS and HMO) members grew 35% from
258,930 in 1995 to 350,185 in 1996, as employers moved from fully
insured and PPO products. As additional HMO licenses are obtained,
the Company expects this segment of the business to grow.

The number of new 401(k) case sales, including business generated
through the Company's joint venture with New England, continued to
climb to 1,156 in 1996 from 960 in 1995 and 953 in 1994. This
brings the total 401(k) block of business under administration to
4,942 employer groups and more than 350,000 individual
participants.

During 1996, the in-force block of 401(k) business also performed
well, with persistency of 93%. This, combined with a strong stock
market, resulted in a 40% increase in assets under management, to
$3.9 billion.

To promote long-term asset retention, the Company enhanced a number
of products and services during 1996, including prepackaged
"lifestyle" funds (The Profile Series), "Account Credits" for
high-balance accounts, a rollover Individual Retirement Account
product, strong enrollment communications, one-on-one retirement
planning assistance and personal plan illustrations.

In 1997, the Company will continue to enhance managed care programs
and services by furthering HMO development, implementing a new
claims adjudication system, seeking National Committee for Quality
Assurance accreditation and introducing quality assurance programs
and member communication directed at health improvements. The
Company will continue to build on its 401(k) product, placing more
emphasis on participant education and enrollment strategies, as
well as introducing new investment options. Finally, the Company
will introduce a non-qualified deferred compensation program
designed to allow key executives to defer salary for retirement
savings beyond 401(k) contribution limits.

2. Financial Services

Savings

The Company's core savings business is the public/non-profit
("P/NP") pension market, providing investment products,
administrative and communication services to employees of state and
local governments (Internal Revenue Code Section 457 Deferred
Compensation Plans), as well as employees of hospitals and public
school districts (Internal Revenue Code Sections 403(b) Tax
Deferred Annuities and 401(k) Cash or Deferred Arrangements).
Assets under management in the P/NP business, including Separate
Accounts, increased 4.6% during 1996 to $6.6 billion. Much of the
growth came from the variable annuity business, which was driven by
good sales results and strong investment returns in the equity
markets.

The Company's P/NP lives under administration were 462,914 in 1996,
compared to 410,843 in 1995, and 340,079 in 1994. The Company
primarily used BenefitsCorp, its communication and marketing
subsidiary, to sell 12 new large employer (100 lives or larger)
cases and to increase the penetration of existing cases by
enrolling new employees.

The Company experienced a 100% retention rate in P/NP contract
renewals in 1996. The Company attributes part of this customer
loyalty to initiatives to provide high-quality service while
controlling expenses. Unit costs declined 11%, the result of
further automation in policyholder recordkeeping and aggressive
expense management.

The Company continued to limit sales of Guaranteed Investment
Contracts ("GICs") and allow this block of business to contract.
This decision was taken in 1993 in response to the highly
competitive GIC market. As a result, GIC assets decreased 21% in
1996, to $524.6 million, and decreased 29% in 1995.

Customer demand for investment diversification continued to grow
during 1996. New contributions to variable business represented
69% of the total 1996 deposits, compared to 54% in 1995. The
Company continues to expand the investment products available
through its subsidiary mutual fund company, Maxim Series Fund,
Inc., and arrangements with external fund managers. This array of
funds allows customers to diversify their investments across a wide
range of investment products, including fixed income, stock, and
international equity fund offerings.

FASCorp, a subsidiary of the Company formed in 1993, provides
comprehensive administrative and recordkeeping services for
financial institutions and employer-sponsored retirement plans.
FASCorp administered records for more than 7,700 groups in 1996
versus 7,000 in 1995, representing approximately 800,000
participants (700,000 in 1995).

During the fourth quarter of 1996, the Company entered into a
marketing agreement with Charles Schwab & Co., Inc., to sell
individual fixed and variable qualified and non-qualified deferred
annuities. Sales of the products commenced in November 1996,
resulting in variable annuity deposits of $9.3 million during the
last two months of 1996.

Premium deposits associated with the Company's individual deferred
annuities were $5.3 million in 1996, compared to $112.7 million in
1995. The Company discontinued the distribution of the product
early in 1996 with the intention of replacing these sales through
the Charles Schwab distribution channel.

Insurance

Individual life insurance premiums and deposits of $910.1 million
in 1996 increased 45% from 1995 primarily due to the $164.8 million
of reinsurance premium associated with the recapture of a block of
participating individual insurance business from Great-West Life.
The remaining growth was due to BOLI premium.

The Company continued to de-emphasize the development and
distribution of traditional life insurance products, while focusing
on customer retention and expense management. Aggressive expense
management and favorable individual life insurance policy
persistency resulted in unit costs improving significantly during
the year. In late 1996, the Company announced that it would no
longer sell insurance products through general agents. The Company
began test marketing the sale of term, universal, and joint
survivor life insurance products under its marketing agreement with
Charles Schwab & Co., Inc. The results of this test program will
be evaluated in 1997.

As of year end, legislation was in place which phases out the tax
deductibility of interest on policy loans on COLI products during
1997 and 1998. However, the Company has shifted its emphasis from
new sales of COLI business to the more stable BOLI market. This
product provides long term benefits for bank employees and was not
affected by the legislative changes. COLI sales were discontinued
in 1996, but renewal premiums and deposits totaled $370.9 million.
BOLI revenue premiums and deposits increased to $190.5 million
during 1996, compared to $97.2 million in 1995. The Company is
working closely with existing COLI customers to determine the
options available to them. The effect of these legislative changes
is not expected to be material to the Company's operations.

3. Investment Operations

The Company's primary investment objective is to acquire assets
whose durations and cash flows reflect the characteristics of the
Company's liabilities, while meeting industry, size, issuer and
geographic diversification standards. Formal liquidity and credit
quality parameters have also been established.

The Company follows rigorous procedures to control interest rate
risk and observes strict asset and liability matching guidelines.
These guidelines are designed to ensure that even in changing
interest rate environments the Company's assets will always be able
to meet the cash flow and income requirements of its liabilities.
Through dynamic modeling, using state-of-the-art software to
analyze the effects of a wide range of possible market changes upon
investments and policyholder benefits, the Company ensures that its
investment portfolio is appropriately structured to fulfill
financial obligations to its policyholders.

A summary of the Company's invested assets (Millions) follows:

1996
1995

Fixed maturities, available for sale,
at fair value
$6,206
$6,263
Fixed maturities, held at maturity,
at amortized cost
1,993
2,054
Mortgage loans
1,488
1,713
Real estate and common stock
88
70
Short-term investments
419
135
Policy loans
2,523
2,238
$12,717
$12,473

Fixed Maturities

Fixed maturity investments include publicly traded bonds, privately
placed bonds and public and private structured assets. This latter
category contains both asset-backed and mortgage-backed securities,
including collateralized mortgage obligations ("CMOs"). The
Company's strategy related to structured assets is to focus on
those with lower volatility and minimal credit risk. The Company
does not invest in higher risk CMOs such as interest-only and
principal-only strips, and currently has no plans to invest in such
securities.

Private placement investments are generally less marketable than
publicly traded assets, yet they typically offer covenant
protection which 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. In excess of 85% of the value of the
securities in this portfolio are rated by external rating agencies.

If not externally rated, the securities are rated by the Company on
a basis intended to be similar to that of the rating agencies.

The distribution of the fixed maturity portfolio (both available
for sale and held to maturity) by credit rating is summarized as:

Credit Rating

1996
1995

AAA
45.9%
43.9%
AA
8.1
8.0
A
23.7
26.8
BBB
20.9
19.2
BB and Below (non-investment grade)
1.4
2.1
TOTAL
100.0%
100.0%

At December 31, 1996, the Company had one bond in default in the
amount of $8 million, and one potentially problematic bond, with a
carrying value of $6.4 million, which, although current, is judged
by management as likely to require either restructuring or other
types of relief. Both bonds are carried at their estimated net
realizable values. Their combined total of $14.4 million is a
relatively low proportion of the total fixed maturity portfolio
(less than .2%) as the high credit quality of the portfolio limits
the Company's exposure to problematic bonds. At December 31, 1995,
there were no bonds in default and only one potentially problematic
security, with a carrying value of $7.4 million.

Mortgage Loans

During 1996, the mortgage portfolio declined 13% to $1.5 billion,
net of impairment reserves. The Company has not actively sought
new loan opportunities since 1989 and, as such, has experienced an
ongoing reduction in this portfolio's balance.

The Company follows a comprehensive approach to the management of
mortgage loans which includes ongoing analysis of key mortgage
characteristics such as debt service coverage, net collateral cash
flow, property condition, loan to value ratios and market
conditions. Collateral valuations are performed for those
mortgages which, after review, are determined by management to
present possible risks and exposures. These valuations are then
incorporated into the determination of the Company's allowance for
credit losses. Effective January 1, 1995, the Company adopted
Statement of Financial Accounting Standards Nos. 114 and 118 (see
Note 1 to the financial statements - page 38), both of which deal
with accounting for impaired loans (defined as those loans upon
which the Company will likely collect less than all amounts due
according to the contractual terms of the agreement). As the
Company already provided for impairment reserves through its
allowance procedures, the adoption of the new standards had no
material effect upon the Company's financial position.

The average balance of impaired loans continued to remain low at
$39.1 million in 1996 compared with $29.1 million in 1995, and
foreclosures totaled $14.0 million and $37.0 million in 1996 and
1995, respectively. The low levels of problematic mortgages
relative to the Company's overall balance sheet are due to the
ongoing decrease in the size of the mortgage portfolio, the
Company's active loan management program and improvement in market
conditions.

Occasionally, the Company elects to restructure certain loans if
the economic benefits to the Company are believed to be more
advantageous than those achieved by acquiring the collateral
through foreclosure. At December 31, 1996 and 1995, the Company's
loan portfolio included $68.3 million and $89.2 million,
respectively, of non-impaired restructured loans.

Real Estate and Common Stock

The Company's real estate portfolio is composed primarily of
properties acquired through the foreclosure of troubled mortgages.
The Company operates a wholly owned real estate subsidiary which
attempts to maximize the value of these properties through
rehabilitation, leasing and sale. The Company anticipates limited,
if any, investments in voluntary real estate assets during 1997.

The common stock portfolio is composed of mutual fund seed money
and some private equity investments. The Company anticipates a
limited participation in the stock markets in 1997.

Derivatives

The Company uses certain derivatives, such as futures, options, and
swaps, for purposes of hedging interest rate and foreign exchange
risk. These derivatives, when taken alone, may subject the Company
to varying degrees of market and credit risk; however, when used
for hedging, these instruments typically reduce risk. The Company
controls the credit risk of its financial contracts through credit
approvals, limits and monitoring procedures. Note 6 to the
financial statements (page 46) contains a summary of the Company's
outstanding financial hedging derivatives.

Other

General economic conditions improved during 1996, including
improvement or stabilization in many real estate markets. If
present market conditions continue, the Company does not expect to
recognize any asset chargeoffs or restructurings which would result
in a material adverse effect upon the Company's financial condition
in 1997.

C. LIQUIDITY AND CAPITAL RESOURCES

The Company's operations have liquidity requirements that vary
among the principal product lines. Life insurance and pension plan
reserves are primarily long-term liabilities. Accident and health
reserves, including long-term disability, consist of both
short-term and 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.
Accident and health claim demands are stable and predictable but
generally shorter term, requiring greater liquidity.

Generally, the Company has met its operating requirements by
maintaining appropriate levels of liquidity in its investment
portfolio and utilizing positive cash flows from operations.
Liquidity for the Company has remained strong, as evidenced by
significant amounts of short-term investments and cash, which
totaled $544.2 million and $225.8 million as of December 31, 1996
and 1995, respectively.

During 1996, cash increased $34.2 million to $125.2 million as of
December 31, 1996. This increase primarily reflects the positive
cash flow from operating activities ($712.4 million). The increase
was partially offset by net investment purchases ($127.7 million),
contract withdrawals ($413.6 million), net repurchase agreement
payments ($88.6 million) and payment of dividends on stock ($56.7
million).

During 1995, cash decreased $40.7 million due to contract
withdrawals ($217.2 million), net repurchase agreement payments
($191.2 million), net investment purchases ($27.4 million), and
payment of dividends on stock ($49.0 million). Cash flow from
operating activities was $458.1 million.

The 1994 increase in cash primarily reflects cash flows from
operating activities net of withdrawals and net investment
purchases.

Funds provided from premiums and fees, investment income and
maturities of investment assets are reasonably predictable and
normally exceed liquidity requirements for payment of claims,
benefits and expenses. However, since the timing of available
funds cannot always be matched precisely to commitments, imbalances
may arise when demands for funds exceed those on hand. Also, a
demand for funds may arise as a result of the Company taking
advantage of current investment opportunities. The Company's
capital resources represent funds available for long-term business
commitments and primarily consist of retained earnings and proceeds
from the issuance of commercial paper and equity securities.
Capital resources provide protection for policyholders and the
financial strength to support the underwriting of insurance risks,
and allow for continued business growth. The amount of capital
resources that may be needed is determined by the Company's senior
management and Board of Directors as well as by regulatory
requirements. The allocation of resources to new long-term
business commitments is designed to achieve an attractive return,
tempered by considerations of risk and the need to support the
Company's existing business.

The Company's financial strength provides the capacity and
flexibility to enable it to raise funds in the capital markets
through the issuance of commercial paper. The Company continues
to be well capitalized, with sufficient borrowing capacity to meet
the anticipated needs of its business. The Company had $84.7
million of commercial paper outstanding at December 31, 1996,
compared with $84.9 million at December 31, 1995. The commercial
paper has been given a rating of A-1+ by Standard & Poor's
Corporation and a rating of P-1 by Moody's Investors Service, each
being the highest rating available.

D. ACCOUNTING PRONOUNCEMENTS

In 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The implementation of this statement had no material effect on the
Company's results of operations, liquidity or financial condition.

Effective January 1, 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" and SFAS No.
118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". As the Company was already providing
for impairment of loans through an allowance for credit losses, the
implementation of these statements had no material effect on the
Company's financial condition. See Note 6 to the financial
statements for further information (page 46).

In 1994, the Company implemented SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". The cumulative
effect as of January 1, 1994 of adopting SFAS No. 115 increased the
opening balance of stockholder's equity by $6.5 million to reflect
the net unrealized gains on securities classified as
available-for-sale (previously carried at the lower of aggregated
amortized cost or fair value) and the corresponding adjustments to
deferred policy acquisition costs, policy reserves, and amounts
allocable to the liability for undistributed earnings on
participating business, all net of income taxes.

During the fourth quarter of 1995, the Financial Accounting
Standards Board issued a guide to implementation of SFAS No. 115,
which permits a one-time opportunity to reclassify securities
subject to SFAS No. 115. Consequently, the Company reassessed the
classification of its investment portfolio in December 1995 and
reclassed securities totaling $2.1 billion from held-to-maturity to
available-for-sale. In connection with this reclassification, an
unrealized gain, net of related policyholder amounts and deferred
income taxes, of $23.4 million was recognized in stockholder's
equity at the date of transfer.

In connection with the employee transfer discussed in Note 2 to the
financial statements on page 42, the Company in 1997 will apply the
provisions of SFAS No. 87, "Employers Accounting for Pensions",
SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions", and SFAS No. 123, "Accounting for Stock-Based
Compensation". Previously employee expenses (including costs for
benefit plans) were transferred from Great-West Life to the Company
through administrative services agreements. Accordingly, the
implementation of these standards will have no material effect on
the financial results of the Company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's Consolidated Financial Statements for the Years Ended
December 31, 1996, 1995, and 1994 and Independent Auditors' Report,
and certain supplementary financial data, are set out below.

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(A wholly-owned subsidiary of
The Great-West Life Assurance Company)

Consolidated Financial Statements for the
Years Ended December 31, 1996, 1995, and 1994
and Independent Auditors' Report

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholder
of Great-West Life & Annuity Insurance Company:

We have audited the accompanying consolidated balance sheets of
Great-West Life & Annuity Insurance Company (a wholly-owned
subsidiary of The Great-West Life Assurance Company) and
subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholder's equity, and cash
flows for each of the three years in the period ended December 31,
1996. 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 generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Great-West Life & Annuity Insurance Company and subsidiaries as of
December 31, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting
principles.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Denver, Colorado
January 25, 1997

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(Dollars in Thousands)

ASSETS

1996
1995

INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized cost (fair value $2,041,064 and
$2,158,043)
$ 1,992,681
$ 2,054,204
Available-for-sale, at fair value (amortized cost $6,151,519
and $6,087,969)
6,206,478
6,263,187
Common stock
19,715
9,440
Mortgage loans on real estate, net
1,487,575
1,713,195
Real estate, net
67,967
60,454
Policy loans
2,523,477
2,237,745
Short-term investments, available-for-sale (cost approximates
fair value)
419,008
134,835
Total Investments
12,716,901
12,473,060

Cash
125,182
90,939
Reinsurance receivable
196,958
333,924
Deferred policy acquisition costs
282,780
278,526
Investment income due and accrued
198,441
211,922
Other assets

57,244
40,038
Premiums in course of collection
74,693
85,990
Deferred income taxes
214,404
168,941
Separate account assets
5,484,631
3,998,878

TOTAL ASSETS
$19,351,234
$17,682,218

See notes to consolidated financial statements.

LIABILITIES AND STOCKHOLDER'S EQUITY

1996
1995

POLICY BENEFIT LIABILITIES:
Policy reserves
$11,022,595
$10,845,935
Policy and contract claims
372,327
359,791
Policyholders' funds
153,867
154,872
Experience refunds
87,399
83,562
Provision for policyholders' dividends
51,279
47,760

GENERAL LIABILITIES:
Due to Parent Corporation
151,431
149,974
Repurchase agreements
286,736
375,299
Commercial paper
84,682
84,854
Other liabilities
488,818
451,555
Undistributed earnings on
participating business
133,255
136,617
Separate account liabilities
5,484,631
3,998,878
Total Liabilities
18,317,020
16,689,097

STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value,
50,000,000 shares authorized:
Series A, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
600 shares issued and outstanding
60,000
60,000
Series B, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
200 shares issued and outstanding
20,000
20,000
Series C, cumulative, 1500 shares authorized,
none outstanding

Series D, cumulative, 1500 shares authorized,
none outstanding

Series E, non-cumulative, 2,000,000
shares authorized, liquidation value of $20.90
per share, issued, and outstanding
41,800
41,800
Common stock, $1 par value; 50,000,000 shares authorized;
7,032,000 shares issued and outstanding
7,032
7,032
Additional paid-in capital
664,265
657,265
Net unrealized gains on securities available-for-sale, net
14,951
58,763
Retained earnings
226,166
148,261
Total Stockholder's Equity
1,034,214
993,121

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
$19,351,234
$17,682,218

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands)

1996
1995
1994

REVENUES:
Annuity contract charges and premiums
$91,881
$79,816
$61,122
Life, accident, and health premiums earned (net of
premiums ceded totaling $(104,250), $60,880
and $48,115)
1,107,367
987,611
938,947
Net investment income
836,642
835,046
767,646
Net realized gains (losses) on investments
(21,078)
7,465
(71,939)

2,014,812
1,909,938
1,695,776

BENEFITS AND EXPENSES:
Life and other policy benefits (net of reinsurance
recoveries totaling $52,675, $43,574,
and $18,937)
515,750
557,469
548,950
Increase in reserves
229,198
98,797
64,834
Interest paid or credited to contractholders
561,786
562,263
529,118
Provision for policyholders' share of earnings (losses)
on participating business
(7)
2,027
(725)
Dividends to policyholders
49,237
48,150
42,094

1,355,964
1,268,706
1,184,271

Commissions
106,561
122,926
120,058
Operating expenses
336,719
314,810
261,311
Premium taxes
25,021
26,884
27,402

1,824,265
1,733,326
1,593,042

INCOME BEFORE INCOME TAXES
190,547
176,612
102,734

PROVISION FOR INCOME TAXES:
Current
77,134
88,366
65,070
Deferred
(21,162)
(39,434)
(36,614)

55,972
48,932
28,456

NET INCOME
$134,575
$127,680
$74,278

See notes to consolidated financial statements.

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands)

Preferred Stock
Shares
Amount
Common Stock
Shares
Amount
Additional Paid-In Capital
Net Unrealized Gains (Losses)
Retained Earnings (Deficit)
Total

BALANCE, JANUARY 1, 1994
2,000,800
$121,800
7,032,000
$7,032
$656,793
$0
$35,721
$821,346

Adjustment to beginning balance for change in
accounting method for investment
securities

6,515

6,515

Change in net unrealized gains (losses)

(84,942)

(84,942)

Capital contributions

472

472

Dividends

(40,438)
(40,438)

Net income

74,278
74,278

BALANCE, DECEMBER 31, 1994
2,000,800
121,800
7,032,000
7,032
657,265
(78,427)
69,561
777,231

Change in net realized gains (losses)

137,190

137,190

Dividends

(48,980)
(48,980)

Net income

127,680
27,680

BALANCE, DECEMBER 31, 1995
2,000,800
121,800
7,032,000
7,032
657,265
58,763
148,261
993,121

Change in net unrealized gains (losses)

(43,812)

(43,812)

Capital contributions

7,000

7,000

Dividends

(56,670)
(56,670)

Net income

134,575
134,575

BALANCE, DECEMBER 31, 1996
2,000,800
$121,800
7,032,000
$7,032
$664,265
$14,951
$226,166
$1,034,214

See notes to consolidated financial statements.

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands)

1996
1995
1994

OPERATING ACTIVITIES:
Net income
$134,575
$127,680
$74,278
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain (loss) allocated to participating policyholders
(7)
2,027
(725)
Amortization of investments
15,518
26,725
36,978
Realized losses (gains) on disposal of investments
and write-downs of mortgage loans and real estate
21,078
(7,465)
71,939
Amortization
49,454
49,464
29,197
Deferred income taxes
(20,258)
(39,763)
(38,631)
Changes in assets and liabilities:
Policy benefit liabilities
358,393
346,975
93,998
Reinsurance receivable
136,966
(38,776)
(25,868)
Accrued interest and other receivables
24,778
(17,617)
(26,032)
Other, net
(8,076)
8,834

96,950
Net cash provided by operating activities
712,421
458,084
312,084

INVESTING ACTIVITIES:
Proceeds from sales, maturities, and
redemptions of investments:
Fixed maturities
Held-to-maturity
Sales

18,821
16,014
Maturities and redemptions
516,838
655,993
1,034,324
Available-for-sale
Sales
3,569,608
4,211,649
1,753,445
Maturities and redemptions
803,369
253,747
141,299
Mortgage loans
235,907
260,960
291,102
Real estate
2,607
4,401
29,868
Common stock
1,888

178
Purchases of investments:
Fixed maturities
Held-to-maturity
(453,787)
(490,228)
(673,567)
Available-for-sale
(4,753,154)
(4,932,566)
(2,606,028)
Mortgage loans
(23,237)
(683)
(9)
Real estate
(15,588)
(5,302)
(9,253)
Common stock
(12,113)
(4,218)
(2,063)
Net cash used in investing activities
(127,662)
(27,426)
(24,690)

(Continued)

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands)

1996
1995
1994

FINANCING ACTIVITIES:
Contract withdrawals, net of deposits
$(413,568)
$(217,190)
$(238,166)
Due to Parent Corporation
1,457
(9,143)
(13,078)
Dividends paid
(56,670)
(48,980)
(40,438)
Net commercial paper (repayments) borrowings
(172)
(4,832)
89,686
Net repurchase agreements repayments
(88,563)
(191,195)
(39,244)
Capital contributions
7,000

Net cash used in financing activities
(550,516)
(471,340)
(241,240)

NET INCREASE (DECREASE) IN CASH
34,243
(40,682)
46,154

CASH, BEGINNING OF YEAR
90,939
131,621
85,467

CASH, END OF YEAR
$125,182
$90,939
$131,621

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes
$103,700
$83,841
$68,892
Interest
15,414
17,016
12,229

See notes to consolidated financial statements.

(Concluded)

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Amounts in Thousands, except Share Amounts)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization - Great-West Life & Annuity Insurance Company
(the Company) is a wholly-owned subsidiary of The Great-West Life
Assurance Company (the Parent Corporation). The Company is an
insurance company domiciled in the State of Colorado. The Company
offers a wide range of life insurance, health insurance, and
retirement and investment products to individuals, businesses, and
other private and public organizations throughout the United
States.

Basis of Presentation - The preparation of financial
statements in conformity with generally accepted accounting
principles 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. The consolidated financial statements
include the accounts of the Company and its subsidiaries. All
material intercompany transactions and balances have been
eliminated in consolidation.

Certain reclassifications have been made to the 1995 and 1994
financial statements to conform with the basis of presentation used
in 1996.

Investments - Investments are reported as follows:

1. Management determines the classification of fixed maturities
at the time of purchase. Fixed maturities are classified as
held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost unless fair value is less
than cost and the decline is deemed to be other than temporary, in
which case they are written down to fair value and a new cost basis
is established.

Fixed maturities not classified as held-to-maturity are
classified as available-for-sale. Available-for-sale securities
are carried at fair value, with the net unrealized gains and losses
reported as a separate component of stockholder's equity. The net
unrealized gains and losses in derivative financial instruments
used to hedge available-for-sale securities are included in the
separate component of stockholder's equity.

The amortized cost of fixed maturities classified as
held-to-maturity or available-for-sale is adjusted for amortization
of premiums and accretion of discounts using the effective interest
method over the estimated life of the related bonds. Such
amortization is included in net investment income. Realized gains
and losses, and declines in value judged to be other-than-temporary
are included in net realized gains (losses) on investments.

2. Mortgage loans on real estate are carried at their unpaid
balances adjusted for any unamortized premiums or discounts and any
valuation reserves. Interest income is accrued on the unpaid
principal balance. Discounts and premiums are amortized to net
investment income using the effective interest method. Accrual of
interest is discontinued on any impaired loans where collection of
interest is doubtful.

The Company maintains an allowance for credit losses at a
level that, in management's opinion, is sufficient to absorb
possible credit losses on its impaired loans and to provide
adequate provision for any possible future losses in the portfolio.

Management's judgment is based on past loss experience, current and
projected economic conditions, and extensive situational analysis
of each individual loan.

Effective January 1, 1995, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 114 "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan-Income Recognition and
Disclosures". In accordance with these standards, a mortgage loan
is considered to be impaired when it is probable that the Company
will be unable to collect all amounts due according to the
contractual terms of the loan agreement. The measurement of
impaired loans is based on the fair value of the collateral. As
the Company was already providing for impairment of loans through
an allowance for credit losses, the implementation of these
statements had no material effect on the Company's financial
statements.

3. Real estate is carried at the lower of cost or fair value, net
of costs of disposal. Effective January 1, 1996, the Company
adopted SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". The
implementation of this statement had no material effect on the
Company's financial statements.

4. Investments in common stock are carried at fair value.

5. Policy loans are carried at their unpaid balances.

6. Short-term investments include securities purchased with
initial maturities of one year or less and are carried at 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 consist of sales commissions and other costs that vary with
and are primarily related to the production of new and renewal
business, have been deferred to the extent recoverable. 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 $47,089,
$48,054, and $28,199 in 1996, 1995, and 1994, respectively.

Separate Account - Separate account assets and related
liabilities are carried at fair value. The Company's separate
accounts invest in shares of Maxim Series Fund, Inc., a
diversified, open-end management investment company which is an
affiliate of the Company, shares of other external mutual funds, or
government or corporate bonds.

Life Insurance and Annuity Reserves - Life insurance and
annuity policy reserves with life contingencies of $5,242,753, and
$4,675,175 at December 31, 1996 and 1995, 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 $5,779,842 and $6,170,760,
at December 31, 1996 and 1995, respectively, are established at the
contractholder's account value.

Reinsurance - Policy reserves ceded to other insurance
companies are carried as reinsurance receivable on the balance
sheet (See Note 3). 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.

Policy and Contract Claims - Policy and contract claims
include provisions for reported claims in process of settlement,
valued in accordance with the terms of the related policies and
contracts, as well as provisions for claims incurred and unreported
based primarily on prior experience of the Company.

Participating Fund Account - Participating life and annuity
policy reserves are $3,591,077 and $3,339,316 at December 31, 1996
and 1995, respectively. Participating business approximates 50.3%
of the Company's ordinary life insurance in force and 92.2% of
ordinary life insurance premium income at December 31, 1996.

The liability for undistributed earnings on participating
business was decreased by $3,362 in 1996, which represented $7 of
losses on participating business, a reduction of $2,924 to reflect
the net change in unrealized gains on securities classified as
available-for-sale, net of certain adjustments to policy reserves
and income taxes, and a decrease of $431 due to reinsurance
transactions (See Note 2).

The amount of dividends to be paid from undistributed earnings
on participating business is determined annually by the Board of
Directors. Amounts allocable to participating policyholders are
consistent with established Company practice.

The Company has established a Participating Policyholder
Experience Account (PPEA) for the benefit of all participating
policyholders which is included in the accompanying consolidated
balance sheet. Earnings associated with the operation of the PPEA
are credited to the benefit of all participating policyholders. In
the event that the assets of the PPEA are insufficient to provide
contractually guaranteed benefits, the Company must provide such
benefits from its general assets.

The Company has also established a Participation Fund Account
(PFA) for the benefit of the participating policyholders previously
transferred to the Company from the Parent under an assumption
reinsurance transaction. The PFA is part of the PPEA. The assets
and liabilities associated with these policies are segregated in
the accounting records of the Company. Earnings derived from the
operation of the PFA accrue solely for the benefit of the acquired
participating policyholders.

Recognition of Premium Income and Benefits and Expenses - Life
insurance premiums are recognized as earned. Annuity premiums with
life contingencies are recognized as received. Accident and health
premiums are earned on a monthly pro rata basis. Revenues for
annuity and other contracts without significant life contingencies
consist of contract charges for the cost of insurance, contract
administration, and surrender fees that have been assessed against
the contract account balance during the period. Benefits and
expenses on policies with life contingencies are associated with
premium income by means of the provision for future policy benefit
reserves, resulting in recognition of profits over the life of the
contracts. The average crediting rate on annuity products was
approximately 6.8% in 1996.

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, net of a valuation
allowance, will be realized.

Repurchase Agreements and Securities Lending - The Company
enters into repurchase agreements with third-party broker-dealers
in which the Company sells securities and agrees to repurchase
substantially similar securities at a specified date and price.
Such agreements are accounted for as collateralized borrowings.
Interest expense on repurchase agreements is recorded at the coupon
interest rate on the underlying securities. The repurchase fee
received or paid is amortized over the term of the related
agreement and recognized as an adjustment to investment income.

The Company will implement Statement of Financial Accounting
Standards (SFAS) No. 125 "Accounting for Transfer and Servicing of
Financial Assets and Extinguishments of Liabilities" in 1998 as it
relates to repurchase agreements and securities lending
arrangements. Management estimates the effect of the change will
not be material.

Derivatives - The Company engages in hedging activities to manage
interest rate and foreign exchange risk (See Note 6).

2. RELATED-PARTY TRANSACTIONS

On October 31, 1996 the Company recaptured certain pieces of
an individual participating insurance block of business previously
reinsured to the Parent Corporation on December 31, 1992. The
Company recorded, at estimated fair value, the following at October
31, 1996 as a result of this transaction:

Assets Liabilities and
Stockholder's Equity

Cash $162,000 Policy reserves $164,839
Mortgages 19,753 Due to parent corporation 9,180
Other 18 Deferred income taxes 1,283
Undistributed earnings on Stockholder's equity 7,000
participating business 431
$182,302 $182,302

The Company and the Parent Corporation have a number of
service agreements whereby the Parent Corporation administers,
distributes, and underwrites business for the Company and
administers the Company's investment portfolio. Certain operating
expenses represent allocations made by the Parent Corporation to
the Company for services provided pursuant to these service
agreements. These transactions are summarized as follows:

Years Ended December 31,

1996
1995
1994
Investment management expense (included in net

investment income)
$14,800
$15,182
$13,841
Administrative and underwriting payments
(included in operating expenses)
304,599
301,529
269,020

Effective January 1, 1997 all employees of the U.S. operations of
the Parent Corporation and the related benefit plans were
transferred to the Company. All related employee benefit plan
assets and liabilities were transferred from the Parent Corporation
to the Company with no material impact on the Company's financial
position. There will not be any material effect on the Company's
operating expenses as the costs associated with the employees and
these benefit plans are reflected in the present service
agreements.

At December 31, 1996 and 1995, due to Parent Corporation
includes $31,639 and $27,814 due on demand and $119,792 and
$122,160 of notes payable which bear interest and mature at various
dates. These notes may be prepaid in whole or in part at any time
without penalty; the issuer may not demand payment before the
maturity date. The Company also has available an arrangement to
obtain advances from the Parent Corporation to fund short-term
liquidity needs. The due on demand to the Parent Corporation bears
interest at the public bond rate (7.0% and 6.4% at December 31,
1996 and 1995, respectively) while the remainder bear interest at
various rates.

3. REINSURANCE

In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured and to recover a portion
of benefits paid by ceding risks to other insurance enterprises
under excess coverage and co-insurance contracts. The Company
retains a maximum of $1.5 million of coverage per individual life.

Reinsurance contracts do not relieve the Company from its
obligations to policyholders. Failure of reinsurers to honor their
obligations could result in losses to the Company; 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, 1996 and 1995, reinsurance
receivables with a carrying value of $196,958 and $333,924,
respectively, were due primarily from the Parent Corporation.

Total reinsurance premiums assumed from the Parent Corporation
were $1,693, $1,606 and $2,438, in 1996, 1995, and 1994,
respectively.

The Company considers all accident and health policies to be
short-duration contracts. The following schedule details life
insurance in force and life and accident/health premiums:

Gross Amount
Ceded Primarily to the Parent Corporation
Assumed Primarily From Other Companies
Net Amount
Percentage of Amount Assumed to Net

December 31, 1996:
Life insurance in force:
Individual
$23,409,823
$5,246,079
$3,482,118
$21,645,862
16.1%
Group
47,682,237

1,817,511
49,499,748
3.7%
Total
$71,092,060
$5,246,079
$5,299,629
$71,145,610

Premiums:
Life insurance
$334,127
$(111,743)
$19,633
$465,503
4.2%
Accident/health
592,577
7,493
56,780
641,864
8.8%
Total
$926,704
$(104,250)
$76,413
$1,107,367

December 31, 1995:
Life insurance in force:
Individual
$22,388,520
$7,200,882
$3,476,784
$18,664,422
18.6%
Group
48,415,592

1,954,313
50,369,905
3.9%
Total
$70,804,112
$7,200,882
$5,431,097
$69,034,327

Premiums:
Life insurance
$339,342
$51,688
$21,028
$308,682
6.8%
Accident/health
623,626
9,192
64,495
678,929
9.5%
Total
$962,968
$60,880
$85,523
$987,611

December 31, 1994:
Life insurance in force:
Individual
$21,461,590
$7,411,811
$3,415,596
$17,465,375
19.6%
Group
48,948,669

2,102,228
51,050,897
4.1%
Total
$70,410,259
$7,411,811
$5,517,824
$68,516,272

Premiums:
Life insurance
$322,263
$42,946
$22,009
$301,326
7.3%
Accident/health
579,650
5,169
63,140
637,621
9.9%
Total
$901,913
$48,115
$85,149
$938,947

4. NET INVESTMENT INCOME

Net investment income is summarized as follows:

Years Ended December 31,

1996
1995
1994

Investment income:
Fixed maturities and short-term investments
$601,913
$591,561
$555,103
Mortgage loans on real estate
140,823
171,008
182,544
Real estate
5,292
3,936
5,700
Policy loans

175,746
163,547
116,060
Other
3,319

927,095
930,052
859,407

Investment expenses, including
interest on amounts charged
by the Parent Corporation
of $11,282, $10,778, and $11,145
90,453
95,006
91,761

Net investment income
$836,642
$835,046
$767,646

5. NET REALIZED GAINS (LOSSES) ON INVESTMENTS

Net realized gains (losses) on investments are as follows:

Years Ended December 31,

1996
1995
1994
Realized gains (losses):
Fixed Maturities
$(11,624)
$28,166
$(39,775)
Mortgage loans on real estate
1,143
1,309
2,120
Real estate

(10)
(102)
Provisions
(10,597)
(22,000)
(34,182)
Net realized gains (losses) on investments
$(21,078)
$7,465
$(71,939)

6. SUMMARY OF INVESTMENTS

Fixed maturities owned at December 31, 1996 are summarized as
follows:

Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Estimated Fair Value
Carrying Value

Held-to-Maturity:
U.S. Treasury Securities and
obligations of U.S. Government
Agencies:

Collateralized mortgage
obligations
$
$
$
$
$
Direct mortgage pass-through
certificates
Other
10,935
630
106
11,459
10,935
Collateralized mortgage obligations

Public utilities
284,954
12,755
320
297,389
284,954
Corporate bonds
1,634,745
41,195
7,360
1,668,580
1,634,745
Foreign governments
12,577

556
3
13,130
12,577
State and municipalities
49,470
1,051
15
50,506
49,470

$ 1,992,681
$ 56,187
$ 7,804
$ 2,041,064
$1,992,681

Available-for-Sale:
U.S. Treasury Securities and
obligations of U.S.
Government Agencies:
Collateralized mortgage
obligations
$ 658,612
$ 8,058
$ 3,700
$ 662,970
$ 662,970
Direct mortgage pass-through
certificates
844,291
5,093
10,908
838,476
838,476
Other
359,220
596
2,686
357,130
357,130
Collateralized mortgage obligations
614,773
13,619
3,553
624,839
624,839
Public utilities
628,382
6,523
5,375
629,530
629,530
Corporate bonds

2,907,875
56,551
5,250
2,959,176
2,959,176
Foreign governments
110,013
1,762
5,673
106,102
106,102
State and municipalities
28,353
21
119
28,255
28,255

$ 6,151,519
$ 92,223
$ 37,264
$ 6,206,478
$6,206,478

6. SUMMARY OF INVESTMENTS [Continued]

Fixed maturities owned at December 31, 1995 are summarized as
follows:

Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Estimated Fair Value
Carrying Value

Held-to-Maturity:
U.S. Treasury Securities and
obligations of U.S.
Government Agencies:
Collateralized mortgage
obligations
$
$
$
$
$
Direct mortgage pass-through
certificates

Other
11,107
1,093

12,200
11,107
Collateralized mortgage obligations

Public utilities
269,671
22,084
95
291,660
269,671
Corporate bonds
1,732,046
83,583
5,867
1,809,762
1,732,046
Foreign governments
18,596
1,087
12
19,671
18,596
State and municipalities
22,784
1,966

24,750
22,784

$ 2,054,204
$ 109,813
$ 5,974
$2,158,043
$ 2,054,204

Available-for-Sale:
U.S. Treasury Securities and
obligations of U.S.

Government Agencies:
Collateralized mortgage
obligations
$ 561,475
$ 9,983
$ 1,948
$ 569,510
$ 569,510
Direct mortgage pass-through
certificates
794,056
11,980
2,233
803,803
803,803
Other
561,736
7,703
39
569,400
569,400
Collateralized mortgage obligations
490,074
18,044
3,304
504,814
504,814
Public utilities
581,482
16,607
2,425
595,664
595,664
Corporate bonds
2,943,918
121,537
26
3,065,429
3,065,429
Foreign governments
141,362
5,021
5,644
140,739
140,739
State and municipalities
13,866
22
60
13,828
13,828

$ 6,087,969
$ 190,897
$ 15,679
$6,263,187
$ 6,263,187

Most of the collateralized mortgage obligations consist of
planned amortization classes with final stated maturities of two to
thirty years and average lives of less than one to fourteen 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.

The cumulative effect as of January 1, 1994 of adopting SFAS
No. 115 "Accounting for Certain Investments in Debt and Equity
Securities," increased the opening balance of stockholders' equity
by $6,515 to reflect the net unrealized gains on securities
classified as available-for-sale (previously carried at the lower
of aggregate amortized cost or fair value) and the corresponding
adjustments to deferred policy acquisition costs, policy reserves,
and amounts allocable to the liability for undistributed earnings
on participating business, all net of income taxes.

In November 1995, the Financial Accounting Standards Board
issued a special report entitled "A Guide to Implementation of SFAS
115 on Accounting for Certain Investments in Debt and Equity
Securities". In accordance with the adoption of this guidance, the
Company reassessed the classification of its investment portfolio
in December 1995 and reclassed securities totaling $2,119,814 from
held-to-maturity to available-for-sale. In connection with this
reclassification, an unrealized gain, net of related adjustments
(see above), of $23,449 was recognized in stockholder's equity at
the date of transfer.

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 amortized cost and estimated fair value of fixed maturity
investments at December 31, 1996, 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.

Held-to-Maturity
Amortized Cost
Estimated Fair Value
Available-for-Sale
Amortized Cost
Estimated Fair Value

Due in one year or less
$197,135
$200,356
$294,236
$308,805
Due after one year through five years
840,192
860,192
1,294,892
1,300,473
Due after five years through ten years
621,900
641,103
934,312
940,880
Due after ten years
140,061
145,287
422,179
432,721
Mortgage-backed securities
2,117,676
2,126,285
Asset-backed securities
193,393
194,126
1,088,224
1,097,314

$1,992,681
$2,041,064
$6,151,519
$6,206,478

Proceeds from sales of securities available-for-sale were
$3,569,608, $4,211,649, and $1,753,445 during 1996, 1995, and 1994,
respectively. The realized gains on such sales totaled $24,919,
$39,755, and $7,030 for 1996, 1995, and 1994, respectively. The
realized losses totaled $40,748, $15,516, and $50,612 for 1996,
1995, and 1994, respectively. During 1996, 1995, and 1994
held-to-maturity securities with an amortized cost of $0, $18,087,
and $15,300 were sold due to credit deterioration with
insignificant realized gains and losses.

At December 31, 1996 and 1995, pursuant to fully
collateralized securities lending arrangements, the Company had
loaned $230,419 and $343,351 of fixed maturities, respectively.

The Company makes limited use of derivative financial
instruments to manage interest rate and foreign exchange risk.
Such hedging activity consists of interest rate swap agreements,
interest rate floors and caps, and foreign currency exchange
contracts. Interest rate floors and caps are interest rate
protection instruments that require the payment by a counter-party
to the Company of an interest differential. This differential
represents the difference between current interest rates and an
agreed-upon rate, the strike rate, applied to a notional principal
amount. Interest rate swap agreements are used to convert the
interest rate on certain fixed maturities from a floating rate to
a fixed rate. Interest rate swap transactions generally involve
the exchange of fixed and floating rate interest payment
obligations without the exchange of the underlying principal
amounts. Foreign currency exchange contracts are used to hedge the
foreign exchange rate risk associated with bonds denominated in
other than U.S. dollars. The differential paid or received on
interest rate and amounts received under interest rate floor and
cap agreements are recognized as an adjustment to net investment
income on the accrual method. Gains and losses on foreign exchange
contracts are deferred and recognized in net investment income when
the hedged transactions are realized.

Although derivative financial instruments taken alone may
expose the Company to varying degrees of market and credit risk
when used solely for hedging purposes, these instruments typically
reduce overall market and interest rate risk. The Company controls
the credit risk of its financial contracts through credit
approvals, limits, and monitoring procedures. As the Company
generally enters into transactions only with high quality
institutions, no losses associated with non-performance on
derivative financial instruments have occurred or are expected to
occur.

The following table summarizes the financial hedge
instruments:

December 31, 1996
Notional Amount
Strike/Swap Rate
Maturity

Interest Rate Floor
$100,000
4.5% [LIBOR]
1999
Interest Rate Caps
260,000
11.0% to 11.82%[CMT]
2000 to 2001
Interest Rate Swaps
187,847
6.203% to 9.35%
01/98 to 02/2003
Foreign Currency Exchange
Contracts
61,012
N/A
09/98 to 03/2003

December 31, 1995
Notional Amount
Strike/Swap Rate
Maturity

Interest Rate Floor
$100,000
4.5% [LIBOR]
1999
Interest Rate Cap
100,000
11.0% [CMT]
2000
Interest Rate Swaps
165,000
6.203% to 9.35%
01/98 to 2/2002
Foreign Currency Exchange
Contracts
66,650
N/A
10/96 to 09/98

LIBOR - London Interbank Offered Rate
CMT - Constant Maturity Treasury Rate

The Company has established specific investment guidelines
designed to emphasize a diversified and geographically dispersed
portfolio of mortgages collateralized by commercial and industrial
properties located in the United States. The Company's policy is
to obtain collateral sufficient to provide loan-to-value ratios of
not greater than 75% at the inception of the mortgages. At
December 31, 1996 approximately 32% and 10% of the Company's
mortgage loans were collateralized by real estate located in
California and Michigan, respectively.

The following represents impairments and other information under
SFAS No. 114:

1996
1995

Impaired Loans
Loans with related allowance for credit losses of $2,793 and $654
$16,443
$3,254
Loans with no related allowance for credit losses
31,709
20,424
Average balance of impaired loans during the year
39,064
29,150
Interest income recognized [while impaired]
923
675
Interest income received and recorded [while impaired] using the
cash basis method of recognition
1,130
857

As part of an active loan management policy and in the
interest of maximizing the future return of each individual loan,
the Company may from time to time alter the original terms of
certain loans. These restructured loans, all performing in
accordance with their modified terms that are not impaired,
aggregated $68,254, and $89,160 at December 31, 1996, and 1995,
respectively.

The following table presents changes in the allowance for
credit losses since January 1, 1995 (date of the adoption of SFAS
No. 114):

1996
1995

Balance, beginning of year
$63,994
$57,987
Provision for loan losses
4,470
15,877
Chargeoffs
(3,468)
(10,480)
Recoveries
246
610
Balance, end of year
$65,242
$63,994

7. COMMERCIAL PAPER

The Company has a commercial paper program which is partially
supported by a $50,000 standby letter-of-credit. At December 31,
1996, commercial paper outstanding has maturities ranging from 49
to 123 days and interest rates ranging from 5.4% to 5.6%. At
December 31, 1995, maturities ranged from 25 to 160 days and
interest rates ranged from 5.7% to 5.9%.

8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table provides estimated fair value for all
assets and liabilities and hedge contracts considered to be
financial instruments:

December 31,
1996
Carrying Amount
Estimated Fair Amount
1995
Carrying Amount
Estimated Fair Value

ASSETS:
Fixed maturities and short-term
investments
$8,618,167
$8,666,550
$8,452,226
$8,556,065
Mortgage loans on real estate
1,487,575
1,506,162
1,713,195
1,749,514
Policy loans
2,523,477
2,523,477
2,237,745
2,237,745
Common stock
19,715
19,715
9,440
9,440

LIABILITIES:
Annuity contract reserves
without life contingencies
5,779,842
5,821,404
6,170,760
6,268,749
Policyholders' funds
153,867
153,867
154,872
154,872
Due to Parent Corporation
151,431
154,479
149,974
152,347
Repurchase agreements
286,736
286,736
375,299
375,299
Commercial paper
84,682
84,682

84,854
84,854

HEDGE CONTRACTS:
Interest rate floor
62
124
84
1,320
Interest rate cap
173
173
90
90
Interest rate swaps
4,746
4,746
10,052
10,052
Foreign currency exchange
contracts
(8,954)
(8,954)
(4,604)
(4,604)

The estimated fair value of financial instruments has been
determined using available market information and appropriate
valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the
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.

Mortgage loans fair value estimates generally are based on a
discounted cash flow basis. A discount rate "matrix" is
incorporated whereby the discount rate used in valuing a specific
mortgage generally corresponds to that mortgage's remaining term.
The rates selected for inclusion in the discount rate "matrix"
reflect rates that the Company would quote if placing loans
representative in size and quality to those currently in the
portfolio.

Policy loans accrue interest generally at variable rates with
no fixed maturity dates and, therefore, estimated fair value
approximates carrying value.

The fair value of annuity contract reserves without life
contingencies is 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.

The estimated fair value of due to Parent Corporation is based
on discounted cash flows at current market spread rates on high
quality investments.

The carrying value of repurchase agreements and commercial
paper is a reasonable estimate of fair value due to the short-term
nature of the liabilities.

The estimated fair value of financial hedge instruments, all
of which are held for other than trading purposes, is the estimated
amount the Company would receive or pay to terminate the agreement
at each year-end, taking into consideration current interest rates
and other relevant factors. Included in the net gain position for
interest rates swaps are $160 and $0 of unrealized losses in 1996
and 1995, respectively. Included in the net loss position for
foreign currencies exchange contracts are $8,954 and $5,497 loss
exposures in 1996 and 1995, respectively.

See note 6 for additional information on policies regarding
estimated fair value of fixed maturities.

9. FEDERAL INCOME TAXES

The following is a reconciliation between the federal income
tax rate and the Company's effective rate:

1996
1995
1994

Federal tax rate
35.0%
35.0%
35.0%
Change in tax rate resulting from:
Investment income not subject to federal tax
(1.0)
(0.5)
(1.0)
Release of contingent liability
(4.7)

Change in valuation allowance
0.8
(7.8)
(6.9)
State and environmental taxes
0.7
0.7

0.9
Other, net
(1.4)
0.3
(0.3)
Total
29.4%
27.7%
27.7%

Temporary differences which give rise to the deferred tax
assets and liabilities as of December 31, 1996 and 1995 are as
follows:

1996
Deferred Tax Asset
Deferred Tax Liability
1995
Deferred Tax Asset
Deferred Tax Liability

Policyholder reserves
$151,239
$
$162,073
$
Deferred policy acquisition costs

57,031

55,542
Deferred acquisition cost proxy tax
70,413

58,481

Investment assets
35,658

16,372
Net operating loss carryforwards
12,295

17,588

Tax credits and other
5,366

4,786

Subtotal
274,971
57,031

242,928
71,914
Valuation allowance
(3,536)

(2,073)

Total Deferred Taxes
$271,435
$57,031
$240,855
$71,914

Amounts related to investment assets above include $8,530 and
$33,735 related to the unrealized gains on the Company's fixed
maturities available-for-sale at December 31, 1996 and 1995,
respectively.

The Company files a separate tax return and, therefore, losses
incurred by subsidiaries cannot be offset against operating income
of the Company. At December 31, 1996, the Company's subsidiaries
have approximately $35,128 of net operating loss carryforwards,
expiring through the year 2011. The tax benefit of subsidiaries'
net operating loss carryforwards, net of a valuation allowance of
$1,612 are included in the deferred tax assets.

The Company's valuation allowance was increased/(decreased) in
1996, 1995, and 1994 by $1,463, $(13,145), and $(6,278),
respectively, primarily as a result of taxable income in
subsidiaries which was greater than expected and the resulting
re-evaluation by management of future estimated taxable income in
the subsidiaries.

Under pre-1984 life insurance company income tax laws, a portion of
life insurance company gain from operations was not subject to
current income taxation but was accumulated, for tax purposes, in
a memorandum account designated as "policyholders' surplus
account." The aggregate accumulation in the account is $7,742 and
the Company does not anticipate any transactions which would cause
any part of the amount to become taxable. Accordingly, no
provision has been made for possible future federal income taxes on
this accumulation.

Pursuant to a December 31, 1993 agreement between the Company
and its Parent whereby the Company assumed responsibility for the
Parent Corporation's income tax liability for fiscal years prior to
1994, the Company had previously recorded a contingent liability
provision. The Company's 1996 results of operations include a
release of $25,600 from the provision, to reflect the resolution of
1988 and l989 tax issues with the Internal Revenue Service (IRS).
Audits of tax years 1990 and 1991 are in the process of being
finalized. The IRS is currently auditing tax years 1992 and 1993.
In the opinion of Company management, the amounts paid or accrued
are adequate; however, it is possible that the Company's accrued
amounts may change as a result of the completion of the IRS audits.

10. STOCKHOLDER'S EQUITY, DIVIDEND RESTRICTIONS, AND OTHER MATTERS

All of the Company's outstanding series of preferred stock are
owned by the Parent Corporation. The dividend rate on the Series
A Stated Rate Auction Preferred Stock (STRAPS) is 7.3% through
December 30, 2002. The Series A STRAPS are redeemable at the
option of the Company on or after December 29, 2002 at a price of
$100,000 per share, plus accumulated and unpaid dividends.

The dividend rate on the Series B Straps is 5.8% through
December 30, 1997. The Series B STRAPS are redeemable at the
option of the Company on or after December 29, 1997 at a price of
$100,000 per share, plus accumulated and unpaid dividends.

The Company's Series E 7.5% non-cumulative, non-redeemable
preferred shares are redeemable by the Company after April 1, 1999.

The shares are convertible into common shares at the option of the
holder on or after September 30, 1999, at a conversion price
negotiated between the holder and the Company or at a formula
determined conversion price in accordance with the share
conditions.

The Company received $472 of contributed capital in the form
of deferred tax assets from the Parent Corporation during 1994 in
connection with reinsurance transactions with the Parent.

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:

1996
1995
1994
(Unaudited)

Net Income
$180,635
$114,931
$70,091
Capital and Surplus
713,324
653,479
621,589

The maximum amount of dividends which can be paid to
stockholders by insurance companies domiciled in the State of
Colorado is subject to restrictions relating to statutory surplus
and statutory net gain from operations. Statutory surplus and net
gains from operations at December 31, 1996 were $584,492 and
$182,044 (unaudited), respectively. The Company should be able to
pay up to $182,044 (unaudited) of dividends without regulatory
approval in 1997.

Dividends of $8,587, $9,217, and $7,475, were paid on
preferred stock in 1996, 1995, and 1994, respectively. In
addition, dividends of $48,083, $39,763, and $32,963, were paid on
common stock in 1996, 1995 and 1994, respectively. Dividends are
paid as determined by the Board of Directors.

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 ON
ACCOUNTING AND FINANCIAL DISCLOSURE

In the two most recent fiscal years or any subsequent interim
period, 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

A. IDENTIFICATION OF DIRECTORS

Director
Age
Served as Director From
Principal Occupation(s) For Last Five Years

James Balog (1)(2)
68
1993
Company Director since March 1993; previously Chairman, Lambert
Brussels Capital Corporation (an investment advisory company)

James W. Burns, O.C. (1)(2)
67
1991
Chairman of the Boards of Great-West Lifeco and Great-West Life;
Deputy Chairman, Power Corporation

Orest T. Dackow (1)(2)
60
1991
President and Chief Executive Officer, Great-West Lifeco since
April 1992; previously President, Great-West Life

Paul Desmarais, Jr. (1)(2)
42
1991
Chairman and Co-Chief Executive Officer, Power Corporation;
Chairman, Power Financial

Robert G. Graham (1)(2)
65
1991
Company Director since January 1996; previously Chairman and Chief
Executive Officer, Inter-City Products Corporation (a company
engaged in the manufacture and distribution of air conditioning,
heating and related products)

Robert Gratton (1)(2)
53
1991
Chairman of the Board of the Company; President and Chief Executive
Officer, Power Financial

N. Berne Hart (1)(2)(3)
67
1991
Company Director since February 1992; previously Chairman of the
Board, United Banks of Colorado, Inc. (a multi-bank holding
company)

Kevin P. Kavanagh (1)
64
1986
Company Director since April 1992; previously President and Chief
Executive Officer, Great-West Lifeco

William Mackness (1)(2)
58
1991
Company Director since July 1995; previously Dean, Faculty of
Management, University of Manitoba

William T. McCallum (1)(2)
54
1990
President and Chief Executive Officer of the Company; President and
Chief Executive Officer, United States Operations, Great-West Life

Jerry E.A. Nickerson (3)
60
1994
Chairman of the Board, H.B. Nickerson & Sons Limited (a management
and holding company)

The Honourable
P. Michael Pitfield, P.C., Q.C. (1)(2)
59
1991
Vice-Chairman, Power Corporation; Member of the Senate of Canada

Michel Plessis-Belair, F.C.A. (2)(3)
54
1991
Vice-Chairman and Chief Financial Officer, Power Corporation;
Executive Vice-President and Chief Financial Officer, Power
Financial

Ross J. Turner (1)(2)(3)
66
1991
Chairman, Genstar Investment Corporation (an investment company)

Brian E. Walsh (1)(2)
43
1995
Partner, Trinity L.P. since January 1996 (an investment company);
previously Managing Director and Co-head, Global Investment Bank,
Bankers Trust Company (an investment/commercial bank)

(1) Member of the Executive Committee
(2) Member of the Investment and Credit Committee
(3) 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 lists 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
Elan plc

W. Mackness
Russel Metals Inc.

J.E.A. Nickerson
Bank of Montreal

R.J. Turner
Guy F. Atkinson Company of California
Rio Algom Limited

B. IDENTIFICATION OF EXECUTIVE OFFICERS

Executive Officer
Age
Served as Executive Officer From
Principal Occupation(s) For Last Five Years

William T. McCallum
President and Chief Executive Officer
54
1982
President and Chief Executive Officer of the Company; President and
Chief Executive Officer, United States Operations, Great-West Life

Dennis Low
Executive Vice President, Financial Services
53
1987
Executive Vice President, Financial Services of the Company and
Great-West Life

Alan D. MacLennan
Executive Vice President, Employee Benefits
53
1984
Executive Vice President, Employee Benefits of the Company and
Great-West Life

Robert D. Bond
Senior Vice President, Financial Services
46
1995
Senior Vice President, Financial Services of the Company and
Great-West Life; prior to May 1992, National Director, Public
Marketing, Aetna Life Insurance Company

John A. Brown
Senior Vice President, Sales, Financial Services
49
1991
Senior Vice President, Sales, Financial Services of the Company and
Great-West Life

John T. Hughes
Senior Vice President, Chief Investment Officer
60
1989
Senior Vice President, Chief Investment Officer of the Company and
Great-West Life

Robert E. Kavanagh
Senior Vice President, Employee Benefits Sales
58
1991
Senior Vice President, Employee Benefits Sales of the Company and
Great-West Life

D. Craig Lennox
Senior Vice President, General Counsel and Secretary
49
1979
Senior Vice President, General Counsel and Secretary of the
Company; Senior Vice President and Chief U.S. Legal Officer,
Great-West Life

James D. Motz
Senior Vice President, Employee Benefits Operations
47
1991
Senior Vice President, Employee Benefits Operations of the Company
and Great-West Life

Douglas L. Wooden
Senior Vice President, Financial Services
40
1990
Senior Vice President, Financial Services of the Company and
Great-West Life

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. SUMMARY COMPENSATION TABLE

The following table sets out all compensation paid by Great-West
Life in respect of the individuals who were, at December 31, 1996,
the Chief Executive Officer and the other four most highly
compensated executive officers of the Company (collectively the
"Named Executive Officers") for services rendered to the Company
and its subsidiaries, and Great-West Life, in all capacities for
fiscal years ended 1994, 1995 and 1996 respectively.

SUMMARY COMPENSATION TABLE

Annual compensation (1)
Long-term compensation awards

Name and principal position
Year
Salary ($)
Bonus ($)
Options (2) (#)

W.T. McCallum, President and Chief Executive Officer
1996
561,818
370,500
300,000
1995
523,958
351,000 225,000 (3)
None
1994
476,750
318,500
None

D. Low, Executive Vice President, Financial Services
1996
325,000
146,250
150,000
1995
305,000
150,500
None
1994
285,000
145,500
None
J.T. Hughes, Senior Vice President, Chief Investment Officer
1996
312,000
136,968
80,000
1995
301,000
150,500
None
1994
290,000
145,000
None

A.D. MacLennan, Executive Vice President, Employee Benefits
1996
325,000
115,000
150,000
1995
312,000
125,000
None
1994
265,000
142,500
None

D.L. Wooden, Senior Vice President, Financial Services
1996
287,000
143,500
100,000
1995
275,500
137,500
None
1994
265,000
142,500
None

(1) The aggregate of perquisites and other personal benefits,
securities or property provided to each Named Executive Officer in
1996 did not exceed the lesser of $50,000 and 10% of the total of
the individual's annual salary and bonus.

(2) The options set out are options for common shares of
Great-West Lifeco ("Lifeco Options"). Lifeco Options are granted
by Great-West Lifeco pursuant to the Great-West Lifeco Stock Option
Plan which was approved by the Great-West Lifeco shareholders on
April 24, 1996. Lifeco Options become exercisable 20% per year
commencing on the first anniversary of the date of the grant and
expire 10 years after the date of the grant.

(3) A special one-time bonus payment with respect to long-term
performance.

B. OPTIONS

The following table describes options granted to the Named
Executive Officers during the most recently completed fiscal year.
All options are Lifeco Options granted pursuant to the Great-West
Lifeco Stock Option Plan. Lifeco Options are issued with an
exercise price in Canadian dollars. Canadian dollar amounts have
been translated to U.S. dollars at a rate of 1/1.37.

OPTION GRANTS IN LAST FISCAL YEAR

Individual grants
Name
Options granted (#)
Percent of total options granted to employees in fiscal year
Exercise or base price ($/share)
Expiration date
Potential realizable value at assumed annual rates of stock price
appreciation for option term
5% ($)
10% ($)

W.T. McCallum
300,000
10.42
12.376697
July 22, 2006
2,335,080
5,917,590

D. Low
150,000
5.21
12.376697
July 22, 2006
1,167,540
2,958,795

J.T. Hughes
80,000
2.78
12.376697
July 22, 2006
622,688
1,578,024

A.D. MacLennan
150,000
5.21
12.376697
July 22, 2006
1,167,540
2,958,795

D.L. Wooden
100,000
3.47
12.376697
July 22, 2006
778,360
1,972,530

Prior to April 24,1996, the Named Executive Officers participated
in the Power Financial Employee Share Option Plan pursuant to which
options to acquire commons shares of Power Financial ("PFC
Options") were granted. The following table describes all Lifeco
Options and all PFC Options exercised in 1996, and all unexercised
Lifeco Options and PFC Options held as of December 31, 1996, by the
Named Executive Officers. PFC Options and Lifeco Options are
issued with an exercise price in Canadian dollars. Canadian dollar
amounts have been translated to U.S. dollars at a rate of 1/1.37.

AGGREGATED PFC OPTION AND LIFECO OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

Name
Shares acquired on exercise (#)
Value realized ($)
Unexercised options at fiscal year-end (#)
Exercisable Unexercisable
Value of unexercised in-the-money options at fiscal year-end ($)
Exercisable Unexerciseable

W.T. McCallum

26,000 (1) 300,000 (2)
658,659 (1) 940,276 (2)

D. Low
6,700 (1)
100,892
37,300 (1) 150,000 (2)
944,922 (1) 470,138 (2)

J.T. Hughes

60,000 (1) 80,000 (2)
1,214,781 (1) 250,740 (2)

A.D. MacLennan

150,000 (2)
470,138 (2)
D.L. Wooden

44,000 (1) 100,000 (2)
911,916 (1) 313,425 (2)

(1) PFC Options granted pursuant to the Power Financial Employee
Share Option Plan.
(2) Lifeco Options granted pursuant to the Great-West Lifeco
Stock Option Plan.

C. PENSION PLAN TABLE

The following table sets out the pension benefits payable to the
Named Executive Officers by Great-West Life or the Company.

PENSION PLAN TABLE

Remuneration ($)
Years of Service

15 20 25 30 35

400,000
120,000 160,000 200,000 240,000 240,000

500,000
150,000 200,000 250,000 300,000 300,000

600,000
180,000 240,000 300,000 360,000 360,000

700,000
210,000 280,000 350,000 420,000 420,000

800,000
240,000 320,000 400,000 480,000 480,000

900,000
270,000 360,000 450,000 540,000 540,000

1,000,000
300,000 400,000 500,000 600,000 600,000

The Named Executive Officers have the following years of service.

Name Years of Service

W.T. McCallum 30
D. Low 31
J.T. Hughes 6
A.D. MacLennan 30
D.L. Wooden 5

For W.T. McCallum, the benefits shown are payable commencing
December 31, 2000, and remuneration is the average of the highest
36 consecutive months of compensation during the last 84 months of
employment. For D. Low, J.T. Hughes, A.D. MacLennan and D.L.
Wooden, the benefits shown are payable upon the attainment of age
62, and remuneration is the average of the highest 60 consecutive
months of compensation during the last 84 months of employment.
Compensation includes salary and bonuses prior to any deferrals.
The normal form of pension is a life only annuity. Other optional
forms of pension payment are available on an actuarially equivalent
basis. The benefits listed in the table are subject to deduction
for social security and other retirement benefits.

D. COMPENSATION OF DIRECTORS

1. Great-West Life Directors

The following sets out remuneration paid by Great-West Life to its
directors.

Great-West Life pays an annual fee of $12,500 to each director.
Great-West Life pays an annual fee of $10,000 to the Chairman of
each of the Audit Committee, the Conduct Review Committee and the
Corporate Management Committee, $20,000 to the Chairman of each of
the Canadian Investment and Credit Committee and the United States
Investment and Credit Committee, $25,000 to the Chairman of each of
the Canadian Executive Committee and the United States Executive
Committee, and $25,000 to the Chairman of the Board. With the
exception of the President and Chief Executive Officer of
Great-West Lifeco, the President and Chief Executive Officer of
Great-West Life, and the President and Chief Executive Officer of
the Company, Great-West Life pays a meeting fee of $1,000 to each
director for each meeting of the Board of Directors or a committee
thereof attended. In addition, all directors are reimbursed for
incidental expenses.

In 1996, Great-West Life paid $17,833 to the consulting company of
W. Mackness, a director of Great-West Life, for consulting
services. This arrangement was terminated on April 24, 1996.

The above amounts are paid in the currency of the country of
residence of the director.

2. Directors of the Company

The following sets out remuneration paid by the Company to its
directors.

For each director of the Company who is not also a director of
Great-West Life, the Company pays an annual fee of $12,500, and a
meeting fee of $1,000 for each meeting of the Board of Directors or
a committee thereof attended. With the exception of the President
and Chief Executive Officer of Great-West Lifeco, and the President
and Chief Executive Officer of the Company, for each director of
the Company who is also a director of Great-West Life, the Company
pays a meeting fee of $1,000 for each meeting of the Board of
Directors or a committee thereof attended which is not coincident
with a Great-West Life meeting. 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.

E. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to January 1, 1997, all of the Company's executive officers
were employees of Great-West Life (effective January 1, 1997, they
became employees of the Company). For 1996, executive officer
compensation was paid by Great-West Life and compensation was
determined by the United States Executive Committee of the Board of
Directors of Great-West Life (the "U.S. Executive Committee"). The
following individuals served as members of the U.S. Executive
Committee during 1996.

R. Gratton
J.W. Burns
O.T. Dackow
P. Desmarais, Jr.
R.G. Graham
N.B. Hart
K.P. Kavanagh
W. Mackness
W.T. McCallum
P.M. Pitfield

W.T. McCallum, President and Chief Executive Officer of the
Company, is a member of the U.S. Executive Committee. Mr. McCallum
participated in executive compensation matters generally but was
not present when his own compensation was discussed or determined.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

As of March 1, 1997, the following sets out the beneficial owners
of more than 5% of the Company's voting securities:

(1) 100% of the Company's 7,032,000 outstanding common shares are
owned by The Great-West Life Assurance Company, 100 Osborne Street
North, Winnipeg, Manitoba, Canada R3C 3A5.

(2) 99.5% of the outstanding common shares of The Great-West Life
Assurance Company are owned by Great-West Lifeco Inc., 100 Osborne
Street North, Winnipeg, Manitoba, Canada R3C 3A5.

(3) 86.5% of the outstanding common shares of Great-West Lifeco
Inc. are owned by Power Financial Corporation, 751 Victoria Square,
Montreal, Quebec, Canada H2Y 2J3.

(4) 68.1% of the outstanding common shares of Power Financial
Corporation are owned by 171263 Canada Inc., 751 Victoria Square,
Montreal, Quebec, Canada H2Y 2J3.

(5) 100% of the outstanding common shares of 171263 Canada Inc.
are owned by Marquette Communications Corporation, 751 Victoria
Square, Montreal, Quebec, Canada H2Y 2J3.

(6) 100% of the outstanding common shares of Marquette
Communications Corporation are owned by Power Corporation of
Canada, 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3.

(7) Mr. Paul Desmarais, 751 Victoria Square, Montreal, Quebec,
Canada H2Y 2J3, through a group of private holding companies, which
he controls, has voting control of Power Corporation of Canada.

B. SECURITY OWNERSHIP OF MANAGEMENT

The following table sets out the number of equity securities, and
exercisable options for equity securities, of the Company or any of
its parents or subsidiaries, beneficially owned, as of March 1,
1997, by (i) the directors of the Company; (ii) the Named Executive
Officers; and (iii) the directors and executive officers of the
Company as a group.

Company

The Great-West Life Assurance Company (1)
Great-West Lifeco Inc. (2)
Power Financial Corporation (3)
Power Corporation of Canada (4)

Directors

J. Balog
- -
- -
- -
- -

J. W. Burns
50
56,000
4,000
203,320
164,500 options

O.T. Dackow
16
35,089
5,400
40,000 options
- -

P. Desmarais, Jr.
50
30,000
- -
120,000
188,250 options

R.G. Graham
- -
- -
- -
- -

R. Gratton
- -
165,000
155,000
2,500
150,000 options

N.B. Hart
- -
- -
- -
- -

K. P. Kavanagh
50
23,626
- -
- -

W. Mackness
- -
- -
- -
- -

W.T. McCallum
17
34,202
16,000
52,000 options
- -

J.E.A. Nickerson
- -
- -
- -
- -

P.M. Pitfield
- -
50,000
40,000
80,000
99,500 options

M. Plessis-Belair
- -
10,000
1,000
32,900
58,250 options

R.J. Turner
- -
- -
- -
- -

B.E. Walsh
- -
- -
- -
- -

Named Executive Officers

W.T. McCallum
17
34,200
16,000
52,000 options
- -

D. Low
- -
7,846
74,600 options
- -

J.T. Hughes
- -
4,467
120,000 options
- -

A.D. MacLennan
- -
9,011
- -
- -

D.L. Wooden
- -
- -
88,000 options
- -

Directors and Executive
Officers as a Group

183
484,381
221,400
494,600 options
438,720
660,500 options

(1) All holdings are common shares of The Great-West Life
Assurance Company.
(2) All holdings are common shares of Great-West Lifeco Inc.
(3) All holdings are common shares, or where indicated,
exercisable options for common shares, of Power Financial
Corporation.
(4) All holdings are subordinate voting shares, or where
indicated, exercisable options for subordinate voting shares, of
Power Corporation of Canada.

None of the share holdings set out above exceed 1% of the total
shares of the class outstanding.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K

The documents identified below are filed as a part of this report:
Page
A. INDEX TO FINANCIAL STATEMENTS

Independent Auditors' Report On Consolidated Financial
Statements for the Years Ended December 31, 1996, 1995, and
1994 31

Consolidated Balance Sheets as of December 31, 1996 and
1995 32

Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995, and 1994 34

Consolidated Statements of Stockholder's Equity for the Years
Ended December 31, 1996, 1995, and 1994 35

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995, and 1994 36

Notes to Consolidated Financial Statements for the Years
Ended December 31, 1996, 1995, and 1994 38

B. INDEX TO FINANCIAL STATEMENT SCHEDULES

Independent Auditors' Report on Schedule I - Summary of
Investments Other Than Investments in Related Parties as of
December 31, 1996 71

Schedule I - Summary of Investments Other Than Investments
in Related Parties as of December 31, 1996 73

C. INDEX TO EXHIBITS

Exhibit Number
Title
Page

3(i)
Articles of Redomestication of Great-West Life & Annuity Insurance
Company
75

3(ii)
Bylaws of Great-West Life & Annuity Insurance Company
181

21
Subsidiaries of Great-West Life & Annuity Insurance Company
191

24
Directors' Powers of Attorney
193

27
Financial Data Schedule
208

D. REPORTS ON FORM 8-K

No reports on Form 8-K have been filed during the fourth quarter of
1996.

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.

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

By: /s/ W.T. McCallum
William T. McCallum
President and Chief Executive Officer

Date: March 27, 1997

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.

Signature and Title Date

/s/ W.T. McCallum March 27, 1997
William T. McCallum
President and Chief Executive Officer
and a Director

/s/ G.R. Derback March 27, 1997
Glen R. Derback
Vice President and Controller, and
principal financial officer

Signature and Title Date

/s/ James Balog * March 27, 1997
James Balog, Director

/s/ James W. Burns * March 27, 1997
James W. Burns, Director

/s/ Orest T. Dackow * March 27, 1997
Orest T. Dackow, Director

/s/ Paul Desmarais, Jr. * March 27, 1997
Paul Desmarais, Jr., Director

______________________ ____________
Robert G. Graham, Director

/s/ Robert Gratton * March 27, 1997
Robert Gratton, Director

/s/ N. Berne Hart * March 27, 1997
N. Berne Hart, Director

/s/ Kevin P. Kavanagh * March 27, 1997
Kevin P. Kavanagh, Director

/s/ William Mackness * March 27, 1997
William Mackness, Director

/s/ Jerry E.A. Nickerson * March 27, 1997
Jerry E.A. Nickerson, Director

/s/ P. Michael Pitfield * March 27, 1997
P. Michael Pitfield, Director

Signature and Title Date

/s/ Michel Plessis-Belair * March 27, 1997
Michel Plessis-Belair, Director

/s/ Ross J. Turner * March 27, 1997
Ross J. Turner, Director

/s/ Brian E. Walsh * March 27, 1997
Brian E. Walsh, Director

* By: /s/ D. Craig Lennox March 27, 1997
D. Craig Lennox
Attorney-in-fact pursuant to Powers of Attorney filed
herewith.

INDEPENDENT AUDITORS' REPORT ON SCHEDULE I - SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1996

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholder
of Great-West Life & Annuity Insurance Company:

We have audited the consolidated financial statements of Great-West
Life & Annuity Insurance Company as of December 31, 1996 and 1995,
and for each of the three years in the period ended December 31,
1996, and have issued our report thereon dated January 25, 1997;
such financial statements and report are included herein. Our
audits also included the financial statement schedule of Great-West
Life & Annuity Insurance Company, listed in Item 14. This
financial statement schedule is the responsibility of the
Corporation's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Denver, Colorado
January 25, 1997

SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN
RELATED PARTIES AS OF DECEMBER 31, 1996

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
SCHEDULE I

SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1996

Cost
Fair Value
Amount at which Shown in Consolidated Balance Sheet

Fixed maturities ~ Held-to-Maturity:
United States government and government
agencies and authorities
$10,935
$11,459
$10,935
States municipalities and political
subdivisions
49,470
50,506
49,470
Foreign governments
12,577
13,131
12,577
Public utilities
284,954
297,388
284,954
All other corporate bonds
1,634,745
1,668,580
1,634,745
Total fixed maturities
$1,992,681
$2,041,064
$1,992,681
Fixed maturities ~ Available-for-Sale:
United States government and government
agencies and authorities
$1,862,123
$1,858,576
$1,858,576
States municipalities and political
subdivisions
28,353
28,255
28,255
Foreign governments
110,013

106,102
106,102
Public utilities
628,382
629,530
629,530
All other corporate bonds
3,522,648
3,584,015
3,584,015
Total fixed maturities
$6,151,519
$6,206,478
$6,206,478
Equities
Common stocks
Industrial, miscellaneous and all other
$19,715
$19,715
$19,715
Total equity securities
$19,715
$19,715
$19,715
Mortgage loans on real estate
$1,487,575

$1,487,575
Real estate
67,967

67,967
Policy loans
2,523,477

2,523,477
Short-term investments
419,008

419,008
Total investments
$12,661,942

$12,716,901